January US Jobs Data Released

Job creation revived in January after an abrupt year-end slowdown, with employers adding 112,000 jobs last month, the Bureau of Labor Statistics reported yesterday.

It was the job market's best performance since the economy started pulling out of recession in 2001. But the growth in employment was well under the 175,000 jobs expected by forecasters, and short of the 150,000 new jobs that economists consider necessary to absorb new entrants into the labor force.

The dollar fell on foreign exchange markets yesterday, and stock and Treasury bond prices rose sharply, indications that investors have concluded that the Federal Reserve is now less likely to raise interest rates soon.

The unemployment rate declined slightly in January, to 5.6 percent from 5.7 percent in December, the bureau said. The jobless rate has fallen from a peak of 6.3 percent in June.

The bureau lowered its prior estimate of the number of jobs created since last August, to 229,000 from 278,000. But it also raised its estimate of the number of new jobs in December, to 16,000 from the meager 1,000 that briefly served as a symbol of a jobless recovery.

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What Shape Will Work Take?

Here is an interesting story on where jobs may be headed.

Ken Gaebler can help explain how the U.S. economy can be growing so briskly without adding significant numbers of new jobs. When Gaebler's three-year-old marketing firm needs a computer programmer, a speechwriter, a Web designer or just about any other work done, Gaebler doesn't take out a help-wanted ad. He puts the project out to bid on the Internet.

Gaebler recently hired a man in Ukraine to design a computer system to monitor sales results. Gaebler paid him $118, much less than the $1,000 he figures he would have paid a freelance American programmer. Gaebler paid by credit card and earned frequent flier miles on the transaction. Gaebler's Chicago firm has grown to nearly $1 million in sales with only three full-time, traditional employees.

"So many talented people that I worked with in the past are available for freelance work," Gaebler said. "These are people who used to make $150,000 per year, and now they are freelancing and pulling in $60,000 to $70,000 while they wait for the economy to turn around."

It may be that the economy has already turned around and that Gaebler's personnel policies are among those that will help define this expansion: an era when the creation of permanent, full-time jobs will be tamped down by the global availability of work-for-hire independent contractors.

More than two years into the recovery from the last recession, coming off a quarter with sizzling 8.2 percent growth in the gross domestic product, the U.S. economy has created only 278,000 new jobs in the past five months -- leaving the nation's total number of payroll jobs 776,000 lower than when the recovery began.

"It's a new kind of workforce," said Paul Villella, chief executive of HireStrategy, a Reston-based recruiting firm. About 64 percent of the people his firm found work for last year accepted jobs as independent contractors, up from 28 percent in 2000. He described the job seekers as mostly accountants and software engineers.

While economists agree there is more self-employment, they disagree about whether this is a temporary adjustment that will soon give way to more robust growth in traditional jobs, or a lasting change in the nature of work and the relationship between employer and worker. The answer to that question matters greatly to presidential candidates vying for office during a "jobless recovery," as well as to Federal Reserve officials who must decide how long to leave interest rates at a 45-year low.

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Toyota Gets Training Money for Texas Plant

The Texas Workforce Commission will provide Toyota Motor Corp. and the Alamo Community College District with a $2.15 million job training grant from the state's Skills Development Fund.

The money will be used to custom train the 2,000 assembly workers, operators, managers, machinists, fabricators and clerks that will be employed at the Japanese automaker's plant.

Toyota is in the process of developing an $800 million truck assembly plant in South San Antonio. By 2006, the company expects to produce 150,000 Tundra vehicles annually.

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Downtowns Thrive on People

That is the message from Norwich, CT. Go here to read more.

Connecticut Tribe Gets Federal Recognition

The Schaghticoke Tribal Nation (STN) just received news that it has waited to hear for nearly a quarter of a century - that it is a federally recognized Native American tribe. The move could pave the way for a new casino near Dover, CT. To say the least, Connecticut state government officials were not pleased to hear the news.
Go the whole story here.

Word From Topeka: Success is More Than Incentives

Topeka also says take care of existing businesses first. Click here to read the article.

