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U.S. Competitiveness Stages a Comeback : Manufacturing: Many industries have revived by increasing productivity, modernizing factories and slashing payrolls.

THE WASHINGTON POST

American manufacturers--written off by many commentators in the 1970s and ‘80s as dinosaurs doomed to succumb to Japanese and other foreign rivals--have staged a remarkable comeback, reviving American competitiveness in many industries.

Xerox Corp. has halved the cost of producing a copier, and has steadily increased its share of the U.S. market since the mid-1980s. General Electric Co.'s exports have grown more than 20%, to $6 billion, in the past two years. Cummins Engine Co., the largest American manufacturer of heavy-duty diesel truck engines, has doubled its output per worker since 1985 and cut prices of its engines by nearly a third.

Henry B. Schacht, president of Cummins, predicted in a recent interview that after the current recession ends, “the U.S. will be ferociously competitive in manufacturing. . . . It’s a great place to be in business, a marvelously competitive base.”

Such euphoria is not universal, and U.S. firms still face daunting competition from Europe, Japan and new economic powerhouses such as South Korea and Taiwan. Recent studies of technological competition predict that Japanese firms will continue to chip away at the American lead in many key markets.

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The determination of firms such as Cummins to stay competitive internationally has cost a lot at the bottom line; profits have been down in recent years, and nonexistent since mid-1990, as a long-running slowdown for truck makers tooks its toll.

But a five-year growth of American exports is strong evidence of restored competitiveness, according to many economists and business leaders. In the latest figures, released last week, U.S. sales overseas rose in March to their third-highest monthly level ever.

Part of the surge in exports can be explained by a dramatic lowering of the dollar’s value, compared to currencies in Japan and Europe. Engineered in 1985 by the Reagan Administration amid a crisis for American manufacturers, the change provided U.S. producers the opportunity to cut prices sharply on goods sold abroad.

Exchange rate adjustments alone do not explain improving performance by U.S. firms, however. According to foreign and American business executives and experts, many U.S. companies have radically improved the quality of their products, cut costs and improved efficiency, and generally shown a willingness to learn lessons taught to them painfully by Japanese, German and other competitors.

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The Cummins story, and others like it, suggest that some American companies have made headway in honing their competitive edge in the past few years.

“The fears of deindustrialization--the notion that our ability to produce goods has diminished--were exaggerated,” said Robert Z. Lawrence, an economist at the Brookings Institution and an authority on international competition.

Statistics show that U.S.-based manufacturing companies remain highly competitive in a wide range of products, including diesel engines, heavy construction equipment, computer software, high-speed computers, medical instruments, aircraft, chemicals and pharmaceuticals. Many of the success stories suggest that U.S. companies have learned from their mistakes.

Xerox, for example, regained lost ground by improving quality. When low-cost, high-quality Japanese producers began cutting into Xerox’s sales of small office copiers in the United States, Xerox officials embarked on a worldwide effort to improve the quality of their products--reducing defects that slow down production lines, raising the performance of equipment and making goods that are more in tune with the needs of customers.

To get ideas on how to do this, they studied the way Ford Motor Co. lays out its assembly lines, how General Electric Co. uses robots and how American Hospital Supply tracks its inventory. They sent dozens of managers to Japanese companies, including their affiliate Fuji Xerox, to study how Japanese firms improve quality and work closely with suppliers to reduce the number of defective parts.

The efforts paid off. In 1980, the firm found 97 defects for every 100 copiers rolling off its assembly line. Now it finds 12. In one piece of the market for copiers used in small businesses, it has built back its share of the market to 20% from barely 1% in the mid-1980s.

“It’s a new Xerox today,” said industry expert Lynn Ritter of Dataquest Inc., a San Jose research firm. In other sectors of the economy, some of the toughest critics acknowledge that American firms have improved quality.

During a 1985 interview, Tadashi Sasaki, then a high-ranking official of Japan’s Sharp Corp., had a low opinion of American-made silicon chips, the tiny circuits at the heart of Sharp’s computers, calculators and other electronic products.

