Interview with Alabama's Governor Bob Riley

If you ever wondered what an interview over the telephone with an important person sounds like, you're about to have that pressing need answered (scroll to bottom of this post for an mp3 recording of the interview I'm writing about here). Last week I had the opportunity to interview the governor of Alabama, Bob Riley, over the telephone. I used the time to get his impression of economic development in the state. I have to say he was good at promoting Alabama without sounding like he was making a sale--maybe because the state's successes have been quite legitimate and don't require any spin. Alabama has won big automaker investments, including final assembly plants from Honda, Mercedes-Benz, and Hyundai; Toyota has a major engine plant there; and as the governor points out, the new Kia plant in Georgia is just barely over the border from Alabama, giving the state the chance to score big in the supplier game. (Makes sense, considering Kia and Hyundai are close corporate cousins sharing a great deal of parts between vehicle lineups.)

The other big thing coming up in Alabama is whether or not the EADS tanker deal goes through (see our August 2005 article here for the introduction). It's basically in the political realm now as to whether it happens, but if it does, it will create a ton of jobs and really cement an already well-known strength in aerospace for Alabama.

Gov. Riley seemed to be most proud of his state's advances in education (in worker training and primary education both, I believe). He does not try to cover up the fact that a lot of people still think education in the South, especially the "Deep South," is in the dark ages. Business leaders are educated people in general, but even they can fall prey to old misconceptions (or old truths). While I didn't get the sense that everything is where he wants it to be in terms of education, I also heard Gov. Riley telling our readers to give the state a new look in that regard. He's friendly enough that he'd probably be willing to explain things to you in person if you come down for a visit.

An edited transcript of this interview will appear in the November issue of Business Facilities. This audio recording, in mp3 format, is about 20 minutes long and only lightly edited. Gov. Riley is far from the first governor we've interviewed, but this is this first time we've ever made the tape available to the public. Actually, it's kind of a rare opportunity to hear a public official speak at length without any handlers, rehearsal, or post-production. I'd love to do this again with an official from another state, or with an executive from a company going through a major move.

(You should see a control appear below to allow you to play the file from within the page--if not, click here for the direct download of the mp3 file.)

Is the U.S. in Trouble When It Comes to Keeping its Financial Services Sector from Going Overseas?

Just finished editing an article going into our Global Issue (October) ... it's really a great read and a wake-up call for the U.S. It's a shame that I had to cut it substantially to fit in print, so I thought I'd do something a little unorthodox for us and print it in its entirety, uncut, here on our blog before it actually hits the streets on paper. Let us know what you think. (The author, "Fritz" Shepperd, is a longtime Editorial Advisory Board member for Business Facilities and spends most of his time these days in Europe tracking these sorts of issues.)

-Karim

New Global Capital Flow Creates New Global Hot Spots

The United States can no longer take its dominant position in finance and financial services for granted.

By Frederick Metz Shepperd

The meltdown in the financial markets and clouds on the economic horizon for the U.S. may be shocking to some, but in fact it has been in the works for a long time. The capital markets were euphoric during the summer, but it was only a matter of time before the facts would make it to the front page. Those include another real fact that the markets were starting to adjust to when the mortgage crisis hit: For several years, a tremendous outflow of billions in cash from the U.S. has grown to the point where it radically affects the financial industry. A new landscape of global hot spots is developing as the cash tries to find a home. That means new offices, new opportunity, and a new source for economic development.

The signs have been everywhere. Citibank announced massive layoffs this summer in North America as it announced massive hiring in India. Companies in the "back office" business of the stock market and financial services industry are getting offers for buyouts, takeovers, and joint ventures. For the first time in history, Goldman Sachs made as much money abroad as it did in the U.S. In the meantime, New York City lawyers, accountants, and money managers are wondering where the IPO business and the money has gone. Truly, globalization has hit the finance and financial services industries.

It was just a matter of time. The simple fact is that capital flows to where it is best used and where it receives the best return for the right level of risk. As industry left the U.S. in the last 10 years, the financial services and capital formation supporting industry follows right behind. That means a significant change in the way of doing business and where companies will go to set up their global enterprise. In the past, the "where" meant New York, San Francisco, and other regional financial centers. Now the race is on as new centers develop outside of the U.S. to attract the companies that are being forced to go abroad to stay competitive. The cost of raising capital in the U.S., regulation and oversight costs, and the low growth and returns in North America are causing domestic businesses to look elsewhere. Governments abroad realize this trend already and are seeking to attract those dollar-based investors.

It is hard news for North American economic development agencies, developers, brokers, and others in the site location business. While the New York Stock Exchange is trying to limit the impact of companies that want to de-list from the exchange, governments outside the U.S. are creating new tax incentives and other enticements to attract the global capital flow their way.

