Competing Successfully in a Global Marketplace

By Robert W. Lane Chairman & Chief Executive Officer

Job Vacancies, Employment Jobs, Employment

The premise that globalization is inevitable.

Let's start tonight with the premise that globalization is inevitable. In thinking about globalization, Professors Bernard and Rectanus have compiled a wonderfully diverse collection of speakers for this course and I'm honored to be part of what I'm sure has been a fascinating overview of today's world. No doubt, you've heard over the past few months a wide variety of opinion about globalization — both pro and con. I'm not here to debate whether globalization is good or bad, but simply to reinforce what you've already learned, from the perspective of someone who works in a global environment every day. And I can tell you - from multiple angles at John Deere - however you look at it, globalization is inevitable...affecting the farmer in Story County, Iowa as well as the shopkeeper in Shanghai. Maybe a few of you saw this in the news a couple weeks ago....General Electric — a global company with a market capitalization of $380 billion - reported that in the next ten years, 60 percent of their revenue growth is expected to come from developing countries, as compared to 20 percent in the past decade. That's a pretty remarkable jump and is additional evidence of the undeniable influence globalization has on businesses today. Globalization affects virtually everything we do at John Deere — from supplier sourcing, to manufacturing processes, to recruiting highly-skilled men and women from all over the world. In addition to these direct impacts, the indirect effects to our farmer customers are enormous. Today, we ship combines made in East Moline, Illinois to the former Soviet Union, Chinese combines to the Middle East, Brazilian combines to Europe, and German and Indian tractors to the U.S. In fact, to be competitive, we produce a tractor in Augusta, Georgia that is assembled largely with parts received from 12 other countries! And in Waterloo, Iowa, one of every four tractors produced at that plant is exported from the United States to any one of more than 110 countries on six continents. Our business — and those like ours that support farmer customers is extremely dependant on the global economy. In fact, economist Fred Bergsten says that one half of U.S. productivity is the result of globalization. He goes on to predict that over the next five years, the U.S. and China will be the key drivers in the world economy. If you take a closer look at China, a country where two thirds of its people are engaged in agriculture, you'll find that two years ago, they represented four percent of the world economy in terms of gross domestic product. By comparison, the U.S. and the European Union represented 30 percent. But as you may know, China's GDP growth rate has been about nine percent for each of the past 13 years, and some experts project that country's gross domestic product to be larger than the U.S. by 2050. As China surges forward, along with other developing countries, their income levels rise and diets change. There becomes a larger demand for meat, in turn driving demand for commodities such as corn, sorghum and soy products. And that, of course, has the potential to benefit farmers throughout the world, as well as manufacturers such as John Deere who produce machinery for growing and harvesting these crops. Thanks to globalization, John Deere has enormous opportunities to build upon a history that spans 168 years. More liberal trade policies will help immensely. A more relaxed global trade environment appears to be emerging with predictions of reduced trade barriers and fewer export and domestic subsidies. This is encouraging news to us at John Deere, where exports not only drive our business, but importantly, drive many of our customers' businesses as well. Whether the customer is right here in Iowa or in Brazil, it's vital to have trade agreements in place that are fair, strategic and enforced, and that allow for a level playing field. In the past two years, the United States has concluded or advanced trade agreements on several levels, through the Free Trade Agreement of the Americas and with the global community through the WTO's Doha Development Round. That strategy has created a dynamic that former U.S. Trade Representative Bob Zoellick refers to as "competitive liberalization," whereby competition among nations to grow their own exports and access new markets creates the economic incentive to open up their own markets to foreign goods. Indeed, the World Bank reports that countries that opened their economies to trade experienced a five percent increase in per capita GDP relative to non-globalizers. Through our global public affairs department in Washington, D.C., John Deere works vigorously to ensure that barriers to manufactured products are reduced, (especially in developing countries), markets are expanded and the economic benefits of trade are realized at home and in the markets where we do business. Any of you who have taken economics courses are likely familiar with Ricardo's Theory of Comparative Advantage. According to the theory, each country should specialize in the products that it can produce most readily and cheaply, and trade those products for goods that foreign countries can produce most efficiently. For example, Brazil is strong in soybean production and India excels in information technology services. China is positioned to compete well in labor intensive products such as fresh fruits and vegetables, although it is challenged in water resources and arable land. Here in North America, and especially the Midwest, we have a comparative advantage in corn production due to our rich soil and balanced seasons. Today, nearly 200 years after Mr. Ricardo first proposed his theory of comparative advantage, we better understand the dangers of protectionism and the benefits to nations from free trade. Offsetting the great opportunities the global marketplace offers businesses like John Deere today, are corresponding realities and demanding challenges. We operate in an extremely competitive environment, facing competition for