The Internationalization of Business: One Company's Response

M y focus today is on two topics: What the emergence of a global marketplace has meant to Cummins as a manufacturing company and the lessons we have learned in responding to the internationalization of business. First I need to say a few words about Cummins Engine Company. Cummins is an independent manufacturer of diesel engines and related products and services. Although you probably don't realize it, you have a "passing" acquaintance with Cummins, since we power about 60% of the big trucks on U.S. highways. We are a $2.5 billion company with 22,000 employees worldwide, headquartered in Columbus, Indiana. Our sales mix is 70% U.S. business and 30% international, with the international portion growing steadily. Twenty-eight percent of our people live and work outside the United States, and 21% of our material sourcing in the engine business is done outside the United States as measured by value. In our newer engines, the percentage is much higher about 50%. Cummins has had a worldwide presence since World War 11, when Cummins-powered trucks such as Patton's Red Ball Express that rolled across Europe in 1944 -supplied the Allied military campaigns around the world. After the war, equipment was left behind for local salvage and reuse of the vehicle or engine and, as a result, we had to establish a parts distribution and service network to serve these customers. Between 1950 and 1975, U.S. domestic demand was explosive and our major international activities were limited to a few countries such as Mexico, Canada, the United Kingdom, and India. The emergence of the global marketplace as a center-ring business issue occurred for us in the latter part of the 1970s. There were four key reasons for this, which meant new opportunities and new competition for us. First, we began to look in earnest for major new market opportunities outside the United States. Domestic GNP growth, industrialization, and infrastructure building slowed during that period, and in the developed world we began facing a battle for market share that we were determined to win. But we believed then, and do today, that newly industrializing countries (NICs) are the best long-term bet for engine market growth. Those countries have enormous infrastructure and transportation needs, and with their planned economies they often prefer to select a "partner technologist" in each key industry. With so many of our eggs in the diesel basket, we decided that it is imperative to be on the inside of these controlled markets. As the leading diesel technologist, we've won more than our share: Mexico and China are good examples. Second, we are constantly seeking high-quality, lowcost sources for forgings, castings, and machined components. This is because product cost reduction is one of our highest priorities. In the past, our supply base was almost exclusively in the United States, the United Kingdom, and more recently, Japan. International sources are more important to us now, especially the NICs. The NICs will grow in importance as their industrial capacity expands beyond the ability to serve only their domestic manufacturers, and they can supply us in the volumes we require. Third, the worldwide diesel engine industry is rationalizing. This is the process of taking out excess and obsolete capacity, much of which was built in the 1960s and 1970s in anticipation of continued rapid economic growth. Current estimates place worldwide diesel capacity at roughly half the current annual demand and production. Rationalization is a worldwide process, and it is vital for us to emerge as a winner. Fourth, in the early 1980s, we and our U.S. OEM (Original Equipment Manufacturers) customers felt for the first time the hot breath of foreign competition in "our" market the U.S. heavy truck and equipment market. The competition came first from the European truck manufacturers like Volvo and Mercedes Benz, then from Japanese manufacturers like Komatsu and Hino, who offered both complete vehicles or pieces of equipment, or loose engines. Whatever the source and the form of the foreign competition, if successful it would mean the same thing for Cummins: the sale of fewer engines and service parts. These four conditions new markets, new sources of supply, rationalization, and new competition thrust upon us the need to manage with a far more global perspective and with much greater international activity than ever before. I want to be specific about what that has meant for