The US has not been an important player in the TV manufacturing business for as long as most people can remember. Many of the goods sold by huge superstores such as Wal-Mart are made in China. The Big Three had more than 90% of the domestic car industry a half a century ago. Their share of the market fell below 50% in 2007 for the first time in history and continues to erode. American-made apparel is almost as rare as American-made toys and American-made steel. It’s sad but true.
The US stopped being the world’s largest manufacturer starting in the 1960s. First, it was inexpensive goods like toys, then TVs, and then cars. The areas the US still dominated were in technology and services. But, most of the components of a product like the iPad are made outside the country. The invention may be “American Made,” but the product is not. Even a portion of the software and apps made for products like the iPad are developed outside the US.
A relatively small number of foreign companies have brought the giants of American industry to their knees over the past few decades – companies such as Toyota. The Japanese automaker gained more share than any other company which operates in the American car market in the last twenty years. GM lost the most. But, GM had to contend with many rivals from Europe and Japan, each of which aimed products at niches in the US market. Toyota does not deserve the credit alone for GM’s downfall.
The tales of most of the US companies that suffered large sales losses to foreign competitors involve poor management, or the inability to innovate quickly or buy valuable assets as they became available. It is not that simple. Almost every case discussed here is in an industry which is still changing. GM may have lost ground to Toyota. Now, each loses ground to South Korean firms Kia and Hyundai. China-based Acer was able to take sales from Dell because of the success of the netbook. Acer was early. U.S.-based Dell was late. By the time each was building netbook sales, Apple introduced a tablet PC–the iPad. The race course has been redrawn twice in less than four years.
These are eight stories of American companies which lost substantial market share to foreign rivals. There are cases where most of the sales loss came within the US itself. Other cases are ones where an American company with a large worldwide presence lost an important portion of its market share to a company based outside the US. The geographic expanse of the failure is often nowhere near as important as the effect of the financial loss. A company that has a 50% drop in sales will probably go out of business or be permanently crippled whether all of that loss came in Asia, Europe, or the US.
The lesson to be learned here is that the next big thing keeps coming year after year after year. That’s even true for the US company that just came out with it.
1. GM vs. Toyota
GM’s share of the domestic car market was 35% in 1991. That number is just over 20% now. Almost all of its losses were to foreign car companies, most of which were Japanese, the biggest of which was Toyota. By, 2008, before its reputation and sales were damaged by recalls, Toyota had 17% of the US market. That number was about 8% two decades ago. Honda and Nissan have also made substantial share gains as well. The reasons for GM’s decline have been regularly catalogued. GM’s labor costs were the highest among global manufacturers. Toyota’s were relatively low, particularly for the cars it produced in Japan. GM’s cars were poorly made. Toyota were well made. GM’s quality problems triggered low ratings in consumer surveys like those issued by JD Power and Consumer Reports. Domestic market share has not remained static recently. The low-cost, high-quality part of the market has been invaded by South Korea’s Kia and Hyundai which now have more than 7% of the American market. That share continues to rise rapidly.
2. Dell vs. Acer
Dell was a dominant PC company in the US for nearly a decade, and had a large share of the global market as well, usually trailing market rival Hewlett-Packard by a modest amount. HP’s PC operation was created by its buyout of Compaq in 2002 for $25 billion. The relative strength of the US computer companies began to erode after Chinese manufacturer Lenovo bought IBM’s PC operation in 2004 which gave the Asian firm access to the US and European markets. Dell’s fortunes were damaged further with the widespread adoption of the netbook. These were inexpensive and light laptops which were sold for about $300 and were used for Internet surfing and email. Many consumers flocked to the new machines Acer and Asus introduced to the market. Acer was able to use the popularity of the netbook and a 2007 buyout of US PC company Gateway to become the third largest PC maker in the world. Dell’s market share dropped from 16.4% in 2005 to 12.9% in 2010, according to Gartner. Over the same period, the global market share of Acer rose from 5.5% to 12.7%. When business historians look back on the changing of the guard they will also remark that within three years of the rush of netbook sales, tablet PCs became the primary growth segment of the industry and it is now Apple which is gaining more global share than any of its rivals.
3. Intel vs. ARM
Intel has approximately three-quarters of the global market for PC and server market chips. That gives the company tremendous leverage as a manufacturer, researcher, developer, and marketer of new chip lines. Intel’s trouble, however, is that the rapid growth in the semiconductor sector is among products for portable devices, particularly smartphones and tablet PCs. The major suppliers to this market are Qualcomm, Texas Instruments, and Samsung. These products are based on designs by ARM. ARM has begun to use the power-consumption advantages of its chips and its relationships with portable device manufacturers to enter Intel’s stronghold in the PC market. It has already begun to take business in the low powered server market. Industry research firm IDC expects ARM to have 13% of the PC market by 2015. It is widely rumored that Apple has already completed plans to run many of its tablet PCs on ARM-design based chips. ARM’s large lead in wireless portable devices should help it erode Intel’s market share in PCs by several percentage points within four years.
