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US: America for Sale: 2 Outcomes When Foreigners Buy Factories


by PETER S. GOODMANThe New York Times
April 7th, 2008

HOLLAND, Mich. — Four years ago, a low-slung factory on the fringes of town here was stagnating and shedding workers. Then Siemens, the German industrial giant, bought the plant and folded it into a global enterprise. Today, the factory is shipping wastewater treatment equipment to Asia and the Middle East and employing twice as many workers.

The Electrolux refrigerator factory in Greenville, Mich., was closed two years ago. The company sent production to Mexico.

“Globalization has been good for Holland,” said David J. Spyker, once the plant manager and now vice president of a Siemens unit with operations around the world.

About 60 miles to the northeast, such talk provokes contemptuous snickers. Two years have passed since a Swedish multinational shut down what had been the largest refrigerator factory in the country, a sprawling complex along the Flat River in Greenville.

The company, Electrolux, sent production to Mexico, eliminating 2,700 jobs from a town of 8,000 people.

“Everybody talks about Electrolux around here the way the rest of the country talks about Katrina,” said Becky Gebhart, manager of a nonprofit medical clinic that opened last November in Greenville, 30 miles northeast of Grand Rapids, that serves people with little or no health insurance.

As foreign buyers descend upon the United States, capturing widening swaths of the industrial landscape and putting millions of Americans to work for new owners, these two cities offer sharply competing narratives for a nation still uneasy about being on the selling end of the global economy.

And with the dollar losing much value in recent years, the pace is picking up again, as some of the country’s most valuable assets go on the block at bargain-basement prices.

For many communities, like Holland, Mich., the consequences include new jobs at decent pay, fresh capital to finance expansion and links to markets around the globe.

Yet many others, like Greenville, are suffering from being branded redundant by huge enterprises with factories around the world.

To travel Michigan today is to experience America’s often ambivalent relationship with the global economy.

Foreign capital is putting more American businesses in the control of major enterprises based in Europe or Asia. It is also creating jobs, some of them in emerging areas like alternative energy, where prospects for expansion may be greatest. And it is aiding the growth of American exports, a source of vigor in an economy hobbled by a collapsing housing market.

More than 200,000 Michigan residents worked for subsidiaries of foreign companies as of 2005, according to government data.

Yet in a state that has lost 300,000 manufacturing jobs since 2000, foreign investment has not been enough to compensate; indeed, it has sometimes exacerbated the erosion.

Gov. Jennifer M. Granholm, a Democrat, was bitterly disappointed by Electrolux’s decision to abandon Greenville.

She had promised to persuade the company to stay, assembling a package of more than $120 million in state and local tax credits. The city offered to build a new plant. The local union agreed to give up as much as $33 million a year in wages.

“They said, ‘There is nothing you can do to compensate for the fact that we are able to pay $1.57 an hour in Mexico,’ ” Ms. Granholm recalled during a recent interview. “That’s when I started to say, ‘Nafta and Cafta have given us the shafta,’ ” she added, using the acronyms for the North American and Central American free trade agreements.

Electrolux bought the Greenville factory in 1986 from an American firm. It succeeded for many years, but two decades later, Electrolux — like a lot of other companies — decided it could cut labor costs by moving production to another country.

As unemployment benefits expire, many of the city’s former workers are still seeking the next job. Sales at restaurants, hardware stores and car dealerships have plummeted, prompting them to dismiss workers, adding to a downward spiral.

Despite the bitterness, Ms. Granholm has traveled to Japan and Europe in pursuit of expanded trade and foreign capital. “We don’t want to just be victims of the global economy,” she said. “Pursuing international investment is one strategy to get jobs.”

The Economic Trade-off

Several factors have propelled the surge of foreign money reaching the United States. The dollar’s weakness against the Japanese yen and European currencies makes American companies cheap for many foreigners looking to invest. The United States remains the world’s largest market, and buying an American company is typically the swiftest way in. And in the wake of the mortgage crisis, American companies are finding credit scarce, making many willing to sell assets to raise cash.

