Globalization: It’s a Plus for Texas

 Globalization: It’s a Plus for Texas
By Donna Steph Rian

Texas has quietly evolved during the past several decades from traditional economic dependence on single industries — which can suffer during the shift to interconnected global markets — into a global-trade powerhouse.

Unfettered by reliance on a single industry, the Lone Star State is wide open to benefit from international trade — and insulated from its most common negative effects.

The top exporting state in the country for 14 consecutive years, Texas has also capitalized on its strategic geographic location, strong transportation infrastructure, burgeoning multilingual workforce, vibrant international banking center and favorable concentration of corporate and financial resources to become the U.S. leader in international trade.

“In a broad sense, globalization is about interacting with other countries in terms of importing and exporting goods and products, and engaging in incoming and outgoing foreign investments,” says Professor Seung-Hyun (Sean) Lee, coordinator Organizations, Strategy and International Management Area at the University of Texas at Dallas Jindal School of Management.

While the process of globalization is beneficial in that it opens and creates new markets for trade and investment, its biggest criticism has to do with job loss, according to Lee.

“A company moves out of the United States and locates its factories in China, for example, and we lose jobs here.”

Texas is more insulated than other states, he says, primarily because its economy is not as reliant on the labor-intensive industries that typically see jobs eliminated and factories shuttered as operations move overseas.

“Luckily for Texas, our percentage of labor-intensive industries is small,” he says. “The state is much more famous for its technology and its oil industries.”

“Globalization has pros and cons,” says Metin Çakanyildirim, a Jindal School professor of operations management. “The advantage is cost savings, such as lower prices in Wal-Mart. The disadvantage is offshoring outside the United States, which causes unemployment in some demographic groups in the country.

“For Texas, that is not necessarily so. As a state, we cannot isolate ourselves from world markets,” he says. “World markets are large, and there is a lot of money to be made from outside the United States. Plus, not all globalization types are equal. Importing and exporting between Texas and Mexico is different from interacting with China. They are different in terms of landed costs, logistics, time and regulations.

“Texas plays a key role as the entry point of Mexican goods into the United States, as well as the exit point of American goods into Mexico,” says Çakanyildirim. “Mexico is not a small market itself and has the potential to significantly increase Texas’ GDP.”

In short, while globalization captures headlines and becomes the focus of increasing political and economic debate across the United States and the rest of the world, Texas stands well positioned to reap its rewards.

Lone Star Economic Diversity Translates Into a Global Advantage

The tenth-largest economy in the world and second-largest in the United States, Texas had a gross state product of $1.65 trillion in 2015. Its base of diverse industries accounts for strong economic performance, with major employment in a range of sectors. Currently the civilian workforce numbers more than 13 million, the second-largest in the U.S.

“Texas has one of the largest economies in the world,” says Finance Associate Professor David Springate, founder of the Jindal School Executive MBA program. “Texas is in a place to capitalize on globalization because of its base of activities in technology, finance, oil and gas, and service industries — and also because the state has a large population base and is a massive transportation hub. We have air. We have highways. We have ports. We have rail. Texas is a vibrant financial center for both trade and private investment.”

Springate also points out that Texas — currently home to more than 50 Fortune 500 companies across a broad swath of industries — is an attractive state for foreign and domestic companies looking to relocate.

While the Texas economy once rested shakily on agriculture, then oil and gas, it is now become dramatically diversified, as illustrated by the state’s top five export categories in 2015. Computer and electronic products made up 45.3 percent of exports; petroleum and coal products, 42.7; chemicals, 39.8; machinery, 24.8; and transportation equipment, 22.2 percent.

In addition, the state’s large export base translated into 1.05 million jobs last year — in its export industry alone.

In Texas, small, medium and large businesses alike have found great success in doing business globally. Far from being the exclusive domain of large corporations, export trade in Texas is driven by its most innovative, nimble and, oftentimes, smallest firms. In fact, more than 90 percent of all Texas exporters are small businesses — and their numbers continue to grow, says the Texas’ governor’s office. With its extensive global ties, Texas has a natural advantage in exporting knowledge-intensive services and has become a major global exporter of high value-added services.

“Texas industry is very, very healthy,” Lee says. “We are very high tech, which is why we survived the latest downturn in oil and gas. We also survived the credit crunch problems in 2008 and 2009. Texas does get affected, but very little comparatively, given our industry diversification.”

Globalization — and Its Benefits — Are Not New

According to Professor Habte Woldu, director of Jindal’s MS in International Management Studies program, economists were writing about the importance of international trade and investment as early as the 17th century.

“When we talk about trade, there are economic benefits,” he says. “There is also the benefit which follows international trade — which is foreign-directed investment. When countries are involved in any international trade, and the international trade between those countries proves to be beneficial to both, the chances those nations will move to the next level — which is foreign-directed investment — are great.

“Countries involved in international trade will invest in each other’s markets,” Woldu says.

Another benefit of international trade is that the national income of a country or region improves. According to Waldu, this is attributed to increased efficiency as we begin producing, not just for ourselves, but for the rest of the world.

“The capacity of our machines, technologies and people — all are more efficient and fully utilized. Others are demanding your goods; you are providing them.”

