The Rockefeller Effect: How foreign owned entities can acquire U.S.-based assets in harmony with domestic public opinion
Penn Schoen Berland, 2012
As the effects of the Great Recession and political gridlock in Washington continue to leave the economy floundering, the time has come to re-assess the role of Foreign Direct Investment (FDI) in the U.S. as a way to reignite growth both domestically and internationally. FDI in the U.S. will become a job salvation engine, as well as a job creation one. Foreign owned firms pay more, are more productive and more efficient than their domestically own counter parts. A Congressional Research Service report dated Feb 1, 2011 stated:
“Foreign owned firms paid wages on average that were 14% higher than all US manufacturing firms, had 40% higher productivity per worker, and 50% greater output per worker than the average of comparable U.S. owned manufacturing plants”
Seems straight forward, right? Mutually beneficial, no? Americans should be welcoming FDI with open arms, and foreign owned companies should be flooding America with new jobs and new facilities. The math is perfectly clear. What’s the catch? American public opinion. Throughout recent history, the purchases of U.S. assets by foreign investors have run into controversy and opposition, which have served to scuttle several lucrative and mutually beneficial transactions. Such large and public purchases have millions of dollars in associated costs that lie outside of the purchase prices. Attorney and accounting fees alone can run into the hundreds of thousands if not millions of dollars. These costs, along with management consulting and investment banking commissions, are sunk costs that cannot be recouped, even when a deal is called off.
In many cases, these deals could have been presented in far more effective ways had the parties invested in a coordinated messaging and communications campaign to coincide with their financial tenders. This minor expenditure can serve as the sugar in the medicine of FDI. The historical example of the Japanese is particularly telling. Known as the “Rockefeller Effect,” a wave of negative publicity toward foreign suitors of U.S. assets severely weakened the efficacy of Japanese FDI in the U.S.
In the 1980s, Japanese investment in the U.S. was met with significant hostility. An effort by the Japanese electronics company Fujitsu to acquire Fairchild Semiconductor Corporation even led to the U.S. enacting national security laws governing acquisitions in order to nix the deal. In late 1989, against this unwelcoming background, the Japanese real estate company Mitsubishi Estate Co. bought the Rockefeller Center, a U.S. National Historic Landmark, for $846 million. This was a “trophy purchase” for the emboldened Japanese investors at that time. This high-profile purchase alarmed the public that the Japanese were out to dominate the American economy. The New York Times wrote six stories in the days after the announcement, with headlines ranging from “Japanese buy New York Cachet with Deal for Rockefeller Center” to “Japan Buys the Center of New York” to “Foreign Inroads Aside, Manhattan is Still American.”
Indeed, polling conducted at the time of the purchase offered ominous evidence as to the ultimate fate of the Japanese investment: anti-Japanese sentiment was rising sharply amongst an American public, which deemed the purchase to be insensitive. The ongoing inability to offer a more positive portrayal of the deal to a skeptical general population, alongside the economic downturn of the early 1990s, forced Mitsubishi to walk away from a $2 billion investment in 1995, with the property languishing in bankruptcy.
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