Dean Barber

Archive for the ‘Corporate Site Selection and Economic Development’ Category

A Promise Worth Keeping

In Corporate Site Selection and Economic Development on February 19, 2017 at 12:46 am

It was mid-May 2014 when the Texans came calling. Being the good host, David Tran, founder of Huy Fong Foods, the maker of the famous red hot sauce Sriracha, had the Lone Star State flag flying outside his plant in Irwindale, Calif.

The Texas state officials were upbeat. Only two weeks earlier, Toyota had announced that it was moving its North American headquarters from Torrance, Calif., to the Dallas suburb of Plano.

But a deal with Tran to move operations to Texas never happened, chiefly because Texas is not so good for growing the chili peppers needed for making Sriracha.

But what I found most interesting about this story was David Tran.

A former major in the army of South Vietnam, Tran fled Vietnam with the communist takeover. He was one of the “boat people,” arriving in the United States in 1980 following the Vietnam War. The same year, he began his hot sauce business on Spring Street in Los Angeles.

Rightly Named

Tran named his company after the Taiwanese freighter, the “Huey Fong”, that carried him and and 3,317 other refugees out of Vietnam. “Huey Fong” literally means “gathering prosperity.”

That is so right. When I think of immigrants coming to America, the Pilgrims on the Mayflower and later the 12 million souls who came through Ellis Island, I think of this gathering prosperity. It is foundational to why we exist as a country and who we are as a people. It’s what makes America exceptional.

It’s hard to overstate the contribution immigrants like Tran have made to the U.S. The Kauffman Foundation’s 2016 Index of Startup Activity finds that immigrant entrepreneurs account for 27.5 percent of all new entrepreneurs in America, and that is despite the fact that immigrants account for less than 15 percent of the U.S. population.

If you think about it, the act of migration, leaving your home country for another, is fraught with all sorts of risk, as is the act of starting a business. To do both, well, that takes real courage.

Iconic American Companies

And yet many studies show that immigrants are nearly twice as likely as native-born Americans to launch new businesses. Some of those businesses have become very, very big. Google, Intel, Yahoo, AT&T, and Goldman Sachs, iconic American companies that employ millions, were all founded by foreign entrepreneurs.

Indeed, immigrants have started more than half of America’s startup companies valued at $1 billion dollars or more and are key members of management or product development teams in over 70 percent of these companies, according to National Foundation for American Policy. The NFAP research finds that among the billion dollar startup companies, immigrant founders have created an average of 760 jobs per company in the U.S.

With that in mind, it is not surprising that the U.S. has awarded more patents to immigrants in the last decade than any other country.

A 2016 report from the Partnership for a New American Economy found more than 40 percent of Fortune 500 companies were founded by immigrants or their children. (Apple Founder Steve Job’s father came to this country from Syria.) Those firms generated more than $4.8 trillion in revenue in 2014 and employed 18.9 million people globally. Other Partnership findings:

  • The U.S. is currently home to more than 2.9 million foreign-born entrepreneurs, a group whose companies generated $65.5 billion in business income in 2014 alone.
  • Businesses owned by immigrants employed more than 5.9 million workers in 2007.
  • In 2014, 19.1 percent of immigrants from the Middle East and North Africa were entrepreneurs. Similarly, 11.1 percent of foreign-born Hispanics were self-employed, as were 10.6 percent of Asian immigrants. The rate of entrepreneurship among working Americans was 9.5 percent that year.

Not Just in Big Cities

If you think immigrants are making their mark only in the big cities of America, you would be wrong.

New American Economy, EngageNWA, and the Winthrop Rockefeller Foundation released a study in November 2016 showing that the foreign-born population has been a huge economic boon for Northwest Arkansas.

Among the findings, immigrants contributed $3.1 billion to the region’s GDP in 2014, and held $1 billion in spending power. They also accounted for 42 percent of the region’s population growth between 2009 and 2014.

I first learned of the contributions of immigrants in Northwest Arkansas during a visit to the region last year. My friend Mike Harvey, Chief Operating Officer/Executive Director of the Northwest Arkansas Council, told me as much. Being that I consider Mike one of the best economic developers in the country, I believe what he tells me, more so than any study.

But I’ve also seen it firsthand. I have met immigrants in small towns and in rural places throughout America. Some are store merchants, while others are doing low-skilled, often strenuous “dirty” jobs that many Americans don’t want, such as working on farms and in meatpacking plants.

In Them, I Trust

Whether they are motivated entrepreneurs, high-skilled technicians or low-skilled field workers, I have found most immigrants to be good, hardworking folks seeking the American Dream. Generally speaking, they try harder.

To some degree, I trust my well being to them. My family doctor is of Chinese extraction, my dentist is from South Korea, and my optometrist is from Iran. (He says “Persia,” which is fine by me.) The woman who cuts my hair is from Mexico, demonstrating great patience as I practice (inflict) my poor Spanish upon her.

Overall, immigrants have a higher employment rate than people born in America. Those who have been in the U.S. for 20 or more years also have higher median household incomes than people born in America.

As you can probably tell, I am quite bullish on immigrants. I believe the benefits they offer to our country far outweigh the costs. Indeed, a study of greater Cleveland would affirm this. It found that while $4.8 million was spent on refugee services in 2012, spending by refugees, refugee-owned businesses, and refugee service organizations boosted the local economy by $48 million, creating 650 jobs and providing $2.7 million in tax revenues to local and state governments.

Let’s Not Overreact

Having said all that, I absolutely recognize the need for enforced borders and screening. But we don’t want to cut off our nose to spite our face. We don’t need to overreact and send a message to world that immigrants are not welcomed here. That’s the last thing we need to do.

I believe we must preserve our historical immigration policy to invite the world’s smartest and most innovative minds to come, learn, and do business in the country. My fear is that we are revoking that invitation.

It would appear that the Trump administration not only seeks a travel ban from seven Muslim-majority countries, but also to suspend our country’s entire refugee program. Whatever form a rewritten executive order takes to pass judicial muster, the intent and result will be to tighten quotas, impose heavy limitations on foreign students, and enact measures that will certainly impact our tech industry’s ability to attract and keep talent.

Tech Companies Considering Options

Already, some tech companies are now considering whether to move jobs out of the U.S. to places with more relaxed immigration policies, such as Canada, which have made clear they would welcome an influx of U.S.-based immigrant technology workers.

“One of the sad ironies of this is that an administration that purports to understand business is threatening one of the core pillars of what has made Silicon Valley so successful and an engine of economic growth,” Matt Mahan, chief executive of the social networking start-up Brigade, told The Washington Post.

There are some policy areas where I think the Trump administration is on the right track in improving the business climate of this country. Reducing burdensome regulations is one (See my earlier blog Business Regulation and the Cost of Regulation) and reducing corporate taxes is another. (See my blog The Big Business Story to Come.)

These are policy changes that would have huge ramifications for the private sector, spurring growth and the creation of jobs.

But I cannot support measures that would have a chilling effect on legal immigration. It not only reinforces wrongheaded nativist ideas and bigotry, but it would cost our country economically.

A Promise Worth Keeping

We have studied the immigration question for decades and have rightly concluded that immigrants are a net win for the U.S. economy, jobs, and wages. They have proven themselves as workers, entrepreneurs, innovators, taxpayers, consumers, and investors.

Back in 2005, 500 economists (including five Nobel laureates) wrote a letter to President George W. Bush and Congress, stating this to be true.

The letter begins with these words: “People from around the world have been drawn to America for its promise of freedom and opportunity.”

Let us keep our promise. It makes all Americans better off.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

The Jobs Will Change and So Will We

In Corporate Site Selection and Economic Development on February 12, 2017 at 8:09 am

In this blog and in my talks around the country, I frequently harp on my belief that we are only in the early stages of a new digital machine age that will transform our lives and our entire notion of work.

To communities, to which I provide economic development consulting, I would advise that you embrace and, indeed, become the future. It is the safest bet to relevancy.

To companies, to which I provide site selection/location analysis consulting, I would advise that you look to those communities that are becoming the future. They are the safest bets from which to operate.

And what is this future? To some degree, it is already here — robots and computers performing a range of routine physical work activities better and more cheaply than humans.

But it will not stop there. The machines will become increasingly capable of accomplishing activities once considered too difficult to automate, such as making tacit judgments, sensing emotion, or even driving.

In short, this new digital machine age of robotics, artificial intelligence, and machine learning will change the daily lives of everyone.

Already Here

We know it to be big because it already has been.  Automation has enabled manufacturers to make more than ever before, at a much lower cost. U.S. factories now manufacture twice as much as they did in 1984, with one-third fewer workers, according to the Federal Reserve.

