The evolution of Japanese manufacturing industry in Wales Reflecting on the longer term impact of transplant investment for Welsh development Introduction 40 years of history – a full circle Role in promoting regional economic development in 1980s and 1990s Evolution J FDI & more general debate in Wales; Is there still a place in the policy toolkit for FDI; Is FDI relevant to ‘new’ regional context; Should we be that concerned about falling levels of FDI Why Wales is an interesting case in which to study Japanese TMS ‘Early’ location marketing targeted on J firms ‘Early’ successes with J FDI Relatively high concentration of J FDI in Wales: research hub Agglomeration of J FDI permitted some analysis of factories v warehouses debate Policy claims and academic debates Japanese as more reluctant inward investors with the result that: inward investments would be of negligible economic significance compared to those from the US etc. outward FDI by Japanese firms existed within a context of a preference for direct exports Japanese FDI might perform relatively badly in terms of productivity and profitability and then with negligible opportunities for productivity spillovers to domestic enterprises High import content of Japanese manufacturers, and focus on production only operations leads to lower quality employment, lower level of R&D jobs, with high value added operations retained elsewhere. Branch plant syndrome; regional economic development ramifications, efficient use of public money Timeline 1950s & 1960s Inward investment in Wales Policy tools/environment In 1950 18 foreign owned manufacturers in Wales employ 14,000. US investment, medium manufacturing and income elastic consumer goods. 1960s foreign owned manufacturing makes up c.10%% of Welsh manufacturing employment Immediate post-war Distribution of Industry Act, Special development areas, and industrial estates. Capital grants emphasis. Development Corporation for Wales (DCW) set up 1958 to promote location overseas. Wider context, region & international Immediate post war US firms in unique position to export capital. US overseas investments in manufacturing focused in UK. Timeline 1970s Inward investment in Wales Policy tools/environment Mid-decade US investment still accounts for 90% of foreign manufacturing employment, by 1980, however, 6 Japanese firms. Most of Japanese TMS employment linked to CTV production in context of trade restraints Strong increases in spend on regional industrial assistance. Development areas, planning controls in SE (IDCs), automatic RDG and discretionary RSA, more active promotion overseas (DCW). WDA set up in 1976. Some advance factory building Wider context, region & international Losses in traditional segments of regional economy and growing need for diversification. Growth of European economy, Japanese consumer electronics and auto firms facing increasing protection of EU markets Timeline 1980-85 Inward investment in Wales Policy tools/environment US investment dominant, but increasing investment from Japan. Shakeout amongst older inward investors. New investment focused in NE and SE of Wales. Consumer electronics fastest growing sector. Although overall FOM employment falls to 40,000 in Wales in 1984-5. 1985: 9 Japanese companies employ est 3,500 Wales amongst closest assisted areas to SE, increased advance factory building, overseas promotion, assisted areas map redrawn in 1984 to give Assisted Area status to NE Wales. Drift from RDG to RSA. Attraction of inward investment the core policy tool. Background = severe cuts in regional policy resources Wider context, region & international Massive structural change 1979-1983, large parts of manufacturing base lost, end game in coal and steel, Wales employment and output growth low. Timeline: Late 1980s; 2nd wave Inward investment in Wales Policy tools/environment Wales becomes most popular location for foreign manufacturing; large increase in Asian investment driven by EU policy, and various anti-dumping measures. By 1989 24 Japanese firms employ 8,200 (close to fifth FOM in Wales) RDG phased out in 1988, and shift to RSA under Industry Act 1982. Real cuts in resources. Formation of WINVEST, overseas arm of WDA, extensive representation overseas. £230m of RSA to FOMs 1986-89, nearly 15,700 assoc.jobs. Wider context, region & international Wales growing at a relatively fast rate and put down to inward investment success. Trade friction encourages EU inward investment. Moving towards Single European Market. Timeline 1990s: peak? Inward investment in Wales Policy tools/environment Poorer econ conditions but significance of FOM grows in regional economy, employment in FOM reaches 68,000 by 1994.(31% Welsh manu emp). Japanese manu emp reaches over 13,000 at peak. Major reversals in the Asian sector, moves to attract more services inward investment, LG debacle. Losses also in the Japanese sector. But 2001 31 Japanese companies employ 12,300 Gradual shift begins away from inward investment model. New Assisted Areas map in 1993. Advances factory building reduces. Falling spend of regional assistance to industry. Growing significance of EU structural funds in regional policy resources. Increasing scrutiny of policy towards FDI, services industry FDI qualifies for RSA. 1998 White Paper, knowledge driven economy, and emphasis on clusters, networks and innovation. Wider context, region & international Growing globalisation pressures, increasing competition from EU fringe, and CEE. Single European Market English RDAs SEA currency crises, Global FDI inflows compromised 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 Japanese TMS Planned Capital Spending in Wales £m 300.00 250.00 200.00 150.00 