Information Technology

Policy

Overview

During the last three decades as the IT industry has experienced substantial growth, North Carolina has been increasingly successful in attracting investments from a variety of IT firms differentiated by size, geographic reach, and technical function. In doing so, North Carolina has carved a unique niche within the southeastern portion of the US, that has and continues to generate significant economic growth, as well as new to the world innovations and patents. Through a number of available state-issued subsidies, IT firms of all sizes have access to numerous financial mechanisms to grow their businesses in North Carolina. Essential to North Carolina’s ability to successfully attract and retain IT firms has been the state’s continued development of its Research Triangle Park (RTP). Through its attractive its high-tech cluster model, IT firms of all sizes (from small start-ups to large multinational corporations) are attracted to RTP for the enhanced opportunity RTP offers to leverage collective efficiencies and promote firm competitiveness. Further unpacking these important elements this section sheds a more thorough light on the successes of North Carolina’s IT industry.

top

State-Level Policies
Corporate Incentives

For every dollar in its state budget, North Carolina spends 3¢ on incentive programs for businesses each year (5).  The annual total of at least $660 million per year can be broken down into the following categories:

  • $395 million for sales tax refunds, exemptions or other sales tax discounts;
  • $202 million in corporate income tax credit, rebate or reduction;
  • $32.8 million in property tax abatement (1).

Over the last decade, 2004 -2014 IT related firms have topped the list of largest state-issued subsidies granted to private sector firms, across all industries. The specific recipients were: Apple (Maiden, NC) for $320.7 million; Dell (Winston-Salem, NC) for $279 million; and Google (Lenoir, NC) for $254.7 million (2).  Each of these subsidies, although slightly different, included a number of provisions for retail and income tax abatement, job creation and investment minimums.  For example, in the case of Apple in 2009, it agreed to invest $1 billion and create more than 300 permanent jobs, plus another 2,700 ancillary jobs would be needed for construction and infrastructure development. In addition, Dell in 2004 committed to a $100 million investment to create 1,700 permanent jobs. While in 2007, Google signed on for the creation of at least 210 jobs and a $600 million investment in the state.

Beyond these three ‘mega deals’ (single packages worth over $75 million in value), numerous other IT-related firms have received  various amounts of state subsidization to incentivize their participation and continued investments in North Carolina. Examples of a few are: GE ($50.8 million), IBM ($48.2 million) Netapp ($47.8 million), SAS Institute ($5.5 million), and Verizon ($9.7 million) (2). Amongst the most common tax credits used to IT firms in North Carolina are: Interactive Digital Media Tax Credit; Renewable Energy Tax Credit; and Technology Development Tax Credit.
Public-Private Initiative: Research Triangle Park (RTP)

The North Carolina RTP is the one of the largest research parks in the world.  RTP is an annexed area between Raleigh and Durham and is governed by the Research Triangle Foundation. Of the 194 different organizations in the 7,000 + acre-park, more than 80% are multinational companies, and 84% of them are research and development-related organizations. Others comprise of university spinoffs and entrepreneurial financed start-ups. Distribution of employment between firms reflects somewhat of a national microcosm in size: 71% employ less than 50 workers; 24% employ 50 to 999 workers; and 5% employ more than 1,000 – with 2% employing more than 5,000 (3). More than 40,000 employees work at RTP, 91% of which work for R&D-related organizations. These statistics alone continue to make RTP one of the most dynamic parts of the increasingly globalized North Carolina economy. These organizations span the gamut of industries, including: information technology, biotech, life sciences, pharmaceuticals, gaming and e-learning, nanotech, clean and green energy business services, public health, international development, and especially as of a 2014 Presidential initiative, semiconductor development (4; 5). Amongst the largest IT employers in RTP are IBM (9,000 + employees), SAS Inc. (5,000 + employees), and Lenovo (2,500 + employees).

