Indifference to Exports, Poor Quality and Low Productivity Blamed : Much of Trade Deficit May Be Made in the U.S.A.

HIGH POINT, N.C. —  The urgent cable from the U.S. Embassy in West Germany waxed ecstatic about the potential for new business opportunities there.

West Germans were clamoring for American-style furniture, and, for the first time, U.S. furniture makers would be offered special space rates at the annual European-wide trade fair in Cologne. The ambassador asked if they would be interested.

The response was as weak as a plywood porch chair. American manufacturers, absorbed in preparing for regional trade shows of their own, did not even take time to answer. Eventually, embarrassed U.S. officials--and sheepish industry promoters--had to cancel out. “It was too short a time frame,” shrugged Doug Brackett, executive director of the American Furniture Manufacturers’ Assn.

The incident underscores a point: For all the current grousing in Washington about the impact of “unfair” foreign trade barriers, most of this country’s huge $116-billion foreign trade deficit is made in America. If the United States is losing the economic competition with the rest of the world, it needs look no further than at its own economic policies and, more particularly, at its own businesses’ lack of serious interest in competing.

“Our trade deficit is our own damned fault,” asserts Barry P. Bosworth, a Brookings Institution economist.

There is a bright side to that observation. If America is responsible for most of its trade deficit, then it is also in a position to do something about it. Carla A. Hills, the U.S. trade representative, notes that apart from slashing imports and reducing its living standard, the United States can trim back its trade deficit only by exporting more. Expanding exports, she said, is “the far preferable alternative.”

Yet a new study by Korn/Ferry International, in cooperation with Columbia University’s Graduate School of Business, found “powerful evidence that the size and diversity of the American marketplace and a history of economic pre-eminence are blinding American (business leaders) to the demand for global business skills.”

It warned that “the insularity of U.S. attitudes” threatens to doom the United States to “lagging competitiveness.”

Such complacency might once have been understandable. Just after World War II, the study pointed out, the United States had by far the largest market in the world, the most advanced technology and facilities, the best-trained personnel and the most prosperous consumers. No one here really needed to worry about exports, and almost no one did.

Now, warns a report by the Massachusetts Institute of Technology’s Commission on Industrial Productivity, “the international business environment has changed irrevocably.” Both Japan and Western Europe have become tough and effective competitors, and countries such as South Korea and Brazil are enjoying successes in fields ranging from steelmaking and shipbuilding to microchips and consumer electronics.

U.S. business no longer can dominate by default. Now it must compete.

But to a large extent, it has not adapted to the new environment of global competition. Foreigners commonly complain that American suppliers have become lulled into complacency by the huge U.S. market and regard their export businesses as incidental add-ons.

Poorer Quality

“American exporters have a tendency to look at exports as icing on the cake,” said David VanVoorhis, a trade specialist with Euro-USA Inc., a Hamburg, West Germany, consulting firm.

Many U.S. manufacturers refuse to tailor their products for other markets or to print their sales brochures in other languages. And especially in recent years, foreigners say, the quality of many American products has been no match for the competition.

“U.S. firms simply are not exploiting the opportunities that are open to them,” said Achim A. Stoehr, a director of Arthur D. Little Co. in Wiesbaden, West Germany. “In many cases, they just aren’t interested.”

There are signs of gradual change. An increasing number of U.S. companies have taken advantage of the sharp decline of the dollar’s value in the past four years, which has reduced the price of American-made goods in world markets. U.S. exports have soared from $206 billion in 1983 to $322 billion in 1988 and will reach an estimated $378 billion this year, the Commerce Department said.

William Archey, a former government trade official now at the U.S. Chamber of Commerce, said U.S. firms, particularly small high-tech companies, have become much more eager to export. “The awareness of what U.S. corporations have to do is much more pronounced than it was two years ago,” he said. “Two years from now, it’ll be a changed ballgame.”

Don Hunziker, chairman of Ladd Furniture Co. here in High Point, offers a case in point. Until only recently, Hunziker, like many U.S. furniture makers, was simply uninterested in tapping overseas markets. Domestic sales were doing fine, and exporting looked risky at best.

This year, by contrast, Hunziker’s firm will do $5 million in export sales, up from zero the year before. And it is looking forward to big gains in 1990, when it plans to sell hotel furniture in Japan.

Productivity Is Key

But substantial problems linger. Many U.S. companies simply do not have the capacity to meet the continuing demand at home and to produce for the growing export market. Shortages have developed in steel, aluminum and other products. American companies must invest more, both to expand and to modernize.

Nor has the United States seriously addressed the problem of how to spur productivity, which has been growing far more slowly in the United States than in any of its major competitor nations in recent years. “The productivity issue is the key to our future well-being,” said Robert Z. Lawrence, a Brookings Institution economist.

The MIT commission found a widespread perception throughout the world that U.S.-made products are inferior, that factories here are inefficient, that workers are indifferent and poorly trained and that managers too often seek quick profits rather than long-term gains. “Some of the charges can be backed up by quantitative evidence,” the study concluded.

