Colorado Tech Summit

Colorado is once again on the move on the economic development front.

Colorado's struggling tech sector is on the verge of recovery. But it won't happen without consolidating more, embracing new technologies and shipping some jobs overseas, said Robert M. Dutkowsky, a panelist Friday at the Colorado Technology Summit. Dutkowsky, president and CEO of Denver-based software company J.D. Edwards, was among prominent speakers including Colorado Gov. Bill Owens and Sun Microsystems' CEO Scott McNealey at the event, sponsored by the Governor's Office of Innovation and Technology.

About 2,500 techies attended the fourth annual summit. The all-day summit gave participants the opportunity to learn about the state of Colorado's biotech, aerospace and venture-capital climate. Despite murmurs of a "jobless recovery," the mood of the summit was optimistic.

Go here to read more.

Chinese Push for More Foreign Investment

Here are some new insights into China's strategy to strengthen its economic development through foreign direct investment. This is what we are up against as the economic skies begin to clear. How will compete against this? We need to work together in dealing with our economic development from abroad, especially China and India.

China is expected to maintain the momentum in wooing overseas funds, agreed economists attending the ongoing international High-tech Expo held in Beijing.

Zhang Hanya, secretary-general of the China Investment Association, said that in the past 20 years, overseas investment has always been an important driving force in China's economic development. In 2002, China ranked first in the world in attracting overseas investment. Despite the impact of severe acuterespiratory syndrome (SARS) in spring, China still made great progress in this respect, he said.

Latest statistics from the Ministry of Commerce show that in the first seven months this year, foreign direct investment in thecountry was 33.35 billion US dollars, up 26.63 percent over the corresponding period last year. China is expected to use foreign funds of 60 million US dollars in real terms for the year.

China welcomes foreign companies to set up research institutes,manufacturing bases, technological development bases and regional headquarters. They can take various channels to cooperate with their Chinese counterparts in technical upgrading or development of key technologies.

Currently, more than 400 out of the top 500 multinationals haveset up companies in China. By July 2003, China had approved set upof 446,441 overseas-funded companies, backed up by contractual overseas funds of 887.2 billion US dollars, or 481.3 billion US dollars in real term.

Read more here.

Ohio University Plans ED Conference

Ohio University and the Ohio Development Department's Office of Appalachia will host a conference on economic development and transportation Oct. 7-8. Go here to read more.

Also, you might find the new Appalachia-Ohio website to be of interest. Go here. Nice job!

Rural Kentucky Gets with the Technological Imperative

Ground was broken recently for a new center that will play a role in developing jobs in western Kentucky. The Regional Center for Emerging Technology will be the regional headquarters for the state's New Economy initiatives. Through the center, existing businesses and startups will get help with development and funding for innovative products.

Go here to read more. Find out more about the center here.

Innovative Funding Deal Cuts Both Ways

Here is an innovative approach to EDO funding, but one that cuts both ways in terms of public reaction.

Northampton County, Pennsylvania administrators propose channeling $400,000 a year to a consortium of Lehigh Valley business leaders if state legislators approve a racetrack and casino in Palmer Township. The Lehigh Valley Economic Development Corp. would get 20 percent of the $2 million "host fee" collected by the county from the proposed horseracing track and slot machine parlor. On the surface, this sounds all fine and good, but read on.

This is a complex situation because of politics and different views about the proposed deal. LVEDC President Raymond Suhocki denied that the deal might create a perception that the LVEDC was being paid for its support of the track by the county, which stands to earn at least $2 million annually.

"The issue of supporting the racetrack was always discussed separately from the finances of the racetrack," Suhocki said. "You have to do it. It can cloud the issue."

Gambling remains controversial in most states, even where it is very commonplace, like in Las Vegas. It is an important revenue source for state and local government, which has spurred several places to "place their bets" on gambling as an economic engine. In one word: "careful!"

Read more here.

Lafayette, Indiana Keeps Big Employers and Grows New Start-Ups

For a mid-size community, Lafayette, Indiana has several large employers. The community has done a much better than average job of retaining these employers and helping them to expand. This is not easy in this day and age of changing economics, with increasing pressure to move major manufacturing facilities offshore.

