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.
What is notable about the Tata transaction is not its incremental addition to these numbers, but its demonstration of two critical but little-known aspects of insourcing: how and from whom it arises.
Consider first the how question. How do foreign multinationals undertake new FDI into the U.S.? It is well known that new FDI can come via “greenfield” investments that build new businesses from scratch. Think photo opportunities of business executives and government officials turning fresh dirt with shiny shovels.