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U.S. sales of services to foreigners.

U.S. Sales of Services to Foreigners

Part I. An Overview of BEA's Program

BEA has recently undertaken to improve and expand the information it provides on U.S. international trade and investment in services. The effort was undertaken to support the increased emphasis on services in U.S. trade policy initiatives and trade promotion activities and to improve the information on services included in the U.S. international transactions (balance of payments) accounts.

The effort is partly an outgrowth of the Trade and Tariff Act of 1984. The act contains several provisions related to services, including provisions concerning the inclusion of services in trade negotiations and the establishment of a services industry development program. It also contains provisions dealing specifically with data: It provides for mandatory reporting of U.S. international trade in services, calls for a benchmark survey of services transactions between U.S. persons and unaffiliated foreign persons, and requires that a data base be established to help evaluate Government policies and actions pertaining to services.

The major elements of BEA's international services program are outlined in table 1. The table lists the various types of transactions, describes the sources of information and content for each type of transaction, gives the most recent estimates available, and summarizes recent and planned improvements.1 The table includes both sales by majority-owned foreign affiliates of U.S. companies and sales by U.S. residents. Recently, BEA has developed estimates of sales of services by majority-owned foreign affiliates of U.S. multinational companies, thus closing a major gap in the information on international services. Part II of the article presents these estimates for 1982-84 along with estimates of sales of services by the U.S. parent companies. The sales reported on in part II are shown in table 1 in lines 3-5 and 35.(2)

1. Additional information about many of the BEA surveys that are used as sources may be found in table 7 of "Foreign Transactions in the National Income and Product Accounts: An Overview,' in the November 1986 SURVEY.

2. The estimates of sales by U.S. parent companies to their foreign affiliates that are discussed in part II are not those shown in line 9 of table 1. These estimates cannot be disaggregated by country and cover only nonbank parents and affiliates. Estimates developed from quarterly balance of payments surveys are shown instead, because they are disaggregated by country of foreign affiliate and include banks.

Royalties and license fees are included in the table because information on them is needed, along with the information on sales, for trade policy purposes. For example, issues involving intellectual property rights or the transfer of technology would require information on royalties and license fees.

Although the table is limited to U.S. sales and receipts of royalties and license fees, similar information on purchases and payments exists or is planned for many of the categories shown. For example, the proposed benchmark survey of selected services transactions with unaffiliated foreign persons (line 12) has been designed to collect information on purchases as well as sales. Also, BEA plans to obtain a disaggregation between goods and services of sales by U.S. affiliates of foreign firms in its benchmark and annual surveys of foreign direct investment in the United States. This disaggregation, which will be available separately for sales to U.S. and foreign persons, will provide a measure of U.S. purchases of services from these affiliates.

The table is further limited to private transactions: U.S. Government transactions and transactions involving foreign governments (e.g., expenditures of embassies) or international organizations are not shown. Labor income and income on investments also are not shown.

Because the table was designed with a view to illustrating the information that might best support trade policy and development activities outlined above, the data and categories shown in the table and those shown in the U.S. balance of payments accounts differ in certain respects, even though much of the information shown in the table is from those accounts. A major difference is that the table includes sales abroad by majority-owned foreign affiliates of U.S. companies. As discussed in part II, such sales are of interest from the perspective of U.S. trade policy and, for many services, are much larger than sales directly from the United States. However, because they are transactions between foreign residents, they are not included in the U.S. balance of payments accounts. A second difference is that certain data items that are normally included in the balance of payments accounts on a net basis have been shown in the table on a gross basis, in order to permit the magnitude of U.S. sales to be gauged.3

3. The presentation on a gross basis of data that appear in the balance of payments accounts on a net basis has been done in several instances. (1) U.S. parents' sales of services to, and receipts of royalties and license fees from, foreign affiliates are included in U.S. exports of goods and services net of analogous purchases or payments; however, they are included in table 1 on a gross basis (in lines 9 and 30, respectively). (2) U.S. affiliates' sales of services to, and receipts of royalties and license fees from, their foreign parents are included in U.S. imports of goods and services as a deduction from analogous purchases or payments; however, they are included in table 1 on a gross basis (in lines 10 and 31, respectively). (3) Reinsurance premiums received are included in U.S. exports of goods and services net of claims paid, whereas only premiums are included as sales in table 1 (in line 26). Although contractors' fees (line 14) should be shown in the table as gross income or operating revenues, the only information as yet available is the net funds remaining in the United States or to the U.S. account (that is, the difference between gross income and the sum of associated U.S. exports and foreign expenses or outlays).

