State of the Sunnyvale Economy, Business Climate

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State of the Sunnyvale Economy, Business
Climate Economic Vitality Strategies

• Prepared by Munroe Consulting, Inc.
• Dr. Tapan Munroe, President
• Seth R. Freeman, Senior Consultant
• January 2001

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Table of Contents
Section I Where Are We Today?
Section II How Are We Doing?
Section III The Future?
24 The importance of an Integrated
Strategy 25-32 Strategic Options for Sustained
Economic Vitality 33-34 Future Research 35
Conclusion
4 Introduction 5-6 Munroe Consulting Inc.
Investigative Process 7-8 New Economy in the
City of Sunnyvale 9-14 Overview of the City of
Sunnyvale Economy
16 What Business Thinks About Sunnyvale 17-18
Business Size Understanding Different
Perceptions and Needs 19-22 Market Forces
Silicon Valley Economic Threats
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Section IWhere Are We Today?The City of
Sunnyvale Economy
State of the Sunnyvale Economy, Business
Climate and Economic VitalityJanuary 2001
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Introduction

• This report is intended to synthesize two 1999
  investigative research studies performed by
  Munroe Consulting Inc., Assessing Sunnyvales
  Economic Prosperity Program and Assessment of
  the Sunnyvale Economy as well as incorporate
  the results of community discussions held after
  the distribution of these reports. This
  integrated research process has yielded a
  significant base of knowledge, enabling
  policy-makers and stakeholders to understand the
  expectations and perceptions of the City of
  Sunnyvale business community as well as the
  nature of the Sunnyvale Economy.
• The key learning from this process was that size
  of business, rather than just industry category
  should be a key consideration for future
  strategic planning. Businesses are concerned
  about the quality of life in the community. In
  addition to providing the highlights and key
  findings resulting from this three part project,
  this report provides program recommendations for
  the City of Sunnyvales economic vitality .
• This report, along with on-going monitoring and
  research shall serve as the foundation for the
  City of Sunnyvales future design and
  implementation of strategic initiatives that
  ensure its continuing economic vitality.

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The Investigation Process
Research
Analysis
Dialogue
Assessment of the Economic Prosperity Program
Assessment of the Sunnyvale Economy
Community Stakeholder Discussions
RECOMMENDATIONS STRATEGIES
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Summary of Research Design Methodology
Assessment of the Economic Prosperity Program

• Primary and secondary economic research and
  analysis.
• Interviews (206) of top executives, high and
  mid-level managers and entrepreneurs representing
  corporations and businesses of various sizes
  currently doing business in Sunnyvale.
• Statistically stratified random sample based
  upon number of employees made it possible to
  identify and analyze differences between small,
  medium and large firms.
• Telephone interviews and fax questionnaires.
• Community public forums and staff feedback on
  preliminary findings.
• Review and assessment of prospective strategic
  alternatives.

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Sunnyvale in Transition Defining the Old and
New Economy City
New Economy
Old Economy

• Driven by these key industries
• Semiconductors
• Computers
• Software
• Internet
• Telecommunications
• Biotechnology
• Soft and Intangibles
• Information
• Intellectual Capital
• Relationships
• Communication
• Networks
• Global
• Flexible Adaptable

• Driven by four key industries
• Automobiles
• Machine Tools
• Construction
• Retailing
• Hard and Tangible
• Steel
• Oil
• Lumber
• Localized
• Rigid Mass Produced

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The Economic Landscape Today
Sunnyvale has key top-line economic growth
indicators that many U.S. cities would like to
mirror.

• Between 1992 and 1998 City of Sunnyvale
  revenue grew at an annual 3.7 rate.
• Total Number of jobs increased 22.6 between
  1992-2000.
• Wages increased by 12.8, while taxable sales
  increased by 6.9.
• As of October, 2000 Sunnyvale had 9,096
  businesses of which 2,541 are home based.