Fuel Cells Expected to Take Longer, Just Ask Siemens

Lots of places are excited about the growth potential of fuel cells. Here is one indication that reaching competitive cost realities with this new technology may take longer than expected.

Just three years ago, Siemens Westinghouse Power Corp. had leaders from three states falling over themselves with incentives to gain a new manufacturing plant that could employ as many as 500 workers by 2006. Now, company officials are hoping someone else will use the 180,000-square-foot building in Munhall, PA that's been sitting empty for more than a year. Instead of moving in, Siemens will invest $2 million this year in upgrading the 140,000-square-foot office and manufacturing space it leases in Churchill, PA.

The building there is owned by a limited partnership associated with the Waterfront development done by Columbus, Ohio-based Continental Real Estate Cos. Siemens is in the second year of a 13-year lease.

Although Siemens had the opportunity to tap state job creation tax credits, as well as apply for industrial development and equipment loans, state records indicate the company ended up taking just the $750,000 opportunity grant. That meant committing to keeping 120 jobs and adding 330 more by 2009, as well as requiring Siemens to invest $40 million in the Munhall site, among other things.

If you're not careful, this could happen to you.

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Atlanta Steps Up Downtown Housing Efforts

Atlanta, more spread out than all the largest American cities, according to recent data, has only about 25,000 downtown residents. That's tiny compared with Chicago's 300,000 residents.

Central Atlanta Progress, downtown's chief booster, predicts more than 8,000 new homes will be built downtown by 2007. hat's half the growth predicted for Midtown, but for downtown, it's a surprising number and a "big goal," admits A.J. Robinson, president of Central Atlanta Progress.

Click here to read more.

Pennsylvania Takes Big Tax Cut Step

Pennsylvania Governor Edward G. Rendell's 2004-05 budget reduces taxes on businesses by $6 for every $1 in proposed new fees on the release of toxic emissions and the disposal of residual waste, Secretary of the Budget Michael Masch said today. He described the Governor's overall budget proposals for 2004-05 as a visionary program that will boost Pennsylvania's economic competitiveness and dramatically improve the Commonwealth's quality of life.

Rendell's budget proposal contains over $176 million in new business tax cuts and business tax credits," said Masch, "including the much- desired resumption of the phase-out of the Capital Stock and Franchise Tax, expanded research-and-development tax credits, a new historic-preservation tax credit, expanded educational investment tax credits, and new tax incentives for technology transfer and university-business partnerships.

"By contrast, the Governor's proposal includes just $27 million in new business fees on the release of toxic emissions and the disposal of residual waste," Masch said. "That means that business-tax reductions outweigh business-fee increases in the budget by a ratio of 6-to-1.

If this sticks, this is a big deal and could have a significant impact on businesses expanding in Pennsylvania.

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Corporate Leadership Paradigm Shift: Take Note

Economic developers must understand corporate leadership styles, and they must be aware of the subtle and dramatic changes that are underway in this arena.

New types of leaders in major companies are moving away from the old deal making and salesmanship leadership styles and moving toward creativity and invention as the driving leadership ethos in corporate America. At least, that is what Jeffrey Sonnenfeld said in a recent article in the MIT Sloan Management Review.

Two immediate areas strike me as important in their implications for economic development:

1. New types of corporate leaders will start appearing on ED boards and commissions. The ED CEO must know how to best relate to them and use their talents.

2. The new leadership styles have implications for how CEOs manage and therefore how they approach business investment and location decisions.

Here is a quick summary of Sonnenfeld's article.

Charismatic and controversial former CEOs like General Electric Co.'s Jack Welch and Tyco's Dennis Kozlowski are giving way to a new breed of leader dedicated to reviving the forward-thinking legacies of Old Economy titans, such as GE's ingenious Thomas Edison and IBM's visionary Tom Watson Jr. After years of focusing on the art of the deal, says the author, this renewed emphasis on innovation encourages corporate giants to again ground their organizations in what they do best.