I was somewhat amused this past week when I read a professor’s remarks on LinkedIn, apparently lamenting that automation was being employed by companies to “save a few dollars.”

No doubt, the concept of efficiently competing in a world marketplace escapes him. A human welder may earn $25 an hour, a robot welder costs around $8 an hour over a five-year period, according to estimates from the Boston Consulting Group. BCG says the cost could fall to $2 an hour in the next 15 years.

Does that make it morally wrong for a company to use welding robots? Apparently so, according to this professor, who believes it is a primary duty for industry to employ as many people as it can. But that is not reality.

Fewer Jobs Required

The decades-long decline of U.S. manufacturing employment (plunging from 18.9 million jobs in 1980 to 12.3 million today) and the highly automated nature of the manufacturing sector would indicate that the “job intensity” of U.S. manufacturing will continue to decline over the long term as digital technologies advance.

“In 1980 it took 25 jobs to generate $1 million in manufacturing output in the U.S. Today it takes five jobs,” wrote Mark Muro, a senior fellow at the Brookings Institution.

Automation improves productivity, reduces errors, and improves quality and speed, all of which is very good if you own the factory. If you are a worker in that plant, well, your job could be at risk.

Jobs Will Change

The good news is that only 5 percent of all occupations are at risk of being entirely automated, according to a new report from the McKinsey Global Institute.

Rather than disappearing, the report’s authors say, jobs will change dramatically, forcing workers to adapt. (I would add companies and communities, too.) McKinsey’s analysis of 800 occupations and 2,000 job tasks predicts that half of workers’ current tasks could be automated by the year 2055 using technology that currently exists.

Those changes won’t lead to mass unemployment—instead, the authors say, automation could increase global productivity by 0.8% to 1.4% annually over the next 50 years.

“As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa,” researchers from the McKinsey Global Institute wrote in their report, titled” A future that works: Automation, employment, and productivity.”

Tasks, Not Occupations

The McKinsey analysts take a somewhat optimistic, half-glass-full,   approach. They contend that any forecast regarding automation, robotics or artificial intelligence should look not at individual occupations but rather at the tasks that comprise those jobs.

“Given currently demonstrated technologies, very few occupations—less than 5 percent—are candidates for full automation. However, almost every occupation has partial automation potential, as a proportion of its activities could be automated,” the McKinsey analysts wrote.

“We estimate that about half of all the activities people are paid to do in the world’s workforce could potentially be automated by adapting currently demonstrated technologies. That amounts to almost $16 trillion in wages.”

Not surprisingly, the tasks most susceptible to automation are physical ones in highly structured and predictable environments, as well as data collection and processing. They make up 51 percent of activities in the economy, accounting for almost $2.7 trillion in wages, according the McKinsey, and are most prevalent in manufacturing, accommodation and food service, and retail trade.

“And it’s not just low-skill, low-wage work that could be automated; middle-skill and high-paying, high-skill occupations, too, have a degree of automation potential. As processes are transformed by the automation of individual activities, people will perform activities that complement the work that machines do, and vice versa,” the analysts wrote.

The Rise of Trump

The McKinsey report states that most workers displaced by automation will find alternative employment. But what will that alternative employment look like?

Millions of people lost their manufacturing jobs that paid $25 per hour plus health and retirement benefits, only to find service-sector jobs paying $12 an hour without benefits. I believe that battering of the middle class led to the rise of Donald Trump and his brand of populism.

Prior to the election, I was talking at length to Trump supporters in our country’s interior and sensed an upset in the making. Most were working-class white people who felt abandoned, irrelevant, and, yes, angry. I reported as much in two blogs, one before the election, and one written four days after, “Confessions from Red Country.”

Candidate and now President Trump speaks of the “carnage” done to the working class, but it will be highly unlikely that he will be able to change the dynamic of digitization in manufacturing and the resulting need for less people. I’m afraid that train has left the station.

McKinsey reports that companies on average are less than 40 percent digitized, including everything from deployments of digital tools in their supply chains to customer-facing products and services. And with that will come opportunities, despite the hysterical articles out there that robots are coming for your jobs and will eat you, too.

I’ve Changed My Tune a Bit

When I first started talking about the digitization of manufacturing five years ago, some people looked at me askance. I probably overreached, suggesting the robots were going to eat us.

Today, I’ve changed my tune a bit. I still believe the advance of digital technologies will be transformative, and the efficiencies created by those technologies will mean fewer people will be needed in certain sectors, including manufacturing.

But now I am coming around to the belief that automation and artificial intelligence can and will be a boon to those who adapt and embrace it. And that includes people, companies and communities. The jobs will change, and so will we.

Many of the jobs that we will be doing in 10 and 20 years from now do not currently exist. We can only imagine what they will be. But they will be. And that is what gives me solace.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

Business Climate and the Cost of Regulation

In Corporate Site Selection and Economic Development on February 5, 2017 at 6:35 am

It is a treacherous thing, this ranking of states by business climate. By and large, I put little stock into it, although I recently congratulated some economic developers from Utah for a No. 1 ranking by a magazine.

Heck, I am not above trying to be nice on occasion.

If you haven’t noticed, business climate rankings have become somewhat of a cottage industry. I don’t know how many there are any more. The truth is they are inherently flawed and even misleading, because they use different approaches and thereby come up with widely different results.

George Mason’s Mercatus Center ranked Alaska’s business climate No. 1, while both CNBC and the Tax Foundation put it 47th. CNBC ranked Minnesota first, but the Tax Foundation ranked it 47th. George Mason ranked Ohio seventh, while the Tax Foundation listed it at 44th.

In an attempt to make some sense of all this, Dick Heupel, director at the Center for Community Economic Development at Ball State University, a smart fellow despite being an academic, developed an average index of state business climate rankings. Helping him was an undergraduate student, Rosemary Kaiser.

Now I have not studied the report at great length, but he nailed it when he wrote this:

“What is clear is that little sense can be made of state business climate rankings from any single source, except to cite one when it supports a state’s good image and ignore it when it does not.”

Good job, professor.

Why Business Climate Matters

Business climate is important to companies because it affects their bottom line. For that reason, it is a key consideration to the corporate site selection process (finding a new location from which to operate) and should be of prime interest to economic developers who are charged with growing businesses in their communities.

Business climate can best be thought of as the general economic environment of a place. Much of it boils down to the attitude of government officials have toward business activity and the tax and regulatory policies they put in place. Leave it to say, not all places are created equal in that regard.

There’s an old saying, “God made man and Samuel Colt made them equal.” My consultant spin: “People made government and lawyers  made a killing.”

Way to Go, Joe

We know that government can and often does foul the business climate of a place by enacting burdensome taxes and regulations. Thankfully, government can also reverse policies and undo the damage done. We have elections for that, but some places just seem to stay stuck.

My friend, Joe Vranich, a fellow site selection consultant based in Irvine, California, has made it his calling of documenting and reporting the size and scope of companies leaving California for other states.

Vranich, the principal of Spectrum Location Solutions, concluded in a study that 9,000 companies left the Golden State — either completely or in part — between 2008 and 2015 – due in large part to the tax and regulatory climate there.

I even got in on the act and wrote two back-to-back blogs (probably overreach on my part) back in 2014 on the subject, Escape from California and This Ain’t Rocket Surgery.

In a guest editorial in a California business publication last week, Vranich wrote, “As a consultant who helps companies find business-friendly locations in which to locate, I encourage clients to keep a low profile. Otherwise, they will be hammered without mercy from an uninformed public and sometimes from public officials who know little about what it takes to run a business.”

Joe has been roundly criticized for his work and ignored by state lawmakers, too. Still, I think he deserves great credit. Way to go, Joe.

Trump’s Executive Orders   

Also last week, in keeping with what has been a fast and furious pace, President Trump signed executive orders consistent with his long-stated beliefs that overregulation is hampering America’s economic growth and plans for decreasing regulation.

On Friday, the president ordered a review of the laws and regulations that govern the 2010 financial overhaul law, known as Dodd-Frank. The complicated legislation touches nearly every aspect of the way banks operate and includes hundreds of rules, some of which have yet to be implemented.

Trump has described Dodd-Frank as “a disaster,” asserting that it was “almost impossible now to start a small business and it’s virtually impossible to expand your existing business because of regulations.”

On Monday, the president signed a separate executive order requiring federal agencies to cut two existing regulations for every new regulation they implement.

“If there’s a new regulation, they have to knock out two. But it goes far beyond that, we’re cutting regulations massively for small business and for large business,” Trump said during the signing of the order, while surrounded by small-business leaders.

