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November 1965 SURVEY OF CURRENT BUSINESS 17 would perhaps amount to $0.4 billion. On the other hand, the normal growth in internally generated funds of the affiliates would be roughly $0.5 billion. As a crude approximation, this would leave perhaps $1.0 billion or more of additional financing in 1965 to be derived from external sources, either U.S. or foreign. Financing from foreign sources has grown very rapidly, rising by $0.6 billion in 1963 and again in 1964. An even larger increase will be necessary in 1965 if foreign sources are to supply a greater share of the estimated amount, of funds required by the affiliates and if the rise in U.S.source financing is to be minimized. Uses of funds As noted above, expenditures for plant and equipment are the largest use of funds by foreign affiliates, accounting for 64 percent of total uses in 1964. Current and prospective developments in these expenditures were discussed in the September Survey. A rising share of total financing has been needed for mounting accumulations of inventories and accounts receivable. Inventories of foreign affiliates grew by $1.4 billion in 1964, about $K billion more than in 1963. Nearly all the accumulation was by manufacturing affiliates, and was spread over a broad range of countries and commodities. The principal factor involved appears to have been the acceleration of sales by the manufacturing affiliates, but in all areas, the buildup of inventories was considerably more than proportional to the increase in current sales. Foreign affiliates added $1.1 billion to their accounts receivable in 1964, somewhat less, in the aggregate, than the rise in 1963. There was considerable variation in behavior among the different areas and industries. Receivables of manufacturing affiliates showed the largest rise—$0.8 billion—which included a major increase in Latin America. Petroleum affiliates reduced the rate of growth of receivables in most areas from the comparatively high rate of 1963. Sales by Foreign Plants THE value of sales of foreign manufacturing affiliates of U.S. companies soared to $37.3 billion in 1964, a rise of 17 percent for the year. This was the most rapid rate of increase since the collection of these data began in 1957. It reflects the combined effect of strong growth in demand in major markets and the acceleration of growth in capacity through plant construction (and some acquisitions of existing foreign firms) by U.S. companies. Since plant construction has proceeded at an even higher rate in 1964 and 1965 than in prior years, and since most major markets continue to show strength, a further large gain in sales seems likely for 1965. Area and industry composition Sales of European manufacturing affiliates, which are considerably larger than those of affiliates in any other area, registered a major gain of $2.5 billion in 1964. As table 4 shows, nearly $1.0 billion of the increase was in the United Kingdom, and over $0.5 billion in Germany. Among the industry groups in Europe, particularly large gains in sales were reported for machinery and transportation equipment. Canadian affiliates also had record sales gains in 1964, consistent with generally rising industrial production in Canada. Sales gains in other developed countries, notably in Australia, were also well above trends since 1957. This pattern also carried through to many of the developing countries, such as Argentina and Mexico, but sales declined in Brazil and grew relatively slowly in a number of other countries. Nearly all the manufacturing industries shown in table 3 reported record increases in sales in 1964. As the plant expansions of 1964 and 1965 come into production, in an environment of generally rising demand, sales of the foreign plants are likely to continue their rapid rise. Since 1957, aggregate sales of the affiliates have more than doubled—from $18.3 billion to $37.3 billion in 1964. Sales in some manufacturing industries—chemicals, nonelectrical machinery, and transportation equipment— have expanded even more rapidly during this period, and it is significant that Table 2.