June 26, 08

NEWS / As the Dollar Falls, Foreign Nationals Shop for U.S. Firms

Size of U.S. market, high-tech centers also behind trend
By Andrzej Zwaniecki
Staff Writer

Washington -- In addition to iPods, laptops and other consumer goods, U.S. companies increasingly are found on the shopping lists of European, Canadian and other foreign buyers drawn to the United States by the falling U.S. dollar.

In 2007, foreign investors bought stakes in U.S. companies whose businesses range from financial services and real estate to steel making and lighting. Foreign acquisitions totaled a record $414 billion, almost 90 percent more than the previous year and almost 30 percent more than 2000’s record, according to Thomson Financial, an economic data and research firm.

The relative weakness of the U.S. dollar creates opportunities for companies in countries with stronger currencies. They can buy U.S. businesses at bargain prices, according to economists.

“The valuation of U.S. companies compared to Japanese or European firms makes them reasonably attractive,” Brian Bethune of economic forecasters Global Insight told America.gov.

Other economists say the reasons behind the trend are more varied.

Foreign companies give more weight to the rates of growth of the U.S. economy, expected rates of return and other economic factors than to the short-term movements of the U.S. currency, according to a Congressional Research Service 2007 report.

Jeffrey Garten, an international trade expert at the Yale School of Management, told America.gov that foreign companies are not much different from U.S. firms that want to expand their business and global presence. In the United States, the foreign companies find it easier to buy an existing business with its connections and market presence than to establish a subsidiary.

Other reasons cited by executives of foreign companies include the large size of the U.S. market, low production costs, proximity to leading technology centers and tariff-free access to Mexican and Canadian markets.

Whatever the reasons, increased foreign direct investment has been welcomed by many U.S. businesses and state governors. As credit supply in the U.S. economy tightens, some U.S. companies do not mind being acquired by cash-rich foreign corporations. Governors of many states actively court foreign investors, hoping the infusion of foreign money will create new jobs and soften the impact of a slowing economy.

The Bush administration supports open investment. According to Deputy Treasury Secretary Robert Kimmitt, foreign direct investment creates well-paying jobs, spurs innovation, improves productivity and boosts exports.

Most private-sector economists share his view.
“It is better for a U.S. company to be acquired by a large foreign corporation than, say, by a U.S. hedge fund,” Bethune said. European and Asian companies tend to bring new technology, new skills and access to new markets and are more patient in regard to return on investment, he said.

COMMUNITY REACTION

The local perception of investments varies. The benefits are more obvious to the residents of Pittsfield, Massachusetts, where a Saudi corporation promised to add employees at a local plastics plant it bought from General Electric Company, than they are to residents of Murray Hill, New Jersey, where a French company bought Lucent Technologies Incorporated in 2007. Workers at the newly named Alcatel-Lucent face layoffs.

Managers of small and medium-size businesses tend to be more anxious about their firms being taken over by foreign nationals than those at large U.S. corporations, experts say.

Alan Tonelson, a research fellow at a trade group representing small and mid-size U.S. manufacturers, believes that, by targeting mostly leading technology firms, foreign companies are “acquiring control over the most dynamic pieces of the American economy.”

“They’re acquiring control over America’s future,” he told The Boston Globe.

So far, such arguments have not reverberated in Congress, where calls for more scrutiny are aimed at deals by sovereign wealth funds and state-owned companies. (See “How Welcome Is Investment by Sovereign Wealth Funds?”)

But Garten expects some political backlash if acquisitions by foreign private-sector firms stir national security sensitivities. “Sometimes it is going to be a genuine concern, and sometimes it will be used just as an excuse to preserve the status quo,” he said.

The harbinger of things to come may be uneasiness expressed by several politicians over the unsolicited bid by InBev of Belgium for Anheuser-Busch Companies, the iconic, Missouri-based maker of Budweiser beer. Matt Blunt, Republican governor of Missouri, and Senator Claire McCaskill, a Democrat, of the same state oppose the deal.

Bethune believes that misgivings by politicians and the American public about “the Euro invasion” or “a fire sale” of U.S. corporate assets similar to those caused by the rise in Japanese investment in the 1980s can make foreign companies weary of investing in U.S. businesses.

Todd Malan, who heads a lobbying group representing foreign companies in the United States, warns that anti-foreigner sentiments can strengthen protectionists and give them excuses to erect new barriers. This would deprive the U.S. economy of much-needed capital, he said.

For that reason, protectionists are likely to lose any major confrontation with U.S. financial and manufacturing companies, according to some experts. The hunger for capital will prevail over the political forces, Garten said.

The text of prepared remarks on this subject by Deputy Secretary Kimmitt can be found on the Treasury Department Web site. The Congressional Research Service’s 2007 report on foreign direct investment can be found on its Web site.
http://www.america.gov/st/econ-english/2008/June/20080620111316saikceinawz4.358637e-02.html

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