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U.S. direct investment abroad: 1989 benchmark surveys results.

U.S. Direct Investment Abroad: 1989 Benchmark Survey Results

This article presents preliminary estimates on the operations of nonbank U.S. multinational companies (MNC's) from the BEA 1989 benchmark survey of U.S. direct investment abroad (USDIA). The 1989 benchmark survey updates universe estimates based on data from BEA's annual sample surveys of USDIA for nonbenchmark years. Compared with the annual surveys, the benchmark survey gives a more complete view of U.S. MNC operations in two ways: (1) It collects data from the USDIA universe rather than from a sample of companies from which universe estimates are derived, and (2) it collects a wider range of data items.

The following are highlights from the 1989 survey.

* U.S. MNC's had worldwide assets of $6,219 billion and sales of $4,400 billion, and they employed 25.3 million workers in 1989.(1) U.S. parent companies accounted for about three-fourths, and their foreign affiliates for about one-fourth, of U.S.-MNC worldwide operations (table 1).

* U.S. parents' share of all U.S. business was much larger in manufacturing than in other industries. In manufacturing, U.S. parents accounted for 66 percent of the sales and for 55 percent of the employment by all U.S. businesses.(2) In all other industries combined, U.S. parents accounted for only one-tenth of all-U.S.-business employment.

* European affiliates accounted for the largest share of all affiliates' operations; they accounted for more than one-half of the assets and sales and for about two-fifths of the employment of all affiliates. Within Europe, affiliates' operations were largest in the United Kingdom. By industry, manufacturing affiliates accounted for the largest share of all affiliates' operations; they accounted for more than one-half of the employment and sales and for more than one-third of the assets of all affiliates.

* Majority-owned foreign affiliates (MOFA's) accounted for about 80 percent of the operations of all nonbank foreign affiliates (table 2).(3)

* The most common motivation for U.S. direct investment abroad is to sell goods to unaffiliated customers in local markets. Sales of goods by MOFA's to unaffiliated customers in local markets were $672 billion, or about two-thirds of total MOFA sales.

* MNC-associated U.S. exports were $241.5 billion, 67 percent of all U.S. merchandise exports; MNC-associated U.S. imports were $192.6 billion, 40 percent of all U.S. merchandise imports.(4)

* Expenditures for research and development (R&D) performed by U.S. parents were $81.1 billion; these expenditures accounted for 85 percent of industrial R&D performed by all U.S. businesses.(5) Expenditures for R&D performed by MOFA's were $8.0 billion.

* In most host countries, MOFA's in manufacturing pay their production workers more per hour, on average, than do other manufacturing companies in those countries.

* MNC employment declined slightly from 26.1 million in 1977 to 25.3 million in 1989. Underlying slight declines in both parent and affiliate employment were offsetting changes among industries, and, for affiliates, among areas. Declines in affiliate employment were particularly large in Europe, Canada, and Africa; increases were particularly large in Mexico and in most of the newly industrialized countries of the Pacific Rim.

The estimates presented in this article cover the financial structure and the overall operations of nonbank U.S. parents and their nonbank foreign affiliates. Data collected in the benchmark survey on banks and on transactions and positions between U.S. parents and their foreign affiliates will be available next fall, when final results of the benchmark survey are published.(6)

This article briefly reviews the changes in MNC operations in 1989, examines trends in MNC operations in terms of employment for 1977-89, and discusses selected aspects of MNC operations in 1989. Finally, the coverage and methodology of the benchmark survey and changes in the presentation of results are discussed. In the following analysis, information from outside sources, mainly press reports, is used to supplement BEA's survey data.

Changes in MNC operations in 1989

The 1989 benchmark survey featured improvements in the coverage of the MNC universe. (For details on the improved coverage, see the section "Coverage and Methodology of the Benchmark Survey.") These improvements introduce an element of noncomparability between the 1989 estimates and the estimates for 1988 (and for 1983-87) that were based on annual surveys. The noncomparability is small for aggregate measures of MNC operations, but comparisons for individual countries or industries should be made with caution.

In 1989, three key aggregate measures of U.S. MNC operations--assets, sales, and employment--grew faster than they had on average during the previous 6 years. Excluding the effects of the improvements in coverage so as to place the 1989 estimates on a consistent basis with earlier estimates, MNC assets increased 11 percent in 1989, compared with an 8-percent average annual rate of growth during 1982-88. MNC sales increased 9 percent, compared with a 3-percent average annual increase, and MNC employment increased 3 percent, compared with a very small decline. (Including the improvements in coverage, MNC assets increased 12 percent in 1989, sales increased 9 percent, and employment increased 5 percent. See tables 16-22 at the end of the article.)

Trends in MNC Employment, 1977-89

Of the three key measures of MNC operations that can be used to gauge trends in MNC operations, the change in assets and in sales differed markedly from that in employment from 1977 to 1989. Assets of U.S. MNC's grew at an average annual rate of 10 percent, worldwide sales grew 7 percent, and employment declined slightly. This section focuses on trends in employment because, unlike assets and sales, employment is not directly affected by changes in prices and exchange rates. The discussion covers employment trends from 1977 to 1989--both of which are benchmark years, when BEA surveys the entire universe of U.S. parents and foreign affiliates. In addition, considerable use is made of data from 1982, an intervening benchmark year.

