3 U.S. Industries Leading the Way in Global Economy : Business: Prowess of auto, semiconductor, food sectors stands out. Competition, worker productivity are cited.
Until recently, American auto companies had a crude way of fixing dented fenders and crooked trunk lids as new cars came rolling off assembly lines. With a gentle tap here or a well-aimed thunk there, workers would pound away the defects with rubber mallets.
Here at the Chrysler plant, the mallets are gone. Dave Brandt has a better way.
Sixty-three times a day, he slips behind the steering wheel of a couldn’t-be-newer Neon and takes it up to 50 m.p.h. over jarring speed bumps alternating from side to side. No potholes could be worse.
This vehicle, which rattles not a bit, is ready to be shipped to a dealer. Anything less, and it would be sent back to the factory for a more precise correction than could be administered with just a mallet--and an investigation of what went wrong in the first place.
It is here that the rubber of American industry meets the road of intense global economic competition. Like Chrysler, which is selling Neons as fast as it can make them, much of American industry is passing the test. American manufacturers are developing methods of production and turning out products that are becoming the envy even of the Japanese.
The evidence crowds the landscape: a steel mill in Gary, Ind., that in the last 14 years has cut by 70% the number of hours needed to produce a ton of steel; a Minnesota plant where only 100 workers churn out 70% of the world’s Velveeta cheese; an Illinois-built cellular phone system that is selling as far away as China.
“This is our moment, this next decade,” says Jeffrey E. Garten, undersecretary of commerce for international affairs. “The stars are lined up for us, if we play our cards right. We’ve got the right system for the right time, and that’s what’s going on in these factories.”
But it is one of the biggest secrets of today’s economy, as Americans are increasingly gloomy about their ability to thrive in global competition.
A poll conducted for the Hudson Institute last August found that only 44% of respondents expected the United States to be the leading economic power 20 years from now. Among young adults from 18 to 29, more felt Japan would be on top (38%) than named the United States (33%).
Only recently have many sectors of American industry turned the corner. Until Chrysler began turning out small Neons here in northern Illinois last year, for example, it had never demanded that every new car show its stuff over an engineered track.
And in this sense, what’s good for Chrysler is good for America. From 1986 to 1993, annual U.S. merchandise exports doubled from $223 billion to $457 billion, and the United States became the world’s No. 1 exporter. The number of Americans whose jobs depended on exports grew from roughly 6 million to more than 10.5 million.
It has not always been this way.
* In 1980, roughly 10 hours of work were required to produce a metric ton of steel in the United States, two hours more than in Western Europe and nearly three hours more than in Japan. Today that figure in the United States is approximately 4.3 hours--an hour less than in Europe and Japan.
* In the mid-1980s, Japan overtook the United States in worldwide computer chip sales. “People thought we were about to lose the whole match to Japan,” says Jerry Jasinowski, president of the National Assn. of Manufacturers.
Now the positions are reversed. In 1993, the United States had 43% of the market and Japan, 41%.
* By 1991, the share of U.S.-made cars and light trucks sold in this country had dropped to 70%. Today it is edging back toward 75%. What’s more, the number of American-made vehicles being sold abroad is up by 20% between 1988 and 1993.
Chrysler plans to add a third shift at the Neon factory later this year, running the plant around the clock and hiring 800 to 1,000 workers. “The United States has become the low-cost producer of cars in the world,” says David Healy, an auto industry analyst at the Wall Street firm of S. G. Warburg & Co.
The most competitive nation is generally the one with the most productive workers: the ones who turn out the most widgets per hour without sacrificing quality. That nation, according to a study by the management consultants McKinsey & Co., is the United States.
Popular opinion to the contrary, McKinsey reported that “recent labor productivity calculations for manufacturing taken as a whole show that the productivity of operations in the United States is higher than in Germany and Japan.”
The study looked at nine industries and found that, on average, the productivity of Japanese workers was 83% that of workers in the United States. Germany lagged still further at 79%.
The picture is not uniform. There are still multiple drag chutes on American competitiveness:
* America’s notoriously weak public elementary and secondary education systems feed doubts that there will always be sufficiently trained workers.
* The U.S. savings rate--money available for investment in productive enterprises--is the lowest in the industrial world.
* U.S. firms, driven by shareholders who want immediate profits, frequently hesitate to invest in projects with a distant payoff.
* Escalating health care costs borne by business raise the price of American products--by an estimated $1,100 for an average automobile or truck, compared with $600 for foreign competitors.
* Such potentially huge foreign markets as Japan, China and, to a lesser degree, India remain largely closed to U.S. products.
But offsetting these factors are a host of conditions that arguably make the United States the world’s most competitive economy. Daniel F. Burton, executive director of the Council on Competitiveness, an industry-supported research organization in Washington, cites America’s having the world’s highest productivity, coupled with a devotion to quality that is comparable to Japan’s.
Compared with Europe, U.S. businesses are not saddled with high payroll taxes to pay for generous social welfare programs, Burton says. And the vast size of the U.S. market facilitates the movement of workers and investment capital to where the greatest opportunities are.
Also contributing is the recent epidemic of corporate layoffs and restructurings, which have left U.S. industry lean and mean--and workers anxious and uncertain. The turmoil helps explain why Americans seem so dissatisfied with the state of the economy.
In the world competitiveness derby, three U.S. industries--semiconductors, food processing and automobiles--stand out.