Each item shown in the table is classified on one of two bases: Some are classified by type of service; others, by industry of company. The estimates derived from direct investment surveys (lines 3-5, 9 and 10, 30, 31, 35, and 36) are classified by industry of company, as are the estimates of royalties and license fees received from unaffiliated foreign residents (line 32). The remaining items, consisting of sales of services by U.S. residents to unaffiliated foreigners, are classified by type of service.

The table is structured so that a total could be struck for the sum of sales to, and receipts of royalties and license fees received from, foreign persons by both U.S. residents and majority-owned foreign affiliates of U.S. companies. A figure is not shown, because significant components of the total are not now available. However, it can be noted that the components that are available summed to $104 billion in 1984. This partial total is comprised of: (1) $58 billion in sales by majority-owned foreign affiliates (line 3), (2) $40 billion in sales by U.S. residents (line 7), and (3) $6 billion in U.S. residents' receipts of royalties and license fees (line 28).4

4. It is noted in part II that the estimates of sales by majority-owned foreign affiliates in the industry of finance (except banking), insurance, and real estate may include interest and other factor income, as well as receipts for services performed. If sales by these affiliates are excluded, the total of available components would be about $85 billion.

The items for which information is not now available include: (a) noninterest income of majority-owned foreign affiliates in banking (line 6), (b) sales of various types of services to unaffiliated foreign residents (lines 12 and 24), (c) premiums on direct insurance (line 27), and (d) receipts by majority-owned foreign affiliates of royalties and license fees from both affiliated and unaffiliated foreign residents (line 33). As outlined in the table, BEA is working to fill several of these gaps.

Part II. Sales of Services by U.S. Multinational Companies

AN important element of BEA's statistical program in international services is the disaggregation of estimates of sales by U.S. parent companies and their majority-owned foreign affiliates (MOFA's) into goods and services. This disaggregation was first requested of respondents in the 1982 benchmark survey of U.S. direct investment abroad and has been continued in a new annual survey. The results are now available through 1984.(5) They cover nonbank U.S. parents of nonbank foreign affiliates and their nonbank MOFA's. (MOFA's are foreign affiliates for which the combined direct and indirect ownership interest of all U.S. parents exceeds 50 percent.)

5. Results of the 1984 annual survey are summarized in "U.S. Multinational Companies: Operations in 1984,' in the September 1986 SURVEY OF CURRENT BUSINESS; results of the 1983 survey are summarized in a similar article in the January 1986 SURVEY. More detailed estimates are available in U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates, Preliminary 1984 Estimates and in U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates, Revised 1983 Estimates; price $5.00 each. Copies may be obtained from Economic and Statistical Analysis/BEA, U.S. Department of Commerce, Citizens and Southern National Bank, 222 Mitchell Street, P.O. Box 100606, Atlanta, GA 30384. When ordering, specify title and enclose a check or money order made payable to "Economic and Statistical Analysis/BEA.'

Results of the 1982 benchmark survey are summarized in "1982 Benchmark Survey of U.S. Direct Investment Abroad,' in the December 1985 SURVEY. Complete results--including a methodology, basic concepts and definitions of U.S. direct investment abroad, more than 300 tables, and reprints of the survey forms and instructions--are 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.

The 1984 estimates in this article incorporate revisions to the preliminary 1984 estimates shown in earlier publications. The usual procedure would be for such revisions to be published next summer; however, because revisions to date significantly affect the industry distribution of sales, the allocation between goods and services, and the growth rate, they have been incorporated in this article ahead of the usual schedule.

The new information on sales of services is particularly important in evaluating the global operations in services of U.S. multinational companies (MNC's). Whether because of the nature of the services being rendered or because of restrictions on their provision by nonresidents, delivery abroad must often be through foreign affiliates, rather than directly from parents in the United States. Thus, to obtain a complete picture of these operations, it is essential to have information on sales abroad by affiliates, but because these sales are transactions between foreign residents, they are not covered by U.S. balance of payments data. Also, the availability of data on sales by both U.S. parents and foreign affiliates permits the relative size of the two channels used by MNC's to deliver services abroad-- direct exports from the United States and sales by foreign affiliates--to be evaluated. As will be seen, for U.S. MNC's, sales of services abroad were much larger for affiliates than for parents in 1982-84.

Because this is a new data series, and because "sales of services' can be measured in more than one way, it is necessary to explain terminology before reviewing the survey results. Most critical to understanding the results are explanations of what constitutes a "service' and a "sale' in the term "sales of services.'

