[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
AMERICAN COMPETITIVENESS WORLDWIDE:
IMPACTS ON SMALL BUSINESSES AND
ENTREPRENEURS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ECOMOMIC GROWTH, TAX AND CAPITAL ACCESS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 9, 2013
__________
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
Small Business Committee Document Number 113-028
Available via the GPO Website: www.fdsys.gov
U.S. GOVERNMENT PRINTING OFFICE
81-935 WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected].
HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Tom Rice.................................................... 1
Hon. Judy Chu.................................................... 2
WITNESSES
Professor Michael Porter, Institute for Strategy and
Competitiveness, Harvard Business School, Boston, MA........... 5
Mr. James McConeghy, Chief Financial Officer, Chobani, Norwich,
NY............................................................. 7
Mr. Smyth McKissick, Chief Executive Officer, Alice Manufacturing
Co, Inc., Easley, SC, testifying on behalf of the National
Council of Textile Organizations............................... 9
Dr. Cynthia McIntyre, Senior Vice President, Council on
Competitiveness, Washington, DC................................ 11
APPENDIX
Prepared Statements:
Professor Michael Porter, Institute for Strategy and
Competitiveness, Harvard Business School, Boston, MA....... 28
Mr. James McConeghy, Chief Financial Officer, Chobani,
Norwich, NY................................................ 82
Mr. Smyth McKissick, Chief Executive Officer, Alice
Manufacturing Co, Inc., Easley, SC, testifying on behalf of
the National Council of Textile Organizations.............. 85
Dr. Cynthia McIntyre, Senior Vice President, Council on
Competitiveness, Washington, DC............................ 93
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
AMERICAN COMPETITIVENESS WORLDWIDE: IMPACTS ON SMALL BUSINESSES AND
ENTREPRENEURS
----------
TUESDAY, JULY 9, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Economic Growth, Tax and Capital
Access,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:00 p.m., in
Room 2360, Rayburn House Office Building. Hon. Tom Rice
[chairman of the subcommittee] presiding.
Present: Representatives Rice, Chabot, King, Coffman,
Mulvaney, Hanna, Chu, Payne, and Schneider.
Chairman RICE. Good afternoon. At this time I would like to
call to order the Subcommittee on Economic Growth, Tax, and
Capital Access of the Small Business Committee.
Today's hearing covers a topic which I believe is of the
utmost importance--in fact, I think there is nothing more
important--and that is restoring America's competitiveness. For
decades, America was the world's place to do business. We had
the best education, quality of life, workforce, access to
capital, infrastructure, and economic markets, but in the last
50 years that has changed. We have watched as millions of
American jobs have moved overseas. It is not necessarily that
we have regressed, but our competitors worldwide have improved.
We must change the attitude that we are the only game in town
and improve our competitive standing in the world if we want to
reverse this trend. We cannot maintain the world's highest tax
rate and regulatory burden and expect job creators to return.
A nation's competitiveness is primarily based on its firms'
abilities to compete across global markets, while at the same
time raising the standard of living for all citizens. I was
sent to Washington to work on solutions that will boost our
economy and create jobs for all Americans, and restoring our
competitiveness is necessary for achieving both.
To ensure competitiveness, America's broad economic policy
must focus on helping businesses increase long-term
productivity. This means promoting policies that give our firms
the ability to be the best in the world, such as reducing
onerous regulations. Fortunately, this afternoon, we have Dr.
Michael Porter, who has extensively studied this issue of
competitiveness and has eight broad policy changes he believes
will allow our nation to experience substantial economic
growth.
It is important to note the impact of these policies will
have on small firms. For example, as a tax attorney, I know the
challenges faced by small businesses in trying to figure out
the nation's complex tax code. The Committee on Small Business
has previously held hearings on the burdens of this and
reforming the tax code will go a long way in helping America's
small businesses. However, a complex tax code is but one part
of the burden. As we will hear today, a holistic approach is
necessary to truly ensure that companies are able to be
competitive. As we all know, a diet is nothing without
exercise, and while one will help, to be successful you must do
both. Competitiveness is the same way. One is good, but to
restore America's competitive edge, we must combine various
factors until we have created an atmosphere that propels our
businesses to the top.
Additionally, while Congress must work together at the
federal level to create policies, it is important to remember
that the businesses themselves can lead the way in their local
communities. For example, throughout many parts of the United
States, area employers are working with community colleges to
develop curricula that would allow the companies to hire local
students with requisite skills, such as advanced manufacturing.
This sort of initiative is necessary, and I applaud these
efforts. We need companies who are aware of the challenges in
their industry to, whenever possible, take steps to address
those concerns.
Today's witnesses truly understand both the challenges and
conditions necessary to restore America's competitiveness, and
I thank you all for being here. I look forward to your
testimony. The road to reviving our country's competitive edge
in an increasingly global economy will take hard work but is
work I am committed to. I now yield to my Ranking Member Chu
for her opening remarks.
Ms. Chu. Hold on one second. We have been called for votes,
obviously, but if you want to go ahead and make your open, or
do you want to wait until we come back?
Ms. CHU. Why do we not wait until we come back. Then we
might have more peace of mind here.
Chairman RICE. As you can see, we have 11 minutes before we
are supposed to--before the first vote ends, so we are going to
have to recess this hearing. We will be back here in about, I
would say, 20 minutes. Thank you.
[Recess]
Chairman RICE. We will call the meeting back to order.
I was walking back over with Congressman Mulvaney and he
was so disappointed he missed my opening statement, he wanted
me to do it again. But I said no, I am going to decline.
So at this time I yield to Ranking Member Chu to give her
opening statement.
Ms. CHU. Well, thank you so much, Mr. Chair.
Good morning. Well, actually, it is good afternoon, now.
Today's hearing will provide insights into U.S. competitiveness
and what we, as policymakers, need to do to keep America one
step ahead of this rapidly changing world. Professor Michael
Porter and his team at the Harvard Business School have spent
years studying this topic, and today, Professor Porter will
share the insights that they put forward in their study,
``Restoring U.S. Competitiveness.''
Among the suggestions we will hear are about the need to
reform our tax code and fix our immigration system. I look
forward to exploring each of the witnesses' recommendations on
how we can make America more competitive.
American competitiveness is so fundamental to what makes
this country great. The United States continues to be the
world's largest economy with a gross domestic product of nearly
$15 trillion, followed far behind by China at only $7 trillion.
We continue to be the world's largest manufacturer. Our
military's power and technological capabilities are rivaled by
no other country on earth. In my own state of California we
have Silicon Valley and Hollywood, the world's leaders in
technology and entertainment industries.
Small businesses are central to achieving this high level
of innovation. Research has found that small firms are much
more likely to develop emerging technologies than are large
firms. Although small firms accounted for only 8 percent of
patents granted, they counted for 24 percent of the patents in
the top 100 emerging clusters. Ensuring that small firms have
the tools and resources they need to continue this work is
critical to not just their own success but also for America's
leadership in the global economy.
In recent years, however, both small and large businesses
are struggling to recover from the recession, and experts worry
that as a result, America is losing ground on competitiveness.
Americans wages have been stagnant for years. Our roads,
bridges, and ports are crumbling. Our immigration system is
broken. And scholars and experts worry that the U.S. is falling
behind on manufacturing, education, infrastructure, and
innovation.
Today, we will hear experts share with the Committee a
variety of policy recommendations on how to make America the
leader in global competitiveness. One of those key issues is
improving the tax code. I certainly agree that we need tax
reform to make the code simpler. I would ask, however, that we
keep in mind a recent study by the Government Accountability
Office which found that most American profitable companies only
pay a fraction of the taxes they owe under the official
corporate rate of 35 percent. When they take into account
deductions and legal loopholes, American corporations paid a
12.6 percent tax rate on corporate profits. So as we engage in
a conversation about tax reform, we must ensure that
corporations do pay their fair share and that our country's
middle class and small businesses do not end up carrying the
tax burden.
Corporate tax reform could also have a significant impact
on small business by eliminating the deductions that small
businesses care about the most. So as we start having a
conversation about corporate tax reform, we need to ensure that
small businesses are not negatively affected.
One of the policy recommendations that we will hear about
today offered by Professor Porter concerns the importance of
reforming our immigration system by allowing high-skilled
individuals who study in American universities to stay and work
in this country. Indeed, immigration reform is vital to
maintaining American competitiveness. Immigrants have made
extraordinary contributions to America, including iconic
successes like Intel, Google, Yahoo, and eBay, which were
started by immigrants in the Silicon Valley. In fact, it is the
world's hub of innovation where immigrants helped found half of
all technology and engineering companies, many which began as
small startups.
I would point out, however, that we will not be able to
attract the best and brightest if those with employment-based
visas cannot live and work in the U.S. with their families at
their sides. That is why fixing the family-based visa system is
also critical to fixing America's competitiveness. In fact,
immigrants are twice as likely to start up businesses as
native-borns and there are many who have come to the U.S.
through the family visa system. Comprehensive immigration
reform is a key issue in Congress right now and it is my hope
that we will be able to reach a bipartisan agreement that will
put us back on track to restoring America's competitiveness.
With this in mind, I am looking forward to today's hearing
which will provide insights into what our country needs to do
to remain the most competitive nation in the world. Thank you,
Chairman Rice, for convening this hearing, and I yield back.
Chairman RICE. Thank you, Ranking Member Chu.
If additional members have an opening statement prepared, I
ask that they submit it for the record.
I would also like to take a moment to explain the timing
lights for you. You will each have five minutes to deliver your
testimony. The light will start out as green. When you have one
minute remaining, the light will turn yellow. Finally, it will
turn red at the end of your five minutes. We will be a little
liberal on that.
I ask that you try to keep to that time limit, but we will
be a little lenient if you are close to finishing.
At this time we would like to go ahead and proceed with the
witnesses. We will start out with Professor Michael Porter.
Michael Eugene Porter received a BSE with high honors in
aerospace and mechanical engineering from Princeton University,
where he was elected Phi Beta Kappa and Tau Beta Pi. He
received an MBA with high distinction from Harvard Business
School, where he was a George F. Baker Scholar, and a Ph.D. in
Business Economics from Harvard University. Professor Porter is
the Bishop William Lawrence University Professor at Harvard
Business School located in Cambridge, Massachusetts, and he
also leads the Institute for Strategy and Competitiveness.
Professor Porter is widely regarded as an expert in
competitiveness and economic development and generally
recognized as the father of the modern strategy field. Most
recently, in February, Professor Porter, along with his
colleagues at Harvard's Institute for Strategy and
Competitiveness, released a study which examines America's
business environment and recommends actions that can be taken
at the federal level to restore competitiveness.
Thank you for being here today, Professor Porter. You have
five minutes. You may begin.
STATEMENTS OF MICHAEL PORTER, PROFESSOR, HARVARD BUSINESS
SCHOOL; JIM MCCONEGHY, CHIEF EXECUTIVE OFFICER, CHOBANI; SMYTH
MCKISSICK, CEO, ALICE MANUFACTURING COMPANY; CYNTHIA MCINTYRE,
SENIOR VICE PRESIDENT, COUNCIL ON COMPETITIVENESS.
STATEMENT OF MICHAEL PORTER
Mr. PORTER. Thank you so much, Mr. Rice, and other members
of the Committee, and visitors for attending today.
We are here to talk about a topic that is anything but a
sound bite. This is a complex topic, and I think when we
approach this question of competitiveness we have to approach
it with the understanding that there are a lot of moving pieces
here. And when we think about it, we have to think rigorously
and we have to think strategically. We cannot think that
competitiveness can be solved by one magic bullet; one simple
solution will solve this problem. This is a problem that has
been building for many, many years and it will take us really a
strategic focus to address it.
I would like to just make five basic points in my opening
statement which we can explore in more detail as the hearing
proceeds.
First point is what do we mean by competitiveness? And when
we talk about competitiveness, competitiveness occurs when
businesses based in a location, like the United States, can
meet the test of international competition while improving the
standard of living of the average citizen. Competitiveness is
not just about businesses being competitive; it is also about
the average worker doing well. We have to do those things
together if we are going to be truly competitive. If businesses
succeed by cutting wages and laying off people, that is not
success. That is not being competitive. That is a sign that we
are not competitive. That is a sign that we cannot sustain and
grow the prosperity of the average citizen.
So much of the debate about competitiveness is really
clouded and confused by a lack of understanding of this basic
truth. Republicans tend to focus on businesses doing well.
Democrats tend to focus on the average worker doing well. But,
of course, competitiveness is when we can do those things
together. We are really all in this together. And the only way
we can achieve those dual objectives is by improving
productivity. We have to create the most productive business
environment. If we can equip our workers to be productive, then
they can support high wages. Then we can have a rising standard
of living. But if we cannot be productive in America, if we
cannot be at the vanguard of efficiency and productivity in how
we do business in this country, we are simply not going to be
able to keep up anymore because other nations around the world
are making very rapid improvements in their business
environments and the skill bases of their populations. So
competitiveness is fundamentally about the question of making
America productive.
Now, the second point I would like to make is that there is
really undeniable evidence that the U.S., as an economy, is
facing a fundamental structural competitiveness problem. This
is not a cyclical problem. This is not a recession. This is
something different.
