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U.S. Multinational Companies Chapter Two
Chapter Two
U.S. Multinational Companies are American Companies
It
is increasingly asserted that U.S. multinationals have abandoned the
United States—i.e., that they have little activity left in their
American parents, having “hollowed out” parent employment, capital
investment, and other key activities for relocation abroad. The
drumbeat of recent layoff announcements might seem to bear out this
view.
So is it true that the operations of U.S. parents are no
longer substantial? No. U.S. multinational companies are, first and
foremost, American companies. As a group, U.S. multinationals perform
large shares of America’s productivity-enhancing activities—capital
investment, research and development, and international trade—that lead
to jobs and high average compensation for American workers. And the
worldwide operations of U.S. multinationals are highly concentrated in
America in their U.S. parents, not abroad in their foreign affiliates.
The idea that U.S. multinationals have somehow “abandoned” the United
States is incorrect. They maintain
a large presence in America, both relative to the overall U.S. economy and relative to the size of their
foreign affiliates.
A. U.S. Parent Activities Are Large in the Overall U.S. Economy
U.S.
parents strengthen America through their own extensive operations in
the United States. Beyond employing millions of Americans, parent
companies perform large amounts of the crucial activities that make
their workers and the overall economy more competitive and productive.
For 2006, the most recent year for which comprehensive government data
on the operations of U.S. multinationals are available, Figure 1
reports the share of U.S. private-sector economic activities accounted
for by U.S. parents. § §
Figure 1
U.S. Parent Companies Account for Large Shares
of the Overall U.S. Economy
The
key message of Figure 1 is that U.S. parent companies perform large
shares of America’s productivity-enhancing activities that lead to high
average compensation for American workers.
In the BEA
surveys, parent (and affiliate) employment is measured as the number of
full-time and part-time employees on payroll at yearend. If at that
time employment of a parent (or an affiliate) was unusually high or low
because of temporary factors (e.g., a strike), survey instructions then
request reporting either of employment during “normal operations” or of
an annual average. Capital investment consists of property, plant, and
equipment. Please see the Data Appendix for details on how U.S. parent
activity was matched with that of the overall private sector for each
item in Figure 1.
Employment: Parent companies employed over
21.7 million workers in the United States. This was 19.1% of total U.S.
private-sector payroll employment.
• Output: Parent companies
accounted for 24.9% of all U.S. private-sector output (measured in
terms of gross domestic product)—over $2.5 trillion.
• Capital
Investment: Parent companies purchased $442.6 billion in new property,
plant, and equipment—31.3% of all U.S. private-sector capital
investment.
• Exports: Parent companies exported $495.1 billion of
goods to the rest of the world. This constituted nearly half—48.0%—of
the U.S. total.
• Research and Development: To discover new products
and processes, parent companies performed $187.8 billion of research
and development. This was 75.8% of the total R&D performed by all
U.S. companies.
Moreover, the size of U.S. parent operations in the
overall U.S. economy has been quite stable for decades. For example, a
generation ago in 1988, U.S. parents’ capital investment and R&D
spending were 31.4% and 72.5%, respectively, of the economy-wide
private-sector totals—very close to the 2006 shares cited above. This
stability over time contradicts the idea that U.S. multinationals have
been “abandoning” the United States in recent years, and instead
demonstrates their ongoing contributions to the overall U.S. economy.
All
these productivity-enhancing activities contribute to larger average
paychecks for employees of U.S. multinationals. Figure 2 shows this,
which reports 2006 average annual compensation for workers at U.S.
parents and their counterparts in the rest of the U.S. private sector.
SharesFigure 2
U.S. Parent Companies Pay Higher Average Compensation
Than the Rest of the U.S. Private Sector
Total
2006 compensation at U.S. parent companies was over $1.36 trillion—a
per-worker average of $62,784. This average was $12,163—fully
24.0%—above the 2006 average for the rest of the private sector of
$50,621. Much of this compensation differential stems from the nexus of
competition advantages
achieved by these multinational companies. ***
Employee
compensation as measured in the BEA surveys of multinationals includes
wages, salaries, and benefits—mandated, contracted, and voluntary. See
Data Appendix for details on the calculations in Figure 2. Academic
studies for the United States and many other countries have repeatedly
found that multinational companies pay higher average compensation than
do non-multinationals, even when controlling for observable company
differences such as size and capital intensity. For a detailed
discussion of the facts and interpretation of these performance
differences, see, e.g., Lewis and Richardson (2001) and Council of
Economic Advisers (2007).
