Shutting up shop

Mired in a tax dispute and hamstrung by labour laws, the plight of Nokia’s plant near Chennai highlights the perils and complexities of closing a factory in India. Vandana Chatlani reports

It was a shining example that presaged today’s “Make in India” dream. Nokia, the Finnish mobile phone producer, set up a factory in Sriperumbudur, 40 kilometres southwest of Chennai, that became the largest handset manufacturing operation in the world. Established in 2006, the factory at its peak employed an army of over 15,000 workers who produced 100 million phones a year.

Work at the huge factory is now suspended (see Timeline of Nokia events on page 16). The assets of Nokia’s Indian subsidiary have been frozen since October 2013 following claims in March that year by India’s tax authorities that the company owed ₹20.8 billion (US$335 million) in taxes in relation to royalty payments for the software used in its products. In February 2014 Tamil Nadu’s tax authorities presented Nokia with a separate sales tax bill for selling mobile phones domestically (which would attract tax) rather than internationally (which would be tax-exempt).

In April 2014, Nokia completed the sale of its devices and services business to Microsoft for US$7.2 billion. The Sriperumbudur factory was originally to be transferred to Microsoft as part of this deal but was excluded from the purchase at the last minute. Instead, Microsoft agreed to use the factory as a contract manufacturer to produce the low-cost Asha series of mobile phones. However, in October 2014, Microsoft announced that it no longer required these services and would terminate its agreement with Nokia at the end of the month. With no other contracts retained, Nokia’s operations came to a grinding halt, its fortunes and the future of its disgruntled employees in the hands of India’s tax officials.