Foreign Investment and the Labor Market

The challenge involves promoting labor infrastructure for the well-being of workers and their families

According to the report World Investment Report 2021 According to the United Nations, the flow of foreign direct investment in Mexico decreased by 15 percent in 2020 compared to 2019. For 2021, preliminary data still indicates 3.95 percent less investment than in 2019, according to the Ministry of Economy. For an analysis of the behavior of foreign direct investment, we know that we have to consider everything that violates the country’s attractiveness, such as, for example, the new T-MEC rules, the impact of the Covid-19 pandemic on supply chains world, unforeseen changes in investment regulations, and even the relative progress in the digitalization of local manufacturing and service companies to function as suppliers. Despite these challenges and changes in the economic context of Mexico, little is said about the labor market and its role in the attractiveness of the country for foreign investment.

The analysis that multinationals make of a labor market includes educational institutions and their effectiveness in developing human capital or offering quality certifications, as well as the qualification of workers in the English language. In addition, they wonder about the effectiveness of labor laws for the protection of employment contracts, as well as for the rights of workers. Other topics are related to labor and company culture, such as the willingness of workers for labor mobility, compensation practices for performance versus seniority, or the power of unions.

The Global Competitiveness Report of the World Economic Forum measures the competitiveness of the labor market with components such as the protection that governments offer to workers to face any change in labor markets. That is to say, job security in times of unemployment, labor flexibility, permanent training and the protection of workers’ rights. In 2019, the measurement of the competitiveness of the labor market placed Mexico in 96th place out of 141 economies analyzed.

Along these lines, research shows that governments in emerging markets do not have the state capacity to successfully enforce international labor standards. Therefore, if government institutions are unable to build effective labor market structures through legislation, other actors with legitimate rights can do so and thus ensure the welfare of workers beyond regulations.

So the question is, how can multinationals compensate for institutional gaps in local labor markets that are conducive to investment in Mexico? The challenge involves promoting labor infrastructure for the well-being of workers and their families, which means strengthening labor institutions. This includes partnerships or alliances with local, state and federal agents, national companies and other multinationals. The following examples illustrate how Mexican companies compensate for highly specialized educational deficiencies in their workforce.

Orbia (formerly Mexichem) reports an Innovation Academy with the aim of promoting innovation in the company through training and education. In 2020, Orbia employees took this specialized innovation training that covered rapid prototyping, advanced analytics, circular economy, open innovation, among other topics. Industrias Peñoles, for its part, sees the need to train highly qualified engineers, which is why, since 2003, the company has operated a program to train engineers in the areas of mining, geology, electrical, civil, metallurgical, mechanical, chemical, industrial, accounting and business administration. In 2019, the company reported a total of 2,007 engineers graduated from this program. In addition, the company encourages the participation of young people from local communities in a robotics competition to promote technology in their academic training. Thus, highly qualified participants in these programs can aspire to work for the company. The company also ensures the training of employees in electricity, mechanics and instrumentation through an alliance with a local technical school.

A skilled workforce is just one of the factors required to make a labor market attractive to foreign investment. Multinationals will need to invest in this component, as do Mexican companies.

The author is Emeritus Professor of Leadership and Strategy at EGADE Business School, Tecnológico de Monterrey and her research focuses on the social role of human resource management.

Article originally published in El Financiero.

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