Emerging Industries, Emerging Locations
New technologies are pushing the development of new industry clusters. Here are some consultants' ideas about which locations might be on the fast track for growth.
Jennifer LeClaire  (Dec/Jan 08)

There is no lack of indexes, top 10 lists, or opinions about the best places for companies to do business. Some rankings are broken down according to attributes like work force, natural resources, cost of doing business, or industry. Others break down into categories like small cities, biggest movers, or best performing. There are enough rankings to make one's head spin.

With so many different categories declaring various cities, counties, and states "number one," the safest bet may be to base site selection decisions on criteria that have been observed for ages. But in an age where new industries are rapidly forming, the criteria may turn up in new places. Industries like life sciences, photonics, and digital media demand locations that support their specialized needs and provide proximity to end users of the products and services offered. Some of these industrial clusters are being formed off the beaten path.

"The desired criteria for site selection will probably never change. Work force is always going to be a key, for example," says Ed McCallum, senior principal of McCallum Sweeney Consulting, Inc., a site selection consultancy in Greenville, South Carolina. "But the places you find those desired criteria can and do change. The quality of infrastructure changes. The skill sets needed evolve, especially in a high-tech economy."

To McCallum's point, there are a handful of relatively new clusters emerging across the United States. Some are seldom mentioned. Others are widely mentioned but not well understood. All of them signal a new wave of innovation and potentially redefine some economic development landscapes of the future.

Alternative Fuels
Alternative fuel - or biofuel - clusters are beginning to emerge in strategic parts of the nation. Biofuels are made from plant materials, such as corn. President Bush has called for reducing U.S. gasoline use by up to 20 percent by 2017, mainly by increasing alternative fuel production, including ethanol. Ethanol production this year is estimated at 6.8 billion gallons and is expected to soar to 9 billion gallons next year, according to the Sioux Falls, S.D.-based American Coalition for Ethanol. The United States has 131 ethanol refineries, 10 of which are expanding, and 72 more are being built, according to the Renewable Fuels Association.

"We are seeing pockets of biofuel production across the country as people begin to think green," says Jonathan Sangster, senior managing director in the Atlanta offices of real estate services firm CB Richard Ellis. "The Upper Midwest and the Plain States are ideal for biofuel producers just because of the natural resources."

Center Ethanol Co. is building a $100 million ethanol manufacturing plant near Sauget, Illinois. Two biodiesel fuel operations are scheduled to go online in Granite City, Illinois, and two others already have been approved. Meanwhile, Tyson plans to build a $150 million alternative fuel plant in Louisiana. Many others are planned, though construction of new plants is beginning to slow as the supply catches up with the demand.

Photovoltaics
With the move toward green energy, photovoltaics is a wave of the future. Photovoltaics systems turn sunlight into electricity, but do so with the use of a specialized semiconductor diode. That's a different approach than traditional solar power, and it's one that's expected to take off over the next five to 10 years. Two billion households worldwide could realistically be powered by solar energy by 2025, according to a joint report from European Photovoltaic Industry Association (EPIA) and Greenpeace. And Piper Jaffray reports that the solar industry is expected to triple in the next three years, from about $13 billion to $40 billion in revenue.

"The cities that get the photovoltaic plants are destined to become clusters because the plants will attract suppliers, designers, research labs, installers and maintainers," says Don Schjeldahl, vice president and director of Austin Consulting, a site selection consultancy in Cleveland, Ohio. "The photovoltaic industry will take its route from the semiconductor industry because that's a core component of the solar modules."

Schjeldahl compares the opportunity to the automotive industry, with as many as 15 potential photovoltaic clusters in the United States. Today he points to four early contenders: Silicon Valley, California; Portland, Oregon; Albuquerque, New Mexico; and Boston, Massachusetts. The other 11 clusters, he predicts, will form around the market opportunities - i.e., states that have aggressive policies toward adopting photovoltaic systems. California will play an integral role, of course, but New Jersey, New York, and Washington are also in the running.

Digital Media

Digital media is a fast growth industry that taps both creative and technology skills. With Internet video hitting the mainstream, the industry promises to play a key role in the future of the entertainment economy. The annual growth rate of the digital media industry, which includes digital TV, mobile video, computer animation, Internet TV, and other digital formats, is 33 percent, according to Research and Markets. There are about a dozen recognized digital media clusters in the United States, but southern California and Orlando, Florida, are leading the pack.

For its part, Orlando is home to more than 1,200 digital media companies with 30,000 workers. The region's annual digital media revenue production totals a whopping $9 billion. The University of Central Florida offers a School of Film & Digital Media and a Florida Interactive Entertainment Academy. The Orlando metropolitan area is also home to Full Sail Real World Education, a specialty school offering degrees in digital media, computer animation, and film/video production. In all, more than 7,500 higher education students annually enroll in digital media programs throughout metro Orlando.

"Orlando has universities that are pioneering technologies, along with thought leaders and research leaders, and a bevy of successful digital media companies," says John Krug, vice president of Development Advisors, an economic development consultancy in Charlotte, North Carolina.

San Antonio has a similar, though less developed, digital media story to tell. The San Antonio Technology Accelerator Initiative announced the creation of a new digital media arts technology cluster in 2004. The cluster includes television and film production, computer graphics, animation, holograms, audio production, web design, and the gaming industry. More than 4,000 people work in the cluster.

