Nothing finer than a plant in Carolina: BMW is the latest European company to set up in Spartanburg, South Carolina. Nicholas Faith explains what makes a sleepy southern town the prime focus for foreign investors in the US

The 82nd foreign company to set up in Spartanburg, South Carolina, created more of a stir than all the earlier arrivals put together. But then the latest arrival was BMW, 'a pure Hollywood name', in the words of an excited local, and its arrival was greeted in suitably stellar fashion. The little village of Greer outside Spartanburg, the actual site of the plant, shut down for the day to greet a cavalcade of BMWs, amid spontaneous rejoicing which, improbably, moved even BMW's dealers to tears.

The BMW investment confirmed Spartanburg's position as the mecca for foreign investment in the United States. The invasion had started back in the 1960s, in an era when it was generally accepted that American companies were inevitably going to dominate the world business scene for ever, and that European companies did not stand a chance (the Japanese were not even worth mentioning). In those far- off days, the small city in the foothills of the Appalachians had shone as a lone beacon of a countervailing tide, that of European investment in the United States.

These days it is having to run faster and faster because of ever-increasing competition from other American states; they are chasing foreign investment as eagerly as European countries sought out American companies a generation earlier. But with BMW, and a dozen other newcomers in the past few years including Siemens, Spartanburg has proved that it can remain No 1.

'The decision marks a coming of age for the state,' said one local proudly. 'There is no name more respected than BMW. It is proof that we've pulled ourselves up by our bootstraps, proof that the South has made it out of the days when its major attraction was that 'labour was cheap and docile'.'

The new assembly plant is as significant for BMW as it is for the host community, for it is the first established by BMW outside Bavaria. Until now, non-Bavarians have been entrusted only with the production of components. Not surprisingly, the world was BMW's oyster, with a choice of 250 sites in 10 countries, so its decision was an impressive vote of confidence in Spartanburg, not only as an ideal site for foreign investors, but as a city which could offer a workforce as skilled as BMW, with its passion for quality, could wish.

The whole story of BMW's new venture and the way Spartanburg responded to the challenge provides a textbook case of the way individual localities have learnt to respond to the growing demands of footloose international companies. Increasingly, the main inducements are no longer just financial (for cities, regions and countries now tend to provide very similar financial packages) but embrace a host of imponderables, such as training - and the extent to which the newcomer feels it will be made to feel at home.

At first sight, however, Spartanburg does not look like a town that has spent decades building itself into a hive of European manufacturing industry. Its centre has the shabby, run-down appearance still typical of countless southern towns. There are no high-rise office blocks or glass-plated corporate headquarters. The streets are dusty and somewhat sleepy, the people courteous, and so southern that they refer to the American Civil War as the War of Northern Aggression. Life moves with the slow rhythms of the traditional South.

By contrast, the quality of life is, by most European standards, high. The town's real attractions are its leafy suburbs, with their unpretentious but immaculately maintained clapboard houses, each set in what the Americans would call a 'yard' and Europeans an acre or more of grass and magnolias. Three hours' drive to the east are the beaches of the Atlantic, and the mountains and ski slopes of the Appalachians an equally easy drive west.

But the heart of Spartanburg beats outside the suburbs, not, as for so many American cities, in shopping malls, but in a ring of gleaming warehouses and factories, where Swiss and German flags flutter on their poles next to the Stars and Stripes, with such names as Hoechst, Michelin and Adidas emblazoned on their walls.

Spartanburg had previously fought shy of investments in foreign companies as large as the one required to capture BMW, if only because of their sheer size. 'The people here were rather leery of them, because they were simply too big,' says one local. 'After all, the state itself has only got 3.5 million people' - and the town, despite considerable expansion over the past 30 years, still has only 250,000.

But BMW was too juicy a fish to be allowed to escape. And now it has decided on the town, it is in a hurry to start production. The signs up in the company's temporary headquarters signal the countdown to the day late next autumn when it will start assembling the existing 3-series. Once the workforce has proved it can produce to BMW's strict quality criteria - perhaps even in 1995 - Spartanburg will be the only plant to produce 90,000 units of a completely new model for BMW's markets worldwide. This was a prize worth fighting for.