U.S. parent companies also
contribute to the U.S. economy through their interactions with other
domestic U.S. firms and, more broadly, the schools and other
institutions that foster skills, talents, and overall productivity. The
performance of domestic competitors is enhanced by exposure to new
techniques and practices of parent companies. Parent companies can also
strengthen domestic suppliers and customers—e.g., by sharing
information with and placing standards on suppliers. The scope for
these links from parents to other domestic companies is very large.
•
In 2006, U.S. parents purchased a total of $5.76 trillion in
intermediate inputs. Of this total, 89.1%—$5.14 trillion—was bought
from other companies in the United States. †††
Contrary to the
common assumption that the global engagement of U.S. multinationals has
eliminated their links to domestic suppliers, over 89 cents out of
every dollar spent by U.S. parents on intermediate inputs is paid to
other companies in the United States, not abroad. And this heavy
reliance on domestic suppliers has been virtually unchanged for
decades: in 1977, U.S. parents purchased 91.3% of their inputs from
other companies in the
United States.
The key message here is
that although small in number at just 2,278 companies in 2006, U.S.
multinationals play a substantial role in the U.S. economy. They employ
millions, invest billions in R&D and capital, and buy from vendors
and ultimately produce trillions of dollars in goods and services.
These activities constitute sizable shares of the overall private
sector today, as they have for decades, and they are a key pillar of
strength for the overall U.S. economy.
Total purchases of
intermediate inputs by parent companies are calculated as total sales
less value-added output. Imported intermediate inputs are measured as
total parent imports of goods. This implicitly assumes that all
imported goods by parent companies are intermediates rather than final
goods. Because some of these imports are final goods and services
rather than intermediates, the calculated share of inputs bought from
domestic suppliers that is reported above lies below the true
domestic-supplier share.
Case Study: Microsoft Corporation
The
contribution of U.S. multinationals to the overall U.S. economy often
extends beyond their main business practices of hiring and paying
workers, buying inputs, and investing in capital and R&D. Many of
these multinationals interact with schools, governments, and other
institutions in ways that foster the human capital and institutions
that help underpin U.S. productivity.
Since its inception in 1975,
Microsoft Corporation has believed in the power of technology to enable
individuals and communities to realize their full potential. Using
technology as a catalyst, Microsoft works to create worldwide networks
through which key education leaders and innovators share experiences,
ideas, and approaches that can be applied around the world. Microsoft
and its partners also share expertise with local governments,
industries and educators, providing the tools and opportunities
required to stimulate local software economies and equip citizens for
success in the 21st century.
In 2003, Microsoft launched Partners in
Learning, a global initiative designed to increase technology access
for schools, foster new approaches to teaching and learning, and
provide education leaders with the proper tools to create and influence
change. To date, Partners in Learning programs have reached more than
80,000 teachers and 3 million students in the United States. Building
on these efforts, in January 2008 Microsoft renewed its commitment to
Partners in Learning, extending the company’s global investment to
nearly $500 million over 10 years.
Other examples of initiatives
include DigiGirlz, a set of programs that provide free opportunities
for high-school girls to learn about careers in technology, talk with
Microsoft employees about their life experiences, and enjoy hands-on
computer and technology workshops.
Research is another area to
highlight. Microsoft Research balances an open academic model with an
effective process for transferring its research to product development
teams. Microsoft Research has invested more than $50 million over the
past four years in support of academic research in the United States, a
sum that has established collaborative institutes at schools including
Carnegie Mellon University, Georgia Tech, the Massachusetts Institute
of Technology, and University of Maryland.
B. By Several Measures, U.S. Parent Activities Are Large Relative to Their Foreign Affiliates
What
about the magnitude of U.S. parent activities relative to the scale of
their foreign affiliates? Do affiliates loom much larger than parents,
such that U.S. multinationals have a far larger footprint outside the
United States than inside?
Figure 3 answers this question by showing
the share of U.S. multinationals’ 2006 worldwide employment, output,
capital investment, and R&D that was accounted for by their U.S.
parent operations.