Why do we believe that? Because all the indicators that
signal declining competitiveness have started declining well
before the 2008 recession. You see here a slide about job
growth. The American job machine started sputtering in the
1990s. It did not start sputtering in 2008. The wage growth of
the American households has been stagnant for decades. And this
problem is the mother of all issues. If we cannot address these
conditions which have allowed us to not sustain job growth and
not sustain wage growth, if we cannot deal with these
conditions and these problems, we are going to have rising
inequality. We are going to lose our influence in the world.
And we are not going to be able to really renew the American
dream. This is the mother of all issues. It affects all the
other issues. If we cannot solve the fundamental problem of
competiveness and economic vitality and job growth and income
growth, we are not going to have the resources to really do
almost anything that we want to do as a country.
Now, to address this problem, we have to address the
underlying causes. And here is kind of a synthesis of what we
found from our Harvard Business School research, is really kind
of the balance sheet of the United States from the point of
view of competitiveness. Luckily, we retained some profound
strengths. You see those on the upper right hand corner. We are
innovative. We are entrepreneurial. We have well-developed
clusters. We have a lot of strengths, strengths that are
powerful and profound in the modern global economy.
But we have allowed some of the more basic elements of our
business environment to erode. Our skill base is eroding. Our
infrastructure is eroding. Our public education is not up to
snuff. Our tax code is uncompetitive. Our regulations are too
costly and too time-consuming. Our litigation and legal system
is too costly and too time-consuming.
As a result, although we retain key strengths, they are
being weighed down by these growing weaknesses, while other
countries are making rapid progress in fixing the very things
that we have allowed to erode.
So in order to address this problem, we have to tackle
these fundamental challenges, and that leads to my fourth
point. We need a strategy in Washington to address those things
that are really on the critical path. And these are the eight
areas that we have determined really are the most pressing
issues. These do not address all the problems we have in
American competitiveness, but they really get at the things
that we find and we believe are really core to making progress
over the next three to five to seven years. Immigration of
highly-skilled individuals is part of the broader immigration
problem, but it is the part that really matters to our
competitiveness. Simplifying the corporate tax code by cutting
the rate and ending the loopholes is something that is common
sense and I think most people agree on. More controversial is
our international taxation system, which is locking lots of
money outside of the U.S. and is unique in the world, and it is
not supporting really the growth of our businesses. There are
many weaknesses in the trading system that is working against
the U.S. economy. We have to lead the reform of that system.
Improving infrastructure, simplifying regulation, getting
on with the great opportunity we have in shale gas and our
energy reserves. And then finally, creating a sustainable
budget. None of these things probably sound even remotely
surprising to any of you. This is pure, unadulterated common
sense. But these are the areas which we found if we could make
some headway on these areas, not seek perfection, not seek
everything everybody wants, but just move ahead on these areas,
it will have a transformational impact on business confidence,
on business investment, and we will start building momentum in
this economy again.
So let me conclude there and, of course, we can have a
fulsome discussion of this complex topic over the coming
balance of the hearing. Thank you, Mr. Chairman.
Chairman RICE. Thank you, Professor Porter.
I now yield to Representative Hanna to introduce Mr.
McConeghy.
Mr. HANNA. I would like to report that I am not just
pleased to represent you here, but pleased to be a customer.
And my wife.
Today, I am honored to be here to introduce Jim McConeghy,
the chief financial officer of Chobani, which is headquartered
within my district in Norwich, New York. Chobani was founded by
Hamdi Ulukaya, a Turkish immigrant to our nation who began
modestly in 2005. It received an SBA loan to start making Greek
yogurt so many individuals around the world enjoy today.
Chobani has experienced rapid growth and success despite a
very rough economy, and as I said, is a worldwide brand. Today,
Chobani grosses $1 billion and employs over 2,500 individuals.
Chobani's story is uniquely American, and its success has
invigorated dairy farms and communities in upstate New York
where we are proud to call you our neighbor.
Mr. McConeghy, I look forward to having you share Chobani's
experiences with us today. Thank you. You may begin.
STATEMENT OF JIM MCCONEGHY
Mr. MCCONEGHY. Thank you, Mr. Hanna, for the introduction.
Mr. Chairman and members of the Subcommittee, thank you for
the opportunity to testify at today's hearing. As Congressman
Hanna said, I am Jim McConeghy, the chief financial officer of
Chobani.
The Chobani story is one that could only happen in America.
Where else could a Turkish immigrant transform a shuttered
factory into a thriving food manufacturing business in just a
few short years?
Our story began in 2005, when with the help of a Small
Business Administration loan, our founder, Hamdi Ulukaya,
acquired a former Kraft plant in Central New York. Two years
later, the first cups of Chobani rolled off the line, and
today, Chobani is the number one selling brand of Greek yogurt
in the country.
In less than six years, we have grown our business from
nothing to over a billion dollars in revenue. We have expanded
our reach around the globe. We have invested more than 700
million dollars between our original manufacturing facility in
New York and our new plant in Twin Falls, Idaho. We are no
longer a startup with five employees but a global organization
with a workforce some 2,600 strong. It is the American dream
come to life, proving that if you truly believe in something
and work hard, anything is possible.
Of course, with opportunities, there are challenges for the
future of Chobani. Chobani's success is strongly burdened by
the current federal regulatory and legal environment. The four
most prominent challenges I will touch on today are the lack of
an FDA standard of identify for Greek yogurt, geographic
indicators in international trade, trade in dairy products with
Canada, and tax return.
First, Chobani strongly supports the establishment of a
standard of identify for Greek yogurt. The Food and Drug
Administration establishes standards of identity for various
food products that reduce consumer confusion. Unfortunately,
the current FDA standards of identity for yogurt are extremely
outdated and do not take into account current manufacturing
processes. The definition does not reflect the composition and
the processes used to manufacture Greek yogurt, which is very
different from traditional yogurt. The lack of a proper
standard of identity for true Greek yogurt literally allows any
product that meets one of the current FDA standard definitions
of yogurt to be branded as Greek yogurt, regardless of the
composition or the processes used to manufacture it. USDA's
Child Nutrition program routinely follows FDA's standards of
identity for products used in their programs. The lack of a
standard of identity for true Greek yogurt makes it difficult
for consumers and the USDA to differentiate between yogurt and
Greek yogurt for purposes of nutrition programs, including the
proper allowances for meat and meat alternatives in the Child
Nutrition program crediting.
FDA and Congress must recognize and address this blatant
inequity in order for the rapidly emerging market for Greek
yogurt to meet its potential without misleading consumers
towards a product that is not true. An update to the 30-year-
old standard is clearly in order.
Second, we have seen an increase in challenges of the
labeling of common food products abroad. We recently embarked
on a costly and difficult process in England and Wales after it
was incorrectly, in our opinion, ruled at the term ``Greek'' on
our true Greek yogurt misled consumers into presuming that it
was from Greece. The EU position puts common food names at
great risk. If this problem is not dealt with soon, the EU's
aggressive actions to monopolize common food names, such as
bologna, feta, and provolone, will damage sales of many popular
food products around the globe. Arguing that a small group of
EU producers should have an exclusive right to use such name is
like claiming that only Italians should be able to use the term
``pizza.'' Protectionism is protectionism no matter how you
couch it.
On a third point, Chobani recently engaged in an extensive
process to bring our products to Canada. This process included
researching the ability to import yogurt into Canada from the
United States and to explore making yogurt in Canada for
Canadian consumers. In the case of importing yogurt, we found
this to be centrally impossible as there is a 237-1/2 percent
duty at the border for all imports into Canada. This is despite
the ``open borders'' promulgated by NAFTA.
As an alternative, we attempted to buy land and build a
manufacturing facility in Canada. When this plan became visible
to our competitors, they launched a series of actions directly
against various Canadian government agencies and the local
Chobani entity to stall our Canadian plants. Despite the fact
that we and the Canadian government prevailed in court, all of
the previous market barriers continue to exist. Accordingly, we
recommend that Congress and the administration use the TPP
umbrella to look at the closed borders for dairy with Canada.
Last, we understand there are many discussions surrounding
tax reform in the halls of government. We wholly support this
effort to eliminate inconsistencies and the taxation of
different types of US entities and to have a globally
competitive tax system. We at Chobani thank you for your
support of a fair and competitive business environment.
Chairman RICE. Thank you, Mr. McConeghy.
Next, I want to introduce Mr. Smyth McKissick. Since 1988,
Mr. McKissick has served as the president and CEO of Alice
Manufacturing Company in Easley, South Carolina. For 90 years,
four generations of the McKissick family have led Alice
Manufacturing Company. Alice is widely recognized today as a
modern and successful textile company, as well as an important
part of the upstate community. Mr. McKissick also serves as a
life trustee of Clemson University. He has previously served as
the chairman of the South Carolina Manufacturers Alliance,
chairman of the National Council of Textile Organizations, co-
chair of the American Manufacturing Trade Action Coalition, and
is an independent director of People's Bank Corp, Inc. He is a
graduate of Clemson University, and has an MBA from the
University of South Carolina, which is his redeeming factor. He
and his wife, Martha, reside in Greenville and have three
children.
Mr. McKissick, welcome.
STATEMENT OF SMYTH MCKISSICK
Mr. MCKISSICK. Chairman Rice and members of the
Subcommittee, thank you for the opportunity to be here today.
My name is Smyth McKissick, and I am the CEO of Alice
Manufacturing Company. We are a 103-year-old company located in
Easley, South Carolina, employing 300 associates. We produce
fabrics primarily for home furnishings, apparel, and health
care applications.
Over the years, we and other U.S. textile manufacturers
have consistently invested in the most technologically advanced
equipment, continuing education, and technical training. In
fact, the U.S. textile industry has been a world leader in
innovation, developing biological resistant factors, wrinkle-
free fabrics, and sophisticated fabrics for military and
industrial applications. The U.S. textile industry is the third
largest exporter of textile products in the world. We ship
nearly $23 billion worth of textile and apparel products to
over 170 countries and our product industry employs over half a
million people.
Our industry is experiencing a resurgence, and we have
invested over $3 billion in new technology, machinery, and
manufacturing facilities since 2010. This positive trend could
be further bolstered by sound U.S. trade policy, especially as
our government negotiates the terms of the Trans-Pacific
Partnership or TPP. TPP is the largest free trade agreement
since NAFTA. Our country, as you will know, is negotiating with
11 other nations, including Viet Nam. U.S. manufacturing jobs
are at stake, and it is critical that our negotiators get this
trade agreement right.
Prior to the Asian currency crisis, the U.S. textile
industry was thriving. Overnight, as foreign currency values
sank, the U.S. market was flooded with imported goods. These
devaluations allowed our foreign competitors to gain a huge
pricing advantage; thus, the U.S. textile supply chain was
decimated. Our industry was cut in half and thousands upon
thousands of U.S. textile jobs were lost in the process.
At Alice Manufacturing Company, we realize we had to
quickly establish a new business model in order to survive. We
employ two primary strategies in our company. The first was a
direct sale to retail whereby our company became a virtual
vertical home textile supplier. Our second strategy was our
optimization of our NAFTA and CAFTA partnerships. Alice
partnered directly with manufacturers in Mexico and Central
America, and this allowed for the opening of new markets for
our fabrics. Our business is growing as a result of these new
strategies.
NAFTA and CAFTA are so beneficial to the U.S. textile
industry because of three critically important provisions. The
first is a yarn forward rule of origin. The second are fair
market access provisions, and finally, strict customs
enforcement. Yarn forward has been instrumental in the creation
of nearly $25 billion of two-way trade between the industry and
our free trade agreement partners. It is critically important
to maintain yarn forward and fair market access principles in
the TPP. If not, the TPP could become the single greatest
threat to the U.S. textile industry since the Asian currency
crisis.
Our industry's principle concern with the TPP is the
participation of Viet Nam, a nonmarket economy. The government
of Viet Nam heavily subsidizes its textile and apparent sector.
We must have counterbalancing measures such as long tariff
phase outs for sensitive products and strict customs rules and
enforcement to deter illegal trade. While our government
continues to negotiate for yarn forward in the TPP, the
Vietnamese government are opposed to yarn forward. They are
looking for a single transformation rule of origin. Vietnam
wants to import goods from China and export those goods to the
United States duty free. This would put over 500,000 U.S.
textile jobs at risk. More than 75 percent of the apparel
produced in Vietnam today uses fabrics and other textile
imports from China. The total projected job loss in the U.S.
after 10 years of a single transformation rule is over 530,000.
The total projected job loss in the Western Hemisphere is two
million.
Another major concern of the U.S. domestic textile industry
is that nonmarket export-driven countries have been known to
use currency manipulation to create artificial competitive
advantages in the marketplace. Currency manipulation clearly
distorts true competitiveness. It can quickly negate the intent
of trade agreements and it can cause serious job loss. Currency
manipulation is the antithesis of the principles of free trade
and this practice must be addressed in the TPP.
In conclusion, a poorly negotiated TPP will cause
widespread job losses in the United States and the Western
Hemisphere. I am here today to urge you to endorse the textile
and apparel trading rules in the TPP that are cornerstones of
every major free trade agreement since NAFTA. You can take
action by signing onto the Coble-McHenry-Pascrell Dear
Colleague Letter to the USTR.
