Another Example of Foreign Investment Office Opening in North America

The British Midlands, a joint venture initiative between Advantage West Midlands and East Midlands Development Agency has opened a Canadian office in Toronto.

Explaining the rationale behind the new office, the agency said that Canada and the UK have close relationships, a shared history and similiar values and business practices. Both countries have strong clusters in the auto, aerospace, engineering, medical & life sciences and information technology sectors.

The British Midlands also just announced recently it will open a new investment office in Northern Virginia. An earlier ED Futures article discussed that development.

Source.

Northern Ireland Investment Agency Opens Colorado Office

Here is an indication that business investment is beginning to grow and that worldwide competition for the new projects to be undertaken in the next 12-24 months will intensify. More foreign investment agencies are opening new and expanding existing investment attraction offices in the U.S. The Europeans are becoming more aggressive in light of the increased interest by US companies to invest especially in China and India.

Invest Northern Ireland has officially opened its technology and development office at the Denver World Trade Center. The new office will promote business opportunities, encourage trade and foster relationships between Colorado and Northern Irish technology companies.

Before even opening its doors, Invest Northern Ireland helped broker $3.6 million in deals between Belfast and Colorado-based companies, which include Therapy Zone, Expediters International and Reglera.

Agency officials expect to generate more than $6 million in deals with local companies in the next 18 months. Two of those Northern Ireland-based firms said they will open offices in Denver during the next year, bringing an undisclosed number of jobs to the region.

Northern Ireland officials identified Colorado as a top area for high-tech growth. They also cited the state's pro-small-business climate, and said the Denver office will give Northern Ireland a "gateway" to the Rocky Mountain region.

The office's director is Margaret McMahon, former founding director of the Denver Trade Office in London. Invest Northern Ireland also has offices in Boston and Houston.

Source: Northern Ireland Investment Agency

China Business Investment Watch: Autoliv Inc.

Here is an example of the type of company making a production investment in China at this point in time. Note that this new plant will use advanced manufacturing technology, replacing an older existing plant in Shanghai.

Autoliv Inc., an automotive safety products manufacturer headquartered in Stockholm, Sweden, is to build a new plant in China for airbag module production and testing. The complex will replace an existing facility in Shanghai, built less than two years ago, that has reached capacity.

Chinese passenger vehicle production has risen to an estimated 1.9 million this year, up from 750,000 vehicles in 2001. Chinese airbag demand has grown at an even faster pace. Autoliv's new construction will be completed mid next year. The 11,000 square meter facility can be expanded as required.

Autoliv Inc. develops and manufactures automotive safety systems for all major automotive manufacturers in the world. Together with its joint ventures Autoliv has 80 facilities with over 30,000 employees in 30 vehicle-producing countries. In addition, the company has technical centres in nine countries around the world, including 20 test tracks, more than any other automotive safety supplier.

Source: Autoliv Inc.

Some Positive Thinking for Economic Development

People who wait for conditions to be perfect before acting, never act.
-Anonymous

A turn in the road is not the end of the road unless you fail to make the turn.
-Anonymous

Attitude - one of lifes choices.
-Anonymous

What the future holds for us depends on what we hold for the future. Hardworking "todays" make high-winning "tomorrows."
-Philosopher William E. Haller

Do not follow where the path may lead...Go, instead, where there is no path and leave a trail." .....when you look back, it's always the stuff that was most difficult that forced you to rise up and use the gifts you've been given to succeed!! We have what it takes, we've just gotta believe in ourselves!
-Joe Fermano, Positive Attitude Institute

Rural School Trends and Implications for Workforce Development

An analysis of state tests shows that rural schools perform above average in most states, but fewer rural teens apply to college than their suburban and urban peers.

"Nationwide, tens of thousands of rural students are slipping through the cracks in the transition from high school to college," writes Tom Loveless, director of the Brown Center on Education Policy at the Brookings Institution. "The result is the loss of potential for rural youth and a loss of talent for the nation's colleges and universities."

Rural schools reported a lower drop-out rate in the senior year, but only 54.3 percent of rural seniors apply to college, compared to 56.5 percent of urban and 61.6 percent of suburban seniors, Loveless reports. These findings are from data gathered by the National Center for Education Statistics in 1993-94.

Data from the 2002 National Assessment of Educational Progress show that rural fourth- and eighth-graders achieve at levels similar to suburban students in reading. By the twelfth grade, rural students score about the same as urban students, two points below the national average of 287. Rural students appear to do better on achievement tests in elementary school than in high school.

Download the report here.

The Senior Market: Some Facts

Here are three startling facts about the graying of America:

1. 6000 Americans will turn 65 every day until 2013.

2. By 2035, 70 million people in the U.S. will be 65 or older.

3. In 2003, more people will turn 50 than in any other year in history.

My question is this: "What are the implication of these three trends to your community or region?" It is vitally important that economic developers give greater attention to this new demographic reality as they structure economic solutions for their areas for the future.

We need to have more discussion of this issue and its implications for future economic development. The issue goes far beyond just shaping your community to become the next retirement mecca. It has implications for your future workforce, health care service delivery, shopping amenties, housing development and a host of other community and regional development issues.

Data Resource: Chinese Manufacturers

Is the outsourcing of manufactured products from China an issue for your area? Actually it is for many areas. You may find it useful to conduct some research on Chinese manufacturers producing these products. Manufacturers News publishes a series of directories (both paper and CD) on Chinese manufacturing companies by industry and region in China. It is quite insightful to look at the specific companies, what they make and the ties they have across the world.

Go here to learn more. (Pubications are available for sale.)

Data Resource: Local Area Building Permit Data

Are you aware that city and county level building permit data are collected and published by the US Census Bureau? This is useful data in tracking construction and building activity in local areas.

Go here to download data for specific local areas.