Take a look at this list of Lafayette-based employers:

- Purdue University, 13,831 jobs
- Wabash National Corp., 3,500
- Greater Lafayette Health Services, 2,600
- Subaru of Indiana, Inc., 2,566
- Caterpillar Tractor, 1,450
- Eli Lilly & Company, 1,200

In addition, the community is seeing the birth of several university spin-off companies. These are positive signs that I saw during my recent visit to Lafayette and Purdue. I was also very impressed with the way in which the Lafayette Progress Inc. (LPI) approaches relationship management with companies. Mike Brooks, the CEO, was telling me about how we works with existing and local companies. It's a smart model that works on building ongoing relationships with companies, which are evolving in nature and customized to the company's needs. Most importantly, LPI delivers on their promises.

Lafayette has also done a very good job of redeveloping its downtown area, which contains a good mix of retail businesses and is an interesting and pleasing place to shop, dine, and entertain.

Visit Lafayette Progress, Inc. here to learn more.

Purdue Puts It All Together

I had the privilege of meeting Martin C. Jischke, the President of Purdue University. Very impressive guy with a real vision of how higher education and economic development intersect. I learned from him how Purdue is supporting economic development in Indiana through a series of initiatives, including Discovery Park, a $100-million multidisciplinary research and entrepreneurial cluster now being built on the south edge of campus.

As the name suggests, Discovery Park’s prime focus will be to foster the Discovery portion of the University’s tripartite mission. Discovery is increasingly influenced by the convergence of technological advances in various academic disciplines. Discovery Park will capitalize on this trend by attracting faculty and financial support to conduct interdisciplinary research that spans multiple departments and is ambitious in scale and/or scientific impact. The Park will provide an organizational structure and stimulating, dynamic environment that enhances the identification, evaluation and implementation of emergent inter- and multidisciplinary research areas.

Purdue impresses me with it $1.0 billion plus endowment, its vision, commitment to innovation and willingness to respond to real community economic needs. This is a university that has advanced at a time when others have withered in the past decade. By most standards, Purdue is a world-class research institution, drawing students from 130 countries around the world.

To learn more, visit the Purdue website here.

Increasing Your Organizational Value

On September 11th, I will deliver the keynote speech at the Indiana Economic Development Association Annual Conference in Lafayette, Indiana. The title of my speech is "Increasing Your Organizational Value." I will present my new model on how EDO's can increase the economic value they produce for communities, industries, companies and workers.

This is based upon my research on how EDO's create value for their stakeholders. My September 11 speech will focus specifically on how Indiana's economic clusters can use the new value model to increase the economic value that they produce statewide.

I think you will find this to be quite interesting.

Download a copy of the presentation here.

Economic Development Principles

Recently I delivered a presentation on the Principles of Economic Development for the Ohio Development Association at Lakeland Community College here in Northeast Ohio.

The one-hour presentation provides a very simple and straight-forward approach to understanding economic development. It's ideal in explaining economic development to community leaders, new economic development board members and community residents.

I talk about how the principles of economic development are changing, and how to avoid some of the pitfalls of organizing a community or regional economic development program.

It's yours for the taking. Go here to download the presentation in PDF format. Comment are appreciated if you have some to share.

Knight Foundation Comes Through for NE Ohio

NE Ohio's foundations are coming through with important investment dollars needed to catalyze regional economic improvement.

Two leading business organizations in Northeast Ohio have been selected to carry out the first phase of a multimillion-dollar investment to strengthen the local economy by growing and keeping jobs. Team Northeast Ohio and the Greater Akron Chamber will use grants from the John S. and James L. Knight Foundation toward efforts to increase economic development – a critical community issue identified by a committee of local Knight advisers.

“The regional economy has struggled. The job and wage growth in Northeast Ohio lags behind the nation and competitor regions,” said Vivian Celeste Neal, Knight Foundation’s program officer for Akron. “These grants will help improve the region’s quality of life.”

Team NEO, a coalition of the region’s leading business organizations serving 13 counties, will use a $1.5 million grant from Knight to increase the number and quality of job opportunities; the amount of private investment; the number of business inquiries in the region; and the quality and quantity of business services to existing industries in Northeast Ohio. The grant also will help Team NEO build a marketing plan and develop its research capacity.

Team NEO formed earlier this year to attract business, retain business and expand job opportunities. The Knight grant goes toward the $7 million projected to run the organization over the next three years. Team NEO’s founding partners already have contributed $3.4 million to the project and have pledged to raise the remaining $2.1 million.

