Selling Intangibles: Possible Lessons for Economic Development

Economic development is very much about selling intangibles. Maybe this article can provide some insights in how we can do our job better.

Consumers around the world last year spent $3.5 billion for cell phone ring tones. More than $1 trillion was spent for insurance, including accident, health and property.

There is tremendous revenue in things that you can't see.

One of the primary reasons is that the pricing for invisible products is more difficult to evaluate. For example, a manufacturer can determine how much it costs to make a DVD player, based on the cost of the components and the labor to make it. Based on profit margins, it is relatively straightforward to determine the cost of the product to the distributor, who in turn can properly price it for the consumer. Competitors can easily calculate those same costs and competition continually drives those prices down by decreasing production costs and profit margins.

However, aside from the Net, selling what cannot be seen can be a great business. Though there might be more, we see the selling of the "invisibles" in five categories.

- Peace of mind. These include service contracts and extended warranties. After you buy that expensive sound system at Best Buy, do you really want to take a chance on it breaking two years down the road?

Under this category falls the brand itself. Companies buy from IBM, Dell, etc., because they perceive that the company will stand behind the products. That is the value of the brand and the market position of a company. This intangible of brand causes sales of those companies' products. Insurance also falls under this category, as people feel better that they are "covered." The same holds true for security monitoring services.

- The second category is futures. Cell phone services are a great example, as people pay for a future amount of time per month. Advertisers buy future advertising time on television and people purchase future time-shares for properties.

- Then there are rights. Cable and satellite television fees allow consumers the rights to see certain programming. For extra charges, people can have more rights to see more things.

- There are ideas. Examples of the selling of ideas are portrayed in consulting or paid advice, as the pricing of intellectual property is market driven.

- Finally, there are dreams. The dream of winning the lottery or investing in the results of a future event, such as gambling that the next roulette number will be yours.

Here to read more.

Texas to Get 3,000 Boeing-Related Jobs

Texas Gov. Rick Perry announced this week that Vought Aircraft Industries will consolidate several of its aircraft manufacturing facilities in Dallas, creating 3,000 new Texas jobs. As many as 2,000 of those jobs might be building parts for Boeing planes, including the 7E7.

Texas will grant Vought, headquartered in Dallas, $35 million from the Texas Enterprise Fund. Vought will use that money to modernize its plant at the former Dallas Naval Air Station.

Texas economic development officials said much of the state's money will be used to equip the Dallas Vought plant to produce major subassemblies for the 7E7 jetliner.

Boeing has named Vought and its partner, Italian aerospace company Alenia, as major suppliers for the new twin-engine jet. Together Vought and Alenia will produce the airliner's composite center and aft fuselage and horizontal tail.

Here to read more.

Some Good News: Business Spending Up

The Bureau of Economic Analysis says that spending by US businesses is up in the fourth quarter of last year--a welcomed sight to any economic developer working to help businesses expand. Go here to read more.

Inc. Ranking of Best Cities for Business

I'm not big on rankings and ratings of places, but the new Inc. Magazine ranking of places for business is worth reading because of the searchable database it provides access to. I don't want to steal the surprise about who the top city picks are. Click here to see who made the top 25 list and here to access the online Inc. database (the best part of the article series.) Finally, click here to read about the methodology used in the rankings. (There are a few good ideas here.)

America's Most Admired Companies

Fortune Magazine just released its list of most admired companies. It ranks nearly 600 companies using these eight ranking variables:

-Innovation
-Employee talent
-Use of corporate assets
-Social responsibility
-Quality of management
-Financial soundness
-Long-term investment value
-Quality of products/services

The top ten are:

1. Wal-Mart (Give me a break!)
2. Berkshire Hathaway
3. Southwest Airlines
4. General Electric
5. Dell
6. Microsoft
7. Johnson and Johnson
8. Starbucks
9. FedEx
10. IBM

Commentary: Obviously keeping U.S. jobs onshore was not one of the ranking criteria used, otherwise half of the top ten list would disappear.

What's the Real Future of U.S. IT?

Business Week just ran a very thought-provoking--unnerving--article about the possible impacts of offshore outsourcing on the U.S. IT industry. It's a must read for all of us.

U.S. software programmers' career prospects, once dazzling, are now in doubt. Just look at global giants, from IBM and Electronic Data Systems to Lehman Brothers and Merrill Lynch. They're rushing to hire tech workers offshore while liquidating thousands of jobs in America. In the past three years, offshore programming jobs have nearly tripled, from 27,000 to an estimated 80,000, according to Forrester Research Inc. And Gartner Inc. figures that by yearend, 1 of every 10 jobs in U.S. tech companies will move to emerging markets.

For many of America's 3 million software programmers, it's paradise lost. Just a few years back, they held the keys to the Information Age. Their profession not only lavished many with stock options and six-figure salaries but also gave them the means to start companies that could change the world -- the next Microsoft, Netscape (AOL ), or Google. Now, these veterans of Silicon Valley and Boston's Route 128 exchange heart-rending job-loss stories on Web sites such as yourjobisgoingtoindia.com. Suddenly, the programmers share the fate of millions of industrial workers, in textiles, autos, and steel, whose jobs have marched to Mexico and China.

The article concludes by rasing some serious doubts that the next innovation and growth wave will boom here. With the way things are going now, there is no guarantee.

Here to read more.

New Cargo Port Studied for Louisiana

A cargo airport proposed for southeastern Louisiana would create over 66,000 new jobs and a total of $40.1 billion dollars in new household earnings for state residents, according to a study released Thursday by the Louisiana Airport Authority. The findings also show that $174.8 billion in new sales would be created for Louisiana businesses over a 40-year period, the authority said. Here to read more.

Commentary: Those are some awfully BIG numbers. I don't know anyone who would dare project out 40 years on any project in today's uncertain and rapidly changing world.

New $200 Million Venture Fund in Cincinnati

Fort Washington Capital Partners LLC plans to raise up to $200 million for its fifth private equity fund since 1999.

In a presentation to the Greater Cincinnati Venture Association last week, Gus Long, the fund's managing director, said the Tri-State Growth Fund has committed $12 million to six funds with a regional focus that have $250 million in venture capital to invest. Two of those, Draper Triangle Ventures in Pittsburgh and Charter Life Sciences of Palo Alto, Calif., have agreed to open local offices. Four national funds, with $1 billion in total capital, have agreed to assign staff to "review deals in the region," Long said.

Here to read more.

Recommedations for a Stronger Rural America

The Progressive Policy Institute released an interesting new report on policy actions to strengthen rural economies. Rob Atkinson is the author.

Four principles are identified:

Principle 1: Shift from subsidies to economic investment.

Principle 2: Target places with growth potential.

Principle 3: Change the playing field so more firms choose rural locations.

Principle 4: Enlist states as full partners.

Here to read more.

Go Omaha

By 2010, a metropolitan Omaha population of 1 million people. Within five years, at least 5,000 new jobs paying $50,000 or more per year. National and international marketing campaigns aimed especially at the space and defense industries, bio-informatics and medical research. An emphasis on helping existing businesses grow. Those are the goals of a five-year, $20 million economic development program the Greater Omaha Chamber of Commerce is launching this year.

Here for more on Go.

Lessons from Charleston, SC: New Leadership Model Needed

Charleston officials just completed a new strategic plan for economic development. My friend and colleague Ed Morrison assisted Charleston areas leaders with the plan. A recent Charleston newspaper article focuses on the need for "new leadership" to make the plan happen. What type of leadership is called for? Leadership that meets this challenge described in the report: "Our business leadership does not reflect the racial, sexual and economic diversity of businesses in the region. Encouraging more diversity will strengthen our business leadership over the long term and improve the quality of our regional decision-making."

I have posted this article because I am finding exactly the same thing in many of the plans and strategies that I have prepared and facilitated for areas over the past several years--a new generation of leadership is needed to make things happen.

I have been working with an emerging leadership group in Greater Cleveland called the Cleveland Bridgebuilders on the notion of creating "inter-generational" leadership teams that involve young, old, existing, and emerging leaders in more powerful and dynamic ways to make things happen in the NE Ohio region. The old concept of leading one generation at a time is too slow and not powerful enough to make the "foundational" changes that many areas must make to become competitive in an increasingly cut-throat global economy.

It is also fair to add that the "ED ballgame is changing in some very fundamental ways" with increased offshore outsourcing, mergers and acquisitions and other two-edged business strategies being put into place by companies worldwide. The new generation of ED leaders must be capable of navigating in this new, more intensely competitive environment. This won't be easy for any of us!

Freedom of Information and ED Confidentiality

Some Virginia legislators are trying to close a loophole in Virginia law that might allow the public to learn details about an economic-development deal before the ink is on the contract.

Right now any documents prepared by the Virginia Economic Development Partnership or submitted by a company can't be obtained through Freedom of Information Act, or FOIA, requests before a deal is done. But papers produced by local government officials and other state agencies might not have the same protection.

