Wisconsin can compete on the global stage

John Doggett, senior lecturer and senior research fellow at the McCombs School of Business at the University of Texas at Austin, will be the keynote speaker of the Wisconsin International Trade Conference on May 13.

Doggett teaches courses in global competition, entrepreneurship and sustainability in UT’s MBA and Executive MBA programs in Austin, Dallas and Houston. He has taught in Austria, China, Japan, Korea, Malaysia, Mexico, Singapore, Taiwan and Thailand.

Doggett is an author and an expert in the areas of global competition, entrepreneurship and sustainability and has served as CEO advisor to numerous international companies.

Doggett was recently interviewed by BizTimes executive editor Steve Jagler. The following are excerpts from that interview. To register to attend the conference, visit www.wisconsintradeconference.org.

BizTimes: You’ve been involved in global trading to some degree for more than 30 years. In that time, so much has changed…The collapse of the Soviet Union, the historically compressed emergence of the Chinese economy, the enactment of NAFTA…Not to mention the Internet. How have these changes affected how business is done in the 21st Century?

Doggett: “This is the best time to be involved in global trade in the history of the world. The Internet makes data about and access to every market as close as your smart phone’s screen. Before the Internet, finding out data about prices, markets and competition was very difficult and expensive. Today, even children can do it.”

BizTimes: You wrote a book titled, “When We Are the Foreigners:  What Chinese Think about Working with Americans.” Well, what do the Chinese think about working with Americans?

Doggett: “The Chinese like working with Americans. They just think that we sometimes miss the subtleties of life when we do business with them. For example, in China, meals are central to every aspect of life, including doing business deals. As a result, it is normal to expect a business lunch to last up to two hours and a business dinner to take much of the evening. In China, trust is much more important in developing a long-term business relationship than price. The Chinese believe that most Americans are too impatient and are just interested in ‘the deal.’ It is crucial that you spend the time to develop a deep and lasting relationship with your Chinese business partners or employees if you want to maximize your success in doing business with the Chinese.”

BizTimes: Can you give us some examples of how specific American companies have figured out a way to do business in China?

Doggett: “Cadillac has been very successful in appealing to Chinese to want well-made, cutting-edge, flashy cars and SUVs that are price competitive. KFC makes more money in China than they make in the United States by providing clean, friendly, competitively priced food that is ‘adjusted’ to meet the needs of Chinese consumers. Apple has created a brand image that allows them to sell their products in China for more than they sell them in the United States, even though they are assembled in China.”

BizTimes: Can you give us some examples of how U.S. companies have failed in China?

Doggett: “The number one reason that companies fail in China is because they don’t do their homework beforehand. They believe that they can take the exact same product that is produced in America or designed for American consumers and sell them in China without adjusting their offerings to the needs of the Chinese market. Best Buy is an example of what not to do. The Chinese buy computers, cameras, smart phones and other electronic items from vendors who have small stores inside of large ‘electronic city’ buildings in all major cities. These buildings are shells that are filled with hundreds of small retailers organized by product line and floor. It is normal to have as many as 20 different retailers selling the same product under one roof. The reason that this works for Chinese consumers is that they love looking for deals and bargaining. The Best Buy model of having fixed prices for every product doesn’t work well in China. It they can’t do comparison shopping, many Chinese will just not go to your store.”

BizTimes: China is doubling down on its investments in high-speed rail. Europe is already connected by rail. From a global competitive perspective, would high-speed rail be a worthwhile investment for the United States? Specifically, would a high-speed rail line that connected Chicago through Milwaukee and Madison up to the Twin Cities help the Upper Midwest to become more globally competitive?

Doggett: “I am a big fan of using high-speed rail to connect dense urban areas.  The key is for them to be truly ‘high speed.’ Unless the top speed is 200 mph, they are not worth the cost. It is crucial to build them to world-class standards and build them quickly. I have taken Chinese high-speed trains from Beijing to Tianjin several times. They are truly amazing. The roadbed is so smooth and level, it is like you are riding in an airplane with zero turbulence. Their top speed is over 200 mph.”

BizTimes: Which industries hold the most promise for American companies exporting to the BRIC (Brazil, Russia, India and China) countries?

Doggett: “Shale gas and oil products and the technology to develop shale resources is our most attractive and competitive product today. We have a growing market for our coal since there will be no new coal plants built in America as long as we continue to produce an abundance of inexpensive natural gas. We also have an amazing global brand built around our culture, so movies, music and uniquely American luxury goods will continue to be attractive exports. Finally, we are entering a new era of almost unlimited demand for American agricultural products.  As China and India grow, they will want and need more and more food, and we should make sure that we sell it to them.”

BizTimes: How important is it for exporters to devise strategies specific to each BRIC country?

Doggett: “It is crucial. The culture, infrastructure and way of doing business in India are very, very different than those of Russia, Brazil or China. The nature of competition from Chinese firms is very different than those from Brazil, India or Russia. Doing business in Russia right now is unlike any place in the world. It is also important to understand the vast differences inside of each of these countries.  There are parts of India that are as different as Wisconsin and Mississippi. None of these are homogeneous countries, and if you don’t understand regional differences, you will underperform.”

BizTimes: What about our near neighbors, Canada and Mexico? What are the latest trends in those countries that American companies should be keeping their eyes on?

