¹ In this paper, “innovation” refers to first commercial introduction, rather than first invention of a product.

The relationship between differentiability of products and the spread of foreign manufacture “horizontally,” i.e., in the same product lines, by U.S. firms, has been particularly emphasized by Caves. See Caves, R., “International Corporations: The Industrial Economics of Foreign Investment,” Economica (February, 1971)Google Scholar.

² Empirical evidence for this view of the causes of U.S. foreign investment is accumulating at a rapid rate. For example, A. E. Scaperlanda and L. J. Maurer have shown that changes in EEC market size, not trade barriers nor differential U.S.–EEC growth rates were most closely correlated with the massive influx of American direct investment in Europe between 1952 and 1966. See Scaperlanda and Maurer, “The Determinants of U.S. Direct Investment in the EEC,” American Economic Review (September 1969). See also the evidence summarized in Raymond Vernon, Sovereignty at Bay (New York, 1971), Chapter III.

³ This hypothesis has been subjected to a very preliminary (although positive) test in Fortune, J. Neill, “Income Distribution as a Determinant of Imports of Manufactured Consumer Commodities,” Canadian Journal of Economics, V (May, 1972).Google Scholar

⁴ The importance of foreign customers' requests as a factor pulling U.S. firms into foreign markets has been repeatedly emphasized in surveys of motivations both for exporting and for foreign manufsacturing investments. Robinson, H. J., in The Motivation and Flow of Foreign Private Investment (Stanford Research Institute, 1961), 37Google Scholar, notes that over 90 per cent of external triggers for investment mentioned by U.S. firms in his survey involved proposals by foreign industrialists.

⁵ A further description of this process is given in Raymond Vernon, “International Trade and International Investment in the Product Cycle,” Chapter II of Sovereignty at Bay.

⁶ See Ibid., Chapter 3 for evidence on this point.

⁷ Ibid.

⁸ See Knickerbocker, Frederick T., Oligopolistic Reaction and Multinational Enterprise (Boston, 1973)Google Scholar, for statistical evidence. See also Wilkins, Mira, The Maturing of Multinational Enterprise (Cambridge, Mass., 1974)CrossRefGoogle Scholar for historical material on specific firms.

⁹ Such at least was the implication most readers carried away from a reading of J. J. Servan-Schreiber's famous statement that, after the U.S. and the U.S.S.R., the third largest producing unit in the world would soon consist of American subsidiaries abroad. The impression was made all the stronger by chapter titles such as: “Europe Without a Strategy” and by sentences such as: “L'Europe n'a presque rien sur le plan industriel, de comparable aux entreprises à grande aire d'activité qui caractérisent les sociétés américaines s'implantant sur son sol. Une exception intéressante: L'Imperial Chemical Industries (Angletrre), seule compagnie européenne qui ait organisé un état-major à l'échelon du continent pour prendre en main l'administration de ses cinquante filiales. Les efforts déployés par quelques autres sociétés européennes apparaissent timides.” Servan-Schreiber, , Le Défi Américain (Paris, 1967), 20Google Scholar, emphasis added.

In 1969, Jack Behrman also appeared to underestimate the importance of European companies' international operations: “If one postulates that the awakening point (of transition to multinational enterprise) occurs when foreign operations become something over 25 percent of total activity of the enterprise, there are close to 200 U.S.-based enterprises which are candidates for becoming multinational – if they are not already in that category. But, there are few European-based companies meeting the criterion.” Behrman, , Some Patterns in the Rise of Multinational Enterprise (Chapel Hill, N.C., 1969).Google Scholar

¹⁰ The word “multinational” as used here only denotes the existence of manufacturing operations, owned to significant extent by the parent firm, in numerous countries.

¹¹ Company annual reports and documents.

¹² Manufacturing operations were counted as belonging to a particular European company if they were 25 per cent or more owned by it. Source: Tabulation done by the author from company reports and partly reported in Franko, L. G., “Multinational Corporations in the 1970's: Will They Matter?” in Uri, P., ed., Trade and Investment Policies for the 1970's (New York, 1971).Google Scholar

¹³ Information in the Comparative Multinational Enterprise Data Bank, Harvard Business School; see also sources for Table 2.

¹⁴ On the pre-World War I U.S. multinational company expansion, see Wilkins, Mira, The Emergence of Multinational Enterprise (Cambridge, Mass., 1970), especially 212 and 213.Google Scholar

¹⁵ Fridenson, Patrick, Histoire des Usines Renault (Paris, 1972), 66.Google Scholar One of Renault's factories was located in Petrograd (later Leningrad).

