HELSINKI - The southwest Finnish town of Salo was all but gutted by the closure of a local manufacturing plant by the former mobile phone company Nokia two years ago. After loss of thousands of jobs and tens of millions in tax revenues, the city is slowly rebuilding and looking to Microsoft's new Nokia-powered phone division for revival.

"Yes, we have been in talks with Microsoft," Mayor Antti Rantakokko acknowledged in an interview with Xinhua.

"Microsoft has the need to expand their business and can use the know-how here in Salo to do that," Rantakokko noted, adding that Salo could be fertile ground for the global software giant to develop wireless technologies.

City leaders aren't giving away too much about the discussions, buy admitted that they are proceeding carefully.

"We have to remember that Microsoft is a much bigger player than Nokia and we have to do a lot of homework to understand how that all works in Microsoft's ecosystem so we have to learn a lot to understand what kind of partner Microsoft would be," cautioned Communications Manager Teija Jarvela.

Microsoft isn't the only spark igniting the fire of optimism among city leaders. Back in March, the Finland-based global pharmaceutical and diagnostics company Orion inaugurated a packaging and logistics facility in Salo, offering an initial 100 jobs and an indispensable boost to the local economy.

Salo is beginning to attract attention from further afield as well. Earlier in April Nordic ID, a Salo-based provider of radio-frequency identification technology for retail applications, signed a cooperation agreement with Wuda Geoinformatics, a Chinese company providing geospatial information services.

Officials see the arrangement as an important opening into the high-potential Chinese market for the city of about 55,000. But Salo isn't only going after the big fish. According to program manager Anita Silantera, the city is working to woo smaller players into a cooperation model using its infrastructure and services, skilled workforce and proximity and good connections to the capital Helsinki.

"We can offer companies a partnership to develop products; we can be a platform for development and a reference case for them," she explained. One example is the city's collaboration with Evondos, a medical company testing automated dosage services in the elder care sector.

"We can be a living lab for companies like these," noted business development specialist Paivi Savolainen.

The palpable optimism is in stark contrast to the sense of gloom and doom that prevailed two years ago when Nokia announced it was shuttering its Salo production facility - only later recognized as a prelude to exiting the mobile phone business.

Communications head Jarvela said when Nokia dropped its bombshell on Salo the city was already reeling from a process of rapid structural change that began back in 2008 when IT-related manufacturing began to falter, plummeting from 5 percent of GDP at its peak around 2000 to barely 1 percent by 2010.

"Over a period of five years we lost 6,000 jobs, 2,500 of them in one year," Jarvela explained. Among them were more than 1,000 workers at the Nokia production facility.

The rash of changes hit workers hard, pushing the local unemployment rate up from 6.7 percent in 2008 to just over 16 percent by the end of February this year.

The contraction meant that corporate taxes paid in by local businesses plunged from a high of 60 million euros (83 million U.S. dollars) in 2010 to less than 10 million in 2013 as Nokia's pullout and the economic malaise caused a ripple effect among suppliers and sub-contractors.

Recognizing the size of the Nokia-shaped hole in the local economy, the government stepped in with a band-aid of 5 million euros, with more to follow as the cabinet applied for additional European Union funding.

City leaders did not shy away from hard decisions and deep cuts. They embarked on a period of austerity, selling property, cutting salaries and procurements, furloughing public servants, leaving positions unfilled in some departments and introducing a system of unpaid voluntary vacation.

At the same time, the city poured its energy into efforts to attract investment and develop new business areas, resulting in a slow but steady return of business activity. The gloom that descended in 2012 is beginning to lift as Salo works to re-establish itself as a good place to do business.

According Mayor Rantakokko, two years ago the city was covered by a large cloud. Today, he said smiling, "The sun is shining."