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Texas Today 2016: A Diverse Roster of Companies Continue to Seek Out Texas’ Pro-Business Environment

Through industrial diversification, Texas has been able to overcome a decline in economic output resulting from lower oil prices and continues to court companies with its pro-business know-how.

Q2 2016
Like the boys in the Alamo, Texas knows it’s got an economic development bull’s-eye on its back. Other states are striving to put together an equally business-friendly environment as the now-famous one in Texas, and the Lone Star State is having to struggle with what have become stubbornly low oil prices.

But so far, there’s not much sign of slippage by Texas from the very pinnacle of appeal for CEOs, the location selection community, and others who decide where to put and expand facilities. The state’s official motto is “Keeping Texas the Beacon of Opportunity,” and from a spate of new facility location announcements to the state’s continued overall reputation for business-friendliness, Texas seems to be staying on top.

And its business and political leaders understand that they need to keep a good thing going. “The key to our success is twofold: the ingenuity and innovation of the hardworking men and women who call our state home, and the economic framework that allows free enterprise to flourish,” Gov. Greg Abbott told Area Development.

As Tracye McDaniel, president and CEO of the Texas Economic Development Corp., put it, “What Texas has done well is getting business and industry working hand-in-hand with policymakers to create an open market here where business can prosper. We don’t apologize for prosperity or wealth here, and that’s very important, as is limiting the burden of taxes and [sustaining] a regulatory environment that can support growth.”

The Numbers Speak for Themselves
The evidence that Texas hasn’t lost a step on the other 49 states is vast. Much of it is numerical and collective, and it overwhelmingly supports the case.

For example, for the 12th year in a row, Texas was ranked No. 1 in the survey of American CEOs by Chief Executive magazine for its 2016 “Best States/Worst States for Business” ranking. And Texas is only one of two states that have won a Shovel Award from Area Development magazine every year for the 11 years the award has been in existence, recognizing its job-creation and investment-attraction efforts.

Meanwhile, Texas has remained the leader among the states in job creation since 2007, adding more than 1.8 million jobs, a string that continued through 2015 despite the pressures on the state’s still-crucial oil economy. And combining foreign and domestic business investment in the states, Texas ranks No. 1 as well, according to IBM’s Global Locations Report.

Texas also has remained America’s top exporting state for 14 years, shipping out $251 billion worth of goods last year — exports that alone accounted for more than 16 percent of all U.S. goods that were exported in 2015. And for the third year in a row, Texas surpassed archrival California for high-tech exports, directing $6.3 billion more in such goods abroad than the Golden State.

Recent Announcements
In addition to all of this, Texas presents ample anecdotal evidence that it remains on top. Consider, for example, just three announcements that the state made within a week in March:

First, McKesson Corp. announced that it would expand its operations in the Dallas metro area and open a new regional office in Irving. The expansion was projected to create at least 975 new jobs and $157 million in capital investment in the state. It was prompted in part by a Texas Enterprise Fund grant offer of $9.75 million, the largest such offer made by Governor Abbott to date from the state’s “closing” kitty.

Texas has remained the leader among the states in job creation since 2007, adding more than 1.8 million jobs. “After a thoughtful and thorough selection process, we’re excited to consolidate our Dallas-area offices into a new, state-of-the-art facility” in Irving, said David Evangelista, senior vice president and general manager of McKesson Financial Center. “Investing in this new, modern workspace will enable our associates to more effectively serve McKesson customers in the evolving healthcare industry.”

Just five days later, Texas scored yet again by announcing that Pegasus Foods would be investing more in Texas, constructing a new, 80,000-square-foot manufacturing plant in Rockwall in order to expand its food-production capacity. The expansion is projected to create 325 jobs and $10 million in capital investment.

Pegasus joins those companies relocating or expanding to Texas from California just since 2014, including Apple, Google, LiveOps, Facebook, Dropbox, and Oracle. Pegasus Foods Principal Jim Zaferis noted that Texas’ “political leaders understand the importance of creating a business-friendly environment.”

Then, just two days later, on March 16, Texas was able to announce that the Swiss dermatology company Galderma had decided to expand its current North American headquarters in Fort Worth to support research, development, and training. Galderma’s expansion will include the addition of a 100,000-square-foot facility, a $22 million capital investment, and the creation of 342 new jobs. The Texas Enterprise Fund kicked in $2.1 million to help the company, which focuses on scientific and medical products for hair, skin, and nails.

Like many, many companies, Galderma decided to invest in today’s Texas because of its experiences with yesterday’s Texas. It already has 300 employees at its 170,000-square-foot headquarters. Or, as one of the CEOs in Texas surveyed by Chief Executive magazine put it, “Texas has their act together; their government workers go out of their way to assist businesses [to] comply and follow the laws. The taxation and regulatory climate is business-friendly and allows a small business owner to make ends meet without having to indenture your future and work 70 to 80 hours a week to make a living.”

Texas’ Toolbox
There are multiple reasons that Texas has been able to retain its nation-leading position in business attractiveness and economic development. One major factor is that Gov. Abbott has continued and perhaps even intensified the business-friendly culture that was built over four terms by his predecessor, Gov. Perry.

“It seems,” says Eric Stavriotis, a Chicago-based senior vice president of CBRE, “that Gov. Abbott and his team are trying to keep a lot of the same things going.”

Governor Abbott Has intensified the business-friendly culture that was built over his predecessor’s four terms. For example, Abbott hasn’t shied away from using the Texas Enterprise Fund even after state auditors in 2014 found that the deal-closing fund had become infected by cronyism and mismanagement, leading some lawmakers to call for its abolition. “Incentives that help to offset upfront project costs” such as the Texas Enterprise Fund “are high impact for senior management company decision-makers,” notes Larry Gigerich, managing director of Ginovus, an Indianapolis-based consulting firm. “Texas has been very successful in this regard.”