New York State Manufacturing Outlook Improves

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved substantially in November, with the general business conditions index setting a record high of 41.0. Indexes for new orders and shipments also topped the previous records set in October, and the unfi lled orders and inventories indexes were slightly positive. Pricing indexes continued their recent pattern, with the prices paid index reading positive and the prices received index reading negative. Both employment indexes remained positive and close to last month’s levels. Respondents continued to be highly optimistic about future conditions, with the six-months-ahead indexes generally solidly positive and near the high readings of recent months. The future capital expenditures index improved for a third consecutive month, reaching a record high.

We are beginning to see more optimistic signs for manufacturing production growth in a number of states at this point. The employment outlook is still very sluggish.

Source: Federal Reserve Bank of NY

Pittsburgh to Emphasize Chemical Industry Strengths

With three major chemical companies headquartered in the region, local universities with engineers and a location that offers central access to suppliers and customers, Pittsburgh could attract a mass of new companies by positioning itself as a chemicals industry hub.

That's the hope of economic development officials who are weighing whether it makes sense to market the region as a chemicals center -- despite a current downturn in the industry. "We think southwestern Pennsylvania is well-positioned to take advantage of growth in the future," said Ken Zapinski, vice president of the Allegheny Conference on Community Development, which is spearheading an effort to expand the chemicals business here.

There are about 352 chemicals firms in the region that employ about 24,000 people, including the three dominant players: PPG Industries, Bayer Corp. and Nova Chemicals.

Go here to read more.

Council on Competitiveness Meets in NE Ohio

The Washington-based Council on Competitiveness (CoC) is holding its final report-out session on the regional economic assessment it has conducted for NE Ohio over the past several months.

Last night, I enjoyed talking with several CoC staff and leaders and other regional business, technnology and higher education leaders at the reception hosted by the University of Akron. I detected a new spirit and energy that I have not seen in NEO in a long way. This is a good sign.

Three priority areas will be discussed today:

1. Strengthening the region's manufacturing base, which will be addressed by a new initiative called the NE Ohio Manuacturing Global Roadmap Initiative, led by CAMP Inc. and local manufacturing executives. (I have worked closely with CAMP President Steve Gage on the design of this exciting initiative.)

2. Expanding the innovation and research pipeline, which NorTech will take the lead on in helping NE Ohio universities and businesses to strengthen connections and get more commercial results.

3. Combatting NEO brain drain with "brain gain," which will get leadership from the NE Ohio Council on Higher Education.

These priorities and what to do about them will be discussed today at the Council on Competitiveness event today.

More to come on this important event and follow-up actions.

Downsizing Upscaling

Many communities are working to develop upscale shopping and housing development projects. If you are one of them, you may want to take a look at what is occurring in the Detroit area, where there is a downsizing of upscale development taking place. I call it "right-sizing," an industry strategy term from the 1980s.

Go here to read more.

Wal-Mart Has Colorado Community Over the Barrel

Opponents took another shot this week at a Wal-Mart Supercenter proposed for Southwest Denver. In a report culled from recently released documents, the Front Range Economic Strategy Center said the project could result in Wal-Mart reaping up to $25 million in sales tax reimbursement - more than double the amounts that have been reported thus far.

Even though the project will occur in a redevelopment zone, it does NOT make sense to give Wal-Mart a subsidy of that order to locate. It is projects like this that hurt those that make legitimate use of economic development incentives.

The truth is that Wal-Mart is being subsidized in most places where it is building stores, which is crazy.

Go here to read more.

NAFTA Missing the Environmental Mark

Nearly a decade after NAFTA opened up trade along the U.S.-Mexico border, the agreement has created jobs and boosted trade but hasn't fulfilled promises of "cleaning up the border," Gov. Bill Richardson said.

"NAFTA has been weak in getting the border sustainable, environmentally sustainable," Richardson said in an interview Thursday with The Associated Press. "The plus has been the border jobs and the border trade and the border security."

Richardson is right. Having seen these areas, there is much work to do. Moreover, NAFTA needs to work harder at ensuirng that Mexico does a better job of developing in a sustainable way.

Go here to read more.

New York to Fix Its Empire Zone Program

The Pataki administration will offer legislation next year to extend the state's Empire Zone program and tighten loopholes exploited by some businesses to get tax breaks, according to an economic development official.

The Empire Zones program was established to encourage job creation through tax breaks, concentrating on poor urban areas. The state approves zone applications, oversees and pays for the tax breaks. The 72 zones scattered from New York City to Buffalo range in size up to two square miles.

Some abuses in the program have been reported. A review earlier this year found dozens of businesses in Syracuse and Onondaga County positioned themselves to avoid paying property and state income taxes for 10 years by hiring just one person, The Post-Standard of Syracuse reported. Tax breaks also have gone to businesses in prosperous suburban areas rather than distressed ones.

Go here to read more.

Little Rock Raises New Development Funds

A group of Little Rock business leaders and chamber officials announced a four-year, $1.6 million economic development campaign earlier this week, aimed at supporting existing central Arkansas businesses and bringing more jobs to the region.
The "Get Stock in Little Rock" marketing initiative was announced during a news conference held at the Little Rock Chamber of Commerce.

Go here to read more.

Protectionist Pressures Grow

Economists at Economy.com are concerned that protectionists may have their way, at least in part, as next year's elections move closer.

Industry groups and unions are stalking the halls of the U.S. Congress demanding protection from foreign competition. With the 2004 elections in view, and worried by a slow recovery in jobs, some fear that Congress appears ready to oblige the protectionists’ demands. This will be a mistake because protectionism will not stem the loss of jobs in manufacturing or elsewhere – rather, consumers will pay higher prices from lower real incomes – while jobs will continue to bleed.

A jobless recovery and rising merchandise trade deficit are raising concern in the U.S. Congress that the economy may be in serious trouble. The fear is reinforced by incessant demands by some industry groups and trade unions for protection from “unfair” competition from foreign countries. China has replaced Japan as the favorite whipping boy. The approaching national election increases the probability that the Congress may succumb to pressures and impose damaging tariffs on imports, such as the 27.5% across the board tariff on Chinese imports under consideration on Capitol Hill, which, by the way, will be in violation of the WTO agreement.