Another grant, $250,000 to the Greater Akron Chamber, will enhance plans for the Summit County Workforce Development One-Stop Employment Center. The center’s mission is to maximize employment and economic opportunity in the county by being the key resource for every job seeker and employer.

Thank you Knight Foundation and congratulations Team NEO and Greater Akron Chamber.

Read more here.

Some Good News for Retailers--Maybe

U.S. retailers are beginning to get their inventories back in line. Helped by tax cuts, non-auto retail sales have been strong in the past three months. While the inventory data lag, growth had already begun to slow in June, and anecdotal evidence suggests that retailers feel much more comfortable about their inventory levels now than they did three months ago. Keeping control over inventories is particularly important for retailer profits as the important holiday season approaches. However, recent strong sales are not necessarily indicative of a good holiday season for retailers.

Retail sales excluding autos grew 1% in June, 0.8% in July, and strongly again in August if the chain store results are any indication. Retailers, who began building inventories intentionally last year and kept building them early this year as sales were below expectations (see Too Many T-Shirts), are succeeding in reducing inventories. High inventories hurt profits for a number of retailers in the first fiscal quarter. However, year-over-year growth of non-auto inventories was the slowest in a year in June (on a six-month moving average basis) and likely fell further in July and August

Read more here (if you are an Economy.com subscriber).

Oro Valley Recruits High Incomes

My friends in Arizona never cease to amaze me. Here is an example of how a community that started out wanting to be a retirement haven has diversified itself into a high-income community for tech executives and others in the Tucson area.

Oro Valley Arizona is attracting a new type of mature resident - established high-tech firms whose well-paid employees want beautiful neighborhoods and a short commute.

"People have thought Oro Valley is primarily a retirement community. Not so," said Jeff Weir, Oro Valley's economic development administrator. The town north of Tucson has 38,000 residents and a median age of 45.

Oro Valley's development shows the impact that tech transfer can have on a community, and broadens the portfolio economic development officials use to lure companies to the greater Tucson area.

Downtown Tucson offers an urban environment. Marana offers plenty of land and potential. Oro Valley has mountain views, upscale homes - and 10 high-tech companies, with room for three times more than that.

"Essentially what we've got up there is sort of the emerging upper-middle-class suburbs," said Lay James Gibson, a University of Arizona regional economist. "You can argue that the Tucson region is well served by this because you're minimizing the journey to work - you're putting jobs and people together."

I've known Jeff Weir and Lay Gibson for sometime. Jeff, maybe someday my wife and I will buy a home in your town. I know--buy-in now before the prices go higher.

Read more here.

Rise of the Mid-Sized City: Q&A with Joel Kotkin

Joel Kotkin, author of a book called the Declustering of America, took questions from Washington Post readers and provided some candidate responses.

The transcript is interesting reading--some clearly agreeing with Kotkin that businesses, jobs and people will continue to flee the biggest cities for smaller ones, and others admantly opposed to his view. Read more here.

I like the technique used by the Post to engage readers in a dialogue about a specific economic development issues. Maybe more big and small city newspapers should consider this approach.

Who's Putting Down Business Roots in China?

Looking for some insight into which companies are locating operations in China? You may find this article to be of interest. Go here.

Tallahassee Community College Steps Up ED Efforts

The shortage of skilled workers in a wide range of industries makes it much harder for Florida to attract new businesses and difficult for those already here to recruit homegrown talent. It's considered one of the Sunshine State's biggest economic development challenges.

Florida's community colleges are a linchpin in the workforce development efforts, and Tallahassee Community College is quickly playing a central role in helping the Big Bend grow a healthier private sector.

Meanwhile, the college is nurturing partnerships with several large companies in the hope that those firms will strengthen their Big Bend presence.

Community colleges are bit players in economic development nationwide. They are the workforce development leaders in Ohio for example. If your local community college is not playing an active role in economic development, you should be encouraging them to do so.

Read more here.

Tulsa Lines Up $885 Million for Economic Development

Here is an example of a community that has decidedly scaled up its economic development efforts.

Tulsa County voters passed $885 million in economic development projects earlier this week, according to unofficial returns, raising their sales tax to promote growth in the slumping city.

The four-part package, funded by a one penny sales tax increase over 13 years, contains money for more than 30 projects including:

- $350 million in incentives to lure Boeing's new 7E7 jet plant. It had 58 percent support.

- $22.3 million in incentives to persuade American Airlines to retain its roughly 9,000 jobs in Tulsa, or to move more jobs here. Nearly 61 percent of voters were approving this question.

