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U.S. multinational companies: operations in 1984.

U.S. Multinational Companies: Operations in 1984

TOTAL assets of U.S. multinational companies (MNC's) increased 4.5 percent in 1984, to $3,820 billion, and sales increased 4.6 percent, to $3,415 billion (table 1). Stronger economic growth in the United States than in most other countries and an appreciation of the U.S. dollar against major foreign currencies resulted in significantly higher rates of increase in assets and sales for U.S. parent companies than for their foreign affiliates. For parent companies, assets were up 5.5 percent, to $3,064 billion, and sales were up 6.0 percent, to $2,520 billion. In contrast, foreign affiliates' assets increased only 0.7 percent, to $756 billion, and sales increased 0.9 percent, to $895 billion.1

1. Total assets and sales of MNC's are shown on an aggregated basis, in which parent and affiliate data have been added together. The resulting sums contain duplication because of intercompany positions and transactions between parents and affiliates and between affiliates of the same parent. Data needed to derive consolidated assets and sales of MNC's were not collected.

Employment of U.S. MNC's declined in 1984, although at a slower rate than in 1983. MNC's had 24,560,200 employees, down 0.9 percent; of these, U.S. parent companies employed 18,170,900, down 1.2 percent, and foreign affiliates employed 6,389,300, up 0.1 percent. A sharp decline in the petroleum industry, resulting from weak petroleum markets in both the United States and abroad, was partly offset by an increase in manufacturing, resulting largely from a strong recovery in the North American automobile industry.

The major share of all MNC operations was accounted for by U.S. parents; parents accounted for three-fourths of all MNC sales and employment and for four-fifths of all MNC assets. These proportions varied considerably from one industry to another. For example, parent companies accounted for 69 percent of total MNC assets in petroleum, 74 percent in manufacturing, and 87 percent in services. Among major industries, MNC's in manufacturing accounted for the largest share of all MNC operations --39 percent of assets, 48 percent of sales, and 62 percent of employment.

These results are universe estimates based on the second annual sample survey of U.S. direct investment abroad, which covered the operations of U.S. parent companies and their foreign affiliates in 1984.(2) The annual survey updates key items-- such as assets, sales of goods and services, net income, employment, employee compensation, and merchandise trade--from BEA's more comprehensive 1982 benchmark survey.3 The annual survey also supplements other data on U.S. direct investment abroad regularly published by BEA.4

2. U.S. direct investment abroad exists when one U.S. person (U.S. parent) has a direct or indirect ownership interest of 10 percent or more in a foreign business enterprise (foreign affiliate).

3. A summary of the results of the 1982 benchmark survey can be found in "1982 Benchmark Survey of U.S. Direct Investment Abroad,' in the December 1985 SURVEY OF CURRENT BUSINESS. Complete results of the benchmark survey, including over 300 tables, reprints of the survey forms and instructions, and a methodology, are published in U.S. Direct Investment Abroad: 1982 Benchmark Survey Data. Copies may be obtained from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC, 20402; price $18.00; stock number 003-010-00161-5.

4. The annual 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. Current data published by BEA on the U.S. direct investment position abroad and related capital and income flows (see the August 1986 SURVEY) focus on positions and transactions between U.S. parents and their foreign affiliates.

This article discusses major changes in the operations of U.S. parent companies and their nonbank foreign affiliates from 1983 to 1984. After an explanation of two factors affecting the direct investment survey sample, the article briefly summarizes changes in assets, sales, and merchandise trade and then focuses on changes in employment. When comparing data for MNC's, U.S. parents, and foreign affiliates, affiliates are classified by the industry of their U.S. parent. When discussing affiliates only, as in the last two sections of the article, affiliates are classified by their own industry.

Two factors significantly affected the 1984 direct investment survey sample. First, and most important, was the breakup of a major U.S. telephone company, from which seven regional operating companies across the United States were divested. The newly organized regional companies did not have direct investment holdings abroad in 1984, and, therefore, were removed from the direct investment survey sample. Their removal substantially reduced assets, sales, employment, and other data items for the company that remained in the survey sample.

