Corner Office | By Deborah L. Cohen
Immigrant workers in the U.S. and abroad, critical to the restaurant industry, are finding a more difficult work environment in host countries thanks to rising unemployment rates—a fact that could hinder sales at international quick-serves whose customers rely on funds sent home by relatives working in impacted countries.
In late January, Malaysian authorities announced that foreign workers from Indonesia and elsewhere were no longer welcome as the government attempted to protect citizens from job losses. South Korea has instituted a large-scale crackdown on illegal aliens. And in Spain, Spanish nationals were working their own fields during the harvest, a trend that has not occurred in more than a decade.
Already the depressed economy and anti-immigrant sentiment is serving as a deterrent to would-be newcomers. An apparent slowdown in the participation of foreign-born workers in the global labor force and the subsequent impact of their declining income on home markets could have a ripple effect on the fast-food sector in markets around the world.
“There’s kind of a policy of national preference in terms of hiring,” says Jean-Philippe Chauzy, spokesman for the Geneva-based International Organization for Migration, which tracks worker movement around the world. The group estimates there are about 200 million international migrants working globally, accounting for 3 percent of the world’s population.
“There are now policies to return immigrants to their countries of origin,” Chauzy says, noting that hostility is rising.
In the U.S. there are an estimated 23.5 million immigrants over the age of 18—both legal and undocumented—in the civilian work force, according to the Washington, D.C.-based Migration Policy Institute, a nonpartisan think tank. The leisure and hospitality industry accounts for 11 percent of those workers, who hail predominantly from Mexico and Central America.
But, in a trend reversal, there appears to be a reduction in the number of foreign workers willing to risk coming in to the U.S., a result of the high unemployment rate, which in early 2009 topped 7.6 percent.
“Most estimates, including data from Mexico, suggest that this flatness is due to fewer inflows,” says Aaron Terrazas, an institute researcher and co-author of a January report detailing the trend, which began with the start of the recession in late 2007. Along with the weaker economy, the institute cites stricter federal immigration enforcement and the proliferation of state laws targeting unauthorized workers.
It is unlikely that existing foreign workers will retreat back over the border unless the recession lasts for a prolonged period, Terrazas says. Foreign-born workers already in the market, especially recent immigrants, have a tendency to adjust more quickly to changing labor conditions than the native population.
So far, the slowing rolls of foreign-born workers entering the U.S. do not appear to have affected the availability of labor in the domestic fast-food sector.
“This is not an issue we’re seeing in the U.S.,” says Bill Whitman, a spokesman for McDonald’s Corp.’s domestic operations.
One reason might be what economists say is downward pressure on the work force, one of the few benefits the recession holds for the restaurant sector. Massive layoffs are prompting skilled and semi-skilled workers—both native and foreign born—to consider lower-paying jobs, including those in the service industry.
“There will be something like a bumping down, which means that the average quality of workers available to low-wage employers will rise,” says Peter Cappelli, a management professor at The Wharton School of University of Pennsylvania.
Among the concerns about a slowdown in foreign workers coming to the U.S. is the adverse impact on the dollars flowing out to less-wealthy markets such as Mexico and the Caribbean. The decline of these monies sent to families for essentials and discretionary spending, known as remittances, could hamper quick-service sales in those markets.
“The construction bubble in the U.S. slowing down certainly affects the immigrant workforce that sends a lot of money south into Latin America,” says Matthew DiFrisco, an Oppenheimer Equity analyst covering restaurants. Between the third quarter of 2007 and the third quarter of 2008, the unemployment rate for foreign-born Hispanics rose to 6.4 percent from 4.5 percent, according to the Migration Policy Institute.
“I think that it is going to hurt the quick-service guys that are on the ground there,” DiFrisco adds, noting that chains such as McDonald’s and Burger King, which have staked claims on those markets, have the most exposure.
Outside the U.S., in growth areas such as Asia and the Middle East, the global recession’s impact on visiting workers and their ties to the restaurant industry is playing out in similar ways.
The slowdown in construction jobs in oil-rich countries such as Saudi Arabia and the United Arab Emirates—which had fast been building luxury hotels and other attractions to fuel tourism—has resulted in the exodus of many Asian guest workers, the region’s largest source of outside labor.
DiFrisco suggests there might be a link between declining remittances sent home by these workers and a temporary weakening of high-flying quick-serve markets such as China. He sites recent results from Yum! Brands, the most dominant player in the world’s most populous country, as an example.
Yum, whose KFC division operates more than 3,000 units in China, released earnings in early February showing that fourth-quarter same-store sales in the country were up just 1 percent, compared with year-earlier growth of 17 percent.
Even so, KFC and other players who are steadily adding units in those markets appear confident for the long term.
“We’ve definitely seen the construction industry take a significant hit,” says Mike Shattuck, senior vice-president of Focus Brands’ international operations, “with many major projects being suspended and a high count of people being sent back home.” The chain operates more than 250 units, including Cinnabon, in Middle Eastern countries such as Qatar, Oman, and Bahrain.
“We do not expect a downturn in our brands that will result in releasing overseas foreign workers,” he says.