I would like to thank you Subcommittee members who have
already agreed to sign this important letter, including you,
Mr. Chairman, and thank you all for the opportunity to be here
this afternoon. Thank you very much.
Chairman RICE. Thank you very much, Mr. McKissick.
I will now yield to Ranking Member Chu to introduce our
last witness.
Ms. CHU. Yes. It is my pleasure to introduce Dr. Cynthia R.
McIntyre. Dr. McIntyre is senior vice president at the Council
on Competitiveness. During the last five years, she has led the
High Performance Computing Initiative that promotes the use of
HPC in the private sector for greater economic return and
competitive advantage. As a result of these efforts, the
council was asked by the White House in 2010 to create and lead
a public-private partnership to help small- and medium-size
(SME) manufacturers use this type of modeling and simulation.
Since its inception, several of these enterprises have seen
improvement to their product development process and bottom-
line sales projections. Dr. McIntyre holds a Ph.D. in physics
from the Massachusetts Institute of Technology.
STATEMENT OF CYNTHIA MCINTYRE
Ms. MCINTYRE. Chairman Rice, Ranking Member Chu, and other
distinguished members on the Subcommittee, thank you for having
me here today. My name is Dr. Cynthia McIntyre and I am a
senior vice president at the Council on Competitiveness, a
nonpartisan, nongovernmental organization composed of CEOs,
labor leaders, university presidents, and national laboratory
directors working together to keep America competitive and
Americans prosperous.
It is an honor to share with you a public-private
partnership with which the Council on Competitiveness has been
heavily involved since its inception, the National Digital
Engineering and Manufacturing Consortia. This pilot public-
private partnership connecting small- and medium-sizes
manufacturers with high-performance computing via modeling and
simulation, is currently wrapping up its pilot phase in the
Midwest. Research by the Council on Competitiveness presents
powerful evidence of the capacity of high-performance
computing, also known as HPC, to drive innovation and make U.S.
companies and the nation more competitive. Indeed, for those
who have adopted it, HPC represents a crucial edge that can
build and sustain competitive advantage through innovative
product design, production techniques, cost savings, improved
time-to-market cycles, and overall quality.
However, Council research has also shown that many U.S.
companies are stuck on the desktop, not able to take full
advantage of HPC, while still others, including many suppliers
to U.S. tier one companies, have limited, if any, computational
R&D capacity. Through additional research, the Council
determined that public-private sector collaboration is the best
and most effective means for quickly advancing HPC and
manufacturing.
Next, the Council and selected original equipment
manufacturers developed a Midwestern Regional Pilot Program as
a public-private partnership with the U.S. Federal Government.
The pilot program is aimed at improving competitiveness and
innovation in small- and medium-size enterprises in the U.S.
manufacturing supply chain. The ultimate outcome of the pilot
program will be a workforce with enhanced technical skills,
improved product quality, better customization of products, and
job retention and growth. With these principles as goals, the
National Digital Engineering and Manufacturing Consortium,
known as NDEMC, was born. NDEMC brokers and promotes
collaborative relationships that will sustain the growth of
American manufacturing through job creation and enhanced
competitiveness. NDEMC provides modeling simulation and
analytics, education, and training, access to high performance
computing, and access to software as a service to small- and
medium-size manufacturers. These services will be available
through a distributed application to make U.S. SMEs more
competitive in the global marketplace.
A great example of how NDEMC has positively impacted U.S.
companies is the case of Jeco Plastic Products, LLC, a small,
custom-mold manufacturer of large, complex, and high-tolerance
products with a plant in the Indianapolis area. And this is
plastic material. Jeco's custom base includes large U.S. and
international original equipment manufacturers in the
automotive, aerospace, printing, and defense industries. To
take advantage of a monumental opportunity to secure a large
OEM account, Jeco Plastic Products required high-performance
computing to perform tasks that in-house software that they had
could not accomplish. Jeco joined the NDEMC program to gain
education, training, experience, access to university
expertise, software, and hardware to successfully compete
against large foreign competitors. By employing HPC through
NDEMC, Jeco earned a multi-year contract with a large German
automotive company, increasing American exports and keeping
people employed. In fact, due to increased production demand
from their large client, Jeco is expected to increase payroll
and hire 15 advanced manufacturing workers during the next few
years. Jeco's size is about 35 people all total. So they are
looking to hire 15 more.
Currently, the NDEMC pilot program is wrapping up its
federal funding and the Council on Competitiveness and other
key NDEMC stakeholders are working to move NDEMC from a public-
private partnership to a nonprofit entity which would be the
conduit for new partnerships, including new public-private
partnerships across the United States which will continue to
work together to sustain America's manufacturing
competitiveness. The EPA and its partners will study the
economic impact of technology-based innovation infrastructure
towards boosting the long-term job capacity and competitiveness
of U.S. manufacturing and industry.
Thank you, and I look forward to your questions.
Chairman RICE. Thank you, Dr. McIntyre, for being here.
So now comes a time when you are on the hot seat. We get to
ask questions.
I am going to use my time to allow Professor Porter to
complete his presentation. Professor Porter.
Mr. PORTER. We need to equip the U.S. Congress with Harvard
Business School-style name cards. We will transfer that
technology. I need to put this on. It is probably best off the
record anyway.
So thank you, Mr. Chairman. I would like to take a few more
minutes to complete some of the remarks that I was hoping to
make earlier in the short time, but also I think reflect on the
comments we have just heard. Because I think what we just heard
is actually a wonderful series of case studies in both the
problems and the solutions that I talked about earlier.
Now, again, going back to this slide, I want to emphasize,
and we heard this in the testimony, there is a lot of strengths
in America. We have a lot of innovation, a lot of technology, a
lot of new business models, a lot of path breaking companies,
and we heard about the transformation of Alice. We heard about
the Chobani story. Look at the amazing things that we can do.
Look at the amazing strengths that we have in this country that
are in many ways unique in the world, and still unique in the
world despite the effort of many other countries to catch up in
these areas.
But net-net, the cold hard truth is we are not generating
jobs at a reasonable rate. This has been going on now for well
over a decade and so we have this chronic job issue. We do not
have an attractive enough business environment to generate
enough investment to create enough jobs. We have great stories
but net-net we are not creating jobs fast enough.
In terms of incomes, people with high skill and Ph.D.s are
doing great. That is not the real problem. The problem is
really the middle. It is that great middle. The people without
unique skills, without Ph.D.s, how can we create an environment
where they can prosper, where their incomes can rise? Instead,
we are in an environment where inequality is growing and that
is creating all kinds of stresses and strains in our society.
When we look at the problems that are holding us back, it
is not the lack of innovation. It is not the lack of top
management. It is not the lack of excellent, high-end
education. It is these things in the lower left. It is these
basics. It is having an efficient, simple, responsive
regulatory system. Listen to Mr. McConeghy's commentary about
the FDA and getting a regulation updated after 30 years to deal
with the changes in the marketplace. Look at the cost of that.
The company is doing okay, but think of how much better it
could do if we had more responsive regulation, more pragmatic
that did not slow things down and add unnecessary cost. Look at
the examples of how the trading system has not * we have not
taken the leadership and not been forceful in really making
sure that the trading system works for America like it works
for other countries. There was a time when we did not have to
worry about that. We were so strong that we could simply not
worry about trade barriers and subsidies and restrictions on
U.S. goods in Canada, but those days are over. Other nations
have caught up, so trade is again one of the areas that I spoke
about in my eight recommendations.
Mr. McConeghy also talked about the fundamental need for
tax reform. This is the number one thing that we hear in
business. Just give us a reasonable corporate tax rate. We will
give up on the loopholes. We are ready to do that deal but
right now we cannot have the highest corporate rate in the OECD
and expect to be able to invest and renew our activities in
America. Again, another one of our eight recommendations.
The weaknesses that we see in that lower left-hand corner
actually have a disproportionate negative impact on small
business. Big businesses can deal with this stuff. They have
the legal departments. They have the tax minimization
departments. They have multinational operations where they can
kind of mitigate the effect of the unproductive American
business environment, but small businesses who are basically in
America, they are the most affected. We cannot help small
businesses by passing new subsidies for small businesses to try
to offset the fundamental weaknesses in the business
environment. That is a loser's game. We have been trying to do
that but it is not working. We have to fix the basic
circumstances in our business environment that are leading to
the anemic job growth, the lack of income growth, and the lack
of economic growth in our economy.
Now, who needs to take action here? Well, I think what we
found through our Harvard Business School project is all the
stakeholders need to act. There is a lot that business can do.
You heard Dr. McIntyre's description of a very innovative
public-private partnership where businesses are actually
playing a major role in really improving skills and in
improving technology and seeding other small companies. So
business can do a lot, and we have been working all across the
country to mobilize and inform business to take a more forceful
role back in America again. Many businesses kind of lost the
understanding that they really had to invest in improving
America's business environment. There is a lot they should be
doing.
States and local regions and cities have a lot to do. All
across the country we see all kinds of innovative efforts at
the state level--in South Carolina, in Tennessee, and state
after state in which I work where government and business are
working collaboratively together to deal with the problems that
can be dealt with at the state and local level.
But the real sticking point now, the thing that is
fundamentally driving the poor performance of our economy, is
right here in Washington. This is where we are not making
progress. This is the one place in our society where we do not
see progress. And where do we need to make that progress? We
need to make that progress in those--that small set of things
that is really on the critical path. Again, we can make our
patent system better, but that is not the problem. We have got
a lot of patents. We can improve our R&D spending. We should,
but that is not the critical constraint. There is a lot of
things that we can improve, and there is somebody in this town
and some interest groups that are arguing that that is the most
important issue, but actually, the reality is that the most
important issues are the things that are staring at us right on
that screen, in that lower left-hand corner. And if we move to
my last slide with those eight areas, it is these eight areas
that when we engage with business and we survey thousands of
companies and we scour the economy looking for what is really
going on here, it is these eight areas that are the sticking
points that would unlock that resurgence of progress, that
sense of optimism, that confidence in the business community
and among other stakeholders that America was actually in
business again.
The high-skilled immigration is a pressing constraint. We
have thousands of jobs that we cannot fill today. That does not
mean we should not train Americans, but we need to take some
steps today to get onboard with what has been a great American
strength, which is getting people to come to this country that
can really contribute to our economy.
The corporate tax code, again, we are not talking about a
windfall to corporations; we are talking about just bringing
the corporate tax rate down to a reasonable level, and the
price of that is going to be to eliminate a lot of these
loopholes. It is time to do that deal now. Our alumni are
overwhelmingly willing to do that deal.
The international tax system, we do not need to seek
perfection here but right now the idea that if you bring money
back in the U.S. you should pay the highest tax rate in the
OECD. Nobody is going to bring money back to the U.S. just
pragmatically. So we have got to find a compromise, a way of
changing that international taxation system so that it is
hopefully fair for the country but also fair for business.
The trading system we just heard about, there are a lot of
distortions there that did not matter to us when we were
dominant but they matter now and they are really stalling the
ability to create jobs and grow incomes.
Regulatory costs, we need good regulation. We need high
standards. We need safe products, but we do not need to spend
years and years and years and years on process and delay and
expense to get there. Let us do it a better way.
Logistics and transportation. We have got to be efficient
in moving goods and services around; otherwise, it is going to
make it even harder to pay higher wages to workers, and so on.
We have got to deal with these areas.
Now, the challenge is that to make progress on these common
sense areas, we sometimes get caught up in trying to be perfect
and do everything at once. And I think what we have deemed now
more than everything else is to start making some progress on
these things where we can, get some momentum, and then I think
you are going to find that there is a steamroller that can
restart. This American machine, this American competitive
machine that we have, these strengths that we have are sitting
there and they can be unleashed, but we have got to start the
ball rolling in Washington. I think this is the critical
constraint.
So let me stop there, Mr. Chairman. And I know some of the
things I have said are controversial, but I think we all have
to be honest and realistic about where we stand. We are a
nonpartisan institution. We are just about trying to help you
and all of us understand what is really going on and hopefully
this is something that can start to build from this Committee
on this day in this meeting and these discussions to a much
wider process of really pragmatically moving ahead on some of
the things that are holding our country back.
Chairman RICE. Well, I appreciate your comments, Professor
Porter. I hear people on both sides of the aisle talking about
many, if not all of these things frequently. It is just we do
not seem to make progress on them, and one of the reasons I
wanted you here was to see if you could help nudge us in that
direction.
I am going to yield now to Ranking Member Chu for her
questions.
Ms. CHU. Dr. McIntyre, you talked about the NDEMC system,
the National Digital Engineering and Manufacturing Consortium,
which was bringing cutting-edge technologies such as modeling,
simulation, and analytical tools to small- and medium-size
businesses that would otherwise not have access to them. In
introducing these suite of services, what challenges are you
facing in getting small companies to adopt these new tools? Do
they need specialized personnel? Do the employees have the
capability to use them? And also, what are the costs of these
services?
Ms. MCINTYRE. Thank you so much for the question.
There are challenges that the small- and medium-size
manufacturers face even with our assistance to use these tools.
