Executive Brief - Evolving Nature of “Tech Hubs”

In TAO’s November Executive Brief, I wrote about the evolving importance of place and connections between tech companies developing similar technologies. I also shared a bit about how TAO’s approach to our programming, events and community building work is also evolving to meet these changing preferences. In this Executive Brief, I will expand on these themes, touching on the evolving nature of “tech hubs”, and share some observations about what this means for TAO’s work in 2024 and Oregon’s approach to economic development more generally.A recent study by Richard Florida and a couple of other researchers looked at the rise of a new(ish) phenomenon, enabled more so by the rise of remote and hybrid work, of workers living in one place but sharing an economic connection to the city in which their employer is located, which they term “Meta Cities”. According to the studies’ authors, this phenomena has major implications for policy makers and elected officials who care about economic development.The basic premise is that Global Superstar Cities have a concentration of significant headquarter companies and also talent, and that these cities are now starting to reap economic rewards from talent living in other cities who work for companies headquartered in Superstar cities. The study also describes cities that qualify as Talent Hubs—they don’t necessarily have a large concentration of headquarters, but they are attractive to talent. For example, the studies authors posit that Miami is effectively a Talent Hub with a significant portion of that talent working for companies headquartered in Metro New York City.For Oregon to be home to a Global Superstar City as defined in the Richard Florida study, the Greater Portland Region needs a high concentration of company headquarters and talent.When it comes to headquarters in the Oregon tech sector, we have a long history of losing headquarters to other markets once companies reach a certain size/profitability through a combination of acquisitions and relocations. While we do not have anywhere near the diversity of large, headquarter anchor tech companies such as CA, WA or Silicon Valley, what policy changes would make Oregon the most competitive business environment on the West Coast for both small and at least somewhat larger, growth-oriented tech businesses? Oregon’s startup ecosystem is #1 in the country among major startup hubs for startup companies that survive year one. How do we ensure this is also true in years 3, 5, and 10+?The concept underpinning “Meta Cities” is not a new one for TAO. Between our involvement in and leadership roles with Technology Councils of North America (TECNA), work with international trade partners, collaboration with NIST focused on Smart Cities standards and community development, to our participation a couple of weeks ago at CES through a partnership with the Consumer Technology Association and Business Oregon, we regularly seek best practices and collaboration opportunities across established and emerging tech hubs, as well as opportunities to ensure Oregon is known as a hub for innovative R&D and incubation, as well as talent.The Portland Metro Region and the Bend Metro area are quite strong when it comes to the talent factor in Richard Florida’s study, and Greater Medford is on the rise. To be sure, in a different study released this fall, Greater Portland is #9 among major metros in the U.S. when it comes to cutting edge tech talent and Greater Bend is #5 among small cities, and Medford is in the top 50. And in some cases, we are off the charts when it comes to R&D and design-related talent.

However, our ability to continue as a Talent Hub is not guaranteed. We should be continuing to look for ways to support and grow these satellite operations, many of which are significant contributors to Oregon’s economy and the broader community. Such a strategy requires that economic development officials seek to understand the importance of a company’s Oregon operations relative to other Talent Hubs where that company has operations. For example, a number of Oregon tech companies spanning hardware and software have growing connections with tech hubs elsewhere in the U.S., such as Greater Dallas-Fort Worth as well as Greater Atlanta. These companies are headquartered in Oregon and are expanding into other talent hubs. Why? What is missing among the talent base here in Portland? What is our strategy to address these gaps? What are our relative strengths? This should be on the radar of economic development and workforce officials in Oregon.At the end of 2018, I was invited to present to the board of directors of TAO’s counterpart in Dallas about our work in Oregon. From that presentation TAO secured one of our larger member companies and one of our more active board members, who now splits his time between Dallas and Oregon. Two weeks ago at CES, we organized a networking event with our counterpart from Pittsburgh, which is a global hub for robotics and had several robotics companies in attendance. Oregon has one of the hottest robotics startups in the country in the form of Agility Robotics. Sure enough, every robotics company from Pittsburgh at the event was interested in chatting with Agility. Agility’s CEO lives in Pittsburgh. And Oregon has one of the top 5 robotics programs in the country at OSU plus relatively cheap, capital-efficient proximity to other markets, including other talent and capital hubs on the West Coast. That’s a compelling value proposition for robotics companies looking for a West Coast office location. And on the East Coast, we have a large collection of member companies with offices clustered in Boston, Northern Virginia/D.C., North Carolina, Greater Atlanta and Florida, respectively.All of this is to say that talent and economic development efforts focused on company expansion, retention and recruitment must be centered around a comprehensive talent strategy, with an eye toward what makes our tech hub unique relative to others. Moreover, concentration and accessibility of talent is also essential to any growing company headquartered here. According to Richard Florida’s study, these trends have only accelerated since the start of the pandemic.In Oregon, however, public sector economic development efforts are nearly completely siloed from workforce efforts. Business Oregon oversees economic development and workforce development is overseen by the Higher Education Coordinating