Changing Course

For some 750 U.S. corporations that engage in significant foreign operations, 1967 figures to be a bench-mark year.

Historically, spending for plants and facilities abroad, which has risen from $11.8 billion to $57.6 billion since 1950 and now represents 25% of all capital investment by U.S. companies, has followed a particular priority. The bulk of the funds flowed across the border to Canada, where U.S. business investment, counting another $2.1 billion last year, has reached $17.26 billion. Close behind was Western Europe, where U.S. investment has reached $17.18 billion. Latin America is in third place.

This year, with U.S. firms expected to lay out a record $8.4 billion on new or expanded ventures abroad, the priorities will shift. For Canada, $1.2 billion is earmarked; for Europe, $3.4 billion. Thus for the first time, Europe becomes the area of prime interest to foreign sales-minded U.S. businessmen.

Cars & Chemicals. About 80% of the new American money will be used to build manufacturing plants or petroleum and petrochemical refineries. General Motors, which recently opened a $100 million assembly plant at Antwerp, last week announced that it will build a $75 million complex at Strasbourg that will make transmissions for all G.M. plants in Europe. ITT, which has plants or laboratories in Britain and ten Continental countries, recently acquired the French electrical firm of Claude Paz et Visseaux. General Instrument Corp. bought up Pirelli's electronics subsidiary at Guigliano, Italy, as its first European manufacturing base. Gulf Oil, which already operates refineries at Stigsnaes, Denmark, and The Netherlands' new Europoort, is building two more at Milford Haven, Wales, and Huelva, Spain. Dow Chemical, with $100 million already invested in Europe, now expects to spend $25 million more on a resins plant at Greffern, Germany, a styrofoam plant at King's Lynn, England, and a petrochemical complex at Terneuzen, Holland. Overall in 1967, at least $1.1 billion will be spent in Britain, $840 million in West Germany, $436 million in France and $268 million in Italy.

Both Americans and Europeans have mixed feelings about all this enterprise.

U.S. businessmen, even while obeying "voluntary" guidelines on overseas investment in order to ease balance of payments problems, will nonetheless finance about 60% of their new projects abroad with money from home.

The balance between funds exported and profits shipped home will, therefore, still be in deficit by about $2.7 billion, and the Administration is unhappy. So are some Europeans--over the fact that U.S. firms raise substantial capital ($470 million last year and an estimated $500 million this year) in Europe's limited money markets. Complains the Financial Times's banking columnist "Lombard": "Since outlays of this kind are not obligatory and are very much in America's own interest, they ought not to be financed at other countries' expense."

Jobs & Capital. More and more Europeans, however, take a longer view, even though U.S. investment has reached a point where, for example, Americans control 30% of Europe's automaking, 50% of the West German oil industry and 90% of the French computer industry. Obviously, new plants mean jobs. G.M. expects to hire 6,000 for its Antwerp plant and another 3,000 workers for the transmission plant at Strasbourg. Beyond this, the U.S. demand for money now seems to be having a salutary effect on European capital markets.

Rushing in last year to finance their building programs with Eurobonds, U.S. corporations disrupted bond markets, shut out other prospective borrowers, such as the Scandinavians, sent interest rates on medium-term bonds of five to ten years' maturity up as high as 7%. Recently, however, the demand for bond money has been more orderly --and more money seems to be available for everyone. Robert Genillard, European partner of the Manhattan investment banking firm of White, Weld & Co., points out that the Eurobond market, now $1.3 billion, is nearly three times as large as it was in 1962. Says he: "While American borrowers accounted in 1966 for around 40% of the flotations, what is left for others is still a larger total than before."

"The European capital market," comments Switzerland's respected Neue Zuercher Zeitung, "has increasingly lost its European character and has grown into the nature of a European-American financial partnership." Many Europeans devoutly hope that U.S. businessmen, whose sales there have now reached $18.6 billion annually with profits approaching $2 billion, will broaden the partnership. For one thing, they would like to see more equity financing--sales of stock in U.S. firms' European operations to the European consumers who make them possible--rather than constant bond flotations.

No matter how such matters are ultimately worked out, there seems to be general agreement that the U.S. investment revenue of Western Europe is helping everyone.

This file is automatically generated by a robot program, so reader's discretion is required.