Definitions

Definition of services

In BEA's direct investment surveys, all sales are considered to be of either goods or services; no separate category is provided for sales that are a combination of the two.6 Services are the activities that are characteristic of a particular group of industries. An entity (U.S. parent or MOFA) does not itself have to be classified in one of these industries in order to have sales of services and, in fact, a significant portion of sales of services by U.S. MNC's in 1982-84 was accounted for by entities in manufacturing and other goods-producing industries that sold services as a secondary activity. Conversely, an entity classified in a services industry could have sales of goods, although, in fact, the portion of total sales of goods accounted for by affiliates in a services industry was small.

6. Goods and services are often sold as a package, without the components being separately priced. When they are, it may not be possible to relate the individual components to the industries with which they are associated. For example, machinery may be sold as a part of a package including services such as installation, maintenance, and training. In such cases, survey respondents are requested to provide separate estimates of the goods and services components, if possible. If this cannot be done, they are instructed to include the total amount of the sale in whichever category --goods or services--accounts for the majority of the value. To the extent that the goods component of such transactions typically would be the largest, the share of services in total sales would be understated, particularly in industries where bundled transactions are common.

The particular group of industries consists of those in the "services' division of the Standard Industrial Classification (SIC) and several other services-producing industries. The "services' division of the SIC essentially corresponds to the industries listed under "services' in the accompanying tables: Hotels and other lodging places; various business services; motion pictures, including television tape and film; engineering, architectural, and surveying services; health services; and miscellaneous "other services.'7 The other services-producing industries are: Oil and gas field services; petroleum tanker operations, petroleum and natural gas pipelines, and petroleum storage for hire (all of which are included in "other petroleum'); finance (except banking), insurance, and real estate; agricultural services (part of agriculture, forestry, and fishing); metal mining services (part of mining); and transportation, communication, and public utilities. (Banking, although a service, was not covered by the questions on sales of services in either the benchmark survey or the annual survey; thus, it is not included in the categories listed above.)

7. The titles of these industries, and others in the tables, are not directly from the SIC, but are from BEA's Direct Investment Industry and Foreign Trade Classifications Booklet, which is distributed to survey respondents. However, both the codes and the industries are closely related to the SIC.

In collecting the data, separate codes are used for several service industries not shown separately in the tables. The complete list of codes used, along with global totals for selected data items for each industry having a separate code, is given in the publications (cited in footnote 5) containing the detailed survey results. Because of the requirement that data of individual companies not be disclosed, little data beyond these global totals can be shown for the industries that have been combined in the tables.

Wholesale and retail trade and construction are not treated as services producing, even though they might be considered services in another context. Although wholesale and retail trade are service industries from the standpoint of production, or value added, sales in these industries consist primarily of goods. Similarly, although construction is sometimes considered a service industry, particularly where international operations are concerned, the end product of the industry is tangible and visible, and thus more like a good than a service.

Definition of sales

"Sales,' as used in this article, is actually shorthand for "sales or gross operating revenues,' as it would appear in the income statements of the U.S. parents and foreign affiliates covered by the surveys. Thus, it ordinarily would include revenues generated by a parent's or affiliate's primary lines of business and would exclude incidental or unrelated revenue sources. For example, a computer manufacturer that sold such related services as maintenance, repair, and programming would include funds received for these services in its sales or gross operating revenues. However, it would place income earned by investing in interest-bearing securities in "other income,' rather than in sales or gross operating revenues, because the activity of making investments is incidental to the manufacture or servicing of computers. A finance company, in contrast, would include interest received in its operating revenues, because making loans is a primary activity of such companies. Similarly, an insurance company would include interest and other investment income, along with premiums, in its operating revenues.

Because investment income is sometimes included in sales of services, the data on services do not always provide a measure of services performed, excluding factor incomes. However, the inclusion of interest and other investment income in sales or gross operating revenues is largely confined to two industries--finance and insurance. (In other industries, such income would generally be included in "other income.') The amount of such income for finance and for insurance companies can be roughly gauged using 1982 benchmark survey data on interest received. In insurance, revenues appear to be accounted for largely by premium income, rather than by interest, for both U.S. parents and foreign affiliates, but particularly for the latter. In finance (except banking), most affiliate revenues are accounted for by interest, and most parent revenues are accounted for by other types of revenues.8

8. In 1982, U.S. parents in insurance had sales of services of $169.2 billion and interest received of $34.8 billion, while MOFA's in insurance had sales of services of $13.4 billion and interest received of $2.6 billion. In finance (except banking), MOFA's had sales of services of $9.9 billion and interest received of $8.0 billion. Sales of services by U.S. parents classified in finance (except banking) cannot be disclosed. However, these parents' total sales, which are disclosed and probably consist mainly of services, were $16.0 billion, and their interest received was $7.2 billion.

