Business: Now It Is Yankee, Don't Go!

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Europe's new worry is that U.S. firms are cutting back

"Fifteen years from now, it is quite possible that the third industrial power just after the United States and Russia will not be Europe but American industry in Europe."

When he made that famous forecast in The American Challenge a decade ago, the French publisher and pop economist Jean-Jacques Servan-Schreiber voiced a familiar European fear: that U.S. industry, armed with a strong dollar and high technological and marketing prowess, was rapidly turning Western Europe into a sort of American commercial romper room. So much for that worry. What now seems to rouse European passions is not the threat of a Yankee invasion but the prospect of a disruptive retreat.

Though many U.S. companies have in fact been quietly cutting back their European operations for some years, the specter of a wholesale pullout was not raised until last summer. Then, Chrysler Corp. abruptly announced that it was selling its European business to France's Peugeot-Citroën for $430 million in cash and stock in the French company. Since then, alarmist charges have regularly bobbed up in Europe's press. "The American multinationals are deserting," warns a French economic weekly. "U.S. business is at ebb tide," declares a Belgian magazine.

Indeed, the Chrysler pullout has been followed by a tattoo of smaller but no-less-widely reported U.S. retrenchments. Two weeks ago, employees at an RCA semiconductor plant employing 438 workers near Liêge, Belgium, began picketing with placards attacking the company—not for being part of the American challenge but for deciding to leave. Faced with rising costs, RCA decided to shut down the plant because it was not competitive with the company's other semiconductor plants, including one in Malaysia. B.F. Goodrich, struggling for profits in an overcrowded tire market, closed a West German plant 19 months ago, and is now considering selling all its rubber-making interests in Europe. At ITT's Brussels headquarters, upwards of 60 employees, ranging from secretaries to $125,000-a-year division chiefs, were axed from the payroll the week before Christmas. The company's European food and cosmetics holdings have been put up for sale.

What is actually happening is not an American bug-out at all, but an on-the-scene retrenchment process that European firms are also undergoing. But because the American companies are so large and visible, their pruning is getting much attention. In fact, the U.S. business presence in Europe remains huge. Last year American firms rang up more than $220 billion in sales, accounting for fully 10% of all European manufacturing activity.

U.S. firms are scaling back because since the 1974 oil crisis and recession, Europe's economy has been whiplashed by slow growth, sagging sales and fast-rising costs, particularly in labor. Even after inflation is taken into account, hourly wages since 1970 have jumped 61% in Belgium and 70% in Italy; in the U.S., they have increased by only 12%. With the U.S. now growing faster than Europe, multinational managers have to shave expenses or else risk having their European operations drag down the performance of the parent companies as well. As a result, businessmen are cutting their European costs in several ways: