Retooling the economic engine

You don't have to have an MBA to see that today's high-tech economy is changing all the rules. That's especially true in economic development.

Fifteen years ago, technology activity was relegated to a few isolated places, such as California's Silicon Valley, eastern Massachusetts and North Carolina's Research Triangle Park. But now technology firms are anywhere and everywhere.

"What we've seen over the past three years is local governments recognizing that they need to make investments also," said Dan Berglund, executive director of the State Science & Technology Institute, a national nonprofit organization in Westerville, Ohio, that encourages economic growth through the application of science and technology.

"But it can be a double-edged sword because many local governments are making the investment but not all are necessarily going to be successful. Making a play for this market is much more complicated than the old tradition of simply offering more financial aid and tax incentives than the competition does. According to Berglund, to be considered as a locale for a high-tech firm, towns and regions need to possess several key ingredients:

* A strong intellectual infrastructure. In addition to universities, community colleges and technology schools, firms want access to other sources of ideas, such as established companies or federal laboratories.

* A high-quality physical infrastructure. High-speed, broadband Internet access is a must, along with easy airport access and a good highway system.

* A technically skilled workforce. New Economy companies demand educated individuals with the skills needed to perform the job, or at least a demonstrated interest in training for the position.

* Ready sources of capital. Not only do economic development offices need to come up with the financial aid and tax incentives required by the old economy, but they need seed capital on hand to grow entrepreneurial firms from the ground up. Such an environment will in turn help attract other firms.

In short, cities need an environment that encourages "spillovers of knowledge." To compete effectively, high-tech companies need a cross-fertilization of ideas with other companies, universities or organizations.

Finally, it often takes an extra something to ultimately sell an executive on a location. It could be quality of life, proximity to other high-tech areas or even an innovative program or two that the locals have initiated.

North and South Dakota, for example, have landed a large number of call center operations in part because of an inexpensive workforce and a time zone that allows operators to easily manage both East Coast and West Coast phone calls.

"It can be a bit of a lottery," said Berglund, adding that rural areas will incur less risk if they pour most of their effort into encouraging an entrepreneurial spirit among their residents and building companies from the ground up.

Here are the stories of three very different localities — a large city, a small rural town and an urban county — each trying to grab their own slice of the high-tech pie.

Pittsburgh Seeds New Industry

High-tech companies are so lucrative to a region's economy that it's understandable for cities and counties to take a broad approach in their wooing efforts and go after any and all prospects. The city of Pittsburgh, by contrast, believes that the path to critical mass lies in zeroing in on the specific.

City officials have targeted a next-generation system-on-a-chip (SOC) technology that is being developed for the digital multimedia and digital networking markets.

To achieve that goal, the city is relying on the Pittsburgh Digital Greenhouse Inc., a nonprofit organization whose members include the Commonwealth of Pennsylvania, a consortium of member firms and three leading Pennsylvania universities. The organization was created in June 1999 after a lengthy investigation revealed that the area was already home to a small group of specialized, cutting-edge start-ups as well as SOC research programs at three Pennsylvania universities.

"Frankly, market focus is a business concept that works particularly well in the technology industry, and what we're doing is simply applying that same concept to the business of economic development," explained Dennis Yablonsky, president and chief executive officer of the Digital Greenhouse.

He anticipates only a five- to seven-year run for the organization. "Our goal is to seed this industry cluster, get it going, then get out of the way and let it function on its own," Yablonsky said.

The Digital Greenhouse is no ordinary economic development initiative. For one, the program invites major semiconductor vendors to sample the Pittsburgh region and the greenhouse by joining as member companies — before deciding whether to relocate to the area. Already more than 20 firms, both inside and outside of Pittsburgh, have signed up.

The organization has lured members with several benefits:

    * It provides a research program worth up to $4 million a year, which it awards on a competitive bidding basis to members.

    * It is funding a curriculum on SOC technology, scheduled to start in the fall of 2001, at nearby Carnegie Mellon University, the University of Pittsburgh and Pennsylvania State University, all research leaders in the field.

