>> thank you, valerie. thank you for joining us today and sharing your thoughts and president's wishes. we're going to -- we have to move this piece of equipment -- excuse me, this export a little to the side and bring up some stools. we'll start on the next panel right away. we'll be right back in about three, four minutes.

please welcome our panel.

[ applause ] welcome, everyone. please take your seats. i'm not going to be able to see through these lights whether you've done it or not. i'll assume that everybody is sitting. thank you very much. thank you to the export/import bank and fred hochberg for the invitation to this event. i'm fred altman. i was also recently the project director of the cfr independent task force on u.s. trade and investment policy chaired by tom daschle and andy card and started with the evidence that the u.s. has been an export underperformer and talked about how to improve things on that

front. i'm delighted to be moderating this panel. we have a superb set of panelists with us to take us through the issues. on my right, samuel allen, the chief executive of john deere. his full bio is in your material. to his right, hall sirkin, managing director of the boston group and then to the far right, dave thompson, chief executive of orbital sciences. i'm just going to give a little bit of introduction. the title of our session is "competing around the world." i would suggest this is a particularly fluid time to be trying to address this question. just to sort of frame it, on the positive side some of might have

seen a recent article in "american interest." it makes the argument the u.s. is poised to become an export powerhouse, notes since the end of the recession exports have accounted for fully half of total u.s. economic growth. so the rather weak recovery that we've had would is been positively anemic without the strong growth on the export side. and he notes that the obama administration surprisingly appears to be on track to -- even starting from the depressed face of 2009, there were very few economists thought that was achievable. so barring a real down tun, that number gets hit in 2014. that's the positive story. on the negative side, would i point you to a recent survey by

the u.s. competitiveness project at the harvard business school. michael porter, professor there, has long been the guf rue on these topics. they went out and did a survey of 10,000 harvard business school grads who are now in senior management positions in companies all across the country. i suspect mr. thompson may have received that questionnaire as well. the most intriguing part to me was they did a targeted survey of officials in those companies who had actually been involved in location decisions -- do you lead an operation in the united states, do you move abroad? do you do it in the u.s. and do you do it elsewhere? and 2 to 1 the u.s. lost those investment decisions. those investments went to other places. when i asked people why -- and

number two the proximity to customer, which makes sense. but there were some that were striking and disturbing. better access to skilled labor was often cited as a reason for locating abroad than locating in the united states. so i want to start off with a fairly open-ended question. which of these stories should we believe? the ins as an emorjing export powers house or the nation -- we'll start off with you, sam. >> a risk being in washington, d.c. and answering this way. the answer is yes and yes. i think both are true.

if we look at our company rngs john deere, we'll be at $32 billion this year. 50% of it is in the u.s., 50% of it is outside the u.s. in 2018 we'll double the size of the company and that lot of that will be outside the u.s. about 50% of what we do outside the u.s. we export from the u.s. i think one of the things and why there could be a manufacturing renaissance here is there is this combination, everybody is here, made decisions very quick, very lean, very efficient. combine that with the situation of the dollar right knew being very competitive on global markets, it is a very, very positive time. we have a number of plants where we make very similar or identical products, large products, $200,000 today 400,000 product. we'll have the same product made in east moline, illinois, that's

made in brazil, that's made in germany. right now exiting the factory, the highest wages actually are in germany but very close to the second highest are in the u.s. but by far the most competitive is our plant here and it's because our labor force is very efficient and a combination of a number of other factors. having said that, there a number of other issues, like what we're talking about here with ex-im bank. whether we're talking the tax code, whether we're talking the ability to get workers hired, especially highly skilled workers hired through visas, that if those aren't handled properly in the coming months, then we ruin the opportunity for the manufacturing renaissance, which i would -- they ask what

are your biggest problems about your ability to compete in the united states and number one was the tax code. number two was immigration, the inability to get skilled workers from overseas when you need them. >> you've done some great work, and give us an overview, hal. >> to answer your basic question, i think we are -- let me talk about what i think is going on. we go back to 2001 when china entered the wto and wages in china were 58 cents. what we're seeing is a pendulum swing. there was a massive rush to build in china and other countries because the wages were just so low that companies had to take advantage of it.

