Ride the Tiger

During the 1992 presidential campaign, then candidate Ross Perot, an astute Texas businessman if there ever was one, warned that NAFTA (North American Free Trade Agreement) would create a “giant sucking sound” of jobs going south to the cheap labor markets of Mexico.

There is no question that many companies have turned to Mexico because of its proximity to the United States and because of its substantially lower labor costs, factors that became more enhanced with NAFTA. You don’t have to be Jack Welch to figure that out.

Just in the past couple of weeks alone, three behemoth world-class manufacturers, Toyota, Ford and Goodyear, announced plans to build major facilities in Mexico.

Toyota said it will build a $1 billion plant in the central state of Guanajuato, north of Mexico City, to produce Corollas, while Ford will spend $2.5 billion on new engine and transmission factories in Chihuahua and Guanajuato.

Advantage Mexico

Low labor costs and fewer tariffs gives a huge competitive advantage to Mexico, where eight automakers have opened or announced new plants in the past two years.

A worker in Mexico costs car companies an average of $8 an hour, including wages and benefits. That compares with $58 in the U.S. for General Motors and $38 at Volkswagen’s factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research.

Mexico also trumps the U.S. on free trade. It has agreements with 45 countries, meaning low tariffs for exporting globally. That, along with low labor costs, convinced Audi to build an SUV factory in the state of Puebla.

Audi will save $6,000 per vehicle in tariffs when it ships a Q5 to Europe, compared with building the same vehicle in the U.S., says Sean McAlinden, chief economist at CAR.

What Does Volvo Know?

So these substantial cost advantage factors in favor of Mexico, both in terms of labor and tariffs, have to make me wonder why Volvo is centering its focus on South Carolina and/or Georgia for a new $500 million plant. What does this company know that the other automakers don’t know?

Mind you, I would be gratified if Volvo does build in the U.S. Both Georgia and South Carolina have good business climates in comparison to many other states. But I still fail to see the rationale.

Some would counter with the answer of quality or transportation costs. Based on what the industry is doing, not saying, I believe quality is now largely a moot point. The automakers are getting the quality they want, and even luxury models are planned for production in Mexico.

In terms of transportation costs, I think it is safe to say that such costs do not offset or exceed the savings offered by lower labor rates and the NAFTA agreement afforded to Mexico.

Was Perot Right?

But between 1994 and 2000, the U.S. economy created 2 million jobs annually, despite NAFTA.

The truth is that both exports and imports are good for just about every country in the world. Exports typically create better-paying manufacturing jobs while, imports give consumers more choice at lower cost, and they force competing domestic firms to improve their game.

There is no question in my mind that Detroit had gotten lazy and complacent and was turning out pretty crappy products in the 1970s and 80s. Slowly, the Big Three began to realize that Japanese automakers were for real and were not going away.

In short, Detroit had to up its game to survive. (But that’s another story for another day.)

Battling a Ghost

Today, President Obama finds himself battling the ghost of NAFTA in his desire to pass legislation in Congress ratifying the Trans-Pacific Partnership, an agreement, among 12 nations bordering the Pacific, aimed at reducing trade barriers and promoting greater economic cooperation

Obama says that critics of TPP — primarily organized labor, most Democrats and environmental groups – are wrong to see the proposed trade agreement as another NAFTA. The president argues that unlike NAFTA, TPP would compel other countries to adopt enforceable labor standards, leveling the playing field and opening them up to U.S. exports — creating more U.S. jobs.

“When I listen to criticism of this deal, what I primarily hear is criticism of NAFTA,” Obama said. “If you don’t like the fact that labor provisions aren’t enforceable right now, why wouldn’t you want a trade deal that makes labor provisions enforceable with some of the same countries we currently trade with?”

Said the president to a group of supports last week: “You need to tell me what’s wrong with this trade agreement, not one that was passed 25 years ago.”

Strange Bedfellows

It is interesting to note that the president is getting most of his support on TPP from Republicans and the nation’s business community, although not all are in lockstep by any means.

