Companies linked to the global marketplace through exports, inward foreign direct investment (FDI), outward FDI, or imports grow faster and fail less often than companies not linked. Plus, their workers and communities are better off.

These are the findings by Howard Lewis III and J. David Richardson in their new report, Why Global Commitment Really Matters!, published by the Washington, DC-based Institute for International Economics. And, the two authors’ analysis holds up when comparing companies of the same size in the same industries, both in the United States and around the world.

Exporting Plants Perform Better

Compared to non-exporting firms, U.S. exporting firms experience 2 to 4 percentage points faster annual growth in employment, offer better opportunities for advancement, expand their annual total sales about 0.6 to 1.3 percent faster, and are nearly 8.5 percent less likely to go out of business. These gains are not dependent on any specific time period or export volume, according to the report.

Additionally, workers employed in export firms have better-paying jobs. For example, wages of blue-collar workers in export firms average 13 percent higher than in non-exporting plants. Deeper analysis reveals that blue-collar earnings are 23 percent higher when comparing large plants, and 9 percent higher when comparing small plants; white-collar employees receive 18 percent more than their non-exporting counterparts. Plus, the benefits for all workers at exporting plants are 37 percent higher, including improved medical insurance and paid leave.

Plants Utilizing Inward FDI Benefit More

American plants that are recipients of FDI employ workers with 19 percent higher productivity, provide them with more machinery and equipment, and use more cutting-edge technology than their nonglobally-engaged counterparts, according to Why Global Commitment Really Matters! These benefits accrue at plants with an equity stake as low as 10 percent. Additionally, the report says blue-collar and white-collar jobs at plants with foreign investment pay 7 and 2.5 percent more, respectively, when comparing plant size, industry and location.

Firms Linked through Outward FDI Excel

Surprising to many, U.S. labor productivity in large and small U.S.-based plants with investments abroad is 11 percent and 33 percent higher, respectively, than in their U.S. counterparts that solely operate domestically. Furthermore, these U.S. multinationals utilize more advanced manufacturing technology as compared to U.S. firms with no overseas investments.

Plus, employee annual average earnings at large and small American multinationals are 18 and 25 percent higher than at their U.S. counterparts. Further analysis indicates difficulty in disentangling white-collar job gains at American-owned multinationals; however, blue-collar job gains are significant.

Importers also Provide More Benefits

Approximately 70 percent of U.S. imports consist of raw materials, components and capital goods that typically do not compete with American jobs. In fact, these imports, which offer unique capabilities and competitive prices, enhance U.S. worker productivity. And higher productivity leads to a host of benefits.

According to the report, investment-engaged firms import more than non-investment-engaged firms. For example, U.S. foreign-backed manufacturing plants imported 16 percent of their intermediate goods in 1992, while U.S. manufacturing plants invested abroad imported 11 percent. By comparison, non-investment-engaged U.S. manufacturers imported approximately 7.5 percent of their intermediate inputs in 1992. The research suggests that one benefit derived from investment-engaged firms is their ability to grow efficiently through savvy importing that is reflected in the use of better tools and methods.

Communities Fare Better

The new report also indicates that U.S. communities which host foreign multinationals incur a positive spillover effect that involves wages, technology and skills. Data is not yet available on U.S. communities that host American multinationals.

But logic holds that communities which host globally-integrated companies benefit through a more stable workforce and a stronger tax base. Furthermore, the revenue generated from global integration flows to local communities through restaurants, retail stores, movie theaters, etc., and spreads risk should the domestic market enter a period of slow or negative economic growth.

Similar Findings Abroad

Microdata research in a variety of countries finds strikingly similar patterns, according to the report. In fact, Lewis and Richardson say, “Foreign firms, workers and communities that commit to all sorts of global linkages prosper relative to comparable counterparts that do not.” This means that companies in the U.S. and abroad not linked to the global marketplace should consider being linked, and companies that are linked should consider deepening their international ties.

This article appeared in March 2003. (BA)
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella is a world-recognized author and speaker on global business, emerging risks, competitive strategies and the latest economic trends. He also is founder of the ManzellaReport.com and Chief Strategy Officer of Ignition Life Solutions. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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