Commission or HECC and associated boards.There are a few notable exceptions where local workforce boards have developed “Sector Strategies”. Essentially, these are economic development strategies for a particular industry, centered on talent-related needs of that industry. These strategies also take into account the amenities/factors that are attractive to talent in a given industry. Lane Workforce Partnership deserves credit as an early innovator—not just locally, but nationally–having been recognized by the Department of Labor and White House (disclosure: TAO partnered with LWP in this effort and continues to do so today, as does CEDO in Eugene).Our near-term reality is that our relatively high cost of living (housing, taxes) is threatening our position as a talent hub and satellite of a global superstar city—the San Francisco Region. In terms of housing affordability, we experienced over the past 15 years what Miami and Austin have recently experienced in an even shorter period. How emerging tech hubs respond to the affordability crisis will play a large role in determining which of these cities continue to attract and retain talent and thrive. Importantly, Governor Kotek’s signature piece of legislation in this year’s short session is a $500M affordable housing package designed to expand Urban Growth Boundaries as well as provide incentives to builders. In conversations with tech company executives in the Portland area, Bend and Hood River, expansion of affordable housing options in Oregon is imperative to ensure continued growth of their businesses in the state. Another important determinate will be which communities can transition from Talent Hubs to Superstar Cities by supporting the growth of startups in the area, retaining headquarters as those companies scale.Companies continue to outsource talent from and locate satellite operations in other countries that have lower costs. This is a threat to US-based Talent Hubs. But companies rarely outsource critical design and R&D, and U.S. policy is now actively promoting U.S.-based investment related to these activities. R&D jobs also have some of the highest wages and are the most resilient, which helps in the face of rising housing costs and also disruptive tech like AI and other forms of automation.We have a great talent foundation here already, but another challenge going forward is the need to further diversify that talent base. Ensuring that local companies have inclusive, equitable cultures is critical. However, that alone is not enough. High-performing talent from all backgrounds seek out places that offer ample and growing opportunities to be near a critical mass of similar types of companies, ideally with a sufficient supply of affordable housing as well. Fully remote work is great for professionals who do not need or want to advance further in their careers, but more and more studies are pointing to the need for proximity to offices and other workspaces for professionals who are starting and/or still advancing in their careers.In the short term, we need to continue to strengthen Oregon’s R&D environment with policies, workforce programs, and economic development initiatives centered on strategies that develop, retain and attract R&D operations, headquarters, and diverse talent. In addition to expanding Oregon’s R&D tax credit to cover more businesses, we should also adopt a capital gains tax credit that rewards people who have tax liability in Oregon for investing those gains in Oregon-based businesses. Many other states have similar programs.Prior to the pandemic, the Oregon legislature decided not to renew the state’s R&D tax credit program. In the 2023 legislative session, TAO advocated that the legislature should reintroduce an R&D tax credit covering semiconductors and related businesses as well as advanced manufacturing more broadly, especially with an eye toward federal CHIPs Act funding and investment opportunities. Ultimately the legislature, which has an almost entirely new composition as of 2023, passed a bill that applied to semiconductor companies and related businesses, which is a start. In fact, that legislation, coupled with a $500M incentive package, has resulted in nearly $40B in semiconductor-related investments committed to the state.At the federal level, this past fall and into 2024 we launched a multi-pronged advocacy effort (along with our TECNA peers) focused on addressing amortization issues related to the federal R&D tax credit (codified in Section 174 of the Tax Fairness and Jobs Act of 2017), which go into effect for the 2022-2023 tax year and will significantly increase the tax liability of many Oregon businesses that engage in R&D. Oregon Senator Ron Wyden is now helping to lead an effort in Congress to get a bill passed that would address the amortization issue as part of a larger federal funding package, which also includes an expansion of the early-childhood tax credit.Additionally, TAO is working to further strengthen its relationships with higher ed institutions around the state both in respect to federally-funded Tech Hub designations, State-funded Innovation Hubs, the establishment of the new Oregon Cybersecurity Center of Excellence, and also in talent development efforts more generally. TAO is serving on the Executive Committee of the Future Ready Tech Consortium and will soon be joining the Workforce & Talent Development Board, which oversees workforce strategy for Oregon.In the longer term, as a state, we need to address some of the systemic issues related to a workforce system that is siloed from economic development as well as tax policy that produces inconsistent revenue for the State and disadvantages Oregon businesses and talent retention and recruitment efforts. Only then will we be able to ensure that successful startups that launch here can continue to grow here, retaining their headquarters in Oregon and helping this region to become home to Global Superstar Cities.When you support TAO through membership and sponsorship, you support some of the region’s most relevant (and fun!) programming and events, but you also support an organization that is working hard on behalf of innovative businesses across the region through advocacy, economic development and workforce-related efforts designed to position Oregon and Southwest Washington as a world-class, inclusive, innovation economy. We hope you can count on your support in 2024. We have a lot of work ahead of us, and we need your participation and support.