MillionsFigure 3
U.S. Parents Account for the Large Majority of Worldwide
Activity of U.S. Multinationals80.0
The
key message of Figure 3 is that the worldwide operations of U.S.
multinational companies are highly concentrated in America in their
U.S. parents, not abroad in their foreign affiliates.
• Employment:
U.S. parents account for 69.6% of worldwide employment of U.S.
multinationals—21.7 million parent workers versus 9.5 million at
affiliates. This translates into a ratio of almost 2.3 U.S. employees
for every one affiliate employee.
• Output: U.S. parents account for
71.6% of worldwide output (in terms of value added) of U.S
.multinationals—over $2.5 trillion versus about $1.0 trillion.
•
Capital Investment: U.S. parents undertake 74.3% of worldwide capital
investment by U.S. multinationals—$442.6 billion versus just $153.2
billion. For every $1 in affiliate capital expenditures, parents
invested $2.89 worth in the United States.
• Research and
Development: U.S. parents perform 86.8% of worldwide R&D by U.S.
multinationals: $187.8 billion versus just $28.5 billion, or $6.59 in
parent knowledge discovery for every $1 by affiliates.
The data
clearly show that the United States, not abroad, is where U.S.
multinationals perform the large majority of their operations. Indeed,
this U.S. concentration is especially pronounced for capital spending
and R&D, which reflects America’s underlying endowments in skilled
workers and institutions such as intellectual property rights that
together support investments in human and physical capital.
Have
there been changes over time in this much larger scale of U.S. parents
relative to foreign affiliates? Some, but not much. A generation ago,
the share of U.S. parents in the worldwide activity of U.S.
multinationals was slightly higher than that cited above. In 1988, U.S.
parents accounted for 78.8% of U.S. multinationals’ worldwide
employment and 79.2% of their worldwide capital investment. So over the
past generation, the foreign-affiliate share of employment has risen by
an annual average about 0.5 percentage points, with a similar per-year
increase in investment share of about 0.3 percentage points.
Why has
the worldwide share of multinationals’ activity gradually shifted from
U.S. parents to foreign affiliates? As will be detailed in Chapter 4,
this shift has been driven by continued expansion of parents that was
outpaced by even faster expansion of affiliates, not by parent
contraction. For example, in 1988 U.S. parents employed just 17.7
million workers and undertook $177.2 billion in capital investment—just
81.6% and 40.0% of the respective 2006 U.S. parent totals underlying
Figure 1. The long-term trend has been for parents to continue growing
in the United States (which accounts for their steady shares of the
overall U.S. private sector documented above), but for affiliates to
grow even faster.
This faster affiliate expansion, in turn, has
largely reflected faster growth abroad in overall output and incomes
and thus in customers to be served. Recall the growth statistics from
introduction: from 1990 through 2008, growth in U.S. gross domestic
product averaged 2.7%—in contrast to 1990-2007 averages of 3.4% for the
overall world, 4.6% for emerging and developing countries as a whole,
6.3% in India, and a remarkable 9.9% in China.‡‡‡ Forecasts now abound
projecting when the world’s fast-growing economies will be larger than
the United States.
Thus, the correct reading of the data is
expanding business activity by both parents and affiliates as well. The
notion of a fixed amount of business activity being reallocated from
parents to affiliates is not borne out by
the facts.
C. Foreign Affiliates are Located Mostly in High-Income Countries, Not Low-Income Countries
Foreign
affiliates are located primarily in high-income countries that in many
ways have economic structures similar to the United States, not in
low-income countries. For example, in 2006 affiliates in high-income
countries accounted for 79% of total affiliate output—and a similar 90%
of output by all affiliates newly established or acquired in that year.
§ § § Figure 4 documents this fact by showing the share of selected
countries in total 2006 affiliate output (value added) of $995.6
billion.
TotalsFigure 4
High-Income Countries Account for the
Large Majority of Worldwide
liate Activity
These
average rates of growth of gross domestic product were calculated from
annual rates of GDP growth reported in International
Monetary Fund (2008), Tables A1-A4.
§
§ § Mataloni (2008); the country income classifications used there and
followed in this sub-section are constructed by the World Bank.
