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Emerging Clusters Take Up the Technology Challenge

Rivaling the reigning tech hubs, city and state leaders are seizing opportunities to grow their cutting-edge electronic and digital sectors.

Q3 2015
When it comes to the expansion of jobs and economic impact from the continued American domination of the digital realm, as well as growth in specific new cutting-edge electronic technologies, the rich geographic clusters keep getting richer — and everyone else is trying to bust into their ranks.

The newest drivers of growth in the digital era include wearable devices, the “Internet of Things” (IoT) and driverless cars, and of course the ongoing digitization of nearly every aspect of the economy, which keeps feeding high-tech growth in general. It appears that traditional digital outposts such as Silicon Valley, Austin, and Boston remain the biggest contributors to both types of growth, as well as the main beneficiaries of the preeminence of digital technology in the global economy.
Aerial view of Mcity, a $10 million, 32-acre research and testing ground for refining automated driving at the University of Michigan’s Mobility Transformation Center
Aerial view of Mcity, a $10 million, 32-acre research and testing ground for refining automated driving at the University of Michigan’s Mobility Transformation Center
Yet, in the very dynamism and creativity inherent in digital technologies — which bring one wave of revolutionary change after another to the economy as well as to life in general — development leaders in many other cities and states see opportunities to grab significant shares of the evolving specialties, as well as to establish the overall digital bona fides of their local economies.

More of them are making their cases as emerging technology clusters by combining a strong higher-education base with significant established digital capabilities, legacy indigenous expertise and critical mass in relevant industries, and sometimes bets placed on the cutting edge of technological change where other communities simply aren’t willing to risk them. They’re using such formulas to vie for more attention and investments from companies, government agencies, and public-private partnerships that are fueling the development and expansion of the latest technologies and of the digital realm.

Thriving Strongholds
When it comes to new areas of growth, it’s not surprising that thriving digital redoubts can get most of the business and augment their existing domination of this vital part of the economy. Having huge established bases of scientists, engineers, software-code writers, free-thinking entrepreneurs, willing financiers, and the other elements that have made them as successful as they are, places like Silicon Valley quite understandably enjoy leverage in luring the drivers of adjacent digital technologies to their environs.

“We’re seeing mostly the same [places] in terms of where the investments are going,” says Tom Ciccolella, U.S. venture-capital leader for PricewaterhouseCoopers. “There is talk of pockets elsewhere, and there has been for a while, but in terms of where the spending is going, it’s the same old, same old. And between 50 and 60 percent of the spending in new technologies is in California itself.”

This is entirely understandable, notes Dr. Fariborz Ghadar, Chair of Global Management, Polices, and Planning at Penn State SMEAL College of Business. “Many of these industries sort of depend on each other; hardware and software need to be coordinated and people need to talk to each other,” he says. “Yes, you can pick up the phone from anywhere, but that just doesn’t cut it. You need to interact with people. There also is the financing element and even the social element. People around you have to be familiar with the industry; you talk with them and you move forward.”

But the difficulties of breaking into this club of digital havens haven’t dissuaded all comers. Many states and cities are making determined efforts to be the right places at the right times with the right equation of advantages and incentives for companies that are growing up in new technologies, confident that a win or two or three is all they need to establish credibility as an important cluster for that arena. And some locales simply believe their time has come to join the conversation as important overall digital meccas.
We’re seeing a big trend of young people migrating to or staying in the city, which connects the spokes of the city’s tech hub. In fact, Chicago’s tech employment lately has grown faster than that of Silicon Valley, Boston, or New York Luke Tanen, executive director of the Chicago Innovation Awards
Also, some of the wannabe cities haven’t hesitated to depend on the existing corporate giants of digital technology, such as Google, to help fund ventures in evolving new industries that the newcomers hope to capture for their geography, rather than seeing most of the economic development benefits simply flow back to Silicon Valley.

Here’s how several cities have shown promise for tilting digital-industry tendencies enough in their direction that they might be able to rival the reigning tech capitals in overall digital growth or in important rising specialties.

“Silicon Prairie”
Chicago is trying to establish a new moniker as the capital of “Silicon Prairie,” leveraging the success of some early home-grown Internet companies — including Groupon, Orbitz, and GrubHub — into a greater role as a worthy regional center of digital innovation across the board.

Huge legacy companies like McDonald’s are helping to seed the city’s digital evolution. More than $1 billion in venture capital was invested in Chicago in 2014, and there are tech incubators including one called 1871, and strong universities including Northwestern and the University of Illinois to fuel startups. Add in the fact that Chicago arguably holds the most appeal of any city in the Heartland for the creative class of millennials who must populate any rising tech hub for it to succeed.

“We’re seeing a big trend of young people migrating to or staying in the city,” says Luke Tanen, executive director of the Chicago Innovation Awards, which connects the spokes of the city’s tech hub. In fact, Chicago’s tech employment lately has grown faster than that of Silicon Valley, Boston, or New York.

