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Thanks, Chris, for that nice introduction.
It is exciting to be part of the World Trade
Celebration and to be in the company of so many other people who understand
the importance of international trade to the success of companies in the
United States and Canada.
I am going to spend a few minutes this evening sharing
my thoughts on the enormous role international trade plays at Cummins and on
what it takes to be competitive in America.
Before I jump into the heart of my remarks, I wanted to
take just a moment to thank the World Trade Center - Buffalo Niagara for its
efforts to promote trade across upstate New York, the Southern Tier and
Ontario.
The World Trade Center, much like the 300 similar
organizations around the world, provides invaluable support to businesses
that understand that success in today’s global marketplace requires
operating with a world view.
Please join me in a round of applause for our hosts
this evening.
Although most of you probably have some idea of who we
are and what we do at Cummins, I thought it may be helpful to give you a
brief overview of our company.
Cummins is the world’s largest independent manufacturer
of diesel engines and related components. In addition to producing engines,
we are a leading maker of power generation products and have four components
businesses, which manufacture filtration products, exhaust aftertreatment
systems, turbochargers and fuel systems.
We also have a worldwide distribution business that
serves customers in more than 160 countries and territories through a
network of 5,500 distributor and dealer locations.
Our products range from small engines for equipment
like irrigation pumps, fork lifts and home generators … to medium and
heavy-duty engines for pickups, Class 8 trucks and construction equipment …
to high horsepower engines for mining equipment, power generation,
commercial marine and oil and gas applications – as well as a variety of
components that we sell to our competitors.
We are a Fortune 250 company based in Indiana that is
doing very well, despite economic uncertainty in the U.S. But we didn’t
enter the decade in such good shape.
The economy and many of our markets took a major
downturn starting in the third week of June in the year 2000. In 2001, our
sales were $5.7 billion – and we lost $103 million.
Compare that to last year, when we earned after-tax
profits of $739 million on sales of $13 billion. The last four years have
been the best four-year period for Cummins in terms of after-tax profits as
a percentage of sales since the 1960s when the U.S. heavy-duty truck market
rapidly dieselized.
In fact, total shareholder returns have averaged 58
percent a year for the past five years – 9th best among the Fortune 500 over
that period.
To be fair, Cummins has benefited from a strong economy
in most of the world – until recent months, anyway. But our improvement
wasn’t simply a matter of Cummins riding the economic wave – and it didn’t
happen by accident.
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We changed the way we went to market in the
heavy-duty truck engine business and reduced fixed costs. This resulted
in the 2002 consolidation of our heavy-duty engine manufacturing
operations in Jamestown, New York.
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We decided to make the investment in technology
that was necessary to hit the tough new emissions standards in 2002 and
beyond on time while others lobbied for delay. This decision has
contributed greatly to the significant market share growth we have seen
in the last couple of years.
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We successfully reorganized our power generation
business and our approach to pursuing market opportunity.
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In order to become truly efficient in customer
support, we decided to move to fewer, larger North American
distributorships in which we took an equity stake where it made sense,
and
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We thoroughly studied market opportunities in
India, China and Russia and have aggressively pursued them since.
We also introduced Six Sigma early in the decade, not
only as a way to improve quality and reduce costs, but to enhance our
overall execution skills as well.
We used Six Sigma tools to determine where we should
focus effort and achieve alignment, and to help us learn to meet deadlines
better.
Since the beginning of the decade, we have completed
almost 11,000 projects. We have another 2,800 underway today with more than
4,500 in the hopper waiting for a belt to be assigned.
The point is, we took a hard look at ourselves, didn’t
like what we saw and made significant changes. Good things happened as a
result of these changes.
We hit all the major emissions change dates, and more
importantly to customers, our products have proven to be consistently better
than our competition in markets like heavy-duty truck, medium-duty truck,
transit bus, RV, pick-up truck, construction, commercial marine and power
generation.
So, while many of our North American markets are flat
or down right now, share growth -- due to having better products -- has
largely mitigated the impact on us.
Also, our global network was strengthened and our
international business grew faster. Non-U.S. sales accounted for 54 percent
of our business in 2007, and 57 percent in the first quarter of this year.
