Economy's 'Open' for Business
By David J. Lynch

ST. LOUIS - The Stars and Stripes gently waves in front of the low-slung brick headquarters building. Another giant flag watches over the assembly line in the factory out back where even the forklifts bear red-white-and-blue decals.

But despite the star-spangled decor, FKI Logistex isn't an American company.

This venerable Midwestern manufacturer owes its existence to FKI of Loughborough in the United Kingdom, which over a 15-year buying spree created the local materials-handling company from several smaller U.S. businesses. The influx of foreign capital has meant steady paychecks for 1,750 workers in FKI's U.S. facilities, as well as the modern factory equipment needed to remain competitive in an increasingly global business.

FKI's foreign pedigree earns it a visit today from Treasury Secretary Henry Paulson, ramping up a Bush administration campaign to highlight the USA's openness to global capital. "I am going to be going on the offensive to make clearly the case how much our nation benefits from foreign investment. … Some investors are beginning to ask: Are the costs of investing in the U.S. too high relative to other places?" Paulson said in an interview.

The consensus that open economies work best is "eroding" both in the USA and abroad, Paulson says. On Capitol Hill, lawmakers are restive over the USA's ballooning trade deficit and the toll on manufacturing industries from hard-to-match Chinese competition. Some foreign businesses see the climate as one of "hostility," says Todd Malan, president of the Organization for International Investment, which represents more than 150 foreign-owned companies.

President Bush on Thursday sought to ease those fears, reasserting a longstanding U.S. policy to treat foreign investors the same as home-grown ones. In a White House statement, the first official word on the topic in 15 years, the president said the U.S. "unequivocally supports international investment in this country." He also vowed not to let anti-terror steps interfere with cross-border flows.

The administration wants to make sure foreign investors feel welcome, both for the economic gains foreign capital offers and also to help pry open foreign markets for U.S. investors, says economist Brad Setser of Roubini Global Economics. In recent months, oil-exporting nations in the Middle East, Russia, China and Venezuela all have become less receptive to outside investors.

That cooling toward outside investment followed the failure of a pair of high-profile foreign acquisition attempts in the USA - last year's proposed takeover of some U.S. port operations by Dubai Ports World and 2005's ill-fated Chinese bid for the American oil company Unocal - which were torpedoed by domestic political resistance.

"The perception that the U.S. isn't open feeds the perception that (other countries) shouldn't be as open to investment from America," Setser says.

Foreign investment stagnant

Fueling the administration's worry: indications that foreign investment on plants and factories here is lagging behind overall economic growth. In 2006, foreigners pumped $184 billion into buying or establishing U.S. plants and factories. That was a sharp increase from 2005, but little changed from 1998 even though U.S. economic output now is 26% greater.

The stagnant foreign presence also is reflected in employment at foreign-owned operations in the USA, which declined nearly 10% from 2000 to 2005, according to the Bureau of Economic Analysis. As a percentage of private employment, the 5.1 million Americans working for U.S. offshoots of foreign companies represent the lowest level since 1998.

U.S. officials aren't certain how much of the foreign fizzle is due to the rising appeal of other countries or temporary factors and how much stems from a genuine turnabout in foreigners' view of the business climate here. While still chief executive of Goldman Sachs, Paulson said, he often encountered foreign executives who wondered, "Are we really open?"

The Treasury chief also has fretted publicly about the competitiveness of U.S. capital markets, which he says have been losing stock listings to foreign exchanges because of regulatory costs - an assertion challenged by recent research.

Malan, whose organization represents U.S. subsidiaries of foreign corporations such as AstraZeneca and Volvo, welcomes the administration's new activism as "an important signal to the international business community."

New rules for world trade

Traditionally, the U.S. government did little to solicit foreign investment, instead banking on its inherent appeal as the world's largest market. That approach worked when half the globe was economically isolated because of communist rule in the Eastern Bloc and China or policy choices in places such as India.

In a global economy, where capital can seek out opportunities worldwide, the U.S. needs to be more aggressive. In March, the Commerce Department said it would begin trying actively to attract more foreign investment through its commercial attachés in U.S. embassies abroad and by working with state and local economic development agencies here.

