Nokia, Betting on Premium Phones

Nokia TMC is located in the Masan Free Trade Zone in South Gyeongsang Province. The world’s no. 1 mobile handset manufacturer transferred four production lines from Finland in the second half of last year. By Feb. 19, some of these lines were operational. Though they were expected to be relocated to China, the company decided not to, based on the conclusion that Korean products were better in quality. This is in sharp contrast to the situation in 2006, when Nokia TMC transferred some of the production lines to Chennai, India, raising concerns that the company might pull out of Korea.

Kim Chang-hak, the company’s director of planning, said, “The decision to move some of the production lines was made to produce low-priced handsets with India’s cheap labor, and high-end handsets in Korea, according to the global production system.”

Masan Free Trade Zone, the first industrial complex established to stem the exit of foreign companies following the end of Korea’s industrialization and its cheap labor, is undergoing changes.

While Nokia TMC, no.1 in terms of sales in the zone, reversed course and transformed into a high-end product manufacturer, Japanese watchmaker Casio pulled out of Korea after failing to manage high labor costs. In the face of all this, Masan Free Trade Zone is in a period of change.

○ Nokia and Sony Try to Change

“R1165” is the production line transferred from Finland. It produces WCDMA ‘premium phones’ with 5 megapixels and 8 GB storage capacity. Generally, cell phones have 2 megapixels and 2 GB.

In front of the production line, a blackboard reads, “The goal is to reach a 5 percent defective product rate. The current defective rate is 3.32 percent.”

“It’s true that Korean labor cost is high, but there is no problem if we produce expensive premium handsets. In that sense, ‘Made in Korea’ has good quality and so is an advantage,” said Jeong Han-joo, an employee in charge of quality control.

Consumers visit mobile phone repair shops to fix their Nokia TMC products made in Korea at the rate of 0.12 percent, only half of the rate (0.2-0.3 percent) of defective products found in ten other Nokia factories around the world, he added.

Japanese electronics manufacturer Sony Korea has been producing the optical pickup unit for the Blu-ray format, the next generation storage equipment, since last September.

The Blu-ray laser disc boasts better quality than DVD, and the optical pickup for Blu-ray format costs ten times more than that of DVDs.

Sony Korea gave up intensive production of earphones and audios, Sony’s signature products, and moved most of the production lines abroad.

An official with the Administration Agency of Masan Free Trade Zone said, “Sony Korea is running its factories overtime and on weekends.”

○ Many Companies Exit from Free Trade Zone

At the moment, Casio Korea, the production branch of Japanese manufacturer Casio, is preparing to pull out of Korea. Some of its offices were already empty and employees were packing their equipment.

Another Japanese electronics manufacturer Sanyo sold Tokyo TT Corporation, digital camera factories, to a Korean company last year.

According to the agency, the number of employees in Masan was as high as 36,411 in 1987, but has decreased to 7,055 as of last year.

The total export amount of companies peaked in 2000 to 4.44 billion dollars, but recorded 4.24 billion dollars in 2005, 3.91 billion dollars in 2006, and 3.26 billion dollars in 2007.

The zone’s infrastructure, including roads, was worn out as if to reflect the sluggishness of companies there.

One of the two lanes was ‘occupied’ by cars of companies, and trucks loaded with export goods could barely pass. The zone reportedly had 3,120 cars, but the parking area is meant to hold just 1,420.

A company employee said it was embarrassing to invite foreign buyers because many factory buildings that are more than 30-years-old were decrepit with paint worn out.

Choi Won-doh, the head of Masan Free Trade Zone under the Commerce, Industry and Energy Ministry, said, “There are many tasks to be accomplished, including improving road conditions and fixing old facilities, before the zone can enjoy a second boom of foreign investors. Moreover, companies in the complex need to advance their industrial structures.”

abc@donga.com