Our Jamestown Engine Plant, which is about 75 miles
southwest of here, benefited greatly from the significant strategic changes
we made. In September 2002 about 750 people worked in the plant, building
about 125 heavy-duty engines a day. Today we have nearly 1,500 people
building an average of 460 engines a day – more productively thanks to the
plant’s innovative team-based work system.
As such, our Jamestown Plant has been an engine – pun
intended – for growth for our suppliers, some of whom such as: Power Drives,
G.W. Lisk, Aerostar Group, Nixon Peabody, Corning, Adecco Employment,
Unifrax and Linamar– call New York home.
We have been producing engines in Jamestown for 30
years and just six weeks ago celebrated a significant milestone at the
plant: The production of our 1 millionth engine. As you can see, our ties to
the region have been strong and are getting stronger.
How’s that for a little good news for the regional
economy!
(BRIEF PAUSE)
Cummins is very proud of its ties to New York and of
our workers in this region. Our Jamestown Plant Manager Matt McQueen and
several members of his team – as well as representatives from our Cummins
Northeast distributor that serves this region -- all made the trip here
tonight.
Would you stand and be recognized?
Thanks for being here and for your terrific work – but
don’t even think about blaming me if production or sales drop tomorrow!
Historically, Cummins has been known primarily as a
North American heavy-duty truck engine manufacturer. This remains our single
biggest market, but increasingly it is only part of the Cummins success
story.
Cummins produced nearly 900,000 diesel engines last
year, with more than half of those manufactured and sold outside the United
States.
Last year, the U.S. heavy duty truck engine market fell
– as expected – by almost 50 percent due to changes in emissions
regulations. Despite the challenges in that important market, 2007 was the
most profitable year in the Company’s history - something few on Wall Street
thought possible before the year began.
And we expect 2008 to be better yet.
(PAUSE)
This would not have been possible without a strong and
growing international presence. For example:
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Cummins is the largest foreign producer of diesel
engines in both China and India, where we have built large – and growing
- businesses over the past 30 years or more.
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We have established ourselves as a major provider
of power generation solutions in the Middle East, where the demand for
both standby and primary power is expected to continue to grow
significantly in the years ahead, and
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Cummins is the market leader for medium-duty diesel
truck engines in Brazil and our share is growing.
For me, this is very exciting because my personal
interest and involvement in global trade and exchange is not new.
Forty years ago this past January, I began an
international economic growth class taught by an African professor at the
University of Notre Dame. It changed my perspective.
Until then I had thought math and science were where I
was headed. However, after that course, I changed my major and looked for
ways to get involved in things international on campus. When I returned for
my sophomore year, I joined the local chapter of AIESEC, a French acronym
for an organization that was created in 1948 in Europe.
Its original purpose was to promote international
understanding and cooperation through a variety of student exchanges in the
hope of preventing another world war.
I am still involved as an advisor and am happy to say
that the organization is celebrating its 60th anniversary this year. It now
has a presence in more than 100 countries with chapters on more than 1,100
campuses worldwide.
As you know, the 60's were a time when many students
were not happy with the ways of the world, me included, and involvement in
this organization became a way to channel my energy into something
constructive, important -- and for me very developmental.
I got so involved with AIESEC while at Notre Dame that
I traveled throughout the U.S. and the world, starting more local chapters,
raising money and finding ways for the organization to get involved in the
issues of the day. My first international trip was to Japan for 3 weeks in
March of 1970…right in the middle of the spring semester of my junior year.
By the time I graduated from Notre Dame in 1971, I had
become the full-time president of the organization, which eventually brought
me into contact with Cummins.
I first learned about Cummins through members of
AIESEC’s Board - Frank White, a writer of the ‘Alliance for Progress’ in the
Kennedy Administration; Sandy Trowbridge who was the youngest U.S. Secretary
of Commerce ever and an early advocate of the social role of management; and
Jack Wadsworth, senior Vice President at First Boston, an advisor to Cummins
and one of the very early proponents of U.S. investment in China.
We sought and earned Cummins' support for work we were
doing in South Africa to break the color bar by providing management
internships to black South Africans. Then a short time later, I was asked to
help plan the first overseas trip for Tim Solso -- now Cummins Chairman.