Data Centers
With so much digital media and various other types of data, data centers are becoming a more important part of the world economy. Data centers house computer, data storage, and networking equipment. With the dwindling supply of data centers in Silicon Valley, clusters are gaining steam in other parts of the nation. AFCOM's Data Center Institute predicts that by 2010, more than half of all data centers will have to relocate to new facilities or outsource some applications.

"There's an opportunity for smaller communities to develop clusters because the criteria [don't] demand data centers be in a large city," says Danny Klinger, a project manager at AngelouEconomics, an economic development consultancy in Austin, Texas. He points to Quincy, Washington, as a prime example. There are a handful of data centers that have been built or are planned in a town with a population of only 5,000. Companies like Ask.com, Yahoo, Intuit, and Microsoft are opening up shop there. Cheap hydroelectric power - priced at about 1.8 cents per kilowatt - is part of the attraction.

"Large data centers are massive consumers of electricity and it costs them million of dollars to pay their utility bills," Klinger says. "Many times, rural communities have access to very cheap power. The other factor is land cost. A lot of data centers are sited on very large parcels of land and obviously land is cheaper in smaller towns and locations."


Photonics
Photonics is one of the fastest-growing high-tech industries in the world. Photonics technology is used to develop lasers, fiber optics, satellites, holographs, flat screen displays, DVDs, scanners, and many other medical and consumer devices. The global market for photonics was estimated at $243 billion in 2006, according to Photonics Research Ontario, and is growing at an annual rate of 10 to 20 percent.

"Sometimes photonics clusters are a secret, but they are well-recognized by policy leaders," says Krug, noting that two of those - Orlando and San Antonio - are especially outstanding. Arizona, California, and Massachusetts are also making major inroads into this multibillion-dollar industry.

The optics industry in Tucson started in 1942, based around the area's large number of telescopes. Today, the Arizona Optics Industry Association members number more than 300 companies and organizations covering a broad range of products and services in Tucson, Phoenix, and other cities statewide.

"There are large clusters of photonics companies in Arizona and Central Florida because there are incredibly strong research centers that support the industry," says Krug. "The University of Central Florida has a College of Optics that does leading-edge, pioneering research in photonics and optical design and laser systems. It was birthed out of the Martin Marietta and Lockheed Martin influence there."


Life Sciences
It seems just about every city, county, state, and nation is vying for life sciences cluster status. But site selection consultants are asking a thoughtful question: What exactly is life sciences? Indeed, there are so many niches under this umbrella - and so many clusters developing around those niches - that selecting a location for a "life sciences" firm isn't an automatic trip to Boston or San Diego anymore. There are clusters forming around advanced composite materials, medical devices, analytical instruments, and more.

"If you tear the industry apart, you will see everything from the new delivery of therapeutics to various types of cutting-edge nanotechnology systems," says John Rhodes, a senior principal at Moran, Stahl & Boyer, a site selection consultancy in Lakewood Ranch, Florida. "You'll also see some fairly traditional pharmaceutical products, medical instrumentation, and bioinformatics."

Rhodes points to Denver, Colorado, and Phoenix as two cities that were latecomers to the biotech industry but that have played catch up in the game. Both cities have built facilities and have attracted senior talent. Klinger also points to Minneapolis, Minnesota; Kansas City and St. Louis, Missouri; Memphis, Tennessee, and Austin, Texas, as up-and-coming biotech cluster cities. All this points to the reality that new clusters are still being developed and will continue to be developed as new industries are formed and as technology changes.

Consider Austin. Twenty-five years ago, Austin was a sleepy college town with a state government and the University of Texas as two of its largest employers. Over time, it became a hotbed for the semiconductor industry and now attracts not only chipmakers but also suppliers and suppliers to those suppliers.

Differing Philosophies
At the end of the day, one site selection strategy hardly fits all. There are different approaches to working with clients. Some give little heed to rankings. Others fold studies from organizations like the Milken Institute into the decision-making process.

It's true that a top location for one client may be quickly eliminated for another client. Buzz Canup, principal of Canup & Associates, a site selection consulting firm in Austin, says his site location studies seek an unbiased approach to the client's project criteria. He uses from 100 to 200 evaluative factors that dig deeper than the usual suspects of highly-edged work force, quality of life, cost of doing business, and the like. In Canup's experience, a winner today could be a looser tomorrow.

"We don't start out identifying clusters where our client might fit," says Canup. "If the client has an inclination toward a particular geographical location, then we define the search that way. But for companies that are transportation sensitive, there's usually some logistical analysis involved to determine what regions make the most sense."

Sangster takes a different approach. When he sits across the boardroom table from an economic developer, his key questions are: "What are your target clusters? What industries fit well here?" In many cases, says Sangster, there is some overlap and the natural fit tends to flow along the lines of a region's agricultural or natural resources. Some clusters, like logistics, are location-driven. Others are university-driven. "If you look at certain regions of the country, they are clearly ripe for specialized activities," he says. "High-end projects will always migrate to places where they can tap into area colleges and universities producing graduates with the types of skill sets they need."

Rhodes also considers the lifecycle of an industry. His theory: Explore the lifecycle curve and you can identify clear location patterns. "Industries that are in the power curve for research migrate to research and development locations, such Boston, San Diego and Raleigh, North Carolina," says Rhodes. "Mature industries like aerospace, on the other hand, are more dispersed and have a cost-related pattern for location, while industries such as automotive are positioned for logistics."

As Klinger sums up the situation, "There are always opportunities for places that haven't had robust economies to experience rapid growth, especially when you have a growth industry."

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