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hen the Intel Corp. started searching two years ago for a place to build a new wafer fabrication plant for manufacturing semiconductor chips, the world’s largest chip-maker found exactly what it needed in Chandler, Ariz.
When WorldCom needed to expand its international telecommunications empire in December 2001, it announced a US$180 million investment into expanding its giant corporate campus in Northern Virginia.
When biotech company Merial — the world’s leading animal pharmaceutical products company — needed to expand its presence in the United States, it relocated its North American corporate headquarters last year from New Jersey to Atlanta.
It is no accident that Intel, WorldCom and Merial picked these locations for their corporate facilities. All three communities are in metropolitan markets that rank among the top 60 cybercities in America (see chart), according to the American Electronics Association and NASDAQ.
The top cybercities are based on total employment, average wages, total payroll, number of companies, R&D spending and venture capital in the 45 Standard Industrial Classification (SIC) codes that define high-technology industry. These companies fall into three broad categories — high-tech manufacturing, communications services, and software and computer-related services.
The metro areas of Greater Phoenix, Northern Virginia-Washington, D.C., and Atlanta serve as magnets for growing high-tech companies because these cities possess the six ingredients the AEA says are necessary for high-tech growth:
- Access to venture capital
- University research and development programs and heavy R&D spending
- Abundance of highly skilled workers
- Clustering of similar high-tech companies
- Access to reliable power
- Quality of life
The AEA/NASDAQ findings also reinforce the new concept in economic development: that clusters of like-minded companies fuel economic growth. Spearheaded by Harvard Professor and researcher Michael Porter, this school of thought teaches that “clusters of innovation” form the foundation for economic competitiveness for any given community.
“The real locus for competitiveness and innovation in the United States is regional, not in Washington,” says Porter. “National policies contribute to the overall environment for innovation, but success in innovation is heavily influenced by local conditions.”
Porter’s recent report, Clusters of Innovation: Regional Foundations for U.S. Competitiveness, is the result of a two-year study sponsored by the Council on Competitiveness. The study shows that strong clusters at the regional level are fundamental to a region’s job growth, wage levels, rate of innovation and formation of new businesses.
Sharon Younger, a Jackson, Tenn.-based marketing expert who specializes in advising communities on how to market their areas to high-tech companies, says the results of the earlier AEA/NASDAQ study should surprise no one.
“Venture capital is critical,” she says. “It can have a positive impact on communities over time. A lot of states and economic development organizations realized years ago that recruiting high-tech companies required venture capital. Many regional organizations stepped up and created regional venture capital development funds.”
This capital — coupled with the talent pool that surrounds major universities — separates the top cybercities in the U.S. from those communities that want to join that elite group.
“At the top of the list of what high-tech companies are seeking is the knowledge base,” Younger says. “They have a need to target and recruit high-tech talent.”
Which means that the community luring the corporate location project must first demonstrate that its population supplies the highly skilled workers a high-tech company needs.
Washington, D.C.: The Late Bloomer
That is exactly the case in the Washington, D.C. metro area, which ranks first nationwide in software services employment with 70,400 jobs. And yet this wasn’t always the case. Despite its geographic location as the seat of government of the world’s dominant superpower, the D.C. metro area did not become “the Internet capital of the world” until the 1990s.
From 1993 to 1998, the D.C. metro market added 46,400 technology jobs, the third largest increase in the nation, according to the AEA. By 1998, the area had 177,700 technology workers, ranking the market as the fourth-best cybercity in the country.
Much of this growth was fueled by companies such as America Online and WorldCom in Loudoun County and the biotech cluster that sprang to life in Montgomery County, Md., part of the metro D.C. area.
“Northern Virginia has been home to WorldCom and thousands of our employees since the 1980s,” says Fred Briggs, chief technology officer for WorldCom. “The overall business environment, high-quality talent pool and its rich heritage of fostering business growth make Virginia a perfect place to solidify our presence in support of our high-growth data and Internet businesses.”
Not surprisingly, metro D.C. contains the No. 1 and No. 2 counties in America with the highest percentage of college-educated people: Fairfax County, Va., and Montgomery County, Md.
What else does D.C. have to offer high-tech firms? Consider these statistics: a high-tech payroll of $12.4 billion, third highest in the country; some 7,282 high-tech establishments, ranked second nationwide; the second largest pool of data processing and information services talent in the U.S.; an estimated $2.4 billion a year in venture capital investment, sixth best in the country; and some $503 million in university R&D expenditures per year, which places the area eighth in America.
But statistics alone aren’t enough to sway the decisions of site selectors. Often, other factors come into play. When Greg Owens, CEO and president of Manugistics, a Maryland-based software company that specializes in supply-chain optimization, was asked last year why he chose to locate his firm in the D.C. metro market, he said the choice was simple.
“Washington, D.C. is a great place for technology companies to be,” he said. “It is centrally located on the East Coast with easy access to three major airports and Amtrak. The technology sector further benefits from the proximity of several research universities and the federal government. Washington is also special because you can hike in the mountains, get away to the bay or the beach, catch an opera, or spend hours getting lost in the Smithsonian.”
Younger notes that Owens’ last point — a reference to his area’s quality of life — is important to high-tech companies, but not nearly as important as most communities make it out to be. “Quality of life means different things to different people,” Younger says. “To some people, it means access to cultural opportunities. To others, it means outdoor recreation. What we do know is that quality of life is important, but it is not nearly as important to the ultimate site selection decision as most communities make it out to be.”
