6. >> the heads of two u.s. companies are calling on congress to extend the export-import bank charter. some republicans oppose the bank, saying it distorts the market and puts taxpayer money at risk to support large companies. on thursday, the ceo of agriculture equipment maker johnson deer and the ceo of satellite maker orbital joined the discussion hosted by the export-import bank in washington. this is about an hour. >> welcome everyone. please take your seats. i'm not going to see through these lights whether you've done it or not. i'll assume everybody is sitting. thank you to the export-import bank and fred for the invitation to this event. my name is ted alden. i run the renewing america initiative at the council on foreign relations which deals broadly with the competitive issues we'll discuss on this panel. i was also recently the project

director of cfr independent task force on u.s. trade and investment policy which was chaired by tom daschle and andy card and started from the evidence that the u.s. has been an export underperformer and talked a lot about how to improve things. i'm delighted to be moderating this panel. we have a particularly superb set to take us through. this on my right samuel allen t chief executive of john deere, his full bio is in your material. i'll do brief introductions. to his right is hal sirkin, the senior partner and managing director of the boston consulting group, doing a lot of work on the manufacturing sector. and then to the far right, david thompson, chief executive of orbital sciences who was introduced by chairman hawkberg at the previous speech. i'll give introduction. the title of our session is competing around the world. and it will focus largely on how

the united states and u.s. companies are doing in the competition for international markets. and 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 you might have seen the article in the american interest by tyler cowan, economist at george mason university. it has a lot of attention and makes the argument that the u.s. is poytzed to become an export powerhouse. notes that since the end of the -- or since the end of the recession, exports accounted for fully half of total u.s. economic growth. so the rather weak recovery that we've had would have been positively anemic without strong growth on the export side. secondly he notes as the chairman mentioned that the obama administration surprisingly appears to be on track to meet the national export initiative target. double exports by 2014, even starting from the depressed base of 2009, there were very few economists who thought that was

achievable. that's a 15% annual growth rate of exports. we're running an average 16% so barring a real downturn, that number gets hit in 2014. so that's the positive story. on the negative side, i would point you to a recent survey by the u.s. competitive project, michael porter, professor there, long been the guru on they. they did a survey of 10,000 harvard business school grads who are now in senior management positions and companies all across the country. i suspect mr. thompson may have received that questionnaire as well being an nhbs grad. the most intriguing part to me they did a targeted survey of officials in those company who is had been involved in location decisions. do you leave an operation in the united states, do you move abroad, for greenfield investments, do it in the u.s., do you do it elsewhere. and 2-1 u.s. lost those investment decisions.

those investments went to other places. when asked why, the reasons were -- the one that was most common, low wages abroad. and two was proximity to customers. which makes sense given the rapid growth in the developing world. but there were some that were striking and disturbing. better access to skilled labor was more often cited by companies as a reason for longting abroad than in the united states. so i want to start off with our panelists with a fairly open-ended question. which of these stories should we believe? the united states as an emerging export power house, or the united states as a nation that really is at a serious competitive risk. i'd like to start with sam allen among the many hats he wears is the chairman of the council on competitiveness, which was a group established in the mid 1980s led by chief executives

and they have done work on this over the last 20 years. we'll start with you, sam. >> at risk being in washington, d.c. and answering this way, i think the answer is yes and yes. i think both are true. if i look at our company, john deere, we'll be about 32 billion this year, 50% of it is in the u.s., 50% is outside the u.s. we are from 2010-2018 going to double the size of the company and a lot of that will come outside of 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 of both going through the '09 financial crisis, every one of the companies here 18 free market society made tough decisions very quick, very lean, very efficient. combine that with the situation with the dollar right now 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, 2 to $400,000 products. we'll have the same product made in east moline, for example, 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 exiting the factory is our plant here. and it's because our labor force is very efficient, it's because of combination of a number of factors. having said that, there are a number of other issues like what we're talking about here with ex-im bank. whether we're talking the tax code, the ability to get workers hired, especially highly skilled workers hired through visas, if those aren't handled properly in the coming months, then we

ruined the opportunity for the manufacturing renaissance that i would for one would argue definitely have the opportunity to see here in the u.s. over the coming years. >> it's interesting in this hbs survey i mentioned we asked, what are the biggest problems in terms of your ability to compete in the united states. one, the complexity of the tax code. two was immigration. the inability to get skilled workers from overseas when you need them. hal has done, as i said, tremendous work for the boston consulting group on what's happening in the manufacturing economy in the united states. and how it compares to what's going on. give us an overview. >> to answer your basic question, i think that we are looking at a manufacturing renaissance though we could mess it up. so the answer is sort of yes and yes as well. let me talk about what i see as going on. you go back to probably 2001 when china entered the wto and

wages in china were 58 cents. and what we're seeing is a pendulum swing, i think, there was a mastiff rush to build in china, a massive rush to build in 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 that the pendulum swings too far first, then swings back. and what we're seeing in the u.s. is the beginning, just the beginning, of that pendulum swinging back in the u.s. favor. wages in china rising and that may increase. that makes china less competitive. the weakening of the dollar of course has helped relative to europe and other countries that have floating currencies. and we're seeing china doing some revaluation of the yuan. the basic economics are looking in essence less bad for the u.s. and because the pendulum is swinging the other direction. we think that sometime in around

