Tag: economic development

New York celebrates its entrepreneurs with Made in NY

New York City shows how cities and nations have to promote their economic strengths

Part of a thriving industrial hub is having the business and skills that support the sector. If you’ve got them, you need to tell the world you’re open for business.

Somebody who is doing this well is New York City’s Office of Media and Entertainment which runs the Made In NY program.

While much of the focus of the program is on attracting film production, Made in NY recently branched out into promoting the city’s tech community boasting successful businesses like video sharing site Vimeo, tutor matching service Tutorspree and stock photography supplier Shutterstock.

Towards the end of the Shutterstock clip one of the staff mentions ‘drop bears’ – a little bit of Sydney argot creeps into the story.

It’s the Sydney connection that makes the Made In NY campaign so bittersweet, I was involved in setting up the Digital Sydney project for the New South Wales government.

While Sydney doesn’t have the size of New York’s or London’s tech industries it does share the advantage of being one of the most diverse cities in the world. The work of organisations like ICE in Parramatta is important in realising some of that potential.

That potential is huge – having sizeable communities of East and South Asian language speakers gives Sydney a real opportunity in the Asian Century.

Unfortunately most of those communities live in Sydney’s West and while lip service is given to the needs of that region most economic development work focuses on corporate welfare for established interests and supporting inner city stuff that white folks like.

When I started at what was then the Department of State and Regional Development in 2009 I was told that many in the agency believed NSW stood for “North Sydney to Wooloomoolloo”, something that largely turned out to be true. The west of Sydney, like most of the state, took second place behind the wants of big business.

This is what’s encouraging about the Made In New York campaign, it promotes smaller business – although they all seem based in lower Manhattan staffed largely by a middle class monoculture, which seems to be a problem when you buy into hipster chic.

Hipster chic is one of New York’s strengths and that’s what every city and country needs to be doing in a global connected economy.

If you can’t define and articulate what it is you add to the economy, then you’re locked into the low value, small margin commodity end of the marketplace and that is a tough place to be.

The question for all of us, on a personal and a national basis, is do we want to be price taking commodity producers or do we want to develop the high value, growth business of the 21st Century.

New York City has made its choice, we have to make ours.

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Going insane with government subsidies

Governments and taxpayers keep repeating the same failed strategies in attracting new industries.

Albert Einstein is said to have defined insanity as doing the same thing over and over again while expecting different results.

When it comes to funding the film industry it’s hard not to think that governments, and those who want a strong local film making communities, have all gone insane.

As discussed previously, the global producer incentive industry is a scam perpetuated by the major movie studios on gormless governments desperate for the glitz and glamour of having a Hollywood star or two come to town.

In Australia, governments are scratching around to raise change to attract a high profile Hollywood production once again – unsurprisingly to subsidise another remake of a fifty year old hit.

This is dressed up in the guise of helping build or maintain the local skill base or infrastructure. The water tank that’s expected to be used should the Aussies win the bid was built by the Queensland government in 2007 to attract aquatic themed movies, as the minister at the time said;

“As a result of having the water tank facility, the Government’s Pacific Film and Television Commission and Warner Roadshow Studios are currently in negotiations with a number of major studios requiring water tank facilities for their next major films.

“These projects under negotiation have an estimated value of $US370 million.”

Little of that money made it down under and the Gold Coast water tank stands largely unused as the Queensland and Federal governments failed to interest subsidy hungry movie producers.

When governments win those subsidised productions the local industry has brief sugar rush as providers struggle to find caterers, crew and extras required to film Superman XVIII or the fourth remake of Herbie The Love Bug. After a few months, the big producer folds their tent and moves on to the next city that spent millions attracting the studios’ favours.

Those involved in the big Hollywood production sadly go back to their day jobs and dreams of building careers in a vibrant local industry which has no chance of developing under the boom and bust cycle of major production attraction.

And so the cycle goes. At least today’s Sydney accountants can tell their kids how they once stood next to Keanu Reeves as an extra on The Matrix.

While Hollywood is the best organised at milking gullible governments, it isn’t just the film industry that pulls this scam off on taxpayers. If anything, the automobile manufacturers are probably the biggest beneficiary of government largess and produce more unloved bombs than the movie industry.

