US FIRMS FACE GLOBAL CHALLENGE

Understanding the truly global nature of today's business environment is a challenge facing U.S. manufacturers.

It is important to understand that the multinational corporation and the global corporation are not the same animal. The multinational corporation operates in a number of countries where, in each case, it adjusts with great care - and therefore high relative costs - to the special needs and conditions of a particular country.In contrast, the global corporation operates as if the entire world - or major regions of it - were a single, largely identical entity. In other words, it sells the same goods in the same way everywhere, and usually at a lower relative cost than a multinational organization.

At the same time, a powerful force - technology - now drives the world toward a single, converging commonality. It has leveled communication, transport and travel, making them easily and cheaply accessible to the world's most isolated places.

More and more, it shapes them into a global oneness, in effect homogenizing markets everywhere.

Let me give you one example. Arthur C. Clarke, the science-fiction author who wrote the book "2001", on which the classic film was based, lives in one of the most remote spots on earth - Sri Lanka in southeast Asia. Yet, a satellite dish in his backyard enables him to scoop the world's television programs from the sky, and communicate with his publishers and other writers in New York and London via his computer terminal.

The result is a new commercial reality - the explosive emergence of global markets for globally standardized goods - gigantic world-scale markets of previously unimagined size and magnitude.

Companies able to gear to this new reality can be expected to generate enormous economies of scale in production, distribution, marketing and management. When these advantages are translated into equivalently reduced world prices, they stand to sink competitors who still live and operate amid the old assumptions about how the world works.

What does the transition from a multinational to a global business posture mean to us here today?

First it means that we must develop a truly international perspective in the United States or face the loss of our competitive position in additional industrial markets and eventually in the service sector as well. It's no secret that continued losses will eventually erode our standard of living.

I am one who doesn't accept as inevitable that all our manufacturing industries must be lost to low-labor-cost and low-investment-cost producers. I do, however, feel that increasingly we must use capital and technological expertise - rather than labor - to achieve a competitive advantage in the world.

Also, we can achieve this competitive posture by enhancing capital formation instead of building trade barriers. Our government should provide incentives for capital formation by eliminating taxes on corporations, or providing large tax incentives to stimulate investment.

Actions such as these are the best methods to drive innovation, technology and productivity and correct the trade imbalance. They would also help improve our budget deficit and restore the global competitiveness of U.S. business.

Management must understand the competitive world in which we live and take action to protect as many jobs as possible by modernizing operations - working, wherever necessary, with other bodies to design and implement programs for retraining.

However, as we move to greater use of robotics and other forms of automation, investment costs increase. Thus, labor must be retrained to service the new equipment and to fill jobs in emerging new businesses.

The transition will be difficult, and requires an understanding on the part of labor that many of the high-paying jobs that provided premium wages in the 1960s and 1970s no longer exist. People must be retrained, and have a degree of mobility to participate in this era of change.

Government, which has a significant role in the process, must understand how its programs impact on the competitive posture of the United States. To do this, it helps to have an understanding of how other governments - particularly in Europe and the Pacific rim - have structured their impact on the productive sector of their economies to help them achieve a competitive advantage.

They have, for example, developed guidelines for safety and environmental protection, incorporating the most cost effective means of improvement. At the same time, they have not restricted new and more efficient materials or work practices.

Lastly, and probably most important, they have collected most of their revenue through consumption taxes rather than by taxing capital and producers - a practice that penalizes the working sector of the economy and ultimately sacrifices jobs to foreign competition.

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