Archive for April, 2004

India Part II

Friday, April 30th, 2004

By Dean Whittaker

After the seventeen-hour plane ride over fifteen time zones, life at 40,000 feet finally landed me in the hustle and bustle of Mumbai (formerly Bombay) Airport.  The 1:00 AM arrival followed by the hotel chauffeur rescue at the airport left me exhausted, jet-lagged, and ill. It’s not a trip I would undertake very often.  My first impression of India was of people, poverty and pollution.

The people are wonderful and bright, and some are very well educated. The people I met were warm and welcoming. The poverty was overwhelming – 60% of Mumbai live in slums the likes of which I had never seen. The professional street beggars brought tears to my eyes. And then there was the pollution. When I first arrived I could not breathe and thought I was going to have to come home early from the CoreNet Conference. The air-conditioning at my five-star hotel helped me survive my visit. The temperature was in the high nineties during the day and the low nineties at night, with ninety-percent humidity.  

Mumbai consists of eighteen-million people living in a place that has six times the density of New York City! They have the least open space per person on the planet. One of their largest challenges is infrastructure. The traffic congestion limits travel by car to the speed of a few miles per hour. Perhaps one of my biggest surprises was to learn that vehicles have the right-of-way over pedestrians. Crossing six lanes of traffic on foot is not for the weak of heart nor the elderly.    

From my trip to India, I’ve come to realize that outsourcing (BPO, business process outsourcing) is real, but that it is responsible for only a very small percentage of the impact on American jobs. A number of major US firms have been acquiring Indian BPO companies since business costs are 40% less in India than here. Software development and R&D are growing rapidly. I don’t see us losing jobs to India yet, but I question whether further expansion of US operations will have a marked effect. I met with Intel, Adobe, and Cisco representatives, all of whom, along with IBM and Microsoft, were building large campuses to house, feed, and entertain their Indian talent.

My sense is that we will have regional economic winners and loser in the globalization of the economy. Those regions that can participate (and compete) will be winners. Those regions that are less agile will suffer. The speed of change and the ability to adapt to these changes will be critical. Preparing our communities and regions for change is essential.

The call center I visited teaches employees to speak American dialects, and some call centers use US weather maps to help callers empathize with the customers they support. The average wage was $200 per month for the bright, twenty-something youths who worked at the center. 

To me, globalization is currently about three issues: outsourcing, off-shoring, and automation. The latter is having a dramatic impact on manufacturing.  Here in West Michigan, we have experienced a 20% drop in manufacturing employment and a 60 % increase in productivity in the last three years. The rich get richer.  While the media and our politicians have the outsourcing issue WAY out of proportion, the global search and competition for talent is on.  Do we move the work to the talent or the talent to the work? Technology enables the separation of where work is performed to where it is consumed. India has the benefit of having been an English-speaking British colony, the recipient of low cost long-distance communication (because of over-capacity in world telecommunication capability), and a culture with a youthful, growing population (60% are under 25) that values education.

One of the most interesting comments made by Dr. Linda Lin of the University of Michigan, the keynote presenter at the CoreNet Conference in Mumbai, was that 51 of the top 100 economies in terms of output are not countries, but rather multi-national companies. What happens to small businesses when the multi-nationals can lower their costs by 40% by setting up shop in India?

Welcome to the global economy.

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Manufacturing and Rural America

Friday, April 30th, 2004

By Jeff Vedders

Many small towns across America have been decimated over the past few years by large, single manufacturing employers closing facilities and laying off thousands of employees.  For many of these communities, the manufacturing employer is the single source of employment.  It seems that you hear about these plant closings daily.  In fact, Greenville, MI, which is a small community in my home state of Michigan, has just experienced such a loss.  Earlier this year, AB Electrolux, a Swedish-based conglomerate that manufacturers washing machines, dishwashers, refrigerators, and freezers, announced that it will close a 2,700-employee refrigerator plant in 2005.  Greenville is a community of 8,000, so you can imagine how devastating such a loss will be.