What’s particularly notable when governments announce huge licks of money for multinational corporations is just how small support is for the local industry in comparison.

A good example of this are the New South Wales film industry subsidies. The state’s Emerging Filmmakers Fund dispensed a grand $90,000 to local producers in 2012. This compares to the $6.6 million dollars spent by the state on attracting foreign productions.

Even that $6.6 million number has to be treated with caution as major productions can be subsidised from the state’s Investment Attraction Scheme – a $77 million slush fund put aside for attracting ‘footloose’ multinational business operations.

Generally payments from the IAS are ‘Commercial in Confidence’, or ‘Crooks in Collusion’ as some more cynical might put it, so it’s almost impossible for taxpayers to know how much has been lavished on attracting foreign businesses.

What is clear though is the government subsidies for foreign operators, not just in the film industry, dwarf the support given to local businesses.

During my short period working for the NSW Department of Trade and Investment more than one businessman asked me “why is your minister giving a slab of money to my overseas competitors rather than encouraging local businesses?”

It’s difficult to find a diplomatic answer that doesn’t imply that political and public service leaders are blinding the glamour and prestige of being associated with rich multinational corporations.

The real support local industries need is steady work producing products that play to their advantages, the sugar rushes of major movie productions or subsidised manufacturing only distort the market and may even damage the smaller local production companies as the wrong skillsets and infrastructure is built.

Done strategically as part of a broader, long term plan targeted subsidies to global industry leaders can work, but unfortunately few of the movie industry incentives or investment attraction schemes have that sort of thinking underlying them.

As budgets tighten with the deleveraging global economy, it’s going to be interesting to see how long governments can continue this sort of corporate welfare.

Film clapper image courtesy of Chrisgr through SXC.hu

 

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Building Africa’s multinationals

Ashish Thakkar is one of the new breed of African entrepreneurs who will shape 21st Century business.

African business site CP-Africa has a profile on the continent’s youngest billionaire, 31 year old Ashish Thakkar, based on a recent interview with the Wharton Business School.

Ashish’s story is fascinating one, his family have been refugees twice – once from Uganda when Idi Amin expelled the Indian population and later in Rwanda – and each time his father rebuilt the family’s fortunes from scratch.

In setting up his own business at 15 with a $6,000 loan, Ashish surprised Dubai authorities who thought his age was a misprint. 16 years later Mara Group operates in real estate, tourism, manufacturing and IT services across 24 countries, the bulk of them in Africa.

The interview is an insight into how African economies are evolving and how the continent is just as diverse as the others – it’s as foolish to lump all African nations together as it is to consider all Asian or European countries as being the same.

An important point that jumps out of Ashish’s interview are his thoughts on attracting foreign investment;

We have a huge issue in Africa with unemployment. Unfortunately, a lot of our governments think the answer is foreign direct investment. It’s not.

This is one of the mistakes governments around the world make – it’s understandable as those big foreign corporations are impressive and rich, there’s also the kudos a politician or public servant gets from being seen as a great statesman consorting with global captains of industry, this is one of the attractions in the annual World Economic Forum meetings in Davos.

As Ashish points out, attracting big corporations is not the answer to building a thriving, modern economy. It requires the locals to take action, not just in the business sector but right across the community.

Waiting for a big corporation to come along to kick start your business community is just a cargo-cult mentality which rarely works.

That cargo cult mentality is alive and well in western nations, a good recent example was the campaign to get Twitter to open an Australian office in Melbourne.

Like Facebook, Twitter’s representation down under would be a government liaison staffer who would be best located in Canberra.

Campaigning for this only made Melbourne look like a bunch of provincial hicks, the city and state is capable of much better.

The sad thing is all our governments do this when squandering money subsidising multinationals to set up offices that were going to be set up anyway. Business books are full of betrayed cities like New London, Connecticut who gave away tens of millions only to see their great corporate saviour walk away a few years later.

It’s far better for government to spend those millions reforming business regulations and taxes to make it easy for local businesses to compete with multinationals and become the global leaders of tomorrow.

