Financial incentives for business attraction get all the attention, but can non-financial incentives tip the balance for business investment decisions?

One of the trends we have identified in incentive use is the increasing provision of highly specialized business services. These are not run-of-the-mill business assistance programs, but customized and outcome-oriented services that take the concept of partnership between a business and a community to a new level.

These specialized services can be grouped into three main categories:

  • Workforce
  • Innovation
  • Connections & collaboration

Workforce

Workforce skills and labor costs are the top factors in site selection.  Customized training programs are not new, but expectations have been raised.

Economic development groups have responded. Workforce development is one of the few economic development program areas that saw increased spending over the past few years, according to recent data from the Center for Regional Economic Competitiveness. Workforce programs generally address training, screening and recruitment for jobs, and talent development. They are used for retention projects as well as business attraction. 

Local workforce is also increasingly viewed as a community asset for which the location is fully responsible.  As a recent Wall Street Journal article noted, “Employers have persuaded themselves that if you train people you’re just going to lose the investment, so it’s not exploitative to ask [taxpayers] to do it for you,” said Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania.

Innovation

Companies are looking for an edge in their markets while communities are striving to build what they hope are economy-growing innovation assets.  The two increasingly come together as companies seek and communities offer innovation-related services and incentives. The nexus is often at universities.

Recent announcements from GE exemplify the trend. GE Aviation’s connection with Purdue University in advanced manufacturing research was cited as a primary reason – along with financial incentives – for choosing Indiana for a new aircraft engine assembly plant. When GE selected Oklahoma City for its Oil and Gas Technology Center, the company also cited the ability to work with several universities in the state, the strong energy cluster in the state, and financial incentives for their decision. On a smaller scale, the recently announced Simulation and Game Institute (SGI), a public-private partnership between Prince William County, Va., and George Mason University, is designed “to support early-entry entrepreneurship into the simulation, modeling and game industry.” 

Connections and Collaboration

Companies – especially small, innovative, technology-oriented firms that are the focus of so much economic development attention – value the business connections that can drive their internal growth. Networking is not enough, however.  Highly targeted programming that creates meaningful collaboration with funders, mentors, and industry leaders in specific technology or market arenas is growing in popularity.

This type of programming has long been a staple at the most successful life sciences programs (such as San Diego’s CONNECT, for example), but it is now expanding to the economic development mainstream. The Georgia Centers of Innovation are one example.  The six sector-specific Centers provide access to universities, technology connections, matching grant funds, industry networks and key government agencies to help companies grow, prosper and compete. 

Conclusion

Specialized business services are increasing in popularity as a complement to traditional financial incentives.  There is overlap and blurring of lines among the three most dominant types of these services – workforce, innovation and connections – but the trend toward deeper engagement between community and company could not be clearer. 

This post is adapted from an article written for Economic Development Now, which is available to IEDC members here.

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