The catchphrase “going global” generally has meant expensive forays into foreign lands with the hope of a payoff years down the road.
Now, decades after many U.S. corporations set up their first factories or sales offices abroad, their efforts are finally yielding major dividends.
International sales and profits are reaching significant levels at an increasing number of firms, from industrial stalwarts like General Electric Co. to technology leaders such as Dell Inc. and eBay Inc. At the online auction service, more than half its users live outside the U.S.
“In order to be competitive in our industry, you must be global,” said Steve Schuckenbrock, executive vice president of global sales and client solutions for Plano, Texas-based Electronic Data Systems Corp.
Half of revenue last year at the giant technology services provider was generated beyond the 50 states, while half of operating income in its key outsourcing business came from Europe, the Middle East, Africa, Asia and Australia.
As they set their sights abroad, many businesses are becoming less dependent on the home market for growth and profitability, a trend that could have serious consequences for U.S. employment and taxation.
“This is extremely good for companies that are able to function in a global marketplace,” said Zachary Karabell, a senior economic analyst at Fred Alger Management Inc., a New York investment firm. But “it clearly is a challenge for both workers who aren’t as mobile and for governments.”
Karabell and his colleagues found that 101 companies listed on the Standard & Poor’s 500 index derived between 20 percent and 40 percent of revenue last year from outside the United States. For an additional 100 firms, international markets accounted for 40 percent to 60 percent of revenue.
The push for sales and profits abroad is driven by a variety of factors:
Governments around the world are dismantling trade barriers and onerous regulations, making it easier to do business overseas.
U.S. markets are becoming increasingly saturated, with firms struggling to cope with stiff price competition and slowing growth rates. Many overseas markets, by contrast, are booming.
In some cases, particularly in manufacturing, companies are being forced to follow their customers to foreign lands or lose valuable contracts.
And decades of economic development in countries such as China and India have created a sizable and expanding middle class that can afford to buy American products like never before.
“Globalization is not just U.S. companies being able to source abroad, but also others being able to purchase from us,” said Michael Czinkota, professor of international marketing at Georgetown University’s McDonough School of Business.
The results are showing up on corporate bottom lines.
Last year, almost 27 percent of U.S. corporate profits were earned outside the United States, compared with only 18 percent in 1998, according to the U.S. Bureau of Economic Analysis.
To be sure, going global involves plenty of risks, from currency swings to sudden political upheavals and high start-up costs.
In many cases, profit margins are lower than those in the United States. But as companies increasingly rely on overseas markets, they’re learning how to overcome these obstacles.
Often, that means targeting their resources at countries with the greatest potential for sales growth.
That’s the case at Kimberly-Clark Corp., the Irving, Texas-based maker of Kleenex tissues and Huggies diapers. Since January 2004, the company has been focusing on six countries that contain nearly half the world’s population: Brazil, Russia, India, China, Indonesia and Turkey.
These countries and other developing nations represent Kimberly-Clark’s fastest growing markets, accounting for 23 percent of sales and 17 percent of operating profits.
Those percentages could rise much higher. In China and Indonesia, babies usually wear cloth diapers. Kimberly-Clark has found disposable diapers are used only 5 percent of the time.
To reach consumers in those untapped markets, Kimberly-Clark sells its Huggies diapers at three different prices, hoping to appeal to families at all income levels.
Its lowest-cost diaper, for instance, doesn’t include features found on premium products, including stretchable side panels, a Velcro fastening system and a clothlike outer cover.
Sometimes the diapers are sold individually instead of in a pack.
“We had to approach these markets in a different way,” said Robert Abernathy, Kimberly-Clark’s group president of developing and emerging markets.
Like Kimberly-Clark, restaurant chain T.G.I. Friday’s Inc. is concentrating on select countries. It is aiming its expansion efforts at 15 of the 54 nations where its restaurants operate, said Steve King, chief operating officer of Friday’s international business.
The fixation on international markets is sparking changes throughout corporate America.
Companies are reorganizing their operations, snapping up stakes in foreign firms and expanding their workforces beyond U.S. shores.
At EDS, whose global operations flourished in the 1980s and early “90s thanks to former parent General Motors Corp., international business also ranks as a top priority.
EDS wants its clients to consistently access high-quality, low-cost information technology services anywhere around the globe, Schuckenbrock said.
To do that, EDS is investing half a billion dollars in technology this year. And it is tailoring its marketing so that its brand and advertisements resonate worldwide, not just in the United States.
International acquisitions are also part of EDS’ strategy, primarily in the fast-growth Chinese market.
Already, EDS employs more workers outside its home market. Only 44 percent of its 118,000 employees reside in the United States.
Many companies are rapidly expanding their foreign operations. The investments are affecting U.S. workers in myriad ways, from layoffs to overseas assignments.
At the minimum, it means days filled with satellite meetings, late-night conference calls and international flights.
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At Texas Instruments Inc., Dave Pahl used to fly to Japan once a month and to India each quarter when he managed digital camera products for the semiconductor giant.
“I found staying up and getting on the time zone, no matter what, was the only way to make it,” said Pahl, director of investor relations since October. He found the travel schedule “tough mentally and physically.”
Such grueling routines have become common for TI employees as Asia plays a larger role in the world semiconductor market.
The United States accounts for only 20 percent of Dallas-based TI’s semiconductor revenue, down from slightly over 30 percent 10 years ago.
“A larger portion of revenue and profits are derived from products that ship out of the U.S.,” Pahl said.
Yet globalization sometimes works in circuitous routes.
Take the case of one of TI’s popular products, digital light processor chips, which produce crisp images for high-definition TVs and projectors.
TI employees design the chips in Plano and make them in Dallas. Then the chips are shipped to electronics firms in Japan and Korea.
Where do many of these TVs eventually land? In Americans’ living rooms.
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