Many of today's emergent corporate leaders, like MCI's Michael Cappellas, IBM's Sam Palmisano and GE's Jeff Immelt, emulate the legendary standard bearers of invention by emphasizing technological engineering over financial engineering, product over marketing and real science over junk science. Critical to their leadership is an unrelenting drive for self-improvement, a strong interest in learning, an appreciation of a motivated work community and longer time frames than those dictated by a preoccupation with the daily stock price.

For example, MCI is emerging from the years of WorldCom scandal by consciously drawing upon its legacy of telecommunications innovation. IBM actively seeks to again become the epitome of prestige, employee loyalty and innovation. GE creates a hothouse of R&D while sharpening its innovative capability in the media and medical sectors through advantageous acquisitions. In addition, executives at 3M, DuPont and Pfizer, who increasingly emphasize research and innovation over promotion and hype, have helped their companies reassert their leadership roles in their respective fields.

Go here to read more.

Corporate M&A's Impact Philanthrophy/Local Civic Giving

In the past few months, two major mergers of financial institutions have been announced. While such mega-bank-creating mergers are inherently big news on Wall Street, these mergers also have proven to be big news on the philanthropic front.

In October 2003, North Carolina-based Bank of America agreed to acquire Massachusetts-based FleetBoston for $47 billion in stock. Less than three months later, J. P. Morgan Chase, headquartered in New York, announced the acquisition of Chicago-based Bank One for the price of $58 billion, thus knocking Bank of America out of its newly acquired position as the world's 2nd largest bank behind Citigroup.

With each merger announcement came immediate cries of concern from community groups that fear these mergers will remove necessary resources from local New England and Mid-west economies. Their concerns are legitimate, but not necessarily predictions of what will happen according to corporate leaders.

The philanthropic repercussions of corporate mergers can be significant. The mere mention of a merger makes many think cost cuts. In fact, cost savings are often cited among the main benefits of initiating a merger. When two companies become one, there are often economic advantages (or economies of scale) that result from the sharing and elimination of duplicate resources, such as back office or support positions. It is easy to see how, under these cost savings goals, reductions in philanthropy could be a concern.

However, the reduction in overall philanthropic levels is not the primary concern of community leaders and local nonprofits, but more the redistribution of philanthropic dollars due to the inherent changes in corporate identity.

Bottom line: If your city is on the losing end of the stick with the M&A deal, it may also suffer reduced civic giving by the new merged corporate entity.

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Economic Development is Part of Trenton's New Comprehensive Plan

The comprehensive plan has not been finalized, and city officials have been encouraged to offer suggestions for changes and additions that will more clearly delineate the city's path to the future. The ED element identifies policies and actions the City should take to:

- strengthen existing business competitiveness.
- finance future development projects using TIFs.
- expand the supply of land for future commercial and industrial development.
- strengthen the city's retail shopping mix.
- finance new infrastructure needed for economic development.

Go here to read more.

Memphis Moving Ahead on Biotech Complex

Aided by state and local government, Memphis Biotechnology Foundation officials are moving forward with a $200 million plus investment to build their new biotech research complex. An old hospital is being torn to make room for the planned new UT-Baptist Biotechnology Park. Go here to read more.

Wisconsin's Angel Networks

Wealthy individuals who make high-risk, potentially high-yield investments to early stage companies typically do Angel financings. Emphasis is placed on enterprises with rapid growth potential. Many angel investors also offer their business expertise by participating in the management, operation, and marketing of the business.

Angel investors regularly supply the risk capital American businesses require for early stage formation and growth. Early entrepreneurial finance, supplied by angel investors, can assist businesses with their initial business concept or prototype phases – often moving the business toward full startup capabilities.

Early-stage capital supplied by angel investors supporting the creation and growth of high-tech businesses is essential to any New Economy economic development strategy.

How is angel capital made available to early growth businesses?

Financial investments in America's early stage businesses are often provided by family, friends and angel investors.

Combining with the founders' personal resources, these "outside" investors regularly finance the growth of infant businesses throughout their early expansion stages – completing these early capitalization steps prepares companies for later stage financing by venture capitalists and institutional equity investors – offering a critical bridge for emerging enterprises between startup development and later expansion phases.