¹⁶ As indicated above, the word innovation as used here signifies first commercial introduction, not invention. European inventors often preceded American innovation, as Table 4 points out. It was typically this innovative step that led to the rise of multinational enterprise. The role of oligopolistic competitive advantage and market imperfection in explaining the rise of multinational enterprise was first examined systematically in Hymer, S., “The International Operations of National Firms: A Study of Direct Investment,” (Doctoral dissertation, Massachusetts Institute of Technology, 1960).Google Scholar The importance of oligopolistic imperfections based on technology in explaining the international spread of U.S. enterprise has been the subject of a vast and growing literature. See inter alia: Vernon, R., “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics (May., 1966)CrossRefGoogle Scholar, and the studies included and cited in Wells, L. T. Jr, ed., The Product Life Cycle and International Trade (Boston, 1972).Google Scholar See also: Harmann, A., The International Computer Industry (Cambridge, Mass., 1970)Google Scholar; and Harvard Business School, “The U.S. Automobile Industry in the World Market,” Note ICR 530, 1971.

¹⁷ No systematic study of the frequency or causes of the international transplant of inventions appears to have been made. But examples of European inventions followed by U.S. application are abundant enough. See Landes, David, The Unbound Prometheus (Cambridge, 1969)Google Scholar; OECD, Gaps in Technology, Vols. I–V (Paris, 1971)Google Scholar; Jewkes, J., et al., The Sources of Invention (London, 1969).CrossRefGoogle Scholar

¹⁸ Wilson, Charles, The History of Unilever (London, 1954) II, 25 and 26.Google Scholar

¹⁹ Haber, L. F., The Chemical Industry in the Nineteenth Century (London, 1958)Google Scholar; Friedlander, H. and Oser, J., Economic History of Modern Europe (New York, 1953), especially 243.Google Scholar

²⁰ Haber, Chemical Industry in the Nineteenth Century, 243.

²¹ Friedlander and Oser, Economic History, 247.

²² Siemens, Georg, History of the House of Siemens (Freiburg and Munich, 1957), II.Google Scholar

²³ Ibid., I, 32ff.; AEG, 50 Jahre AEG (Berlin, 1956).

²⁴ Friedlander and Oser, Economic History, 417.

²⁵ Wallace, D. H., Market Control in the Aluminum Industry (Cambridge, Mass., 1937), 6, 33, 34.Google Scholar

²⁶ Gross, H., Further Facts and Figures on I. G. Farben (Kiel, 1950), 12.Google Scholar

²⁷ Philips, N. V., Facts About Philips (Eindhoven, 1970), 3–8Google Scholar; Bouman, P. J., Anton Philips of Eindhoven (London, 1958), 48Google Scholar, mentions Philips' original low wage competitive advantage. The book subsequently describes its move toward its own proprietary technology.

²⁸ Rondot, Jean, La Compagnie Française des Pétroles (Paris, 1962), 5.Google Scholar

²⁹ Ibid., 11ff.

³⁰ ENI, the Italian state oil company in particular appears to have gained entry into refining in various countries in Africa largely as a result of such political product differentiation. See Tiger, M. and Franko, L. G., E.N.I. (Geneva, 1973)Google Scholar; Frankel, P., Mattei: Oil and Power Politics (New York, 1966)Google Scholar; Chiado-Fiorio, Elena, Il Caso ENI (Torino, 1973).Google Scholar

³¹ See, for example, Parush, Y., “The Order of Acquisition of Durable Goods,” Bank of Israel Bulletin (February, 1964).Google Scholar

³² Such appears to be the implication of findings like those of Lee, Pong S., in “Structural Change in Rumanian Industry,” Soviet Studies (October, 1968)CrossRefGoogle Scholar. Lee, following on work of Chenery, shows that industrial structure varies much more with per capita income and population size than with ideological systems.

³³ Hirsch, S., Location of Industry and International Competitiveness (London, 1967).Google Scholar Vernon, “International Investment,” 191–192.

³⁴ Vernon, “International Investment,” 193; and Vernon, Sovereignty at Bay, Chapter 3.

³⁵ It is generally agreed that there is little or no scientific gap among the countries under consideration here. The supply of technical ability does not seem to have been a significant constraint on innovation. See OECD, Gaps in Technology, various reports (Paris, 1971).Google Scholar

³⁶ Heer, J., Reflets du monde, présence de Nestlé (Rivaz, 1966).Google Scholar

³⁷ Choffel, J., St. Gobain, du miroir à l'atome (Paris, 1960).Google Scholar

³⁸ This finding has been documented for the steel industry in Roger Emile Miller, Innovation, Organization and Environment: A Study of Sixteen American and West European Steel Firms (Université Catholique de Louvain, Belgique, Nouvelles Series, No. 86), 152.

³⁹ Philips, Facts About Philips, 4–8.

