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					The Ascension of DFW




  How to Keep a Good Thing Going




                   2009 Annual Report
      O’Neil Center for Global Markets and Freedom
               SMU Cox School of Business
 TABLE OF CONTENTS


 Letter from the Dean.....................................1


 The Ascencion of DFW
    How to Keep a Good Thing Going.............2


 Railroads: A Catalyst for Economic Change...4


 Economic Freedom.......................................6


 World of Opportunity.................................10

 Selling Our Services.....................................15


 How to Keep It Going.................................17


 Seven Rules for Exporting Services..............18


 2009: The Year in Review............................20




                                                               The O’Neil Center for Global Markets and
                                                               Freedom was established at SMU in 2008
                                                               by William J. “Bill” O’Neil (BBA, ‘55) and
                                                               his wife Fay C. O’Neil to study the impact
                                                               of competitive market forces on freedom
                                                               and prosperity in the global economy.

                                                               The center offers education and training
                                                               for today’s forward-looking individuals who
                                                               recognize the importance of globalization
                                                               in changing the business environment in
                                                               which we are all operating.



                                                               Southern Methodist University will not discriminate
                                                               on the basis of race, color, religion, national origin,
                                                               sex, age, disability, or veteran status. SMU’s commit-
                                                               ment to equal opportunity includes nondiscrimination
O’Neil Center 2009 Annual Report                               on the basis of sexual orientation.
A Me ssa ge f r o m t h e De a n
  The ebbs and flows of regional            essay in the first annual report from the    by taxes and regulations are looking for
economies have intrigued me for as          O’Neil Center for Global Markets and         a better place to do business. It should
long as I can remember. It may go           Freedom. They portray the Dallas-Fort        also be read by DFW business leaders—
back to my childhood in New England,        Worth area as today’s better place to do     not so they can gloat but so they can
where I saw boarded up factories in         business, benefitting from Texas’ low        recognize what they must do to keep a
once-thriving Massachusetts cities,         taxes and limited government.                good thing going.
such as New Bedford, Lowell and Fall           The textile and apparel industry that        As dean of the SMU Cox School of
River. The textile and apparel industry,    left New England for the South a few         Business, I can’t overemphasize this
once the region’s bread and butter, had     generations ago has now moved off            essay’s value for our students—those
moved to the Southern states.               shore, evidence that the great forces        already on campus and those who will
  Years later, my dissertation and a book   determining regional fortunes are now        enroll in the future. Choosing to study
I wrote explored the industry’s post-       global rather than national in scope. Cox    at SMU puts them at the heart of a
World War II southward migration,           and Alm recognize globalization’s vital      vibrant, globalizing regional economy
identifying the decisive factors as lower   role in DFW’s prosperity. They identify      that will offer untold opportunity in the
taxes and wages and cheaper energy          DFW companies that are prospering            decades ahead.
and land. In short, textile and apparel     in the global marketplace and make a
companies went looking for a better         strong case for the region emerging as a
place to do business—and they found it.     leader in services exports.
  W. Michael Cox and Richard Alm               This essay is important work. It should
tell a 21st Century version of the same     generate great interest in California and      Albert W. Niemi, Jr.
story in “The Ascension of DFW,” the        other places, where companies burdened         Dean, Cox School of Business

                                                                                               O’Neil Center 2009 Annual Report   1
                                        The Ascension of DFW
                                        How to Keep a Good Thing Going

                                        By W. Michael Cox and Richard Alm




                                           The Dallas-Fort Worth metropolitan             The city might have remained Prairie
                                        area rises out of North Texas’ pancake-        backwater if not for the railroads. The
                                        flat prairies as a concrete, steel and glass   Houston and Texas Central came up
                                        monument to sheer determination and            from the south in 1872. A year later,
E c o n omic f re e do m,               entrepreneurial drive. More than 6.3           the Texas and Pacific steamed into town
                                        million people sprawl across almost            with an east-west route, making Dallas
gl o baliz at ion and
                                        9,300 square miles, among them 3               a commercial crossroads and giving it
e x por t able se r vi ces              million workers who produce $400               an edge over other North Texas cities
                                        billion a year in output.                      (see box, page 4).
gi ve a lif t t o t he                     Looking at today’s DFW, the                    Rail connections made Dallas a
                                        nation’s fourth-largest urban economy,         shipping and supply center for North
D FW e con omy.                         it’s easy to forget that just 140 years        Texas, stimulating the city’s first boom, a
                                        ago Dallas was an isolated hamlet of           growth spurt that increased the popula-
                                        2,967 hardy souls, clinging precari-           tion 50-fold in five decades. With nearly
                                        ously to the banks of the Trinity River.       160,000 people, Dallas ranked as the
                                        Atop Texas’ population ranking in              nation’s 42nd largest city in 1920.
                                        1870 were Galveston at 13,818, San                Even as Dallas grew in the first half
                                        Antonio at 12,256, Brenham at 9,716            of the 20th century, its livelihood
                                        and Houston at 9,382. Dallas was far           depended on the land. In a Texas
                                        down the list at No. 17.                       economy fueled by cotton, cattle and
                                                                                       oil, the Dallas area didn’t grow it, raise
                                                                                       it or pump it. The city profited through
                                                                                       financing, marketing, trading and
                                                                                       merchandising what the land produced.
                                                                                       By 1960, Dallas’ population had risen to
                                                                                       680,000, ranking 16th in the nation.
                                                                                          At the top of the heap were the great
                                                                                       manufacturing centers in the East and
                                                                                       Midwest, which had grown up around
                                                                                       water transport and railroad hubs.
                                                                                       New York, Buffalo, Boston, Chicago,
                                                                                       Cleveland, Detroit, Pittsburgh and
                                                                                       St. Louis dominated the U.S. economy
                                                                                       from the late 19th century to the
                                                                                       mid-20th century. They had become the
                                                                                       nation’s chief producers of household


 2   O’Neil Center 2009 Annual Report
appliances, automobiles, consumer
                                                                    Rising Toward the Top
goods, machinery and steel.                   E XHI BIT
   In the second half of the 20th century,                          Dallas’ strong post-Industrial Age economy has been the
American manufacturing began its slow                  1            key factor in its climb in the population ranking of U.S. cities.
and inexorable decline as the nation’s                              Once-dominant Rust Belt cities have fallen in the rankings.
economic base shifted to services. New
York, Chicago, Boston and a few other                        1810   1830   1850   1870   1890   1910   1930   1950   1970   1990   2008
                                                            0
big cities adapted to the new economic
reality by replacing factory jobs with                                                                                               Dallas
                                                           10
                                                                                                                                     Detroit
services work.
   Other industrial cities lost their                      20

manufacturing jobs and went into
                                                           30
long-term decline. Cleveland, St. Louis,
                                                RANK




Pittsburgh and Buffalo, all once among                     40
                                                                                                                                     Cleveland
the 10 largest U.S. cities, have now
fallen out of the Top 40. Along with                       50
                                                                                                                                     St. Louis
Detroit, they have become sad symbols
of urban decline and neglect, struggling                   60                                                                        Pittsburgh

with falling property values, crime and                                                                                              Buffalo
                                                           70
unemployment.
   Tied to agriculture, ranching and oil,
Dallas and its surrounding cities didn’t
play a large role in America’s Industrial    From 1998 to 2008, DFW added an
Age. DFW emerged as an economic              average of 150,000 new residents
powerhouse only in the second half           a year, an annual gain that rose to                       DFW’s population growth
of the 20th Century—after air-condi-         165,000 in the past three years. At this
tioning eased the misery of North            rate, DFW adds nearly 1 million people                    is on pace to add almost
Texas’ hot summers.                          every six years.
                                                                                                       1 million new residents
   Building a vibrant economy based             The main attraction has been jobs.
on white-collar employment, Dallas           Over the past 15 years, a period that                     ever y six years.
rocketed up the ranks of U.S. cities,        includes two recessions, DFW employ-
bypassing the fading urban centers of        ment has climbed from 2.3 million to
yesteryear. By the late 1960s, it had        2.9 million, ranking second only to the
become one of America’s 10 largest           New York area in net job creation. DFW
cities (Exhibit 1).                          is one of just seven Top 20 cities to add
   And growth has been accelerating.         jobs since 2004.


