The Dallas Morning News

By Katherine Yung
December 27, 2004

At optical lens maker Essilor of America, the dollar's downward slide against the euro over the last three years has been both a burden and a blessing.

The U.S. subsidiary of France's Essilor International is now paying 50 percent more for equipment from Europe used to produce its Crizal line of lenses.

But acquisitions in the United States could become enticing if the dollar continues to drop, as many experts predict.

"This is a very good time to make new investments in the U.S.," said Kevin Rupp, chief financial officer of the Dallas Essilor unit. "We're in an acquisition mode in the U.S."

Essilor's situation illustrates the benefits and drawbacks of a weakening dollar for some U.S. subsidiaries of foreign companies.

Even as many U.S. companies adjust to the prospect of a weaker dollar in 2005, few businesses are watching what happens to the greenback as closely as subsidiaries of overseas corporations.

Over the last two decades, their economic importance has steadily grown.

These subsidiaries now employ 5.4 million U.S. workers, or nearly 5 percent of all workers in the private sector, up from 3 percent in 1987, according to a study conducted for the Organization for International Investment.

"When the dollar depreciates against other currencies, foreign direct investments in the United States become less expensive," said Nancy McLernon, deputy director of the group.

A number of the organization's 130 member companies have said they plan to shift production to the United States from abroad, adding badly needed jobs, she said.

Over the last three years, the dollar has tumbled 35 percent against the euro and more than 20 percent against the Japanese yen. And some economists are forecasting the greenback could sink further.

"In the case of the Europeans, the Canadians and the Brits, the U.S. looks like a bargain," said Mark Zandi, chief economist of Economy.com Inc., a research firm in West Chester, Pa.

Less valuable:

But a weakening dollar also means that profits sent back to foreign companies become less valuable, Ms. McLernon said.

That's the case at Essilor, which employs 830 workers in the Dallas area at its headquarters and three laboratories.

It controls 35 percent to 40 percent of the world market in optical lens manufacturing.

Earlier this year, Essilor's parent company blamed a 1 percent drop in 2003 sales largely on a declining dollar, reminding investors of the nearly 17 percent appreciation in the euro.

Essilor's U.S. operations contribute about 45 percent to 50 percent of its parent company's revenue, Mr. Rupp said.

To protect itself against the currency's slide, Essilor's U.S. unit has been keeping the dollars it generates in the United States.

It's been trying to become more vertically integrated in the United States by buying optical laboratories, which grind lenses and fit them to the frames of eyeglasses.

"As long as we maintain and use most of the investments here, ... [a sliding dollar] has less impact" on the parent company, Mr. Rupp said.

Ninety percent of the lenses Essilor sells in the United States are made here.

Essilor isn't the only U.S. subsidiary feeling the effects of a weakening dollar.

Alcon Inc., the Swiss maker of eye-care products, benefits because it makes all of its surgical products in the United States.

But some of the gains are offset because it must pay its operating expenses in many European countries in euros.

Alcon, whose U.S. subsidiary employs 3,000 workers at its headquarters in Fort Worth, depends on the United States for half of its sales.

"The impact is not dramatic, although it is directionally favorable," said Doug MacHatton, Alcon's vice president of investor relations.

More competitive:

Like Alcon, Essilor is finding that its U.S.-made products have become more competitive because of the dollar's depreciation.

Just like businesses based in the United States, foreign companies are taking a weaker dollar into account in their global planning and production decisions.

Essilor, for example, is increasing production at its three U.S. manufacturing plants.

The falling dollar "makes our product more competitive" Mr. Rupp said.