product inputs, technology, financial capital and the best employees. And we must do all of this in a sustainable manner if we are to prosper and survive. But one of the biggest challenges in a global company is how to build high performance teamwork around a consistent strategy while accounting for employees' diverse cultures and perspectives. Let's look at this second aspect of globalization. Crossing global cultures to build high performance teamwork. From a management point of view, John Deere is extremely fortunate to be governed by a board of directors that brings a variety of global views to the table, with members born, raised and educated in India, Canada, Mexico, Germany, and of course, the United States, as typified by Dr. Coffman, a native of Kinross, Iowa. Their experiences and worldly perspectives are invaluable in guiding our company through the global marketplace. In addition, most of our senior management team and many of our top officers have lived and worked overseas sometime during their John Deere careers... gaining indispensable experiences and understanding of overseas markets. But getting employees of a large corporation rowing in the same direction is not easily accomplished. Allow me to tell you how we're making real progress in meeting this challenge. When I was privileged to take over the reins at John Deere five years ago, the board of directors gave me responsibility for leading a company that, under the strong leadership of my predecessors, had recovered admirably from the farm crisis in the 1980s, was growing globally, but was not always, what I would term, a consistent great business from an investor's point of view. In consultation with our senior managers, we developed a strategy we identified as "Building a Business as Great as Our Products." Everyone agreed that Deere had great products. Of course, they can always be better, but they are indeed great. Our aspiration was to build a business as great as these great products. The foundation of this strategy is using enduring Shareholder Value Added (SVA) as the financial measure of success. This links the operating profit of the business to the cost of the assets employed to produce the profits. As we engaged our global workforce in this enormous SVA initiative, we described it to analysts and others as the 3 A's — Aspiration, Alignment and Awards. The first "A" — Aspiration The first "A" — Aspiration - concerned our lofty aim to perform on average, better than our previous best. Think about it. You are all likely highly skilled in math. Performing on average, better than our previous best is a tall order when the previous best was already at an impressively high level. The SVA metrics helped explain in relatively simple terms, how we could drive enormous changes in decisions, behaviors and results to meet this strategy. Strategic communication was key to achieving success and we took the SVA story on the road. We needed to stay on point and be consistent to gain universal understanding. Whether talking to the president of the UAW, to Wall Street analysts, employees, dealers or suppliers, we delivered a uniform message everywhere. The second "A" — Alignment Then came the hard part — Alignment. It's not easy getting people from all different types of backgrounds and cultures, living in multiple countries, all working together. The day after I became CEO, I met with our top 200 managers and I displayed a single figure on a slide. If you had a chance to show only one slide on your second day of work, what would it be? Why would I choose the number 18-thousand? Well, I'll tell you. At the time, 18-thousand was the number of salaried workers we had around the world. I told the managers that to get alignment started among all of our more than 40-thousand global employees at the time, we would begin with the salaried workers. Within six months, all 18-thousand salaried employees would have online, written performance objectives. And each of those objectives would be aligned with our company's business objectives. This came to be known as Deere's Performance Management System and continues today to be a powerful way to align employees to the business. In fact, the Performance Management System is utilized on the John Deere intranet in nine languages. We've found that when employees, wherever they are in the world, understand where they fit in the business strategy, it becomes reflected in their work and actions. My thought was that if we could get 18-thousand John Deere people (who I believe are almost always unusually committed and special people) — if we could get those 18-thousand people working and pulling together worldwide, and then include all employees, both salaried and hourly, the results would be awesome! Products and services can always be copied; the only thing our competitors cannot duplicate over time is our employees. They are a most distinctive asset, highly leveraged by how they work together. Wherever they were in the world, we found John Deere employees able to identify with our need to work together. Actually implementing the performance management system across many cultures, however, took some doing. First, there were the obvious translation issues. We had to adapt for cultures that were more autocratic in terms of manager/employee relationships and others that were more team-oriented. Some cultures were not conducive to rating employees. And the performance management system actually became a point of negotiation in countries where Works Councils — which are one form of international employee representation — act for virtually the entire professional workforce. Now, five years later, we've seen great success building a performance-driven culture based on aligned teamwork. We had a terrific year in 2004, with a breakthrough level of record sales and profits...evidence of the powerful impact of aligned, committed employees united in a common cause and moving in a common direction. Strong markets, of course, were necessary, but not sufficient to deliver such unmatched performance. There's more to do, but the momentum is underway! The third "A" — Awards That's a natural segue to our third A — Awards. We told employees that a