Not least, the United States is living on borrowed money, with the value of imports exceeding exports by more than $700 billion last year. Selling companies to foreigners is one step toward squaring the accounts.

It is a business climate that creates all kinds of cross-border deals, like Ford’s sale last month of Jaguar, the pride of Britain, to Tata of India.

“To the extent that the United States continues to have low levels of savings, well, the rest of the world, they are not going to give us that excess for free,” said Matthew J. Slaughter, an economics professor at Dartmouth. “We have to sell them something. There’s no metaphorical free lunch for the United States.”

Between 1998 and 2007, foreign companies paid more than $1.7 trillion for major stakes in American firms or to set up operations in the United States, according to the Commerce Department. More than five million Americans work for domestic affiliates of foreign companies.

In 2006, affiliates of foreign companies reinvested $65.4 billion of what they earned in the United States, according to a study by Professor Slaughter underwritten by the Organization for International Investment, a Washington lobbying firm financed by foreign companies. They paid more than $335 billion in wages and salaries, for an average annual compensation of $66,042, nearly a third higher than the average private-sector job.

Three years ago, Congress prevented a Chinese state-owned energy company from buying Unocal, the California oil company. The following year, a company based in the United Arab Emirates failed in a bid to run several American ports. Sovereign wealth funds — state-controlled pools of investment from China, Russia and the Middle East — have stoked worries that they could skew markets by pursuing national interests.

But even as emerging players have grabbed headlines, more than two-thirds of the foreign capital buying American companies in 2006 still came from Europe.

Siemens is part of that wave. Since 2004, the company said, it has sunk more than $17 billion into buying American firms. That year, it paid $954 million for a company that made wastewater treatment equipment. And last year, it paid $3.6 billion for a business management software company, $2.7 billion for a maker of medical diagnostic technology and $7 billion for another medical testing company.

“A lot of the innovation remains in the United States,” said George Nolen, president and chief executive of the Siemens Corporation, the American subsidiary of Siemens AG, which is based in Munich.

The factory here in Holland, a town of 34,000 with shingled homes on tree-lined streets, was a part of those deals.

Holland is home to major office furniture makers, including Herman Miller. In the late 1990s, as the technology boom filled office parks from Silicon Valley to Boston, factories here cashed in by supplying the chairs. But when the bubble burst, Holland’s furniture plants laid off thousands. So did local auto parts factories.

The town hit bottom in 2003, when a Lifesavers candy factory shut down, shifting production to Canada to escape the high cost of American sugar — an industry the United States protects with tariffs.

But Holland is salvage-minded. When the Baker Furniture factory closed, a developer turned it into loft-space apartments and offices, with original wood floors and exposed brick walls lending an air of urban chic. A French designer of auto interiors set up shop upstairs.

Pfizer, the pharmaceutical giant, is shutting down a factory in Holland but will hand over a laboratory there to Michigan State University, which plans to use it as an incubator for alternative energy businesses.

Downtown, the newly opened CityFlats Hotel is a monument to natural light, sleek design and energy efficiency, with “green” certification to prove it. Furnished with recycled glass tiles and cork floors, it is the brainchild of Charles Reid, president of Charter House Innovations, whose local factory makes furniture out of recycled materials.

Mr. Reid is planning to franchise his hotel idea into a national chain, selling the furnishings to generate jobs for his factory, where the work force has nearly tripled, to 100, over the last five years.

“We’re a design company that happens to manufacture,” Mr. Reid said on a recent evening, presiding over a packed dining room at his penthouse restaurant. “I’m trying to keep our guys working.”

The German Giant

Into this landscape landed Siemens.

The previous owner of the plant had also been a foreign player: Vivendi, a French water company that reinvented itself as a media conglomerate in a strategy that yielded a jumble of ill-fitting parts. Vivendi was in the business of managing water plants, and it ordered the plant managers in Holland not to supply Vivendi’s competitors with equipment, they said.

