Business Goes Abroad to Sell in the U.S.

--PROFITS FROM IMPORTS-

THE rising challenge of bargain-priced foreign imports has sparked a profound--and controversial--change in the strategy of many U.S. businesses. To meet the competition, hundreds of U.S. firms are going abroad to manufacture or buy products to sell in U.S. markets. Already U.S. firms import or manufacture overseas an estimated $1 billion worth of products each year for U.S. customers--and the trend is growing fast.

The shift overseas has raised a storm of protest at home. Some businessmen use it as an argument for higher tariffs; Chambers of Commerce often consider it downright "disloyal"; unions complain that it "exports" U.S. jobs, cuts employment. David Dubinsky, president of the International Ladies Garment Workers, says: "Expansion is legitimate, but expansion at the expense of American workers is illegitimate."

Few firms go abroad with the prime intention of making products for the U.S. market. They usually begin by buying cheaper components abroad to put into U.S.-made products, or by setting up plants overseas to compete better in growing world markets. Once overseas, an increasing number of firms, undercut at home by foreign imports, find their cheaper, foreign-made goods just the thing to fight competition in U.S. markets. Royal McBee set up a typewriter plant in Holland in 1953 as part of its world marketing program, but heavy competition in the U.S. from foreign-made, lightweight typewriters forced it to begin shipping a similar, Dutch-made model into the U.S.

Chief reason for manufacturing abroad is low foreign wages, which some manufacturers find are 25-c- an hour in Japan, 60-c- in Germany v. $2.25 in the U.S. International Harvester, which imports its small diesel tractors from a British subsidiary, sells them for $2,800, compared with an estimated $3,400 they would cost if made in the U.S. Hamilton Watch bought a factory in Switzerland last year, now makes its lowest-priced watch there.

There are other reasons besides wages for going abroad. The International Telephone & Telegraph Corp., which announced last week that it may soon resume sales of foreign-made consumer equipment (radios, appliances, etc.) in the U.S., is already bringing in automatic post-office equipment made by its Belgian and German subsidiaries. Reason: I.T. & T. says that the equipment is technically superior to any available in the U.S. Manhattan's Lafayette Brass Manufacturing

Co., producing overseas since 1953 for the U.S. market, has found cheaper tool costs abroad enable it to change designs more frequently than in the U.S., keep its products up to the minute. Other firms set up abroad to be near raw materials.

Moving overseas is not always easy. Many countries, such as Brazil and Peru, have tough labor laws that make it almost impossible to fire an incompetent worker, and others exercise strict control over investment. In some countries the problem is payola for government licenses, etc. Blueprint standards have to be changed, laws and languages learned.

For many U.S. firms the move is almost a matter of survival. Singer Manufacturing Co. is the only major U.S. manufacturer left in the household sewing-machine industry, where cheaper Japanese and European imports have captured 65% of the U.S. market. Part of Singer's secret of survival: it makes its two lower-priced models at its factory in Scotland.

Nevertheless, firms that go overseas often fear U.S. public reaction, often market foreign-made products under their own U.S. labels and play down their overseas operations. Some businessmen make no secret about their foreign imports, vigorously defend the practice, argue that it can make jobs for U.S. workers rather than take them away. Says President Ray Eppert of Detroit's Burroughs Corp., which shifted its entire output of calculators from Detroit to Scotland: "As additional products are transferred abroad on a competitive basis, we will be able to produce new products here. We will import from foreign subsidiaries, thus protecting the American market, and export to them products involving the new technology. The net result will be to continue to create additional jobs both here and there." Since 1950, Burroughs has hiked the number of its jobs overseas from 1,923 to 7,244, and its U.S. jobs from 11,937 to 29,164.

Eppert, like other free traders, realizes that higher U.S. tariffs would only isolate U.S. business from expanding foreign markets and leave it fenced into the U.S. market. They argue that the move overseas is one of the new and unavoidable realities of a growing free-trade world market--and that the trend is bound to continue. To keep the shift abroad in proper balance--so that customer, company and labor all profit by it--the U.S. needs to employ aggressive salesmanship, product development and efficiency that will make more and more U.S. products attractive to overseas buyers.

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