Thursday, March 27, 2008

What Tata Tells Us About Insourcing and FDI

Yesterday Ford Motor Company announced it will sell its Jaguar and Land Rover divisions to India's Tata Group. Upon the closing of this transaction, the many Ford associates currently working in these divisions in the United States will join the ranks of Americans who work at insourcing companies -- i.e., at U.S. affiliates of foreign multinational firms.

Foreign direct investment (FDI) has long been a source of strength for the American economy. In 2005, insourcing companies employed nearly 5.1 million Americans, 4.4% of the private-sector labor force. Beyond their employment, insourcing companies perform large amounts of the crucial activities that make their workers and the overall economy more productive. They invest in physical capital and in research and development, and they help connect the U.S. to the global economy through international trade. The bottom line is larger paychecks. In 2005, compensation per worker at insourcing companies was $66,042 -- 31.8% above the average for the rest of the private sector of $50,124.

American policy makers should strive to make the U.S. a premier location for the dynamic, high-productivity activities of globally engaged companies -- both insourcing companies and U.S. multinationals alike. To truly be such a location would require dramatic progress on many fronts: renewing the president's trade promotion authority; resuscitating the World Trade Organization's Doha Development Round; passing comprehensive immigration reform. But to start such a journey with a single step, let us all pause to appreciate yesterday's good news from Tata.

Matthew Slaughter, associate dean and professor at Dartmouth,
in today's WSJ

3 Comments:

At 3/27/2008 10:42 AM, Blogger spencer said...

The Jag is manufactured in the UK under Ford and will continue to be manufactured in the UK under Tata.

So how do you figure this will have a big impact on US employment by Ford?

 
At 3/27/2008 1:28 PM, Anonymous Anonymous said...

Spencer,

While Jags are manufactured in the UK, one also has to consider the distribution network. Since purchasing Jag, Ford has operated a network of dealerships jointly with Jaguar.

Have not seen the details on the final deal but it would very likely involve taking over part of the distribution network or retaining joint distribution with provisions for future expansion. Either way, American dealerships run and staffed by Americans will be selling and providing dealership services to present and future jag owners.

 
At 3/27/2008 3:10 PM, Anonymous fred said...

Traditionally, foreigners buy buildings, like Rockefeller Center, infrastructure, like the Brooklyn Bridge, and flagship companies, like Jaguar, at exactly the wrong time.

 

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