Others Still Embrace All-American Know-How
Amid accounting scandals, falling stock prices and a declining dollar, it is fair to ask what is America’s economic place in the world and what is the outlook on this Fourth of July.
The answer, still, is that the U.S. has an innovative economy that teaches the world how to do business and raise living standards. Not much has changed despite the repeated beating corporate reputations are taking.
But the late-1990s days of effortless dominance by U.S. companies are truly over. U.S. business faces challenges at home and abroad. The spread of China into every aspect of economic endeavor poses threats to U.S. manufacturing as well as opportunities for U.S. ingenuity.
Yet U.S. business practices and thinking will continue to lead the world--as they have since the nation’s beginnings over two centuries ago. To understand why, it’s good to examine a couple of companies that are doing brisk business worldwide by infusing humble products with innovation and drive.
Avery Dennison Corp. of Pasadena is building four new plants in China to make labels for consumer and office products, graphics for trucks and factories, and tickets and tags for clothing.
The new factories, built with an investment of $50 million, will add to the company’s existing plants in Shanghai and Hong Kong, says Philip M. Neal, chief executive of the firm, which had $3.8 billion in sales last year.
3M Co., the St. Paul, Minn.-based maker of Post-it Notes and Scotch tape, is supplying China’s explosive demand for splices for electrical wiring and reflective signs for highways, plus products for health care and dentistry. The company gets 53% of its $16-billion annual sales from abroad.
What is notable about both companies’ growing sales in China is that they stem from rising living standards. China is building its infrastructure and therefore needs electrical wiring and road signs.
Chinese consumer goods are wrapped in more attractive packaging and need sophisticated labels that print easily on plastic and glass. Clothing, whether for domestic use in China or shipments abroad, need labels, price tags and sales tickets.
But that U.S. companies are reaping such seemingly routine business is testimony to applied research and product development in Pasadena; St. Paul; Austin, Texas; Painesville, Ohio; and other locations at which Avery and 3M employ about 10% of their 90,000 people in research and development.
3M’s expertise in electrical wiring began decades ago when it developed black tape for electricians; Avery Dennison, the maker of no-lick postage stamps, has developed hundreds of advances in labeling.
The U.S. companies’ knowledge goes beyond products to management of global information and distribution networks. “We have developed software that connects every shipment of clothing from factories in Thailand, China, Korea and other sites in Asia with proper tags for size, color and price,” says Neal of Avery Dennison.
“Moreover, we now have developed software that prevents mistakes in shipping. A purple, size-10 sweater cannot be shipped in a box calling for green, size-8 sweaters,” Neal says. The company is marketing the expertise to manufacturers, shippers and retailers worldwide.
What U.S. companies are selling of course is knowledge--whether it’s termed information or software or management education or the motion picture, television and music products of Hollywood. Formal statistics for U.S. exports, which show $11 billion for education, for example, or $22 billion in royalties on intellectual property, scarcely capture the hundreds of billions of dollars in knowledge that the U.S. economy sends out to the world.
Which is not to say that everything is just fine today. The misdeeds of companies boosting stock prices by phony accounting have diminished confidence in U.S. companies and led to a worrisome dumping by foreign investors of U.S. bonds and stocks.
In matters of competitiveness, many U.S. manufacturers are hurting. David Castro, head of San Luis Obispo-based El Dorado Enterprises, a distributor of machine tools, complains that low-priced tools from China are flooding the U.S. market, driving domestic toolmakers out of business.
In knowledge industries, renewed competition from Japan will surprise U.S. companies in the next five years, predicts UCLA professor Ronald Morse, an expert on Japan.
What can be done about that? Companies must fight for markets and demand fair treatment. But with a long-term U.S. interest in rising living standards in developing countries such as China (and Latin America), the U.S. government is not going to keep their products out of our market.
U.S. companies will have to stress the advances and knowledge in their products and systems. And thus they will have to rely on skilled workers and innovative management systems. It’s noteworthy that industry has been slow to resume hiring in the recovery from the post-boom recession. “We’re seeing a productivity recovery, not a payroll one,” says economist Diane Swonk of Bank One Corp. in Chicago. “Companies are looking to hire only skilled workers.”
It has been that way from the start--knowledge has been a driver of U.S. industry since 1789, when New England industrialists such as Francis Cabot Lowell set up the new American factory system.
It was different from England’s factory system at that time, writes historian Daniel Boorstin in “The Americans: The National Experience.” England’s industrialists took their workers “from a large pool of paupers” with little education or hope.
But New England factory owners didn’t want a poor “factory class” but rather workers who could be trained to improve their skills and who wanted to move on--”men on the move rather than in the groove,” in Boorstin’s words.
Today, U.S. business has the same need of skilled workers and must take steps to improve education and training for them if it is to continue to prosper by selling knowledge to the world. That’s the lesson--and the caution--for this Independence Day.
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James Flanigan can be reached at jim.flanigan@latimes.com.