For two reasons, these figures are only rough indicators of the composition of operating revenues. First, interest is not the only type of factor income that could be included in revenues. Second, the method of accounting for interest received may not be the same for every company.

To facilitate the analysis of sales excluding factor income, several tables in this article include an addendum showing sales of services for industries other than finance, insurance, and real estate. Just as the figures for all industries overstate total services performed because they include interest received by finance and insurance companies, the figures in the addendum understate the total because they exclude services performed by these companies. Thus, the value of services performed lies somewhere in between; determining exactly where requires information beyond that presently requested on the survey forms.

In some cases, a company may not include in sales the funds that are received from customers but are ultimately passed on to others who share in providing the services. For example, an advertising agency receives funds from clients to cover both its own services and services of others-- such as media suppliers (e.g., broadcasters and publishers)--involved in an advertising campaign. Only the funds for the agency's own services (referred to in the industry as "gross income') are included in sales or gross operating revenues, although a broader measure ("gross billings'), which includes the cost of media space and time, etc., would be useful in analyzing the total amount of advertising booked through the agencies.

As a final caveat, it should be noted that data on sales or gross operating revenues do not measure production, or value added. Although one may think of the operations of the typical services firm as being relatively self-contained, with little use of purchased inputs, information from the benchmark surveys indicates that value added is considerably lower than sales for most service industries and that the ratio of value added to sales varies a good deal from one service industry to another.

In disaggregating affiliate sales by industry, two bases of classification are used--industry of U.S. parent, based on the industry distribution of the U.S. parent's sales, and industry of foreign affiliate, based on the industry distribution of the foreign affiliate's sales. When comparing affiliate sales with parent sales, or in examining the relative shares of parents and affiliates in worldwide MNC sales, affiliate sales are classified by industry of U.S. parent. When discussing affiliate sales only, they are classified by the affiliate's own industry.

Overview

Table 2 shows the complete matrix of available data on sales for the 1982-84 period for all countries and industries combined. To provide perspective, total sales and sales of goods are shown along with sales of services for both U.S. parents and their MOFA's. Total sales are also shown for minority-owned affiliates, but data are not available to disaggregate these sales between goods and services.

This section of the article will briefly examine the global sales totals-- both their overall 1984 patterns and their growth during 1982-84. The next section will examine in greater detail the composition of sales of services in 1984.

1984 patterns

U.S. parents.--In 1984, total sales by U.S. parents were $2,520.1 billion, of which $1,967.7 billion, or 78 percent, were goods, and $552.4 billion, or 22 percent, were services (as defined). Of the sales of services, $533.8 billion, or 97 percent, were to U.S. persons and only $18.6 billion, or 3 percent, were to foreign persons, mainly unaffiliated persons (that is, foreign persons other than the parent's own foreign affiliates). Total sales and sales of goods were not broken down by destination in the annual surveys for 1983 and 1984. This breakdown was requested in the 1982 benchmark survey, however, and, in 1982, services accounted for 25 percent of U.S. parents' sales to U.S. persons and for only 6 percent of their sales to foreign persons. The tendency for goods to predominate more in foreign than in domestic sales may reflect the previously mentioned need for a local presence to deliver services to foreign markets.

Foreign affiliates.--For foreign affiliates, total sales in 1984 were $894.6 billion. Of this amount, MOFA's accounted for $716.4 billion, or 80 percent. Minority-owned affiliates accounted for the remaining 20 percent. All further references to affiliate data are to data of MOFA's.9

9. The focus on MOFA's reflects both the practical difficulty of collecting data on minority-owned affiliates from U.S. parents and the fact that MOFA's, with their larger U.S. ownership share, are of primary interest in evaluating U.S. companies' stakes in foreign markets.

MOFA sales were mainly of goods, which accounted for $649.1 billion, or 91 percent, of the total. Services accounted for the remaining $67.3 billion, or 9 percent. Three-fourths of the services were sold to unaffiliated persons--that is, to persons other than the U.S. parent or the parent's other foreign affiliates. By destination, MOFA sales of services were largely to foreign persons--$57.9 billion out of $67.3 billion. Over 85 percent of these sales were local (that is, to customers in the affiliate's country of location). Most of the sales of services of MOFA's to U.S. persons were to parents, while most of the sales to foreign persons were to unaffiliated foreigners. Of the sales to U.S. persons, $7.8 billion were to U.S. parents, and $1.6 billion were to unaffiliated U.S. persons. Of the sales to foreign persons, $49.0 billion were to unaffiliated foreign persons, and $9.0 billion were to other foreign affiliates (of the same U.S. parent).