MNC employment declined from 26.1 million in 1977 to 25.3 million in 1989.(7) Worldwide economic recession in the early 1980's induced companies to bring costs in line with sluggish sales by reducing employment. After 1982, employment continued to decline through 1986 and then recovered to the 1982 level by 1989. A large decline in manufacturing, partly reflecting increases in productivity, more than accounted for the overall decline. In petroleum, a decline resulted from the shedding of labor-intensive nonpetroleum-related operations. Partly offsetting these declines were increases in all other major industries, especially in "services."(8)

U.S. parents

U.S. parent companies employed slightly fewer workers in 1989 than they did in 1977--18.7 million, compared with 18.9 million (table 3). Decreases in employment in manufacturing and petroleum were largely offset by increases in other industries, particularly in "services" (chart 4).

The small decline in employment by U.S. parents contrasts with a 33-percent increase in employment by all U.S. businesses since 1977. The different growth rates partly reflect a difference in industry mix between U.S. parents and all U.S. businesses. "Services," the fastest growing industry in terms of employment, accounted for a much larger share of all-U.S.-business employment than of U.S. parent employment in 1989--30 percent, compared with 10 percent. In contrast, employment in manufacturing, one of the slowest growing industries in terms of employment, accounted for a much smaller share of all-U.S.-business employment than of U.S. parent employment--21 percent, compared with 57 percent.

The decline in parent employment between 1977 and 1989 resulted largely from efforts to trim operations in response to macroeconomic and industry-specific changes. Weakness in domestic economic activity led to a decline in parent employment between 1977 and 1982. During those years, and also through 1989, many parents in petroleum and manufacturing retrenched. In petroleum, the decline in employment was related to falling crude oil prices in the early- to mid-1980's; in manufacturing, it was related to falling market share, which was lost to rising U.S. merchandise imports, and to the increasing capital-intensity of production. In addition, the large number of mergers and acquisitions involving U.S. parent companies caused employment to decline as duplicative jobs were eliminated.

Parents in integrated refining and extraction accounted for most of the overall decline in petroleum; their employment fell from 709,000 in 1977 to 478,000 in 1989. During the mid-1970's, some of the largest parents in this industry--bolstered by high profits, which provided an inexpensive source of funds--had diversified into other industries, such as retail trade and electronics manufacturing. Parent companies sought diversification partly to secure their long-term profitability, which was threatened by increased control of crude oil production and prices by oil-producing countries. A decade later, in 1984-86, oil prices and parent-company profits fell sharply, which prompted some parent companies to sell their peripheral nonpetroleum businesses and to substantially reduce their technical and managerial personnel.

In manufacturing, parent employment fell from 11.8 million in 1977 to 10.1 million in 1989. Increased competition from foreign producers caused many parents to scale back operations and to increase efficiency by reducing technical and managerial staffs and by adopting labor-saving technologies.(9) The decreases in employment were particularly large in primary metals (from 991,000 to 334,000), in textile products and apparel (from 668,000 to 322,000), and in motor vehicles and equipment (from 1.4 million to 1.0 million).

In contrast to the declines to petroleum and manufacturing, parent employment was higher in 1989 in "services," in finance (except banking), insurance, and real estate (FIRE), in transportation, and in wholesale trade. In "services," increases were notable in several consumer-oriented service industries; however, most of the overall increase occurred in "business services not elsewhere classified" (especially in personnel supply services). In FIRE, the most rapid growth occurred between 1977 and 1982 and was centered in insurance. For the remainder of the 1980's, employment in FIRE grew more slowly, as increases in nonbank finance were partly offset by decreases in insurance. In transportation, the increase resulted from the addition of some very large U.S. parents, mainly airlines, to the survey universe. (The addition of these parents' affiliates had a much smaller effect on affiliate employment because the affiliates accounted for only a small fraction of the parents' worldwide operations.) In wholesale trade, increases were widespread.

Foreign affiliates

Nonbank foreign affiliates employed 6.6 million workers in 1989, down from 7.2 million in 1977. Weakness in worldwide economic activity led to a decline in affiliate employment between 1977 and 1982. During those years, and also through 1986, some parent companies shed foreign affiliates in order to concentrate on their core domestic businesses, which were threatened by rising competition from foreign producers and by hostile takeovers. Some affiliates were sold in response to worsening host-country economic conditions, such as those caused by the burdensome increases in debt-service requirements of Latin American governments. In the case of South Africa, some affiliates were sold because of U.S. public sentiment against South Africa's social policies and because of U.S. legislation discouraging direct investment in that country. Also contributing to the 1977-86 decline in affiliate employment were increases in productivity due to the introduction of labor-saving technologies. After 1986, affiliate employment grew, reflecting renewed emphasis by U.S. parents on foreign operations. Manufacturers and providers of services were attracted by favorable conditions abroad, particularly prospects for greater European economic integration and for rapid economic growth in the Pacific Rim.

The decline in employment by foreign affiliates contrasts with increases in overall employment in some host countries. From 1977 to 1989, affiliate employment in OECD countries decreased 8 percent, while total employment in these countries grew 11 percent. The disparate growth rates may primarily reflect selloffs of foreign affiliates during 1977-82; after 1982, the growth rates of affiliate and OECD host country employment were similar.

By area.--The small decline in affiliate employment between 1977 and 1989 reflects offsetting changes among areas. The declines are concentrated in Europe, Canada, Africa, and South America, and the increases are concentrated in Central America and in Asia and Pacific (table 4, chart 5).

In Europe, affiliate employment fell from 3.1 million in 1977 to 2.7 million in 1989. It declined sharply during 1977-82, probably because of the recession in many countries; after 1982, affiliate employment decreased slightly. The 1977-82 decline was widespread, but the decreases were especially large in the United Kingdom and Spain, where a number of manufacturing affiliates were sold.