Most jobs lost in manufacturing are due to gains in labor productivity although, in the last few years, roughly a third of the loss may be due to imports. Most of the jobs lost to imports are in highly labor intensive manufacturing such as apparel and leather, products where China has a comparative advantage. After the end of the last recession, manufacturing output has stabilized and is showing signs of a robust rebound. Unfortunately the same is not true of manufacturing employment. Manufacturing employment is on a long-term downward trend.

Go here to read more, if you subscribe to Economy.com.

Missouri Gives Ok to Cardinal Stadium Funding

A Missouri state board approved a revised public financing plan for a new St. Louis Cardinals baseball stadium, and team executives said construction could begin next month.

Cardinals president Mark Lamping said the $390 million downtown ballpark -- a replacement for Busch Stadium -- still is scheduled to open for the 2006 season, although financing delays have resulted in a tighter construction timetable.

Tuesday's approval of state tax credits and a bond issuance should help the Cardinals finalize their privately financed portion of the project by Dec. 18, Lamping said. Work should begin immediately after that on the stadium's infrastructure, including the relocation of utilities and streets, the Cardinals said.

Cardinals executives have sought a new stadium for several years, first unsuccessfully asking the Missouri Legislature for a $210 million commitment before finally settling on a plan that relies more on private funds.

Under the current plan, the state's total commitment is about $43 million, including about $12 million in transportation department spending, more than $1 million in tax credits for hazardous cleanup work and the $29.5 million in tax credits for infrastructure work.

Go here to read more.

Moving to a Positive View of Regional Economic Life

This is a story about why and how Ohioans and Greater Clevelanders need to change their attitude about economic development. There is a lesson in this story for most states and regions across America that suffer from low self-esteem.

I just got my electronic version of Cool Cleveland in my email box and was dismayed to see the negative thinking reflected in Cool Cleveland's summary of Ohio's economic development climate. For those not familar with the publication, it is a e-newsletter that attempts to speak to what is "cool" in Cleveland.

"Ohio Sucks at Development: The Corporation for Enterprise Development gave Ohio a "D" ranking (down from a "C" last year), based on 68 measures of economic development (opportunities for employment, income growth), and while the areas of earnings and job quality rose to a "B," and competitiveness of existing businesses got an "A," most of the measures reflect a state that overall ranks 36th. While we should hold our state development agency, the Ohio Department of Development accountable for the slip, they blame the federal government for unfunded mandates and uncontrollable factors. Could it be in part because the Ohio Enterprise Zone Program, while designed to spur economic development and job creation in urban areas, has been shown, according to Mark Cassell of KSU, to benefit mostly higher income areas that need it least? See Becky Gaylord's piece in the PD here, and Mark Cassell's op-ed here." Source: Cool Cleveland.

I would be the first to say that Ohio, and Northeast Ohio as well, have considerable work to do in strengthening their economic development efforts. I will also say without hesitation that the job ain't easy folks, especially with the economy we have to work with.

The truth is that the CfED state economic climate index is a simplistic and imperfect tool that tries to assess the incredibly complex state economy and economic development system that exist in Ohio and other states. It is also very much a PR tool, and unfortunately the news media gives too much credence to it. States getting good scores promote their achievements, and states with low scores either ignore the scores or challenge their validity.

If I had to cite one shortcoming that Ohioans and Greater Clevelanders need to work on to advance their economic development in the future, it would be our "negative self-image" and our propensity to criticize ourselves and others. Some people may think it's "cool" to criticize. I don't. "Cool" to me is doing something with what you have in life. Use the talents and resources you have to create something new and better. That's what true artists do.

Maybe we would be less inclined to criticize if we adopted a "living system view" of our economy. Yes, our economic system is very much alive. Our economy is not inert matter. It is a living and breathing system that is built by and for people. This view alone can change how we see "economic life" in Ohio and NE Ohio.

We also need to appreciate what works. A lot is working in Ohio and NE Ohio. I look to David Cooperrider at Case Western Reserve University for some insights about how we can do a better job of appreciating the "art" of economic development. Appreciation is indeed a vital aspect of art and creative life. Right?

Cooperrider, a management professor at the Weatherhead School of Management at Case Western Reserve University, has an intriguing approach to looking at and promoting change in organizations. He says "focus on what is already working." His new model is called appreciative inquiry, and I think we could use a big dose of it in NEO economic development. In a nutshell, we ARE doing some things right!

According to Cooperrider, appreciative inquiry employs the following 4-D cycle to accelerate change within an organization:

- Discovery: This is the appreciating stage, in which the inquiry focuses on asking: What gives life? and What creates the best of what is within the organization.

- Dream: This stage focuses on envisioning results in the organization and asking, What might be? and What is the world calling for?

- Design: In the co-constructing stage, the inquiry deals with What should be? and What is the ideal for the organization's future.

- Destiny: This is the sustaining stage, during which questions pertain to how should the organization empower, learn, and adjust/improvise?

I think our future visioning and strategic planning for NEO economic development should give voice to these four vital questions. Don't you? It certainly beats taking pot shots at our economy and our economic development leaders.

Go here to learn more about appreciative inquiry.

New Study: IT Outsourcing Not All It's Cracked Up To Be

This may be a bit of good news for economic developers in developed nations like the U.S. and Western Europe.

Outsourcing IT work is increasingly popular, but it doesn't necessarily result in cost savings, according to a report from a market research company.

Nearly 20 percent of companies that farmed out IT work did not achieve any cost reductions, while 9.2 percent experienced an increase in costs, according to a survey by people3, a Gartner company.

In addition, just 21.1 percent of the survey’s 76 respondents reported a cost savings greater than 20 percent as a result of their IT outsourcing efforts. Gartner published the results Monday.

