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ViTAL Economy Alliance

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1 ViTAL Economy Alliance
CONNECT SI Southern Illinois: Garden of the Gods Readiness Assessment Chapter 1: State, National & Global Trends December 18, 2007; revised Feb 15, 2008 ViTAL Economy Alliance Frank Knott, Project Lead; Stan Halle, Senior Editor; Jim Haguewood, Rob Beynon, & Neil Gamroth, Principal Economic Researchers 1

2 Table of Contents EXECUTIVE OVERVIEW: the Big Picture & Importance of Change in Southern Illinois READINESS ASSESSMENT (RA) 1. State, National & Global Trends 2. Indigenous Resources & Industry Asset Mapping 3. Enabling Environment 4. Climate of Innovation, Incubation & Entrepreneurship 5. Southern Illinois Competitiveness 6. Regional Perspectives 7. Roadmap to Success APPENDICES 1.01 Globalization: The World is Flat 1.02 eCommerce & Connectivity 1.03 KBE and Innovation 1.04 Transformation of U.S. Economy 1.05 Livable Communities & Age of Choice 1.06 Manpower & Immigration 1.07 Aging Population 1.08 Tourism 1.09 Logistics, Transportation & Distribution 1.10 Energy 1.11 Conclusions 2

3 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" Rural communities typically focus on their local geographic area and have limited insight into the larger world around them. This chapter provides key trend information and what this means for Southern Illinois. Each of these trends represents potential opportunities for Connect SI. Chapter 1: State, National & Global Trends 1.01 Globalization: The World is Flat …….. 5 1.02 eCommerce & Connectivity ………… 16 1.03 KBE and Innovation ………………… 1.04 Transformation of U.S. Economy …… 39 1.05 Livable Communities & Age of Choice …………………………………. 56 1.06 Manpower & Immigration ……………. 67 1.07 Aging Population …. 74 1.08 Tourism ……………. 87 1.09 Logistics, Transportation & Distribution ..…… 1.10 Energy .…………… 1.11 Conclusions ………

4 Understanding Trends is Critical: Assumptions are Often Wrong
Chapter 1: Perspective “American business must embrace globalization as the new reality or risk losing their place in the economy of the future. There are others out there willing to do the work if we aren’t.” - “Globalization: The New Reality” Univ. of Wisconsin Journal Of Management In Engineering / Nov/Dec 2000 “I think there’s a world market for maybe five computers” - IBM Chairman, 1943 "The range of what we think and do is limited by what we fail to notice. And because we fail to notice that we fail to notice, there is little we can do to change, until we notice how failing to notice shapes our thoughts and deeds.” - Dr. Ronald Laing, Scottish Psychiatrist & Philosopher

5 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" Certain events, new technology and other shifts over the last two decades have fundamentally changed the rules of competition world-wide. Southern Illinois (SI) is now a virtual neighbor with every corner of the globe — and, as such, can do business with any and all of them. Chapter 1: State, National & Global Trends 1.01 Globalization: The World is Flat

6 Globalization: The World is Flat — Overview
Tom Friedman’s book “The World is Flat” provides many insights about how dramatically the world has changed over the last two decades While any one of the ten (more recently eleven) flatteners could be viewed as a notable trend, it is the cumulative effect of the whole set that is truly profound Taken together, these flatteners have opened up the world to everyone Barriers to entry have all but disappeared regarding almost any business, particularly those knowledge-based Size doesn’t matter as much as what the Region brings to the table Combining the unique assets of a region, packaging these in a compelling manner, using connectivity to its fullest — are the key enablers Moving goods & services has become far easier than moving people — a Thai farmer can sell mangos to Carbondale, but may find it rather difficult to visit Every business in the world is now competing with each other in a closer and more intimate way

7 Results of Not Playing on the Global Stage
1.01 Globalization: The World is Flat Reduction of trade barriers & increased capital investment flow internationally have fueled this dramatic growth 5.62% Average Annual Growth Rate % 3.14% 2.19% 1.34% AAGR = Average Annual Growth Rate SI’s economy has not achieved potential due to not effectively participating in the Global Economy Source: “State of Working Illinois”, by Northern Illinois University (Nov 2005); “21st Century Workforce” (May 2004); IMF

8 Ten Flatteners: Intro 1.01 Globalization: The World is Flat 1 Global unification under the auspices of capitalism 10 2 Computing speed, file sharing, wireless Web-Browsers equals technology for grandmothers Fall of the Berlin Wall Amplifying Technologies 9 New Age of Connectivity Ability to build & maintain your own supply chain (Google) 3 Web-based standards Workflow Software Informing Ten Flatteners 4 8 Open- Sourcing Self-organizing collaborative communities (Apache, Wikipedia) Insourcing Third-party managed logistics Supply Chaining Outsourcing Off-Shoring Turbo-charged by the bubble Horizontal collaboration (Wal-Mart) The following five slides explain each of the Ten Flatteners in more detail China joins WTO 7 5 6 Source: “The World Is Flat”, by Thomas Friedman

9 The World is Flat: Ten Flatteners
1.01 Globalization: The World is Flat Berlin Wall Comes Down November 1989 Millions of highly skilled engineers, scientists and technicians became available to serve the global market at bargain prices Human resource marketplace became global. Firms access best practice skills at competitive prices anywhere at any time. SI workforce supply chain must benchmark its performance against global best practice education & training When Netscape Went Public, August 1995 from PC-Based to Internet-Based Platform The Internet became the medium for electronic communication. Anyone could communicate with anyone else on the planet without regard to boundaries Vertical, hierarchical control is gone. Geo-political boundaries became barriers to progress. The world became flat. Individuals communicating with each other, regardless of boundaries, create new ideas faster and cheaper. SI success will be directly related to how effectively it moves away from boundary-based policies and hierarchical organizational control Source: “The World Is Flat”, by Thomas Friedman 9

10 The World is Flat: Ten Flatteners
1.01 Globalization: The World is Flat Workflow Software Enables a Global Supply Chain Workflow software seamlessly connects applications to applications, so that people can manipulate all their digitized content using their computers and the Internet — “People all over the world can now shape, design, create, buy and sell things, track inventories, prepare tax returns, read X-Rays from half a world away using a common software platform”* SI is competing in a world without boundaries, which uses workflow software to improve productivity and increase prosperity. SI’s economy will only be transformed when it encourages investment in workflow software to improve the efficiency and effectiveness of every citizen, business, NGO and government entity Open Sourcing-Shareware Free tools from software (Linux) to servers (Apache) and encyclopedias (Wikepedia) enable millions of people and firms to compete with bigger organizations on a level playing field and get to market faster SI firms, governments, NGOs and citizens have the opportunity to leap frog traditional development timeframes and become global competitors through the savvy and effective use of Open Sourcing Source: *“The World Is Flat”, by Thomas Friedman 10

11 1.01 Globalization: The World is Flat
The World is Flat: Ten Flatteners 1.01 Globalization: The World is Flat Outsourcing, Y2K, Using Telecom to Contract to Another Firm in Another Country Y2K proved that firms could access well developed intellectual capability in developing countries 24 hours per day without owning the capacity or reducing quality. Production is no longer limited by time or geography SI’s mid-U.S. location and its significant educational resources positions SI to be a potential outsourcing hub for the “Heartland of America” to the world and the world to the Heartland of America. SI collaborating with next door neighbors’ resources versus competing with them is a critical step in making Outsourcing an opportunity rather than a threat Off Shoring — Moving a U.S. Operation to Another Country All prior flatteners prepared global firms to be able to produce the same product or service in the same way to serve local markets and expand global capacity. Off-Shoring is occurring from U.S. locations to the world and from global locations to the U.S. Off-Shoring is as much an opportunity as it is a threat to SI. The key is to identify those indigenous human, natural, geographic location and knowledge resources that enable SI to offer products and services to the global marketplace at higher value rather than at commodity prices Source: “The World Is Flat”, by Thomas Friedman

12 1.01 Globalization: The World is Flat
The World is Flat: Ten Flatteners 1.01 Globalization: The World is Flat Supply Chaining — Connected Throughout the Chain Without Owner Control Elements of the supply chain from raw material to customer are connected, resulting in on-demand production and logistics resulting in increased efficiency and lower costs (Wal-Mart, CISCO, etc) Effective supply chaining requires that SI know what elements already exist in the region as well as where gaps exist. There is Supply-Chaining opportunities for SI in every field of economic output (tourism, healthcare, government services, agriculture, energy, healthcare products and services, etc). Expanded markets and increased numbers of higher value jobs resulting from effective supply chaining strategies In-Sourcing — UPS into Your Company Logistic companies (UPS, FEDEX) enter into a brand new market of relieving major product producers of non-core competencies. This results in improved quality and speed of service to the customer. It enables customers to go global faster using proven logistics resources SI has an opportunity to become a global logistic services hub for logistics firms because of its geographic location. SI business and government entities can identify In-Sourcing opportunities for improving customer service, quality and speed to market Source: “The World Is Flat”, by Thomas Friedman

13 1.01 Globalization: The World is Flat
The World is Flat: Ten Flatteners 1.01 Globalization: The World is Flat Informing: The Ability to Build and Deploy Your Own Personal Supply Chain — of Information, Knowledge, and Entertainment (Google, Yahoo, MSN Web Search) Informing is searching for knowledge, allies and collaborators and connecting them. Small and mid-sized enterprises (SMEs) are able to level the marketplace by being able to operate and present themselves as an equal to large multinational corporations SI businesses, governments, NGOs and citizens have the opportunity to create new services and products and reach broader local, regional, national and global markets through the use of informing technologies and strategies The Steroids — Digital, Mobile, Personal and Virtual Information and communication technology innovations have created the ability to work from anywhere, anytime improving the speed of transactions whether we are at work, at home or on the go, whether we are wired or wireless SI, through Connect SI, is in the process of developing and implementing a broadband connectivity strategy that will enable all of SI to take advantage of these digital, mobile, personal and virtual steroids. Learning and adapting these technologies will be critical to SI economic transformation Source: “The World Is Flat”, by Thomas Friedman

14 Globalization & The World is Flat:Implications
SI is competing with World-is-Flat-savvy country economic strategies SI political/jurisdictional boundaries are a competitive disadvantage Collaboration across SI assets will be required to expand SI economy Continued internal competition will relegate SI to continued decline One of the fastest growing sectors: Logistics, Transportation & Distribution It’s changing so fast, SI better get moving SI broadband access, penetration and usage need to be at best practice levels SI institutions, governments, citizens and businesses must become more knowledgeable about the value and impact of web based productivity tools to take advantage of the ten flatteners for accelerated SI economic growth World is Flat education of SI citizens needs to become a priority strategy Wired and Wireless connectivity and applications strategy is essential Global markets are an opportunity for SI growth, not a threat to growth SI needs to expand the percentage of its economy that is globally driven A greater focus on value added KBE growth is critical to future success of SI Public policies focused on industrial attraction must be changed

15 Globalization & The World is Flat: Opportunities
The Global Economy is growing at 4x’s the rate of SI — SI can literally double its economy by tapping into global markets, by fostering new working relationships with foreign companies that desire entrance to the U.S. market This means jumping from 1.34% to 3.85% average annual growth rate (AAGR) SI should use the ten flatteners as an opportunity to leverage its geographic location and inter-modal transportation and logistics assets to become a global logistics service center for In-Sourcing and Out-Sourcing SI should leverage its significant research and development knowledge base as well as workforce education and training assets to develop a significant regional collaborative KBE and innovation growth strategy SI has the opportunity to demonstrate to the rest of Illinois how to use the Ten Flatteners to develop a collaborative regional approach to economic development, 24x7 government services and industry cluster strategies that cross traditional political, industry and jurisdictional boundaries — building prosperity for all

16 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" While the Ten Flatteners have opened up access to global markets for all, broadband connectivity is the key to getting there — market access has expanded exponentially. To take full advantage of this growing enabler, SI must learn how to maximize its usage. Chapter 1: State, National & Global Trends 1.02 Broadband Connectivity & eCommerce

