U.S. Manufacturers Step Up Foreign Investment

Foreign direct investment (FDI) by U.S. manufacturing multinationals increased a staggering 90% from about US$28 billion in 2003 to over US$54 billion in 2004, according to a new study by Deloitte Consulting.

Why? The surge in FDI flows may be explained in part by a rise in outward U.S. manufacturing cross-border M&A activity, which has continued to climb since 2002, first surging 80%, from US$16 billion in 2002 to US$29 billion in 2003, and then increasing to nearly US$31 billion in 2004 — its fourth-highest level over the last decade and a half. FDI growth may have also been fueled by improved corporate profitability and enhanced confidence by manufacturers in global markets.

What does this mean for American communities hoping to lure manufacturing investment? They will have much greater competition for these opportunities from offshore locations.

Where should you focus your attention? In my estimation, we will stand even less of a chance of getting the big manufacturing projects by US corporations. They will go offshore for the most part. Frankly, I do not recommend putting much energy into these efforts. You'll lose.

Focus instead on two categories of manufacturers: 1) small to medium-sized US manufacturers that have proprietary products; and 2) foreign manufacturers looking to put down US production roots (even there don't overfocus on the big projects.)

Who's Who in Biotech in Ontario?

Want to know who are the leading biotech companies and research centers in Ontario, Canada? Check out this great online directory and other aspects of the Province's Biotech Web Portal.

Ontario Expands International Marketing Efforts

The Ontario government is raising the province's profile in the global marketplace by opening four new International Marketing Centers in major foreign centers:

1. Tokyo
2. London
3. Los Angeles
4. New Delhi (This one interests me. Maybe a focus on attracting scientific Indian minds to Ontario?)

Why More Ontario Activity Abroad?

1. Global foreign direct investment (FDI) is growing, but Canada's share of global inward FDI is declining (6% in 1990; 3% 2003).

2. There are 1500+ Canadian jurisdictions investing and competing abroad for investment/promoting their exports.

3. US states alone maintain more than 200 overseas trade offices.

3. Alberta has nine offices abroad and Quebec has 17 offices abroad.

More here.

MBNA's Future in Greater Cleveland

According to the Cleveland Plain Dealer, the Bank of America is poised to acquire MBNA in a $35 billion cash and stock deal. 6,000 jobs are on the chopping block worldwide, creating uncertainty for the roughly 2,500 employees in Beachwood, Ohio (a Cleveland suburb). This information was drawn from a July 1st newspaper article.

My question is this: "Did Cleveland area economic development organizations have any prior notice that this deal was in the making? Click here to read a June 23rd story in Reuters that said: "Some market observers have speculated that MBNA might be a takeover target." And here is a June 2 article (free registration required) that speculates about an MBNA acquisition.

The Metropolitan Business Cycle Index

Here is one you might want to replicate for your area. The Federal Reserve Bank in Dallas developed a very handy metro level business cycle index. Here is a little information to get you thinking about the tool.

The frequency and severity of cyclical swings in a local economy are important to businesses and consumers because such cycles impact production and inventory decisions, employment and unemployment. Analyzing the overall direction of a local economy, however, can be difficult and confusing. Often the handful of local economic indicators gives mixed signals. For example, if the unemployment rate and job growth both increase, is the local economy picking up or weakening? Often it is not clear.

To more clearly define regional business cycles, the Dallas Fed has developed composite indexes that aggregate the movements of key economic indicators for nine Texas metropolitan areas. The Metro Business-Cycle Indexes use statistically optimal weights so that movements in the indexes best represent the underlying co-movements in the indicators and thus the underlying state of the economy. The long-run growth in the indexes is set equal to growth in real personal income. The indexes are constructed using the same statistical techniques as the Texas Leading Index.

Read more here.

Maquiladora Employment

Mexico’s maquiladora industry continued to expand in March, with employment rising at a 6.6 percent annualized rate. During first quarter 2005, maquiladoras added over 25,700 jobs.

