Table of Contents

Executive Summary

Introduction

Recommendations

Branding

Networking

Government

Overarching

Characterization of the Technology Cluster

S.W.O.T. Analysis

Value Chain Analysis

Cluster Competitors and Their Success Factors

Suggestions for Future Study

Acknowledgements

Works Cited

Appendix A: Past Studies & Reports

Appendix B: A Case Study of Research Triangle Park

Appendix C: Full List of Considered Tactics

Branding

Networking

Government

Executive Summary

Three strategies for developing Northern New Mexico’s economy beyond its government base were synthesized. These strategies and the tactics within them are products of publicly-held meetings with the private sector. By following the recommendations set forth, a stronger technology cluster in the region will arise, creating jobs, wealth, and economic diversity.

The overarching recommendation for the Technology Cluster is to identify a private sector group or organization to implement the branding, networking and government recommendations, thereby creating both central leadership and a driving force for the cluster. Through meetings following completion of the Technology Cluster Strategy, REDI has identified the Northern New Mexico Chapter of the New Mexico Technology Council (NMTC) as the Technology Cluster leader and implementer. REDI and NMTC have developed a scope of work for NMTC to implement the branding and networking recommendations in 2010 and 2011, pending funding from REDI, and as described in the Technology Action Plan at the end of this document. Government recommendations will be considered in future years, and may be implemented by NMTC, if the organization develops policy and advocacy capabilities within the next one to two years.

Introduction

The Northern New Mexico Regional Economic Development Initiative (REDI) is one of Los Alamos country’s Progress through Partnering initiatives, funded by increased gross receipts tax revenue from the change in Los Alamos National Laboratory’s (LANL) contractor status, and is cooperated with the counties of Los Alamos, Rio Arriba, Santa Fe, and Taos (Northern New Mexico). REDI developed a regional economic development strategic plan in February 2009 which involved a four-cluster industry development approach. The following report is focused on strategies and action steps involved with the technology cluster strategy, and was prepared by a group of 2009 summer MBA interns at LANL’s Technology Transfer division.

The team involved with the project held a series of three public meetings to solicit research and ideas on how to develop the technology cluster in Northern New Mexico. In parallel, an evaluation of the technology cluster’s seven segments against a competitive framework was conducted. The seven segments of the cluster as defined by the REDI report were Energy & Environment, Aerospace, Bioscience/Life Sciences, Imaging/Detection, Nanotechnology, Optics/Photonics, New Media, and Information Technology. Each segment was treated as a cluster for the purposes of evaluation and comparison to analogues using Harvard Business School’s Institute for Strategy and Competitiveness Cluster Profiles project (HBS: Institute for Strategy and Competitiveness, 2008).

Recommendations

The following tactical recommendations are grouped under three categories of strategies, alongside an overarching strategy. These strategies are laid out in order of priority in addition to the tactics under them. Although the creation of all possible strategies and tactics was a result of MBA-conducted secondaryand primary research, the following list represents the items which were voted on by the private sector and are representative of that voice’s opinion.

Branding

Brand NNM as a place of a culture of innovation. Anchor this claim behind the national laboratories and strategically leverage Albuquerque as a proximal asset for travel, capital, and academic resources by way of the Rail Runner

  • There is work underway to suggest that a technology conference be held in Northern New Mexico in 2010, with a branding effort done in parallel. This initiative may not pursue the goals of long-term branding and multidimensional marketing channel approach, which is what is suggested here.

Seek out motivated, independently-minded entrepreneurs of the “Young Professional” demographic and try to lure them to the region by highlighting NNM’s natural strengths

  • There seems to be no existing initiatives around this tactic currently

Create a web-video (YouTube subscription channel with periodic updates of new videos) & TV video campaign highlighting NNM as technology hub

  • Although a YouTube video is for Southern New Mexico is publicly available for tourism (), NNM should establish a subscription channel for technology marketing which would be periodically updated with a new focus of its technology competency.

Networking

Harmonize the Northern New Mexico professional networks into one communication medium

  • Santa Fe Business Network (LinkedIn group) has a broad, unilateral reach to individuals in NNM and may serve as a“meta” layer over the other organizations.

Consortium of business leaders who can work with local colleges to help them understand graduate needs in future, and can get programs to meet those needs

  • There exist conferences in New Mexico which try to attract academic participants in addition to private industry attendees, however the conferences do not communicate the needs of the industry to academia in a direct, accountable fashion.

Target the Young Professional demographic to NNM networking events, via free food and spirits, in order to invigorate the attendee presence and bring in fresh ideas

  • New Mexico Technology Council (NMTC) hosts a regular “Beer and Gear” event, but the topics of such meetings may solely attract young professionals. The successful elements of the Beer and Gear event, alcohol and interesting topics, should be designed into existing organizational meetings to lure an additional, new audience.

Government

Extend the tax relief offered by New Mexico Partnership, for a select group of industries, to a broader group. The current ‘High Wage Jobs’ tax credit offers incentives for businesses adding skilled employees, but it does not offer incentive to hire lower-wage support-staff (whose wages may still be above-median depending on the region).