17 Broadband Connectivity & eCommerce: Overview
Broadband connectivity is bringing the undeveloped and developing countries on even par with the industrialized nations — remoteness is now becoming an asset Rural broadband parity with global best practice economies is as important as Rural Free Delivery was in the 19th century, electrification in the 1930’s, the Interstate in the 1960’s Key trends to watch: Global connectivity has now put small & medium sized enterprises (SMEs) on an equal footing with corporate giants competitively In 2006, the U.S. fell to 19th globally in household broadband penetration As of Dec 2005, 87.5% of U.S. at-work connected users had high speed internet connections Broadband access is now one of the top ten considerations in deciding business location Annual eCommerce growth is six-times faster than the overall U.S. economy Connectivity & eCommerce have made knowledge & human capital more important than physical-infrastructure and financial capital “Broadband has the power to make geographic isolation irrelevant” — Tom Friedman Sources: Varied (see the rest of this Section)

18 ICT Makes a Disproportionate Contribution to National Productivity Growth
1.02 Broadband Connectivity & eCommerce Country Overall Economic Growth Rate % Contribution of ICT ICT Contribution to Economic Growth United States 4.3% 0.8 19% Canada 4.75% 0.5 11% Japan 1.5% 33% Germany 2.5% 20% France 2.2% 0.3 14% UK 3.1% 0.6 Australia 4.9% 1.3 27% Belgium 2.8% 18% Korea 5.0% 1.2 24% ICT = Information, Communications & Technology Productivity growth is a key driver of economic growth Studies indicate ICT is responsible for somewhere in the region of 1/2 to 2/3 of overall productivity growth Evidence is showing that ICT’s contribution to economic growth is continuing to increase 1950’s – 2% 1990’s – 17% Source: Enabling Canada’s Economic Potential: ICT and National Economic Performance, InterVISTAS, 2005

19 Growing SI Broadband Penetration is Critical
1.02 Broadband Connectivity & eCommerce % Penetration of Population USA S I I C E L A N D 12% 24% 54% Technology Deployed in the U.S. DSL 39% Cable 54% Other 7% Note: SI 12% penetration (Jan ‘06) has already increased by 1/3 to 16% due to the collaborative efforts of Network Providers COI & Connect SI Since 2005, the U.S. has been slipping even further behind in Broadband penetration Source: Organization for Economic Cooperation and Development (OECD) Broadband Statistics Dec 2005 (Survey of 14 Countries); Pew Internet and American Life Project — Rural Broadband Internet Use Feb 2006

20 1.02 Broadband Connectivity & eCommerce
Rural vs. Urban Broadband: The Divide is Shrinking 1.02 Broadband Connectivity & eCommerce 47% of all adults have a broadband connection at home (2007) Among individuals who use the Internet at home, 70% have broadband and 23% have dialup 55% of Rural Internet users have a broadband connection at their home vs. 73% of Urban and Suburban Rural broadband adoption at 31% continues to lag behind Urban 51% & Suburban 52% 55% of Urban and Suburban workers have hi-speed internet at their work vs. 38% of Rural workers *SI SI as of Jan ‘06 — Only 12% Penetration, less than 1/2 National Rural Average! Quote from SI Citizen: “Connect SI has achieved more broadband growth in one year than the previous decade!” SI as of Nov ‘07 — Up 1/3 to 16% Penetration Source: PEW/ Internet, “Home Broadband Adoption” 2007

21 1.02 Broadband Connectivity & eCommerce
73% of American Adults Now Use the Internet 1.02 Broadband Connectivity & eCommerce eCommerce Activity U.S. Adults Who Have Ever Engaged in Activity (%) Researched a product or service prior to purchase 78 Obtained travel information 73 Purchased a product 71 Purchased or made a reservation for travel 63 Look for “how-to”, “DIY” or repair information 55 Online banking 43 Obtain financial information (i.e. stock quotes, mortgage interest rates) 41 Pay bills 38 Rate/ review a product, service or person 32 Use online classified ads or sites 30 Sell something 15 Buy/sell stocks, bonds, mutual funds 13 Source: PEW Internet & American Life Project Home Broadband Adoption March 2006

22 1.02 Broadband Connectivity & eCommerce
U.S. Online Retail Sales: More than Doubled in 3 Years* 1.02 Broadband Connectivity & eCommerce $130.3 $Billions $63.9 $12.3 *Excludes Travel, Prescription, and Auto *AAGR = Average Annual Growth Rate Since the 3rd Quarter of 2003 U.S. Economic Growth has Averaged 4.6% vs. 26.8% AAGR in Online Retail Sales — nearly 6x’s faster! Source: Jupiter Internet Shopping Model, 2006

23 eCommerce Enables U.S. SMEs to Go Global
1.02 Broadband Connectivity & eCommerce Export Power with eCommerce Strong U.S. growth in flexible and dynamic SMEs (small/medium enterprises) — driven by eCommerce In 2005, SMEs employed 57 million Americans, over half of U.S. employment 65% of European Gross Domestic Product (GDP) comes from SMEs, vs. 45% in the U.S.. SMEs dominate development of new eCommerce sites: Accounted for 90% of new commercial sites in 2007 (vs. 80% in 2006 and 75% in 2003) SMEs focus on eCommerce because it provides access to international markets in a cost-effective manner Small businesses turn to the Internet because: Impact – communicates a strong organizational identity Partnerships – allows companies to partner with distant companies for product development, marketing, etc. Export Opportunities – opens up markets at lower cost of entry Growth – replaces power in employee count with power of technology Source: SMEs rule the world. Peter Cochrane. July 2006 23

24 Broadband Connectivity & eCommerce: Implications
Extreme growth in Online Retail Sales has a direct impact on Rural main-street retail as well as entrepreneurial-generated goods and services Broadband: key distribution channel for existing digital content & applications, driven by: Rapid diffusion of read/write storage within consumer access devices (MP3 players, PVRs) Benefits of interactive online purchasing tools, such as search, find and compare tools Efficiency gained in bypassing off-line old distribution channels, getting closer to “C” (Ref: P=>C) Broadband content & applications: packaged or bundled with other services, driven by: Convenience of a single relationship for order entry, billing, & customer service, Content & applications production stimulate significant cross-sector linkages, driven by: Sharing production costs for content across a range of broadband platforms Broadband will stimulate new content and applications for the consumer and business markets, driven by: Latent consumer demand for interactivity greater choices, e.g., anywhere, anytime, anything type access Advanced user-devices, with technical capabilities approaching that of a PC, and the ability to perform multiple functions Broadband & eCommerce enables SI to take advantage of the Ten Flatteners to transform its economy — not be the victim of these

25 Broadband Connectivity & eCommerce: Opportunities
Southern Illinois Opportunity Sectors Sector Niche Applications Tourism Development of a SI wide online tourism portal for one stop reservations and purchases (11 million people within 4-hrs drive) Healthcare Utilization of a SI wide healthcare Intranet for EMR, telemedicine, etc. International Incubation Online access and interaction with global best practice R&D and companies desiring to enter U.S. markets Telecommunications Creation of virtual organizations linking multiple sites using Intranets Homeland Security Remote locations enable better distribution of knowledge assets that avoid “single-points-of-failure”, reducing 9/11-type impact & risk Customer Service Development of virtual call centers for customer support Product Design Online global collaborations for product design and maintenance Education and Training Remote worker training for the national 10 million worker shortfall Product Procurement Creation of virtual buying groups, especially government for large common orders Retail Services Online retail and service franchises for small business; mobile-IT desks Southern Illinois Points of Light include: Illinois Virtual High School Audio-Image Marketing Shawnee Hills Wine Trail Illinois Eastern Community College On-line Nursing

26 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" While connectivity is a great enabler, it requires knowledge, innovative thinking and entrepreneurial spirit to take full advantage of this conduit to global markets — growth, prosperity, & economic advantage (past and future), come from innovation. Chapter 1: State, National & Global Trends 1.03 KBE and Innovation

27 KBE and Innovation: Perspective
Every person, company or organization has IDEAS, INVENTIONS, PRODUCTS, & KNOWLEDGE with potential KBE market value A KBE Economy is driven by the production, distribution and use of knowledge for growth, wealth creation, productivity and employment increases KBE competition is based in innovation rather than price as in classical economies Countries and regions that show more evidence of innovation are richer and grow faster Companies that show more evidence of innovation post better financial performance TIME REVENUE GROWTH Traditional Economy Innovation Economy Source: ViTAL Economy

28 KBE and Innovation: Overview
KBE (Knowledge-Based Enterprise) Economies that grow as a result of innovation are transforming their regulatory and community resources to support just-in-time partnerships, lifelong learning and 24/7 global access Trends to watch include: Small and medium-businesses (SMEs) & innovation have been key to U.S. job growth in recent decades — many relying on unique knowledge or skills In the last ten years, 90% of all U.S. job growth has been in KBE firms of 50 employees or less Innovation is shortening the life-span of new/existing businesses — at ever increasing speed KBE work and workers are more mobile and are choosing active lifestyle in Urban or Rural settings … suburban living is no longer in vogue ALL Product and services have the potential to exchange ever quicker and cheaper via the internet around the world Most SI businesses have not leveraged this opportunity Many new businesses have yet to be created to accomplish this In a KBE Economy, the best strategy for profits is to invest in the connecting power of the internet Sources: Varied (see the rest of this Section)

29 Knowledge versus Industrial Enterprise
1.03 KBE and Innovation Industrial Enterprise Knowledge-Based Enterprise Economies of scale Smaller business units Standardization of work Customization of work Standardization of workforce Flexible, multi-skilled workforce Financial capital as scarce resource Human capital as scarce resource Corporate HQ as operational controller Corporate HQ as advisor & core competency guardian Hierarchical pyramid structure Flat or networked structure Employees seen as expense Employees seen as investment Internally focused top-down governance Both internal and external distributed governance Individualistic functional orientation Team orientation, emphasis on cross-functional teams Information based on “need to know” Open & distributed information system Vertical decision making Distributed decision making Emphasis on stability Emphasis on change Emphasis on vertical leadership Emphasis on empowered self-leadership Business has shifted from where you compete to how you compete Source: ViTAL Economy;

30 Must Haves of a KBE Economy
1.03 KBE and Innovation Education Level Percentage of college graduates is primary indicator of higher per capita income Science and Technology Activity 75% of personal income growth during the 90’s tied to technology output Export-Oriented Industries Industries oriented to national/global markets produce higher value products and pay more Entrepreneurial Initiative 90% of the new jobs created in the new economy will be generated by companies of 50 or less employees Innovation Across Industries and Sectors Productivity gains do not depend on what region an industry competes, but rather how it competes Talent Strategy Regions that promote talent across industries are most likely to become economic winners Reduction of Poverty and Inequality Broad-based well-being of residents and decreased poverty are important for sustained increases in economic growth Source: ViTAL Economy 30

31 Microprenuers are the Stars of KBE Economy
1.03 KBE and Innovation Micropreneurship is a business trend for individuals that falls between the traditional entrepreneur and the garage salesman With eBay, Amazon, PayPal, low cost manufacturing in Asia, and logistical support from companies like UPS, an micropreneur can start a business even without a bank loan These businesses run lean with very little out-of-pocket cost New business creation is at record high levels: Over the past two years there have been between 2.3 and 3.5 million new businesses, 0.5 million per year in the 1970s — Source: NFIB Most will remain small mom-and-pop operations A small share of start-ups will grow into titans — exceptionally important: 4% of all U.S. companies, yet create 60% of all new jobs Technology progress stems from: New radical innovations (50%) Incremental or sustaining improvements (50%) 95% of radical innovations come from new companies, not big, established firms R&D spending in largest companies declined from 65% to 43%, while R&D has grown in smaller companies Source: National Federation of Independent Business

32 KBE Economy: Emergence of the Creative Class
1.03 KBE and Innovation The Creative Class — composed of workers whose job is to create meaningful new forms Composed of scientists and engineers, university professors, poets and architects, to name a few 38.3 million Americans and 30% of the workforce in America identify themselves with the creative class Grow more than 10% in the past twenty years Shaping a new culture for the America of the 21st century The Creative Class and the Global economy Will bring any country who has them to great economic power and growth Driven by the shift towards technology, research and development, and the internet Creates new ideas, high-tech industry and regional growth Europe is now almost equal with America's numbers for this class Regions & cities compete to attract the Creative Class Jobs follow the Creative Class! *Source: “Work of Nations” by Robert Reich;Advancing Vermont's Creative Economy, Sept. 2004: Arts & Economic Prosperity III, Americans for the Arts 2005; concepts by Richard Florida 32

