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Can American manufacturers compete outside the U.S.?

Can American manufacturers compete outside the U.S.? Why do we ask, "Can American manufacturers compete outside the United States?" Because, for the first time in our history, the field on which we play out our competitive challenges is level--and it is global. The United States has more equal competitors throughout the world today than ever before.

But we should realize that the level playing field on which we now must compete corrects the imbalance in the world that resulted from World War II. From 1945 to the late 1960s, the U.S. had a unusual advantage in international business competition. We had a large home market that had not been damaged by the war, and we benefited from the surge in technology that resulted from the war effort.

The country was so strong, in fact, that our foreign policy during the last 40 to 45 years was intended to speed the recovery of Europe and Japan. And our foreign policy succeeded so well that we now have a global market in which we are one of several competitors. We no longer dominate world business.

U.S. business, government, and citizens must face up to the new arena in which we find ourselves. But at the same time we must stop beating ourselves about losing a position that in reality was not a normal one.

Looked at objectively, this equality can have a number of advantages for America. The U.S. must treat other nations as equals, but at the same time Japan and Europe must take greater responsibility for maintaining the economic system that has served them so well.

If we take this attitude, our approach to negotiating trade issues with other countries will change, and we will be able to pressure those countries into taking their share of the responsibility for maintaining the system. This is a very important point to realize at the outset.

America's status in the world

By accepting the premise that parity is replacing dominance, we can examine the current status of the U.S. in international trade and competition from a fresh perspective. To begin with, the U.S. economic engine has not broken down. Annual real per capita income growth in the U.S. is running at about 2 percent, a rate unchanged for nearly the last 100 years. Other economies are growing faster, but the U.S. is still way ahead. If trends of the past six years continue, for example, Japan will need 33 years to overcome the U.S. in annual real per capita income.

Today, America's share of world manufacturing production is 32 percent. That is about the same it was in 1913 and 1938, just before significant world wars. It is above the 25 percent that was our share in 1900. In fact, the only time our share of world production exceeded our current share was in 1953, when it soared to 44 percent. This supports my earlier statement that the dominance we experienced in the 1950s and 1960s was really abnormal.

Looking at exports and imports, we find that our share of global exports is 13 percent, higher than Germany's 12 percent and Japan's 10 percent. Merchandise exports from the U.S. have doubled in the last 10 years, from $180 billion to $360 billion.

What went wrong?

The problem is, however, that our merchandise imports have increased 122 percent in that same 10-year period. With our imports exceeding our exports by almost 25 percent, we should be concerned about our ability to compete in the future.

Compounding the import/export imbalance is the issue of productivity. Our living standard measured in real GNP per capita is 40 percent higher than that in Japan and 50 percent higher than that in Europe. Productivity--output per employed person--is $41,000 in the U.S. compared to $30,000 in japan and $34,000 in Germany. But productivity growth in the U.S. is lagging behind that of both Germany and japan. Productivity growth is the key to our future prosperity, and the fact that we have fallen behind is indeed cause for significant concern.

Another concern is that during the 1980s we lost technological leadership in some very important areas, such as computer chips and machine tools. According to a Ministry of International Trade and Industry (MITI) analysis of the United States' and Japan's prowess in 40 key sectors of commercial technologies, in 1983 Japan was lagging in half of those technologies. But, in 1990, Japan trailed in only one--database software (Fortune, April 23, 1990).

In addition, civilian investment in R&D is 1.8 percent of GNP in the U.S., 2,6 percent in Germany, and 2.8 percent in Japan.

Contrary to common belief, labor costs in the U.S. are not much higher than those in japan and other industrial nations. Our employee health care costs, however, are much higher.

These, then, are the issues about which we need to be concerned when we discusss our place in global competition.

Multinational bring home the bacon

A study conducted by Amir Mahini of McKinsey & Co. indicated that in one year, 1987, 2,300 American multinationals accounted for 73 percent of U.S. exports and only 39 percent of our imports. In other words, these 2,300 companies contributed a positive $17 billion to the U.S. trade balance in one year.

To demostrate how effective U.S.-based multinationals are in the global economy, I'd like to refer to the company I know best--3M.

In 1989, 3M exported $1 billion worth of merchandise, giving us a three-to-one positive trade balance for our U.S. company. We estimate that one job in six in our American operations depends on our international business.

In 1989, 46 percent of the company's $12 billion in sales was generated from business outside the U.S., or OUS. Our target is to raise our OUS business to 50 percent of total sales by 1992.

We have operations in 53 countries, we manufacture in 41 countries, and we sell into 135 countries. 3M opereates research centers in Europe and Japan, staffed with 2,000 technical people. Of our, 80,000 employees, 38,000 live and work outside the U.S. Our OUS operating income increased by 74 percent in the last three years and was almost 22 percent of sales in 1989.

Our approach to business outside the U.S. has been to start small and grow. We follow a principle we labeled FIDO--"First in defeats others." We build our company on local people, though the managing director, or the equivalent senior position, is usually not a local national. Nor is he or she always an American. For example, our managing director in Germany is a Dane; in the Netherlands, a Norwegian. An Italian is our executive vice president in Sumitomo-3M in Japan. We have found that when someone 40 or 45 years of age is put in charge of a business in his or her own country, it's hard to keep that person motivated and "hungry" for the next 20 or 25 years.

In starting a company overseas, we match our product line to the country's needs and objectives, which frequently involve building an infrastructure. We then try to determine which of our products will address those national objectives.

In almost every case, we own our overseas companies 100 percent. In 1983, we started a wholly owned company in China, where we'll have about $20 million in sales this year. We recently opened a joint venture in India, a wholly owned company in Turkey, and we are starting an operation to assemble road signs with the ministry of highways in the Soviet very soon. We also will open a representative office there as part of this agreement.