So by May of last year, just four months after his inauguration, Abbott tapped the fund for the first time to award $3.8 million to Kubota Tractor and Credit Corp. to help bring at least 344 new jobs to Texas and $51 million in capital investment. Not coincidentally, Kubota was moving its headquarters to Grapevine from California. And Kubota President Masato Yoshikawa said that Texas’s incentives “helped make the decision easier” when choosing where in the central part of the United States to relocate.

In fact, Kubota’s decision points to a second factor that is benefiting Texas these days — and is benefiting the Lone Star State more than others. More and more companies that once looked at a location on either American coast as an advantage are now considering the logistical and cost advantages of locating somewhere in the nation’s mid-section instead.

So are many companies that may be new to locating in the U.S. market, especially manufacturers. Some major metal benders are giving the central U.S. a closer look that might previously have located in the latest hot region for new manufacturing, the Southeast.

“The central part of the United States now is staged to win a lot of new manufacturing projects,” Stavriotis says. “We see a lot of new greenfield manufacturing deals, and not as many looking in the Southeast exclusively. They’re looking within the central time zone, and at logistics, and up and down the I-35 corridor all the way up to Minnesota. But Texas is still a great place to start.”

Third, Texas continues to benefit from its long-term diversification efforts both in terms of business verticals and geographically across the state. This, especially, has helped blunt the drop-off in tax revenues and in overall economic input that has resulted from the decline in oil prices over the last couple of years to down around $40 a barrel from over $100 a barrel. In the 1980s, a swoon in oil prices pretty much wrecked the Texas economy for a while.

Industrial Diversification
“Over the last several years, the Texas economy has been rapidly diversifying,” McDaniel says. “So we’re not seeing the same impact from lower oil pries as in the ’80s. We’ve been able to attract the life sciences, biotechnology companies, aerospace, information and computer technologies, which puts us in a skill-based economy. That’s a very important factor to consider.”

Look no further than Midland-Odessa for a dramatic illustration of this new reality. The region is smack dab in the middle of the West Texas “oil patch” and for decades was known mainly for that, with an economy to match. But, McDaniel notes, “Now you’re seeing technology expansion and employment that really has helped them go beyond oil and gas, which is the factor that has helped them become one of [the state’s] fastest-growing economies.”

Texas continues to benefit from its long-term diversification efforts in terms of business and geographically. And while the economic diversification of Texas has been occurring across the state, a key dynamic is the fact that some of its major metropolitan areas have come to attract certain types of new and expanding businesses more than others. Austin, for instance, is combining its traditional advantages of being the state’s capital, and the home of the University of Texas, with other factors, such as its appeal as a haven for an increasingly wide variety of startups, ranging from expected digital-tech companies to better-for-you food enterprises. All of this is amplified by the city’s annual spring technology and arts festival, “South by Southwest,” which has burgeoned from a celebration of arts and music into a vibrant platform for technology and entrepreneurial endeavors of all sorts.

Oracle, for example, announced in late 2015 that it plans to expand its employment in Austin by more than 50 percent as it builds a cutting-edge campus for doing business in the cloud and supporting growth in its cloud-sales organization, Oracle Direct. Recruitment efforts, the company notes, will focus on recent university graduates and technical professionals at early stages in their careers.

“Austin was a natural choice for Oracle to invest and grow,” says Scott Armour, senior vice president of Oracle Direct. “We already have a high-performing employee base in the region, and the surrounding technology community is teeming with creative and innovative thinkers. Our state-of-the-art campus will be designed to inspire, support, and attract top talent — with a special focus on the needs of millennials.” At the same time, Austin has become an enclave for entrepreneurs who are plying the healthy food and beverage industry, as traditional big food and beverage companies cede more and more of the market to startups that are more in keeping with the changing tastes of American consumers — and able to cater to and even create them more quickly.

For one thing, the city is the headquarters of Whole Foods Market, which controls or influences much of the better-for-you retail trade across the United States. An early successful startup, Sweet Leaf Tea, has grown in Austin and supported the rise of other startups. Austin is even known as a city of innovative food trucks.

“Austin is a unique city full of entrepreneurs,” notes Dan Costello, CEO of Beanitos, a company founded in 2010 by two brothers who wanted to offer healthy snack chips made from bean flour. “And the food and beverage industry is one that has really started to shine here in the last several years.”

Meeting the Challenges of Growth
Another important economic macrocosm is the North Dallas area, where a growing number of big companies are deciding to locate or relocate operations focused not only on technology but also sales, marketing, and general business operations. The most famous of these is Toyota, which is in the process of moving about 4,000 jobs from its former headquarters in Torrance, Calif., to Plano, Texas, and its new U.S. headquarters, over the next couple of years.

“It’s been working out well,” says Dennis Cuneo, president of DC Strategic Advisors and a key consultant to Toyota on the move. “There actually have been a higher number of transfers from California than [Toyota] anticipated, because they find out what kind of house they can buy for the money compared with California.”

In fact, some have expressed concern that the Dallas-Ft. Worth area has become such a magnet for jobs that the locale might run out of worthy candidates to fill all the new jobs. Companies “need to look at that factor now because so many other companies are locating there that you need to test the waters to make sure it’s still a fit,” Stavriotis cautions. But McDaniel insists that the area remains “poised to support growth in industry” with its qualification of producing one of the nation’s highest levels of “graduates in professional services and with professional degrees.”

And Cuneo was optimistic too: “Yes, there has to be some catching up by the infrastructure,” he says. “But growth is better than non-growth. You’d much rather have this challenge. It’s better than the alternative. I have no hesitation for companies to continue to seek out Texas.”

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