“Our international business collapsed,” said Mr. Spyker, the longtime plant overseer, who grew to loathe meetings with his French bosses. “You were called over to get instructions, and all the orders had been made behind the scenes before you arrived. If I never have to make another trip to Paris, it’s too soon.”

Now, he would be making trips to Munich.

Mr. Spyker worried about Siemens’s reputation for bureaucracy, but he saw abundant upsides. The company had a presence in 190 countries. He could tap into this network to lift sales, particularly in fast-growing markets like China, where relationships with high-level officials are crucial.

“Now, we weren’t just dealing with a purchasing agent who might deign to see us,” Mr. Spyker said. “Now, we’re dealing at the ministry level.”

Revenue has tripled, the company says. The work force has grown to 237 from 105.

“Before, people didn’t see where their next paycheck was coming from,” said Jeff Whipple, a manufacturing supervisor who has worked at the plant since 1995. “Morale has definitely improved. People see the benefit of having a strong parent behind them.”

Greg Costner, a father of two, was hired as a machine builder in February after being laid off from his two previous jobs, at a factory that makes forklifts, then at an auto parts plant.

Mr. Costner, 46, says he now earns about a third less than he did at the auto parts factory, where he spent a dozen years. But a paycheck is a paycheck.

“With the world market the way it is, I don’t feel secure that I’ll be here until I retire,” he said. “I come in, I do the best job I can, and I hope for a good future.”

When the Benefactor Leaves

In Greenville, where Electrolux recently razed its old plant, leaving a bald patch of gravel, even that modest aspiration seems beyond the reach of many.

For decades, the refrigerator factory gave thousands of people — most with only a high school diploma — a middle-class life.

“We had 1,000 folks who hadn’t had to shop for a job in 25 years,” said Don Pellow, who was in charge of the bargaining committee at the old union chapter and now runs a state-financed jobs center. “You come to work every day, you’re a hard worker, but that doesn’t cut it anymore.”

Simeon Line, 54, and his wife had both worked at the plant for nearly 32 years when it closed. “I thought I’d die there,” he said.

They each made just under $16 an hour. It was enough to buy a house and a snowmobile. They took annual vacations to Florida.

Since Electrolux shut down, Mr. Line has applied for jobs at a lumberyard, as a dump truck operator and as a sales clerk at home improvement stores.

“It seems like the minute your toe is in the door,” he said, “they say, ‘We’re not hiring.’ ” His wife is training for a job in a beauty salon. His unemployment benefits recently ran out. “We’re spending our savings,” he said.

On Main Street, Huck Huckleberry, owner of a restaurant that bears his name, has shrunk his staff from to 12 from 32 since Electrolux left.

“It’s heartbreaking,” he said during a recent lunch shift, as the AC/DC anthem “Highway to Hell” blared through his mostly empty dining room.

“When people here were making a living, they bought houses, cars, paid for shoes,” he said. “On weekends, Mom and Dad would get groceries, then come in and have a steak and a beer, and life is good. They quit coming.”

Several businesses on his block have shut down, including a sports bar and an office supply store. Two tattoo parlors have opened up.

Greenville has gained one new industrial operation, United Solar Ovonic, a maker of solar panels. About a quarter of its 200 workers are former Electrolux people. Most are earning about $14 an hour — less than they made at Electrolux, but in an emerging industry and with a profit-sharing plan.

“I consider this my window of opportunity,” said Hope Conley, a former Electrolux worker, as she inspected freshly produced solar panels. “Instead of making products that are going in the landfill, we’re doing something for the world. I mean, the world needs refrigerators, but we need to get off that fossil fuel, too.”

For Greenville’s city manager, George Bosanic, the plant epitomizes the future he seeks as he courts new investment. A Swedish company may have broken Greenville’s heart, but he is eager for more foreign capital.

“We know this is a global economy and companies are going to come and go,” Mr. Bosanic said. “It’s a matter of taking advantage of what opportunities there are.”





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