Might There Be Middle Ground?

Not surprisingly, consumer groups and environmentalists have criticized the push to roll back regulations, arguing that it would remove important protections for the public.

I believe many of those protections are important and should remain in place, particularly when it comes to the health and safety. (I want to get on a commercial aircraft that is regularly inspected; I want that doctor poking, prodding and cutting on me to be accredited.)

But I also believe that our business community is hamstrung by overregulation. And I think even some consumer groups and environmentalists might privately even concede that. (I’m always looking for middle ground.)

The U.S. Business Administration implicitly acknowledges the problem with its Office of Advocacy, designed to help “relieve small business of regulatory burdens.” In 2015, the pages of the Federal Register grew by 81,611 pages covering 3,378 final rules and regulations, nearly 600 of which directly impact small businesses.

The Harm and the Cost

So how does too much regulation do harm? There is a cost to compliance, although most of these costs are “hidden.” They will not show up on a company’s books as a regulatory expense. They are the costs of new and misallocated labor, materials purchased, paperwork, and legal costs.

Those costs are disproportionately higher for the 26 million small business owners in this country.

Economists W. Mark Crain and Nicole V. Crain of Lafayette College contend that government regulations create “inefficiencies in the structure of American enterprises;” adversely affecting “the international competitiveness of domestically produced American products and services;” and leading to “the relocation of production facilities to less regulated countries.”

Manufacturers Hit Harder

The National Association of Manufacturers (NAM) in 2014 estimated an annual regulatory cost of $2 trillion. A more recent study, Bentley Coffey, Patrick A. McLaughlin, and Pietro Peretto of the Mercatus Center places the total cost of regulation at $4 trillion each year.

The NAM report that showed the extent to which manufacturers bear a disproportionate share of the regulatory burden, and that burden is heaviest on small manufacturers because their compliance costs are often not affected by economies of scale.

The analysis found that the average U.S. company pays $9,991 per employee per year to comply with federal regulations. The average U.S. manufacturer pays nearly double that amount—$19,564 per employee per year. Small manufacturers, or those with fewer than 50 employees, incur regulatory costs of $34,671 per employee per year.

Government Created Problems

In its Small Business Problems and Priorities Survey and 2016 report, the National Federation of Independent Business (NFIB) found that nine of the top 10 business challenges faced by small businesses are directly associated with government. They are:

“Cost of Health Insurance,” “Unreasonable Government Regulations,” “Federal Taxes on Business Income,” “Uncertainty over Economic Conditions,” “Tax Complexity,” “Uncertainty over Government Actions,” “Frequent Changes in Federal Tax Laws and Rules,” “Property Taxes (real, inventory or personal property),” “State Taxes on Business Income,” and “Locating Qualified Employees.”

“Many Americans are frustrated by the federal government’s failure to solve problems. Small business owners are frustrated by the problems that the federal government creates,” said NFIB President and CEO Juanita Duggan, who met with President Trump in the White House last week.

“All of the top problems for small businesses relate directly to excessive federal regulation and taxation.” (Actually, the 10th, locating qualified employees, did not.)

Not Just the Feds

It should be noted that excessive regulation and taxation is not a problem solely relegated to the federal government, but extends to government on the state and local level. Hence, the business climate rankings of states.

Said NFIB California State Executive Director Tom Scott in a prepared statement, “Compared to the national trend, California paints an even uglier picture for small businesses. Three problems California small business owners rank much higher than those in other areas of the United States are family/sick leave mandates; minimum wage laws; and hiring/firing employment regulations.”

NFIB’s survey might be a bit slanted. The respondents tend to be disproportionately Republican. I get that. Still, this group represents a large constituency that creates jobs. (Small businesses account for 64 percent of the net new private sector jobs.)

Business climate is not only not only a top concern for resident businesses in any given place, but of primary interest to companies when considering new locations. As a site selection consultant, I want to steer companies to those places with better business environments. Read last week’s blog People, Infrastructure and Cost.

Uncertainty Curbs Investment

Taxes, permitting, and regulation all speak to a community’s business climate. And with a U.S. economy that remains sluggish (2 percent GDP growth for how many years now?), companies are naturally cautious, as well they should be.

Adding more regulations only creates more uncertainty. Companies will delay buying capital equipment or adding workers in certain places often because of the onerous regulatory environment of those places. And again, in a corporate site selection search, we want to bypass those places.

My advice to elected officials and economic developers: Don’t be one of those places.

Rather, foster a stable and friendly business climate, with reasonable regulations that are well thought out, one-stop-shop permitting, and lower taxes. Do all that and your community will rank high with me.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

People, Infrastructure and Cost: Key to Community Competitiveness

In Corporate Site Selection and Economic Development on January 29, 2017 at 12:27 pm

Years ago, I knew this man in Alabama who described himself as a “simple cotton farmer.” He was far more than that.

He was successful businessman and the chairman to the local economic development organization. In fact, he was a far better negotiator and salesman that the economic developer of that community.

His town became a finalist for a large manufacturing project, and I will always remember what he told the company executives during our meetings.

“What is important to you is important to us.”

It is a statement that has stuck with me over the years. He said, in effect, we’re listening to you and will do our best to address your concerns.

That is customer service, which should the hallmark and mission of all economic development organizations and really all businesses. Do more than just sell. Listen to your customers. Help them when you can. Be an ally, and apply the Golden Rule.

It seems the idea of customer service is eroding during this time of digital disruption, being viewed in some quarters as “quaint” but not practical. As I mentioned in last week’s blog, I have run across some IT companies that do not publish telephone numbers as they don’t want to be bothered.

Big mistake in my book. But then again, I am not driving a Ferrari in Silicon Valley, so what do I know.

Listen and Ask

What I do know something about is corporate site selection. It is not, nor should it be, a core strength for most companies, which is all the more reason why they should not attempt it on their own. Indeed, it can be a real minefield, with the wrong decision being very costly.

Thankfully, I have surrounded myself and learned from experienced mine detectors. We have come to know, through experience, the different wants and needs of companies. We also know they can differ from company to company.

What is important and required by a manufacturer will differ from that of a data center or a corporate headquarters/back office operation.

The key for me is listening. It also means probing, asking questions, and drilling down to gain a better understanding a company’s operations. As a site selection consultant, I also need to know why a company wants to expand to a new location and the intended ramifications.

A Weighted Ranking

At some point, after extensive discussions with senior management, I must come up with a weighted ranking for site selection criteria based on what I have learned. I will share this with the company, asking for feedback so that we are on the same page.

What is important to them is important to me, so I better dang well get this right.

So what are these site selection criteria? Again, they will differ in their order of importance from project to project, but they will generally fall into three broad categories — people, infrastructure and cost.

Now I am not including quality of life, which often is very important. But I would suggest that quality of life is largely derived from people, infrastructure and cost. I will write about quality of life, which means different things to different people, in a future blog.

Let’s take a very abbreviated look at people, infrastructure and cost and see how we factor in the site selection process.

People

In a nutshell, we are looking for both quality and quantity of the labor market. We’re focusing on the talent pool and the extent of it.

Ultimately, I want to know if a community has the sufficient human resources to staff a prospective operation. I want to see the numbers pertaining to the different skill sets. I also want to see a pipeline for talent for the future.

If there are local high schools and/or community colleges turning out students with vocational skills, I certainly want to know about it, and even go over the curriculum. Frankly, I would be suspect of any community that is not addressing vocational training in a big way.

I also want to see evidence of a close working relationship between the community college, existing industry, and the local economic development groups. In so many places, that partnership simply does not exist.

It should be no surprise that we want to have a good handle on the cost of hiring the talent that we would need, so the prevailing wage rates, based on recent surveys, in a community are important.

Infrastructure & Real Estate

When referring to infrastructure, I’m using a very broad brush. It can include (and typically does) transportation, utilities, and telecommunications. But I will deviate a bit and throw in real estate product (available of buildings and sites).

It’s all the physical stuff that would or could be needed to make a particular business operation a go or no go in a particular place.

For most manufacturers, a good highway system is needed in order to get product efficiently on the road and moving. Some need rail. For a data center, a robust dual system for electrical and broadband is needed. For food processors, we’re looking for excess capacity in water and wastewater treatment.

Finally, a community has to have real estate product. It means available buildings and sites. A company has to go into some physical space. If a community doesn’t have that space, be it a building or a site, it loses out.

Even when a community has real estate product, it may not be the right fit. I know of an industrial park in the Southeast, where the nearest natural gas line is 30 miles away. Leave it to say, that park hasn’t done so well.

One last thing on real estate, we have little or no interest in unimproved raw land. That is not a real site in our book. It could be made into one with the proper investment.

