Last Tuesday, while President Laura Chinchilla visited the United States to attract foreign investment, Baxter, the Deerfield, Illinois-based U.S. medical supplies company, announced plans to close a 35,000 square-foot facility in Sherbrooke, Quebec, Canada.
Scheduled for December, the plant’s closure means 135 jobs will be transferred to Baxter facilities in the U.S., Singapore and Costa Rica.
“The move is part of an ongoing company-wide focus on enhancing operational effectiveness in an increasingly globalized and competitive marketplace,” a statement from the Baxter headquarters said.
As for the 135 workers that will be unemployed in December, the statement said that Baxter will assist them in finding work during the next six months.
“The company is in the process of rolling out career counseling, job-search training and other assistance to support these individuals through the transition.”
While more foreign investment is good news for Costa Rican workers, on the other side of the picture, Canadian workers who once considered their jobs stable are now scrambling to find work. The Sherbrooke plant had been in operation since 1983 and celebrated its 25th anniversary in 2008.
“This is bad news for us and particularly for the employees that are losing their jobs,” Loise Bourgealt, vice president of the Sherbrooke Chamber of Commerce told The Tico Times this week. “There are no other types of similar enterprise in this region so workers that are highly skilled in medical devices will have no other options. They might have to move to find work.”
Baxter’s decision to close a plant and relocate jobs to Costa Rica is a trend that has become increasingly common in recent years. As foreign direct investment in Costa Rica reaches an all-time high including an estimated $1.45 billion in 2010, the closing of a company branch in another part of the world sometimes accompanies the trend.
In November 2009, Amway Global laid off 93 employees at its operation in Ada, Michigan, in the U.S. and moved them to Costa Rica. A week later, a Boston Scientific Corporation (BSC) plant outside of Miami, Florida, U.S. announced plans to shut down the installation and move 1,400 jobs to a new facility in Costa Rica (TT, Dec. 4, 2009).
“I have friends who still work there. Some attend my church,” former Boston Scientific employee David Rodríguez told The Tico Times in 2009. “From what I have heard, many, especially those who are older and have worked there for over 15 years and were hoping to retire at BSC, are shocked and worried about their futures. The reality is that there will be more than 1,200 people without a job in two years time and BSC will continue on” (TT, Dec. 4, 2009).
Traditionally, relocation strategies are associated with optimizing costs. In Quebec, the minimum wage per work hour is $9.65, meaning a 40-hour workweek earns a pre-tax payout of $386. While the Costa Rican minimum wage fluctuates according to profession, in 2010, the National Statistics and Census Institute (INEC) estimated that the average monthly income per person in Costa Rica was about $540.
“This has been happening here and in countries all over the world,” said Julio Acosta, a senior advisor at Infinitum, an international business-consulting firm based in Costa Rica. “Where wages are lower, companies will employ people there to do the labor at less cost… The trend will continue. And one day, if wages in Costa Rica increase, companies will outsource to a less expensive country. Companies will always look for the cheapest way to maximize profits.”
In 2010, Baxter reported that international sales exceeded $12.8 billion. Baxter’s first quarter earnings for 2011 exceeded $3.3 billion, a 5 percent increase from the same time period in 2010.
Could Jobs Move Out of Costa Rica?
Currently, foreign direct investment is thriving in Costa Rica. According to the Costa Rican Investment Board (CINDE), in 2010, there were 210 foreign-owned companies operating in the country, generating 58,472 jobs.
While 2010 was a record year for foreign investment, President Chinchilla and the Foreign Trade Ministry (COMEX) have set the goal for 2011 at $1.95 billion. Chinchilla has said that she hopes to rake in $9 billion in foreign investment during her administration.
But as foreign direct investment continues to boom, some consider the model to be potentially faulty.
In an interview with The Tico Times in March, Ha-Joon Chang, economist and professor of economics at the University of Cambridge in the United Kingdom, said that the Costa Rican foreign investment push is similar to the model used by Mexico in the 1980s and 90s.
“Relying on other people to come in and do things for you is a strategy that will work for a while,” Chang said. “But once you hit a certain level, for example a $10,000 per capita income like in Mexico, people will start saying this country is becoming too expensive and go somewhere else… there will always be a cheaper country out there” (TT, March 25).
In the last 10 years, prices of goods and services in the nation’s 292-product “basic package” have risen almost 102 percent. Costa Rica’s accumulated inflation rate is by far the highest in the region during the last decade: 17 percent higher than Nicaragua’s and 74 percent higher than Panama’s, which has a dollarized economy (TT, Feb. 4).
While Costa Rica is currently on the winning side of foreign company relocations, as the country becomes more expensive, there may come a day when companies close their doors here and look to optimize profits in a cheaper location.