His trip went well enough that I got a job offer, and I
joined Cummins because I saw a company that made useful products, had great
people and values; and was interested in becoming more international.
I have stayed for more than 34 years because all these
things turned out to be true, and I wanted to be part of making Cummins more
international.
For Cummins, our ability to compete successfully on a
global stage is essential to our future. It has reduced the cyclicality of
our business, given us access to the best talent around the globe and
provided room to grow the business, which is good for all our employees and
communities around the world.
Our strong financial position today – low debt, fully
funded pensions, investment-grade credit ratings and plenty of cash on hand
- gives us the flexibility to invest in the people, products, facilities and
technologies for future growth.
Cummins has more opportunities now than at any other
time in my career with the Company. We are already seeing those
opportunities translate into growth right here in the United States.
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Our new light-duty diesel engine plant in our
hometown of Columbus, Indiana, is being built on the same spot that was
vacated when we consolidated our heavy-duty engine production in
Jamestown. By the end of the decade, when the first engines start
rolling off the line, we expect the operation to employ more than 600
people.
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Last month, ground was broken on a new office
building in Columbus that will house 500 Cummins professionals by this
time next year – capacity we need to meet the demands of our business.
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We opened a second turbocharger manufacturing
facility in Charleston, South Carolina, to satisfy the needs of one of
our fastest-growing product lines.
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And in Jamestown, we are expanding capacity to meet
anticipated future growth.
Our U.S. growth story is only part of the picture. In
fact, Cummins is expanding fast outside the United States, too. The point
is, we are growing both domestically and internationally and that growth is
a result of our improved ability to compete around the world.
Despite what many isolationists would have us believe,
international trade is not a zero sum game. Growth outside the U.S. doesn’t
have to come at the expense of American workers and American communities. In
fact, Cummins is proof that strength in international markets can lead to
job gains at home.
Not only has our U.S. workforce grown over the past few
years, but Cummins remains a large exporter of finished products and
components. In 2007, our U.S. operations exported nearly $3.5 billion worth
of finished products and components.
These are high-quality, high-tech goods being produced
by American workers and sold outside the country, such as:
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Heavy-duty engines made in Jamestown and sold in
Australia
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Natural gas engines made in North Carolina and sold
in China
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Generator sets made in Minnesota and sold in Brazil
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And fuel systems made in Indiana and sold in Sweden
These are just some of the great examples of how our
global presence benefits our domestic operations.
In fact, the export story doesn’t get nearly enough
attention in the debate over international trade today. Some politicians
would have you believe nothing is made in America these days, yet the
manufacturing sector of the U.S. economy produces 15 percent of the
country’s GDP. It’s still the largest and most productive sector of the
economy.
It also offers the highest wages – 23 percent above the
national average – and creates more business activity and jobs than any
other sector.
And it provides more than 60 percent of all U.S.
exports, which in 2007 amounted to more than $1 trillion worth of goods. Of
that, more than 20 percent goes to Canada, to which U.S. exports have grown
more than 50 percent since 2002.
At the same time, Canadian companies – which export
even more into the U.S. than is imported from the States – have seen their
exports to this country grow at a similar rate over the last five years.
Unfortunately, in a very political environment, the
candidates tend to talk in sound bites and NAFTA is now a target. There is
no question that the imbalance of trade within NAFTA has soared since 2000.
The deficit has almost doubled to $140 billion in 2007 – from $77 billion in
2000.
But, 95 percent of that increase in this trade deficit
- $58 billion of the $63 billion – was due to energy imports, and not
manufactured goods. The U.S. needs this oil and gas, and wouldn’t we rather
get it from our friendly neighbors than elsewhere?
Overall, NAFTA is not the cause of lost U.S.
manufacturing jobs – certainly not at our Jamestown plant. In 2006 and 2007,
one-third of the engines shipped from our Jamestown plant went to Mexico or
Canada. In the 1990s, we actually made engines in Mexico that today are made
in Jamestown and exported to Mexico.
There’s no doubt that international trade has created
hundreds of jobs in our Jamestown plant and in those of our suppliers in the
region.