Perhaps because intimate knowledge of local tastes and customs is often more essential to success in selling services than in selling goods, and because a foreign-owned firm may have difficulty in acquiring such knowledge, the share of services in total sales was smaller for MOFA's than for parents. Because both total sales and the share of services in the total where larger for the parents, their sales of services were much larger than those of their MOFA's. For sales of services to foreign persons, however, MOFA's sales were much larger.

1982-84 growth

U.S. parents.--Total sales by parents grew 6 percent in 1984, compared with 1 percent in 1983. In 1984, sales of goods grew 7 percent, and sales of services grew 1 percent. In 1983, in contrast, sales of services grew faster than sales of goods--2 percent compared with 1 percent. The slower growth for services in 1984 reflects a major U.S. telephone company's divestiture, in early 1984, of seven regional operating companies that did not have direct investment abroad (and, thus, were not included in the 1984 data). In the absence of the divestiture, services would have grown faster than goods in both years. The share of services in total sales was 23 percent in 1982 and 1983, and 22 percent in 1984.

Growth in sales of services by U.S. parents during 1982-84 was more than accounted for by parents in finance (except banking), insurance, and real estate (table 3). Sales of services by parents in all other industries combined declined 6 percent over the period. Increases in "services' (particularly health and "other services'), manufacturing, and wholesale trade were more than offset by declines in "other industries' (due to the divestiture) and in petroleum (due to weakening petroleum markets and the accompanying reduction in activity in almost all sectors of the industry).

By destination, the increase in sales of services by U.S. parents during 1982-84 was largely accounted for by sales to U.S. persons, although sales to foreign persons--both affiliated and unaffiliated--increased as well. Nearly all of the decline in sales by parents in industries other than finance, insurance, and real estate was in sales to U.S. persons.

MOFA's.--Sales by MOFA's rose 2 percent in 1984, following a decline of 3 percent in 1983. In 1984, sales of both goods and services increased, by 1 percent and 2 percent, respectively. In 1983, they both declined, by 4 percent and 1 percent, respectively. The share of services in total sales remained at about 9 percent throughout the period.

Sales of services by MOFA's were almost flat during 1982-84, growing only 1 percent over the entire period. This growth was more than accounted for by affiliates in finance (except banking), insurance, and real estate, for which sales of services (including investment income) rose 10 percent, largely due to growth in finance (except banking) (table 4). Sales of services by affiliates in all other industries combined declined 10 percent, as an increase in sales to U.S. persons was more than offset by a decline in sales to foreign persons. The decline in sales of services by MOFA's in nonfinancial industries was more than accounted for by declines in petroleum and in engineering, architectural, and surveying services. The decline in petroleum was spread among several subindustries and reflected the same global market conditions that affected sales by U.S. petroleum parents.

By destination, sales of services by MOFA's to U.S. persons rose 26 percent, largely due to an increase in 1984 in interest received by Netherlands Antilles finance affiliates from their U.S. parents. Most of the interest was on loans made to the parents out of the proceeds of the affiliates' foreign borrowing. Sales of services by MOFA's to foreign persons declined 2 percent.

Composition of Sales of Services in 1984

Sales to all persons

Sales by U.S. parents.--Of the $552.4 billion of sales of services by U.S. parents in 1984, 40 percent, or $223.6 billion, were in finance (except banking), insurance, and real estate; most of this amount was in insurance. Sales by U.S. parents in all other industries combined were $328.7 billion.

Over one-fourth of the sales of services by parents were in transportation, communication, and public utilities. Parents in manufacturing accounted for 15 percent. Sales of services by these parents were spread among several manufacturing industries; they were largest in nonelectrical machinery, electric and electronic equipment, and transportation equipment. Parents in "services' and in petroleum had shares of 9 percent and 4 percent, respectively.

Sales by MOFA's.--Of the $67.3 billion of sales of services by MOFA's in 1984, nearly 40 percent, or $25.9 billion, were by affiliates in finance (except banking), insurance, and real estate. In all other industries combined, they were $41.4 billion.

Affiliates in "services,' particularly business services and engineering, architectural, and surveying services, accounted for almost one-fourth of total MOFA sales of services. Petroleum affiliates accounted for 14 percent, and affiliates in wholesale trade and in manufacturing each accounted for 9 percent.

By country, sales of services by MOFA's in developed countries were substantially larger than those by MOFA's in developing countries-- $42.2 billion compared with $19.5 billion (table 5). Sales by MOFA's in "international' were $5.6 billion; these sales were accounted for by affiliates engaged in providing petroleum services or water transportation.10

10. The "international' designation is used for affiliates that have operations spanning more than one country and that are engaged in petroleum shipping, other water transportation, or oil and gas drilling.

