[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Monday, 6 November 2006, 20:19 GMT
Wales struggles to reinvent itself
By Clare Davidson
Business reporter, BBC News, Cardiff

LG Electronics sign
LG Electronics' closure marks the end of an era
The number of obviously new names on road signs in Cardiff indicate a city that is trying to re-style itself.

The Bay area and Mermaid Quay conjure up a vision of romantic, if entirely invented, areas that are being invested into.

The road to Newport however makes no such romantic allusions.

A decade ago hopes were high that it, and other south Wales towns, would become booming technology centres with the arrival of Asian electronics firms.

Since then, such hopes have collapsed, the final nail in the coffin being delivered by the South Korean TV and electronics firm LG, which is set to close its doors in January 2007.

Doomed

A decade ago, the mood was very different.

At the time, LG said it would invest 1.7bn ($2.75bn) in a new plant in Newport in 1996 and promised to create some 6,000 jobs, including 1,500 in the semi-conductor business.

The move was greeted with huge enthusiasm, though with hindsight many now say it was doomed.

In retrospect it was wildly wrong and overly ambitious
Brian Morgan, formerly of the Welsh Development Agency

"In retrospect it was wildly wrong and overly ambitious," says Brian Morgan, head economist for inward investment at the Welsh Development Agency at the time of the investment.

But the semi-conductor plant, potentially the source of sophisticated research and development (R&D), remained empty.

"It never had more than a night watchman," says Mr Morgan.

At its height, only 3,000 LG jobs materialised, about half of those promised, Mr Morgan estimates.

'Bleak'

The inherent flaws in the project might seem obvious now.

Carousel in Cardiff
Wales needs more than investment to create economic growth

But the huge faith placed on the arrival of Asian technology firms, including LG, was partly due to the lack of an alternative.

"At the time things were very bleak", says Mr Morgan. The coal industry had played a vital role in the Welsh economy.

But by the mid 1980s, mass pit closures signalled its demise.

The investment came after Black Wednesday, in 1992, when the then Conservative government withdrew the pound from the European Exchange Rate Mechanism (ERM), prompting huge financial instability.

Wales was desperate, which the Koreans were aware of and LG was a tough negotiator.

"The more desperate Wales became the more LG demanded," says Mr Morgan.

Low skilled

One of the key ways to create and maintain jobs is to develop skilled jobs says Jeff Greenridge, a director for Wales and Northern Ireland training firm Learn Direct.

Flat screen TVs
Traditional TVs have suffered competition from flat screen TVs

But LG's example focused on expediency and quick wins, and thus delivered the opposite.

"Effectively, [LG offered] factory-line jobs that existed only as long as the cost of the workers was relatively cheap," Mr Morgan says.

But in time, Eastern Europe and elsewhere became more attractive, and the jobs for skilled workers never materialised, he adds.

End of an era

LG's closure is symbolic because of the intended scale of the project.

But it was part of a wider trend of Asian firms, notably Japanese, that had similarly short-term horizons, and like LG employed low-skilled workers.

They too have left or significantly reduced their presence.

In 2005, electronics giant Sony announced plans to close its south Wales manufacturing plant in Bridgend, causing 650 job losses.

What might have been considered hi-tech when these firms arrived inevitably changed, but they failed to adapt.

If Wales is to learn from and avoid the pitfalls evident in the LG case, new opportunities require more than investment.

"We need a vision," says Mr Greenridge. "We can't compete on labour costs, but we can on a higher [intellectual] level."


SEE ALSO
LG plant supplier faces closure
19 Sep 06 |  South East Wales
Hundreds of jobs at old LG site
16 Aug 05 |  South East Wales

RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites



FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

PRODUCTS & SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific