Sector Diversification

4.2 CARBON FIBER REINFORCED PLASTICS

The carbon fiber reinforced plastics (CFRP) market is projected to grow at more than 10% per year for the next decade ^[27] , and there is a wide array of potential applications in industries ranging from automotive and aerospace to infrastructure, as well as a growing need for recycling of CFRP parts, which provides lower-cost inputs for low-grade applications of the fibers themselves. West Virginia already has assets in CFRP production and research on which it can capitalize: 

• Existing companies such as Aurora, Orbital ATK, and FMW Composite systems already manufacture CFRP products 
  
• West Virginia has research centers that are building a competency in testing and prototyping new materials for various applications. These include entities such as Chemical Alliance Zone, ChemCeption (incubator-accelerator with a sole focus on commercializing chemical technologies), MATRIC, Touchstone, collection of test and evaluation sites under the Defense Innovation Proving Ground and university constructed facilities centers 
  
• Special economic zones (Polymer Alliance Zone and Chemical Alliance Zone) with preferential policies, tax breaks, and expedited permitting for high-tech, specialty, and engineering polymers 
  
• A series of tax credit programs that are relevant to CFRP production (Exhibit 5)
  
  

• Commercialize existing CFRP infrastructure patents in the State (e.g., WVU and Marshall patents) such as CFRP replacement for steel rebar in concrete on bridges that is lighter and longer lasting than steel, CFRP wrap for steel and concrete beams and joists that provide superior durability and earthquake resistance in new and retro-fitted high-rises, or CFRP reinforced power and cell phone poles that require smaller footprint. Leveraging existing $2B yearly spend on bridge repair/replacement locally and in neighboring states ^[28] , there is sufficient demand to make the case for profitable commercialization of existing patents
• Attract a CFRP recycling plant that can take advantage of existing aerospace production in neighboring states (estimated 1.1K tons of annual aerospace carbon fiber materials production in OH, PA, MD, VA and KY ^[29] ) to recycle CFRP aerospace parts that can be used in other applications such as automotive, at 30-40% lower cost than new ones
  
• Leverage existing automotive footprint to develop partnerships around developing, testing and prototyping CFRP applications in the State
  

4.3 Fine Chemicals

The fine (or “high-purity”) chemicals market includes nearly 100,000 intermediates and more than 5,000 active ingredients. In addition to having higher profit margins than basic chemicals, these products can also benefit from cheaper feedstock of natural gas, thus providing competitive advantages to companies. 

West Virginia’s assets in fine chemicals are three fold:

• Existing footprint in the chemicals and plastics manufacturing industry that offer opportunities for colocation of manufacturers of products along the same value chain
  
• Potential for local downstream buyers in the State (e.g., Procter & Gamble)
  
• Opportunity for low cost access to natural gas that will become more attractive as storage and pipelines open to market
  

There is an opportunity for the State to differentiate by attracting manufacturers of compounds directly downstream from existing production that benefit from lower costs of input and have attractive profit margins. Potential products to consider include derivatives of naphtol, chlorine, cyanuric acid, dimethyl sulfate, hydrogen cyanide, naphthalene or nonylphenol. From these, there are three characteristics that West Virginia can consider to focus attraction efforts: 

• Higher growth compounds with rising demand, such as sodium cyanide (4% forecasted yearly growth in next 5 years on a current market size of 1.1 Mton ^30] )
  
• Niche commodities, such as chlorinated methane, which offer opportunities for differentiation in products with higher profit margins
  
• Intermediaries that can be used for existing production in the State and that integrate the supply chain, such as nonylphenol exthoxylates, which can be used for detergent and personal care products by local manufacturers
  

In addition to targeted attraction activities, actions that West Virginia could consider to lower the cost of operations of prospective fine chemicals producers include:

• Implement a site certification and remediation support program to help develop brownfield sites and decrease initial capex investment needed
  
• Take actions to limit and reverse the recent rise of industrial electricity costs (West Virginia has lower industrial electricity costs than MD and PA and is on par with VA and OH, but has been facing a trend of rising costs ^[31] . See Exhibit 17 and Section 5: Ease of Doing Business)
  
• Create opportunities for existing chemicals manufacturers to collocate with new downstream producers
  
• Expand the available talent pool of higher education graduates with science and engineering degrees to complement existing skill labor and meet the industry expectations
  
• Consider arrangements similar to the Chemical Alliance Zone that offer incentives that match efforts by other states (e.g., NJ has a 100% R&D tax credit) and that help expedite permitting for prospective companies
  

4.4 HIGHER END TOURISM

West Virginia attracts fewer higher income and older travelers compared to the broader tourism market in the United States (Exhibit 6).