—Financing of Affiliates from External Sources Abroad, Area and Type of Financing by Industry, 1962-64 Area and type of financing All areas, total. Borrowing from financial institutions Funds from foreign affiliates Other increases in foreign liabilities ,_ Issues of equity securities Other foreign sources Canada, total Borrowing from financial institutions Funds from foreign affiliates.. ._ _ Other increases in foreign liabilities Issues of equity securities _ ^ Other foreign sources - ._ — Latin America, total ] _ _ _ ___ _ Borrowing from financial institutions Funds from foreign affiliates __ _ Other increases in foreign liabilities Issues of equity securities Other foreign sources . Europe, total Borrowing from financial institutions Funds from foreign affiliates __ __ Otl er increases in foreign liabilities Issues of equity securities- Other foreign sources __ _ __ Other areas, total Borrowing from financial institutions Funds from foreign affiliates Other increases in foreign liabilities Issues of equity securities Other foreign sources * Less than $500,000. i Includes "other Western Hemisphere.' (Millions of dollars) All industries, total 1962 1,546 319 21 701 364 141 320 60 -39 95 135 69 225 29 18 95 80 3 608 133 42 299 101 33 393 97* 212 48 36 1963 2,152 404 18 1,300 334 96 332 40 -18 235 65 10 146 20 -75 126 49 26 1,111 174 100 672 140 25 563 170 11 267 80 35 1964 2,677 593 153 1,399 418 114 423 61 -14 235 71 70 490 102 4 300 . 74 10 1,167 259 165 521 170 52 597 171 -2 343 103 -18 1962 Mining and smelting 107 12 18 4 65 8 15 -5 -35* 55 31 1 1857 * * 1 -1 * 61 105 35 38 1963 102 12 18 62 * 10 70 * • "~75~ 5 -10 15 32 5 10 j -1 * * 18 10 16 -8 * 1964 149 -4 -9 136 188 51 ""-§" 47 75 33 * -1 2833 * -1 1 65 -3 "~60~ 8 1962 506 144 14 218 51 79 84 50 -5 -10 25 24 44 125 18 18 198 27 24 "120 5 22 180 55 -10 90 20 25 Petroleum 1963 777 212 -90 389 149 117 100 50 -30 35 35 10 -44 2 -80 -6 —1 41 431 60 50 220 65 36 290 100 -30 140 50 30 1964 598 150 78 180 131 59 119 168 28 50 17 32 2 30 -23 1 22 305 55 75 75 60 40 142 77 -35 100 20 -20 Manufacturing 1962 933 163 -11 479 248 54 221 10 -29 140 55 45 150 16 72 72 -5 410 105 18 180 96 11 152 325 87 253 1963 1,273 180 90 849 175 -21 162 -10 12 125 25 10 175 153 137 45 -25 681 115 50 452 75 -11 255 60 25 135 305 1964 1,930 447 84 1,083 269 47 253 45 -14 160 14 48 420 105 -25 295 70 -15 862 205 90 445 110 12 390 97 33 183 752
18 SURVEY OF CURRENT BUSINESS November 1965 Table 3.—Sales by Direct Foreign Investments, Principal Commodities by Area, 1957, 1959, and 1961-64 (Millions of dollars) Areas and year All areas, total: 1957 195Q' 1961 T 1962 r 1963 r 1964 Canada: 1957 1959 1961 __ 1962 1963 1964 ._._ „_ Latin America: 1 1957 1959 . _ 1961 . 1962 1963 1964 Europe: 1957 1959 _.._ 1961 1962 1963 1964 Other Areas: 1957 1959 1961 1962 1963- 1964 Manufacturing total 18, 331 20, 634 25, 111 27, 923 31, 769 37, 270 7,897 8,204 8, 429 9,196 10, 163 11, 450 2,435 2,830 3, 647 4,067 4,396 5,100 6, 313 7,690 10,780 12, 020 14, 015 16, 500 1, 685 1,910 2,255 2,640 3,195 4,220 Food products 2, 457 2,810 3,245 3,410 3,712 3,980 928 1,060 1,095 1, 135 1,182 1,280 608 740 780 850 990 950 734 760 1,110 1, 185 1,265 1,450 188 250 260 240 275 300 Paper and allied products 881 940 1, 060 1, 180 1, 299 1, 510 769 800 870 945 1, 009 1,145 55 60 85 100 130 145 34 50 70 80 95 130 23 30 35 55 65 90 Chemicals 2, 411 2, 950 3, 890 4,400 5,152 5, 945 897 1, 070 1,315 1,295 1,427 1, 585 499 590 690 880 1,060 1, 250 r Revised. 1 Includes "other Western Hemisphere." 822 1,050 1,510 1, 760 2,065 2,250 these are the industries for which the largest increases in investment are projected. There are a number of instances of spectacular growth in sales since 1957— machinery and transportation equipment in Europe, chemicals in "other" areas (largely in developed countries), primary and fabricated metals in Europe and in "other" areas (see table 3). Growth has generally been slower in Canada, mainly because by 1957 there was already a much larger production base in that country than in other areas. Destination of sales 193 240 375 465 600 860 Over 80 percent of the sales of foreign manufacturing affiliates are customarily made within the countries in which the plants are located. In 1964, as table 5 shows, $1.6 billion out of total sales of $37.3 billion were exported to the United States. The largest part of this, $1.2 billion, came from Canada and consisted primarily of products of natural resource industries. Imports from Europe have been rising gradually but amounted to only $0.2 billion in 1964, and imports from Latin America, Rubber products 968 1,040 1,195 1,332 1,360 1,605 272 290 285. 