In Canada, affiliate employment was 945,000 in 1989, down from 1.1 million in 1977. Employment showed a pronounced drop between 1977 and 1982 and increased slightly thereafter. The 1977-82 decrease was widespread, particularly among manufacturing industries.

In Africa, affiliate employment fell from 287,000 in 1977 to 120,000 in 1989. The sharpest declines occurred after 1982 and largely reflected selloffs of affiliates in South Africa.

In South America, affiliate employment fell from 771,000 in 1977 to 651,000 in 1989. From 1977 to 1982, the decline was concentrated in Argentina, Brazil, and Colombia and resulted from divestitures and reductions in capacity, partly in response to deteriorating economic conditions.(10) Much of the decline after 1982 reflected selloffs of Venezuelan affiliates.

Affiliate employment increased in two regions--Central America and Asia and Pacific. In Central America, affiliate employment grew from 480,000 in 1977 to 604,000 in 1989. Especially rapid growth in Mexico reflected the establishment of affiliates along the U.S. border to take part in the maquiladora program(11) and the expansion of affiliates in central Mexico in response to the country's economic revitalization and improved climate for foreign direct investment.

In Asia and Pacific, affiliate employment grew from 1.2 million to 1.4 million. Over one-half of the increase was in Australia and was attributable to the acquisition of minority-owned affiliates; employment by majority-owned Australian affiliates declined. The increases in employment in East Asian countries, such as Thailand and Singapore, were in response to the region's rapid economic growth and to the relatively open direct investment and foreign trade policies in some of the newly industrialized countries. Employment by Japanese affiliates declined in 1977-89, but the decline mainly resulted from the sale of a minority interest in a large company between 1977 and 1982; employment by majority-owned affiliates in Japan doubled from 1977 to 1989.

By industry.--The small decline in affiliate employment between 1977 and 1989 reflects larger offsetting changes among industries; declines in most manufacturing industries, construction, mining, and petroleum refining more than offset increases in retail trade and "services" (table 5, chart 6).

Manufacturing affiliates employed 4.2 million workers in 1989, down from 4.8 million in 1977. The decline in manufacturing employment was centered in industries in which U.S. parent companies experienced vigorous domestic competition from foreign producers--primary and fabricated metals, consumer electronics, tires, automobiles, and textiles. In some cases, the declines resulted from the shedding of foreign affiliates as part of a worldwide restructing. In other cases, the declines reflected the adoption of labor-saving production techniques.

In primary and fabricated metal products, affiliates employed 222,000 workers in 1989, down from 396,000 in 1977. The decrease partly resulted from the sale of steel- and aluminum-producing affiliates. In steel, a large U.S. parent sold off foreign assets as part of a global restructuring intended to ward off a takeover attempt. In aluminum, several affiliates in the United Kingdom and India were sold in the early 1980's, as producers sought to cope with high energy costs and falling aluminum prices.

In household audio and video and communications equipment, affiliate employment fell from 250,000 workers in 1977 to 153,000 in 1989. Several large diversified U.S. parent companies sold their consumer electronics operations to foreign producers so that they could concentrate on more profitable business lines.

In rubber products, mainly tires, affiliate employment fell from 183,000 in 1977 to 109,000 in 1989. During the 1980's, some parents sold foreign affiliates to raise funds for capital investment to meet rising competition in the United States from Japanese and European producers.

In motor vehicle manufacturing, affiliate employment fell from 838,000 in 1977 to 701,000 in 1986 and increased thereafter to 795,000 in 1989. In the late 1970's and early 1980's, a shift in consumer preferences toward smaller, more fuel-efficient cars put U.S. auto producers at a competitive disadvantage vis-a-vis foreign producers. To increase their competitiveness, U.S. producers invested large sums to develop and produce new products. Because falling sales constrained profits, some U.S. producers sold off foreign operations to raise the necessary funds for investment. After 1986, affiliate employment in motor vehicle manufacturing rose again, as some U.S. producers focused on certain overseas markets where profits were higher and competition not so intense.

In textile products and apparel, affiliate employment fell from 142,000 in 1977 to 87,000 in 1989. The decline was widespread and probably reflected increased automation.

Outside manufacturing, affiliate employment declined in construction, mining, and petroleum refining. In construction, employment fell from 179,000 in 1977 to 54,000 in 1989 as a result of depressed activity and increased international competition. In mining, employment fell from 188,000 in 1977 to 89,000 in 1989. Much of the decline was in Africa, where some very large operations were sold, partly in response to declining commodity prices. In petroleum, employment fell from 370,000 in 1977 to 291,000 in 1989, partly because of worldwide overcapacity in the refining sector.

Affiliate employment grew in retail trade and in "services." In retail trade, employment increased from 426,000 in 1977 to 627,000 in 1989. Most of the increase reflected MNC's in the fast food industry seeking to expand beyond the saturated U.S. market. In "services," employment increased from 308,000 in 1977 to 483,000 in 1989; most of the increase occurred after 1982. Many "services" industries showed increases; however, the overall increase was largely centered in personnel supply services.

Selected Aspects of MNC Operations in 1989

This section presents an analysis of detailed data from the 1989 benchmark survey that were also collected in the previous benchmark survey but not in the annual surveys. These data--most of which were collected only for majority-owned foreign affiliates (MOFA's)--include U.S. merchandise trade by product, by intended use, and by destination or origin; compensation of and hours worked by production workers of MOFA's in manufacturing; research and development expenditures and employment by MOFA's and their U.S. parents; and sales of goods and services by MOFA's and their U.S. parents by destination and affiliation. This section also discusses the industrial specialization of MNC's in 1989.

