Mobile phone handset maker Nokia is closing its German manufacturing operations in favour of more cost competitive eastern European locations where salaries are about one-tenth the cost.

The loss of 2300 German jobs represents one of the biggest single transfers of jobs from western to eastern Europe.

The planned closure of Nokia’s Bochum production site in Germany’s North Rhine-Westphalia is necessary to secure the firm’s long-term competitiveness, according to executive vice president Veli Sundbäck.

“Due to market changes and increasing requirements for cost-

effectiveness, production of mobile devices in Germany is no longer feasible for Nokia,” he said. “It cannot be operated in a way that meets the requirements for global cost efficiency and for flexible capacity growth.”

Nokia says the additional investment needed to renew operations in Germany would still not make Bochum a globally competitive manufacturing site.

German economic development agencies are said to have awarded Nokia $128m (€88m) in subsidies, which calls into question the efficacy of European government-backed foreign investment incentives.

The German exit signals a general shift towards moving manufacturing from the west to low-cost eastern European destinations. Nokia will now only have a European presence in Finland, Hungary and Romania.

The firm has plans for a new $87m plant in Romania which will start production by April creating 500 jobs and eventually employing 3500.

As a consequence of the planned shift of production from Bochum to other European sites, Nokia has also announced plans to sell its line fit automotive business and it is in negotiations with Sasken Technologies to sell the Bochum-based adaptation software R&D entity.

“For straightforward contract manufacturing, its very hard for western European destinations to compete either with eastern European manufacturers or the Asian locations,” said director of the UK National Outsourcing Association, Mark Kobayashi-Hillary.

Basing operations in eastern Europe rather than offshore is a trend many companies are following because of the region’s proximity to western Europe, said Mr Kobayashi-Hillary. “Added to the cost benefits, businesses have the legislative protection of the EU whereas in China, for example, you have very little legal protection of intellectual property rights,” he added.

In 2007, Nokia manufactured 315 million handsets in emerging economies compared with 120 million in Germany and Finland combined. Without German production, western European production would only stand at Finland’s 85 million handsets which comprise Nokia’ high-end E-series and N-series manufactured at Salo.