Looking at employment gains by major sector, transportation grew at the fastest pace in March (12.3 percent annualized), while chemicals and services added jobs at annualized rates of 10 percent and 9.2 percent, respectively. The textiles, furniture and electronics sectors added jobs at a more moderate rate, while machinery jobs declined. On a year-to-date basis, the electronics sector has witnessed the largest number of job gains—over 15,200—followed by transportation, with almost 1,700 jobs.

The maquiladora industry along the Texas–Mexico border—which accounts for 36 percent of total maquiladora employment—recorded a net gain of just over 7,200 jobs in first quarter 2005.

Read more here.

Lifestyle Types and Economic Development

The connection between demographics and economic development is growing much stronger and more important. Don't believe me? Look at the workforce issues facing your community, or look at the debate about big box retailing, and many other issues affecting economic development in your area.

As a thought-starter, visit the Claritas website to learn more about lifestyle types and how they shape market, economic, and social realities.

Leadership for Global Advantage

"Economic development needs to become global. Universities and economic development organizations need to give greater leadership to building global partnerships. That's the only way we are going to survive. The University of Arizona is doing that through its Global Advantage Initiative."

Bruce Wright
Vice President, Economic Development
University of Arizona

Source: Interview conducted for Leading Change in Economic Development.

Entrepreneurship is Most Important

Economic developers don't spend enough time on entrepreneurship. Some do, but most don't.

As I size up the future--let's say the next ten years--entrepreneurship is going to be the only sure fire way for both growing and declining local economies to spark new growth that matters. What type of growth matters? It's growth that is innovation and new idea-based, its globally competitive, it fits with local community values, it acknowledges human potential in a larger sense, and it provides something that is good and useful to society.

Most local economies need to reinvent themselves in the context of the global economy. Most need to grow new roots that will anchor them in the industries and jobs of the future. Entrepreneurship is an effective way to do that, if you do it right.

We're in trouble in economic development, and many economic developers and their leaders don't know it. They think everything is going to be ok, but it won't unless they build entrepreneurial economies that have global reach. Yes, it is hard work growing new businesses, and more will die than survive, which means you have to plant a thousand seeds and hope a handful will survive.

Do yourself and your community a favor. Hug three entrepreneurs in your community today, then get on the phone and call three entrepreneurs in another city and tell them how much you appreciate what they do. I promise you something magical will happen. Let me know how it goes.

Wealth

"What has destroyed every previous civilization has been the tendency to the unequal distribution of wealth and power."

--Henry George

Prosperity

"If we had no winter, the spring would not be so pleasant: if we did not sometimes taste of adversity, prosperity would not be so welcome."

--Anne Bradstreet

Benchmarking and Evaluating Entrepreneurship Programs

Here are some useful ideas on practical measures to assess the performance of entrepreneurial development initiatives and programs. The source is the International Economic Development Council. These are just some starting ideas, if you are looking for somewhere to begin.

Quantitative Measures

-Number of new business startups
-Numbers of entrepreneurs assisted
-Business failure rates (or ratio of start-ups to failures)
-Number of jobs created
-Cost per job created
-Percentage of women and minorities assisted
-Number of local residents hired

Qualitative Measures

-Diversification of businesses (e.g. new industries, new services)
-Program graduates understanding the costs and opportunities of an entrepreneurial endeavor
-Ability to create a supportive environment for entrepreneurs (courses, networks, mentors)
-Stated project goals and the degree to which they have been achieved (e.g. promotion of female entrepreneurs)
-Incubators provide entrepreneurs with affordable space, and on site available technical assistance and management support. Incubators strive to accelerate the successful development of new ventures through low start-up costs. Incubators provide An incubator amy serve a specific objectives such as technology development or neighborhood revitalization. Incubators should be evaluated by the degree to which they meet their unique objectives.

Additional Quantitative Measures

-Incubator occupancy rate
-Incubator graduation rate
-Average time spent in the incubator prior to graduation
-Ratio of failures to total tenant occupancy over the life of the incubator
-Percentage of firms obtaining finance

$58.25 a Barrel Versus $25.87 Per Hour

According to the latest Bloomberg report, oil is priced at $58.25 a barrel. According to the Economist, it isn't terrorism in the Middle East at this point driving the surge in oil prices, it's gangsterism in Nigeria. Either way, I paid $2.29 per gallon yesterday to fill up my tank and I wasn't happy about it. (And please don't trouble me with the story about how world market energy prices are catching up with America.)

