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Global Carolina Perspectives: Hal Johnson and the Upstate SC Alliance

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GREENVILLE, SC – One could be excused for thinking that Hal Johnson had spent his entire life in the Upstate – so at home does he seem in his role as president and CEO of the Greenville-based Upstate SC Alliance. In fact, however, Johnson grew up on Hilton Head Island and spent a large part of his life in the Lowcountry – attending The Citadel, where he was a cheerleader, and later having served as executive director at Orangeburg County Economic Development Commission.

These days, however, Johnson is very much a cheerleader for the ten-county area covered by the Upstate SC Alliance. He is also a virtual storehouse of information on everything from the niche industries the alliance targets to the history of textiles in the Carolinas to the amount of foreign direct investment (FDI) and the number of foreign-owned and -affiliated companies that call the Upstate home. 

Johnson recently sat down to talk to the Global Carolina Business Journal about how the Upstate SC Alliance is building on the area’s reputation as a hub of the automotive industry (both Germany-based BMW and France-based Michelin have their North American headquarters in the area), the Upstate’s tradition – and future – in textiles and advanced materials, as well as its role in helping the Carolinas’ emerging bioscience and medtech industries.

Global Carolina: What are the main target industries of the Upstate SC Alliance?

Hal Johnson: The four industries we target are automotive, advanced materials, biosciences, and energy. We are thinking about renaming automotive “mobility.” We’ve been using the definition that the Society of Automotive Engineers uses, namely anything that is self-propelled. Because if you go after an aviation company someone is going to say, “Well, that isn’t automotive.” The reality is that there are a lot of linkages between the two. And the focus areas on which we are concentrating inside those markets contain a lot of crossover and opportunity for the ten counties that comprise Upstate South Carolina.

GC: When people think about global business in South Carolina, one company that immediately comes to mind is BMW. What is the history of the Upstate SC Alliance’s involvement in the automotive industry?

HJ: Automotive has been a target industry area for the Upstate SC Alliance since our inception. The regional strategic plan we completed in 2009 suggested that we go out and do a target industry study. That study identified four key areas, automotive being one of them.

In automotive there are four niche areas: boutique OEMs [original equipment manufacturers], automotive suppliers, diesel powertrain manufacturers, and efficient vehicular systems. There are many reasons why those areas came up. One, we took a look at all the assets the Upstate had to offer. What companies are already here? What are the research capabilities? We had CU-ICAR [the Clemson University International Center for Automotive Research] as a budding research entity in automotive. We also have a significant history of having an engineering base here. With all of those assets, and a good skilled workforce coming out of the old textile days, that can transition to a lot of different things.

GC: Could you elaborate on the niche areas.

HJ: Of the four niche areas, let’s focus first on boutique OEMs. We have several OEMs already in the state, one being BMW, another being Freightliner, and the [Mercedes] Sprinter facility down in Charleston being a third. Honda’s facility could be looked at as an OEM. It has the entire assembly capability there, so that you literally have something that rolls off of the line.

Sure, we’d love to have a second BMW, but the fact is that we don’t want to cannibalize that workforce. We want to be very smart about the workforce. We’ve got enough room in the state for another OEM, but it doesn’t need to be next door. It does need to be within close proximity to take advantage of the supply chain that is already out there. So for the Upstate, instead of looking for that next big OEM, we are looking for those niche OEMs such as Proterra Bus, or CT&T.

There are hundreds of smaller companies that are being invented today. [Newly appointed Secretary of Commerce] Bobby Hitt once said, “We had the Big Three. In the next ten years we’ll be looking at the ‘Little One Hundred.’” The automotive industry as we know it is going to change. Even though you have GM going out for its largest IPO in history right now, that doesn’t necessarily mean they will always be on top.

GC: Has diversifying become more specialized?

HJ: From our standpoint, looking at those niche OEMs, what are the opportunities for diversity? Are they the EV [electric vehicle], alternative powertrains, hybrid powertrains? When we start looking at these vehicles, what do they look like? Where is the market going to be for them? What other type of vehicles can go into that market?

The Proterra buses are a great example of vehicles in the alternative powertrain niche. The powertrains that are in those vehicles now offer many options, not just electric, for the bus systems. For example, diesel – we are very focused on diesel, which costs less to make than regular gasoline. The only reason why diesel costs as much as premium right now is because there is a diesel tax. And we probably ought to look into doing away with that tax because diesel is a lot more efficient and is a lot cleaner to burn.

So we at the Upstate SC Alliance are looking at the different types of engines that are out there. There are a lot of companies working in the area of electric engines and hybrid engines and some crossovers of diesel and different alternative fuel types. You’ve got those right now being developed by GM and Ford. The practicality of electric vehicles being the end-all-be-all is null and none with the U.S. culture. There are special areas in which EVs will work, mostly in cities. You can also use them on secondary roads, but when you get into the more rural areas we’re going to need some real breakthroughs to get it going.

