UTC's global primer: George David has presided over a major international push. He says it's good for America

Chief Executive, The, Nov, 2004 by William J. Holstein

United Technologies includes Otis elevators, Carrier air conditioners and Pratt & Whitney aerospace products. CEO George David believes his company's globalization has had a positive impact on the U.S. economy despite the closing of a Carrier plant in Syracuse, N.Y. Here are excerpts from an interview:

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What percentage of your sales are from outside the United States?

It varies based on foreign exchange rates, but it'll be somewhere between 57 and 59 percent this year. Back in the early '70s, we were actually 75 percent dependent on the U.S. market. There's been a remarkable transformation in UTC over this time period, a big piece of which is acquisition-driven. The company was remade with the acquisitions of Otis in 1975 and Carrier in 1979.

In human terms, where are the people?

There's been an even bigger shift in employment. We were 95 percent U.S. employment in the early '70s; today we're 70 percent non-U.S. employment.

Do those international figures include things you make here and export?

They do. Our exports are virtually all aerospace. Our export-import ratio is remarkably favorable. That's a very important element in this whole outsourcing thing. We have $4 billion or so in exports. We have probably $300 million or $400 million in imports from affiliated subsidiary companies. So it's a 10-to-1 ratio.

The stuff we bring in is typically at the lower end of the value-added spectrum. And the stuff that's done here is all the intellectual property work and all the high-end manufacturing--all the aerospace. So, the best jobs in the company are the jobs that are behind the exports.

Which of your business lines is the most international?

It has to be Otis. Otis was 75 percent U.S. market dependent in 1955. Now it is 80 percent non-U.S. dependent. There's been a tremendous wave of acquisitions. What happened is that the elevator business in the past 30 years basically went from national to continental to global. Otis's share of market in Europe in the mid-1950s was 5 percent. A big wave of acquisitions and consolidation drove us to market leadership in Europe. We have 30 percent share of market today.

Where is Otis's strongest market now?

Otis is actually exceptionally strong in virtually every country. You have to look for countries where we are not No. 1. The notable one, obviously, is Japan. We're a 10 percent share competitor there.

What about China?

We made a near fatal mistake in China early. We bought an elevator company in Tianjin from the state in 1984. We took a 30 percent minority share holding, which was the best we could get. Then we also made a mistake because we gave the franchise for all of China to the Tianjin partner.

Why was that a mistake?

We misunderstood the situation because China is such a huge, huge country. China is not France or Germany. The country is so vast. It also tends to be regionally specific. So all of a sudden, we had our name and our technology in a minority-owned enterprise that was regionally specific with not a lot of willingness to reach across all of China to build a China-wide business.

What is amazing now, 20 years later, is that we have 80 percent share. We have done five or six major acquisitions, which has broadened the franchise to essentially the entire country.

What does the market look like today?

The Chinese elevator market, in unit terms, is twice the size of the next biggest market there has ever been in any country in history. Yet market saturation--that is, elevator installations per capita population--is less than 10 percent of what it is in an advanced developed economy that relies on elevators and mid-rise apartment houses for residential housing. China's obviously on the way to being a much bigger elevator business. Actually, our elevator sales in China today exceed our elevator sales in the United States.

What is Carrier's international profile?

Not as big as Otis's. If Otis is 80 percent non-U.S. revenues, Carrier must be 65 percent. Carrier is the market leader in most countries where it does business and it does business in literally every country of the world.

Adding up all the different strands of your business, what's the biggest market?

The fastest growth is in China. We have a bunch of countries that have around a billion and a half of sales each. That would include France, which for many years was our largest overseas market. Others are Japan, Spain, Germany, U.K. and Italy.

How do you manage all this? You have operations in 160 countries or so. It's all operating while you're sleeping. What's the key to managing it?

First of all, UTC has a long history of decentralization. That's in part because the company was built by acquisition. We added Otis in '75, Carrier in '79, and Chubb in '03. Each of these companies is a market leader for their global franchise, and they're full-function, free-standing, stand-alone companies. That's a great strength of UTC.

So each business has a management in control of international strategy?

Let me say it differently. We decentralize everything to the operating companies as the first principle. And then we pull back the functions that appropriately belong with the parent company. The parent company staff, by the way, is in the range of 400 people altogether. Basically, it's the human resources, legal and financial staff groups that preside over the company. You reserve for the parent a few things that are fundamental--shareholder relations, government relations, tax, treasury, cash. These are basically shareholder-driven kinds of activities.