COMPUTER FIRM ON TOP OF THE WORLD : Chairman of Western Digital Believes Competition, Not Protectionism, Is Key to Healthy U.S. Business

Western Digital Chairman Roger W. Johnson doesn’t have much sympathy for those who would argue that American business is fighting a losing battle with foreign competition.

And at a time when many American industries are calling on Congress to pass trade legislation to help protect them from overseas competitors, Johnson views such measures as counterproductive.

American companies, Johnson bluntly states, “should go out and compete and stop crying.”

Western Digital, an Irvine-based computer products maker, has done well competing internationally.

The company’s foreign sales grew by 80%, to $170 million, during the fiscal year ended June 30, and represented 37% of total company revenues. The company also recorded strong sales growth in tough-to-crack Asian markets, such as South Korea and Taiwan.

The firm has manufacturing plants in Ireland, Malaysia and Puerto Rico, as well as in Costa Mesa and Irvine.

Western Digital, which employs 3,400 people worldwide, has become one of the leading suppliers of personal computer parts, such as computer chips that control the data storage, graphics and communication functions of personal computers.

Recently, Western Digital has attracted attention in the industry by introducing a line of computer chips that duplicate certain functions of IBM’s new personal computer line, a development expected to speed the arrival of clones of the IBM models.

A former Burroughs Corp. executive, Johnson, 53, joined Western Digital as president and chief operating officer in 1982. He was named chief executive officer in 1983 and chairman in 1984. A native of Hartford, Conn., Johnson serves on the board of directors of the Orange County Performing Arts Center, the American Business Conference, Quintec Industries and Triconex Corp. He also is a founding member of UC Irvine’s Chief Executive Roundtable.

In a recent interview in his Irvine office overlooking the San Diego Freeway, Johnson talked with Times staff writer David Olmos about his views on international trade. Q: At your company’s recent annual meeting, it was mentioned that Western Digital exports more products than it imports, giving you a favorable balance of trade. How have you been able to achieve that?

A: What we have done is fully recognize our business as a worldwide business. There’s quite a difference, I think, between saying that you’re a worldwide company and really acting that way. For example, we operate in seven different countries, with sales offices. Those companies are incorporated in those countries. They’re run by foreign nationals. They don’t have any Americans running the companies. Now, behind all of that, though, is a recognition that each market is different. And you really have to understand the markets. In many cases, the products that will sell in this country or in a European country, say France, will not sell in Germany. You must understand that, and you have to work at that.

Q: Specifically, what would you do differently in Germany, for example, than in Japan?

A: To start with, in Germany we hire Germans. We hire people who understand their markets. We teach them all our products. They then take our products and tell us if we have to modify them or which ones can be sold as is. They understand the different applications the product can be used for. So, we don’t do anything different to them. We just hire people who know the marketplace that they’re moving into.

Secondly, we recognize that it’s very critical to support international customers with more than just selling operations. So we often locate technical support and engineering people in international markets. The foreign operations have the ability to literally redesign products and modify them. That gives them an opportunity to work with an international customer. And you have a much better relationship because you better understand what he (the customer) needs.

Thirdly, we manufacture offshore in a number of instances. We locate our plants offshore for market access, customer support, the cost of capital and taxes. We don’t really go anywhere for labor costs. So even our manufacturing strategies are tied to supporting the worldwide markets. What you have is a company that really does operate as an international company. And when you do that, you have a lot better chance of beating your competition than if you merely operate as a U.S. company doing business offshore. It’s very different.

Q: There are some people who might criticize American companies, such as Western Digital, which do offshore manufacturing, saying that you export jobs overseas.

A: I think that’s ridiculous criticism. The assumption behind that criticism is that if you kept the jobs here, there would be something for the people to make. The fact is, there wouldn’t be. Therefore, there would be no jobs. We’re competing in world markets--period. Either you meet your world competitors on the basis of cost, quality and so on, or you don’t sell the goods. So one has no choice but to compete in the most favorable conditions one can compete in.

We have put a (manufacturing) facility in Ireland. Because of that facility, our sales in Europe have gone up tenfold in the past three years. The manufacturing of those products and those jobs are in Ireland. But the engineers and the marketing people are here in Orange County. They wouldn’t be here unless we could compete. And there’s no way we could compete in those European markets, because of the tariffs, unless we manufactured there. I think the basic issue is that our policies at a national level are backwards, because politicians believe that companies go offshore for labor costs. In our case, that’s absolutely not true. And in most cases I know of in the technology business, it’s not true.

