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April 5, 2007 


 Q&A: Federal Reserve Bankís William Testa on Chicago Business 4/26/2005
The mission of Going Global, which appears on ePrairie on most Tuesdays, is to educate and inform Midwest technology companies on what local technology companies are doing internationally so other firms can learn from the successes of like-minded peers.


CHICAGO Ė William Testa is vice president and director of regional programs in the research department at the Federal Reserve Bank of Chicago. In part two of a three-part Q&A, Testa sat down with international expert Michael Muth to discuss the pros and cons of Chicago as a business center.


Michael Muth: Do you think conversations about global business go on below the executive level?
William Testa: I think the productivity and activity does matter below the executive level. Headquarters operations and white-collar activity is all about learning, bringing it into the firm and influencing business decisions. These are all global economic activities.

Itís part of what goes on in business formation in Silicon Valley, New York City and Chicago. How can public policy help? Itís difficult to generalize. For large companies, recruiting and quality of life are probably key. Local government can keep cities functioning in commuting, air transport and public safety.

Education, quality of local schools, recreation, open lands and parkways are increasingly vital. Itís dicey for business-type functions. For example, in technology transfer, large corporations can and do take care of themselves in this regard. They scour the world for new technology like large Chicago companies such as Abbott and Illinois Tool Works.

However, it may be more difficult for smaller manufacturers that may be concentrated on local customers and day-to-day survival.

Itís difficult to find the time for research. Perhaps thereís something that can be done locally that can be expanded to small local companies. I recently met with NEO in Ann Arbor, Mich., which is an organization from northeast Ohio thatís trying to marry the small companies with useful local technology.


MM commentary: While employees below the executive level are getting more involved in global business, I still donít see many learning foreign languages, living and working in foreign countries for extended periods of time and learning everything that needs to be addressed as an international business person. Perhaps those in the executive levels should recommend these kinds of things more often.


MM: Which study ranks Chicago as No. 19 out of 50 large U.S. metro areas as measured by 16 new economy indicators?
WT: Thatís Rob Atkinsonís work at the Progressive Policy Institute. Heís vice president of the institute and director of its Technology & New Economy Project. The project's mission is to educate federal, state and local policymakers about what drives the new economy and to promote policies that encourage technological advances, economic innovation and entrepreneurship.

He has recently written a book that will further help guide regional development policies regarding technology. ďThe Past and Future of Americaís EconomyĒ focuses on the implications for productivity of the latest economic transformation, how economists have looked at the role of IT and productivity and what we should do going forward with respect to policy.

MM: What contributions do IT services contribute to Chicagoís growth as a business services center?
WT: My sense is that cities such as Chicago are based on being communications hubs both digitally and face to face. IT and face-to-face communications are highly complementary activities that make a global city highly productive. The routine transmission of data leads to more exchange of subjective and creative information as well as new products, processes and business structures.

MM: It is said that corporate control functions of global companies are becoming more dispersed. This suggests that they are shifting toward mid-sized U.S. metropolitan areas with populations in the 1 to 2 million range. This contrasts with the business services industry, which continues to concentrate in the very largest cities. Which way are IT functions going? Dispersed or concentrated?
WT: You can see this kind of filtering as headquarters appearing less in New York City even while the very top tier of business service activity (such as management consulting and specialized legal and finance) continue to concentrate in large global cities. Even so, smaller regional places have done well by housing IT operations, administrative and sales offices and back-office activities.

That is because places such as Cincinatti and Indianapolis are much more interesting than they used to be. Theyíve redone their downtowns and built sports stadiums. They have interesting older ethnic neighborhoods and trendy districts. Quality of life and the richness of a cityís job opportunities are increasingly important to attract the highest skilled and most creative people to a city.

At our recent HQ conference, Matt Krentz, who heads up the Chicago office of the Boston Consulting Group, spoke to us of their corporate form and geography. His firm isnít hierarchal. Itís a ďneural networkĒ in organization and form. They donít really have a headquarters. The number of consultants based in Chicago, for example, is the number they are able to attract or recruit here based on quality of life.


MM commentary: I do think we see a reflection of this when downtown-based companies relocate to the suburbs to reduce costs.


MM: What do you mean that ďcomputer-system design and related services employment are 40 percent more concentrated in Chicago than the national averageĒ? Is being No. 4 something of which to be proud or ashamed?
WT: I would say neither proud nor ashamed. Itís part of knowing oneís own economic strength and structure so as to fashion a supporting environment for growth and development. How do we grow out of our manufacturing legacy?

Since Chicagoís surrounding markets for its services are shrinking, it has to grow beyond its boundaries in selling and trading further.

It has to become more global. Can we make the city more productive so our services are sold globally? Computer and similar services seem to be a promising strength and possible direction. As a large city, Chicago may be able to lead the way for a broader regional revival much as London has done for Great Britain.


MM commentary: If weíre not rated as the No. 2 city, we should find out why.


MM: How will the Internet, e-mail, Webex presentations, cheap telecom and VoIP affect Chicagoís important international travel and conventions businesses? Is that a good or a bad thing?
WT: This is part of the previous question. Digitized and face to face are complementary activities. Rural areas are often sold on electronic communications to pull them into the network and into the economic mainstream. Still, this doesnít typically come to pass.

Thatís because digitized information allows you to carry your office with you, which allows you to communicate face to face with the most creative people who in turn tend to live and work not in rural areas but in global cities. You travel to make impressions and do deals. Technology hasnít dispersed contact. It has facilitated its concentration.

