Disconnecting people

Nokia was once the No. 1 handset maker in the world, its dominance unchallenged. India was among its top two markets, prompting the company to set up a plant, its biggest globally, in Sriperumbudur, near Chennai. A number of ancillary units supplying the Finnish handset maker also set up shop in its special economic zone. Others provided it with essential services such as transportation for employees. At its peak, the Nokia Telecom SEZ in Sriperumbudur, spread over 211 acres, had over 30,000 workers, with the company alone employing 6,000.

And then suddenly the dream turned sour as Nokia was toppled from its perch atop the mobile handset world by path-breaking products from Apple and imaginative marketing by Samsung, and almost reduced to bankruptcy.

Today, Nokia is no longer a handset maker, having sold that side of its business to Microsoft. However, a tax dispute has ensured that the Sriperumbudur plant was not part of the sale.

How has all this affected Nokia’s current and former employees? How have its suppliers been affected? And what kind of impact has the company’s decline had on the Sriperumbudur industrial and urban landscape as a whole? Read on to find out.

The fairy tale ended badly for Sudhakar, as it did for the thousands of other workers at Nokia India. The Finnish handset maker’s manufacturing unit in Sriperumbudur, an industrial hub to the west of Chennai, was asking workers to leave.

Sudhakar, the son of a farmer in the nearby village of Katavakkam, remembers the day his family came to see him when he first entered the Nokia factory five years ago. “It was a proud moment for the entire family,” he says. “For the first time, I saw my parents cry.” Little did he know then, that there would be tears in their eyes again, and not of joy.

Today, he is unemployed, with little hope for the future. Sudhakar accepted the voluntary retirement scheme (VRS) the company offered when he realised that he wouldn’t be able to hold on to his job for much longer.

“When I returned home after my last day at Nokia, my parents cried. I had never expected my journey at Nokia to be this short,” says the 24-year-old, clearly overcome with emotion as he relates his story in a tea shop in Kaveripakkam, about 30 km from the factory in Sriperumbudur.

With him is Divakar, the son of a mechanic in Kanchipuram. Sudhakar and he, both plus-two passouts, had started at the factory at about the same time. “Can you tell us what we can do next?” he asks.

Most are doing the rounds of industrial units in the region trying to land another job. Returning home to work in the agricultural sector, which is even less remunerative, is not an option they are keen on.

The heyday Nokia was once the pride of Sriperumbudur. It was the company’s largest manufacturing plant in the world.

Just six months ago, over 6,000 people worked behind the factory’s blue façade, accounting for close to a third of Nokia’s total employee strength at the time. Today, however, well over 5,000 have chosen to leave taking the VRS offer, as Sudhakar did after the company’s tussle with the government over tax calculations came to a head and production fell drastically.

Among the 850 who remain today is Ravi, who is still holding out for a turnaround in fortunes. In April, Microsoft bought Nokia’s handset business in a $7.5-billion deal. Ravi is hopeful that new orders will soon come from Microsoft. “I might still have a job here,” he says.

Warning signs The first signs of trouble at the plant appeared on January 7, 2013, when Income-Tax officials conducted a daylong survey. The department suspected Nokia India hadn’t paid taxes amounting to between ₹2,500 crore and ₹3,000 crore. The alleged tax defaults had to do with royalty payments the Indian subsidiary made against the supply of software by the parent company.

Since 2006, when the plant went on-stream, the Sriperumbudur factory had been downloading software from its parent in Finland for phones manufactured here. In the last five to six years, Nokia paid royalties of about ₹25,000 crore to its parent for use of the software. The Income-Tax department maintains that these payments are liable for tax deduction at source at 10 per cent, which the company has not paid. Later, another tax bill for ₹2,400 crore came from the Tamil Nadu Government – unpaid value-added taxes for assessment years 2009-10, 2010-11 and 2011-12.

Together, the tax charges dealt a body blow to Nokia’s India operations. Efforts to plead its case, fight in court and threaten intervention by Finland’s government came to naught while production plummeted.

In the good days, the plant manufactured over 20 different models. “Till six months ago, everything was smooth,” says Saraswathi, an operator. “The management rewarded employees on various milestones, including the success of the Asha mobile series. All of us got a mobile phone when the plant crossed the 500-million mark.”

But with tax trouble looming, the number of products manufactured at the plant dropped to three from a peak of 20 and most of the manufacturing was diverted to Vietnam. The employees here knew something was wrong, Saraswathi said, but weren’t told exactly what.

Microsoft arrives On September 3, 2013, Nokia announced that Microsoft would be buying a substantial share of its devices and services business and its patents for $7.5 billion. By then, the Nokia brand was rapidly falling out of favour with mobile phone buyers globally and this seemed the only way to save a once mighty manufacturer.

Significant in this deal was the Sriperumbudur plant, because it was the only part of Nokia’s global assets that Microsoft didn’t take on. The Income Tax Appellate Tribunal had frozen Nokia India’s fixed assets in September, preventing it from transferring ownership to Microsoft.

The takeover was completed this April but Nokia continues to operate the Chennai plant on a service contract with Microsoft. The Finnish company’s plant in Masan, South Korea, was the only other asset not transferred to Microsoft. That facility, which is much smaller, employs 200 people and will be closed soon.

Uncertain future Nokia’s current and former workers in Sriperumbudur are in limbo. Finding another job here or in the neighbouring estates is difficult. “Many companies in the region refuse to consider us (for jobs) when they see Nokia in our résumé,” says Saraswathi. “Most of us participated in the one-day protest asking for job security in the company. Now, this is held against us.”

Regardless, Sudhakar, who received close to ₹3 lakh as part of his VRS package, is making the rounds of factories in Sriperumbudur, the automobile cluster of Oragadam, and the industrial estate in Tirumazhisai, looking for a job. “I never imagined my life taking such a U-turn in such a short span of time,” he says.

For the 850 remaining employees, Nokia is offering a “Bridge Programme”, including financial assistance, to give them “a chance to explore opportunities outside Nokia, starting from a sound financial base.”

The tax disputes continue in the Supreme Court (for the I-T Department’s case) and in the Madras High Court (the State Government’s case). Nokia has already filed a writ requesting the Madras High Court to set aside part of the single-judge order that asked the company to deposit 10 per cent of the ₹2,400 crore VAT demanded by the Tamil Nadu Government.

Business as usual

The industrial estates in and around Sriperumbudur, whose success for long mirrored Nokia’s, will continue to thrive. Both government and industry have big plans for the region .

Left in the lurch are the thousands who worked on Nokia’s shopfloor. Employees say they were kept in dark both on the tax cases and the Microsoft deal. “We wanted to be part of Microsoft. However, the management did not tell us what our future was going to be. We were at the mercy of our union leaders, who, in the end, could not do anything,” says a now-former Nokia employee.

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