How American manufacturers are facing the global marketplace

Business Horizons, July-August, 1995 by Kenneth Chilton

The past 15 years have been a time of great upheaval for American manufacturers. Sophisticated competitors have surfaced from widely distributed parts of the globe. International competition presents both opportunities and threats. As world markets grow, so does the potential customer base for American products, as well as the number and quality of competitors. In response to this, American producers have been forced to reevaluate their strategies and structures in fundamental ways.

In a talk to the World Affairs Council of St. Louis on September 26, 1991, Charles Knight, chairman and CEO of Emerson Electric, succinctly described the effect of the new global marketplace on American manufacturing, saying, "Globalization of our markets and competitors is the single most difficult problem ever faced by Emerson Electric." This statement comes from a business leader whose nearly $9 billion corporation generates 40 percent of its revenues from foreign sales and in 1994 posted its 36th consecutive year of improved earnings and earnings per share. Knight's view of the environment facing U.S. producers is widely shared by the executives interviewed in a survey by the Center for the Study of American Business (CSAB) entitled "The Dynamic American Firm Project."

In late spring 1993, the CSAB embarked on this two-year research project to examine the changes in strategies and structures taking place in U.S. manufacturing in response to changes in the competitive environment. The CSAB distributed a survey to 132 manufacturing executives who regularly receive its publications. More than one-third (48) responded. They tended to be from larger corporations: half of the firms had more than $1 billion in annual sales and more than 5,000 employees, and about one-quarter had sales below $100 million and fewer than 1,000 employees. The sample is also rather active in foreign markets: foreign sales represented between 5 and 15 percent of revenues for a third of the firms and between 15 and 30 percent for one-fifth of them. One-quarter of the firms responding had foreign sales of 30 percent or more.

GLOBAL COMPETITION DRIVES DRAMATIC CHANGE

Overwhelmingly, the executives who responded to the CSAB survey felt that competitive pressures have indeed increased dramatically in the past ten years. As shown in Figure 1, three-quarters of them strongly agreed that their firms face "much stiffer competition today than... just ten years ago." Participants also believe that the challenge is global. More than 70 percent strongly agreed that their company is in direct competition with U.S. and foreign firms, not just domestic competitors.

In-depth interviews with high-level manufacturing managers complemented the simple survey responses, providing richer detail. Although none of the 12 executives interviewed were included in the survey process, their views clearly mirror those of the survey respondents. A retired senior vice-president from a large ($9 billion) chemical firm, when asked what were the driving forces behind the organizational changes that have been taking place in American manufacturing, said:

If I wanted to make a general observation, I would just say "Toyotas." . . . I don't think it really came home to most of the United States' companies until 1981-1982 that, indeed, we were in a global war and we were losing. If we were going to compete effectively, we were going to have to do something differently.

Charles Knight sounded a similar theme in his 1991 talk to the World Affairs Council. The CEO said, "We woke up one morning with a foreign company... on our customer's doorstep with a product as good as ours at 30 percent less cost. We had to change the game. This caused culture shock at Emerson."

Some U.S. firms have been multinational businesses for a long time. At one large corporation (90,000 employees), which began to view itself as a global business in the 1950s, an executive vice president of international operations indicated that his firm has become even more global since the 1970s. In just the past six years, its sales outside the U.S. have grown from 37 percent to more than half of its total revenues.

Not only is this Fortune 100 company more global, but so are its competitors. The executive VP said, "[O]ver the past 20 years our competitors have become more global companies. Competition has become more global and more capable." An American CEO of a joint venture (with a foreign partner) in the processed foods industry identified two key environmental driving forces: international competition and information technology. This CEO observed:

I think that there are simply no markets or no market niches that are immune from competition anymore. And the competition is far more than local or national; it's clearly international in all product categories. Second, I see information technology telecommunications combined with data bases and computational programs making information available much faster, in far more depth, and more thoroughly analyzed.