Sunnyvales New Moffet Park Building
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Sunnyvales Economic Profile

• Key observation Sunnyvales economy is less
  diversified than the overall Bay Area.
• Sunnyvales manufacturing sector represents over
  one-half of its economy and is larger on a
  percentage basis as compared to the overall Bay
  Area.
• Retail and Services are lower as a percentage of
  the Sunnyvale economy as compared to the Bay
  Area.
• Departures or down-sizing of manufacturers from
  Sunnyvale will have a significant impact on the
  Sunnyvale economy.

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Sunnyvale Employment is Highly Stratified

• Key Findings
• 44 of Sunnyvale employees work at firms that
  employ 500 or more workers.
• These large firms represent only .38 of the
  total number of Sunnyvale firms.
• 24 Sunnyvale companies employ nearly 40,000
  workers, with aggregate sales of 8 Billion.
• A net relocation loss of a few large firms would
  dramatically reduce the number of jobs and tax
  revenue in Sunnyvale.

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Details of Sunnyvale Services
Key Observations

• The three largest services categories comprise
  1,531 or 65 of all Sunnyvale services firms and
  employ 21,311 or 75 of all Sunnyvale
  services workers.
• Business services firms employ a
  disproportionately higher percentage of Sunnyvale
  workers.
• Personal services firms, comprise 10 of
  Sunnyvale businesses employing only 2.3 of
  workers, indicating that most personal
  services firms employ few people.

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Details of Sunnyvale Manufacturing
Key Observations

• Top four industries comprise 504 firms employing
  90 (34,052) of all manufacturing employees.
• Electronic equipment manufacturers with 231
  firms, represent 32 of all manufacturing firms,
  employing 12,619 or 33.2 of Sunnyvale
  manufacturing workers.
• Transportation manufacturing represents 15
  firms, yet employs 10,223 or 27 of all
  manufacturing employees.
• Printing and publishing rank the fifth largest
  number of manufacturing companies (78 firms) but
  employ 776 workers.
• Three primary metals firms employ 645 Sunnyvale
  workers.

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Details of Wholesale Retail
Key Observations

• Restaurants and bars comprise the largest number
  of retail businesses (231) and employee the
  largest number of retail employees (2,952) in
  Sunnyvale.
• General merchandise stores (9) represent 1 of
  Sunnyvale retail businesses yet employ 8 (556)
  of all retail sector employees.
• Apparel and accessory stores represent 11 (65)
  of Sunnyvale retail firms, and employ 5 (350)
  of retail workers.

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Location, Location, Location

• As the worlds leader of high technology and
  innovation, the City of Sunnyvale has been a
  major beneficiary of Silicon Valleys sustained
  regional economic development.
• Unique competitive advantage that can be best
  described by the well-known axiom of the real
  estate industry location, location, location.
• City of Sunnyvale has been successful in creating
  a robust economic environment.
• Enjoys an overall positive perception by business
  and civic stakeholders.
• The convergence of economic, geographic and
  demographic conditions led to Silicon Valleys
  preeminence with Sunnyvale in the center of this
  activity.
• Sunnyvales location must not be taken for
  granted.
• Lack of affordable housing, congestion and
  skilled work force shortages due to Silicon
  Valley prosperity are major Sunnyvale problems.
• Global, national and regional market forces are
  eroding the importance and desirability of
  locating in Sunnyvale.

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Section IIHow Are We Doing?Business
Perceptions Economic Threats
State of the Sunnyvale Economy, Business
Climate and Economic VitalityJanuary 2001
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Business Gives Sunnyvale High Ratings

• The local economy is vibrant and doing well (89
  agreed).
• Sunnyvale is a great place to do business (83
  agreed).
• Sunnyvale business climate is meeting
  expectations (78 agreed).
• Sunnyvale is doing an excellent job in fostering
  and improving the business climate (64 agreed).

Overall Business Climate
Q 2.10 The overall business climate in Sunnyvale
for your firm/organization.
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But Business Size Really Does Matter

• While the overall numbers are appealing, our
  research determined a striking difference between
  perceptions and expectations from smaller (under
  50 employees) and larger (over 50 employees)
  Sunnyvale businesses

Over 50
employees
employees

• 17 of larger employers agreed that the Sunnyvale
  business climate is meeting expectations.
• 26 of larger employers agreed that the City of
  Sunnyvale is a great place to do business.
• 10 of larger employers agreed that Sunnyvale is
  doing an excellent job in fostering and improving
  the business climate.
• Larger businesses are more likely to relocate
  from Sunnyvale than smaller businesses.

