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U.S. multinational companies: operations in 1983.

U.S. Multinational Companies: Operations in 1983

THE results of BEA's first annual survey of U.S. direct investment abroad, which covered the operations of U.S. multinational companies (NMC's) in 1983, are summarized in this article. For both U.S. parent companies and their foreign affiliates, the new survey updates recently published key measures from BEA's 1982 Benchmark Survey of U.S. Direct Investment Abroad, including measures of U.S. international services transactions.

The New Survey

The new survey fills an important gap in BEA's information on U.S. direct investment abroad by providing timely annual data on the operations of U.S. parents and their foreign affiliates. Key items updated annually include total assets, sales, net income, employment, employee compensation, and merchandise trade. These items are comparable to the same items collected in the 1982 benchmark survey.

The annual survey will facilitate analyses of year-to-year changes in the operations of U.S. MNC's and will be the basis for time series analyses not possible in the past. Because the annual survey is narrower in scope than the benchmark survey, its results can be published on a more timely basis. Results of the annual survey covering 1984 are scheduled to be published before the end of this summer; results of future surveys are expected to be published about 18 months after the end of the year of coverage. With few exceptions, noted below, data on the operations of U.S. MNChs have been available in the past only from BEA's intermittent benchmark surveys. The most recent benchmark surveys (covering 1977 and 1982) were comprehensive, but their value for current analysis was limited by the length of time necessary to process them. Also, in the absence of annual data, only cross-sectional analyses based on those data were possible.

The annual survey incorporates two improvements in services data that were initiated in the 1982 benchmark survey: (1) Several service industry codes were added for classifying U.S. parents and their foreign affiliates and (2) total sales were disaggregated to show sales of services seperately from sales of goods for both U.S. parents and majority-owned foreign affiliates (MOFA's). The annual survey also includes data--not collected in the 1982 benchmark survey--on services sold by MOFA's to affiliated and unaffiliated customers. See the box on page 24 for a discussion of sales of services by U.S. parents and MOFA's.

The annual survey results supplement other data on U.S. direct investment abroad regularly published by BEA. The survey focuses on the overall operations of U.S. parents and their foreign affiliates. It covers parents' and affiliates' transactions and positions with all U.S. and foreign persons, not just with each other. Currently published BEA data on the U.S. direct investment position abroad and related capital and income flows (see the August 1985 SURVEY) focus only on positions and transactions between U.S. parents and their foreign affiliates. For example, total assets of foreign affiliates, as collected in the annual survey, equal the sum of owners' equity held by, and total liabilities owed to, both U.S. parents and all other persons; the direct investment position, in contrast, equals the book value only of U.S. parents' equity in, and net outstanding loans to, their foreign affiliates.

Estimates of capital expenditures by U.S. parents from the new survey, combined with estimates of MOFA capital expenditures from a continuing survey, will enable BEA to provide, for the first time, an annual series on worldwide capital expenditures by U.S. MNC's. In the near future, the MOFA expenditures series will be revised, using results of the 1982 benchmark survey, so that they will be fully comparable to the estimates of capital expenditures by U.S. parents based on the new survey.

The annual survey also reestablishes annual series on MOFA sales and external financing that were discontinued after the 1977 benchmark survey. With the added detail on sales of goods versus sales of services, the sales series will be much more comprehensive than the one previously published. The estimates of external financing, when combined with other measures of MOFA operations from the new survey and from the capital expenditures survey, can be used to derive a statement of sources and uses of funds. The statement can be derived for the universe of MOFA's; in the past, it was available only for a sample of MOFA's.

The universe estimates presented in this article cover nonbank foreign affiliates. They were derived from data reported in the annual survey by a sample of such parents and affiliates. Bank parents and their affiliates were not covered by the survey because much of the information needed on them by the U.S. Government is reported to other Government agencies. See the technical note for a description of how 1983 universe estimates were derived from the reported sample data and for measures of sample coverage.

Operations of U.S. MNC's

The discussion that follows provides a brief overview of changes in the operations of nonbank U.S. parent companies and their nonbank foreign affiliates from 1982 to 1983. To provide historical perspective, a few references are also made to developments between 1977 and 1982, the 2 most recent years for which benchmark survey data are available.

Assets and sales

Total aggregated assets of U.S. MNC's grew 4.8 percent in 1983, to $3,661 billion (table 1). Assets of U.S. parents grew 5.8 percent, to $2,900 billion, and those of foreign affiliates grew 1.3 percent, to $761 billion. Aggregated sales by MNC's grew 0.6 percent; sales by U.S. parents grew 2.3 percent, and sales by affiliates fell 3.6 percent.