33 The Creative Class Fuels a KBE Economy
1.03 KBE and Innovation Business Trends Business, engineering and design schools are revamping curriculum within traditional programs to meet companies demand for innovation, globalization, knowledge management and product design skills as competitive advantage Companies are addressing customer and organizational demands for consumer power and online cultures by recruiting professionals who understand and can manage in a world where global consumers co-create goods and services in peer relationships Businesses now recognize that a vibrant cultural arts community is critical to the development of livable communities which encourage creativity and innovation in their workforce. Creative Worker Trends Creative workers play an increasing role in forming new jobs and companies, and helping mature industries retool The U.S. non-profit arts and culture community grew by 24% from generating $166.2 billion in annual economic activity and supporting 5.7 million full-time jobs Creative workers thrive in an environment where there is an authentic sense of place, a recognition of diversity and opportunities for an energetic exchange of ideas Creative workers are mobile and are attracted to areas where creativity is welcomed *Source: “Work of Nations” by Robert Reich;Advancing Vermont's Creative Economy, Sept. 2004: Arts & Economic Prosperity III, Americans for the Arts 2005; concepts by Richard Florida

34 SI’s Opportunity to Attract the Creative Class
1.03 KBE and Innovation Creative Class populations are converging in areas that provide them special amenities; the key is offering “the three 'T's”: Talent — have a highly talented/educated/skilled population Tolerance — have a diverse community, which has a 'live and let live' ethos Technology — have the technological infrastructure necessary to fuel an entrepreneurial culture The Creative Class is looking for regions that better accommodate their cultural, creative, and technological needs SI can provide these qualities attractive to the Creative Class SIUC, the Community Colleges and R&D Parks are great attractors and could be promoted to these creative people *Source: “Work of Nations” by Robert Reich;Advancing Vermont's Creative Economy, Sept. 2004: Arts & Economic Prosperity III, Americans for the Arts 2005; concepts by Richard Florida 34

35 High Performing Rural Communities
1.03 KBE and Innovation Rural communities that attract Creative Class professions have strong job growth and tend to generate more patents and adopt technology faster Richard Florida Research defines the Creative Class as “jobs that are generated by KBE workers” Counties with Creative Class attributes are among the top 25% highest performing in the U.S. More than twice as many metro counties (593) have Creative Class attributes as non-metro counties (205) Rural communities with a high percentage of Creative Class jobs had stronger job growth than Urban regions Key to growth of rural communities, which support Creative Class professions, is the strategic role of a locally based research university U.S.D.A. ranks Jackson and Williamson Counties as non-metro Creative Class counties; by comparison, IN had none; IL had only two others *Source: “Work of Nations” by Robert Reich;Advancing Vermont's Creative Economy, Sept. 2004: Arts & Economic Prosperity III, Americans for the Arts 2005; concepts by Richard Florida; 35

36 Role of Universities in a KBE Economy
1.03 KBE and Innovation FROM: TO: Teaching to Learning Classrooms Classrooms without walls Teaching inputs Educational outcomes One-way content delivery Two-way exchange Preparation of next generation Continuous prep of all generations Research to Innovation Idea generation Idea application Individual inventions Collaborative inventions Single discipline focus Interdisciplinary focus University-centered work Regional collaborations Service to Shared Leadership Episodic, short-term involvement Sustained, long-term involvement Tactical, individual contributions Strategic, institutional commitment Issue/cause focus Community/region well-being focus Accountability for services rendered Shared responsibility for results Teaching Research Service Ivory Tower 3 Pillars Learning Engagement Innovation Stewards of Place 3 Pillars Source: Collaborative Economics; 2006; Alliance for Regional Stewardship, AASCU, & NCHEMS

37 KBE and Innovation: Implications
No high-growth economy can maintain high wages and living standards, and hold its own in global markets, by producing standard products using standard methods We live in an age of increasing pace of change and information innovation — healthy communities are both knowledge-centric & creative Communities need to create a climate that encourages the development, incubation and growth of UNIQUE ideas/opportunities Universities, colleges and incubators are critical to developing a prosperous KBE (Knowledge-Based Enterprises) economy Effective technology transfer is key to ensuring that innovation is commercialized Productivity and prosperity cannot increase without innovation “In an age where economies are driven by ideas, universities must do more than creating & disseminating ideas — it requires a redefinition of the university-model that fosters permanent engagement as a full partner in the viability & vitality of the region to which each university is connected, …”* There are prerequisite elements/qualities to attract & retain KBEs in a rural community (see Section 1.05 Livable Communities) * ©2006 Alliance for Regional Stewardship, AASCU, & NCHEMS “Tools & Insights for Universities Called to Regional Stewardship”

38 KBE and Innovation: Opportunities
Encourage the development of innovation-fostering incubators, knowledge transfer and commercialization systems, that lead to more local start-ups Continually improve your ability to identify and commercialize new products, services and processes Transform to a KBE Economy — SI has existing assets supporting innovation: SIU research, Community College’s, Incubators, Research Parks, etc. The best opportunities will link R&D innovations with entrepreneurs and specialty finance bringing economic benefit to the region Over 7,000 new KBE jobs can be created by SI innovators with knowledge that can address global trends such as: Green technologies Homeland security response and services Mining & safety-related technologies Bio-sciences, plant and animal Existing success stories in SI are proof that this can be done: Dinger Bats — driven by individual passion to produce in SI and compete globally Dippin’ & Dots — new application for CO2 technology Precision Mining (see Chapter 4) — innovative application of mine infrastructure Crownline Boats – innovators in recreational boating Green Locomotives – National railway CommunityLink – a service of Craig Williams Creative

39 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" The U.S. is experiencing a profound economic transformation driven by globalization and our transition to an economy based on knowledge. Tried and true industries of the past are shrinking and whole new ones are emerging. Chapter 1: State, National & Global Trends 1.04 Transformation of U.S. Economy

40 Transformation of U.S. Economy: Introduction
America’s Great Lakes region, once the core of the nation’s industrial production and wealth creation, is struggling to maintain its ground This 12-state region reaches from Buffalo and Pittsburgh in the east, to Minneapolis-St. Paul and St. Louis in the west Some parts of the region, such as Chicago and the Twin Cities, are thriving in the KBE Economy, while other communities, like Buffalo, Detroit, Cleveland, and Milwaukee, are losing jobs, talent, and economic vitality Great Lakes states — lots to offer, yet have suffered more than others: More than a third of U.S. manufacturing job losses from 2000 to 2005 occurred in seven Great Lakes states Yet, colleges and universities in these states annually produce 38% of all U.S. bachelor degrees, 36% of all science and engineering degrees, and 37% of all advanced science and engineering degrees The Great Lakes watershed includes one-fifth of the world’s fresh water and almost 11,000 miles of coastline Source: The Vital Center: A Federal-State Compact to Renew the Great Lakes Region: The Brookings Institution, October 2006

41 Transformation of U.S. Economy: Overview
KBE and innovation are fundamental driving forces changing the very basis of our economy — the rules, structure, systems have all changed The old way: “For 25 years have only paid for my hands, when you could have had my brain for nothing” — GE hourly worker to Jack Welch, CEO Trends to watch for: Over the last four decades there has been a monumental shift in the structure of the U.S. Economy — from Manufacturing to Services Manufacturing employment shrunk as a result of productivity improvements due to more efficient use of labor, automation and new IT Service industries created more high-skilled occupations than manufacturing — 30%+ of the these jobs were in the highest skill category of professional, technical, managerial and administration, versus only 12% in the manufacturing sector Traditional commodities and services have also been transforming as new opportunities for value-added niches have emerged — e.g., in bio-agriculture creating new pharmaceuticals from tobacco Agriculture is also declining as a % of the national economy In ten years only one in seven businesses existing today will still be in business in the USA. Change is happening quickly, open your eyes or be left behind” - Peter Drucker Sources: Varied (see the rest of this Section)

42 U.S. Economy Restructured Since the 1960s
1.04 Transformation of U.S. Economy Share of U.S. Economy GDP by Economic Sector Biggest % Declines: Agriculture Manufacturing Biggest % Growth: Services F.I.R.E. *F.I.R.E. = Finance, Insurance & Real Estate From 1960 to 2006: Manufacturing’s share of GDP fell by more than 50%, while Service’s share almost doubled Source: Bureau of Economic Analysis 42

43 Globalization hits Manufacturing in Illinois
1.04 Transformation of U.S. Economy Manufacturing sector in Illinois declined — from 30% of jobs in 1970 to 12% (2006), due to: Increased automation requires less human labor Difficulty finding skilled young workers Manufacturing Employment as a % of IL Economy: Manufacturing represents only 10% of jobs in the Southern Illinois region now Net Result: traditional manufacturing is no longer a target area for growth and jobs Source:, Insider Article 43

44 1.04 Transformation of U.S. Economy
Manufacturing Job Loss in IL Was Worse 1.04 Transformation of U.S. Economy Illinois: Underachiever in Job Growth Illinois: Overachiever in Job Loss IL lost 1.86 manufacturing jobs for every job lost by RMW (Rest of the Mid-West) between 44

45 U.S. Holds a Globalization Productivity Advantage
1.04 Transformation of U.S. Economy The U.S. leads all countries in the absolute level of labor productivity, both per hour and per employee The increased productivity performance in the manufacturing sector causes optimism for the sectors ability to adjust to rising levels of competition KBE innovations create advanced manufacturing leaders offering higher wage U.S based jobs *OECD = Organization of Economic Co-operation and Development A 31% productivity advantage of the U.S. economy over OECD* members accounts for 3/4’s of the per capita income difference Source: Manufacturing in America: A Comprehensive Strategy to Address the Challenges to U.S. Manufacturers, 2004

46 Yet Advanced Manufacturing Remains a U.S. Cornerstone
1.04 Transformation of U.S. Economy Manufacturing Industry Facts How does the U.S. compete? The manufacturing sector continues to account for 14% of the U.S. GDP and 11% of the total U.S. employment. BEA analysis: “Every $1 of final demand spent for a manufactured good generates $0.55 of GDP in the manufacturing sector and $0.45 of GDP in the non-manufacturing sector” From 1977 to 2002 productivity in the overall economy increased 53%; while manufacturing sector productivity rose by 109% Rising productivity is the key to maintaining U.S. competitiveness in manufacturing Innovation holds the key to productivity “A nation’s standard of living in the long term depends on its ability to attain a high and rising level of productivity in the industries in which its firms compete.”** **Source: Manufacturing in America: A Comprehensive Strategy to Address the Challenges to U.S. Manufacturers, 2004

47 Declining Impact of Agriculture Jobs
1.04 Transformation of U.S. Economy U.S. Resource Jobs Declined Steadily as % of all jobs Productivity led to resource and agricultural job losses throughout the 1900s Farm jobs were reduced to less than 1% of all U.S. jobs in the 1980s Reasons include: Productivity gains (doing more with fewer workers) Consolidation of farms Net result: traditional, commodity-based agriculture will not lead job growth or recovery The future lies in value-added agriculture U.S. Farm Jobs Declined to less than 1% of all jobs in the 1980s Source: BEA Note: Resource Jobs includes farming, forestry, hunting and fishing 47

48 New Forms of Ag = Value-Added Opportunities
1.04 Transformation of U.S. Economy Biotech-science refers to lab-based techniques developing biological research, that will supply goods and services for use by humans, such as: Recombinant DNA Tissue cultures-based processes Biotech combines disciplines like genetics, molecular biology, biochemistry, embryology, cell biology, & seed hybridization Linked to practical disciplines like chemical engineering, information technology, nano bio-technology and robotics The U.S. biotechnology industry includes approximately 1,000 companies with combined annual revenue close to $50 billion Typical bio-agriculture companies are small, averaging 30 employees Bio-agriculture attracts venture-capital funding SIU is a leader in these sciences and is actively transferring this research to new business start ups Source: ViTAL Economy 48