The city’s industrial heritage gave it an edge in winning the $320 million Digital Manufacturing and Design Innovation Institute that has been established on Goose Island in the Chicago River, one of six public-private partnerships launched over the last couple of years under the Obama administration’s National Network for Manufacturing Innovation. About 80 staffers are expected to be on site this year with the goal of making America the undisputed world leader in digital manufacturing — and they could make Chicago the undisputed global capital of that discipline. But vestiges of the 20th century economy die hard in this town. When the idea of a city tax on cloud-based technology emerged this year as a way to help Chicago out of the deep fiscal hole created by its union-pension obligations and other burdens, Mayor Rahm Emanuel had to reassure the city’s digital-startup community that they would be spared. That’s not the kind of threat that would even materialize in Silicon Valley.

Joining the Tech-Cluster Big Leagues
“The communities that can best facilitate new-edge digital technologies are areas that offer unique opportunities that haven’t been seen in other areas,” says Susan Davenport, interim president and CEO of the Gainesville (FL) Chamber of Commerce.

Home to the University of Florida and at the nexus of a high-tech corridor that includes nearly 400 IT employers in biotechnology, computer products, software, digital media and other disciplines, Gainesville is making a bid for the tech-cluster big leagues in part by relying on the leadership of Davenport, who helped make Austin into a digital hub in her 13 years in economic development leadership there.

Already, the university ranks as the fourth-most-prolific commercialization engine of any higher education system in the country, behind only the University of California system, the University of Texas system, and MIT, Davenport says. A main reason for that is the diversity of verticals that birth startups in the area, ranging from agriculture to drones. The Gainesville area also is increasingly tapping into its huge pool of alumni and “mobilizing that engine and making them aware of the opportunities there are ‘back home’ now after they started their careers in other tech hubs,” she notes.

The Nascent “IoT”
Pittsburgh has had to reinvent itself a couple of times already — once after the disappearance of most of the steel industry in the 1980s, and again over the last couple of decades as its once-stellar lineup of Fortune 500 corporations headquartered there has dwindled to just a few.
In the city it could include everything from cameras that are tracking traffic to sensors on bridges to check for vibration and infrastructure, to devices monitoring public transportation to see if new bus lines need to be added or removed, to a sensor network that would be connected to the IoT and make air-quality information more accessible to people. Anind Dey, director of CMU’s Human-Computer Interaction Institute
But some city leaders see the chance to create a high-tech niche for the city around the nascent “Internet of things,” which describes the vast movement to connect any device with an on-off switch to the Internet and to one another. This includes anything from cell phones to coffee makers to washing machines to lamps, wearable devices, and components of machines such as an oil rig or a jet engine. The technology research firm Gartner says that by 2020 there will be 26 billion things connected in the IoT.

Given that IoT applications are as much in the business-to-business as the consumer arena, the industrial heritage and legacy talent base of Pittsburgh might be an ideal place to build a cluster around IoT technologies. Add in the immense digital expertise resident in one of the nation’s foremost technology schools, Carnegie-Mellon University (CMU), and the formula gets much more potent. So CMU is working with the city of Pittsburgh and area foundations and other local entities to build an open-sourced system that (1) connects virtually every eligible device on campus to an IoT network, and (2) begins deploying it in the wider urban area within about a year.

“In the city it could include everything from cameras that are tracking traffic to sensors on bridges to check for vibration and infrastructure, to devices monitoring public transportation to see if new bus lines need to be added or removed, to a sensor network that would be connected to the IoT and make air-quality information more accessible to people,” explains Anind Dey, director of CMU’s Human-Computer Interaction Institute.

Even more important for hopes for an IoT cluster in Pittsburgh would be CMU’s plan to come up with a turnkey IoT software infrastructure that it could sell to other communities, universities, companies, and other entities.

Interestingly Google, based in Silicon Valley, put up the initial funding for the IoT project that was won by CMU in a competition. But Dey notes, “The amount of money [Google] funded will be nowhere near enough to build and deploy the network here.” That’s why CMU is focusing on local sources of funding as well.

Taking a Run at the Old Guard
Detroit is in a tizzy over the threat posed to its traditional role in the auto industry thanks to advances in “autonomous” driving being made by Google; and traditional car folks also are nervous about the fact that Apple has begun hiring former auto-industry executives to gear up its own effort that could lead to building a car someday.

But local economic interests haven’t exactly sat around and done nothing to counter these developments. Besides the self-driving programs that each of the Detroit Three carmakers has launched, and the fact that a number of non-American auto brands have their major U.S. engineering and research centers in southeastern Michigan, the formidable University of Michigan at Ann Arbor has created a $10 million, 32-acre testing ground at its campus called Mcity — and billed it as the most advanced joint research and test facility to date for refining automated driving.

Mcity offers unusual features such as an underpass tunnel that blocks vehicles from wireless and satellite signals, a metal bridge that poses challenges to sensors and, of course, a cold-weather setting like that which could present challenges to autonomous driving.

“There is nothing else like it in the world,” Peter Sweatman, director of the university’s Mobility Transformation Center, told The Wall Street Journal. And that, of course, is exactly the point. If the technology clusters really want to take a run at the dominance of the old guard in digital-tech development, they’ve got to be places like none other.
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