Among developed countries, sales of services by MOFA's in Canada and in the United Kingdom, at $11.3 billion and $10.2 billion, respectively, were much larger than those by affiliates in any other individual country. In both countries, the sales were spread among several industries. Sales by MOFA's in Germany, France, the Netherlands, Japan, and Australia ranged between $2.5 billion and $3.4 billion each.

Among developing countries, MOFA sales were largest, at $5.6 billion and $4.0 billion, respectively, in the offshore financial centers of the Netherlands Antilles and Bermuda. The sales by Netherlands Antilles affiliates, mainly interest received on loans to their U.S. parents, accounted for over one-half of total MOFA sales to U.S. persons. Sales by MOFA's in Saudi Arabia and in Hong Kong were also large. A large share of the sales in Saudi Arabia was accounted for by petroleum services and by health services, including the management of health care facilities.

Sales to foreign persons

Tables 6 and 7 show sales of services to foreign persons by U.S. parents and by MOFA's, for 1983 and 1984. Sales by U.S. MNC's worldwide, the sum of parent and MOFA sales, are also shown.11 The figures are shown on an aggregated basis, including both sales within the MNC and sales by the MNC to unaffiliated foreign customers.12 To compare the sales of U.S. parents with those of their own affiliates, a single basis--the industry of the parent--is used for classifying the data of parents, MOFA's, and the MNC as a whole. Although the discussion that follows generally focuses on total sales of services to foreigners, the tables also show sales to affiliated and unaffiliated foreigners separately. For both parents and MOFA's, the major portion of sales to foreigners is to unaffiliated persons, and most statements about total sales also apply to sales to those persons. Sales by MNC's worldwide, by U.S. parents, and by MOFA's are discussed separately.

11. Conceptually, the MNC would include minority-owned affiliates as well, and, in fact, sales to such affiliates are included in MNC sales to affiliated foreign persons. However, because the necessary data are not available, the figures on sales by MNC's worldwide do not include sales by such affiliates.

12. On a fully consolidated, rather than an aggregated, basis, sales of services to foreigners would exclude sales within the MNC. They would include only sales to unaffiliated foreigners, which were $62.9 billion in 1984, as shown in column 3 of table 7. These sales accounted for over 80 percent of aggregated sales to foreign persons, and most statements in the text about aggregated sales would also apply to consolidated sales.

Sales by U.S. MNC's worldwide.-- For U.S. MNC's worldwide, sales of services to foreigners in 1984 were $76.5 billion. (The total for industries other than finance, insurance, and real estate was $57.0 billion.) Of the $76.5 billion, $18.6 or 24 percent-- were by U.S. parents and $57.9 billion --billion--or 76 percent--were by MOFA's (chart 5). Sales to unaffiliated foreign customers accounted for 82 percent of the worldwide MNC total; sales to affiliated foreign customers --that is, to foreign affiliates-- accounted for the remaining 18 percent. (To the extent that a formal charge or allocation is not always made for services performed within the MNC, the latter figure may understate the importance of services performed for affiliated customers.)

The largest portion--about one-third --of sales of services to foreigners was by MNC's in manufacturing. Within manufacturing, sales were largest in nonelectrical machinery, where computer manufacturers accounted for a large share. MNC's in finance (except banking), insurance, and real estate accounted for one-fourth of sales of services to foreign persons; most of these sales were by MNC's in insurance. MNC's in petroleum accounted for 16 percent of sales of services to foreigners, and MNC's in "services' accounted for 9 percent. The sales in "other industries' were primarily by MNC's in transportation, communication, and public utilities.

In most major industries, MOFA's accounted for a large share of total MNC sales of services to foreign persons --86 percent in petroleum; 82 percent in manufacturing; 96 percent in wholesale trade; 77 percent in finance (except banking), insurance, and real estate; and 72 percent in "services.' Within manufacturing, the shares of MOFA's were highest in "other manufacturing' (95 percent) and nonelectrical machinery (92 percent).

The MOFA share in "other industries' was distinctly lower, at 44 percent, than in any other major industry. This low share reflected low shares in mining and in transportation, communication, and public utilities. Because total MNC sales were much larger in the latter industry group, the low MOFA share in that group was the major determinant of the low MOFA share in "other industries' as a whole.

