"The new generation [of American companies] see international competition as an opportunity, not a threat," a recent analysis concludes. "The best preemptive defense of the home market in the long term is to take on formidable competitors on their turf." Such bravado is hardly characteristic of U.S. companies these days, where corporate whining and persistent red ink on the trade ledger with every country, no matter how far the dollar drops, is the norm.
But not in the world of the ABCs. That-is, the companies of the American Business Conference, which are the subject of the opening quote. The seven-year-old association of 100 very high-growth, midsize firms includes supercomputer maker Cray Research, Dunkin' Donuts, A. T. Cross (pens), Herman Miller (office furniture), and Neutrogena, the $135 million (revenue) Los Angeles-based maker of skin and hair-care products. The members, with average $360 million revenue (ranging from $25 million to $1 billion a year), regularly take on and conquer much bigger competitors. For instance, relatively small Neutrogena has carved profitable niches out of the hides as such stalwarts as Revlon and Procter & Gamble.
The ABC just released one of the most profound and optimistic studies of American business in years. The nine-month effort determined that the moderate-size ABC firms are thriving overseas, while setting almost all conventional wisdom on its ear. Their foreign sales and earnings growth, from 1981 through 1986, was six times higher than a sample of big American exporters—ABC companies' foreign operating income grew 23 percent a year from 1981 through 1986, while the average big exporters' foreign operating income grew 4 percent a year. The ABC firms' overseas growth was notably high from 1981 through 1984, when the dollar rapidly appreciated—while the other firms' overseas revenues actually declined during those years.
A recent Wall Street Journal article explained why Germany just supplanted the U.S. as the world's top exporter (Japan is number three), despite the deutsche mark's huge appreciation relative to the dollar. The headline: "German Firms Stress Quality, Niches to Keep Exports High." Likewise, the worse-than-expected October U.S. trade deficit ($17.1 billion) was attributable, said the Los Angeles Times, to a big increase in "high-cost, high-value manufactured goods from Europe and Japan." The ABC companies understand this tactic. The study observes that most of the ABC firms are "niche players" who exploit "value-based practices. ... Few claim a cost advantage in international markets." Quality, service, and innovation, rather than low-cost production, are practiced at home and abroad in company after company.
Most heartening, for the long-term American picture, is that these bellwether outfits consider the exploitation of international markets to be a routine part of doing business. The study remarks that "internationalism was an integral part of their business, not an afterthought." The ABC chief executives are described as "dedicated internationalists." Indeed, most started their foreign activities when their revenues ranged from just $1 million to $10 million. Moreover, they did not shy away from the toughest competition, with half targeting Japan as one of their first five foreign markets. Success stories in Japan range from high technology firms to Dunkin' Donuts. To top it off, in light of their high value-added strategies, 64 percent of the firms were profitable in their first year offshore.
The study notes that ABC members' decision to invest in overseas production at an early juncture has not primarily been a search for low-cost labor. While 80 percent of the firms' foreign revenues come from offshore production, only 18 percent say they went offshore to achieve a cost advantage. In fact, most point out that they accepted "manufacturing inefficiencies" resulting from small-scale operations in order to quickly become true "insiders" in the local markets; 51 percent insist that their principal reason for moving to offshore production is to be literally "close to the customer." These firms' chiefs repeatedly refer to the role of offshore operations in defending domestic U.S. markets. Becoming an internationalist, early, permits them to learn quickly about their offshore competitors; it further allows them to import ideas back to the U.S. For example, one of Dunkin' Donuts' most successful new retail configurations in America, a free-standing kiosk without cooking facilities, was inspired by a success in the Philippines.
Recent reports on the state of American competitiveness are discouraging. Auto sales in bellwether California for the first eight months of 1987, despite continuing import quotas and a still-plunging dollar, find four Japanese and one Korean car in the top five slots. Newsweek recently offered a pathetic assessment of our efforts to take on the Japanese market. General Motors, which only shipped 1,800 cars to Japan last year, is said to be trying to seriously penetrate that market. But when asked to explain why the giant enterprise still refuses to move car steering wheels to the right side (the Japanese, like the British, drive on the left), GM President Robert Stempel replied, "There's a certain status in having a left-hand steer in Japan." Ouch!
In the face of this gloom and doom, the ABC's news is cheery indeed. We can succeed at home—or abroad—if we learn how to provide the very best products and services and become true internationalists as a matter of course.
(c) 1987 TPG Communications
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