Got Political Clout?

Public policy has a huge bearing on economic development competitiveness. Is your organization doing an effective job of influencing public policies that directly and indirectly impact your area's economic competitiveness?

There is a definite learning curve to mount in this arena, as politically savy economic developers know. You have to be very careful in terms of what you do and how you do it, especially if your organization receives public funding. Also, you need to consider how important an issue is and whether the issue is a "sword that you really are willing to fall on."

What are some practical strategies and tactics you might consider to increase your political clout? Here are some of the main ones that we see in use:

* Building consensus about an areawide political agenda.

* Lobbying. ("Education" in some people's terminology.)

* Letter writing and correspondence.

* Speakers' bureaus.

* Financial contributions. (Be VERY careful here!)

* Arbitration and mediation.

* Crisis management.

* Advocacy advertising.

* Image programs.

* Public relations and public affairs work.

* Political candidate reviews.

* Legislative testimony.

* Political risk analysis (Becoming much more important.)

Who should do these things? In many areas, chambers of commerce play the lead role in developing the political clout needed to get things done in the governmental and community arena. Other private sector-based groups also play this role.

What are some of the leading issues? Here are the big ones that we see:

* Securing and maintaining public funding for ED programs. (Major one in the past 12 to 18 months.)

* Raising public investment capital for major development projects, such as a sports arena, a lakeside park, or a major industrial park.

* Shaping public policies with a direct pocketbook impact on businesses, such as workers compensation rules or business tax costs.

* Shaping public policies that influence the general environment for economic development, such as major infrastructure developments or educational funding.

* Ensuring that government finances are reasonable and adequate to meet the area's future economic development needs.

* Competing for governmental resources that directly contribute to economic development, such as retaining or attracting a Federal research lab.

Public policy issues will be more important to your EDO's future performance. Have you thoroughly assessed which public policies will help and hinder your ability to achieve your future goals? We believe this is vitally important.

Economic Development Asset Map is Changing

It is evident to me from my work with a variety of EDO's across the country that the economic development asset map is changing. What does that mean? It means that the assets or resources required to support economic development are changing in a dramatic way.

People and knowledge have moved into the number one position as key assets needed to compete for technology and knowledge-based businesses and jobs. Many areas have completed useful asset maps characterizing the availability and quality of these assets. Many others have not.

As the economy continues to shift more in the direction of "intangible assets," communities, regions and states need to think harder and smarter about how they plan and organize themselves to compete in the "intangible opportunity market." For example, Richard Florida's work on the creative economy has captured a lot of attention in economic development circles, but how do you go beyond the "buzz" to do something concrete about the issue of creative capital? We can help you identify and assess the value of your creative assets as economic growth engines.

Assets attract opportunities to communities. Everybody is chasing the same industries and industry clusters as opportunities. Is there any place on the planet that does not want to be a biotech or life science center? The real issue is whether your area directly possesses, or can gain access to, the assets needed to attract and develop these opportunities. How do you put in all together? We think one answer is "asset marketing." How does your current marketing strategy deal with your "asset advantages?"

Asset-building requires investment. Does your area have in place an "asset enhancement investment strategy?" This may turn out to be much more valuable to you than just another strategic plan. Maybe that is a better approach to downtown revitalization than many other things that we are doing.

Lately, we have been working a good bit with environmental assets. Is your area using its environmental assets effectively to grow its economy? Do you have a strategy to accomplish this in a sustainable way? You don't need an "asset depletion" strategy. You need a strategy that make wise use of your ecological assets. Remember when Cleveland's Cuyahoga River caught fire in the early 1970's? We weren't making wise use of our water resources back then. Today, Cleveland has come a long way in using the Cuyahoga River and Lake Erie directly and indirectly as environmental assets that support economic development.

We would be interested in hearing from you about how your area economic development asset map. Call Don Iannone at: 440.449.0753, or send us an email at this address (click here).

Natural Capitalism...

Our current economic development mindset thinks too narrowly about the importance and value of the natural environment. Here is a broader view that some are working to realize.