2015 for a series of goods that are very important to the u.s. economy, the economics producing in china will be around 10% lower cost at the factory gate than the economics of producing in certain parts of the united states the same kinds of products. that spread gets pretty low when you think about transportation, country risk, the thought of being 5,000 to 7,000 miles away from your customer. all of these add up and say that we would expect to see jobs and economic activity return to the u.s., because the pendulum swung too far in the other direction. we're a little surprised because we weren't expecting it when we started to look for companies participating and started to see dozens and dozens, well over 100 companies who are repatriating jobs back to the u.s. for pure economic reasons. >> thank you, hal. david thompson, you operate in a sector of the satellite business

has been extremely competitive for a long time. how would you assess the current competitive position of the u.s. in your industry and more broadly if you want. >> 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 it's turned into a business. 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 competitor who is have gotten very good in the last decade or two 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 t 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. in the case of satellites,

probably 5% or 10%. in the case of human beings arguably even less than that. unlike humans, though, can be created largely through the efforts of unskilled labor, 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,y reliability and value of the product. so, as long as we continue to lead the world in attracting and keeping the best and the brightest from our technical schools, and we continue to invest in research and development to improve the products incrementally every

year, i think we'll do okay. but we certainly face circumstances in which the playing fields are not always level. and initiatives aren't 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 export-import bank has been critical 18 number ever our recent contracts around the world. we sold satellites in 18 different countries. 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 nonproduct specific advantages 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 and d which is pretty 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 and d tax incentives that are important in many technology-based sectors including our own. >> thank you very much, david. dave's comments about building a satellite remind me we still haven't learned what this someone yet. there is going to abquiz at the end of today's meeting. i'm guessing it's a new kind of stair master. you'll all be quizzed at the end. hal. you want to talk more specifically about sectors. in your work you identified tipping point sectors, where the u.s. competitive position is appears to be improving strongly. walk us through that. what are some of these sectors and what's driving the improvement? >> the sectors are chosen because of two factors. the first one being the labor content in the product. so if you're making shoes and clothing that tends to have about 60% labor. when you think about relative to

china, that puts the u.s. at a disadvantage. the goods that tend to have the highest probability of repatriating to the u.s., computers and electronics, machinery, transportation equipment where the u.s. is very strong, plastics and rubber, appliances, others in that order of magnitude. the second is transportation cost. when china entered the wto oil prices were closer to $20 a barrel than they tour the $100 plus so transportation has become a more important part of the mix and energy being part of it. where transportation costs are high also make them favorable to the u.s. those are the two that matter. we expect to see those are the places where the u.s. will be resurging in manufacturing. >> talk about the sector specifically that you were in. i think you listed 7.

>> computers and electronics are likely to come back to the u.s. we have a vibrant computer segment though you couldn't know that by reading the newspaper but we manufacturer the majority what if we use. transportation equipment. places like bowing on the high end, also automotive. the us sus one of the most competitive automotive -- cost competitive automotive manufacturing in the world. we see companies like toyota looking at the uss 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 the factories around the world. you see all sorts of products that are likely to do this. and one of the -- one of the facts are that we're watching european companies who are looking at the situation in europe with the exchange rate and the exit barrier 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 lack ever kill skilled workers but no different than in other countries. we maybe feel them more. but the fundamentals are we have a very good supply of skilled workers and we have competitive cost position and as we start to look at things like energy, as you start thinking about chemicals or even heavy energy intentative businesses t natural gas now selling at what, $2 from what was 4 not that long ago. and the 8s to tens as well. makes the u.s. more competitive. far more expensive than the gas in the u.s. gives a lot of advantages that i think will play out over the next 10 years. >> if i might echo to 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 all of the press is we also announced over the last 14 months we're putting in seven plants, two in brazil, three in chai narcotics one in india, one in russia. that gets the press. during that, of that $4.5 billion, 57% of it 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 of the old lines in the foundry in waterloo, iowa. 15 years ago you could go anywhere and get foundry castings at effective prices. today out of that foundry we estimate that we're 20% to 30% more competitive on large castings than any merchant

foundry we could find. when the government policies reinforce those type of investments, when you put $150 million investment in a foundry it's not a job you put in place and you take away the next. it's a job that you plan take a. it's a job you plan on keeping there the next 15, 20 years. >> talk where your company fits with the u.s. globally. a lot used china as a u.s. export platform to serve the u.s. market and that platform is serving. what you're talk about is more global sourcing in which your u.s. operations are really geared toward export as much toward domestic. where does the u.s. fit the global sourcing plans. >> 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 forum for us. totally different price point. you're not going to serve as china. it's the largest market in the world. you've got to be in that market.

