America's New Competitive Muscle

By Richard Lacayo

On the wall of Scott Montgomery's office in Georgetown, Connecticut, is a list of the 62 countries, from Japan to Poland, where Cannondale bikes does business. "I have it up there for inspiration," says Montgomery, vice president of marketing. The company's ledger numbers are even more inspiring. In 1988 foreign sales accounted for 5% of its $30 million in revenue, Montgomery says. Last year they rose to 40%, while overall sales zoomed to $100 million. "We have to go where the markets are," he explains. "You have to fight on all fronts."

He isn't the first American to think so. "No nation was ever ruined by trade," said Benjamin Franklin. But opponents of NAFTA felt otherwise, inspired in part by fears that American companies couldn't make it in foreign markets. Given the sizable U.S. trade deficits of the 1980s, that sinking feeling was understandable. In fact, the gap this year may be the worst since 1988, an estimated $117 billion, up from last year's $84.3 billion. The main cause is the global recession, which slows demand for U.S. exports, while America's gathering recovery has boosted the demand for imports.

Yet by many important measures, U.S. companies like Cannondale are now muscular performers in the world market and equipped to do even better as trade barriers fall. The U.S. shipped out a record $448.2 billion in exports last year, resuming for the second year in a row its longtime position as the world's largest exporter (a title it lost to Germany every year but one between 1986 and 1990). Significantly, most of the increase in exports came from sales by small and medium-size companies, which are rapidly learning to think globally.

Since exports have accounted for 55% of U.S. economic growth since 1987, tariff reductions of the kind ensured by NAFTA are certain to make American industry even more trade-oriented. Bill Clinton's effort to promote freer trade along the Pacific Rim also comes at a time when demand for consumer items -- everything from sports equipment to kitchen appliances -- is rising in Asian nations that have long given priority to savings over spending. "With Asia growing through the creation of domestic demand, we can jump in," says Lawrence Chimerine of the Economic Strategy Institute, a think tank in Washington.

The U.S. is once again the world leader in productivity -- output per worker-hour -- the most important measure of an economy's power to compete. After more than two decades of healthy annual advances, American nonfarm productivity growth declined and sometimes reversed after 1973. Last year it grew nearly 3%, much of it due to blood-curdling corporate restructuring that was marked by increased automation, layoffs and lower wages. "The Europeans have barely begun that process," says William Archey, a senior vice president of the U.S. Chamber of Commerce.

One example is Boeing, the largest U.S. exporter, which produces 60% of the world's commercial aircraft. Hobbled by U.S. defense cuts and a global slump in the airline industry, Boeing's 1993 third-quarter profits slid 45% from last year. In response, the company is cutting 23,000 jobs through mid-1994 while at the same time attempting to slash in half its 12-to-18-month delivery time for planes.

American firms are also beginning to capitalize on their strong points. "Service is an unappreciated American specialty," says Eric Lesin, president of AAC Systems, based in Pasadena, California, a company that sells computerized cost-control systems for large telephone networks. "Sony can snap out a Walkman, but they can't send you a technician to fix it." The priority given by foreign buyers to quality and service allows American exporters to de-emphasize price cutting, which is one reason export-related jobs in the U.S. pay on average 17% more than jobs that produce goods sold only domestically.

Increased experience abroad has also taught companies the ins and outs of foreign sales. Microsoft, the software giant based in Washington State, has learned to use foreign employees to staff its overseas marketing and distribution operations. International sales represent 55% of the company's $3.8 billion annual revenues, up from about 45% five years ago. "The local employees understand the bureaucracy and how to get through the red tape, which is usually much worse than in this country," says Charles Stevens, Microsoft's general manager for worldwide business strategy. "They also understand the customer."

Yet export growth won't excite American workers very much until they see more of the benefits that American businesses are reaping. For three decades after World War II, higher American wages followed closely upon improvements in productivity. That stalled when companies grew bloated in the 1970s and early '80s. After the widespread layoffs that ensued, labor found itself in a weakened position, which allowed employers to hoard the new gains as productivity turned back up.

The further growth of American trade will also require sustained attention on the outside world, which the debate over NAFTA went some way to promote. . Not long ago, Pasadena's Lesin had trouble cashing a check from Puerto Rico at his bank, where employees thought it looked kind of foreign. "Do you even know where that is?" Lesin asked. "Sure," replied the manager. "Next to Argentina." Note to some Americans: To get on the road to riches, the first thing you need is a map.

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With reporting by Jordan Bonfante/Los Angeles and John F. Dickerson/New York