Sunday, April 27, 2008


What Can They Buy? A Good Bit of Us.
By Moisés NaímSunday

At the start, they came for the iPods. Then they came for condos in Manhattan and Miami. Now they're coming for the companies.
These days, Europeans are taking advantage of the cheap U.S. dollar to buy more than consumer electronics or real estate in the United States. They are also gobbling up all kinds of U.S. corporations -- a trend that will be far more permanent, consequential and politically charged than Europeans' widely noticed shopping sprees for gadgets or apartments.
"I am not worried about rich Arabs," a businessman in Clovis, Calif., recently told me. "It's the French who worry me." A private French company had just bought a large firm in his town, he explained, referring to Pelco, a Clovis-based manufacturer of video security systems that had recently been acquired by Schneider Electric. "Life will now change for all of us," he said. "That company has been an important part of this community for years."
There is nothing special about Pelco's sale; foreign companies buy American ones all the time, and vice versa. And this transaction was far smaller than, say, Abu Dhabi's $7.5 billion investment in
Citigroup or China's $3 billion investment in the Blackstone Group, a major private-equity firm. But the Pelco sale is part of a trend that, though still largely unnoticed, is quietly gathering steam: The United States is poised to receive a massive -- perhaps unprecedented -- inflow of large- and medium-size European investors. Everything from corporate behemoths to family-owned companies are about to come to America on a corporate buying spree.
Call it the Euroinvasion. Not only will many U.S. companies now have European owners, but the U.S. marketplace will be altered by an infusion of new foreign competitors that will manufacture their own products in the United States. These firms will use their new American base both to export to the world -- including their own European markets -- and to serve the U.S. market from inside its borders.
Such a transatlantic shift will have an enormous impact on Europe's levels of employment and exports -- and, inevitably, ignite a political firestorm on both sides of the Atlantic. European politicians will denounce these companies for "exporting jobs" to the United States, while U.S. politicians, already rattled by the threat of foreign competition, will be infuriated by what they will brand as "the foreign takeover of America."
CNN anchor Lou Dobbs will be foaming at the mouth -- and gaining viewers with each new tirade.
Why is this happening now? Largely because the plummeting U.S. dollar has made the move across the Atlantic affordable for many European companies. And this may be a once-in-a-lifetime chance to relocate: U.S. companies have rarely been so cheap. Five years ago, a German or Spanish company that coveted a U.S. competitor worth $500 million needed almost 550 million euros to purchase it. Today, it would take just 319 million euros.
European companies are not just being pulled to the United States by a cheaper dollar. They are also being pushed away from Europe by a business environment that is far less attractive than that in the United States. For many companies, moving across the Atlantic is the fastest and cheapest way to cut costs and become more competitive. After all, the average hourly wage in Europe is 16 percent higher than in the United States. Social insurance and payroll taxes are far steeper. So are energy costs: The average price of a kilowatt-hour of electricity for industrial usage in Europe is almost double the price in the United States. Transportation costs are higher, too. And the cost advantages of operating in the United States don't stop there. Land is still far cheaper in the United States, for one thing. An acre in the United States will cost you an average of $1,900; a similarly sized plot will cost you $14,500 in Denmark, $6,600 in Spain and $5,700 in Germany.
Meanwhile, competition in the global economy becomes fiercer every year. Although some European companies may set up shop instead in Asia or Eastern Europe (which can be even cheaper than the United States), most still view the United States as the world's corporate Mecca. "I cannot afford not to move to the U.S. if I want my family's company to survive," the CEO of an Italian manufacturing company recently told me. "It will not only be cheaper, but it will also place me and my engineers in the middle of a large cluster of leading-edge technology companies and in the largest market in the world. We will keep some design operations in Italy, but everything else goes to Massachusetts."
Some manifestations of the Euroinvasion are already clearly visible. Germany's
Krupp AG is investing $3.7 billion in a steel plant in Alabama. France's
Alstom, a manufacturer of high-speed trains and turbines, is building a major factory in Tennessee. Other European companies such as Italy's Fiat have decided to reenter the U.S. market after long hiatuses, while BMW and Daimler are substantially expanding their manufacturing presence. Recently, by my calculations, the market value of the Spanish bank Banco Santander surpassed the value of Citigroup, the standard-bearer of the U.S. banking industry. It's only natural to expect that European banks such as Santander will expand their U.S. presence by taking advantage of the fact that the subprime crisis has left many U.S. financial institutions far cheaper.
But the Euroinvasion will be much more than a few headline-grabbing mega-deals. It will consist of thousands of smaller transactions in which midsize European companies swoop in to buy U.S. companies for what will seem like a bargain.
It will be impossible for U.S. politicians to stop the Euroinvasion, and European politicians will prove equally helpless in preventing their companies from moving to the United States. While blocking a few large investments by foreign government-owned funds in U.S. ports, defense industries and oil companies may be possible, preventing thousands of private companies from investing in the United States is not. Although difficult economic times always create political opportunities for demagogues and populists, the United States is far from ready to repeal capitalism. And stopping the Euroinvasion will require nothing short of that.

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