Wednesday, 8 September 2010

Inward Investment Pearl: LG not Tea

Basia called me over to the TV yesterday to tell me that Twinings (pronounced as 'twine' not 'twin'), the British tea company, was transferring its production from England to Poland because the company could not get the workers it wanted in England. This had caused an uproar in the British press based on the principle that tea was fundamentally a traditional British tipple and the idea of it being moved abroad was a blow to national pride (or something like that).

I would have expected her then to start crowing about how much better Polish workers are than English and that Britain is going down the pan, etc. As an immediate reaction, this sounds pretty convincing. However, she was more interested in the Scottish Queen watching the Highland Games with a hole in her shoe and then two naked bottoms. We didn't have a chance to have a heated discussion.

However, how well does this reflect on Poland compared to Britain? I know nothing about Twinings and nothing more than she told me about the move to Poland. On the face of it, however, tea production is basically a matter of shoving tea and empty packaging in at one end of the factory and pulling it out at the other end with the tea in the packing. Most of the detailed work will be done by machinery. Although there will be a few quality jobs, the bulk of employment will be low skilled. Poland is probably the new site because it is a cheap, low cost economy with good subsidies. England is now unsuitable because it is a high cost advanced economy, where only higher value added and higher profit manufacturing processes can suitably be placed. (I have to smile when I think this, but that's the theory.) Whilst the investment is presumably good for Poland, it still labels it as a less advanced economy.

So I tried to tell Basia about the new LG - the Korean company - investment in an R&D Centre in Poland, winning against England. (I think I saw this in one of the Gazeta Wyborcza Polish newsletters - see Gazeta Wyborcza Newsletter Registration, but I'm not sure.) She was focused on other things, as mentioned above, but there was no reason for her to be interested. However, for anyone who has worked on economic development and inward investment issues, this is far more important.

R&D Centres are the Crowns amongst the jewels of inward investment projects. Nothing is certain, but they anchor existing production projects in the country and give promise of preference for further ones. Whilst the company wishes to use the higher level technical capabilities of the chosen country, there is always enhancement of the technical capabilities of the country itself. The knock-on effect of utilisation of local suppliers will generally be expected to be increased, use of local higher value added supplied required and the technical capabilities of those suppliers also increased. So on, and so forth.

Now we, in Britain, used to - and presumably still do - consider ourselves the prime candidate for such projects, with an automatic advantage over other EU countries. English as the international business language; a reputation of having the most flexible approach to business by, and the highest quality of, research institutions; a positive government approach to business, which was equally (if not more) friendly to foreign companies; etc. For Poland to go head to head with England as a site and win is an enormous triumph. This puts Poland fully in the league of the big players in Europe - the most competitive and efficient. Those days when I was daft Brit who loved Poland too much and thought it brilliant and inevitably bound for success have long faded, but its lovely to be right all the same.

Oh and, by the way, anyone who thinks that investments by Twinings and (as I saw today) Mercedes are great because of the horrendous level of unemployment, I'm sorry but I think you are wrong. At 9-10% (about the European average), in an economy that is undergoing rapid structural change, at a time when it's and the world economy are just coming out of the bottom of the economic cycle - the unemployment rate is low. Look out in 4 years to inflationary pressures and (inefficient, of course) severe tightening of monetary policy by the Central Bank.

However, this may be avoided. Poland still is undergoing structural adjustment in the pattern of employment. It is not so much unemployment, but inefficient use of labour resources and under-employment. This is especially noticeable in the small business sector ie most Polish owned businesses, and in the geographic distribution of (un)employment. If Twinings is locating, like Cadbury did a few years ago, in an unemployment black spot, it's direct and knock-on effect is greatly enhanced.

Mercedes is locating at the Katowice Economic Zone. Its years since I've been there. It was not doing as well as hoped at the time, but seems from headline investments to have done extremely well recently. I can't therefore help but suspect that the name of Mercedes is more important than the investment itself. However, for a more positive view get in touch with Elżbieta Bienkowska, Minister of Regional Development. She used to be Director of Regional Development (or some such title) in the Śląskie Voivodeship Office - for some reason I don't like the name 'Silesia'. If you do, please give Steve's best regards. (I'm just name dropping.)


Michael Dembinski said...

Unemployment in the regions where the investment is coming (near Poznan and Katowice) is in low single digits. Like in other SEZs, workers will probably be bused in from a two-hour travel time radius.

Poland's unemployment picture is the mirror of the UK's - extremely low urban joblessness with stratospheric (25%-35%) rural jobless. Did you know that 49% of Poland's unemployed (and some 60% of long-term unemployed) are ze wsi? Not small town, but wieś. How do you mop that up,other then let time and foreign investors' minibuses do their bit?

Geordie said...

You say "because the company could not get the workers it wanted in England". Where did you get that idea from?
That's complete nonsense. The company has no problem getting workers. The company is also highly profitable. The only reason they're doing this is sheer corporate greed.
And also what gives you the right to make ridiculous assumptions that anyone who works in a tea factory must be low skilled? Yes there are some lower skilled jobs but there are also more highly skilled jobs as well.

Pete said...

Twinings have a small factory in India, just like they had a small factory in China.

when the polish work force eventually demand and get the wages they deserve Twinings will shut you down and move to India.

Care to guess what people will be saying then?

Can't get the workers in Poland!!

Oliver said...

I cannot believe how stupid some of these people are. Today the UK loses jobs, Poland because of EEC distorted grant allocations reaps the benefits. Obviously Poland will therefore accept the loss of jobs in 5 - 6 years as companies move to cheaper regions e.g. Bulgaria, and once again use Poland for its traditional role in Europe, as a victim.

Pan Steeva said...

Geordie, Pete and Oliver - thanks for your comments.

Geordie's comments about the availability of workers in the UK is assumed in my comment that Poland is chosen as the new site because it is cheap and has subsidies. Lack of workers was the company's explanation for the move as reported on TV, but it must come down to money in the end.

Pete and Oliver's predictions will only come true if Poland develops sufficiently to be one of the more advanced economies. I believe it will, so I agree with them totally.

Every factory, office block, etc has some low-skilled labour: this does not reflect on the value of those people, but the relative ease with which replacements can be found amongst people who have not had significant specialist training or experience in the work. (Some of my best friends have been cleaners, etc.) As you put it yourself, Geordie "there are some lower skilled jobs but there are also more highly skilled jobs" or as I put it, "there will be a few quality jobs, the bulk of employment will be low skilled". Perhaps my "on the face of it" comment was not clear enough. I don't know the balance in Twinings and am only guessing the situation there from a general observation of what this type of work might entail. I am happy to accept that I might be wrong about the balance, but you haven't argued that.