U.S. multinational companies: operations in 1987.

Whichard, Obie G.

U.S. multinational companies' assets and sales increased in 1987, but their employment was virtually unchanged. This pattern partly reflected the fact that assets and sales, which are monetary measures of multinational company (MNC) operations, were boosted by inflation and dollar depreciation, whereas employment was not. Also, for assets, growth by U.S. parent companies was concentrated in the finance and insurance industries, in which assets per employee are very high.

For monetary measures, growth rates were higher for foreign affiliates than for U.S. parents, reflecting the impact of dollar depreciation on the value of affiliate assets, sales, and other items. For employment, the pattern was the reverse: Employment increased slightly for U.S. parents but decreased slightly for affiliates.

For both U.S. parents and their majority-owned foreign affiliates, sales of services grew faster than sales of goods. For the affiliates, local sales (that is, sales to customers located in the country of the affiliate) accounted for most of the growth in sales of both goods and services.

This article discusses these and other highlights of U.S. MNC operations in 1987. The discussion focuses on selected measures of MNC operations-assets, sales, U.S. merchandise trade, and employment. A number of other measures were also collected in the annual BEA survey upon which the estimates are based. Some of them are shown in the accompanying tables; others are available in separate publications and on diskettes (see box). All of the estimates cover nonbank U.S. parent companies and their nonbank foreign affiliates.

Classification changes.-For individual industries, year-to-year movements in the measures of operations, particularly for U.S. parents, were affected by industry reclassifications. Each year, classifications of some parents and affiliates change because their mix of activities changes. In 1987, two large, diversified U.S. parents that had been classified in petroleum wholesale trade were reclassified, one into transportation and one into transportation equipment manufacturing. A few additional changes in industry classification of U.S. parents occurred because the 1987 benchmark survey of foreign direct investment in the United States provided new information, by industry, on the activities of companies that are both U.S. affiliates of foreign companies and U.S. parents of foreign affiliates.

Changes in classification in 1987 also resulted from revisions BEA made to its industry coding system for international surveys to align the codes with the revised 1987 Standard Industrial Classification. Although the changes did not affect most published levels of industry detail, they substantially affected manufacturing of instruments and related products and radio, television, and communication equipment manufacturing. Companies engaged in manufacturing search, detection, navigation, and guidance systems were reclassified from radio, television, and communication equipment (part of electric and electronic equipment) into instruments and related products (part of "other manufacturing"). Several large U.S. companies were affected by this change; thus, measures of U.S. parent activity in 1987 decreased in the former industry and increased in the latter.

Assets

Total worldwide assets of U.S. MNC's increased 12 percent in 1987, to $5,282 billion (table 1). Assets of U.S. parent companies increased 10 percent, to $4,184 billion, and assets of their foreign affiliates increased 18 percent, to $1,098 billion.

Nearly 60 percent of the increase in assets of U.S. parents was accounted for by parents in finance (except banking), insurance, and real estate (FIRE); most of the remainder-35 percent-was accounted for by parents in manufacturing. For parents in FIRE, the increase was largely in finance (except banking). It reflected increases in the value of brokerage firms' purchases of securities with advance agreement to resell them and in transactions involving mergers, acquisitions, and other corporate reorganizations. Both types of activities tended to be financed primarily through borrowed funds; increases in owners' equity financed only 6 percent of the increase in assets.

In manufacturing, the largest increases in assets of U.S. parents were in transportation equipment, chemicals, and instruments and related products. In transportation equipment, the increase partly reflected increases in assets of domestic finance subsidiaries of U.S. auto manufacturers. (Such subsidiaries, which are established to extend credit to car buyers, are consolidated or aggregated in the reports of auto manufacturers.) In chemicals, the increase reflected merger and acquisition activity, as well as expansion of existing operations. In instruments, the increase largely reflected the aforementioned reclassifications of parents to this industry from radio, television, and communication equipment manufacturing.

