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How can America compete better globally?

How can America compete better globally? Will America be able to compete in foreign markets? What can be done to help U.S. business compete? To discover what financial executives think about the issue of competitiveness, Financial Executives Institute (FEI) questioned a sample of the most senior financial executives among its members. Survey questionnaires were sent to 2,000 senior financial officers (CFOs and vice presidents) representing a wide range of large and small companies. Over 400 responded to the survey.

Not surprisingly, 98 percent of the respondents agreed that U.S. business needs to improve its global competitiveness. Short-sighted investors and business managers are the greatest impediments to the competitiveness of U.S. business in the world marketplace, according to the executives who were asked to rank eight factors by their effect on competitiveness. These factors received 16 percent of the rankings as the first or second greatest impediment.

Following close behind were unfair foreign trade practices, an undertrained workforce, and government intervention. Fewer respondents ranked the cost of capital, the budget deficit, and U.S. tax policy as major impediments to competition.

In commenting on these issues, a number of respondents called for improved productivity, improved quality in the products and services offered by U.S. business, greater responsiveness to customer needs, and the need for some kind of government support of research and development. Others singled out increasing administrative and liability costs, frequent tax changes, an unwillingness by U.S. business to develop global strategies, and, finally, merger and acquisition mania. One respondent called business managers "slaves to Wall Street"; another stated that a climate dominated by takeovers and lawsuits "leaves senior management less time for improving competitiveness."

U.S. tax laws impede their companies' foreign business operations, say 88 percent of the respondents for whom this issue is applicable. Taken in conjunction with the rankings given for the most important impediments to competitiveness, it appears that, while financial executives don't like U.S. tax laws, they consider them less important than other factors in influencing business competitiveness.

The complaint most frequently registered against U.S. tax law is its complexity, which makes filing both time consuming and expensive, and not the tax rate itself. One respondent summed it up when he said, "The U.S. has a competitive income tax rate, but tax regulations are too complex."

Asked about their price policies for exported products, 71 percent of those answering the question stated that their products were priced the same as or lower than the domestic product. Many of those stating that their exports were priced higher commented that prices depended on freight equalization, the cost of documentation, or currency fluctuations.

A lack of long-term investment has often been cited as causing U.S. business to be uncompetitive in foreign markets. Asked to identify which of four funding sources most constrained investment by their companies, nearly three-quarters of the respondents listed internal cash flow. The public equity market was ranked the most restrictive factor by 11 percent, and the public debt market and bank borrowings by 8 percent. But 50 percent of the respondents ranked bank borrowings as the second factor most likely to constrain investment, and 25 percent ranked the public debt market as the second most significant constraint.

A number of respondents commented that the most significant constraint on investments is not the availability of funds but the lack of profitable growth opportunities.

Predictably, nearly all survey respondents preferred long-term investors, but, less predictably, over half--58 percent--said active long-term investors are most helpful in maximizing the long-term value of their companies. Passive long-term investors are preferred by 41 percent.

The advantage of active long-term investors, as described by one respondent, is that they "will acknowledge and be a part of long-term decision making." Another prefers active long-term investors so that management alone will not determine policy and strategy. "Management would otherwise act in its self-interest for short-term benefits," this respondent continued.

The advantages of passive long-term investors, explained one respondent, is that they "provide a climate for long-term growth." An ideal management/investor situation was described: "Dynamic management should have a clear understanding of what investor needs are. Once that understanding is clear, management should not be burdened by politics of pleasing the board and investors, and should be allowed to manage."

The effectiveness of the present form of corporate governance as it bears on the relationship between shareholders and management is endorsed by a strong majority (68 percent) of survey participants. The comments of those who do not endorse the present form of corporate governance reflect common themes: "Boards are too comfortable with management." "The board doesn't take an active role in directing the long-term interest of the company." "Professional management works to perpetuate itself." "There is no way for shareholders to get poor management out." And finally, perhaps most succinctly, "The form is effective, but the people and results are not."

Despite the criticism, several respondents expressed what is undoubtedly the view of most executives: "The continuing need and opportunity for improvement does not require more government regulation!"

Asked which branch of government is best able to help U.S. businesses improve their competitiveness, 53 percent chose the executive branch and 45 percent picked the legislative branch. There were numerous comments that the legislative branch could help substantially by cutting "red tape," eliminating nonproductive legislation, and rationalizing tax rules. But because of the many constituencies to which legislators must respond, there is little optimism that they would.

"The executive branch must lead," was a frequently voiced sentiment, and one respondent asked for "a total government commitment [to improving the competitiveness of U.S. business], like the JFK space program."

In summary, the survey results suggest that even though U.S. businesses attribute their inability to compete in world markets in part to factors that are to a large extent beyond their control--unfair foreign trade practices, short-term investors, and an undertrained workforce are among the most significant--they are willing to shoulder some of the responsibility themselves. The fact that they ranked short-sighted business managers as one of the principal impediments to U.S. competitiveness and that they so strongly support a good balance among the active long-term investor, the board of directors, and management indicates their capacity for self-criticism and improvement.
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Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Publication:Financial Executive
Date:Mar 1, 1990
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