And who says NAFTA isn’t working?
(PAUSE)
Much has been made about the so-called outsourcing of
America. And it’s true that many American companies, including Cummins, have
looked outside their own borders for high-quality, low-cost goods and labor
to remain competitive.
But outsourcing is not new. My first exposure to
outsourcing was in the early ‘60’s when my uncle moved with his textile
company to South Carolina from our hometown in Massachusetts. It has since
moved to China.
Think about it.
All companies owe it to their customers and
shareholders to provide the best value for the products they make. In our
business, being the low-cost producer is a fact of life.
For Cummins, though, the notion of being a globally
competitive manufacturer goes well beyond finding low-cost parts and labor.
Cummins has staked its future on the ability to be a
global power leader by positioning ourselves within emerging markets so we
can grow with them and take advantage globally of the assets we create
there. Having the flexibility to deal with market or geographic economic
swings, and the vagaries of exchange rates is important to us.
American and Canadian manufacturers can compete with
those from low-cost countries. In fact, workers in our two countries are
already among the most productive in the world.
In order to maximize access to world markets for our
companies, our leaders should be pursuing free trade agreements that level
the economic playing field. At the same time, we should demand that
environmental safeguards and workers rights provisions be included and due
attention be paid to the effect trade agreements can have on those in
poverty in developing countries.
Too often today, though – at the least in the United
States – our leaders are resisting the tide of internationalism, which they
blame for washing away jobs.
While some American jobs have been lost as a result of
outsourcing, the fact is that manufacturing output has increased an average
of 3.7 percent a year over the last 50 years for a total increase of 700
percent. Since NAFTA, U.S. manufacturing output is up 66 percent.
This increase in output is primarily due to strong
growth in productivity and much of this is the result of American innovation
to stay competitive. What took 1,000 workers to manufacture in 1950 required
only 199 workers to produce in 2005.
This is good news and it’s not a new story for America.
Early in the 20th century it took 2 American farmers to produce enough food
to feed 5 people. Today, because of innovatively applied technology, a
single farmer can feed more than 130 people.
There is simply too much talk about preserving jobs
that we no longer do competitively and not enough talk about what it takes
to be competitive in today’s world.
I learned a long time ago that you can’t successfully
and safely drive to where you want to go by constantly looking in the rear
view mirror.
As a country, we ought to be investing more in R&D and
demand more collaboration among the public, private and academic sectors in
this regard. R&D creates new jobs. Cummins knows this from its own
experience.
We also need to do more to ensure that American workers
have the critical skills needed to compete in a global economy. That means
improving our secondary education system with an emphasis on math, science
and technology.
It also means that we need to significantly strengthen
technical and vocational education so that students who don’t wish to attend
a 4-year college are still able to find rewarding careers.
It’s ironic that the single biggest challenge to
today’s manufacturing jobs in America – is us.
As a country – despite all the talk about the
outsourcing of jobs - we lack the skilled workers necessary to meet the
growing demand for advanced manufacturing jobs we can do competitively in
America. That gap – which is only going to widen in the coming years as
aging baby boomers retire – threatens the manufacturing sector’s future
success.
At Cummins, we see it every day in every location where
we have manufacturing operations. We struggle to find skilled repair
workers, technicians, machinists and other key front-line personnel
necessary to help us meet the growing demand for our products.
These are challenging jobs that require skills beyond
those traditionally taught in high school, and which can offer significant
rewards.
In a 10-county area of Southeastern Indiana we are
engaged in a collaborative effort called EcO 2015 to make our region more
attractive for investment by connecting the residents to economic
opportunities through education.
In general, we are trying to move all residents up one
level in their education and/or training by improving K through
post-secondary education and workforce development, and aligning them with
the economic and skill needs of the area.
As part of EcO 2015, we have implemented a national
program called “Dream It Do It” to promote the fact that today’s students
can have terrific careers in manufacturing in a wide variety of areas.
31 of the 34 high schools in the region have Dream It
Do It champions, and in one year we have already seen a 28 percent increase
in students enrolled in advanced manufacturing programs.
