Buying new jobs with U.S. investment

Press, 25 November 1982, Page 20

Buying new jobs with U.S. investment

In his concluding article on the drive by many countries to attract United States investment to their shores, JOHN, HUTCHISON looks at the bid New Zealand is mounting through the Development Finance Corporation. Successes to date have been few in number and small in size, but the potential is there — if New Zealand is prepared to go for it.

.; New Zealand’s bid to compete in the pursuit of American manufacturing investment began abroad less than four years ago when the Development Finance Corporation set up shop in California, where it has since operated its only office abroad.

Sydney, Dusseldorf, Paris and Tokyo. '’’ . The incentives with which these countries lure new industries have much similarity, and New Zealand’s fall into the general pattern. Common are tax exemptions and tax “holidays,” grants and loans for factory construction and equipment, free or low-cost land, buildings or rents, easy repatriation of profits and assistance with worker recruitment and training.

The D.F.C.’s successes so far have been small and few, they represent only pocket-change in the ' multi-billion-dollar movement of investment in which Britain, Ireland, Scotland, Singapore, , Malaysia, France, and some other countries strike deals bringing in manufacturing developments producing thousands of new jobs, large added export income, stimulating injections of technology and management, and huge" peripheral economic .nd social benefits.

Any of the investment-seek-ing countries, including New Zealand, can probably put together a package of inducements meeting a company’s overt requirements, but merely presenting an incentive package is not enough to produce a try in this fierce international game. Interviews here with some of the veterans in the investment-recruiting business reveal that several other factors are just as basic, and can be pivotal.

New Zealand’s meagre showing, in this competition is not necessarily because the D.F.C. has failed its task. Indeed, it would be a bit much to expect that the relatively new and modest operation here would jump quickly into triumph in a field in which competitors, over 20 years or so, have developed elaborate programmes, large, highly experienced staffs, and seasoned policies.

The successful countries have a clear and genuine national commitment to the principle of inward investment. They are operating from at' least a tacit consensus bn longterm policies and programmes which are not seriously vulnerable to partisan politics. Alongside these, the New Zealand effort does not demonstrate convincingly that the nation and its leadership are really serious about encouraging foreign investment, and spending what it takes to do so.

The Irish Development Authority has 19 offices abroad, of which eight are in the United States. “Invest in Britain” has nine United States branches, not counting two “Locate in Scotland” offices, with two more contemplated, and one each for Northern Ireland and Wales. Three of the 10 overseas offices of the French development agency are in the United States.

There is another. standout characteristic among, the successful recruiting countries: they endow their field personnel with broad authority and flexibility to negotiate firm agreements within well-under-stood home-office guidelines. This tends to foster prompt, dependable decisions.

Singapore has been aggressively wooing foreign manufacturers for more than two decades and has several representatives in this country. Malaysia’s Federal Industrial Development Authority stalks investor . prospects in Los Angeles, New York, London,

Said the representative of one of the most successful countries operating here: “We

have an organisation which allows us to be flexible and responsive. We have been able to out-manouevre the competition.”

When his agency sees the need for at shift to meet new industry requirements, 'it changes; it has encouraged the establishment of new technical colleges, the creation of new university departments, re-edu-cation of teachers, and the retraining of workers and supervisors. The D.F.C., nominally autonomous but wholly-owned by the New Zealand Government, is, on paper, more independent than some of its competitors from other countries, but to the outside observer here it appears to be wired, to Wellington and the New Zealand establishment with the timidities and indecisions which often characterise bureaucracy.

The most successful recruiters say they have easy, frequent and familiar communications with well-staffed home offices. They operate at a very personal level between their headquarters and their prospects. They are “one-stop shops,” ready to motivate all the actions, clear all the tracks, and grease all the wheels to try to make establishment of a new industry as expeditious as if the company were building a new facility across the road from its parent factory.

smoothly to move a new project along. If there is a pervasive New Zealand, attitude that financial incentives are little more than donations to be doled out reluctantly to foreign investors after haggling over terms, the country is likely to stay behind in a race it never should have entered. Investment by. foreign countries may contain some real, reasons for fears of competition with indigenous industry, or of foreign industrial" domination, but such trepidations are incompatible with an effective recruiting policy. The countries now succeeding with inward investment seem to have come to terms with such problems. They identify the industries and the deals;which they believe will serve their: national interests. Then they go after them with zeal. They are bold, imaginative, well-heeled, well-staffed and sales-oriented.

Chris' Parkin, the D.F.C.’s representative in the United States, , has completed his tour here and is returning to the home office in Wellington. Recently he made some observations on his three and a half years in the corporation’s first and only branch operation abroad.

“We were pretty naive to begin with,” he said. “We had no experience abroad in winning foreign investment. We had no idea of the difficulties of entering the competition, even of getting in to see the right people in companies we hoped to interest.” He found himself competing with experts who had been in

New Zealand’s effort clearly affords too little manpower to provide such services, even if private and governmental institutions can collaborate

the business for 20 years during which their countries had been developing the policies, resources, administrative techniques and salesmanship with which they attract multi-million-dollar industries from overseas.

fringes of that now. “We are trying to do it without the single-mindedness of the other countries,” he said ■somewhat ruefully, having seen a number of company propositions slip from his hopes because the Irish or the Scots could act quicker and bid higher. The winning formula for pursuit of foreign investment is the same as that of an illiterate but victorious American Civil War general: “Git there fustest with the mostest!”

Although his office has made some modest progress, recruiting several small American firms which are setting up in New Zealand, he believes the most valuable advances have been in pathfinding for the future.

“We recognise that this has been a research and development period in which to learn how to go about a new operation,” he said. “Now we have acquired the knowledge of the marketplace and how to tap it. In the last 12 months a lot of earlier work is coming to fruition.”

An American sawblade manufacturer is now producing for export in New Zealand and another is shipping machinery for a similar venture. A fishing rod maker is establishing in Auckland and will export most of his output back to the United States. A feasibility study is under way on behalf of an American producer of jerky (dried beef) for the market here. A Vancouver electrical manufacturer has recently associated with a New Zealand company to produce mainly for export. A project which may link American and New Zealand companies is near agreement to exploit the potential in heat-resistant enzymes in food processing and the conversion of cellulose to ethanol.

Mr Parkin, asked for a simple definition of purpose, echoed the reply to that question when it was put to his Irish counterpart here. “Buying jobs. That’s what we ought to be doing,” he said. “The efforts of Singapore and Ireland demonstrate the effectiveness of creating employment through attracting foreign manufacturers.” The D.F.C. is only on the

Mr Parkin believes the organisation is capable of getting results but is too limited in its resources. He thinks it probably should have several offices abroad instead of one. that it needs a large increase in home office support personnel, and a level of overhead and promotion which would lift the total D.F.C. budget to some $5 million. That effort could generate a minimum of 2500 jobs a year in the newly created industries, and an equal number in peripheral employment. “The first 750 of these jobs would pay for the operation in perpetuity,” he declared. “This is based on the direct “fiscal return to the Government from each new job, which figures out at about $7OOO per year, accruing from the removal of the person from the unemployment rolls, plus the taxes he or she will pay.” He estimates that the average cost to New Zealand of creating such a job is in the order of $lO,OOO. With the factor of fiscal return of $7OOO, that cost would be recovered in 18 months.

“We are capable of that, and we should be able to attract 10 per cent of the number of firms Ireland wins,” said Mr Parkin. “We can go further than we have.”

Then he added a qualification that may suggest the crucial question New Zealand has to answer: “If we really want to.”