These are issues for any state or locality. Go here to read more about the Virginia situation.

Sometimes There Is Nothing You Can Do

According to a recent Erie newspaper article, millions of dollars are being spent locally on new programs to keep and attract businesses, but that hasn't stopped yet another company from closing its manufacturing facilities in Erie. Local economic development officials say -- and a company official agrees -- that nothing realistically could have been done to keep American Meter Company 113-year old factory open in the Erie area.

At one time the plant employed more than 600 people. Now it has less than 25 working in it. The remaing dozen production jobs will be eliminated.

Lehigh Valley, Pennsylvania: Insights into the ED Marketplace

We can learn from each other's experience. In this case, we can learn from the Lehigh Valley's annual report card for 2003, which reflects the meager job development market we have seen over the past 3-4 years. Nearly one-half of the deals done in the past two years have been distribution projects, which reflects what the market has been willing to bear. Little to nothing happening in the office market and not much life in the technology sector, which every area is eager to develop. Go here to read more.

Where New Ideas Come From

I read an interesting article in Fast Company Magazine that speaks to this subject. Interesting. Go here to read more.

The Economist's Take on Offshoring

Here is what the Economist says is really happening in the world of offshore outsourcing:

• Although America's economy has, overall, lost jobs since the start of the decade, the vast majority of these job losses are cyclical in nature, not structural. Now that the economy is recovering after the recession of 2001, so will the job picture, perhaps dramatically, over the next year.

• Outsourcing (or “offshoring”) has been going on for centuries, but still accounts for a tiny proportion of the jobs constantly being created and destroyed within America's economy. Even at the best of times, the American economy has a tremendous rate of “churn”—over 2m jobs a month. In all, the process creates many more jobs than it destroys: 24m more during the 1990s. The process allocates resources—money and people—to where they can be most productive, helped by competition, including from outsourcing, that lowers prices. In the long run, higher productivity is the only way to create higher standards of living across an economy.

• Even though service-sector outsourcing is still modest, the growing globalisation of information-technology (IT) services should indeed have a big effect on service-sector productivity. During the 1990s, American factories became much more efficient by using IT; now shops, banks, hospitals and so on may learn the same lesson. This will have a beneficial effect that stretches beyond the IT firms. Even though some IT tasks will be done abroad, many more jobs will be created in America, and higher-paying ones to boot.

Here to read more. (Remember this is an international view of the situation. Not the take from Washington, or Youngstown, Ohio.)

Airports and Economic Development

Click here to read an interesting story about how CEOs rate the nation's smaller airports. While the larger airports get most of the attention, the smaller ones also play an important role in business travel.

oneLondon

oneLondon is advancing economic development in the London UK area through several innovative programs:

Enterprise: Creating jobs and growth

* Recognizing that small businesses are a vital part of a vibrant local economy, oneLondon offers a range of services and support to SMEs and micro-businesses across London.

* Each year, oneLondon Enterprise Services supports 6,000 SMEs and would be entrepreneurs with finance, training, advice and mentoring.

* oneLondon Business Loans (supported by HSBC and Lloyds TSB) along with London Business Loans (managed on behalf of Business Link for London) currently have over 300 borrowers whose businesses, otherwise, would not have started or expanded.

* oneLondon offers support to early stage digital businesses through ready4growth

* Reaching for Enterprise will offer help and support to those thinking about starting their own business

Community Development

* Each year, oneLondon looks to develop new and innovative ways of extending corporate involvement in the community in a variety of ways.

* Through participation in oneLondon’s Active Citizenship programme to ensure that young people are aware of their roles and responsibilities and the Enterprise Youth initiative which focuses on building the enterprise skills of young people

* oneLondon is working to identify practical ways to address the employability and skills gaps that exist across a number of industry sectors and to engage London’s biggest asset – its local population

Public Policy

* oneLondon Public Policy aims to bridge the gap between private and public sectors in creating relevant and effective policy for driving London’s economic growth. The Policy team is responsible for providing the mechanisms that allow our partners from government, the corporate sector and NGOs to debate and discuss imminent economic development issues, publish briefings, consultations and a bi-monthly news digest to ensure practical and significant engagement of all of the sectors.

Go here to learn more.

Ottawa Partnering with Other Cities

ED Futures has been giving considerable attention to why and how cities and regions can work together to promote their mutual economic interests. Guess what? It's beginnning to happen more frequently across the world. Here is an example of how Ottawa (Canada) is approaching these partnerships.