49 U.S. Economy Growing in Value-Added Services
1.04 Transformation of U.S. Economy 1800 2000 90% of the workforce was in Agriculture 37% the workforce was in Agriculture 1.5% of the workforce was in Agriculture 1900 4% of the workforce was in Services 26% of the workforce was in Services 82% of the workforce was in Services “Our per capita wealth has grown as we've moved up the value-added ladder. Most high paying jobs are in services — engineers, scientists, computer systems analysts, stockbrokers, professors, doctors, lawyers, dentists, CPAs, entertainers and other service providers, to say nothing of the mega-compensation paid to hedge fund managers and financial engineers.…” Source: Richard W. Fisher, President, Federal Reserve Bank of Dallas, May, 2007

50 Service Exports: a Continuing Success Story
1.04 Transformation of U.S. Economy While the U.S. runs a trade-deficit on Goods, Services continue to be an export success story U.S. service exports are growing rapidly. Between 2005 and 2006, U.S. service exports increased 12% Service exports include: Travel Transportation (cargo) Royalties and fees Consulting The majority of service exports are to Europe (40%), Asia-Pacific (27%), Latin America (17%), and Canada (10%) Service Exports 2006 U.S. Has Strong Service Surplus Source: BEA

51 Shift from Industrial to Service Economies
1.04 Transformation of U.S. Economy Illinois GDP by Industry 1970 ($ Billions current dollars) 2006 ($ Billions current dollars) Representation of Total GDP (%) 1970 – 2006 Trend Gross Domestic Product (GDP) $62,931 $589,598 Natural Resources $1,818 $3,761 2.9% - 0.6% Construction $3,111 $28,041 4.9% - 4.8% Manufacturing $18,176 $77,641 28.9% % Wholesale Trade $4,992 $42,284 7.9% - 7.2% Retail trade $6,148 $33,874 9.8% - 5.7% F.I.R.E.** $9,247 $132,963 14.7% % Services** $13,210 $214,214 21.0% % Government $6,230 $56,823 9.9% - 9.6% Source: Bureau of Economic Analysis Notes: Services sector includes health and education F.I.R.E. = Finance, Insurance, and Real Estate **F.I.R.E. and Services represent the sectors for high wage KBE jobs

52 Breaking News Headlines
1.04 Transformation of U.S. Economy 21st Century Economies Create Jobs Differently Job growth in an economy is directly related to the percentage of your economy that’s globally based Economic Growth Is Global 4.8% growth forecast for the Global economy 1.9% growth forecast for the U.S. economy -Business Week October 29th, 2007 U.S. Mega Companies Are Leading Globalization Mega-U.S. companies are chasing global opportunities because the most growth is there U.S. is leading globalization, not following it Off-shoring has been driven by U.S. companies not by foreign competitors 100% of Budweiser's profit gains in the third quarter came from sales in other countries -International Monetary Fund, World Economic Outlook, Oct. 2007 Connectivity enables companies of any size to access these growth markets

53 Fortune 500: Chasing Growing Global Markets
1.04 Transformation of U.S. Economy “This will be the 20th consecutive quarter in which foreign earnings of U.S. groups have grown at a double-digit clip; in fact, among the S&P 500, overseas profits are growing twice the rate of domestic operations profits” Bank of America Small business** exporters account for nearly 30% of total U.S. exports, which will approach $1 trillion in 2007 From 2000 to 2006, the number of small businesses doing exports jumped by 228% U.S. Company Profits $149B in 18 countries; up 68% in 3 years Successful SME’s are doing the same thing Source: National Federation of Independent Business, Sept ‘07 Article; and Small Business Administration Note: SBA defines Small Business as companies with up to 50 employees

54 Transformation of U.S. Economy: Implications
SI manufacturing employment has declined for 20+ years. Agriculture employment is also decreasing due to: Increasing average farm size Productivity gains Loss of Agricultural land High rail rates for agricultural goods has reduced competitiveness Regional and state policies as well as ED strategies need to more realistically reflect the growth of KBE firms and creative class employment in the economic growth sectors of F.I.R.E. and Services Manufacturing and agriculture strategies need to be focused on value-added rather than commodity-based SI has substantial and unrealized opportunity in the global economy The Transformation of U.S. Economy continues — Southern Illinois as a whole has, in effect, been impacted by, but has not actively participated in these profound shifts!

55 Transformation of U.S. Economy: Opportunities
Leverage the significant workforce development resources of SI to develop the Region into a global KBE workforce hub from the Heartland of America to the World Leverage SI’s long growing season into value-added agriculture, bio-ag, etc. — applying Dixon Springs and SIU’s research & technology and its plant stress zone reputation Develop KBE opportunities in existing SI industries — mining, bio-agriculture, waste water management, safety, advanced manufacturing, energy, etc. Connect the healthcare sector into a comprehensive regional economic development strategy to achieve significant KBE job growth Harvest & leverage asset mapping info to create sustainable new SI growth sectors Examples of successes in Southern Illinois: Crownline Boats, Inc. — 150 dealers in US, Canada, Europe, South America, Russia and Australia DBT America in Carrier Mills — Major Manufacturer and Re-builder of Mining Equipment Dippin’ Dots — Asia, Middle, East, Europe, Latin America, South America, Oceania "There is no magic formula to get the Illinois economy moving again. The key lies in thousands of decisions made by individual firms and workers that can make the state more competitive.” * "In the modern, highly competitive world economy, few advantages last forever. The only way to succeed in the modern economy is to constantly change to respond to competitive forces.” * *Source: The Illinois Report, 2007

56 Chapter 1: State, National & Global Trends
As our economy continues to transform and businesses shift toward capitalizing on their knowledge-components, workers are also changing their loyalties and the basis for their lifestyle decisions. These are folks who practice: “live where you want, work where you live” Chapter 1: State, National & Global Trends 1.05 Livable Communities & Age of Choice

57 Livable Communities & The Age of Choice: Overview
1.05 Livable Communities & Age of Choice High skilled workers are choosing active Urban or recreational Rural lifestyle — fleeing the blighted suburbs and cities in search of cleaner, greener, smaller, safer and more neighborly communities Trends to watch include: High skilled workers are choosing active Urban or recreational Rural lifestyle. Over the last 10 years many rural counties have reversed decades of population decline More and more companies are embracing virtual teams collaborating across the globe — fostered by connectivity and other supporting technologies —Employees are telling employers where they will live and work in the age of choice Emerging KBE firms are prioritizing location decisions based on quality of life characteristics that are attractive and welcoming of the creative class workforce As the baby boom generation begins to retire ( ), a significant influx of urban retirees moving to rural communities is expected “I have seen the critical role that the arts play in stimulating creativity and developing vital livable communities” — Paul G. Allen, Co-founder of Microsoft Sources: Varied (see the rest of this Section)

58 Rural America is Coming Back
1.05 Livable Communities & Age of Choice From 1990 to 2000, the population of non-metro counties in the U.S. increased by 10% — why? The lower cost of living, the proximity to natural resources such as lakes and mountains and a less stressful quality of life A significant attraction to many Americans and recent immigrants While some of these recent arrivals to rural America are retired, most of them are still of working age — many bring wealth and a desire to remain intellectually engaged Increased geographic flexibility for many workers, largely as a result of improved technology, has also allowed many people to move or build second homes in rural areas that are close to desirable recreation areas Source USDA Briefing Room Report, Economic Research Service

59 Livable Communities: Portals to Most Cherished Places
1.05 Livable Communities & Age of Choice Livable Communities offer an attractive package that makes them a community-of-choice: Pristine environment, community appearance & proximity to natural beauty & cultural amenities High quality, relevant education and high quality healthcare Safe & uncongested streets, building code & zoning that enhance property value Networks of like-minded thinkers which support a climate of innovation Rural counties that had high levels of natural amenities – a mild climate, varied topography or access to surface water – averaged a 120% increase in population from 1970 to 1996 Whereas rural areas that offered few natural amenities averaged only a 1% increase in population during the same period Rural regions that lost population in the 1990s were mostly regions dependent on agriculture or mining (and have not leveraged their natural assets) “States with strong environmental policies have enjoyed more economic growth than those with weak ones” — Bank of America study “States that do the most to protect their natural resources also wind up with the strongest economies and the best jobs” — Institute for Southern Studies Report

60 Curb Appeal is Critical
1.05 Livable Communities & Age of Choice Choosing a community is like buying a house; if you don’t like what you see from your car, you won’t get out Curb appeal refers to the desirability of a community and a region when seen from the curb, from the outside You cannot get the spouses of desired KBE workers to move to communities that do not have curb appeal Just think about what it feels like when you drive into towns leading the way, including — Elizabethtown, Steeleville, Albion, Vienna, Metropolis, Red Bud, Fairfield — they act as gateways to SI’s Garden of The Gods 20% or less of SI counties, municipalities and townships have any form of planning, zoning or building codes or permits. Some national firms are now telling their employees not to buy homes in these communities to avoid resale problems What do visitors see when they visit Southern Illinois? — 60 — 60

61 Arts & Culture: Strong Attraction Potential for KBE Workers
1.05 Livable Communities & Age of Choice Case Study Key Elements of Success Rock Island, Ill. pop. 38,714 Began with a small startup grant to construct 4x8 displays for juried Phantom Art Gallery in the windows of empty storefronts in downtown The Phantom Art Gallery increased traffic in the downtown area, valuation of the downtown and utilized the arts as a tool for revitalization The first festival produced by The District was “Ya Maka My Weekend”, held in the summer of 1992 with only six weeks of planning Vacant store fronts have been filled, long dormant upper floors have been transformed into loft apartments, and more than 60 new businesses have opened The District has propelled Downtown Rock Island from worst to first. In 1990, Rock Island was perceived as having the worst downtown in the Quad Cities and in 2000, 2002, and 2005 it was perceived as having the most active Design – Identify what makes the community unique and appealing both to its residents and potential visitors Adaptation rather than Replication – Success does not come from a cookie cutter approach, but rather identifying uniqueness, assessing existing programs and looking to the communities strengths and weaknesses Involve Artists and Other Professionals – most successful revitalization programs are were developed by artists, art entrepreneurs, business owners and creative professionals Establish Partnerships – the arts have the ability to create unique and new partnerships in the community with greater impact Use Available Resources – under utilized or abandoned buildings, factories and historic structures become creatively woven into a revitalized area Community Involvement – revitalization projects with the greatest chance for success are ones that target the local community and tourists This example is a “proof of concept” to the VE principles underlying Connect SI

62 Leveraging Arts & Culture in Livable Communities
1.05 Livable Communities & Age of Choice Arts and Culture Audience Spending Avg: $27.79 per person, per event Local Non-Local 61% 39% $19.53 $40.19 +28% U.S. Non-Profit Arts and Culture Industry Source: Arts and Economic Prosperity III, 2005

63 Rural Counties Are Arts Magnets
1.05 Livable Communities & Age of Choice Rural communities as arts magnets demonstrates their ability to attract and retain creative talent — related to the initiatives promoting rural cultural tourism A primary component to creating rural arts magnets is the region’s ability to retain college educated workers Most counties have less than 1% of their employment tied to the arts Source: Amber Waves, 2007

64 Livable Communities Practice Green Economics
1.05 Livable Communities & Age of Choice Purchase products that have been produced using recycled materials Apply sustainable building designs to help reduce the consumption of non-renewable resources, minimizing waste and creating healthy environments Utilize environmentally friendly service contractors for activities such as hazardous material handling and waste management Development and implementation of cost effective waste prevention and recycling programs including waste collection, reuse strategies and disposal of excess and depreciated inventories Promote markets for locally grown food…will be $7 billion market by 2011 Develop innovation strategies that grow new green KBE businesses Buy and lease environmentally friendly vehicles that use renewable fuel sources and have a lower overall consumption Business Week 2007: “Green equals Profits; Green equals Economic Growth” Source: William H. Frey analysis of 2000 U.S. Census

