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Why are Scots taxpayers subsidising a $4.8bn company?

Terry smiling headA Bermuda-registered company is expanding in Glasgow, creating 300 jobs in skilled roles. Great news for the city and a vote of confidence in the UK at a time when investment decisions are receiving additional scrutiny.

But why does a multinational company valued at $4.84 billion on the New York Stock Exchange need £3.1 million of support from the Scottish taxpayer?

The announcement that Genpact, a professional services company, was boosting its workforce came with news of a regional selective assistance grant from Scottish Enterprise, the government agency charged with stimulating economic growth.

This is no start-up business, or a company at a cash-strapped stage of its development. It was part of General Electric, one of the biggest companies in the world. It was spun-off in 2005 and two years later floated on the NYSE. It has big financial institutions among its shareholders.

Its clients include Fortune Global 500 companies. It  employs more than 77,000 staff in 20 countries, with key offices in New York City, Palo Alto, London, and Delhi.

It boasts on its website that revenue has grown from $491m to $2.57 billion in a decade. The company has paid handsome fees to global advisers including Morgan Stanley and Citigroup.

So why, with such a record of growth, does it need a handout from the Scottish government?

The Genpact expansion is being subsidised to the tune of £10,333 per job. Given that these are mid-tier roles this will account for a fair chunk of each employee’s salary.

Why couldn’t a company with a listing on the NYSE raise a measly £3.1m from its shareholders?

Five years ago Bain Capital paid more than $1bn for a stake in the company and, on the basis of Genpact’s growth since then, it will have seen a healthy return on that investment.

Bain bought in at $14.76 per share. They have been trading at a year-high of $28, or double the price Bain paid.

Surely it could have cashed in a few shares to pay for the Glasgow jobs. On the other hand, if Genpact is short of £3.1m then Bain Capital and its fellow shareholders ought to know about it.

Questions over the application of RSA have been raised repeatedly over the years when small Scotland-based companies (including Daily Business Ltd) get knocked back by Scottish Enterprise while cash-rich multinationals appear to be offered an open cheque book.

Of course, small firms don’t create hundreds of jobs, and hundreds of jobs attract positive headlines.

The official reasons given usually include the argument that such companies are mobile and able to pick and choose where they locate their jobs. In others words, RSA is an incentive to bring its jobs to Scotland. Let’s not put it any stronger than that.

Mohit Thukral, a Genpact senior vice president, told guests at the Glasgow announcement, who included First Minister Nicola Sturgeon, that the “Glasgow metro area has provided an exceptional talent base and favourable economic climate”.

Mr Thukral, one of several senior executives who exercised options on tens of thousands of shares in the company in the last few weeks, obviously sees Glasgow as an attractive location which has the sort of people the company wants.

Or was it just another case of spotting a gift horse in Holyrood?

 

 

 

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4 Comments to Why are Scots taxpayers subsidising a $4.8bn company?

  1. Stewart Gilmour says:

    Typical Scottish Government Shambles
    You try being a Small to Medium Scottish Company trying to expand and get this RSA grant, no chance.
    Oh I am sorry you are in the wrong area!!

  2. Jim Ireland says:

    The Tories gave Korea’s Hyundia (a multi billion dollar company) millions of UK taxpayers money in grants to build a semi conductor plant in Scotland that cost $2.4bn in construction costs which they in turn never used.

    Government’s the world over do it all the time, so why single out this particular deal?

    Other than to have a cheap dig at the Scottish Government/SNP!

  3. Ken Houston says:

    A straight answer to a straight question in your heading: “To make Holyrood politicians feel good about themselves”

  4. Colin says:

    I think the question should be what jobs are being created? Is this new talent being brought into the Scottish economy, raising the standard, or talent being drained from another Scottish business? Will that existing business now have to pay staff more, affecting it’s bottom line and profitability?

    What RoI will the Scottish Government get back on this? Are the staff, due to work in Genpact currently without work thus removing them form the Government’s social burden. Where is the corporation tax being paid to?

    There is some very good work being done by the local enterprises, supporting and understanding local business and this £3.1m could go a long we to creating the local entrepreneurs every Scottish town needs to create the new businesses for the future.

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