I think the biggest problem for them is not having the in-house
expertise oftentimes to understand how to use the tools, the
benefit of the tools, even though these tools can help solve
some of the problems that they are facing. We oftentimes say
that if we gave them all the HPC equipment and all the software
that they needed for free, it probably would just sit in a
closet because there is no person there who could actually use
those tools. So getting them connected to the right expertise
and we go to the university so we are trusted sources, and
couple them to the university so that they can act as
educators, trainers, and consultants to help them use those
tools. So it is a very time-intensive process working with them
to make sure that they have the expertise that they need.
Ms. CHU. And the cost?
Ms. MCINTYRE. And the cost right now, there is no cost to
them in the pilot. The federal dollars and the OEM dollars
cover that cost at this time. We are looking at making it
affordable, trying to understand what that price point should
be. We have had some of the SMEs come back a second and a third
time and volunteer to pay, so we are moving towards a pay per
service, but right now in this pilot it is a free cost to them,
no money out, but they must dedicate human resources in order
to do it.
Ms. CHU. Thank you.
Mr. McConeghy, your story about Chobani Yogurt is certainly
most impressive. And you mentioned that Mr. Ulukaya, the
founder of Chobani Yogurt used an SBA loan to purchase the
commercial real estate that became the first Chobani factory.
The SBA provides capital to companies that are unable to secure
conventional financing. Why did the founder choose to obtain a
SBA loan over conventional financing?
Mr. MCCONEGHY. Frankly, I think it was the most cost-
effective and it was available. He is an entrepreneur at heart.
He started the business fundamentally with nothing and when you
are an entrepreneur, capital is everything to just get started.
And so the SBA program just was a very cost-effective program.
He worked with his bankers at the time, Key Bank, and they
introduced him to the program and made it work. There is not a
lot of seed capital available for virtually what is a startup
unless you have it yourself. So the SBA program was very
helpful.
Ms. CHU. Thank you.
Professor Porter, nearly two decades ago you formulated the
Porter Hypothesis, which proposed that strong environmental
regulations can actually spur efficiency and innovation and
lead to improvements in competitiveness. Can you share with
this Committee your theory and how we can improve
competitiveness by having high standards?
Mr. PORTER. Well, thank you, Ms. Chu, for that question.
The conventional wisdom about environmental regulation
historically has been that, frankly, environmental regulation
inevitably would raise cost because if you had to be cleaner
that would be costly. What we have learned from decades of
research is actually that environmental impact is costly; that
is if you are dumping materials or not using resources
effectively, you are actually wasting money. And the Porter
Hypothesis was really based on this insight which grew out of
the early work that I did on competitiveness. I found that some
of the countries that had the highest environmental performance
were actually the most efficient because they used energy
better, they used resources better, they used water better,
they did not waste resources, they did not dump material; they
recycled it. And so that was an insight that I think was
radical but now has become widely accepted in the business
community. And so business is now radically transforming the
way it does business, the way it runs its supply chains, to try
to minimize logistical waste and minimize energy use and so
forth.
Now, how do you achieve high environmental performance?
Well, one of the ways you do that is you set high standards--
standards for energy, standards for quality, and providing
those standards are set in a sophisticated way, those standards
can be very, very positive. High standards are a good thing.
The countries with high standards usually do well in the
effective industries. But the big risk is twofold. First of
all, there is a difference between the standards and how you
actually implement the standards. And you want to have very
high standards but you want to implement the standards in a
very efficient and very timely and very nonintrusive way. And
the other thing about the standards is you want to make sure
the standards are about outcomes, not about the methods you
use. So, for example, if you tell a company to deal with the
water issue, they have to clean up the water with a particular
technology, that actually is going to add cost. But if you tell
the company, well, you need to improve your water use, you
figure it out and we will just measure whether you achieve it
or not, then that stimulates innovation.
So the debate we are having on regulation frankly is a
little bit of a silly debate. We are debating whether
regulation is good or bad. That is a completely silly debate.
We need regulation because if we do not have regulation, we
have bad outcomes. The real debate ought to be about do we have
efficient regulation or inefficient regulation. There is really
no debate to have there. And that is what I am saying and that
is what our recommendation is; that we need to rethink the way
we go about regulation. That does not mean reducing the
standards; that means reducing the time delays. That means
catching up with 30-year-old process technology changes in the
yogurt industry.
At this moment, we are driving our medical device industry
to Europe because the FDA is so slow in implementing new
standards for medical devices, that medical device companies
are just saying, look, we cannot wait. We are going to go to
Europe. The European standards are just as high as the American
standards but they just go about it in a more efficient way. So
our challenge in America on regulation--in environmental
regulation and other kinds of regulation--is to keep our high
standards but go about applying those standards in a very, very
cost-effective way. That is the challenge. And unfortunately,
it is not easy. You cannot just pass one law and you are done.
You have to go area by area by area but we have not yet found a
mechanism to do that effectively in this country so far.
Hopefully, we will. Hopefully, we can come out of this period
we are in right now raising the level of debate and really
understanding what the real issues are and working
constructively on the things that we all care about, which is
creating a business environment where companies can thrive,
where people can hire more workers, where we can export more,
and not thinking that it is a contest between business versus
the worker, and not thinking it is a contest between wealthy
people and poor people, but it is really a contest to be
productive.
Ms. CHU. And so Professor Porter, you mentioned that there
are certain countries that have high standards, but is there a
country that has high standards and also regulations that are
manageable?
Mr. PORTER. Well, you know, I think one country that I
think is sort of an interesting model for us to consider in
America is Germany. I mean, Germany has very high wages, which
they have been able to sustain and they have very high levels
of employment. Germany has quite high standards in many areas,
but the way they go about applying those, implementing those
standards is much more pragmatic, much less intrusive, and that
would be true in a number of other European countries as well.
If we look to a country like China, that is not what we aspire
to. They have low standards. It is polluted. The air is
horrible. People are getting sick, so that is not where we are
going. We do not want to be like that. That is not going to
make us competitive. We want high standards but we want to be
pragmatic and efficient and timely in how we apply those
standards. And in order to do that we are going to have to have
a much more trusting dialogue between the private sector and
the public sector in setting these standards and we are going
to have to create new processes and methods for actually
setting these standards really sector by sector, industry by
industry. That has been very hard for us to achieve
historically over the last 10 or 20 years.
Ms. CHU. Very interesting. Thank you, Professor Porter. And
I yield back.
Chairman RICE. To Mr. Hanna.
Mr. HANNA. Thank you.
Dr. McIntyre, Mr. McConeghy, and Mr. McKissick, do you
agree or disagree with Mr. Porter's statements here today?
Mr. MCCONEGHY. I agree.
Mr. MCKISSICK. I agree.
Mr. HANNA. All yeses. Me, too.
All of this being said, I want to ask you a few things. You
are familiar with a gentleman, Michael Spence.
Mr. PORTER. Michael Spence is one of my coauthors.
Mr. HANNA. I am glad to hear that. Someone I enjoy and his
belief in tradable goods.
The middle class is shrinking, incomes are down, taxpayers
are not there because they are simply not making enough money.
A couple things. What is the future like if we stay on the path
we are on? Because you have already indicated in your statement
that we are way behind in the sense that we have taken, I
guess, some things for granted and the rest of the world is
passing us by, doing exactly what we do, but doing it in many
ways as well. STEM education, there is much talk about science,
technology, engineering, and math. Mr. Spence is particularly
written about that a great deal. And how we can change the
dynamic. I mean, I have read what you wrote here but what you
say is so poignant to me and it is something everybody I think
in this Congress should hear said as beautifully as you have
said it. I would also like to give a little more time to talk
about maybe Michael Spence's work and what you think about his
thesis in terms of tradable, value-added, highly-intellectual
properties being that place that the rest of the world goes to
because we cannot make what we used to make as well and be who
we want to be, which is a thriving middle class who once again
become taxpayers and kind of live that ``American dream.''
Mr. PORTER. Well, thank you for that question. Mike Spence
and I are dear old friends and I am very proud of him for his
tremendous contribution.
The point he makes about traded and nontraded is something
I actually skipped earlier and it grows also out of the work I
have done. When you look at an economy like the United States,
there are really two economies there. One is the local economy,
and there are a certain number of industries that are really
existing to serve the needs of the population living in
California or America. So let us take health care. The health
care industry is not a traded industry. It is a local industry.
Health care services are provided to the people who live near
the health care provider. The same is true with retailing. The
same is true with housing and real estate. There is a big local
economy. In fact, about two-thirds of all the jobs are local.
They are not traded. They are serving the local region.
The other one-third of the jobs are traded. Those are in
industries like automobiles where we not only serve the local
market but we also serve the international or global market in
that particular field. Those are traded goods. The local
economy is very important and it accounts for a lot of jobs,
but the real driver of prosperity in an economy is the traded
economy. It is our ability to compete in those fields where we
can specialize in areas where we are really unique and we can
then expand and grow those industries and serve the world. So
Hollywood is a great example. We serve the world in video
entertainment and movies. That is a traded good. Software. We
are a global player in that traded industry, and those
industries serve the world. They do not just serve the United
States.
Now, the stunning statistic, Mr. Hanna, is over the last 20
years of the jobs that America has created, zero net jobs have
been created in the traded economy. Zero. And I think Mike
Spence, through his work, really came to the same conclusion.
All the jobs that we have created over the last 20 years, net
jobs, have been in the local economy.
Mr. HANNA. He calls it service-oriented.
Mr. PORTER. And it is service-oriented. It is some goods
but mostly service-oriented. And so this is just a further sign
that something is broken here, that we have not created enough
of an effective enough business environment so that that traded
work where we have to compete can actually be successfully done
competitively here. So I think it really reinforces the point
that I am making.
Now, the point you made about the middle class is a
profound point. In America, the problem we are having is not
with the people who have high levels of skill and high levels
of education. They are doing actually quite well. The global
economy is a net plus for them. The problem is the people that
have a high school degree that do not have special skills. They
are very dependent on the competitiveness of our business
environment. If we have a crummy business environment, then the
person with just average skill, that job is going to go because
you can get that job done cheaper somewhere else.
So what we have to do is we have to have such an efficient
business environment that people without really unique high-
level skills can be employed and be productive in America. And
that is where we really lost out. And that is putting us on a
profoundly dangerous course because if upper income people do
well--usually because they have really high and unique skills--
and the middle and lower income people do poorly and we have a
growing divide, it just tears our society apart. And it erodes
the support for business. And so it starts leading to policies
that really work against business and then that just makes it
worse and worse and worse and worse. So what we have got to do
is we have got to get this flywheel reversed and moving in the
other direction. If we can improve our business environment,
there will be more investment here. Not only will the high
skilled people do well but the middle skill people. You know,
Apple was a brilliant, innovative company but they made nothing
in America. So we did not get all the benefits of that
innovation because we did not have a competitive enough
business environment so that they could make anything in
America cost-effectively. But what if we had a better business
environment? Then we would not only get Apple's brilliance and
innovation and patents, but we would also get a lot of
manufacturing opportunities that would spawn off of those
innovative companies.
So this is kind of the fix that we are in. The good news is
that the really, really hard stuff, the hardest thing that we
have to fix is K-12 or public education. Finally, after decades
of work I think there are some bright signs there. We are
working on that. The reason we did not put it on our list is
because it is really not fundamentally a federal issue, but
these other areas, these eight areas, we can fix those areas.
They are not rocket science and there is a lot of common
ground. And the question is how do we get enough weight and
energy behind this to actually get it done.
Mr. HANNA. Thank you.
Chairman RICE. Mr. Payne.
Mr. PAYNE. Thank you, Mr. Chairman.
This has really been an extraordinary panel in terms of
your testimony. And you know that when two or three of your
questions have been answered before you ask them. So I would
like to thank you for that.
Mr. Porter, in your submitted presentation you also
identified the need to responsibly develop the American shale
gas and oil reserves. With the similar environmental concerns
as oil drilling, do you agree that the fracking should undergo
the same amount of regulation or at least improve regulations
such as measuring and reporting air pollution and minimizing
water use and improving well casing and cementing?
Mr. PORTER. Mr. Payne, thank you for that question.
Everybody needs to know that the great windfall that we
have got in America is the shale oil and gas. It is
transformational. It is going to allow us to do things in
America with a competitive advantage that we could have never
dreamed of before. It is going to allow us to over time
diminish our need to import oil which has been a massive part
of our negative trade balance for decades. So it is a windfall.
It does not come easily because there are legitimate
environmental issues that have to be addressed. That said,
there are rapid improvements in technology, and if we put in
place the right kind of regulatory framework that requires
reporting and inventory and best practices in terms of
technology and utilization of water and aquifers and so forth,
I am confident from everything I know and from all we have
studied that we can develop this resource in a very responsible
way that will adequately protect our environment. Again, if we
approach the regulatory process pragmatically and with common
sense, without emotion, without extreme positions.
I know a number of the companies in the field and, for
example, Baker Hughes is one of our great American oil field
service companies. They have come up with breakthrough
technologies to minimize water use to reduce the risk of some
of the environmental impacts. So the innovation machine in
America is working but we need an overall regulatory framework
here. I am confident we can put one in place but yet we do not
have one now and that has created a lot of uncertainty about
whether this resource can be developed, how it can be
developed, whether we should export gas or not, and right now
we are kind of stuck in that terrible situation where we have
got a great asset but really we are not moving forward in
putting it into production.