65 Livable Communities & Age of Choice: Implications
KBE and other high wage earners have a CHOICE were to: #1-live and #2-work Communities that proactively seek to become prime locations for these folks will benefit the most Standards and improvements to one community or neighborhood is not enough to be considered a Livable Community Joining forces across a region is essential to muster the necessary resources & critical mass needed to become a true Livable Community SI has thus far missed the ‘rural revival’ Rural areas with natural amenities, recreational opportunities and/or quality of life advantages are seeing significant population growth (2000 Census Analysis) An active arts and culture character is a primary part of a Livable Community with benefits including the attraction of visitors and new investment Community events and festivals highlighting unique local artisans and culture are ‘hot’ and relatively a simple way to differentiate a community Unless Southern Illinois has ‘CURB APPEAL’ it will decay as the U.S. transient population looks for a better life for both work and active retirement

66 Livable Communities & Age of Choice: Opportunities
Southern Illinois has all of the attributes & assets to become a premier Livable Community — to do so, it will require: Creating the linkage between quality of life and economic growth by adopting strategies that build upon its natural and cultural resources Relying increasingly upon the attractiveness of your natural setting rather than only on extraction of raw materials for commodity markets Adopting polices and initiatives that preserve the scenic, ecological and historical assets of a region Pursuing an economic development strategy that is broader than the traditional tourism base to include high skilled – KBE workers A Livable Community strategy is paramount to retaining the age group In the interim, SI must capitalize on existing indigenous resources to become a major tourist and retirement destination: Shawnee National Forest, many parks, lakes, rivers, wine-trails, bike-trails, golf-trails, historic/cultural assets, arts centers & museums, artifacts, civil war history Outdoor — hunting, boating, fishing, birding, biking, state & local fairs/festivals, wine & golf trails University & Community Colleges, speakers forum, significant performing arts resources Major college sports, minor league baseball Attractive climate Successful towns that are already applying Livable principles on a local scale include, but are not limited to: Elizabethtown, Steeleville, Vienna, Fairfield, Albion, Red Bud, ….

67 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" As the global, national and local economies shift, there is a significant and rapidly growing gap between workforce supply & demand — skill sets as well as sheer number. This is both an enormous challenge and an opportunity for Southern Illinois! Chapter 1: State, National & Global Trends 1.06 Manpower & Immigration

68 Manpower & Immigration Overview
Growth of regional economies will be more negatively impacted by long-term manpower and immigration trends than the Ten Flatteners — regional economy strategies must deal with these trends or economic growth will slow further Workforce Trends to watch: By 2010 there will be 150 million (M) jobs in the U.S. with only 140M people to fill them — hence the 10M worker shortage U.S. workforce grew at rate of 30% in 1970’s, at 12% in 1990’s, now slowing to 3% and leveling off by 2010 Ever increasing need for skilled workers — U.S. businesses are requiring higher levels of education, but workforce is projected to have declining skills 34% of adult workers in U.S. now have a bachelor’s degree or better, up from 29% ten years ago — however, percentage of year olds with a bachelors degree or better has actually fallen in the last ten years Since 1970, 90% of the growth in the U.S. workforce has been filled by non-U.S.-born workers Human Capital is replacing Physical and Financial Capital as the most important “capital resource” Sources: Varied (see the rest of this Section)

69 Talent Supply/Demand Disconnect
1.06 Manpower & Immigration Number of people of available/required by skill level $/hour & skills Supply of workers Demand for workers Men Women Pronounced over-supply of low-skilled labor Lack of resources creates tension on the high-skills market Over-supply of low-skills resources creates unemployment Developed Economies Labor Market There is an oversupply of low-skill workers and shortage of higher skilled workers Source: Global Manpower Report, 2005

70 Aging Workforce Effect on U.S.
1.06 Manpower & Immigration Since June of 2006 an average of 15,600 workers retire everyday Versus 300 per day in 1972 Number has grown 6-fold since 1991 (2,600/day) Aging Baby Boomers — 77 million workers due to retire by 2010 Boomers make up about 33% of U.S. workforce today Through 2021 there will be no increase in native-born workers in the prime age category of year olds — any growth in the labor force will come from older workers and immigrants By 2010, age cohort in workforce declines by 19%…those typically moving into upper management 50% of the federal civilian workforce is eligible to retire by 2011 As the U.S. workforce grows older and ultimately retires, the loss of institutional knowledge will be immeasurable Source: Conference Board and Forbes, Aspen Institute, National Governor’s Association, BLS; AFT

71 U.S. Losing Competition for Skilled Immigrants
1.06 Manpower & Immigration The new international labor market: OECD countries compete for the world’s most skilled immigrants, people with a university degree or more education or training In 2000, the U.S. had 12.5 million immigrants with a high school education or higher, the highest total in the OECD But measured by net “brain gain, ” skilled immigrants versus skilled expatriates compared to working age population, Australia and Canada out compete the U.S. For example, a high proportion of Australian doctors are now foreign born And the U.S. is increasingly restricting young graduate student entries Net Brain Gain, 2000 U.S. = Half of Australia and Canada Note: Net Brain Gain is foreign skilled workers minus skilled expatriates as a % of working age population Source: Docquier & Marfouk from David Bartlett, “U.S. Immigration Policy in Global Perspective”

72 Manpower & Immigration: Implications
U.S. not producing or retaining workforce necessary for growth Regional economies who welcome non-U.S.-born workers will be better positioned to benefit from these trends U.S. not effectively leveraging its strong workforce development assets to positively respond to trends Educational attainment not keeping pace with job trend requirements U.S. supplying workers with qualifications that address declining demand for low skill jobs rather than serving the expanding demand for higher skill workers Any region that can successfully produce a globally competitive workforce, will secure the ultimate competitive advantage for the next three decades Training and education are a key workforce priority Skills gap range from basic (literacy, numeracy) to complex (computer sciences & application knowledge) The U.S. economy will require an influx of immigrants to meet industry demands or the economy will atrophy as a consequence Many of these workforce immigrants will require training due to lower levels of education and skills This will require a multi-cultural understanding and management skills

73 Manpower & Immigration: Opportunities
Position SI as a national workforce development center for addressing the ten million skilled worker shortfall by 2010 Leverage 60+ years of experience at SIU with over 100 cultures to create an attractive environment for retaining and growing immigrant workforce Improve workforce development value chain alignment and strategies (K-12, Higher Education, Workforce Development Centers, and industry etc.) Establish measurable strategic goals for raising educational attainment levels of SI and SWI within next 10 years and link this with economic development initiatives to gain traction & funding Embrace workers in their 50’s and 60’s now through creative approaches that move them from a mindset of wanting “freedom from work” to a desire for the “freedom to work” Promote inclusiveness by tapping into underemployed and unemployed non-traditional labor sources Reverse the brain drain of year olds in SI and tap into the thousands of SIU International students who would like to stay in SI, but see no opportunity Emphasize KBE skill focus of current and future workforce In the next two years CHINA will graduate more MBAs than the U.S. currently has enrolled students in all our colleges today - USA Today

74 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" There is a coming tidal wave of retirees as Baby Boomers turn 65. Those communities that position themselves as an attractive retirement setting with all the commensurate amenities will capture a big share of this future reality. Chapter 1: State, National & Global Trends 1.07 Aging Population

75 Aging Population: Overview
In addition to the significant impact that aging has on the U.S. workforce shown in the previous Sub-Chapter 1.06, these same shifts will create enormous challenges as well as opportunities for communities across the country Trends to watch include: As noted in Section 1.06: Since June of 2006 an average of 15,600 workers retire everyday Versus 300 per day in 1972 Number has grown 6-fold since 1991 (2,600/day) Aging Baby Boomers — 77 million workers due to retire between 2010 and 2030 Retirees are attracted to warmer climates with active-lifestyle amenities and lower cost-of-living Retirees are also more attracted to graduated-care facilities, ranging from independent- to assisted-living with a variety of supportive healthcare and other services all under one roof An increasing number of retirement-age folks are electing to stay employed (full-time or part-time), in part to continue receiving healthcare benefits and supplemental income Over the next ten years, for the first time in U.S. history, population growth will be driven not by increase in birth rate, but by a decrease in mortality rate Baby Boomers spend more than any other age group on travel, recreation and personal care products Sources: Varied (see the rest of this Section)

76 From Birth to Retirement
1.07 Aging Population

77 Some Midwest Counties are Retirement Destinations
1.07 Aging Population Retiree-age newcomers to non-metro areas trend to be better educated, wealthier, and more likely to be married They tend to relocate in non-metro areas adjacent to large cities with services Rural Counties are Losing or Gaining 65+ population Counties with over 18% 65+ years old population, 2000 Some Midwest counties are retirement destinations

78 Other States Vying for Seniors
1.07 Aging Population Nevada's elderly population grew by more than 70% during the 1990s Senior growth in Alaska, Arizona, New Mexico, Hawaii, Utah and Colorado all exceeded 25% Florida, South Carolina, Texas, North Carolina and Georgia all experienced senior growth rates during the ‘90s of 19% or greater These states are attractive to people of retirement age because of their wide array of amenities, such as warmer climates and lower living costs Many states in the South have made concerted efforts to lure seniors who, at least in their immediate post-retirement years, tend to contribute much more to the local economies and tax bases than they cost Many well-off ‘yuppie elderly’ years old have considerable disposable income, good health and remain in married-couple households Source: William H. Frey analysis of 2000 U.S. Census

79 2007: Baby Boomers Turning 65 in IL & SI
1.07 Aging Population 2010 is the year Baby Boomers start turning 65 — representing the end of the Great Depression The population 65+ has declined since 1990, but will now begin to quickly increase SI’s 65+ population is about 6% higher than IL as a whole SI may see an out-migration of the 65+ population due to a lack of services available that this segment demands Proportion of Population Represented by 65+ Age Segment Source: U.S. Census Bureau

80 How Retirees Impact the Economy (1 of 2)
1.07 Aging Population 77 million Americans were 50 or older (28% of the U.S. population) — June 2006 Seniors represent a disproportionately high % of purchases: Taking advantage of this economic windfall requires a region to craft specific senior-living economic strategies Source: Retirement Facts & Trends”

81 How Retirees Impact the Economy (1 of 2)
1.07 Aging Population Starting in 2010: Boomers have 70% of the nation's net-worth and control 50% of all household discretionary spending They will spend $2 trillion annually on consumer goods and services Adults ages 45+ will out spend younger adults by $1 trillion annually Boomers have much more education than prior generations equals much higher earning power Will have a continued attachment to the workforce during their retirement years Boomers have been more mobile all of their life, 60+ population migration may increase from 4.5% to 20% Boomers have a strong preference for small rural communities offering intergenerational social and recreational activities Rural areas with retirement communities grew 16% in 1980's versus 4% for all other rural areas Rural retirement destinations versus all rural areas between increased median household income 4.2% vs 0.6% Source: "How the Retirement of the Baby Boomers Will Affect You, Part II, BBRED Georgia Southern University

82 Senior Trends 1.07 Aging Population Growing trend of seniors moving to retirement communities affiliated with colleges For many people, living on or near a campus is better than a condo on the fifth green Senior housing communities of the future will have majority of residents with higher education degrees They will seek communities with college or universities offering life-long learning programs Affluent seniors, the Baby Boomer Generation, will soon inherit the largest transfer of Generational Wealth The Silent Generation, aged 74-84, will soon pass on their wealth (est. $71 trillion) to the Boomers Visionary communities are already crafting senior living strategies to attract affluent seniors Source: Threshold Development, Retirement Living Information Center and The Great American Wealth Transfer...Fact or Fiction? The Sharpe Group 2007

83 Future Housing for Retirees
1.07 Aging Population Results from the 2004 Del Webb Baby Boomer Survey: “Fast Facts About Housing” 36% will move or plan to move when they become empty nesters; one-third of whom will move more than 3 hrs away When they retire, 55% say they will move; 51% of whom more than 3 hrs away 26% will consider purchasing a home in an age-qualified Active Adult Community (versus 51% unsure and 24% who said no) Of those purchasing a home, 30% prefer an Urban location, 29% want a community that maximizes local natural benefits; 22% like an active adult community located within a multi-generational development Boomers are more than twice as likely as those aged to prefer an Active Adult Community that is part of a multi-generational neighborhood Source: Retirement Facts & Trends”