Last week the Bureau of Labor Statistics released its latest estimates on total worker compensation costs. The overall average, across all occupations and industries, is $25.87 per hour worked, with 70% of this total being accounted for by wages and salaries and the other 30% by benefits. Some economic developers will read these numbers and say: "My God, that's the problem!" I would reply: "No, that isn't the problem."

Total compensation costs were lowest in the East South Central region at $20.15 per hour worked, and they were highest in the Pacific region at $27.84 per hour worked. Total compensation costs were estimated at $24.95 per hour worked in the East North Central region where I live. No great surprise here in terms of the regional differences, but it is instructive to have the actual numbers.

Sound like a lot of money? Not really when you consider the overall economic picture. Business advocates will ask: "But what about the impact of labor costs on productivity? Businesses must achieve higher levels of productivity to compete globally. True, but how much productivity can we stand if we are committed to building a more prosperous society? The reality is that productivity growth remains healthy on a national and regional basis.

Here's my question: "Which is hurting economic development more: oil prices or labor costs?" In my estimation, oil prices represent a greater threat to America's local economic development efforts than labor compensation costs, which business executives and managers love to rant about. What do we do when oil prices reach $80 a barrel?


For additional background on the income and prosperity issue, read the Economic Policy Institute's latest figures on real personal income growth (decline?). Meanwhile, read what is happening to executive compensation. I read with great interest Crain's Cleveland Business list of Greater Cleveland's Highest Paid CEOs and noted that local CEO compensation continues to climb nicely, while the vast majority of local companies continue to reduce local employment. What does that say about local economic developers' ability to stimulate local job creation? It says that employment growth is probably not a good indicator of economic development organizations' success in markets like Cleveland.

I've been in the economic development business for 30 years. Frankly, I am deeply concerned about our failure in economic development to bring about greater prosperity for citizens. The traditional model of economic development focused on increasing "earned income" in local areas. As I look at the numbers, transfer payments (investment dividends and retirement payments) are growing sources of income, and not earnings (except for certain categories of workers).

So, what do we do? Here is my suggestion. Maybe economic developers should turn their attention from being job developers to become personal financial advisors. With all the talk about "economic development contributing to wealth formation," maybe we should tell people the truth about how they can get rich. They can't get rich by "working for a living!" Even if you wanted to work your way to riches, you can't. Globalization (offshore outsourcing) is taking that option off the table.

Perhaps personal financial investing and entrepreneurship should be two new required courses that every high school students must complete to graduate. Does it really make any sense for young people today to get trained up for occupations that: 1) will not make them reasonably prosperous; or even worse 2) may not even exist in the future.

As economic developers, we need to dig deeper into these very difficult economic issues affecting our ability to do our job. I don't believe we are giving them enough attention. As a result, we don't know that we need to shift to new strategies that enable people to become more prosperous in the context of global economic realities. Let's tell folks the truth: You have to invest and entreprenuer your way to prosperity!

Southern Arizona's eLearning Cluster

Learning is big business, and the role of computers and the Internet in educational, training, and learning processes of all types has grown enormously.

Southern Arizona economic developers recognize this reality, which is why the Greater Arizona eLearning Association recently became the seventh industry cluster supported by the Southern Arizona Tech Council.

The association is made up of providers and consumers of electronic educational technologies and services, including digital media such as the Internet, CDs, cable TV and streaming media, for education, workplace training and communication.

Smart idea!

Read more here.

Being a Change Maker Requires Skill

I am writing a book on economic development leadership. As many of you know, the ED Futures Leadership Survey was very successful with over 600 responses (20% response rate). By the way, if you completed the survey, you will be receiving a summary of the results this week. So watch your email box.

During the past month, I conducted phone and in-person interviews with 30 economic development CEOs and EDO board members from across America. I have about 30 more to go, including some hopefully with Canadian, European, and Asian economic developers.

One of the questions that I asked interviewees was this: "Do you consider yourself to be a change maker; that is a leader who is commited above all else to a vision of significant proactive change in your area?"

