Editorial view: Why FDI is no longer about job creation

Foreign direct investment stole some of the limelight at the Oscars when “American Factory”, a documentary investigating a Chinese investment in a decaying rust belt town in Ohio, won the award for best documentary. 

When the founder and CEO of Fuyao Glass, Cao Dewang, announced he would reopen a former GM plant in Moraine, the local press referred to it as “a huge win for the Dayton region, which is more accustomed to seeing plants close than having new ones come in”. Six years on, “American Factory” tells us a different story. 

Mr Cao did follow up on his promises to create 800 local jobs. In fact, Fuyao, one of the world’s largest manufacturers of glass for automobiles, went much further than that. Today, the facility employs about 2000 local workers, and accumulated investment has reached $600m.

However, behind the scenes, the company struggled with its US workforce, and the other way round. A  Chinese executive is even caught on camera referring to US employees as “donkeys”. A similar culture clash happened in the 1980s, when Japanese zaibatsu built their first facilities in the US; another movie, Gung Ho, tells that story. Things eventually worked out - today, the likes of Toyota and Honda run highly efficient operations throughout the US. There is no reason why Fuyao should not fare equally well. 

But the documentary also exposes a certain degree of discomfort towards the very jobs Fuyao created in Moraine. The company’s hiring campaign was a shot of adrenaline for the ailing local job market, but fell short of the 4700 people GM used to employ locally in its heyday. Automation could feed further into this discomfort - the documentary shows Chinese managers suggesting the replacement of inefficient labour with extra robots. Besides, “American Factory” questions the quality of the jobs Fuyao created in Moraine. The company pays salaries close to the minimum wage,  shifts can be long and hazardous, while unions were initially locked out. It all proved too much to stomach for a workforce that still flirts with the memories of the highly paid and unionised industrial jobs of the past, prompting 600 workers to file a class-action lawsuit against the company. 

This sentiment of discomfort marks a stark contrast with Fuyao’s story of economic success in Moraine, and it should become a wake-up call. 

The nature of modern FDI, particularly into developed countries or highly automated operations, is rapidly changing. Its jobs dividend is falling, and will fall further. In fact, other benefits are becoming more prominent. Fuyao’s profits expanded the tax base of local authorities; its automated operations provided a chance for at least some workers to upskill and embrace the opportunities of industry 4.0; its different corporate culture a chance for traditionally US-centric communities to open up to the global market. 

Local authorities and economic development organisations built the initial hype around Fuyao’s investment in Moraine mostly around jobs, creating expectations the company could not possibly meet regardless of its future success - a strategy that eventually backfired. Their narrative has to adjust to factor in the quickly changing nature of FDI; or else, FDI will keep stirring debate, even at the Oscars night, for all the wrong reasons. 

Jacopo Dettoni is deputy editor of fDi Magazine. Email: jacopo.dettoni@ft.com  - Twitter: @jdettoni