Generally, in terms of infrastructure and real estate, a community either has what we are looking for or it doesn’t. And again, that can change from project to project. Certainly, if there are concrete plans for infrastructure expansion, we want to know about it because that could be game changing.

Cost

On cost, well, the bottom line is that cost affects the bottom line. We want to know the total cost, including the elements of labor, taxes, permitting and regulation.

We want to know utility costs and the cost of real estate. In short, we want to determine the cost of entry what the total continuing costs will be.

Generally speaking, smaller communities, especially those outside of metropolitan areas, are less expensive in terms of the cost of real estate, labor and taxes, but often they may fall short of the needed talent pool or be geographically isolated.

The cost of energy may be very important to a manufacturer or a data center, but not so much for a corporate headquarters or back office operation.

The tax bite is a tangible cost that must be considered. Eighteen states have adopted individual income tax cuts since 2008, and 15 states have reduced corporate income taxes over the same span, but a number of states have raised sales tax rates.

Forty-four states levy a corporate income tax. Rates range from 4 percent in North Carolina to 12 percent in Iowa. The good news is that states have been eliminating or reducing reliance on tangible personal property taxes (generally levied on business property like equipment and fixtures) and that trend will likely continue.

The high property tax burdens in New Jersey, New York, Texas, and Illinois are largely due to the metropolitan centers of New York City, Chicago, and Dallas, where I happen to live.

The cost of construction is something for a company to factor if it intends to build a new facility. It is safe to say that building an office building in Manhattan, Kansas, will be less expensive than Manhattan in New York. Same goes for Philadelphia, Miss., and Philadelphia, Pa. The same goes for leases.

Permitting and the regulatory climate in some places can be a royal pain the petute. (Forgive me for the technical language.) It can appreciably slow down construction in some venues and impact the company speed to market goals.

We all know that time is money. Expedited, one-stop-shop, permitting is always viewed favorably.

Important to Existing Industry, Too.

And it’s not just companies engaged in a site search that are concerned with people, infrastructure and costs. It matters big to existing companies that would consider an expansion or even remaining in a community.

If an existing company is having problems – whether it is finding workers (people), getting faster broadband or a turning lane installed (infrastructure), or is asking for tax or permitting relief (cost), the local economic developer should darn well be aware and doing all he or she can to find solutions.

That is the essence of BR&E. It’s listening to your customers. Helping when you can. And this ties back to business attraction. Believe it or not, I want to see evidence of a serious BR&E program during a site search.

Why? I will answer with a question. Do you think I would advise a company to go to a place where it will be taken for granted and where its future concerns will be largely ignored?

Website Advisor

Last week, I helped two economic development organizations with their websites. I am not in the website building business and never will be. But I can help in terms of what information should be included and how it should be should be presented.

I come across good and bad economic development websites all the time. Where I may differ from many site selection consultants is that I will not eliminate a community for a project simply because it has, and this is another very technical term, a “shitty” website.

I explain my reasoning in a past blog, if you are so interested.

Ideally, an ED website should address the old-three legged stool model of building wealth in any given place – entrepreneurial or business startups; business retention and expansion, and business attraction.

But most websites are slanted more toward business attraction. With that in mind, I think it is smart to emphasize people, infrastructure and costs in a community. They are their own legs of a stool, and economic developers should know them like the back of their hand.

Remember the cotton farmer’s motto, and you’ll do just fine.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber can be reached at dbarber@barberadvisors.com or at 972-890-3733. He is available as a keynote speaker.

Seek and Ye Shall Find: Connecting in a Connected World

In Corporate Site Selection and Economic Development on January 22, 2017 at 7:50 am

Economic development, really all business development, is an exercise in outreach. Making contact is the very foundation of the purpose. With no yin, there’s no yang.

In last week’s blog, I made reference to a three-legged stool approach, which I advocate to all communities, big, small, urban and rural. To recap, I’m talking about business retention and expansion (BR&E), entrepreneurial growth, and business attraction.

All three strategies necessitate business outreach in some form or fashion.  Again, I believe economic development organizations should be doing all three.

One important tool in the toolbox is LinkedIn. Now I am not a happy camper of late with LinkedIn, which I will touch on later, but I nonetheless recognize its value. And apparently so does Microsoft, which bought it last month for $26.4 billion.

Big, Very Big

Consider that as of 2016, 46 percent of the world’s population (3.4 billion people) have been on the internet within the past year. That is over 100 times more people than were using it in 1995.

Now consider LinkedIn, which allows business people to create profiles and “connections” to each other in an online social network designed for real-world professional relationships.

LinkedIn calls itself the “World’s Largest Professional Network,” a lofty claim, but it has more than 467 million accounts, out of which about 106 million are active. That’s big, very big.

I have more than 5,200 contacts and more than 6,100 followers on LinkedIn. It means that virtually every day I am in contact with business people on my network concerning something, most of the time on how I can be of help.

By leveraging LinkedIn, I have had face-to-face meetings with CEOs and senior business executives from across the nation on matters of site selection. I have met with economic developers and elected officials, largely because of this digital connection.

If you are reading this blog now, it is because that you, too, have seen the light and have made the connection.

And yet, I continue to run across economic developers and business people who are either not on LinkedIn or have demonstrated that they have little interest or understanding of it by having few contacts.

It begs the question: If the very essence of your job is business outreach, how can you ignore a tool that more than 100 million business people use?

I’ll be frank, it is hard for me to take an economic developer seriously if he or she is not on LinkedIn in a big way. When I say big, I mean at least 500 contacts.

I recently came across the president of chamber of commerce in a major city in Texas, the principal ED entity, who had one contact.

I saw a vice president, the person in charge of economic development for a prominent electric utility company in the Southeast, with only 54 contacts. His boss, a senior vice president for marketing and business development, is nowhere to be found on LinkedIn. I guess those job titles don’t mean much in that company.

Just this past week, I was exchanging messages on LinkedIn with an economic developer who had more than 500 contacts, but her boss, the president of the ED group, had four contacts. Really?

When They Come

Groups of economic developers periodically come to Dallas to call on site selection consultants, and I am always happy to meet with them if I am in town. I am scheduled to meet with some from Georgia and North Carolina very soon.

Recently, I met with one from California who contacted me through, you guessed it, LinkedIn.

Last year, Tim Feemster, principal of Foremost Quality Logistics, and I met with a group from North Carolina. I noticed beforehand that one group member was not on LinkedIn. When I asked him about it during our breakfast meeting, he said, “I thought I was on it.” He wasn’t, but his answer certainly revealed a lack of interest or understanding.

And you want me to bring you a project? Hmmm.

Last year, an economic developer from Alabama wanted to meet with Tim and I in Dallas. When I saw that he was not on LinkedIn (I always check), I asked Tim if he would cover for me, as I really wasn’t interested. Tim did, because he is nicer than me. Honest.

(During SWOT analyses for communities, we forgo public town hall meetings in favor of behind-closed-doors, not-for-attribution interviews with stakeholders. Sometimes, that entails a good-cop, bad-cop strategy to elicit answers. Now guess which cop you think I am?)

Go to the Light

If a person has fewer than 100 connections on LinkedIn, I have little desire to connect with them, because they have not seen the light. My advice: Go to the light, brothers and sisters. Seek and ye shall find. And I may will connect with thee. (Well, most of the time.)

The light emanates from digital technologies that are constantly changing business models. A Digital Darwinism is at work, to which I frequently write and speak about. As I have said many times, we are in the early stages of a new digital machine age, that will make the Industrial Revolution look like child’s play.

People, organizations and places that adapt, will stay relevant. Those that don’t, well, that’s not so hard to figure out.

Am I Being Unreasonable?

Still, I wonder if I might be judging economic developers and so-called business development people too harshly who do not use LinkedIn. So I reached out to a couple of my colleagues who are site selection consultants to get their take. Oh, by the way, I contacted them via LinkedIn messaging and got their responses with 15 minutes.

One site selector friend, based in the Southeast, wrote back, “LinkedIn is kind of like table stakes. Right now, at least, you need it to be in the game.”

Another, based in the Northeast, said, “I would be very suspect” of an economic developer with little or no presence on LinkedIn.

“One of the key roles of an economic developer – Economic Development 101 -is outreach to businesses, whether that’s to attract new ones or help to retain and grow existing ones. I would think that LinkedIn would be a primary tool used for that outreach and would expect to see hundreds, if not thousands, of connections …”

I should also mention that both of these site selection consultants have more than 500 contacts each, according to their LinkedIn profiles.

