Manufacturing Success in Texas

THE TEXAS ECONOMY recently spoke with Tony Bennett, president of the Texas Association of Manufacturers, about the business environment in the state and various issues affecting the vitality and future of our manufacturing sector.

TE: How would you characterize the current state of our Texas manufacturing sector?

Tony Bennett: For many years now, Texas has had the reputation of being heaven on earth for manufacturers. We have inexpensive energy. We have very efficient access to global markets. We’ve got the ports along the Texas coast to help us get our products anywhere in the world.

Texas is located in the center of the country and that brings efficiency to logistics and supply chain issues. We still have low taxes and we have sensible regulation..  Our Texas Universities have strong graduation rates, which is encouraging for our workforce needs.  We do see some gaps in workforce demands and are working closely with community colleges, for example, to help prepare the future workforce for the high-quality jobs manufacturers have to offer.

And it appears that we’re going to have pro-business politics we can look forward to for many years to come. Last session was very indicative that both Republicans and Democrats today know that we have a very choice situation here in the state of Texas and our business environment has become the envy of other states and many countries around the world. We certainly don’t need to do anything to mess that up.

TE: You alluded to the Texas geographic advantage. Can you talk a bit more about what that means for Texas manufacturing businesses?

Tony Bennett: It costs money to move parts to a plant for manufacturing and final assembly. And it costs money to take that product and deliver it to the customer. Texas has a geographic advantage because we’re not only located in the center of the United States, we’re in the center of North America. Our state’s number one trading partner is Mexico. And Canada is second. So you can see very quickly what an advantage it is to be located in the middle of the best market in the world. Manufacturers and suppliers can deliver goods and supplies to one of many airports (like For example, parts come into Alliance Airport where manufacturers are making new phones (like they’re going in north Fort Worth.), We have access to ports in Corpus, Houston, and Beaumont and can set products anywhere in the world.  Location is everything.

TE: A great deal of manufacturing today is done internationally. How does that play into the success of the Texas manufacturing sector?

Tony Bennett: The maquiladora factories in the El Paso area and in the Rio Grande Valley are an integral part of a lot of industries in the United States, and Texas in particular. The electronics industry gets a lot of benefit from these plants on the other side of the border. A great deal of our chemical and petroleum final assembly also is done there.

We’re also seeing more of what they call re-shoring or on-shoring – bringing back jobs that used to be in China and other places overseas. We’re seeing a lot of those jobs come back to North American and to Texas.

 TE: Manufacturing isn’t just about making widgets anymore. How has the sector evolved in recent years and what types of innovative ‘things’ are being made in Texas today?

Tony Bennett:  You’re right. Today, the term advanced manufacturing is probably more appropriate. Advanced manufacturing technologies have found their way into just about every process you can think of today. For example, I used to work for the forest products industry, and the old sawmills that you might remember have changed dramatically. Now, when a log comes into the processing table to be sawed up, operators use laser technology to inspect it. They use computer analytics to examine the log in milliseconds and decide what products are best suited for that log, what boards are going to be made out of that particular log, calculating the curves, the diameter, the species. That’s just one example of how advanced manufacturing has become. In Texas today, we have robotics. We have nanotechnology. You’ve got micro-electromechanical systems out there. 3-D printers. Stealth technology. All of these sciences and advancements are being found in nearly every sector and region of our state’s manufacturing economy.

For example, in the aerospace industry, fighter jets are being built in Fort Worth. And obviously, the high-tech industry is still growing and going at a fast clip, with advanced plants in Dallas and Austin. One of our members here at TAM manufactures the equipment that make silicon wafers, and I am being told that there will be a retrofitting of fabrication plants all over the world. And all of the equipment in that particular fabricating industry will have to be modernized.

TE: And how has all that new activity changed what manufacturers look for in employees?

Tony Bennett: Our manufacturers need every kind of skill imaginable. We need the engineers. We need the welders. We need electrical engineers that work in the aerospace industry. We need folks that put together final assembly of helicopters, for example, in Fort Worth. We just need every kind of skill imaginable.

That’s why the community colleges in Texas are partnering with the industries located in the various regional sectors of the state ­­– and different regions have different clusters of manufacturers – and they are assessing what types of skills need to be taught and what kinds of openings will be available in those various manufacturing plants in their regions in the years to come. So they’re developing the classrooms, the apprentice programs, all the things necessary to put the new skills in the hands of Texans, whether it’s a person who has lost his job in one industrial sector and wants to be retrained in another one … or a young high school graduate who wants to get an internationally-recognized skill certificate that she can use to make a living and maybe advance their education later by going on to a four-year college. Texas community colleges and universities today are beginning to realize that they play a huge role in workforce skills training and retraining in collaboration with our manufacturers.

