Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-11-15
1continued From First Pagel

lIIOcC dCfCAORAAAS 'bAAC
raw material resources in each case
mining in Chile, sugar-growing in
Cuba, forestry in Canada, coal mining
In China and so on. They include a
wide range of thoroughly typical Amer
acan industries everything from auto
mobile manufacturing in England to
textile mills in India, from shoe fac
tories in the argentine to telephone
equipment plants in the Balkans.
IT. recent years the problem has
*aken on a much larger and more
serious significance in every respect.
Coupled directly on the one hand
Win the enormous postwar growth
of American investment power. and.
on the other, with the grave recon-
struction issues overseas, the branch
factory problem really resolves itself
into a major symbol, so to speak. OF
American power in international in
dustrial affairs.
One phase of the question was
brought sharply to the fore in the de-
bates on the Smoot-Hawley tariff act,
when it was proposed to prohibit the
importation of goods made abroad I'M
der American patents or With Amerl-
can trade marks This proviso was not
adopted, but it is interesting to note
that it was said to have originated
because of instances of the importa-
sdop OF tractors manufactured in en-
.Anerlcan-ov'ned plant in Ireland,
tafter the hcr1e establishment produc-
ing that lina had been discontinued.
Since they came in as agricultural
implements and therefore were free
of duty American labor and other in
terests were greatly concerned over
this cheap foreign competition.
Answer Far From Simple.
However. our import figures have
registered no imports of this type from
that country for more than six
months, although during the first three
months of 1881 over 1000 of these ma
chimes we're brought in. On the other
hand, 1t is a fact that the products
of this American-owned plant are be-
ing aggressively pushed in Mediterra-
mean and other markets competing
with tractors made by other American
firms in their domestic plants.
The answer to this increasingly fire.
Quent question, Shall American in
dustry establish branches abroad?" is
far from simple. The problem be-
comes increasingly complex as the eco
nomic affairs of the given foreign
country become more involved; 1t
cannot be solved with an offhand,
clean-cut answer one way or the other.
The situation varies radically in differ
ent cases. and it Is unfortunate that
in all too many instances the anxiety
of the American executives contem-
plating the question leads them to
draw rather hasty, superficial conclu-
sions. In every single instance there
are likely to be hosts of vital details
which must be most carefully scruti-
nized but are decidedly elusive and
difficult to bring into sharp delinea-
ton. The overeagerness of many of
our leaders in jumping to quick hap
hazard conclusions in many cases has
led to serious losses and hardship.
The causes which have stimulated
this branch factory movement have
been almost as variable as the range
of industries involved. In the early
stages the incentive seems to have been
chiefly the saving of transportation
costs, as was the case in the estab-
1ishment of automobile assembling
plants so as to give the owners the
economies of knock-down shipments.
These enterprises soon evolved into
more pretentious efforts: the building
of special type bodies to meet local
preferences, of tractors, Of accessories,
and so on until a full-fledged indus
try was developed Another induce
ment which had an early influence
on this movement was the desire to
control native competition with i'm
ported American commodities. This
has been evident in the establishment
of some Of our overseas rubber, shoe
and textile establishments.
A conspicuous factor in our branch
plant expansion which has appeared
more recently is involved In the So
called working clause" of foreign
patents. This rather common foreign
provision requires that the patentee
shall actually carry on an industry in
the country granting him the patent.
Our laws do not yet include such a
provision, but there has been much
agitation for it.
Has Two Alternatives.
Probably one of the most important
influences stimulating the movement
of late has been the economic self
suff1ciency" policy of most of the larger
industrial nations. Practically every
one of them has increased its tariffs in
such fashion as to develop certain key
industries" the presence of which
within its borders was regarded as es-
sential to the safety of the Nation.
Thus we have the safeguarding film
dustries act of England, whereby
eighteen industries were stimulated by
sharply increased tariffs of varying
duration.
When confronted with such a
problem the American company has
apparently DuI TWO dIUcTIldJltcS.
to abandon the market and turn to
other unhampered fields or to set up a
local branch factory by building new
plant OF acquiring some existing native
establishment. If the market seems to
be vital one. the decision is apt to
be in favor of the latter alternative
having in mind the possibility Of at
least some profits from such a branch
factory to compensate the home estab-
IcIraav1f tho Ices IF ifg pYnnFt IN
that market.
But here are some of the unexpected
difficulties which such a move is likely
to encounter Foreign tariff policies are
by no means as constant as ours have
been-that is, instead OF changes In
basic tariff structure at long intervals
of several years, as in our case, the
practice abroad in practically every in
stance is to effect sudden overnight
changes in rates. This practice be-
comes all the more precarious in view
of the frequency of shifts in govern
ments, with corresponding alterations
in national tariff policies. One promi-
nent Continental country has changed
its administration some "a times in the
last IL years. And among its neigh
bors the record is nearly as bad
It is not hard to see how precarious is
the position of any branch factory
erected behind such uncertain protec-
ton.
Labor Costs Analysed.
A frequent inducement for plant
migration beyond our shores is the
supposedly lower cost of labor. In some
cases this deduction is valid. But the
utmost care should be taken to estab-
lish its absolute veracity before any
substantial expenditures are made fol
a new plant. 1t would seem almost
49, a
by no means an invariable rela onshiI
between low wages and low labor costs