Early-stage (e.g., seed, startup, etc.) Wisconsin businesses requiring growth capital should consider identifying individual angel investors or approaching the expanding in-state angel networks for necessary capital.

In Wisconsin, there are two fundamental types of "angels" who should be approached – usually for quite different reasons – individual investors and angel networks.

For a beginning, let's remember that a majority of angel investing occurs outside the technology business sectors. Angel investing most often occurs amongst traditional business deals: retail stores, real estate partnerships, restaurants, and so on. The anticipated financial returns on traditional deals are small compared to typical venture capital investment expectations, as are the risks.

Angel networks represent a minority of angels in any given economic community. Although the earliest American angel networks were primarily profit-motivated and usually located within communities where venture-backed deals flourished, more recently formed networks are increasingly organized with some motivation toward supporting the local economy (especially so in Wisconsin, perhaps more than other places). These angel networks tend to focus on "high tech" businesses, because of potentials for high-wage job creation and other community benefits. For the most part, Wisconsin's angel networks are not designed to go after moderate-growth, traditional industry businesses, or even tech-based "lifestyle" companies.¹

Moderate-growth, traditional industry companies need "affiliated angels" – friends, family, friends of friends, family of friends, business associates, and friends and family of business associates. These independent, individual angels usually have industry experience, and are identified through family, friends, and service providers. Most successful businesspeople who are active investors are "more likely to fund opportunities when they can identify and measure the risks involved. Entrepreneurs should always try to find knowledgeable, affiliated angels."²

Who are angel investors in the United States? How important are they for early stage business growth?

High-net worth individuals, known as "angel" investors, have become increasingly significant resources in supplying capital and know-how to fast growth, early stage American enterprises.

Individual investors and loosely organized groups of angel investors dwarf conventional seed and venture capital funds as the primary sources of seed stage and startup capital in the United States. Angel investors often fill financing gaps when the resources of the entrepreneur are exhausted.

Wisconsin has been generating significant, civic-spirited commitments from high-net worth individuals willing to form local angel networks. These networks typically serve individual communities and regions around the state. These angel networks serve as the "farm system" for nurturing untested deals within Wisconsin's emerging entrepreneurial economy.

Angel investors are often wealthy entrepreneurs who have started companies themselves and now have the money and know-how to start other businesses. Many of these repeat angels say they are investing in new ventures that interest them. More sophisticated angels say they are readying new ventures for institutional money, while satisfying their desire to be involved in growing companies without full-time responsibilities.

When did the modern American "entrepreneurial economy" begin? How does "tech" job growth today compare with the more established, larger economy?

In 1979, Fortune 500 payrolls peaked at 16 million employees and Bill Gates dropped out of Harvard University to become a computer systems software pioneer. By 1996, Fortune 500 payrolls had fallen more than 25%, but an "invisible" entrepreneurial economy had created more than 25 million new jobs.

In 1985, only 40%of the Forbes Four Hundred Richest People in America were entirely self-made³, i.e., first generation money. Most major U. S. family fortunes had then been made during the earlier industrialization of America. By 1994, however, 80% of the Forbes Four Hundred were self-made. These modern entrepreneurial successes were mostly realized within the high technology sectors of the New Economy.

"The structure of the U. S. economy passed a milestone of transcendental importance in 1979 – the transition from a decaying industrial economy to an emerging entrepreneurial economy," declares Prof. William Wetzel, Jr., Director Emeritus, Center for Venture Research at the University of New Hampshire.(4)

According to the Center for Venture Research, some 400, 000 high net worth angels invest $30 billion – $45 billion annually into more than 50, 000 ventures.(5)

When were angel investor networks first formed in Wisconsin? Where are angel networks located now?

Individual angel investing has a long history in Wisconsin – making investments into both traditional businesses and high-tech. Within the UW-Madison Research Park, PanVera LLC, for instance, was funded with $4 million in investments from individual angels.