Second, a number of large parent companies shifted their mix of operations and, as a result, were reclassified into different industries.5 This shift was primarily due to the recent wave of mergers and acquisitions and other restructuring activities of many U.S. parent companies. In 1984, two parent companies in radio, television, and communications manufacturing were reclassified, one to nonferrous metals manufacturing and the other to motion pictures. A parent company classified in industrial chemicals manufacturing and another classified in electrical machinery manufacturing were reclassified into transportation equipment manufacturing. In addition, a large company classified in integrated petroleum refining and extraction was reclassified into railroads, the result of a large acquisition it made. Although the parent companies that changed industries were relatively few in number, their large size resulted in unusual changes in the data for these industries.

5. Industry codes are assigned to the U.S. parent and to each of its foreign affiliates separately; a parent or affiliate is first classified in the major industry group that accounts for the largest percentage of its sales, and then in the two- and three-digit industry codes in which its sales were largest. Because an MNC-wide industry code (that is, a code based on the worldwide consolidated activities of the MNC as a whole) is not available, each MNC is classified by industry of parent. For further discussion of industry classification procedures, see U.S. Direct Investment Abroad: 1982 Benchmark Survey Data, pages 9 and 10.

Assets and sales

As noted earlier, the stronger performance of U.S. parent companies as compared with their foreign affiliates can be explained in part by two developments in the world economy-- faster growth in the United States than in the rest of the world, and the appreciating U.S. dollar. In 1984, real GNP in the United States grew 6.4 percent, compared with 5.0 percent in Canada, 5.1 percent in Japan, and 2.4 percent in Europe. Developing countries in Latin America and Africa, burdened with large debt payments and falling commodity prices, registered negative growth rates. Only among the developing countries in Asia did the growth rate, at 7.9 percent, surpass that of the United States. Meanwhile, the U.S. dollar appreciated 12 percent, on a trade-weighted basis, against 10 major foreign currencies; this appreciation depressed the dollar value of foreign affiliates' assets and sales denominated in foreign currencies.

For U.S. parents, manufacturing accounted for large shares of the increases in both assets and sales in 1984. Increases were particularly strong for parents in nonelectrical machinery, led by office and computing machines, and in transportation equipment, led by motor vehicles and equipment. Parents in finance and insurance also had significant increases in assets, probably associated with increases in the value of their security holdings resulting from strong stock and bond markets. Assets of parents in petroleum also increased, particularly in integrated petroleum refining; however, sales declined throughout the industry.

Assets and sales of parent companies would have increased more if not for the breakup of the U.S. telephone company mentioned earlier. Had the telephone company been reported at the same level in 1984 as it was in 1983, assets for parent companies would have increased 9.3 percent rather than 5.5 percent, and sales would have increased 7.5 percent rather than 6 percent.

Classified by industry of affiliate, assets and sales declined sharply for foreign affiliates in petroleum, particularly in Japan, Europe, and Latin America. These declines were offset by increases in manufacturing; affiliates in Japan and in "other Asia and Pacific' had large increases in sales, and affiliates in the Middle East and Latin America had large increases in assets. By far the most important factor was the recovery of the North American auto industry. As a result, assets of Canadian affiliates in transportation equipment manufacturing increased 16.1 percent, to $10 billion, and sales increased 27.5 percent, to $31 billion. Sales in transportation equipment also increased in Japan, Mexico, and Brazil. In the Middle East, U.S. minority interests in new petrochemical plants in Saudi Arabia resulted in a large increase in assets.

U.S. merchandise trade

MNC-associated exports increased 9.2 percent in 1984, to $169 billion, and imports increased 13.0 percent, to $141 billion (table 2). Although U.S. imports associated with MNC's did increase faster than exports, exports exceeded imports by $28 billion, down slightly from 1983. U.S. MNC's, therefore, did not contribute significantly in 1984 to the large increase in the deficit on U.S. merchandise trade.

The largest proportion of both exports and imports continued to be between U.S. parent companies and unaffiliated foreigners, rather than between parents and their foreign affiliates.


Employment is not directly influenced by price and exchange rate movements, nor is it affected--as are assets and sales--by intra-MNC transactions and positions. For these reasons, the remainder of this article will focus on employment as an indicator of real economic activity. It should be noted, however, that employment figures do not perfectly, mirror the level of output by MNC's, because that level is determined not only by the number of employees, but also by the output per worker.

