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Converging markets require diverse practices to capture value say conference experts

By Ed Finkel

5/1/2005 - The upside of globalization for multinational manufacturing companies such as Ford Motor Co. is the ability to take advantage of cheaper locales to conduct business: factories on one continent, research and development somewhere else, and sales several more time zones away. This was the message one top Ford executive offered attendees at the Manufacturing Business Conference held May 11 at the James L. Allen Center.

The challenge, however, comes on the back end, where Ford faces a wildly diverse customer base very different from the one-size-fits-all demand that founder Henry Ford enjoyed when he rolled out the Model T, black chassis after black chassis, said Anne Stevens, the firm's group vice president for Canada, Mexico and Latin America, during her keynote speech at the conference, a joint initiative between the Kellogg School and Northwestern University's McCormick School of Engineering and Applied Sciences.

For example, she said, the Ford F Series is “the most popular car in the world” but its bulk repels Europeans, with their narrow streets, low-slung garages and fuel prices double that of the United States. The Focus, regarded as a “great entry-level vehicle” for American college students, is seen as a family car in Europe and an “aspirational vehicle” in Latin America, where most people drive even smaller cars.

Although Latin America is sometimes a “politically and economically volatile part of the world,” Stevens said it presents great opportunity for American manufacturers willing to navigate its complicated mélange of markets and cultures. “We're going to have to learn a lot of different dances,” she said.

One company that has learned to be light on its feet when entering markets such as control systems and air conditioning compressors is Emerson, which has done so with help from strategic acquisitions, said James Berges, the company's president, who delivered the conference's other keynote.

The 1993 purchase of Fisher Controls and the development of a Windows-based interface headed off competitors who wanted to create a proprietary, closed-loop control system that presented “an enormous threat to our instrument business,” Berges said. And when customers who had purchased Emerson's air-conditioning motors started to make motors themselves, Emerson responded by purchasing compressor manufacturer Copeland and investing in a highly efficient design to compete and win in that market, he said.

The company's successes point out the need to use innovation to turn threats into opportunities as well as the importance of investing preemptively if you believe in a technology, Berges explained. “We went and made some big bets and bought a bunch of companies,” he said.

Those looking to place their bets on the future of fuel cell technology had better hold their chips for another generation, at least as it applies to the automotive industry, said panelists at a morning roundtable discussion on the subject.

The crossover point where the hydrogen-based cells would become more cost-effective for at least some consumers could be reached in 2020, assuming the price of gas hits about $3.40 per gallon, said Paul Branstad, senior partner at Booz Allen Hamilton who moderated the session.

James Miller, associate director of the chemical engineering division at Argonne National Laboratory, said fuel cells are clean, efficient and have a bright future, but much work remains on creating an infrastructure for storage and delivery as well as codes and standards regarding safety and quality.

The technology will probably sputter a bit before it starts up cleanly as an economic proposition, said Jeffrey Jacobs, vice president of the Hydrogen Unit at ChevronTexaco Technology Ventures. “People bandy about the word ‘commercialization,' ” he said. “That doesn't mean ‘sustainable business model.' ”

Pharmaceutical and other life sciences companies have found sustainable business models in part by outsourcing research and development, although they face a variety of challenges, according to panelists at a mid-day session.

Lower profit margins, globalization, and the availability of overseas companies have driven outsourcing in the pharmaceutical industry, said Bing Li '99, manager for global new product planning for drug delivery systems at Eli Lilly and Co., where some $2 billion – 20 percent of revenue – is plowed back into R & D.

Standardization of collecting and analyzing clinical trial data among the United States, Europe and Japan that occurred about a decade ago has helped smooth the process, said Albert Lauritano, director of business development for BD Technologies.

But Luke Christenson, director of technology integration for Guidant Corp., said overseas workers sometimes have “different concepts of speed,” and it's sometimes a challenge to “keep the attention” of larger outsourcing companies.

Participants in an afternoon panel titled, “Leveraging Intellectual Property in the Global Market,” shared tactics for managing intellectual property during a product's entire life cycle — from the R&D stage to the point when an existing patent retains little value.

As recently as a few years ago, said Lori Heinrichs, patent counsel for Guidant Corp., company scientists and engineers were so busy innovating that it was “difficult to convince them to put their ideas down on paper.”

A sea change at the firm, which designs and produces cardiovascular medical products, has meant a more proactive approach to ensuring its ideas are protected in the marketplace, as well as a push to acquire patents for clinical work produced by scientists, physicians and hospitals.

“Doing this allows us to develop products that … we can put on the market,” Heinrichs said.

At the other end of the spectrum, IBM has, at times, offered up patents free of charge to competitors, said Brian Hinman, director of intellectual property and licensing for IBM's technology and intellectual property division. The rationale behind such a strategy, Hinman said, is to encourage other firms to adopt the technology as an industry standard.

In other cases, patents no longer valuable to IBM are bundled and sold to other firms.

Kellogg School Clinical Professor of Technology James Conley, who moderated the afternoon session, said each firm should be studied for its “best practices,” calling each company's response to intellectual property challenges “proactive” and “premeditated.”

—Additional reporting by Kari Richardson