Week of April 30, 2001
  Snapshot from the Field

High Tech/E-Biz Remain Hot Recruiting Tickets for U.S. Development Arms
By JACK LYNESite Selection Executive Editor of Interactive Publishing

NEW YORK -- While the tech sector may be cold as a mackerel on Wall Street, it remains a red-hot property on Main Street: A whopping 97 percent of U.S. state and local economic development groups surveyed by KPMG (www.kpmg.com) reported that attracting "high-tech hardware or software companies" is a "high priority" in their recruiting efforts for 2001. KPMG
        Significantly, the research for the recently released survey was conducted in October and November of 2000. That was after the high-tech/e-business world's long, sky-high run had begun to smack into the Wall Street wall.

High tech and e-business may have blown a fuse in the world stock market, but they remain very live wires in the recruiting strategies of U.S. development agencies.

        "Our survey results are surprising," allowed Kerstin Nemec, national partner in charge of KPMG's Strategic Relocation and Expansion Services. "Despite the recent fallout in the high-tech sector, e-businesses are still seen as a top priority by state and local economic development agencies looking to thrive and remain competitive in today's marketplace."
        And those agencies are putting financial oomph behind their recruiting strategies. Seventy-eight percent of the state agencies and 52 percent of the local agencies that KPMG surveyed reported that they have modified their incentive packages specifically to attract high-tech businesses. Nemec called the rising incentives ante "inevitable."
        "Interestingly, our survey also finds that as state and local economic authorities continue to seek out high-tech-related investment, they are finding themselves enhancing the types of incentive packages that they offer," she explained. "This is becoming an inevitable trend as states face increased competition domestically and abroad."

Labor, Labor, Labor
Tops Tech Location Lures

The KPMG survey results are based on 113 phone interviews conducted by the Englewood Cliffs, N.J.-based market research firm of Clark, Matire & Bartolomeo. Of the 113 groups interviewed, 77 were local agencies and 36 were state agencies. The total survey population included respondents from all 50 states.
        Here are more specifics from the study:
"Labor-related benefits" top incentives: Cited by 29 percent of respondents, "labor-related benefits" were the type of incentive most frequently offered by development agencies to attract "high-tech/digitally-driven companies," KPMG's study found.
        Specifically, the labor-force incentives that were most frequently offered were: labor-force training (95 percent), "specialized training" (92 percent), recruitment (76 percent), grants (75 percent) and college-shared curriculum (70 percent). KPMG's study also found that 25 percent of agencies were offering "investment infrastructure" in recruiting high-tech operations, while 23 percent were providing "sales, property or employee tax credits."
        Interestingly, "industrial/automotive manufacturing companies" were ranked by 36 percent of respondents as "the sector that places the most importance on [incentive] packages." That was twice the 18 percent who ranked high tech as the sector most susceptible to incentives' lure.
        Competition begins at home?: In a result that may surprise some global observers, most development agencies perceived their greatest recruiting competition not from the international arena, but from nearby players. Ninety-seven percent of state agencies and 100 percent of local agencies ranked "surrounding states or communities" as either "strongly competitive" or "somewhat competitive" for expansion projects.

Survey: High Tech Accounting for
Almost Half of Inward Investment

But global competition is bumping up incentives: Even so, KPMG's study found that a smaller percentage of respondents - 75 percent of state agencies and 62 percent of local agencies - perceived other nations as "strongly" or "somewhat" competitive.
        The European Union, cited by 43 percent of respondents, was the international region most frequently named. The EU was followed by "China and the rest of the East," cited by 39 percent of respondents, South and Central America (36 percent) and Japan (35 percent). Almost half of the agencies that perceived global regions as major competition increased their incentives in general - and their tax incentives in particular, the survey found.
        "As the burgeoning international business arena continues to provide increased competition, state and local economic authorities will need to continually upscale incentive packages in order to remain competitive in today's globally dynamic marketplace," Nemec noted.
        The Internet has gone mainstream: The Internet was integral to the operations surveyed. Seventy-five percent of agencies reported that the Internet "has contributed to attracting new business," while 72 percent said that the Internet provides "a competitive advantage."
        A major high-tech payoff: The survey found what it called a "remarkable" proportion of inward investment coming from high-tech companies. Interestingly, among all agencies, "high-tech companies" accounted for 47 percent of total inward investment. That was only slightly less than the 49 percent proportion that high-tech inward investment accounted for among agencies that had specifically modified their incentives to attract such companies.
        The survey found, however, that roughly half of the agencies "are putting as many resources into retaining business as into attracting new ones." The average agency reported attracting 70 new businesses and US$415 million of "new or inward investment over the past two years."

        Bio-biz, pharmaceuticals, communications also coveted: While the high-tech/e-business niche was the most hotly pursued, other sectors are also much in demand, the KPMG study found. For example, 83 percent of survey respondents gave "high priority" rankings to recruiting "the bio-tech, bio-med and pharmaceutical sector." Another 78 percent ranked "communications, including media and telecom," as a high-priority recruiting target. The lowest recruiting rankings went to "consumer-related businesses such as retail, food, beverage and consumer-product manufacturing," the study reported. Only 22 percent of respondents ranked that broad sector as a high priority in their recruiting efforts.

sf0430sf0430 ©2001 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.