Where are these centers? A recent article in New York magazine suggested that the new center of the world financial market is London. In fact, a study authorized by local politicians and reported in The Economist suggests New York City would lose 7% of its employment in the financial sector because of this trend. The trend is already underway: The U.S. dollar reached a 26 year low against the British pound recently, and is at historic lows against the Euro and Swiss franc, with no stopping in sight.

London may or may not be the new global financial capital, but what's uncontested is that it has flooded Continental Europe with cash for real estate and corporate investment. However, its success has also created great problems locally, such as astronomical housing costs, high wages, an overloaded transportation infrastructure for the global business executive, among other things.

Asia has created its own new financial spheres including Shanghai, but the new riches in Asia have yet to create solid, stable markets, as the recent sell-off of regional stocks has clearly demonstrated. Dubai is developing as a regional center for the Middle East. All the new and existing financial centers are trying to capture financial services companies. In fact, they are being fought over by everyone as hotly as U.S. states compete for a new automotive plant. (With good reason: focusing on growing the financial industry can be very beneficial to a location. Just ask Omaha, NE.)

The rise of private equity companies has also affected cities; just look at real estate values and employment around financial centers like Greenwich, CT; Kronberg and Bad Homburg in the Taunus hills north of Frankfurt; and Zug, Switzerland, to name a few.

As for the back office work, India has proven itself an excellent niche market to outsource customer service call centers, computer centers, and even hospital X-ray diagnostics to. As mentioned, Citibank is making a huge commitment to India and its future. But even with the development in Asia, there are still large downsides and learning curves. Therefore, Western companies are looking more and more to Europe for their new future, and that more often is coming to mean Continental Europe.

The familiar phrase, "Follow the money," holds true in the global growth of the financial services industry. Interesting and often geographically small places are coming over the horizon, such as Monaco. Prince Albert is really trying to create transparency and attract a variety of hedge funds and financial services companies with new tax and corporate legislation. It is a unquestionably positive trend. Unfortunately, a lack of land and space may hinder huge waves of investment and employment there. Similarly, Lichtenstein, Luxembourg, and even islands in the English Channel have developed their own economic packages for potential financial services investors.

A CASE FOR SWITZERLAND
It looks like the real winner in the new global flow of capital may be Switzerland. Yes, the land of Heidi, cheese, and alpine music may actually be the best fit in the new global financial geography. After all, globalization is not about being bigÑit's about being fast and flexible. Neither of these descriptors fit the old image of Switzerland and the Swiss, but times have changed. In fact, approximately 30% of the population of Zurich comes from outside Switzerland. Thus, there is also a highly educated international labor pool to draw from. One relocation expert interviewed for this article has helped executives from over 60 countries settle into the area.

Globalization is about leveraging efficiencies and creating synergies. That means infrastructure. It goes without question that the Swiss banking and financial services industry is as effective and efficient as it gets. The old Swiss bank keys have been thrown away and replaced with smart cards and state-of-the-art systems for the financial services industry As an indication of the Swiss computer savvy and systems capabilities, Google has established a significant presence in Zurich. Vasco, a Chicago based supplier of authentication and security software, also recently announced their location in Zurich, a sign that Switzerland may provide a very competitive global center for financial support services. The country is also serving as Vasco's springboard to the world outside of North and South America.

Globalization also is about innovation, and the Swiss are particularly keen on this. After all, they have been a center for innovation for years. Just think how Swatch revitalized its watch industry when Asia had all but won the business. The same is true for new financial products and services. A few years back, the Basel, Zurich, and Geneva stock exchanges banded together to form the Swiss Stock Exchange, or SWX. The SWX has been very successful, with a total market value of approximately 1 trillion Swiss francs. (At press time, CHF 1.18 converts to $1.00.)

The exchanges in Frankfurt and Paris may be larger, but an exchange's small size also allows for greater ease of access into the market, and creates more accessible opportunities to put idea people together with the money men. That was also why Ohioans Henry Ford and Thomas Edison moved to sleepy Detroit and Menlo Park, NJ, respectively, to grow their newly formed, small businesses in totally new industries. They followed the money of their day. Right now, Switzerland's Bern Exchange is performing that function with smaller Swiss startup companies that prefer the public route instead of falling into the hands of a venture capitalist. The Bern Exchange is even referred to as the nursery for the SWX. Medical technology is just one of the key industries supported by the SWX and Bern markets.

Switzerland, already the capital for private banking and private equity, is also looking at the global flow of capital and proposing new tax breaks for hedge funds and other financial services companies. You could make the case that Switzerland has a great advantage versus some new markets around the globe; as Willi Meyer, Managing Director of the Greater Zurich Area says, "Where often the phrase in developing markets is 'anything goes,' in Zurich, the phrase is, 'everything works.'" And how: It is now estimated that 34% of the world's offshore wealth resides in Switzerland. That includes Geneva, Zug, Zurich, and all points in between. No wonder Singapore pays the country a compliment for its stability, security, and success by advertising itself as the "Little Switzerland of Asia."

