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Viewpoint: Meeting disruption with adaptation

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A few years ago, the word “disruption” kept to its dictionary meaning of a disturbance or problem that interrupts an event, activity or process.

Today, the term disruption still reflects the notion of a change in status quo, but it is increasingly met with open arms by consumers who recognize innovative goods and services that make our lives a bit easier.

Think, for example: Uber, which consumers have embraced as a convenient alternative to taxis. Netflix, the video streaming service that now has 86 million subscribers.

Even an Upstate dry cleaning service has harnessed the power of disruption by opening a 24-hour locker for customers to drop off and pick up orders at their convenience.

When we as consumers change our habits, it should come as no surprise that businesses must also adapt; and that these changes can affect our communities in other ways. And although the Upstate has been fortunate to experience a strong economic resurgence in recent decades, economic development is no exception.

In 2016, 68 industries announced more than $1.89 billion in capital investment and the creation of 5,364 jobs in the Upstate.

But the South Carolina Department of Commerce has reported, and our Business Recruitment team has experienced, a shift in the overall size and scale of these projects. In the past, companies wanted to enter the American market by investing millions and creating hundreds of jobs.

While there are still some of those projects in the works, an increasing number of established foreign businesses are interested in a cautious market entry, through joint ventures, mergers and acquisitions, or even establishment of small sales divisions to test the market rather than plunging in head-first.

Data from Conway, experts in corporate expansion, quantifies the sentiment. From 1995 to 2013, fully 86% of jobs were created by expansions of in-state firms, confirming that the bulk of the growth opportunity in any given region is tightly aligned with its existing firms and industry clusters.

At the same time, nationwide there has been a 50% decline in relocation and expansion projects involving 50 or more jobs or at least $1 million in investment over the decade from 2002 to 2012.

Where growth actually occurred was among middle market firms, where just 1% of firms created 72% of net new jobs in the U.S., with these firms growing, on average, from 10 to 30 jobs.

So what does this mean for you and me? By and large, many regional economic development organizations are pressured to go find and attract the next big, transformative economic development project; however, these opportunities are increasingly rare. 

In 2016, the South Carolina Department of Commerce indicated an increase over the previous year’s number of projects, yet projects are generating fewer jobs and requiring smaller spaces. 

These smaller projects often involve a longer time frame and more handholding than larger ones.  According to the Upstate Alliance 2016 annual report, the region announced 369 new and expanding business projects over the past five years (2012-2016), averaging 74 jobs per project. Of these, 60% were expansions of existing operations, and by size, 81% involved fewer than 100 jobs and 11% involved from 100 to 249 jobs.

It’s likely that the evolution of manufacturing – with increasing usage of artificial intelligence and robotics – plays a hand in the size of business projects today.

According to Brookings analysis, the number of jobs required to produce $1 million in manufacturing output fell from 25 jobs in 1980 to just 5 jobs in 2015. Between 2000 and 2010 these gains in productivity accounted for 87% of manufacturing job losses, while increased competition from international trade only accounted for 13%.

An environment where companies are using a more tempered approach to jobs creation provokes questions for all communities: What types of companies are creating jobs, and where are they coming from? How can our communities ensure they are competitively poised for economic growth?

With these economic realities in mind, the Upstate SC Alliance recently engaged in a strategic planning process to build a vision for the next five years and beyond for ensuring the Upstate remains competitively poised for economic growth and prosperity.

The plan will be presented on March 29 during our annual meeting presented by JP Morgan Chase, which will be held at the TD Convention Center in Greenville from 11:15 a.m. – 1:30 p.m.

This luncheon is open to the public, and we welcome anyone to attend who shares a vision of enhancing the prosperity and quality of life for the entire Upstate. The cost is $25 for Upstate SC Alliance investors and $45 for non-investors.

 

John Lummus is the president and CEO of the Upstate SC Alliance. The Alliance is a public/private regional economic development organization formed in 2000 to market the Upstate for business investment globally with the ultimate goal of increasing investment, enhancing the prosperity and quality of life for the entire Upstate.

 

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