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News Release from: Deloitte & Touche
Edited by the Manufacturingtalk Editorial
Team on 13 May 2003
Study suggests US firms put
globalisation on hold
For the second year in a row, foreign direct investments by US manufacturers plunged 37%, strongly suggesting that domestic companies are putting their globalisation efforts on hold.
For the second year in a row, foreign direct investments by U.S manufacturers plunged 37 percent, strongly suggesting that domestic companies are putting their globalisation efforts on hold
This article was originally published on Manufacturingtalk on 11 Jul 2002 at 8.00am (UK)
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And the continuing weakness of the global economy and effects of factors such as the severe acute respiratory syndrome (SARS) virus could further impact such investments over the short term.
Global U.S.
manufacturing investments slid in 2002 to an estimated $23 billion from $36 billion in 2001, when such investments had fallen 37 percent from the record $58 billion in 2000, according to a study by Deloitte Research, the research arm of Deloitte Consulting.
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Last year's sharp drop indicates that the decade-long upward trend in global investments by U.S.
manufacturers has stopped as producers take at least a pause in their globalisation efforts.
"No doubt, the prolonged recession in the global manufacturing sector and the continued uncertainty around the threat of terrorism and war around the world have contributed significantly to the decrease," says Le Roux Cilliers, head of manufacturing at Deloitte Consulting.
"In addition, we see an increasing focus by manufacturers on maximising their existing investments around the world - whether in developed or developing countries, and often the effect is more limited overseas investments." The lingering weakness in the international economy and the impact of such regional factors as SARS virus may continue to affect foreign direct investments in the short term.
But, with a stock of about $400 billion invested overseas, U.S.
manufacturing foreign direct investment should recover as economies rebound and industry cycles turn upward.
"Indeed, we view the slowdown as temporary and see U.S.
manufacturers reaping further benefits of pursuing globally integrated sourcing, production, distribution and sales/service operations as economic and industry conditions improve once again," maintains Cilliers.
"U.S.
companies that are well positioned financially will be able to benefit by shifting investment dollars to areas that create the most opportunities for growth." The Deloitte Research report, Globalization on Hold? Global Investment Trends of U.S.
Manufacturers, suggests that a change in foreign direct investments is occurring in specific industries.
Among other things, the report shows that U.S.
manufacturers' foreign direct investment in 2002: * Climbed to $11.9 billion from $1.7 billion in the food sector, reflecting last year's acquisition of UK based Pillsbury Company by General Mills; Adolph Coors Co.'s purchase of the Carling operations of Belgium's Interbrew's Bass Brewers, and other deals by Campbell Soup Co., Cargill and PepsiCo.
* Increased to $2.7 billion from $900 million in the electronics industry as the sector continues to consolidate; the increase reflects major acquisitions abroad by Microsoft, among other things.
* Rose further in the chemicals and pharmaceuticals industries, to $13 billion, following a 157 percent leap in 2000, reflecting restructuring of business operations.
* Plummeted to a negative $3.8 billion in the industrial machinery, metals, and transportation-equipment industries, as well as the catchall "other manufacturing" grouping, from the 64 percent increase to $12 billion in 2001.
The sharp slide reflects reduced customer orders around the world; major divestitures by large companies, including General Electric, Metals USA, and John Deere; and the struggle of overseas operations of auto manufacturers and suppliers to stay profitable.
Further, the so-called 'high-wage paradox' - where developed nations are attracting far more funding than countries with historical low-wage economies - continues to be reflected in foreign direct investment activity.
High-wage countries captured 94 percent of U.S.
foreign direct investment in 2001, the most recent year for such statistics, up from 87 percent in 2000 and 65 percent in 1996.
This counters the public perception that most overseas manufacturing investments are being made in developing nations - taking advantage of their low wage scales - when the vast majority of funding actually goes to developed nations in North America, Europe and Asia.
"Rather than focusing solely on labour costs, investors are drawn to a host country's skill and educational levels," notes Cilliers.
"The political and economic stability of the nations also have become a much more important factor in the decision process of U.S.
manufacturing firms." Regionally, Europe maintained its rank as the top destination for U.S.
manufacturing FDI in 2001, although investments fell to $25 billion from $34.8 billion the previous year.
FDI into Canada, Asia-Pacific, Latin America, Africa and the Middle East, and Eastern Europe all experienced sharper declines in 2001.
With a total of $11.3 billion, Germany became the largest recipient of U.S.
manufacturing FDI in the European and global markets.
Despite a decline to $3.9 billion in 2000, the United Kingdom bounced back to a high of $7.8 billion in 2001, becoming the second major destination of U.S.
manufacturing FDI in 2001.
The Netherlands placed third in Europe and worldwide, receiving $5.6 billion of U.S.
manufacturing FDI, followed by Canada at fourth worldwide with a total of $3.9 billion.
The bulk of U.S.
investment dollars in Asia were made in Singapore, Japan and China.
Despite Singapore's 26 percent decline in the Asian market in 2001 to $2.8 billion, it remained in fifth place worldwide.
Japan dropped from $2.8 billion in 2000 to $1.6 billion in 2001, followed directly by China with $1.4 billion in U.S.
manufacturing FDI, perhaps spurred by China's accession to the World Trade Organization (WTO).
"The statistics show the overall continued commitment by manufacturers from the U.S.
to globalisation," explains Cilliers.
"But the balance is shifting.
We are now supporting countries who are our biggest competitors rather than investing in regions that could become trading partners down the line.".
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