"The environment is not a minor factor of production, but rather it is an envelope containing, provisioning and sustaining the entire economy. The limiting factor to future economic development is the availability and functionality of natural capital, in particular, life-supporting services that have no substitutes and currently have no market value."

From: Natural Capitalism, by Paul Hawken, Amory Lovins and Hunter Lovins.

Capital in the New Economy...

As you develop new economy opportunities, remember this point:

"In the new economy, capital works in real time, moving rapidly through global financial networks. From these networks, it is investd in all kinds of economic activity, and most of what is extracted as profit is channelled back into the metanetwork of financial flows. Sophisticated infromation and communication technologies enable financial capital to move raoidly from one option to another in a relentless global search for investment opportunities. Profit margins are generally much higher in the financial markets than in most direct investments, hence, all flows of money ultimately converge in the global financial networks in search of higher gains."

Source: The Hidden Connections, by Fritjof Capra.

Hard Data on Offshore Sourcing Benefits and Risks

Companies have greatly increased their outsourcing activities in many industries. Manufacturing has seen major activity in this area for sometime. IT functions are shifting abroad in droves at this time.

As places like China, India, Singapore and Hungary become more advanced, more US companies are looking at sourcing products and services from these countries. In many cases, these outsourcing decisions are hurting economic development in US cities and regions. My earlier article on foreign direct investment (FDI) pointed to the increased competition by these countries in attracting FDI. They are expected to be even stronger FDI competitors as the economy continues to heal.

So, what about the economics and risks of outsourcing? Can they be quantified and what arguments should US communities and states make as they fight to keep business from sliding off to latest and greatest developing country. A recent analysis by the WEFA/Global Insight group offers some perspective.

According to Global Insight, the main way to quantify thel ower cost advantage of outsourcing is by comparing wage costs. However, these lower wage costs can differ among industries, and they may not reflect all the input cost factors for a particular industry—a barrel of oil is a global good and sells at roughly the same price no matter where one's factory is located. Furthermore, shifting production from, say, the United States to China may yield a cost reduction in the year that the transition takes place, but future years will not bring the same dramatic cost savings. Finally, sourcing inputs globally entails different risks. Therefore, any cost savings decisions should incorporate some analysis of risk factors.

The recent SARS epidemic illustrates this trade-off. Some global manufacturers shifted production from newly built Chinese factories to existing facilities in Mexico and Europe. Supply-chain dependability became as important a factor as cost.

How much do costs drop for US companies outsourcing to Asia? Global Insights estimates at least a 50-60% drop and in some cases it is even higher.

But all is not rosy in these new markets. Risks are greater, which the Global Insight analysis considers. Along with the lower costs, however, is an increased exposure to different country-specific risks. Using the current and proposed sourcing patterns, these risks can be estimated. We do so by creating weighted averages of the individual country risks prepared by our International Risk Service. Not surprisingly, the movement of production facilities and supply chains to China, Hungary, and India entails larger business risks as well as larger total risks, including political instability. There is also a greater risk of significant inflation in consumer prices with the new proposed production plans.

The argument for US economic developers to make, at least for now, is that US locations are more stable and do not pose as many or as great of risks to business operations.

Read more here.

Hostile Bid for Dana Corporation

The automotive business continues to restructure in response to new cost and competitive pressures. The latest development is talk of a takeover of Dana Corporation in Toledo, OH by ArvinMentor.

The Dana Corporation, once the leading independent maker of automobile parts, has become the target of a $2.2 billion hostile takeover bid by a smaller rival, ArvinMeritor, after rebuffing acquisition discussions.

The move comes as auto parts companies remain vulnerable to the cost demands of the major automakers; outside suppliers account for some 70 percent of a vehicle's cost. ArvinMeritor's chief executive, Larry Yost, argued today that mergers were the only way left for suppliers to grow in a brutally competitive market.

"We've struggled to keep up with the changes," he said. "We've all restructured, but stand-alone restructuring isn't enough. The auto supply industry is dramatically different today and there's no going back."

ArvinMeritor is offering $15 a share in cash, a 25 percent premium over Dana's closing stock price on Monday. ArvinMeritor is also assuming $2 billion of debt. Shares of Dana surged 35 percent today, closing at $16.20. ArvinMeritor shares fell 3.4 percent, to $20.29.

