Now It Is "Yankee, Don't Go!"

Europe's new worry is that U.S. firms are cutting back

"Fifteen years from now, it is quite possible that the third industrial power just after the United States and Russia will not be Europe but American industry in Europe."

When he made that famous forecast in The American Challenge a decade ago, the French publisher and pop economist Jean-Jacques Servan-Schreiber voiced a familiar European fear: that U.S. industry, armed with a strong dollar and high technological and marketing prowess, was rapidly turning Western Europe into a sort of American commercial romper room. So much for that worry. What now seems to rouse European passions is not the threat of a Yankee invasion but the prospect of a disruptive retreat.

Though many U.S. companies have in fact been quietly cutting back their European operations for some years, the specter of a wholesale pullout was not raised until last summer. Then, Chrysler Corp. abruptly announced that it was selling its European business to France's Peugeot-Citroen for $430 million in cash and stock in the French company. Since then, alarmist charges have regularly bobbed up in Europe's press. "The American multinationals are deserting," warns a French economic weekly. "U.S. business is at ebb tide," declares a Belgian magazine.

Indeed, the Chrysler pullout has been followed by a tattoo of smaller but no-less-widely reported U.S. retrenchments. Two weeks ago, employees at an RCA semiconductor plant employing 438 workers near Liege, Belgium, began picketing with placards attacking the company--not for being part of the American challenge but for deciding to leave. Faced with rising costs, RCA decided to shut down the plant because it was not competitive with the company's other semiconductor plants, including one in Malaysia. B.F. Goodrich, struggling for profits in an overcrowded tire market, closed a West German plant 19 months ago, and is now considering selling all its rubber-making interests in Europe. At ITT's Brussels headquarters, upwards of 60 employees, ranging from secretaries to $125,000-a-year division chiefs, were axed from the payroll the week before Christmas. The company's European food and cosmetics holdings have been put up for sale.

What is actually happening is not an American bug-out at all, but an on-the-scene retrenchment process that European firms are also undergoing. But because the American companies are so large and visible, their pruning is getting much attention. In fact, the U.S. business presence in Europe remains huge. Last year American firms rang up more than $220 billion in sales, accounting for fully 10% of all European manufacturing activity.

U.S. firms are scaling back because since the 1974 oil crisis and recession, Europe's economy has been whiplashed by slow growth, sagging sales and fast-rising costs, particularly in labor. Even after inflation is taken into account, hourly wages since 1970 have jumped 61% in Belgium and 70% in Italy; in the U.S., they have increased by only 12%. With the U.S. now growing faster than Europe, multinational managers have to shave expenses or else risk having their European operations drag down the performance of the parent companies as well. As a result, businessmen are cutting their European costs in several ways:

Chopping Deadwood: More and more firms are getting rid of unprofitable or marginal subsidiaries. In June, General Electric Co. sold its part ownership of Osram GmbH, a West German light bulb manufacturer, to Siemens AG. Beckman Instruments, one of the first U.S. firms to go into business in West Germany in the 1950s, is closing its Munich production plant and laying off 500 workers. In Belgium, the list of recent casualties includes subsidiaries of Westinghouse, W.R. Grace, American Home Products and Farah of Texas.

Sending Home Staff: With the collapse of the dollar, the cost of maintaining U.S. executives in Europe has exploded, and companies are pulling them back. Notes Roger Asselmann, Brussels manager of the Arthur Andersen accounting firm: "Some American executives are collecting $150,000 annually in various allowances, and for that kind of money, a company could send over an international vice president from the U.S. for ten week-long trips a year on the Concorde." Sperry-Rand's six-member sales staff in West Germany, once all American, now has four West Germans. The 3M Co.'s 4,000 employees in France include only two American executives.

Getting Cheaper Digs: Though few companies are actually returning to the U.S., many firms are pulling out of high-cost areas to relocate elsewhere in Europe. Brussels, which had a very large U.S corporate population, has been the biggest loser, and the major beneficiary of the exodus has been Britain. Recent arrivals in London include Chevron, Avon Memorex, Playtex and the Hercules chemical company.

For all the cutting, shifting and shuffling, new American investments are being made in Europe all the time. If the new prospects do not always measure up to the blockbuster deals of the 1960s, it is because the big U.S. firms that made them are by now broadly established in Europe. For instance, Ohio's Timken Co. is building an $8 million distribution center in Duesseldorf to counter Japanese and Eastern European competition in roller bearings. On a much larger scale, Ford is shopping for a site for a new $450 million assembly plant, and General Motors is planning to expand its European operations as well. Indeed the total book value of U.S. investment in Europe, now over $60 billion, continues to climb, though not nearly as fast as in the past.

Far from agonizing over this investment as they did in times past, most European governments are now encouraging U.S. corporations to come in. While the West Germans have long sought American investment, to the point of sending company-recruiting missions to the U.S., the once xenophobic French are beckoning to Yankee companies as well--just so long as they stay out of high-technology fields like computers and the cherished wine industry. As for Britain? Well, says a Department of Trade spokesman, "We continue to encourage investment--lock, stock and barrel."

Sooner or later, the pace of U.S. investment had to begin slowing. Says Edwin Artzt, manager of Procter & Gamble's $1 billion European business: "Europe was a fat and attractive market for the U.S. in the postwar years. American companies saw the coming recovery, and they got in quickly while European industry was still getting off the floor. All that has changed now. Inevitably, the surge of the '50s and '60s brought back European industry too."

One sign of that is European industry's own growing stake in the U.S. In the past three years, these investments have risen by 60%, and now total almost $30 billion. Just two weeks ago, Daimler-Benz announced plans to build a $6.6 million truck factory in Hampton, Va., continuing a trend that already includes such well-known European firms as Volkswagen, Michelin and Bosch electric. For too long, multinational business was largely the domain of U.S. companies, but the new and sober realities of an anemic dollar coupled with slow growth in many countries outside the U.S. are bringing a balance that is long overdue.

This file is automatically generated by a robot program, so viewer discretion is required.