77. In February 1996, the German firm, Jos. L. Meyer GmbH was negotiating for the right to build ships in the United States. The family-owned German shipbuilder, which specializes in cruise ships, gas tankers and other complex, laborintensive vessels would employ as many as 2,000 workers at the U.S. shipyard where wages and benefit rates would be significantly lower than in Germany.

Under the plan being negotiated, Meyer Werft (as the company is known)

would invest $60 million in the Philadelphia yard and seek additional private and public funding of about $300 million. The money would be used to enclose one of the yard’s huge drydocks and to fund worker retraining and facility improvements.

SOURCE: Adapted from Daniel Machalaba, “Germany’s Meyer Werft Seeks to Build Ships at Philadelphia’s Naval Yard,”

The Wall Street Journal (February 16, 1996), p. A4.

a. For labor-intensive operations, such as shipbuilding, how would labor quality considerations affect capital budgeting (and location) decisions of firms with global operations?

b. In addition to labor rates, what other factors might be considered in global firms’ location decisions for new capital investment?