James Abegglen, an American economist and business consultant who has been living in Tokyo for 21 years, said U.S. firms often fail to provide reliable service.

“If you talk to Japanese, Americans are the least attractive suppliers,” Abegglen said. “To them, we’re notorious for not delivering when supplies are short. We’ll service customers at home but let exports go by the board.”

Quality is a major problem for American goods, Abegglen said, as much because it is so erratic as that it is uniformly inferior. “A buyer can live with almost any level of quality, but what he can’t take is superb quality one week and a piece of junk the next,” Abegglen said.

He added that some U.S. exporters ship their goods through Europe so that their goods will not have to carry the “Made in America” tag. “The Japanese buy them more readily,” he said.

Don’t Blame Barriers

Tyll Necker, president of Hako-Werck GmbH, a West German manufacturer of industrial sweepers and automatic scrubbers, once turned to American-made electric motors, but he eventually gave up after they proved too noisy and unreliable. “We have some quality problems with American products,” he said.

Although American firms face some serious trade barriers when they try to sell their goods overseas, Georgetown University trade analyst Gary Clyde Hufbauer estimates that they account for only 10% to 20% of the U.S. trade deficit. And when U.S. trade negotiators have managed to break down institutional foreign barriers to U.S. goods, American firms frequently have failed to exploit their new opportunities.

In one celebrated case in 1984, American officials spent hundreds of negotiating hours persuading Japan to drop its barriers to American-made aluminum baseball bats. But five years later, only one U.S. firm, Easton Aluminum Co. of Van Nuys, has seriously tried to market baseball bats in Japan. The rest apparently decided that selling under Japan’s arcane but fast-changing product-distribution system was too much trouble.

“We never got anything going,” conceded Jess Heald, president of Worth Sports Co. of Tullahoma, Tenn.

Likewise, in another case that involved massive effort, U.S. negotiators prodded the Japanese government in 1987 to allow foreign firms to bid on big Japanese construction projects. But it was months before American companies even bothered to bid.

“It’s pretty discouraging,” said Michael B. Smith, the former U.S. trade negotiator who put together the accord. “When the Japanese say in the construction case the Americans aren’t trying hard, they may have a point.”

Other Nations Benefit

When Japan stepped up its purchases of foreign-made manufactured goods in mid-1987, it was mainly West German and Southeast Asian firms that reaped the initial spoils. Although the situation has started to improve this year, U.S. companies often have lacked either the interest or the production capability to serve the Japanese market.

Similarly, U.S. efforts to prod Tokyo into buying more American-produced beef and citrus products have resulted in a bonanza for Australia and Italy, whose producers flooded the market at lower prices.

Tom De Seve, a Commerce Department export counselor in Rockford, Ill., said “fear of the unknown” is what prevents U.S. firms from jumping into export markets.

“They’re afraid they won’t get paid,” he said. “They know nothing about international finance. They don’t speak a foreign language. They don’t want to retool their product lines to accommodate varying style preferences. They think it’s too much trouble to translate their product literature into foreign languages.”

The Bush Administration is slowly beginning to explore ways to nudge the economy toward greater export capacity. A team headed by Michael J. Boskin, chairman of the President’s Council of Economic Advisers, is considering regulatory and tax measures designed to encourage savings, with the expectation that some of the savings would be invested in plants that could produce goods for export. Also, later this year, the White House is expected to propose legislation to ease antitrust restrictions that are impeding U.S. firms.

Senior Administration strategists also believe that the United States must act soon to make substantial improvements in the nation’s educational system. “The truth is, Pogo was right,” said a top Bush adviser. “ ‘We have met the enemy, and he is us.’ ”

Rep. Richard A. Gephardt (D-Mo.), who ran for President on a platform of getting tough with foreigners on trade issues, believes that pressure from the White House could spur more business owners to become like High Point’s Hunziker and begin exporting. “The President should use the bully pulpit,” Gephardt argued. “He’s got to raise people’s consciousness, to make exporting a national priority.”

More Opportunities

In addition, said the U.S. Chamber’s Archey, small- and medium-sized businesses still need more technical help at the grass-roots level in the form of both timely market information and counseling on how to establish contacts and begin shipping. “The businesses themselves realize and want this,” Archey said.

The opportunities to sell overseas are growing. The Japanese market is beginning to open up as it never has before. Japan’s archaic product distribution system is starting to come apart under pressure from Japan’s own retailers. And Japanese consumers are beginning to demand more imports.

At the same time, the effort by the 12-nation European Community to create a single, continent-wide market by 1992 is holding out the prospect of further sales opportunities for American firms. Archey said even those businesses that do not plan to export need to stay abreast of what’s going on. “You’d better find out what your competitors are doing,” he said.

By all accounts, the American business community can begin resolving the nation’s trade problem only when it acknowledges its own responsibility for a substantial share of what is wrong. Said Daniel C. Colombo, an Indianapolis export counselor: “They have to wake up and understand.”