The slower growth in affiliates' assets compared with U.S. parents' assets, and the decline in their sales compared with the rise in U.S. parents' sales, reflected several factors. Most important was the substantial appreciation of the U.S. dollar against most major foreign currencies in 1983. Under the U.S. accounting standard for foreign currency translation in use in 1983, foreign-currency-denominated assets and sales were, except for countries with very high inflation rates, translated at current or average rates; therefore, the dollar value of a given foreign-currency-denominated amount would be lower when translated after dollar appreciation than before. The effect of dollar appreciation on affiliates' assets and sales would have varied considerably by country and industry, depending on how much the dollar appreciated relative to a given foreign currency and on the size and currency denomination of affiliates' assets and sales.

Cyclical conditions may also have contributed to slower affiliate growth in 1983. While a strong economic recovery began in the United States that year, in Europe, where about 40 percent of all affiliate assets were located, economic growth remained sluggish. Some U.S. parents may have expanded their operations in the United States rather than overseas in response to the more optimistic outlook for U.S. economic growth.

Several large affiliates were sold to foreigners in 1983. Although poor profitability was the reason for many sales, some sales may have been prompted by host country policies that favored national rather than foreign-owned firms.

Finally, assets and sales of affiliates fell sharply in several Latin American countries where U.S. investment was large. The declines partly reflected host-country policies associated with difficulties servicing external debt.

Assets and sales of U.S. MNC's as a whole, and of U.S. parents and foreign affiliates separately, grew at a much slower rate in 1983 than in 1977-82. For example, U.S. MNC's aggregated assets grew 4.8 percent in 1983, compared with an average annual rate of 11.4 percent in 1977-82. The slower growth may have partly reflected slower worldwide inflation in 1983 than in 1977-82. Also, growth in MNC operations may have been limited to the first few years of 1977-82, before most developed economies slid into recession.

Like assets and sales, the other dollar measures of MNC operations collected in the annual survey reflect changes in valuation as well as changes in economic activity measured in real terms. Dollar measures for U.S. parents, for example, reflect U.S. inflation; dollar measures for foreign affiliates reflect the interplay of U.S. and foreign inflation and dollar exchange rates. One measure, employment, is not directly affected by inflation or exchange rates; thus, changes in employment probably more closely correspond to changes in economic activity measured in real terms. For this reason, the remainder of this article will focus on employment.


U.S. MNC's employed 24,958,700 workers in 1983, down 1.5 percent from 1982. Both parent and affiliate employment fell, but the rate of decline for parents, at 1.6 percent, was slightly faster than that for affiliates.

The 1983 declines in MNC, U.S. parent, and foreign affiliate employment continued declines that occurred in 1977-82. In those 5 years, MNC employment declined at an average annual rate of 0.6 percent. The decline may have largely reflected cyclical changes, because the economies of most developed countries were expanding in 1977 and in recession in 1982. The 1977-82 decline was more rapid and much larger for foreign affiliates than for U.S. parents. Over the period, affiliate employment fell at an average annual rate of 1.6 percent, or by 556,500 workers, compared with 0.2 percent, or 180,000 workers, for U.S. parents. As a result, the share of worldwide MNC employment accounted for by foreign affiliates fell from 27.6 percent in 1977 to 26.2 percent in 1982.

By industry of U.S. parent, the decline in MNC's worldwide employment in 1983 was fastest in petroleum, at 7.1 percent (table 2). The decline in manufacturing was only 1.5 percent; however, because manufacturing accounted for such a large share--over 60 percent--of the all-industries total, the small percentage decline resulted in a drop in employment of 223,100 workers, nearly twice as large as that in petroleum.

Year-to-year changes in employment by industry were significantly affected by changes in the industry codes of reporting companies. Industry codes can change due to gradual shifts over time in a company's mix of operations, or more often, due to mergers, acquisitions, divestitures, etc., where the surviving company's mix of operations is significantly diffeent from that of its predecessor. Estimates classified by industry of U.S. parent are particularly affected by the latter, because such changes in U.S. parent operations are frequent and can have a substantial impact on the estimates. For example, the estimates in table 2 indicate that employment of U.S. MNC's in services grew very strongly in 1983, particularly compared with the overall decline in employment that year. However, the growth in services was more than accounted for by the reclassification of several U.S. parents into services from other industries, mainly manufacturing, in 1983.