The
three countries that in 2006 accounted for the largest shares of
affiliate output were the United Kingdom (15.5%), Canada (11.5%), and
Germany (8.6%). China and India, despite their very fast overall GDP
growth of the past generation, respectively accounted for just 1.8% and
0.5% of total affiliate output. This concentration of affiliate
activity in other high-income countries is consistent with U.S.
multinationals expanding abroad mainly to gain global competitiveness
by serving foreign customers, a theme Chapter 3 explores in greater
detail.
It is true that affiliate activity is spreading from
high-income to low-income countries. For example, the latter’s share of
all-affiliate output rose by six percentage points from 1999 to 2006.
But like with the gradual shift from U.S. parents to overall foreign
affiliates discussed above, here, too, the shift in activity from
high-income-country affiliates to low-income-country affiliates has
been driven mainly by faster economic growth in the latter.
The
bottom line of this chapter is that the facts demonstrate that U.S.
multinationals make substantial contributions to the overall U.S.
economy. The magnitude of U.S. parent activities is very large—both
relative to the overall U.S. economy and relative to the scale of their
foreign affiliates—in ways that strengthen America’s productivity and
average standard of living.
It is often asserted that U.S.
multinationals are somehow “abandoning” the U.S. economy. Such claims
simply do not square with the facts.
Chapter 3 next explores how the
overall success of U.S. multinational companies depends increasingly on
their global competitiveness.
How U.S. Multinational ... Chapter One
Chapter One
A. The Central Message of This ReportThe central message of this report is that U.S. multinational companies strengthen the American economy through a combination of their domestic activity and their international engagement.
Strong U.S. multinational companies that are able to compete effectively in foreign markets will be better positioned to help lead America out of recession. The ability of U.S. multinational companies to stem job losses in the United States and eventually return to hiring more American workers depends on the health, vitality, and competitiveness of their worldwide operations.
The strength of the American economy is driven by the productivity and competitiveness of the companies operating in America. Innovative and efficient companies in the United States that profitably create goods and services, in full partnership with their workers and their broader communities, are the foundation of a globally competitive U.S. economy that can deliver productivity growth and rising standards of living.
U.S. multinational companies enhance the American economy by their capital investment, their research
and development, and by supporting good-paying American jobs. This report develops its central message in three parts.
• U.S. multinational companies are, first and foremost, American companies. As a group, U.S. multinationals perform large shares of America’s productivity-enhancing activities that lead to high average compensation for American workers. And the worldwide operations of U.S. multinationals are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates. The idea that U.S. multinationals have somehow “abandoned” the United States is not supported by the facts. They maintain a large presence in America, both relative to the overall U.S. economy and relative to the size of their foreign affiliates.
• International engagement drives the overall strength of U.S. multinational companies. Although the United States is still the world’s largest single-country market, in the past generation it has been a slow-growth market compared with much of the world. Even with today’s worldwide recession, this means that the overall strength of U.S. multinationals is increasingly tied to their success in both America and abroad. It also means that viewing the domestic and foreign operations of U.S. multinationals as unrelated is increasingly incorrect. U.S. multinationals must make strategic investment and employment decisions from a truly global perspective, with links across all locations and with dynamic variation in successful strategies both across companies at a point in time and within companies over time.
• Foreign-affiliate activity tends to complement, not substitute for, key parent activities in the United States such as employment, worker compensation, and capital investment. Being globally engaged requires U.S. multinationals to establish operations abroad and also to expand and integrate these foreign activities with their U.S. parents. The idea that global expansion tends to “hollow out” U.S. operations is incorrect. Rather, the scale and scope of U.S. parent activities increasingly depends on successful engagement abroad. Expansion by U.S. parents and their affiliates contributes to the productivity and average standard of living of all Americans.
