Asseily, Anthony

Bateman, Ralph

Tanaka, Hitoshi

Wahl, Peter A.

English

eGrove (Univ. of Mississippi)

University of MississippieGroveTouche Ross Publications Deloitte Collection1975What are the requirements of foreign capital?Ralph BatemanPeter A. WahlAnthony AsseilyHitoshi TanakaFollow this and additional works at: https://egrove.olemiss.edu/dl_trPart of the Accounting Commons, and the Taxation CommonsThis Article is brought to you for free and open access by the Deloitte Collection at eGrove. It has been accepted for inclusion in Touche RossPublications by an authorized administrator of eGrove. For more information, please contact egrove@olemiss.edu.Recommended CitationTempo, Vol. 21, no. 1 (1975), p. 36-37WHAT ARE THE REQUIREMENTS OF FOREIGN CAPITAL? By RALPH M. BATEMAN President, Confederation of British Industry British firms have always been to the fore in foreign in-vestment in the USA. T h e book value of U K direct in-vestments is around S51/a bi l l ion, greater than those of any other s ingle country, and this f igure is under-stated. W h a t does it consist of? General manufacturing n ow accounts for about half the total value of all foreign d i r e c t i n v e s t m e n t s in t h e S l a t e s , w h i l e p e t r o l e u m has d is lodged insurance and other financial areas from second place. British figures mirror this trend. A n ambivalence has crept into official and Congress ional attitudes toward foreign in-vestments, however. Misgiv-ings have been demonstrated by a rash of bills drafted by Ralph Rate/van C o n g r e s s m e n . T h e s e r a n g e from demands that restrictions should be placed upon the fore ign-owned portion of a US company 's vot ing stock to proposals for a comprehens ive government study of foreign investment in the US. T h e reasons for these misgivings are undoubtedly as-sociated with the g r o w i n g attractiveness of investments in the US on cost grounds and low company price-earn-ings ratios. The emergence of the Japanese as an ex-porter of capital and the possibil ity of major acquis it ions by Middle East oil p roduc ing countries have exacerbated these feelings. US firms have felt themselves vulnerable, w h i c h added to the disquiet. My o w n belief is that this disquiet marks a rather be-lated movement by the US into l ine with other countries concerned about the spreading inf luence of multinational corporat ions in their territories. I do not anticipate any serious general constraints. There is a basic conf l ict be-tween tight restrictions on foreign investment here and the need to foster the larger overseas interests of US business. But the uncertainties do perplex (he foreign investor. Off ic ial US pol icy is to regard foreign direct investment as valuable and desirable, and there are virtually no laws w h i c h are designed or enforced that discr iminate against foreign investment. Taken together, however, the laws and regulations w h i c h do exist—however non-discr imina-tory—form a web in which foreign businessmen can be-c o m e so entangled as to inhibit their investing here. By PETER A. WAHL Paris representative, J, Henry Schroder & Co. I think it fair to say that (he great majority of European corporat ions suffer serious inhibit ions w h e n it comes to investing in the US. This may seem somewhat r idiculous, yet the fact remains that the v o l u m e and diversity of the US market, the reputation Amer ican corporations now have for size, organizat ion, and competit iveness, disturbs m a n y i n e x p e r i e n c e d E u r o -peans, w h o have the s inking feeling that they w o u l d meet all sorts of problems in con-troll ing their US subsidiary. However , many foreigners bel ieve that the US is one of the last remaining bastions of capital ism, and that in these times of c o m m o d i t y shortages, two commodit ies should never be in short supply. I refer to re-Peter Wahl sponsibi l ity and conf idence. At the end of 1973, long-term Amer ican direct invest-ments abroad were estimated to be roughly $120 bi l l ion, and foreign direct investment in the US $17.7 bi l l ion, I think it fairly obvious that existing foreign investments in the US can hardly be cons idered a threat—neither due to their s ize, nor to any concentrat ion in any industry. W h a t of the future behavior of foreign investors in the States? It is fair to say that investments wi l l increase, steadily if not spectacularly. I can think of three reasons w h y Europeans are attracted to the US. First, the dollar, a l though not cheap, still appears undervalued. Second, the prices asked for holdings in US corporations appear reasonable now, and it is easier to obtain the informa-tion one needs. A n d third, European companies are fed up with the so-cal led stop-and-go tactics of their o w n authorities, w h i c h m a d e forward planning hazardous. Apart from a theoretical threat from the Middle East, foreign direct investment here is a posit ive thing. Whether starting from scratch or buying existing companies , for-eigners contribute cash and technical expertise, create employment, and reduce savings requirements. In Europe, where the Amer ican contribution was only grudgingly ac-cepted, this was of immense value. Just as Amer ican c o m -panies abroad are meticulous in being law-abid ing and constructive members of their community , there is no reason to believe that foreigners in the US wil l not behave in an equal ly responsible manner. 