Q.7.0 How satisfied are you with the current
efforts by the City of Sunnyvale to promote a
favorable business climate?
Source Tapan Munroe, Inc.
Significant Differences based upon Size of Company
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Understanding the Differences is Key to Creating
Effective Strategies

• Larger businesses are less satisfied than small
  and medium businesses.
• Larger businesses are less anchored to their
  Sunnyvale location.
• Larger businesses have the economic strength to
  vote with their feet and relocate to
  alternative locations.
• Survey results illustrate the importance of
  developing proactive business retention programs
  directed to these important corporate citizens.

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Market Forces Diminish Importanceof Locating in
Silicon Valley

• Globalization of the key industries and firms
  presently located in and around the City of
  Sunnyvale.
• Relocation of administrative, research and
  manufacturing away from California and to foreign
  countries.
• Quality of Life issues such as high housing
  prices and lengthening commute times.
• New clusters of technology businesses in greater
  Bay Area and the Western United States.
• Maturing Silicon Valley businesses requiring new
  or different costs structures, business
  infrastructure, logistics, city services.
• Local government must formulate new policies and
  service protocols to meet the changing demands of
  both business and residential constituencies.
• City of Sunnyvale must be proactive in developing
  and implementing key initiatives that are
  responsive to the changing business environment.

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Key Forces _at_ Work
Local, Regional Global Threats
Top Sunnyvale Employers Can Shift Local
Operations to Lower Cost Regions
Sunnyvale Median Home Prices Near 500,000
The 101 Commute is Californias Most Congested
with 28,780 Daily Delay Hours out of 112,000
total delay hours in the State of California In a
recent survey, 87 of Employees would take a pay
cut for shorter commutes. SourceCaltrans
Advanced Micro Devices, Inc. Applied Signal
Technology, Inc. Amdahl Corporation Computer
Curriculum Corp. Cupertino Electric ,
Inc. Digital Equipment Corporation Lockheed
Martin Corporation Maxim Integrated
Products National Semiconductor Corp. Network
Appliance, Inc. Northrop Grumman
Corporation Spectrian TRW
Home prices in Santa Clara County are now the
third most expensive in the United States source
Wall Street Journal, 2000
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Silicon Valley Issues Impact Sunnyvale
The Silicon Valleys economic success and the Bay
Areas overall strong economy have created
serious economic conditions in the City of
Sunnyvale that generally mirror those in other
Bay Area cities

• Affordable Housing This is the single highest
  concern indicated in the surveys.
• Transportation The desire for a better
  transportation system rather than merely
  improvements.
• Future Work Force Development The critical need
  to broadly provide effective education and
  vocational training at all levels.
• Government Services Provide high quality public
  safety and improved services to business.

Sources Center for Urban Analysis, Congestion,
Management Program/VTA. City Planning Departments
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Growth in New Regional Technology Business
Clusters Threaten Sunnyvale
Internet, Telecommunication, High Technology
Manufacturing, and Multimedia Companies with more
than 5 Employees in the East Bay.

• Silicon Valley industry clusters are expanding
  beyond the greater Sunnyvale area.
• WHY?
• More affordable housing costs.
• Less congestion and shorter commute times.
• Availability of labor pools.
• Lower business occupancy costs.
• The continued development of new regional
  technology clusters erodes the City of
  Sunnyvales comparative advantage.
• This highlights the need for proactive programs
  geared to business retention.