  • For more information on current tax-credits, and where there may be gaps in the tax-incentive code, see:

Develop a repository of completed grant work within the state (grants funded by the state for research, those funded by in-state universities, or those funded by the federal government and completed in New Mexico). Make the repository available as a ‘knowledge source’ for university researchers and students to access. Sponsor lab-space in local universities and research institutions for students and professors to pursue further advancements of the grants’ scientific results. As a model, the National Science Foundation recently awarded University of North Carolina at Chapel Hill money to fund a similar effort. Information may be found at:

Establish more grants that give would-be entrepreneurs money to pursue a business project.

  • Several members of the NNM business community expressed concern at the lack of funding available (as grants, loans, or small equity investments) to develop their businesses after they have run through initial funds from sources such as LANL’s VAF awards. Their concern is that if their ventures are perceived as ‘too risky’ by venture capitalists or earlier-stage angel investors, they will run out of funding to develop prototypes, initiate manufacturing, or undertake other critical business functions.

Overarching

Establish follow-up of REDI implementation which a private firm-composed panel

  • The New Mexico Technology Council has a Board of Directors populated with leaders in academia, the private sector, and the public sector. TheNMTC organization would be an excellent driver of this report’s tactics and would ensure the follow-through of the recommendations put forth.

Characterization of the Technology Cluster

The construct used to evaluate the competitiveness of the technology cluster in Northern New Mexico is Michael Porter’s Determinants of Cluster Competitiveness Diamond. The diamond framework characterizes aspects of the cluster into five interrelated groups: Input Conditions, Related and Supporting Industries, Demand Conditions, Context for Strategy and Rivalry, and Other. Porter used this device to steer a meta-study of clusters throughout the world. The insights gained from the study are crucial to establishing a sustainable technology cluster in New Mexico. One such insight is that a cluster which solely relies on Input Conditions is doomed to be an uncompetitive player. Instead, a balance effort to strengthen all the diamond edges with an emphasis on Input Conditions as the first priority will lead to a competitive cluster in the global field (van der Linde, 2003).

The same template used in the meta-study was employed for every segment of the technology cluster in NNM to determine the state of the cluster’s competitiveness. Because the segments were had a nominal population of firms in each of them, gathering detailed information about each segment proved to be challenging. However once each of the seven templates was populated, scores were averaged across the segments to give a broad overview of the technology cluster as a whole.

The result was that the technology cluster was rather weak (Porter’s label) and was not changing for the better or worse. Although the five groups were in the correct proportions of strength, each group needed to be amplified to have a significant contribution to the competitiveness of the cluster.

S.W.O.T. Analysis

Strengths:

  • Cultural diversity
  • Arts & Culture (Native American, Opera, Spanish market)
  • Climate and Outdoors
  • World renowned institutes (SFI, LANL, INFOMESA)
  • Local orgs supporting econ. dev (RDC, SMDC, SFEDI)
  • Tourism economic base
  • Many private schools
  • Ample government employment
  • Favorable tax and regulatory environment relative to some other major states (e.g. CA)
  • Large population of people with second hones and retirees
  • Publicly available high performance computing (NMCAC)

Weaknesses:

  • Weak primary & secondary public education
  • Poor marketing link in value chain
  • Low number of successful LANL spin-offs
  • Socio-political climate discourages explosive business growth
  • Some infrastructure issues
  • Lack of affordable housing
  • Workforce quality
  • Population is sparse and isolated from rest of NM

Opportunities:

  • Supporting Arts & Culture Industry
  • Collaboration of governments at many different levels (county, city, region)
  • Foster pueblo cooperative projects
  • Attract film industry
  • Leverage research capabilities of local institutes
  • Attract the businesses and talent leaving problematic states (e.g. CA)
  • Right-sizing business growth to gain socio-political buy-in
  • Education 2.0 around technology, products, and services (e.g. remote education)

Threats:

  • Water sustainability
  • Elected officials support recruitment rather than entrepreneurship
  • Roads
  • Weak telecommunication infrastructure
  • Ample government employment competes for skills, talent, and ambitions
  • Declining federal budget at LANL
  • 20+ years to fruition

Value Chain Analysis

As documented in the Regional Economic Development Strategic Plan (REDSP), prepared by the Regional Development Corporation in February of 2009, 156 companies in the technology, new media/IT, and energy/green business clusters have been identified in the Northern New Mexico region. Of these, 51were identified as technology companies. The authors used the categorization from this report to create Figure 1 showing the distribution of these companies throughout the value chain.

(a) (b)

Figure 1 –Value chain distribution of companies identified in the Northern New Mexico Region. Chart (a) shows the distribution of companies in the technology, new media/IT, and energy/green business clusters. Chart (b) shows the distribution of companies identified as part of the technology cluster.

