The state of Virginia can be characterized by a diverse landscape, with beaches dotting its coast, the city of Washington D.C. bordering and influencing its north, and a deep-seeded, rich, rural landscape spanning across the south and west.
The manufacturing scene, quite appropriately, isn’t much different. In a conversation with Industry Today, Brett Vassey, President and CEO of the Virginia Manufacturers Association, talks about the present manufacturing environment in his state, what he believes will be in store for Virginia manufacturers in 2014, and the unique approach his organization is taking towards combating future workforce issues. Steve Engelhardt reports.
Let’s start with some numbers. Virginia manufacturing is composed of about 5,833 manufacturing establishments, collectively employing over 230,579 individuals. These companies contribute 84 percent of the state’s exports, account for close to 25 percent of all corporate income taxes and local business taxes, and pay the average employee around $50,000. Vassey is particularly proud of that last number, a figure he says has increased 92.3% since 1993 and 12.2% since 2008 alone. “Not too many industries have advanced their wages like that, and I think that’s a result of the shift from a labor-intensive workplace to a technology-intensive workplace,” he says.
Industry-wise, the tobacco, food and beverage, transportation equipment and forest product sectors tend to dominate, but Vassey was quick to note that while these are the most popular, there are plenty of other industries that have strong presences across the Commonwealth. “You’ll see the large ones like I mentioned, but after that, every other industry has almost exact and equal representation across the board,” he says, adding, “I think that’s something that makes Virginia manufacturing pretty unique.”
Vassey says that, when looking over the past couple of years, particularly from 2012 onward, there have been several macro- and microeconomic trends that have shaped the current manufacturing landscape in Virginia, as listed below:
Macro Trend #1 Vassey says he’s seen quite a bit of “pent up demand and capital investment”, which he says is a result of the 2008-2011 economic downturn. In 2012, however, he saw major wholesale capital investment in plants, property, and equipment, something that continued in 2013 and looks to do so as well in 2014. “I think this was a result of people limiting their spending during the recession, not a lot of new equipment was being bought, it was just about getting through it with what you had,” he says, adding, “But that has all changed, as there is real interesting growth in capital expenditures.”
He says this growth in spending, particularly in capital construction, has led to what he calls a “boom in Virginia’s supply chain network, most notably in raw material manufacturing, but also on the service side of businesses as well,” in reference to engineering and construction firms.
Macro Trend #2 Another macro trend evident in Virginia, and something that’s been seen in Texas and California as well, is that due to the downsizing and budget reduction in response to the sequestration, it experienced a major downturn in federal spending on purchasing products. Yet, Vassey says that his state’s strong ship repair and ship manufacturing industry, whose ports house world-renowned companies like Newport News Shipbuilding, seemed to be exempt from it due to the fact that their contracts typically last 8 years, allowing them to effectively progress through the recession.
Vassey says that because of this, his state didn’t see the dire consequences that other parts of the country experienced, but he said the impact was still quite significant with respect to the smaller-sized manufacturers. “We’ve seen a lot of our smaller manufacturers, particularly those who deal in small arms and systems, become a bit desperate as they try to find ways to diversify their product line and adapt their products and services for the private sector.”
He points to one company that manufacturers navigation equipment who, due to lack of available federal contracts, has taken measures to make their product more compatible to markets in the private sector, and now rely on exports for a significant source of business. Certain initiatives like the Going Global Defense Initiative, which is providing $1.5 million between July 1st, 2013 and June 30th, 2014, for Virginia’s defense-related companies to help them branch out into international markets, serves to further strengthen this effort.
Macro Trend #3 Finally, because of the natural gas boom and its direct impact on the cost of natural gas supplies in the future, Vassey says that, for the first time in 11 years, his state is seeing wholesale investment and strong expansion of its chemical industry.
“About 11 years ago, the cost of gas hit about ten or eleven dollars for petrothermal energy, and manufacturers in our chemical industry, who were using it as a raw material for fuel, looked down the road and didn’t see much of a sustainable future for themselves,” he says, adding, “But now, with this explosion of shale gas, almost every single chemical plant in Virginia is under expansion or retooling for expected growth.”
Eye on the Future
Vassey says that despite many positive signs popping up around his state, it still “befuddles us as to why our manufacturing sector is half the size of North Carolina and a third of the size of Pennsylvania’s,” yet he admits that, “we just haven’t grown overall as fast as them, but one of our goal over the next six years is to get up to that level.”
With businesses and associations like NASA, Volvo, and Stihl(which manufactures all of its North American products at its Virginia Beach facility) all having significant presences around the state, the big players are there; it’s just Vassey and his colleagues would like to see some of their success draw in others.