The hubs of meetings are still here in our office buildings, convention centers, restaurants, hotels and airports. The jet ageís growth at and through OíHare was key to the business meeting industry in Chicago. Global cities are also learning places and a high-density network through which both digitized information and people must flow.


MM commentary: Iíve got to diverge with him here. Despite the supposed rebound in the economy, technology is impacting IT trade shows in Chicago. People are using these technologies instead of exhibiting at and attending trade shows and trade show venues are suffering for it.


MM: Because the world is globalizing rapidly and because technology seems to be changing business and the industry even faster, it is said that Chicago may miss out on emerging opportunities or fail to adapt rapidly enough to the changing marketplace without appropriate planning. Whatís the prescription?
WT: In the book chapter, I try to lay out a framework to help guide regional policy. It goes back to my mission here at the bank as a regional economist in which Iím not really advocating public policy. That is because such policy must be an organic response of the private decisions and public partnerships that arise here.

As for the framework itself, I see the Chicago area as the business capital of a very large but shrinking industrial region. Both the income and employment are shrinking. Still, itís a happy circumstance that weíre more productive and our national output is rising while it takes less workers to do the same work. This means that our standard of living can continue to rise as a nation.

In the process, the size of the regionís economy is shrinking. As that market shrinks, Chicagoís manufacturing and the services that are sold to the surrounding region are naturally downsizing. If Chicago wants to maintain its size, it needs to find new industries aside from manufacturing along with new markets to serve with its business service companies.

Otherwise, if people here arenít mobile and move onto other locales, their relative income could fall. Itís a continual challenge for Chicago and the Midwest in the development arena to maintain the size of its economy. What are its possibilities? Technology commercialization in Chicago could possibly be stronger.

There is a lot of technological capital thatís a legacy of our industrial past that exists in large corporations and universities. While weíll never be Silicon Valley, there is a gap between where we are and where we could be. What has saved Chicago so far is its strong growth in business services (such as accounting or consulting).

Because of them, emerging firms are very productive here. Such firms need capital and specialized services, lawyers and accountants. Big cities have always been fertile for emerging firms. Chicago has also been successful because it easily can recruit households of two or more skilled wage earners.


Michael Muth is managing director of GATA, an international business development consultancy that helps technology companies build international partnerships. He can be reached at mike@intlalliances.com.
Click here for Muthís full biography.

Previous Columns:
Q&A: Federal Reserve Bankís William Testa on Headquarters, Exports (4/19/2005)
Q&A: Lisle Technology Partners CEO Adarsh Arora on Keys to Outsourcing (4/5/2005)
Q&A: Lisle Technology Partners CEO Adarsh Arora on Outsourcing in India (3/22/2005)
Q&A: Lisle Technology Partners CEO Adarsh Arora on Offshore Outsourcing (3/15/2005)
Q&A: CECís David Weinstein, Kapil Chaudhary on International Experience (3/1/2005)
Q&A: CECís David Weinstein, Kapil Chaudhary on Internationalization (2/22/2005)
Q&A: Brian Briggs of Acclaro on Whether to Outsource Localization (2/8/2005)
Q&A: Brian Briggs of Acclaro on the Complexities of Localization (2/1/2005)
Q&A: Brian Briggs of Acclaro on International Localization Services (1/25/2005)
Q&A: RPXís Robert Okabe, IECís John Janowiak on Global Events (1/11/2005)
Q&As: FastRootís Terry Howerton, Doug Cogswell of ADVIZOR Solutions (1/4/2005)
Q&A: Opportunity Internationalís John Kamperschroer on Partnerships (12/21/2004)
Q&A: Opportunity Internationalís John Kamperschroer on Technology (12/14/2004)
Q&A: Opportunity Internationalís John Kamperschroer on Innovative Financing (12/7/2004)
Q&A: IEC Senior Director John Janowiak on Trade Show Realities (11/16/2004)
Q&A: International Engineering Consortium Senior Director John Janowiak (11/9/2004)
Q&A: Founder John Lee of Chicagoís Hostway on Web Site Localization (11/2/2004)
Q&A: Founder John Lee of Chicagoís Hostway on Growing Globally (10/26/2004)
International M.B.A. Guide to Moore School of Business, Thunderbird (10/12/2004)
Your International M.B.A. Guide to Northwestern, Loyola University (10/5/2004)
Entrepreneurís Guide to International M.B.A. Programs in Chicago (9/28/2004)
Q&A: Prairie Angels Founder Bob Okabe on Diction, International Cities (9/7/2004)
Q&A: Prairie Angels Founder Bob Okabe on International Adaptation (9/1/2004)
Q&A: Prairie Angels Founder Bob Okabe on Managing U.S. Subsidiaries (8/24/2004)
Q&A: Origin Ventures Founder Steven Miller on Investments, Angels (8/17/2004)
Q&A: Origin Ventures Founder Steven Miller on the Canadian Way (8/9/2004)
Q&A: CPCP Founder David Baeckelandt on Multilingual Importance, Mentoring (8/3/2004)
Q&A: CPCP Founder David Baeckelandt on Japanese Disclosure, Due Diligence (7/27/2004)
Q&A: Chicago Pacific Capital Founder David Baeckelandt on Overseas Funding (7/20/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on the Art of Partnering (7/13/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on BP, AstraZeneca Wins (7/6/2004)
Q&A: ADVIZOR Solutions CEO Doug Cogswell on Global Software (6/29/2004)
Q&A: CEO Terry Howerton on Why Chicago, Ukraine Made FastRoot (6/22/2004)
Q&A: FastRoot CEO Terry Howerton on Blended Chicago Approach (6/15/2004)




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