                                                                                                         O’Neil Center 2009 Annual Report        3
     Railroads: A Catalyst for Economic Change
     After the Civil War, America laid railroad tracks at a furious pace. Total mileage increased
     from 52,922 in 1870 to 166,703 in 1890 as the railroads pushed west and south.

     Early in this period, locomotives started chugging into North Texas, creating a transportation
     revolution that reordered the fortunes of the region’s cities. Before the railroad arrived in Texas,
     passengers and goods moved overland to the nearest river or seaport in wagons pulled
     by horses, mules or oxen. Epic cattle drives took beef on the hoof to railheads in Kansas.

                                                 Down on the Gulf Coast, Galveston was Texas’
        Texas’ Biggest Cities, 1870
                                                 biggest city in 1870. In the northern part of the
     1. Galveston                      13,818
                                                 state, Jefferson rose to prominence because of
     2. San Antonio                    12,256
                                                 its location on the banks of Big Cypress Bayou,
     3. Brenham                         9,716
                                                 then a navigable branch of the Red River.
     4. Houston                         9,382
                                                 Steamboats docked in Jefferson, bringing new
     5. Sherman                         6,348
                                                 residents to Texas and taking the state’s farm products
     6. Brownsville                     4,905
                                                 to market—especially cotton. The city boomed. It was
     7. Jefferson                       4,190
                                                 the first in Texas to install natural gas for lighting
     8. Austin                          3,907
                                                 and manufacture ice for commercial sale.

     Between 1867 and 1870, Jefferson’s trade jumped from $3 million to $8 million, putting it
     behind only Galveston as a commercial center. A few years later, the bottom fell out. In 1873,
     the Corps of Engineers blew up a log raft on the Red River near Shreveport, La., lowering the
     water level in Big Cypress Bayou and impeding steamboat traffic. At about the same time,
     the railroads came to North Texas, arriving in Dallas before Jefferson.

     Dallas began its rise, Jefferson its decline.

     More than six decades later, economist Joseph Schumpeter seized on railroads as a prime
     example of the kind of world-shaking technological change that would send great waves
     of progress through a capitalist economy. He put it this way:

     “A railroad through new country, i.e., country not yet served by railroads, as soon as it
     gets into working order upsets all conditions of location, all cost calculations, all production
     functions within its radius of influence; and hardly any “ways of doing things” which have
     been optimal before remain so afterward.”




4   O’Neil Center 2009 Annual Report
   Like the rest of the country, DFW        exceeding $100 million. It has more
lost jobs in the severe downturn.           corporate headquarters than any other
However, it remained relatively healthy     U.S. metropolitan area, including 24
in hard times. During 2009, the only        companies in the Fortune 500.
large metropolitan area with a lower          These advantages often show up in
unemployment rate was Washington,           business climate surveys, but they don’t
                                                                                       DFW has more
D.C., where the economy relies largely      completely explain DFW’s economic
on public spending.                         success. The ascension of DFW—and          corporate headquar ters
   DFW owes its economic success            the region’s prospects for the future—
to a variety of factors. The area offers    owes even more to three fundamental        than any other U.S.
a skilled labor force, modern infra-        factors that the studies often overlook.
                                                                                       metropolitan area.
structure, relatively low costs of doing      First, DFW benefits from its location
business and a central location tied to     in Texas, a state that maintains one of
air, rail and road networks.                the world’s freest economies. Second,
   DFW’s diverse economy is home            DFW has embraced globalization,
to major players—some home grown,           emerging as a leader in profiting from
some transplants—in communications,         opportunities outside the United States.
consumer products, chemicals, energy,       Third, DFW brings together businesses
entertainment, financial services, infor-   and workers well-suited for success in
mation processing, high technology,         the up-and–coming services economy,
health care, home building, retailing       both at home and overseas. For DFW,
and transportation.                         nurturing these advantages is the best
   In 2008, the area had 116 public and     way to keep a good thing going.
63 private companies with revenues




Thousands of DFW companies are
engaged in global business—among
them GameStop, Kimberly-Clark
and Cinemark.




                                                                                       O’Neil Center 2009 Annual Report
                                        E c o n o m i c Fr eed o m                    few tenths of a percentage point out of
                                                                                      the bottom third. Among states with no
                                           Adam Smith and Milton Friedman             individual income taxes, only Alaska has
                                        taught us the path to prosperity lies in      a lower ratio of sales taxes to GSP.
                                        economic freedom. Empirical proof for            When it comes to the size of state
                                        their eloquent arguments comes from           government, Texas fares quite well. It’s
                                        the Fraser Institute, which finds that the    near the bottom in spending as a share
                                        nations with top scores on its Economic       of GSP. Government transfers as a share
                                        Freedom of the World measures have            of state economic activity are low, too.
                                        the highest per capita incomes.               Texas finds itself in the middle of the
                                           Fraser ranks the U.S. economy as           pack in the government’s share of the
                                        one of the freest in the world. A related     state workforce.
                                        Fraser study ranks Texas the second              Texas’ labor market is relatively free
                                        freest state, behind only Delaware            of impediments that discourage job
                                        (Exhibit 2). Other large states are far       creation. Partly because its right-to-
                                        down the rankings—Florida at No.              work laws forbid forcing workers to
                                        22, California at No. 29 and New              join unions, Texas ranks low in union
                                        York at No. 41.                               membership—at 6.2 percent of private
                                           What is Texas doing right? The             sector workers, well below New York’s
                                        answer lies in the metrics that gauge         27.5 percent and California’s 17.8
                                        economic freedom at the state level           percent. The gap widens considerably
                                        (Exhibit 3). For starters, Texas keeps        among government workers. Texas’
                                        taxes low. It’s one of seven states with      public sector unionization rate is 14
Te x as is on e of the few              no individual income tax and one of           percent, compared with New York’s 73
                                        five states with no corporate income          percent and California’s 58 percent.
s ta te s wit h n o i ndi vi du al      tax. Texas levies a general business             Unlike California and 13 other states,
                                        tax—but at a relatively light effective       Texas doesn’t mandate a minimum
i n c o me t ax an d no
                                        marginal rate of less than 1 percent.         wage above the federal standard.
c o r p or at e in co me tax .             Other states penalize work and enter-      Texas’ minimum wage is relatively
                                        prise more heavily—for example, the           low compared with the average wage,
                                        highest marginal tax rates are 12 percent     suggesting that employers and workers
                                        on individual income in Massachusetts         freely negotiate a relatively large share
                                        and 12 percent on corporate profits in        of the state’s wage contracts.
                                        Iowa. California’s top rates are 10.6            Texas’ high degree of economic
                                        percent for wages and 10.8 percent for        freedom gives home-grown businesses
                                        corporate profits.                            room to grow. It also acts like a
                                           With no income taxes, Texas relies         magnet for newcomers—job seekers
                                        primarily on sales taxes to finance           and companies from other states and
                                        its government operations. But that           countries. Texas ranks third among
                                        doesn’t mean the state socks it to            states in “insourced” jobs, or employ-
                                        consumers. Texas lies back in the pack        ment generated by foreign investment.
                                        at 19th in sales tax collections as a share      The result is a private-sector dynamism
                                        of gross state product (GSP), tied with       that put five Texas metropolitan areas
                                        California, a state that puts a heavy         among the top 12 on Inc. magazine’s
                                        income tax burden on its workers and          Top Cities for Doing Business. Chief
                                        companies. However, Texas is only a           Executive magazine named Texas the


 6   O’Neil Center 2009 Annual Report
             Texas Stands Tall in Economic Freedom
EXH IBIT     The Fraser Institute uses a range of data to determine how
   2         states compare in policies favorable to free enterprise.