Spartanburg started its pitch for the German motor manufacturer with a number of obvious advantages. It is only a couple of hundred miles from a deep-water port and was at the crossroads of key rail links (and the interstate highways, which have taken much of their traffic) running inland from the coast and along the foothills of the Appalachians. And, crucially, Spartanburg was prepared to spend dollars 40m buying an 800-acre site near the local airport from more than a hundred owners, including some whose rather handsome residences had to be uprooted and moved off the site.

The cost and the disturbance were due to a new condition which BMW suddenly imposed, a mere three months before the decision was due: any site had to have direct access to an airport big enough to accept jumbo jets loaded with engines and the whole drive train of gearbox and axles, being airlifted from Bavaria. These could then be unloaded in the heart of the factory: 'the airport equivalent of a private siding' in the words of one observer. As a result, BMW adamantly refused to contemplate a comparable site less than a mile away, whose two owners would have been satisfied with less than dollars 20m.

Although there has been a lot of criticism in South Carolina of the extent of the aid, Spartanburg was fighting stiff competition. Most of the town's attractions were shared by many of the other 250 sites that BMW looked at around the world. Even within the United States, other states - notably the runner-up, Nebraska, which was offering a site near Omaha - matched the tax-breaks, loans and subsidies, estimated at dollars 135m, offered by Spartanburg and South Carolina. These subsidies went a long way to helping BMW with a total investment estimated at dollars 400m.

But it was not the pure financial arithmetic that decided BMW on the South Carolina town. Employment costs, for example, would probably have been lower elsewhere - in Spain, Mexico and other possible sites worldwide, which could offer even lower wages than the dollars 13-dollars 18 an hour BMW will be paying its US workforce.

So cost was not the only factor. Although it was not limited by geographical constraints, BMW was looking for an elusive combination of accessibility and a well-trained labour force.

One BMW insider points out: 'If the cost structure had been the only consideration, then Spain would have been the obvious choice.' As Bernd Pischetsrieder - who led the search team and this month takes over as BMW's group chairman - puts it: 'You can plump down whatever sort of plant you want anywhere. The question is whether you'll find an adequate supply of skilled workers and whether the transport conditions for products and materials are favourable.'

Here Spartanburg, like the rest of the state, has benefited from systematic investment in trade and technical schools over a generation or more. The main architect of this policy was Richard Riley, a recent governor, whom Bill Clinton has appointed his Secretary for Education in recognition of his pioneering efforts. Historically South Carolina has been near the bottom of the US league in adult literacy. Yet thanks to its technical schools, it is able to supply a well-qualified manufacturing workforce.

But the clincher, as BMW will freely admit, was 'the uniformly friendly atmosphere' encountered in Spartanburg by the 'spies' it sent to the city to test the local atmosphere. And it is no secret that Eberhard von Kuhnheim, the retiring chairman, enjoyed his visits so much that he was happy for excuses to visit the town.

At first BMW will not be a big employer, with numbers of workers rising from a few hundred in 1994 to 1,200 by 1996, although the company has said publicly that it expects to be employing 2,000 by the end of the century.

So the public contribution amounted to a gamble, since it could not really be justified in terms of the BMW plant alone. But already the gamble has paid off. The desired domino effect has begun. A number of suppliers, among them Hewlett-Packard, have already announced their intention to set up nearby factories to supply BMW with a variety of parts, in line with BMW's pledge 'to do its best to attract suppliers to South Carolina'.

For BMW itself, the decision to set up in South Carolina was little short of traumatic for a company which has been renowned for its conservatism since the bad days in the early 1960s, when it nearly went broke. 'All our other plants started modestly and grew organically over the years,' said Karl Fleischer, who moved to Spartanburg from his previous job as the director responsible for marketing BMW's German- made cars in the US.

The company's motto - 'the future belongs to the fastest, not the biggest' - looks particularly apt given the problems of its bigger German rivals, VW and Daimler-Benz. In fact BMW's decision was no sudden impulse: it was based on a strategy decided four years ago, based on a combination of factors: the German plants were clearly going to burst at the seams and BMW was anxious to 'iron out exchange rate fluctuations' - BMW-speak for an implacably rising German mark.

In the event, BMW coped with the problems better than its great rival Mercedes-Benz - which is also expected to open a plant in the South in the near future. Although BMW's North American sales have never recovered their 1986 peak of 97,000, they are climbing back from their low of 53,000 in 1991, and so far this year BMW is outselling Mercedes by two to one. Moreover, the rising prices of the once all-conquering Japanese are helping all other motor manufacturers, European as well as American.