So far, seven people said they viewed themselves as "change-making leaders." Many said they were commited to bringing about positive change in their organization and community, but as one interviewee said: "you have to eat the elephant one spoonful at a time." Folks, that's incrementalism!

One interviewee said that change-making was a "conscious choice;" that is you must decide and plan to bring about transformational change in economic development. She also said that change-making requires "skill;" that is it is a learned competency that combines vision with the ability to work very effectively with other people, especially those people that you hope to change. She added that "being a bull in the china shop is unlikely to work in economic development, especially if you are a woman." Instead, she suggested that "change-making economic developers" must use great finesse in achieving a mega-change agenda. Vision alone won't cut it.

The rest said: 1) they would like to be more of a change-maker, but their leadership (board of directors, governmental body, etc.) was not ready for transformational change; 2) starting revolutions was not part of their job description; 3) change-making was just one of many roles they must play as a successful and balanced economic development leader; and 4) change-making has its place; that is you can't be stirring the pot all the time; and 5) if you want to be a successful change-maker you must be a good change-manager.

I have watched economic developers and their leaders over the past 30 years and I absolutely agree with the woman who told me that change-making, as a leadership style, requires skill. From my experience in working with Penn State University with its new Leading Change Program (a leadership training program for rural economic development leaders), I believe that most economic developers and their board members could stand to brush up on their "working with people" skills.

Stay tuned.

Good Role Model: Greater Halifax Partnership

The Greater Halifax Partnership was founded in 1996 to manage the growth of the newly amalgamated Halifax Regional Municipality (HRM). Previously, a municipal body had handled economic development for the City of Halifax. The amalgamation of four local communities – Halifax, Bedford, Dartmouth and Halifax County – into one municipality, needed a focused, united approach to economic development to benefit the new municipality.

Private sector leaders took up the challenge and began forging ties to give Greater Halifax a unified voice and reduce competition between the communities. Within 18 months, the Partnership had brought the private sector and various government agencies together to generate economic growth for the amalgamated community. The organization is jointly funded by the public and private sectors, but I believe the public sector provides most of the Partnership's funding.

New Blood Needed

There is no economic development without people. "We need new blood!" That is the message more and more communities are sending out to their leaders.

Here is an example of how one Canadian province is planning to tackle this problem by stepping up immigration efforts. Enterprise Greater Moncton (New Brunswick, Canada) has developed a three-year strategic plan to help attract immigrants to the province. The objective of the plan is to develop a collaborative, community-based immigration strategy for the Metro Moncton region that will build the city's capacity to more effectively compete in the global immigration market. Experts say that N.B. needs to attract 6,000 immigrants annually to energize the provincial labor pool to support future economic development.

More here.

Conflict Has Its Price

I ran across an interesting news story this morning about how "conflict" has slowed Nepal's economic growth. It's a worthy story in its own right, but the story made me think of how conflict, in all of its various forms, hurts a community's economic chances. No community is perfect, but some, I believe, do a better job of preventing and overcoming conflict when it arises. How is your community doing in this regard? Might you be more successful as an economic developer if conflict was lessened in your area?

"Conflict has increasingly affected Nepal’s economic performance since 2001. Economic growth slowed to an average of 1.9% over the FY2002-04 period compared to 4.9% in the decade preceding that. More than 12,000 people have be killed, physical infrastructure has been destroyed, thousands of people have been displaced, economic disruptions have increased and development expenditures have decline sharply."

"The study was undertaken to measure the economic costs of the conflict, and the effect of declining development expenditures on Nepal’s economic development. This paper uses the Nepal Macro-model to measure it. The paper tries to establish the relationship between development expenditures and economic growth and contribute to improving the understanding of the costs of conflict in Nepal."

To read more, go here.

State of America's Cities and Suburbs

Bruce Katz from the Brookings Institute gave a great speech in Chicago last month on the State of America's Cities and First Suburbs. You may want to download and read through the presentation (Big File).

One point that struck me was Katz's description of "New Sunbelt," which includes states like Arizona, Nevada, Colorado, Oregon, Washington, Virginia, Tennessee, North Carolina, South Carolina, and Georgia. Many of these states are places I have recently been invited to give speeches on economic development. I think he has made an important point in this regard.