 

West Virginia has unique regional assets, which can be leveraged to attract higher income and older prospective tourists, in turn creating economic opportunity more broadly across the State than other sector-based efforts, which may cluster in a specific region. Specifically, there are three main opportunities to explore: 

• Attract wealthier and older segments of adventure travelers in the south of the State (in the New River Valley and Hatfield-McCoy Mountain tourism regions). Given the higher end and family oriented preference of such adventurers, potential actions to consider include: 
  
  • Attract higher end hotels 
  • Attract large family adventure resort (e.g., a waterpark resort) 
  • Capture more value from current ATV tourists by supporting local ATV businesses and communities and linking them to local hospitality resources 
  • Promote cooperative tourism development to encourage trip packages, and integrated journeys that decrease uncertainty for high-spend tourists and encourage more differentiated spend 
• Expand existing cluster of second homes in the eastern regions of West Virginia (and especially the Potomac Highlands). As a first step, West Virginia could market the existing second homes in counties like Pocahontas and Pendleton. With effective market surveys of and tailored offerings to populations in large metropolitan areas surrounding the State that are likely to buy second homes, West Virginia could further expand the second home footprint in the eastern regions on the longer term. In addition, West Virginia can work with local communities on efforts that increase attractiveness and quality of life of neighborhoods to second home buyers
  
• Attract high income retirees in the northern regions of the State through development of luxury assets in proximity to current needs of such tourists (e.g., quality healthcare centers). Effective mapping of existing assets and offerings that are relevant to this population can help create a targeted development and branding strategy
  

4.5 CYBERSECURITY, CLOUD SERVICES AND DATA CENTERS

The IT services sector has been growing at a 5% yearly rate in the US, with its growth expected to create jobs (job multiplier of 1.68) ^[35] . Specifically, cloud computing services (28% yearly rate), data centers (16% yearly rate) and risk management (11% yearly rate) are forecasted to grow rapidly over the next 5 years ^[36] , offering a significant opportunity for the State to capture and diversify its economy. As noted in Section 7, broadband infrastructure is a critical underlying component of any effort to make the State attractive in cybersecurity, cloud services, or data centers. In the short term, company attraction can focus on the sites within the State with sufficient coverage and speeds, and in the long term can expand as broadband access expands. 

West Virginia has existing assets in the industry and structural advantages that make it an attractive destination for cybersecurity and cloud services companies:

• West Virginia is home to a number of federal agencies and high tech federal operations (e.g., FBI, NASA, NOAA, DOE National Energy Technology Lab, Allegany Ballistics Lab as well as over 25 satellite federal operations, many of which are data driven such as the Bureau of Fiscal Service, the Coast Guard Operations Systems Center, the Coast Guard National Maritime Center, the Coast Guard National Vessel Documentation Center, the IRS Computing Center, and the BATF National Tracing Center) and two of the three federal biometric centers are housed in the State. In addition, there are facilities such as the I-79 Technology Park that are equipped with the infrastructure that cloud services and data centers require. Moreover, the Bureau of the Fiscal Service Parkersburg site could serve as an anchor for cybersecurity companies given the scale and sensitivity of data it processes
  
• State location allows it to house Continuity of Operations (“COOP”) compliant facilities
  
• Preferential tax policies that are relevant to data centers such as exemptions on property taxes as well as cheaper land costs
  
• Although West Virginia has a smaller talent pool than neighboring states, the current excess of graduate IT students could fill new IT jobs that are created in the State at a lower cost (Exhibit 9)
  

 

The number of IT Graduates in West Virginia exceeds by 2,511 out of the existing 363 job openings per year in West Virginia.  