    * It offers a talent recruitment program in which the organization seeks out and screens potential employees for members.

    * And it provides expansion support, helping new companies find facilities and learn about financial aid and what state and local tax incentives might be available.

"The whole point here is to try and create high-end jobs. And a Casio, for example, is not going to think about Pittsburgh unless they have a reason to think about Pittsburgh," said Mark Kurtzrock, interim president of the Pittsburgh Regional Alliance, an economic development agency composed of private-sector executives who work closely with the Digital Greenhouse. "The greenhouse is creating those reasons for them because all of its programs were constructed to provide answers and solutions to the industry's key concerns."

The industry is taking notice.

Sony Electronics Inc., which joined the Digital Greenhouse early on, announced plans this past summer to establish a major semiconductor design center in Pittsburgh. Fellow members Casio Inc. and Cisco Systems Inc. are contemplating similar moves.

Michael Koff, a spokesman for Sony, said the Greenhouse offered two advantages: It alerted the company to the wealth of talent and research programs available in the region, and it helped ease what can be a complicated decision to relocate or establish a satellite office.

"It can be difficult coming into a new area, where you have to figure out facility issues or conduct your research in a vacuum," Koff said. "With the greenhouse, it's like having a built-in infrastructure."

The Digital Greenhouse effort is expected to yield at least 1,500 new jobs over the next three years, but Yablonsky says that number is misleading.

"The initial endgame is attracting companies and gaining news jobs, but the ultimate endgame is to achieve a critical mass," he said. "And if you have a bunch of smart people in one place all working together and exchanging ideas and you have a lot of capital, this thing will take on a life of its own. Start-up companies will grow, and other companies will see all this activity and want to be here too. That's what we expect, and we feel we're already ahead of schedule."

New Deal for Coos Bay

Given the extended economic expansion of the last decade, it's easy to forget that some communities didn't get their fair share of the spoils. Take Coos Bay. This quiet, pristine community of 40,000 residents on Oregon's southern coast had long bet its economic fortunes on logging and fishing. But in the early 1980s, due to new federal restrictions and other factors, those industries fell into a slow but steady decline and never recovered.

The results have been double-digit unemployment rates, massive underemployment for workers who chose to stay, decreased tax revenues and increased social problems — a situation that even the town's most optimistic residents refer to as "really sad."

A year ago, however, Coos Bay took its first step into the New Economy and — town officials hope — a first step toward economic recovery.

Thanks to a few lucky breaks and its own proactive approach, the community landed CyberRep.coM Inc., a Virginia-based call center operation that provides toll-free help for customers of, among others, Microsoft Corp.'s MSN online service and LLC.

Today, the firm employs 400 people, many of them former loggers and fishermen. And there are plans to hire up to 500 more. The jobs — which include customer service and technical service representatives — pay between $9 and $10.50 an hour, along with benefits.

This rags-to-not-quite-riches story began when 800 Support, a Portland-based firm recently acquired by CyberRep.coM, decided to expand and open a satellite operation somewhere in the Pacific Northwest. John Stadter, then the chief financial officer for 800 Support, had grown up in the area and, wanting to return to his rural roots, decided to investigate the town, along with several other localities recommended by the Oregon Economic and Community Development Department.

Coos Bay quickly stood out on two fronts. It already had a fiber infrastructure. And more importantly, Stephen Kridelbaugh, president of Southwestern Oregon Community College, offered to provide the company with the necessary employee training free of charge for a year and to continue it for as long as needed.

"When you're moving into an area, especially a rural one, one of your biggest concerns is, "Will I be able to get good, trained people?'" said Stadter, now the general manager for CyberRep.coM's Coos Bay operation. "And [Kridelbaugh] really took that off the table in a big way."

Allan Rumbaugh, general manager for the Port of Coos Bay, which helps put together economic development packages, agrees that the education issue was critical, along with an insistence that the residents meet the company's requirements.

"They talked about their high turnover rate, we talked about our stable workforce," he said.

In fact, according to Stadter, the Coos Bay operation has had a significantly lower turnover rate than other call centers. He attributes it to the area's solid work ethic and the fact that his employees tend to be older and more mature than elsewhere.