However, while they lie in wait for more big-time manufacturers to come set up shop in the state and experience the many positives Virginia’s business environment has to offer, one challenge they aren’t sitting back on is the impending workforce issues that are set to impact manufacturers not just across their state, but across the entire U.S., and in greater frequencies over the next five or six years.
Vassey says that he and his organization have been well aware of the impending skills gaps issues that could hinder the industry’s progress in the future, and established the Manufacturing Skills Institute (MSI) in 2012 and Dream It Do It Virginia Network in 2009 to address such challenges. “We launched the group then, because that’s when we were supposed to feel the first wave of Baby Boomer retirements, which was going to be around 15 percent, or 30,000 people leaving their jobs,” he says, adding, “but the economic downturn kept a lot of those people in their jobs for another few years, which is where we find ourselves today.”
He says he estimates that about a third of these 30,000 retirees are in skilled trades, with the rest filling a broad range of occupations. As the years go by, this number is going to surge even more, but Vassey says his state’s “unique” approach to the issue has them set to thrive in the face of adversity.
One of the biggest problems with the impending workforce issue, according to him, is that manufacturers and think tanks alike are misunderstanding it as a single issue that has one definitive equation to get the solution they’re looking for. “We see it as skills gaps, and not a skills gap. Everybody says there is a workforce problem and unfortunately with that level of vacuum, every solution looks like it is the end-all problem solver,” he says, adding, “That’s the formula for a waste of time and resources.”
Instead, Vassey and his colleagues have worked together to pinpoint four different gaps that need to be addressed:
1. Work Readiness Gap: “This deals with the soft skills you need to learn before you turn 18, such as learning to show up on time and communicate effectively with your fellow coworkers.
2. Career Readiness Gap: “These are the measureable skills that make you employable, such as locating and reading for information, applied mathematics, applied technology, etc.”
3. Industry Readiness Gap: “This is the one most of us end up talking about, with regards to having the proper industry-recognized credentials and advanced training, but you can’t effectively address this without first ensuring the first two gaps are taken care of.”
4. College Readiness Gap: “It’s our observation that there are too many kids nowadays who think the only option is to jump right into a four-year college, and often times they’re highly unprepared to do so and end up dropping out after a year.”
Vassey says that he and his organization, working with state and local officials, have been aggressively tackling these four gaps, targeting K-12 systems, public and private universities, community colleges, and technical schools located throughout the state.
For starters, the first thing they did was implement a new work readiness skills requirement for graduation from all Virginia high schools. “There are 17 areas we test them on, all of which are focused on making sure kids have the soft skills they need to be successful.”
Next, they’ve worked to change the standard diploma requirements in Virginia high schools as well. Now, for every student that gets a standard high school diploma in the state, they must possess one occupational credential or license, have taken one online class, and have a concentration in either fine arts, language, or CTE. “We now have the tools in place for more kids to get the relevance, tools, and STEM-related credentials they will need prior to beginning college or a career.”
Community colleges have also been an area of focus, as they have been and are currently working with the Virginia General Assembly to secure increased funding for skills attainment, while also reforming the way the state sets it strategic plans for funding advanced manufacturing. “We want to establish alternative options that provide access to these industry-ready skills instead of just telling them, ‘if you don’t go to a 4 year college then you’re a failure’.”
One interesting development with community colleges is the new partnerships they are forming with four-year public universities around the state. They are now working together to offer dual enrollment programs, so kids can get their industry certifications and credentials in their first two years at the community college. Then, if they wish to continue to pursue a STEM-related degree, they are guaranteed admission to these four-year universities, according to Vassey.
At the heart of it all, Vassey says they’re just trying to create as efficient and impactful of a career pathway as they can for the future workforce of manufacturing.
Virginia’s multidimensional approach to the workforce issue looks to give them a comprehensive grasp on the future of their state’s manufacturing workforce. Combine this with the burgeoning potential for outside manufacturers looking for places to do business, and the Commonwealth could soon find itself as a one of the major industrial hubs of North America.
About the Virginia Manufacturers Association
Since 1922, the Virginia Manufacturers Association (VMA) have exclusively served as Industry’s Advocate™ and their mission is to create the best business environment in the United States for world-class advanced technology businesses to manufacture and headquarter their businesses for maximum productivity and profitability.
The Virginia Manufacturers Association develops constructive policies and activities on behalf of industry by serving as an advocate for legislative, regulatory, taxation, environmental, workplace, business law, insurance, and technology issues, and as an aggregator of business services for their Members. The VMA will serve as their Members’ primary resource for consultative services and programs which they require to remain highly competitive, technology-intensive and efficient organizations.