Staying Aloft In A Global Market
November 1 1989 by Michael A Plumley
The changing face of industry in the U.S. gives us all reason to look at where our companies stand and what it is going to take to win in the future. I fear that too many U.S. executives are failing to build global strategies that focus on attaining world-class quality. A global outlook is not only desirable, but essential for those companies that intend to survive and win in our increasingly competitive marketplace.
U.S. industries have always been competitive among one another. Today, some of our strongest competition is coming from foreign companies on U.S. soil. Foreign producers know Americans will buy their products, and they are realizing that they can manufacture here with the same quality and productivity levels that they can in their own countries.
A quick look at investment in the U.S. shows that our foreign counterparts have invaded our turf. Foreign companies now own 12.5 million acres of farmland in 49 states and 10 percent of the manufacturing base in this country. They have 53 percent of the commercial and industrial loans in New York and 42 percent in Los Angeles.
Production figures further underline the globalization taking place in the economy. According to the 1988 Worldwatch Report, foreign companies made 85 percent of all women’s shoes sold in the U.S., 70 percent of all calculators, 90 percent of all motorcycles, 98 percent of all cameras, 60 percent of all computers, and 70 percent of all rolling mills, casters and presses.
Our competition is no longer coming just from North America. We are competing against companies from around the world, and we must produce goods that are globally superior to secure our place in the market.
TRADING TO WIN
Many claim the best way for U.S. industries to win in this global competition is through fair trade. Fair trade is fine, but winning is where it’s at. We must realize that foreign companies have found what it takes to win in North America and they are playing hardball by our government’s rules.
The key to winning, then, becomes the competitive advantage we create for ourselves. Japan and other foreign countries have created an advantage for themselves by shifting production around the world to make the most of currency fluctuations. U.S. CEOs must devise a non-level playing field with the competition, whether it be through new locations, a technological advantage, a manufacturing cost advantage, or a quality advantage.
The statistics clearly indicate that performance can be one of our strongest advantages. The 1988 Gallup survey on “Perceptions Concerning American Products and Services” shows that 72 percent of respondents said their first consideration in buying a product is performance. Durability came next at 58 percent, followed by ease of repair, warranty and service availability (50 percent), price (42 percent), ease of use (37 percent), appearance (28 percent), and brand name (28 percent).
The number of Americans who purchased a U.S.-made product of poor quality in the last year was up from 51 percent in 1985 to 61 percent in 1988. This is part of the reason that half of all purchases by U.S. consumers are foreign. It also accounts for the reduced sales experienced by many U.S. industries.
Let me use my business, the automotive industry, as an example. Figure I shows the market share losses by the Big Three from 1981 to 1987. Consumers are casting their votes with their dollars, spending their hard-earned money on foreign products. This trend is one my company is watching closely since it will have a major impact on our ability to supply parts to the automotive manufacturing market. The companies gaining market share today are the ones I want to be doing business with tomorrow.
For instance, in 1988, 68 percent of the automobiles purchased in the U.S. were made by General Motors, Ford or Chrysler. Maryann Keller, a leading automotive analyst with Furman, Selz, Mager, Dietz & Birney, predicts that by the year 2000, the top five car companies in the world will be GM, Toyota, Ford, Nissan and Honda-in that order. Our company is doing business with all five. Other U.S. executives should be identifying top companies around the world that they need to do business with in order to be in the players’ circle by the turn of the century.
Notice that three of the projected top five automakers of the future are Japanese. Not only are they foreign companies, but each already has at least one plant in the U.S.
U.S. companies need to watch the worldwide changes taking place in their respective industries continually, not only to keep up with but to surpass their foreign competitors. In automotive manufacturing, for instance, we anticipate a shift in the industry’s growth patterns. We know that from 1976 to 1986, Japan had the largest growth in world market share (see Figure II). Although worldwide automotive production will continue to increase through 1996, it is projected that Japan, North America and Europe will lose market share while other countries step up their output. Companies that supply automotive manufacturers must position themselves now to supply growing companies in Asia, South America and eastern Europe.
FORGING NEW RELATIONSHIPS
Beyond identifying the market and properly positioning our companies, U.S. businesses must also look at forging new business relationships. One of the most effective relationships to emerge over the past decade is the joint venture-usually formed in the U.S. with foreign-owned companies. In general, the purpose of these ventures has been to transfer or license technology, and transplant it into our country. While foreign companies have gained a market position here, U.S. companies have helped orient them to the legal (and other) aspects of doing business stateside.
U.S. companies need to follow suit. Our company has formed a joint venture with a Japanese company, and we are currently working to license product expertise in Australia and Europe. The reason is simple: We are positioning ourselves to be a survivor in the supply of automotive parts to the world, not just the U.S.
The globalization of the automotive industry did not happen overnight. It started with the Japanese capturing a major share of the U.S. car and truck market by bringing their plants here, a process that is continuing today. The next step is for the Japanese to bring their parts and raw material suppliers to the U.S., which is also happening now. My prediction is that once they have transplanted their suppliers and have their factories supplying both the Big Three and the Japanese automotive companies here, they will begin to look at other industries.
In the near future the Japanese will be in the industrial, appliance, marine and consumer businesses. They will begin entering the U.S. in virtually every industry. Domestic companies will be the ones to decay unless we start playing to win.
U.S. companies do not have to take a back seat to our foreign counterparts. We simply have to look inside our own businesses and start addressing what is needed for our companies to regain their global competitiveness. The first step in this process is to recognize that we need improvement.
We can take a page or two from the books of our foreign competitors to see how that can be done. Foreign companies that have set up shop in the U.S., for example, plan to beat us at our own game in our own country with our own people. They plan to do it by improving the education of their new U.S. employees, by common-sense management, and by a commitment to get things done to win. These are the steps we must take in our own organizations to survive.
At the Plumley Companies, we have already put some of these principles to work. We made the mental and financial commitment to be “best in class” in everything we do. We have invested in state-of-the-art machinery, built a new R&D center, increased staff, and set high-quality customer satisfaction goals and standards for our suppliers to make sure their quality meets the demands of our customers.
The tack is to face the competition head on. U.S. CEOs must change their attitudes and take the initiative to produce superior products unmatched anywhere in the world. Essentially, we must take the pioneering spirit that has always been a part of the American way and transfer it to a world outlook. This is the same spirit that caused our forefathers to come to a new world. It is the same spirit that caused us to revolt against the British and then start looking across the country to the West for new opportunities. It is the same spirit that allowed us to develop this nation and become a world leader in the economic, political and military arenas.
Today, we have run out of western frontier. Our forefathers scratched the land, fought the Indians, and did whatever they had to do to survive with the American dream of a better tomorrow. Our new frontier now lies in the ability to make the best of our resources, both human and natural, so our companies can survive a global economic battle.
There is no longer any virgin western territory. East now meets West. It is time for us to regain the pioneer spirit in our work, make a stand, and fight every day to maintain and improve our companies to provide for a better tomorrow for our country and for our families.
Michael A. Plumley is chairman and chief executive of Plumley Companies, a Paris, Tenn.-based manufacturer of custom rubber components for the automotive industry. An expert on international sales efforts to Japanese automotive companies, he serves on the board of the Motor Equipment Manufacturers Association.