Unfortunately, there are many more towns like Greenville, MI.  Many of these communities have a much higher percentage of manufacturing jobs compared to urban areas.  What this means is rural communities are particularly vulnerable to manufacturing layoffs.  And when you add in the multiplier effect, where every manufacturing job is responsible for 2.5 other jobs in the community, it’s easy to see how damaging manufacturing closures can be to a small community. 

The trend for low wage manufacturing jobs to leave this country and move offshore is likely to continue, so what can a small community do?  The simple answer is to diversify your economy, but in reality that is a very difficult proposition.  Diversifying an economy brings about change, and change can be difficult for many communities.

However, with change comes opportunity.  This could be the perfect opportunity to come together as a community and decide your future for the next 10 to 20 years.  Once you reach a consensus on the types of industries and/or companies that you want to have, learn as much as possible about those industries and understand their needs.  When you have done so, you can determine what advantages you have to offer to expanding companies.  You will also know what you may need to create to attract your desired companies.

Also, help your existing manufacturers.  If the manufacturing process involves low-skill labor, perhaps you can work with the owner and provide training to assist in automating their process as much as possible.  This is one of the ways U.S. companies are able to compete globally.

Other strategies to consider include retaining as much talent as possible.  Put programs in place to attract the right talent; make your community a place where people don’t want to leave.  Educate and train your workforce as much as possible.  Also, don’t forget to grow your own.  Create an environment where entrepreneurs can thrive.

Rather than resist change, embrace it and plan for the future.  Now is the time to design your community for the next 10 to 20 years.

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More Views on Economic Development and Sports

Friday, April 30th, 2004

By Leigh Howe

It seems my last article about economic development and sports hit home with some of our readers.  I have decided to share some responses that I received because I think they explore the topic well and give some terrific examples of the impact that sports have on communities.  Here are a few viewpoints to consider:

“The economists possibly have it right that stadiums and arenas do not generate net new spending in a community and maybe they don’t.  I think you would be hard pressed to convince Cleveland, Baltimore, Denver, Cincinnati and others that the location of their baseball stadiums do not make their cities more livable, their restaurants and other retail establishments more profitable and bring in thousands of tourists from miles around to their central cities.

Washington, DC has done very well with the opening of the Hockey/Basketball arena in the city. Columbus, Ohio, has created a number of development opportunities as a result of their hockey arena, Phoenix has been able to revitalize quite a bit of downtown with the investment in both the basketball facility for the Suns and the relatively new baseball stadium.  But these downtown turnarounds have not been limited to the largest cities. Ask Dayton, Toledo, Buffalo or Indianapolis what minor league baseball has meant to their communities.

No, net spending may not be up, but spending in the heart of the city and maximization of infrastructure investment may be the key for many of these investments.   And if you think this does not hurt, ask Baltimore what it meant to lose the Colts or Cleveland their football team or St. Louis when the Cardinals left, these teams say a lot about civic pride and identity.”  

Jeff Finkle
The International Economic Development Council (IEDC)

“Living in the epicenter of motorsports, I would suggest that the venues that host sporting events may have the capacity to be economic drivers. Lowe’s Motor Speedway located in Concord, NC, has anchored an economic development engine that continues to profit the regional economy. Three times each year the Speedway hosts NASCAR events that reallocates millions of dollars of entertainment spending; from Ohio, Pennsylvania, Indiana, New York, Boston, Maryland, South Carolina, Georgia…

Within a 30-mile radius of the Cabarrus Regional Chamber you will find over 90% of NASCAR teams. These motorsports teams are great corporate citizens that provide well paying jobs. The average salary of a motorsports team employee is over $50,000. While that in itself is noteworthy, the race teams are just the surface of the motorsports industry in the Cabarrus Region. Populated within this region are numerous motorsports manufactures, suppliers, service providers, tour companies, motorsports publishers and media concerns, NASCAR R&D, and many other businesses that rely significantly on the motorsports industry. Sam Bass, the renowned motorsports artist, has his gallery within a stone’s throw of the Speedway. The local university, UNC-Charlotte, has one of the preeminent automotive engineering programs in the country.