Kevin L. Kearns, president of the U.S. Business & Industry Council, opposes TPP, calling the proposed agreement “another giant step in the industry-by-industry giveaway of American manufacturing,” while the National Association of Manufacturers and the U.S. Chamber of Commerce supports the ratification of TPP.

The way I see it, the Asia-Pacific region is a tiger we’re going to have to ride. For the U.S. not to do so will be to our competitive disadvantage.

I say this because, according to the International Monetary Fund, the world economy will grow by $21.6 trillion over the next five years. Nearly half of that growth will be in Asia, where the region’s middle class has grown by 2 billion people in the past 20 years.

On the Outside Looking In

This a lucrative market to say the least, but U.S. companies have lost market share in the Asia-Pacific region because many countries maintain steep barriers against U.S. goods.

Trade agreements, if they are done right, are crafted to overcome these barriers. However, Asia-Pacific nations are clinching trade deals among themselves that threaten to leave the U.S. on the outside looking in.

The number of trade accords between Asian countries surged from three in 2000 to more than 50 today, with some 80 more in the pipeline.

Meanwhile, the U.S. has just three trade agreements in Asia, with Australia, Singapore and South Korea.

Remember, one of the main reasons that Audi cited for picking Mexico over the U.S. for its future new assembly plant was because Mexico had twice as many free trade agreements in place with other countries than the U.S.

Now I would be lying to you if I told you that I knew the intricacies of TPP. I don’t and I bet very few people do.

But I do believe that free trade agreements in principle, if negotiated right, can benefit U.S. companies by opening up potential new markets to them, thereby creating U.S. jobs. A study by the Peterson Institute for International Economics estimates that TPP could boost U.S. exports by $124 billion by 2025.

So let’s try to ride this tiger.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

An Update on Texas: The Governor and The Entrepreneur

Because companies need to know about future opportunities and economic developers nationwide should be aware of their competition, let me tell you what’s happening here in Texas where I live.

For the first time in a long time, the Texas economy, the 14th largest economy in the world, shows signs of sputtering. Don’t get me wrong, there will continue to be job growth, but it will be dampened at least in certain parts of the state.

That is because in communities largely dependent on oil and gas, there have been layoffs and even business closures. And it’s all because of depressed energy prices.

What’s good for you and me at the pump, is not so good for the industry and some local economies.

A Sobering Indication

Job growth in Texas in 2015 is projected to be 1 or 2 percent, lower than the national average for the first time since 2003. And last month, Texas posted its first monthly decline in total jobs in more than four years, a sobering indication of what slower growth looks like.

But the good news is that Texas will weather this storm, because its economy is now quite diverse and no longer as dependent on the oil and gas industry as it once was. Still, with depressed prices and hundreds of rigs having been idled, it’s having an effect.

Manufacturers of parts used in drilling, as well as hotels and restaurants that cater to the oilfield workers in Texas, North Dakota, Ohio and other states, are also feeling the impact of lower oil prices.

A New Governor

Texas has a new governor in Greg Abbott. He is of the belief that the best job creation program is tax reduction, a premise that I generally agree with.

Now I thought this new governor might be some Tea Party kook. Being a centrist on matters of politics, I am generally wary of extremists, right or left.

But during a conference call a few weeks ago in which site selection consultants were introduced to him, I found Gov. Abbott to be quite mainstream and reasonable.

And even better, he seems to be a champion for economic development and offered up some real substantive ideas on how to improve Texas’s competitive position in attracting business investment..

The Texas Enterprise Fund Gets Bolstered

For one thing, he is going to increase funding to the Texas Enterprise Fund by the tune of $50 million. Now that is significant as there was some speculations that the TEF could be eliminated.

As of Dec. 2014, the Enterprise fund started in 2004 had awarded $576.2 million to 129 projects (corporate expansions) resulting in $24.39 billion in investment.

Gov. Abbott is also pledging to reduce business taxes and fees by $1 billion a year while increasing spending on roads and transportation by $4 billion. Now I’m not sure how that’s precisely going to work, but press reports indicate that the House and Senate are largely going along with that.