"There's an assumption by many companies that they can save a large percentage of their budgets by outsourcing some or all of their IT capabilities, however the true savings are not always as promising as one would expect," Lily Mok, a consultant at people3, said in a statement. "Many companies often neglect to factor in all costs associated with managing the outsourcing engagements, which average 4.5 percent of the total contract value and can be as high as 15 percent."

IT outsourcing means shipping out work such as data center management and application development to an outside company, often one that handles the work in low-cost countries outside the United States. Giga Information Group has predicted that IT outsourcing to India would grow by 25 percent this year. The trend has been criticized, primarily by U.S. tech workers who stand to lose their jobs.

Whether outsourcing makes sense from a business perspective also has been questioned before. Earlier this year, Gartner cautioned that half of IT outsourcing projects will be considered unsuccessful in 2003 because they have not delivered the expected value.

The people3 study said companies that outsource can experience a rise in costs for the time and effort spent during the transition period, disruption in work processes, increased turnover of IT employees who possess critical skills and lowered employee morale.

Source.

Insurance Mergers and Consolidations Continue to Rattle Hartford

Hartford, Connecticut was king when it came to insurance for many years. While insurance is still big business in the city, a lot has changed over the past two decades or more.

A wave of mergers, consolidations and cuts in the 1990s pared the payrolls of Hartford's insurance companies from 55,000 at the start of the decade to as low as 36,000 a few years later. Hartford has long been the insurance capital of the nation, so with the disappearance of one-third of those jobs it was as if the city's identity as well as its industry were in free fall.

But this time, things might turn out different. Earlier this week, the St. Paul and Hartford-based Travelers agreed to merge, and Cigna Corp. agreed to sell its retirement services business, which has 1,200 Hartford workers, to Prudential Financial Inc.Prudential isn't saying whether Hartford will lose any jobs as part of its deal.

But Hartford Mayor Eddie Perez was feeling better Tuesday about the St. Paul merger after making a phone call to the Travelers executive offices down the street. The mayor said that Travelers officials privately assured him that Hartford would gain about 200 to 300 jobs from the merger with the St. Paul Companies, despite the fact that the headquarters is to move 1,000 miles west as part of the $16.4 billion merger.

Hartford has lost out to rivals, foreign and domestic, for one of the sectors of the insurance business that has been growing -- call centers where workers sell or service policies. Less than two years ago, ING North America Insurance Corp. opened a 1,500-worker call center in Iowa, entry-level jobs that Mayor Perez wishes could have come to Hartford.

Go here to read more.

Development Report for Richmond, VA

Richmond, Virginia's biggest wins this year were Wachovia Securities and Philip Morris USA. It lost Louisiana-Pacific Corp., which chose Nashville a few months ago for its relocated headquarters over Richmond and Charlotte. Morgan Stanley considered Richmond for some of its operations. Baltimore won that bid. On the plus side, Wachovia Securities decided to stay in Richmond after forming a venture with Prudential Securities of New York. Philip Morris is moving here from New York.

The Richmond area is building a record of economic development. Since 1994, more than 250 new or expanded companies have invested $5 billion and created 80,000 jobs, said, Gregory Wingfield, CEO of the Greater Richmond ED Partnership.

The number of company announcements about moves and expansions was 342 this year, compared with 409 last year. The amount invested was $3.5 billion this year, compared with $3.9 billion last year. And 28,116 jobs were created, compared with 37,613 jobs last year.

Go here to read more.

New Study: High Tech Trade Down

U.S. high-tech goods exports fell 26 percent from $223 billion in 2000 to $166 billion in 2002, according to a study released by AeA. It shows that U.S. electronics imports were down by 19 percent during the same time period, and that the technology goods deficit in 2002 was a record $54 billion. The value of the high-tech goods exports and imports reached historic highs in 2000.

Despite the overall downturn, Tech Trade Update 2003 found some trading partners with which high-tech trade is growing. U.S. imports from China increased by $8.4 billion, or 32 percent between 2000 and 2002. In fact, China became the United States’ number one supplier of high-tech goods, jumping ahead of Japan and Mexico, in 2002.

"These data echo the findings of our Tech Employment Update report released earlier this year which found a 10 percent drop in US tech employment from 2000 to 2002" said William T. Archey, President of AeA. "Clearly, the worldwide economic downturn is taking a toll on the technology industry."

The findings show that international trade of high-tech services is playing an increasingly important role. The trade surplus in these services more than offsets the deficit of tech merchandise trade. Most U.S. tech services are sold abroad through affiliates; they totaled $95 billion in 2000 (the latest data available), compared to $37 billion sold in the United States through foreign subsidiaries, resulting in a $58 billion surplus.

Some U.S. tech services were also sold from U.S.-based operations into other countries. Total cross-border tech services exports reached $17 billion in 2001 (the latest data available). This compares to U.S. cross-border tech imports of $7 billion in 2001, resulting in a $10 billion surplus.

Tech Trade Update 2003 examines U.S. high-tech trade between 2000 and 2002 and is based on the most current U.S. government data. AeA members can purchase the report for $10; non-members for $20. Visit www.aeanet.org to download the report, or call 800-284-4232 or 408-987-4200.

Key Findings:

- Technology goods exports fell 26% from $223 billion in 2000 to $166 billion in 2002.

- High-tech goods imports decreased 19%, from $271 billion in 2000 to $220 billion in 2002.

- The deficit in technology goods trade was a record $54 billion in 2002.

- U.S. tech services sold abroad through subsidiaries totaled $95 billion in 2000, while foreign subsidiaries sold $37 billion in tech services to U.S. customers.

- This surplus of tech services sold through subsidiaries totaled $58 billion, more than any technology goods deficit recorded.

- U.S. tech services sold abroad by U.S.-based companies as cross-border exports totaled $17 billion in 2001. This compares to U.S. cross-border tech imports of $7 billion, resulting in a $10 billion surplus.

Go here to read more.