Employment of MNC's.--MNC's had 24,560,200 employees throughout the world in 1984; three-fourths of these were employed by U.S. parents and one-fourth by their foreign affiliates. Foreign affiliates accounted for especially large proportions of MNC employment in manufacturing, particularly in soap, cleaners, and toilet goods; motor vehicles and equipment; drugs; tobacco manufactures; and rubber products. In each case, affiliates accounted for over 40 percent of MNC employment.

The 0.9-percent decline in MNC employment was more than accounted for by a 1.2-percent decline in parent employment, to 18,170,900. Employment by foreign affiliates increased marginally, to 6,389,300 (table 3). As with assets and sales, employment by U.S. parent companies would have been larger in the absence of the breakup of the telephone company mentioned earlier.

Increases in employment in manufacturing, wholesale trade, and services were more than offset by declines in petroleum and in finance, and by a large drop in "other industries,' due to the telephone company divestiture. In manufacturing, MNC employment increased 1.5 percent, to 15,246,000, compared with a 2.2-percent decline in 1983. The increase was in large part due to the strong recovery of the North American automobile industry; transportation equipment inceased 8.9 percent, to 2,973,400.

In petroleum, weak markets continued to depress employment of both parents and affiliates. MNC employment in petroleum dropped 6.5 percent, to 1,492,700; employment of U.S. parents fell 7.1 percent, and that of foreign affiliates fell 5.0 percent. Employment may also have been depressed by restructuring in the oil industry; in 1984, three fully integrated, major U.S. petroleum companies acquired three other large, fully integrated U.S. petroleum companies. The consolidations may have resulted in some reductions in employment, as duplicative functions were cut and some operations were sold. The weakness in petroleum markets also affected employment in construction, as petroleum companies cut back on their exploration and development. Employment in construction dropped 13.0 percent, to 238,200; while employment of U.S. parent companies declined 7.3 percent, their affiliate employment dropped 34.2 percent. The decline for affiliates was largely in petroleum exporting countries--Indonesia, Venezuela, and Saudi Arabia.

Employment of U.S. parents.--Despite strong growth in the U.S. economy, employment of U.S. parents continued to decline, although not as rapidly as in 1983 (tables 4 and 5). This decline was largely due to the breakup of the U.S. telephone company mentioned earlier.

Employment of U.S. parents in petroleum declined at about the same rate as in 1983, and employment in "other industries' fell 9.5 percent. These declines were partly offset by a large increase in wholesale trade and smaller increases in manufacturing and services. Within manufacturing, employment in transportation equipment increased 11.9 percent, to 1,941,100, following a 2.3-percent increase in 1983. Employment in nonelectric machinery increased 5.8 percent, primarily due to a pickup in office equipment. Parents in ferrous metals and chemicals manufacturing continued to reduce employment in response to weak markets and an oversupply of commodity chemicals and steel. New chemical plants in developing countries (Saudi Arabia, for example) and lower cost steel production in newly industrialized countries such as Brazil and South Korea continued to erode U.S. parents' world market share of these products; this erosion was exacerbated by the appreciating U.S. dollar.

Employment of foreign affiliates.-- As with U.S. parents, affiliate employment in petroleum, finance, and construction declined, and employment in manufacturing increased.

When affiliates are classified in their own industries rather than in those of their U.S. parents, employment was more concentrated in wholesale trade, services, and "other industries' (which includes mining and retail trade), and less concentrated in petroleum, manufacturing, and finance, insurance, and real estate (table 6). This pattern occurs because U.S. parents in manufacturing, petroleum, and finance often own affiliates overseas to market, distribute, or service their products, or to provide raw materials for their operations.

By country, over two-thirds of total affiliate employment, or 4,343,000 employees, was located in developed countries, primarily in Canada, with 14 percent of employment, and the European Communities (10), with 37.1 percent. The remaining one-third, or 2,013,600 employees, was located in developing countries, primarily in Latin America, with 19 percent, and "other Asia and Pacific,' with 8.6 percent (tables 7-9). OPEC accounted for 4.3 percent of affiliate employment. Canada continued to be the country with the largest share of employees; the United Kingdom, Germany, France, Mexico, Brazil, Japan, and Australia, in that order, also had relatively large shares of employment.