Merchandise trade

Exports.--In 1989, U.S. merchandise exports shipped to MOFA's, at $97.1 billion, were 95 percent of exports shipped to all foreign affiliates and 40 percent of total MNC-associated exports (table 6). Most exports to MOFA's--$85.6 billion, or 88 percent--were shipped by U.S. parents.

By destination, exports to MOFA's in Canada were largest, at $37.8 billion (table 7). A significant portion of the exports to Canadian MOFA's--15 percent--were shipped by unaffiliated U.S. persons; these exports accounted for over one-half of the shipments to all MOFA's by unaffiliated U.S. persons. Factors contributing to the large trade with Canada were the 1965 U.S.-Canadian automotive trade pact, which eliminated tariffs on such trade, and the geographical proximity and economic similarities between the two countries. Exports to European MOFA's were $29.5 billion. Within Europe, exports to MOFA's in the United Kingdom were largest, at $7.7 billion.

By product, nearly two-thirds of total U.S. exports shipped to MOFA's consisted of machinery, both electrical and nonelectrical, and of road vehicles and parts.(12) Exports of chemicals and of "other manufactures" were also sizable. By intended use, exports for further manufacture accounted for 59 percent of exports to MOFA's, and exports for resale without further manufacture accounted for 38 percent; most of the remaining exports were of capital equipment.

Imports.--U.S. merchandise imports shipped by MOFA's in 1989, at $84.8 billion, were 91 percent of U.S. imports shipped by all foreign affiliates and 44 percent of total MNC-associated imports. Most of the U.S. imports from MOFA's--$72.4 billion, or 85 percent--were shipped to U.S. parents.

By area of origin, Canada accounted for 46 percent, the largest share of any major area, of imports from MOFA's. Mexico had the next largest share for a single country. Nearly all of the imports from Mexico were shipped to U.S. parents; these imports were largely of finished goods that had been exported by the parents to Mexico as components for assembly under the maquiladora program. Imports from Asia and Pacific, particularly Singapore, and from Europe, particularly the United Kingdom, were also sizable. Most of the imports from Singapore were of electronic components.

By product, the majority of imports shipped by MOFA's consisted of road vehicles and parts and of machinery--both electrical and nonelectrical. Imports of petroleum and products and of "other manufactures" were also substantial.

Compensation of production workers of manufacturing affiliates

For MOFA's in manufacturing, detailed estimates are available on the number of their production workers and on the number of hours worked by and the compensation paid to these workers (table 8). Employee compensation includes wages, salaries, and payments for employee benefit plans, such as pension funds, health insurance, and other fringe benefits.

In interpreting the estimates of compensation, it should be noted that the hourly rates are a measure of labor cost per unit of time worked, not a measure of labor cost per unit of output; these two measures can differ because of variations in productivity. The estimates of output required to measure labor costs per unit of output (that is, gross product originating in foreign affiliates) are not yet available, but BEA plans to prepare such estimates in the next year.

For MOFA's, the average compensation per hour of production workers was $10.46 in 1989. For countries in which affiliates employed more than 1,000 production workers, average compensation per hour ranged from $23.27 in Japan to $1.29 in China. Among the five countries having the most affiliate production workers, hourly compensation averaged $16.66 in Canada, $11.99 in the United Kingdom, $17.11 in Germany, $4.53 in Brazil, and $2.44 in Mexico. The average compensation per hour of production workers of manufacturing MOFA's in many countries is substantially less than the $14.31 average hourly compensation of production workers in manufacturing in the United States. However, production workers of manufacturing MOFA's in most countries earn more per hour, on average, than do all production workers in manufacturing in those countries.(13)

By industry, compensation rates ranged from $13.14 in nonelectrical machinery to $6.56 in electric and electronic equipment. The high rate in nonelectrical machinery reflects the relatively high proportion of employment in that industry that is in high-wage countries and the high level of skill required for the work. The low rate in electric and electronic equipment is partly due to the relatively large proportion of affiliate operations, particularly in electronic components and accessories, that is in low-wage countries, such as Malaysia and Singapore, and the relatively low level of skill required for assembly work.

Research and development expenditures and employment

Table 9 presents estimates of research and development (R&D) expenditures and associated employment by nonbank U.S. parents and their MOFA's, classified by industry. R&D expenditures are measured in two ways: (1) Those performed for a parent's or an affiliate's own benefit, either by themselves or by others on contract, and (2) those performed by the parent or affiliate, either for themselves or for others on contract.

U.S. parents spent $58.9 billion on R&D for their own benefit and employed 623,000 scientists, engineers, and other technical staff in R&D activities. MOFA's spent $7.1 billion on R&D for their own benefit, 11 percent of the MNC total, and had 95,200 R&D employees, 13 percent of the MNC total.

By industry, manufacturing accounted for the largest shares of total R&D expenditures for both parents' and affiliates' own benefit--86 percent and 81 percent, respectively--and of total R&D employment--87 percent and 83 percent, respectively. Within manufacturing, parents' expenditures were largest in chemicals, in nonelectrical machinery, and in transportation equipment. Affiliates' expenditures were largest in transportation equipment and in chemicals.

