Mainstay III

51 Because of this organizational decision, elevators currently sold in China have some parts produced locally but a sizable share of parts produced in the U.S. as well. In particular, Otis' plant in Bloomington, Indiana has been a major producer of Chinese elevator components. Activity in this plant has expanded dramatically as demand for elevators has risen in China. In terms of exports, Otis' total U.S. exports to China have risen from $7 million in 1993 to $78 million in 1996. And in terms of employment, the Bloomington plant has rebounded from layoffs in the early 1990s triggered by the U.S. recession. Today the plant employs 1100 workers--250 more than during the early 1990s.

Otis' elevator production in China and the U.S. are clearly complementary thanks to the firm's dispersed production structure. The firms' activity in the two countries is also complementary in another important way. Of the 5000 total Otis employees in China, only about 39 percent--a little under 2000--actually manufacture elevators. The other 61 percent are involved in services and administrative work--activities such as sales and product maintenance--supporting the manufacturing. Almost all of these non-manufacturing activities must be done in China: for example, it is prohibitively costly to ship Chinese elevators back to the U.S. for routine maintenance.

Case Study: Citicorp This case study provides a clear example of the international provision of services and illustrates the importance to service-sector firms of proximity to the market and the headquarters role for their parents.

Citicorp is a New York based global financial services organization. Its 89,400 employees-including 51,000 outside the U.S.--serve consumer and corporate customers in over 3,200 offices in 98 countries. Net income in 1996 was $3.8 billion, with more than half of the company's revenues generated outside the United States. Citicorp is the sole shareholder of Citibank, N.A. ("Citibank"), its major subsidiary.

In many of the countries in which Citibank operates local regulators require a local presence for the bank to do business there. For example, in Malaysia the Central Bank grants a special status known as "Tier-1" only to those banks which satisfy stringent local requirements regarding capital adequacy, asset quality, management efficiency, earnings performance and liquidity position.