Most residents have welcomed CyberRep.coM with open arms, but everyone acknowledges that one call center does not an economic recovery make. John Sweet, who works for Sause Bros. Inc., a marine transportation company, calls the move "an important step towards diversification. Hopefully, it shows other people in the technology industry that we have a capable and willing workforce here."

Others like Bill Lansing, president of Menasha Corp.'s forest products group, continue to put faith in a timber turnaround. "The new company certainly helps, but it is not the answer to our major problem, and that is that we need family-wage jobs. These new jobs don't provide that," he said, adding that as private-industry forests recover and begin to produce fiber, the area ought to concentrate on building mills that convert logs into lumber, plywood and other manufactured products.

Rumbaugh thinks that there's plenty of room in Coos Bay for both timber and technology, and he's already working to get more New Economy firms to follow the lead of CyberRep.coM. "I think that it will be easier for us now," he said. "We know that we're not fully recovered, but I think people here feel a lot more optimistic."

Hudson County's Gamble

At first glance, Hudson County, N.J., seems to possess all the right ingredients to be a high-tech haven. Located directly across the Hudson River from Manhattan, the area features a state-of-the-art, high-speed telecommunications infrastructure of fiber optics and Synchronous Optical Network ring architecture; a large, diverse and ready workforce; a brand-new, billion-dollar light-rail system; and a strong educational system that includes two- and four-year colleges and a couple of technology schools.

So why isn't Hudson County already pushing some flashy marketing concept lauding its cyber credentials?

"The one thing we haven't been able to do is make a cohesive effort to think about technology," said Elizabeth Spinelli, executive director of the Hudson County Economic Development Corp. "Up to now, it's just been fractionalized throughout the county."

That's about to change.

Hudson County, home to 560,000 residents, recently became the first in New Jersey to create a countywide Office of Strategic Revitalization. Moreover, at the same time, it and several of its cities received grants from the New Jersey Redevelopment Authority for the purpose of planning and eventually creating "Cyberdistricts" — areas that can attract and house high-tech firms.

The money will be used to determine which towns and cities have buildings that would be amenable to high-tech industry and what infrastructure problems or other issues would have to be overcome.

All of this togetherness comes at an opportune time for Hudson County, historically a manufacturing and shipping region that went into sharp decline in the 1960s and 1970s and saw lengthy periods of high unemployment.

In recent years, Jersey City has begun to rebuild its waterfront, attracting the back-office operations of major New York City financial firms like The Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. Next fall, the city of Bayonne will take ownership of the Military Ocean Terminal, a former Army supply facility with 437 acres of unoccupied waterfront real estate that juts out more than 2 miles into New York Harbor and is just 20 minutes by rail from New York City.

"It's a phenomenal location," said Michael O'Connor, executing director of the Bayonne Economic Development Corp. He said his Cyberdistrict study grant will include input from Concert Communications Co., a consortium of British Telecom plc and AT&T that is interested in the terminal as a possible site for landing transoceanic, high- capacity cables. "There's enough land here for high-tech companies to come in and build small campuses," O'Connor said.

For all of its potential, Hudson County faces enough challenges that officials aren't getting too giddy. Issue No. 1? "Money," said Ken Blane, director of the Hudson County Office of Strategic Revitalization.

"Hudson County is not a wealthy county, and there conceivably is a lot to be done to get these buildings and areas ready for the infrastructure demands of high-tech companies," Blane said.

The Hudson County Cyberdistrict study will last one year and will include input from high-tech companies, utility companies, elected officials, labor unions and educational institutions. Ultimately, county officials think this unified, countywide planning effort — although potentially more expensive and risky than an ad hoc approach — will pay off handsomely.

"Failure to plan is planning to fail, that's for sure," Spinelli said. "So we want to make sure that those businesses that are coming are supported by an infrastructure that will not only support them when they move in but will allow them to grow and be successful in the future. What we definitely don't want is for them to outgrow us and then want to leave."

Hayes is a freelance writer based in Stuarts Draft, Va. She can be reached at [email protected].


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