Mr. PAYNE. And to the rest of the panel, each one of you,
if you could just address the impact that the education system
has had on your sectors, and do you have recommendations to
address the negative impacts?
Ms. MCINTYRE. Thank you for that question.
As far as science and engineering, education in the U.S.,
we certainly have excellent universities and are doing quite
well there. The pipeline for students going into science and
engineering is a concern that we, in fact, are able to produce
a number of engineers and scientists that we need in order for
the innovation stream to come forward at this point. For high
performance computing, it is a real challenge. The expertise
that I talked about not having for small- and medium-size
manufacturers, there are not a lot of people migrating towards
education that would help them to learn how to use high
performance computing. So we need a way of getting younger
people to understand the benefits of using this type of
computing technology and the education that should undergird
the use of that technology. But there are universities now
looking at how can we do this, how can we educate the
professionals now to use these tools.
Mr. MCCONEGHY. Congressman, thank you.
I guess I would offer two things. Certainly, we were
founded by an immigrant to the country, and having good common
sense immigration, certainly educating foreign students in our
fine universities and then inviting them to leave probably does
not sound real smart to a guy like me.
Secondarily, business has to cooperate with universities to
drive practical education and certainly, we have worked with a
number of the colleges in our area in New York State and with
our recent move to Idaho around manufacturing techniques and
technologies, and I would say both of those things I would put
at the top of the list. Immigration, certainly starting with
those students that are here studying and inviting them to
stay, not inviting them to leave, and clearly business has to
work with the institutions in this area.
Mr. MCKISSICK. Thank you, Congressman Payne.
In the northwestern corner of South Carolina, we are quite
blessed because we have an outstanding K-12 system in our
community. However, I would say South Carolina's single
greatest problem is K-12 and clearly we must make improvements
there if we are to advance as a state.
Regarding technical training, South Carolina is incredibly
blessed to have an outstanding technical education system, and
frankly, when Senator Ernest F. Hollings was the governor of
South Carolina in the early `60s, he led an effort to really
drive great investment in technical training, and it has been
growing and thriving and changing with industry needs and
changing as our economic dynamics have changed ever since. So
that is quite a positive for us. Higher ed in South Carolina is
terrific, especially in the region that I live. And I am
biased. I am a Clemson University fan. But I do not think there
is any doubt but that we must focus on K-12 in our state and in
our country.
Mr. PAYNE. Mr. Porter, any thoughts?
Mr. PORTER. Well, I think the panel has made excellent
contributions, and I have little to add. I would add a few
points.
I think at the university level, the U.S. historically had
more university graduates as a percentage of the workforce than
any other country. Today, we are way back in the pack, so I
think we still have a higher education issue, and the issue
there is more accessibility and affordability, and also the
issue of getting people into the STEM pipeline as Dr. McIntyre
was talking about. There are some excellent efforts in that
area; we can do better.
There is a critical need in the middle skill area. Lots of
promising efforts, including South Carolina. The K-12 problem
is a profound problem and that is probably the subject for a
whole another discussion, but Harvard Business School is
working with the Gates Foundation and Boston Consulting Group
to do kind of a comprehensive assessment of what we have
learned about improving K-12 education. There are a lot of
success stories and we would love to share that work with you
as it rolls out.
Mr. PAYNE. Thank you, Mr. Chairman. I yield back.
Chairman RICE. I am going to ask one more question which is
going to open it up to another round if anybody else does, but
this is the most important thing to me as far as I am
concerned. Our American competitiveness in jobs is the most
important thing. If we can make progress on this front, if we
can get it resolved, I think it solves a lot of other problems.
Mr. McKissick, I want to ask you--could you put that slide
back up, the slide that was up earlier about the quadrants?
Mr. McKissick, do you know what your effective tax rate is
at your company?
Mr. MCKISSICK. Yes. Ours is in the high 30 percent range.
Chairman RICE. You had mentioned earlier--I am an ex-lawyer
by trade and they say never ask a question if you know the
answer, but I do not know the answer to this and I am treading
on dangerous ground here.
You said earlier that you worked with partnerships with
people in Mexico to do part of your manufacturing. Was the
effect of that to get a lower tax rate in Mexico at any point?
Mr. MCKISSICK. No. It was more about partnering with
companies that had state-of-the-art technology and a desire to
be best in class.
Chairman RICE. Right.
Mr. MCKISSICK. And it was also to create a new outlet for
our fabrics. And in Mexico, unlike most NAFTA models, most
NAFTA models are such that you do a level of production in
Mexico and it comes back to the U.S. market. Not in our case.
In our case, our fabrics stay in Mexico. We spin yards. We
weave fabrics. Those fabrics are finished in Mexico, cut and
sewn in Mexico. Outstanding designs are applied to those
fabrics, and they have got an incredible distribution system
that goes to the Mexican consumer. So to me it is a wonderful
example of how NAFTA should work.
Chairman RICE. All right. Let me ask you this. You are in
the high 30s tax rate here in the United States. Ireland is 13.
Would you be more competitive at a 13 percent tax rate
worldwide?
Mr. MCKISSICK. Well, absolutely. And you ask, well, what do
you do with the money. Well, it goes right back into plants. I
mean, that is seed capital. If you are a private company, and
we are, that is seed capital to grow your business. So there is
absolutely no question but that you can buy new technologies.
You can get better in everything you do.
Chairman RICE. If we cannot get our ports dug out for all
of our environmental regulations it takes so long to work
through and as a result of that you pay 10 percent more in
transportation costs than your competitors worldwide, are you
more or less competitive as a result of that?
Mr. MCKISSICK. There is no doubt that Charleston Harbor is
a competitive advantage to every manufacturer in South
Carolina. You know, if you look at the resources of our
wonderful state, Charleston Harbor has a huge advantage and it
is critically important that that harbor be dredged to be able
to access so the biggest of ships can come in there and ship
product in and ship product out.
Chairman RICE. And if we close down all of our coal plants
and the price of our utilities go up 20 percent, are you more
or less competitive worldwide?
Mr. MCKISSICK. Well, I agree with Dr. Porter in that one of
the phenomenal advantages we have in this country are the cost
of energy, especially if you are a manufacturer like ours. We
use a lot of compressed air. That is what we do. When you spin
yarn and weave fabrics, you use a lot of compressed air. We
have got such a leg up on our foreign competitors on our
utility costs. We have got one of the best utilities I think on
the planet that services our area, Duke Energy. They are
fantastic. But if we do not understand the criticality, the
critical importance, the role that they play in our economy, we
are going to hurt ourselves. They are laying the golden egg,
and I think we have got to protect that and we have got to
leverage our energy resources.
Chairman RICE. Mr. McConeghy, I am going to ask you the
same questions.
Mr. MCCONEGHY. Okay.
Chairman RICE. Do you know your effective tax rate?
Mr. MCCONEGHY. I do know our effective tax rate.
Chairman RICE. What is it?
Mr. MCCONEGHY. Our effective tax rate is very low,
basically, because of the significant investments that our
founder has chosen to make in factories where the bonus
depreciation has knocked a lot of income off our books in the
short term. But over the long term--it is just a timing
question for us. We are actually a sub S-corporation, so I
expect our tax rate will be in the high 30 percent in the very
near future.
Chairman RICE. All right. And you talked about operations
in Canada, and I was not sure if you continued with that. Did
you actually complete the new facility in Canada?
Mr. MCKISSICK. We did not complete it because of the
barriers that we found fundamentally in the trade system that
protected the Canadian dairy industry.
Chairman RICE. Do you have any other operations offshore?
Mr. MCKISSICK. Our international headquarters is based in
Amsterdam, and we own a business in Australia, and we are
exporting product from the United States to the U.K. at this
time.
Chairman RICE. Do you produce product in Amsterdam?
Mr. MCKISSICK. We produce product in Australia only at this
time and the U.S.
Chairman RICE. Why is your international headquarters in
Amsterdam?
Mr. MCKISSICK. It is the best place to set up an
international business?
Chairman RICE. Why?
Mr. MCKISSICK. Because of the taxes.
Chairman RICE. Okay.
If we cannot get our ports dug out, if it takes 14 years to
get permission to dig out the Miami port and as a result
transportation costs to the United States are 10 to 20 percent
higher than other places in the world, does that hurt or help
your competitiveness worldwide?
Mr. MCKISSICK. I think it is pretty straightforward. It
hurts. Right? You know, for us we know that cost is an
important factor. Most of our product actually comes from the
U.S. obviously with dairy being our number one input. We
actually recently on-shored some manufacturing because of the
logistics costs. We actually took manufacturing from Central
and South America and brought it back to the United States
because of costs. So we pay close attention to costs, as all
business people do all the time. And it is critical that we do
it effectively, that we do not just run over the environment.
Nobody thinks that that is the way to go. Dr. Porter is
absolutely right.
We have had a situation in New York recently. We want to
bring some cutting-edge technology and we have spoken to the
folks in the New York government. We said, ``Hey, we want to do
this, but we are going to generate a lot more water. It is very
clean but it is above the quantities.'' And they said, ``Hey,
we can help with that so long as it is clean.'' That type of
change in headset is critical; not just to have arbitrary
standards because that change will drive our costs down and
make us much more competitive.
Chairman RICE. Thank you, sir.
Mr. Porter, I just want to say do you have anything to add
to that?
Mr. PORTER. Well, you know, I think on the corporate tax
issue this is the number one issue that we heard from the
thousands and thousands of business people that we surveyed--
give us a more reasonable corporate tax structure that is more
in line with other countries. We will not then have to play all
these complicated games to try to figure out how to move
activities and minimize taxes by being complicated. We have
great American companies with headquarters in Switzerland--
world headquarters in Switzerland right now, and every time I
see that it makes me want to cry because that is simply
happening because we are just too far out of line. If we could
bring down that rate to let us call it a median level. It does
not have to be low, it does not have to be Ireland, just a
median level, and then do the trade of eliminating a lot of the
deductions and special deals that have been made over the
years, I think business is ready to do that deal. And I think a
lot of people would breathe a big sigh of relief if we could
move in that direction.
Now, how to deal with the territorial system is much more
complicated. I think there is room for compromise. I am not a
purist. Jumping to a pure territorial system now may not be
feasible. Let us find movement in that direction that will make
progress. Again, the system we have now is the one that is
creating all this complexity and tax shifting and transferred
pricing. We have created that ourselves. That did not happen as
an act of God. We created this complex world that we live in
now from a tax point of view, and I think most business people
now have understood that that is just not the way to go. It is
not good for business. The question is can we move in the right
direction? Can we be pragmatic?
We also, Chairman, surveyed the general public about
competitiveness--a sample of the general public, 1,000 members
of the public, a very carefully selected sample to be unbiased
in every possible way. And their number one, of all the eight
things on the list that I have that you have seen earlier, of
all the eight things, the one that had the most support from
the general public was corporate tax reform. Because I think
intuitively these people understood that the current system is
not working for America.
Chairman RICE. I want to ask one more question and then I
will shut up.
Go back to that other slide. At the top right, things where
we are strong and improving--universities, entrepreneurship,
firm management, property rights, clusters, innovation, capital
markets--most all those things are in the realm of the private
sector. Not all, but almost every one of them; right?
Mr. PORTER. A lot of them.
Chairman RICE. Those are the things we are doing great at.
Bottom left, things we are not doing well. First, tell me where
this section of quadrants came from. How did you derive this?
Mr. PORTER. Well, this quadrant came from--we have done two
large-scale surveys of all Harvard Business School alumni, and
those alumni are in general in relatively senior management
positions, and they are actually spread over the world. So this
is a mixture of what our alumni living in Germany think and our
alumni living in America think. And this simply tabulates the
survey data from our alumni.
Chairman RICE. Okay. So is this like 35 people or is it 100
people?
Mr. PORTER. This is more than 10,000 people. We have done
it twice and gotten basically the same answer twice.
Chairman RICE. All right. So top right, private sector,
doing pretty good.
Mr. PORTER. Right.
Chairman RICE. Bottom left, legal framework, regulation,
tax code, macro policy, political system.
Mr. PORTER. That is pretty much sitting right around us
where we are speaking now.
Chairman RICE. Thank you, sir.
Ms. Chu.
Ms. CHU. Well, I just have one question, which is that one
of the pilots--and this is for Dr. McIntyre--one of the policy
recommendations put forward by your council, the Council on
Competitiveness, is to ensure lower cost, easy access to high
quality education, and training for all Americans. And on July
1st, the student loan rates doubled from 3.4 to 6.8 percent for
over seven million students. What impact will this have on
students who already face high education costs? And how could
this possibly affect the American labor force?
Ms. MCINTYRE. The increase in the rate to pay back loans is
going to have an effect on time to degree completion for
students, many of whom have to work in order to sustain
themselves. They may not take out as large a loan in order to
go to school, and so they will have to work more. So it could
impact time to degree.
It is going to have an impact on those who are able to go
to college or to universities or even two-year colleges because
of not being as affordable as it used to be. So it is a
concern. I think we will see some of those effects I think
sooner rather than later in terms of the number of loans. And
then decisions will be made because of that.