BMW was determined to learn from the failure of an earlier German investment. In the late 1970s, Volkswagen bought a former General Motors plant in Ohio, but inherited a disgruntled, unionised workforce. It then compounded its problems by hiring a largely American management, because it felt that an American workforce would not respond to Teutonic discipline. The result was a failure to instil a respect for quality and a disastrous end to the VW reputation for producing cars which, whatever their design limitations, were sturdier and more reliable than the American competition.

BMW studied the VW example and naturally hopes to avoid the earlier problems. It is operating on a greenfield site and hoping the company's team-work ethic will blend with similar American notions. It is combining German technicians and production experts with a handful of American executives, recruited from the plant Honda set up so successfully in Kentucky in the late 1970s and which proved, for the first time, that an American workforce could match Japanese ideas of quality.

In a spectacular cultural leap, BMW is 'eliminating all hierarchical systems', in Fleischer's words. The change involves an end to what Fleischer describes as 'executive trappings', including parking slots and executive dining- rooms. BMW is also following the Japanese example in clothing everyone in smart white uniforms. Talking of 'a combination of empowerment and skills', BMW claims to be 'moving one step beyond the Japanese . . . by planning the work round a series of teams, with the team members so involved in each other's skills that they can take over for a day.'

It is a vision that is hard to square with the traditional style of the Deep South, and Spartanburg was not, at first sight, a likely candidate among the 250 contenders. But cognoscenti of international investment trends, aware of the city's previous successes, were not suprised by its victory. Spartanburg had flourished since it was founded way back in 1831 as a centre of the textile industry. It could offer water-power from the mountain streams, and, even more important, cheap, non-union labour, which has proved a key attraction for foreign companies nervous of American unions. Moreover, the local population, generally of Scottish or Irish Protestant extraction, shared the work ethic.

It was also relatively homogeneous - unusually in the South, blacks never numbered more than one in five of the population. The result was a community which was unused to, and unworried by, potential racial tensions.

Yet, equally unusually, Spartanburg was used to invasions of Yankees and other foreigners even before the first foreign company set up in the town. It housed large military bases in both world wars (Henry Kissinger swore his oath of allegiance to the US at one of them in 1943). Previous foreign newcomers included a sizeable Greek population - the local Episcopalians helped them build their own church before the war - who now run most of the best restaurants.

The city's invasion of real foreigners was sparked off by a decision made nearly 40 years ago by Roger Milliken, then as now the boss of the family textile firm which was the city's largest employer, when he moved his company's research and development laboratory down from New England. The centre naturally attracted the closely knit group of mostly Swiss and German manufacturers of specialised textile machinery. 'It was Roger Milliken who forced us all to come down here', says Kurt Zimmerli, a veteran of the foreign community.

At first they merely set up sales and service centres. But soon - and this was the origin of the city's fame as the centre of foreign business in the US - they expanded into assembly and manufacture, despite their natural hesitation.

A similar, research-based invasion of foreigners was sparked off by the establishment of the Triangle Research Park in North Carolina at the end of the 1950s. These poles of attraction have ensured that the Carolinas have attracted far more than their fair share of foreign investment in the past 30 years. But Spartanburg has always been in the lead.

The German and Swiss pioneers were deeply conscious of the supposed inadequate devotion of Amerian workers to their ideal of quality. But they, and now BMW, appreciate the state's systematic attempt to escape from the limitations imposed by the earlier failure to invest enough in training and education to attract employers looking for a skilled workforce.

By now the town has escaped being a purely German outpost: there are companies from all over the world - the latest and much-trumpeted newcomer is a Venezuelan company making bathroom fittings. Indeed, the region's biggest single foreign employer, Michelin, the French tyre manufacturer, with plants in the nearby city of Greenville as well as in Spartanburg, was attracted by the classic promise of low-cost and unorganised (but not particularly skilled) labour, plus the usual incentives.

But the other foreigners arrived because of Spartanburg's secret weapon. More than any other single factor, the shift in their attitudes was due to one remarkable man: the late Dick Tukey, then director of Spartanburg's Chamber of Commerce. He was a typically American backslapper, large, expansive, genial, his trademark a penchant for large Havana cigars.