B. Setting the Stage: Is America Losing Its Economic Strength?
Historically, rising U.S. standards of living have been driven by companies becoming more productive—i.e., raising their output per worker by creating new products and processes. Nobel laureate in economics Paul Krugman describes the importance of productivity thus:
Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker… Compared with the problem of slow productivity growth, all our other long-term economic concerns … are minor issues. Or more accurately, they matter only to the extent that they have an impact on our productivity growth.‡
What forces drive companies to be more productive? There is a wealth of evidence from many industries and countries that a central driving force is competition. Companies exposed to high competitive intensity—in not just their output markets but the markets for labor and capital as well—tend to be more productive. It is also well established that the forces of international competition—via trade and investment—spur productivity growth the most. This is because globally engaged companies themselves tend to create and use the world’s most efficient and innovative methods and organizations. Companies that export or, even more so, are multinational tend to have higher productivity than their purely domestic counterparts do. §
The economic success of the United States over the 20th century was founded on extended periods of strong productivity growth. For example, in the post World War II generation of 1948 to 1973, annual growth of productivity in the non-farm business sector averaged 2.8%. It slowed dramatically then, averaging just half that rate—1.4%—for the generation from 1973 to 1995. This generation of “lost” productivity saw many more economic and broader political-economy challenges. Productivity growth then sped up again, averaging 2.5% from 1996 through 2008.
Throughout much of this time, U.S multinationals have been among America’s productivity leaders. Indeed, one recent study calculated that since 1977, labor productivity in their U.S. parent operations has grown at at least twice the rate of the overall economy. From 1977 to 1995, parent productivity growth averaged 2.8% per year vs. just 1.4% per year in the overall non-farm business sector. From 1995 to 2000, these respective average growth rates were 6.0% and 2.8%. Indeed, the post-1995 parent productivity performance was so strong that it accounted for nearly half of the economy-wide acceleration.** As this report will document, for decades parent operations have undertaken vast investments in the United States—in human capital, in physical capital, and in research and development—that make their workers and the overall U.S. economy more productive and competitive.
So how globally competitive is the United States today? On the one hand, some would answer, “strong.” In its most recent 2007-2008 analysis, the World Economic Forum ranked the United States #1 in overall global competitiveness. In its 2007 report, Competitiveness Index: Where America Stands, the Council on Competitiveness concluded that America’s business productivity remains a key strength.
Recently, however, America’s economic strength is being called into greater question. This partly reflects the much faster growth of countries such as China, India, and central and eastern Europe. For the generation of 1990 through 2008, growth in U.S. gross domestic product averaged 2.7%—in contrast to 1990-2007 averages of 3.4% for the overall world, 4.6% for emerging and developing countries as a whole, 6.3% in India, and a remarkable 9.9% in China.†† Forecasts now abound projecting when fast-growing economies will be larger than the U.S.
But it also reflects warning signs at home.
• Today the United States is in the middle of the worst financial crisis since the 1930s, together with a lengthy and in many ways deepening recession.
• After accelerating from 1995 into early this decade, U.S. productivity growth in the non-farm business sector has decelerated since 2002—to annual rates in 2005-2007 of just 1.7, 1.0, and 1.4 percent, respectively. There is now greater uncertainty about the underlying structural rate of U.S. productivity growth, with commensurate greater concern of slipping back to slow rate of the pre-1995 generation.
• Alarms are also being sounded about the waning competitiveness of key sectors, with ongoing large U.S. trade deficits often presented as evidence of this slide.
Many of these rising concerns about America’s competitiveness are especially focused on the competitiveness of U.S.-based multinational companies. As explained above, the performance of U.S. multinationals is especially important for the U.S. economy overall because these companies (along with the U.S. affiliates of foreign multinationals) have long been among America’s most productive. And as will be explained below, for the overall success of these companies, it has long been essential to engage in the global economy—both by serving fast-growing markets abroad and by drawing on productive strengths there as well.
Despite all this, the contribution to the American economy of the global success of U.S. multinationals is increasingly being called into question. In recent years, an increasing number of voices have been arguing that these companies succeed only by “exporting jobs” abroad, hollowing out their U.S. operations to the detriment of the overall U.S. economy.
At the same time that their contributions to the U.S. economy are increasingly questioned here at home, U.S. multinationals are increasingly challenged by companies from around the world—not just from other high-income countries. The most recent Fortune 500 list of the world’s largest companies lists 62 from emerging economies—double from just 31 in 2003. Outward cross-border M&A transactions by these companies are exploding; for example, foreign direct investments out of China and India now exceed $20 billion per year, up more than tenfold from just a few years ago.
The purpose of this report is to document how U.S. multinational companies enhance the American economy by supporting American capital investment, research and development, employment, and wages.