The “New and Improved” LinkedIn

Rest assured that I am no shill for LinkedIn. As a matter of fact, I am angry with them right now. The Sunnyvale, Calif.-based company has announced that it will be eliminating tags and notes features associated with contacts come March.

That will hurt me, because I have tagged, that is categorized, my more than 5,000 contacts into specific industry groups, such as aerospace, automotive, IT and the like. I also made reference notes – often including a business email address, a telephone conversation or on having met someone — pertaining to my contacts.

Soon, the so-called new and improved LinkedIn, won’t allow for that. But if you ever tried to actually speak to someone at LinkedIn, don’t bother. This is a company, like so many in Silicon Valley, that doesn’t want to talk to people, even its customers.

Despite all that, I don’t see a better digital alternative right now to LinkedIn for what it does. And again, I (and some fellow site selection consultants) don’t see how an economic developer, whose primary mission is business outreach, can ignore it.

When I pointed that out to the ED project manager who had more than 500 contacts but whose boss had four, she defended him in an admirable manner. She said he was “old school and what he lacks on the technology end he more than makes up for in knowledge and networking/relationship building in person.”

Maybe, Just Maybe

I had to think about that. Being that I am approaching geezerhood (I’m 62), I could relate to a degree. After all, I have my own technological shortcomings. I have not learned GIS mapping but depend on another team member to do that on our projects.

Maybe, just maybe, I am the one who has lost sight, that the old school approach of ignoring digital technologies is the right way after all, that forming face-to-face, honest-to-God relationships with people in order to forge the growth of a community, which in turn becomes a center for commerce, learning, healing, culture and the arts, where everyone enjoys the fruits of having a high household income, and where recreational opportunities abound, and where the natural environment is protected and cherished, and cultural diversity is deemed good, righteous and celebrated, and people love and respect each other and hold that all men and women are created equal and are able to pursue their unalienable rights of life, liberty and the pursuit of happiness.

… Naaaah.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber can be reached at dbarber@barberadvisors.com or at 972-890-3733. He is available as a keynote speaker.

Where There is Hope: Our Plan for a Rural Town

In Corporate Site Selection and Economic Development on January 15, 2017 at 7:30 am

We do not know with certainty how this story will end. Most towns in rural America do not end so much as linger. Some grow. Some shrink. Some die.

Their skeletons are typically found in remote areas, ghost towns, where hope died and the people left. But I believe where there is hope, there are possibilities – that good things can and do happen if concerted action is taken.

We, a team of consultants, were hired by a small rural western town that was facing the prospect of losing its single largest and very dominant employer. In an earlier blog, I called it “A Small Town with a Company on the Hill.”

We knew what we were getting into – that economic development in rural America is and probably always will be a tough row to hoe.

But the more we learned about the community, the more we realized just how important our work would be for its future. That is not to say that we don’t take all such economic development missions as serious undertakings, but this one was of vital importance because of the potential loss of this large dominant employer.

City Slickers Who Listen

After many conversations with city officials, our thinking morphed from “strategic plan” to what we called a “Target Market Strategy Study.” I realize that these are just labels, but it became clear to us what our client wanted and we responded. But with some provisos, which I will touch on.

In short, our charge was to provide hope and direction, and I believe to a large degree that we did that.  And while I was confident in our ultimate findings and recommendations, I was bit apprehensive about what kind of reception we would get during a public meeting of the city council.

We assembled an excellent team for this project. Tim Feemster, principal of Foremost Quality Logistics, served as the project manager and spokesman. The other members were John Hoover and Valerie Battle, of the Modalgistics consulting group within Norfolk-Southern Corporation, and myself.

In comparison to our client, we were big city slickers — John and Valerie from Atlanta, Tim and me from Dallas. And while we frequently work in rural America – both on corporate site search and economic development projects – I felt somewhat self-conscious.

During our presentation at City Hall, I noticed that Tim, John and I were the only people in the room with ties.

Talking SWOT

Tim spoke for hour, with occasional interjections from John and me. Using a PowerPoint to highlight our 140-page report, he explained how we conducted our many behind-closed-doors, not-for-attribution interviews with stakeholders and came to our SWOT findings.

For the uninitiated, SWOT stands for strengths, weaknesses, opportunities and threats. All places, big, small, urban and rural, have them. Even in Heaven there is no beer.

Tim got through the SWOT phase of the presentation, with no jeers or fruit or vegetables being hurled his way from the audience. One city councilman asked a good question, but it was far from hostile. I’m thinking, so far, so good.

Tim then spoke about our freight-flow analysis, which identified and classified physicals products coming in and out of the community, and the demographic profile of the community. Together those elements, in combination with our SWOT, gave us insight in identifying the target industry groups.

Giving Lagniappe

Tim explained how and why we got there with our five identified target industry groups. Thankfully, no crank from the audience jumped up and yelled, “How come you don’t say nothing about ostrich farming and chinchilla furs?” to which Tim would have answered, “Well, sir, that would come under agribusiness, which we have listed.”

After explaining the target industry groups, Tim informed the council that we would be providing what we considered a bonus in our report — the descriptive profiles of more than 200 companies, including addresses, telephone numbers and email addresses of senior executives (about 300 names) within those target industry groups.

We thought of this as lagniappe, that 13th donut. It wasn’t asked for, but we thought it would be helpful to their future business attraction efforts once they hired a new economic development director. The previous one left, seeing the writing on the wall with the big dominant employer and following a significant other to another state, while a prospective candidate reneged on taking the job.

Dance with the One

It was at this point in the presentation, repeated in our report, that we gave an important cautionary note. It is a caveat that is often given scant attention by economic development organizations and elected officials, partially because it does not draw headlines.

And it is this: that existing employers typically create far more jobs than by recruiting new companies to any given place.

In short, it means you dance with the one that brung ya. Never, ever forget your existing industry base, for that is the lifeblood of a community. You can and should do business attraction, but keep in mind that there are 15,000 economic development organizations in this country potentially vying for several hundred new corporate site projects every year.

Those are not great odds. It is far more efficient to concentrate on your existing employers, and try to help solve their problems whenever  possible. Also, it makes imminent sense to create a favorable environment for entrepreneurial growth and business startups.

Growing your own is the best way to achieve job growth in the vast majority of places nationwide. It is a message that I cannot hammer home enough, despite the fact that I am often involved in business attraction on the corporate side by providing site selection services to companies. My teammates feel the same way.

Do All Three

In our PowerPoint, I gave Tim an image of a three-legged stool, which represents separate strategies for successful local economic development – business retention and expansion (BR&E), entrepreneurial growth, and business attraction.

Our recommendation to any community anywhere: Do all three.

Tim ended the presentation at City Hall with our recommendations on going forward. It was obvious to us that the council members and audience respected our findings and recommendations.

After the meeting outside the council chambers, representatives from the local community college officials said they thought we were too tough on them concerning vocational training. Our response, respectful in tone: We are willing to modify our report if you show us case studies, proof that you have done what you say you can do.

Proof in the Pudding

Earlier in the day, when we were out and about in the community (we arrived in the morning and our presentation was at night), we learned that a metal fabricating company had agreed to buy a vacant manufacturing facility, and would begin production there. It would start off small, with 15 employees, but with the plan to ramp up to 100 or more.

Being the sleuths that we are, we learned this from a source when we stopped at the empty building and went inside. We weren’t invited. We just went there.

Of course, we were very happy for the town, but it also vindicated one of our target industry groups. We said metal fabrication made sense for a variety of reasons and this was proof in the pudding.

Love Conquers All

We also learned that the owner/CEO of the fabricating company was standing in line at Starbucks and started asking people what they thought of their town. The answers he received, essentially sealed the deal for him. They loved their town, and he decided that he would, too.

Naturally we would have preferred that this CEO had hired us to be his site selection consultant, and we could have analyzed multiple communities on a whole host of business factors to arrive at recommendations for an optimal location.

But he did it his way, and his way may very well turn out to be a good way. Until the day comes when artificial intelligence supplants CEOs, COOs and CFOs, there always will be an emotional aspect to decision making because we are human. We feel.

We want the very best for this small town in the West where we did our work. Because we feel for them, we will periodically be checking in with them to see how they are doing. Certainly, we want to help that new economic developer when he or she is hired, because we are now emotionally attached to this small rural town in the West.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. Mr. Barber can be reached at dbarber@barberadvisors.com or at 972-890-3733. He is available as a keynote speaker.

Digital Darwinism at Work

In Corporate Site Selection and Economic Development on January 9, 2017 at 10:06 am

Admittedly, they are not in not the same industries, but they are both old names in the annals of exceptional American companies.

