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Ethan Allen CEO Describes Challenges of Running a Global Organization
Globalization has had varying effects on countries and economies throughout the world. In the first of a series of conversations, NewsHour correspondent Paul Solman talks to Farooq Kathwari, CEO of Ethan Allen Interiors Inc.
PAUL SOLMAN, NewsHour Economics Correspondent: Ethan Allen furniture, how much more American can you get? The green mountain boy himself was a hero of the American Revolution. For decades, the colonial facade and furniture named after him were, for Ethan Allen's customers, early
And the company is still the state of
FAROOQ KATHWARI, CEO, Ethan Allen Interiors, Inc.: The product is made in the
PAUL SOLMAN: That's Ethan Allen's CEO, Farooq Kathwari, born and raised in Kashmir, an area both
FAROOQ KATHWARI: As we get into, say, this area, this is somewhat more of the classic 18th-century traditional.
PAUL SOLMAN: Ethan Allen now makes furniture all over the world, global styles, global sourcing.
FAROOQ KATHWARI: And if you look, for instance, at a chair like this, the frame, the metal frame is made in the
PAUL SOLMAN: Where's the American flag pillow made?
FAROOQ KATHWARI: Well, most American flags are made in
PAUL SOLMAN: Most American flags are...
FAROOQ KATHWARI: ... are made in
'The world has now become smaller'
PAUL SOLMAN: So what does Farooq Kathwari think of globalization? For starters, he defines the term very broadly.
FAROOQ KATHWARI: Globalization is more than the issue of just buying products cheaper from one country and marketing them in another country.
PAUL SOLMAN: So, if it's more than that, what is it?
FAROOQ KATHWARI: Globalization to me means the world has now become smaller. You know, I'd never seen television until I left
So globalization, from that perspective, has created expectations, the expectations to do better. They want to have a better life; they see it all over the place.
PAUL SOLMAN: They see it on television.
FAROOQ KATHWARI: They see it on television; they see it on the Internet. They also see the need for better governance, the rule of law we are talking about.
PAUL SOLMAN: So that the expectation, "Hey, most of the world," someone sees in
FAROOQ KATHWARI: Absolutely. You know,
So globalization is that kind of a change. You're going up a mountain. And if you go too fast -- and, unfortunately, today, around the world, we see a lot of changes are being made fast -- people are getting water in their lungs. And, you know, a lot of them, unfortunately, are dying because they are also not understanding another factor of a mountain: To save yourself, you've got to come down.
Slowing down globalization
PAUL SOLMAN: Go slow, says Kathwari. Globalization is inexorable, but it can kill. And yet, to its American workers, it must seem Ethan Allen has globalized at a break-neck pace.
FAROOQ KATHWARI: Six years back, we were operating 23 manufacturing plants in the
And we today have 40 percent of our products now coming from offshore, many countries --
PAUL SOLMAN: But the question is, it seems to me, that if
FAROOQ KATHWARI: Well, let me tell you, the Ethan Allen model, actually, is the opposite of what you've just said. We are in a business where there is a higher labor content, where we could say that we should not be making any products in the
PAUL SOLMAN: Yes, a couple of trips to
FAROOQ KATHWARI: It doesn't work that way. In our industry, we are most probably the only one which has made the amount of change we have made and maintained profitability. Almost everybody in our industry -- I'm talking public companies, larger companies who have gone overseas -- they have lost profitability, yet their reasoning was to increase their margins.
PAUL SOLMAN: What did they not figure in? Where were the costs, people stealing from them?
FAROOQ KATHWARI: Again, I'll use nature, because I'm a farmer, a part- time farmer. I grow -- I have an apple orchard up in upstate
American manufacturers, American industries, have closed their plants too fast. It is like pruning that tree. And what they've done is, in many cases, they have killed the tree. So we don't want to kill our tree.
Keeping production domestic
PAUL SOLMAN: There are, Kathwari insists, long-term economic advantages to keeping production domestic. For example...