In fact, Younger says, many of the best high-tech locations in the country suffer from pressing social problems. Washington, D.C. has a high crime rate. Atlanta has traffic congestion. This doesn’t stop these cities from thriving in the digital age.
Atlanta: Traffic Doesn’t Stop Growth
Atlanta, despite its reputation as a commuter’s quagmire, is the seventh largest cybercity nationwide in terms of high-tech employment and added some 38,500 high-tech jobs between 1993 and 1998.
Hans Gant, senior vice president of economic development for the Metro Atlanta Chamber of Commerce, notes that “a lot of credit goes to a lot of different organizations and people that have made Atlanta attractive to technology companies over the years. One of the key milestone events was the development of Hartsfield International Airport. It has become by far the busiest and best airport in the country. That gives us a tremendous advantage for business, because it gives us the ability to do business on two continents.”
Gant says that Atlanta’s economic diversity drives its continued success in the information era. “The attractiveness of Atlanta to technology companies is a direct result of having such a diverse base of business and industry in the region,” he says. “Twenty-five Fortune 1000 companies are headquartered here — companies like Home Depot, Delta Airlines, UPS and Coca-Cola. Fortunately for us, the technology vendors like to be close to these companies.”
Atlanta’s numbers prove it. AEA’s research shows that Atlanta is the nation’s second largest cybercity in communications services employment and is the third largest in data processing and information services jobs. Technology workers in metro Atlanta earn an average annual wage of nearly $60,000, or about 67 percent more than the average private sector wage of $35,800.
Atlanta received nearly $1 billion in venture capital in 1999, making the city the 16th largest recipient in America. Atlanta’s high-tech payroll of $7 billion a year ranks ninth in the nation, and the community’s 5,000 high-tech establishments rank sixth in the country.
Major research universities also play a role in bolstering Atlanta’s technology growth, led by Georgia Tech, Emory University, Clark Atlanta University and Georgia State. University R&D expenditures total some $500 million a year in metro Atlanta.
The city’s next major goal? Recruiting more biotech firms. “The Georgia Research Alliance program is important to our attracting biotech scholars to our universities,” says Gant.
Already, the effort is paying dividends. Biotech success stories in metro Atlanta include Inhibitex of Alpharetta, which develops infectious disease products; the bio-informatics company NuTec Sciences of Atlanta; Pharmasset of Tucker, which develops anti-cancer drugs; and Photonic Sensor, which develops biomedical sensors.
Phoenix: Rising in the Desert
Not to be outdone is the rapidly growing high-tech market of Greater Phoenix, which includes the city of Chandler, home to Intel’s $2 billion chip-plant expansion.
Rick Weddle, president of the Greater Phoenix Economic Council, says that Intel would not be investing this money into the region were it not for the support that comes from both the government and the area’s colleges and universities.
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“First of all, we have the asset of a major Research I university in Arizona State University,” he says. “The high-quality engineering programs at ASU are very supportive of the technology base throughout the region. We also have the largest community college system in the U.S.. This system is extremely flexible and has done an extraordinary job in training shop-floor workers at technology companies.
“We have also created foreign trade zones for private industry, including Intel,” Weddle adds. “We have increased the research and development tax credit. Proposition 301 is a 20-year funding program that will fund education, and about 12 percent of this money will go directly into funding research and development at the state’s three main universities — ASU, the University of Arizona and Northern Arizona University.”
The investment into Greater Phoenix’s knowledge base infrastructure is paying off. The area has 82,588 high-tech workers — ranking 12th nationally — and is the 16th-fastest growing tech job market in the country. High-tech firms employ 64 out of every 1,000 private sector workers in Phoenix, and the area’s average high-tech wage ($57,200 a year) is 85 percent higher than the average private sector wage in the metro area.
With an annual high-tech payroll of $4.7 billion, Phoenix ranks 15th in the country. Its 2,338 high-tech establishments rank 20th nationwide, and Phoenix is second nationally in semiconductor manufacturing jobs with 35,400.
Other assets for high-tech employers abound throughout the Phoenix metro. The area is home to four federal research labs, 47 colleges and universities, two technology business incubators, 61 companies with R&D facilities, and 70 fast-growth “gazelle” companies, according to GPEC.
“We also believe that several of our core industries are poised to grow,” says Weddle. “Semiconductors and the miniaturization of semiconductors, telecommunications, biomedical and the life sciences are all poised to grow in our region. We will also see growth in aerospace engineering and defense contracting.”
What does all this mean for other cybercities throughout America or — more importantly — for other cities that want to join the elite list of the top 60 cybercities in America?
It means that the bar has been raised for what it takes to recruit high-tech industry to any local community. And it also means that a “one-size-fits-all” approach to economic development is obsolete.
“Not every community should make the recruitment of high-tech companies their No. 1 target,” notes Younger. “Right now, it’s the sexy thing, but it’s not the right fit for every city.”
Instead, Younger counsels communities to target those industry clusters that play to the community’s inherent strengths. “A perfect example of how to go after high-tech companies is the Tennessee Valley Industrial Association,” she says. “They took a look at the technology sector in their communities and found that there was a direct correlation between the presence of the automotive industry and electronics components manufacturing.”
The result? Tennessee is now home to one of the largest concentrations in the U.S. of electronics manufacturing.
For Tennessee, says Younger, the cluster approach to economic development is working, and it’s putting Tennessee’s communities on the path to become the next great cybercities of America.