This thesis will be explained in this report using a blend of three types of evidence. One is official government statistics collected by the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. By design and legal mandate, BEA statistics track all multinational companies headquartered in the United States. No other U.S. government or private-sector data matches the BEA’s breadth, depth, and rigor. A second type of evidence will be research findings from peer-reviewed academic studies of the performance of multinational companies. And the third is case studies, to amplify the comprehensive statistics and research findings with concrete examples.
One critical dimension of the breadth of this study will be its industry coverage. Many of today’s policy discussions address globalization of goods only. But today’s reality is that while manufacturing of goods remains a critical part of the U.S. economy—31% of all U.S. output in 2007—services now constitute the majority of the U.S economy.‡ ‡ U.S. economic strength depends ever more critically on the global competitive success of all multinationals—not just in manufacturing, as has long been the case, but their counterparts in services as well.
What Is a U.S. Multinational Company? The Bureau of Economic Analysis Data
Before proceeding, it is important to understand the structure and scope of the BEA data used in this report. Each year since 1977, the BEA has tracked U.S.-headquartered multinationals through legally mandated surveys (with penalties for non-compliance) that collect and publicly disseminate operational and financial data. By design, BEA statistics track all multinational companies headquartered in the United States. There is no other U.S. government or private-sector data source on U.S. multinationals that matches the BEA’s breadth, depth,
or rigor.
In accord with the statistical practice of many countries, the BEA defines a U.S. multinational company as any U.S. enterprise that holds at least a 10% direct ownership stake in at least one foreign business enterprise.
The U.S. enterprise is the U.S. “parent.” It is a person, resident in the United States, that owns or controls 10% or more of the voting securities, or the equivalent, in a foreign business enterprise. Person is broadly defined to include any individual, branch, partnership, associated group, association, estate, trust, corporation, or other organization (e.g., a government entity).
The foreign business enterprise is the foreign “affiliate,” over which the U.S. parent is presumed to hold and exert some degree of managerial control. The 10% stake is defined broadly: it is the ownership or control, directly or indirectly, by one U.S. person of 10% or more of the voting securities of an incorporated foreign business enterprise or the equivalent interest in an unincorporated business enterprise.
All data in this report excludes banks. The BEA collects and disseminates very little information about affiliates whose main line of business is banking. This is because banking subsidiaries already disclose substantial information to other government agencies, such as the Federal Reserve System. Also, data in this report cover majority-owned foreign affiliates, not all foreign affiliates—i.e., those affiliates owned 50% or more by the U.S. parent(s). This is because the BEA collects and disseminates far less information about minority-owned affiliates, over which U.S. parents hold a more ambiguous degree of control. That said, majority-owned affiliates constitute the large majority of total affiliate activity: in 2006, 86.9% of total employment and 87.2% of total sales. And this majority-owned share has recently been rising: e.g., the employment share in 1999 was just 84%.
All publicly available BEA data on U.S. multinationals are aggregated to avoid identifying individual companies: by primary industry of operation; by affiliate country; or by various combinations of these criteria. Finally, note that at the time of writing 2006 is the most recent year for which BEA data are publicly available (where data items are reported for either year end or year average, where year is fiscal year ending in that calendar year). In 2006 there were 2,278 U.S. multinational parents that controlled 23,853 majority-owned foreign affiliates.
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How U.S. Multinational CompaniesStrengthen the U.S. Economy Introduction
How U.S. Multinational CompaniesStrengthen the U.S. Economy2009
Introduction
How U.S. Multinational Companies
Strengthen the U.S. Economy
Matthew J. Slaughter
Executive Summary
The contribution to the American economy of U.S. multinational companies is increasingly being called into question.* Critics contend that these companies have “abandoned” the United States, and that policy needs to rebalance their domestic and international operations.
This report demonstrates that U.S. multinational companies are, first and foremost, American companies. They perform large shares of America’s productivity-enhancing activities—capital investment, research and development, and trade—that lead to jobs and high compensation.
The central role of U.S. multinational companies in underpinning U.S. economic growth and jobs creation is even more important today as the United States seeks to address the challenges presented by the current economic environment. Strong U.S. multinational companies that are able to compete effectively in foreign markets will be better positioned to help lead America out of recession. The ability of U.S. multinational companies to stem job losses in the United States and eventually return to hiring more American workers depends on the health, vitality, and competitiveness of their worldwide operations.
