Cord-F. Koening is a student in the Graduate Program, School of Business, Georgia Southern College

Koening, Cord-F.

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Southern Business Review Volume 6 Issue 2 Article 5 September 1980 Foreign Investment in the United States Cord-F. Koening Georgia Southern College Follow this and additional works at: https://digitalcommons.georgiasouthern.edu/sbr  Part of the Business Commons, and the Education Commons Recommended Citation Koening, Cord-F. (1980) "Foreign Investment in the United States," Southern Business Review: Vol. 6: Iss. 2, Article 5. Available at: https://digitalcommons.georgiasouthern.edu/sbr/vol6/iss2/5 This article is brought to you for free and open access by the Journals at Digital Commons@Georgia Southern. It has been accepted for inclusion in Southern Business Review by an authorized administrator of Digital Commons@Georgia Southern. For more information, please contact digitalcommons@georgiasouthern.edu. FOREIGN INVESTMENT IN THE UNITED STATES Cord-F. Koening In the last years, the American public has shown increasing con bf .. . . cern a out ore1gn investment~ in the Untted States. Governmental invest· . t·k h F · iga-t1ons, 1 et_ e ore1gn Investment _Study Act of 1974, which responded to those worries. have shown no 111d1cat10ns which justify the public's con-~ern.' Ne-..ertheless, the idea of "selling out America" is still a subject of interest to American economic new,paper articles and therefore has sur-\ived in r,eople's minds. This r,ar,er "'ill summarize recent develor,ments in foreign investment in the United State,. Emphash "'111 be r,laced on foreign direct in-vestments since these generally bear more potential influence than port-folio investments. 1-oreign Direcl ln\estmcnt in the l'.S. Magnitude, A clover look at the development of the foreign direct investment posi-tion in the L"nited State, ~how, a significant increa\e of 440 r,ercent for the period betY.een 1962 and 1978, from S7.6 billion in 1962 to $40.8 billion in 1978. Specifically e\ident is the recent 200 percent increase from $13.7 billion in 1971 to 1978', $40.8 billion, \\hich occurred in a period in which t\\O drastic dollar depreciatiom took place. By year-end I 978, foreign direct investmenh accounted for 11 percent of total foreign as,et, m the United State,.· Although eminent, these figures lo,e ,ome of their expressiveness when compared with the degree of U.S. direct in\estment in foreign countries av shown in the following table: COMl'A Rl~O, BET\\ U ·, , L.~. DIRECl 1,,\ ESTME/\T I/lo FORl:-JG"I/ COl '\TRIES A ,n H)REIG' DIRECT l"II\ E T\1E:',T 1, I HE u ,1 n ,D STATE~ (in million dollars) ' In 1710 of l".S. Foreign Counlrie, U .~. po~itions 1973 103.675 l~.284 18°10 1974 118.819 22.421 I 90-o 1975 124,050 27,662 220'0 1976 135,396 30,770 230'0 1977 149,848 34,595 2307o 1978 168.081 40,831 24°'0 A\ the tahle shows, foreign direct inve~tment in the United States in• creased by $22,547 million between 1973 {$18,284 million) and 1978 ($40,831 million). This means an increa~e of 123 percentage points. The U.S. position of investment in foreign countries improved by only 62 percent between 1973 and 1975, an increase in dollars of $64,4'?6 million. In 1973, the United States had invested $85.391 million more in 20 foreign countries than foreign countries had invested in the United States. This d ifference increa,ed to $127,250 million in 1978. an increase of 49 percent in favor of the United States between 1973 and 1978. In 1978, fo reign investments in the United States totaled only 24 pen:ent of the same year's U.S. investment\ in other countries. Direct lnveslment Donor Countrie\ By country of foreign parent, owner\hip in the U.S. is "highly concen-trated." In 1978, eight countries had positions exceeding $1.8 billion, and toget her accounted for nearly 90 percent ol the total. The Netherland,. the heaviest investor in the United States, accounted for nearly 2-l per-cent of