Rethinking Multinational Corporations in a Global Economy
Rudolph A. Schlais, Jr.
Group Vice President, General Motors Corporation
President, General Motors Asia Pacific
Gary, thank you for the kind introduction, and thank you for inviting me to participate in this important meeting…in Hawaii…in March…less than three months into the new millennium.
I've spent the last five years in the Asia Pacific doing business, living, and learning and by anyone's measure that's a relatively short time, but it's nano seconds when you're talking thousands of years. That said, as I look back over the last five years, it seems to me, we've crammed a millennium worth of events into these last five years. Think about it, we've seen Asia roar, we've seen Asia collapse and we've seen Asia rebound…all in the space of a few short years.
This morning, I thought I would spend a few moments talking about what we've learned and how we can apply that to what we've been charged to do as members of PBEC. I'm going to talk in the context of the automotive business and in particular General Motors, not because I'm trying to sell cars, but because that is my business and that's what I know best.
Last year was an n incredible year for the global auto industry. New vehicle sales records were established in North America and Western Europe. Sales also grew strongly in Central and Eastern Europe. While sales in Asia were well off their recent peak, they showed a remarkable recovery. Latin America, in fact, was the only region that failed to provide a positive surprise in 1999.
For GM, 1999 was also a great year. Our unit sales increased about nine percent and the percentage increase in revenues was in the double digits. We set a new record for truck production in North America and a new record for vehicle production in Europe. And, most importantly, our global market share was up. All regions except Asia-Pacific showed an increase in market share, and today I will spend most of my time on the steps we are taking to grow in this region.
However, before I get to our Asia-Pacific strategy, let me spend a few minutes on some important recent developments in the global auto industry. The takeover of Chrysler by Daimler stands out in particular. Ever since this "merger of equals" created DaimlerChrysler, the industry has been buzzing about the next great merger or takeover. We have seen Ford take over Volvo and Land Rover while Renault has acquired a controlling position in Nissan. Most recently, there has been considerable speculation about a possible relationship between DaimlerChrysler and Mitsubishi. In addition, despite frequent denials by BMW and their decision to divest Rover and Land Rover, speculation continues that they will also be absorbed by one of the larger global auto companies. Finally, in this region, there is, as you know intense competition among Ford, DaimlerChrysler, Fiat, Hyundai and General Motors to acquire Daewoo Motor Company.
Some argue that the ongoing consolidation in the industry is the inevitable consequence of the increasing globalization of the auto industry. Indeed, the conventional wisdom in the industry is that only six or seven independent companies are likely to survive. Now there is some merit to this logic. The cost of developing new technologies to comply with increasingly stringent safety and emission requirements around the world is rising exponentially, making it difficult for smaller companies to stay in the game. Nonetheless, I remain skeptical of the view that the number of independent companies will decline sharply. We have been hearing about such consolidations for almost twenty years. Yet, the global market share of the top six companies has largely remained unchanged. Of course, the top six companies are somewhat different. More important, with vehicle sales expected to grow rapidly in a number of emerging markets, such as China and India, I would not be surprised to see new auto companies emerge in these countries. Finally, global corporations and globalization are not a new phenomenon.
If you look at economic and trade data, the current degree of international economic integration is only reaching the levels achieved before World War I. As a recent report by the Heritage Foundation points out, the laying of the Atlantic cable not the advent of the Internet, is what connected and integrated the New York and London financial markets. Brokers in New York began the day analyzing the London markets long before CNBC turned the process into a global spectator sport. Indeed, if globally integrated economies did not exist, the economic infrastructure needed to exploit much of the technological innovation that is occurring today also would not exist.
Global companies have also existed for much longer than many current "gurus" appear to recognize. General Motors has been a global company almost from its inception. We were incorporated in 1908 and made our first non-U.s. acquisition in 1909, with the purchase of Bedford Motors, Ltd., in the United Kingdom. General Motors rapidly expanded its international operations in the 1920s. Between 1923 and 1928, for example, we opened 19 assembly plants in 15 countries around the world. During this brief period, we also opened sales offices in dozens of other countries. We also purchased Vauxhall, Ltd. In the UK in 1925, Adam Opel, A.G. in Germany in 1929 and Holden in Australia in 1931. Incidentally, we accounted for more than 40 percent of the Japanese automotive market until the outbreak of World War II - I'd give my right arm to have a tenth of that today!
In short, globalization is not new. What is new is the way it is accelerating - the number of companies as well as the number of countries where they operate - and the way governments are dealing with the trend. Indeed, the interaction of changes in government policy and business innovation has actually made the trend even faster. Trade and investment liberalization especially stand out. For example, General Motors has greatly expanded its international operations in the last few years, taking advantage of new opportunities following the fall of communism in Europe as well as new growth opportunities in other regions. In the past few years, we have built or are in the process of building new assembly plants in Eastern Germany, Hungary, Poland, Argentina, Brazil, China, India, and Thailand.
What differentiates these plants from the ones we built in the 1920s and the 1030s is their size and intended markets. The earlier plants were designed to serve the market of one nation because trade barriers ruled out selling their output in other nations. The new plants, in contrast, are designed to build a variety of different vehicle models and to serve both local and regional markets. For example, our plants in Argentina and Brazil are expected to supply to entire Mercosur area; the plant in Poland is expected to supply markets in Eastern and Western Europe; and, the plant in Thailand is expected to serve ASEAN and other markets. The plant in China was designed primarily for the immense potential Chinese market, but it would not have been possible without liberalization of trade and investment rules.
