In today’s politically-charged global environment, U.S. companies operating abroad are scrutinized more than ever. In fact, some international business executives say they have been unfairly criticized and targeted by foreign organizations unhappy with various U.S. policies.

Consequently, U.S. direct investment abroad—and the impact of that investment—have become a lightning rod for some groups with ill will toward America. But a closer look at U.S. investment abroad and its impact reveals many benefits to host countries.

American Companies Often Promote Positive Changes

In 2003, the U.S. foreign direct investment (FDI) position abroad, measured on a cumulative historical-cost basis, reached almost $1.8 trillion. But some anti-American organizations would have you believe that U.S. investment in developing countries is harmful to host country workers and environments. A careful look at the record indicates this is not true.

Although exceptions exist, American manufacturers who invest in developing countries typically offer higher wages and better working conditions than do domestic companies. This makes jobs at U.S. facilities highly prized, and over time leads to improved worker protection at all levels.

Through American operating standards and business practices, U.S. companies often serve as agents of change, charting paths for other foreign and domestic companies to follow. This strategy, which is good for business, results in greater employee loyalty, less absenteeism, higher morale and increased productivity.

U.S. Foreign Direct Investment Does Not Typically Seek Lax Standards

Anti-American organizations, as well as anti-trade and business groups, promulgate the notion that U.S. manufacturers investing abroad typically seek countries with cheap labor costs and weak environmental regulations in order to gain a competitive advantage.

Their argument is based on the notion that weak environmental and worker standards give producers in poor countries a significant cost advantage. They also theorize that this puts pressure on other countries to lower their standards in order to compete, prompting a “race to the bottom.”

If this were correct, investment would be flowing to underdeveloped countries with the poorest labor and environmental records. In reality, the opposite is true.

Developing countries tend to attract only a small portion of America’s foreign direct investment. For example, in 2001, 94 percent of U.S. manufacturing investment abroad was directed in high-wage countries. Political stability, education and productivity levels, communications and transportation infrastructure, the rule of law, proximity to market, and the ability to repatriate profits are the most important determinants of capital flows.

Greater Resources Allocated To Environmental Concerns

Over the last several years, environmental issues have received a great deal of attention both in the United States and abroad. Global warming, climate change and ozone depletion, among other concerns, are increasingly raising eyebrows.

In addition to the negative impact on the environment, ignoring these concerns can have a disastrous affect on a company’s relationship with its host community.

U.S. companies understand this well and realize that satisfying foreign environmental standards—that may regulate toxic releases, compliance with air permits, hazardous waste management, and worker health and safety practices—is essential.

In fact, U.S. firms often go beyond what’s required, take steps involving local recycling, and implement pollution reducing innovations and techniques. In turn, this generates good will toward U.S. companies in their host country communities.

In reality, little incentive exists to establish facilities in countries with weak standards. Plus, complying with environmental regulations typically accounts for less than 1 percent of production costs of industries in Western countries. In addition, good corporate citizenship is increasingly receiving favorable attention from institutional investors. They are well aware of the financial damages caused by companies with poor labor and environmental records.

Good Corporate Citizenship Pays Off

U.S. corporate good works, which often focus on philanthropy and community involvement, span a variety of initiatives and activities. These works include supporting local infrastructure development, promoting health care and education, and advancing agricultural practices.

Beginning in 1991, Procter & Gamble, for example, invested millions of dollars in a Czech Republic consumer products company that produced detergent and liquid cleaners. By applying P & G’s worldwide environmental standards, the facility was able to reduce boiler emissions by 99 percent and solid waste by nearly 6,000 metric tons.

In addition to environmental improvements, P & G introduced a competitive compensation program and unique employee benefits, such as loans to renovate apartments and houses, supplementary income payments during illness, maternity leave, and language studies.

P & G also annually donated considerable funds to the development of local education, health care, environmental protection and social institutions. So impressed with these practices, Czech Republic President Vaclav Havel said P & G “could serve as a model for other investors.”

Good Citizenship Is Good Business

Although not all U.S. firms operating abroad subscribe to P & G’s high standards, most companies believe that good corporate citizenship is simply good business, and that it encourages a long and prosperous relationship with the host government, workers and consumers.

Nevertheless, Americans working and traveling abroad often become the targets of anger directed toward the United States or its allies. And American FDI, which enormously benefits host country workers and environments, unfortunately is a target on the global public relations front. But in the end, good corporate activity pays off in terms of good will and business success. And that is something the world will always need.

This article appeared in Impact Analysis, July-August 2004.
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John Manzella
About The Author John Manzella [Full Bio]
John Manzella, founder of the ManzellaReport.com, is a world-recognized speaker, author of several books, and a nationally syndicated columnist on global business, emerging risks and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




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