the total; followed by the United Kingdom and Canada, each ac-counting for more than 15 percent. Each of the remaining countrie, in order of size of position - Germany, Switzerland, the Netherland, An-tilles, Japan and France - accounted for 5 to 8 pen:ent. The 13 member, of the Organization of Petroleum Exporting Countrie\ together ac-counted for less than I percent of the total. Their positiom were primari-ly in real estate and manufacturing. • The Netherlands and the United Kingdom accounted for the largest total addition 10 foreign direct inve~t-ment in 1978. In 1979 roundup of the 100 largest foreign-owned companies in the United States aim shows a high concentration of o" ncr\hip. The United Kingdom accounts for 25 companies, Canada for 16. German~ for 15, France for 10, the Netherlands for 9, S,\itzerland for 7 and Japan for 5. None of the 100 largest foreign-owned companies i\ O\\ned hy OPEC countries. The 101\t company in the list, Sam P. Wallace, a $257 million sales construction company, is owned by a private Saudi Arabian in-vestor.• Many of the companic, listed in the table of the 100 large\t foreign-o,1ned have been active in the \late, a long time: Shell since 1912, Nc\llc since 1912, or Lever Brother, since 1897. Areas of Concentration of Foreii:n Uirl' l' t lnveMm,wt A closer look at foreign ''l.:oncentration" in ,pcdfa: manufacturing in-dustrie\ indicate\ that the word "concentration" hardly applies. Accord ing 10 a 1976 study by the U.S. Department of Commerce. only about 2 percent of U.S. manufacturing can be regarded a, foreign-controlled. Al the broadc,t \ ingle indu,try level defined in ,u,:h 1erm~ a, lood in-dumy, automot ive indu,try. chemical indu\try the amount of foreign control with the exception of petroleum refining ri,e, to no more than 6 percent. The interests of foreign in,e,tor, arc relatively ,1rong only in the following indu\trics: ' - pet roleum refining - metal\ - forest product, - food processing - chemicals - machinery a nd elect r ical product \ - automotive - construct io n - reta il trade 21 In the energy field, foreign-owned firms accounted for an estimat d 13 percent of total U.S. "refinery" capadty 10 percent of total e 1-I 7 1- . ' gaso me sa es, percent o petroleum production, and 4 percent of natu I production. ra gas Two fields of growing interc,t for European investors are metal d ·he I Th E · • · ' s an c ?11c~ ~- e ~ropean investors relatively decreasing labor costs, the ava:labtltty ~f primary energy (_coal). an? the possibility of introducing ne"_ producuon technologies will make I urther investment attractive. S~nce 197_1, mac_hinery and electrical products manufacturing com-panies have mcreasmgly sought location, in the United States. This ca afte~ t_he _dollar had first been devalued and foreign production in th:: ~pec1f1c fields had slowed. Foreign-owned manufacturers hold, never-theless, mentionable market share, only in the field, of farm machinery and con,umer electronic,. Traditionally, foreign partic_ipation in the U.S. "automobile industry" has been primarily through nnport s. This has changed slightly since Volkw,agen of Germany and Volvo of SY.eden operate assembly plants i_n the United Stat_es. Japanese and Italian inve,tments of thb type may lolloY.. Even foreign truck production can be anticipated in the United State, in the near future with Mercedes Benl ~till looking for a location and i\1AN - another We,t German truck manufacturer - having gone through some trouble to !ind a witable American partner.' Volkswagen is going to locate a second plant in Sterling Heights near Detroit, with beginning operations in 1982 totaling about twice the capacity of the c,i,ting plant in Ne" Stanton, Pennsylvania. ' Foreign indu,trie, in food proces,ing account for less than 6 percent of total 111duqry shipments. Nevertheles,, there are ,ome familiar names in this field, likr.:: Seagram. Le\er Brother, . Ne,tlc. Lipton or Cadbury -bu~incs,cs which hold strong ~ingk