We’re also in Puerto Rico. The Puerto Rican facility ships into the U.S. market. Why are we in Puerto Rico? Because, in Puerto Rico, we have a net cost of capital of about 3% because of the aid the government gives you for being there.

Q: Compared to what in the United States?

A: Compared to 8% or 9% in the United States. Our tax rate in Puerto Rico is effectively about 14% versus 40% in the United States. Why is it OK to do that in Puerto Rico, as the U.S. government is doing, and it’s not OK to do it for Indianapolis? I don’t understand that. I get inquiries about once a week from other countries offering me low taxes and low-cost capital (as incentives to locate facilities overseas). My competitors are there. We could solve our job problem practically overnight if our government would look at the situation as an industry would and say we just have to make an investment--and we’ll make an investment in low-cost capital and tax credits. And for that investment, we will begin to rebuild our manufacturing base. That’s all it would take.

Q: To what extent are you prepared to continue moving operations overseas?

A: We’ll put plants anywhere in the universe. I’ll put businesses anywhere or sales offices anywhere in the universe, if I need to, to compete in the world markets.

Q: Do you feel that’s your responsibility to your shareholders?

A: It has to be to my shareholders and to my workers. If I don’t do that, I can’t compete. If I don’t compete, I don’t earn any profits. If I don’t earn any profits, I can’t reinvest in the business. If I don’t reinvest in the business, I can’t grow and hire people.

Q: Do you think that the high-tech industry is repeating some of the mistakes that weakened other old-line American industries, such as steel or automobiles?

A: I suppose maybe the semiconductor companies. It appears as though they may have become complacent in some very good times, and not made the investments in the future they should have.

Q: You sound as if you favor a new industrial policy?

A: Certainly. We must have it. There is no other way to solve the situation because to compete, you have to do those things. We can’t close our doors and say we’re going to keep all our jobs here. We’d have no place to sell all our products, except to ourselves. And if we were noncompetitive, then our standard of living would go down.

We talk international business, but even our measurements are in the 1800s. We measure (the trade deficit) as though we were some kind of an island, with no recognition at all that the world has internationalized and U.S. companies are doing business all over the world, and international companies are doing business here. And that’s wonderful because when businesses compete in good markets, they are usually not likely to shoot each other. So having good healthy economic competition is wonderful. And yet, all of the measurements don’t take any of that into account and pretend that the world is a bunch of little things. . . .

Q: Would you favor additional tax breaks or incentives for business?

A: That’s a loaded set of words you used. But I think part of what we need to do is realize business is what makes our economy. A government has never created a job in its life. Business is all that does that. So when you say it’s a tax break for business, I say it’s a tax break for the poor people. I’d say it’s a tax break for the American workers because it’s making American industry competitive on its own soil.

Q: Do you think then that the controversy over the trade deficit has been overblown?

A: No, I think it’s misguided. I think we try to solve the wrong problem. We think there’s a trade deficit because of any number of reasons: Foreign competitors are better than us (or) the Japanese work harder (or) they have better-quality minds. I say baloney to all of that.

If you don’t buy those reasons, then it’s that . . . more businesses are running offshore to utilize all this cheap labor. I don’t deny that, in some cases, that’s probably true. There are some commodity industries where that probably is true.

So with those reasons, the way people attack the problem is to say we’re going to raise (trade) barriers. That’s stupid. You get a whole bunch of policies that flow from that set of thinking.

Q: What do you think the chances are that Congress will ever approve a new industrial policy that does some of the things that you feel are necessary?

A: I’m not very hopeful of it. I was hopeful that in this presidential campaign it might become a major issue. I think this kind of thing would have to come from the president. You’re not going to get a consensus from Congress. What you could hope for is you get a president who is popular enough in the first 100 days of his administration to redirect a major policy.

Q: What’s your opinion of the slow-growth movement in Orange County?

A: Well, anything that tries to artificially impede, I think, is counterproductive. I think what happens, though, is people get so frustrated that government isn’t taking care of certain situations, like transportation, that they feel they have no choice but to say ‘no more.’

Q: And what is the general outlook for your company in 1988?

A: It’s very good. I keep hearing the forecasts of recession and depression. Fortunately, nobody’s telling my customers that. So they just keep ordering. They’re not doing what forecasts say they’re supposed to do. So far, everything seems to be holding well, and we look for some continued good solid progress.