In 2009 the investment landscape is sure to change in many complex and as yet unseen ways, something we will be examining in great detail in a special report published in April.
But we’re inclined to agree with what former Mexican president Vicente Fox expressed at the World Association of Investment Promotion Agencies conference in Brazil in December 2008. He said it is time to get back to basics because the fundamentals of what makes an attractive investment destination has changed little over the years. And the most fundamental of all fundamentals is the workforce.
Or to paraphrase another former North American political leader from a rosier economic period: it’s the people, stupid.
Labour issues are at the heart of the brouhaha over the bail-out of the automotive industry in the US. Fear of putting thousands of auto workers out of jobs at a time of rising unemployment has driven Congress’ desire not to let domestic car companies collapse. The trouble is that workforce woes are at the heart of these companies’ problems in the first place.
General Motors’ predicament, to pick on one beleaguered auto maker, illustrates the importance of location to a company’s financial health, and the importance of workforce in the location equation.
Employee entitlements reportedly add an estimated $1400 to the cost of each vehicle made by GM’s heavily unionised workforce. Since taking over in 2000, GM boss Rick Wagoner has tried to stem the bloodletting of the bottom line by slashing the workforce by half and shutting down a dozen US plants. But the company is still paying generous salaries to many of the laid-off workers due to decades-old union agreements.
German and Japanese auto-makers noted this example, however, and placed many of their major American operations in more southerly locations where not only are costs typically lower but workers are generally less keen on unions. The issue is not so much that foreign producers make better cars (though that argument has some clout) but that they make them more efficiently and at lower cost, thereby generating better returns.
The Great Lakes area is not necessarily a poor business location overall. Detroit is poised to perform well in fDi’s North American
Cities of the Future location benchmarking exercise (the results of which will be published in our April/May issue). The Big Three US automakers have deep roots in the region and growth happened there organically. It is impossible to imagine any of the domestic producers abandoning their historical heartland.
Yet it is also hard to imagine how even vast sums of taxpayers’ money can undo the damage of being shackled to an uncompetitive workforce. A simple lesson for complicated times.