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Where the Old Economy and the New Economy Can Thrive Together

Written by Kim Zeuli
. This article was originally published on Governing Voices

Both traditional manufacturing and knowledge-based businesses are doing well in many of America’s inner cities. It’s really about entrepreneurs.

For older industrial cities, the pursuit of high-tech industries and a knowledge-based economy is typically positioned as an evolution away from their traditional manufacturing bases — replacing smokestacks with startups. Entrepreneurship and innovation have become so inexorably linked to new economic sectors in the public mind that city leaders may believe that the best way to drive entrepreneurial growth is to focus most of their resources on the new economy. That would be a mistake.

New data collected by ICIC identifies high-growth companies in Rust Belt cities that represent both the legacy and the knowledge-based economies. For the past 16 years, ICIC has identified the 100 fastest-growing firms in America’s inner cities as part of its annual Inner City 100 competition, which recognizes successful businesses and their CEOs as role models for entrepreneurship, innovative business practices and job creation in America’s urban markets.

This year we defined 10 industry categories in two broad categories: traditional or legacy industries (construction; food and beverage; manufacturing; retail; and transportation and logistics) and creative and knowledge-based businesses (arts, entertainment and recreation; health care and biotechnology; media and communications; professional services; and software and information technology). Ten high-growth companies were identified within each category.

Overall, the 2014 Inner City 100 winners have headquarters in 53 cities and 23 states. On average, the winners grew by 39 percent annually from 2009 to 2013. The average winning business employs 87 people, and collectively the businesses employ 8,276, hiring approximately 35 percent of them from the inner city. Not only are the winners powerful job creators in their communities, but they also help develop their employees: 73 percent provide business-skill training and 69 percent provide professional-development training.

These aren’t recent, untested startups. They’re established businesses that help drive economic growth. The average company is 17 years old. The average winner generated over $42 million in 2013 revenues, and two companies reported revenues of $1 billion or more: Diplomat Pharmacy Inc., a health-care and biotechnology winner in Flint, Mich., and Coyote Logistics, a transportation and logistics company in Chicago.

As our data shows, high-performing companies from both traditional and new economic sectors can be found in the same older industrial cities. Philadelphia is an interesting example. It claims five winners from both its manufacturing sector and from new growth in the arts, entertainment and recreation, media and communications, and professional services. John Pomp Studios, established by CEO John Pomputius in 2008, is a manufacturing business that specializes in luxury hand-crafted lighting made primarily from hand-blown glass. The company now employs 21 people and reported revenues of $2.6 million in 2013. Rodriguez Consulting, founded in 2007 by CEO Louis Rodriguez, reported $1.42 million in revenues in 2013 and employs 15 people. It specializes in engineering and geospatial solutions and creative applications of technology for large infrastructure projects.

Our diverse list of companies this year suggests that businesses in many industries benefit from competitive advantages in the inner city. In the early 1990s, ICIC’s founder, Professor Michael Porter of the Harvard Business School, distinguished four competitive advantages for businesses in the inner city: strategic location, unmet local demand, links to regional growth clusters and an underutilized workforce. The majority of the 2014 winners reported that their inner city location was an advantage to their business. Their proximity to major transportation hubs was cited as a competitive advantage by many of the winners from both the traditional and new economic sectors.

While many of the winners are taking advantage of the local labor pool by hiring at least some of their workforces locally, legacy industry winners hired a higher percentage of local residents, which isn’t surprising. Traditional industries such as manufacturing have always created accessible jobs for inner city residents. However, some winners also reported that the inner city location helps them attract and retain employees. This was particularly true for winners in the creative and knowledge-economy, many of whose employees seek out the lower living costs and dynamic, creative environment associated with some inner city neighborhoods.

These diverse businesses from traditional and new economic sectors may not simply be co-existing; they may in fact be helping each other thrive. Businesses in mature industries, such as manufacturing and transportation and logistics, may benefit from the new technology, new capital and new business culture injected by dynamic new-economy industries. In turn, the mature industries offer an economic base and infrastructure that can support businesses in new sectors and a community culture that attracts knowledge-economy workers.

Together, these businesses are fostering a creative environment that supports innovation. City leaders who understand the dynamics between new and legacy industries will want to focus their resources on entrepreneurs — no matter which side of the economy they come from.

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