84 Big Shifts in Senior Living Preferences
1.07 Aging Population Mar-Aug ‘07 Survey sponsored by ERA Research; conducted by Opinion Research 75% of 50+ men & women: want to be near family when considering their next move 20% are thinking about moving in next 5 years; 65% prefer a single family home 70% of those considering an active adult lifestyle community: being near friends & family was a priority 6% (versus 2% last year) would consider moving to an active adult community National Investment Center for Seniors Housing & Care Industry “2007 Edition of the National Housing Survey of Adults Age 55+” 12% (versus 7% in 1998) indicated they lived in housing** planned for 55+ age group 19% of 75+ years of age households lived in age qualified communities in 2007 37% of 60+households (versus 18% in 1998) were willing to consider age qualified housing 9% of 60+ households (versus 4% in 1998) had decided to move to an age qualified property in the future **Age-qualified housing refers to active adult communities, independent living, assisted living, continuing care retirement communities (CCRCs), 55+ apartments and rent-subsidized housing

85 Aging Population: Implications
The aging population will create new needs and pressures for nutrition, healthcare, and housing on a vast scale Communities must prepare for the onslaught Those communities that proactively position themselves and offer a combined package of life-style, reasonable cost-of-living, attractive facilities and other amenities will benefit from an influx of wealth and community revitalization Communities with growing % of elderly population need to have a proactive strategy with this population to provide these services & related infrastructure: Arts & Culture Wealth management services Retail services Recreation — amenities for active seniors Tourism Independent living through graduated care Lifelong education Catering to families with children & grandchildren (visiting & living)

86 Aging Population: Opportunities
SI amenity & location assets are of keen interest to 30% of 77 million Baby Boomers SI land costs and underdeveloped land areas offer opportunities for senior living communities Emerging opportunities for high-end RV developments and active mature tourists Active lifestyle amenities of golf, fishing, hiking, birding across SI will receive more support The purchasing power of future seniors is an opportunity for many SI business sectors Wealth management services and real estate development will expand Lifelong learning, performing and creative arts sectors will be in demand Boutique shopping villages and unique restaurant venues will be desired Aging, financially-independent retirees will have major implications for healthcare Large increase in demand for specialty medical services for aging populations Opportunities to incubate and test new services, medicines and devices for aging population Expanded and changed critical skills requirements for professionals and para-professionals Communities with pro-active senior living strategies benefit financially Communities that end up reacting to senior living trends suffer financially Now is the time for SI to get in front of and benefit from this on coming economic tsunami Every day, for the next 12 years: 18,000 USA workers will retire - U.S. News & World Report

87 Chapter 1: State, National & Global Trends
Southern Illinois — “Garden of the Gods” The southern 16 counties are only getting 1.5% of Illinois tourism revenue, yet have 2.9% of the population (SI has 3.3%) and most of the Tourism assets! With over 11 million people within a 4-hour drive of SI, there is a huge opportunity to capture 2-to-3 times more tourism dollars. Chapter 1: State, National & Global Trends 1.08 Tourism

88 Tourism — Overview 1.08 Tourism An aging & more mobile population travels more for experience-based pleasure Trends to watch for include: Adventure: Half of U.S. adults have taken an adventure tourism trip in the last five years — 31 million adults engaged in hard adventure activities: whitewater rafting & mountain biking Educational Travel: The learning aspect of travel is important to U.S. travelers, with 20% (30.2 million adults) having taken an educational trip to learn or improve a skill, sport or hobby in the past three years The Internet & online services are very popular with travelers, who tend to be quite computer savvy — 65% of the 98.3 million travelers used the Internet to make travel plans in 2004 National/State Park Travel: American travelers love the great outdoors — 40 % of U.S. adults in 2003 have visited a national park at least once while on a trip of 50 miles or more away from home in the past five years Historical Places/Museums are popular attractions for travelers within the U.S. 58% of U.S. adult travelers included an historic activity or event on a trip during the past year: 84.7 million U.S. adults Their households generated million person-trips including a visit to historical places or museums in 2002 41% of past-year travelers say they visited a designated historic site, such as a building, landmark, home, or monument during their trip; 28% visited a designated historic community or town Sources: Varied (see the rest of this Section)

89 Tourism Trends & Impact
More local car trips two-days from home 58% of adult travelers trips will include historical and educational site visit 65% will book trips on line 23% of Boomers seek adventure trips 55% of group travelers are going to family reunions or functions Tourism spending will increase 15% from 2006 to 2010 to $821 billion 89% of travelers will be under 55 years old Impact: 7.5 million Jobs in travel industry in the U.S. $700B will be spent in 2008 Great Lakes region overnight stays to increase 3.5 to 4.3% annually Non profit Arts and cultural activities generate $166.2 billion/year in revenue Arts employs 5.7 million in full-time jobs Arts events often return % on investment costs to local cities Source: Tourism Industry Association; Arts & Prosperity II 89

90 New Kinds of Group Travel
1.08 Tourism Median spending for group gatherings is $1,800 (not including corporate meetings) On average, 19 individuals attend a gathering and that event typically lasts 3.5 days 55% of group travelers are traveling for a family reunion or function Younger respondents (21-34) are more likely to plan friend reunions, school group/class reunions, bachelor/bachelorette parties, and concerts or other entertainment/spectator sport events Travelers making up the groups and meetings segment include family reunions, sports outings (ski, golf, tennis, etc.), friends' reunions (mancations, girlfriend getaways, fraternity/sorority, etc.), weddings, association/community groups, religious events and corporate meetings Source: PhoCusWright, Inc. Dec. 2006

91 The Tourism Market is Global
U.S. #1 Destination for Spending, 2006 (by Country of Origin) World Tourism to Double by 2020: Annual international tourism arrivals (000’s) 6.5% AAGR Average Annual Growth Rate Leisure, Recreation & Holidays 51% Visiting Family and Relatives (VFR) 27% Business 16% Other 6% Leisure and Business Travel Increasing; VFR Declining in Share Source: World Tourism Organization

92 International Visitors = High Spend Rates: Tourism Revenue Opportunity
Average Canadian visitor spends $695 / trip Total visits to U.S. = 15 million Average Japanese visitor spends $2,900/ trip Total visits = 3.9 million Average U.K. visitor spends $2,500/ trip Total visits = 4.3 million Average German visitor spends $2,200/ trip Total visits = 1.4 million European Visitors: 45% visit historical sites 27% visit small towns 27% see art galleries & museums 24% tour countryside The U.S. receives almost 50 million international tourist visits per year: projected to increase 20% in five years

93 All Tourism Spending in U.S. to Increase 51% Over 10 Years
Billions f = forecast Source: Travel Industry Association; U.S. Department of Commerce, Office of Travel & Tourism Industries; Global Insight

94 The Tourism Customer 1.08 Tourism Demographic Profile of Adults Who Book Travel on the Internet (24.7 million U.S. Adults) GENDER Male 60% Female 40% HOUSEHOLD INCOME Under $50,000 32% $50,000 - $74,999 27% $75,000 - $99,999 17% $100,000+ 24% Average Income $89,100 AGE 18-34 41% 35-54 48% 55+ 11% Source: Travelers’ Use of the Internet, 2000 Edition Travel Industry Association of America The demographics of adults booking online show high disposable income and an active age range U.S. median household income was $46,326 in 2005 89% of the travelers are under 55 years old

95 Tourism Impacts: SI Growth Potential
Tourism is big business in the U.S. 7.5M jobs are generated by travel Travelers spend $700B annually Travel generated a $7.2B trade surplus in 2006 The SI tourism industry has far less impact than its U.S. and IL impacts Annual spending per employee U.S.: $93,000 IL: $87,000 SI: $73,000 The U.S. to SI spending gap is $20,000, or 27% U.S. Economic Impact, 2006 Expenditures $70B Employment 7.5 Million jobs Payroll $17B Trade Surplus $7.B Annual Spending by Tourists Per Tourism Job, 2006 — SI behind U.S. and IL — Increased Spending per employee significant tourism growth opportunity Source: TIA

96 Location, Location, Location….
1.08 Tourism Grey Area Shows 4-hour driving time from Harrisburg Population within 4-hour drive: 11,303,789 What does it mean? Most vacations are now short— proximity and ease of access is key Nearby centers include: Indianapolis, IN St. Louis, MO Memphis, TN Louisville, KY Nashville, TN Potential Gateway To region Source: Map Point and Federal Aviation Administration

97 Online Bookings Surpasses Off-Line Bookings in 2007
1.08 Tourism 54% of all U.S booking will be done on the Internet in 2007 U.S represented 33% of total online and offline bookings (North America, Western Europe, Asia Pacific), but 60% of all online bookings Hotels are the fasting growing online segment, surpassing airline, which had been the fastest prior to 2006 Be aware of Travel 2.0 — the industry’s use of Web 2.0 practices will empower the online consumer; tools will include: Tagging Social content Social networking Blogging Virtual communities people point to as examples of Web 2.0 Source: PhoCusWright, Inc. Dec. 2006

98 Arts & Culture Economic Impact
1.08 Tourism $166.2 billion in total economic activity has a significant national impact Full-Time Equivalent Jobs 5.7 million Household Income $104.2 billion Local Government Tax Revenues $7.9 billion State Government Tax Revenues $9.1 billion Federal Income Tax Revenues $12.6 billion Focusing on Arts & Culture gives SI a double win — tourism revenues and helping build a more attractive Climate of Innovation Source: Arts & Economic Prosperity III: The Economic Impact of Nonprofit Arts and Culture Organizations and Their Audiences

99 Arts & Culture Economic Impact
1.08 Tourism Recent results of San Jose CA festivals in 2006 99

100 Trails = Recreational Tourism
Heritage Rail Trail County Park 21 miles in length running from the Mason Dixon Line to the York, Pennsylvania Historic District 64% of the users were from York County, with a third of the users travel more that 20mi to use the trail Biking is the predominate form of recreation on the trail, 80% 72% stated that “hard goods”, mostly biking related, were purchased in the area in the past year ($367 average spending) 2/3 state that they purchased “soft goods” during each use ($8.33) 2001 annual usage 247,000 with a population of York County, 381,000 Expenditures related to trail activities = $90 million Nature trails and biking paths can be major attractions to areas resulting in economic benefits Virginia Creeper Trail 34-mile trail near Damascus, Virginia. Damascus is know as “Trail Town, USA” with the convergence of five major trails touching the Jefferson National Forest and Mount Rogers National Recreation Area Winter visitation projections = 24,000 and Summer visitations projections = 106,500 112,400 person trips per year 85% of all visits are by day users, 45% of the users are non-local The average distance traveled to utilize the trail was 154mi. Non-local day users expenditures per trip = $103 Non-local overnight users expenditures = $120 Total economic impact: Day users = $23,600/per 1000 trips. Overnight users $114,400/per 1000 trips Source: National Trails Partnership

101 SI Tourism Growth Sectors: Assessment
Rating Assessment Rationale Heritage Tourism SI is a historic region but lacks a name (e.g. Gettysburg) which attracts national attention Festival Tourism The State Fair and festivals in the region are developed but are individual community focused Hard Outdoor Adventure Attractive to Generation-Xers; mountain biking the only hard adventure opportunity. Soft Outdoor Adventure SI offers a wide range of soft outdoor adventures now – hiking, camping, birding Wine & Culinary SI has a growing wine and culinary sector, but lacks national recognition Hunting and Fishing Region offers a wide variety of hunting and fishing experiences, including Sparta Shooting Complex and Rend Lake = Weak to None = Improving = Average = Good = Strong Source: InterVISTAS

102 SI Tourism Infrastructure: Assessment
Rating Assessment Rationale Regional Internet Portal No easily discovered, one-stop portal for regional tourism information and bookings exists Accommodations Limited number of rooms, beds and campsites with infrastructure in SI, predominant in North-South Attractions Few attractions with recognition outside the region Transportation Lack of scheduled air travel into region inhibits national/international tourism potential Workforce Small tourism workforce with relatively low pay. Relatively little 4-season business Food Services Local wineries, a few award winning BBQ & specialty restaurants offer culinary destinations Source: InterVISTAS

