- The Washington Times - Tuesday, December 28, 2004

Part two of five

Coke, Big Macs and IPods.

The United States creates some of the world’s most innovative products, dominating brands and profitable business models, exporting them around the globe with tremendous success.

Of the world’s 100 most valuable brands, 62 are American, according to Interbrand, a consulting group that annually evaluates products. It’s a fair accomplishment for a country that produces less than one-third of the world’s economic output.

“It’s testimony to the superior marketing and business acumen of American companies. We punch 200 percent of our business weight,” says John Quelch, a Harvard Business School professor who has studied and written about global brands.

The successes of companies such as Coca-Cola, McDonald’s and Apple create wealth and jobs in the United States and overseas. But American brands also generate resentment, copycats and fierce competition.

Business and commerce is one arena where the world is increasingly “American.” This series examines nonmilitary, nonpolitical aspects of this pervasive U.S. influence — from democratic ideals and entrepreneurial ingenuity to language, sports and popular culture — and some of the consequences of this influence.

The United States is the world’s leading exporter and importer, and its companies spend more money establishing and expanding overseas operations than those of any other nation.

In 2003, U.S. exports of merchandise and commercial services totaled $1.01 trillion, according to the World Trade Organization (WTO). Top exports include $46.1 billion in semiconductors, $31.3 billion in computer accessories, $36.2 billion in vehicle parts, $22.1 billion in cars, $23.3 billion in civilian aircraft and $20.5 billion in pharmaceuticals, according to 2003 Commerce Department statistics.

The United States plays another important role as the world’s largest market, with free-spending consumers looking for good deals on quality products.

U.S. imports of merchandise in 2003 more than doubled those of the second-leading country. Consumers and companies bought $1.3 trillion in goods and an additional $229 billion in services, the WTO says.

“The U.S. is the locomotive for global growth. If we were not providing that stimulus, it seems quite possible that the rest of the world economy would slip back into recession,” says Kent Hughes, director of the America and the Global Economy Project at the Woodrow Wilson Center.

More than a market

American consumers are not just a market; they are an entire business model for some companies.

“It’s 100 percent [that] we sell in the United States,” says Ziad Salah, commercial and finance manager for United Garment Manufacturing Co. The Amman, Jordan, company makes pants, jackets and other clothes and sells them to retailers such as Wal-Mart and Target.

The enterprise employs 750 workers. Each of the 300,000 garments made every month goes to the United States.

“If the U.S. market is open, it will create more opportunity and employ a lot of people — it will reduce unemployment in Jordan,” Mr. Salah says.

But America’s role as the world’s most voracious consumer may not be sustainable.

The U.S. current account deficit, the broadest measure of trade, hit $164.7 billion in the third quarter of 2004. The figure represents 6 percent of U.S. economic output and is a record. The deficit is financed by borrowing from abroad and foreign investment in the United States.

Continuing deficits has made the United States the world’s leading debtor. Other nations held almost $2.7 trillion in government and private U.S. securities, stocks, bonds, cash and other assets at the end of 2003, according to the Bureau of Economic Analysis. That position is expected to worsen.

“A quarter of a century ago, the United States was still the largest net lender on earth; 20 years ago, its global assets still exceeded its liabilities. Today, however, its net investment position is sinking below negative $3 trillion,” Peter G. Peterson, chairman of the Council on Foreign Relations and a Nixon administration commerce secretary, writes in the September-October issue of Foreign Affairs. “Americans may hope that the rest of the world will go on lending unlimited funds forever. That wish, however, is unrealistic.”

Mr. Peterson says the United States must export more and save more while the rest of the world must import more and consume more, an adjustment that requires substantial shifts of labor, capital and culture.

“Although no one can predict how the current imbalance in the global economy will play out, trade economists marvel at just how many ways this lopsided flywheel can spin off the axle,” Mr. Peterson says.

Investing abroad

Even as the rest of the world finances American consumption, U.S. companies invest more than their counterparts from other nations in new operations abroad.

U.S. foreign direct investment was $1.3 trillion from 1994 through 2003, according to the Organization for Economic Cooperation and Development (OECD). Britain was next, with $878 billion.

The OECD argument, which has its critics, is that foreign investment brings higher wages and introduces new technologies and managerial skills to developing countries. The investments contribute to rising prosperity and create demand for exports from wealthy economies, it says.

Until 2003, the United States also was the world’s leading recipient of foreign investment. But dollar figures are dropping, from $321 billion during 2000 to $39.9 billion last year.

China and Hong Kong together received $66 billion, the OECD said, knocking the United States off its perch as the world’s top destination for foreign investment.