Sears, Roebuck & Company, founded in 1886, might be in a slow death spiral, while conglomerate General Electric, with roots dating back to 1889, continues to invest in digital transformation in order to adapt and outperform peers.

If this smacks of Digital Darwinism, well, welcome to today, an era where technology and society are evolving faster than some businesses can naturally adapt. This will mean new business models to come, which some companies can pull off and others cannot.

When I speak at conferences, I harp on this to both companies and economic development organizations. You have to embrace digital transformation, not fight it, if you want to remain relevant.

That entails looking beyond the world as you know it, observing how things are changing on the outside, and then changing your own philosophies, models, and systems on the inside in response.

GE has been successful at doing this. Sears not so much.

At GE’s recent 2017 outlook event a few weeks ago, CEO Jeff Immelt was asked how he can get investors to appreciate the company’s new digital transformation and 3-D printing investments. His response: It “makes a shitload more sense than Six Sigma did.”

Indeed.

The Trip

A few months ago, I was an old port city on the Ohio River. The reminders of the old industrial revolution were evident, but surprisingly, it was here where I encountered a small digital company, a defense contractor, doing some seemingly out-of-this world stuff.

And when I say out of this world, I mean it. Because when I put on a virtual reality headset, I took a trip and didn’t leave the farm.

Besides being safer than psychedelic drugs, which I do not advocate, what would be the practical use for virtual reality? Certainly, I do not have all the answers, and it is safe to say that virtual reality (VR) technologies are still lagging behind the visions that people have for their use.

The Possibilities

But I can foresee the day when it will be commonplace in real estate, construction, economic development and site selection.

Donning headsets in a client company’s office in Chicago or New York, a senior executive and I can tour spec buildings in the Southeast or the Southwest. Nice high ceilings, don’t you think? Let’s go outside and look at the surrounding area. Hmmm, curb and gutter, sidewalks and landscaping, too. Not bad.

How about we go downtown and then look at some residential neighborhoods and then pop over to the local community college?

If it sounds a bit far-fetched, then slip on a VR headset for a few minutes and ponder the possibilities. From what I can tell, most VR companies are working to come up with better displays, wireless, and less bulky designs. They are not quite there yet, but they are getting there, along with a whole onslaught of other things related to the digital revolution.

The Promise of 3-D

On the digital side, GE announced in September that it would buy two 3-D printing companies for a combined $1.3 billion.

The move “adds to our strategy to become the premier digital industrial company,” Immelt said on a conference call with analysts. “These two companies bring, in addition to just equipment, a number of ideas in terms of what we can do in the future.”

If that sounds like a company leaning forward, well, you’re right.

GE believes it can sell $1 billion worth of additive metal manufacturing technology by 2020, while using the 3-D printers to drive its own costs down by as much as $5 billion. That beats Six Sigma hands down.

3-D printers build objects by fusing together thin layers of materials such as plastic powder, metal or liquid resin. The parts, built from computer-drawn blueprints, can be used to make products ranging from car parts to surgical implants.

The global market for 3-D printing is growing as companies increasingly use the technology for production of commercial parts. The aviation industry has been an early adopter because it enables more complex designs and lighter parts, cutting waste of expensive materials on factory floors. GE said it expects to print 40,000 fuel nozzles for jet engines by 2020.

Sears was The Disruptor

The news is not so positive for Sears, which announced last week that it will shutter another 150 unprofitable stores, including 108 Kmart and 42 Sears stores in order to curtail losses. How many years now has Sears been closing stores?

But at one time, Sears was the big disruptor, and changed the landscape of retail. In the late 1800s, people began moving to the suburbs and out of the inner cities. Richard Sears believed local supplies were too costly because de-urbanization had caused consumers to disperse; perhaps people would be comfortable with ordering, by mail, products they’d bought in the past at retail stores.

Sears used the railroads and post office in ways no one had, disrupting the status quo, with distribution tactics that resembled the ecommerce experience we know today.

Sears used to charge a fee for access to its mail-order catalog. If that subscription model sounds a lot like Amazon Prime, well, it was.

Now It’s Amazon

But times change. Today, Amazon is worth more than Sears, Macy’s, Kohl’s , JCPenney, Nordstrom, Best Buy, Barnes & Noble, Dillard’s, Gap and Target combined.

Overall, Amazon’s share of the 2016 holiday online market share was 38 percent. Best Buy was a distant second, at 3.9 percent, Target at 2.9 percent and Walmart at 2.6 percent.

Amazon’s largest share of online retail hit 47.8 percent on Dec. 18, 49.2 percent on Dec. 19 and and 48.2 percent on Dec. 20, according to data from Slice Intelligence. On Christmas day, Amazon’s total share of online sales shot to 46.1 percent.

Department stores up and down the price spectrum are under growing pressure to show they can still be relevant, and 2017 will be pivotal in which retailers plow ahead in the internet era and which get left behind. Digital Darwinism at work.

You, Too, Can Be a Futurist

Last month, after giving a speech to a group of stakeholders to an economic development organization, the local ED guy said I sounded like a futurist. I took that as a compliment (and I think he meant it as such.)

That’s what I have to be, and I submit that is what economic developers and company executives have to be. You don’t have to be a computer whiz. You do have to have an imagination.

I believe we are in the early stages of a digital revolution that will both destroy and create jobs. That requires us to lean forward and imagine what could be or what should be if our companies and our communities are to remain competitive and ultimately relevant.

Yes, you, too, can be a futurist. If you want, I will send you a secret decoder ring to make it official.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.

For Rural America to Win, Part 2

In Corporate Site Selection and Economic Development on December 22, 2016 at 3:16 pm

In my Dec. 11 blog entry – For Rural America to Win – I emphasized how rural communities must embrace digital technologies in order to compete and remain relevant in a fast-changing if not confusing world.

I expounded upon that theme last week in frozen rural Iowa, where I gave a speech at the annual meeting of the Clinton Regional Development Corporation.

More than 100 stakeholders attended the event, which was covered by the local newspaper and a television station. I gave my written remarks to the Clinton Herald, which published a story with the headline, “Barber Stresses Adapting to Change.”

It was an accurate nutshell of what I said, but, of course, I said a whole lot more.

Initial Impressions

I rewrote my speech after Mike Kirchhoff, president and CEO of the CRDC, gave me a tour of the region, which extends across the Mississippi River into Fulton, Ill.

My initial impressions, Clinton and the surrounding area, like most of rural America has taken its share of hits (the city’s population of about 26,000 is lower than it was in 1950 and has been on a decline for the past four decades) but unlike many rural communities, I saw some things that made me believe that it is poised for growth.

For starters, it would appear that the Clinton Community School District is embracing the idea of introducing digital technologies and critical thinking to its students in a big way.

Children, Teach Your Parents Well

In both the middle school and the high school, there are these “Innovation Rooms,” where students gather in teams around a circular tables with computers to essentially learn collaboration in solving problems.

(In my speech, I joked that the children in Clinton should teach their parents well about this.)

Twenty miles to the west, in DeWitt, Iowa, with a population of about 5,500, I learned that laptops are given to students free of charge from fourth to 12th grade, while PreK through third graders can check them out.

Truly this is greasing the skids, so that young people can be better prepared to enter a new digital machine age, more profound than the industrial revolution, and one that transcends virtually all industry groups and affects everyday life.

Blue-Chippers

I also saw that Clinton had some blue-chip manufacturing companies, including Archer Daniels Midland Company (ADM), one of the world’s largest agricultural processors and food ingredient providers; LyondellBasell, one of the world’s largest plastics, chemicals and refining companies; PCM RAIL.ONE AG, a German manufacturer of concrete sleepers and track systems for railroads, and Custom-Pak, one of the world’s largest industrial blow molded parts manufacturers.

When I see a concentration of world-class manufacturers in a particular community, that indicates to me a track record of successful manufacturing, which always peaks my interest. In short, they wouldn’t be operating there for long if they were not profitable.

And there is room for more as the 345-acre Lincolnway Industrial Rail & Air Park located adjacent to U.S. 30 and the Clinton Regional Airport has been designated a certified site, meaning the skids are greased for immediate development. Rail service to the park is provided by the Union Pacific Railroad.

I was also gratified to see that the CRDC had initiated a business retention and expansion program (BR&E should be a primary focus for most economic development groups in my opinion), and that it was part of a larger regional approach, being a member of the six-county, bi-state Quad Cities Chamber, with offices in Davenport, Iowa, and Moline, Illinois.

A Tough Row, Indeed

Seeing the creative use of digital technologies in the schools, the existing blue-chip manufacturers, the efforts at BR&E and regionalism, and the professionalism of Mike and his staff, I have to believe that the Clinton region is poised for winning a prospective company that is looking for a place to set up operations.