U.S. MNC's in manufacturing had a larger share of their worldwide employment accounted for by foreign affiliates--31.3 percent--than did MNC's in any other major industry. Within manufacturing, the affiliates' shares were largest in transportation equipment and chemicals. The shares in petroleum and in finance (except banking), insurance, and real estate (FIRE) were nearly as large as in manufacturing. In contrast, MNC's in services and in "other industries" had the smallest shares of their worldwide employment accounted for by affiliates--12.5 percent and 13.1 percent, respectively.

Employment of U.S. parents.--The 1983 decline in employment of U.S. parents occurred despite the U.S. recovery and an increase in employment of all U.S. businesses that year. The contrasting changes primarily reflected differences in industry mix. U.S. parent employment was much more heavily concentrated in manufacturing, petroleum, and mining--industries in which all-U.S. employment, as well as U.S. parent employment, declined in 1983. All-U.S. employment was much more heavily concentrated in retail trade and services--industries that had the strongest U.S. employment growth in 1983.

By industry, the sharpest decline in U.S. parent employment--6.9 percent--was in petroleum. The decline, which was spread over a number of companies, may have reflected weak worldwide petroleum markets.

Employment of U.S. parents in manufacturing fell 1.4 percent. The sharpest declines were in primary and fabricated metals (7.5 percent) and nonelectrical machinery (3.2 percent). The strong increase in transportation equipment (2.4 percent) reflected an upturn in U.S. demand for autos.

Employment of U.S. parents in "other industries" fell 3.3 percent; most of the decline was in construction and in transportation, communication, and public utilities (tables 3 and 4).

Employment of Foreign affiliates.--By industry of U.S. parent, the decline in employment of foreign affiliates in 1983 was concentrated in manufacturing. Of the total decline in affiliate employment of 88,800, affiliates of U.S. parents in manufacturing accounted for 80,600. Their large share of the decline mainly reflected their large share--nearly three-fourths--of total affiliate employment.

In percentage term, employment of affiliates of U.S. parents in manufacturing declined 1.7 percent. Declines were most rapid in primary and fabricated metals (5.2 percent), food and kindred products (4.3 percent), and "other manufacturing" (4.6 percent), mainly instruments, rubber, and stone and clay.

More rapid declines in employment were experienced by foreign affiliates of U.S. parents in petroleum (7.5 percent) and wholesale trade (14.0 percent). These were largely offset by increases in FIRE (5.5 percent, mainly in insurance), services (4.3 percent), and "other industries" (3.4 percent), mainly in retail trade).

Affiliate employment can be disaggregated by the industry classifications of the affiliates themselves as well as by the industry classifications of the U.S. parents. When classified by industry of affiliate, employment of affiliates was more concentrated in wholesale trade, services, and "other industries" and less concentrated in manufacturing, FIRE, and petroleum than when classified by industry of U.S. parent (table 5). The difference in the distributions largely reflected the fact that affiliates were often in industries that complemented or supported the operations of their U.S. parents. For example, U.S. manufacturing parents had foreign affiliates in wholesale trade to distribute the parents' products overseas. Also, because U.S. parents often operated in several industries, affiliates in industries other than that of the parent sometimes were in industries in which the parent operated domestically as a secondary activity.

By industry of affiliate, the 1.3 percent decline in employment in 1983 was concentrated in manufacturing; by area, it was concentrated in Europe and Latin America (table 6).

Affiliates in manufacturing, which accountedc for two-thirds of total affiliate employment, had a 2.5 percent drop in employment in 1983. Employment declined in five of the six major subindustries within manufacturing; it increased only in electric and electronic equipment. The largest declines were in transportation equipment and in "other manufacturing." Declines in employment in petroleum and in wholesale trade were more than offset by increases in FIRE, services, and "other industries."

By area, employment fell 1.3 percent in both developed and developing countries; however, the decline in the number of employees was much larger in developed countries, because about two-thirds of all affiliate employment was located there.

The decline in developed countries was more than accounted for by European affiliates, mainly manufacturing affiliates in the United Kingdom and Germany (tables 7 and 8). In both countries, declines were centered in nonelectrical machinery, transportation equipment, and "other manufacturing."

Employment of Canadian affiliates, the largest total for any single country, was virtually unchanged. An increase in transportation equipment, which reflected strong North American auto demand, was more than offset by declines in electric and electronic equipment and in "other manufacturing."

Employment of Japanese affiliates increased sharply; the increase was concentrated in "other industries" and was mainly associated with expansion by retail food franchises.

Among developing countries, a sharp decline in affiliate employment in Latin America was partly offset by significant increases in several Far East countries. The decline in Latin America was centered in Brazil and Venezuela, particularly in manufacturing. In Mexico, a decline in manufacturing was largely offset by an increase in "other industries," mainly in retail trade. In all three countries, difficulties in servicing external debt contributed to sluggish economic conditions.