In addition, Waldu says international trade helps improve the standard of living, giving people access to cheaper products at the same — or even higher — quality.

“No one should doubt the importance of trading with other nations.”

Technology Drives Texas’ Exports

According to the governor’s office, information technology (IT) in Texas accounts for more than 330,000 jobs and includes software development, computer systems integration, IT network consulting, data-center management, video-game design, IT services and more. Several major IT companies call Texas home: AT&T, Dell and BMC Software. More, such as Hewlett-Packard, Apple, IBM, Raytheon, Oracle, Microsoft, Xerox, Sony, Google, eBay and Facebook, have operations here. In addition, numerous foreign-based IT firms — including firms from Canada, France, Germany, India, Japan and the United Kingdom — have locations in Texas.

Technology products are Texas’ largest export, with latest 2015 figures at $45.3 million.

“The modern digital world, as we know it, was born in Dallas when the scientists at what is now Texas Instruments came up with the idea of the chip, and that has transformed humanity,” says Professor of Technology Strategy Sumit Majumdar. “Human beings are no longer subject to the tyranny of geography. Ever since then, the Dallas and Austin areas have been the homes of high-technology manufacturing.

A vibrant policy climate, relatively low costs of business and availability of high-quality personnel have attracted thousands of companies to these areas. This includes small startups in both Dallas and Austin, and giant global companies from Asia — such as Tech Mahindra, Toshiba, Samsung and Infosys — that make Dallas their location of choice for thousands of employees.

The Added Value Of Energy, Oil And Gas

Petroleum-based products have always been an important revenue source for Texas, serving as the state’s second-largest export, at $42.7 million in 2015.

In fact, Texas is now home to about half the country’s active oil rigs, and produces more oil than Iran or Iraq and more natural gas than any nation besides Russia and the U.S.

In November, the U.S. Department of the Interior’s U.S. Geological Survey announced the largest discovery of shale oil to date, found in Texas’ Permian Basin. The government agency estimates the site formation will yield 20 billion barrels of oil, 16 trillion cubic feet of associated natural gas and 1.6 billion barrels of natural gas liquids.

This discovery is important for Texas, especially as a recent relaxation on a ban by the U.S. government on crude-oil exports will yield greater opportunities for oil-related exports, says Assistant Professor of Finance Anastasia Shcherbakova.

“Since the ’70s, there has been a ban on exporting crude oil from the United States because of OPEC-driven price spikes,” Shcherbakova says. “The government decided to stop all exports. As the ban recently has become relaxed, I think there is great potential for Texas to become a more important supplier of crude in the world.”

The Educational Advantage

In addition to international trade advantages, globalization also has translated into major bonuses for the educational system in Texas.

“Our universities benefit from an open economy,” says Woldu. “Universities have a huge stake in having an open market — a vibrant economy which is connected to the rest of the world. With that, we can attract excellent students, excellent faculty, and our standard of living is higher. When corporations are actively involved in international trade, it affects universities and the education system too.”

Furthermore, an open country tends to experience richer cultural development and activities.

“We are also exporting ideas and human capital,” says Shcherbakova. “People from other countries come to the U.S. to study because we have prestigious and excellent universities. Our educational system attracts students from all over the world. They are educated here and then go back to their home countries and use the knowledge they’ve acquired to boost economic activity.”

Since job loss is one of the primary criticisms of globalization, maybe the answer is to re-educate workers, Lee says, helping those in labor-intensive industries shift into more high-tech positions. “The only way of going forward is to not blame the effects of globalization. Rather, we have to deal with the reality of what is going on. We have to invest in educating those people who are going to lose their jobs because their jobs are going abroad.”

“Blue-collar jobs suffer with globalization while white-collar jobs thrive with globalization,” says Çakanylidirim. “More empathy and compassion needs to be shown to unemployed workers, and retooling of the blue-collar workforce toward a white-collar one. Jobs are what they are; we can only upgrade the qualification of the workers or workforce. Education is the key. Texas universities can offer programs designed for upgrading qualifications of the Texas workforce.”

Future expansion of globalization

Texas is in a great position to capitalize on growing international trade, and Springate can’t imagine what could disrupt that globalization. “While there might be a few hiccups along the way, the basic arguments for continued globalization, especially for Texas, stand firm.”

Majumdar adds that Texas cities are now on par with international cities around the world. “Areas such as Dallas-Fort Worth now feel as diverse an urban scape as the New York or Los Angeles areas. The Dallas-Fort Worth region has become as important an urban global destination as London, Shanghai, Sao Paulo or Hong Kong. A similar process is happening in Houston, and on a smaller scale at Austin.”

As the region becomes more metropolitan, it will continue to attract a greater variety of talented people. Combine that talent with the relatively low costs in the state, Texas will be even better positioned to participate in the global economy.

“Texas is in greater shape than most of the United States,” says Lee. “Globalization, for us, is a plus, rather than a minus.”

Donna Steph Rian is a freelance writer based in Dallas. She is a former business writer at the Dallas Morning News, and has worked in communications at Texas Health Resources and UT Southwestern Medical Center.

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