A major factor contributing to the 18-percent increase in assets of affiliates was the decline in the value of the U.S. dollar against major foreign currencies. From December 1986 to December 1987, the U.S. dollar depreciated 17 percent on a trade-weightedaverage basis against the currencies of 10 industrial countries and 9 percent against the currencies of 22 OECD countries. As a result of this dollar depreciation, the dollar value of affiliate assets denominated in foreign currencies rose. (Because U.S. parent assets include the value of their investment in foreign affiliates, the increase in affiliate assets also raised the value of parent assets, although by a much smaller percentage.) To some extent, the geographic pattern of increases in affiliate assets followed the pattem of changes in exchange rates. The increases were largest in developed countries, particularly in Europe and Japan.

The assets of affiliates in developed countries increased 23 percent, to $832 billion; this increase accounted for over 90 percent of the total increase in affiliate assets. Four countries-the United Kingdom, Japan, Canada, and Germany-accounted for almost twothirds of the increase in assets in developed countries. In all four countries, the largest increases were in manufacturing and FIRE. In each country, there was either a sharply appreciating home currency (Germany) or aboveaverage economic growth (Canada), or there was both (the United Kingdom and Japan).

The assets of affiliates in developing countries increased 5 percent, to $253 billion. The increases exceeded $1 billion in three countries-South Korea, Bermuda, and Brazil.

U.S. merchandise trade

U.S. merchandise exports and imports associated with U.S. MNC's increased in 1987, after having declined in 1986 (table 2). Exports-the sum of goods shipped to affiliates by all U.S. persons and goods shipped to unaffiliated foreigners by U.S. parants-increased 7 percent, to $184 billion. Imports-the sum of goods shipped by affiliates to all U.S. persons and goods shipped by unaffiliated foreigners to U.S. parents-increased 13 percent, to $167 billion.

Exports associated with MNC's accounted for 72 percent of total U.S. merchandise exports in 1987. Exports shipped to affiliates accounted for nearly 60 percent of the increase in MNC-associated exports. Parents in manufacturing more than accounted for the increase; a decline in exports by parents in wholesaling of nondurable goods was partly offsetting.

Imports associated with MNC's accounted for 41 percent of total U.S. imports in 1987. 4 Imports shipped by affiliates and imports shipped by unaffiliated foreigners to U.S. parents each accounted for 50 percent of the total increase in MNC-associated imports. MNC's with U.S. parents in manufacturing accounted for a little over onehalf of the increase; those with parents in petroleum and wholesale trade accounted for most of the remainder.

Employment

Employment by U.S. MNC's was virtually unchanged in 1987, at 24.1 million. Employment by U.S. parents increased slightly, to 17.9 million (tables 3-5), while employment by foreign affiliates declined slightly, to 6.2 million (tables 6-8).

Employment by parents in FIRE, services, and "other industries" increased. These increases were partly offset by decreases in employment by parents in petroleum, manufacturing, and wholesale trade.

By country, the largest increase in affiliate employment was in Brazil. It partly reflected a new joint venture between a U.S. automaker and a German automaker that provided for the Brazilian operations of both automakers to be conducted through a single firm; the increase in employment resulted from a shift to that firm of employees previously carried on the payroll of the German automaker. A sizable increase in affiliate employment also occurred in South Korea.

The largest dechnes in employment were in the United Kingdom and South Africa. In the United Kingdom, the decline reflected selloffs of a minority interest in a telecommunications equipment manufacturing affiliate and a chain of grocery stores. The latter was sold to reduce debt incurred in connection with a leveraged buyout of the MNC's worldwide operations. In South Africa, the decline reflected the sale of several affihates, in some cases to trusts created on behalf of the affiliates' employees. The sales may have been in response to South Africa's controversial social policies and to a new provision in the U.S. tax code that denies credits for taxes paid in South Africa. Among other countries, the largest dechnes in affiliate employment were in France and Saudi Arabia.