The Eagle Ford and the other oil field activity is producing surplus  petroleum liquids  that are eventually going to result in an estimated $50 billion to $100 billion worth of new manufacturing plant construction, modernization and expansion.  A lot of this activity is going to be in the petro-chemical industry. And there are not enough skilled workers to assemble these plants and then once they’re built, not enough skilled workers to operate these plants.

We have a lot of steel plants in Texas. And they’re busy right now making oil field pipe and various products associated with the oil production, but when the expansion starts, you will have every need for any kind of steel made, from rafters and girders to components for the liquefied natural gas terminals and ships that will be needed to export LNG all over the world, to the ports that will house those ships, etc., etc. There’s a never-ending litany of needs for resources and people that will be required.

So, men and women of all ages and all skill sets are going to be needed. That is a huge task that we’re undertaking here and we’re mixing it in with a retiring workforce as baby boomers – and it’s already started –retire in big numbers over the next five to 10 years.

TE: What is your level of confidence in the state’s power grid and its ability to provide reliable and affordable electricity for Texas manufacturers as the state’s population continues to grow?

Tony Bennett: We’re very confident. TAM has worked for many years on electricity policy, from the standpoint of affordability, reliability and competitive rates. Our members get very large electricity bills; they use a lot of energy. And they certainly do not want a grid that might go down.

So we spend a lot of time and a lot of expense to make sure that the energy sources feeding the Texas grid are diversified.  Meeting our needs in Texas requires an all-of-the-above approach.

We believe that the policies the Public Utility Commission of Texas has recently enacted will encourage more generation. We’re going to somewhere between 2K and 3K new megawatt sources coming online in the coming year. So the grid is, indeed, growing. It’s growing using free market principles. The technology that surrounds the conservation of energy is actually adding to our ability to ensure that we have a reliable grid. It’s just incredible what kind of conservation technology is being created. Many of those ideas are coming from our own TAM member companies.

We have some of our members here at the association actually operating as “load acting resource”, which means they can switch from making their own electricity for  internal manufacturing purposes to stopping that and switching their power onto the Texas grid. That makes them some money and also provides a level of insurance that the power grid stays ready for a hot summer or cold winter day.

TE: The other resource-related concern, of course, is water. How has the Texas drought conditions affected your membership?

Tony Bennett: Obviously, manufacturing processes can’t do without water. We are just as concerned as anybody that we have adequate supplies. We also see technology answering that call as well, and we’re excited about some of the ideas that we’re hearing about. There are opportunities to perhaps pair the need for other energy generation sources with a desalination plant. If you’re doing both, you can lower the production cost for both of those resources.

Many of our TAM members are looking at ways to conserve water in the manufacturing process, particularly in the food and beverage industry, the pulp and paper industry, the chemical industry. Water is going to be more expensive, and so new technologies we believe will come to pass to ensure that we can make more efficient use of our resources.

TE: And finally, what do you think Texas can do to improve its business environment for manufacturers?

Tony Bennett: One area we need to work on is the amount of time it takes to get an environmental permit. We are a little bit behind the curve on that compared to our neighboring states. Time is money, and if it takes a Texas manufacturer a year longer to get an environmental permit and they can go to Louisiana or any other surrounding state with the same plant, and this happens quite often, then we may be noncompetitive in that area. So we’re working with our lawmakers and our regulators to make Texas more competitive on this front. We’re not trying to change any regulations, it would be the same limits and the same regulatory environment would still be there, but we’re talking about looking at ways to cut the clock-time it takes to get the permit.

And then there’s transportation. I think most of our members would agree that we need sustainable revenue sources for all aspects of transportation in the state. We are not doing the best job we can there. We’re going to have to have more than what we’ve had in the past to fund transportation needs – we are the fastest growing state. We’ll need funding particularly for our highways, but also for our ports, both air and sea. All modes of transportation need funding as Texas grows. We currently have insufficient funds earmarked for that important role of state government. We’re going to have to do a much better job there.

The cost of doing nothing should be studied. Because if we’re doing nothing, it’s going to cost every family, every worker that’s trying to get to work or trying to get home. It’s going to cost employers for late worker arrivals. It’s going to cost in logistics and supply chain. The bottom line is it’s costing us billions of dollars while we ignore the problem. Texas can’t afford that.

Story is from Texas Comptroller,  The Texas Economy