positions in their areas of activity. S1ill mentionable but already relatively weak is the po,ition of forest product, - predominantly Japanese owned - Y.hich account for 2 to 3 percent of thi~ industry·~ production. Equally in,ignificant i\ the foreign position in construction . Although foreign-ov.ned department \tores account for only 2 percent of U.S. "retail trade," much of the activi1y from abroad has gone on in this tield during the la~t 5 years, with foreign investors acquiring several well-known U.S. retailer\. A~ in manutacturing, foreign capital is far from playing a dominant role in agriculture and in banking. According to the aforemen1ioned 1976 U.S. Department of Commerce ,tudy, for the nation as a whole there i~ no ~trong basi, for a concern about foreign ownership of agricultural land and other real estatc. '0 Only about $0.9 billion, or 2 percent of the direct foreign inve•;tment position for 1978, was in real estate. " Other source,, however, reveal that the extent of foreign invest-ment in U.S. realty is groY.ing and possibly much greater. German and Duti:h investors in particular seem to be tempted by inve\tmcnts in shop· p111g centers, office buildings. housing projects and fa rmland. 11 It 15 rumored 1ha1 German, now own 40,000 square miles of the best farmland in the United States.'' American real estate companies observe that, opposed to former hit-or-miss operations, flows of funds in the real estate sector are more institutionalized and stabilized today." 22 At present, foreign banking is also insignificant, with a handful of banks operating in only nine states." But there seem to be excellent op-portunities for further foreign investments in this field. A recent study of the Fed on foreign acquisitions of U.S. banks ,hows that foreignen ;till own only 80 of the more than 14,000 U.S. bank\. In many of these 80 cases, foreign investment wa, very much fa\ored by the Fed as it added financial stability to "problem bank'>."" A very recent development i; the increasing number of foreign in-vestments and foreign takeover, in the publi;hing indu,try - a develop-ment which is expected to gain much momentum in the I 980's." Foreign Portfolio ln\Cstmcnt~ A government suney on foreign portfolio in~e,tment in the United States, conducted by the Treasury Department. ,hoY.ed that foreign portfolio investment in the United State, amounted to $67 billion at the end of 1974. Thb Y.a'> nearl} 200 percent higher than foreign direct in-vestment, which wa, $22.5 billion in 1974. About $25 billion \\a, in stocks, $16 billion in corporate bonds. and nearly $26 billion in U.S. government bond, and notes. Fi,e countries - S\\itLerland, the United Kingdom, Canada, the Netherland,, and Fran1.:e - accounted for nearly 75 percent of total foreign ,tock holdings. •• A ~tatement by a member of the Fed'\ Board of Governor, testifying before the U.S. House of Repre-;entatives indicated an enormous quantum jump in the amount of foreign portfolio investments: from S45 billion at the end of 1970 to nearly $300 billion by the end of :'\larch 1979, an inrn:a,e of 567 percent. ' 0 The share of OPEC countries in thh gro" th has been ,ubstantial. \\'hilc the OPl::C mun tries• increa,e in dollar denominated a;,et, ac-counted for only about one-fifth of the total increa;e for the period, their overall monetary resene, rme from less than $5 billion in 1979 to S53 billion at the entl of :'\larch 1979. an im:rca,e of 960 percent, l\ith by far the greatest amc1un1 accruing to OPl:-.C countric, located 111 the Middle East. Moreo1er, the OPl:C countries' holtlmg, reached a peak in 1977 and declined temporaril} tluring 1978 a, 1hcir ,urplus dim11mhed ." Condu,ion It is not the purpo~e of thi, paper to fintl a final a11,\1cr to the queMion of whether foreign inve'>lment in 1he Unitctl Staie~ is favorable or not. 8tt1 it is certainly po~,ible to ,ay tha1 there ts no threat to the U.S. economy a, a whole or to any major U.S. indu~try. On the other