Employment by majority-owned foreign affiliates (MOFA's)-those in which U.S. parents hold more than a 50-percent interest-declined 1 percent, to 4.7 million (tables 9-11). The pattem of changes in MOFA employment by industry and by country was generally similar to the pattem for all affiliates discussed earlier. The major difference was in Latin America, where the previously mentioned joint venture in Brazil caused total affiliate employment to rise (because of the addition of the German automaker's employees), but caused employment by MOFA's to decrease (because the U.S. automaker, which previously held a majority interest in its Brazilian affiliate, holds only a minority interest in the new joint venture).

In 1987, MOFA's accounted for 75 percent of total affiliate employment. Among countries in which affiliate employment was sizable, the MOFA shares were higher than average in Canada (93 percent), Germany (84 percent), and the United Kingdom (83 percent). The MOFA shares were lower than average in Japan (32 percent), South Korea (36 percent), and India (24 percent). The countries with lowerthan-average shares restricted, or had previously restricted, majority ownership by foreigners. In addition, in some cases factors other than govemment policy may have influenced the decision to acquire only a minority interest. For example, interests in several large minority-owned automotive affiliates may have been acquired more to transfer technology and facilitate trade than to influence operations or management.

Sales

Worldwide sales by U.S. MNC's increased 7 percent, to $3,732 billion. Sales by U.S. parents increased 5 percent, to $2,680 bilhon. Sales by foreign affiliates increased 13 percent, to $1,052 billion.

The increase in sales by U.S. parents was in nonpetroleum industries; sales by parents in petroleum dechned 3 percent. Parents in manufacturing accounted for over one-half of the total increase in sales. The largest increases were in instruments, transportation equipment, and chemicals.

The increase in sales by foreign affiliates was concentrated in developed countries, which accounted for almost 90 percent of the total increase. It was dispersed among several industries. The largest increases were in Germany, the United Kingdom, Japan, and Canada.

Sales of services.-The remainder of this section focuses on the composition of, and the growth in, sales of services by U.S. MNC's in 1987.' As part of a larger BEA data-improvement effort for services, BEA's benchmark and annual surveys of U.S. direct investment abroad have provided a disaggregation of sales between goods and services for years beginning with 1982.

Of total sales by U.S. parents in 1987, $1,915 bilhon, or 71 percent, were goods, and $764 bilhon, or 29 percent, were services (table 12). Of total sales by MOFA's, $718 billion, or 88 percent, were goods, and $95 billion, or 12 percent, were services.

For both parents and MOFA's, most sales of services were local (that is, to customers in the country of the entity making the sale), reflecting the need to deliver services through an entity located near the customer. Of U.S. parent sales, 98 percent were to U.S. persons. Of MOFA sales, nearly 76 percent were local, 13 percent were to persons in other foreign countries, and 11 percent were to U.S. persons.

Most sales of services by MNC's to foreign (non-U.S.) persons were to unaffiliated persons. Even though total sales of services by U.S. parents were several times larger than those by affihates, affiliates' sales to unaffiliated foreigners were much larger than those of the U.S. parents-$72 bilhon, compared with $10 billion. Sales to unaffiliated foreigners accounted for twothirds of U.S. parents' sales of services to foreigners and for 85 percent of sales to foreigners by MOFA's.

Sales by U.S. parents to unaffiliated foreigners were concentrated in a few industries in which cross-border transactions are a common means of delivering services to foreign customers. Over one-third of the sales were by parents in transportation, communication, and public utilities. In that industry group, the sales largely consisted of U.S. telecommunications carriers' receipts from foreign carriers for their share of revenues from transmitting messages originating abroad to U.S. destinations and of U.S. airlines' ticket sales to foreigners.

The 5-percent increase in total sales of goods and services by U.S. parents in 1987 represented a 4-percent increase in sales of goods and an 8-percent increase in sales of services. The share of services in total sales rose from 28 percent to 29 percent; it was 23 percent in 1982, when the series began.