- $350.3 million in funding for higher and common education proposals and an 18,000-seat regional events center. This package had 61 percent approval.

- $157.4 million to improve parks, trails and community centers, enhance infrastructure and attractions including Route 66 and the Oklahoma Aquarium. About 59 percent of votes counted were for this proposition.

Also, philanthropists have pledged an additional $29 million for package projects including $10 million from the Schusterman family for a library and more classrooms at the University of Oklahoma-Tulsa. The plan includes $5 million to exempt seniors from the tax increase.

A couple observations and questions about this funding effort:

1. This is a lot of money; a whole of money.

2. I don't think it's a particularly good idea to lay $350 million on the table for the Boeing folks to just swoop-up without a lot of negotiation around what the community will get in return.

3. The margin of support for the package is fairly thin, if I understand the analysis properly, which suggests that the leaders of this initiative are open to considerable criticism if parts of the package fall apart.

4. How is the money aimed at Boeing to be used, if a deal with Boeing cannot be struck?

I will continue to follow this one.

Read more here.

Jobless Recovery or Are the Data Wrong?

Do we have a jobless economy problem or just a batch of bad data? Pay attention to this one, folks.

According to Economy.com, the U.S. business establishment survey has a sad tale to tell about the labor market: over 1.1 million jobs have been lost since the recession ended—surely, the worst hiring slump since records began in 1939. However, other economic data are questioning the message from these numbers; previous employment revision patterns also point to a more optimistic story. Perhaps this recovery is not so jobless after all.

However, something doesn’t seem right. The U.S. economy is gaining momentum: GDP grew at a healthy 3.1% in the second quarter and is set to grow at over 4% in the third. And unlike the brief spurts over the past year and a half, growth this time appears to be broad based. Productivity gains are part of the story, and these have been truly remarkable. However, they can’t be the whole story.

True, the labor market lags other parts of the economy and is generally the last to pick up during an upturn. Still, payrolls ought to have stabilized by now. Indeed, important hiring indicators—weekly unemployment claims, consumers’ assessment of hiring conditions, ISM services employment survey—soft as they remain, are pointing to stable employment, not outright declines. The establishment survey, by contrast, has reported job losses during each of the past eight months.

Something is amiss in the establishment survey. I’m convinced that the revision patterns of the early-1990s recovery cycle are set to be repeated. In the first twenty one months following the end of that recession, a total of 1.4 million job gains were originally reported; this number was subsequently revised to 2.9 million. The upward revisions were fairly evenly distributed across the months and continued for sometime. By similar—admittedly very crude—analogy, payrolls would be presently understated by a factor of 2; perhaps later revisions will show roughly flat payrolls from the end of the recession through August 2003, instead of net losses of 1.2 million. That kind of performance would be more consistent with other macro data on the economy.

The heart of the problem is hiring by small businesses, which tend to be under-represented in the establishment survey. To rectify this problem, the Bureau of Labor Statistics assumes a scale factor (net birth/death factor) that attempts to adjust total payrolls in a given month for gains or losses in small business employment. The adjustment factor is based on historical observations and, by the BLS’s own admission, typically misses upturns in hiring.

The problem is that small businesses are also usually the first to begin hiring during an overall labor market upturn. Initial estimates from the establishment survey, therefore, tend to understate employment gains in the early stages of the hiring cycle. In the past, subsequent revisions, based on more comprehensive data, have corrected this problem and lifted the originally reported numbers. I expect this time to be no different.

This is a lot of "tech-speak," but there is a very important point at hand--how good are the data and the estimating techniques we're using? Admittedly, this is no easy job. I have felt for too long that we grossly under-invest in good economic research to support economic development. This is a case in point.

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

Yamada North America: Is It Ohio or Alabama?

Japanese companies ARE expanding across the U.S. If you haven't noticed, please take note of Honda in Alabama, Toyota in Texas and Nissan in Tennessee.

A Clark County Ohio-based automotive supplier will receive tax credits for a planned expansion, although the company still hasn't decided if its expansion will happen in Ohio. Yamada North America, which manufactures steering racks, pinions and other parts in the village of South Charleston, has been in talks with both Ohio and Alabama regarding a proposed 47,000-square-foot building addition to house new drive shaft and die cast lines.