And if a STEM academy project that he is working on becomes a reality, Clinton will be transformed and made all the more competitive.

I only wish I could say that about every rural community that I visit. Some simply do not have the tools to compete, much less win. See my Sept. 18 blog, A Tough Row to Hoe.

But even for a community that has all (or most) of the pieces in place, it is harder for economic development organizations based in rural America to compete. Most projects, whether they are industrial or not, land in metropolitan areas, because that is where most of the people, the companies, and the jobs are. It that sense, it’s a numbers game.

Where There is Hope

Technically, rural communities are those outside of metropolitan areas, but in fact there are many communities within metropolitan areas that look and feel rural.

(I could easily take you to ranches, farms and agricultural equipment dealers within the huge Dallas-Fort Worth Metroplex where I live. In some of these places, you might guess that you were outside the boundaries of a metropolitan area.)

Back in 2009, President Obama made said “urban and rural communities are not independent, they are interdependent.” It was an adroit statement, which should give economic developers in rural communities hope.

I mentioned in last week’s blog that the cost of labor, indeed the cost of living, is typically lower in rural America than in metropolitan areas, providing companies a potential cost savings.

The local regulatory and tax climates in rural places are often more amenable, less restrictive, for companies than within metropolitan areas, a broad-brush statement to be sure.

Fixing the Digital Divide

Again, repeating myself from last week, the challenge for rural America is in providing a pipeline of talent in a new digital machine age, and, what I failed to mention, the proper infrastructure to support those digital technologies.

Truly there is a digital divide. Rural areas have significantly slower internet access, with 39 percent lacking access to broadband of 25/4 megabits per second, compared to only 4 percent for urban areas. This impedes not only students in underserved rural areas but businesses that operate are there as well.

When we think of infrastructure, we think of roads, bridges, water lines, our electrical grid, all very important, but broadband is now, in the words of U.S. Sen. Shelley Moore Capito, R-W.Va., “a pillar of our 21st century infrastructure.”

Sen. Capito, along with U.S. Sen. Kristen Gillibrand, D-N.Y., introduced the Broadband Connections for Rural Opportunities Program Act in September. The bill would authorize federal grants for up to 50 percent of a broadband project’s cost, increasing to 75 percent for rural areas.

Half Measures

What gets my goat, and we all need a good goat, is the lack of real commitment to workforce training. I continue to see only half-measures in rural communities and urban communities alike, with little or no collaboration between community colleges and local employers, particularly with manufacturers.

Certainly these are different tribes speaking different languages but that is no excuse. Both are guilty of either not reaching out to one other or not listening to one another. Of course, there are great success stories exemplifying collaboration and unison of thought, but I do not see that as the norm in most places, particularly in rural America.

I have been in too many rural communities where the absence of any meaningful vocational training programs would essentially result in them being scratched off our list during a corporate site selection project.

As one exasperated plant manager once told me, “I mean, come on, how many cosmetologists does this small town really need?”

New Approaches Needed

Earlier this month, and I mentioned this in my talk in Clinton, IBM Chief Executive Officer Ginni Rometty said her company plans to hire about 25,000 people in the U.S. and invest $1 billion over the next four years.

That is all very good, but it was her comments in an op-ed piece in USA Today that really caught my eye. Rometty said many technology jobs don’t require an advanced degree and she encouraged government investment in vocational education and training.

“We are hiring because the nature of work is evolving,” Rometty wrote. That’s also why many of the jobs are hard to fill, she said. “What matters most is that these employees – with jobs such as cloud computing technicians and services delivery specialists – have relevant skills, often obtained through vocational training.”

There are large numbers of unfilled tech-related jobs in this country, because of a shortage of workers with the requisite skills.

“As industries from manufacturing to agriculture are reshaped by data science and cloud computing, jobs are being created that demand new skills – which in turn requires new approaches to education, training and recruiting,” she wrote.

All places, rural and urban alike, should take her words to heart.

In the meantime … Peace on Earth, Good Will Toward All.

I’ll see you down the road. (Next year.)

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.

For Rural America to Win

In Corporate Site Selection and Economic Development on December 11, 2016 at 10:43 am

As a “place profiler” for corporate and economic development interests, my work will sometimes take me into rural America.

Most rural counties offer employment in a variety of industries, but experience has taught me that they can differ quite a bit in their industry mix.

No logging industry on the open plains of the Texas Panhandle. No expansive cattle ranches in up and down West Virginia.

I’ve also come to realize, and my logic is admittedly somewhat inverted, that most jobs follow people. That in essence means that metropolitan areas will have a certain advantage by virtue that more people live within their confines. It’s where most of the companies are. It’s where most of the jobs are.

Conversely, rural America – those counties that are not in metropolitan areas – will have a tough row to hoe largely because of numbers and geography.

Consider that the population in rural America (non-metropolitan counties) stands at about 46 million —14 percent of U.S. residents spread across 72 percent of the nation’s land area. Now a picture might be forming.

Certain Competitive Advantages

Despite limiting factors, I actually believe there are certain competitive advantages that rural communities can offer to potential companies that would consider investing in them.

The key, for those rural communities that want to grow (and the desire has to be there), is to identify and aggressively promote, leverage, and market those competitive advantages.

I am not the first nor will I be the last to suggest that economic development is a contact sport. The most successful economic developers that I have ever been around are part evangelists and part football coaches for their respective communities.

If you watch a 60 Minutes profile of Joe Max Higgins, I think you might get my drift. For Joe Max and any number of economic developers that I have worked with, this isn’t just their job, it’s their calling.

For practitioners in rural America, the calling can be especially daunting. More so than their urban counterparts, economic developers in rural areas have to work harder to come up with meaningful answers, supported by data, as to why their place would make for a better place for corporate investment.

One possible reason could be labor costs. Per capita income of people living in non-metro counties has been about 80 percent of metro dwellers since the early 1990s. Compared with their urban counterparts, rural workers have lower median earnings in nearly every age group.

This can pose an opportunity for some companies in some places. A manufacturer operating in a rural setting may be able to pay line workers $18 an hour, whereas they would have to pay $23 an hour in a more competitive urban environment.

I have helped certain manufacturers locate in small towns in rural settings as they wanted to be the big fish in the small pond. Armed with data that I had provided to them and visiting these communities, they soon realized they could draw a sufficient number of qualified job applicants without having to pay a premium in wages, but still higher than most wage earners in that particular town.

In urban settings, that strategy would not work nearly so well, largely because of the many existing employers competing for talent. They would be one of many fish.

Bite the Bullet

But for rural communities, appealing on the basis of lower labor costs alone is not enough. They have to show that they have the talent quotient to fill the bill for prospective companies. And therein lies their biggest challenge.

It is not good, it is not helpful that students in rural communities are far less likely than their peers in cities and suburbs to gain exposure to rigorous computer science training. These skills have emerged as a fast track to high-paying jobs.

A 2016 study from Gallup and Google found that computer science is less of a priority in rural schools than in urban and suburban areas.

If rural communities truly want to be in the hunt for better paying jobs, particularly in manufacturing, they are going to have to bite the bullet and emphasize computer science beginning in the earliest grades.

I’m afraid there is no getting around it for rural America. It has to be done, K-12. Not doing so puts rural communities (and the youth living there) at a further competitive disadvantage.

The Old and the Young

We also know, because the U.S. Census Bureau tells us so, that the rural America is older than urban America. (The median age of people living in rural areas is 43 years, compared with 36 years for urban areas.)

Generally, an older working-age population points to lower overall labor force participation, as workers begin to drop out of the labor force past age 50. And the latest Census Bureau data confirms that men and women living in rural areas have lower labor force participation than their urban counterparts. (59.2 percent compared with 64.2 percent.)

What doubly hurts is that many millennials will leave rural America for metro areas in search of better job opportunities. This pattern of migration is nothing new and probably has been going on for a very long time.

The Bold Ones

While it may be difficult if not unrealistic to stem the overall tide of outmigration by millennials, I have witnessed how some economic developers in rural America will take extraordinary steps to improve life in their communities.

In addition to pushing for computer science in local schools, they will advocate for the teaching of principles of entrepreneurship and more vocational training. They will push for the creation of makerspaces, and they will talk to existing industry about forming internships and apprenticeship programs. They will explore alternative financing to small business ventures with their local community banks.

They will be consumed with quality of life, about local healthcare, education, recreation and life away from the workplace, and they will look to form partnerships and find allies along the way, all on a shoestring budget.

Winning economic developers in rural America will be ardent students of state and federal loan and grant programs that can make a difference.

