Week of March 13, 2000
  Snapshot from the Field

KPMG: Recruiting Strategies Missing the Dot.Com Boat

Dot.coms are all the rage, right?

Not if you look at most U.S. economic development strategies, which are focused more on the economy of the past than the economy of the moment. So says a new release issued by KPMG (www.kpmg.com).

"The astonishing swiftness with which the Internet has grown suggests that the business cycle is moving much more rapidly than in the past and localities need to update economic development strategies with this accelerated business cycle in mind," says Kerstin Nemec, national partner in charge of KPMG's Business Incentives Group.

The KPMG release commented, "Knowledge-based industries, which create well-paying jobs and are one of the most rapidly growing sectors of our economy, often find traditional incentives packages to be of limited value." KPMG, in fact, found that "the majority of existing state and local economic development strategies target manufacturing entities, even though less than 25 percent of gross domestic product is generated through manufacturing."

Without changes in those recruiting strategies, KPMG foresees some rather dire consequences: "With e-businesses beginning to play an increasingly vital role, state and local economic development entities need to implement strategies focused on the dot.com explosion to ensure sustainable work opportunities and reliable tax bases."

Report: Dot.Coms Will Have
Huge Long-Term Impact

The report also sees dot.coms ultimately creating a sizable ripple effect that will have a substantial impact that's felt in a broad range of economic sectors and business functions.

According to KPMG, "As the e-business market matures, its effects on the economy will become increasingly evident. The ripple effect will ultimately include shifts in the entire supply chain, resulting in the development of regional industry clusters that include e-businesses as well as ancillary functions from warehousing to legal services."

If this is a troubling prospect, it's also one that apparently comes with substantial opportunities. Areas that get on top of the curve may be the winners in the new economy's business recruiting wars, KPMG reported.

Commented Nemec, "Historically, high-tech businesses have tended to cluster in a relatively small number of cities. Some of these geographic clusters, though, are beginning to evidence diseconomies of scale and even a certain staleness. This presents proactive communities with an opportunity to act quickly and lure businesses with lower operating costs, a fresh, creative work force, and incentives to close the deal."

What Do Dot.Coms Want?

The KPMG release also identified the most important factors for dot.coms in seeking a business location. (It should be noted, however, that some of those same factors are also vital location factors for companies that are totally unrelated to e-business. In many cases, in fact, those companies consider everything that's listed a top-drawer concern.)

The dot.com location factors the KPMG release noted include:

  • Flexible, leasing arrangements that are short-term and offer options for expansion;
  • Low operating cost environments;
  • Access to services and other high-tech businesses to meet outsourcing and support needs;
  • Strong labor pools;
  • Locations with "a high-tech image."
"E-businesses typically have the flexibility to go anywhere," commented Kent Johnson, national partner in charge of KPMG's Electronic Business State and Local Tax Solutions. "As a rule, they have three specific requirements: high-quality telecommunications and redundant power, facility space that is immediately available, and most importantly, access to an educated labor pool."

'Leading Tactics' Listed

Perhaps the lack of targeted incentives that KPMG noted owes to many dot.coms' seriously profit-challenged status. But with AOL reigning as the current glaring case study, that could change in a hurry.

The KPMG release also looked at "the leading tactics that creative jurisdictions are employing to attract e-businesses." Those tactics included:

  • Capital: Offering grants and other types of funding to start-ups;
  • Financing: Offering financing to knowledge-based industries through low-interest rate loans and other mechanisms available to local governments, sometimes in exchange for stock;
  • In-kind Support: Offering benefits ranging from free office space to support networks that address technological and marketing problems shared by many start-ups and e-commerce conversion efforts;
  • Job Creation/Job Training Grants: Offering financial assistance directly tied to workforce development;
  • Energy discounts: Offering discounted rates on electricity and telecommunication services;
  • Sales and Use Tax Rebates/Exemptions: Offering rebates and exemptions during the initial years of operation provides more immediate benefits to companies purchasing substantial equipment at start-up;
  • Personal Property Tax Rebates/Exemptions: Offering rebates and exemptions allows companies to keep their operating costs low;
  • Simplified Regulatory Environment: Despite the popular misconception, e-businesses do pay taxes.
The KPMG release concluded, "Anything that communities can do to simplify the reporting requirements of e-businesses that are in the burdensome positions of complying with the varying requirements of hundreds, even thousands of different jurisdictions, will foster the growth of e-commerce."



©2000 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.