Not until the mid-1920s, when the international economy seemed to stabilize, particularly in Europe, and the United States' own economy was booming, did U.S. corporations start to make substantial direct foreign investments. Encouraged by President Calvin Coolidge and his fellow Republican Herbert Hoover, first in his capacity as Coolidge's secretary of commerce and then as Coolidge's successor in the White House, the largest U.S. firms began to invest heavily in Europe, both in search of new markets and as a way of protecting themselves against trade barriers. Such investments, usually in the form of foreign subsidiaries, branches, or joint ventures, also fitted well into the multidivisional, decentralized organizational structure begun at General Motors (GM) under the leadership of Alfred Sloan but adopted very quickly by other major industrial concerns.
Yet, as Sloan later wrote, the decision to invest overseas did not come easily, nor was it perceived as inevitable. GM's executives, for example, had to decide whether there was a market abroad for American cars and, if so, which models were likely to fare the best. They also had to determine whether to export entire cars from the United States, build plants to assemble imported parts, or engage in the entire manufacturing process overseas. If the latter, they then had to consider whether to buy existing plants or build their own. Invariably, these decisions involved such other considerations as the taxes and tariffs of host nations, the state of existing facilities and dealerships abroad, and the desire of foreign governments to protect jobs and national industries. In the case of General Motors, the corporation almost bought the French carmaker Citroën but decided against doing so, in large part because of the French government's opposition to an American takeover of what it considered a vital industry. GM did, however, buy the British firm Vauxhall Motors Ltd. and the German carmaker Opel. Even more important, it made a decision at the end of the 1920s to be an international manufacturer seeking markets wherever they existed and to build the industrial infrastructure necessary to penetrate and maintain them.
Although direct foreign investment as a percentage of the GNP remained about the same in the 1920s as it did at the turn of the century (about 7 percent), what made the 1920s different from earlier decades were where and what kinds of investment were being made. Investments in manufacturing, which had lagged behind mining and agriculture, now vaulted ahead of both. As it did so, direct investments in Europe almost doubled, from approximately $700 million in 1920 to about $1.35 billion by 1929; manufacturing and petroleum accounted for most of this increase. Significantly, much of the new investment came from firms that previously had not braved the waters of overseas markets. Businesses like Pet and Carnation Milk had well-established brand names at home on which they hoped to capitalize by joining together under the Webb-Pomerene Act to open new plants and factories in France, Holland, and Germany in the 1920s.
Almost as dramatic as the increase in direct investments in manufacturing abroad were those in petroleum, which increased from $604 million in 1919 to $1.34 billion by 1929. Although this included everything from the exploration of petroleum to its production, refining, and distribution, most of the increase was in exploration and production. Thanks to vast increases in the production of oil in Venezuela, American direct investments in petroleum in South America jumped from $113 million in 1919 to $512 million by 1929.
Even in the Middle East, which remained largely a British preserve, the United States made important inroads. Fearful of an oil shortage after the war and worried that the region might be shut to American interests, the United States pressured the European powers to give a group of American oil companies a 23 percent share of a consortium of British, French, and Dutch oil producers. Among these companies were Standard Oil of New Jersey (now Exxon) and Standard Oil of New York (now Mobil), which later bought out the other American firms. The consortium became the Iraq Petroleum Company (IPC), whose purpose was to explore and develop mineral rights in the former Ottoman Empire.
As a result of developments like these, total American investment in foreign petroleum increased from $604 million in 1919 to $1.34 billion dollars in 1929. By that year petroleum had become the second-largest sector in terms of American direct foreign investment, with mining ($1.23 billion) and agriculture ($986 million) falling to second and third places.