Inward investing

YESTERDAY afternoon, as the youthful labour force at Lite-On was getting confirmation that two out of every three of them are redundant just a year after monitor assembly got under way in Lanarkshire, I took a call. On the end of the line was a senior electronics industry executive, a man who has successfully built up a thriving business here in Scotland from scratch.

He still owns a substantial chunk of it. If it goes on growing at the rates notched up in recent years, he'll retire a wealthy man. But he wasn't calling to crow. Or to announce a rescue bid for the threatened Mossend facility. He merely wanted to tell me about the first conversation he ever had with his opposite number in an Asian electronics group with whom he has done some business in recent years.

''We got down to comparing companies, and he asked me what my turnover was and whether we were profitable,'' my friend explained. The Asian executive didn't seem too impressed at the scale of my caller's Scottish venture, but was genuinely surprised that it was already making money. ''We turned over $100m in year one,'' countered the man from the Pacific Rim triumphantly. ''But we go profitable in year 17.'' In a different economic climate that might seem like the kind of long-term industrial thinking designed to send Gordon Brown and his Treasury coterie wild with delight. But in the context of the financial whirlwind now sweeping through so many of the Asian tiger economies, in the context of a

Jakarta in flames, it spells something much grimmer.

Seventeen years to get into the black means 17 years of heavy indebtedness to banks and other backers.

If, under the strain of spiralling interest rates, that mountain of industrial debt begins to collapse like a house of cards, following investor sentiment down into the rubble and dust, sending the Indonesian masses on the rampage, sacking department stores, and setting their social fabric to the torch, we should not be completely surprised that some of the more docile and casual victims, half-way round the globe, are workers like those on Lite-On's recently-opened assembly lines in Lanarkshire.

We already know the as-yet fruitless search for new sources of borrowing - we are talking borrowing in the billions of dollars here - lies behind the already vastly-indebted Hyundai's decision to mothball the shell of its semiconductor complex in Fife before a single chip has been produced. We were told this was merely a hiccup. We were reassured that the mainly family-owned enterprises of Taiwan were different from the sprawling industrial conglomerates of South Korea. But what has happened to Lite-On this week suggests that there too, businesses have been built on foundations of heavy and enduring debt, foundations that are beginning to crumble in the starkly chiller financial climate much of Asia now faces.

Of course, vast corporate indebtedness confronting punitive interest rates is only part of the explanation for this week's shock news. Asia's financial crisis has coincided with the pound's upwards surge in the foreign exchanges and that has made it harder for manufacturers here - whether they be Taiwanese or Scots - to sell their wares into the rest of Europe. And, perversely, the entire financial roller-coaster is taking place against a backdrop of weakening global demand for the kind of silicon-based products in which companies like Lite-On specialise.

Global computer industry leaders like Compaq have been reporting shrinking order books, and issuing profits warnings. It may simply be another blip in an industry grown used to shrinking margins and sometimes savage cycles of demand. But much the bigger fear is that an industry that enjoyed double-digit growth rates by persuading consumers they could not live without the very latest technology - technology which conveniently takes a quantum step forward every year or so - is finally encountering real resistance among customers.

Just walk into the nearest computer store. Not so long ago we were told we couldn't live without computers with Intel's Pentium chip inside. Then we were told that life would be unbearable without Intel's improved MMX technology. Eighteen months ago entry level MMX machines were selling for the best part of #2000. Now you can buy them for as little as #799, because the industry wants to persuade us all that we should junk our ancient MMX machines and invest in the even keener performance of Pentium II.

If the public finally says: Hold on a minute, I don't want or need your latest advance, then a lot more

plants than Lite-On will feel

the consequences.

Inward investment professionals will dismiss all this as reckless and alarmist talk. They insist their strategy is the right one and is firmly on course. Despite recent hiccups like Hyundai, Mitsubishi at Haddington, Viasystems in the Borders, and now Lite-On, Locate in Scotland still produces a steady stream of new projects willing to invest in Scotland and create jobs here. They will doubtless point out that the adverse conjunction of economic and market forces that have put Lite-On's lights out are extreme.

Extreme yes. But they came together. And projects like Hyundai and Lite-On which were trumpeted as the vanguard of a sustained new wave of investment from Asia are crumbling before the ink has dried on the hefty grant packages they were offered. It is time we revisited the essentials of the strategy and what it is trying to achieve.

Is it right to lure footloose investment here with substantial packages of public money, when some of these inward investors are so heavily indebted on a long-term basis, that they would be shown the door by every high street bank in Britain? Is it right to pursue a policy of filling up every link in the supply chain with further inward investments, again attracted here with handsome packages of public money, when there are indigenous suppliers already here, whose markets will inevitably be affected by these new subsidised arrivals?

The inward investment professionals will, on past form, resort to the kind of defensive, hurt reaction that demonstrates that they have never had to justify their strategy to their political masters, of whatever party stripe. But they owe it to those whose hopes have been so cruelly and prematurely dashed in Lanarkshire this week to engage in that debate with the wider Scottish community.

There is no political kudos for us in the latest big jobs announcement. We just want to be reassured that our money is being well spent.