⁴⁰ See Fayerweather, J., International Marketing (Englewood Cliffs, N.J., 1965), 32.Google ScholarKrech, D., et al., Individual in Society: A Textbook of Social Psychology (New York, 1962), 304–316.Google Scholar

⁴¹ See Landes, Unbound Prometheus 48, 129, and 131 for such characterizations concerning the eighteenth and nineteenth centuries. See Dahrendorf, Ralf, Society and Democracy in Germany (London, 1968)Google Scholar, especially Chapter 6 for a recent characterization of this sort.

⁴² The data presented in Table 7 are clearly imperfect. Different natural propensities in tax evasion and income declaration are but two of the many sources of potential error mentioned in the sources for that table. These data do not adjust for the effect on market demand of direct or indirect, progressive or regressive tax systems, nor do they account for government social security, insurance, and transfer payments. It is worth noting, however, that the United Nations Economic Commission for Europe, the source for many of the figures cited in Table 7, argues that after-tax and transfer payment adjustments do not have a major effect on the distribution patterns derived from before-tax data in the three countries for which estimates can be made: the U.K., Germany, and Norway. (Economic Commission for Europe, Incomes in Postwar Europe, Chapter 6.) The likely effect of such adjustments, could they but be made, would, of course, very likely accentuate the already favorable position of the lowest 10 per cent of European populations relative to that of the U.S. As tax evasion and underreporting of income tends to be a privilege of the rich, one might expect either a neutral effect across countries, or, if it is true that such activities are rather more European than American hobbies, they would once again merely emphasize the contrasts to which Table 7 points.

⁴³ Dr. Emilio Fontela and others of the Batelle Institute in Geneva, Switzerland have published a number of discussions of income distribution in Europe in which cogent arguments are presented for the existence of a relationship between increases in average per capita incomes and moves toward the U.S. type of income distribution. Their hypothesis is that as economic growth proceeds, markets of masses-plus-aristocrats will be replaced by markets in which a middle class, itself having a wide range of incomes, will constitute the dominant market segment. The long-term data presented in Table 7 provide little evidence in favor of such a hypothesis. See Dotti, H. L. and Fontela, Emilio, “Distribution des revenues et intégration de l'Europe,” Revue du Marchê Commun (Janvier, 1970).Google Scholar

⁴⁴ For brief but comprehensive summaries of the history of the auto industry, see McKern, B., “The U.S. Automobile Industry in the World Market,” in Vernon, R., Manager in the International Economy (Englewood Cliffs, N.J., 1972)Google Scholar; Wells, L. T. Jr., “National Policies in International Industry: The Europeans and the Automobile,” forthcoming in Vernon, R., ed., Big Business and Governments in Europe (Cambridge, Mass., 1974).Google Scholar

⁴⁵ Wells, “National Policies,” 4.

⁴⁶ Fridenson, Histoire des Usines Renault, 21.

⁴⁷ Ibid., 37.

⁴⁸ McKern, “U.S. Automobile Industry,” 433.

⁴⁹ Ibid., 435.

⁵⁰ U.N., Statistical Yearbook, 1971 (New York, 1972).Google Scholar

⁵¹ McKern, “U.S. Automobile Industry,” 443.

⁵² Wells, “National Policies,” 13.

⁵³ Ibid.

⁵⁴ Ibid., 10.

⁵⁵ Wortzel, L., “The Pharmaceutical Industry Study: An Overview,” unpublished ms., presented at a conference sponsored by the Agnelli Foundation in Turin, Italy on the Comparative Multinational Enterprise Project, June, 1971Google Scholar.

⁵⁶ Ibid., 11.

⁵⁷ Haber, Chemical Industry In the Nineteenth Century.

⁵⁸ Wells, L. T. Jr., “Test of a Product Cycle Model of International Trade: U.S. Exports of Consumer Durables,” Quarterly Journal of Economics (February, 1969).CrossRefGoogle Scholar

⁵⁹ Harvard Business School, “Note on the Watch Industries in Switzerland, Japan and the United States,” 1972. Dotti and Fontela, “Distribution,” point out that income level and distribution differences among nations will lead to differences in market demand structure across industries as well as within industries. These factors may explain, for example, why there have been so few innovations, large firms, or multinational firms in food processing arising on the European continent. As yet, the hypothesis has not been systematically tested.

⁶⁰ Habakkuk, H. J., American and British Technology in the Nineteenth Century (London, 1962), especially chapter 3.Google Scholar

⁶¹ “Immigration Law,” Encyclopaedia Britannica (New York, 1973), 1106ff.

⁶² Ibid., 126–131.

⁶³ See, for example, Desai, A. V., Real Wages in Germany 1871–1913 (London, 1968), 43.Google Scholar

⁶⁴ For more details, see Chapter II of the author's forthcoming book, The Other Multinationals: The International Firms of Continental Europe, 1870–1970.

⁶⁵ More analysis and data will be contained in the author's forthcoming book, The Other Multinationals.