U.S. MNC's spent an average of $15.00 on R&D for their own benefit for every $1,000 of sales. U.S. parents spent more per unit of sales--$18.79 per $1,000 of sales--than their foreign affiliates--$7.03 per $1,000 of sales. For parents, R&D spending per $1,000 of sales was highest in "services," particularly in research, development, and testing services; however, the levels of R&D expenditures were highest by far for affiliates in manufacturing, especially in "other" transportation equipment, in household audio, video, and communication equipment, and in drugs.

R&D performed by U.S. parents, either for themselves or for others on contract, was $81.1 billion. R&D performed for others on contract was $24.5 billion; of that amount, $21.9 billion was for the Federal Government--mostly by parents in "other" transportation equipment. R&D performed by affiliates was $8.0 billion, of which $1.6 billion was performed for others on contract.

Sales of goods and services by destination and affiliation

In the benchmark survey, sales by nonbank U.S. parents and by MOFA's were disaggregated by destination, by affiliation of customer, and by whether the sales were of goods, services, or investment income.

U.S. parents.--Total sales by U.S. parents were $3,134 billion in 1989 (table 10). Sales of goods accounted for $2,213 billion or 71 percent, sales of services accounted for $798 billion or 26 percent, and investment income accounted for $123 billion or 3 percent.(14)

Of total sales of goods by U.S. parents, 88 percent were to U.S. persons and 12 percent were to foreigners. Over one-half of the sales to foreigners were to unaffiliated persons. Of total sales of services, 94 percent were to U.S. persons, and 6 percent were to foreigners were to foreign affiliates.

By industry, sales of services were largest in "other industries," particularly in communications and public utilities and in transportation, and they were next largest in finance (except banking), insurance, and real estate (FIRE). They were also sizable in manufacturing--especially in motor vehicles and computer manufacturing--and in "services."

MOFA's.--Total MOFA sales were $1,015 billion (tables 11-12). Sales of goods accounted for the largest share--87 percent, or $887 billion. Sales of services accounted for 11 percent, or $110 billion. Investment income accounted for 2 percent, or $18 billion. Most of the sales of both goods and services were to unaffiliated foreign persons in the affiliate's country of location. These sales reflect the fact that U.S. parents have invested abroad mainly to sell goods and services through affiliates to unaffiliated customers in local markets.(15)

By industry, sales of goods were largest--at $490 billion--in manufacturing. Within manufacturing, sales were largest in transportation equipment and in chemicals. Sales were also sizable in wholesale trade, particularly in durable goods.

By area, affiliates in Europe accounted for over one-half, or $505 billion, of the total sales of goods. Within Europe, sales by affiliates in the United Kingdom were particularly large--at $141 billion. Outside Europe, sales were largest in Canada--at $151 billion--and in Japan--at $48 billion.

By industry, sales of services were largest--at $33 billion--in FIRE; insurance affiliates accounted for about two-thirds of the total. Sales of services were next largest--$32 billion--in "services"; business services accounted for about one-half of the total, and most of these sales were by affiliates in computer processing and data preparation services. Sales were also sizable in computer and office equipment manufacturing, where affiliates provided services associated with the use and maintenance of equipment that they manufactured.

By area, affiliates in Europe accounted for over one-half, or $58 billion, of total sales of services. Within Europe, sales in the United Kingdom were particularly large--at $21 billion. Outside Europe, sales were largest in Canada--at $17 billion--and in Japan--at $10 billion.

By destination, 69 percent of total sales by MOFA's were to customers in the affiliates' own countries of location, 20 percent were to customers in other foreign countries, and 11 percent were to customers in the United States.

Sales to customers in other foreign countries accounted for over one-half of total sales by MOFA's in several European countries--Switzerland, Netherlands, Belgium, and Ireland--and for about one-third of total sales by MOFA's in several Asian countries--Hong Kong, Indonesia, and Singapore. In the European countries, most of the sales to other foreign countries were by manufacturing affiliates to other European countries. Most of the total sales to other foreign countries were to other foreign affiliates.

In several industries and countries, sales to the United States accounted for a relatively large share of the total. They accounted for about 25 percent of total sales in two extractive industries--crude petroleum and metal mining--and in three manufacturing industries--computers and office equipment, electronic components and accessories, and transportation equipment. Except for metal mining, most of the sales to the United States in these industries, as well as in most other industries, were to U.S. parents.

Sales to the United States accounted for a relatively large share of total sales by MOFA's in Canada and Mexico (mostly by transportation equipment affiliates), in Singapore and Taiwan (mainly by affiliates that manufacture computer components), and in Bermuda, Nigeria, United Arab Emirates, and Egypt (mostly by petroleum affiliates). They also accounted for a sizable share of total sales by MOFA's in the Netherlands Antilles; this large share mostly reflected interest payments (investment income) received from U.S. parents.

Specialization of MNC's

In all the tables in this article that are disaggregated by industry, except for tables 13 and 14, parents and affiliates are classified by industry of enterprise--that is, by the industry that accounted for the largest portion of their sales.(16) In the benchmark survey, sales data were collected by industry of sales to determine the correct industry classification of parents and affiliates. This information can also be used to examine the degree of industrial specialization of parent and affiliate operations.

Tables 13 and 14 show sales for U.S. parents and MOFA's in their industries of classification and in other industries. For U.S. parents, the proportion of sales in their industry of classification (industry specialization ratio) ranged from 94 percent in FIRE to 75 percent in wholesale trade. In manufacturing, the ratio was 84 percent; within manufacturing, the ratio was highest in transportation equipment and lowest in electric and electronic equipment.

