U.S. Multinationals' Foreign Productions Helps Domestic Growth

Feb. 2, 2007
Manufacturers Alliance/MAPI says it leads to higher standard of living.

"The most frequently expressed fear of globalization --that multinational corporations will shift production from the relatively high-wage U.S. to low-wage foreign countries for the purpose of reducing labor costs -- is misplaced," said Daniel J. Meckstroth, MAPI chief economist. In the report "Globalization Complements Business Activity in the United States" Meckstroth states that the primary motive for multinationals to invest in businesses abroad is to gain access to larger markets for their products and services.

He cites statistics that U.S. manufacturing foreign affiliates made only 10% of their sales to U.S. parents in 2004 and less than 2% of sales to nonaffiliated U.S. businesses.

The report points out that when foreign affiliates expand, their U.S. parents also expand domestic operations, especially in the areas of research and development, finance, management, sales and marketing, purchasing, logistics, and other skill-intensive business services.

With regard to the issue of outsourcing, Meckstroth explains that from a macroeconomic point of view, foreign outsourcing changes only the industrial mix of jobs, not the overall level of employment in the economy. For instance, foreign outsourcing can cause employment resources to move out of manufacturing and into the service sectors of the economy. Some domestic jobs are destroyed in industries subject to outsourcing, but a market-oriented economy will offset the negative effect by creating jobs in other business segments, he explains.

As far as the argument that U.S. jobs are lost due to outsourcing, Meckstroth cites Bureau of Labor Statistics figures show that only a small number of workers, 5%, are "displaced," having lost their jobs because of plant relocations, plant closings, or other similar factors. Manufacturing job loss, Meckstroth argues, is due more to productivity gains than any other factor.

Interested in information related to this topic? Subscribe to our weekly Value-chain eNewsletter.

Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!