Tech Jobs and Investment Slide in Texas

Texas has been a national leader in technology industry development. Things were not so good there in the past year--not unlike the situation in most states, according to a recent AeA survey released recently.

Texas' technology industry employment dropped last year by 11 percent, or about 61,100 jobs, the second-highest decline for any state, according to a national survey to be released Wednesday.

Venture capital investments in Texas declined as well, falling 60 percent to $1.3 billion, according to the Cyberstates 2003 survey by AeA, a trade group based in Washington, D.C., and Santa Clara, Calif.

But things aren't completely bleak, said Clare Emerson, executive director of AeA's Texas Council.

Although the state is still losing tech jobs, technology exports from Texas are up, increasing $1.2 billion to $29.5 billion in 2002.

The AeA, formerly the American Electronics Association, compiles its employment reports from data from the U.S. Department of Labor.

Nationally, technology lost 540,000 jobs to about 6 million jobs in 2002, the report found.

California, Texas, Massachusetts, New Jersey and New York lost the greatest number of tech jobs. About 280,500 workers in those states became unemployed last year.

The sector with the largest decrease in jobs was electronics manufacturing, accounting for more than half of all tech jobs (233,000) lost between 2001 and 2002.

Go here to read more. (Site registration required)

New Report Out on Biotechnology Use in Industry

The Commerce Department has released a new, highly informative report on the use of biotechnology in industry.

Over 60 NAICS-classified industries are identified as users of biotechnology in one way or another. This market application perspective of biotech is new and very useful in helping EDOs ascertain which industries can benefit the most from existing and emerging technologies in the field.

Human health still represents over 70 percent of all uses of biotechnology, but many other field, such as animal health, agriculture, and environmental protection are increasing their use biotechnologies.

The study provides information about business size, structure and performance, which is important in determining whether new biotechnologies are adding to sales and profitability--they appear to be doing just that.

Download the full report here.

Incentives Still Hot

Here is a good national overview of economic development incentives and what businesses have to say about them.

U.S. companies report that they have been increasing their use of economic incentives and tax credits from state and local governments for expansion, consolidation and relocation activities, but most still believe they have not realized many of the benefits available to them, according to a survey by KPMG LLP, the accounting and tax firm.

Additionally, the majority of companies surveyed said that the presence of economic incentives and tax credits, such as those used for the creation of jobs and sales tax exemptions, are critical factors in strategic corporate real-estate decisions. At present, all 50 states offer some type of incentives or tax credits to companies that choose to expand or relocate within the state, providing a boost to employment and eventually corporate tax rolls.

Among key findings, 63% of respondents said their companies increased the use of incentives and tax credits in the last five years, utilizing state and local credits significantly more than federal credits. Surprisingly, though, 65% indicated they realized three-quarters or less of the dollar value of the benefits available, citing "not acting to qualify" and "lack of awareness of benefits" as major reasons.

Despite the fact that companies aren't taking full advantage of available benefits, 55% of those surveyed felt that incentives and tax credits play a critical role in making final strategic decisions for expansion, relocation and consolidation. Incentives and credits are particularly important in decisions on capital expenditures (35%), real estate portfolio management (30%), mergers and acquisitions (30%), business expansion (28%) and business relocation (28%).

Job creation tax credits (64%) and sales tax exemptions (63%) were the most used state and local incentives and credits, followed by property tax abatement (52%), enterprise zone tax credits (51%), and job training/retraining benefits (5 %). On the federal level, credits were used most by companies for research (39%), worker/welfare-to-work programs (33%), and empowerment zone initiatives (26%).

A total of 79% of respondents said they have been involved in consolidation (to cut costs), expansion (for growth), or both, over the past two years. Expansion activity was significantly higher than consolidation during this period and is expected to be higher in the next year.

Most companies said they were optimistic about future expansion. Some 78% of those who spent $10 million annually at a single location in the last two years plan to spend $10 million at another location in the next year. A majority of firms also believed the U.S. economy will grow over the next 12 months and that their industry in the U.S. will expand over the same period.

Automotive firms are ahead of other industries surveyed in realizing credit/incentive opportunities (95% believe they are receiving all benefits available to them); however, they still struggle with the administrative burden of securing incentive benefits.

Banking firms plan to expand more in the next 12 months than other sectors surveyed, but only 11% said tax credits and incentives are a major influence in real estate decisions. The survey also indicated that banks are taking advantage of statutory and compliance-related incentives and credits, but not those that are negotiated.

Although the majority of consumer products firms have increased their use of incentives and tax credits over the past five years, most have realized less than 75% of the dollar value of available benefits.

For the retail industry, resource constraints have been the largest barrier to incentives and tax credits.

Fiscal Problems Continue in Pittsburgh

It is no easy job to keep a city fiscally afloat these days. Just ask the folks in Pittsburgh, which is working to avoid bankruptcy like Cleveland did in the late 1970s. Financial pressures have mounted on Pittsburgh City Hall over the past 3 years, as the economic downturn added to the growing financial problems facing the city.

Some observations say that the city's 1990s renaissance was superficial and they masked the growing fiscal problems that have finally caught up with the city.

The city's credit rating hit junk bond status last month. The 2004 budget proposed by Murphy Nov. 10 is more than $39 million out of whack and without help, the city will have spent all of its reserves and likely be out of cash sometime in January.

Pittsburgh Mayor Tom Murphy, who critics say has pushed development to the detriment of the city's neighborhoods, now acknowledges two mistakes: underestimating how long it would take for development to pay off and failing to lobby earlier to change a taxing structure, "written for a city that doesn't exist any more." Pittsburgh, during the 1950s, had nearly twice today's population of approximately 335,000.

Source.

Silicon Valley Looking to New Competitive Strategy

Silicon Valley officials may be giving up on their ability to cost-effectively manufacture the products they research and design. Read this one.

At a time of growing concern over the loss of technology jobs to Asia, San Jose is considering an economic development strategy that assumes that Silicon Valley technology startups will base most of their manufacturing somewhere else.