General Motors' competitors are also taking advantage of the more liberal trade and investment rules. Indeed, the auto industry has been at the forefront of globalization. While GM and Ford have been expanding their operations outside the United States, foreign auto companies have been building plants in the United States. In addition, we have seen a number or cross-border mergers and acquisitions. The net result is that all the major auto companies now compete on a global scale.
For GM, Asia remains the focal point of this competition. We have concluded that in order to remain the largest auto company in the world, we have to become one of the top three players in the Asia-Pacific region. That is quite a challenge - but a challenge that we accept.
However, we recognize that our traditional approach of growth through acquisitions and/or building new plants unlikely to suffice. No automaker, even one as large as GM, today has the resources to achieve leadership in all regions and all product segments on its own. So, we recognize that "Big is Best." Where we differ is in the way we define "Big."
Our approach is to develop long-term alliances with other independent companies that offer a unique advantage to the General Motors group of brands and businesses. This allows us to be Big and Fast, which I think is the real key to success. In many ways it's the EU, the NAFTA, the Mercosur, the AFTA approach to business.
GM's traditional approach, in contrast, was to go it alone. Believe it or not, we actually had a written policy requiring one hundred percent ownership of all non-US automotive operations all the way up to the 1970s. Once we got over that policy, however, we formed alliances with Isuzu in 1971 and Suzuki in 1981. The key to the success and longevity of these alliances is simple: Each partner gained something from the other - either product strength, economies of scale, or market reach - that it could not have gained on its own. Each partner's approach was to learn from the other rather than try to control it, and each retained its own unique business vision and strategy.
The recent strengthening of these alliances follows this same philosophy. The closer relationship with Isuzu enhances General Motors' position in diesel engine technology and in the Asia-Pacific market. At the same time, it enhances Isuzu's access to markets, to capital and to gasoline engine technology. Similarly, the closer relationship with Suzuki gives General Motors the advantage of Suzuki's unrivaled leadership in min-vehicles, particularly in the Asia-Pacific market. Suzuki, in turn, gains access to General Motors' broader product development resources and global market reach.
Fuji Heavy Industries, of course, is a new alliance, less than six months old. It's another win-win. We gain Fuji Heavy's strength in small utility vehicles, continuously variable transmissions, and all-wheel-drive systems, where its Subaru brand is the world leader. Fuji Heavy, in turn, gains our strength in other technologies and vehicle platforms. And just a few weeks after the Fuji announcement, we established a new relationship with Honda.
Initially, Honda will supply us with six-cylinder engines and transmissions for future vehicle, and our GM group partner Isuzu will supply Honda with diesel engines for the European market. We are also discussing collaboration with Honda on other technology and business opportunities. We expect the value of the experience of working together, getting to know each other at the individual level as well as at the company level, to far outweigh the limited scope of this initial agreement.
In the case of Toyota, we have expanded our business relationship from the original NUMMI operation to a new collaboration in the crucial area of advanced vehicle propulsion technology. Each side was doing unique work with hybrid gasoline and fuel cell propulsion systems and pure hydrogen fuel. It made sense to share our expertise and resources rather than try to go it alone.
And just this past Monday, we announced a new strategic alliance with Fiat applying the Asia Pacific alliance model. Again, each side brings a unique advantage to the other, and each side retains its own identity and continues to pursue its own business vision and objectives.
Of course, we will not rule out acquisitions and mergers as opportunities arise - one example being our decision to increase our equity in Saab to one hundred percent. However, the alliance strategy is our major thrust, and it is clearly a different approach to growth than most people have associated with General Motors - or with the rest of the industry, for that matter.
We think the more appropriate phrase to describe ourselves today is "the General Motors Group" rather than the contrasting image of General Motors as "a nation unto itself." That phrase was coined by David Halberstam, who also wrote a book called The Reckoning that had Ford on its death bed and Nissan on top of the world - which just goes to show how constant the process of change really is.
GM's approach to global alliances and partnerships may not be appropriate for every company. However, I believe it is the right approach for us. More important, I am confident that just as GM's traditional organization became the model for many companies in the United States and around the world, GM's new approach to global growth will be widely studied and copied.
In our alliance model, we work on the assumption that both companies are stronger together than they are apart. In our alliance model, the cooperative approach does not depend on having equity control. The key factor is trust between the organizations, particularly at the upper management levels. This trust allows each partner to independently make decisions on his company's needs in the marketplace, and at the same time, leverage joint strategic portfolio, and technical and functional expertise of the other partner. It becomes Win-Win.
This is an approach that has worked well for nations. Think about it, aren't trade agreements simply alliances formed by like-minded nations to increase their combined output? Indeed, nations join trade agreements because it allows them to gain the economic advantages that a larger economy can provide, but allows them to retain their national identities.
Again, cooperation does not imply the dominance of one nation over another. The key success factors are the same - whether it is an alliance of companies or nations. It's mutual trust and the willingness to accept that another nation (or company) can produce some products or services at a lower cost than you can, resulting in a "win-win."
Now that the Asian crisis is behind us, and I firmly believe that it is, we need to start planting the seeds for future growth. In particular, we need to begin implementing policies that will move the entire region forward. We once again need to apply energy toward APEC's Early Voluntary Sectoral Liberalization initiatives and better yet towards implementing the ASEAN Free Trade agreement. And here too with AFTA, we can take a lesson from the GM business alliance model. To get this moving fast, we need to look:
- Beyond control - to cooperation
- Beyond superiority - to synergy
- Beyond mistrust - to trust.
I believe, we can do this because like the principle upon which we built the GM Group Business Alliance Model, nations are individually stronger when they work together. But the ultimate winner is the "people" of the nations and the "customers" of business.
Thank you.