4. Boeing vs. Airbus
Boeing had been the dominant global manufacturer of commercial airplanes for three decades, a position it enhanced when it bought competitor McDonald Douglas for $13.3 billion in 1996. European rival Airbus was still not a significant force in the market then. Airbus received 106 orders for new aircraft in 1995. Boeing got 441. Airbus received 574 orders last year to Boeing’s 530. Two factors caused much of the change in share. The first is that Airbus has had the financial support of owners and previous owners which include major aircraft companies, some of these government-backed, and from Germany, France, the UK, and Spain, Airbus has been accused of benefiting from illegal subsidies, but that has not hurt its progress much. The other factor that has helped Airbus is the poor management at Boeing. Its new flagship 787 Dreamliner has been delayed at least half a dozen times, and this has caused major carriers to reconsider their relationships with it–usually to the benefit of Airbus. Airbus is not perfect, however. It recently delayed two models. The global balance of power for aircraft sales is about to change again. Comac, a China state-owned company, plans to release its mid-sized C919 commercial passenger jet in 2016. China will be by far the largest commercial aviation market by then. Carriers outside the People’s Republic will clearly buy from the lowest cost producer, whether it is based in the West or not. (Editor’s note: Airbus just signed a $17.2 billion plane order with AirAsia, the largest single contract in airline history)
5. Microsoft vs. Nintendo
The game console business has had several changes in market share since the launch of the most successful product in the industry’s history in 2000–the PlayStation 2–which would eventually sell 150 million units. The most recent generation of consoles includes the Microsoft Xbox 360, the PS3, and Nintendo Wii. Sony was the favorite to dominate this new wave of machines because of its huge lead with the PS2. Microsoft was willing to offer more features in the Xbox and kept prices competitive. Nintendo entered the market with the Wii, which was designed for casual game players, which the PS3 and 360 were not. The Nintendo plan worked. The Wii had a 23% market share in 2006. Microsoft’s was 65%. By 2009, the Wii share was 50% and Microsoft’s was 23%. The industry is in the midst of another colossal change. Consumers have begun to play more games online and on smartphones. The best years of the large fixed-position console may have ended.
6. Goodyear vs. Bridgestone
Goodyear was, for decades, the largest company in Akron, Ohio–the rubber capital of the world. Firestone was based there. As was Goodrich. Goodyear was also the largest tire company in the world. It supplied a substantial portion of the tires for the Big Three, which until the 1980s controlled the car industry. Akron suffered from the same problem that Detroit did. It had an extremely high cost of labor compared to competitors–particularly those in Japan. Firestone was bought out by Japan’s leading tire company–Bridgestone–in 1988. Bridgestone was a white knight. Firestone was in the midst of the defense of a hostile takeover by Pirelli. Goodyear probably missed a chance to match Bridgestone’s action. It was a time of consolidation in the industry. The next year, Michelin purchased Dunlop. Large rubber companies had decided to use M&A to develop scale and market share. Bridgestone sales rose from $13.5 billion in 1999 to $20.5 billion 2009, according to Bruce Davis of Tire Business. Goodyear’s only rose from $11.5 billion to $15.6 billion in the same period.The industry has begun another period of market share change. The South Koreans and Chinese have aggressively entered the market and firms in Japan, the US, and Europe have a new market share battle with which they must contend.
7. Charles Schwab vs. TD Ameritrade
Charles Schwab & Co., Inc began to offer discount brokerage service in 1975, which made it the first firm in the business. Full service brokerage firms like Merrill Lynch assumed that Schwab was a fad. Customers wanted the advice a full service brokers could give, and would not invest based on their own without the research resources that old line firms could offer. Full service brokers were wrong. Schwab had revenue of $4.25 billion last year. The discounter had the market to itself initially, but a number of discount brokers entered the market led by mutual fund companies like Fidelity. The business became mainstream. Canadian-controlled TD Ameritrade began as a US based company in 1987. It went through a large number of M&A events and became known as Accutrade, The company rolled up All American Brokers and The R. J. Forbes Group. Accutrade parent Ameritrade merged with Datek Online in 2002. Canadian broker TD Waterhouse merged with Ameritrade in 2005 and Waterhouse’s parent TD bank became the controlling shareholder with a current ownership of 46%. TD Ameritrade’s revenue increased from $2.54 billion in 2008 to $2.56 billion in 2010. Charles Schwab’s revenue decreased from $5.15 billion in 2008 to $4.25 billion in 2010.
8. Omnicom vs. WPP
The television show “Madmen” is based in the 1960s, a period when US-owned advertising agencies dominated the US advertising market, which was the largest in the world. The market was controlled by companies like BBDO, DDB, Campbell Ewald, McCann Erickson, and their predecessor firms. Most of the firms were eventually bought by two American holding companies–Omnicom and Interpublic–and one firm based in the UK–WPP. M&A activity was driven by a need to develop scale so that global clients could have access to research firms, PR firms, and and advertising agencies, all of which operated under one umbrella. WPP began as Wire and Plastic Products. Control of the firm was taken by Martin Sorrell in 1985 because he wanted a publicly listed company under which he could consolidate marketing firms. He was an improbable man to create a large global advertising conglomerate–a former financial executive for ad operation Saatchi & Saatchi. Management of large ad agencies was still dominated by people from the creative side or those who handled client relationships. Sorrell pulled off a coup when he bought global agency giant J Walter Thompson in 1987. He went on to buy another American icon–Ogilvy Group, and then one of the world’s leading research firms–TNS. WPP is now the largest marketing firm in the world with revenue of $12.1 billion, ahead of the $11.7 billion of US-based Omnicom which held the top spot as measured by revenue in 2009.
Douglas A. McIntyre