Foreignization and Industrial Economic Power in Argentina
Pablo Manzanelli and Martn Schorr

Specifically, although the average profit margin (earnings over added value) of enge foreign manufacturing firms was 34.6% from 2003-2009, the investment rate (gross investment over added value) reached 10.8% in the same time period, which shows low reinvestment of profits (Figure 2). This investment hesitance reinforces what we argued previously, regarding the reduced impact of the recent foreignization process on the expansion of local productive capacities (given the importance of capital centralization).

Figure 2. Argentina. Participation of Profits and Gross Fixed Investment
in the Added Value of the Foreign Industrial Firms* that Comprise the 500 Largest Companies in the Country.
1993-2009 (percentage)
Figure 2
*Leading industrial companies with foreign capital stock participation greater than 50%.

This contributes some important conclusions regarding the arguments that are frequently used to underline the importance of a strong presence of foreign actors in the country. According to this point of view, the said situation would contribute to the modernization of the productive structure, given that foreign companies should have a higher tendency to invest in the introduction of highly technologically complex capital goods, and to direct lots of spending towards research and development on the local level, with the consequent spillover effect that comes with this.

However, available evidence suggests that foreign companies tend to maintain high technology equipment manufacturing and almost all of their research and development spending in their country of origin; this explains low dynamism in the creation of local expert networks (Arceo, 2011). All of this is particularly important because it indicates that on the internal level, multinational companies do not seem to be agents that are spreading investment and/or modernization of innovative technology. However, as strong importers of capital goods, they have contributed to deepening the local industrial lag in machinery and equipment as well as to the commercial imbalance seen in these sectors.21

21 Given the absence of active policies to promote the contrary, its common for foreign businesses that have operations in the country to externalize their local engineering, replacing it with imported technology and almost no national development. Naturally, this diminishes the already low ties between these firms and the local network of providers and/or subcontractors and aggravates the problem of technological dependence. These tendencies are strengthened by the fact that for large projects with government or national investment and/or local participation, foreign capital with investments tied to providing foreign equipment tends to be favored (this is more common for sectors with a higher added value). The tendency is further strengthened by the existence of industrial promotion instruments that discourage national production of capital goods and other complex segments for which critical mass exists in the country. This is true for the mentioned regimes of preferential treatment for automotive terminals and companies that assemble electronic goods in Tierra del Fuego, as well as the promotional scheme established in Law 25.924 that allows for the import of goods used in large investment projects.