By industry, developed countries accounted for 55 percent, and developing countries accounted for 45 percent, of petroleum employment. The relatively large share of petroleum employment in developing countries was a reflection of the high concentration --27 percent--of petroleum employment in OPEC. In manufacturing, developed countries accounted for 68 percent, or 2,913,900 employees, and developing countries accounted for 32 percent. In developed countries, manufacturing employment was most highly concentrated in nonelectrical machinery and transportation equipment; in developing countries, it was most highly concentrated in electric and electronic equipment and in food and kindred products.

In 1984, affiliate employment increased slightly. Large increases in manufacturing and wholesale trade were almost entirely offset by declines in petroleum and "other industries,' primarily construction and retail trade.

Employment in developed countries increased 0.9 percent; an increase in manufacturing was partly offset by declines in petroleum and finance. In Canada, employment declined 3.9 percent, despite a large increase in transportation equipment; that increase was more than offset by declines in all other manufacturing industries and in petroleum, retail trade, finance, and services.

In Europe, employment increased 1.7 percent, to 2,693,900, despite declines in petroleum, motor vehicles manufacturing, and finance. This increase was primarily due to the acquisition of a minority interest in an Italian office equipment manufacturer by a U.S. telecommunications firm. Employment also increased in electronic equipment manufacturing in Germany, the Netherlands, and the United Kingdom.

In the United Kingdom, employment declined, largely in petroleum, finance, and manufacturing. Within manufacturing, employment in transportation equipment and "other manufacturing' declined, while that in electric and electronic equipment and in nonelectrical machinery increased. Employment of affiliates in "other industries' also increased substantially, primarily due to the expansion of a fast-food chain.

Japanese affailiates registered a 1.6-percent increase in employment, to 315,400; the sale of a minority interest in a large Japanese refinery, which resulted in a decline in petroleum employment, was more than offset by increased employment in electronic equipment manufacturing and in wholesale and retail trade.

For affiliates in developing countries, employment declined 1.4 percent, to 2,013,500; increases in "other Asia and Pacific,' which reflected strong economic growth among the newly industrialized countries, were more than offset by declines in Africa, the Middle East, and Latin America.

In Mexico, employment fell 2.6 percent, to 430,800. Increases by affiliates in transportation equipment and electronics manufacturing were more than offset by a decline in retail trade. In Brazil, affiliate employment increased 1.5 percent, to 378,500, due to an increase in transportation equipment manufacturing.

In "other Africa,' affiliate employment fell 3.6 percent, to 106,800; a decline in Nigeria, primarily in electronic equipment manufacturing and petroleum, was partly offset by an increase in Egypt in petroleum.

The effect of weaker petroleum markets was particularly evident among affiliates in the Middle East, where affiliate employment declined. In Saudi Arabia, employment in chemicals manufacturing increased as new petrochemical plants in which U.S. firms held minority interests came on line, but this increase was more than offset by a severe decline in services.

In "other Asia and Pacific,' total employment increased 1.9 percent, to 552,300. Substantial growth in electronics manufacturing in Hong Kong, Taiwan, South Korea, Singapore, and Malaysia was largely offset by declines in the Indonesian petroleum industry, as well as in fabricated metal products manufacturing in the Philippines.

Employment of majority-owned foreign affiliates (MOFA's).--Majority-owned foreign affiliates, or MOFA's-- affiliates in which U.S. parent companies owned more than a 50-percent interest --employed 4,841,000 workers in 1984, or 76 percent of all affiliate employment (tables 10-12). The MOFA share of total affiliate employment was much higher than average in Canada, the United Kingdom, and Germany, where MOFA shares were 95 percent, 88 percent, and 93 percent, respectively.

MOFA shares were lower in countries that had restrictions on majority ownership. The lowest shares were in Japan (29 percent), India (32 percent), and South Korea (45 percent). For MOFA's in all industries, 69 percent of the employees were located in developed countries and 31 percent were located in developing countries.

The changes in employment for MOFA's generally followed the pattern for all nonbank affiliates. Employment declined slightly in both developed and developing countries. By industry, declines in petroleum, finance, and "other industries' were almost entirely offset by increases in manufacturing--primarily transportation equipment and electric and electronic equipment--and in wholesale trade.