Of the 156 companies identified, 75 were categorized as R&D companies, 25 were categorized as production, integration, or manufacturing companies, and 41 were categorized as retail companies. Within the 51 companies of the technology subset, 32were categorized as R&D companies, 11were categorized as production, integration, or manufacturing companies, and 7 were categorized as wholesale and distribution companies. In both groups, a heavy regional focus on research and development can be observed, understandable based on the world class research facilities that exist in the area. Past the R&D majority, it is interesting to note that there is a lack of companies at the prototyping and marketing points in the value chain and a relatively small numbers of companies at the Export/Wholesale point.

The significant absence of firms involved with marketing/distribution and design/prototyping presents a potential problem for the success of the cluster. Although these two pieces of the value chain may be outsourced to different geographies or contracted on a virtual basis, the R&D leadership of the region will inevitably suffer if great ideas lose momentum on the “last mile” of the value delivery process. Moreover, a stable, virtual chain link can only be installed in the NNM value chain if well developed and mature links exist before and after the virtualized link. The nature of technology firms in this area is both nascent and myopic (for good reason at such a stage in a business’ evolution process), suggesting a dynamic marketing or prototyping chain link is unlikely to be successful.

A challenge cited in the REDSP is a lack of management firms in the area that can assist entrepreneurs in growing their business, based on only a small number of firms in the area that specialize in this area. The report recommends attraction and creation of such companies, as well as improvement of the connections between existing management companies and entrepreneurs. It is also noted that management companies focused on the New Media segment of the Media cluster are present and could potentially be engaged to aid growth of a tech cluster.

Another challenge identified in the REDSP is the understanding of the value chain that is present in the area. R&D firms can potentially focus on manufacturing of their inventions, whether or not they have the requisite skills and expertise to do so. The report cites a need for better information for entrepreneurs about how to get their technology to market, including options such as sale of the technology or acquisition of the firm itself. It then goes on to recommend strategic recommendations based on the limited manufacturing capabilities of the area, suggestions to explore development of prototyping firms in the Espanola/Pojoaque valley, and potential partnerships with other regions with strong manufacturing capabilities.

Cluster Competitors and Their Success Factors

Because the term “technology cluster” can encompass many different specialties, the sevensegments defined in the REDI plan were used as a basis for comparing against other global clusters. Those segments are Aerospace, Bioscience/Life Sciences, Imaging/Detection, Nanotech, Optics/Photonics, New Media, and Information Technology.

(1) Aerospace – Seattle Region

Seattle’s aerospace cluster dates to 1910, when Washington native William Boeing moved to the city with the intention of starting an airplane business(Seattle: History, 2006). Six years later his seaplane completed its first successful flight, and Boeing’s dream became reality. Boeing became something much larger over the decades than even its founder could have imagined. Of the four or five major aerospace companies that drove the industry’s growth in the twentieth century, all are now part of Boeing. Experts estimate that for each person Boeing hires, an additional two jobs are created elsewhere in the region to support that growth (NWA Spotlight).

These suppliers, however, as well as government officials, do not sit idly by expecting Boeing’s growth to keep the region’s aerospace cluster strong. Instead, a coalition of government-sponsored groups from SnohomishCounty and Seattle, and the region’s Aerospace Trade Association, began formulating aerospace cluster initiatives earlier this decade (Aerospace Cluster Initiatives). The outcome of their efforts was an action plan, developed in 2005, assigning responsibilities for five initiatives to local government and business coalitions.

Key Takeaways:

  1. The cluster’s creation was partly luck, but focused efforts to keep Seattle an aerospace center have resulted in continued growth in the area’s high-tech job market.
  2. Local Boeing suppliers did not wait for the government to take the lead; they created a consortium of small- and medium-sized businesses to champion their cause.
  3. Together with government, local aerospace businesses launched a ‘Workforce Development Initiative’ to ensure ready access to skilled labor for companies, thereby reinforcing their choice to stay in the Seattle area.

Each initiative included key milestones and steps to get there, as well as key persons responsible for achieving those milestones. Each initiative’s objective was clearly defined to better its chances of success.

Key takeaways applicable to the Northern New Mexico Project:

The aerospace industry has evolved into one where a few end-producers rely on hundreds of suppliers, each of which usually specializes in just a few components of the overall plane or spacecraft. In Seattle this model works because of Boeing’s presence. But in Northern New Mexico, the very few aerospace companies that exist are unlikely to coalesce into a unified cluster without the presence of a larger company closer to the final production stage.

The presence of Los Alamos National Laboratory increases the chances, however, that aerospace-focused lab spin-off companies may thrive in Northern New Mexico. While its inventions are not all available to the public, the lab still stands as a center for aerospace innovation with, for example, its Space Data Systems group.

Rather than by attempting to lure aerospace companies to the region, Northern New Mexico is likely to see success in this sub-cluster another way. Its best opportunity is to nurture a small, but diverse and growing group of aerospace start-ups in the region while they build contacts in Albuquerque, Seattle, and other cities with a greater aerospace presence.