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EDITORIAL
Written by Peter Lonsky

Writing is the design of words that create mental images and associations. To craft a summary or viewpoint, a writer assimilates input and ideas from many sources. As a Carnegie Mellon University senior, I attended the "Business Tomorrow XII Conference" organized by the Princeton student publication "Business Today." Below is an article I wrote for the Winter 1987 issue of that magazine summarizing some of the issues discussed at that conference.


The U.S. is not a lemon

It seems that it's getting tougher and tougher to run that lemonade stand. Bobby, the neighbor, has gotten into the market and driven prices down. Mom has asked for some money to help pay for the paper cups and lemonade mix. What will happen when Jane decides to open her lemonade business?

Today, corporate America is in much the same situation and is asking the same questions. How does a corporation increase competitiveness? They must use acquisitions and mergers to create strong, self-supportive structures; they must develop new technology; and they must expand in domestic and international markets. The U.S. government must help by negotiating fairer trade in foreign markets and by cutting the budget deficit.

Acquisitions and mergers are sometimes seen as a sign of corporate decay, but they are just one symptom, rather than a cause, of this decay. Many mergers are a response to the cries of financially troubled companies to become part of a larger, more competitive, asset base.

While involuntary mergers and hostile takeovers are usually not productive, responsible mergers increase competitiveness by creating diversity and interdependence within the new firm. Diversity serves as a balance to cushion against slowdowns. Speaking about his own corporation, Edward Hennessy said that Allied, which relied on oil and gas for 85 percent of its market, moved away from commodities into aerospace and electronics with its acquisition of Signal. Allied-Signal thus balanced its dependence on the fluctuating commodities market.

Responsible mergers do not simply shift assets from one corporation to another but concentrate on developing systems to combine the two firms. Effective mergers are horizontal (where the product of one of the member firms serves as an ingredient for the product of another) or have lean, tight structures which allow more central control rather than a complex conglomerate structure. If Laura the lemon producer merges with Bobby, whose dad is a papercup manufacturer, they are making a responsible move.

Research and development is another necessity for competitiveness. New technology opens up new markets or makes a business more efficient in existing ones. Education is a necessity for research. As John Roberts, chairman and chief executive officer of American International Underwriters, said, education serves to simultaneously advance "the individual, the industry, and the country."

For a large corporation to be successful today, it must be competitive in the global marketplace. The foreign market is very appealing; it offers a high growth potential for Amencan firms introducing products in it.




By entering into joint ventures, the U.S. firm can penetrate the foreign market through a partner's outlets. The partner introduces the U.S. firm to the culture as well as local rules and regulations. Costs of production are also often lower abroad.

The government must also do its share to increase American competitiveness. It should first of all work to facilitate fairer foreign trade conditions. It must strive to create what David Roderick, chairman of the USX Corporation, called a "level playing field" for international trade.

Protectionism seems like a simple solution to the trade deficit which plagues the U.S. But in a time when the international market is so important to U.S. business, the U.S. cannot afford to close doors on any foreign markets. As Hennessy commented, "Trade barriers with Japan are not only ineffective, but harmful." Harvey Bale, assistant U.S. trade representative, agreed and said that the U.S. must use protectionism "as a tool" to open up foreign markets by enforcing a "we do as you do" policy.

The government should also work to decrease the federal budget deficit. Today, America has excessive credit demands coupled with inadequate savings. Artificially high interest rates appeal to foreign investors. By reducing the federal deficit, the government would lower interest rates, thereby discouraging foreign capital investment and encouraging domestic capital expenditures. The U.S. should follow the example of the young lemonade entrepreneurs, who cannot spend more than their business profits and their allowance.

As Bale put it, the U.S. has to earn its higher standard of living. It has to get ahead -- in science, in innovation, in productivity -- and it has to "run like hell" to stay ahead of the countries with which it competes. But the U.S. is not a lemon; it can be competitive.