Motorola, Nokia, to manufacture mobiles in Argentinean island

At least three firms will be building many of its mobile phones in the city of Rio Grande, in the South Atlantic province of Tierra del Fuego, Argentina after new regulation to promote local manufacturing came into effect last year.

Over the weekend, we learned that an executive in charge of Motorola’s local arm for mobile phones said the firm intents to manufacture up to 90 per cent of its mobile phones locally, taking advantage of the new investment promotion laws in Tierra del Fuego (TDF hereinafter).

The announcement came during the launch of one of Motorola’s Android-based smart phones, the Backflip, the second offering from the firm with the Motoblur user interface to be available immediately by two of the three GSM/WDCMA carriers in Argentina and from Telefonica’s Movistar next May. An event for which they didn’t invite this scribbler, it must be added, nor did they provide a demo unit to play with, -shocker, drum roll, smile-.

An­to­nio Quin­tas, VP and general manager for mobile phone for Motorola’s South LatAm region said the decision to increase local production is related to “be closer to a market like Argentina’s, to get faster reaction times to increased demand”. He added that “the benefits and tax breaks offered by the government makes it possible for us to think about increasing production and bring more technology for production into the country.”

This comes in addition to several recent announcements and reports in the local press about Samsung and LG among others boosting their local production efforts and plans, along with widely reported stories about Nokia’s decision to ink an agreement to manufacture a boatload of mobile phones -a boatload for the local market at least- also in TDF.  

Background and context
Argentina’s south-most province of TDF has had an industry promotion law for years, which allowed it to receive investments in the manufacture and assembly of electronics and household appliances in the country. Promoting the assembly in the country instead of importing finished goods is a line of thought first started in the region by Brazil.

A new law which gives additional tax incentives for local production along with removing previous tax exemptions for imports has started to have the desired effects, with new firms announcing their intention to manufacture mobile phones in TDF. Local manufacturers along with the governor claim the new law levels the playing field in the region by making local production

The bill, #26539, was passed in November last year by 136 votes supporting it and 61 against. It was backed by the ruling party of President Cristina Fernández, along with the UCR moderates and the centre-left Solidarity and Equality (SI). The centre-right PRO party opposed it and the centre-right Civic Coalition abstained. The Governor of TDF Fabiana Rios supported it, predictably. At the time, she said it “puts Tierra del Fuego on an equal footing with similar incentive programmes and tax breaks offered by Manaus, Brazil.”

Even before this new law, firms operating in TDF already enjoyed a pricing edge vs. those operating in the mainland, as they pay no import duties on parts, no gross receipts tax, and no VAT. Most of the companies assembling consumer electronics in TDF are at Rio Grande, which has a population of 60,000 and is considered the “industrial capital” of the island, although Ushuaia is also one of the locations.

Not all roses
Until recently, the weakest link for TDF was telecommunications and its limited energy and communications connectivity with the mainland, with a single fibre optic link with the mainland, operated by the Kingdom of Spain’s Telefonica local loop monopoly.

This might soon change now that the companies TelMex and Claro, owned by Mexican billionaire Carlos Slim has trumpeted just two weeks ago the completion of its ~9,300-mile, country-wide fibre optic network which reaches the province of Santa Cruz, just a crossing of the Strait of Magellan away from reaching TDF.

The second structural deficiency that hindered the island’s development has been solved, too, with the completed construction of the island’s second natural gas pipeline, a $314 million government investment, 38km long contraption that goes across the Strait of Magellan, which was built by a consortium of Royal Boskalis Westminster and Allseas Group and  began operating this month.

The new new announcements
Provincial finance Minister Rubén Bahntje told the BA Herald that “there are state-of-the art assembly lines” and that he estimates that new investments after the November 2009 law and additional local production of Motorola, Nokia, and Samsung brands among others will lead to around 2,000 additional jobs in Argentina’s southernmost province.

Only about a dozen firms are authorized under the government programme to manufacture in the island, as there’s a bureaucratic review process with production goals and checks on the level of integration and manufacturing process that have to be met to get the tax breaks.

Because of this, foreign firms must commission manufacture to these local companies which have joined the programme.

Facts, figures, and claims
* Last year, Argentina imported approx. 10M mobile phones

* Local firm Brightstar plans to manufacture about 3M units this year. Together with BGH they manufacture mobiles for the Samsung, Motorola, and LG brands.

* IATEC plant in Rio Grande, had negotiations with NOKIA, which insisted on doing their own manufacturing plant. How this issue will be resolved remains to be seen.

* Local paper iEco reports that “sources within Nokia” acknowledged that “the only decision set in stone is that we’re going to manufacture in the country”.

* Reports and unconfirmed reports go that Nokia plans to build between 1.5M and 2M units in Rio Grande giving work to 150 people citing the Government Relations manager at Nokia’s Southern Cone unit, Paula Cordoba, but sparing any details on the effort.

* The total estimated production of mobiles in TDF during 2010: between 5M and 6M units.

* Facundo Costa from Samsung’s local subsidiary told local paper El Argentino that “our goal is to sell 3M units this year, with half of that being manufactured locally in TDF”. He added that “producing locally is 20% cheaper than importing finished goods”.

* Nokia tops sales rankings in Argentina, with Samsung in the 2nd position.

* Antonio Quintas from Motorola’s local mobile division said that while in 2009 only 30 per cent of their mobiles sold were manufactured locally in TDF, they intend that amount to reach 90%, as mobiles blog “54-9” reported