The valley's cost of living combined with the cost of doing business in California assures that the proportion of manufacturing jobs will continue to decline in the valley. Instead of chasing after manufacturing jobs, the city would now focus on the headquarters of technology and biotechnology startups and their first 100 or so highly-educated and well-paid employees, the strategy says.

These companies would focus on planning and computer-based research and design. Most manufacturing, including factory-based research and development, would be expected to take place in lower-cost locations such as Texas or India.

Source.

New Native American Venture Fund Launched

Support Services International, Inc., and Monumental Venture Partners, LLC, today announced the official launch of Native American Capital, LP (NAC), a social venture capital fund that will make equity investments in promising new and developing high growth businesses in Native American and Alaska Native communities.

"NAC is the first venture capital fund specifically targeting all Native American communities," says Walter Hillabrant, president, Support Services International, Inc., a founding general partner, and enrolled member of the Citizen Potawatomi Nation of Oklahoma. "Unemployment and poverty are widespread in Indian Country," Hillabrant adds. "Venture capital can provide the critical link to economic development and job creation."

NAC will seek business development opportunities in several sectors "of compelling interest to Indian Country," reports Hillabrant. These include basic infrastructure industries (information technology, communications, housing technologies, alternative energy technologies and services), health care goods and services, rural environmental-based businesses, education (distance learning and teaching content), basic commerce and retailing (native arts and crafts, organic farming, recreation), and tourism.

NAC general partners anticipate raising $25 million for the first limited partnership fund - NAC, LP, Fund. NAC will take direct equity positions in businesses it supports, but does not anticipate taking controlling positions. It will provide technical assistance to its investment portfolio.

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UK Assessment of the China Situation

Here are some good clips that size up where things are in China today:

"The boom is a Chinese achievement, of course, but it has only been made possible by the actions of the West, in particular by the United States. The key driver of the boom has been exports to the US. Without those exports - and the flow of investment and expertise from abroad - China would not be able sustain its present growth. Hardly a day goes by without a new announcement about a trade deal. Some 60 per cent of the exports of the Shanghai region are either from foreign investors or from joint ventures with local companies. Those exports go to the entire developed world and are not just the cheap Christmas-cracker products - check the label next time you buy a fridge.

"From the point of view of a US manufacturing company it is a no-brainer to outsource some of its production to China. Labour costs are one 10th of their US equivalents, and workers are highly motivated and don't strike or sue for stress. Plants, because they are new, are often better fitted out than those in the States. And the Chinese authorities are less rigorous in their environmental and other regulations."

"The result is more than an annual trade deficit of more than $100bn a year with China and an exodus of manufacturing jobs. China gets the most modern plants and all the know-how of advanced American production techniques. In return, the US consumer gets cheap goods, which hold down US inflation rates, and US companies get, they hope, early access to the world's fastest-growing market. But you don't have to listen very hard to hear disquiet in America about the deficit, the export of jobs and the fact that companies are giving away their know-how for free."

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Outsourcing: Not All That Glitters is Gold

Outsourcing is perceived as the silver bullet of the day by many businesses, and many companies indeed benefit from it. But the dirty little secret of outsourcing has emerged: Everyone isn't happy.

By the end of the first year, more than 50 percent of the companies that have outsourced major IT functions are unhappy with their outsourcers, according to a recent Australian survey. By the end of the second year, 70 percent are unhappy. Studies by DiamondCluster International Inc. and PA Consulting Group have also uncovered significant amounts of dissatisfaction with outsourcing deals.

Doing your homework thoroughly is the best investment your organization can make in any attempt to outsource. Every corporation understands the importance of due diligence. Nevertheless, many organizations try to cut the amount of time spent on investigation before signing the contract. But short-cutting the due-diligence process increases the likelihood of dissatisfaction with your outsourcer down the road. It pays to look before you leap.

Go here to read more.

Should Federal Policy Limit Business Offshore Outsourcing?

There is an interesting article in Information Week looking at both sides of this question. Take a look and see what you think.

If we do not start creating more jobs in American communities real soon, it is very likely more people will push for a Federal policy intervention on how businesses approach international outsourcing decisions.

Go here to read more.

Boeing Not Winning Any Friends in Washington State

An increasing number of folks in Washington state are losing their patience with Boeing over its employment cutbacks across the state, the relocation of its headquarters to Chicago and now the national competition it has sparked over the location of its proposed new 7E7 jet.

Go here to read more.

China Competes to Get Its Students Back

China wants its students studying abroad to come home after they complete their studies. If your community is working to get more of its visiting Chinese students to stay and become part of your local talent pool, your job may have just gotten harder.

More than 580,000 Chinese students have gone abroad to pursue advanced studies since China began its reform and open-up strategy in 1978, and 150,000 of them have returned to China.

Along with the country's rapid economic growth, overseas Chinese students have been returning at an annual rate of 13 percent, according to information from a forum on mission and development opportunities of overseas Chinese students in the new era held in Beijing on Sunday.

While adopting a policy of supporting students to study abroad,encouraging them to return and giving them full freedom in returning or going abroad, China has also worked out a range of measures to encourage more overseas students to return, including earmarking special funds to help them start up their own companies and erecting programs to give awards to successful scholars who once studied overseas.

According to the information, returned overseas Chinese students have started up 5,000 businesses across the country, with the annual output value exceeding 10 billion yuan (about US$1.21 billion).

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Rivalry for the Free Trade Area of the Americas

Here is the latest title to be chased in the economic development world. Want to be the Brussels of the Americas? That's what the latest competition is all about. Here is the story.

As many as 10 cities in the Americas are expected to place formal bids this month to serve as headquarters for a regional trading bloc -- a designation that could bring millions in investment and immeasurable prestige to the winner.

