• Free for qualified executives and consultants to industry

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


The Role of the Economic Development Organization in the United States

Insourcing by foreign companies, i.e., supporting American jobs, represents an integral part of the U.S. economy. Every year, foreign companies and their U.S. subsidiaries announce plans for hundreds of new projects in the United States, known as greenfield projects.

Location USA 2008
A few decades ago, the central, defining role of a U.S. economic development authority - either a state, regional or local agency - was fairly basic. The organization was essentially a marketing group whose role was to articulate the strengths of its community, region, or state to companies located in other states. The agency's role has evolved dramatically in the ensuing years, and today's economic development organizations are far more sophisticated and complex operations - ones that work with businesses around the globe as opposed to just domestic companies, and organizations must have a deep understanding of global economics and the ability to address numerous issues.

Over the past few decades, the United States has lost manufacturing jobs to other parts of the world, particularly those countries with less expensive work forces and a lower cost of doing business. It's no longer necessary for foreign businesses to locate manufacturing facilities in the United States in order to sell their products to Americans. The Internet and advances in global shipping and logistics enable companies to locate almost anywhere in the world and still be able to serve and access its customers. As a result, India, Vietnam, and Mexico are among the nations that have seen foreign investment swell. In fact, China has emerged as the largest recipient of foreign direct investment in the world.

In order to compete for foreign investment in a "flatter" world - one which is more competitive than ever - state economic development agencies have been forced to focus on three major areas: improving the skills of the work force, reducing the costs of doing business, and providing resources to ensure that companies can thrive in the global economy.

A misperception of economic development agencies is that they merely provide incentives to win new businesses. Because of the increased complexity of dealing with businesses today, incentives are far from being the lone arrow in an economic development organization's quiver. An incentive package will never make a bad deal a good one; rather, proper incentives can make a good package better. Incentives can't "make" a project - they are project enhancers.

The economic development organization of today deals with companies on a whole range of complex issues, including site selection, infrastructure, finance, and immigration. Work force development is a critical issue in economic development, and agency involvement in the process has increased greatly.

Often the first topic that enters into conversation between a company and an economic developer is work force. There once was a chasm between work force development agencies and economic developers. Today the lines between the two are blurred. Community colleges, multi-year-universities, and state training programs are all of critical importance to companies looking to expand. Advanced manufacturing techniques, certification to use specific equipment, math skills, reading abilities - these all are factors that can be crucial to a company making a decision where to locate a facility.

Because of this, today's economic development and work force development agencies work in step, in concert, establishing programs to ensure that the needs of employers and employees are met and that the work force is continually trained. It's even more than that, though. Some companies want to find out about employment opportunities for spouses and children. So the complexity of the work force issue has skyrocketed.

Along those lines, logistics has become a far more complicated area - one in which economic development agencies work closely with foreign investors. No longer is logistics simply drawing a map with concentric circles in order to showcase a site's proximity to major markets. Now, logistics is a much deeper understanding of ports, intermodal, and highways. Economic development agencies must have employees with strong backgrounds in logistics in order to work with foreign businesses and help provide answers and solutions to their needs.

Data gathering and manipulation have also changed, providing prospective foreign employees with a much greater understanding of locations to which they are considering moving. In the initial stages of a site location search, data is crucial to companies considering a particular site for their expansion projects. If the information is not available, then the company might not consider that site. To meet this requirement, economic development departments maintain and publish statistical data and market facts - including current demographic, economic, business, and quality of life information - that can be helpful in the search process. Agencies also maintain an accurate, up-to-date list of commercial and industrial land and buildings available in their coverage area.

Incentives, too, have become a much more complex area. The first state tax incentive was offered in 1791, when New Jersey offered a tax abatement to Alexander Hamilton. Fast forward almost 200 years and Saturn was the recipient of tax-incentive-laden bids from 38 states. In 2006, Kia was given an incentive package worth a reported $400 million to locate an automotive manufacturing facility in the state of Georgia.

There are tax incentives to consider, including property tax abatements, payroll withholding tax credits, sales and use tax exemptions, and enterprise-zone incentives. Then there are non-tax incentives, such as cash grants, training grants, land acquisition, energy costs reductions, and permitting assistance. With increased complexity to the financial structure, some states have gone as far to add a chief financial officer role - an experienced individual able to converse with global commercial and import and export banks as well as Wall Street professionals in the debt and equity markets.

There are also intangible hurdles that need to be addressed, further requiring economic development agencies to have problem-solving skills and the ability to work with state agencies. For example, in Mississippi, we worked with the state to print a driver's license test in Japanese to accommodate workers at Nissan's manufacturing site outside of Jackson.

As much as times change, they stay the same. The U.S. economy and economic development agencies have evolved due to globalization, innovation, and advances in information technology. Still, there are some basic facets of doing business that haven't changed much - such as communication, sincerity, and the power of relationships.

Numerous businesses say they choose to relocate to a particular community because it "feels right" - the work force is committed, the neighborhood is conducive to raising families, etc. The best way for economic development agencies to promote their communities' advantages in this regard is through good old-fashioned relationships. Business today remains very much about relationships, and honesty and sincerity go a long way in helping communities grow.

Exclusive Research