very positive and tangible outcome of aspiration and alignment would be Awards — including the monetary kind. Employees like to win and they like to be justly rewarded for hard work and meeting and exceeding expectations. We developed a rewards structure that is oriented toward long-term results that occur with a fully disciplined, high-performing business organization. These awards pay out over time, only when alignment to business objectives is sustained. So as you can see, Aspirations, Alignment and Awards have helped John Deere build high performance teamwork around the world. But let me emphasize that being successful in a global marketplace is meaningless for John Deere if it's done in a way that's inconsistent with our company's principles. Profitable results simply cannot be sustained if they are not rooted in core values. As you've seen in recent years, a company's credibility is exceedingly important and can be lost very quickly! At John Deere, we still operate by the four core values our founder first exhibited — those being quality, innovation, integrity and commitment. In fact, the pioneer blacksmith is well known for saying "I will never put my name on a product that does not have in it, the best that is in me." As John Deere understood well in his day, HOW you do business is a differentiator. And in today's crowded global environment, it can definitely be a long term competitive advantage. Around the office we like to say "no smoke, no mirrors, no tricks, right down the middle." That's the way we want to do business and it is a fundamental element of the John Deere culture. How students might better prepare Now, many of you tonight are close to starting or re-launching your careers and I thought I'd wrap up my comments with some personal thoughts about how you might best prepare yourself for working in a global marketplace. You're already taking a step in the right direction by participating in this course. As I mentioned earlier, by the looks of the course syllabus, you've been exposed to some intriguing opinions about our world today — a world that has changed immensely from when your parents went to school. At that time, the chances of interacting with people from other countries were limited. Today a growing number of American companies are global in scope and there's a high probability that you'll end up working on international projects or quite possibly relocating outside the U.S. for a time. Get ready to continue your education for a lifetime! First, it's critical to keep re-wiring your brain to thinking globally. Your competition isn't necessarily the person at the next desk, but the woman in India or the man in China. We're looking for bright, imaginative and dedicated talent able to work well with other people, often people not like themselves. And we can hunt for those sorts of people all over the world! So it pays to develop competencies that support global business. Things like cross-cultural awareness, flexibility, language skills, sensitivity, the ability to value differences in people and the ability to understand nonverbal communications styles. I also recommend reading widely. As a starter, I would suggest you read The Economist magazine every week to broaden your global perceptions. Having lived in Germany for several years and traveling extensively around the world, I speak from experience and can't emphasize enough the importance of making time to understand other countries' cultures, languages and history. How decisions are made, how people negotiate — these can be vastly different from one place to another. When my family and I first located to Germany in the early 80's, we sought out a small German town in which to live, away from the American community. We attended a local German church and enrolled our children in German schools. We immersed ourselves in German culture, and found the experience invaluable in terms of building positive relationships on both professional and personal levels. It's also important to remember that being part of a global operation means work goes on round the clock — someone is producing your product on the other side of the globe, and your project teammates likely are working in multiple time zones. Global manufacturing can be a competitive advantage for a company, but it does require flexibility on the part of its employees in various parts of the world. If you have the chance, I'd highly recommend studying or working overseas before you graduate. That's the best way to learn firsthand the unique characteristics of other cultures. At the very least, build friendships with students who are different than you and who can share their ways of life. Finally, the technical skills you gain with an engineering degree can be a springboard to many other opportunities. Take Mike Mack for instance, my colleague I mentioned at the beginning of my comments. Mike graduated from Iowa State with bachelor's and master's degrees in mechanical engineering. Yet he has held positions at Deere in information systems, finance, business development, strategic planning and he's lived in Germany for a period. Mike's been an engineering manager, purchasing manager and plant manager at the factory level and has overseen marketing and sales in our Commercial and Consumer Equipment division. Currently he's Vice President and Treasurer of the company. I'm sure Mike would tell you that his willingness to adapt and be flexible has paid large dividends in his career. I'd like to close with a thought from Nobel Prize-winning economist Milton Friedman, who, I believe, sums up the challenges global corporations face today quite succinctly. He says this: "Today, it is possible to produce product anywhere, using resources from anywhere, by a company located anywhere, to be sold anywhere." Our world today, is indeed a very small place. With the birth of modern technology and communications, we have experienced the death of distance. A necessary condition for businesses to survive — and thrive - in the global arena is to embrace the world's cultural differences. At John Deere, this is a key part of an aligned, high performing workforce and vital to delivering performance that endures. Thank you.