Wisconsin's first angel networks were initiated in 2000. Wisconsin has established six angel "networks." These organizations are Early Stage Research (Madison), Origin Investment Group, LLC (La Crosse), Silicon Pastures (Milwaukee), Valley Angels Investment Group, LLC (Green Bay) , The Golden Angels Network (Milwaukee) , and Wisconsin Investment Partners, LLC (Madison) .

Source: David J Ward, and Jim Patterson
Wisconsin Technology Network
Madison, WI
http://www.wistechnology.com

Housing Affordability Improves

U.S. housing affordability rose in the last three months of 2003, reversing two quarters of declines, as the cost of homes dipped by more than $5,000, the National Assn. of Realtors said Monday.

The group's housing affordability index increased to 139.2 from 136.6 in the previous quarter.

A reading of 100 means a household with the national median income makes exactly enough to pay for a median-priced home, and a higher reading indicates houses are more affordable.

Home prices typically fall in the fourth quarter as families with children decide to stay where they are, said David Lereah, chief economist for the Realtor group. The median U.S. home price has fallen every fourth quarter for the last 20 years, with the exception of 2002 when it rose 0.2%, he said.

"A softening in home prices really helped in terms of affordability in the closing months of 2003," Lereah said.

The index reached a 30-year high of 144.1 in the first quarter of 2003 and fell to 143.8 in the second quarter.

The price for an existing single-family home fell to $171,600 in the last three months of the year from $176,900 in the third quarter. Measured year over year, the industry's standard, price growth slowed to 6.6% from 10%.

The appreciation rate probably will slow to 4.6% this year, Lereah said. Over the last 20 years, the rate averaged 4.5%.

The interest rate for a 30-year fixed mortgage averaged 5.83% in the last three months of 2003, compared with 5.66% in the prior quarter, the NAR report said.

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Good Reading

I just reviewed the new report on Florida's medical technology cluster and find it very interesting indeed. The report was released last Spring, but I re-read it recently in light of some work I am doing in this area now. Go here to download the report.

Florida's New ED Strategy Released

Here are the key points of Florida's new ED strategy, released by Enterprise Florida this week:

- Ensuring Florida?s global business leadership with the successful recruitment of the FTAA Permanent Secretariat and expanding of international markets for tourism, trade, investments and cultural diplomacy.

- Establishing Florida as a leading state for entrepreneurship, innovation, and venture capital, with a continued commitment to university-based Centers of Excellence, and strategies for seed and venture capital.

- Facilitating excellence in education and workforce preparation.

- Maintaining the competitiveness of Florida?s business climate with low taxes, non-burdensome regulations, and targeted incentives.

- Designing and implementing a market-driven stimulus strategy for those regions designated by the Governor as ?Rural Areas of Critical Economic Concern.?

- Retaining and strengthening business sectors threatened by external trends and decision-making, including Florida?s manufacturing base and Florida?s defense industry sector, in light of the 2005 Base Realignment and Closure process.

- Transitioning growth management to a more flexible and comprehensive planning mindset for ?smart growth.?

- Investing in economic development and emerging industries/technologies at a competitive level and with innovative strategies.

Having spoken to the Enterprise Florida folks about the plan, I am encouraged by what I see. I think Florida is headed in the right direction. And yes, there are lots of political landmines out there, but tell me a state that does not vonfront these challenges?

Get the report here.

Venture Capital Investing Up

Venture capitalists rounded up $5.2 billion for future investments during the final three months of 2003, marking the industry's busiest quarter of fund-raising in more than two years. Click here to read more. (Registration required.)

Green is Beautiful

That is the message in a recent Alabama Business Journal article.

Companies are making their offices and operations environmentally friendly as they find going green helps the bottom line. Some are designing more energy efficient buildings, while others are using tax credits to make the switch from electricity provided by nuclear or coal plants to that provided by wind turbines. "The business gets economic benefits, the environment benefits and the consumers benefit by being able to put their money where their values are," says a Maryland environmental activist.

