Finnfund

China’s emergence as a key market area for wireless communications has encouraged Finnish contract manufacturers of electronics to increase their investments in the Far East.

Elcoteq Network established a joint venture in Dongguan, South China, in 1998. Two years later, in summer 2000, the Finnish company began manufacturing operations in Beijing, too, where it produces parts for mobile telephones and GSM network equipment. Finnfund has been a financier of the operations of Beijing Elcoteq Electronics Co Ltd.

In addition to the Beijing and Dongguan, Elcoteq has a unit for customer and after-sales services in Hong Kong.

“It’s part of Elcoteq strategy to take production to where our customers’ final markets are. China has become a more important market area than before and a local presence is important. The Chinese do not favour imports and prefer to buy products produced on the home market,” says Jouni Hartikainen, senior vice-president for Elcoteq’s business development in Asia.

Nokia and Ericsson the main customers

Elcoteq’s most important customers in China are Nokia and Ericsson. In August 2002 it also began serving Wavecom, a French producer of integrated wireless communications solutions, for which Elcoteq manufactures modules in Beijing. The company has a number of other customers in China, too.

Hartikainen adds that not all of Beijing’s output is sold on the Chinese market; some is exported. Though the production unit already employs more than 800 workers, the company intends to take on extra labour in the next few months.

“We have a few Finns in management in Beijing but we are trying to make our production organisation more Chinese as quickly as it is possible,” he says.

World’s largest market in China

According to estimates by the International Telecommunications Union (ITU), by 2005 almost half of the world’s mobile telephone users - 46 percent - will be in Asia. China will emerge alongside Europe as the largest individual market, where, the ITU calculates, there will be 467 million mobile telephones by the end of 2005.

The Chinese mobile phone boom has attracted a lot of electronics sector manufacturers to the country. Demand is still steady but at the same time competition has become tougher, Hartikainen says.

“In addition to western companies, Chinese and other Asian manufacturers are competing for this market. It is still possible to succeed, though, if a company operates very efficiently,” he points out

Products development transfer, too

One feature of the past few years, Hartikainen notes, is that products are being developed in China, not merely manufactured there.

“For mobile phones, manufacturing alone is no longer enough. We need to be able to offer the customer value-added services that support his product development,” Hartikainen explains.

In the mobile telephone business, product development units have been established mainly in the Beijing area. A good example of the increased weight of China’s capital in new technology development is the Xingwang Industrial Park, where Nokia is playing a central role.

“The philosophy of the park is to bring together firms that can link their operations. Delivery times, for instance, can be reduced if component suppliers are nearby.”

Finnfund has been Elcoteq’s long-term partner. Collaboration began at the start of the 1990s, when it was a participant in financing Elcoteq’s production unit in Estonia.

“What has made co-operation with Finnfund easier is that they have more experience of the markets of developing countries than many other financiers,” Hartikainen says.

Finnfund’s managing director, Jaakko Kangasniemi, notes that his organization is oriented towards customers that have made investment in developing countries a key part of their strategy. “We can operate effectively with customers like these, and play a role in promoting more and more good projects,” he says.

In the best projects, good profitability is combined with a broad favourable impact on development of the country. “China needs both the jobs that Elcoteq brings and the telephones that it makes,” Kangasniemi points out. “For Europeans, mobile telephones offer mobility and convenience but, for China and many developing countries, they provide hundreds of millions of people with a telephone for the first time. An improvement in communications has enormous impetus for development.”