The Lilly Endowment, one of the largest charitable
foundations of its kind in the country, was so impressed that it awarded us
$38 million in January to help support this effort. We hope to create a
model to do the same sort of thing elsewhere. This has already started in
Indiana.
With the help of the governor, one year ago we created
an organization called Conexus Indiana to help other communities across the
state get something going. Conexus negotiated the rights to bring Dream It
Do It to the rest the state, and the Department of Workforce Development has
provided money to support the kickoff of similar efforts across Indiana.
I know there are senior officials here today from
Chautauqua County who are working hard with Workforce Investment Boards and
other groups to launch Dream It Do It in a five-county area in this region.
We applaud their efforts and are committed to supporting them in any way
possible.
(PAUSE)
So, instead of rigging the game through isolationist
trade policies -- which only serve to force our trading partners to respond
in kind -- our elected leaders should be pursuing policies that increase R&D
spending and encourage more public/private collaboration.
We also should be promoting free and fair trade – while, of course,
demanding that other countries match our efforts at openness. At the same
time, we need to recognize that international trade has had – and will
continue to have -- a negative impact on some American and Canadian workers
and communities.
For these people, international trade is not some
abstract economic concept, but rather a force that has had a very real – and
detrimental effect – on their lives. We have a responsibility to ensure that
they have a chance to develop the skills necessary to move into new jobs and
to thrive in the global marketplace.
A few ways we can do that include:
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Better severance packages for displaced workers
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Improved job retraining programs
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Universally “portable” health and pension benefits,
and
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Wage insurance for workers laid-off as a result of
outsourcing
(PAUSE)
So what’s my advice for any company that wants to be
successful in a more global world?
It’s a difficult question and there are no silver
bullets. But I can offer a few thoughts based on our experience at Cummins.
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Don’t define your markets too narrowly. Remember,
less than 10 percent of the consuming public lives in the United States and
Canada. Research opportunities and potential distributors to sell your
products in global markets – including through American companies that
operate globally. Travel to places that might be of major interest to you.
Join trade tours and seek help from organizations such as the World Trade
Center.
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Find people who speak the language and understand the
culture, and don’t be afraid to seek out local partners.
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Continue to invest in your products to improve
performance, quality and cost and in your people to continuously improve
their skills.
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Work with your people to become a leaner organization
by reducing variation in your processes, cutting process cycle times and
enabling people to work better together to innovatively apply technology.
Push your suppliers to do the same – we do.
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Start regional public-private collaborative efforts
to better understand what it would take for your community to be attractive
for investment.
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Invest in better education at all levels, especially
to improve math and science-related curriculums.
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Encourage more investment in R&D through better
collaboration among government, business and universities.
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Support immigration reform to ensure that we are able
to continue to attract and keep talent from other countries as we always
have.
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Talk to your mayor, county leaders, congressman,
senator, governor and other elected officials about supporting these
efforts.
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Finally, help tell the manufacturing story.
Manufacturing in America is not dead. It is more productive than any other
sector in the U.S. economy and any another country in the world today. But
being competitive globally in the future requires all Americans to do what
we do best – work together to innovate, and to recruit and develop talent
from wherever we can find it.
Unfortunately, as I have said, there is no silver
bullet. But I am personally convinced that companies that are lean;
innovative; involved globally and are able to attract and retain highly
skilled workers will be competitive.
But we must do the hard work to ensure that U.S. and
Canadian companies and their workers maintain their standing as the most
productive and innovative in the world. Otherwise, we will be left behind by
those hungrier than we are.
Rather than isolating ourselves from the realities of
today’s marketplace by trying to maintain a status quo that simply makes us
less competitive, we all are better served by embracing the global
marketplace and the opportunities it provides.
To paraphrase a Chinese proverb: We should welcome what we cannot avoid.
Based on his research, Charles Darwin made an
observation worth remembering: ‘It is not the strongest of the species that
survive nor the most intelligent, but the one most responsive to change.”
(BRIEF PAUSE)
Again, I want to thank the World Trade Center - Buffalo
Niagara for inviting me to speak, and to all of you for your work to promote
international trade and cooperation by making American manufacturing more
competitive.
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