As for "greener" buildings, up front costs still put many potential users on guard. A building along the latest environmentally-friendly line could cost 2 percent to 3 percent more than the norm. But studies have pointed to energy savings and healthier, more productive occupants that can reap financial benefits. Click here to read more.

Burning Issues?

Rather than assume, I will ask the question: "What are the burning issues you would like to read about?" ED Futures tries its best to offer diverse coverage of issues affecting the ED field. Please tell us what is on your mind. Thank you.

The Scab...

Atlantic Monthly is good writing and good reading. The magazine speaks to the public. It's powerful for that reason. If you have not read the most recent issue, you may find it useful. Read the article about scab labor. It was written by Jack London in 1904. In case you need help with the math, that is 100 years ago. It's good to be reminded of where we have been. Even economic developers need a dose of history once in a while.

North Dakota Looks to Wind Energy

if you have lemons, make lemonade. If you have wind, make wind energy. That is the conclusion of the planners and developers in North Dakota. Read this article about how North Dakota is scaling up for one of the largest wind energy farms anywhere.

Aquaculture

A number of areas see aquaculture as a future growth industry. If you are one of them, read what they are doing in Maine.

A new report on Maine's aquaculture industry says fish and shellfish farming should be an integral part of the state's coastline in the years to come. The 190-page report includes a vision statement - which says aquaculture is an "important and compatible element in Maine's diverse coastal economy" - and a set of guiding principles to be considered in future development of aquaculture.

Go here to learn more.

Smart Growth Versus Wise Growth

Now here is one to catch your attention. Been promoting "smart growth"--that is trying to reduce urban sprawl by encouraging more higher development densities?

Maybe things are not working the way you intended. Click here to read why one observer thinks the market does a better job of allocating resources than planners and economic developers. Author Fred E. Foldvary says that people still want their cars, even in more densely developed communities, causing the reverse of what is desired--more congestion and other problems.

Religion, an Economic Growth Engine

What really stimulates economic growth is whether you believe in an afterlife ? especially hell. At least that's what two Harvard scholars have found after analyzing data collected in 59 countries between 1981 and 1999.

"Our central perspective is that religion affects economic outcomes mainly by fostering religious beliefs that influence individual traits such as honesty, work ethic, thrift and openness to strangers," the researchers, Robert J. Barro and Rachel M. McCleary, wrote in a recent issue of American Sociological Review. (They also happen to be married.) "For example, beliefs in heaven and hell might affect those traits by creating perceived rewards and punishments that relate to 'good' and 'bad' lifetime behavior."

The data comes from six international surveys, including ones by Gallup, the World Bank and researchers at the University of Michigan. They include questions about attendance in places of worship and religious beliefs. There were four measures of economic development: per capita gross domestic product, educational attainment by adults, the urbanization rate and life expectancy

Oddly enough, the research also showed that at a certain point, increases in church, mosque and synagogue attendance tended to depress economic growth. Mr. Barro, a renowned economist, and Ms. McCleary, a lecturer in Harvard's government department, theorized that larger attendance figures could mean that religious institutions were using up a disproportionate share of resources.

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South Gaining Steam as Corporate Headquarters Location

From 1975 to 2002, only three Fortune 500 companies relocated their headquarters to markets in the South. During 2003, three Fortune 500 companies and a host of other large corporations announced they would relocate their headquarters to the American South from other U.S. regions.

The three Fortune 500s that bit the bullet and moved South this year from costlier regions are Fidelity National (from Santa Barbara, Calif. to Jacksonville, Fla.), Philip Morris (from New York City to Richmond, Va.) and Newell Rubbermaid (from Freeport, Ill., to Atlanta, Ga.) Therefore, in just one year as many Fortune 500 companies relocated their headquarters to the South as did in the the previous 27 years.

But three Fortune 500s relocating their headquarters to the South, even in one year, does not give us enough ammunition to say, "we told you so." In addition to Fidelity, PM USA and Newell Rubbermaid, marque corporate names such as Louisiana-Pacific (Portland, Ore. to Nashville, Tenn.), R.H. Donnelley (Purchase, NY to Raleigh-Durham, N.C.), DHL, (Seattle, Wash. to South Florida) and Asurion (San Mateo, Calif. to Nashville, Tenn.) relocated their HQs to the South this year. There were more.