New Market Tax Credits come to mind here, an often ignored federal program that makes it possible for businesses operating in distressed areas to get more flexible loans with better rates and terms than what the market could offer.

Not to take anything away from economic developers in metropolitan areas, but their rural brethren will have to work harder to know more, because the stakes are so much higher. Wins and losses take on a different meaning when your resources are limited.

All economic developers everywhere know that if they are to be effective and spark change, they will likely offend somebody along the way. It just happens.

Coming Home

In my travels, I have seen in rural communities a phenomenon that I liken to repatriation. It is when the sons and daughters who had left to make their bones in their respective fields, typically in urban markets, want to come back home.

I know of bankers, lawyers, doctors, teachers, and corporate executives, who have returned to their hometown to start a business and/or raise a family. It can be done, especially after professional experience has been gained.

Rural economic developers welcome these returning professionals, as they know those coming home will offer much to their communities in terms of talent and will be natural allies to economic development.

Trump’s Big Promise

The history has yet to be written on the 2016 presidential election. But President-elect Trump’s promise to bring back millions of manufacturing jobs certainly resonated with working-class people, particularly in rural America.

Manufacturing is all the more important in rural America, accounting for nearly 15 percent of earnings compared to just over 9 percent in urban areas.

These mostly white and rural people have felt abandoned, even disrespected by the federal government. Sensing this, Trump said he would renegotiate or scrap NAFTA, reject the Trans-Pacific Partnership, and slap China with tariffs.

Based on what I saw in Mexico this past Spring, I can no longer think of myself as a free-trader. But here’s the problem: Total inflation-adjusted output of the U.S. manufacturing sector is now at its highest, with employment near it lowest.

Even with some manufacturers reshoring operations, it is highly unlikely that millions of factory jobs will be created because of the more prevalent use of robots, which will only grow as costs continue to fall.

In short, the automated, hyper-efficient shop floors of advance manufacturing will make Trump’s pledge a hard one to fulfill in both rural and urban America. I hope I am wrong.

The wild card in all of this is corporate taxes rates. If they are more than halved as the Trump & Co. may push for (See last week’s blog “The Big Business Story to Come”), all bets are off.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.

The Big Business Story to Come

In Corporate Site Selection and Economic Development on December 4, 2016 at 8:34 am

A few months ago, I was sitting with a group of musician friends when incredibly the subject of corporate taxes came up. I am not sure how or why, but it did.

Most of those gathered at the Appalachian String Band Festival in West Virginia, were of the far left persuasion, and one, a very nice guy and talented fiddle player, got it into his head that big bad corporations in this country should pay more taxes.

I mentioned, rather demurely, that the United States already has one of the highest corporate tax rates in the world, to which another fiddle player, whom I consider a friend, answered with “BS.” (Except he didn’t use the abbreviated version.)

I let it go. Why argue over something extraneous as tax rates, when we were there to play music.

Life is too short. I’m not going to let politics, much less facts, become a demarcation line or a prerequisite for friendship. I am quite comfortable “hanging” with people who do not share my views, no matter how deluded they might be.

Carrier News Dominated

Last week, much of the news was dominated by President-elect Donald Trump brokering a deal with Carrier to keep a portion of its workforce in Indianapolis rather than a total plant shutdown with work shipped to Monterrey, Mexico.

Curiously, many pundits decried the move as something precedent setting and bad, when it was neither.

The truth is this thing happens not all too infrequently, albeit it is usually governors and high-ranking state economic developers who are making the telephone calls, dangling tax abatements as an incentive to keep companies from moving operations out of their state.

Taxes Matter

Indeed, much of the basis for industrial recruiting by economic developers in states vying for industrial investment is rooted in tax incentives.

In short, taxes matter and in tandem with a regulatory environment, infrastructure and sometimes labor costs form the basis for what many companies see as the business climate of a place.

(Sometimes companies, particularly tech companies, will ignore a not-so-good overall business climate in favor of a plentiful talent pool, witness biotech and Silicon Valley in California. Another blog for another time.)

Something Else

While Carrier said tax incentives were important in keeping operations in Indianapolis, I don’t buy it. The $700,000 a year in tax abatements for 10 years from Indiana is a smidgen in comparison to the $65 million a year Carrier would have saved in labor and other costs by shifting production to Mexico.

No, something else was at work here. Two things come to mind. One, Carrier ‘s parent company, United Technologies, is a major defense contractor that wants to stay in the good graces of an incoming administration, which will likely increase defense spending.

Two, and granted this is mushier, Trump has vowed to work with the business community to reduce corporate taxes and regulations.

The Real Story

More interesting to me than the news on Carrier — which puts faces to a story (The New York Post quoted the Facebook post of an employee named Paul Roell: “Thank you, Donald Trump, for saving my job.”) — is that Trump’s proposed nominee for U.S. Treasury secretary, Steve Mnunchin, said last week that the administration was targeting a reduction in the corporate tax rate from 35 percent to 15 percent.

That is a real big story, overlooked by many. If that were to happen, it would be “yuge,” and redefine the business climate in this country.

This may come as a shock, but back in 2012, President Obama actually proposed lowering the nation’s corporate tax rate to 28 percent. At the same time, he wanted to boost overall revenue from corporate taxation by banning numerous deductions and loopholes that save companies tens of billions of dollars a year on their tax bills.

2012 was an election year and a Republican congress wasn’t about to play ball. (Mitt Romney, by the way, had proposed lowering the rate to 25 percent.)

Not BS at All

Despite what my fiddle-playing friends might believe, the United States, with a combined top marginal tax rate of 38.9 percent (consisting of the federal tax rate of 35 percent plus the average tax rate among the states), has the third highest corporate income tax rate in the world. It is exceeded only by the United Arab Emirates and Puerto Rico, according to the nonpartisan Tax Foundation.

The U.S. has the highest corporate income tax rate among the 35 industrialized nations of the Organization for Economic Co-operation and Development (OECD).

“The U.S. tax rate is 16.4 percentage points higher than the worldwide average of 22.5 percent and a little more than 9 percentage points higher than the worldwide GDP-weighted average of 29.5 percent. Over the past ten years, the average worldwide tax rate has been declining, pushing the United States farther from the norm,” according to a Tax Foundation report in August.

You don’t have to be a Washington insider or an accountant to know that the federal tax code is very complicated. Because of the abundance of loopholes and deductions, most corporations don’t pay 35 percent, but an effective tax rate closer to 29 percent. The weighted average tax rate for the S&P 500 overall was 26.7 percent in the second quarter of this year, according to Howard Silverblatt of S&P Dow Jones Indices.

Still, our effective rates are significantly higher than the worldwide average corporate tax rate, which has declined since 2003 from 30 percent to 22.5 percent.

Also, keep in mind that companies do not need to pay U.S. taxes on the profits earned by overseas operations until the earnings are brought back to the U.S., which means many keep trillions in profits parked offshore.

I have to believe that a lower corporate tax rate would bring much of that money home and sharply reduce companies’ incentives to take a foreign address, a practice called inversions.

A Challenging Environment

Now if you were to ask me if I believed that some companies pay their executives really obscene amounts of money and that wealth disparity in this country is a real and growing problem, I would say absolutely true.

Do I believe that special interests have been successful in carving out loopholes and deductions making a tax system far too complicated and unfair. Yes, I do. But those are separate issues.

The issue of this blog, which directly impacts job creation, is that we have a very challenging environment for business investment in the U.S. in large part due to our disproportionately high corporate tax rate in comparison to the rest of the world.

Many Unknowns

There remains a lot of unknowns to what may or may not happen. So if the effective rate goes to 15 or 20 percent, will this be done in conjunction with the closing of loopholes?  No one yet knows. We still don’t have a lot of meat on the bone, but the impact to corporate profits and investment in this country could be significant.

So this is the big story that I am watching. I’m not so much concerned with whether Trump is making phone calls to CEOs in an attempt stop individual plants from closing and moving offshore. It’s not necessarily a bad thing, I just think it is small potatoes when compared to what happens with corporate taxes and the overall business climate of this country.

Staunch the Bleeding?

The latest jobs numbers from Bureau of Labor Statistics show that jobs in the manufacturing sector fell for the third straight month, declining by 9,000—losing 62,000 workers year-to-date.

We’ve been bleeding manufacturing jobs, going from 20 million jobs back in 2000 to 12.3 million today. Will Trump, the economic nationalist, find a way to effectively staunch the bleeding through tax and regulatory reform?

I don’t know. How about that, a business consultant who says he doesn’t know. I am watching and waiting just like you.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733. Mr. Barber is available as a keynote speaker.