Aspiring countries hope to surpass the United States in other areas as well. And many believe that the United States — because of its trade deficit, budget deficit and an unpopular war in Iraq — is particularly susceptible to competition.

“Most astute people around the world realize that America is very vulnerable. Its economy is held together by the ability to attract investment and capital. The whole of the American system, which has been a glowing success story, it could come to an end very quickly,” says Kalle Lasn, editor in chief of Adbusters, a counterculture magazine that encouraged boycotts against American brands after the U.S.-led invasion of Iraq.

“It is time for the backlash, time for the American economy to get its comeuppance,” says Mr. Lasn, a native Estonian who now lives in Canada.

Competing images

The Financial Times in October reported that Coca-Cola, McDonald’s, Marlboro, General Motors, Disney, Wal-Mart and the Gap all were struggling in “old Europe.”

The London newspaper ascribed declining or stagnating sales to anti-American sentiment, and some observers agree.

“Many in the world have been upset for quite some time over what they perceive as an invasion of American culture and values and bad corporate behavior. And the trend is not limited to Western Europe and the Middle East,” Mike Eskew, chairman and chief executive of UPS, writes in the October edition of Globalist, an online magazine.

Any downturn in overseas sales would hurt the bottom line of America’s strongest brands. McDonald’s, for example, earned $1.85 billion in Europe and Asia through the nine months ending Sept. 30. U.S. earnings totaled $1.75 billion during the same time.

Apple’s net sales for fiscal 2004, which ended Sept. 25, hit $4 billion in the Americas, almost $1.8 billion in Europe and $677 million in Japan. The company’s sales growth was led by the IPod, designed in California but assembled in China.

Coke’s North American net operating revenues were almost $5.1 billion for the three quarters ending Sept. 30, while Asia’s were $3.6 billion; Europe, Eurasia and the Middle East were $5.5 billion; Latin America was $1.5 billion; and Africa was $736 million.

Harvard’s Mr. Quelch, however, says there is no longer a strong link between perceptions of American politics and consumer behavior. A survey of consumers worldwide, published in September’s Harvard Business Review, indicates that the consumers bought or refused products because of the global image of the individual product, not its identification with America.

“What we didn’t find was anti-American sentiment that colored judgments about U.S.-based global brands,” Mr. Quelch says in the article.

Keep making good products that people want, and they will sell.

Emulating America

Still, the United States competes fiercely with counterparts around the world. In an increasingly global world, that competition often places workers on the front lines.

Sandra Polaski, senior associate at the Carnegie Endowment for International Peace, says the Cold War’s end — and the ascendance of market-driven economies — brought hundreds of millions of workers into the global economy. Technological changes allow them to compete directly with each other.

“The scale of the labor supply shock is unlike anything experienced before. These changes have brought the two largest countries in the world, China and India, fully into the global production system, along with hundreds of millions of workers in other formerly socialist countries,” Ms. Polaski writes in an article published this year.

The oversupply depresses wages. It also means that countries like India and China can produce goods more cheaply than the United States.

But developing countries are no longer solely interested in operating as cheap-labor manufacturing platforms. China, Brazil, India and other increasingly assertive nations often try to emulate American success in educating their work forces, attracting talent and developing new products.

“I would still put a lot of emphasis on the importance of ideas. The United States is not just a productive leader, but an innovative leader. The [middle-income] countries are trying to replicate American success,” says the Wilson Center’s Mr. Hughes.

Developed and developing nations have created rivals to U.S. industries that, at one time, seemed unassailable.

Airplane manufacturer Airbus, a European consortium based in France, in 2001 overtook Chicago-based Boeing as the world’s top seller of commercial aircraft.

China-based Lenovo this year bought the personal-computer operations of IBM.

Japan’s Toyota Motor Corp. overtook Ford Motor as the number two automaker, by vehicle sales, in 2003. And Toyota’s $10.2 billion in earnings for its fiscal year ending in March is more than General Motors, Ford and DaimlerChrysler combined.

Challenges of innovation

“America’s economic and political standing are fundamentally bound up in our capacity as a society to innovate, and we now face much more serious competitive challenges from new centers of innovation across an increasingly interconnected planet,” the December report of the Council on Competitiveness says.

Six of the world’s 25 most competitive information-technology companies are based in the United States, according to the council, a nonprofit group of companies such as IBM and General Motors and universities such as Stanford and Columbia.

Foreign-owned companies and foreign-born inventors account for nearly half of all U.S. patents, the council’s report says.

“We believe that the bar for innovation is rising. And simply running in place will not be enough to sustain America’s leadership in the 21st century,” the report concludes. “Innovation itself — where it comes from and how it creates value — is changing.”

Part I:

America enjoys view from the top

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