Thursday, May 06, 2010

Geographic Arbitrage Opportunities In Youngstown

Jim Cossler, chief executive at the Youngstown Business Incubator, said the story already has garnered the attention of start-up businesses interested in moving to Youngstown.

A start-up from Austin, Texas, that was considering relocating to the incubator decided to make the move after seeing the article, Cossler said.

“I think it is just one more piece in our arsenal,” Cossler said. “It is telling a new Youngstown story, and that has people excited.

That's right. A start-up left Austin, Texas for Youngstown, Ohio.
----------End Update----------

My post about rail transit for Cleveburgh has generated an interesting conversation. The crux of the exchange concerns the value of high-speed rail between Pittsburgh and Washington, DC. Shrinking the distance between the two cities could make the geographic arbitrage opportunities in Pittsburgh more viable:

I was thinking about this today and my entire office could just as easily work in Pittsburgh without a problem at all. The only exception might be the sales staff which means a small satelite office and I'm not sure even that would be necessary. As someone who works in the defense and security tech sector in the DC area, many of our customers aren't local. They're coming from a military base somewhere else so being DC based confers no advantages in that case. Even agencies like the NSA want to decentralize so the part of the NSA a contractor may work with in the future may not even be in the DC area. Again it's the same thing.

There is also a lot of side benefits to signifigant portions the government, defense, & security tech in or linked to Pittsburgh. Since so much of the tech sector in the DC area is only here because of government in some way, the talent pool can sometimes be a bit insular. Being in or just linked to Pittsburgh would provide a broader based talent pool.

Generally, companies fail to take advantage of onshoring because they lack sufficient knowledge of places such as Pittsburgh. Ironically, they are more in tune with offshoring sites thanks to the well-established publicity about the benefits of locating in an emerging economy such as India or Ireland. In this regard, New York City is closer Bangalore than it is to Scranton. Scranton is aiming to change that:

Leaders in the Scranton, PA region, for that matter, crafted their Wall Street West strategy after 9/11 tobecome a redundant data solution for New York City’s financial firms. Their well-considered plans to house backoffice and secondary operations have garnered both federaland state support for necessary workforce and infrastructure investments, including a $25 million fiber optic network connecting Northeast Pennsylvania and New YorkCity to facilitate data transmission.

I think any kind of infrastructure improvements should focus on the above proximity benefit. Scranton is developing into an inexpensive alternative to New York City, a viable satellite city. Better to have a company relocate to Scranton than to another part of the world.

The emerging center of this value proposition is Youngstown, Ohio. The spread in this month's Inc. magazine is already paying dividends:

And the word is spreading quickly. [Eric Planey, of the Youngstown-Warren Regional Chamber,] said a couple in Chicago read the article earlier this week and came here themselves.

"They actually drove, without announcement or without an appointment, straight to the incubator and ... knocked on the door and said we'd like to have a software company," said Planey. "We'd like to start one. What do we need to do."

Apparently, the couple was considering offshore outsourcing options before learning about Youngstown. The software company employs about 40 people and is looking to double its workforce over the next year. Forget pricey and crowded Chicago. Welcome to Youngstown. Imagine what you could here if the connectivity with Pittsburgh was better.

I get the sense that the Inc. piece has helped Youngstown reach critical mass. In my next post, I'll drill down into the burgeoning return flow of talent. Expatriates are keen to get in on the action of urban revitalization.


John Morris said...

I pretty much agree with this totally---DC is the cleanest path into the region. However, there are mountains and curves likely to impede a really high speed rail. However slicing say the trip in half to less than two hours and radically increasing the frequency would be a highly significant improvement.

However, true arbitrage of meaningful long term value means including the wider area to the north of and west into Ohio.

Pittsburgh, itself is a place that could quickly run out of space. It's awesome as a kind of active brain, but the full body to the north and west in Ohio.

Without full strategic thinking, Pittsburgh alone could easily be another Portland or San Francisco. But with the body of Ohio and the greater midwest attatched all bets are off in terms of Opportunity.

This isn't really new thinking on my part. The B&O idea has some pretty old roots.

This is all about logistics.

Steve said...

Generally, companies fail to take advantage of onshoring because they lack sufficient knowledge of places such as Pittsburgh. Ironically, they are more in tune with offshoring sites thanks to the well-established publicity about the benefits of locating in an emerging economy such as India or Ireland. In this regard, New York City is closer Bangalore than it is to Scranton.

Jim, I'm glad you brought up offshoring and onshoring. Here in DC the business that could be moved/expanded can not be offshored for the most part. In many cases it's because of national security, but even with non-security business still may have regulations and other reasons that prevent offshoring. It's the nature of the beast, and the only thing that could change that would be if India became the 51st state.

As you correctly point out companies are much more familiar with offshoring than onshoring. What this means for companies here in the DC area is that they think they don't have any options.

Pittsburgh is in the right position to take advantage of this at least with the DC tech sector. It's close (and would be "closer" with HSR), has CMU (and thus a broader based tech talent pool), and can create geographic arbitage. Pittsburgh has a very good quality of life that it can provide and when it comes to transportation its quality of life is superior to DC.

It's good to see Scranton be able to use its proximity to NYC effectively. I wish Baltimore was able to use its proximity to DC as effectively instead of just limited bedroom burb for DC.

John Morris said...

It's kind of hard to say too much positive behind a lot of John Murtha's pork barrel contracts. But, the honest fact is that Johnstown makes a lot of practical sence as a place for defence plants.

Isolated town,"All American", with very few outsiders in a valley, yet close to Penn State, CMU, Pitt and Washington DC.

Jim Russell said...


Earlier this week, I read an article about the concern in Johnstown about getting along without Murtha's pork. We'll have to wait and see if the proximity outlives the man.

John Morris said...

Well, all I'm saying is there is a certain amount of logic to the location.

Pittsburgh, Moon, Washington, PA make even more sense. Even so, in particular cases isolation can be an advantage--like when one is dealing with high security stuff.

Look at where Camp David is.

I think Westinghouse's Cranbery choice combined lots of space for growth with decent logistics and also some level of isolation.

John Morris said...

Ooops, I sort of take what I said back. Johnstown still suffers from a pretty huge flash flood risk.

This kind of thing is a big, big practical issue in the Pittsburgh region. Looking for lot's of space that's well located fairly flat and not on a flood plain can be pretty tough.

And so much of what is there is so tragicaly wasted on sprawl housing, parking lots, stadiums and garbage retail.

And so you see the opportunity for Ohio.