for example, a large market for us, probably the largest growth market is the cis. eventually the market will be big enough. we estimate the ag equipment market in russia cis will be a $15 billion market. we'll have plants there. but all the components of significance, engine power train components, transmissions as well as the foundry, those assets will stay in the u.s. and we will keep a lot of the critical assets, the very strategic assets where you don't want to put them at risk, we'll keep those in the u.s. those have a tendency to be higher capital intensive assets. the u.s. role in the future will be more and more towards one of capitally intensive assets when they're exporting to other markets you just want to make sure in a global environment that obvious sli going to continue to get more uncertain over time that one of the more

secure places to be is the united states. >> where are the biggest growth markets for you? where do you see the strongest growth taking place? >> for us it's southern cone particularly brazil and argentina. cis market, those are the two really, really big markets and then the third big one for us is china. >> i want to ask you the same question, where are the big growth markets and soot lites and where does the u.s. fit in terms of your global sourcing? >> at this point looking at 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 sub sahara africa.

it's not uniformly true, but certain regions and countries in south asia. from a service standpoint, the real drivers of growth today and for the near term are expected to be in three areas. first, the conversion from normal television formates -- formats to high definition tv. ted talked about not being able to find the channel he wanted on the 500 channels currently available. the satellite that he referred to that we're launching in a couple of months for a uk-based operator that's going to provide services throughout sub sahara africa will carry in total the

equivalent of about 2500 high def tv channels. if fred travels anywhere in that part of the world, we'll be able to follow him. that's the first one. broad band services from satellites particularly in those parts of the world where terrestrial systems are not available and probably won't be for the foreseeable future is the second largest area. and ubiquitous mobile data communications primarily to connect machines with other machines instead of people with other people would be the third area. and then finally, increasingly we see the u.s. military and the militaries of many of our allies relying on commercial satellites to connect our deployed forces around the world back home. those 375,000 or so troops that fred referred to earlier today

receive about 80% of their communications through commercial satellite networks. so that's a fourth area that looks like it should continue to support growth in a variety of regions around the world. >> you both -- you both mentioned south america as promising developing markets for your products. when you think about the u.s. trade agenda south america has fallen off. it took forever to get the colombia deal through congress. the only active trade initiative is the transpacific trade partnership in asia. is the united states doing enough to make sure that american companies are able to take full advantage of the market opportunities that are coming in south america and for everyone on the panel or all of you? >> it's just interesting that the chamber hosted a session between brazilian government and

us. the president was just here and met with president obama and talked about areas of cooperation. and i think, you know, from what i heard from it, i participated in part of it. it was a recommitment to really -- we are the two big countries in this hemisphere. and there should be a lot of opportunities there. also the council on competitiveness has a sister organization that works with a number of other countries and in particular brazilian government on innovation and ways that we can spur innovation to the good for all. not just for one country pitted against another country. i think the short answer is that there are some things now underway that are starting to gain traction. i think those of us that have been involved, it's clear there's a lot of opportunities, a lot of potential areas of

cooperation, and while we talked about all south america i think not to single out countries, but clearly for that cooperation to reach its full potential it will have to be led by brazil from that side and us on this side. and i think there are a number of people that are trying to work towards that aim. >> do we need an active trade agenda in south america? do we need to revive the americas or do beneed other bilateral negotiations or are we with the current structure well placed? no enthusiasm. you go back five or ten years where the next trade negotiation was going to be was a big question. it doesn't seem to be as front as center and it used to be. >> i would say whether you're going to south america, whether you're going to to the pacific area. we need every free trade agreement we can come up with just to put a plug in the one we're sitting in front of us right now with the permanent

trade relations with russia. we've been dealing with this for almost 15 years and finally have a deal from all respects relative to the ability to trade and provide advantages for companies in the u.s. it's a great deal. and now we're like actually what's going on here with the bank being held hostage and the reality is all that's going to do is a lot of other countries and companies in those countries are going to have that competitive advantage that we aren't going to have. we're a good example of that. we've got a 15% import duty on all product we bring in there that overnight goes down as a part of the wto to less than 5%. and if we don't give them permanent normal trade relations we'll stay at 15 and our competitors at germany or italy they'll be down at five. >> i wanted to talk to you about the government role when it comes to manufacturing. there's been a big debate in

this government over should we we be doing special things for manufacturers. christie roamer wrote something in "the new york times" saying there's no case to do anything for manufacturers. how much does government action matter? >> it's going to matter in a more transitional phase? >> i think it's going to be important to hope bridge a gap between the changing economics of china today and the changing economics of the u.s. governments play an important role to make up that essence. in ways that are good for society beyond manufacturing. jobs training is something that manufacturers are clearly worried about. it's a very substantial start up cost. people have forgotten in many ways when you build a new plant you have to train the people on how to do things.