                Delaware                                   8.5          South Carolina                            6.8

                   Texas                              7.8                Pennsylvania                             6.8

            North Carolina                           7.6                     Michigan                             6.8

                  Georgia                            7.6                    California                            6.8

                 Colorado                            7.6                       Oregon                             6.7

           New Hampshire                            7.5                     Oklahoma                              6.7

                  Nevada                            7.5                          Ohio                             6.7

                     Utah                           7.4                   New Jersey                              6.7

               Tennessee                            7.4                      Kentucky                             6.7

                  Indiana                           7.4                         Idaho                             6.7

            South Dakota                            7.3                      Arkansas                         6.6

                Nebraska                            7.3                   Washington                          6.5

                  Virginia                       7.2                     North Dakota                         6.5

               Minnesota                         7.2                         Maryland                         6.5

           Massachusetts                         7.2                         Alabama                          6.5

                Louisiana                        7.2                         New York                        6.4

                     Iowa                       7.1                            Alaska                        6.4

                   Illinois                     7.1                           Vermont                        6.3

                 Wyoming                        7.0                      Rhode Island                       6.2

                 Missouri                       7.0                            Hawaii                       6.1

                   Kansas                       7.0                       New Mexico                        6.0

                   Florida                      7.0                          Montana                        6.0

              Connecticut                       7.0                        Mississippi                  5.8

                  Arizona                       7.0                             Maine                   5.8

                Wisconsin                      6.8                       West Virginia                5.3

                              0   2    4        6            8   10                      0   2    4                6    8   10

                          Low         Freedom Score              High                Low         Freedom Score              High




                                                                                                 O’Neil Center 2009 Annual Report   7
                               Texas’ Economic Freedom: A Closer Look
EX H IBIT                      Various measures show how Texas ranks relative to other states in tax burden
        3                      and other factors that contribute to a market economy’s success.


                       Individual Income Tax Rates                                                                                    Corporate Income Tax Rates
    Massachussetts                                 12.0       Kentucky                  6.0                                   Iowa                           12.0        Arizona           7.0
            Oregon                               11.0          Georgia                  6.0                             California                        10.8    North Carolina           6.9
            Hawaii                               11.0              Ohio                5.9                           Pennsylvania                       10.0           Montana             6.8
       New Jersey                               10.8           Virginia                5.8                             Minnesota                         9.8         Tennessee            6.5
          California                           10.6          Oklahoma                 5.5                           Massachusetts                       9.5        North Dakota           6.5
      Rhode Island                             9.9                 Utah              5.0                                   Alaska                       9.4            Arkansas           6.5
           Vermont                           9.4        New Hampshire                5.0                             Rhode Island                      9.0             Alabama            6.5
               Iowa                         9.0             Mississippi              5.0                              New Jersey                       9.0                Hawaii          6.4
          New York                           9.0           Connecticut               5.0                                   Maine                      8.9               Missouri          6.3
             Maine                         8.5                Alabama                5.0                                Delaware                      8.7                Virginia        6.0
         Minnesota                       7.9               New Mexico                4.9                             West Virginia                   8.5              Oklahoma           6.0
         Wisconsin                       7.8             North Dakota                4.9                                 Vermont                     8.5               Kentucky          6.0
              Idaho                      7.8                  Colorado              4.6                            New Hampshire                     8.5                Georgia          6.0
     North Carolina                      7.8                   Arizona             4.5                                    Indiana                    8.5                  Florida      5.5
     South Carolina                   7.0                     Michigan             4.4                                  Maryland                     8.3                    Utah      5.0
          Arkansas                    7.0                      Indiana           3.4                                    Louisiana                   8.0           South Carolina      5.0
          Delaware                    7.0                 Pennsylvania          3.1                                     Wisconsin                  7.9               Mississippi      5.0
           Montana                    6.9                       Illinois       3.0                                        Oregon                   7.9                 Michigan       5.0
          Nebraska                    6.8                     Wyoming                                                   Nebraska                   7.8                 Colorado      4.6
      West Virginia                  6.5                   Washington                                                 New Mexico                   7.6                      Ohio 0.3
            Kansas                   6.5                        Texas                                                        Idaho                 7.6                 Wyoming
          Maryland                   6.3                 South Dakota                                                 Connecticut                 7.5               Washington
        Tennessee                   6.0                        Nevada                                                      Illinois               7.3                     Texas
           Missouri                 6.0                         Florida                                                 New York                  7.1              South Dakota
          Louisiana                 6.0                         Alaska                                                    Kansas                  7.1                    Nevada
                       0   2    4       6       8   10 12%                 0    2     4       6       8   10 12%                      0   2   4    6    8   10 12%               0       2      4    6      8   10 12%



                       Sales Taxes as Share of GSP                                                                                    Government Consumption / GSP
       Wahsington                           4.3              Wisconsin            2.4                                 New Mexico                           32.6         Wyoming                      21.4
             Hawaii                        4.1                Nebraska            2.4                                  Mississippi                        31.0                Utah                   21.4
         Louisiana                        3.9             Rhode Island            2.4                                    Maryland                         30.5            Kansas                     21.3
          Arkansas                        3.9                       Iowa         2.3                                        Alaska                        30.4          New York                     21.2
        Mississippi                      3.8              North Dakota           2.3                                       Virginia                      29.5           California                   21.2
       New Mexico                       3.6              South Carolina          2.3                                 West Virginia                      28.8                  Ohio                   21.2
            Arizona                     3.6                   New York           2.3                                         Maine                      28.2         Washington                     20.8
        Tennessee                     3.3                           Ohio        2.2                                       Alabama                       28.2       Massachusetts                    20.4
            Florida                  3.2                      Kentucky          2.2                                         Hawaii                     27.5          Connecticut                    20.3
          Wyoming                    3.1                     Minnesota          2.2                                       Montana                     25.7             Wisconsin                   19.9
         Oklahoma                   3.0                         Indiana         2.1                                       Vermont                     25.1                Indiana                  19.6
            Nevada                  3.0                    Connecticut          2.1                                 South Carolina                   24.9                 Oregon                   19.4
               Utah                2.9                    Pennsylvania         2.0                                   North Dakota                    24.5                     Iowa                19.3
            Kansas                 2.9                   North Carolina        1.9                                       Kentucky                    24.3           South Dakota                  19.2
      South Dakota                2.8                      New Jersey          1.9                                      Oklahoma                    24.0                 Georgia                   19.1
          Alabama                 2.8                            Illinois     1.8                                    Rhode Island                  23.2            North Carolina                 18.9
             Maine                2.7                         Maryland      1.6                                      Pennsylvania                   23.1                Nebraska                  18.8
           Georgia                2.7                    Massachusetts      1.5                                              Idaho                 23.0              New Jersey                   18.6
             Texas               2.6                           Vermont      1.5                                           Missouri                 22.8                 Colorado                  18.5
          Michigan               2.6                            Virginia   1.4                                           Arkansas                  22.7                    Texas                 18.3
         California              2.6                             Alaska 0.8                                                Arizona                 22.4           New Hampshire                  17.9
           Missouri             2.5                     New Hampshire 0.4                                                Louisiana                22.3                   Illionois               17.9
      West Virginia             2.4                           Montana 0.3                                                Michigan                 22.0                 Minnesota                 17.8
              Idaho             2.4                             Oregon 0.3                                             Tennessee                  21.9                    Nevada               15.5
          Colorado              2.4                           Delaware 0.2                                                  Florida               21.5                  Deleware             13.0
                       0   1        2       3       4   5%                 0     1        2       3       4   5%                      0   5 10 15 20 25 30 35%                       0   5 10 15 20 25 30 35%


8     O’Neil Center 2009 Annual Report
                  Government Transfers / GSP                                                                            Government Share of Labor Force
 North Dakota                            10.7    Massachusetts                4.9                            Alaska                          24.3         Texas                   15.6
        Alaska                          10.1      Pennsylvania                4.9                      New Mexico                          23.3          Oregon                   15.5
      Montana                         9.2                Hawaii               4.8                         Wyoming                          23.2         Missouri                  15.4
  New Mexico                        8.3                     Ohio              4.7                     North Dakota                      20.2               Maine                  15.4
  West Virgina                      8.3          North Carolina              4.5                        Mississippi                    20.0             Colorado                  15.1
   Mississippi                      8.2                 Oregon               4.5                             Hawaii                    19.4             Vermont                   15.1
 South Dakota                       8.1               Maryland               4.4                         Oklahoma                      19.1              Georgia                  15.1
      Vermont                     7.3              Washington                4.3                          Louisiana                   18.9            Tennessee                   15.0
     Wyoming                      7.3                 California             4.3                      West Virginia                  18.8            New Jersey                  14.8
         Maine                    7.3                       Utah             4.3                            Kansas                   18.5                Arizona                 14.6
     Arkansas                     7.3                 Michigan               4.3                           Montana                   18.2            Connecticut                 14.6
 Rhode Island                  6.3                   Wisconsin              4.2                             Virginia                 18.1                    Ohio                14.5
      Alabama                  6.2                     Georgia              4.2                            Alabama                  17.7               California                14.5
     New York                  6.2                   Minnesota              4.2                       South Dakota                  17.5               Delaware                 14.4
     Kentucky                  6.1              New Hampshire               4.0                           Maryland                  17.1              Wisconsin                 14.1
     Louisiana                5.8                       Indiana            3.9                       South Carolina                 17.1               Michigan                 14.1
South Carolina               5.7                         Illinois          3.9                         Washington                  16.9               Minnesota                 14.0
         Idaho               5.6                         Florida           3.8                                 Utah                16.7                   Illinois              13.8
    Oklahoma                 5.6                         Texas             3.7                            Nebraska                 16.7                  Indiana                13.8
          Iowa               5.4                   Connecticut            3.4                                 Idaho                16.5           Massachusetts                13.0
     Nebraska                5.4                      Colorado            3.3                        North Carolina                16.4             Pennsylvania               13.0
   Tennessee                 5.4                   New Jersey             3.1                             Kentucky                16.3                    Florida             12.8
      Missouri              5.2                         Virginia         3.0                              New York                 16.1             Rhode Island              12.6
       Kansas              5.0                        Deleware          2.7                               Arkansas                15.8            New Hampshire               12.5
       Arizona             4.9                          Nevada          2.6                                    Iowa               15.7                   Nevada               12.1
                  0   2     4    6    8   10 12%                    0     2    4    6   8   10 12%                      0   5   10   15    20 25%                     0   5     10    15     20 25%