When we talk to GM and Ford and the other big guys out there, they’re saying, “EVs have a market. We just don’t know how big that market is right now.” Those companies are all looking for alternatives. What is another method of changing the paradigm of how engines work today versus what we may see out there? Powertrain is going to play a huge roll in that.

GC: What are the Upstate SC Alliance’s activities in the supply-chain niche?

HJ: Well, when you get into the supply-chain niche you can’t just look at BMW. You also have to look at Volkswagen; you have to look at Kia; you have to look at all of the automotive companies located in Alabama, Mississippi, Georgia, and now in Tennessee – the Southern Automotive Corridor – that SMEs [small and midsize enterprises] can target and potentially become suppliers for.

There are all sorts of ways to look into that market. And, quite honestly, the tier-one and tier-two suppliers are the ones that are leading the way. Those are the ones that are going to lead the way in high-value-added jobs. And, from an R & D perspective, those are the ones we need to be connecting to the CU-ICARs.

GC: Connectivity is a term increasingly heard in a number of industries. What are some of the initiatives the Upstate SC Alliance is involved in around the connected vehicle?

HJ: If you’ve been following anything CU-ICAR has been doing, they even have a chair in connectivity and mobility. What you are seeing the cars of today is the ability to sync with cell phones. You’ve got voice activation and all of that type of technology. Interestingly enough, when we were Detroit about a month ago, the guys in the R & D departments were telling us that everything you see in a vehicle today is three to seven years old. We’re sitting here going, “Oh, that’s the coolest gadget!” They’ve been working on it for seven years!

Because CU-ICAR is focusing on the connected vehicle, and because there are a lot of companies in this area that are already in that field, we need to build that cluster of those types of companies. We can really put a stake in the ground if CU-ICAR wants to be the mobility capital of the world. We have to sit down and make sure that we’re not concentrating only on electric. There are other vehicle types out there that we need to be considering when we talk about connectivity.

GC: Going back for a second to the concept of the “Little One Hundred.” The idea of diversifying, on one hand, presents all kinds of opportunities for supply-chain expansion – for producing everything you need for all these little companies. But it also seems like it could involve many potential pitfalls. There are a lot of moving parts. How do you handle that?

HJ: That’s a great question. How do you keep the standards at a level so that you are protecting the consumer? Right now, just the cost – you can take through these high-speed computers, you can do fluid dynamics studies. You can do computational studies. You can run every test known to man on a computer and never build a vehicle. In reality, however, no insurance company is going to validate that. They’re going to want to see a car crashed. You’ve got to be able to overcome what the norms are now. You can’t just flip a switch and make that happen. It may seem like it, ten years from now. But there will be a lot of steps in between. Our focus in automotive is very niche oriented, very specific.

GC: The next industry on which the Upstate SC Alliance is focused is advanced materials. Could you elaborate there?

HJ: The advanced materials industry in the Upstate of South Carolina is much like automotive, in the fact that it has a center of excellence based around it through the Clemson University’s Advanced Materials Center. If you were to form a triangle that connects Clemson University, Western Carolina, and UNC-Charlotte, there are over 250 companies in photonics and optics in that triangle. Not just fiber optics, but also the connectors and capacitors that speed up light. This area is bubbling with opportunities connected with this industry.

Our goal is to create industry-led councils for each of our target markets. In some cases we may have multiple councils inside each area. So where you have one council in advanced materials for photonics and optics, you may have another for advanced fibers. Who is to say that carbon fiber is the only advanced fiber out there? Nylon or polyester or cotton? Who knows? It may come back, and it may be able to be interwoven with something else to make it stronger. If you look at Milliken today, they are doing chemical applications in the fiber stage, in which, if you are hit by shrapnel in a military uniform, the chemical agent inside that fiber is released. And it helps coagulate your wound so that you don’t bleed to death in the field.

GC: So they are integrating textiles and medicine?

HJ: Yes, integrating textiles and medicine is already happening. That’s where the crossover of some of these things happens as well. You’ve got advanced materials and you’ve got bioengineering happening at the same time. And you are merging those industry sectors. One of the reasons that [the consulting agency that helped develop our regional strategic plan] McCallum Sweeney looked at these things is because they told us there’s going to be overlap happening in every one of them. For example, look at materials in the Boeing 787 Dreamliner built in Charleston. The whole thing is built out of carbon fiber.

In advanced materials, we are focused on the three niche areas, in full belief that there is going to be crossover. Bringing Milliken into the fold to be a driver in economic development is not what many people think about with your successful marriage of your textile companies. But these guys are innovators. Who knows how many patents they have inside their facility? They are true drivers, and also they are true attractors for different types of companies that may be able to come in.

We [in the Carolinas] were probably better in fiber creation and fiber manipulation than anyone else in the world, just because of the legacy of textile industry. The long history of developing these fibers for textile use has now evolved into use in many, many more applications. They are stronger. You just don’t know what the future use of fiber will be.

GC: It’s what they’re producing for everybody else. . . .