News of the offer prompted speculation that Dana, whose shares traded in the $60's in the late 1990's, would fetch a much higher price and that other companies and even investment firms might enter the fray.

The outcome of this situation will have an economic development impact in the Toledo area, and perhaps other locations where Dana and ArvinMentor have operations. This is an important situation to watch. One hopes that Toledo will come out better than Cleveland did after the TRW takeover by Northrup Grumman.

To read more, go here.

Foreign Direct Investment is Important to ED

A recent analysis by Economy.com of foreign direct investment in the US says it makes a difference in economic development.

Foreign direct investment (FDI) is a significant factor supporting economic development across the U.S. and it shapes regional development patterns in states. Flows of FDI have slowed considerably over the past two years, however, and will not resume any influence on the U.S. economy until two conditions are met.

First, the dollar must stabilize. Second, the global economy must accelerate and profit margins among firms in Europe, Canada and Asia must improve. When FDI does accelerate again, however, the U.S. will face considerable competition from China, India and other nations where workforce quality and productivity are improving.

As of 2000, the latest year of data available from the U.S. Commerce Department, the stock of FDI in property, plant and equipment nationwide amounted to 12% of U.S. GDP, up from just over 10% in 1995. Due to this rising presence, state governments have begun to more aggressively court FDI. Many states have investment offices in Europe and Asia, regions that are primary sources of FDI in the U.S., although many have trimmed their staffs recently in light of tight state government fiscal conditions.

FDI is concentrated generally among states that have high concentrations of manufacturing, and among those that produce energy, chemicals and other globally traded basic commodities. Among the manufacturing states with high concentrations of FDI is Indiana, which is the state with the highest concentration of manufacturing employment. Kentucky and South Carolina are not far behind. The economies of these three states have been boosted in recent years by investment from foreign auto manufacturers and other industries. South Carolina also has long historical ties to FDI related to the textile and chemical industries.

From my vantage point, eventually I see China and India becoming more active as sources of FDI for the US. This will not occur until their economic bases grow stronger, but both will be players in the next 3-5 years. As I reported in an earlier article this week, look for both China and India to move forward with more acquisitions and mergers with US companies. M&A activity has historically accounted for the lion's share of FDI investment in the US. China and India are no doubt watching Korea as it increases its production presence in the US, especially in the auto and electronics industries.

Read more here. (If you subscribe to Economy.com.)

Another Leap for China

China is and will continue to be a major competitive threat to US companies, unless we wake up and mount a much more aggressive and smarter strategy to compete globally.

As Sino-brands raise their game and set their sights on overseas markets, Damian Reece assesses the threat to Western companies

Next time you buy a fridge, why not check out a Haier? Or what about replacing your Compaq personal computer with a Legend?

Instead of drinking a pint of the usual, why not try a bottle of Yanjiing. After all, you might need a stiff drink before splashing out on that Erdos cashmere cardigan for your loved one's birthday.

What, you might ask, are we blathering about? Well, all these consumer brands have one thing in common (apart from being unfamiliar to most of us). They are all Chinese. In fact these are just a few of the Sino-brands that have made it big in China and which experts now claim are set to conquer the Western world.

A new book, Brand Warriors China, highlights these leading Chinese brands. It says it is time for European and US companies to reassess what "Made in China" means. Chinese companies are no longer content to simply manufacture at astonishingly low cost for large overseas companies, who stamp their own labels on the finished goods.

This is sophistocated business strategy, in case you have not noticed. The Chinese not only have a serious production cost advantage and they are rapidly mounting the product quality curve, but they are also making significant market brand progress.

Look for more Chinese companies to acquire US companies and open operations here in the next three years. They will extend their production reach to all continents. It's not too early to set the stage for recruiting Chinese business investors. Remember that most foreign direct investment takes place through mergers and acquistions.

Read more here.

DaimlerChrysler In Georgia Update

DaimlerChrysler AG's board of directors is expected to vote today on whether to go ahead with plans to build a $754 million Sprinter van plant in Pooler, near Savannah.