For six years in a row, consulting firms and other organizations have rated Zurich the top location for quality of life. The proximity to lakes, mountains, the arts, and great culinary talents match the university and educational opportunities for younger family members. That makes the move an easy choice for global executives and their families. In a global world, where people and knowledge play a more critical role in the success of a company than ever, the best attracts the best. Zurich is an easy choice as one of the best locations to attract talent and keep it.

As the capital flows out from North America and companies follow with their offices, employees, and their families, certain locations like London, Frankfurt, Singapore, and elsewhere may sound inviting, but the new Switzerland and the new Swiss response to global capital flow makes a compelling case for site location experts and companies to consider. In fact, it may not be the world financial center, but it certainly could become the new global capital metropole.

Frederick Metz Shepperd, Esq. is Managing Partner of The Quadral Group, Ltd., and an Editorial Advisory Board member at Business Facilities. The Quadral Group is online at www.quadralgroup.com.

Enough With the Ethanol, Already?

According to this New York Times article, we editors may finally see a dip in the number of press releases announcing new ethanol plants. It seems that we've filled the distribution system to capacity, and new ethanol produced will sit idle for a while before it can get shipped to the states where it's in high demand.

That would be states like New Jersey, where ethanol is a required additive to gasoline now that MTBE is no longer considered safe. New Jersey doesn't grow a lot of corn (despite being the Garden State), or at least much corn that gets turned into ethanol nearby, so the stuff has to come in by the tanker truckload or by special railcar. (Ethanol can't be piped through a network like gas, because it will absorb water and corrode the metal pipes.) There aren't enough special rail cars ready to move it all.

You'd think the price would be high with such high demand. But look at the supply side: farmers are not getting a high price for their corn meant for ethanol production, because the distilleries are sitting on plenty of product they can't move efficiently--more corn is the last thing they need right now. Now there are some states that can get ethanol more easily than others--those states where the corn is grown and distilled into ethanol, namely, because it's a short truck ride. Because the distilleries have too much product, they have to lower the price of ethanol to get these closer states to buy more of it. High supply, high demand, low price, and a thin little line connecting them. Eventually that line will become fatter as a real distribution network comes into its own (and at that point what happens to price has much more to do with supply and demand only), but until then, your investment dollars should flow into the logistics side of the ethanol business.

LiveXchange: Year Three and Growing

Just got back from Business Facilities LiveXchange this week in Houston--I'll post pictures soon once the photographer we hired gets his shots back to us. We had 30 sponsoring locations, 30 delegates (companies that are seeking a new location) and 8 speakers drawn from the cream of the crop. And once again, it was amazing. Let me put it this way: while no event is perfect, the praise we got (most of it unsolicited, I might add) from attendees of all stripes was over-the-top enough that I would be embarrassed to make it up. More than a few "best event I have been to" type of comments.

The first two years, we held LiveXchange at the Chateau Elan outside Atlanta, GA. This year we picked The Houstonian in Houston, TX. So we were a little nervous to move outside the venue that had served us so well, but we believed in the model and we really wanted to see how the event would pay out in a totally different geography. (Conclusion: it helped us get more Texas locations and delegates who were interested in the Southwest; although it must be said that the location most in demand for one-on-one meetings was Team New England, perhaps because it covers six states.) Next year we're holding the event in early November at what for me personally is the most attractive location yet...click here to find out.

Also new this year was the fact that our sister magazine, Today's Facility Manager, held their first annual TFM Forum event at the same time (one level above us at The Houstonian). Their event used the same format as LiveXchange but matched facility managers with vendors of facility products and services. It was smaller, about the same size as we were in our first year, but every bit as successful.

Our job for next year's event(s) is to really focus on how to craft our marketing message to let delegates know in advance what they are in for at LiveXchange (and TFM Forum). This year I felt that there were too many delegates who had low expectations of the event coming in and were surprised that the event was many times better than they imagined. Now, I do believe in the power of "underselling and overdelivering," but we need to undersell a bit less, or at least change the tone. I think we were not getting across the message that this event is very high-end. I would like to see more delegates and sponsors in 2008.

At least we had some killer software creating the custom-matched itineraries for everyone this year. I'm allowed to say that because I wrote it myself--I never thought I would get back to my pre-editing roots of computer/Web programming, but as the person who has handled the scheduling mechanism through other means over the past two years for LiveXchange, I thought that it was time we had some good software to register all our delegates and ask them for their ratings of sponsors, and vice versa. It was a much larger project than I bargained for, actually, but the results were perhaps even nicer than I hoped for, and the matching algorithm became very smart.

If you have a project that needs a new location, you'd honestly be foolish to skip LiveXchange next year.