What makes the RTP attractive?
Research Triangle Park in North Carolina is a landmark public/private initiative, created in 1959 by leaders from business, academia and industry; specifically and primarily by the then state treasurer, president of Wachovia, and a large local builder. The idea for RTP was originally brought to fruition in an effort to curb North Carolina’s growing brain drain as business/technology clusters in other states were attracting top talent away from North Carolina. In addition, at the time of its founding North Carolina’s per capita income was one of the lowest in the country at only $1,049; RTP founders had the distinct vision of RTP being a significant driver for improving incomes and generating much needed economic growth (6).
The strategic agglomeration model of RTP is based on the logic of research/technology/industrial clusters – as put forward by the economist Alfred Marshall in the 1800s and later expanded on by others like Kenneth Arrow and Paul Romer - and more recently by Michael Porter (6). The basic principle behind clusters being that geographic agglomeration of related and ancillary support companies allow for collective efficiency and improved competitiveness for the cluster as a whole, as those within the cluster can tap into and leverage the multitude of resources and capabilities made easily accessible to the cluster. The founders of the park strategically located RTP between the major cities of Raleigh, Durham, and Chapel Hill, which make up the ‘triangle’ region, and importantly placed RTP at arm's length from some of the most prestigious research institutions in the United States: Duke University, the University of North Carolina at Chapel Hill, and North Carolina State University. The ability for RTP to collaborate and draw on a talented and highly educated workforce has been a significant contributor to its success and growth. This collaborative cluster arrangement has also driven substantial innovations in RTP, with original patents totaling over 3,500 in 2013 (8).

Companies are attracted to the Triangle for monetary as well as structural reasons. The main managing body of RTP is the Research Triangle Foundation; however, it does not directly offer funding or grants to locate within RTP – though the Foundation does help facilitate companies in accessing such resources from affiliated public and private entities (9). In addition to offering a great labor force and connections to the leading universities of the nation, the state of North Carolina offers vast corporate incentives to companies that plan on moving to the Triangle area, including industrial revenue bonds, tax exemptions, business energy improvement loans, and other assorted grants and funds. The state government supports the RTP in more ways than just the apparent corporate incentives packages. The government funds costly renovation programs for state highways near RTP, one of which, I-40, passes directly through the park, and the Raleigh-Durham (RDU) Airport, which serviced over 9 million passengers in 2013 (10), and is located only five miles from the park.

Factors of Success
The continued success RTP is often attributed to four primary factors:

  1. Timing and Vision– the founders of RTP had immense foresight and were able to bring together the right people (public and private officials and entities) at a time of great economic need and opportunity;
  2. University Partnerships – the benefits of access to world class human capital vis-à-vis close working and physical relationship to three prominent technical research institutes cannot be overstated;
  3. Clusterization – high-tech clusters have become a world renowned development model and RTP’s capitalization of the cluster model offers further proof of its unique potentials;
  4. Commitment – long-term state, private and industry association commitments have enabled the necessary investments required for the kind of continued growth RTP has sustained.

A modern example of the continued commitment to the advancement of RTP is evidenced by a recent commitment by RTP foundation to modernize and generate a more urban feel to the traditional suburban design model that RTP has resembled since its original development. In February 2014 the RTP foundation announced its plans to develop new commercial and residential centers on 409 acres in the middle of RTP.  The proposed development, while only in its initial stages at time of writing, is projected to attract more than $2 billion of private investment and more than 100,000 jobs (7).

References
  1. NY Times. (2012). “United States of Subsidies: North Carolina” Retrieved February 21, 2014 from www.nytimes.com/interactive/2012/12/01/us/government-incentives.html#NC
  2. Good Jobs First. “Subsidy Tracker”. Retrieved March 11, 2014.
  3. Research Triangle Foundation. “RTP companies”. Retrieved March 1, 2014.
  4. NCSU. “Manufacturing Innovation”. Retrieved March 11, 2014.
  5. Research Triangle Foundation. “Industries: RTP’s Contributions Span Sectors”. Retrieved March 11, 2014.
  6. Becker, C. (2013). “Birth of an Idea: The Creation of Research Triangle Park and Its Sustained Economic Impact on the Research Triangle Area.” Urban Economics. Retrieved March 11, 2014 from http://sites.duke.edu/urbaneconomics/?p=899
  7. INDY Week. (2014). “Research Triangle Park plans for the biggest changes in 50 years”  Retrieved on March 11, 2014
  8. Research Triangle Region. “RTP is the heart and hope of North Carolina’s industrial Future”. Retrieved March 11, 2014.
  9. Research Triangle Foundation. “Incentives”. Retrieved March 11, 2014.
  10. RDU Airport. “RDU Passenger Statistics and Activity Reports”. Retrieved March 11, 2014.

top