As one of the few parts of the world that isn’t facing the challenges of an aging population, Africa economies are in a good position to spawn a whole generation of entrepreneurs and corporations. It will be interesting to see if Ashish Thakkar is leading that generation.

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Proudly designed in Gyeonggi

Asian manufacturers are moving up the value chain. Could Korea, China and Taiwan start competing with Apple?

“Designed by Apple in California ” is the boast on the box of every new iPad or Macbook. That the slogan says ‘designed’ rather than ‘made’ says everything about how manufacturing has fled the United States.

Last year the New York Times looked at Apple’s overseas manufacturing operations, pointing out that even if Apple wanted to make their product in the the US many of the necessary skills and infrastructure have been lost.

Now the US is facing the problem that Asian countries are looking at moving up the intellectual property food chain and doing their own designs.

In some ways this is expected as it’s exactly what Japan did with both the consumer electronics and car industries during the 1960s and 70s.

The big difference is that Japanese manufacturers travelled to the US and Europe to study the design and manufacturing methods of the world’s leading companies. In the 1990s and 2000s, the world’s leading companies gave their future competitors the skills through outsourcing and offshoring.

In the next decade we’ll see the latest consumer products coming with labels reading “Designed by Lenovo in Fujian” or “Developed by Samsung in Gyeonggi”.

For western countries, the question is what do we want to be proudly be putting our names to?

Image from Kristajo via SXC.HU

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How the film industry cons governments

Do government incentives really build a sustainable movie industry?

“I would never make a movie where I didn’t get an incentive and I don’t ever intend to” states Michael Benaroya, producer of the movie Margin Call, in a New York Times story on movie studio subsidies.

While we focus on the cost of subsidies to motor manufacturing, one sector that beats all others for playing governments for suckers is the global film industry.

“Incentives” are a huge factor in determining where studios will film their latest blockbuster, Australia’s learning this the hard way as rent seekers looking for fat subsidies parade Hollywood stars in an effort to convince publicity hungry ministers that giving fat payments to the major production houses is good for jobs.

The problem with this is that these susbidies aren’t that great for employment – Accompanying the New York Times’ video is a story on how Michigan’s dream of building a film industry has foundered.

“Film is one of the few industries that’s really well subsidised and that’s a really attractive thing” Michael Benaroya says in the video.

Before Michael even made the movie, he sold the rights to the New York production subsidies to investors. Who says financial engineering is the purview of Wall Street?

The question for governments, taxpayers and those who want to build a sustainable movie industry in their city, state or country is do you want to attract “entrepreneurs” like Michael Benaroya who are shopping around the world for the best deal.

New York might be the flavour today, but tomorrow it might be Sydney, Toronto or Prague. If the incentives aren’t fat enough then the movie productions may not come back for decades.

In the meantime the crews, production assistants and catering companies who make up most of the employment on a major production move onto other jobs so the skills and industry infrastructure is lost.

The biggest challenge is for governments, it’s estimated that New York state gives away over $400 million in subsidies and it’s difficult to see how that sort of expenditure can be justified as politicians face cuts to basic spending in today’s austere times.

For the taxpayers, we need to be demanding fair value and real long term plans behind the subsidies doled out to the film, motor manufacturing and other industries.

During the good times it was easy for opportunist politicians to dole out money to rent seekers for a media opportunity or to boost votes in a key electorate, but today that spending has to be strategic with real value and outcomes.

As Michael Benroya shows, when an entire industry is based around government subsidies and incentives the leaders are those who know how to manage the bureaucracy and fill in the forms properly. Is that what we want our industries to become?

If the answer is ‘yes’, then the next question is ‘can we afford it?’

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Disrupting the disrupters

Silicon Valley’s investment models are changing as attention moves from the consumer to the enterprise.

Two days ago, iconic venture capital investor Fred Wilson, wrote about the changing nature of the tech industry’s VC investments.

Fred puts the changes down to three factors; maturing markets where big players increasingly dominate, the move to mobile which Cristina Cordova examines in more detail and the shift in focus from the consumer market to the enterprise sector.