Ms. CHU. Thank you. I yield back.
Chairman RICE. Mr. Hanna.
Mr. HANNA. No.
Chairman RICE. I want to thank our witnesses for their
testimony and participation today. As we have heard today,
restoring America's competitiveness is imperative to our
country's well-being. I am encouraged by the firms who have
managed to remain competitive despite the obstacles and changes
needed that are clearly outlined by our witnesses. As I stated
at the outset, I am committed to reviving our nation's
competitive edge and will continue to work toward that goal.
The real-life experiences shared by the businesses and
solutions proposed by economic experts who are dedicated to our
nation's long-term success will help our nation's political
leaders better understand our current environment and make
wiser choices for the future.
I ask unanimous consent that the members have five
legislative days to submit statements and supporting materials
for the record.
Without objection, so ordered.
Thank you very much, panel, for being here. This is the
best panel I have had since I have been in Congress. I have
truly enjoyed it. These are really fundamental things that we
need to work on and I appreciate so much your time. The hearing
is now adjourned.
[Whereupon, at 3:17 p.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC] [TIFF OMITTED] T1935.001
[GRAPHIC] [TIFF OMITTED] T1935.002
[GRAPHIC] [TIFF OMITTED] T1935.003
[GRAPHIC] [TIFF OMITTED] T1935.004
[GRAPHIC] [TIFF OMITTED] T1935.005
[GRAPHIC] [TIFF OMITTED] T1935.006
[GRAPHIC] [TIFF OMITTED] T1935.007
[GRAPHIC] [TIFF OMITTED] T1935.008
[GRAPHIC] [TIFF OMITTED] T1935.009
[GRAPHIC] [TIFF OMITTED] T1935.010
[GRAPHIC] [TIFF OMITTED] T1935.011
[GRAPHIC] [TIFF OMITTED] T1935.012
[GRAPHIC] [TIFF OMITTED] T1935.013
[GRAPHIC] [TIFF OMITTED] T1935.014
[GRAPHIC] [TIFF OMITTED] T1935.015
[GRAPHIC] [TIFF OMITTED] T1935.016
[GRAPHIC] [TIFF OMITTED] T1935.017
[GRAPHIC] [TIFF OMITTED] T1935.018
[GRAPHIC] [TIFF OMITTED] T1935.019
[GRAPHIC] [TIFF OMITTED] T1935.020
[GRAPHIC] [TIFF OMITTED] T1935.021
[GRAPHIC] [TIFF OMITTED] T1935.022
[GRAPHIC] [TIFF OMITTED] T1935.023
[GRAPHIC] [TIFF OMITTED] T1935.024
[GRAPHIC] [TIFF OMITTED] T1935.025
[GRAPHIC] [TIFF OMITTED] T1935.026
[GRAPHIC] [TIFF OMITTED] T1935.027
[GRAPHIC] [TIFF OMITTED] T1935.028
[GRAPHIC] [TIFF OMITTED] T1935.029
[GRAPHIC] [TIFF OMITTED] T1935.030
[GRAPHIC] [TIFF OMITTED] T1935.031
[GRAPHIC] [TIFF OMITTED] T1935.032
[GRAPHIC] [TIFF OMITTED] T1935.033
[GRAPHIC] [TIFF OMITTED] T1935.034
[GRAPHIC] [TIFF OMITTED] T1935.035
[GRAPHIC] [TIFF OMITTED] T1935.036
[GRAPHIC] [TIFF OMITTED] T1935.037
[GRAPHIC] [TIFF OMITTED] T1935.038
[GRAPHIC] [TIFF OMITTED] T1935.039
[GRAPHIC] [TIFF OMITTED] T1935.040
[GRAPHIC] [TIFF OMITTED] T1935.041
[GRAPHIC] [TIFF OMITTED] T1935.042
[GRAPHIC] [TIFF OMITTED] T1935.043
[GRAPHIC] [TIFF OMITTED] T1935.044
[GRAPHIC] [TIFF OMITTED] T1935.045
[GRAPHIC] [TIFF OMITTED] T1935.046
[GRAPHIC] [TIFF OMITTED] T1935.047
[GRAPHIC] [TIFF OMITTED] T1935.048
[GRAPHIC] [TIFF OMITTED] T1935.049
[GRAPHIC] [TIFF OMITTED] T1935.050
[GRAPHIC] [TIFF OMITTED] T1935.051
[GRAPHIC] [TIFF OMITTED] T1935.052
[GRAPHIC] [TIFF OMITTED] T1935.053
[GRAPHIC] [TIFF OMITTED] T1935.054
Testimony of Mr. James McConeghy
Chief Financial Officer
Chobani
Before the U.S. House of Representatives Committee on Small Business
Subcommittee on Economic Growth, Tax and Capital Access
Mr. Chairman and members of the Subcommittee, thank you for
the opportunity to testify at today's hearing. I am James
McConeghy, the Chief Financial Officer at Chobani Greek Yogurt
located in Norwich, New York.
The creation of Chobani is truly an American success story.
Chobani was established in 2005 by Hamdi Ulukaya, a Turkish
immigrant, who purchased an old Kraft Foods Plant in New
Berlin, New York. Since its founding, it has grown from five to
2,600 employees and is the nation's top selling Greek yogurt.
The Chobani story is one that could only happen in America.
Where else could a Turkish immigrant transform a shuttered
factory into a thriving food manufacturing business in just a
few short years?
Our story began in 2005 when, with the help of a Small
Business Administration loan, our founder, Hamdi Ulukaya,
acquired a former Kraft Food plant in Central New York. Two
years later, the first cups of Chobani Greek Yogurt rolled off
the line. Today, Chobani is the number one selling Greek Yogurt
brand in the country.
In less than six years, we've grown our business from
nothing to over $1 billion in sales, and expanded our reach
across the globe. We've invested more than $700 million between
our original manufacturing facility in New York and our new
plant in Twin Falls, Idaho. We're no longer a start-up with 5
employees, but a global organization with a workforce more than
2,600 strong.
It is the American Dream come to life--proving that, if you
truly believe in something and work hard, anything is possible.
Challenges to the Future of Chobani Greek Yogurt
The future of Chobani's success is strongly burdened by
current federal regulatory and legal challenges. The four most
prominent challenges that I will touch on today are the lack of
an FDA standard of identity for Greek Yogurt, Geographic
Indicators in international trade, Trans-Pacific Partnership
(TPP) trade negotiations and their potential impact on trade in
dairy products with Canada, and tax reform.
First, Chobani strongly supports the establishment of a
standard of identity for Greek Yogurt. The Food and Drug
Administration establishes standards of identity for various
food products to reduce consumer confusion. Unfortunately, the
current FDA standards of identity (SI) for yogurt are extremely
outdated, do not take into account current manufacturing
processes and only include definitions for Yogurt, Nonfat
yogurt and Lowfat Yogurt. The definition does not reflect the
composition and processes used to manufacture Greek Yogurt,
which is very distinct from traditional yogurt. Greek Yogurt is
to yogurt as sour cream is to milk.
The lack of a proper standard of identity for true Greek
Yogurt literally allows any product that meets one of the
current FDA standard definitions of yogurt to be branded as
Greek Yogurt, regardless of its composition or the processes
used to manufacture it. USDA's Child Nutrition Programs
routinely follow FDA Standards of Identity for products used in
their programs. The lack of a SI for true Greek Yogurt makes it
difficult for consumers and the USDA to differentiate between
yogurt and Greek Yogurt for purposes of the nutrition programs,
including proper allowances for meat/meat alternates in child
nutrition program crediting. FDA and Congress must recognize
and address this blatant inequity in order for the rapidly
emerging market for Greek Yogurt to meet its potential without
misleading consumers towards a product that is not ``true''
Greek Yogurt.
Second, we have seen an increase in challenges of the
labeling of common food products abroad. We recently embarked
on a costly and difficult process of re-labeling in England and
Wales after it was, incorrectly in our opinion, ruled that
using the term `Greek' on our true Greek Yogurt product mislead
consumers into presuming the yogurt was made in Greece. The
European Union (EU) has embarked on an aggressive campaign to
monopolize commercially significant terms that are used in
foreign markets as a competitive advantage for EU member
country produced products.
Chobani is devoted to preserving and protecting properly
applied use of common food names. However, the EU position puts
common food names at great risk. If this problem is not dealt
with soon, the EU's aggressive actions to monopolize common
food names will damage sales of many popular food products
around the globe.
Recently, the EU has been actively working to control many
common names for foods, actions indicating a strategy to secure
exclusive rights to names long used in many places around the
world outside the EU. Generic names used by millions of
consumers. Common names like bologna, chorizo, feta,
gorgonzola, parmesan, provolone, and salami.
Arguing that a small group of EU producers should have an
exclusive right to use such names is like claiming that only
Italians should be permitted to use the term ``pizza''.
Protectionism is protectionism, not matter how you couch it. We
hope Congress will continue to urge our negotiators to take an
aggressive stance on the matter of geographic indicators in
future trade negotiations.
On a third point, Chobani recently engaged in an extensive
process to bring our product to Canada. This process included
researching the ability to import yogurt into Canada from the
United States and to explore making yogurt in Canada for
Canadian consumers.
In the case of importing yogurt, we found this to be
essentially impossible, as there is a 237.5% duty for virtually
all yogurt imports. This is despite the open borders
promulgated by NAFTA.
As an alternative, we attempted to buy land and build a
manufacturing facility in Canada. When this plan became visible
to our competitors, they launched a series of actions directly
against various Canadian government agencies and the local
Chobani entity to stall our Canadian plans. Despite the fact
that we and the Canadian government prevailed in court, all of
the previous market barriers continue to exit.
Accordingly, we recommend that the Congress and the
Administration use the TPP umbrella to look at the closed
borders for dairy trade with Canada. We understand that other
countries are recommending the same course of action.
Lastly, we understand that there are many discussions
surrounding ``Tax Reform'' in the halls of government. We
wholly support this effort to eliminate inconsistencies in the
taxation of U.S. entities and to have a globally competitive
tax system.
We appreciate the support that this Committee has shown and
the opportunity for us to testify today. We look forward to
working with the Committee in addressing the current
challenges.
[GRAPHIC] [TIFF OMITTED] T1935.055
Chairman Rice and members of the subcommittee, Good
afternoon and thank you for the opportunity to discuss the
important role that over 500,000 men and women earning their
livelihoods in the textile sector play in advancing the U.S.
economy.
Good afternoon, my name is Smyth McKissick and I am the CEO
of Alice Manufacturing. We are located in Easley, South
Carolina. My company produces yarns and fabrics primarily for
home furnishings, apparel, and health care applications. We
also create home furnishing products, mainly fashion bedding,
which we sell directly to our country's great retailers. Alice
Manufacturing was established in 1910, and for four generations
my family has lead this company through good times and bad
including numerous recessions, the Great Depression, and World
War II. Over the years, Alice and other U.S. textile
manufacturers have consistently invested in the most
technologically advanced equipment, continuing education, and
technical training for our manufacturing facilities and
workers. We employ best practices such as Lean, Six Sigma, and
Maintenance Excellence. As a result our employee productivity,
a key measure of competitiveness, has enjoyed incredible
growth.
While our company and industry have adapted to changing
times, U.S. trade policy has oftentimes hampered the growth and
competitiveness of the U.S. textile industry. Our prosperity as
an industry is dependent upon healthy engagement with the rest
of the world. As the third largest exporter of textile products
in the world, shipping nearly $23 billion in textile and
apparel products to more than 170 countries, our industry is
opposed to the unfair, or even in some instances illegal, trade
practices that many foreign `competitors' use to gain U.S.
market share. These unfair practices are many and are damaging
to the U.S. industrial base and run contrary to the core
principles of ``free trade''.
The U.S. textile industry has been a world leader in
innovation, developing biological resistant fabrics, wrinkle
free fabrics, and sophisticated fabrics for military and other
industrial applications. For all the positives that the U.S.
industry enjoys, some serious challenges also confront U.S.
textile manufacturers. For example, our chief competitors are
located in countries that manipulate their currency, encourage
nonperforming loans, ignore labor and environmental laws,
tolerate nontariff barriers, and steal intellectual property.
We also face the difficulty of the U.S. government's tendency
to trade U.S. textile manufacturing interests away to
competitors for perceived gains in other policy arenas. This
does nothing more than erode the U.S. industrial base and
displace workers and families in small towns and communities
nationwide.
Prior to the Asian financial crisis, the textile industry
in the United States was quite successful. One hundred percent
of the apparel manufacturing process took place on American
soil, from the cotton fields, to shirt, and retail. When the
crisis hit, overnight, the U.S. market was flooded with
artificially cheap goods. Due in large part to currency
devaluations, our foreign `competitors' gained a huge pricing
advantage driven by weakened currency. These `competitors'
didn't become more productive nor did they develop new
manufacturing practices that created a competitive edge, these
`competitors' cheated, and the United States textile supply
chain was decimated. The industry was cut in half and thousands
upon thousands of U.S. textile jobs were lost in the process.
