Many of the large integrated enterprises became the nation’s first multinationals. Again, the creation of a marketing organization was the critical determinant. The first enterprises to build extensive marketing networks abroad were also the first firms to own and operate their own plants and other productive facilities overseas.29 Table 10 lists the American firms that had by 1914 substantial investments abroad. As might be expected, nearly two-thirds of the 41 companies with plants and raw material producing facilities abroad were in the food and machinery industries. Of these food and machinery enterprises, all had at least 2 foreign plants and a dozen of these had 4 or more.
Table 10. American multinationals, 1914 (companies with two or more plants abroad or one plant and raw material producing facilities)
Source: Mira Wilkins, The Emergence of Multinational Enterprise (Cambridge, Mass., 1970), pp. 212 – 213 , 216 .
The two-digit groups used by the U.S. Bureau of the Census in its Standard Industrial Classification.
The table does not include any primary metal or metal-fabricating firms, firms that had only small marketing organizations. A small number of metal makers—Bethlehem Steel, International Nickel, and the Gug- genhiem’s American Smelting and Refining—had overseas sources of raw materials. Only United States Steel and Crucible Steel built extensive sales networks abroad. And only one, American Rolling Mill, had even constructed a single plant more distant than Canada, and only 3 other metal-producing companies had Canadian plants.
In expanding overseas, nearly all these American companies followed the same pattern. They first created their extensive foreign marketing organization, often setting up branch offices abroad at the same time that they did at home. Then because of tariffs, high transportation costs, lower labor costs, and difficulties of coordinating transocean flows, they build factories abroad. Once production and marketing were integrated overseas, purchasing of raw, semifinished and other material could often be obtained locally at less cost and more speed. As a result, well before 1914 a number of American firms were operating ful ly integrated foreign subsidiaries.
By 1914 American direct foreign investment was impressive. It amounted to a sum equal to 7 percent of the United States gross national product. In 1966 the amount of direct foreign investment equalled precisely the same 7 percent of GNP.30 And although the food companies had some competition abroad from companies of other nations, most machinery companies controlled their overseas markets as effectively as they did at home. These machinery firms spearheaded what by 1902 the Europeans were calling “the American invasion.”31 Long before World War I these invaders led the field in sewing and office machinery, agricultural machinery elevators, shoe machinery, printing machinery, pumping machinery, and telephone equipment. In electrical machinery and chemi- cals, where they had rivals (in both cases German), their foreign com- petitors were comparable integrated enterprises. After World War I, chemical, automobile, and then in the 1930s, oil companies, became as numerous as food companies in the ranks of American multinationals. Throughout the century, however, the machinery firms continued to lead the way in foreign markets. On the other hand, manufacturers with only small marketing organizations or those who relied on middlemen to sell and distribute their goods almost never became multinational enterprises with direct investments overseas.
Source: Chandler Alfred D. Jr. (1977), The Visible Hand: The Managerial Revolution in American Business, Harvard University Press.