The last factor bears more examination as consumer and enterprise are very different and there’s no guarantee that businesses built around thousands of people downloading apps or accessing websites can pivot into selling into corporations and government agencies.

Probably the biggest problem is the consumer or small business freemium model doesn’t cut it in the enterprises who are prepared to pay big sums for highly reliable and secure services.

Similarly the enterprise model of fat sales commissions paid for by big implementation costs and expensive support contracts doesn’t quite fly either for these start up business. There’s also a good argument that high margin enterprise model is doomed anyway as cloud services displace costly in-house installations.

In the transition from consumer to enterprise is difficult and most companies have struggled to make the jump, even Google Docs has been a hard sell into the corporate sector.

At the enterprise end, cloud services are cutting margins as IBM and Oracle are finding. Both companies are moving across to cloud products and now a lot of salespeople and consultants in those organisations are looking at a substantial drop in their standards of living.

More importantly for the startup and VC communities, the “greater fool” model doesn’t work in the enterprise space. Hyping a business which has barely made a cent in revenue but does have a million users is very different to building a stable corporate platform.

It may well be the move to the enterprise by Silicon Valley is because the consumer model has run out of “greater fools” who’ll buy overhyped photo sharing apps or social media platforms of dubious value.

This change in investment behaviour also has lessons for governments trying to copy Silicon Valley. The puck moves fast in the investment community while governments, by definition, are slow.

By the time governments have setup their programs, the markets have moved on and many of the hot technologies of two years prior are now old hat. This is exactly what we’re seeing in the apps world.

We often hear about technology causing disruption, often though we forget that those disruptive technologies can be ephemeral as they are disrupted themselves.

As these industries evolve, we’ll see how well the disrupters deal with being disrupted.

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Australia in the Asian Century – Chapter Four: The outlook for Australia to 2025

Chapter Four of Australia in the Asian Century charts where the economies will be engaging over the next decade.

This post is one of the series of articles on the Australia in the Asian Century report.

Chapter four of Australia in the Asian Century is the critical part of the white paper, describing where the opportunities and risks are for the nation as Asian societies become more prosperous.

In the introduction to the chapter, “Australia’s 2025 Aspiration” is set out as raising per person income to $73,000 by 2025 and the nation’s living standards in the world’s top ten.

While this is a noble target, the underpinning of that good fortune are more of the same;

What will emerge as a result of these opportunities is that Australia’s trade patterns will change, urbanisation will continue to drive demand for resources and energy, and new opportunities will emerge in manufacturing and in high-quality food production. Rising incomes will also provide opportunities for the education and tourism sectors, and for services more broadly.

Iron ore, coal and Liquid Natural Gas (LNG) are the basis of the projections in this chapter which, as discussed in the previous chapter, ignores alternative supplies from Africa, Mongolia and Central Asia along with the efforts of China to reduce energy density while expanding renewable power sources.

Agriculture also has a role as does tourism and education but all of the projections are more of the same 1980s thinking we read in the previous chapter. There’s little that identifies new industries or the evolution of existing export agricultural industries such meat exports.

The identification of risks to this rose coloured outlook skims over any internal issues such as drought, industrial disruption, a continued high exchange rate or any external factors.

While the chapter does note the risk of commodity prices could fall further than expected, the consequences of this are dismissed with an airy reference to Australia’s fiscal position.

While the chapter focuses on motherhood statements about innovation, research and development and ‘complex problem solving’ when looking at the opportunities there are some identifications of the real advantages Australia offers;

Australian society reflects our multiculturalism. Australia’s socially cohesive and diverse nation is one of our enduring strengths. Our nation brings the values of fairness and tolerance to all its dealings in the region and the world.

It’s a shame there isn’t more emphasis on this aspect as this is one of the areas where Australia can add value and has real competitive advantage.

Overall, the Outlook described in Chapter Four of Australia in the Asian Century suffers from the same problem as the previous chapter of applying the 1970s and 80s experience with Japan and South Korea onto the development of China and India.

What’s even more frustrating is the only specific projections are for more mineral and agricultural exports, everything else is wrapped in motherhood statements.

The following chapters look at the specifics of Australia’s development and engagement with Asia over the next decade.

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