Hard-hit companies cut back overseas
By Andrew Backover and Michelle Kessler
USA Today
Many companies that rushed to expand overseas during the economic boom are now retreating.
They're pulling back to save cash but will have to write down investments and re-invest to re-enter the markets. Plus, new foreign investment by U.S. firms has dropped, which could hurt countries that rely on U.S. expansion.
Foreign investment is expected to recover when U.S. corporate profits rebound, says Wachovia Securities economist Jay Bryson. But industries hit hard by the weak economy, for now, are selling assets and trimming efforts:
• Telecom.
Once high-flying companies spent hundreds of billions of dollars on fiber networks worldwide. But disappointing revenue can't, in many cases, cover the cost.
WorldCom, embroiled in an accounting scandal and trying to avoid filing for bankruptcy protection, might sell assets in Mexico and Brazil. Global Crossing might sell assets in the United Kingdom. Level 3 Communications recently sold its North Asian undersea cable system to a foreign venture. New Qwest Communications CEO Richard Notebaert, hoping to reduce $26 billion in debt, said it may not make sense to keep some assets in Asia, Latin America and Canada.
"If your survival is threatened, you have no choice," says Jim Andrew of consulting firm Adventis.
• Technology.
In February, eBay left the Japanese market after it failed to take off. Yahoo exited its European auction business this year for the same reason.
Manufacturers of technology equipment still produce a lot abroad because it is cheaper. But cash-strapped players have pulled back on selling. Computer-maker Gateway last year pulled sales teams in Asia and Europe.
• Energy companies.
AES chief executive Paul Hanrahan recently said he planned to save $200 million for the electric company, possibly by selling plants in Brazil. NRG Energy might sell most of its foreign assets to cut debt. Cinergy and Entergy recently sold foreign assets.
• Financial services.
In January, Merrill Lynch closed 20 of 28 offices in Japan and trimmed staff in Canada, Australia and South Africa. Lehman Bros. has cut staff in Europe and Singapore. J.P. Morgan Chase, too, has cut staff in Asia. "People are trying to keep their (international) presence ... but they aren't expanding the way they would if the environment was better," says Justin Hughes of Robertson Stephens.
Keeping a presence is important. Starting over can be expensive, and emerging markets are future growth engines.
Some are taking advantage of the downturn. Intel is investing more in its Japanese sales efforts. AT&T president David Dorman said recently that the company would consider buying distressed assets in Europe and Asia.
