• Free for qualified executives and consultants to industry

  • Receive quarterly issues of Area Development Magazine and special market report and directory issues


High-Tech Development: What's Next?

The science may be changing, but high-tech companies' need for skilled people and low costs remains the same.

Oct/Nov 06
"High tech" covers a wide range of fields, including biotech, health care, medical devices, energy, information and communications technology, electronics, advanced materials, and nanotechnology - to mention a few.

The site selection criteria for a high-tech company are very specific, whether it's a startup looking for its first office or a global giant opening another plant. And the increasing globalization of R&D and manufacturing creates more location options than ever before.

"Obviously, site selection factors will vary somewhat according to the type of industry," says Daniel Kah, director of research for Angelou Economics in Austin, Texas, a site selection firm that works with high-tech companies. "But overall, the top two concerns are work force and research assets." High-tech companies rely on highly educated, talented, and technically skilled workers. In the manufacturing arena, workers need to be smart, motivated, quality-oriented, and trainable. And of course, they must also be available. The largest expenditure for most high-tech firms is payroll. Locating in cities that have an abundance of talent means companies won't have to recruit as much or relocate expensive employees.

"The number-one consideration for high-tech industries is access to qualified labor," says Matthew Kazmierczak, vice president of research and industry analysis for the American Electronics Association. "In fact, that's the only reason Silicon Valley still exists. California universities produce some of the best talent in the world, so it is worth it for these companies to endure the obscenely high cost of living in the area, simply to have access to talent."

In a growing trend, firms are opening satellite offices in smaller cities where they know they can hire quality workers. "Game designers that are headquartered in Seattle run into this issue all the time," says Kah. "There are just not enough high-quality workers in their home cities. It's relatively easy to expand by opening an office in Austin or even China - wherever they can find a cluster of available high-tech talent. And this is relatively easy to do with the global economy and Internet connectivity."

Research Assets
Most high-tech companies want to locate in cities that have highly ranked universities, institutes, or research centers with expertise in their industries. Universities can assist companies through research partnerships, sharing laboratory space and equipment, providing below-market-cost incubator space, and facilitating tech transfer and commercialization.

Considerable high-tech growth has occurred around universities and research centers in San Jose and San Diego, California; Boston; Philadelphia; and Washington, D.C. "Some of the largest pharmaceutical companies in Europe have relocated in U.S. cities to gain access to American research," says Kah. A recent example is Novartis, which recently moved its worldwide research headquarters to Cambridge, Massachusetts, to take advantage of the synergies of being part of one of the most vibrant biotech clusters in the world.

"High-tech firms prefer cities that have a critical mass," says Dennis Donovan, principal with Wadley-Donovan Group, a site location firm. "This mass must have a compatible talent pool, universities or institutes with related R&D, and comparable companies and suppliers."

Other universities are making names for themselves in homeland security. "Several universities, including Texas A&M University and University of Minnesota, have positioned themselves as Homeland Security Centers of Excellence," says Kah. "As their research become more established, more companies with a connection to homeland defense will cluster around them."

Other Considerations
Available infrastructure is always high on most high-tech lists. This includes big airports that can handle international flights, great highway and rail access, and modern telecommunication systems. Another top priority is steady, predictable, low-cost energy. Nobody wants brownouts or power spikes, especially large data centers or sensitive manufacturing operations like semiconductor plants. "Rolling blackouts like those in California can ruin millions of dollars worth of product," says John Greenagel, director of communications for the Semiconductor Industry Association.

"More and more technology-driven projects have very significant power requirements," says Ray Walker, president of The Walker Companies, a site selection firm. "Power reliability and cost are huge issues. Costs can range from 3-4 cents per kilowatt to 15 cents per kilowatt - it really depends on political jurisdictions and fuel source." Because hydroelectric power costs less, states like Oregon are attracting more high-tech companies.

Then there's the competitive business climate factor, especially legal and environmental regulations. "From a global perspective, regulations can make a huge difference where a company decides to locate," says Tim Monger, senior vice president with site location firm Colliers International. "Pharmaceutical companies who find the FDA too restrictive when it comes to testing and manufacturing will often locate these operations in countries that have less restrictive regulations."

A favorable business climate also includes access to venture capital, which is a top reason why smaller tech firms often locate near venture capital centers on the East and West coasts. Venture capital firms prefer to invest in companies that are nearby so they can track the progress of their investments more easily and frequently.

Finally, quality of life cannot be overlooked. In order to attract and retain the best workers, the location must have a high quality of life - good schools, low crime, low housing costs, and an abundance of recreation and activities. Boise, Idaho, is a good example of an emerging high-tech center. "Not only does it have a critical mass in electronics with Hewlett-Packard and Microsoft," says Donovan, "but homes are affordable, the city isn't congested, and there are tremendous outdoor recreation opportunities for Generation Xers."

High-Tech Hotspots
Established high-tech centers like Boston, Research Triangle Park in North Carolina, Washington, D.C./northern Virginia, Atlanta, Austin, San Diego, San Francisco, Seattle, and Chicago continue to attract high-tech firms because of their established clusters, research facilities, and top universities. High-tech activity in the nation's capital is driven largely by the Department of Defense, which is developing new biological detection agents and biometrics to protect against chemical and terrorist attacks. "Vigorous spending on military R&D is a result of the Iraq War and the war on terror," says Kazmierczak. "Certain fields, such as sensory equipment that detects materials and substances, are booming."

"New long-term defense programs will be developed over the next 10 to 25 years," says Kah. "This work is very software intensive. The Army's Future Combatant System will cost more than $100 billion to develop, including largest computer software project ever undertaken."

Emerging cities for high-tech include Jacksonville and Tampa, Florida; Nashville, Tennessee; Louisville, Kentucky; Sacramento, Calif.; and Albany, New York. "The state of New York is making an aggressive effort to court the semiconductor industry-and it's working," says Greenagel.

The College of Nanoscale Science and Engineering (CNSE) at the State University of N.Y. at Albany is the first college in the world devoted exclusively to the research, development, and deployment of innovative nanotech concepts. The Albany NanoTech complex is a $3 billion, 450,000-square-foot facility that has attracted more than 150 global corporate partners, including IBM, Infineon, and GE. Another global first - CNSE just took delivery of the world's first extreme, next-generation, $65 million ultraviolet R&D lithography tool, which will revolutionize nanoelectronics manufacturing in the future. Albany NanoTech also houses the only pilot prototyping facilities in the academic world for designing 200mm and 300mm computer chips.

CNSE has attracted a host of R&D operations over the past five years: SEMATECH (first outside of Austin); Tokyo Electron (first outside of Japan); ASML (first outside of Europe); and Applied Materials (first outside of San Jose).

Follow Area Development