We have offices in almost every country in Central and Eastern Europe. While these are at present very small, we do have plans to expand them as opportunities justify.

As for 3M's international growth, to generate 50 percent of our total annual sales by OUS business by 1992, we plan to use the following strategies: First, we will expand our product offerings. We are not selling the full 3M line in many countries, so product expansion is the most logical way to increase our business. We also want to continue to invest in local technical resources because our business frequently involves solving customer problems by applying 3M technologies or products to customer applications, which requires local technical support. And, when justified, we will increase our manufacturing facilities outside the U.S.

Innovation is one of the hallmarks of 3M. It's a building block in our stragety for growth.

How American companies can compete

What do American companies need to get their share of the global market?

First, we must, as a country, make being successful in the global markets an important national priority. We must realize that the unique imbalance we enjoyed for so long will never be seen again, by us or any other nationa. In fact, the world's battles in the future may well be fought in the economic arena.

Second, the manufacturers must commit to quality. The Japanese call it "total quality," but it's really a management system that conveys an attitude ensuring quality far beyond the product itself. At 3M, we call it Q90s. The objective of Q90s is to be the best at everything we do in all aspects of our business, using as a guide the seven criteria required for the Balrdridge Award (see page 30).

But Q90s means we have to empower our people, to delegate, to use all of the skills of all of our people. At the same time, our entire organization must but into the common goals. We can't, as management, delegate and abdicate our responsibility; we have to delegate with common goals throughout the organization.

A third essential to America's gaining its share of the global market is to have its manufacturing commniyt focus on the customer. At 3M, we say, "Think global and act loca." This meas we have to know the similarities and the differences among the various markets around the world. It means serving the local customer his way, not some way we've generated internally. The balance between thinking global in our business but acting local on the scene is critical.

Focus on customer satisfaction, a key element in our Q90s progrma and a key element in the effort all U.S. businesses must put forth to win overseas. Customer satisfaction is noa a program; it's part of a process, because it never ends.

Fourth, American businesses have to make the required investment in the individual foreign markets. That may be more difficult and expensive today than it was when 3M first did it. For example, when we started in Japan in 1961, it was much easier because that country had not matured economically. For obvious reasons, Japan can be a very expensive market to enter today.

Fifth, innovation is an important element for American manufacturers to emphasize. Innovation changes the rules of the game. It's the way to get advantage and to force the competitor to go back and regroup.

Sixth, American businesses have to get the word out. We must speak to the public and to our representatives in Washington about global competition.

What the government must do

While American business must not expect the government to pave the way for its success, the government can and must support our competitiveness in global markets. It can create a climate conductive to trade and have a sensitivity to the importance of manufacturers. Saying the U.S. is going to be a "service" country is a troubling thought. I have nothing against selling hamburgers and computer software, but, without a solid base in manufacturing, the U.S. cannot be the kind of economic influence around the world that it wants to be.

There is no simple prescription, but the government can take some steps that would set us off in the right direction. The first is to get out national financial house in order--to reduce the Federal budget deficit. We have to do this by cutting spending devoted to consumption, as opposed to that which is devoted to investment. At 3M, we also favor some type of consumption tax, particularly on gasoline, which is very cheap in the U.S. compared to other countries. In addition, the government can take a hard look at the increases in entitlements. Doing so would ensure that everybody has to pay to put our financial house in order.

Second, we have to ensure access to goreign markets. The current efforst by Ambassador Hills are serving us well in this regard and should be continued.

Third, the government must not penalize trade by taxing foreign profits, which are earned overseas, taxed by foreign governments, and never brought back to the United States. And it must eliminate the double taxation of dividends that favors debt over equity in the financing of American business.

Fourth, the government must use the Export Control Act realistically. We must recognize that we in the U.S. don't own all of the world's strategic technology. And the government must not use trade unnecessarily or ineffectively as a political weapon, such as restricting grain sales to the Soviet Union,enabling the Canadians and Argentines to take our market share. Once a country loses market share these days, it's very difficult to recapture.

Fifth, we must have realistic environmental regulations. We at 3M are strong believers in supporting the environment, and we have a good reputation in that regard. But, in some cases, these regulations are becoming unreasonable. If carried too far, they will restrict our competitiveness around the world.

Sixth, realistic currency values are important, of course. And the government must continue to support a free policy and the principles of the GATT.

Seventh, a stronger national technology policy is needed to support our position in manufacturing around the world. More Federal dollars should be allowed to go inot technologies and manufacturing processes that have long-term commercial value.

Eighth, the government must do more for industrial research. In 1986, less than 2 percent of the Federal government's $56 billion research budget went into industrial research. We think Federal funds should provide a greater supplement to industry's commitment to research. In addition, instead of supporting a few horrendous-sized projects, the government ought to support many small projects.

Ninth, the government should remove the anti-trust barriers for joint manufacturing efforts. In a global economy, government must realize that all the competitors are not in the U.S. and that other countries do allow their companies to team up to be competitive in world markets.

Finally, stronger support of education is needed. After all, it is a people game. People make things happen. But many comparative studies have shown that our educational results have been slipping behind those of our major competitors.

In short, American manufacturers can compete in global markets. But, to do so, American government and industry must work better together, and American society must commit to being competitive in global markets. We are not in a bad position today, but we must dedicate the nation's business to total quality, to being the best supplier, to being the best at all that we do.
COPYRIGHT 1990 Financial Executives International
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Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Special Report: International; includes related article on Baldrige Quality Award
Author:Hammerly, H.A.
Publication:Financial Executive
Date:Sep 1, 1990
Words:2552
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