From the United States, Miami, Atlanta, Colorado Springs, Chicago and Houston will throw their hats into the ring. Port of Spain, the capital city of Trinidad and Tobago, is aggressively campaigning, along with Panama City and Mexico's Puebla and Cancun. Trade lobbyists say they expect one Brazilian city to bid as well. Panama City may appeal to the most countries, in part because of anti-U.S. feeling but also due to Panama's long-standing U.S. business ties.

The winner will house the administrative center of the Free Trade Area of the Americas, and potentially gain thousands of jobs as lawyers, accountants, lobbyists and businesses collect in the vicinity, economists and city officials estimate.

What's more, those campaigning for the candidate cities say the winning site will become to the Americas what Brussels is to the European Union, if the FTAA deal is concluded at all.

If finalized, the Free Trade Area of the Americas will be the largest free-trade area in the world, trumping the European Union, as it frees the flow of goods and services among 34 countries and brings together 800 million consumers and a $14 trillion marketplace.

Go here to read more.

Sound Advice for Companies Looking to International Growth

Going global ain't all it's cracked up to be. That is the message from Bain & Company, a leading management consulting company helping companies decide whether and how to undertake global growth strategies, including business outsourcing.

Here is what Bain & Company is saying. This is good for economic developers to remember next time they fret about their local comapnies trotting off to foreign countries.

Bain & Company analyzed the financial results of 729 publicly traded companies from seven developed economies between 1996 and 2000, and came to a surprising conclusion: only one company in six achieves sustained, profitable international growth, even when the hurdle is relatively modest - growing foreign revenues and profits by at least the rate of GDP plus inflation for a five-year period. The mix of international and domestic revenues for these companies as a group barely changed over the five-year period. In 1996, foreign revenue as a percentage of total revenue averaged 33 per cent for the group, rising to 35 per cent in 2000. In addition, our research showed that operating margins earned by companies outside their home countries were eight per cent on average during the five years, often below and almost never above the margins earned at home.

Why is profitable international growth within reach for certain companies but elusive for the majority? Successful global growth companies excel at defining the boundaries of their businesses. They clearly understand whether the cost structures and customer profiles for their industries compel them to expand overseas, or whether they are better off viewing global expansion simply as one growth option among many. And they base their global expansion strategies on a rigorous understanding of how money is made in their industries, which guides their decisions to acquire foreign assets, build from a beachhead, or pursue strategic alliances.

What is the profile, then, of a profitable foreign growth company? Bain's research shows that industry, country and size are not good predictors of successful international growth. Neither is scale of operations overseas: International growth stars have the same mix of foreign revenue as the rest of the pack (an average of 36 per cent for both groups). Far and away the best predictor of success is starting with a strong core business in the domestic market. Over 90 per cent of profitable foreign growth companies built their international expansions from a solid core business at home.

Download the Bain & Company article here.

Is Converting Academia into a Business a Good Thing?

This is the question being asked by some in Massachuetts as the look at their Governor's new plan for higher education.

Massachuetts Gov. Mitt Romney's plan for higher education calls for substantially increasing tuition and fees, starkly differentiating research-oriented and vocationally oriented campuses, and grouping smaller campuses into regional networks more responsive to local industry's needs. In an attempt to strengthen its "flagship" campus, UMass-Amherst would grow bigger and, thanks to tuition and fee hikes as well as additional state funds, it would also grow richer.

Some say that such ideas exemplify an age when priorities in higher education are determined less by academic values than by the interests of multiple constituencies -- students, donors, corporations, politicians. In today's university, the student is a "customer" and the professor is an "entrepreneur." Each campus unit is a "profit (or loss) center," and each institution is busily promoting its "brand" and looking for its "niche market," whether in money capital or intellectual capital. "The University of California means business," says Richard C. Atkinson, that system's recently retired president, and he knows whereof he speaks.

A recent Boston Globe article says that what is troubling today is the single-minded fixation on marketplace and managerial values in colleges and universities. The winners are those with the skills valued by the market. The losers are advocates of the liberal arts, who can't prove their bottom-line value, and students from poor households, who are increasingly priced out of higher education.

Today's commercialized academia stems from myriad sources. Universities' costs have risen rapidly since the 1970s, partly because of the astronomical expense of biotech and high-tech research. Meanwhile, traditional sources of funding -- federal research support with few strings, as well as state dollars -- have been proportionately shrinking. These developments have forced universities to look elsewhere for funds. The impact is evident everywhere: in the rise of the so-called "practical arts" majors; universities' eight-figure investments in student perks; the growing dependence on deals with industry; and the belief, especially common during the go-go 1990s, that the Internet would be a gold rush for higher education as well.

A new generation of administrators, schooled in business practice, has acquired ever-greater power in the retooled universities. Those officials, veterans of government streamlining and corporate downsizing, have brought all the fashionable management and budgeting nostrums -- ideas like TQM (total quality management), revenue-center management, and emphasis on "core competencies" -- to higher education. The intention is to make universities run more like businesses, whether that means using financial aid to maximize revenues, skimping on the library and counseling center while spending money on gyms and rock-climbing walls, or hiring superstar professors to burnish a school's reputation while relying on adjuncts and other academic day laborers to shoulder the burden of teaching. Those borrowed innovations have been problematic because universities aren't like widget-making firms or the post office and organizational strategies can't be created by the logic used to assemble cars.

Does this sound familiar? It should because it is happening in every state across America. Stay tuned.

Recently Announced North Carolina Tech Deals

North Carolina is a very busy place for technology business investments. Take a look at the most recent deals reported in the the state's November venture investment report.

Morrisville, NC – LVL7 Systems (www.lvl7.com), a networking software company, has secured $15.8 million in an oversubscribed, second round of funding. Carlyle Venture Partners, the venture arm of The Carlyle Group, led LVL7’s most recent funding. The financing round included previous investors Gabriel Ventures Partners, H.I.G. Ventures and Research Triangle Ventures. Company officials said they would use the funds to support the growth of LVL7’s enterprise, access and metro merchant IP software business and to continue the development of software features to address new market opportunities. Since its September 2002 funding announcement, LVL7 has signed deals with several leading Ethernet silicon vendors.