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“When we take components from a U.S. company, we are very nervous,” he said.

Sasaki acknowledged recently that U.S. firms are doing better. “The quality, delivery, service and price (have) been improved,” he wrote in response to questions. Last year, foreign chips, mostly ones made by U.S. companies, accounted for 17.6% of all semiconductors Sharp bought, up nearly 5 percentage points in a year.

Other companies have succeeded by improving technology. In the bleak years for American industry in the early 1980s, General Electric’s power-generation business withered, forcing it to close factories.

The company used the slack period to develop new “combined cycle” turbine technology that attracted orders from utility companies in Japan and enabled G. E. to keep a strong global position despite stronger competition from overseas. It also has been doing well in many other product lines.

In 1990, the U.S. firm’s exports of turbines, aircraft engines, refrigerators, light bulbs, X-ray equipment and other items rose to $6 billion, a $1.1-billion gain in two years.

Across many industries, productivity--the measure of the value of goods turned out per hour by one worker--improved dramatically in the past decade, as old plants were closed and others were modernized or built from scratch.

From 1981 to 1990, manufacturing productivity grew at an average 3.5% a year, compared to 2.3% a year in the 1970s. At the close of the decade, productivity in U.S. factories remained 30% higher than the average productivity of eight other industrialized nations, including West Germany and Japan, according to an estimate by Federal Reserve Board economist Peter Hooper.

At the same time that U.S. workers were turning out more goods per hour, labor costs were being held down through the introduction of new labor-saving technology, layoffs and wage restraint by industry and labor unions.

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This sweeping undertaking has caused pain. Since 1980, 2 million workers have been cut from the U.S. manufacturing payroll. Millions more have accepted--or been forced to accept--reductions in earnings. Yet because of productivity gains, manufacturing today accounts for a slightly larger share of total U.S. economic output than it did a decade ago.

Improvements in productivity reduced the costs of making goods in the United States. Since 1985, for example, Cummins Engine has shaved 22% off the cost of producing and delivering an engine.

The pretax costs of producing cold-rolled sheet steel in the United States in March of this year was $507 a metric ton--$30 a ton less than in Japan, according to Paine Webber Inc.

The dollar’s decline provided U.S. firms with a strong competitive advantage. Beginning early in 1985 and accelerated by the “Plaza” agreement among the five major industrial nations, the currency shift cut the value of the dollar against the yen in half.

Another positive note is the ability of a number of U.S. industries to arrest or reverse declines in their shares of worldwide markets for their products, according to government and industry analysts.

For example, the U.S. steel industry, which lost billions of dollars in the early 1980s, returned to profitability in 1987. Last year, mills in the United States produced an estimated 11.5% of the world’s steel, up from 10.3% in 1986, the low point.

Caterpillar Inc. of Peoria, Ill., is a giant in this field. The company lost $1 billion in the early 1980s as it faced relentless worldwide competition from Japan’s Komatsu Ltd.

Caterpillar closed nine plants, cut salaries, turned to outside suppliers for parts it once made itself and doubled the size of its product line. In 1987, it embarked on a six-year, $1.4-billion plan to modernize its factories. Though its sales have grown 33% since 1980, Caterpillar employs 30,000 fewer workers today.

Still the world’s leading maker of construction machinery, the firm has regained 8 percentage points of market share in North America in the past two years, according to one analysis.

Perhaps most unexpected, the U.S. shifted from a deficit to a surplus in the trade of semiconductors, the tiny circuits at the heart of all electronic equipment.

Still outdistanced in the $58-billion worldwide market by Japanese firms, U.S. chip makers eked out a 1.6 percentage-point gain in global market share last year, their first improvement in a decade. U.S. computer companies, while losing some ground overall in recent years, remain unrivaled in two important parts of the business--supercomputers and workstations, the fast desktop computers favored by scientists.


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