                  Union Membership Rate                                                                                 Minimum/Average Wage
    New York                             27.5           Montana        12.2                                Vermont                            39.3 Massachusetts                      28.2
       Hawaii                           26.7            Alabama        11.7                             Mississippi                          39.0          Kansas                     28.0
       Alaska                        24.1        New Hampshire        11.5                                    Maine                          39.0             Ohio                    27.8
  New Jersey                       21.7                Kentucky      10.8                                   Oregon                           38.7       Wisconsin                     27.8
     Michigan                     20.4              New Mexico       10.7                             West Virginia                         36.6     Pennsylvania                    27.3
  Washington                      20.4               Mississippi      9.7                              Washington                          35.4            Georgia                   27.3
    California                  17.8                   Wyoming       9.5                              Rhode Island                        34.6       North Dakota                    27.3
       Illinois                17.6                    Nebraska      9.5                                  Arkansas                       34.2        South Dakota                    27.2
    Wisconsin                  17.2                      Kansas      9.5                                   Montana                       33.5                 Iowa                   27.0
          Ohio                 17.2                     Colorado     9.4                                       Idaho                     33.4            Louisiana                   26.8
  Connecticut                 17.0                 North Dakota      9.2                             South Carolina                     32.5          Connecticut                    26.7
 Rhode Island                 16.8                 South Dakota     8.2                                   Kentucky                      32.2        North Carolina                   26.5
   Minnesota                  16.4                       Arizona   7.7                                     Alabama                      32.2             Nebraska                    26.1
      Oregon                 15.7                      Louisiana   7.4                                    California                   31.4        New Hampshire                    25.9
 West Virgina                15.5                         Florida 7.2                                    Oklahoma                      31.2              New York                   25.1
      Nevada                 15.1                    Tennessee 6.6                                           Illinois                  31.1                 Alaska                 25.0
 Pennsylvania               15.0                      Oklahoma 6.4                                           Hawaii                   30.2                  Texas                  24.8
    Maryland                15.0                           Idaho 6.3                                            Utah                  30.2               Maryland                 24.5
Massachusetts               14.9                          Virgina 6.2                                       Arizona                   30.0              Minnesota                 23.7
       Maine               13.6                           Texas 6.2                                    New Mexico                     29.6                 Nevada                23.5
          Iowa             13.5                              Utah 6.1                                     Michigan                    29.1                Colorado               23.3
      Indiana              13.2                          Georgia 6.0                                       Missouri                  28.9                  Virginia              23.1
     Vermont              13.0                         Arkansas 6.0                                          Florida                 28.6             New Jersey                 22.9
    Deleware              12.9                    North Carolina     3.9                                    Indiana                  28.4                Wyoming               20.0
     Missouri             12.6                    South Carolina    3.3                                 Tennessee                    28.4                Delaware             19.0
                  0   5    10 15 20 25 30%                          0      5   10 15 20 25 30%                          0 5 10 15 20 25 30 35 40%                     0 5 10 15 20 25 30 35 40%


                                                                                                                                                   O’Neil Center 2009 Annual Report                   9
                      Job Growth Fastest in Dallas                                               First, hiding from globalization leads
 EX H IBIT                                                                                       to economic decline. Second, global-
                      Fed District                                                               ization creates opportunities for many
        4             Greater economic freedom has been a key factor                             U.S. companies and workers.
                      in stimulating employment gains in a region that                              Simple math provides a rough idea
                      includes Texas and parts of Louisiana and New Mexico.                      of what’s out there. With 306 million
                                                                                                 people, the U.S. makes up only a small
      Index of Employment
115                                                                                              share of the world’s population of 6.5
                                                                                                 billion. So 21 of 22 potential customers
                                                                                                 are beyond our borders. Just a small
110                                                                                              percentage of the world’s business
                                                                                                 will add significantly to the sales and
                                                                                 Dallas          employment of companies in DFW and
105                                                                                              the rest of the United States.
                                                                                                    Big overseas markets too poor to
                                                                                 Richmond        buy or hunkered down behind protec-
100                                                                              Kansas City     tionist walls would mean little to U.S.
                                                                                 Minneapolis
                                                                                 San Francisco   companies. In the past two decades,
                                                                                 Atlanta
                                                                                 New York        however, China, India and many other
 95
                                                                                 Philidelphia    countries have freed their markets and
                                                                                 St. Louis
                                                                                 Boston          opened their economies—joining the
                                                                                 Cleveland
 90                                                                              Chicago         global capitalist system. These remark-
        2001     2002       2003   2004   2005    2006    2007    2008    2009                   able revolutions of ideology and policy
                                                                                                 created 3 billion new capitalists, igniting
                                                                                                 growth spurts that have lifted millions
                                                                                                 of people out of poverty.
best place for job growth and business           Wo r ld o f O ppo r t u n i t y                    Consider just China and India, with
in 2009—and California the worst.                                                                a combined population of 2.5 billion.
  Employment growth in the 12                      Globalization is a straightforward            From 1998 to 2008, China’s economy
Federal Reserve districts confirms               concept—the breakdown of barriers to            expanded an average 9.5 percent a
that Texas’ economy has been doing               the movement of goods, services, money,         year and India’s grew by 7 percent a
particularly well in the past few years.         people and ideas across national bound-         year (Exhibit 5). The growth means
At mid-decade, with recovery from                aries. Integrating the world economy            workers who are eager to buy consumer
the relatively mild 2001 recession               increases competition for workers and           goods and companies that are ready to
under way, the Dallas Fed’s area was             companies, and it unleashes forces that         purchase intermediate inputs.
among the top three districts in job             forge more efficient international                 We hear about these Asian giants’
growth. Since then, it has rocketed to           distribution of production. Low-wage            huge exports, but economic revival has
the top, faring better even after the            nations gain routine manufacturing and          also whetted these nations’ appetites for
nation fell into a deep recession at the         services, and high-wage nations specialize      the world’s goods and services. China
end of 2007 (Exhibit 4).                         in more sophisticated economic activity.        exports 35 percent of its GDP—but it
  Legally speaking, Texas’ economic                Globalization’s competition and               imports 28 percent. India exports 24
freedom doesn’t extend beyond the                efficiency often come at the cost of            percent and imports 30 percent.
state borders. As a practical matter,            wrenching changes in the labor market,             Globalized countries, regions, indus-
however, the state’s companies can               and many Americans want to retreat              tries and companies stand the best
take advantage of that freedom to                in vain hopes of maintaining the status         chance of profiting from the growing
prosper nationally and even globally.            quo. That’s a mistake for two reasons.          demand from China, India and other


