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John Deere's Next Harvest

Nov. 11, 2011
As John Deere closes in on its 175th anniversary, the iconic American brand is poised to reap rich rewards from the global population boom -- while playing a leading role in sowing the seeds of U.S. competitiveness.

Sam Allen asserts that John Deere's portfolio of farm and construction equipment -- fueled by aggressive R&D investment in recent years -- and expanded global footprint uniquely position the company "to address the world's growing need for food, shelter and infrastructure."

As chairman and CEO of Moline, Ill.-based Deere & Co. (which celebrates its 175th anniversary in 2012), Allen not only is leading John Deere's charge into global markets, but he also is a central figure in the efforts to ensure that U.S. manufacturing has the tools and policies to compete on a global stage in the 21st century and beyond.

Since January 2010, Allen has chaired the nonprofit Council on Competitiveness and has been working with other members of the council -- from Applied Materials CEO Michael Splinter to MIT President Susan Hockfield -- to craft a national manufacturing strategy. The group will unveil the strategy on Dec. 8 as part of the council's National Manufacturing Competitiveness Summit in Washington, D.C.

"The good news for Deere is that agriculture has been very robust, so we really have been growing
through this.""
--Sam Allen, CEO John Deere & Co.
"You couldn't have a better company leading the [council's] 21st century manufacturing initiative than Deere," says Deborah Wince-Smith, president and CEO of the Council on Competitiveness.

Earlier this month, Allen spoke with IndustryWeek about John Deere's global strategy as well as key competitiveness issues affecting the company and U.S. manufacturing.

IW: One of Deere's mantras is that "it's no longer business as usual" for the company. What does this mean?

SA: That really comes from our revised strategy that we rolled out in 2010. We committed that we're going to double the [company's sales] in the next eight years, and we said that the critical enablers of that are the macroeconomic trends that are very supportive of our two key businesses.

So in the [agriculture]-equipment space, we talk about the fact that between 2009 and 2050, the world is going to have to double food output on basically no more than 20% more land. That's going to require a lot of high-production, high-efficiency agriculture -- and that's a Deere sweet spot.

We also talk about the fact that the world's population will grow to 9½ billion people by 2050, and 70% of that will be in an urban setting, a lot of that in Asia. And therefore it will need a lot of infrastructure, which is our construction-equipment business.

So not being business as usual means that we're very focused on growth and globalizing the business -- not just being a U.S.-centric business, if you will.

IW: To support that global strategy, Deere has made a slew of announcements about building new factories and expanding capacity in Brazil, China, India and Russia. As chairman of the Council on Competitiveness, do you get much backlash from this, and how do you usually respond?

SA: Let me first put it in context, because I do get this a lot.

In the last decade, 57% of our total investment has been in the United States. And a lot of what gets lost on people is we'll announce that we're spending $140 million to build a new set of factories, let's say in China. But when we announce that we're spending $140 million to completely redo our foundry in Waterloo, Iowa, the greenfield always tends to get more attention. But redevelopment is just as important [as greenfields], and from our perspective, we still do invest a lot in the United States.

What a lot of people just do not appreciate with globalization and the population growth and GDP growth that's taking place -- specifically in Asia and in Africa -- is that if you want to compete, if you want be a part of it, you have to be there. You're not going to play, for example, in the largest market in the world, which is China, by importing everything into that market. It isn't going to work; you can't get a competitive cost structure.

And so it's not a question of jobs here versus jobs there. It's a question of if you're not going to set up and compete there, you don't even have that opportunity to grow. If you don't have that opportunity to grow, it isn't going to help you over here. And in fact, you know that companies that are growing over there eventually are also going to try and compete over here.

The best way I've always found to compete against that type of competitor is to be in their home market and win in their home market, because if you can win in their home market, you know you can win in your home market.

IW: Shifting back to Deere's home market, what did U.S. manufacturers learn from the recession?

SA: Well the good news for Deere is that agriculture has been very robust, so we really have been growing through this.

We've had parts of the business -- like construction equipment -- that have definitely been impacted and are way down. But 2010 was our second-best year ever, 2008 was our best ever, and based on what we've said publicly, 2011 will become the best year we've ever had. We're actually growing employment -- we've added 10,000 jobs worldwide over the last two years. So we're in a little bit of a different situation than some others.

To answer your question, though, I think what we all do when we go through these recessions or these downtimes is you put much more of a focus on finding ways to reinvent the business to be more cost-effective. When you're at the high levels and things are going well, you try to focus on it, but you've got so many other opportunities that you end up doing just incremental change.

When you're in the recessionary times, when business is down, you can focus on really makingbigstructural changes. And I know a number of my peers as I've talked to them, they clearly have done that. As an economy, I think we're clearly seeing it. That's part of the reason why even though the economy is improving, businesses haven't had to add as many people as in previous time periods, because [companies] have spent a lot of time focused on restructuring and how to do that on a sustainable basis.

We saw that from 2008 to 2009 when we went through the financial crisis, and we saw that earlier for us back in 2001 and 2002. But we've put in place a structure in which we not only evaluate how whatever initiative we're working on today is impacting our business and enabling us to grow, but we're also evaluating if we go back into the trough, what would this initiative do? Would it still allow us to compete effectively, or would it be an overhead burden on us?

And I think that constant focus on how what you're doing today might impact you if you go back into a trough, that's something that helps. If you keep a focus on that, then you will sustain your competitiveness throughout the cycle.

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