• The worldwide operations of U.S. multinationals are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates. The idea that U.S. multinationals have somehow “abandoned” the United States is not supported by the facts. They maintain a large presence in America, both relative to the overall U.S. economy and relative to the size of their foreign affiliates.
• International engagement drives the overall strength of U.S. multinational companies. Although the United States is still the world’s largest single-country market, in the past generation it has been a slow-growth market compared with much of the world. Even with today’s worldwide recession, this means that the overall strength of U.S. multinationals is increasingly tied to their success in both America and abroad. It also means that viewing the domestic and foreign operations of U.S. multinationals as unrelated is increasingly incorrect. U.S. multinationals must make strategic investment and employment decisions from a truly global perspective, with links across all locations and with dynamic variation in successful strategies both across companies at a point in time and within companies over time.
• Foreign-affiliate activity tends to complement, not substitute for, key parent activities in the United States such as employment, worker compensation, and capital investment. Being globally engaged requires U.S. multinationals to establish operations abroad and also to expand and integrate these foreign activities with their U.S. parents. The idea that global expansion tends to “hollow out” U.S. operations is incorrect. Rather, the scale and scope of U.S. parent activities increasingly depends on successful engagement abroad. Expansion by U.S. parents and their affiliates contributes to the productivity and average standard of living of all Americans.
Key Facts†
U.S. parent companies perform large shares of America’s productivity-enhancing activities that lead to high average compensation for American workers.
• Output: Parent companies accounted for 24.9% of all private-sector output (measured in terms of gross domestic product)—over $2.5 trillion.
• Capital Investment: Parent companies purchased $442.6 billion in new property, plant, and equipment—31.3% of all private-sector capital investment.
• Exports: Parent companies exported $495.1 billion of goods to the rest of the world. This constituted nearly half—48.0%—of the U.S. total.
• Research and Development: To discover new products and processes, parent companies performed $187.8 billion of research and development. This was 75.8% of the total R&D performed by all U.S. companies.
All these productivity-enhancing activities contribute to larger average paychecks for the millions of employees of U.S. multinationals.
• Parent companies employed over 21.7 million U.S. workers. This was 19.1% of total private-sector payroll employment.
• Total compensation at U.S. parent companies was over $1.36 trillion—a per-worker average of $62,784. This average was $12,163—fully 24.0%—above the average for the rest of the private sector of $50,621.
U.S. parents purchased a total of $5.76 trillion in intermediate inputs. Of this total, 89.1%—$5.14 trillion—was bought from other companies in the United States.
The worldwide operations of U.S. multinational companies are highly concentrated in America in their U.S. parents, not abroad in their foreign affiliates.
• Employment: Parent companies account for 69.6% of worldwide employment of U.S .multinationals—21.7 million parent workers versus 9.5 million at affiliates. This translates into a ratio of almost 2.3 U.S. employees for every one affiliate employee.
• Output: Parent companies account for 71.6% of worldwide output (in terms of value added) of U.S.
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ultinationals—over $2.5 trillion versus about $1.0 trillion.
• Capital Investment: Parent companies undertake 74.3% of worldwide capital investment by U.S. multinationals—$442.6 billion versus just $153.2 billion. For every $1 in affiliate capital expenditures, parents invested $2.89 worth in the United States.
• Research and Development: Parent companies perform 86.8% of worldwide R&D by U.S. multinationals: $187.8 billion versus just $28.5 billion, or $6.59 in parent knowledge discovery for every $1 by affiliates.
Foreign affiliates are located primarily in high-income countries that in many ways have economic structures similar to the United States, not in low-income countries.
• Affiliates in high-income countries accounted for 79% of total affiliate output—and a similar 90% of output by all affiliates newly established or acquired.
Welcome to Blog Economy-worlds
Welcome to Blog Economy-worlds
About Business Roundtable
Business Roundtable is an association of chief executive officers of leading U.S. companies with more than $5 trillion in annual revenues and nearly 10 million employees. Member companies comprise nearly a third of the total value of the U.S. stock markets and pay nearly half of all corporate income taxes paid to the federal government. Annually, they return $133 billion in dividends to shareholders and the economy.
Business Roundtable companies give more than $7 billion a year in combined charitable contributions, representing nearly 60 percent of total corporate giving. They are technology innovation leaders, with more than $70 billion in annual research and development spending – more than a third of the total private R&D spending in the U.S.
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