10     O’Neil Center 2009 Annual Report
countries. When we look at DFW, we           up from 61 percent six years earlier.
see a corporate makeup and talent pool       Kimberly-Clark, an Irving-based maker
tailor made for the global marketplace.      of Kleenex tissues, Huggies diapers and
   Measuring globalization isn’t easy for    other paper products, saw its foreign
nations. It’s even trickier for states and   sales rise from 40 percent of revenues in
cities, whose international connections      1998 to 48 percent in 2008.
                                                                                                           When we look at DFW,
aren’t always well documented. For              At Fluor, an engineering and
North Texas, signs of increased global-      construction firm based in Irving, the                        we see a corporate
ization include an expanding roster          overseas share of revenues went from
of foreign-owned companies, more             38 percent to 49 percent over the                             makeup and talent pool
foreign-born residents and healthy           decade. The 10-year increase in share of
                                                                                                           tailor made for the
international traffic at DFW Interna-        overseas sales for Ensco, a Dallas-based
tional Airport.                              provider of offshore drilling services,                       global marketplace.
   Evidence of DFW’s globalization is        was 45 percent to 79 percent. Commer-
particularly strong at the company level.    cial Metals, an Irving-based company that
Many local firms have made strides in        manufactures, recycles and markets steel
foreign markets, with international          and other metals, went from 14 percent
operations accounting for a greater share    to 41 percent.
of their overall revenues (Exhibit 6).          Some       companies     are   relative
   Dallas-based Texas Instruments            newcomers to the global market.
has had an eye on global markets for         Grapevine-based        GameStop,      the
decades. The company opened its first        world’s largest video game retailer, had
foreign plant in 1957 and expanded
overseas operations as it became one                                 Big Overseas Markets Growing Rapidly
of the world’s leading suppliers of           E XHI BIT              DFW companies can find export opportunities in emerging
semiconductors for cell phones and
other products.
                                                     5               economies that are growing rapidly. When combined,
                                                                     China and India make up a market eight times larger than
   By 1998, TI was well-established
                                                                     the United States, growing three times as fast.
globally, earning two-thirds of its
revenues outside the United States.                 Average Annual Percent Growth (1998-2008)
Foreign sales fluctuated over the next         10
decade but hit 88 percent of total              9        9.6
revenues in 2008. Meanwhile, domestic
                                                8
sales shrank—both in relative and
                                                7
absolute terms.                                                      7.1
   Like TI, Fort Worth-based American           6
                                                                              5.9
Airlines has a decades-long heritage of         5
doing business internationally. From                                                     4.9
                                                4                                                  4.4
1998 to 2008, its foreign operations                                                                         3.8
                                                3
grew from 30 percent to 41 percent                                                                                     2.7
                                                2
of revenues, providing the only source                                                                                          2.1
of growth in a tough decade for the             1
                                                                                                                                          1.0
airline industry.                               0
                                                       China         India   Russia    Pakistan   Africa    Korea     U.S.     Europe    Japan
   Farmers Branch-based Celanese, a                    1,336        1,178     142        169      1,000      50       309       831       127
major chemical producer, logged 75                  Population in millions
percent of its sales overseas in 2008,


                                                                                                           O’Neil Center 2009 Annual Report   11
                    DFW Companies Venture Abroad
EX H IBIT           Taking advantage of globalization, many North Texas-based companies
      6             are finding that foreign countries offer the best prospects for sales growth.




           16,000                                                                 25,000
                    $ Million Sales                                                        $ Million Sales

                                                                                  20,000
           12,000

                                                                        87.6%     15,000                                                   47.8%
            8,000
                                                        Foreign Sales             10,000 40.2%                             Foreign Sales
                    67.7%
            4,000
                                                                                   5,000

                                                       Domestic Sales                                                      Domestic Sales
               0                                                                      0
               1998          2000        2002   2004         2006          2008       1998          2000     2002   2004        2006          2008




           25,000                                                                 25,000
                    $ Million Sales                                                        $ Million Sales

           20,000                                                       40.5%     20,000

                    29.5%                              Foreign Sales
           15,000                                                                 15,000
                                                                                                                                           49.0%
           10,000                                                                 10,000   38.4%                           Foreign Sales


            5,000                                                                  5,000

                                                       Domestic Sales                                                      Domestic Sales
               0                                                                      0
               1998          2000        2002   2004         2006          2008       1998          2000     2002   2004         2006         2008




            8,000                                                                  3,000
                    $ Million Sales                                                        $ Million Sales
                                                                                   2,500
            6,000
                                                                                   2,000
                                                                        74.8%
            4,000                                                                  1,500
                                                        Foreign Sales                                                                      79.2%
                    60.9%
                                                                                   1,000
                                                                                                                           Foreign Sales
            2,000
                                                                                           45.3%
                                                                                    500
                                                       Domestic Sales                                                      Domestic Sales
               0                                                                      0
               2002                   2004         2006                    2008       1998          2000     2002   2004        2006          2008


12   O’Neil Center 2009 Annual Report
12,000                                                                    7,000
         $ Million Sales                                                           $ Million Sales
10,000
                                                                          5,000                                                        32.1%
 8,000                                                                                                                 Foreign Sales
                                                               41.3%
                                                                                   20.6%
 6,000                                        Foreign Sales
                                                                          3,000
 4,000
         14.1%
 2,000
                                                                          1,000
                                              Domestic Sales                                                           Domestic Sales
    0                                                                         0
    1998           2000       2002     2004         2006          2008         1998         2000      2002      2004         2006          2008




10,000                                                                     5,000
         $ Million Sales                                                           $ Million Sales

 8,000                                                                     4,000
                                                              26.6%
                                              Foreign Sales
 6,000                                                                     3,000                                                       65.4%
                                                                                   20.6%
 4,000                                                                     2,000                                       Foreign Sales


 2,000                                                                     1,000   41.9%
                 14.1%                        Domestic Sales                                                           Domestic Sales
    0                                                                         0
            2000           2002      2004         2006            2008        1998          2000      2002      2004         2006          2008




 2,500
         $ Million Sales                                                           $ Million Sales
                                                                         400,000
 2,000                                                         39.6%
                                              Foreign Sales              300,000
 1,500                                                                                                                                 75.7%

                                                                         200,000                                       Foreign Sales
 1,000

         14.4%                                                           100,000
  500                                                                              92.0%
                                              Domestic Sales                                                           Domestic Sales
    0                                                                         0
    1998           2000       2002     2004         2006          2008        1998          2000     2002       2004         2006          2008


                                                                                                     O’Neil Center 2009 Annual Report      13
no overseas sales until 2005; since then,    and watchmaker Fossil (Exhibit 7). As        izing. For example, Mary Kay sells
the company has spread to 16 countries       Southwestern Bell, AT&T was once             cosmetics in 35 countries. Hunt Oil
and its foreign operations rose to 27        the local phone company; now, it earns       operates in Canada, Yemen, Peru and
percent of revenues in 2008.                 more than a quarter of its revenues from     other countries. Beck Group, a Dallas-
  Alliance Data Systems, a Dallas-based      global operations.                           based construction firm, has established
company that sells data and electronic         In addition, internationally successful    a foothold in Mexico City.
marketing services, expanded its overseas    companies based elsewhere have major            For nearly two decades, SMU’s
business from 14 percent to 40 percent       operations in DFW—for example,               Caruth Institute for Entrepreneurship
of revenues. Dallas’ Blockbuster, the        Hewlett-Packard added to its North           has identified DFW’s fastest-growing
movie and video rental company, rose         Texas presence in buying EDS, a Plano-       emerging companies. More than half
from 21 percent to 32 percent.               based information processing company,        the Dallas 100’s class of 2009 already
  Foreign customers accounted for            in 2008. PepsiCo operates its global         had ties to foreign markets, suggesting
nearly two-thirds of revenues at             snack-food division from Frito-Lay’s         the up-and-coming generation of
Flowserve Corp., an Irving-based             Plano headquarters.                          business leaders is focused on globaliza-
industrial pump and valve supplier for         Yum! Brands has been going global          tion’s opportunities.
energy, power, chemical and water. For       with KFC fried chicken, Pizza Hut and           International business runs two
Irving-based ExxonMobil, the foreign         Taco Bell, and its Dallas-based subsidiary   ways—imports as well as exports. DFW
share has slipped over the past decade,      Yum! Restaurants International oversees      companies selling abroad are joined by
but the oil giant’s overseas revenues        more than 13,000 restaurants in 110          others with business models that rely
have risen sharply and still account for     countries. DFW also hosts significant        on international supply chains. Plano-
three-quarters of the total.                 operations for building systems and auto     based J.C. Penney and Michaels Stores,
  Many other DFW Fortune 1000                parts maker Johnson Controls, computer       an Irving-based national arts and crafts
companies are doing well in the              services icon IBM and consumer products      chain, stock their shelves with foreign-
global marketplace—among them,               giant Procter & Gamble.                      made goods—so they can hold down
semiconductor manufacturer Diodes,             Among privately held companies,            costs and survive in the highly competi-
chemical-maker Kronos Worldwide.             many DFW stalwarts have been global-         tive U.S. retail sector.