Tukey's big breakthrough came in 1965 when, after a hectic 26-day campaign, he attracted a pounds 10m investment by Hystron Fibers, then a joint venture between Hercules Powder and Hoechst, now the plant's sole owner. Tukey spread the gospel even more widely in an unprecedented visit to the International Textile Machinery Show at Basel in 1967. He saw clearly that, in his field anyway, the Europeans were and were likely to remain ahead of their US competitors.

But he did more than lure foreign investors: he took care of his proteges from their first visit until they were properly settled, accommodating them in his own home when necessary, finding them homes and schools, introducing them to local society - and attracting some grumbling that he was concentrating too much on foreign prospects at the expense of domestic ones. Tukey lived up to his motto: 'I'll do anything to get 'em here and help 'em get in the black. Then word of mouth does the rest.'

The newcomers also felt at home because 'Spartanburg was the sort of medium-sized industrial town more common in Germany and Switzerland than in England,' says Bryan Little, one of the few Brits to have settled in the town. 'Dick Tukey took them to the appropriate bank, to the right lawyer,' says Kurt Zimmerli, 'and this was important in what remains a very clubby environment . . . we're still taking advantage of the momentum he generated' - even though Tukey died in 1979.

In the late 1960s, Tukey had secured the crucial support of John West, one of the first South Carolina governors to appreciate the potential of foreign investors. His successor over the past few years, Carroll Campbell, provided similar backing - and appointed the former manager of Hystron Fibers, Paul Forster, honorary ambassador for the state of South Carolina in Europe. It was Forster, too, who rounded up the heads of 40 German companies to write to BMW, lauding the town's attractions - the sort of gesture no other city could hope to match. For the town had become such a home from home for German companies that Handelsblatt, the leading German financial newspaper, opined that 'anyone who wants to go to the United States has to look at Spartanburg'.

The Governor, Forster and their colleagues enjoyed the somewhat unexpected backing of Roger Milliken, who, like his fellow textile tycoons, realised increasing mechanisation of their industry meant that the city needed a continuous flow of new employers to replace the jobs their own companies were going to shed.

UNUSUALLY, the jobs created over the past generation have been mostly in manufacturing. Over the past century Atlanta, three hours' drive away, had established itself as the financial and commercial hub of the new South, while Spartanburg stuck to its old-fashioned notion that industry was about manufacturing.

The insistence on industrial rather than commercial growth has had one undesirable consequence: the shopping facilities remain pretty minimal. But, curiously, the town remains thoroughly American, with few outward signs of the foreign invasion. This derives partly from Tukey's policy of ensuring that the newcomers did not live in ghettos: in addition, the number of expats has not increased in line with the international expansion, if only because foreign companies now trust American executives more than they did 30 years ago. In some cases, too, the newcomers have merely taken over local businesses and retained existing managements.

Richard Pennell, who runs Metromont Materials, an RMC subsidiary producing concrete products, claims he has to find excuses to visit his nominal bosses in Surrey, Britain.

Unsurprisingly, the majority of foreigners are only too happy with the American standard of living - houses with spacious gardens available for under pounds 100,000, although their normal habit of renting accommodation involved a package of houses put together by Spartanburg's real estate community.

Of course it is easy to track down lonely and disgruntled wives, who no longer enjoy the personal help of Dick Tukey and his wife but, in a notable tribute to the state's efforts, most parents are happy with the local educational system.

There are inevitable effects on the local culture: the town already had a reputation as a musical centre and concerts are better and more frequent than is usual in the boondocks. Equally, no other Southern city celebrates the Swiss national day on 1 August with such fervour, or has such a splendid Oktoberfest. Few American towns of any size have such a wide range of German sausages - or German wines and beers - as Spartanburg. Moreover, and perhaps inevitably, the best restaurant in town is called Cafe Vienna, and it serves echt Mittel- European food and good German beer.

But perhaps the most fundamental cultural shift has been sporting: to the disgruntlement of many American parents, their kids now play soccer-style football rather than American gridiron. The local football club, managed by the (Swiss) director of the poshest local country club, has 14 nationalities in its two teams. It was only a matter of time before the locals discovered that training in foreign ways can extend a good deal further than the factory floor.