Targeting the Franchise Tax

Music to my ears is the fact that Abbott wants to reduce property taxes and eventually eliminate the state’s franchise tax. He cites a study that showed that eliminating the franchise tax in Texas would generate 41,500 new jobs, $3.4 billion in new net investments and $9.8 billion in new personal disposable income by 2017.

“While we are fortunate in Texas to not pay a personal income tax, we are paying as consumers and employees when it comes to the business franchise tax. Every dollar paid in business franchise taxes could instead be invested in higher wages or new jobs,” Abbott wrote earlier this month.

“To keep Texas the best state for business and job growth, the state must significantly reduce and eventually phase out the business franchise tax. This reduction in the franchise tax will help attract even more job creators and encourage even more Texas entrepreneurs to invest their capital in opening or growing a business.”

Many governors talk about economic development and some actually do something about it. It’s still early, but judging from what I’m hearing, Abbott appears to be a doer.

My Point Is …

I’ve played cards in England and I’ve gambled in Spain. And along with my ramblings I’ve met some big names.There’s been governors, senators, congressmen and such. Singers, actors,artists,and writers of much. I’ve hobnobbed with preachers, judges and crooks. And professors whose knowledge have all come from books. Now some of these people have impressed me a lot, and some of these people I can truly say not.

Please accept my apology for this poor attempt at poetry. If I have a point, and I think I do, it is that I have met a pretty wide group of people, some of whom are “famous” and some of whom are not.

But it is the entrepreneurs who generally impressed me the most.

A Man with a Plan

I met one such entrepreneur this past week. You may have heard of him — Emmitt Smith. Shoot, even my wife, who has no interest in sports, has heard of him.

To re jog your memory, Emmitt is a former Dallas Cowboy and widely considered to be one of the premiere running backs to have ever played the game.

I remember him when he was at the University of Florida and just shredding, just tearing apart my beloved Alabama defense. I knew then that he was destined for the National Football League.

And in the NFL, he did the same thing, shredding defenses, including that of my beloved Pittsburgh Steelers. His 18,355 lifetime rushing yards still stands as a NFL record.

But being a legend on the football field only gets you so far, and Emmitt well before he left the game, started planning for his future.

Today Emmitt heads a commercial real estate services company, E. Smith Realty Partners, and has surrounded himself with some topnotch talent that is doing work nationwide.

Smith is one of a growing number of former professional athletes pursuing second careers in commercial real estate. They include ex-Red Sox slugger Mo Vaughn, former tennis champion Andre Agassi, one-time New York Jets wide receiver Keyshawn Johnson, ex-Los Angeles Laker Shaquille O’Neal and Basketball Hall of Fame member Magic Johnson

He Knows His Stuff

We talked about the booming North Dallas corridor and the big projects happening there – Toyota’s North America headquarters, Nebraska Furniture Mart and “The Star in Frisco,” a 91-acre mixed-use project that will include Dallas Cowboy’s new headquarters and training facilities .

We talked about the vast amount of property available to the south of Dallas, which should be ideal for manufacturing and distribution because of all the multiple interstates nearby.

We talked about Fort Worth’s great walkable downtown, compared to that of Dallas, and how the Trinity River Basin could be used to bring the two cities, where historic rivalries have existed, closer together.

And we talked about how the availability of water could be critical to future growth for the Metroplex, the common vernacular for the Dallas-Fort Worth area. See last week’s blog – It’s a Different World.

On these issues and more, he spoke with a degree of authority that made me understand that this fella knew his stuff.

No “Were” About It

When I was first introduced to Emmitt, courtesy of economic developers from Virginia Beach, Va., I was caught by surprise and stammered, rather stupidly, “Man, you were just great!”

Without missing a beat and with a smile, he said, “So I’m not now? You know I’m not done.”

No, he is far from done.

Emmitt’s story should play out much like that of Roger Staubach, the former Dallas Cowboy quarterback who built a successful real estate development company and then sold it to Jones Lang LaSalle for far more money than he ever made in football. Emmitt is following that same playbook.

