Read the CASE ANALYSIS Off Shoring by U.S. Multinational Corporations (page 83).

Off-Shoring by U.S. Multinational Corporations (page 83)

As technology has made communications easier and as national governments

have allowed economies to become more open to foreign investments, firms

have responded by shifting production overseas. Data on off-shoring is not rou-

tinely gathered, although national statistical agencies, such as the Bureau of

Economic Analysis (BEA) in the United States,have increased their efforts over

the years so that economists and policymakers might better understand the

extent of the phenomenon and the reasons behind it. It still remains difficult to

measure how many services have been off-shored,but new efforts in data collec-

tion have made it possible to see how much manufacturing has moved abroad

and to better understand the motives for off-shoring.

Table 4.5 shows two pictures of U.S. multinational corporations, one in 1977

and the other in 2003,the most recent year of data.The table shows the percent of

multinational activities, measured in three ways, which are performed off-shore,

through a foreign affiliate.The three measures are value added, capital expendi-

tures,and employment.Value added is a measure of the total value of production

minus the value of purchased intermediate inputs. It is a measure of the firm’s

contribution to production.Capital expenditures include things such as machines,

laboratories,and buildings, and employment is the number of workers.As shown

in the table, the share of multinational’s value added created abroad rose from

25 percent in 1977 to 26 percent in 2003, hardly a change during the period of

intense globalization. Employment shows the biggest change, with 22 percent of

total workers off-shore in 1977 and 28 percent in 2003. How can multinationals

produce nearly the same share of output value added at home with a smaller

share of its total employment? Two words:productivity increases.

Several factors motivate firms to locate off-shore or to move some of their pro-

duction there. Most importantly, firms locate production off-shore in order to

obtain access to a market and to produce specialized products that fit a particular

TABLE 4.5 U.S. Multinational Corporations and Production Outside the United States

1977 2003

Value added 25 26

Capital expenditures 21 26

Employment 22 28

The share of multinational activity outside the United States has not changed dramatically since 1977