103 SI Tourism Opportunity
SI Tourism Expenditures Projections: Overall SI tourism industry increases by $300-$400M/year SI tourism employment reaches Illinois state levels of 4.4% of total employment = 9,121 employment with an increase of over 3,500 SI tourism expenditures per job reach Illinois state levels of $87,000 per job Specific SI Tourism Opportunities Expenditure Categories New Facilities and Business Opportunities Transportation 50+ transportation companies, major increase in air-traffic, 100’s of charters Lodging Estimate thirteen 80-room hotels Food Service 25+ restaurants and specialty food service outlets Entertainment 35+ venues General Retail 25+ retail outlets, especially specialty goods Other Business 100’s of businesses will experience growth and expansion opportunities

104 Tourism: Implications
Visitors are seeking new and adventurous/educational experiences largely within the U.S.; foreign travel to the U.S. is also growing Niche markets like birding, culinary travelers, mountain bikers, and other “theme-based” packages are high growth markets Communities/regions with user-friendly and integrated online presence have a competitive advantage over those that do not Numerous tourism regions are branding themselves in a unique fashion — only the ones that deliver authentic experiences that lives up to the brand, will achieve long-term benefits Major investment needed in tourism infrastructure and customer service resources, such as regional airports, new hotels, restaurants, etc., to support increased overnight-tourists Rural economies successful at growing their tourism business move to a “four-season” industry with packages lifestyle offerings

105 Tourism: Opportunities
Catering to international visitors — seeking quality experiences, accommodations and meals Integrated “theme packages” across the 20 counties that leverages the history, culture, mild-climate, and natural beauty Access greater overnight stays Southern Illinois already has several notable successes: Wine Trail B&B Association in Southeast Encampment at Ft. Massac Bocce ball in Herrin World Shooting Complex Gold Trails TIA projected new tourism business areas Generation-Xers & Millennials Travelers with disabilities Girlfriend getaways Mancations Destination weddings Procreation vacations Babymoons Medical/life-enhancement travel Voluntourism Pet travel Space tourism Culinary travel Higher-education travel

106 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" As more and more global opportunities open up, logistics, transportation and distribution increase in importance — Southern Illinois is truly at the crossroads of virtually all modalities. Chapter 1: State, National & Global Trends 1.09 Logistics, Transportation & Distribution

107 Logistics, Transportation & Distribution: Overview
Globalization and the Ten Flatteners open substantial doorways Trends to watch for include: Logistics and transportation is an exploding global market opportunity due to shifts in supply-chain management Work has begun on doubling the capacity of the Panama Canal — this $5.5B project will provide access to wider ships to the East Coast and Texas/Louisiana harbors to feed the Trans-Mexican-Canadian superhighway with Chinese goods Due to capacity constraints, security risks and weather vulnerability at North American coastal ports, trans-loading/intermodal facilities enable the effective use of smaller ships via inland waterways The NAFTA Super-highway is a venture unlike any previous highway construction project — it is actually a daisy chain of dozens of corridors and coordinated projects that are expected to stretch out for several decades, cost $100’s billions and end up radically reconfiguring not only the physical landscape of these U.S., but our political and economic landscapes as well — Kelly Taylor, 8/06 “New American” Sources: Varied (see the rest of this Section); US Department of Commerce, Menlo Worldwide, Plunkett Research, Ltd.

108 Key Transportation Trends
1.09 Logistics, Transportation & Distribution Transportation is one of the world's largest industries — sectors range from taxis to trucks to airplanes, trains, ships, barges, pipelines, warehouses and logistics services In 2006, the U.S. Transportation Industry was about $1.6 trillion Includes for-hire and not for-hire sectors, support & repair Transportation directly employs about 4.5 million Americans — >10% of U.S. economy In the U.S. alone, total freight shipment volumes are expected to increase by 70% between 1998 and 2020 Texas A&M University, analyzed traffic patterns and delays in 85 U.S. major metropolitan areas Total annual cost of traffic congestion in these cities was $63 billion 3.7 billion hours of traffic delay and 2.3 billion gallons of fuel consumed by delays Well-positioned rural regions have a strategic advantage in becoming a “traffic-free” hub Source: U.S. Department of Transportation 108

109 1.09 Logistics, Transportation & Distribution
The World and Southern Illinois: Rail 1.09 Logistics, Transportation & Distribution From a regional network … … to a North American one When originally built in 1850’s, it’s goal was to connect Chicago with the Mississippi Modern rail is truly trans-continental, triangulating major seaports SI is now the center of a rail network stretching to the Pacific, Atlantic and Gulf of Mexico 109

110 U.S. Sea Container Traffic:Base of Globalization
1.09 Logistics, Transportation & Distribution Six-fold increase in U.S. container traffic since 1980 By 2010, containerization will be 50% greater than 2005 rates and by 2020, they will more than double This indicates strong growth in international trade Container traffic already exceeds port and rail carrier capacity Over 10 million TEUs (20 foot-equivalent-units), are annually shipped back to Asia empty — a significant opportunity for SI to fill Source: Cambridge Systematics

111 Container-On-Barge via Inland Waterways
1.09 Logistics, Transportation & Distribution SI centrally located on the Mississippi & Ohio River Systems Increasing sea container numbers, lack of U.S. truckers, cost of fuel among the factors driving containers to barges This creates SI Mississippi and Ohio River terminal opportunities Container on barge is developing on the Mississippi (Houston-Memphis) and will expand Barges are less expensive because a barge can move 45 full-sized sea containers These rivers have been key transportation systems for over 300 years A ton of cargo can be moved 514 miles by barge on a gallon of fuel as compared to moving that same ton only 60 miles by truck or 202 miles by train Source: Transportation for Illinois Coalition Press Release, Investment needed in Upper Mississippi-Illinois waterway for economic growth and jobs. September 15, 2006

112 The Rhine as a Comparison
1.09 Logistics, Transportation & Distribution Like the Mississippi, the Rhine stretches from ocean ports to the Continent’s interior Rhine River container traffic increased from 10,000 units in 1975 to 2.3 million units in 2003 Container barges travel as far as Switzerland Cost-of-labor favors barge over truck; albeit somewhat slower The Swiss Rhine Container Terminal

113 SI Has Significant Aviation Infrastructure
1.09 Logistics, Transportation & Distribution Southern Illinois aviation infrastructure includes: Three airports with instrument landing systems and runways over 6,000 ft Nationally acknowledged SIU School of Transportation Including Aviation Management and Technology Planned new Transportation Education Centre (TEC) at Southern Illinois Airport U.S. Transportation Command logistics specialist pool at Scott Air Force Base, an SI neighbor — major “information exhaust” opportunity SI Airports have capacity to accept large, jet aircraft & air-taxi service Airport Largest Runway ILS (Instrument Landing System) Airframe/ Power Plant Services Scheduled Passenger Mt. Vernon 6500 x 150 ft YES Not now Southern Illinois 6500 x 100 ft Williamson County 8000 x 150 ft Two major SI airports located near interstate highway and rail junctions, create the possibility of intermodal freight Source:

114 Warehousing & Distribution: Trade Growth Area
1.09 Logistics, Transportation & Distribution Transportation and warehousing continues to grow, supporting international trade Between 2004 and 2014, the U.S. economy will add half a million transportation jobs The number of distribution centers is increasing A typical center has over 200,000 square feet, part of an international chain, focused on key market sectors, and offers value-added services Distribution Centre services include: Pick & pack Consolidation Customer system order processing Returns processing Quality inspection Assembly Damaged returns management Exporting packing & order processing Bar code processing Labeling EDI services Kit assembly Sub-assembly Build to order Facility management Transportation management SI is situated in the population centre of the U.S., near where FedEx and UPS both decided to establish their national hubs — Distribution is an investment opportunity Source: U.S. Department of Transportation

115 Logistics: Unmet Opportunity
1.09 Logistics, Transportation & Distribution Illinois in Relationship to Nearby 50 Fastest Growing U.S. Cities Growth of U.S. population for 2006 = 0.9% California, Texas, Florida contained most of the fastest growing centers in the U.S. Several centers within a day’s drive of SI included in 50 fastest-growing centers for at growth rates of 12% to 98% (e.g., Red Stars) Source: U.S. Census Bureau and Map Point Note: Map shows calculated 8 hour driving time from SI 115

116 1.09 Logistics, Transportation & Distribution
Logistics, Transportation & Distribution: Implications 1.09 Logistics, Transportation & Distribution Dramatic reductions in shipping costs via containerization has enabled globalization of manufacturing Distribution is conducted close to end markets — Southern Illinois is near the population center of the U.S. 124 milion people reachable within 12-hour drive Distribution requires good rail and truck connections Trade and distribution is projected to grow rapidly Will grow rapidly in the Midwest because of its central location Southern Illinois sits on the ultimate U.S. logistics sweet-spot, the intersection of major North-South and East-West trade routes: Will these bypass SI or will the Region be a substantial player? Through CN (was Canadian Northern RR), SI can potentially interact with three U.S. and two Canadian coasts SI aviation assets have the potential of serving as a niche market player within a mid-America Intermodal Logistics strategy

117 Logistics, Transportation & Distribution: Opportunities
Globalization has increased importance of transportation and logistics SI is currently below national and state averages CN has transformed the Illinois Central from a North-South operation to a strong East-West orientation serving three North American coasts via one railroad SI global reach potential has significantly increased SI has strategic geographic location especially to Eastern and Central U.S. Distribution centers favor center-of-population location Multimodal transport: Interstate/Rail/Barge Opportunities: For multimodal/transload facilities — address 10 million TEU/year East-West deficit To attract distribution centers Range in complexity from simple distribution, to assembly and customization Explore niche-market opportunities for aviation assets With the dramatic increase in the cost of fuel: Waterborne traffic becoming increasingly more attractive Key to keeping Illinois grains competitive in the world market Inland waterways re-opening as a major logics solution for East-West port congestion SI infrastructure contains HUB facilities for ALL forms of transportation and distribution

118 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" With global demand for energy ever on the rise, and renewable/alternative energy sources playing an increasing but still minor role, U.S. coal — especially clean-coal — becomes increasingly important. Chapter 1: State, National & Global Trends 1.10 Energy

119 Energy — Overview 1.10 Energy The World’s and U.S. appetites for energy continues to grow in all forms, and without a major technological breakthrough, carbon based sources will continue to supply the vast majority of raw material Trends to watch include: 70% of world energy demand is specifically tied to economic growth in developing countries If the price of crude oil stabilizes at $75 or greater, new technologies and alternative sources of energy will emerge and impact markets U.S pubic policy decisions have the ability to influence markets quickly and direct R&D investments Regions that can balance their consumption of resources with economic growth will have a competitive advantage in the 21st century economy U.S. coal demand production grew only 5.4% between 2000 & 2005; while prices went up 32.5% Source: EIA (Energy Information Administration)

120 Global Energy Demand Ever Increasing
Projected World Energy Consumption in Quadrillion BTUs Global energy demand is projected to increase over 50% by 2030, an average annual growth rate of 1.6% 70% of the increase coming from developing countries with China alone accounting for 30% Fossil fuels will remain the dominate fuel source by 2030, 83% of the increase by 2030 The world’s growing hunger for energy will require massive capital investment; $20 trillion by 2030 (2005 dollars) Power sector will require 56% of the capital investment cost Over one half of the energy investment will be in developing countries Coal will see the largest increase in demand primarily for electricity production — China and India will account for 80% of the demand Source: World Energy Outlook 2006 One quadrillion BTUs is equivalent to two million barrels oil per day

121 How Global Energy Demand is Being Met
Although use of alternative energy sources are growing dramatically, coal and other fossil fuels continue to dominate Source: Global Energy Network Institute & Exxon/Mobil

122 Liquid Energy Fuels Growth: 950% in 30 years
Unconventional liquid fuels will help compensate for an expected shortfall in ordinary oil Millions of Barrels Oil Equivalent/Day History Projected Growth Coal-to-Liquid +138% BioFuels +66% Heavy Crude +65% Canadian Oil Sands +260% SI has the opportunity to play a key role in coal-to-liquid and biofuels Source: Business Week, October 29, 2007; Energy Information Administration