MOFA's in transportation equipment manufacturing increased employment in Canada and in Latin America, particularly in Brazil and Mexico, and cut employment in Europe, particularly in Germany, the United Kingdom, and France. MOFA's in electric and electronic equipment manufacturing, particularly those manufacturing electronic components and accessories, increased employment in Europe and "other Asia and Pacific.' The increase in wholesale trade was almost entirely accounted for by affiliates in Japan and in Australia, New Zealand and South Africa. The decline in "other industries' was largely due to a drop in employment in the construction industry --in both developed and developing countries--and a decline in retail trade in Latin America, "other Asia and Pacific', and Canada.

Technical Note

The tables in this article present preliminary estimates for 1984 and revised estimates for 1983, based on data from BEA's annual sample survey of U.S. direct investment abroad (BE-11). For 1984, reports were required from every U.S. person having a foreign affiliate at the end of its 1984 fiscal year with assets, sales, or net income exceeding $10 million. Banks were excluded from the survey. Each report consisted of a form BE-11A, which obtained data for the nonbank U.S. parent company, a form BE-11B, which obtained data for each nonbank majority-owned foreign affiliate (MOFA), and a form BE-11C, which obtained data for each nonbank foreign affiliate in which U.S. ownership was at least 25 percent 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 1984 shown in the tables in this article and in the additional tables available (see box on this page) 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 servey.

Tables 13 and 14 show, for U.S. parents and for foreign affiliates, respectively, the portion of the universe estimates of total employment accounted for by the 1984 sample data. For parents, the reported sample data accounted for 90 percent of the universe estimate. By industry, sample coverage tended to be higher for industries --such as petroleum and transportation equipment manufacturing-- that are dominated by a relatively small number of large firms.

For foreign affiliates, the sample data accounted for 81 percent of the universe estimate. Sample coverage was significantly highter for MOFA's, at 90 percent. 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), the sample data accounted for only 55 percent of the universe estimate of employment. The low coverage primarily reflected the fact that those affiliates owned less than 25 percent by U.S. parents were exempt from reporting in the annual survey. Industries and areas with particularly low sample coverage of minority-owned affiliates--such as transportation equipment manufacturing-- were those in which the size of the exempt affiliates was significant. For example, a number of U.S. automobile manufacturers owned less than 25-percent interests in very large Japanese automobile companies; these interests, while exempt from the survey, were substantial. For the largest of these exempt affiliates, information from outside sources, when available, was used to modify BEA estimates for 1984.

Table: 1.--Total Assets, Sales, and Employment of Nonbank U.S. MNC's, U.S. Parents, and Foreign Affiliates, 1977 and 1982-84

Table: 2.--U.S. Merchandise Exports and Imports Associated With Nonbank U.S. MNC's, 1983 and 1984

Table: 3.--Employment of Nonbank U.S. MNC's, U.S. Parents, and Foreign Affiliates, by Industry of U.S. Parent, 1982-84

Table: 6.--Distribution of Employment of Nonbank Foreign Affiliates, by Industry of U.S. Parent and by Industry of Affiliate, 1984

Table: 4.--Selected Data for Nonbank U.S. Parents, by Industry of U.S. Parent, 1983

Table: 5.--Selected Data for Nonbank U.S. Parents, by Industry of U.S. Parent, 1984

Table: 10.--Employment of All, Majority-Owned, and Minority-Owned Nonbank Foreign Affiliates, by Area, 1984

Table: 7.--Selected Data for Nonbank Foreign Affiliates, Major Industry and Area of Affiliate, 1983 and 1984

Table: 8.--Employment of Nonbank Foreign Affiliates, Country by Industry of Affiliate, 1983

Table: 9.--Employment of Nonbank Foreign Affiliates, Country by Industry of Affiliate, 1984

Table: 11.--Selected Data for Majority-Owned Nonbank Foreign Affiliates, Major Industry and Area of Affiliate, 1983

Table: 12.--Selected Data for Majority-Owned Nonbank Foreign Affiliates, Major Industry and Area of Affiliate, 1984

Table: 13.--Employment of Nonbank U.S. Parents: Percent of Universe Estimate Accounted for by the Sample, by Industry of Parent, 1983 and 1984

Table: 14.--Employment of Nonbank Foreign Affiliates: Percent of Universe Estimate Accounted for by the Sample, by Industry of Affiliate and by Area, 1983 and 1984
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Author:Brereton, Barbara F.
Publication:Survey of Current Business
Date:Sep 1, 1986
Previous Article:Plant and equipment expenditures, the four quarters of 1986.
Next Article:The business situation.

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