Foreign Food Firms: Their Participation in and Competitive Impact on the US Food and Tobacco Manufacturing Sector

The United States has long been recognized as the leading source-country for private foreign direct investment (FDI). In 1976, US residents owned approximately 49 per cent of the world's stock of FDI (CTC 1978). Less appreciated, however, is the fact that the US is also the world's largest host-country for FDI, a position only recently wrested from Canada. 1 Foreign direct investment has in the course of the twentieth century largely supplanted portfolio investment as a device for the international transfer of private capital. FDI, which typically takes the form of debt or equity ownership of a foreign affiliate, implies a distinctly stronger degree of management control over an investment than does the purchase of bonds from a foreign institution. Unlike portfolio transactions, FDI flows have been directed mainly toward the manufacturing sectors of recipient countries (the oil-exporting countries being an obvious exception). Moreover, these flows have, among the developed market economies, been characterized by industrial interpenetration; that is, within a broadly defined manufacturing industry, FDI generally passes simultaneously in both directions between any two capital-exporting countries. Finally, in contrast to bond markets with their numerous small investors, FDI is carried out solely by a relatively small number of large corporations. To study FDI is tantamount to studying the multi-national corporation (MNC). Therein lies the source of much of the public's concern over inward foreign investment. Foreign entities, most of them large and highly diversified, make decisions about the disposition of local resources on the basis of a global profit-maximizing strategy. Some of these decisions inevitably clash with the national welfare-maximizing criteria of host-country governments. The initially favourable balance of payments effect of a particular investment is in time reversed as dividend, interest, and royalty payments mount. As the proportion of international trade among affiliated firms rises, fears are expressed that considerations other than comparative advantage may affect the direction oftrade. The decisions made