Various studies have debated the impact of sports team and venues on local communities. Many of those studies discount the economic impact of sports on a region. That may be true of typical sport franchisees such as baseball, football, and basketball. However, the presence of Lowe’s Motor Speedway and the resulting motorsports industry associated with its presence has had a positive impact on the economic engine of the Cabarrus region.”

Jerry K. Saunders

Senior Executive for Business and Community Development
Cabarrus Regional Chamber of Commerce

“As a frequent author of economic impact reports regarding professional sports, I must concur with you and the various other studies.  The real impacts are psychic.  I think we all know this, but we don’t know how to measure it so well.  It also depends on whether teams are winning or losing and how consistent they are. 

That said, one of my peeves is that people claim professional sports have no economic impact.  Obviously, that can’t be true.  They have a tremendous economic impact—look at all those people spending money.  But they may cause no net increase in economic activity just because they build a new stadium with public money, for instance—at least as measured quantitatively.  I think that’s what people really mean. 

Still, it is easy to measure some of the net gains caused by some, maybe all, teams.  People arrive from many miles away to watch games—buses come from 200 miles away into St. Louis, for example, to watch the St. Louis Cardinals.  This is real “gain.”  What people forget, however, is that the local fans frequently take their money to other cities to watch their Redbirds elsewhere.  This, obviously, takes money out of the local economy.  The net effect is probably a “wash.” 

What we need is a definitive study of the effects of having teams or not having them.  The psychic effects, anyway.  Is there a method for measuring local and economic growth before and after teams are established, controlling for other factors?  My sense is that growth happens first, then professional teams show up (new franchises, relocations, etc.) when the teams realize that there is enough market to support them.  Witness Phoenix.  Rapid growth without professional sports for many, many years.  Then professional franchises show up.   Hmm…., it seems it wasn’t the sports that created the growth.  By the way, the same thing happens with the arts.  How many symphonies or art museums were there first?  In real life, population and economic growth has to occur first.

But do teams (or the arts) have the ability to sustain the scale of a local economy?  Without them, would the economy decline?  Or if they are very successful, do they help the economy grow faster (or slower, if they lose all the time)?  That is, once we have our professional teams, is it too costly to give them up even though we didn’t need them in the first place?”

Robert M. Lewis, AICP, CEcD

Principal and President

Development Strategies

Thanks to all who responded to the article.  As always, we welcome feedback on the topics we write about.  Please feel free to email me (leigh.howe@whittakerassociates.com) or my colleagues directly.

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If we are in a so-called recovery, then where in the world are the jobs?

Friday, April 30th, 2004

By Pete Julius

For about a year now, our nation has been emerging from a recession.  Stock market activity has picked up, businesses are investing again and productivity is up.  However, our employment rate still pretty high.  If we are in recovery, why are people not finding jobs, and what are the job projections through 2012?

There are many reasons why the job growth levels are not where they should be or where we would like them to be following a recession.  Most people like to blame the number of jobs that are going to Mexico, India, China and other cost-competitive nations. In fact, there are other underlying reasons.

our current unemployment rate, as of February 2004, is 3.1% higher than in March 2001.  More importantly, notice that about 1.8% of our labor force is reported as missing.  What? What in the world does that mean? Well, it means that there are roughly 2 million workers who have either dropped out of the labor force entirely or have failed to find a new job.  So, what are the underlying reasons for unemployment rate of 7.4% and the estimated missing 2 million workers?