At Alice Manufacturing, we realized that we had to quickly
establish new business models in order survive. Our customers
were being put out of business which required new strategies to
access the consumer base. The first strategic move that Alice
made was the creation of a new division whereby we would sell
direct to retail. Before, we were an intermediate supplier of
fabric in a complex, U.S. based, supply chain. Our new
division, allowed Alice to become a ``vertically integrated''
home textile supplier. Knowing that the creation of outstanding
designs is the ``crown-jewel'' of fashion bedding, we developed
our own ``in-house'' design team by adding incredibly talented
designers to our workforce. Using our fabrics, the product is
finished with our designs, then cut and sewn, and sold to our
country's major retailers. Our focus is on great designs,
outstanding customer service, outstanding quality, and
competitive pricing. Later, we diversified our product mix with
the use of outside suppliers. This division of our company is a
great contributor to our overall success.
Our second strategy is one whereby we partner directly with
our neighbors in NAFTA and CAFTA countries. By doing so we are
able to optimize our supply chain by spinning fibers into yarns
and weaving fabrics in our U.S. based plants and then export
the fabric to Mexico for finishing and cut and sew. Most of the
products made from our fabrics are sold abroad. It's an optimal
partnership and we are blessed to have ``World-Class''
producers in the NAFTA/CAFTA countries to partner with. We have
benefited from having market access through out trade
agreements to this region and our business is growing as a
result. What makes these trade agreements so beneficial to the
U.S. textile industry are the core tenants of textile and
apparel trade: the Yarn Forward Rule of Origin, access to
partnering countries markets, and customs enforcement.
Additionally, productivity is a critical component of
competitiveness, and productivity growth is as important as
anything we do. We invest in state-of-the-art manufacturing
equipment as well as training to arm our workforce with the
necessary skills and assets to compete. Most importantly, doing
business with integrity is everything! We pride ourselves in
doing what we say we'll do. Our customers depend on us to
deliver great quality on time.
Though we've been able to ``re-create'' ourselves and start
a new and growing business inside our company; at the same time
we had to downsize our core business. It's incredibly difficult
to go to a workforce that has been part of our company for
generations and tell them that their job will be lost.
Especially knowing that these workers were being displaced by
foreign `competitors' relying on a foreign supply chain that is
dependent upon unfair or illegal subsidies like: currency
manipulation, technology transfer, theft of intellectual
property, and rebates of import duties to name a few. That is
why enacting fair trade and investment policies that promote
the competitiveness of U.S. manufacturers, as well as the
competitiveness of the nations we trade with is critically
important. Government to government, economy to economy, and
industry to industry, the two-way exchange of goods must be
fair and create mutual benefits.
Yet, there is good news to share, over the past few years
the U.S. textile industry has experienced resurgence. Textile
manufacturing has begun to come back to the United States; in
fact, the textile industry has invested over $3 billion in new
technologies, machinery, and manufacturing facilities since
2010. This positive trend could be further bolstered by sound
U.S. trade policy, particularly as the U.S. government works to
complete negotiations on the Trans-Pacific Partnership or the
TPP. The TPP is the largest free trade agreement since NAFTA
that the U.S. is negotiating with eleven other nations--Japan,
Mexico, Chile, Peru, Canada, Australia, New Zealand, Brunei,
Singapore, Malaysia and Vietnam. If properly structured, the
U.S. textile industry is poised to continue a positive
trajectory of growth. However, if weak rules are adopted,
particularly given Vietnam's participation in the TPP, our
industry will be at the mercy of an unfair free trade
agreement, which will decimate the United States textile
industry once again.
There have been a number of U.S. policies that have
complimented U.S. textile manufacturing over the past 10 years.
New markets have opened, and new international partnerships
have been formed. The yarn forward rule of origin has been
especially important to our industry. The yarn forward rule of
origin means that the yarn used to form fabric, dyeing and
finishing of fabric, and the final cut, sew, and assembly must
occur in a free trade partner country to gain U.S. market
access. Yarn forward has been the standard bearer in the
creation of nearly $25 billion in two-way trade between the
industry and our FTA partners. The rule has been the primary
force behind the more than two million textile and apparel jobs
in the United States and amongst our Western Hemisphere free
trade partners.
Other examples of policies that have helped Alice to remain
globally competitive are cotton and energy policies. Programs
such as the Economic Adjustment Assistance Act have allowed
Alice and other textile manufactures to invest in new machinery
and equipment which had lead to the creation of thousands of
textile jobs since the program was enacted in the 2008 farm
bill. Energy costs have also been a huge contributor to our
success. Textile manufacturing requires large amounts of energy
and energy costs in the U.S. are an important competitive
advantage.
While we have been able to regain a foothold over the past
few years there are new policies which could present great
danger to our industry. The Trans Pacific Partnership (TPP)
could be the U.S. textile industry's single greatest threat
since the Asian financial crisis. TPP negotiators must
recognize that trade developed under free-market principles
must be both defended and encouraged for the TPP to work as
intended. In the case of Vietnam, a non-market economy, the
government heavily subsidizes its industrial sectors
particularly its textile and apparel sector. This requires new
counterbalancing measures. These measures include long tariff
phase outs for sensitive product categories and strict customs
rules and enforcement to deter illegal trade. The U.S. textile
industry continues to be concerned about the treatment of state
owned and directed Vinatex, the 10th largest garment producer
in the world, and by far the largest textile and apparel
producer in Vietnam. This past week, news broke that the
Chinese are considering heavy investments into Vinatex if the
United States buckles to the single transformation rule that
Vietnam would like to see in the TPP. Should the U.S. agree to
a single transformation rule, Chinese state owned and operated
textile producers will be granted duty-free access to the
United States market through Vietnam. This is because single
transformation rules requires that only the cut and sew part of
the manufacturing process take place inside a TPP country in
order to gain preferential access to the U.S. market. This
means that Vietnam could continue to import textile inputs from
China, cut and sew the apparel in Vietnam, and then export to
the U.S. If this occurs, Vietnam and China stand to gain
billions of dollars in textile trade at our industry's expense.
While the United States continues to hold fast on a yard
forward rule of origin in the TPP, the Vietnamese oppose yarn
forward. They are focusing on short-term foreign earnings and
job growth from apparel exports. The Vietnamese are looking for
a single transformation rule of origin and the U.S. apparel and
retail importers have stated that they will support and push
for single transformation as well. Single transformation
creates an uneven playing field between the U.S. and Vietnam
and will allow Vietnam to import goods from China and export
those goods to the United States duty-free, circumventing the
TPP agreement and flooding the U.S. market with duty-free
Chinese textile and apparel products, leaving over 500,000 U.S.
textile jobs at risk.
The initial 6-8 year impact of a single transformation rule
in the TPP would prove devastating to the U.S. textile
industry. Exports to the Western Hemisphere would decline by
$3.8 billion and exports of apparel to the U.S. from the CAFTA,
NAFTA, and the Andean regions would decline by $4.5 billion.
Total possible job losses in the Western Hemisphere could total
more than 1.5 million. These figures do not include collateral
damage to other textile sectors including industrial, home
furnishings, and military which are likely to be significant as
overall industry capacity declines. The total projected job
loss in the United States after 10 years of a single
transformation rule as part of the TPP would be equivalent to
532,363 jobs. Vietnam fully expects that the TPP will allow
integration of textile and apparel trade under a single
transformation rule.
More than 75% of the apparel produced in Vietnam uses
fabric and other textile inputs from China. A yarn forward rule
would encourage Vietnam to build its own textile industry or
source its inputs from another TPP country, like the United
States, so that the value of the orders for textile processing
goes to Vietnam and not China, as it does now. Vietnam
continues to insist upon a single transformation rule and is
prepared to trade the long-term benefits of having a primary
textile sector for short-term gain; giving away a yarn forward
rule would be a disaster for the textile and apparel industries
in this hemisphere. The only winner in this situation is China.
Another concern of the U.S. domestic industry is that
Vietnam engages in currency manipulation. Trade with countries
that manipulate currency to gain export advantages and drive
down the cost of goods creates uneven playing fields that sends
manufacturing and jobs overseas. Currency manipulation easily
nullifies any U.S. export benefits in an FTA with Vietnam. The
Vietnamese government has steadily devalued the dong my more
than 25% over the past three years; these devaluations have
been a crucial assist in making Vietnam the fastest-growing
apparel exporter to the United States and in taking the market
share of production jobs from the U.S. textile industry and its
Western Hemisphere partners. Currency manipulation must be
addressed in the TPP if U.S. textile producers are to get a
fair and competitive playing field under the agreement. It
makes no sense to ignore such a fundamental issue in the TPP,
particularly one that has such significant impact on U.S. jobs.
If currency manipulation by the Vietnamese government continues
to depress the value of the dong it will erase any market
opening benefits for U.S. textile exporters under the TPP.
The United States government has a unique opportunity to
develop a high standard 21st century forward thinking agreement
through the Trans-Pacific Partnership. The yarn forward rule of
origin supports hundreds of thousands of U.S. jobs as well as
1.5 million textile and apparel jobs in countries bordering and
near the United States. In our past FTA agreements this rule is
serving to bring jobs and production from Asia to the United
States and the West Hemisphere. The yarn-forward rule of origin
creates strong partnerships and export growth and opportunities
for the U.S. textile industry around the world.
In conclusion, a flexible rule of origin will cause
widespread plant closures and job losses in the United States
and destroy enormous export markets that our free trade
partners in CAFTA, NAFTA, the Andean region and African trade
promotion programs depend on. It would also encourage Chinese
textile manufacturers to continue to displace U.S. production
and retard our textile sector development. In the entire TPP
region the principal beneficiaries would be the importers and
retailers who would get more than $1 billion in new duty
savings, while displacing more U.S. manufacturing jobs at a
time when the need for these jobs is extremely high.
I am here today to urge you to endorse the fundamental
trading rules that have encapsulated every major FTA over the
last 25 years along with the principles of fair market access
and strong customs enforcement in the Trans-Pacific
Partnership. This will allow the U.S. textile industry to
continue to innovate, grow, and prosper. The distinguished
members of this Subcommittee can support these principles by
signing onto a Dear Colleague Letter authored by
Representatives Coble (R-NC), McHenry (R-NC), and Pascrell (D-
NJ) to the USTR that already has more than 143 of your
colleagues supporting these important trading rules. I would
like to thank those Subcommittee members who have already
agreed to sign onto this important letter, including you, Mr.
Chairman.
Thank you for the opportunity to provide testimony to the
Subcommittee today and I would be pleased to answer any
questions that you or any of the Subcommittee members may have
of me, Mr. Chairman.
Respectfully Submitted:
Smyth McKissick
Chief Executive Officer
Alice Manufacturing
Key Facts about the U.S. Textile Industry
The U.S. textile industry is a large manufacturing
employer in the United States. The overall textile sector--from
textile fibers to apparel--employed 499,000 workers in 2012.
Textile companies alone employed 235,000
workers.
The U.S. government estimates that one
textile job in this country supports three other jobs.
U.S. textile shipments totaled more than $53
billion in 2012.
The U.S. textile industry is the third largest
exporter of textile products in the world. Exports of all
textile products exceeded $17 billion in 2011 and again in
2012. Total textile and apparel exports were a record $22.6
billion in 2012.
Two-thirds of U.S. textile exports during 2012
went to our Western Hemisphere free trade partners. The U.S.
textile industry exported to more than 170 countries, with 24
countries buying more than $100 million a year.
The U.S. textile industry supplies more than 8,000
different textile products per year to the U.S. military.
The U.S. is the world leader in textile research
and development, with private textile companies and
universities developing new textile materials such as
conductive fabric with antistatic properties, electronic
textiles that monitor heart rate and other vital signs,
antimicrobial fibers, antiballistic body armor for people and
the machines that carry them and new garments that adapt to the
climate to make the wearer warmer or cooler.
The U.S. textile industry invested $16.5 billion
in new plants and equipment from 2001 to 2010. And recently
producers have opened new fiber, yarn and recycling facilities
to convert textile waste to new textile uses and resins.
The U.S. textile industry has increased
productivity by 45 percent over the last 10 years, making
textiles one of the top industries among all industrial sectors
in productivity increases.
In 2011, textile workers on average earned 135%
more than apparel store workers ($576 per week vs. $245) and
received health care and pension benefits.
Testimony of Dr. Cynthia McIntyre
Senior Vice President
Council on Competitiveness
U.S. House of Representatives Committee on Small Business Subcommittee
on Subcommittee on Economic Growth, Tax and Capital Access
Hearing
American Competitiveness Worldwide: Impacts on Small Businesses and
Entrepreneurs
July 9, 2013
1:00 pm
Chairman Rice, Ranking Member Chu, and other distinguished
Members on the Subcommittee, thank you for having me here
today. It is an honor to share with you on a public-private
partnership with which the Council on Competitiveness has been
heavily involved since its inception, the National Digital
Engineering and Manufacturing Consortium. This program
currently wrapping up its pilot phase is a pilot public-private
partnership connecting small and medium-sized manufacturers
with high performance computing via modeling and simulation.