With the goal of promoting Ottawa as a global technology centre to key US markets, Ottawa Global Marketing and its partners have launched Maintain the Momentum, a program of seminars, investment missions, media relations, and city-to-city promotions intended to attract new companies and people, and increase cooperative research programs with other regions.

Several projects are already complete, and more initiatives are underway or in development relating to the following areas:

* Boston, Massachusetts
* Raleigh, North Carolina
* Silicon Valley, California
* Tucson, Arizona
* Washington, DC
* New York, NY
* Europe

Here to read more.

Optics and Photonics Clusters

Many areas are giving attention to the development of optic and photonic clusters. Click here to access a valuable website that contains information about many of these clusters around the world.

Japanese Study Asian Cluster Links

Remember my earlier articles about how industry clusters need to work together and how they need to examine how business strategies are impacting cluster development? There have been a series over the past six months. It appears that somebody is beginning to listen. Read this study proposal described below.

Osaka and Nagoya universities in Japan will be studying the following Asian clusters: southern China, Chu-Chiang River Delta in China, Penang, Selangor, Johor in Malaysia, Hochiminh and Hanoi in Vietnam, Bangalore in India, Zhong Guan Cun in China, Hsinchu Science Park in Taiwan, and Leam Chabang in Thailand.

Their main objectives are to find out the reasons generating changes in the clusters, and examine whether the clusters are expanding or contracting, how much multinational corporations in the clusters have introduced value chain management (VCM), what are the effects of introducing the VCM on agglomerating firms in Asia, what relationships exist between and among clusters in Asia, and whether they are competitive or cooperative. In addition, the study will examine what are the effects of China's emerging clusters on other clusters in Asia, and what are the roles of the IT industry in the clusters.

Multinational corporations have been introducing value chain management (VCM) under globalization. It has become crucial to their survival that they attain the local maximum point by their introduction of VCM since transportation costs are significant to reduce costs including inventory costs. The study will examine what are effects of the introduction of VCM on industrial clustering in Asia.

This should be interesting. Go here to learn more.

Discouraged Job Seekers

About 4.7 million Americans want jobs but are not looking for work, up from 4.6 million in January of 2003, according to the Department of Labor. There are a variety of reasons they may be unable to look for work. They may be unable to job hunt because they don't have a car or can't find child care.

But some aren't looking because they believe there are no jobs out there: More than 400,000 workers are so discouraged by the job market that they've given up looking for work. More and more workers are jumping out of the game. The January labor force participation rate was 66.1%, up slightly from a 12-year low in December when 66% of working age people were working or seeking work.

Go here for more.

New York City's Top Companies

Click here to find profiles of NY City's top 100 public companies and here for the City's top 100 private companies.

Hamburger Flipping is Manufacturing?

Brace yourself for this one...

White House economists wonder whether hamburger flippers at fast-food restaurants should be considered manufacturers.

In the report last week, Bush's chief economic adviser N. Gregory Mankiw called the definition "somewhat blurry" and asked whether it should be changed. "When a fast-food restaurant sells a hamburger, for example, is it providing a 'service' or is it combining inputs to 'manufacture' a product?"

For an administration that has seen 2.6 million manufacturing jobs vanish since January 2001, raising the possibility of changing how manufacturing jobs are classified has provoked a sharp response, especially in an election year.

When Mankiw's remarks came out this week, Democrats had a field day. In Ohio, presidential hopeful Sen. John Kerry (D-Mass.) said: "If this president is going to tell middle-class factory workers that even though their job has disappeared, they can still have a good manufacturing job at $5.15 an hour at McDonald's, let him come to Ohio."

Here for more laughs.

IT Hiring Expected to Pick Up

Chief information officers in the United States are expected to increase their information technology hiring in the second quarter of this year, according to a new study from IT staffing firm Robert Half Technology. Eleven percent of CIOs surveyed plan to add full-time staff to their IT departments in the second quarter, while 2 percent anticipate personnel reductions, Robert Half Technology said. Eighty-seven percent of chief information officers expect to maintain current staff levels in the upcoming quarter. The survey included responses from more than 1,400 CIOs of U.S. companies with 100 or more employees. Robert Half Technology said the net 9 percent of chief information officers planning a hiring increase compares with a net 3 percent last quarter and is the largest net percent since the third quarter of 2002.

The survey did not specify in which country the hiring would take place. Technology companies have been adding staff in overseas locales that offer lower wages. Here to read more.