123 Projected Coal Consumption: Next 25 Years
1.10 Energy 74% Increase World-Wide China = 131% increase in consumption = 47% of world total India = 88% increase in consumption = 8% of world total Rest of the World = 38% increase in consumption = 37% of world total U.S. = 51% increase in consumption = 17% of world total Source: National Mining Association

124 U.S. Demand for Electricity Keeps Growing
1.10 Energy Sector Demand Growth 39% increase in the Residential Sector 17% increase in the Industrial Sector 63% increase in the Commercial Sector Source: Energy Information Administration, Annual Energy Outlook 2007

125 Coal’s Role in Electricity Generation Increasing
1.10 Energy Coal-fired power plants (including utilities, independent power producers, and end-use combined heat & power) continue to supply most U.S. electricity through 2030 Coal Nuclear Natural Gas Renewables Petroleum 2005 50% 19% 9% 3% 2030 57% 15% 16% Source: Energy Information Administration, Annual Energy Outlook 2007

126 Alternative Energy is Creating Ag Opportunities
Product / Ingredient Ethanol/Corn Bio-diesel/ Soybean Wind U.S. Plants Owned By Farmers 70% In rural areas 40% 35% Projected New Jobs by 2015 203,879 39,100 12,500 GDP Increase n/a $46 billion $24 billion Even though renewable energy will be playing a relatively minor role over the next several decades, the opportunity for SI is still significant — agriculture, fuel production, distribution Source: Business Week, Renewable Fuels Assoc., LECG, American Wind Energy Assn

127 Corn Production to Meet New Demands Impressive Ethanol Production
Corn: Expanding as a Consumer Products Staple & Transportation Fuel Corn Production to Meet New Demands Corn has become a staple in a variety of products: Soda sweetener Additive in animal feed Dextrose in jams & jellies High fructose corn syrup New technology has raised yield to meet rising demands 1.10 Energy June 1, 2007 the U.S. ethanol industry had 120 active plants Capacity of 6mm gallons/year 6.4mm gallons of capacity under construction 2009 prediction – 1.3% of U.S. corn crop will be used for ethanol Impressive Ethanol Production The Real Price of Corn Current price of U.S. corn is not even close in real dollars to the price in the 1970’s Recent price increase is still not close to the returns needed to provide farmers with an adequate income without government subsidies 127

128 CleanTech is Attracting Venture Capital (VC) Investment
1.10 Energy United Nations Environment Program Headline: Investors Flock to Renewable Energy and Efficiency Technologies; Transactions Leap to Record $100 Billion in 2006 with $71 Billion into companies and new sector opportunities Global Investment in Renewable Energy Global Investment in Renewable Energy by Technology, 2006 $ Billions +80% +43% Source: SEFI, New Energy Finance

129 Energy: Implications (1 of 2)
Demand for sustainable and non sustainable energy is increasing in the U.S. For strategic reasons, the U.S. would prefer to source more energy within the U.S. Coal represents continued economic opportunity New coal opportunities are related to new technology and knowledge based enterprises (KBEs) The new industry is knowledge intensive and require workers with knowledge skills Alternative Energy offers Agriculture opportunity and jobs New technology in bio-fuels could increase yield per bushel

130 Energy: Implications (2 of 2)
Breaking News: Clean-Coal has a long way to go to overcome it’s past ‘dirty image’ Maine still battling acid-rain Number of states have continued to reject coal-energy generation projects Potentially offsetting the above: Clean-Coal technology is receiving major investment Bolstered by continued high cost per barrel for oil Breakthroughs could open the doors wide for existing Southern Illinois coal extraction, transportation & labor Breaking News: Ethanol in Illinois not keeping up with demand: Ethanol plant construction has stalled in Illinois; 38 permits issued since 2006 with only five plants under construction Primary challenge facing new ethanol plants is the increasing cost of construction, raising concerns about investor return on investment “SI’s energy strategy should include processing of the raw material in the region, not competing in the commodity markets specifically in the area of transportation fuels” - RA interview

131 Energy: Opportunities
Given the demand and cost of energy, opportunities exist for oil, methane, coal, ethanol, as well as coal gasification & CO2 sequestering SI has the potential to develop coal, oil & gas, and agriculture product related energy Opportunities relate to mining, agriculture and manufacturing Coal opportunities are related to new technology and knowledge based enterprises (KBEs) — e.g., export coal processing & safety “knowledge” to China & India Even coal demand is projected to grow At SIU, the region has educational resources which specialize in alternative energy development Rail and marine access can support large energy developments SI has had a long history of contribution & knowledge-base from the Electric Coops Collaborating with other extractors & generators will help implement a Regional Energy Strategy “SI has coal reserves totaling an estimated 181 billion short tons — enough to electrify the eastern half of U.S. for 80 years” - U.S. Dept of Interior

132 Energy: Opportunities
The future will not focus on traditional energy, but rather alternatives uses and sources SI has a variety of assets that support a diversified energy strategy, opportunities exist for oil, methane, coal, ethanol, as well as coal gasification & CO2 sequestering A diversified energy strategy will allow SI to have greater control over their future to better temper energy cost cycles SI has the potential to link its energy assets with its transportation and logistics assets to develop transportation fuels and technologies Processing proximity to raw materials such as coal and corn or cellulosic materials supports feasibility Leverage the energy knowledge infrastructure and asset base Coal opportunities related to new technology and knowledge based enterprises (KBEs) — e.g., export coal processing & safety “knowledge” to China & India At SIU, the region has educational resources which specialize in alternative energy development; Clean Coal Research Center, National Ethanol Research Center Create a Southern Illinois University Energy Technology Center of Excellence SI has had a long history of contribution & knowledge-base from the Electric Coops Collaborating with other extractors & generators will help implement a Regional Energy Strategy Major energy projects such as FutureGen and Prairie State will have significant economic impact and will expand the regions energy knowledge base

133 Chapter 1: State, National & Global Trends
Southern Illinois — "Garden of the Gods" Chapter 1: State, National & Global Trends 1.11 Conclusions — 133 —

134 Chapter 1: Conclusions 1.11 Conclusions SI has assets to connect with economic trends and their related implications and opportunities Include the region’s natural setting and recreational opportunities, existing universities and colleges, and geographic location Challenges for the region: lack of clear Pan-regional leadership Skilled human resources Financing Internet infrastructure (improving) 134

135 Trends, Implications & Opportunities (1 of 4)
1.11 Conclusions Trends Implications Opportunities Globalization: The World is Flat SI is competing with savvy country economic strategies Business competition is much more intimate Increase flow of business capital to international growing markets The world economic growth rate is 4 times the rate of SI – “go get it” SI can leverage its central location and inter-model transportation assets to become a logistics service center Utilize the “ten flatteners” to create a collaborative regional economic development strategy Broadband Connectivity & eCommerce Broadband capacity and connectivity is a “must have” infrastructure to compete On-line retail sales have a direct impact on rural Main Street America Broadband allows SI to take advantage of the “ten flatteners” Internet sales and distribution A region wide broadband infrastructure strategy Apply best practice connectivity applications to improve efficiencies Global R&D collaborations KBE: Innovation and Knowledge Drive Jobs and Wealth Creation 90% of all new jobs will be created by companies of 50 employees or less Innovation and commercialization of knowledge is key KBEs: “work where they live rather than living where they work” Link SIU research to business incubator, expertise and capital Green technologies Homeland security response and services Mining & safety-related technologies Life sciences, plant and animal 135

136 Trends, Implications & Opportunities (2 of 4)
1.11 Conclusions Trends Implications Opportunities Transformation of the U.S. Economy SI manufacturing job base has declined for 20+years Commodity production will be replaced with knowledge based enterprises U.S. companies will need to be nimble and adjust to the global economy and pursue growing markets KBE potential in mining technologies, bio-agriculture, waste water management, safety, advanced manufacturing, energy, etc. Leverage the workforce development resources to create a world class KBE workforce Livable Communities Jobs migrating to attractive smaller communities Boomers retiring moving to rural small communities, Recreation and natural environment is a priority Recreational services and products, tourism, attractive communities Senior living strategies KBE creation and attraction Visual and creative arts Global Workforce Shortage and Immigration 2010 there will be a 10 million worker shortage in the U.S. Need for “smarter” workers Since 1970, 90% of the growth in the U.S. workforce has been filled by immigrant workers Regions competitiveness will be at risk due to lack of workforce Transform SI into the “corporate casting agent for the 21st century Leverage over 60 years of SIU with students from over 100 cultures Embrace workers in their 50’s and 60’s create a climate of “freedom to work. 136

137 Trends, Implications & Opportunities (3 of 4)
1.11 Conclusions Trends Implications Opportunities Aging Population 15,600 workers retire everyday, 77 million workers due to retire by 2010 Increased demands for nutrition, healthcare and housing requirements Consumer markets will follow the baby boomers generation Healthcare Products and Services Senior Living Nutraceuticals ¾’s of the countries wealth is residing with active adults desiring many of the attributes of SI Active Tourism Visitors to the U.S. seek unique, historic, cultural visits Resources needed to support language, customs and dietary requirements of international travelers Shorter trips within 4 hours of home Niche markets: Eco, culture and adventure tourism SIU international student population linked with tourism Recreational tourism focusing on SI unique qualities Growing Logistics and Transportation Movement of goods and services is far easier than moving people Logistics and distribution will continue to grow with imports from China and India Mfg jobs will continue to shrink Distribution is close to end markets SI is in a prime geographic location to seize the logistics and distribution markets With in ever increasing cost of fuel waterborne transportation is attractive; marine transportation services

138 Trends, Implications & Opportunities (4 of 4)
1.11 Conclusions Trends Implications Opportunities Energy Demand Energy costs will rise with increased demand especially in the U.S. Alternative energy will receive policy support and increasingly in demand Coal as a fuel source and clean coal technologies will have strong demand Coal will have to fight the a “dirty image” Coal mining Clean coal technologies Regional energy strategies Alternative energy innovations Transportation fuels sources Sustainable Communities Attention on global warning and pollution, Concern about healthy foods and the growth of locally produced products Access to water is a strategic advantage Carbon offsetting (growing trees) in rural regions, Locally grown organic foods Nutraceuticals, Alternative green energy Regional recycling businesses

139 Potential SI Jobs by Sector (1 of 2)
1.11 Conclusions Global growth opens up opportunities to expand SI economy beyond its traditional growth rate 10 million U.S. worker shortage is an opportunity for SI workforce development resources Growth in services exports enable SI to move away from uncompetitive legacy economic activities KBE 8,023 New Jobs Global Workforce Opportunities 18,750 ICT* investments contribute 33% to U.S. productivity growth…this validates importance of NP-COI SI’s 64% increase in broadband access can better leverage six-fold increase in e-commerce activity 4 of 5** factors in rural KBE growth are SI strengths — need to be leveraged for SI economic growth Livable community assets present in SI are an attraction asset for KBE, Senior Living and Tourism Alternative energy, global warming and “greening” of society is creating innovation opportunities **Five Factors are: High Quality Workforce College or Universities Local Amenities Transportation Infrastructure Size See: RA Chapter 1 ICT = Information & Communication Technology

140 Potential SI Jobs by Sector (2 of 2)
1.11 Conclusions Senior Living 3,676 New Jobs Energy & Mining 5,680 Tourism 4,450 Log/Trans//Dist 1,675 77 million retiring baby boomers present an affluent senior living growth opportunity for SI SI energy assets and knowledge are in the sweet spot of energy priorities for growth Preferred tourism growth sectors indicate SI is positioned for accelerated tourism growth Significant transportation labor shortages are moving transportation and distribution centers from the coast to the center of North America. SI location and logistics assets position it for growth Climate of Economic Opportunity = an additional 10,210 new jobs NEW GRAND TOTAL = 50,789 Jobs (vs. 27,298 Jobs Feb ‘07) See: RA Chapter 1

141 Carpe Diem — Seize the Day!
The Reason for Action 1.11 Conclusions A changing economy impacts the way we live, work, learn, govern and connect We can’t run a 21st century business, community or government on 20th Century rules Opportunity is just opportunity, unless you cease it, then it becomes reward Carpe Diem — Seize the Day!

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