"The biggest trend we are seeing today is the huge upsurge in global investment," said Frank Vargo, vice president for International Economic Affairs at the Washington, D.C.-based National Association of Manufacturers (NAM).

Denny Stamm, director of consulting with Lockwood Greene, an Atlanta, Ga.-based consulting company, agreed.

"Two major trends occurring today are the number of U.S. firms moving production offshore and the number of foreign firms locating in the United States," he said. "Companies are becoming more globally integrated to take advantage of geographical locations in strategic markets to remain competitive, and insure diversification and a risk-adjusted return."

Inward investment still flows

Without a doubt, the United States remains the global leader for attracting manufacturing. According to the U.S. Census Bureau, between 1990 and 1999, the United States experienced a whopping 44 percent growth in industrial production.

"This placed the United States in a dominant economic position worldwide," said Dave Huether, chief economist for the NAM.

By comparison, Europe's growth rate increased 14 percent, and Japan's remained stagnant. Statistics show the United States still to be the world's dominant manufacturing economy. In 1991, the United States received $26 billion in investments by companies from other countries. In 1999, that figure topped $295 billion.

"These foreign direct investment(FDI) inflows came from basically newly established subsidiaries of foreign companies such as Honda of America or Toyota, or an acquisition such as Daimler buying Chrysler," said Huether.

Investments by such well-known entities indicate confidence in America as a place to do business. The country's steady economic growth, low inflation, stable interest rates, and declining unemployment all contribute to the growth.

Stamm concurs, adding that companies setting up shop in the United States are not just attracted to the strength of the U.S. dollar.

"Their decision has to do with a desire to be in the world's greatest market," he said.

The Asian financial crisis was a major jolt in the arm for manufacturing FDI in the United States.

"When Asia's economies tanked in 1997, many firms shifted their investments to the United States," said Stamm. "Although FDI in the United States was already at $103 billion, inward investment doubled between 1997 and 1999."

Some industry experts point to the proliferation of new developments in the high-technology sectors - computers and information technology in particula r - as a major driving factor for increased productivity and inward investment.

"The market for manufactured goods is here as well as the technology to produce these products," said Vargo. "This is not necessarily the case for U.S. manufacturers that manufacture overseas. Many of those firms export their products back to the United States."

Stamm points to another phenomenon: overseas companies locating in the United States for cheap labor.

"I have worked with a number of German auto manufacturers who have chosen to locate in the United States for that reason," said Stamm. "They were concerned about finding labor, since they do not regard our workers as being as proficient as German employees. But they desired to escape the high labor costs in Europe to be more competitive."

Although Stamm concurs that this way of thinking is not necessarily a trend, it does indicate an interesting "perspective."

"Incentive packages available in the United States are also attractive to overseas companies," said Stamm.

Outward investment

Investment outflows from the United States also indicate interesting trends for manufacturing. According to Huether, in 1991, the inflow and outflow of investment appeared about equal at $33 billion. In 1999, however, outflows weighed in around $140 billion compared to inflow figures of $295 billion.

The number of firms moving production offshore is increasing. In examining outward investment, Huether points out that U.S. companies invest primarily in high-wage countries such Canada, Japan, and Australia, and certain countries in Europe.

"These markets represent 75 percent of this investment, with the majority going to Europe," said Huether. "Back in the early 1990s, investment to these countries represented roughly 55 percent."

The same principal is driving the trend to push inward investment into the United States: access to developed markets. These markets have more money to spend.

"For the last 20 years, these have been high-wage markets with relatively strong economies and stable governments," said Huether. "Companies are not inclined to invest in countries with currency and political problems."

Some U.S. manufacturers find advantages in setting up facilities in lower-cost countries such as Mexico and Latin America. In 1992, former presidential candidate Ross Perot predicted a huge sucking sound of American manufacturers heading to Mexico upon passage of the North American Free Trade Agreement (NAFTA) to take advantage of cheap manufacturing opportunities there.

While Stamm agrees that

a tremendous number of North American firms have found advantages to setting up shop south of the U.S.-

Mexico border, many are also seeking partnerships with Mexican companies.

Prior to NAFTA, 10 percent of U.S. investment went to Mexico, of which 6 percent represented manufacturing.

"But in year 2000, the Mexican share of U.S. FDI abroad was

2.5 percent, of which 4 percent was manufacturing," said Huether. "This discounts the sucking sound theory."

Huether attributes the change to the fact that, before NAFTA, domestic content requirements encouraged U.S. firms to build plants in Mexico.

"But after NAFTA, companies no longer had an incentive to build a factory in Mexico to move products there," he said.

NAFTA's biggest benefit has been to Mexico's standard of living, increasing Mexican purchasing power of American-made goods.

With China rising as a manu-facturing powerhouse, many

companies today are curious about the untapped giant. Managing a supply chain is the biggest worry of companies setting up in China.

"When they look at site selection in terms of total cost for delivered products, they realize they are much better off in

Mexico," said Stamm. "Another thing we have found, companies are impressed with the quality of the Mexican work force."

Cheap labor is not the primary reason companies set up outside the United States.

"If you go with the thesis that U.S. firms are looking for cheap labor, then you would expect them to invest in Africa," said Huether. "But only 1 percent of FDI is

going to Africa, and largely South Africa. In 2000, China received only nine-tenths of 1 percent.

By comparison, the Netherlands received close to 8 percent."

Globalization bound to continue

The cost of doing business around the globe has fallen dramatically. Three areas that have experienced significant decreases are transportation, communication, and trade barriers.

"Government barriers blocking trade have fallen dramatically, resulting in an explosion of trade and investment," said Vargo.

"As a result, worldwide incomes have doubled, even tripled."

Additional Charts

Top 30 purchasers of manufacturers products, 1999 pdf