Michigan Business Success Stories

A series of industry sector case studies examine individual success stories of hi-tech businesses in Michigan. Interesting insights are provided on how companies are succeeding in Michigan. These include:

Statprobe, Inc.
PDF file, 1.4 MB

Nanovation Technologies
PDF file, 1.4 MB

Aretech Information Systems
PDF file, 1.5 MB

CEBOS Ltd.
PDF file, 131 KB

Covisint
PDF file, 1.8 MB

Esperion Therapeutics and EMC Corporation
PDF file, 1.4 MB

GDI Infotech, Inc.
PDF file, 133 KB

RedSky Technologies, Inc.
PDF file, 1.4 MB

Sagestone, Inc.
PDF file, 174 KB

Underground Secure Data Center Operations (USDCO)
PDF file, 247 KB

Great Rural Economy Study

According to a study prepared by SRI International in Washington, D.C., rural America is in a unique position to rediscover its economic value. Working in several rural places across the country, I agree. Yet, I also see enormous challenges ahead, especially for those rural places lacking strong economic development assets.

The study suggests a renewed, stronger focus on assets and opportunities for rural America to reclaim its prosperity. The study also identifies policy and program steps that can be taken to enable economic growth in rural areas. These include consolidating multiple programs, avoiding duplication and making them easier to find and use; greater flexibility in terms of assistance and timeframes, and co-investment by rural communities, businesses, and institutions. Many rural communities, like those in urban America, are addicted to government grant programs. This is also true for Indian tribes in my experience.

On the whole, rural America has several assets on which to build. The SRI study has these include: steadily improving education achievement, low cost of doing business, high quality of life, and increasingly high levels of entrepreneurship and small business development. Liabilities faced by rural areas include declining population, difficulty retaining educated residents, and lack of employment opportunities, particularly in growing economic sectors.

Message to Ohio: Step Up Entrepreneurship

"Ohio's business leaders and policy makers should be less concerned about manufacturing plant closings and pay more attention to creating new businesses and new jobs, says Sandra Pianalto, president and chief executive officer of the Federal Reserve Bank of Cleveland." Read more in the Cleveland Plain Dealer here.

I agree with this assessment. This message was reinforced in my recent visit to Portland, Oregon, where much greater attention is being given to entrepreneurial development. I also believe there is plenty of room for entrepreneurship within the manufacturing sector. Entrepreneurship and manufacturing are not mutually exclusive, contrary to what some people might think.

US Getting Worldwide Run for Money for Biotech

This one came out while we were in the Pacific-Northwest last week.

The South Koreans are way ahead in developing human embryonic stem cells to treat disease.
China, now testing genetically engineered rice, looms as a threat to disrupt Monsanto's broad grip on crop biotechnology if the world's most populous nation begins commercializing modified rice as widely believed.

Stem cells and genetically altered crops are but two small sectors of the growing biotechnology industry, which remains overwhelmingly dominated by U.S. companies and researchers.
Still, as 18,000 industry executives and scientists from around the globe began gathering in Philadelphia yesterday for the Biotechnology Industry Organization's annual trade show, other countries are finally making significant inroads. About 6,000 attendees from outside the United States had been expected.

"Countries around the world are competing fiercely to attract and develop biotech activity," concludes an Ernst & Young industry report titled "Beyond Borders" was released at the convention. Read more here.

New Study on Computers and Self-Employment

The Office of Advocacy of the U.S. Small Business Administration (SBA) details the relationship between home computer ownership and entrepreneurship. The report indicates that home computer owners are slightly more likely to become entrepreneurs than non-owners.

The report, Technology and Entrepreneurship: A Cross-Industry Analysis of Access to Computers and Self-Employment is found at
(http://www.sba.gov/advo/research/rs259tot.pdf) was written by Robert Fairlie an expert on self-employment, with funding from the Office of Advocacy.

For more information regarding this report contact Victoria Williams by email advocacy@sba.gov or by phone at (202) 205-6533.

New City and Town Reference Source

Here is a new demographic reference source you may want to check out: City/Town Inormation. Nice concise community profiles provided.