100.00 50.00 0.00 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 New Jobs Announced in Japanese TMS 1984-2007 2,500 2,000 1,500 1,000 500 0 Japanese TMS contribution 1994 Employment in overseas owned manufacturing plants by country of ownership : 1994 (1) Source: 1995 Census No. plants No. of companies Employment (1000s) Employment as a % of total in overseas owned plants in Wales Sweden Switzerland Other European Australia Canada Other countries 128 32 113 41 22 5 10 13 12 12 12 14 17 12 103 24 97 34 18 4 8 12 10 11 11 8 12 8 29.8 12.4 14.8 5.4 4.4 1.5 0.8 1 1.5 1.3 2.1 0.5 4.1 1.3 44.0 18.3 21.8 8.0 6.5 2.2 1.2 1.5 2.2 1.9 3.1 0.7 6.0 1.9 Total overseas 353 284 67.8 100 Country of ownership USA Japan EC (ex UK of which) Germany France Italy Denmark Irish Republic Employment in foreign owned manufacturing units by manufacturing industry: 1994 Source: 1995 Census No. of plants Employment (1000s) 22 Metal manufacture Extraction of minerals not elsewhere specified and manufacture of non-metallic mineral products Chemical industry and production of man-made fibres Manufacture of metal goods 31 not elsewhere specified 32 Mechanical engineering Manufacture of office machinery and data 33 processing equipment Electrical and electronic 34 engineering Manufacture of motor 35 vehicles and parts thereof Manufacture of other 36 transport equipment 37 Instrument engineering Food, drink and tobacco manufacturing industries 16 2.9 Employment as a % of total in overseas owned plants in Wales 4.3 22 2.2 3.2 55 8.2 12.1 29 3.8 5.6 28 2.8 4.1 6 0.7 1 48 17.7 26.1 26 8.3 12.2 Textile industry and footwear and clothing industries Timber and wooden furniture 46 industries Manufacture of paper and paper products, printing and 47 publishing Processing of rubber and 48 plastics Other manufacturing industries SIC (1980) Class 23/24 25/26 41/42 43/45 49/14 Industry Total all manufacturing industries 5 1.9 2.8 11 2.4 3.5 20 3.8 5.6 9 1.1 1.6 7 1.1 1.6 27 4.6 6.8 33 3.8 5.6 11 2.5 3.7 353 67.8 100 Timeline 2000-05 Inward investment in Wales Policy tools/environment Wales still relatively successful in attracting foreign owned manufacturing capital, but large losses continue in inward investors, electronics, motor components, engineering. By end of period Japanese manufacturing employment falls below 4,000. Continued scrutiny of FDI-related activity, tools little changed, but limits on resources available to promote region overseas. Announcement WDA to be merged into Assembly. Uncertain times! Wider context, region & international EU enlargement, increasing competitiveness of China, and other Asian areas. 1984-2007? Grand Total Japan 183 Grand Total 2,767 Japan nj 18,939 Grand Total Japan sj Grand Total Japan kx Grand Total 175,426 8,495 100,198 1,706 16,331.77 Why Wales? Wales closest assisted area to SE and consumer markets and wholesale hubs; also distance from Channel ports Labour availability, relatively low unit costs RSA and RDG availability and other sweeteners and a well coordinated marketing effort Road infrastructure Contribution to regional economic development Factories and warehouses debate suggests impact might be different, because of underlying motivation But also conclusions on role of J FDI important to future development of policy in Wales Currently international location marketing very limited Wales: economic needs Low growth; poor productivity record Opportunities in the periphery Income and employment in disadvantaged areas Functional and occupational diversity Overcoming the branch plant syndrome Low levels of business R&D Full appraisal? New jobs, industrial diversification Overall competition effects, resource allocation Overall productivity spillovers Specific value chain effects Profits and performance Earnings & labour markets Trade unions and industrial relations HRM and Operational Techniques Hood, Young & Peters (1994) Best/Worst Impact Employment Numbers Number of Graduates Earnings Stability Training Spend Large/small High/low percentage Above/below average Equivalent job years. Stickers or snatchers High percentage of sales Overseas Exporting R&D Spending Corporate Local High/Low Embeddedness Performance By local criteria on productivity Profitability Subsidiary role Product position in life cycle/strategic intent Growth of product Functional diversity High locally, high indirect multipliers/low little indirect activity supported High/Low R&D functions/ or largely process/engineering Above/below average Above/below average Fast growth/declining Fast/slow Strong/Largely production oriented Further research Regional analysis of productivity spillovers from Japanese vs other parts of manufacturing sector in Wales How did the systems set up in 1980s for IR, personnel management etc stand up to pressures in the new Millennium Need for more thorough audit of extent of foreign firm activity in Wales, particularly contribution of the services industry sector. Further consideration of real impacts of the policy resources devoted to indigenous versus foreign sector. Japanese inward manufacturing investment is still relevant to the economic needs of Wales In some respects the regional economic context has changed markedly since 1980, but underlying needs of the Welsh economy are actually little changed. Decline of Japanese sector (and other parts of manu after 2000 been matched with employment growth in part time opportunities, and growth in the nonmarket sector. Neither of these latter developments would seem to square up with the ‘new vision’ of a dynamic learning economy. Falling levels of new foreign manufacturing investment, or disinvestment to other locations, will seriously compromise Welsh growth aspirations