FAROOQ KATHWARI: Our factories, our wood factories have been located in the Appalachian Mountain range, where there's an abundant, renewable supply of wood, in cherry, oak, birch, maple. So we said, "This is great resource."
Secondly, we have no idea what is going to take place due to increase of costs in
PAUL SOLMAN: Among them: terrorism abroad; protectionist import restrictions; major investments Ethan Allen has made for decades in American plants; American workers in revolt or terminally unmotivated, if they think no jobs will be left here at all. On the other hand, globalization has palpable plusses for
FAROOQ KATHWARI: We have 17 Ethan Allen design centers in
PAUL SOLMAN: But globalization is still costing American middle-class jobs, isn't it?
FAROOQ KATHWARI: I'm concerned about the loss of American middle class.
PAUL SOLMAN: Right, and you're contributing to it, I mean, the loss of the middle class, at least in part.
FAROOQ KATHWARI: But on the other hand, what we have done is also -- let me just tell you the other side. At Ethan Allen, we have actually added jobs at the middle and upper levels almost as much as we have lost at the factory level. We have added almost 1,200 new people in the last 15 months.
PAUL SOLMAN: Ethan Allen employs 3,000 interior designers alone, boasts Kathwari, employs its own architects, makes its own ads. But every one of those people you're hiring, I'm betting, has a college degree. Is that right?
FAROOQ KATHWARI: They do, yes.
PAUL SOLMAN: Twenty-seven percent of the people in the
FAROOQ KATHWARI: Well, you know, that's a problem. This is where our leadership should pay attention to. I'm talking of our national leadership. Our education in this country is a disaster.
PAUL SOLMAN: As you can see, Kathwari is no Pollyanna. Indeed, he thinks of himself as a realist determined to make the best of life, perhaps because he's seen the worst, and not only in Kashmir. In 1992, his 19-year-old son died, fighting in
FAROOQ KATHWARI: The loss of my son helped me understand that conflicts are not good. Conflicts need to be resolved. That's a responsibility of leadership.
PAUL SOLMAN: And globalization is conflict?
FAROOQ KATHWARI: Globalization is the biggest conflict that we can think of. Environmental conflicts, trade conflicts, rule of law conflicts, expectations conflicts, all of those, to me, are part of globalization.
Establishing enforceable standards
PAUL SOLMAN: So, finally, how does Kathwari think they should be resolved? With caution.
FAROOQ KATHWARI: I think that we should establish standards, that are international standards, that are enforceable standards about minimum wage overseas, environmental issues, health issues.
PAUL SOLMAN: If you impose wage standards on the rest of the world by American standards, the hard-nosed economist would say, then you're denying those people the right to pull themselves up by their bootstraps, by working inexpensively, the same way Americans did when we started out?
FAROOQ KATHWARI: Yes, I'm not talking of American standards. I'm talking about decent working conditions.
PAUL SOLMAN: Do you think it's possible that, when people look back historically at this period, of the last few hundred years, they might say globalization was not a good thing? That is, is it clear that the post-globalization Kashmiri is better off than the pre-globalization Kashmiri?
FAROOQ KATHWARI: They certainly are better. They're certainly better, even though there may be more suffering. They're better because they understand their rights better. They want to improve themselves. They also are less -- they are less tolerant of oppression or injustice.
PAUL SOLMAN: And so, for you, globalization is that potential to realize yourself that wasn't there in most of the world before this?
FAROOQ KATHWARI: Absolutely. My only concern has been, and is, that this is such a major change, it's a monumental change. But I think, whether we like it or not, we are living in a small world, and we've got to help everybody get up. If we don't do that, we're going to have more and more conflicts. So we have to help people get up and not to feel that somehow globalization means that we're going to do better and everybody else is going to stay down.
PAUL SOLMAN: Farooq Kathwari, thanks very much.
FAROOQ KATHWARI: Well, Paul, it's good to share our thoughts together.