Variations in the MOFA share of total MNC sales to foreign persons can often be understood by comparing the nature of operations in different industries and the position of U.S. firms in the industries worldwide. For example, services provided by computer manufacturers, which are included in an industry (nonelectrical machinery) in which MOFA's accounted for a very large share (92 percent) of the MNC total, can be compared with basic telecommunications services, which are included in an industry (transportation, communication, and public utilities) in which MOFA's accounted for a very small share (29 percent). In the computer industry, U.S. firms are leaders in world markets and have a widespread network of affiliates to manufacture, distribute, and service their products. Computer services, such as maintenance, repair, and development of specialized applications programs, can best be provided by entities having a physical presence near their customers. Thus, the services are sold primarily through affiliates, because of both the nature of the services and the existence of affiliates established to manufacture related goods.

Basic telecommunications services, in contrast, ordinarily are provided within a country only by a domestic company, usually one that is either under government ownership or has been granted monopoly status by the government.13 Thus, the transmission of a message from a foreign country to the United States must involve both a foreign telecommunications company and a U.S. telecommunications company: The foreign company transmits the message from within the foreign country to the U.S. company, which completes the transmission to the U.S. destination. In this situation, the only sale to foreigners possible for a U.S. MNC would be for completing the transmission of the message to the United States; this would be an activity of the U.S. parent company, rather than of a foreign affiliate.14 Indeed, sales of services to foreigners by MNC's in this industry consist almost entirely of the U.S. parents' share of the revenues collected by the foreign carriers for such jointly provided services.

13. These services consist primarily of the transmission of messages by telephone. Other types of telecommunications services, such as those that add value or function to the basic services provided by common carriers, may be provided more easily by foreign affiliates.

14. In this industry, "sales' to foreigners have a different meaning than in most other industries. From the standpoint of the U.S. telecommunications company, the "sale' is not to the foreign telecommunications company from which it receives the revenues. Rather, the transaction is one in which the U.S. company receives a share of revenues collected from foreign customers for a service jointly provided by both companies. Thus, the revenues are not received directly from the foreign parties to whom the services are provided.

Sales by U.S. parents.--Of total sales of services by U.S. parents to foreign persons of $18.6 billion ($14.1 billion excluding finance, insurance, and real estate), 80 percent were accounted for by three major industries --"other industries' (31 percent), manufacturing (24 percent) and, finance (except banking), insurance, and real estate (24 percent). Within "other industries,' a very high share of the sales was by parents in transportation, communication, and public utilities, primarily telecommunications and air transportation. Within manufacturing, sales by parents were largest in transportation equipment and in electrical machinery. Within finance (except banking), insurance, and real estate, they were largest in finance (except banking) and insurance.

U.S. parents in "services' accounted for only 11 percent of total parent sales of services to foreign persons. A large share of these sales was by parents in three industries--hotels and other lodging places; motion pictures, including television tape and film; and engineering, architectural, and surveying services. In the first two industries, a large share of the revenues was probably in the form of fees-- franchise fees in the case of hotels and other lodging places and film rentals in the case of motion pictures, including television tape and film. (These fees, which firms in other industries might have included in "other income,' were included in sales by the parents in question because they represented revenues related to their primary activity.)

Sales by MOFA's.--The industry distribution of MOFA sales of services to foreign persons depends on the basis used in classifying MOFA's by industry. When classified in their own industries (as in tables 4 and 14), rather than in their U.S. parents' industries (as in table 7), sales were more concentrated in wholesale trade; finance (except banking), insurance, and real estate; and "services.' They were less concentrated in manufacturing and petroleum (table 8). In manufacturing and "services,' the differences in shares between the two bases of classification were large: MOFA's of manufacturing parents accounted for 37 percent of total sales of services to foreigners, but MOFA's that were themselves classified in manufacturing accounted for only 9 percent; similarly, MOFA's of parents classified in "services' had only a 9-percent share, but MOFA's that were themselves classified in "services' had a 26-percent share.

The differences in distribution may be due to several factors. In some cases, an MNC may conduct manufacturing operations only in the United States and establish foreign affiliates only to service its products abroad. The parent would then be in manufacturing, and the affiliates would be in services. In other cases, an MNC may conduct both types of activity in the United States and abroad, but, because of the consolidation practices used in BEA surveys, the foreign activities are more likely to be conducted by an enterprise classified in services. Assuming that the MNC was primarily a goods producer, all of the U.S. operations--which are reported on a fully consolidated basis--would be classified in manufacturing. The same would be true of affiliate operations when classified by industry of parent. The foreign operations, in contrast, might be spread among a number of specialized affiliates, with manufacturing affiliates to produce the goods and services affiliates to provide the services. Because affiliates may be consolidated for reporting purposes only if they are in the same country and either are in the same industry or are integral parts of the same business operation, services operations classified in manufacturing on the basis of the parent's industry would be classified in services on the basis of the industry of the MOFA that conducted them. In the remainder of this section, data classified by industry of MOFA are discussed.