Source Munroe Consulting Inc., Dun Bradstreet,
Employment Development Department, Grubb Ellis
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Section IIIThe Future?Strategic Options
State of the Sunnyvale Economy, Business
Climate and Economic VitalityJanuary 2001
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An Integrated Strategy Increases City Visibility
with Stakeholders
Regional Participation
City of Sunnyvale
Large Businesses Organizations
Small Medium Size Businesses
Local Sunnyvale Specific Actions
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Key Strategies for Success in Protecting
Sunnyvales Economic Vitality

• Develop and support policies and practices that
  achieve planned economic diversity.
• Design programs that acknowledge differences in
  requirements and perceptions of smaller and
  larger businesses.
• Communicate, outreach and marketing the benefits
  of business in Sunnyvale and the importance of
  business to the community.
• Regional Actions Utilize regional and local
  strategies so that decisions and programs add
  value to the Sunnyvale business community.
• Develop local/Sunnyvale specific actions that can
  be measured and contribute to regional solutions.
• Develop working relationships between and among
  the City business community and residents through
  Local/Sunnyvale specific actions.
• Continually research and monitor local economic
  conditions and business community perceptions
  allowing for timely proactive response from City
  of Sunnyvale government and policymakers.

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Sunnyvales Economic Vitality Strategiesfor
Success in the New Economyas Well as in the
Next Economy

• Sunnyvales Economic Prosperity Program should
  be structured in a fashion that incorporates a
  sensitivity to perceived needs that differ
  according to size of business.
• Assessing Sunnyvales Economic Prosperity
  Program and its Business Climate, September,
  1999, Page 13

Both perceptions and expectations among
executives and principals of firms doing business
in Sunnyvale today are driven largely by size of
business.
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STRATEGY 1 Implement a two-tiered strategy
based upon the perceptions expectations of two
different constituencies.

• For Larger Businesses Organizations
• Importance of geographic area is decreasing.
• Being part of an industry cluster is more
  important.
• Local tax costs are a significant concern.
• Consider themselves more aware of City effort
  to enhance local business environment.
• Public safety and fire services are an
  important issue.
• They are not interested in city business
  location and financing services.
• Employment training and/or placement is a
  major concern.

• For Small to Medium-sized Businesses
• Business Friendly regulation is important.
• Attention to local telecommunications
  resources is important.
• It is important to inform about Citys
  efforts to enhance local business environment.
• Public safety and fire services are an
  important issue.
• City assisted business location and
  financing services are important.
• Employment training and/or placement are
  important.
• Recognition and programs that support small
  office home office based businesses.

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STRATEGY 2 Create and promote Industry
Cluster packages of bundled professional
services.

• Develop and hold bi-annual forums for Sunnyvale
  area businesses to know about each others
  products and services in order to increase
  purchase of goods and services from the Sunnyvale
  area assuming that products offered are price and
  quality competitive. The Citys role here is
  that of a catalyst and a facilitator.
• The focus of these forums needs to be on small
  and medium-sized services firms offering legal,
  accounting, consulting, engineering design,
  computer hardware, and software services as well
  as vendors who form part of the supply chain of
  manufacturing.

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STRATEGY 2 (continued) Create and promote
Industry Cluster packages of bundled
professional services.

• The City also needs to develop a Web-based
  information clearing house that lists business
  services and suppliers by Industry Clusters.
  This will save on search cost for firms in
  different industry clusters. It will encourage
  firms to approach a local firm before going out
  of the region for procurement of goods and
  services.
• This program will allow the City of Sunnyvale to
  develop a valuable database on the local economy
  by industry cluster. This will enhance its
  ability to be more proactive in enhancing the
  economic vitality of the City consistent with its
  changing economic structure.

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STRATEGY 3 Think and act regionally.
Influence Through Active Involvement in Regional
Business, Government Planning Organizations

• Participate and support regional strategies that
  cross traditional City of Sunnyvale
  jurisdictional lines.
• Be active in regional boards.
• Establish working relationships with other
  regional agency and organization representatives.
• Identify and leverage existing participation by
  Sunnyvale businesses on regional boards.
• Be responsive to regional transportation system
  needs.
• Be responsive to regional housing needs.
• Lead and cooperate in establishing programs to
  mitigate the regional workforce development
  crisis.