Raleigh, NC – BioMarck Pharmaceuticals (www.biomarck.com), a spinout from N.C. State University, has raised $2.43 million from 46 private angel investors. BioMarck is developing an experimental drug that promises to control the mucus buildup and inflammation that accompany respiratory diseases such as asthma, chronic bronchitis and cystic fibrosis. Company officials said they plan to use the money to fund ongoing studies and the beginning of clinical trials. BioMarck's technology is based on the unique “Marcks” peptide. Discovery of this peptide represents a novel therapeutic approach to various pulmonary diseases, because it directly inhibits mucus secretion by blocking a key step in the biochemical secretory pathway.

RTP, NC – Raindrop Geomagic (www.geomagic.com) has acquired Hungary-based Cadmus Consulting LLC, a company focused on new methods for computer-aided geometric design. Financial terms of the deal were not disclosed. The acquisition of Cadmus extends Raindrop Geomagic’s software reach beyond the replication of a physical product into the realm of surfaces commonly used in automotive body design and consumer products. Cadmus will now operate as Geomagic Hungary. Engineers in the new subsidiary will become part of Raindrop Geomagic’s software development team and will provide technical support to European customers.

Durham, NC – Constella Group, Inc. (www.constellagroup.com) has acquired Resource Solutions, Inc. (RSI), an RTP-based contract research organization. Financial details of the acquisition were not released. RSI provides clinical trial management, clinical trial monitoring and quality assurance services to pharmaceutical, medical device and biotechnology sponsors. Constella is combining RSI's resources and services with its former Biomedical Informatics business unit to create a new business, Constella Clinical Informatics. The combined entities will offer pharmaceutical and biotechnology companies expanded research and development services in the areas of clinical trials management, data management, statistics, medical writing and information technology.

Cary, NC – SAS (www.sas.com) has acquired Massachusetts-based Marketmax, a provider of retail planning and merchandise intelligence software. Financial details of the acquisition were not released. The Marketmax transaction is the sixth acquisition by SAS since 2000. With this acquisition, SAS adds Marketmax’s retail merchandise planning applications and its team of retail industry experts to SAS’ retail business intelligence offerings and expertise. Marketmax's customers include The Home Depot, Lowe's and Marks & Spencer. SAS will establish a Marketmax division that will operate from the current Marketmax headquarters in Wakefield, Massachusetts.

Source: NC Council for Entrepreneurial Development.

Just How Poised is India for IT Business Recruitment?

We think we know, but we really don't know until we look at what India has to offer US and other foreign IT companies to setup shop in India. Here are some of the incentives used by the Indian government to induce foreign investment in IT industries.

- Domestic Tariff Area: When the primary focus is to sell in the domestic market in India. This unit can be set up anywhere in India. All normal laws apply. No concession is available on import duties. Exports are permitted. A special Export
Promotion Capital Goods (EPCG) scheme of Ministry of Commerce can be availed. This scheme allows import of capital goods against export obligations at a concessional duty rate of 5 percent.

- Special Economic Zones (SEZs): SEZs are areas where export production can take place free from plethora of rules and regulations governing imports and exports. Units operating in these zones have full flexibility of operations and can import duty free capital goods and raw material. The movement of goods to and fro between ports and SEZ are unrestricted. The units in SEZ have to export the entire production. The first two SEZs are being set up at Positra in Gujarat and Nangunery in Tamil Nadu. At the same time, Santacruz Electronic Export Promotion Zone, Kandla Export Promotion Zone, Vizag Export Promotion Zone and Cochin Export Promotion Zones have been converted to SEZs.

- 100 Percent Export Oriented Unit (EOU): This is similar to SEZ scheme. But in this scheme, there is no need to be physically located at SEZ. All other incentives are same as provided to SEZ units.

- Software Technology Park (STP): This is a very special scheme under the Ministry of Information Technology. STPs are located at Noida, Navi Mumbai, Pune, Gandhinagar, Hyderabad, Bangalore, Chennai, Bhubaneshwar, Jaipur, Mohali and Thiruvanathapuram. This scheme offers zero import duty on import of all capital goods, special 10 years income tax rebate, availability of infrastructure facilities like high-speed data communication links, etc.

Check out the Indian National Association of Software and Service Companies (NASSCOM) and find out what its pitch is to foreign companies.

More on Offshore Outsourcing

With the American economy finally gathering steam but job growth lagging, the offshoring of U.S. tech and service jobs has challenged the economic futures of white-collar workers and stirred the globalization debate like never before.

On one side are American workers in Silicon Valley and elsewhere who feel anger, fear and profound uncertainty as white-collar tech jobs quickly move to lower-cost countries like India, China and the Philippines. Offshoring has sparked a small backlash of grass-roots protests from New York to California and spurred protectionist legislation in eight states. The issue promises to become a hot-button election-year topic if job growth - shown Friday to be rebounding - doesn't come back quickly enough.

On the other side are business executives and economists who argue that the offshoring of jobs is unstoppable and ultimately healthy for the United States, spurring this country to shed certain jobs and create more sophisticated ones in order to stay atop the ladder of innovation. The shift of tech work overseas is just the latest chapter in decades of globalization, they argue.

"I think overall, long term, the U.S. economy can take it. But there's going to be a huge amount of restructuring pain," said Rafiq Dossani, senior research scholar at Stanford University and co-author of a major offshoring study.

Such forecasts are of little comfort to the tens of thousands of tech workers - many of them in the valley - who have already seen their companies create jobs in India, China and other countries even as they lay off workers here.
In fact, India's National Association of Software and Service Companies, the country's largest technology trade group, offers up numerous studies to U.S. lawmakers arguing that offshoring is a "win-win" practice for both India and the United States, saving U.S. companies more money to reinvest at home than if they hadn't moved employees to India.

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