For MOFA's, the industry specialization ratios ranged from 99 percent in petroleum to 89 percent in wholesale trade. In manufacturing, the ratio was 92 percent; within manufacturing, the ratio was highest in food manufacturing and lowest in both transportation equipment and nonelectrical machinery. These high ratios for MOFA's show that most affiliates tend to specialize in the manufacture or sale of a specific product or to engage in the development of a specific natural resource, such as petroleum or minerals.(17)

Coverage and Methodology of the Benchmark Survey

Benchmark surveys are the most comprehensive surveys of U.S. direct investment abroad conducted by BEA. The preliminary results from the 1989 benchmark survey are based on reported or estimated data for 2,167 U.S. parents and 17,835 foreign affiliates. This survey covered all foreign affiliates of U.S. direct investors that had assets, sales, or net income of more than $3 million. It collected detailed information on the financial structure and overall operations of the foreign affiliates and their U.S. parent companies, as well as on transactions and positions between the foreign affiliates and their U.S. parents. For similar data items, the 1989 estimates presented in this article extend the time series of universe estimates for 1983-88, which were derived from sample data reported in BEA's annual surveys of U.S. direct investment abroad.

The concepts and definitions underlying the 1989 benchmark survey are essentially the same as those underlying the previous benchmark survey, as described in U.S. Direct Investment Abroad: 1982 Benchmark Survey Data. The full methodology for the 1989 survey will accompany the revised estimates to be published next fall.

To produce these preliminary results from the 1989 benchmark survey, BEA made estimates for reports not received or processed in time for publication and for items that were not reported or were reported incorrectly. The degree of estimation varies from item to item. In some cases, reporters had difficulty supplying the required information because the data were not easily accessible or were unavailable from their financial accounting records. In particular, data on trade and employment are subject to a higher degree of estimation than other items.

The development of procedures to estimate the missing data enabled BEA to publish these preliminary results in 17 months from the due date of the reports. (For the 1982 benchmark survey, only final estimates were prepared, and these results were published 30 months after the due date of the reports.) Final results of the 1989 benchmark survey, incorporating data from reports received and processed after the publication of these preliminary results, will be published next fall. Overall, the differences between the preliminary and final results are expected to be small, but they could be sizable for some items and for individual countries and industries.

In the 1989 benchmark survey, a long form, requesting information in considerable detail, was filed by affiliates with assets, sales, or net income greater than $15 million. The most detail was obtained for majority-owned nonbank affiliates. To minimize the burden on survey respondents, a short form requesting less detail was introduced for filing by smaller affiliates. For these affiliates, BEA has estimated the items that appear only on the long form, so that the published results are presented in the same detail for all affiliates regardless of size.

Some of the industry and country detail that is shown in this article differs from that shown in prior annual survey articles. By industry, more detail is shown in "services" and in "other industries". By country, the detail shown has been reorganized along strictly geographic lines; economic or political groups, such as the European Communities, are no longer shown in the body of the tables, but in some cases are shown as addenda. In addition, a few countries in which U.S. investment has declined significantly were dropped, and several countries in which investment has expanded significantly were added.

The geographic allocation of sales of services by affiliates in "International" --that is, by affiliates having operations in more than one country and engaged in petroleum shipping, other water transportation, or operating movable oil- and gas-drilling equipment--has been changed. Sales to U.S. persons by these affiliates are now being recorded as sales to the United States; previously, all sales by these affiliates were recorded as local sales.

The improved coverage of the MNC universe in 1989

In conducting a benchmark survey, BEA comprehensively reviews outside sources of information to improve the coverage of its universe of U.S. parent companies and foreign affiliates. The review for the 1989 benchmark survey identified 664 parent companies and 5,188 foreign affiliates that had not previously been reported to BEA (table 15). The newly identified parents were those that had failed to report in prior annual surveys or that were not required to report because all of their affiliates were below the exemption level of the annual survey. Most of the newly identified affiliates were below the annual survey exemption level and were not required to be reported.(18) However, the newly identified affiliates that exceeded the exemption level, though much smaller in number, together had far larger assets, sales, and employment than the affiliates that were below the exemption level.

BEA also reviewed the status of existing parents and affiliates, including those whose data had been estimated since the last benchmark survey. This review eliminated 436 parent companies and 5,061 foreign affiliates from the universe because they had been sold, liquidated, or merged or consolidated with another U.S. parent or foreign affiliate since the last benchmark survey. As a result of both reviews, a net of 228 parents and 127 foreign affiliates were added to the direct investment universe.

Globally, the net addition of these parents and affiliates did not contribute significantly to the 1989 changes in the MNC estimates, except for the estimates of parent employment. For parents, the improved coverage increased assets by $43.3 billion, sales by $36.0 billion, and employment by 571,000 (table 15, line 2). For affiliates, it reduced assets by $5.0 billion, sales by $3.5 billion, and employment by 46,000 (table 15, line 11). However, for certain countries and industries, the gross changes in the estimates due to the addition or deletion of parents and affiliates were quite large (table 15, lines 3 and 6 for parents and lines 12 and 15 for affiliates) and may have had sizable effects on the 1989 changes.

Acknowledgments

BEA thanks the staffs of U.S. companies that responded to the 1989 benchmark survey for their efforts in completing and filing reports and for their cooperation with BEA during processing and review of the data.

The publication of the benchmark survey estimates in 17 months was a result of the efforts of the BEA staff listed below.

Jack J. Bame, Associate Director for International Economics, succeeded by J. Steven Landefeld, provided general guidance for the survey. Betty L. Barker, Chief, and R. David Belli, Assistant Chief, International Investment Division (IID), directed the design of the benchmark survey report forms, the conduct of the survey, and the analysis and publication of the results.