The $8.9 million project is expected to create 30 jobs within the first three years of operation and retain 272 jobs, according to a news release by the Ohio Department of Development. The department awarded Yamada a 55 percent, 10-year tax credit toward the project.

Company spokesman Alan Handy said while a final decision has not been made about the expansion. But whatever scenario works out, Yamada most likely will keep its main operations in South Charleston. "The bottom line is we're not really strongly considering relocating operations," he said.

Competition for the expansion, though, is heavy between South Charleston and Lincoln, Ala., where the company's main customer, Honda, recently built a plant. The Honda tie here is important.

Read more here.

North Florida Wants Its Piece of Biotech Heaven

Jacksonville and North Florida are taking aim at the biosciences field, hoping to get their share of future growth associated with this sector. Could the city's colleges and universities be on their way to becoming revenue-generating research institutions? They hope so.

"It's in the realm of possibility," said Jacksonville University's Dr. Karen Jackson, who oversaw the recent construction of a $212,000 genetic, cellular and molecular biology laboratory where students will be able to perform, rather than simply watch, various experiments, including manipulating DNA. "We've been unchained."

So, too, has Florida Community College at Jacksonville, which will debut its new microbiology lab, part of the $25 million Advanced Technology Center, at its Downtown campus this term. The lab "will allow us to teach skills for biotechnicians, as well as prepare for an emerging job area called bioinformatics," said Edythe Abdullah, FCCJ's Downtown campus president. "It's all about managing data, information and problem solving that's currently being done in biological research."

And University of North Florida students are garnering recognition for their work with faculty-led research projects in various departments. Undergraduate student Erik Conrad's work recently was published in the Journal of Experimental Biology. Plus, faculty and students in UNF's Department of Public Health are conducting microbiological and molecular microbiological research projects funded by the U.S. Department of Defense to aid in fighting bioterrorism.

Who is the big plum in this part of Florida that could give commercial energy to these acadamic ideas? Try Mayo Clinic, who could make something happen in North Florida they decided to play a big role. That is the horse to watch in this race.

Read more here.

Smaller Industrial Businesses Becoming More Optimistic

Nearly 80 percent of small business owners in the hard-hit industrial market are optimistic their businesses will grow in the next year, according to a survey conducted by Thomas Regional, which provides information on industrial suppliers. This is a good sign indeed for economic development.

More than 60 percent said health care coverage is their biggest challenge -- echoing results for small businesses in general in the National Federation of Independent Business's monthly survey.

A slight majority of industrial small businesses plan to add staff or buy equipment over the next 12 months, according to the Thomas Regional survey. This is an even better sign for economic development.

Unless "urgently needed policy changes" are made, however, manufacturers will hire back only half of the 2.7 million manufacturing jobs that have been lost over the past three years, says National Association of Manufacturers President Jerry Jasinowski.

Go here to read more.

Austin Says Its Under-Spending on ED

Denver spends $2.25 million. Oklahoma City forks over $2.4 million. Tabs for Dallas and Houston are $2.5 million and $3.75 million, respectively. By comparison, Austin allocates roughly $500,000 a year on economic development initiatives, according to the Greater Austin Chamber of Commerce.

Local leaders say Austin must step up financially to compete in the economic development derby. "Economic development is a fiercely competitive business and if you likened it to a gun fight, Austin's been showing up with a water pistol," says Gary Farmer, president of Heritage Title Co. and chairman of Opportunity Austin.

Opportunity Austin, in conjunction with the Austin chamber, is overseeing development of a five-year economic development strategy for Central Texas. That plan, expected to be unveiled Sept. 16. Stay tuned.

Read more here.

Japanese Businesses Planning to Look to Their Universities for More Help

There is a major push to increase the role of Japanese universities in stimulating economic development. To date, this involve has been small. Expectations are that Japan's universities need to become more competitive and they need to create vehicles to help Japanese companies become more competitive in the future.

As the increase in the number of university-led companies and other forms of private sector university-government cooperation indicates, people are beginning to look to universities as a source of scientific and technological developments. Such cooperation is especially conspicuous in the fields of medical science, nanotechnology and environmental protection.

According to a recent Japanese Government report, there were 5,264 joint research projects between companies and national universities in fiscal 2001, about 4.6 times the number 10 years earlier. The number of cases of companies commissioning universities to conduct specific research almost tripled to 5,701 during the same period.

Among factors driving the change is the domestic economic slump, which has prompted companies to reduce research and development costs.