                  Globalizing North Texas
 EX H IBIT        In addition to the companies featured in Exhibit 6, DFW’s
      7           international reach extends to other locally significant
                  Fortune 2000 firms (foreign revenues as shares of total).

                  DFW Based                 Pct.     DFW Operations            Pct.
                  Diodes                    80.0     Hewlett Packard           68.8
                  Kronos Worldwide          62.1     Johnson Controls          64.9
                  Fossil                    56.4     IBM                       64.6
                  AT&T                      27.0     Procter & Gamble          60.5
                  Pfsweb                    22.1     Yum! Brands (photo)       54.6
                  Cinemark Holdings         21.9     General Motors            49.4
                  Lennox International      18.6     Pepsico                   48.0
                  Sally Beauty Holdings     18.0     Microsoft                 40.5
                  Zales                     15.2     FedEx                     28.1
                  Perot Systems             12.8     Raytheon                  19.8




14   O’Neil Center 2009 Annual Report
                                                                                                         Among the DFW
                                                                                                         companies selling
                                                                                                         services abroad is
                                                                                                         Laguarda.Low, an
                                                                                                         architectural firm whose
                                                                                                         project include the
                                                                                                         Avenida 8 shopping
                                                                                                         center in Sao Joao da
                                                                                                         Madiera, Portugal.




Se lli ng Our S e r v i c e s                  potential for making business contacts.       services across international borders.
                                                  In the 21st century, the Internet is       The United States has been a big winner,
   For millennia, coastal cities have been     to services what the train was to goods       ranking No. 1 in services exports by a
at the forefront of globalization—not          in the 19th century—a revolutionary           wide margin. U.S. companies sold $526
surprising because they were the portals       delivery vehicle. The Internet breaks         billion in services abroad in 2008, a gain
through which people and goods                 down the physical obstacles that once         of 84 percent since 2000, surpassing the
entered and left most countries. Cities        stifled international trade in services.      66 percent growth rate for goods.
like DFW could only connect to the             The result is a fusion of national services      U.S. trade deficits in goods have been
world through these seaports. Now,             markets into global ones. Companies           massive; meanwhile, the country runs a
information and communications                 can now court far-flung customers and         large and growing surplus in services.
technologies are eroding coastal cities’       deliver services nearly anywhere in the       The United States ran a services surplus
edge and giving hinterland cities direct       world cheaply and quickly.                    of $144 billion in 2008, up from $75
access to the global markets.                     The impossible becomes possible,           billion in 2000 and $58 billion in 1992.
   These advances are familiar by              then routine. Bandwidth is wide               For U.S. companies, winning in the
now—computers, cell phones, sophisti-          enough to manipulate tiny comput-             global services marketplace owes to
cated software, fiber-optic transmission       erized surgical tools at vast distances,      the excellence of their products, not
lines and, most important, the Internet.       allowing doctors to operate on                subsidies or protectionism.
In the past decade or so, this global          patients in other counties. Using                Digging down into Commerce
communications network has reached             TutorVista.com, American students             Department data shows the United
critical mass in two key areas. First, data-   can sit at their home computers and           States has been a top-notch competitor
transmission capacity has become large         tap into on-line tutoring from PhD.s          in many of the high-value-added services
enough to move vast amounts of infor-          in India and other far-off places.            that support well-paying jobs. In 2008,
mation at trivial cost. Second, connec-           New technologies, combined with a          our exports exceeded imports by nearly
tivity has reached nearly every corner         worldwide lowering of trade barriers,         nine to one in operational leasing, a
of the world, greatly expanding the            have fueled a global surge in selling         segment of the industry that handles

                                                                                                   O’Neil Center 2009 Annual Report   15
short-term deals on airplanes, vehicles               risk through global reinsurance markets.                  industries accounted for 83.2 percent
and other equipment (Exhibit 8).                         Dallas’ services prowess has deep                      of the metropolitan area’s private-sector
   Our edge was six to one in distrib-                historical roots. Becoming a railroad                     employment, up from 76.8 percent
uting movies and television shows and                 crossroads in the 19th Century created                    at the decade’s start. Meanwhile, the
nearly four to one in mining and archi-               wealth and a thriving services economy–                   share of workers in goods-producing
tectural, construction and engineering                with Dallas as a broker for Texas’                        industries has been declining steadily.
services. Royalties and license fees, one             cotton and a financier for the state’s oil                   Most U.S. cities have seen similar
of the largest categories in dollar terms,            industry. Over the decades, the skills                    employment-base shifts, but DFW has
came out better than three to one, as                 and infrastructure that served local                      also been rapidly enhancing its capacity
did law, education, finance, medicine                 industries grew to meet the needs of                      as a global services provider. It has
and advertising.                                      national customers. Now, DFW services                     built up its workforce in information,
   All told, the U.S. did well in 21 of               companies are taking the next step—the                    finance, and professional and business
22 services trade categories. It recorded             global arena.                                             services—the categories most likely to
striking surpluses in 12 of them. We held                Data aren’t available to directly                      reach customers outside the metro-
our own in nine others, where exports                 measure major cities’ services trade.                     politan area. By contrast, education,
and imports were fairly well balanced.                However, employment counts show                           health care, leisure and hospitality are
Only in insurance did the United States               that services make up a large and                         services that cater largely to local and
run a significant deficit, an outcome that            growing share of DFW’s economy. At                        regional markets.
reflects a rich country’s need to spread              the end of 2009, service-producing                           The three highly tradable services

                  A U.S. Success Stor y: Ser vices Trade
 EX H IBIT        Comparing exports and imports shows that U.S. companies are
      8           competitive in an overwhelming majority of services categories.

                                                   Leasing                                                                              8.3
                                                   Film, TV                                                               6.6
                                                    Mining                                               4.2
                  Architecture, Construction, Engineering                                           4.0
                                                      Legal                                        3.8
                                                  Royalties                                  3.4
                                                  Education                                  3.4
                                                   Medical                                 3.3
                                                  Financial                                3.1
                                              Advertising                                  3.1
                                   Industrial Engineering                            2.4
                                                      Other                    2.0
                                              Equipment                        2.0
                                                      Travel             1.4
                                                   Telecom              1.3
                                Management, Consulting                  1.3
                                            R&D, Testing               1.2
                                                   -1.0        Fares
                                               -1.2            Freight and Port
                                              -1.3             Computer and Database
                                           -1.6                Accounting
                   -4.0                                        Insurance
-6               -4                -2                      -0                        2                     4              6              8             10
                Imports Exceed Exports                    Ratio                                                Exports Exceed Imports




16   O’Neil Center 2009 Annual Report
                     Primed for Globalization
 E XH IBIT           The Dallas area has an edge in the share of
      9              private-sector employment in the three types of services
                     that are easily exported—information, finance, and
                     professional and business services.
               Percent                                                                               Now, DFW ser vices
          30
                                                                                                     companies are taking
          29                                                                            29.5
                                       1990          2009
          28                                                                                         the next step—the
          27
                                                            27.2                                     global arena.
          26

          25
                                25.1
          24                                  24.4                      24.5