The Direct Investment Abroad Branch (DIAB) of IID, under the direction of Patricia C. Walker, was primarily responsible for conducting the survey. David H. Galler, Chief of the Annual and Benchmark Surveys Section of DIAB, supervised the editing and processing of the reports. He also designed the computer-edit checks and the forms and processing control systems.

The following former and current members of DIAB processed and edited the survey: Joan O. Adams, Margaret Buckley, Barbara S. Clark, Margo A. Collier, Emily D. Curry, Marcia S. Francis, David N. Hale, Jeanne Hicks, Lonnie Hunter, Deanna D. Ibarra, Christine J. Lee, Sherry Lee, Stephanie A. Lewis, Leila C. Morrison, Juanita L. Mortimer, John A. Munz, Pearl Rivers, Ronald L. Ross, William R. Shupe, Robert N. Smith, Dwayne Torney, and Diann L. Vann.

The Research Branch of IID, under the direction of Obie G. Whichard, assisted DIAB in reviewing the results for consistency and accuracy. The reviewers were Jeffrey H. Lowe and Raymond J. Mataloni, Jr. Arnold Gilbert of the Data Retrieval and Analysis Branch (DRAB) of IID also assisted in the review.

James T. Spalding, Chief, Programming and Analysis Branch of the Computer Systems and Services Division, coordinated the computer programming and data conversion and processing activities, which were performed by Douglas J. Klear, Elizabeth L. Shumate, Marguerite E. Ellis, Effie M. Eason, and Janice E. Townsend.

Marie Gott designed the computer programs for the integrated master file of U.S. direct investment abroad. Arnold Gilbert designed the programs for data estimation, final review of the data, suppression of the data for confidentiality reasons, and generation of the tables for publication. They were under the supervision of Smith W. Allnutt, Chief of DRAB.

Raymond J. Mataloni, Jr., prepared the tables for this article. Jeffrey H. Lowe designed the tables in the publication that presents more detailed data from the survey.

Table 1.--Total Assets of and Sales and Employment by Nonbank U.S. MNC's, U.S. Parents, and Foreign Affiliates, 1977 and 1982-89
 MNC's
 worldwide Parents Affiliates
 Total assets


Millions of dollars:
 1977 2,033,418 1,548,240 490,178
 1982 3,493,105 2,741,619 751,486
 1983 3,653,615 2,902,793 750,823
 1984 3,820,025 3,060,031 759,994
 1985 4,297,034 3,462,398 834,636
 1986 4,723,294 3,792,001 931,293
 1987 5,285,962 4,175,308 1,110,654
 1988 5,569,767 4,363,441 1,206,326
 1989(1) 6,219,410 4,905,415 1,313,995


Compound annual rate of

change (percent):
 1977-89 9.8 10.1 8.6
 1977-82 11.4 12.2 8.9
 1982-89 8.6 8.7 8.3
 Sales


Millions of dollars:
 1977 2,060,263 1,412,293 647,969
 1982 3,284,168 2,348,388 935,780
 1983 3,263,802 2,377,488 886,314
 1984 3,407,337 2,508,779 898,558
 1985 3,482,155 2,586,695 895,460
 1986 3,473,354 2,544,439 928,915
 1987 3,742,022 2,689,227 1,052,795
 1988 4,022,942 2,828,209 1,194,733
 1989(1) 4,399,873 3,133,588 1,266,285


Compound annual rate of

change (percent):
 1977-89 6.5 6.9 5.7
 1977-82 9.8 10.7 7.6
 1982-89 4.3 4.2 4.4
 Number of employees


Thousands:
 1977 26,081.3 18,884.6 7,196.7
 1982 25,344.8 18,704.6 6,640.2
 1983 24,782.6 18,399.5 6,383.1
 1984 24,548.5 18,130.9 6,417.5
 1985 24,531.9 18,112.6 6,419.3
 1986 24,082.0 17,831.8 6,250.2
 1987 24,255.4 17,985.8 6,269.6
 1988 24,141.1 17,737.6 6,403.5
 1989(1) 25,342.4 18,721.0 6,621.4


Compound annual rate of

change (percent):
 1977-89 -.2 -.1 -.7
 1977-82 -.6 -.2 -1.6
 1982-89 (*) (*) (*)


(*)Less than .05 percent ([+ or -]). (1)The 1989 estimates are not strictly comparable with the estimates covering 1983-88 because of a break in series resulting from improved coverage of the survey universe in 1989 (see text for further discussion). MNC Multinational company [Chart 4 to 6 Omitted] [Tabular Data 2 to 22 Omitted]

