New research and analysis reveal that companies linked to the global marketplace perform better than those that only operate domestically. And the employees and communities of globally-engaged firms prosper more. But the benefits don’t just apply to exporters.

The data reveal that companies that import, invest abroad or are recipients of foreign direct investment (FDI) also prosper more than their domestically focused counterparts. And, the analysis compares apples to apples: companies of the same size in the same industries. This research is likely to persuade many firms to expand their horizons. How will it affect your strategic plan?

Employment Growth Is Faster

Quantifying the benefits of international engagement has been difficult — until now. According to Howard Lewis III and J. David Richardson’s new report, Why Global Commitment Really Matters!, companies that export grow faster and fail less often than companies that don’t. And, their workers and communities are better off.

According to the report, published by the Institute for International Economics, a Washington, DC think tank, U.S. exporting firms experience 2 to 4 percentage points faster annual growth in employment than their non-exporting counterparts. But there’s more to the story. They also 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. And these gains are not dependent on any specific time period or export volume.

Wages Are Higher

Lewis and Richardson also say workers employed in exporting firms have better-paying jobs. For instance, blue-collar worker earnings in exporting firms are 13 percent higher than those in non-exporting plants. Additionally, those wages are 23 percent higher when comparing large plants, and 9 percent higher when comparing small plants. White-collar employees also obtain better wages — 18 percent more than their non-exporting counterparts. Furthermore, the benefits for all workers at exporting plants are 37 percent higher, and include improved medical insurance and paid leave.

Productivity Is Stronger

The report contends that U.S. plants which 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 counterparts that are not globally-engaged . Also noteworthy, these benefits accrue at plants with an equity stake as low as 10 percent and as high as 100 percent. Overall, the report says blue- and white-collar jobs at these plants pay 7 and 2.5 percent more, respectively, when comparing plant size, industry and location.

Technology Is More Advanced

Data show that U.S. companies that have investments abroad use more advanced manufacturing technology than U.S. non-multinationals. And this has led to greater labor productivity. In fact, worker productivity is 11 percent higher in large multinationals and 33 percent higher in small ones, as compared to their U.S. counterparts not invested abroad.

In addition, average annual earnings of employees at large American multinationals are 18 percent higher than at their U.S. counterparts; at small multinationals this number increases to 25 percent. Even though analysis indicates difficulty in separating out white-collar job gains at American-owned multinationals, blue-collar job gains are significant.

Importers Also Prosper More

U.S. imports consisting of raw materials, components and capital goods typically do not compete with American jobs. In fact, these imports, which account for approximately 70 percent of total U.S. imports, offer unique capabilities and competitive prices, and they enhance 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 Are More Stable

The new report also indicates that U.S. communities which host foreign multinationals often experience positive spillovers in wages, technology and skills. Data is not yet available on U.S. communities that host American multinationals.

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

Small Firms Are Not Disadvantaged

Export commitment by small American firms has surged over the past decade. And it is this commitment to export, rather than the volume or share of exports in overall sales, that is responsible for higher performance. Furthermore, small firms are not at a disadvantage relative to large firms in realizing the gains from exporting.

This is key since small businesses now represent 89.2 percent of all U.S. exporters. That’s 212,568 out of 238,284 exporters, according to A Profile of U.S. Exporting Companies, 2000-2001, published by the U.S. Commerce Department.

Similar Findings Obtained Worldwide

The benefits that accrue to globally- engaged firms, workers and communities don’t just apply to the United States, according to Why Global Commitment Really Matters! In fact, when comparing globally-engaged companies with their non-linked counterparts, similar findings were obtained in several countries. This has major policy implications for governments around the world.

Due to successful efforts to lower global barriers, international trade and investment have become a primary engine of world growth. And growth is responsible for reducing poverty. In fact, studies indicate that developing countries with open economies grew by approximately 5 percent annually in the 1970s and 1980s, while those with closed economies grew less than 1 percent annually.

Today, 24 developing countries representing about 3 billion people, including China, India and Mexico, have adopted policies that enable their citizens to take advantage of global engagement. The result: their economies are catching up with rich ones. The incomes of the least globally-engaged countries, however, have dropped or remained static. Contrary to the belief of many anti-trade organizations, their problem is not globalization, but rather the lack of it.

Seize Global Opportunities

In 1950, U.S. trade accounted for less than 5.5 percent of our economic growth. Today, it has become an integral part of everyday life, accounting for 25 percent. And, U.S. exports alone support more than 12 million higher-paying jobs, while one in three acres of U.S. agricultural production is now exported. Although the pursuit of international trade and investment has risks, the dangers of solely operating domestically may be greater. Global engagement and its expansion are key to success in the 21st century. For information on international trade or assistance in linking globally, please contact us.

This article appeared in Impact Analysis, March-April 2003.
Share

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, trade policy, labor, and economic trends. His latest book is Global America: Understanding Global and Economic Trends and How To Ensure Competitiveness.




More Articles | Speaker Programs | Speaker Demo | Videos | Services


You don't have permission to view or post comments.

Quick Search

Stock Watch

FREE Impact Analysis

Get an inside perspective and stay on top of the most important issues in today's Global Economic Arena. Subscribe to The Manzella Report's FREE Impact Analysis Newsletter today!