HJ: That’s right. It’s kind of like that old BASF model: you touch us how many times a day? So companies that fit into those NA codes, those North American Industrial Standards, we can identify and we can pull together. But, again, we don’t want to get somebody here and it not work because it just won’t be a great fit and it’s not a good story for anybody. We’ve got to have the right marketing strategy and tie two industries. So industry needs to be our guide here, in that they tell us what can help them.

GC: The energy industry is booming in a number of regions in the Carolinas, from Charlotte, which has termed itself the ‘New Energy Capital’ to central and upstate South Carolina, with the planned nuclear plants to the Lowcountry with the wind turbine testing facility in North Charleston. What is the role of the Upstate SC Alliance in energy?

HJ: Energy is an area in which we don’t currently have a center of excellence. What we do have, however, are more energy engineers per capita than most other areas in the country. There is only one other area in the country that has more than the Upstate of South Carolina and that is Houston – but they’re all petroleum oriented. So when you talk about diversity of energy engineers from grid systems, grid solutions, nuclear, or when you talk about renewable, sustainable energy solutions, you’ve got it here. It’s in the form of Fluor and CH2M HILL and Day & Zimmerman and Mustang and all the engineering firms that are here are designing power companies that are being built somewhere else in the world.

Then you’ve got companies like GE Energy that are building the gas turbines that are going inside these power companies. And all of this adds up, compounds. When you pull together the assets of energy, there’s an opportunity for us to put a stake in the ground. Charlotte has already put a stake in the ground saying that it will be the energy capital of the world, and I’ve joked with the guys from over there saying to them, “Well, in order to achieve that you’re going to have to take from your little brother in the Upstate!” The reality is there is enough for all of us. So we need to go out and get the companies from the other states and from around the world and bring them to this area. And Charlotte and the Upstate are going to be great partners. Quite honestly you need a bigger market to sustain some of that growth. We’re going to grow here by about another 300,000 people in the next 15 years, so we need to be prepared for that growth. We need to do it right, to make sure that we have the right companies, the right types of jobs, and the right workforce.

GC: A heavy concentration of engineers is not necessarily Charlotte’s strong suit. They do have a lot going on with Duke Energy and some of the other big players, but there’s no reason there can’t be cooperation between the two areas.

HJ: We are already sitting at about 70% nuclear in our power supply here in the Upstate, and with that being said there’s a heavy concentration on really a carbon-neutral footprint using nuclear energy, so to be able to support the expansion of nuclear power in South Carolina is a good thing, not only from a jobs perspective but from a supply-chain perspective, with all the companies that will set up around that. And at some point the Cherokee County nuclear facility needs to be built so you can work on Oconee, to bring it up to modern standards, as that facility is more than 35 years old. So there’s a lot of opportunity. Part of our role is to play a positive support role of advocacy for nuclear. There hasn’t been a nuclear facility built in the United States for 40-plus years. So you have to go out and find the suppliers to build these new planned facilities to do all the piping and the vessels and the cooling systems and the welding. So there’s a ton to be done.

GC: With the recent MedTech SC conference here in Greenville, as well as the partnership forged between SC MedTech and SC BIO, medical technology and bioscience are definitely emerging as vibrant and viable industries in the Carolinas. What are some of the ways the Upstate SC Alliance is involved in these emerging areas?

HJ: The Upstate SC Alliance is partnering directly with SC MedTech and SC BIO, and that’s something we’re really excited about. I think that there’s a real need for South Carolina to have the SC BIO organization, and for SC MedTech to be a part of that. We have to present to the rest of the world that we understand what we’re talking about when we talk about BIO, and we also have to make sure they understand what we’re talking about when we talk about medical devices. The Upstate SC Alliance is going to be a part of that; we’re going to be kind of the quiet driver for SC MedTech as well.

There are a tremendous number of medical device companies in South Carolina, and not just in the Upstate, but in Charleston and really the state as a whole. There’s simply no more room for being in competition with our own state. We can’t come across that way and hope to be successful in the global economy. The Upstate SC Alliance refuses to allow that to happen. We will work hand in hand with the Charleston regional alliance; they are coming up with their new target industry study, which is being performed by the same group [McCallum Sweeney] that did ours. We’ve asked to work with them in any overlaps in those marketing strategies, because we don’t see ourselves competing with Charleston. As a matter of fact we rarely compete with anyone in the state; it’s more an issue of competing with those on the I-85 Corridor and, of course, globally.

That’s going to be the real key in how we pull off some of these marketing strategies in the near future. We need to understand what we’re going to be, “who we’re going to be when we grow up,” so to speak. The fact is that the hospitals already have a significant number of clinical trials. The question is, how do we grow that? How do we put a stake in the ground that says we are the best in the world, the best in class, in this arena? How do you become the Mayo Clinic of this region? I think we’ve got some chances to do that if we’re all willing to have a good conversation and then leverage the hospital network that we have. When you look at GHS [the Greenville Hospital System], Bon Secours/St Francis, Spartanburg Regional, and AnMed hospitals, there are 4 massive hospitals right here in our back yard. The ability for those guys to link up and to fuse together presents a pretty huge opportunity for the Upstate.

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