Fortune 500s in Southern States
Texas 65
Virginia 25
Florida 22
Georgia 19
Missouri 18
North Carolina 16
Maryland 13
Alabama 12
Tennessee 10
Louisiana 7
Kentucky 6
Oklahoma 6
Arkansas 5
Kansas 5
South Carolina 4
Mississippi 2
West Virginia 1

Operating cost is a big driver for the projects discussed above, but so is quality of life offered by what Pepperdine University's Joel Kotkin calls "second-tier cities."

Go here to read more.

Manufacturing Expands and Grows in Mississippi

Whoever said that manufacturing is dead has not been to Mississippi. Click here and read about the state's success in growing its manufacturing base at a time when many other states have been hemorrhaging manufacturing jobs. Will it last in the face of outsourcing to China and other less expensive world locations? That remains to be seen. In short term, things are looking fairly bright for Mississippi in the manufacturing world.

More Mergers and Acquisitions Ahead, Watch Out

This is one I have been telling you to watch for. Look for more M&A activity in 2004. How will your community be impacted by this trend? Some of the deals are going to be bad ones. Watch for them. A recent article in CFO Magazine talks about the "behavioral finance" angle on M&A deals. It talks about the psychology that some CEOs get caught up in pursuing these deals.

With the U.S. economy roaring back to life in the third quarter of 2003, the revival of what economist John Maynard Keynes called the "animal spirits" of investors may be at hand. And that, to some observers, portends an uptick in merger-and-acquisition activity.

Inevitably, however, many companies will make deals that they will come to regret. Study after study shows that most mergers and acquisitions destroy value, at least in the short term. Why do so many acquisitions fail? Experts typically cite a number of reasons—synergies and cost savings that don't materialize, intractable integration problems, insuperable cultural differences, and so on. Acquisitions, they conclude, are inherently risky undertakings.

To those in the field of behavioral finance, however, the fundamental problem is psychological. CEOs who engage in M&A activity, they say, tend to be overconfident. And overconfident CEOs are prone to pursue risky deals, or pay too much (the "winner's curse"), because they overestimate the returns they can produce from an acquisition.

Investment Banks Go Offshore for Analysis and Research Services

The offshoring trend has taken another surprising turn. Having successfully outsourced to India such back-office functions as IT, investment banks are now sending some of their financial analysis and research overseas. In recent months, firms including J.P. Morgan and Morgan Stanley have quietly hired Indian firms or set up their own subsidiaries in India to handle basic financial modeling and comparable analysis.

Two main factors are driving this trend. First, it's cheaper. According to Dushyant Shahrawat, a senior analyst with Needham, Mass.-based TowerGroup, a financial-services industry research firm, the fully loaded cost of hiring an experienced junior analyst in India is between $20,000 and $25,000, compared with between $85,000 and $90,000 in New York. Such savings are especially attractive now that banks are no longer subsidizing sell-side research with investment-banking fees.

Second, banks hope that by freeing senior analysts to concentrate on analysis rather than running numbers, they will produce better—and more—research. "The bank always has to have the equity analyst sitting in New York, being able to talk to CEOs," says Joseph Sigelman, co-CEO of OfficeTiger, one of the Indian firms serving Wall Street. "But if we can take away some of the very structured, re-petitive tasks, the number of companies the analyst can cover increases significantly."

Go here to read more.

The Thomas-Voinovich Amendment

Did you know that opponents of offshore outsourcing enjoyed a small victory on Jan. 23, when President Bush signed the Omnibus Appropriations Bill into law?

Tucked inside the complicated legislation was the Thomas-Voinovich amendment, which forbids certain segments of the government to use foreign companies when outsourcing some government work. The amendment is limited in scope and duration (it sunsets after a year), but already factions on both sides of the contentious offshore outsourcing debate are girding for battle.

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