(1)A U.S. multinational company (MNC) consists of a nonbank U.S. parent and its nonbank foreign affiliates. A U.S. parent is a U.S. person that owns or controls, directly or indirectly, 10 percent or more of the voting securities of an incorporated foreign business enterprise or an equivalent interest in an unincorporated foreign business enterprise. A foreign affiliate is a foreign business enterprise that is so owned or controlled. (2)The data on all-U.S.-business sales are from the Census Bureau's Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations. The data on all-U.S.-business employment are from table 6.6B of the "National Income and Product Accounts Tables" in the July 1990 issue of the Survey of Current Business. (3)MOFA's are foreign affiliates in which the combined direct and indirect ownership of all U.S. parents exceeds 50 percent. (4)MNC-associated U.S. exports are the sum of goods shipped to foreign affiliates by all U.S. persons and goods shipped to other foreigners by U.S. parents. MNC-associated U.S. imports are the sum of goods shipped by foreign affiliates to all U.S. persons and goods shipped by other foreigners to U.S. parents. (5)This comparison is based on a preliminary estimate for 1989 of research and development expenditures for all U.S. businesses from the National Science Board, Science and Engineering Indicators--1989 (Washington, DC: U.S. Government Printing Office, 1989). (6)The data on the overall operations of U.S. parents and their foreign affiliates include data on balance sheets; income statements; property, plant, and equipment; employment and employee compensation; U.S. merchandise trade; sales; technology; taxes; and, for foreign affiliates, external financial position. The data on transactions and positions between U.S. parents and their foreign affiliates are the source of the estimates of direct investment that are entered into the U.S. international transactions accounts and the U.S. international investment position. These estimates cover the U.S. direct investment position abroad at book value, direct investment capital flows, and net receipts of income, royalties and license fees, and charges for other services by U.S. parents from their foreign affiliates. (7)The decline in MNC employment may be slightly overstated because of changes in the survey reporting requirements between 1977 and 1989. In 1977, data were collected for foreign affiliates (and their U.S. parents) whose assets, sales, or net income (positive or negative) were at least $500,000. In 1982 and 1989, the exemption level was raised to $3 million; therefore, a number of very small affiliates (and their parents) that were covered in the 1977 survey were not covered in the 1982 and 1989 surveys. However, because the data for these affiliates (and their parents) were very small, their exclusion from the 1982 and 1989 data does not significantly affect the comparability of the 1977 data with the 1982 and 1989 data. (8)Parents and affiliates are classified in "services" if their primary activities are characteristic of the "services" division of the Standard Industrial Classification. Examples of such activities include personal services and a wide variety of business, professional, and technical services. (9)For a detailed account of how automation and imports have affected employment in the U.S. textile, steel, and auto industries, see U.S. Department of Labor, Bureau of Labor Statistics, The Impact of Technology on Labor in Four Industries, Bulletin 2228 (Washington, DC: U.S. Government Printing Office, May 1985). (10)In 1981, a sharp rise in world interest rates led to burdensome increases in the debt-service requirements of Latin American governments. To conserve foreign exchange needed to service the debt, some host governments in the region sought to decrease imports through import restrictions, currency devaluations, and austerity measures. As a result, affiliates of U.S. MNC's found it more difficult or expensive to import intermediate goods, as well as more difficult to sell goods in local markets. In addition, the region's rapid inflation tended to encourage affiliates to invest their profits in high-yield financial instruments rather than in new capital goods. These conditions lasted until the late 1980's, when an improved business climate and a revival of pro-foreign-investment policies in some of the larger host countries began to encourage affiliates to expand operations. (11)This program allows Mexican affiliates to import components for assembly, free of customs duties, from the United States if at least 50 percent of the finished goods are exported to the United States. U.S. duties are levied only on the value added in Mexico. (12)The product categories used in the benchmark survey are based on the Standard International Trade Classification (SITC). For a description of the SITC, see Standard International Trade Classification, Revision 2 (United Nations Statistical Papers, Series M, No. 34/Rev. 2, New York: United Nations, 1975). In addition, product classifications are summarized in BEA's Guide to Industry and Foreign Trade Classifications for International Surveys. (13)The hourly compensation data for the United States and those for all production workers in various host countries are from U.S. Department of Labor, Bureau of Labor Statistics, International Comparisons of Hourly Compensation Costs for Production Workers in Manufacturing, 1975-89, Report 794 (Washington, DC: U.S. Government Printing Office, October 1990). (14)To provide more accurate data on sales of services, information on investment income of U.S. parents and MOFA's in finance and insurance was collected separately from sales of services for the first time in the 1989 benchmark survey. Finance and insurance companies include investment income in sales because it is generated by a primary activity of the company. In most other industries, investment income is considered an incidental revenue source and included in the income statement in a separate "other income" category. (15)An unaffiliated customer of a MOFA is a customer other than the MOFA's U.S. parent or another foreign affiliate of the parent. (16)Each U.S. parent or affiliate was classified by industry on the basis of its sales (or total income for holding companies). First, the parent or affiliate was classified in the major industry group that accounted for the largest percentage of its sales. Second, within the major industry group, the parent or affiliate was classified in the two-digit industry group in which its sales were largest. Third, within its two-digit industry, the parent or affiliate was classified in the three-digit subindustry in which its sales were largest. (17)Parent and MOFA specialization ratios are sensitive to levels of company consolidation and thus are not strictly comparable. In the benchmark survey, U.S. parents were defined as fully consolidated business enterprises and were required to consolidate all domestic (U.S.) subsidiaries owned more than 50 percent, regardless of industry classification. By contrast, MOFA's were not allowed to consolidate affiliates across countries and, within a given country, could consolidate affiliates only if they were classified in the same industry or were integral parts of the same business operation. Largely because of this difference in consolidation, the specialization ratios for MOFA's tend to be higher than those for parents. (18)More affiliates are required to be reported in benchmark surveys than in annual surveys. In the 1989 benchmark survey, a report had to be filed for an affiliate that was at least 10-percent owned by a U.S. person and that had assets, sales, or net income (positive or negative) greater than $3 million. In the annual surveys prior to 1989, an affiliate generally had to be reported if it was owned at least 20 percent by a U.S. person and had assets, sales, or net income greater than $10 million.
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Author:Lowe, Jeffrey H.; Mataloni, Raymond J., Jr.
Publication:Survey of Current Business
Date:Oct 1, 1991
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