State officials have waited nearly a year for a decision, despite former Gov. Roy Barnes' claim last October that the plant was a done deal for Georgia.

Then -- as now -- DaimlerChrysler officials said nothing was definite and that no contracts had been signed.

A decision would end nearly a year of uncertainty and mixed signals about the project, which would be the state's largest to date. Should the board sign off on the project at its meeting Wednesday, Georgia economic development officials plan a ceremony on Monday in Savannah.

The worldwide vehicle industry is overcapacity. It doesn't take a rocket scientist to see that we have more production capacity than is needed in the US and elsewhere across the globe. With the turmoil in the past couple years, is it little wonder that Daimler is moving slowly on a new plant decision.

Read more here.

Indian Firms Make Big Gains

Are you targeting Indian firms for future business attraction? Maybe you should be in light of the fact that twenty Indian companies, including State Bank, Reliance Industries, Indian Oil and Oil and Natural Gas, made the Forbes list of top 2000 companies worldwide for 2003.

Read more here.

Civic Design: Good for Economic Development

According to Pittsburgh-based Heinz Endowments, "civic design is the process of planning and designing communities and the buildings, public spaces, and thoroughfares of which they are comprised. More commonly referred to as urban planning, civic design more explicitly acknowledges the significance of non-urban environments and connotes the importance of including the public in the articulation of a broad community vision. Conscientious civic design involves a balance of design excellence, environmental stewardship, economic prosperity, and community participation."

Here are some examples of civis design projects supported by Heniz.

The Pittsburgh Cultural District: Jack Heinz’s triumphant vision for a downtown Cultural District continues to invigorate Pittsburgh with a strong emphasis on urban aesthetics. In late 1999, The New York Times commented: “To describe Pittsburgh’s unconventional, un-Disneyfied remodeling of its cultural district...is to explore how theater can help transform urban identity in the electronic age.” The Times applauded the district’s loyalty to its urban soul and its architectural sensibility. What underlies both, and the Cultural District itself, is a deep belief in the power of inspired design to transform community life.


Nine Mile Run: At the beginning of the last century, H. J. Heinz was instrumental in bringing Frederick Law Olmstead, Jr. to Pittsburgh to plan an extension of Frick Park through Nine Mile Run down to the Monongahela River. For most of the 20th century, that vision was lost as the community fouled Nine Mile Run’s waters and filled its valley with a mountain of slag. Today, however, with help from The Heinz Endowments, the City of Pittsburgh is working with Carnegie Mellon University’s STUDIO for Creative Inquiry to reclaim Nine Mile Run from its century of abuse, and H.J. Heinz’s vision is finally coming to pass. In what promises to become a national model for brownfield restoration, the city is building a new urban community atop the slag heap and Nine Mile Run is being restored as a wild urban park where area residents will soon be able to hike and fish.


Convention Center: In 1998, as part of its commitment to civic design, the Endowments helped to sponsor a design competition for a wholesale expansion of the David L. Lawrence Convention Center. The winner was Rafael Vinoly Architects P.C. of New York. At its completion in 2003, Pittsburgh's redesigned Convention Center will be a symbol not only of the region’s resurgent business vitality, but also of its style, environmental sensibility, and continuing transformation. With a signature sloped roof, lines that echo the arches of Pittsburgh’s bridges, and public promenades, the new center will be more than a place with a lot of space. It will contribute to a new urban landscape where commerce, art, environmental responsibility and community come together as a signature of the city.


Riverlife Task Force: Pittsburgh’s celebrated three rivers have suddenly become the city’s hottest real estate, as the development of two new stadiums, a new riverfront park, and other projects begin to transform the region’s relationship with its waterways. The community’s civic and political leadership have made reclaiming the riverfront a top priority. With support from The Heinz Endowments and guidance from the internationally-renowned planning firm of Chan Krieger & Associates, a coalition of property owners, civic leaders, and community activists are working to make Pittsburgh’s signature waterfront one of the world’s finest. Visit the site for more information.