By area, 68 percent of MOFA sales of services to foreign persons in 1984 were by affiliates in developed countries, 22 percent were by affiliates in developing countries, and 10 percent were by affiliates in "international.'

Almost 60 percent of the sales to foreign persons by MOFA's in developed countries were by affiliates in Europe. Among individual developed countries, sales by affiliates in Canada and the United Kingdom were largest, at $11.0 billion and $9.4 billion, respectively (table 5, column 15). In these countries, the sales were spread among several industries. MOFA's in Germany, France, the Netherlands, and Australia each had sales of services to foreign persons ranging from $2.5 billion to $3.1 billion.

Over one-half of the sales to foreign persons by MOFA's in developing countries were by affiliates in Latin America. Among individual developing countries, sales by MOFA's in Bermuda (at $2.7 billion), Saudi Arabia ($1.8 billion), and Hong Kong ($1.2 billion) were largest. In Bermuda, the sales were concentrated in finance (except banking) and insurance; in Saudi Arabia, in petroleum and health services; and in Hong Kong, in public utilities.

By industry of affiliate, MOFA's in finance (except banking), insurance, and real estate and in "services' together accounted for almost 60 percent of total MOFA sales of services to foreign persons. The former accounted for one-third of the total; the latter, for a little over one-fourth. Petroleum accounted for 15 percent, and other major industry groups accounted for less than 10 percent each.

Within finance (except banking), insurance, and real estate, sales by MOFA's in insurance were largest, followed by those in finance (except banking). In both industries, a majority of sales were accounted for by MOFA's in developed countries, primarily in Canada and Europe. In developing countries, sales were primarily by MOFA's in Latin America.

Within "services,' 46 percent of the sales were by MOFA's in "business services.' These sales were spread among several subindustries, including advertising; management, consulting, and public relations; equipment rental (except automotive and computers); and computer and data processing. Outside business services, sales were largest in engineering, architectural, and surveying services and in motion pictures, including television tape and film.

Four-fifths of the sales in "services' were by MOFA's in developed countries. In most industries within "services,' the developed-country share was from 75 percent to over 95 percent. However, the developed-country share was distinctly smaller in two industries --in hotels and other lodging places and in health services. In hotels and other lodging places, sales in developing countries were largely accounted for by MOFA's located in resort areas of the Caribbean.15 In health services, sales were concentrated in the Middle East, primarily in Saudi Arabia. Among the remaining "services' industries, the developed-country share was smallest, at 25 percent, in engineering, architectural, and surveying services; these sales also were concentrated in the Middle East.

15. Virtually all sales reported for hotels and other lodging places were reported as being to "foreign' persons, although, in many cases, sales to U.S. tourists probably accounted for a significant portion. U.S. tourists would have been located in the foreign country at the time of the sale, but were not foreigners in terms of residency. Separate data on revenues received from U.S. tourists are not available.

Table: 1.--U.S. Sales of Services to, and Receipts of Royalties and License Fees From, Foreign Residents

Table: 2.--Sales of Goods and Services by Nonbank U.S. Parents and Foreign Affiliates, 1982-84

Table: 3.--Sales of Services by Nonbank U.S. Parents, by Industry of U.S. Parent, 1982-84

Table: 4.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates, by Industry, 1982-84

Table: 5.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates, by Country, 1982-84

Table: 6.--Sales of Services to Foreign Persons by Nonbank U.S. Parents and Their Nonbank Majority-Owned Foreign Affiliates, by Industry of U.S. Parent, 1983

Table: 7.--Sales of Services to Foreign Persons by Nonbank U.S. Parents and Their Nonbank Majority-Owned Foreign Affiliates, by Industry of U.S. Parent, 1984

Table: 8.--Distribution of Sales of Services to Foreign Persons by Nonbank Majority-Owned Foreign Affiliates, by Industry of U.S. Parent and by Industry of Affiliate, 1984

Table: 9.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates, Industry by Country, 1982

Table: 10.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates, Industry by Country, 1983

Table: 11.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates, Industry by Country, 1984

Table: 12.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates to Foreign Persons, Industry by Country, 1982

Table: 13.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates to Foreign Persons, Industry by Country, 1983

Table: 14.--Sales of Services by Nonbank Majority-Owned Foreign Affiliates to Foreign Persons, Industry by Country, 1984

Photo: CHART 5 Sales of Services to Foreign Persons, by Industry of U.S. Parent, 1984
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Author:Whichard, Obie G.
Publication:Survey of Current Business
Date:Jan 1, 1987
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