So watch Emmitt, and his company, run. He’ll be shredding some defenses along the way.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. Dean can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

It’s a Different World

We’re all dependent on it. It’s an essential ingredient of life. But for most of us in this country, having clean, reliable water has been viewed almost as an inalienable right.

Farmers have known the importance of water – too much or too little can make or break a crop growing season – ever since man has been tilling the soil.

But now the rest of us are learning, ever so slowly, that water should not be taken for granted. Indeed, it is and will become even more so a cherished resource.

We are now seeing how the availability of water (or lack of) can impact communities in very lasting ways. “Water rights” – who gets access and how much — have resulted into “water wars,” which I will touch on.

For local economic developers and government officials, keeping their community ahead of the curve in terms of providing and meeting the water needs of residents and commerce should be a priority as future growth depends on it.

For companies seeking to expand operations in new locations, particularly manufacturers that use greater volumes of water in their processes, the current and future availability of water (and cost) should be a huge concern.

As a consultant who advises companies on locational decisions and communities on how to better compete for investment, I can tell you that this issue of water availability will only grow in importance. And I’m not just talking about drought-prone areas.

My First Water War

My first job out of college was as a reporter for The Columbus Enquirer in Columbus, Ga. That was back in 1979, and even then, there were news stories of “water wars” between Alabama, Georgia, and Florida.

Heck, I probably wrote a few of those stories.

Columbus sits on the Chattahoochee River. (On the other side of the river is Phenix City, Ala., a once wild and wooly place where you could get the hell beat out of you if you weren’t careful. But that’s another story. It’s not that way today.)

Upriver and Downriver

Upriver, the Chattahoochee River supplies 70 percent of metro Atlanta’s drinking water or more than 300 million gallons per day.

Downriver, the Chattahoochee merges with the Flint River in South Georgia to form the Apalachicola River, which flows into Florida’s Panhandle and empties into Apalachicola Bay on the Gulf of Mexico.

There used to be a thriving oyster industry in Apalachicola. (I remember buying oysters for $2 a dozen in restaurants there.) Today, the oyster industry in Apalachicola, which was multi-generational, is now on its last legs.

And the reason, so claims Florida, is because Georgia takes too much water from the Chattahoochee River to meet Atlanta’s growing demand.

Let’s Make a Deal

Georgia Gov. Nathan Deal has tried to kick-start negotiations with Florida Gov. Rick Scott and Alabama Gov. Robert Bentley to try to reach agreement in the long-running battle over a river system the three states share.

Deal’s effort follows decades of litigation over the amount of freshwater flowing from the top of the Apalachicola-Chattahoochee-Flint river system, in north Georgia, downstream to Apalachicola Bay.

It also follows a U.S. Supreme Court decision in November to consider a lawsuit filed by Florida against Georgia aimed at increasing the flows. This water war, decades in the making, still continues.

With Growth Comes Problems

About five years ago, I moved to Texas, coincidentally for the very same reason that the founders of the Republic of Texas moved here – warrants. (Just kidding.)

I live in Plano, which is part of the Dallas-Fort Worth “Metroplex,” a metropolitan area that has doubled in population in the past 30 years to 6.5 million and is projected to add 1 or 2 million more in the next five years.

In short, this place where I live is booming. Toyota is building it’s new North American headquarters just a mile from my home, which sits in the midst of various corporate campuses.

But with serious growth comes serious problems. Experts now say that drought-prone North Texas will outgrow its water supply by 2060. I would not be surprised if it happens well before then.

On the Front Lines Again

Soon after moving here, I started reading about a water district authority in North Texas wanting to build a pipeline into Oklahoma to get more water from the Red River and its tributaries.

But Oklahoma was not playing nice, at least according to the Texans, by not giving up the water, with the dispute lodged in the courts. So here I was on the front lines of my second water war.

In 2013, the U.S. Supreme Court ruled that North Texas couldn’t have their pipeline. Texas has long been thirsty for Oklahoma water, and has tried to get it by hook or crook. I have a feeling this story is far from over, despite the Supreme Court ruling.

Paradise Lost?

Woody Guthrie wrote in song lyrics that “California is a garden of Eden, a paradise to live in or see.”

