In business, we are always looking for new customers. So when you consider that 95 percent of the world’s potential customers live outside the United States, it’s hard to imagine that anyone would not embrace today’s global economy.

But globalization and free trade often face strong opposition. Many see the global economy as a threat that takes jobs away from Americans. In 2007, Newsweek writer Robert J. Samuelson captured the sentiment well. “It’s our versatile villain. We blame it for all manner of grievances: lost jobs, greater inequality, shoddy goods.”

However, the facts show that free trade not only grows jobs, but the economy as well. Consider this: without international trade, one in five U.S. jobs would be lost. That’s because 31 million American workers depend on trade for their livelihoods. In 2007, Americans produced $13.8 trillion worth of goods and services. Of this, $1.64 trillion—11.7 percent—went overseas. Just look at what U.S. workers manufactured and exported to other countries in 2006:

• $97 billion in industrial and service machinery
• $83 billion in chemicals
• $71 billion in civilian aircraft and parts
• $33 billion in electric generating equipment
• $22 billion in oil drilling, mining and construction equipment
• $21 billion in paper and lumber products
• $21 billion in telecommunications equipment.

The list goes on and on. Just because many products today are manufactured in China and other parts of the world doesn’t mean we’ve stopped producing much-needed goods in the United States. Free trade policies keep U.S.-made goods in demand around the world and U.S. workers employed.

The benefits of global trade are clear. So now companies have to focus on how to compete in this new global economy. It’s not easy—there are no hard and fast rules. But in 83 years of operation— and nearly six decades operating as a global company—Caterpillar has learned a few key themes important for anyone who wants to compete globally.

Be ready to change and innovate
Competing on a global scale means staying on your toes. With increased competition, we have to look for ways to differentiate our products and services. The good news is that tough competition is one of the best motivations to innovate. When companies from around the world are competing in your market, you’re challenged to look for ways to improve your product and processes. Innovation is clearly a positive effect of competition, allowing us to produce more and offer lower prices.

Innovation is key to Caterpillar’s success. We’re always looking for new applications for our products and technologies. For example, energy-related products and services account for over one-fourth of our business, so we’re uniquely positioned to provide solutions throughout the energy value chain. In addition to our core businesses, we are finding new, innovative approaches—like conversion of waste gases such as landfill methane into useful energy—to meet the world’s growing energy and environmental challenges. By using innovative technologies and being open to change, we’ve found a whole new use and market for our product.

Get the right people in place
The workforce of today looks quite different than the workforce of yesterday. Today’s leaders are characterized by agility, language and cultural proficiency, and the ability to function across multiple product lines, markets and national boundaries.

As leaders we must develop new strategies for finding, attracting and bringing on board the workforce of the future. That includes global recruiting efforts that cast the net more broadly for qualified candidates. Likewise, today’s employees need a new set of skills, talents and training to succeed in an increasingly global, competitive and high-tech economy.

Diversity is key to these efforts—and not just diversity as we typically think of it, in terms of race, gender and ethnicity. We need employees with a variety of backgrounds and experiences. We need people with global, external and cross-functional experience who bring us innovative solutions and new approaches to decision-making— people who can make us more successful.

Caterpillar continues to strengthen our focus on diversity around the world. In addition to a corporate diversity council, we’ve created regional councils in EAME (Europe, Africa and the Middle East), the Americas and Asia Pacific. These regional councils are charged with helping us reach our Vision 2020 goal to “function as a local business everywhere we serve customers.” That means Asian leaders in Asia, European leaders in Europe, Latin American leaders in Latin America— and employees everywhere who can relate to local customers, dealers, suppliers and governments.

Know your customer
It’s not enough to have the best, most innovative products. You have to know what your customers want. The products you sell in Chicago will not necessarily sell in Shanghai. For example, in the U.S., cell phones need to have a camera, an MP3 player, Internet and texting capabilities. But in emerging markets, users might just want to make a call and may not be willing to pay for other features.

When dealing with the global economy, market research is more important than ever. It’s also helpful to have people on the ground in the locations where you do business. They know the market, the government regulations, the local customs, and most importantly, the people. That local knowledge is invaluable.

At Caterpillar, in key markets we have a country manager who oversees our portfolio of businesses. This manager helps integrate the strategies of all our divisions operating in that country, helping to ensure our products and services meet the country’s specific needs. In addition, the country manager is responsible for human relations strategies and external relations within the country. Having a single person speaking for Caterpillar within the country helps establish a local presence for the company.

Level the playing field
In order to compete effectively in the global economy, we need a level playing field, with the same access to foreign markets that other countries have here. To do this, the United States not only needs to become a more active participant in the global economy—we also need to play a real leadership role in championing the expansion of trade agreements and foreign investment.

Free trade agreements meet plenty of opposition, but for American companies to be successful around the globe, we need equal and fair access to export markets. Unfortunately, in many places, American companies must overcome high tariffs and other trade barriers. At the same time, some of our foreign competitors benefit from favorable terms because of agreements their governments have negotiated.

In markets where the United States has secured free trade agreements, American companies have seen tremendous growth. For instance, since the implementation of the North American Free Trade Agreement (NAFTA), Caterpillar’s exports to Canada and Mexico have increased 300 and 473 percent, respectively. Job growth has gone hand in hand with export growth, resulting in Caterpillar’s U.S. employment increasing 33 percent in the years since the agreement’s passage. Employment in Canada and Mexico, where Caterpillar has had a manufacturing presence for nearly 30 years, has also increased—by nearly 8,000 workers in Mexico and 700 in Canada.

Despite political rhetoric to the contrary, NAFTA has been a winwin- win. It’s been good for the three nations’ economies, for companies like Caterpillar, and for our American, Mexican and Canadian workers.

Don’t lose yourself
Although it’s important to adapt to different markets around the world, it’s equally important, perhaps more important, to make sure your company stays true to its core values and culture. It’s important not to lose what makes you unique and what has made you successful in the past. True, you will have to adapt and make changes along the way, but don’t lose yourself.

At Caterpillar, common processes, and most importantly, common values link all of our employees around the world. Despite our differences—in geography, culture, language and business—we are one Caterpillar, one company united by common principles and a shared commitment to the highest standard of conduct. With employees and operations around the world, it’s important to make sure everyone is working as one team, sharing common values and driving toward the same strategic goals.

These are just a few high-level themes for competing in the global economy. The competition will keep evolving, and there are always more lessons to learn. But there’s no going back. Just as we’ve embraced the benefits of competing in the global economy, we’ve also embraced the challenges. And we’re ready to continue to innovate and change so we can deliver the products and services that will help our customers succeed. iBi