Can a single focused strategy help realize all these objectives? Yes… if various separate public and private programs designed to achieve one or more of these objectives are supported by a common economic infrastructure.
Witness: Why are smaller businesses, acclaimed to be the largest generator of employment and wealth, on the lower priority scale to receive incentives in recruitment and retention? Why are there not more foreign SMEs producing products here in the U.S.A. for the U.S.A. market — like the larger foreign automobile industry and some chip manufacturers? Why is technology not progressing enough or deployed more intensively enough in more industries to make U.S. skilled labor even more productive…to narrow the gap of cost disadvantage versus foreign labor?
We cannot remove all the basic disadvantages, primarily labor cost, but we can reduce the impact by conscious policy and strategy directed at narrowing the gap.
Traditionally and historically, economic development policy of government and chambers of commerce have devoted most of their resources and efforts at recruiting large employers in niche industries or technology. It is time to find a way to efficiently attract large number of SMEs to create a critical mass that will result in similar economic impact as a major industry. It is time to look for an economic method of providing similar incentives to SMEs as are given to major employers.
The answer is to pool incentives otherwise accorded major employers and make them available to SMEs, whether foreign or domestic, so that they individually do not have to engage in the very expensive way of mobilizing political, public, and private support to obtain and negotiate incentives. They will be done all at once in advance. Such incentives are negotiated and embedded in a designated economic development zone or zones, and automatically conveyed to manufacturers or producers who locate therein, subject to each business being qualified under pre-set criteria. This concept is an enhancement of the model utilized by China in its hugely successful economic development especially in the hi-tech sector.1 Tax incentives for both foreign and domestic industries located in some economic development or technology parks/zones in China include reduction down to more than 50% of the prevailing rates, and to zero at inception gradually increasing over eight profitable years to a cap of 15%, plus many other incentives.2
Who are the targets to locate in the Economic Development Zones? Vendors to major manufacturers such as Samsung Austin Semiconductors, Dell, Toyota, to mention a few in Central Texas. They are typical outsourced manufacturers from abroad, but could include U.S. suppliers. New technology companies in early stages of their development, perhaps just graduated from incubators or recently commercialized from universities, and no less from China and other countries as well. China after all is producing more than 600,000 graduates in engineering per year — perhaps six to ten times more than the U.S.
This strategy will obviously bring new employment to the U.S. It will logically help reduce trade deficits because previously outsourced manufacturers will be inside the U.S. Moreover, new technology will be nurtured because it will be encouraged with similar incentives not otherwise available to them without tedious and long drawn out approval processes.
Who are to translate this concept and strategy into an action plan? The nucleus is ECODEV Zones Management LLC. For further information, contact: David K.G. Chan dchan@us-asianchamber.org or call 512-451-3738.
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Background:
This is an initiative to implement the economic development concept outlined by USACC. It is to create Economic Development Zones which will have a pre-packaged basket of governmental incentives that will be made available to (1) currently out-sourced manufacturers abroad in order to induce them to locate plants and/or facilities in the U.S. within the zones, and (2) young U.S. and foreign innovative technology companies which can benefit from the same pre-packaged incentives, as well as pooled support services. This initiative is designed to improve the economics of location otherwise marginal in the case of foreign manufacturers, thus helping to shift employment from overseas to the U.S., and to avoid protectionist impediments. And in the case of budding technology companies, the Zones' incentives would provide the same inducement plus other incubator type lower cost pooled support services within the Zones, such as cloud computing network, WIMAX communications system, redundant facilities, and data center.
Target Tenants:
The target businesses are those small and medium enterprises (SME) abroad and in the U.S. not big enough to devote resources to probe and negotiate special location benefits on their own, and those whose economics for locating production facility in the U.S. is marginal. The object is to create a multi site "Economic Development Zone" (EDZ) to attract production facilities with pre-packaged basket of incentives designed to overcome comparative cost disadvantage, as well as to short-cut the costly process of political, economic and bureaucratic hurdles to entry. The presumption is that superior productivity of workers in the U.S., if coupled with the benefits of this initiative, will reduce over all costs and measure up to the "China Price" point. As for young or new domestic technology companies, same advantages will help improve the cost-reward ratio on the use of resources.
Game Plan:
As an initiative that portends benefits of economic development in the community, the game plan will include the following phases: (1) coalescing support in the government sector as well as private non-profit and for-profit sectors; (2) using a corporate entity (ECODEV Zones Management, LLC) to mobilize resources and implement the project; and (3) marketing the EDZ and recruiting tenants.
Coalescing Support:
The EDZ idea has been and will be circulated to potential supporters and stakeholders. These include members of the Texas delegation to Congress, Texas House of Representatives (Economic Development Committee), Texas Chambers of Commerce, county and municipal authorities, owners of existing under-utilized properties, corporations who have vendors potentially interested in improving their supply chain function and the just in the nick of time manufacturing, investors potentially interested in providing finance, and public interest groups.
Mobilizing Resources:
Private-Public pool of financial resources is being pursued. At the suggestion of Rep. Mark Strama, Chairman of the Economic Development Committee of the Texas House, we met with its General Counsel who apprised us of the new legislation being considered that we could benefit from. This is the establishment of a $1 billion Sunny Day Fund. To tap into it, we would need to identify other sources of finance that will match 2 to 1 the amount we would seek from the Texas fund. These could include the Federal Stimulus funds, as well as public and private sources. We have touched base with Senator Cornyn’s office and both Congressman Doggett and McCaul who are disposed to identify opportunities to support the plan. Likewise, we would be liaising with the Governor’s office on currently available incentive pool as well as possible new initiatives to expand economic development.
Sites Selection:
There are many unused or underutilized commercial/industrial properties in Texas that are potential sites. Availability of sites is not a major issue, since under the current economic environment, there are many "toxic" assets in addition to it being generally a buyer’s market for some time to come. Nevertheless, possible advantage of a strategic alliance in the initial stages may warrant consideration.
Soliciting Incentives:
With initial support from potential partners, including property owners and investors, efforts will be devoted to applying for the incentives from relevant municipal and State agencies.
Marketing:
We will be broaching the location opportunity in the EDZ to several China manufacturers who are clients of the author of this report. We are also contacting major corporations in the U.S. to help recruit manufacturers who are their vendors, including Samsung Austin Semiconductor and Dell. Detailed proposals will be formulated as progress is made on, and coordinated with, the other phases of this initiative.
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