          23
                    23.2
          22

          21

          20
                           Houston              San Antonio                    Dallas



industries highlight a key differ-                   side cities have the necessary skills to   H o w t o Keep It G oing
ence among DFW, Houston and San                      exploit the boom in services trade.
Antonio. In 1990, the three cities                   The same strengths don’t show up on           The Dallas-Fort Worth area doesn’t
all had slightly less than a quarter of              the Fort Worth–Arlington side of the       face the daunting burdens of a St. Louis
their private employment in informa-                 Metroplex.                                 or a Cleveland. Those cities’ challenge
tion, finance, and professional and                    DFW companies are finding their          lies in reversing long-term economic
business services. Since then, DFW has               niche in global services—for example,      declines. Now at the top of its game,
added 5 percentage points, well above                American Airlines, Alliance Data and       DFW needs to make sure it retains—
San Antonio’s gain of 2.8 points and                 Blockbuster among the big companies.       and, if possible, enhances—the advan-
Houston’s 1.9 points (Exhibit 9).                    Law firms have stretched overseas with     tages that attract new residents, new
   What’s more, the Dallas side of the               their clients, opening offices in Dubai,   jobs and new employers.
metropolitan area, which includes                    Moscow and dozens of other cities.            We already know how to keep a good
Plano and Irving, exceeds the national                 Smaller DFW companies are also           thing going. It starts with embracing
norm in employment in a half-dozen                   going global. In the last 10 years         economic freedom. Keep taxes low and
key service industries. According to                 Laguarda.Low, a Dallas firm, has           government small. Shun unions. Let
location quotients calculated by the                 worked on more than 300 projects in        new jobs and industries rise to replace
Dallas Fed, Dallas’ concentration of                 25 countries, ranging from Portugal        those heading into decline.
jobs is 60 percent higher than the U.S.              and Poland to India and China.                Key elements of economic freedom
in both information and finance and                  Six-person Burada Inc. is a top-ranked     lie beyond DFW’s direct control. Tax,
insurance. The area also shows strength              software developer with projects           labor and trade policies are decided in
in professional and business services.               in Spain and the United Kingdom,           Austin and Washington, D.C. These
   By and large, these match the kinds               employing workers in Russia and            policies have a direct bearing on
of services that show up in national                 Canada—all run out of a home office        economic freedom, and it’s incumbent
export statistics, suggesting the Dallas-            in Wiley, just east of Plano.              on DFW business and political leaders

                                                                                                     O’Neil Center 2009 Annual Report   17
       Seven Rules for Exporting Ser vices
       Many companies in DFW and elsewhere are already doing well selling services overseas.
       What makes them so successful?


1      They didn’t assume their services couldn’t be exported. Today’s technologies allow us to do things
       that were unthinkable just a decade ago.


2      They looked for foreign growth. China and India have been America’s fastest growing services markets.
       Their economies have been expanding rapidly in this decade, even during recession in America.


3      They didn’t buy into the myth of anti-Americanism. Foreign consumers are fascinated by
       U.S.products and consumerism. The United States took eight of the top 10 spots in the
       Interbrand survey of best global brands in 2009. Look at the 10 biggest budget
       Hollywood movies: Foreign box office receipts nearly doubled domestic revenues.


                                          U.S. Movies Cash in Overseas
     Movie                                                Budget             US Gross              Foreign Gross
 1   Pirates of the Caribbean: At World’s End (2007)      $300,000,000       $309,420,425           $651,576,067
 2   Spider-Man 3 (2007)                                  $258,000,000       $336,530,303           $554,341,323
 3   Harry Potter and the Half-Blood Prince (2009)        $250,000,000       $301,959,197           $635,540,708
 4   Avatar (2009)                                        $237,000,000       $742,844,322         $1,950,000,000
 5   Superman Returns (2006)                              $232,000,000       $200,120,000           $191,000,000
 6   Quantum of Solace (2008)                             $230,000,000       $169,368,427           $407,000,000
 7   Pirates of the Caribbean: Dead Man’s Chest (2006)    $225,000,000       $423,315,812           $642,344,000
 8   The Chronicles of Narnia: Prince Caspian (2008)      $225,000,000       $141,621,490           $277,868,796
 9   Transformers: Revenge of the Fallen (2009)           $210,000,000       $402,111,870           $434,185,358
10   King Kong (2005)                                     $207,000,000       $218,080,025           $332,437,332
                                                  Total                    $3,245,371,871         $6,076,293,584




4      They adapted services to the local market. Delivering Americana can only go so far. Every country
       has its own customs and tastes, and successful services exporters get to know what the customers
       want. Yum Brands! took localization to its ultimate—selling Chinese food to the Chinese.


5      They developed multinational labor resources. Local workers and expats can both be effective, but they
       can’t replace a cadre of true globalists, steeped in the firm’s corporate culture but flexible and worldly
       enough to do business in nearly any country.


6      They entered markets that don’t yet have a home-grown infrastructure of sophisticated services.
       Texas law firms have been negotiating global energy deals for generations, so they’re in great
       demand in the Middle East, ex-Soviet republics and elsewhere.


7      They didn’t see services exports as a game only for big business. Among the Fortune 2000,
       the percentage of sales coming from abroad shows no correlation to company size. Many small
       businesses are going global right out of the chute.



18   O’Neil Center 2009 Annual Report
to fight against bad policies in the state   21st century’s engine of growth will be         Embracing economic freedom,
and national arenas.                         globalization.                               committing to globalization and
   Local policies matter, too. Economic        Local, in-state and national business      deepening our talent pool won’t be
freedom provides a great advantage           may be more convenient and less risky,       easy. These actions require great effort
to Dallas, but we should never forget        but some of the best opportunities in        and unleash forces that bring competi-
that we compete within the state with        upcoming decades will come from the          tion and constant change. But facing up
Houston, Austin, San Antonio and             emerging nations with a need for the kind    to globalization makes us stronger and
other metropolitan areas that offer the      of sophisticated services DFW can offer.     change revitalizes us. We mustn’t shrink
same advantages.                               America’s edge lies in the specialized     from the challenge. If we get it right
   Keeping a good thing going also           services, which create jobs for well-        on economic freedom, globalization
entails committing to globalization          educated workers. DFW’s dynamic              and services, the ascension of DFW will
by actively pursuing foreign business        economy has attracted brainpower             continue for many generations.
(see box, page 18).                          from the rest of the state, the nation          W. Michael Cox is director of the
   Back in the 1870s, Dallas got it right    and other parts of the world. However,       William J. O’Neil Center for Global
by hopping aboard the era’s growth           North Texas could do more to develop         Markets and Freedom. Richard Alm
engine—the railroads. With each genera-      home-grown talent, the graduates of          is writer in residence at the Center.
tion, DFW business leaders and workers       North Texas colleges and universities           wmcox@cox.smu.edu
have chased opportunity wherever             going to work in offices just a short           ralm@cox.smu.edu
it arose. This is no time to stop. The       drive from their campuses.




Notes and Data Sources                       average per capita income of $34,461         federalreserve.gov/otherfrb.htm.
                                             in 2007, compared to $15,416 for the         EXHIBIT 5
EXHIBIT 1                                    second quartile, $7,205 for the third        World Bank, World Development
U.S. Census Bureau, various publica-         quartile and $4,039 for the bottom           Indicators and United Nations
tions, notably Table 1. Rank by Population   quartile. The United States ranks sixth in   Department of Economic and Social
of the 100 Largest Urban Places, Listed      economic freedom. Its per capita income      Affairs, World Population Prospects,
Alphabetically by State: 1790-1990.          was well above the top-quintile average      Table A.1.
BOX, PAGE 3                                  at $45,592.
                                                                                          EXHIBITS 6 and 7
Ninth Census of the United States, June      EXHIBIT 3                                    Thomson One Banker and company
1, 1870, Volume 1, Table 3: Population       Highest marginal income tax rate and         annual reports. The logos are
of Civil Divisions Less Than Counties,       highest corporate income tax rate: The       registered trademarks of the
pages 270-75.                                Tax Foundation. Sales tax collected as       companies and used by permission.
PAGE 6                                       a percent of gross state product (GSP),
                                                                                          EXHIBIT 8
For more on Texas’ business tax, see         government consumption as a percentage
                                                                                          U.S. Department of Commerce,
Jason L. Saving, “Will New Business Tax      of GSP, transfers and subsidies as a per-
                                                                                          Bureau of Economic Analysis.
Dull Texas’ Competitive Edge,” Federal       cent of GSP, government employment
Reserve Bank of Dallas, Southwest            as a percent of total employment,            EXHIBIT 9
Economy, March/April 2008.                   union membership rate, and minimum           U.S. Department of Labor,
                                             relative to average wage: The Fraser         Bureau of Labor Statistics.
EXHIBIT 2
The Fraser Institute. Economic Freedom       Institute. Economic Freedom of North         BOX, PAGE 18
of North America 2008 Annual Report,         America 2008 Annual Report.                  Nash Information Services,
by Amela Karabegovic and Fred                EXHIBIT 4                                    www.the-numbers.com, movie
McMahon. The Fraser report documents         Federal Reserve Bank of Dallas.              budget records.
the link between the economic freedom        For the boundaries in each Federal           2009 O’Neil Center Annual Report
and higher incomes. Countries in the         Reserve District, see the Federal            design by wiswallmclaindesign
top 25 percent of the rankings had an        Reserve System map at http://www.

