The Quandary of Foreign Manufacturing Affiliates in Less-Developed Countries

The adjectives “developed” and “underdeveloped,” us applied to different nations of the world, do not lend themselves to precise measurement. Various synonyms are frequently used in place of them; “rich” and “poor” are frequently used and the more gentle euphemism “less-developed” is now attracting many supporters. For the purpose of this paper, these areas include all countries in Latin America, the Far East (excluding Japan), Africa (excluding the Union of South Africa), and the Middle East.

This figure is computed from Pizer S. Cutler F. , “U.S. International Investments,” Survey of Current Business, Aug. 1963, p. 18.

In some countries the importation of cars and other consumer durables has been occasionally made possible under arrangements whereby the importer would first undertake to export certain domestic products (usually those which do not comprise the conventional export staples) to cover the foreign exchange required by the import. This is how the businessman in this example was able to have access to the large import license.

That is to say, he would sell the foreign exchange covered by the license at 120 per cent markup over the official exchange rate.

The position of the public sector in some Asian and Far Eastern countries can be assessed from a United Nations publication. Public Industrial Management in Asia and the Far East (New York: Department of Economic and Social Affairs. United Nations, 1960), p. 38.

See Vernon R. , The Dilemma of Mexico's Development (Cambridge, Mass.: Harvard University Press, 1963), p. 6.

The Development of Manufacturing Industry in Egypt, Israel, and Turkey (New York: Department of Economic and Social Affairs, United Nations, 1958), p. 61.

Ibid., p. 64.

Chenery H. B. , “The Role of Industrialization in Development Programs,” eds., Agarwala A. N. Singh S. P. , The Economics of Underdevelopment (New York: Oxford University Press, 1963), p. 463.

In their efforts to foster employment, many developing countries prohibit or severely restrict the use of overtime or part-time help. Thus, the incremental labor cost incurred in capturing sudden but nonpermanent opportunities, or in alleviating sudden bottlenecks, may end up in the category of fixed overhead costs.

“Uncertainty absorption takes place when inferences are drawn from a body of evidence and the inferences, instead of the evidence itself, are then communicated.” See March J. C. Simon H. A. , Organizations (New York: John Wiley & Sons, Inc., 1959), p. 165.

Government regulations in some countries do not permit full repatriation of earnings and capital. Many firms operating under conditions of partial repatriation have, subsequently, accumulated sizeable reserves in local currency.

For examples of mixed ventures and the attitudes of some American firms toward this arrangement, see Robinson R. D. , International Business Policy (New York: Holt, Rinehart and Winston, 1964), pp. 164–170.

These are linkages with firms which may supply part of the inputs needed by the foreign affiliate.

This is so because ex hypothesi this type of firm transforms semi-manufactures into goods needed essentially by final consumer demand. However, firms producing some items which sell exclusively to the consumer market in less-developed countries, e.g., car batteries, may have certain opportunities for establishing forward linkages with new firms, e.g., a new car factory.

See Wood R. Keyser V. , Sears Roebuck de Mexico (Washington, D.C.: National Planning Association, 1953). The experiences of Sears Roebuck in other Latin American countries have been similar to those described in this pamphlet.