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stand­first stand­first stand­first stand­first stand first stand­first stand first stand­first Court­ney Fin­gar

The Herald Business - - Cover Story -

FOR A GLOB­AL­I­SA­TION hor­ror story, it does not get much more dra­matic than the re­cent two-part se­ries star­ring NCR and Sim­clar. This script has it all: a for­eign in­vestor sack­ing loyal lo­cal, a home-grown busi­ness in­vok­ing the dreaded O-word, and both send­ing Scot­tish jobs to cheaper, east­ern lo­ca­tions. Cut to images of pro­test­ers out­side the gates and a bread line snaking half­way down the high street.

It is a show Scot­land has seen be­fore – around the same time last year Lex­mark, San­mina-SCI and In­ven­tec were shed­ding fac­tory jobs – and it is one that is play­ing in lo­ca­tions the world over, in many dif­fer­ent lan­guages.

Yet there is hardly any rea­son to run scream­ing from the theatre. Ac­cord­ing for­eign di­rect in­vest­ment (FDI) data com­piled by OCO Con­sult­ing, Scot­land had a very strong fourth quar­ter in 2006, bring­ing in nine projects to­talling $2.8bn and cre­at­ing 1698 jobs, com­pared with $160m and 365 jobs in the same quar­ter of 2005. Scot­tish De­vel­op­ment In­ter­na­tional is soon to re­lease its an­nual FDI re­port, and while no pre­cise num­bers have been leaked, of­fi­cials are said to be more than a lit­tle pleased.

Two weeks be­fore the NCR news, JP Morgan said it would cre­ate 200 more jobs at its Euro­pean Tech­nol­ogy Cen­tre in Glas­gow over the next two years, to add to the 100 IT jobs it had al­ready an­nounced. And two weeks be­fore that, US elec­tronic pay­ments pro­ces­sor First Data an­nounced it would open a new cus­tomer con­tact cen­tre in the city em­ploy­ing 430 peo­ple over the next five years.

The fact that sev­eral hun­dred Glaswe­gians are about to get posh new of­fices might be lit­tle con­so­la­tion to the 650 peo­ple laid off by NCR in Dundee. But it is worth re­mem­ber­ing that, for th­ese Amer­i­can com­pa­nies, Scot­land is an off­shore lo­ca­tion. Of course, off­shoring and out­sourc­ing are not so scary when the jobs are flow­ing in your di­rec­tion.

Man­u­fac­tur­ing func­tions, of the sort Sim­clar is mov­ing off­shore, have rest­less feet – they travel the world in search of ever-lower costs. Many are still beat­ing a path to China, where labour is cheap and plen­ti­ful, but its cost com­pet­i­tive­ness is be­ing eroded as its very suc­cess in at­tract­ing projects leads to wage in­fla­tion and re­cruit­ment woes. As a re­sult, Thai­land, Viet­nam and Cam­bo­dia are pre­sent­ing them­selves as nice al­ter­na­tives.

In Europe, as the likes of Hun­gary and move on up to biotech­nol­ogy and re­search and de­vel­op­ment, coun­tries such as Ro­ma­nia, Slo­vakia and Turkey lay claim to more screw­driver man­u­fac­tur­ing projects.

In Latin Amer­ica, pend­ing trade deals could po­si­tion coun­tries in cen­tral Amer­ica, as well

as Colom­bia and Peru, to com­pete with Mex­ico as con­ve­nient pro­duc­tion plat­forms for serv­ing the US mar­ket.

On the emo­tive is­sue of out­sourc­ing, In­dia looms largest in the pub­lic i mag­i­na­tion, al­though its strengths tend to be in busi­ness process out­sourc­ing, call cen­tres and shared ser­vices rather than pro­duc­tion. Quite apart from the busi­ness ra­tio­nale be­hind such de­ci­sions, there is a long-term eco­nomic ben­e­fit for the source coun­try.

FDI into In­dia has con­trib­uted to eco­nomic growth and in­creased cor­po­rate ac­tiv­ity, fu­elling in­vest­ment out from In­dia and back into the UK. In­dia is now the UK’s third largest source coun­try for in­vest­ment. FDI might seem like a zero-sum game, but it can also be a vir­tu­ous cir­cle.

In dis­cus­sions about NCR and Sim­clar, it is easy to over­look the not-in­signif­i­cant fact their in­ten­tions to shift the fo­cus of their Scot­tish fa­cil­i­ties from low value/high vol­ume to high-value/low vol­ume func­tions are com­pletely in line with the stated in­vest­ment pro­mo­tion strateg y of the Scot­tish gov­ern­ment, which is to move the econ­omy up the value chain and fo­cus more on high value-added projects that bring higher paid jobs with them.

The dif­fi­culty is that in or­der to cul­ti­vate the high end of the value chain you have to let some of the low end go. This is a trade-off that has been hap­pen­ing in Scot­land for years. As of Septem­ber 2006, man­u­fac­tur­ing em­ployed 225,200 peo­ple in Scot­land, com­pared with

317,600 in 1996, and 395,800 in 1986. Fi­nan­cial ser­vices, mean­while, em­ployed 114,700 in Septem­ber 2006, up from 76,200 in 1996, and 65,900 in 1986.

The other dif­fi­culty is the fight for high value added in­vest­ments is a f ierce one; and Scot­land’s com­mit­ment to be­ing a skills-based ser­vices and tech­nol­ogy-driven econ­omy is shared by ev­ery other in­dus­tri­alised and semi­in­dus­tri­alised na­tion in the world. There is much to con­sider, much to do and much to de­cide in or­der to stay com­pet­i­tive.

The big­gest ques­tion, says lo­ca­tion ad­viser Douglas Clark, of con­sul­tancy Tenon techlo­cate, is: “What does Scot­land bring to the world?” It has clear strengths in life sci­ences and fi­nan­cial ser­vices, promis­ing po­ten­tial for en­vi­ron­men­tal tech­nolo­gies and scope for more de­vel­op­ment of ICT. Bio in­for­mat­ics, the space where biotech and in­fom­r­taion tech­nol­ogy meet, is a new niche in which Scot­land could ex­cel.”

Scot­land is good at at­tract­ing value-added projects, says Clark, but it is worth pon­der­ing: “Re­al­is­ti­cally how many more can it get? What re­sources will be re­quired to keep at­tract­ing them? If high-value in­vest­ment is the strat­egy, how ten­u­ous is it?”

Com­pound­ing the com­plex­ity, of course, is the way in which FDI strat­egy is tied up with broader de­bates about Scot­land’s place in the

Tough call: NCR work­ers in Dundee felt the cold blast of global eco­nomics

On the line: In­dia has built an im­pres­sive call cen­tre sec­tor

China in their hand: Shang­hai sym­bol­ises the rise of the world’s new eco­nomic su­per­power

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