                                                                                                O’Neil Center 2009 Annual Report   19
2 0 0 9 : T h e Ye a r in Review
   The O’Neil Center made significant              and national economic conditions, the       Need to Succeed in Today’s Competitive
strides in just its second year. W. Michael        car industry under duress, the Dallas       Global Economy?”
Cox became full-time director in May               Cowboys’ business empire and health-           Cox presented his research on Dallas-
after ending a 25-year career at the Federal       care issues.                                Fort Worth’s global opportunities,
Reserve Bank of Dallas. Cox joined four              For the Intercollegiate Review, Lee       expanded into the essay in this annual
holdovers on the center’s faculty—SMU              wrote about how capitalism’s benefits are   report. Here are highlights from other
Cox dean Albert W. Niemi Jr., Michael              often miscast as problems in “Nothing       presentations:
Davis, Dwight R. Lee and Maria Minniti.            Fails Like the Success of Private Enter-       Richard Fisher, president and CEO,
   Collectively, they taught more                  prise and Freedom.” He presented a          The Federal Reserve Bank of Dallas.
than 700 students in 21 classes. They              paper titled “Solving Problems in the       Recent decades have been marked by
published more than 20 articles and gave           Information Age by Destroying Vital         rapid integration of the world economy,
more than 50 speeches, seminars and                Information” at the Association for         but some analysts see the sharp trade
outside presentations. The news media              Private Enterprise Education meeting in     contraction in 2008 and 2009 as a
turned to O’Neil faculty members’                  Guatemala City, Guatemala.                  signal of globalization’s reversal. Fisher
expertise on at least 110 occasions.                 Minniti held a PhD workshop               refuted this deglobalization thesis.
   Cox wrote “From Teflon to Tarzan,               on entrepreneurship research that              According to Fisher, there’s no
the ‘30s Proved Capitalism Never                   attracted 25 participants from 15           evidence of reversal in globalization’s
Sleeps” for Investor’s Business Daily,”            countries. She and a co-author analyzed     signature feature—the whittling away
arguing that capitalism generates                  data from 16 countries and published        of gaps between home-market and
progress even in the worst of times.               their findings in an Economic Letters       world prices. He concluded that trade’s
In a Federal Reserve Bank of Dallas                article titled “Unemployment Benefits       decline came not from deglobalization
Economic Letter titled “Labor Market               Crowd Out Nascent Entrepreneurial           but from plunging consumer demand,
Globalization in the Recession and                 Activity.” Minniti received an award        exacerbated by the drying up of trade
Beyond,” he and two co-authors                     for Outstanding Teaching in the MBA         credit in the wake of financial market
found that virtual immigration held                Program at SMU’s Cox School of              turmoil.
up better than physical immigration                Business.                                      Thomas J. Falk, chairman and CEO
in the recent recession.                             In October, the Center hosted its first   of Irving-based Kimberly-Clark,
   Television, radio and print reporters           conference. More than 300 executives        joined by two of the company’s global
called on Davis for commentary on a                and students gathered at SMU’s Collins      executives— Stephen Shao, who runs
range of topics—among them, DFW                    Center to explore “What Do Businesses       the China operations, and Gustavo




W. Michael Cox, Director,      Albert W. Niemi Jr., Dean,   Michael Davis, SMU Cox    Dwight R. Lee, William J.    Maria Minniti, Professor
William J. O’Neil Center for   SMU Cox School of Business   School of Business        O’Neil Endowed Chair in      and Bobby B. Lyle Chair
Global Markets and Freedom                                                            Global Markets and Freedom   in Entrepreneurship



20   O’Neil Center 2009 Annual Report
Calvo Paz, the top manager in Russia        in 1970, Microsoft in 1989, America           expertise. Some companies want to
and Eastern Europe: The Irving-based        Online in 1994, Qualcomm in 1999 and          bring international experience into
paper and consumer products producer        Google in 2004. O’Neil said it’s just as      their U.S. headquarters and others
operates more than 100 manufacturing        important to watch for early warnings         seek to beef up their capacity for rapid
facilities in 45 countries. Recruiting      of distress—as with Enron in 2001.            expansion overseas.
talented people remains one of the             Robert A. Lawson, co-author of               Richard K. Templeton, chairman,
key challenges for global businesses—       the Economic Freedom of the World             president and CEO of Texas Instru-
especially in fast-growing markets like     report: The Auburn University                 ments Inc.: The electronics company’s
China and Russia, Falk said.                professor reviewed the latest results         top executive ended the confer-
   Shao, a Chinese-born MIT graduate,       from the Fraser Institute’s annual            ence with a succinct message for
said that offering opportunities was        report that tracks economic freedom           companies, workers, cities, states and
the best way to recruit China’s young,      in 141 countries around the world.            even universities: “The winners in the
ambitious college graduates. Calvo Paz,     The United States ranked sixth in the         world will be those who embrace the
a native of Argentina, said the challenge   world in economic freedom, trailing           global marketplace as an opportunity
in Russia was finding entrepreneurial       Hong Kong, Singapore, New Zealand,            not as a threat.”
gems among a population used to being       Switzerland and Chile.                          TI serves as a model of the global
told what to do.                               Lawson said U.S. economic freedom          company—88 percent of its revenue
   “The consumer is at the center of        rose for two decades but ebbed since          from foreign sales, 60 percent of its
everything we do,” Falk said. In Russia,    2000. Two factors are at work—                25,000 employees overseas, manufac-
mothers tend to be young and fashion-       growing government spending and               turing and sales in 30 countries. As a
able, snapping up blue jean-themed          weakening protection for property             global company, TI benefits from being
Huggies diapers, Calvo Paz said. In         rights. He expects the country’s scores       able to hire the best and brightest no
China, mothers are older and willing        to slip further when data for the past        matter their nationality and seize oppor-
to spend to buy the best for their one      two years become available.                   tunities almost anywhere.
child, Shao said.                              Scott Smith, vice president of               Being close to customers pays off,
   William J. O’Neil, publisher             staffing, AT&T Corp.; talent coach            Templeton said. In the 1980s, TI’s
of Investor’s Business Daily: The           Tina Sivinski, founder, Viveza; and           operation in Nice, France, helped an
legendary investor and author said          executive recruiter Nancy Keene,              obscure lumber company from Norway
young companies drive American              director, Stanton Chase: According to         develop a digital signal processor.
capitalism. Every one of the 27 cycles      Scott, AT&T hires 25,000 to 30,000            Working with Nokia, TI got a start in a
since 1880 was led by entrepreneurs         workers a year. Over the next few years,      business where it now has 50 percent of
or innovators who created something         he said, the biggest challenge will be        the global market.
newer, faster, better or cheaper.           filling the ranks of the “knowledge             A decade ago, TI Japan took on the
   In this competitive society, O’Neil      workers,” loosely defined as college          challenge of putting the power of a Sony
said, the new will rise to eclipse the      graduates. In 2012, the number of jobs        Playstation into a cell phone, creating
old, so investors can’t merely buy          that require a degree will exceed supply      a toehold in the smart-phone market.
and hold. They will do much better          by 25 million.                                Now, TI engineers are working on
looking for innovative companies               Sivinski described talent as “the single   battery powered bicycles in Taiwan and
about to break out.                         biggest competitive advantage that we         solar-powered LED lighting in India.
   O’Neil verified this proposition         have”—a statement true for firms as           “When you’re global, you get access to
through a dozen or so historical            well as individuals. She urged business       the best ideas,” Templeton concluded.
examples, starting with Richmond &          leaders to adopt programs to identify
Danville railroad in 1885. He pointed       and develop it.                               To view conference videos or find more
to General Motors in 1915, IBM in              In helping companies find the talent       information about the O’Neil Center,
1926, RCA in 1927, Texas Instru-            they need to prosper, Keene has seen          go to: www.oneilcenter.org.
ments and Xerox in 1958, McDonald’s         a growing need for international


                                                                                                O’Neil Center 2009 Annual Report   21
   W illiam J. O’Neil Center

for Global Markets and Fr eedom

       PO Box 750333

    Dallas, TX 75275-0333

     www.oneilcenter.org

				
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