hand, foreign inve,tment create, a lot of beneficial ef-fect, for an econom}. Foreign direct inve,tmcnt a1,o atld, highly qua Ii ficd managerial and technological man poi\ er to the ho,t economy. Additionally, foreign ime,cmcnt \\ 111 encourage the bilateral tran,fer of technology anti induce increased competition, which tentl, to ha,e many po,itive effects like price retluction~ or improvements of tech no logie,. Foreign ime,tmcnt in the United State, "can mal,,.e tor gaim in O\erall U.S. production, productivity and employment."" The challenge i,sued by foreign tlirect investors, in a macro;encc, ha, been mastered very well by American cornpanie,. Income on total direct 23 inve~tment _was $4 billion in 1978;" $300 million less than Exxon's •79 profits, which of course reflect the increases in oil prices.'' The U.S. in-come from its direct investment abroad for 1978 was $25.7 billion or 543°·0 more than the total income from foreign direct investment in the U.S.'' A further rise in foreign inve,tment in the United States can also be at-tributed to a growth in internationali1ation of production and trade which would certainly eliminate many foreign animosities concernin~ American engagement, and intereq, in the international market. In the writer'~ opinion. foreign inve,tment\ in the United States will certainly increase, becau,e the mature but gigantic American market re-main, the mo,t attractive, chalknging and exciting field of dedication for e, ery entrepreneur in the world. 1-ootnotes "Where foreign intere,t, arc in U.S. Industry." Commerce America, Vol. I, No. 17, Augu\t 30, 1976, pp. 10-12. '"Foreign direct ime,tment in the U.S." Survey of Current Business, Vol. 56, Auguq 1976, pp. 39+. "Foreign direct inve,tmcnt in the U.S." Sun·ey of Current Business, Vol. 38. August I 978, pp. 39 +. "Foreign direct investment in the U.S." Survey of Current Business, Vol. 59, Augu,t 1979, pp. 38+. 'Ibid; and "U.S. di red in,e,tment abroad in 1975." Survey of Cur-rent Busmel-'>, Vol. 56. August I 976, pp. 40-60. "U.S. direct irne,tmcnt abroad in 1977." Survey of Current Business, Vol. 58, Augu,t 1978, pp. 16-39. "U.S. direct inve,tment abroad in 1978." Survey of Current Business, Vol. 59, Augtl'>I 1979, pp. 15-37. '"Foreign direct invc\lmcnt in the U.S.," 1979. "'Ne,,., targeh and tamiliar faces." Forbe1. July 7, 1980. pp. 90-99. ''"Where foreign interc,t, are in the U.S. lndu<,1ry," p. 10. ·1bid., pp. 10-12. '"The European into U.S. truck sales." Bt"ine~.1 Week. No. 2579, April 2. 1979, p. 34. "'Volk\wagen of America." Busrne~s Week. No. 2532, April 14, 1980, pp. 88-90. '"See: "Foreign direct invc~tment in the U.S.," 1976, 1978, 1979. " See Also: "lnvc~tment from ahroad." Commerce America. Vol. I. No. JO, May 10, 1976, pp. 4-6. ""Foreign direct investment in the U.S.," 1979. ''"U.S. realty continue~ to tempt foreigners." Business Week, Oc-tober l, 1979, pp. 51-54. 24 '"'Orang nach U.S.A." Forbes, July 17, 1980, pp. 82-86. ""U.S. realty continues to tempt foreigners," p. 5 I. " Lees, Francis A. Foreign banking and investment in the United States. New York, 1976, pp. 12-13. "Statement to Congress. Federal Reserve Bulletin, No. 65, August 1979, pp. 627-630. " Panelists: "Panelists predict increased foreign investment," Publisher's Weekly, No. 215, July 2, 1979, p. 20. " "Investment from abroad," p. 5. "Statement to Congress. Federal Reserve Bul/eun, No. 65, August 1979, pp. 523-527. " Ibid. "Foreign investment in the United States. The Conference Board, Inc., New York, 1976. ""Foreign direct investment," 1979, p. 38. ''" An oil giant's dilemma. Business Week, No. 2651, August 2.5, 1980, p. 60. '"'U.S. dire.:t in\estment abroad in 1978," p. 15. Cord-F. Koening is a student in the Graduate Program, School of Business, Georgia Southern College. 25 

Foreign Investment in the United States

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Foreign Investment in the United States

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