The Golden State is indeed one the prettiest places on Earth, but you have to wonder about a place that can be ravished by a myriad of natural disasters — earthquakes, tidal waves, wildfires, and mudslides. I am just waiting for the swarms of locusts.

And now California is in its fourth year of drought, which is estimated to have an economic impact of, depending on which expert you believe, $3 billion to $5 billion this year alone.

Earlier this month, Gov. Jerry Brown, standing on bare earth in the Sierra Nevada Mountains where there should have five feet of snow, held a news conference and announced mandatory water use reductions for the first time in California’s history.

The governor directed the imposition of a 25 percent reduction on the state’s 400 local water supply agencies, which serve 90 percent of California residents, over the coming year.

Emphasizing that the drought could persist, Brown said Californians must change their water habits. “It’s a different world,” he said. “We have to act differently.”

U.S. Representative Kevin McCarthy, a California Republican who is the House majority leader, said Gov. Brown’s order “should not only alarm Californians, but the entire nation should take notice that the most productive agriculture state in the country has entered uncharted territory.”

A Megadrought Predicted

A group of climate scientists from NASA, Cornell University and Columbia University published a report in February predicting that the Southwest and Central Plains regions of the U.S. could see the worst droughts to hit North America in 1,000 years.

They found that moderately reducing carbon emissions in the next 50 years is unlikely to hold off these periods, including at least one “megadrought” that could hit by the end of the century.

Eleven of the past 14 years have been drought years across many Western states, according to U.S. Drought Monitor data. Groundwater supplies that typically provide relief during droughts have been depleted.

If this is the future we have before us, agriculture in this country will be challenged in ways that we may not fully understand now. We may indeed be entering uncharted territory.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. Dean can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite him to speak at your next meeting.

What Will Volvo Do?

Sometimes determining what I should write about in my blog, which targets an audience comprised of both economic developers and corporate executives, is the hardest part.

But by taking a cue from my former career as a journalist, a business editor of a daily newspaper, I usually have no shortage of topics from which to choose. I typically, but not always, write about news that directly impacts a business audience.

And in doing so, my aim is not so much for readers to necessarily agree with my conclusions and assessments. Rather, I just want them to think about this stuff, most of which I think is pretty important.

Many Choices

Now I had a lot to choose from this past week. Initially, I thought I would be writing about the historic drought that has been plaguing California and the mega-drought that could be on the horizon for much of this country. (And I will do that soon.)

Or I could write about the Texas Enterprise Fund and how a new and apparently thoughtful governor wants to bolster it and make it better, all the while reducing business taxes. (And I will do that soon.)

Or I could write about how another governor, who apparently does not consider himself the chief economic development officer of his state, ignored the pleadings from corporate residents such Cummins, Eli Lilly, Angie’s List, Salesforce, Inc., the NCAA and the State Chamber of Commerce and then paid the price for it.

(Yet another governor would avoid making the same blunder, listening to a corporate constituent in his state called Wal-Mart.)

Or I could write about Volvo, which announced last week that it would build a $500 million assembly plant in the United States and not in Mexico as has been the recent trend.

Or I could take elements from some of the aforementioned news stories and intertwine them in such a way that will not have our heads explode. Ok, let’s try that. I promise to be careful.

Volvo Picks the U.S.

First let’s look at the Volvo announcement. The company announced plans Monday to build its first factory in the United States, 60 years after it started selling cars in the country.

Despite its long-term presence in the U.S., Volvo has remained a small player. Last year its U.S. sales fell by 8 percent to just 58,000 units — representing a mere 0.4% of the market. Volvo sold 466,000 vehicles in 2014, a record amount of cars globally.

The plant to be built in the U.S. will be Volvo’s fifth factory, and will join existing plants in Sweden, Belgium, China and Malaysia. The announcement comes in the wake of a two-year turnaround of the Swedish brand’s fortunes since it was sold by Ford in 2010 to China’s Zhejiang Geely Holding Group Co.

Volvo CEO Haakan Samuelsson said the brand needs to prove viability, which is why the company needs a plant in the U.S.

