Nokia stuck in tax-breaks talks with Vietnam over new factory

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Nokia Oyj, the world's biggest maker of mobile phones by volume, has entered a second round of negotiations over tax breaks for its planned factory in Vietnam after rejecting an initial offer, a government official said.

Vietnamese authorities have offered Nokia a fresh proposal for tax incentives and are waiting for the Finnish company's response, Vice Minister of Planning and Investment Dang Huy Dong said in an interview in Hanoi. He declined to give details of the package under discussion.

Nokia announced plans on March 2 to build a plant near Hanoi, saying it would invest 200 million euros (US$289 million) and target opening in 2012. The manufacturer is seeking status as a high-tech producer, which can bring tax rates as low as zero in the first year. Chief Executive Officer Stephen Elop is cutting more than 1 billion euros in costs by the end of 2013 while refreshing its product lines to return the Espoo, Finland-based company to growth.

"Vietnam has this huge opportunity to become the next workshop of the world," said Fred Burke, Ho Chi Minh City-based managing partner at Baker McKenzie in Vietnam. "If they don't get it right with their tax incentives and the approval processes, then they will blow it. People will just go elsewhere."

Nokia hasn't announced whether the Vietnamese factory would make mobile phones or smartphones, said spokeswoman Marianne Holmlund.

Fighting Google

"Nokia's commitment to Vietnam and Hanoi has not changed," Holmlund said. "We are working with the local government on necessary procedures."

Nokia already has 10 handset factories. Three make smartphones, in Finland, China and South Korea, and one in the UK makes luxury models. Low-end mobile phones are made in Brazil, Mexico, China, Romania, Hungary and India. A round of 4,000 job cuts announced in April spared the factories while consolidating research and development sites.

The company has introduced dual-SIM phones in Asia to match features with more nimble rivals using standard components from Taiwan's MediaTek Inc. It has added maps and social networking applications on its midrange phones to counter increasingly cheap smartphones that run on Google Inc.'s Android system.

Nokia shipments of low-end phones dropped 16 percent in the second quarter. Smartphone volume fell 32 percent. The company announced the N9 Linux-based smartphone and updated models with its Symbian software at press events in Asia this summer. It's expected to start shipping a new line based on Microsoft Corp.'s Windows Phone by year-end.

Intel factory

"We are looking at the project positively," Dong said. "We gave them an offer and we're waiting for them to come back." Senior Nokia managers didn't accept the first offer that Vietnamese officials proposed to the company, he said.

Vietnam's efforts to attract foreign direct investment in high technology took off when Intel Corp., the world's biggest chipmaker, opened a $1 billion assembly and testing plant last year. Other foreign manufacturers with plants in the Southeast Asian nation of 87 million people include Samsung Electronics Co., the second-largest maker of mobile phones, and Tokyo-based Canon Inc., the biggest manufacturer of cameras.

Nokia had about 45 percent of the market for entry-level phones costing 50 euros and below in 2009, according to a 20-F regulatory filing in the US. Some of its handsets sell for as little as 20 euros. The company said in March that the Vietnamese plant would be instrumental in its effort "to connect the next billion to the Web."

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