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U.S. Manufacturers' Investment Abroad Surges

June 03, 2005|From Reuters

Foreign investment by U.S. manufacturers almost doubled last year to $54 billion, driven by large overseas mergers and acquisitions by makers of medical devices, chemicals, pharmaceuticals and other products, a study released Thursday showed.

The data, released by consulting firm Deloitte, highlight the dramatic pace of globalization in the manufacturing business. U.S. manufacturers invested $179 billion abroad over the last five years, compared with $90 billion spent in the first half of the 1990s, the data showed.

In a twist that Deloitte calls the high-wage paradox, investment in low-wage countries such as India appears to be declining while investment in more high-cost regions, such as Europe, is on the rise.

The consulting firm explains the discrepancy by pointing to manufacturers' motivations for overseas investment: Rather than looking to cut costs, they are aiming to grow into new markets.

"Contrary to the perception that U.S. manufacturers are moving operations abroad to reduce costs, foreign direct investments have been concentrated in high-wage countries, demonstrating that companies are focused more on growth than on cost-cutting," said Peter Koudal, Deloitte's research director for global manufacturing.

The record level of overseas investment, which surged 90% in 2004 from $28 billion a year earlier, was driven by a rise in mergers and acquisition spending, Delloite said. The value of foreign acquisitions by U.S. manufacturers rose to $31 billion in 2004 from $16 billion two years earlier.

With growing markets and cheaper labor, the lure of China and India has long been apparent to manufacturers.

According to Deloitte, however, foreign investment by U.S. manufacturers in low-wage economies declined nearly 67% from 1999 to 2003. Over the same period, investment in high-wage markets including Western Europe, Canada and Australia remained steady.

In 2003, for instance, Switzerland attracted nearly a third of total investment from U.S. manufacturers in Europe, led by the $3.4-billion acquisition of Centerpulse by Zimmer Holdings Inc.

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