“Volvo Cars cannot claim to be a true global car maker without an industrial presence in the U.S. Today, we became that,” Samuelsson said in a statement.

Four States in the Running

If you take press reports to heart, (I don’t but there’s often a kernel of truth to them as insiders will leak information), South Carolina, North Carolina, Georgia and Kentucky could be viewed as front runners for this future assembly plant.

Now here’s where things could, and I emphasize could, get a little dicey for Volvo and these four presumed favorites. And I mention this only because of the recent fiasco regarding Indiana’s unnecessary and backward “religious freedom” law and the corporate community’s response to it.

For had it not been amended, which was only done because of the furor that resulted, the law would have provided legal cover to discriminate against gay people. So why would major corporations want to weigh in on such a hot topic? One word – talent.

They are worried, and I believe rightfully so, that these “religious freedom” laws, and apparently about 20 states have them, will make it more difficult for them to attract top talent.

This is exemplified by a letter signed jointly by six CEOs to Indiana Gov. Mike Pence asking him to reconsider the Religious Freedom Restoration Act. (He didn’t.)

“We not only disagree with this legislation on a personal level, but the RFRA will adversely impact our ability to recruit and retain the best and the brightest talent in the technology sector,” the letter said.

“Technology professionals are by their nature very progressive, and backward-looking legislation such as the RFRA will make the state of Indiana a less appealing place to live and work. We cannot remain competitive without a talented workforce.”

Gay-Friendly Volvo

Now let’s go back to Volvo. An organization called Gaywheels.com apparently has done the research and has come up with a list of gay-friendly manufacturers that sell vehicles in the U.S.

By their definition, to be considered gay-friendly, an automaker must, at a minimum, “have a policy that prohibits workplace discrimination on the basis of sexual orientation.”

If Volvo, which has advertised in gay-oriented magazines, has made the gay-friendly list (and it did) because of its enlightened internal policies, the same cannot be said for the states where it is supposedly looking to build a new plant.

South Carolina passed a “religious freedom” law in 1999 that prohibits any state laws that “substantially burden” a person’s ability to follow their religious beliefs. As such, the law gives legal defense for businesses to discriminate.

What One CEO Did

Now how does Volvo senior management feel about that South Carolina law? Might they have the same concerns of let’s say Bill Oesterle back in Indiana.

Oesterle, the CEO of Angie’s List and a life-long Republican, has rejected the proposed fix to Indiana’s “religious freedom” law as inadequate and has called off a major expansion of its Indianapolis corporate campus. The proposed 1,000-job expansion would have included $18 million in incentives from the state and city.

In Georgia, state legislators expect a “religious freedom” bill to be back for the 2016 legislative session. Only the fear of backlash (news generated in Indiana) kept the bill bottled up in committee this time around. Now what would “gay-friendly” Volvo think about such a law?

Kentucky passed its “religious freedom” law two years ago to ensure that government action would not interfere with religious belief. It was vetoed by Gov. Steve Beshear before legislators overrode his veto. Now I wonder if Volvo knows about that Kentucky law?

But we must not forget progressive North Carolina, which has become a battleground in the fight for voting rights. Just when Indiana’s law was gaining notoriety, North Carolina lawmakers introduced matching Religious Freedom Restoration Act bills in the state House and Senate that could pose an even greater threat to civil rights than Indiana, according to some legal scholars.

But I’m sure Volvo knows all about what’s happening in North Carolina and is monitoring the situation carefully. Just like it is in South Carolina, Georgia and Kentucky.

Volvo’s Own Words

The following words come from the Volvo Group’s website. This is the company speaking:

“The Volvo Group hires and treats its employees in a manner that does not discriminate with regard to gender, race, religion, age, disability, sexual orientation, nationality, political opinion, union affiliation, social or ethnic origin. Workplace diversity at all levels is encouraged.”

Well, that’s good to know. Let freedom ring.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Plano, Texas. He can be reached at dbarber@barberadvisors.com or at 972-767-9518. If you liked what you read here, invite me to speak at your next meeting.