but as with any economic trend, you find the pendulum swings too far first and then swings back. what we're seeing in the u.s. is the beginning and just the beginning of that pendulum swinging back in the u.s.'s favor. wages in china rising at 15% to 20% a year and it looks like it may increase from that level. that makes china less competitive. the weakening of the dollar has also helped. relative to used countries that have floating currency and we're seeing china do sal uation right now. because the pendulum is we think that sometimes in 2015, a season of good that are going to be

that spread got pretty tough. we would expect to see jobs and activity return to the u.s. because the pendulum just swung too far in the other direction. we were a little surprised because we weren't expecting it when we started to look tore companies participating in this and saw dozens and dozens of companies repatriating jobs back to the u.s. for pure economic regions. >> thank you, hal. daft some son, how would you assess the current competitive position of the u.s.? >> well, thanks, ted. the satellite industry is a

relatively new one. the first manmade object to reach outer space did so in the middle years of world war ii, about 70 years ago. it was a military rocket. but it's really only been for about the last 30 or 35 years that practical applications of satellites have developed to the point that it's turned into a business. now, in the -- in recent years the trends have been positive. u.s. satellite builders today have about a 55% global market share for the products that our companies provide but as you pointed out, we compete intensely to retain that share with competitors from europe, japan and china principally.

our european competitors who have got i don't know very good in the last decade or two currently have about a 35% worldwide market share and our friendly competitors in japan and china have a more limited share, only about 10% of the market today but with trends suggesting their shares are on the rise. building a satellite in some ways is a little like building a human being. the amount -- the cost of the raw material that goes into the product is a very small fraction of the value of the product and the selling price. ? the case of satellite, it probably 5%, unlike humans, though, that can be created largely through the efforts of

unskilled labor -- [ laughter ] without a lot of training and so on, satellites are created by small groups of engineers and technicians whose knowledge contributes to the ultimate performance, reliability and value of the product. and so as long as we continue to lead the world in attracting and keeping the best and the brightest from our technical schools and as long as we continue to improve the products incrementally, i think we'll do okay. but we face circumstances where the playing fields are not always level and initiatives carried out by the u.s.

government are vital to giving u.s. manufacturers a fair chance at winning those next overseas sales. the role of the the role of the export-import bank has been critical in a number of our recent contracts around the world. we've sold satellites now in 18 different countries and i'd say about 20% of the time those sales probably would have gone to one of our international competitors who would have benefitted from some non-product specific advantages that we would not have been able to match had the export-import bank not been active in our sector. in addition, u.s. satellite builders today face other challenges that make our jobs a little more difficult perhaps than those of our competitors in europe and china. one of the principle areas in

which u.s. satellite builders sometimes are disadvantaged is in the area of state support of product r & d which is common in europe and very frequently encountered in china. and not so much the case in the united states. so, we're hopeful that as the congress considers measures to improve our country's economic growth and to sustain the job creation trends that you heard about earlier, that in addition to reauthorizing for an extended period the export-import bank, that additional reforms will be passed in the way of r & d tax incentives that are important in many technology-based sectors including our own.

>> thank you very much. dave comments about building a satellite means we still haven't learn what had this machine is yet. there's going to be a quiz at the end of today's meeting. i'm guessing it's a new kind of stairmaster. you'll be quizzed at the end. hal, i want to talk about sectors. in your work you identified tipping point sectors where the u.s. competitive position appears to be improving strongly. walk us through that. what is driving the improvement? >> the sectors are chosen because of two factors. the first one being the labor content and the product. so if you're making shoes and clothing that tends to have about 60% labor when you think about relative to china or vietnam that puts the u.s. at a disadvantage so. the goods that tend to have the highest probability of repay tree yalting to the u.s. are around 25% labor, things like computers and electronics, machinery, transportation equipment where the u.s. is very

strong, plastics and rubber, appliances and electrical equipment, and other goods that are in that order of magnitude. the second factor of course is transportation costs. again, when china entered the wto in 2001 oil prices were closer to $20 a barrel than the $100 plus rate so transportation has become a much more important portion of the mix and energy being part of that. so where transportation costs are high make them favorable to the u.s. those are the two dimensions that matter. we expect to see those are the places where the u.s. will be resurging in manufacturing. >> what are some of the -- talk about the sector specifically, i think you listed seven. >> so computers and electronics are likely to come back to the u.s., at least a vibrant computers and electronics segment though you wouldn't know that reading the newspaper but we still manufacture the majority what if we use.

