Tuesday, October 05, 2010

The Philadelphia Story

Update: Article referring to a Pew Charitable Trusts' Philadelphia Research Initiative report has interesting information about Philadelphia's migration patterns. I'm seeing more of these type of metro migration reports. I find them useful and illuminating.


Over the last two decades, Philadelphia has done well. The region benefits greatly from close proximity to New York City and Baltimore/DC. Via Technically Philly, local businesses and investors don't appear to appreciate the city's numerous assets:

Philadelphia gets no respect, area residents grumble. "We've been branded as the city of angry sports teams and a lot of blue-collar workers, and that's about it," complains Greg McStravick, a senior vice president with the software giant SAP AG, which has its North American headquarters about 18 miles west of downtown. "Not too many people who aren't from this city know it."

Point taken. When it comes to the Philadelphia-area economy, some outsiders have vague notions that several major pharmaceutical companies dot the regional landscape. Shopping cognoscenti might cite the suburban King of Prussia Mall as second only to Mall of America in the annals of biggest-ever indoor retail centers. In-the-know foodies may have read that Tasty Baking Co. now bakes its distinctive cakes from a new complex in the old Naval Yard, just south of the stadium complex, home of the beloved Eagles, Phillies, '76ers and Flyers.

While Philadelphians remain a proud lot, their economic identity suffers from being overshadowed by the vast New York metropolis to the northeast. And to make matters worse, that profile is harder to define because it is rapidly shape-shifting and evolving, both in terms of business activities and in terms of geography. "We're still not the most vibrant economy in the world," admits David Elesh, a sociologist at Temple University and an authority on area industry. "It's percolating along, but it's very difficult to see where we're going." ...

... Philadelphia "is very well located. There's a ton of talent here," says Walter Buckley, CEO of Internet Capital Group Inc. based in Wayne, Pa. Publicly traded ICG invests in companies on the business side of Internet marketing and services. As an example of opportunities, Buckley cites an investment ICG made in a Philadelphia company called StarCite Inc., a Web-based corporate events and meetings platform. "In the early 1990s, it was hard to build a good software business because not all the ingredients were there, especially in sales and marketing. That's changed. We're seeing entrepreneurs on their second and third company."

How this shapes the economic landscape isn't entirely clear. The traditional business and professional elite, who increasingly lived in the suburbs, kept the city under its thumb for many decades. This was the source of the view -- and the old jokes -- of Philadelphia as a dull, hidebound city (a view that clashes with the other myth of Philly folks as rowdy, loud and aggressive, particularly about sports). Some argue that feeling of exclusivity hasn't disappeared entirely and still impedes growth. "Philadelphia is a huge market. In some ways, it behaves like a smaller market," says John Salveson, who heads the executive search firm Salveson Stetson Group. "It can be a little closed, as in exclusive, a bit parochial." ...

... Not everyone agrees on just how much the city has recovered. "I do see the glass as half full," says an optimistic William Marrazzo, the CEO of legendary public broadcaster WHYY and a former engineering company executive.

John Milligan, managing principal of the Philadelphia-based accountancy practice Milligan & Co. LLC. isn't as upbeat. "I have a concern that if the city doesn't get healthy, a smaller base has to assume a larger share of the burden. That's going to drive even more people out," he says.

Like so many Northeastern and Midwestern cities, Philadelphia has long since lost its traditional economic touchstones. Gone are the textile, chemicals, armaments and steel plants that once defined the city's manufacturing base. The port along the Delaware River is almost moribund. ...

... An ability to retain employees is critical. "Those moving to Philadelphia generally don't know a lot about Philadelphia. After they've moved here, good luck getting them out," says Salveson, who sits on the boards of both WHYY and the Philadelphia Orchestra. "Philadelphia has so many benefits of a big city, and far fewer of the liabilities."

Gregory Segall, managing partner of local distressed buyout shop Versa Capital Management Inc., reflects that sentiment. He came to Philadelphia from Los Angeles 13 years ago on short notice to manage a company his firm acquired. He stayed on, even though Versa does deals nationally. "Philadelphia is vastly underrated. The quality of life, the schools, it's a great, great place to raise a family."

For many, the "city versus suburban hostility" lingers, and state government "has long viewed Philadelphia as not something they want to associate themselves with," says David Bartelt, a Temple sociologist. Even within the city there "are real cultural divides."

According to SDI Health's Kress and others, it's only in the past five years that the business elite has gotten serious about the notion of unified regional development. "A lot of the conversation used to be urban versus suburban, Philadelphia versus Pennsylvania, Pennsylvania versus New Jersey or Delaware," says Marrazzo. "Today the conversation and the efforts are more regional." He continues: "There's a real, sincere and conscientious attempt to build civic and economic endeavors around that approach."

An inchoate sense of regional economy is understandable. The so-called Highway 202 pharmaceutical corridor actually stretches more than 100 miles across three states. GlaxoSmithKline plc has major operations in two Philadelphia suburbs, but AstraZeneca US is based in Wilmington, Del., Merck & Co. is in Whitehouse Station, N.J., and Johnson & Johnson is further north in New Brunswick, N.J. And there's a lively biotech sector around Philadelphia and Princeton, N.J.

That's a lot to digest. Those of you familiar with Pittsburgh will see much of the same negatives (and positives) in Philadelphia. But the region has more going for it. Immigration is strong. The East Coast location is a boon. The above article also points out that the collection of universities and colleges is second only to Boston.

Civic prides stands in the way of Philadelphia leveraging those advantages. Local boosters seem more concerned with playing second fiddle to New York than how their city fits into the global picture. It's the same navel-gazing you find in every Rust Belt metro. Thus, policymakers are more concerned with retaining college graduates than attracting them. Why would anyone want to leave wonderful Philadelphia?

Philadelphia doesn't see its own strengths. As per usual, it takes an outsider. From the same article:

While life sciences and healthcare constitute the core of the new Philadelphia economy, they're by no means the only endeavor. Qlik Technologies Inc. is a business intelligence software provider that calls Radnor, Pa., home. It was founded in Sweden. As it picked up venture funding in 2004, financiers and management alike agreed that its headquarters should move to the U.S. However, company founder and CEO Lars Björk rejected the orthodox view that he should base the company in California or Massachusetts. "This is a very disruptive company. If everyone else is in the Silicon Valley, we're not," he says.

But Björk adds that his headquarters, which now house 75 of QlikTech's 700 employees, fit the bill from both business and personnel concerns. "We wanted to be close to the center," he says, extolling, like others, Philadelphia's location midway between New York and Washington and within striking distance of most of the Eastern Seaboard and some of the Midwest. Björk adds that it's easy to recruit, the talent pool is plentiful, and logistics are superb.

The natives just can't see this. They spend too much time wondering why Philadelphia isn't New York, Boston, or the Silicon Valley. There's a big niche to fill in between those rock star places. The vision for what the city could be is confused and, quite frankly, half-assed.

Philadelphia can afford to do what every other region is doing. I'm of the opinion that it does well largely in spite of the efforts and initiatives. The lack of regional coordination is a red herring, just like all the talk about brain drain. The grass isn't any greener over in those cities Philadelphia wants to be.

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