One of the biggest impediments to our job growth is the paradigm shift in job type.  Typically, when coming out of a recession, many of those who are laid off get to return to their old jobs.  This time around it is much different.  Most of the people who have lost their jobs in the past couple of years are less likely to be hired back this time around.  Part of it can be blamed on some of those jobs going overseas.  The other part is that we are moving into a knowledge-based economy, which requires a higher level of education and job training than the jobs that were lost to other countries.  As a result, many workers are being forced into lower wage jobs, while others are having difficulty even finding a job.   

In addition to this paradigm shift, we are currently experiencing a very high level of productivity.  Through the use of technology and innovation, companies have learned to do more with less.  Coupled with rising health care costs, this means that companies do not need to hire new employees, leaving more people wandering the streets looking for work.  It must also be noted that the social, political and economic instabilities around the world have also hindered job growth.  However, given all of these obstacles, there are pockets of activity and areas to focus on to improve the unemployment rate.

The first table below lists the top ten best projected industries from 2002 – 2012, while the second table lists the top ten worst for the same time period. 

Top Ten Best Projected Employment Projections (2002-2012)
  Total employment (000′s) Median annual earnings (Dollars) Education/training category
Occupation 2002 2012 Percent Change
Medical assistants 365 579 58.9 23,940 Moderate-term on-the-job training
Network systems and data communications analysts 186 292 57 58,420 Bachelor’s degree
Physician assistants 63 94 48.9 64,670 Bachelor’s degree
Social and human service assistants 305 454 48.7 23,370 Moderate-term on-the-job training
Home health aides 580 859 48.1 18,090 Short-term on-the-job training
Medical records and health information technicians 147 216 46.8 23,890 Associate’s degree
Physical therapist aides 37 54 46.4 20,670 Short-term on-the-job training
Computer software engineers, applications 394 573 45.5 70,900 Bachelor’s degree
Computer software engineers, systems software 281 409 45.5 74,040 Bachelor’s degree
Physical therapist assistants 50 73 44.6 36,080 Associate’s degree
Source: BLS          

        

Top Ten Worst Projected Employment Projections (2002-2012)
  Total employment (000′s) Median annual earnings (Dollars) Education/training category
Occupation 2002 2012 Percent Change
Shoe machine operators and tenders 7 5 -26.1 20,600 Moderate-term on-the-job training
Fishers and related fishing workers 36 27 -26.8 20,710 Moderate-term on-the-job training
Roof bolters, mining 4 3 -27.7 38,430 Moderate-term on-the-job training
Textile bleaching and dyeing machine operators and tenders 27 19 -28.7 20,800 Moderate-term on-the-job training
Radio mechanics 7 5 -29.3 36,230 Postsecondary vocational award
Textile winding, twisting, and drawing out machine setters, operators, and tenders 66 46 -30.3 21,920 Moderate-term on-the-job training
  Total employment (000′s) Median annual earnings (Dollars) Education/training category
Occupation 2002 2012 Percent Change
Shuttle car operators 3 2 -31.3 38,360 Short-term on-the-job training
Sewing machine operators 315 216 -31.5 17,440 Moderate-term on-the-job training
Word processors and typists 241 148 -38.6 26,730 Moderate-term on-the-job training
Textile knitting and weaving machine setters, operators, and tenders 53 33 -38.6 22,970 Long-term on-the-job training
Source: BLS          

It is interesting to note that the ten best jobs are service related and the ten worst are in manufacturing.  Additionally, notice that the level of education is much higher for the top ten best.  This is indicative of the trend of moving into a knowledge-based economy.  Those jobs that are going to stay here and employ in the future are those that will require a higher level of education.  Most importantly, as a BusinessWeek article reports, any job that is considered routine is in jeopardy of moving to a more cost-competitive country.     

Sources:

Paul Kaihla (2004, March 23), “Offshoring Isn’t the Culprit,” Business 2.0. Retrieved from http://www.business2.com/b2/web/columns/0,,96,00.html

BusinessWeek, March 22, 2004, “Where Are the Jobs,” pages 36-55.

www.bls.gov/emp

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