transportation equipment, obviously places like boeing on the high end but also automotive, the u.s. is one of the most competitive automotive, cost competitive automotive locations in the world. we see companies like toyota looking at the u.s. as an export platform because they have the ability to ship from kentucky and other parts of the u.s. cheaper than from most of the rest of their factories around the world. you see all sorts of products that are likely to do this. and one of i think the interesting facts are that we're watching european companies who are looking at the situation in europe with the exchange rate and with the exit barriers that exist to leaving plants in europe, as they think about new plants looking at the u.s. as a very good manufacturing location because the quality of workers are high, i know we hear a lot about the lack of skilled workers and sure, there are shortages but they are no different than in most other countries. we maybe feel them more.

but the fundamentals are we have a very good supply of skilled workers and we have very competitive cost position and as we start to look at things like energy as you start thinking about chemicals or even heavy energy intensive businesses the natural gas now selling at what, $2 from what was four not that long ago and in the 8 to 10 not long ago as well makes the u.s. a lot more competitive. the transportation of natural gas is very expensive, more expensive than the gas itself in the u.s. so. gives the u.s. a lot of advantages that i think will play out over the next ten years. >> i might echo what hal is talking about. if i take our company over the last five years including this year, we will have invested about $4.5 billion in capital this year alone, $1.3 billion. what gets the press is we also announced over the last 14 months we're putting in seven

plants, two in brazil, three in china, one in india and one in russia. yet during that of that 4 1/2 billion, 57% was invested in the united states. and to hal's point, a good example is we announced over a year ago we're putting $150 million upgrading the lines in our foundry in waterloo, iowa. 15 years ago you could go anywhere in the world and get boundary castings at cost effective prices. today out of that foundry we estimate that we're 20% to 30% more competitive on large complex castings than any merchant foundry we could find in the world. and the nice thing and this gets back to when the government policies reinforce those type of investments, you put $150 million investment in a foundry it's not a job that you put in place one year and take away the next year. it's a job you plan on keeping 15, 20 years. >> talk about where the u.s.

fits with your company globally. what hal is talking about are companies that used to use china as an export platform to serve u.s. markets, and that advantage has been shrinking so they are serving more of the u.s. market domestical domestically. your u.s. operations are really geared to export as much as towards domestic. where does the u.s. fit in the global sourcing plan? >> in that context you have to have a balance. you're not going to service india from the u.s. it's a totally different product for us, different price point. you're not going to service china, the largest market in the world, you have to be in that market. but for example, a large market for us, probably the largest growth market on the ag side is cis. we'll do eventually the market will be -- we estimate the ag equipment market in russia, cis, 2018 for the total industry will be a $15 billion market.

we'll have plants there but all of the components of significance, engine, power train, transmissions, as well as the foundry, those assets will stay in the u.s. and we'll keep a lot of the critical assets, the strategic assets you don't want to put at risk, keep those in the u.s. those have a tendency to be higher capital and intensive assets so i think the u.s. role in the future will be more and more towards one of capitally intensive assets where when they are exporting to other markets you want to make sure that in an environment, a global environment, obviously just going to continue to get more uncertain over time, that one of the more secure places to be is the united states. >> and briefly where are the biggest growth markets for you, where do you see the strongest growth? >> for us it's southern brazil and argentina, cis market, those

are the two really, really big markets, and then the third big one for us is china. >> dave, i want to ask you the same question. where are the big growth markets in satellites? where does the u.s. fit in terms of your global sourcing? >> at this point looking out both near term for the next year or 18 months, and midterm, say, to the middle of the decade, i would say our single biggest growth market from a geographic standpoint is in south america. that is followed fairly closely by opportunities in eastern europe and throughout the middle east and in subsahara africa and spots -- it's not uniformly true but certain countries and regions in south asia. from a service standpoint, the real drivers of growth today and