Kotler News

These purchases and new facilities are not simply a response to cheap assets in a distressed U.S. economy. Chinese companies, either State-Owned or private, do not spend money on faltering or worthless foreign assets. The acquired companies are making money and profits, but their future survival as suppliers to top American industrial purchasers is questionable, because their purchases cannot meet the high profit margins that top U.S. companies are seeking and getting in exports to developing markets. This trend of U.S. top business global strategy is revealed in a current report conducted by Kotler Marketing Group USA, entitled “Marketing through Difficult Times”. The report is available at www.kotlermarketing.com.

The KMG study interviewed 190 CEOS and senior marketing and general management executives of top U.S. companies on their major strategies for profit growth in the current weak domestic economy. Corporate profitability during this difficult period rests upon foreign sales driven by five strategies: 1) Emphasis on product profitability; 2) Increased use of digital marketing communication; 3) Increased reliance on Strategic Account Management; 4) Reducing the number of marketing employees; and 5) Expanding the responsibilities of the sales force. Each of these factors is rich in strategic implications for large Chinese enterprises that are fashioning international marketing strategies.

Recent product profitability of large U.S. corporations is due to the shift of manufacturing and sales from on-shore to off-shore purchasers. GE saw U.S. revenues in core industrial businesses shrink 3.4% during the second quarter of 2011, while its international revenues soared 23%, accounting for the 59% of the company’s total industrial revenue. GEs China business rose 35% to $1.2 billion and it orders increased 80 percent. Forty six percent of its work force is in the U.S.; but mostly producing for export. For example, every gas turbine manufactured by its 3,000 workers in its Greenville facility is exported. GE announced its policy of maintaining only half of its work force in the U.S. This means that its capitalization for new manufacturing facilities will be primarily off-shore. As off-shore facilities advance in technology and capacity, they will absorb current U.S. export sales and further reduce GE operations in the U.S.

Air Products & Chemicals, a major global supplier of argon, oxygen and other industrial gases, will split its capital investment equally between the U.S. and Asia.

Caterpillar reported a 44% rise in 2011 second quarter profits to $1.02 billion, most of this in foreign sales. Ninety per cent of the large mining trucks it makes in the U.S. are exported. More than half of 17,000 new hires this year are off-shore. According to Richard Lavin, President of Caterpillar’s Global Construction Business, “We have got to win in China…if we do not lead in China we’re not going to be the global industry leader”. While Caterpillar excavator sales increased in China this year 52%, Sany grew its excavator sales 97%. Caterpillar is splitting its $3 billion capitalization for new projects in half between the U.S. and foreign markets, principally China.

This data suggests that large U.S. companies are strategically limiting their capitalization, employment and sales in the U.S. economy, while pursuing higher profit margins off-shore. While this trend is a short term detriment to the U.S. economy, it is good news for the Asian economy, U.S. corporate shareholders, and finally, and most importantly, for Chinese manufacturers, since they can pick up the slack and serve the U.S. industrial purchasers, as well as export purchasers, that do not meet Caterpillar’s profit margin requirements. This brings us to the third finding of our study.

Executives report an increased reliance on Strategic Account Management. This means that Caterpillar, GE, and its cohort of top global U.S. manufacturers are shedding their small customers at home and abroad and focusing on their large, high profit accounts. Chinese mainland manufacturers are already benefitting from this policy by selling to smaller purchasers in developing markets. However, the major new opportunity is for large scale Chinese manufacturers to come to the U.S. and supply this SME industrial sector, abandoned by the top U.S. manufacturers. U.S. SME competitors that historically competed with the top makers to sell to industrial buyers at a lower price do not have the scale or credit today to get this business. Companies like Sany, AVIC, Huawei, ZTE, Goodpower, BYD, Haier and many other well capitalized industrial manufacturers have an open door foothold to build facilities in the U.S. to sell to small account purchasers at a suitable profit margin, though less than top U.S. makers, and eventually win larger domestic and foreign accounts. Sany’s new facility in Peachtree, GA is going to do this.

Our further finding on the reduction of U.S. based marketing staff by the large corporations reinforces the focus on strategic accounts. The main point is that there is a growing unmet U.S. market for small and mid-size industrial purchasers to whom the top U.S. manufacturers are paying less marketing attention. China has the capital and international marketing strategy to fill this gap. Further research should be done to size these different neglected industrial market sectors and develop strategies and tactics for capturing this segment that the top U.S. makers are forsaking.

In coming years we may see the ironic reversal of global development. From 1982 forward, inbound FDI has rapidly advanced the Chinese industrial economy. From 2011 forward, Chinese in-bound FDI to the U.S. may revive the U.S, industrial economy.