Embracing Globalism:The China Factor

April 1, 2006
"I can think of no faster path to a worldwide recession than for the United States and China to turn against one another."

As National Manufacturing Week wrapped up late last month near Chicago, one thing was abundantly clear. U.S. manufacturers are being squeezed by global economic factors that range from labor, energy and raw material costs to trade and monetary policies.

James Owens, chairman and chief executive officer of Caterpillar Inc., summed up the situation in his NMW keynote address. “The United States can no longer go it alone in a global economy…operating as a single-engine plane trying to pull the rest of the world along with us. We need a second engine for growth, and China, along with its Asian neighbors, is providing it.”

Owens had harsh words for U.S. policymakers who are pushing for trade protectionist policies and unilateral sanctions against China. He cited specifically the proposed Schumer-Graham bill that imposes a 27.5 percent tariff on China’s exports to the United States if China does not allow the yuan to significantly strengthen against the dollar. “I can think of no faster path to a worldwide recession than for the twin engines of the global economy—the United States and China—to turn against one another.”

More than survival

Perhaps Owens sounds like just another fat-cat CEO, sacrificing American jobs for shareholder profits. But let’s take a closer look at Caterpillar’s track record on the global scene.

The Peoria, Ill.-based company is enjoying some of its most successful years in its 81-year history. In sharp contrast to the U.S. automotive companies, Caterpillar —with 2005 revenues of $36.3 billion—has just come off of its second year of record sales and profits. During the past five years, its workforce has grown 20 percent and its stock price has more than tripled.

Much of this growth can be traced back to difficult, and sometimes unpopular, decisions the company made in the 1980s and ’90s. According to Owens, Cat early on proactively addressed healthcare costs and invested substantially to improve productivity and flexible sourcing.

Cat stepped up investment in employee development and today spends almost $900 per employee on training each year. The company has also been a leader in cross-training programs for hourly employees, and international opportunities for its engineers and management.

My good friend, Michael, joined Caterpillar back in the early ’80s, after we graduated with our degrees in mechanical engineering. While some of us went off to seek our fortunes in aerospace, chemicals, consumer goods and telecommunications, Michael staked his future on this Midwest manufacturer of construction equipment. During a time of double-digit percentage wage gains, Michael remained loyal to a company that actually froze wages for several years. He’s been rewarded with a fascinating career that’s included a stint in the Soviet bloc, training Russian diamond mine workers on Cat equipment.

Investment in people is one of the four success factors Owens outlined in his keynote address. The other steps he recommends U.S. manufacturers take include designing and producing the highest-quality products; deploying lean manufacturing, automation, robotics and just-in-time logistics; and embracing global competition as an opportunity to become stronger and more efficient.

“Caterpillar is thriving today not because we survived globalism, but because we embraced it,” said Owens. As proof, Owens noted that whenever Caterpillar invests in another country, it also increases its exports to that country. “Take China, for example. We have more than doubled our Chinese workforce and significantly expanded sales there. At the same time, we have increased our U.S. exports to China by 40 percent, helping to create some 5,000 new production jobs here in the United States.”

Jane Gerold Editoral Content Director

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