The question now is whether universities can live up to the high expectations held by the government to became research laboratories for the private sector, as is the case in the United States.

Expect some changes in Japan, which could have ripple effects here in the U.S. and elsewhere around the world.

Read more here.

New Tech Park Planned at Cal Poly

Six years ago, a group of local business and civic leaders eager to diversify the county's economy proposed building a technology park at Cal Poly that would nurture small high-tech firms.

Although the tech sector has crashed and the state's economy remains stalled, those planning the venture still believe such a business-university partnership could benefit the entire community. And momentum appears to be building for the project -- which could ultimately become a $34 million endeavor.

According to officials with the California Central Coast Research Partnership, a group affiliated with Cal Poly that is guiding the project, federal money for the technology park is trickling in, at least 19 businesses have indicated interest in occupying space and a recent study concluded that the project is viable.

Planners hope it will be ready for tenants by 2006, if key issues such as financing can be addressed.

University officials and local economic observers say the idea for a technology park is worth pursuing -- despite the dot-com bust that sent hundreds of local tech workers in search of new jobs.

Read more here.

Edmonton Hosts Urban Sustainability Conference

Canada's cities are concerned about their abiity to grow and develop in qualitative ways over the long-haul. They also hope to balance quality of life with high quality development in the future. This is the subject of the Conference on Urban Sustainability, which will be held in Edmonton, Alberta this week.

Will Edmonton be a of network of tightly knit communities surrounding a booming downtown, with a range of housing for young and old and a network of high-speed trains?

Or will it be a sprawling mess: disjointed subdivisions, linked by gridlocked highways and racked by homelessness and poverty?

The answers to these questions could be shaped by a major gathering in Edmonton this week that will focus on reversing the declining health of Canada's cities.

Read more here.

Growth Shift from Biggest to Mid-Sized and Smaller Cities

Pepperdine University's Joel Kotkin has been espousing a new growth model that will supposedly decentralize growth away the nation's largest cities in the next decade. He says the shift is good for the country and our economy because we have put most of our economic eggs in just a few baskets.

Kotkin says: "There is a dramatic shift afoot in urban fortunes, weakening the clout of the biggest cities while spreading power and influence to scores of smaller centers, nowhere more markedly than here in the United States."

He goes on to say: "blame 9/11, technology or geographic shifts in the national economy -- or a combination of all three -- but the nation's urban hierarchy is flattening out. A host of smaller players are chopping off chunks of what was once the big boys' exclusive domain. What used to take place almost entirely in New York, Los Angeles, Chicago or San Francisco -- whether in high finance, advertising or marketing -- is now happening more and more in unlikely locales such as Omaha, Des Moines, Fargo, N.D., and Columbus, Ohio."

"Technology now gives each town the same global footprint," says Rich Nespola, a native New Yorker and president of TMNG, a communications consulting firm headquartered in suburban Kansas City, Kan. "People can work where they are comfortable and where it's most profitable."

Read more here.

Cleveland: Water for Tax Revenues

The City of Cleveland is talking with suburban Aurora about a trade of water for a piece of Aurora's tax revenues generated by new development. Cleveland is proposing that the deal be accomplished through a joint economic development district (JEDD), which is authorized by Ohio law.

Other Portage County communities are no so excited by the idea. Why? Because their water bill make increase if Aurora moves to Cleveland water.

This is just one of many of the types of situations arising as communities within a region explore new options for growth and development. Infrastrucure issues are likely to become bigger issues for growing communities like Aurora. Meanwhile, central cities like Cleveland are looking for new ways to generate cash to stay afloat. Stay tuned.

Read more here.

Terrorism Fears Taper Among Businesses

What role is the threat of terrorism playing in businesses' plan to invest, grow and develop?

Economists and companies alike say the risk of terrorism no longer is perceptibly scaring off spending -- although few would be surprised if events changed that approach overnight.

An improving economy and the passage of two years have helped mask nagging worries for businesses about the chances of a similar catastrophe. "We are continuing to see terrorism around the world, and that clearly is a concern on the part of many businesses," said Sung Won Sohn of Wells Fargo & Co. "But I don't think businesses are holding back spending simply because they are afraid of another terrorist attack."

A check of recent filings by nearly two-thirds of the 100 largest U.S. firms found that half mentioned terrorism as a possible business risk.