Plant Location and Environmental Regulation

Economic developers and environmentalists today work together more closely than they did a decade ago, yet at times professionals in the two fields lock horns over how economic development impacts the natural environment and how environmental regulation impacts economic growth. These are no small issues, as the seasoned professional knows. Yet, what do we really know about how industrial facility location is impacted by federal and state environmental regulation, especially state regulations, which vary considerably across states?

A study conducted by the National Center for Environmental Economics looks at these issues in the context of the paper and oil industries, which are highly natural resource-dependent industries and both are assumed to be impacted in a significant way by environmental regulations.

Here is short summary of what the researchers (Wayne Gray and Ronald Shadbegian) learned.

The study examined whether a firm's allocation of production across its plants responds to the environmental regulation faced by those plants, as measured by differences in stringency across states. The researchers also tested whether sensitivity to regulation differs based on differences across firms in compliance behavior and/or differences across states in industry importance and concentration.

US Economic Census data for the paper and oil industries to measure the share of each state in each firm's production during the 1967-1992 period. Several measures of state environmental stringency were used and tested for interactions between regulatory stringency and three factors: the firm's overall compliance rate, the index of industry concentration in the state, and the industry’s share in the state economy.

The researchers found significant results for the paper industry: firms allocate smaller production shares to states with stricter regulations. This impact is concentrated among firms with low compliance rates, suggesting that low compliance rates are due to high compliance costs, not low compliance benefits. The interactions between stringency and industry characteristics are less often significant, but suggest that the paper industry is more affected by regulation where it is larger or more concentrated. The results are weaker for the oil industry, reflecting either less opportunity to shift production across states or a greater impact of environmental regulation on paper mills.

Obviously, this study is of greatest relevance to economic developers in states where the paper and oil industries are significant economic sources, but it is relevant to all states in understanding: 1) the difficulty in conducting empirical research on the growth/regulatory impact issue; and 2) the extent to which the stringency of environmental regulations influence plant location decisions in natural resource-dependent industries.

These are issues requiring more systematic research in the future. The facts can help inform both economic developers and environmentalists on how to better coordinate their respective efforts. Moreover, better research could help dispell some of the unfounded assumptions circulating about environmental protection and economic development.

Download the full report here.

Australia's Digital Content Cluster

In 2002, Australia's Department of Communications, Information Technology and the Arts and the National Office of the Information Economy conducted a preliminary analysis and mapping of the industries producing digital content and applications identifying the key enterprises, their location and productivity drivers and barriers.

The analysis concludes that there are large economic and cultural gains to be captured in digital content production and applications development. The wider information communications technology (ICT) industries need the content and applications industries in order to innovate new services and new ways for people to interact with information systems.

In turn, the content industries need the new vistas that digital forms provide. This will require new business models and ways of working, as well as new skills and infrastructures to support business management and collaborative work within the digital content and applications industries themselves.

The range of enterprises producing, or capable of producing, digital content and applications in Australia is large. It includes consumer products and services such as publishing, broadcasting, film and video services, the visual and performing arts and collecting institutions, and extends to services such as architecture, visual and industrial design, advertising and software development. It can be conducted in, and for, industries as diverse as health and education.

Download the report here.

How Is a Creative Cluster Defined?

The answer is there are various ways to define a creative cluster. Here is one useful example from the United Kingdom.

The creative cluster has been defined by the UK Government's Department of Culture, Media and Sport as "…those activities which have their origin in individual creativity, skill and talent and which have a potential for wealth and job creation through the generation and exploitation of intellectual property."

In the UK, creative Industries include:

» Advertising.
» Architecture.
» Crafts and designer furniture.
» Fashion clothing.
» Film, video and other audiovisual production.
» Graphic design.
» Educational and leisure software.
» Live and recorded music.
» Performing arts and entertainments.
» Television, radio and internet broadcasting.
» Visual arts and antiques.
» Writing and publishing.

New Mexico Artisan Cluster

Many EDO's are interested in tapping their creative sector as an economic development catalyst. For those interested in this topic, you may want to investigate what Next Generation Economy, Inc. in New Mexico is doing to develop its "artisan manufacturing cluster," which includes a focus on jewelry, furniture, pottery, glass and clothing manufacturing.

This a sensible and creative approach to cluster development.

Download the artisan cluster brochure here.