In contrast, employment in several Far East countries--particularly in Hong Kong, Malaysia, Singapore, South Korea, and Taiwan--grew substantially. Most of the growth was in electric and electronic equipment manufacturing.

Employment of MOFA's.--MOFA's--affiliates in which U.S. ownership exceeded 50 percent--had employment of 4,966,200 in 1983, 75.8 percent of the all-affiliate total (tables 9-11). In many countries, the MOFA share of total affiliate employment was much higher. In Canada, the United Kingdom, and Germany, for example, the three countries with the highest levels of affiliate employment in 1983, the MOFA shares were 91.4, 88.1, and 92.2 percent, respectively.

Low MOFA shares of total affiliate employment were concentrated among countries that may have had restrictions on, or strong national sentiments against, majority ownership by foreign investors. Among the countries with the lowest MOFA shares were Japan (27.2 percent), India (34.9 percent), and South Korea (45.2 percent). The relatively low shares in France (55.2 percent) and, to a lesser extent, Japan, reflected minority-ownership of foreign auto manufacturers by U.S. auto companies.

MOFA's accounted for a slightly higher share of total affiliate employment in 1983 than in 1977, 75.8 percent compared with 74.6 percent. The change mainly reflected the sale of several large minority interests in Canada and Japan since 1977 rather than any general trend toward increased majority ownership by U.S. MNC's.

Technical Note

The tables in this article present preliminary results of the first annual survey of U.S. direct investment abroad (BE-11) conducted by BEA. Reports were required by law from every nonbank U.S. person having a nonbank foreign affiliate at the end of its 1983 fiscal year with assets, sales, or net income exceeding $10 million. Each report consisted of (1) form BE-11A, which obtained data for the nonbank U.S. parent company, (2) form BE-11B, which obtained data for each nonbank MOFA, and (3) form BE-11C, which obtained data for each nonbank foreign affiliate in which U.S. ownership was at least 25, and not more than 50, percent. Foreign affiliates in which U.S. ownership was less than 25 percent were exempt from reporting, but are covered in the estimates.

The estimates for 1983 shown in the tables in this article and in the additional tables available separately (see box) were obtained by expanding the sample data collected in the survey to universe totals. Universe estimates were derived for virtually all of the items collected in the annual survey. For a given item, an estimate was obtained by summing data reported in the 1983 annual survey for the sample with data reported in the 1982 benchmark survey for parents or affiliates not in the 1983 sample. Thus, no estimate of year-to-year change was systematically made for parents and affiliates not in the 1983 sample. (As noted below, estimates for a few large minority-owned affiliates not in the sample were modified based on outside sources.) This procedure was used because the 1982 benchmark survey data and 1983 sample data have just become available and time constraints precluded using a more refined procedure. A procedure to estimate the change systematically in the nonsample portion of the universe is being developed and will be used to prepare revised estimates for 1983 to be published before the end of the summer. The refinement is not expected to result in significant revisions to the estimates.

Tables 12 and 13 show, for U.S. parents and for foreign affiliates respectively, the portion of the universe estimates of total assets and employment that was accounted for by the 1983 sample data. For parents, the sample accounted for 94.5 percent of the estimate of total assets and 90.2 percent of the estimate of employment. By industry, sample coverage tended to be higher for industries dominated by a relatively small number of large firms--petroleum and transportation equipment manufacturing, for example.

For foreign affiliates, the sample accounted for 86.2 percent of the universe estimate of total assets and 79.7 percent of the universe estimate of employment. Sample coverage was significantly higher for MOFA's than for all affiliates--93.2 percent for total assets and 87.4 percent for employment. The pattern of coverage by industry for MOFA's was similar to that for U.S. parents.

For minority-owned foreign affiliates (affiliates owned 50 percent or less by U.S. parents), sample data accounted for only 61.9 percent of the universe estimate of total assets and 55.6 percent of the universe estimate of employment. The low coverage primarily reflected the fact that, to reduce reporting burden, affiliates owned less than 25 percent were exempt from reporting in the annual survey. Industries and areas with particularly low sample coverage of minority-owned affiliates were those in which the exempt affiliates were significant. For the largest of the exempt affiliates, information from outside sources, when available, was used to modify BEA estimates for 1983.
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Title Annotation:includes related article on data for sales of services
Author:Belli, R. David
Publication:Survey of Current Business
Date:Jan 1, 1986
Previous Article:The business situation, fourth-quarter 1985.
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