Smaller companies similarly are cautious. A second-quarter survey of 319 small and mid-sized businesses found that 31 percent of chief executives and business managers cited another terrorist attack as the greatest threat to the U.S. economic future -- second only to 43 percent who singled out poor consumer confidence.
Regardless what they say publicly, "the No. 1 concern for most businesses is still the potential for another terrorist attack," said Mark Zandi of Economy.com. "But nobody talks about it because they think they've done all they can to prepare for it -- investing in security, new technologies, redeploying people and assets, restructuring the way their work is done."

Paul O'Connor, executive director of World Business Chicago, an economic development group, says such thinking would simply add to the terrorists' legacy from the 2001 strike, which he characterized as an attack on American business.

"Two years of hysteria is enough," he said. "If you're making decisions based on hysterical possibilities, you probably shouldn't be running a business."

Read more here.

Native American Entrepreneurship

First Nations Development Institite completed a survey on Native American entrepreneurship recently. Here are the major conclusions of the survey, which suggest to me that the problems and obstacles facing Native entrepreneurs are no different than those facing other minority businesses--only more severe in some cases.

First, it was concluded that access to financing and limited business expertise and experience are significant barriers for Native entrepreneurs. It is impossible to delink inadequate financing from inadequate business expertise. Prospective Native entrepreneurs often lack the necessary business knowledge and skills to successfully start businesses. There is an issue of “readiness” both in being able to access lending capital, as well as in understanding and building a successful business operation. Any successful funding model will combine both. The combination may be through separate organizations coordinating services or may be one organization offering both credit and training. Either way, the research indicates that non-financial support needs to be provided throughout the process — from the development of the business plan through its implementation — in order to improve the chance for the client’s success.

Second, the results of the survey show that providing non-financial services (training and technical assistance) are major programmatic expenses for these organizations, with 43 percent of total operating expenses spent on training and technical assistance. In addition, estimating the technical cost recovery indicates that the ability to recover these costs from income generated internally is limited. The program directors acknowledged that technical assistance is critical in building borrower readiness and should be provided throughout the process — from the development of the business plan through to the operation of the business. The median cost of training per training client was $1059, with the range varying from $125 to $5714. Existing comparison data available by the Aspen Institute (Aspen Institute, 2001) found that the median cost of training per client was $949. The percentage of total income generated internally is the proportion of total income reported by the organization that was generated from either the proceeds of the lending operations or the training activities. Across all organizations the proportion of earned income was 56 percent, but this percentage was significantly higher among those organizations that provided financial services only (95 percent) and negligible among those programs providing training only (1 percent). This finding is consistent with the fact that organizations engaged in lending are able to generate revenues, while those providing only nonfinancial
services are dependent on outside funding. The majority of the programs providing non-financial services only were approximately 80 percent dependent on federal funding sources for their operations. The findings of the research indicate that the costs of providing nonfinancial services to prospective entrepreneurs often exceed the revenues generated from lending. Some form of subsidization of these services is required.

Third, the results of the research indicate that the lending programs may experience inadequate cash flow. However, it is important to note that the problem of inadequate cash flow is more complex. The costs of operating a lending program can be broken down into lending capital, a loss reserve, and general administration and overhead. Before technical assistance is even considered, a lending program needs very cheap capital (at about 0 to 3 percent), a net balance percentage for equity for loss reserve and general staff salaries and administration. It is difficult to find investors that will capitalize the loan pool with low interest, long-term notes. Funders expect utilization rates that drive up the loan loss reserve levels required to mitigate risk. To fund general operations and loss reserves from cash flow requires a higher volume of lending than most reservations can absorb.

These conditions exist for even the most streamlined lending program. In most cases the income generated from lending operations cannot fund all of the above costs. Typically it has not even been sufficient to maintain the lending pool, and raising capital to re-lend has been a significant challenge for most programs. The inadequate cash flow that these programs experience, however, may only partially be due to the high costs of nonfinancial services. Instead it reflects the limited scale and scope of these operations. The research found that lending programs are often small with limited lending histories. Without a sufficient volume of loans, these programs cannot generate enough revenues to sustain their lending pool, and keep costs down. Community-based loan funds or micro-loan programs are vehicles through which funding has been provided. However, the research found that there is remarkable diversity in how these programs are structured. In addition, the recent establishment of some of these funds, with limited institutional histories, implies less that this model for financing may be unsatisfactory and more that there is a need to achieve organizational maturity.

Download the survey report here.