Sales of services to U.S. persons increased much faster than sales to foreign persons-8 percent compared with 1 percent. The increase in sales to U.S. persons was concentrated in FIRE, which accounted for over 60 percent of the total increase; some of the increase probably was in the form of investment income. 7 There was also a sizable increase in sales to U.S. persons by parents in transportation, communication, and public utilities.

Total sales by MOFA's increased 13 percent, to $813 billion. As in previous years, sales of services increased faster than sales of goods-15 percent, to $95 billion, compared with 13 percent, to $718 billion. Thus, the share of total sales accounted for by services increased-to 12 percent, compared with 11 percent in 1986, 10 percent in 1985, and 9 percent in each of the years 1982-84.

The increase in MOFA sales of services was largely in sales to foreign persons, which increased 17 percent, to $85 billion. Sales to other foreign affiliates (of the same U.S. parent) increased 11 percent, and sales to unaffiliated foreigners increased 18 percent. Sales to U.S. persons increased 5 percent.

The increase in sales of services to foreign persons was spread among affihates in a number of industries. MOFA's classified in insurance, finance (except banking), wholesale trade, and office and computing machinery manufacturing had the largest increases. A decline in oil and gas field services was partly offsetting.

Data Availability

These estimates are from the 1987 annual survey of U.S. direct investment abroad, which collected key items on the operations of a sample of nonbank U.S. parent companies and their nonbank foreign affiliates. (Banks were excluded from the survey.) The annual survey focuses on the operations of U.S. parents and their foreign affiliates, and it covers parents' and affiliates' transactions and positions with all parties, not just with each other. In contrast, data published by BEA on the U.S. direct investment position abroad and on related capital and income flows cover only positions and transactions between parents and affiliates.

For a more detailed description of the differences between the two sets of data, see the methodology section in US. Direct Investment Abroad: 1982 Benchmark Survey Data, which 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 most recent data on the U.S. direct investment position abroad and on the related capital and income flows may be found in 'The International Investment Position of the United States in 1988" and "U.S. International Transactions, First Quarter 1989,' respectively, in this issue of the SURVEY.

Additional detail from the annual surveys of U.S. direct investment abroad-including estimates of foreign affiliate balance sheets, income statements, and external financial position and of U.S. parent and foreign affiliate sales and merchandise trade-is available in the publications listed below. The publications for 1983-85 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. They cost $5.00 each. Estimates on microcomputer diskette for all years 1983-87 may be ordered from the same address at $20 for each year. The accession numbers for these publications and diskettes are as follows:

Year Title of publication Accession number

Publications Diskette

U.S. Direct Investment Abroad: Operations of U.S. Parent Companies and Their Foreign Affiliates:

1983 Revised 1983 Estimates BEA IID 86-103 BEA IID 86403

1984 Revised 1984 Estimates BEA IID 87-103 BEA IID 87-409

1985 Revised 1985 Estimates BEA IID 88-103 BEA HD 88-403

1986 Revised 1986 Estimates - BEA IID 89-403

1987 Preliminary 1987 Estimates - BEA IID 89-404

When ordering, please specify title, year, accession number, and number of copies desired, and enclose a check or money order made payable to 'Economic and Statistical Analysis/BEA." Allow 2 to 4 weeks for delivery.

The publications for 1986 and 1987 will be available from the Superintendent of Documents, U.S. Government Printing Office (GPO), Washington, DC 20402; Stock No. 003-010-00189-5 for the 1986 publication and Stock No. 003-010-00191-7 for the 1987 publication. Prices may be obtained from GPO by calling (202) 783-3238.

BEA can prepare additional tabulations or perform regressions or other statistical analyses of the data at cost, within the limits of available resources and subject to legal requirements to avoid disclosure of data of individual companies. Requests should be directed to International Investment Division (BE-50), Data Retrieval and Analysis Branch, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230.