Globalization Facts: What's Happening and Why

By , Staff writer of The Christian Science Monitor

Globalization is "the most significant development in the world economy over the past few years," asserts an analysis by the investment firm Dean Witter Reynolds Inc. It is a trend driven largely by companies investing in countries other than their home base.

Here are a few facts about how big this foreign direct investment (FDI) is, who's doing it, and why:

*The output of transnational companies pretty well matches the dollar value of world trade, but is growing faster. World trade in goods and services was about $6 trillion in 1995, according to the World Trade Organization in Geneva. The International Monetary Fund predicts 6.7 percent growth in trade volume this year.

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*The amount of money 39,000 parent transnational firms have invested over the years in their 270,000 foreign affiliates reached $2.7 trillion by the end of 1995, notes the United Nations Conference on Trade and Development (UNCTAD), based in Geneva.

*The industrial nations remain the key force behind the record flows in foreign direct investment. In 1995, they invested $271 billion in other nations (42 percent more than in 1994) and received $203 billion (up 53 percent). Most of this money went to other developed nations.

Behind the investment surge, notes UNCTAD, was solid world economic growth and the response of companies to technological development, international competition, and liberalization of trade and regulations.

*The US was the star performer, with $60 billion in inflows of FDI and $96 billion in outflows.

* Developing countries received $100 billion in investment in 1995, a record amount. UNCTAD sees such job-creating investment as an alternative to migration of poor people from some nations. Some more-prosperous developing nations, such as Taiwan, Mexico, Singapore, and South Korea, invested $47 billion abroad.

*The world's 100 largest transnational companies, ranked by foreign assets, are all based in developed countries. Thirty-two are US-based. The world's biggest company is Royal Dutch Shell, based in Britain and the Netherlands.

*Transnationals are using mergers and acquisitions as a central corporate strategy for establishing production facilities abroad. These cross-border transactions reached $229 billion in 1995, twice the amount in 1988. A large chunk of these deals was made in Western Europe, as the common market moved ahead.

Among individual nations, the US was the biggest player, being involved in $49 billion of sales and $38 billion of purchases.

*In the US, subsidiaries of foreign firms employ 4.9 million, about 5 percent of the nation's total work force. And the subsidiaries pay wages almost 26 percent higher than those at US-owned counterparts, invested $12 billion in research and development, and paid $8.2 billion in taxes, notes a study by Barents Group LLC, an economic analysis group in Washington, made for the Organization for International Investment, an association of US subsidiaries of foreign companies.

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