Doggett: “This year, Mexico passed Italy to become the 10th-largest economy in the world. Canada passed Spain to become the 13th-largest economy in the world. As Chinese labor costs continue to increase, we will see more manufacturing returning to Mexico. As Canada continues to encourage talented foreigners to move there, we will see more innovative products coming out of Canada. For example, I have seen a rapid expansion of new manufacturing capacity in Santa Teresa, which is just across the border from El Paso. And Lufa Farms, a Canadian firm, has become a world leader in rooftop farming technology. Since Mexico and Canada are our neighbors, America can become much more competitive if we view them as partners who are essential to our competitive capability. A perfect example is a report about cutting-edge new technologies commissioned by the Canadian government. It is the best out there, and most Americans are clueless that it even exists (www.horizons.gc.ca/eng/content/metascan-3-emerging-technologies-0).”

BizTimes: Southeastern Wisconsin is home to Joy Global Inc. and Caterpillar Inc.’s Global Mining Division. Both have sustained severe slowdowns in demand for mining equipment. The global slowdown has had an impact on Wisconsin’s net exports (see cover story). What is the outlook for global mining? Will it be picking up any time soon?

Doggett: “Mining is tied to the continued need for natural resources in China.  Unfortunately, the Chinese economy is slowing down. Now, slower growth in China means growth of 7 percent a year, so it is not as though China is falling off the table. But this does mean that demand will stay soft for the foreseeable future.  Part of it is because of the rule of large numbers. After growing by more than 10 percent a year for 30 years, it is simply impossible to keep growing at that rate.  Part of it is because China is a much more developed country than it used to be.  Part is because they are now buying control of raw materials in Africa and Latin America where they are sourcing mining equipment from non-U.S. vendors.”

BizTimes: How important is energy independence for the United States to compete on the global stage?

Doggett: “Energy imports comprise a significant percentage of our trade deficit with the rest of the world. We must become energy independent. Given what is happening with Russia, Ukraine and Europe, we have a once-in-a-lifetime opportunity to significantly increase our natural gas exports to Europe. If we take advantage of this opportunity, we will grow our economy by providing a viable, reliable, cost-effective alternative to the Russians.”

BizTimes: In recent years, Milwaukee has created the Global Water Center. It is making a concerted effort among its universities, its businesses and the city and state to become the fresh water hub of the world. Is this a winning strategy for the 21st Century?

Doggett: “Access to fresh water is the next ‘oil crisis,’ so what you are doing has strategic importance. But I would not limit myself to fresh water, since only 3 percent of all of the water on the planet is fresh water and two-thirds of that is in the ice packs of the North and South poles and our glaciers. I would encourage you to develop competence to participate in the rapidly expanding desalination industry.”

BizTimes: What is the outlook for a global company such as Glendale-based Johnson Controls Inc.?

Doggett: “The new ‘Internet of Things’ revolution has great potential for Johnson Controls.  By 2018, 18 billion devices will be connected to and communicating through the Internet. It is critical that Johnson Controls become a leader in this revolution. They have the history, the credibility, the technology and the people to do this. If they don’t, the future will not be pretty for them.”  

BizTimes: How can a small or medium-sized manufacturer take the first baby steps to exploring its options for exporting? What are those baby steps?

Doggett: “This is the easiest question that you have asked. Our government has an amazing and priceless resource for small to medium firms. It is called the United States Commercial Service and it is part of the Department of Commerce.  (www.trade.gov/cs). They have trade professionals in more than 100 U.S. cities and in more than 75 countries whose sole job is to help U.S. companies get started in exporting or increasing sales to new global markets. I have met several of these men and women overseas, and they know their stuff. Their ‘Gold Key Program’ will even conduct market research in targeted countries and then set you up with pre-screened companies before you go overseas. Milwaukee has a U.S. Export Assistance Center at the Milwaukee School of Engineering that can get you started.  You can reach them by calling (414) 297-3473.”

BizTimes: We sometimes hear of American companies that are “reshoring,” bringing jobs back to the United States. To what degree is this really happening? Do you expect that trend to continue?

Doggett: “It is happening, and the pace is picking up. There are several reasons why this is occurring. First, for call centers, Americans want to talk with people who have accents that they can understand. We want to talk with people who understand our standards for customer service. For example, it is now cheaper to hire Americans in Appalachia to answer telephones than people from other countries, when you factor in the cost of managing a foreign workforce, time zone challenges and different standards for service. Several major Indian outsourcing firms have started hiring Americans in the United States for these reasons.”

BizTimes: Do you have any specific thoughts about exporting strategies for Wisconsin companies? Are there any inherent advantages or disadvantages to being based in Wisconsin?

Doggett: “The first step is to understand what makes your product or service, unique, valuable and hard to imitate. If it is none of the above, you can only compete on volume, service and price. Once you understand why your current customers love your products, then you have to look overseas for markets that truly value what you have to offer. That is where working with U.S. Commercial Service professionals makes a huge difference. They exist to help American firms identify the best foreign markets for their products. Wisconsin is a wonderful state.  The work ethic of your people is a tremendous asset. The challenge for you is to find products and services that you can produce and export that stand out from the crowd. Remember, Skype, the internet phone service, was created by people in Tallinn, Estonia. If that small nation of 1.3 million can create Skype, just think what Wisconsin can create.”

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