U.S. manufacturers are being challenged today by an
unprecedented confluence of global events. This convergence of
powerful internal and external forces--The Great Recession,
global economic contraction, the U.S. automotive manufacturing
base receiving from the financial crisis and the recession, and
increasing competition from overseas--is challenging U.S.
manufacturing leadership like never before. Indeed, these
extraordinary circumstances require extraordinary measures, and
the U.S. public and private sectors must cooperate
strategically, coordinating and investing to repair,
reposition, and reaffirm U.S. global leadership in
manufacturing.
Research by the Council on Competitiveness presents
powerful evidence of the capacity of high performance computing
(HPC) to drive innovation and make U.S. companies and the
nation more competitive. Indeed, for those who have adopted it,
HPC represents a crucial edge that can build and sustain
competitive advantage through innovative product design,
production techniques, cost savings, improved time-to-market
cycles, and overall quality. However, Council research has also
shown that many U.S. companies are ``stuck at the desktop'' and
not able to take full advantage of HPC, while still others--
including many suppliers to U.S. tier 1 companies--have
limited, if any, computational R&D capacity (with many not even
using desktop workstations).
Our situation becomes even more critical when one surveys
the competitive landscape that U.S. companies face today--where
many foreign governments have established public-private
partnerships for the use of HPC in manufacturing. Indeed,
sustained national investments in innovation and manufacturing
are occurring in China (e.g., China's 863 Program), the
European Union (PRACE program), and in the UK to name only a
few. Meanwhile, our own national policy regarding HPC is
fragmented. The time is right for the U.S. federal government
to take bold steps to leverage HPC for next-generation
innovation, manufacturing, and U.S. competitiveness.
The Council sees public-private sector collaboration as the
best and most effective means for quickly advancing HPC in
manufacturing. However, to be successful in this effort, much
closer coordination between government, national labs,
universities, and industry will be needed and must be bolstered
by a national strategy that transcends the parochial interests
of any single federal agency, department, university, or HPC
center. To these ends, the Council offered several
recommendations for quick action:
Improve coordination of the federal government's
overall approach to advancing HPC (i.e., work toward a more
balanced program across DOE labs, NSF-funded supercomputing
centers, the DOD, universities, and so on).
Increase outreach efforts to chief executives (the
so-called ``C-suite'') in manufacturing to help them better
understand the true benefits of HPC to their bottom lines.
Bring together CEOs and CTOs from the nation's manufacturing
base, along with U.S. experts in HPC hardware and software, in
a national summit to better frame and address the issues
surrounding HPC for next-generation manufacturing.
Enhance industrial access to HPC resources by
establishing a government-supported HPC center or program
dedicated solely to assisting U.S. industrial partners in
addressing their research and innovation needs by adopting or
improving modeling, simulation, and advanced computation.
The center or program would provide assistance with
problem definition; software selection, development, or
customization (indeed, software is often the most
crucial gap); and access to HPC hardware.
It should feature a task force or working group
that would (1) visit all top U.S. manufacturing
companies, HPC centers, national labs, and major
independent software vendors (ISVs); and (2) work to
address major technical hurdles in the manufacturing
sector's use of HPC (e.g., software, interoperability,
multiphysics, and so on).
It should be overseen by an advisory board with
balanced membership from government, university, and
industry.
It could be started with initial funding from the
federal government, but should be supported in the long
term by a broad mixture of support from federal,
university, and industrial partners.
Invest in U.S. HPC expertise. Some of our most
precious national resources are the people who operate in the
HPC domain--from the computational scientists and engineers to
the domain experts that apply HPC in their fields (e.g.
mechanical, electrical, chemical engineers). The federal
government, national labs, universities, and industry need to
take concrete steps to educate, train, retrain and retain
people with the expertise to take advantage of large HPC
systems and manage their application and deployment in new
settings, and create the new software and hardware needed to
drive innovation.
The Council on Competitiveness and selected original
equipment manufacturers (OEMs) developed a Midwestern regional
pilot program as a public-private partnership with the U.S.
federal government based on these recommendations. The pilot
program is aimed at improving competiveness and innovation in
small- and medium-sized enterprises (SMEs) in the U.S.
manufacturing supply chain. The ultimate outcome of the pilot
program will be a workforce with enhanced technical skills,
improved product quality, better customization of products, and
job retention and growth.
On August 31, 2010, a Summit & Workshop was held at the
Gleacher Center in Chicago that brought together
representatives from a broad cross-section of industry,
academia and the federal government to brainstorm ideas and to
agree upon the necessary and desired components for such a
pilot program. This document captures the decisions made at
that meeting, and provides guidelines for implementing the
pilot program.
The high level goal of this pilot program is to develop and
demonstrate a sustainable, scalable and replicable model for
accelerating and broadening use of modeling, simulation and
analysis (MS&A) in Midwestern SMEs through a public-private
partnership (described below). Funding will be provided as seed
money for this pilot program, with the expectation that it will
demonstrate a path toward long-term sustainability. This is
only achievable if (a) the supply chain members can rapidly
reach a point where the results produce cost-benefits that
allow and incentivize them to continue use of MS&A, either
independently or within the continued context of the pilot
program, and (b) software vendors can develop a business model
that provides easier and more affordable access to software
tools for SMEs.
The longer term goals of this pilot program are to put U.S.
manufacturing on a path toward using MS&A for digital
prototyping of new and existing products and for process
manufacturing. Also, we expect this pilot program to be a
demonstration of effective coordination that will be used in
the startup of other regional centers.
The current level of MS&A across the manufactures in the
U.S. is greatly varied with the companies lying at one of the
three levels; entry, advancing, and expert. The key points are
that U.S. manufacturers are at different levels in their
adoption of MS&A in their processes, and that a natural
progression of adoption and expertise exists to either adopt or
advance usage to the next level. The focus of the pilot program
is on the first two levels:
Entry level--supply chain manufacturers who
currently have no capabilities in MS&A, but recognize the
benefits as a way to increase their competitive advantage.
Advancing--supply chain manufacturers who
currently have some initial capability, but want to become more
advanced in their use of MS&A to promote innovation and ensure
their long-term competitive advantage.
This early pilot program laid the groundwork for the formal
recognition of the pilot program as a partnership with the U.S.
government. In March 2011, a Memorandum of Understanding was
signed at a White House Ceremony, formally establishing the
public-private partnership (PPP) known as the National Digital
Engineering and Manufacturing Consortium (NDEMC) for five
years. The Council of Competitiveness became the lead partner
for the project, in collaboration with a number of other
stakeholders. The Consortium is funded by a public-private
partnership established by the United States Government and a
number of participating OEMs. This funding partnership has the
U.S. government giving $2 million and the private sector
contributing $2.5 million to the project. Some of the companies
backing the project include Deere & Company, General Electric,
Lockheed Martin Corporation and Proctor and Gamble.
The NDEMC's main purpose is to pilot programs that promote
adoption and advancement of modeling and simulation (MS&A) and
high performance computing (HPC) among small and medium-sized
manufacturers (SMEs) in the United States. The network of OEMs,
manufacturers, solution providers, and collaborators that make
up the NDEMC will result in accelerated innovation through a
powerful collaborative ecosystem of like-minded organizations.
NDEMC is energizing the growth and development of small-
and medium-sized American manufacturing enterprises (SMEs) by
promoting public-private partnerships and encouraging skills
transfer of advanced manufacturing techniques and processes
that leverage computational power, simulation and cutting-edge
modeling techniques. With funding through the Economic
Development Administration, and as the initial project of
President Obama's Advanced Manufacturing Partnership, the White
House and the Council of Competitiveness are leading the effort
to collaborate with SMEs to use modeling and simulation.
NDEMC brokers and promotes collaborative relationships that
will sustain the growth of American manufacturing through jobs
creation and enhanced competitiveness. NDEMC provides modeling,
simulation and analytics education and training, access to High
Performance Computing (HPC) and access to Software as a Service
(SaaS). These services will be available through a distributed
application to make U.S. SMEs more competitive in the global
marketplace.
A great example of how NDEMC has positively impacted U.S.
companies is the case of Jeco Plastic Products LLC. Jeco
Plastic Products, LLC is a small custom-mold manufacturer of
large, complex, and high-tolerance products with a plant in the
Indianapolis area. Two processes are used in the manufacturing
facility--rotational molding and twin-sheet pressure. Jeco's
customer base includes large U.S. and international original
equipment manufacturers (OEMs) in the automotive, aerospace,
printing and defense industries. To take advantage of a
monumental opportunity to secure a large OEM account, Jeco
Plastic Products required high performance computing (HPC) and
modeling, simulation and analysis (MS&A) resources to
successfully evaluate design scenarios and predict the product
performance of a complex custom pallet. In house finite element
analysis (FEA) software and computing resources were inadequate
to accomplish this task. Jeco joined the NDEMC program to gain
training, experience, access to university expertise, software
and hardware to successfully compete against large foreign
competitors. By employing HPC simulation, the company was able
to simulate and analyze their pallet in a highly predictive and
time-efficient manner. Without these HPC resources, they would
not have earned a multiyear contract from a large German
automotive OEM.
Improvements to Jeco's pallet product have impacted their
bottom-line as sales revenue is expected to double, payroll
will increase by 35 percent at their plant, and they will be in
contention for additional high-margin, domestic and export
business projects.
Overcoming Technical Challenges with High-Impact Computing
Jeco experienced a technical challenge in its simulation of
complex, high tolerance designs in inhomogeneous anisotropic
materials, which is virtually impossible to produce with the
current commercially available software. Tedious trial-and-
error physical design and testing was deemed inefficient and
would not meet the expectations of their large automotive OEM
client. High-ranking executives at the company were cognizant
that they needed to upgrade their MS&A capabilities to
effectively compete in this high growth niche industry.
A last minute requirement for a multi-year project with a
major German OEM required Jeco to take immediate action to
upgrade. The critical situation prompted the company to contact
Purdue University for assistance through their Manufacturing
Extension Partnership (MEP) program, which led to becoming part
of the NDEMC Midwest Project. Jeco understood that the
relatively small cosmetic alteration required by their client
could potentially affect critical specifications for
deflection, and they needed outside assistance. To facilitate
this change and receive the initial order, they had to rapidly
analyze a very complex design before making the expensive,
irreversible tool changes. Access to HPC and the Purdue support
staff were invaluable resources in enabling the company to make
quick and accurate evaluations for the final step in the design
process. Jeco CEO Craig Carson learned that the NDEMC public-
private partnership would be instrumental in accessing the
training, hardware and software necessary for MS&A.
Based on their limited resources, Jeco's participation in
the NDEMC project became imperative to meet their strategic
organizational, product and financial objectives. NDEMC's
Midwest Project offered Jeco access to Purdue's faculty and
staff. Jeco's leadership valued the university's strong
collaboration, unwavering support and intellectual insight to
assist them in bringing technological improvement to their
pallet product. The program also introduced the company to
superior test facilities for a wide range of applications. This
included utilizing HPC simulation paired with laboratory
materials test equipment at Purdue to validate their models.
From an MS&A perspective, NDEMC facilitated Jeco's access
to software which ordinarily would have been beyond the realm
of possibility due to budgetary constraints. By gaining access
to MS&A and technical expertise, Jeco had the ability to
develop creative technological solutions in the final, time-
critical phase of the product innovation process.
Based on current projections, Jeco management is expecting
a reasonably steady increase in incremental, cumulative sales
revenue for rotational molding between 2013 and 2022, totaling
nearly $23 million during the period. These projections are
based on a full-scale release of a new product for their German
OEM customer and additional projects in the twin-sheet
thermoforming market. Due to increased production demand from
their large clients, Jeco is expected to increase payroll and
hire 15 advanced manufacturing workers within the next few
years.
While we celebrate the successes and learn from the
challenges of the Midwest pilot program, NDEMC continues to
move forward. I am pleased to share with you that the NDEMC
program received the HPCwire Editor's Choice Award for Best HPC
Collaboration Between Government and Industry in 2012.
Currently the NDEMC pilot program is wrapping up its federal
funding and the Council on Competitiveness and other key NDEMC
stakeholders are working to move NDEMC from a public-private
partnership to a non-profit entity which would be the conduit
for new partnerships, including new public-private
partnerships, across the United States which will continue to
work together to sustain America's manufacturing and
competitiveness. The EDA and its partners will study the
economic impact of technology-based innovation infrastructure
toward boosting the long-term job capacity and competitiveness
of U.S. manufacturing and industry.
Thank you.
For further information on the National Digital Engineering
and Manufacturing Consortium please visit www.ndemc.org.
For further information on the Council on Competitiveness
and its manufacturing work, including the US Manufacturing
Competitiveness Initiative and the American Energy &
Manufacturing Partnership, please visit www.compete.org.
[GRAPHIC] [TIFF OMITTED] T1935.056
[GRAPHIC] [TIFF OMITTED] T1935.057
[GRAPHIC] [TIFF OMITTED] T1935.058
[GRAPHIC] [TIFF OMITTED] T1935.059
[GRAPHIC] [TIFF OMITTED] T1935.060
[GRAPHIC] [TIFF OMITTED] T1935.061
[GRAPHIC] [TIFF OMITTED] T1935.062
[GRAPHIC] [TIFF OMITTED] T1935.063
[GRAPHIC] [TIFF OMITTED] T1935.064