5.To avoid political and regulatory hurdles.The primary reason Japanese auto
companies moved production to the United States was to get around U.S. import
quotas. Now Honda, Nissan, Toyota, Mazda, and Mitsubishi are all assembling ve-
hicles in the United States. One of the factors that prompted U.S. pharmaceutical
maker SmithKline and Britain’s Beecham to merge was that they wanted to avoid
licensing and regulatory delays in their largest markets, Western Europe and the
United States. Now SmithKline Beecham can identify itself as an inside player in
both Europe and the United States. Similarly, when Germany’s BASF launched
biotechnology research at home, it confronted legal and political challenges from
the environmentally conscious Green movement. In response, BASF shifted its
cancer and immune system research to two laboratories in Boston suburbs. This
location is attractive not only because of its large number of engineers and scien-
tists but also because the Boston area has resolved controversies involving safety,
animal rights, and the environment. “We decided it would be better to have the
laboratories located where we have fewer insecurities about what will happen in the
future,” said Rolf-Dieter Acker, BASF’s director of biotechnology research.
6.To diversify.By establishing worldwide production facilities and markets, firms
can cushion the impact of adverse economic trends in any single country. For ex-
ample, General Motors softened the blow of poor sales in the United States during
a recent recession with strong sales by its European subsidiaries. In general, geo-
graphic diversification works because the economic ups and downs of different
countries are not perfectly correlated. Therefore, companies investing overseas
benefit from diversification in the same way that individuals benefit from investing
in a broad portfolio of stocks.
Over the past 10 to 15 years, there has been an increasing amount of investment in
the United States by foreign corporations, and in foreign nations by U.S. corpora-
tions. This trend is shown in Figure 15-1, and it is important because of its implica-
tions for eroding the traditional doctrine of independence and self-reliance that has
been a hallmark of U.S. policy. Just as U.S. corporations with extensive overseas
operations are said to use their economic power to exert substantial economic and po-
litical influence over host governments in many parts of the world, it is feared that
foreign corporations are gaining similar sway over U.S. policy. These developments
suggest an increasing degree of mutual influence and interdependence among busi-
ness enterprises and nations, to which the United States is not immune.
The world economy is quite fluid. Here are a few of the recent events that have
dramatically changed the international financial environment:- The disintegration of the former Soviet Union and the movement toward market
economies in the newly formed countries have created a vast new market for inter-
national commerce. - The reunification of Germany, coupled with the collapse of communism in Eastern
Europe, has created significant new opportunities for foreign investment. - The European Community and the European Free Trade Association have created
a “borderless” region where people, capital, goods, and services move freely among
the 19 nations without the burden of tariffs. This consolidation has led to the
creation of a single “Eurocurrency” called the “Euro.” - The North American Free Trade Agreement (NAFTA) has moved the economies
of the United States, Canada, and Mexico much closer together, and made them
more interdependent. - U.S. bank regulations have been loosened dramatically. One key deregulatory fea-
ture was the removal of interest rate ceilings, thus allowing banks to attract foreign
deposits by raising rates. Another key feature was the removal of barriers to entry
by foreign banks, which resulted in more cross-border banking transactions. Still,
Multinational, or Global, Corporations 547Interesting reports about
the effect of trade on the
U.S. economy can be found
on the United States Trade
Representative’s home page
at http://www.ustr.gov.