They are not typical of U.S. industry. Bureau of Labor Statistics economist Leo Sveikauskas says it is far from clear that the skills and attitudes of their workers and management--their apparent devotion to quality, innovation and flexible management--will eventually reach throughout the economy.
“That’s what you’d have to do,” he says, “to get sustained living standards to make Americans happy.”
Take the case of Motorola, which has injected itself into just about every aspect of the communications revolution.
The company uses silicon to make semiconductors--the tiny chips at the heart of today’s computers. It uses the chips in the cellular telephones it makes and the transceivers it assembles. It uses the transceivers in base stations that link cellular telephones to land-based telephone networks. Now the company is battling to sell the base stations in China, Japan aand other countries.
The U.S. semiconductor industry has profited handsomely from government assistance. A 1988 agreement with Japan, which had been accused by the United States of closing its markets to American semiconductors, guaranteed that Japanese firms would buy at least 20% of their computer chips from foreign manufacturers. The target was reached at the end of 1992.
And early last year, the office of the U.S. trade representative dived into the effort to open up a particularly lucrative corridor of Japan, from Tokyo to Nagoya, to the Motorola base stations.
With such help--and in many cases without it--the U.S. industry is thriving. The semiconductors made in this country offer a greater capacity to process information than do those of the foreign manufacturers, and U.S. companies have not been shy about investing staggering sums to reap equally staggering returns.
Dean McCarron, a partner in Mercury Research, an Arizona company that forecasts markets and pricing for semiconductor companies, says Intel invested $100 million to develop a microprocessor that it can now build for $20 a copy and sell for $700 to $800.
“You’re paying for the intellectual content of that chip, not the bits of sand and plastic and metal in the chip,” McCarron says. “When you buy a book, you’re not paying for the paper. You’re paying for the words and thoughts. That’s the shift in the American industry. The customer is paying for the intellectual content.”
Why, aside from the investment cost, has no foreign company seriously challenged U.S. dominance? Because, McCarron says, U.S. companies keep in close contact with their customers and react quickly to changes in demand.
That same strategy has paid off for America’s food processing industry. In New Ulm, Minn., the Kraft food company is not content merely to stamp out individually wrapped slices of Velveeta--its brand of taxicab-yellow American cheese--at the eye-boggling, stomach-churning pace of 1,100 squares a minute.
Recognizing a growing public interest in non-sweet snacks, Kraft developed the “Handi Snack” for the school lunch market. In a blur of automation, machines fill tiny packages with peanut butter and, in a separate plastic compartment, a short stack of crackers.
The more Handi Snacks Kraft makes, the cheaper it is to make each one, says Rick Hartman, the factory’s business unit manager. And the cheaper it is, the more it can sell. Consequently, Hartman says, the New Ulm plant now employs an all-time high of 900 workers.
For U.S. manufacturers, snack foods are becoming a big export market worth $1 billion a year.
“We are light years ahead of the foreign competition,” says Steven Galbraith, a food industry analyst at the investment firm of Sanford Bernstein & Co. “We’re running plants efficiently. On every level, the United States dominates the market, category by category.”
Advances in the delivery of food from farm to supermarket, combined with the high yield of the nation’s farms, have allowed Americans to spend less of their disposable income on food than any other people--11.5%, compared with 13.1% in Canada, 16.6% in Italy, 25.4% in Japan and 34% in Mexico, according to the Food Institute Research and Information Center.
It is no coincidence that Japan has largely closed its market to foreign foods. James Fallows, who has written extensively about modern Japan, says Japanese industries that do not face international competition have come under no pressure to modernize and are consequently “way behind other industrialized countries.”
America’s food industry has always been a world leader. Only recently has Detroit learned how to protect itself against small, imported cars.
The story of Chrysler’s Neon is particularly illuminating.
Chrysler gambled that a Big Three car maker could build a small car at a profit--something that had rarely, if ever, been done. By the accounts of company officials and experts outside the firm, Chrysler invested approximately $1.3 billion in the Neon project--far less than General Motors invested in its Saturn.
That allowed Chrysler to hold down the sticker price and still make an astounding profit of between $3,000 and $4,000 on each Neon it sells to a dealer.
Borrowing heavily from the Japanese, Chrysler redesigned the way it builds cars. It brought workers, engineers, body designers and marketing experts into the picture from the beginning, saving what one Chrysler official estimated to be “hundreds of millions of dollars” in start-up costs and squeezed the time it took to begin producing the car, typically 60 months, nearly in half.
Production problems were largely ironed out before the assembly line launched operations. Workers got their hands on the assembly process in time to tell its designers that “I’d need three hands” to perform a particular step, says John Felice, the manager of the Neon factory.
“The secret of the auto miracle isn’t just getting a whole lot of robots,” said Robert Z. Lawrence, a Harvard economist. “It was the human relationship that needed to be restructured as much as the technology.”
All this has paid off for the men and women on the Neon assembly line, who received an average of $4,300 in profit sharing bonuses last year. And the company meanwhile turned a $3.7-billion profit.
Chrysler has reached this high only after painfully slashing roughly 57,000 jobs over the last 20 years from a high of 152,500 workers in 1973. The lost jobs have helped secure the future of those who remain, including Dave Brandt on the test track.
“I’ve seen more quality in the last five years than in the 25 years before,” he says. “Competitiveness has come to life in the auto industry.”