Are Southern States Better Positioned for Technology Projects?

Recession, economic slow-down, a stagnant economy - these are all terms that seem to permeate most of what we read, hear, or see in various media these days. While it is true that many indicators point toward economic distress in this country, it is also obvious that strategic business decision-makers continue to plan for life beyond 2008. In fact, through these challenging economic conditions, these decision-makers have been establishing and continue to locate and open critical business operations, creating significant jobs and investing billions of dollars in the U.S. economy.

Many of those operations fall within what we define as technology or knowledge-based industries, including but not limited to information technology, biotech and life sciences, marine sciences, electronics, advanced manufacturing, energy, and material sciences. Activity statistics published by every state and regional economic development organization indicate that there continues to be positive economic activity, particularly in these technology sectors. However, those same statistics indicate that there may be some regions that are better positioned for success, both now and in the future. This article will focus specifically on the Southern region of the United States and examine a number of the factors that make it a competitive and attractive region for economic growth and expansion by technology firms.

One Size Does Not Fit All
First, it is important to note that a strategic business location decision is often complex and involves a number of critical "success" factors, including availability of an educated work force, competitive operating costs, availability of financial support, and a business-friendly environment. Different businesses have different needs, and there is not a "one size fits all" solution for technology-driven industries, especially defined as broadly as we have herein. Every project is unique, and every state has strengths and challenges that may or may not align with company business needs or "success" factors. Understanding those strengths is a key step in determining if the project might be a fit in a particular state, region, or city.

Secondly, evaluation criteria can vary significantly depending upon where the project or opportunity is in the product life cycle. The environment and factors for a "startup" or early-life-cycle project will likely be much different than for a project where commercialization or production on a large scale is required. Assessing the critical factors for the operation to be successful is another important component of the location decision process.

So why does economic activity for technology companies remain strong in the southern region of the United States?
A few years ago, Hollywood produced a movie starring George Clooney titled "The Perfect Storm." The movie recounted the tragic incidence of the alignment of multiple conditions creating a unique scenario described as "the perfect storm." Had one or more of those conditions been different or nonexistent, the perfect storm scenario would likely have failed to develop. In essence, this is what is occurring in the Southern states regarding economic development - only in a positive way.

Let's examine the primary conditions that have aligned to create this favorable environment for economic growth in the technology sectors:

Work Force Availability
Technology-sector industries are on the rise and will continue to be a major driver of the U.S. economy, creating a significant need for a more educated, knowledge-based work force. As demand increases, the work force pool and pipeline must be available to meet this need.

A review of the demographics in the Southern states suggests positive trends to support this growing demand. In the past decade, population migration patterns across the United States indicate significant shifts from the eastern Great Lakes, Northeast, and Great Plains regions to the Southeast and Southwest regions of the country, particularly in first-tier and second-tier cities. Projected population growth trends for these regions are consistent with these patterns, according to the U.S. Census Bureau. With annual U.S. population growth hovering at or slightly below 1 percent, a number of the first- and second-tier cities in the Southern states will be major winners at an annual population growth of 2 percent or greater. These cities include Atlanta, Austin, Charlotte, Nashville, Raleigh/Durham, and Orlando. Immigration patterns are similar, as Southern States are the beneficiaries of higher percentages of immigration growth (versus other regions of the country).

Additionally, the presence of large, leading-edge research universities across the Southern states continues to create environments for innovative and entrepreneurial activity, as well as pipelines for a knowledge work force including engineers, scientists, and technology professionals. Many Southern community college systems are highly regarded and nationally recognized. These systems are closely linked to economic development as resources for work force training and re-training as skill requirements change.

Favorable Cost Environment
According to numerous surveys of business location decision-makers, the ability for business operations to be cost-competitive ranks very high, along with the availability of a qualified work force. A review of nationally recognized cost-of-living (COL) and cost-of-doing-business (COB) indices in the major cities throughout the Southern states clearly indicates a more favorable cost environment than in many other regions of the country. The vast majority of Southern cities' indices range from the high 80s (88) to the mid-90s (92-97), well below the national average of 100.

Labor costs across much of the South remain among the lowest in the country across a broad range of job categories and industry sectors, linked to the lower cost of living in much of the region. While the Southern states' industrial electricity costs are not the lowest in the country, most are competitive due in large part to the fact that deregulation of the industry failed to materialize during the past decade. Relative to Midwest and Northeast states, the Southern States' rates remain competitive. Additionally, the South's real estate costs (rental rates, construction costs, and land) continue to be among the lowest in the country primarily due to abundant supply.

Infrastructure
Whether it will serve a large data center operation, a research and development project, or an advanced manufacturing facility, a fully developed and reliable infrastructure must be in place for the operation to be successful.

Much of the South is served by a fully developed electrical grid, with capacity margins among the highest in the country. Reliability rates are strong, and utilities demonstrate a willingness to create solutions for redundant service options for high-demand projects. Many of the Southern states have exhibited success in attracting large data center projects in recent years due to these factors.

Similarly, the telecommunications network throughout the Southern states is extensive and offers significant provider options through much of the region, according to a review of information obtained from Telegeography, a division of PriMetrica. Major markets with research university capabilities are especially well developed, as are the major corridors between the Northeast and the Southeast (Virginia, North Carolina, South Carolina, Georgia, and Florida).

The Southern states also benefit from an interstate highway system that has been well maintained and does not experience much of the negative impact of adverse weather conditions. Highway accessibility to major ports along the Eastern Seaboard (Jacksonville, Savannah, Charleston, Wilmington, and Norfolk) and the Gulf Coast offers multiple options for technology industries to move products and supplies, avoiding the congestion of West Coast and Northeast ports.

Financial Assistance
Financial needs vary based upon the development stage of the technology operation. Startups and early-stage through late-stage development operations are seeking venture capital or angel fund dollars, while more mature operations may look to state and local jurisdictions to provide economic incentive packages to offset startup and long-term operating costs.

Venture capital activity in the Southern states continues to increase, but significantly trails the traditional leaders including California and several Northeast states. Activity has been strongest in Florida, Georgia, and North Carolina and is advancing due to significant research and development activity in biotech, life sciences, nanotechnology, and advanced material sciences.

A strength of the region is the availability of traditional and nontraditional economic incentive programs to support the technology activity. Many of the Southern states have developed customized incentives programs that target biotech, research and development, and technology operations; in general, the Southern states have the reputation of being much more aggressive when it comes to incentives offerings than many other regions of the country. The concept of deal-closing funds continues to gain traction in these states, and legislatures funding of these programs has grown.

In Sum
The decision to locate a technology project, like any project, should not be taken lightly. The ultimate objective is to find the optimal location that best aligns with those variables, which typically include work force availability, a favorable cost environment, necessary infrastructure, and financial support for the business case. Many regions of the country excel in one or more of these areas, but few can be evaluated well in all of them. As a result, the Southern states have been successful in attracting a broad range of technology industries and companies and are well positioned for continued success going forward.