340 355 400 239 260 300 302 310 355 262 290 400 460 430 540 195 200 210 230 265 310 Primary and fabricated metals 1,548 1, 590 1.875 2 053 2,373 2,840 927 950 940 1,090 1,198 1,330 111 100 160 163 195 270 435 470 690 715 840 1, 030 75 70 85 85 140 210 Machinery,excluding electrical 1,903 2,200 2,897 3 359 3,727 4,650 695 760 760 810 916 1,030 66 80 122 144 166 230 1,009 1,210 1,755 2,090 2,265 2,890 133 150 260 315 380 500 Electrical machinery 2,047 1,864 2, 234 2 571 2 801 3,340 1,080 794 764 851 891 1,060 190 190 300 360 280 380 678 770 1, 050 1,220 1,480 1,700 99 110 120 140 150 200 Transportationequipment 4,228 5,140 6 000 6 680 8 070 9 480 1, 488 1 600 1 450 1,730 2 110 2 420 375 470 770 790 760 960 1,700 2,350 3, 070 3,280 4,150 4,700 665 720 710 880 1,050 1,400 Other products 1 88* 2, 10( 2 71< 2 93^ 3 27 3 92( 84 88 95 1,00 1 07 1 20 29 34 44( 47J 50 56 63 74 1 12 1 23 1,42 1 81( 11 14< 20 23 27 35( consisting largely of food products, were $145 million. A considerable part of the output of the affiliates, $5.0 billion in 1964, enters international trade among foreign countries. Last year, about $3.6 billion of these export sales originated in European plants and represented sales among European countries as well as sales to other foreign areas. The transportation equipment, chemicals, and nonelectrical machinery industries in Europe exported relatively high proportions of their total sales. The main exports of the Canadian affiliates are primary and fabricated metals and wood and paper products, while for Latin America the principal export products are foods and chemicals. Comparison with U.S. exports Table 6 compares the recent movement in exports of a large cross-section of U.S. manufactures with sales of similar products by foreign affiliates. The growth of these selected exports in 1964 (17 percent) was nearly as rapid as the expansion of foreign sales (18 percent). The more usual pattern has been a much faster growth in sales by the foreign affiliates. Last year, exports from the United States were supported by relatively high growth rates and pressures on capacity in most developed countries that are important markets for U.S. goods. However, it seems likely that in the current year, export sales, though rising, will lag behind the gains in sales by foreign plants. Exports generally are not benefiting from quite as rapid a growth in foreign demand, and foreign affiliates are greatly increasing their capacity to supply these markets. U.S. exports of these selected manufactures to Canada and Europe were especially strong in 1964, outstripping the rate of increase in sales of Canadian and European affiliates. The magnitudes of exports and local manufactures are quite different, however, so that the absolute increases in local sales in these countries were much larger than the increase in U.S. exports to them. In Europe, for instance, local sales of nonelectrical machinery rose by $625 million in 1964; U.S. exports rose somewhat faster relatively, but the increase was only $170 million. Chart 11 compares export sales with sales of foreign affiliates since 1957 for various groups of manufactures. The relatively sharp upward turn in exports of most commodities in 1964 stands Table 4.—Sales by Direct Foreign Manufacturing Affiliates, 1957,1959, and 1961-64 (Millions of dollars) Area and country All areas, total Canada __. Latin America, total i Argentina Brazil ._ Mexico - - Venezuela Other countries.... Europe, total Belgium, Netherlands and Luxembourg France Germany Italy United Kingdom. Other countries... Other areas, total- _ Australia '..- Japan Philippine Republic Republic of South Africa Other countries... 1957 18,331 20,634 25, 111 27,923 31,769 37,270 7,897 2,435 385 659 643 268 480 6,313 416 763 1,116 230 3, 303 485 1,685 787 217 118 300 263 1959 r 8,204 2,830 426 764 751 364 525 7,690 10,780 12,020 14,015 16,500 461 789 1, 572 244 4,050 574 1,910 933 240 141 292 304 1961 ' 1962' 8,429 3,647 872 950 850 375 600 760 1,255 2,265 525 5, 070 905 2,255 1, 060 380 160 335 320 9,196 10, 163 11,450 4,067 837 1,165 1,035 380 650 850 1,570 2,600 675 5,265 1,060 2,640 1,350 430 155 380 325 1963 ' 4,396 871 1,225 1,175 450 675 980 1,920 3,120 880 5,960 1,155 3,195 1,635 515 170 460 415 r Revised. * Includes "other Western Hemisphere." 1964 5,100 1, 160 1,180 1,500 510 750 1,290 2,180 3,660 1,140 6,910 1,320 4,220 2,100 710 . 210 640 560
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