36 O n October 21, '\974, the New York Of f ice conducted an educational symposium for investment bankers. Four renowned panelists offered insights on how foreign capital looks at investing in the United States. Excerpts from their discussion appear below. By ANTHONY ASSEILY Managing Director, J. Henry Schroder & Co. , Beirut It is estimated that M i d d l e Eastern oil revenues in 1974 wi l l be between $65 and $75 bi l l ion, up from $'14 bi l l ion in 1973. This dollar increase is from a 13 percent increase In product ion. It is expected that a large part of these revenues wi l l remain unspent, and the estimates of the accumulated surplus by 1980 range from $200 b i l l ion to $600 bi l l ion. Apart from Kuwait , none of the surplus oil countries has t h e f i n a n c i a l i n s t i t u t i o n s needed to channel these funds. T h e y were caught unprepared in the same w a y consuming nations were—but on the other side of the fence. So they are not quite sure themselves how they ought to invest their sur-plus, and one ought to analyze Anthony Asseiiy what they are l ikely to want to do with it after they have met the needs of the Arab wor ld and of deve lop ing countries. W e should understand that oil is a deplet ing asset; it is not replaceable. These countries are produc ing more oil than they need for themselves, because oil is required by the world's industry. So it is essential to them that in-come-generat ing assets are acquired to replace the rev-enue that they wi l l not get w h e n the oi l is depleted. Their investment pol icy can take many forms. (1) In-vestment in safe, low-y ie ld ing but capital growth situa-tions w h i c h w o u l d protect the fund holder against money erosion through inflation. Real estate might be suitable for this. (2) A downstream investment in the oi l industry. But given the l imited life of oi l wells, it makes sense for surplus countries to diversify their sources of in-come. (3) Investment in other industries that w o u l d be of help in their domest ic economies. If an assembly plant of trucks or tractors exists, for example, there is a preference to invest in those firms that supply parts or accessories for those plants. This argument seems to have inf luenced the Iranians in buying into Krupp in Germany. But oil c o n s u m i n g countries cannot advocate such re-cyc l ing of oi l revenues, and then stop it or put unac-ceptable condit ions in its way. And, if they refuse to meet oil producers on this issue of investment, they cannot expect producers to indulge the oil consumers' prefer-ence that producers sell their oil rather than conserve it. By HITOSHI TANAKA Senior Vice President, Yamaichi International (America) Japanese direct investment in the United States has be-c o m e active only since 1972. Before that time it repre-sented only one to two percent of the total outstanding investment in the US. In contrast, new investment from Japan dur ing 1972 was the biggest among ail countries with $109 mil l ion, j u m p i n g from $19 mi l l ion in 1971. Until recently, most invest-ment from Japan took the form of c a p i t a l c o n t r i b u t i o n by Japanese corporat ions to US subsidiaries primari ly engaged in sales and other services. T o -day, acquir ing US companies , establishing joint ventures with Amer ican partners, and bui ld-ing manufactur ing plants, are increasingly popular. The out look of investment Hitoshi Tanaka from Japan wi l l be inf luenced by the problems Japan faces today. First, there is a shortage of natural resources: petroleum, coal , i ron ore, pulp, and lumber. So Japanese industry is b e c o m i n g an active investor in countries w h i c h produce the natural resources it needs. Second, real estate prices and the pol lut ion problem are so serious that Japanese companies are seeking to expand in other nations, and the US certainly seems to have abundant land. Third, labor costs in Japan by 1980 may wel l pass those of the United K i n g d o m and Germany and c o m e close to the US, mak ing abun-dant and experienced A m e r i c a n labor more attractive. Fourth, the growing sentiment of protect ionism against imported goods may prompt Japanese companies to es-tablish themselves in countries where their market is, Fifth, iong-term capital is lacking in Japan, and the US offers an excel lent f inancing market for expanding over-seas business of Japanese companies. Japanese customs do create problems with mergers or acquisit ions, however, because to sell your c o m p a n y in Japan is not taken purely as a matter of business and economy, but rather as defeat and failure. In order to promote direct Japanese investment, therefore, particu-larly their acquis it ion of existing companies , you have to f ind an object ive for a Japanese company. Rather than wait for them to c o m e to you, you have to go to them and propose a concrete idea, and fol low up closely and patiently so that they understand the objective. 37 

What are the requirements of foreign capital?

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What are the requirements of foreign capital?

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