The Commerce Department initiative - dubbed Invest in America - comes as the pool of foreign capital potentially at stake is set to grow. Asian central banks that have been investing their enormous stockpiles of foreign exchange in low-yielding government securities are creating investment funds that will steer some of that cash into investments offering higher returns. Some could wind up in equity investments.

At the same time, the dollar's decline - it's down 28% the past five years against a basket of six world currencies - is boosting the attractiveness of U.S. assets for foreign purchasers. Among the potential buyers: increasingly confident Chinese companies, which to date have made a relative handful of acquisitions in the USA, and are expected to become more active.

A Chinese shopping spree could spark the sort of controversy that surrounded Japanese acquisitions of U.S. assets such as Rockefeller Center and Pebble Beach golf course in the 1980s. Paulson's planned visit here today will steer clear of such problematic foreign investments. He's scheduled to speak at British-owned FKI Logistex and tour BioMérieux, a subsidiary of a French pharmaceutical company.

The benefits of foreign investment are visible on the factory floor at FKI, which makes material-handling equipment such as conveyor belts, robotics and giant warehouse cranes for customers such as FedEx, Amazon.com and Anheuser-Busch. Bright yellow safety caps made of plastic protect workers from a rotating metal shaft on one machine, a legacy of European regulations that are more strict than the USA's. Dotting the Korean-War-era structure are $1 million laser-cutting machines and gleaming presses that cost $400,000.

When this facility was part of privately held Pinnacle Automation, it lacked the deep pockets necessary to afford such manufacturing marvels or the resources to staff outposts in China and, perhaps one day soon, India.

Being part of a global enterprise has saved up to $3 million annually on purchases of electrical components and other parts, says Steve Ackerman, 53, who heads the British company's North American operations. Likewise, FKI also gets early warning of industry trends before they affect their home market.

When an Anheuser-Busch plant in the U.K. reduced the protective packaging separating the bottles in a case of beer to comply with British environmental rules, FKI developed a machine that more gently turns the cases as they move along a conveyor belt.

Now, as Wal-Mart in the USA begins pressing its suppliers to make the same sort of packaging reductions, FKI has a product it believes addresses that need, says Martin Clark, the company's director of marketing and business development. "By becoming more global, it helped us in our home market, to be able to fend off competition here," Ackerman says.

Helping to grow U.S. jobs

If foreign capital helped preserve jobs at FKI, several miles away, in an industrial park adjacent to the local airport, it is helping grow them. At BioMérieux, which Paulson also is set to visit today, sales of more than $500 million are up sharply from $75 million when it was acquired by its French pharmaceuticals parent in 1989. Employment has grown from roughly 300 who worked here for defense contractor McDonnell Douglas to about 1,400 working here and in Durham, N.C.

Inside, there's little to suggest foreign ownership of the three-story lab and headquarters structure, beyond a few generic paintings of French brasseries hanging in the hallway.

The company makes a sophisticated in vitro diagnostics kit that helps doctors identify bacterial infections and pinpoint the ideal antibiotic to attack an individual's specific bug. In the factory that Paulson is scheduled to visit, workers wearing hairnets, shoe covers and royal blue smocks assemble credit card-size plastic devices that represent the heart of the test unit, which traces its origins to the space program.

The 595-person workforce here is about equally divided between low-skilled assembly jobs and skilled research and technical personnel. BioMérieux's success in selling the "Vitek" medical diagnostics - it's shipped to hospitals, drugmakers and food companies in more than 150 countries - has made the company an example of the link between innovation and job preservation that trade proponents often cite. Further proof lies in the company's plans to capitalize on the U.S. technology talent base by opening a new business-development office in Cambridge, Mass.

That sort of expertise is what attracted the French company to the USA in the first place, executives say. Scott Remes, 49, the company's local boss, says the company's "knowledge-intensive" product is well-suited to the USA.

"This is the top of the line. … This is manufactured in St. Louis because it was invented in St. Louis," Remes says. "If it was invented in China, it would be made in China."