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E· ~
xecutlve summary
Internationalization is an increasingly pervasive force in U.S. man-
ufacturing, creating new sources of competition and new standards for
competitiveness. The growing importance of imports and exports in do-
mestic manufacturing and the significant rise in foreign investment in the
United States in recent years are tile most obvious evidence of interna-
tionalization. Less obvious, but more important, are the interdependent
relationships being established across national borders. International net-
works of suppliers, customers, researchers, technology developers, and
distributors have emerged, creating an unprecedented degree of global
interdependence. The formation of these networks is being driven by
manufacturing managers seeking to maximize competitive advantages in
response to changes in markets, costs, technologies, and politics.
Markets are global. Manufacturers cannot afford to ignore the rev-
enue potential of foreign markets, the necessity of attacking competitors
abroad to protect domestic market share, or the advantages of learning
the demands of customers in diverse markets. For many product lines,
penetration of global markets depends on having local production capacity
for quick response to customer demand and manufacturing systems that
can achieve constant improvement in cost, quality, and value.
Cost priorities have shifted. Cheap labor no longer dominates de-
cisions to manufacture offshore; few industries have product lines with
sufficient labor content to justify investment strategies based solely on la-
bor costs. Manufacturing costs are being driven by process control and
flexibility, product quality, customer responsiveness, and the skills needed
1
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2
to spur constant improvement. The need to control total system costs
determines the resources sought in decisions on international investment
locations as well as the level of sophistication to be used in foreign plants.
Technology is global. The sources of new technology have multiplied,
and U.S. dominance in the creation of new technology has ended. Many
countries have the human resources and scientific infrastructure to excel
at research and technology development. Competitive success depends
on how quickly and effectively new technology, from whatever source, is
incorporated into new products and processes.
The international economic and political environment is increasingly
complex. Flexible exchange rates, the magnitude of global capital flows, and
the virtual elimination of tariffs among developed countries, combined with
the emergence of nontariff barriers as the dominant form of protectionism,
have opened new market opportunities and introduced new sources of risk
for global manufacturers. Internationalization has clouded the distinction
between domestic and foreign policy and created pressure for greater
international cooperation in setting national policies.
Too many domestic manufacturers continue to base their strategies
on the U.S. market, U.S. competitors, and U.S. technology. The changes
wrought by internationalization are well understood by large multinational
companies, both in the United States and abroad. In fact, U.S. multina-
tionals have a more extensive global production base and longer experience
at managing that base than firms of other nations, potentially creating
a source of competitive advantage as internationalization progresses. On
the other hand, the size of the U.S. market has long insulated domestic
manufacturers from the pressures of foreign competition. Too few U.S.
manufacturers yet realize the importance or the pervasiveness of the inter-
nationalization process. They react to foreign competition in this market,
rather than building a strategy for attacking foreign markets, gaining access
to foreign technology, and building world-class production capabilities.
Similarly, national policies must be placed in the context of global
competition and global dissemination of technology. Internationalization
has introduced considerations for policy that were less important or nonex-
istent when the United States was virtually self-sufficient. For instance,
the need to monitor and gain access to foreign technological developments
has emerged as a major rtational priority. Similarly, the growth of foreign
ownership of the domestic production base and the global dissemination of
U.S.~wned production facilities have blurred the definition of a company
as American or foreign, bringing new complications to established policies
in areas such as trade and technology. Above all, internationalization has
created a greater degree of choice for manufacturers pursuing global market
share and profitability objectives, thereby generating greater competition
among nations for manufacturing investment. The United States cannot
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3
rely on market size alone to attract the high-value manufacturing activities
that are essential for building national wealth. Manufacturers will place
their high-value activities where the resources, skills, and infrastructure are
available to perform them most effectively. This fact dictates the standards
that must be met in maintaining a favorable environment for investment,
innovation, and operations.
Given these realities, what factors are essential for corporate and na-
tional success in the l990s? For both, internationalization must become
the cornerstone of policy. The knowledge that global competition will be
intense and constant, with different participants striving to maximize unique
competitive advantages, must be the foundation of strategy. The dynamism
of such a competitive environment dictates corporate and national strate-
gies that are equally dynamic. The ability to implement these strategies
in turn requires manufacturing resources that allow flexibility, constant
improvement, and a focus on innovation.
For manufacturers the essential ingredients of a successful strategy
include:
· Developing managers with a broad understanding of not only for-
eign markets and international competitors but also the technology and the
knowledge to use it needed by world-class manufacturers.
· Building corporate intelligence on international markets, techno-
logical developments, competitors' strategies, consumer demand, and po-
litical changes as a prerequisite for aggressive pursuit of global market
share.
· Strengthening core competitive capabilities the combination of
technologies, skills, and products that provide competitive advantages that
are difficult for competitors to imitate or overcome.
· Using international relationships with suppliers, researchers, tech-
nology developers, and producers to leverage in-house resources while
also using and absorbing outside expertise to strengthen core competitive
capabilities.
· Speeding commercialization of new technologies by improving ac-
cess to and utilization of external technology, integrating product and
process design and engineering, and emphasizing rapid time to market as
a core competence.
Similar considerations apply in creating national policies that will
strengthen U.S. competitive advantage in an environment of national com-
petition for manufacturing investments. To ensure that the United States
remains an attractive location for high-value manufacturing activities, poli-
cymakers must take steps to:
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4
· Spur competition in the United States by continuing to resist protec-
tionist pressures and, at the same time, work to ensure that U.S. companies
have open access to global markets.
· Build the intellectual assets required to perform advanced manu-
facturing functions by investing in an effective educational infrastructure
with emphasis on constantly upgrading the skills of the existing work force
and on imparting state-of-the-art engineering and technology management
practices to new graduates.
· Reassess the national information requirements for understanding
the changing position of the U.S. economy and U.S. corporations in the
global environment, thereby facilitating creation and implementation of
appropriate national policies.
· Emphasize high-value manufacturing as a national core competitive
capability by providing the incentives and resources intellectual, capital,
infrastructural required to encourage private manufacturers to perform
high-value activities in the United States.
Internationalization has already made these factors essential to cor-
porate and national success in the global economy. Unfortunately, U.S.
corporations will find no generalizable prescriptions for acting on them.
Each firm must match itself against its global competitors to establish
benchmarks, assess market and technology potential on a global basis, and
develop an implementable strategy based on its unique capabilities and
objectives. Similar steps are needed on a national level. Little effective
national strategy can be expected until the United States establishes her
position vis-~-vis her global competitors; strengths must be maximized and
weaknesses corrected. Such national action is the only way to implement
a proactive strategy that builds on U.S. successes rather than reacting to
foreign achievements.
~7
To maintain leadership in the dynamic world created by international-
ization, the nation must recognize that global interdependence is here to
stay. Such interdependence must be managed, through cooperation and
collaboration between industry and government, including foreign partners,
both to ensure continued advances in the global manufacturing system and
to maximize U.S. interests as this global system evolves. The required ac-
tions demand a national consensus that international manufacturing com-
petitiveness deserves the highest national priority and, therefore, should
command whatever resources are necessary.
Representative terms from entire chapter:
market share
