American Companies & Globalization
American companies working with International companies are rumored to believe it is hurting the U.S. economy by outsourcing jobs to other countries because of cheaper labor. Contrary to widely held public opinion, the expansion of offshore manufacturing and other activities by U.S. based multinational businesses benefits the domestic economy, and has not played a significant role in overall job losses, according to a report released by Manufacturers Alliance/MAPI, a manufacturing trade organization.
According to the report, titled “Globalization Complements Business Activity in the United States,” by MAPI Chief Economist Daniel J. Meckstroth, the growing trend by U.S. based multinational manufacturers to establish offshore manufacturing affiliates, often in fast growing economies such as India and China, benefits those companies and the U.S. economy as a whole in a number of ways. Besides lowering product costs to consumers, globalization increases income and profits to U.S. multinationals and stimulates demand for products and services from U.S. companies, it also creates demand for more U.S. management and research jobs, and it makes it economically feasible for U.S. manufacturers to offer products and services that would not otherwise be available.
U.S. based multinational companies, which tend to be among America’s biggest, have long helped strengthen the U.S. economy. The many channels of these contributions are well documented and researched. American companies first and foremost, U.S. multinationals enhance the American economy through capital investment, exports, research and development, and by supporting good paying American jobs. Their ability to strengthen the U.S. economy is enhanced, not reduced, by their global engagement.
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U.S. parent companies perform large shares of America’s productivity enhancing activities that lead to high average compensation for American workers. In 2008, parent companies produced nearly $2.4 trillion in output (measured in terms of gross domestic product), comprising approximately 22.3% of all private-sector output. Parent companies purchased $478.8 billion in new property, plant and equipment, comprising 28.8% of all private-sector non-residential capital investment. Parent companies exported $551 billion of goods to the rest of the world, 42.8% of the U.S. total. To discover new products and processes, parent companies performed $199.1 billion of research and development (R&D).
This was 70.3% of the total R&D performed by all U.S. companies. All these productivity enhancing activities contribute to large average paychecks for the millions of employees of U.S. multinationals. Parent companies employed more than 21.1 million U.S. workers. This was 18.5% of total private-sector payroll employment. Total compensation paid by U.S. parent companies was more than $1.37 trillion which was a per-worker average of $65,066. Globalization, in fact, complements innovation in the United States.
Another issue we can look at of how it boosts the U.S. economy is foreign companies investing in the United States. The U.S. economy may still be struggling, but that won’t discourage firms based in emerging markets from buying their way in or building on existing American holdings. To the contrary, many such firms aim to expand their stake in the U.S. in years ahead.
The sheer size of the U.S. economy makes it the indispensible target for foreign direct investment (FDI).
“Many firms from emerging markets see they need a foothold and need to expand in the most important market in the world, if not the most dynamic,” says Karl P. Sauvant, executive director of the Vale Columbia Center on Sustainable International Investment. The hunger for capital in the U.S., combined with the weakness of the dollar, means such firms can snap up American assets at bargain prices. In addition, by manufacturing in the U.S., such companies limit their vulnerability to trade disputes.
A foreign investment (FDI) is a company controlled through ownership by a foreign company of foreign individuals.Control must accompany the investment; otherwise it is a portfolio investment.Companies want to control their foreign operations so that these operations will help achieve their global objectives. Investors who control an organization are more willing to transfer technology and other ...
As a result, foreign companies will pour billions of dollars into American manufacturing and create badly needed jobs here in the U.S. Chinese firms are setting the example. Early estimates from the American Chamber of Commerce in Shanghai suggest U.S.-bound Chinese FDI increased to between $3.9 billion and $6.4 billion in 2009, up from $1.2 billion in 2008. That’s likely to rise further going forward, particularly as Beijing seeks to reduce its exposure to the dollar.
“They want to invest more in our plants and in our people rather than our paper,” says Joseph Quinlan, chief market strategist for U.S. Trust at Bank of America Private Wealth Management. Quinlan says that both sides would gain from China putting its dollars into FDI instead of government securities. “When you buy Treasuries, they could be here today, gone tomorrow. FDI makes them more embedded in the U.S. economy and gives them more of a stake in our success.” Sectors of interest to the Chinese run the gamut from car manufacturing to video game development.
One of the largest projects currently under way is a $1-billion investment by Tianjin Pipe (Group) Corp., through its TPCO America subsidiary, to build a plant near Gregory, Texas, that will produce steel pipe for oil and gas extraction. The plant is expected to create 300 jobs within its first two years of operation.
Chinese firms are far from the only interested parties. Indian conglomerates such as Tata Group and Essar Group aim to expand their investments in IT and business services, pharmaceuticals, industrial chemicals and heavy industry. Brazil’s Embraer will open an aircraft assembly plant in Melbourne, Fla., its first such facility in the United States. Other Brazilian firms are concentrating on acquisitions in energy (Petrobras), mining (Vale) and food processing (JBS).
The big players in Russian industry are natural resources firms, such as Severstal, Evraz and TMK, so its little surprise that the majority of Russian direct investment in the U.S. has gone into metals and mining operations. But there’s also Yandex, which runs Russia’s largest search engine and now operates a lab in Palo Alto, Calif. Still, FDI in the U.S. will take years to rebound to prerecession levels.
China's economic history is very similar to its economic present as for as its intra-country economic commodities. About sixty percent of China's work force is agricultural, although only about fifteen percent of its land surface is suitable for farming and agriculture composes only twenty-five percent of China's gross domestic product. Its principal agricultural crops include rice, wheat, corn, ...
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