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Multinationals: Change Is Essential To Survive


For 76 years, Detroit’s General Motors Corp. (GM) was the world’s leading seller of automobiles. Then last year, in a photo finish, Japanese rival Toyota Motor Corp. emerged as a close number-two, nearly clipping GM’s title. GM sold 9.36 million cars and trucks worldwide last year, only about 3,000 more than Toyota.

What happened to GM isn’t unique. Other industries traditionally dominated by the United States have watched their market share steadily erode to foreign competitors.

Consider Eastman Kodak Co. (Rochester, NY) For much of the 1980s and ‘90s, Kodak was the world’s number-one maker of cameras. But today, Japanese camera makers such as Canon Inc., Sony Corp. and Olympus Corp. have eclipsed Kodak thanks to the growth of digital cameras and Kodak’s slow transformation from film to digital imaging. In the past decade, Kodak lost almost 80% of its market value. In recent years, Kodak has laid off about 28,000 employees and spent nearly $3.4 billion in restructuring. Earlier this year, Kodak executives said they expected to increase sales of digital products, including cameras and printers, to between 10% and 12% annually through 2011, or between $9.8 billion and $10.5 billion.

The competition among personal-computer makers is even tighter. International Business Machines Corp. (IBM), Dell Inc. and Hewlett-Packard Co. (HP) are in a three-way race, not so much against each other but against Asian rivals Acer Inc. and Lenovo Group Ltd. for the top position in the world’s personal-computer market. Both Asian firms are expanding rapidly. Last year, Acer purchased Netherlands-based Packard Bell BV to increase its presence in Europe and Irving, CA-based Gateway Inc. to expand within the U.S. Meanwhile, China-based Lenovo increased its sales in India and Eastern Europe and China, outpacing HP and Dell.

To compete, last year, Dell began selling PCs through retailers including Wal-Mart Stores Inc. and Best Buy Co., abandoning a long-standing tradition of direct-only sales. Dell also began selling to retailers such as Carerefour SA in Europe and China’s GOME Electrical Appliances. Driven largely by its laptop sales in Asia-Pacific and Japan, Dell’s revenue in the Pacific Rim grew by 41% in its most recent fiscal quarter, the company announced last month.

“Fifteen years ago, the U.S. was seen as the dominant economy in the world. But that has changed,” says A. LaMont Eanes, global vice president of BT Conferencing, a video-conferencing company. “It’s clear, at this point and time, the U.S.  as the dominant position in the world economy is somewhat in doubt. We are competing on a global basis.”

Eanes cites several examples of how 10 years or so ago, companies in various countries banded together in their respective country such as Latin America or Europe to compete against the U.S. Those efforts are now are paying off.

Another reason U.S. companies are now playing catch-up to foreign-based firms is, in large part, due to sheer arrogance, Eanes said. “Detroit [auto makers] did a very poor job of innovating during the 1960’s and 1970s, which was their heyday,” he says. “They continued to turn out basically the same product without concern for quality because there was little competition. Then Honda came out, and then Nissan. They studied the American market and applied principals of quality. Asian companies were better and faster to apply innovation and technology than U.S. companies were. U.S. automakers were caught sleeping and continue to lose market share.”

Domestic Changes

As U.S. businesses expand overseas, there will be greater scrutiny on what happens to jobs stateside. During the recent Democratic presidential race, one of the top issues for candidates was the loss of jobs in the U.S. as corporations not only look for revenue outside of the U.S., but also seek cheaper labor. Both Senators Barack Obama (D-Ill.) and Hillary Clinton (D-NY.) proposed ways of re-examining how U.S. businesses can survive. Clinton’s admission that the North American Free Trade Agreement, or NAFTA, which helped U.S. companies employ workers in Mexico and Canada, needs some additional work and may not have been as positive for the U.S. labor market as once thought, was even more startling, considering her husband signed the policy in 1993 as president.

With the weakened U.S. economy on the brink of a recession, domestic companies in danger of losing market share to foreign companies are aggressively expanding to emerging foreign markets including India, China, Russia, and Africa – the same thing foreign companies have been doing for decades in the U.S.

Angel L. Pineiro, a senior operations manager of Citi, the Cincinnati-based global financial services company and one of the nation’s largest financial multinationals, believes as the economy continues to strain, many U.S. companies will reduce their spending on U.S. marketing, advertising, and even business travel and instead focus only on operations that are geared to attracting business and employees outside of the U.S. Foreign companies, he says, will also use the weakened state of the dollar to aggressively invest in the U.S. through mergers and acquisitions.

Pineiro is in a unique position to witness how the economy will impact businesses, particularly from the side of consumer spending. Through Citi’s subsidiary, Citigroup, he oversees Macy’s Department Stores credit card services. Citi also competes with larger banking institutions such as American Express, Bank of America and Wachovia. When consumers fall behind on their credit card bills, or homeowners begin falling behind on their mortgages – especially those involved in the sub-prime mortgage market – or car-owners begin missing their payments, banks such as Citi feel the pinch.

“We’re going to start seeing affects on the bottom line,” Pineiro said. “We’ll have more write-offs for money that we can’t collect.”

Executives from one U.S. based multinational say the near-term future growth has to be foreign markets. For IBM, 63% of its revenue in 2007 came from outside of the U.S., says spokesperson Ian Colley. In fact, in the fourth quarter of 2007 alone, sales in Europe and Asia outpaced domestic sales. IBM is now focusing on meeting its foreign demand. It’s increasing its staff in China, India, Russia, and Brazil, where sales jumped 39% in the first three quarters of 2007. “The fast growth is occurring on a more rapid rate outside of the U.S.,” Colley says, adding that one of the firm’s biggest areas of growth is infrastructures for cell-phone users in India. Telecommunications companies are flocking there because residents are beginning to purchase cell phones nearly as quickly as U.S. residents.

The biggest challenge for multinationals today, Colley says, is changing the corporate mindset that U.S. companies only have to bring their brand to a foreign country to achieve success. That type of insular thinking no longer works in today’s market. “It’s not enough anymore just being a multinational corporation where you set up a copy of yourself in another country,” he says. “You have to establish a global footprint. You have to draw on talent from around the world. And the talent coming out of emerging markets today is very highly skilled.”

In other words, for U.S. multinationals to be successful, American. companies have to become entrenched in their new markets’ cultures rather than just establishing an office there with U.S. born employees and interpreters.

“It’s about global integration,” Colley maintains. “It’s all about integrating your assets around the world, rather than just creating local replicas of yourself. That’s how they will survive.”

Image courtesy of Bottomline Online

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