Growing a cybersecurity sector is a long term investment that will require growing the State’s talent pool and fostering an innovation environment that allows for creation and growth of startups, as new business creation is the major driver of the sector’s growth. Over the short term, West Virginia can consider attracting anchors that can help progressively grow an IT services sector in the State, including: 

• New federal anchors whose long term presence can create opportunities for local graduates, as well as for private sector contracting services. Specifically, West Virginia could make the case for consolidating federal biometrics facilities in the State
  
• Data centers and cloud services companies that can find opportunities for lower cost operations in the State. Comparative analysis shows that West Virginia has a competitive offering relative to current hubs that it can actively market (Exhibit 10). It is important to note that although operating costs will be low, such companies will need sites with the effective infrastructure to operate a data center (e.g., dual broadband access, connection to the fiber optics backbone). Such sites are currently limited in the State and will have to be expanded to take full advantage of this opportunity
  
• Attract anchor tech companies, specifically focusing on identity and access management, leveraging existing biometrics facilities and training programs
  
• Beyond specialized IT companies, West Virginia can also consider attracting IT shared services centers of any large company, leveraging their competitive positioning from low labor and land costs (Exhibit 11). This is a high potential opportunity for the State as it requires a less skilled labor and less infrastructure investments than the other options
  

 

• Both WV  and VA eliminate sales tax for data centers 
  
• However, VA has minimum scale and impact requirements attached to their incentive 
  
• This further increases WV’s cost advantage when considering smaller centers 

 

4.6 LIFE SCIENCES

Life sciences is the broadly defined discipline of healthcare, medicine, and research in biology, physiology, and other subjects relevant to human health. The life sciences market is expected to add nearly $30 billion in value over the next 5 years, growing from a ~$50B to a ~$80B industry40. In addition, this sector is currently witnessing significant disruption, with technologies such as genomics expected to have a $0.5-1.2T economic impact ^[41] . 

Across the value chain from research to commercialization and production, West Virginia has assets that it can leverage such as existing clinical trials operations at universities and manufacturers. Moreover, West Virginia's location is attractive for companies and researchers given that diseases on which they are spending large proportions of total research and development (R&D) funds are prevalent in West Virginia's patient population, providing an opportunity for clinical trials and innovation (Exhibit 12). 

 

However, there are larger and more established hubs in the region against which West Virginia will have to compete (Exhibit 13), and large capital investments will be needed to further grow the State’s life sciences footprint (the Massachusetts Life Sciences Center invested or committed $540M in the last 6 years, of which 68% went to capital projects ^[43] ). West Virginia also attracts less funding through the National Institutes of Health (NIH) relative to neighboring states, and has limited venture capital (VC) investment deals (Exhibit 14).

 

      

  

In addition to supporting growth of the existing OEM footprint and expanding it to include manufacturing of other automotive parts, West Virginia can also consider attracting a vehicle assembly plant if the opportunity arises.

Assembly plants have been proven to bring significant economic value to a state, with Volkswagen’s 2008 plant in Chattanooga, TN, bringing 3,200 jobs, $12B in annual economic impact and $35M per year in tax revenue, while Tesla’s plant in Sparks, NV created 6,500 jobs, $5.4B in annual economic impact and $1.5B in tax revenues over 20 years ^[46] . Although recent trends have been in favor of expansion of existing plants instead of relocation or creation of new ones, industry experts predict that foreign firms will be looking for new plants in the US to expand their market there. ^[47] For example, Hyundai announced plans for potential construction of a new US plant contingent on rising market demands ^[48] .

Given the competition for a smaller number of opportunities with significant impact, states have actively competed to attract such plants, with incentive sizes rising since 2005 (Exhibit 15).

           

West Virginia’s low labor costs and turnover, location and low cost of doing business make it an attractive place for potential new vehicle assembly plants. A comparative analysis of the economics of the recent Tesla plant in Nevada shows a potential 18% higher NPV if the plant was built in West Virginia instead ^[50] . This difference is mostly driven by the lower labor costs in West Virginia. Moreover, current employers in the sector, such as Toyota Motor Manufacturing, West Virginia, Inc., cite the combination of the low cost while also high quality workforce as a reason for locating in West Virginia. 

Successful attraction of a vehicle assembly plant will also require identification and certification of potential sites, continuing partnerships with existing OEMs, limiting the rise in utility costs and developing a competitive attraction package.