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STRATEGY 4 Implement Strong Communications,
Outreach Marketing

• Use different forms of communication to
  effectively reach the target.
• Tailor message and contact to the business
  audience.
• Require direct contact with larger firms senior
  level policy makers and City managers.
• Reach smaller firms through mass vehicles such as
  newsletters.
• Create round-table events with different business
  groups defined by size and industry peers.
• Work with businesses to involve them in the
  immediate neighborhoods.

• Develop programs to involve businesses in
  community needs and events, creating ownership.
• Promote contact between business and City
  government through creative Internet strategies.
• Promote and publicize the Citys participation in
  regional events and programs.
• Provide data to businesses indicating Sunnyvales
  positive performance against other cities and
  regions.
• Demonstrate commitment to helping realize
  business expectations.
• Manage expectations through regular contact.

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STRATEGY 5 Bench-Mark Against Comparative
Locations is Critical

• Conduct frequent surveys to determine how
  Sunnyvale measures up to comparative locations in
  terms of
• Labor and space costs
• Local taxes
• Regulatory environment
• Affordable Housing
• Transportation
• Availability of skilled worked force
• Quality of life

• How we are doingcompared to
• Silicon Valley Cities
• Bay Area Region
• State of California
• Western United States
• Other New Economy U.S. Cities
• International Technology Centers

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City of Sunnyvale Doing Things Right
Specific examples of current and prospective
proactive initiatives that achieve long term
economic vitality include the following options

• Housing
• Below Market Rate Purchase and Rental (BMR)
  programs enhance economic diversity while
  creating opportunities to maintain local
  workforce.
• City of Sunnyvale Affordable Housing Ordinance
  and Mitigation Fund.
• Downtown development programs assist in creating
  economic diversity and new residential
  opportunities closer to work.

The City of Sunnyvale should be the proactive
catalyst for innovative solutions to the key
concern of finding and retaining a skilled
workforce. The issues - housing, education, land
use and transportation - are important to the
residents and to the business community. Both
groups need to create community partnerships to
improve the quality of life in Sunnyvale.
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City of Sunnyvale Doing Things Right

• Land Use
• Promote redevelopment of older properties.
• Update design guidelines to allow more
  flexibility while respecting neighborhood
  concerns.
• Plan strategic use planning tools (FAR,
  set-backs, etc,) to manage development at Moffet
  Park and around light-rail stations.
• Encourage higher densities at targeted locations.
• Encourage mix of businesses by stimulating
  speculative and build-to-suit properties.

• Transportation
• Public/Private partnerships to address
  transportation problems.
• Coordinate promote use of alternative
  transportation.
• Plan and build new strategic light rail
  stations.
• Encourage businesses to provide on-site
  employee services to reduce working hours
  trips.

• Education
• Provide educational programs that offer skills
  training required by local businesses.
• Coordinate business sponsored programs.
• Create an affordable housing initiative to
  attract and retain teachers Move in for Less.
• Advocate a County-wide education task force to
  identify and implement coordinated programs with
  Silicon Valley chambers and business
  associations.

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Future Research Needs

• Local economic development strategies should
  focus on the citys strengths while addressing
  areas of regional concern.
• Perform on-going monitoring of the local economy
  to allow for early identification of problems and
  time to make necessary adjustments in the Citys
  economic development strategies.
• Conduct frequent surveys of large businesses to
  stay current on needs and issues.
• Identify needs of small office and home-based
  businesses on a regular basis.
• Monitor the direct relationship of City of
  Sunnyvale revenues to industry structure base.
• Learn from other cities and regions facing
  similar economic challenges and economic threats.

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CONCLUSION Develop proactive strategies that
capitalize on understanding of key market forces

• In the past, economic forces such as those
  described in this report have tended to build
  slowly, providing ample opportunity for local
  governments to study issues.
• Many cities fail to react to a changing economic
  environment until a major shock-event occurs,
  such as the announcement of the relocation of a
  major employer.
• Lack of responsiveness results in a downward
  local economic spiral including loss of important
  local tax receipts.
• Costly business retention mandates and economic
  (re)development subsidy programs are required to
  stimulate a turnaround.
• Fast moving New Economy does not allow local
  governments to gradually implement changes over a
  long period of time.
• City of Sunnyvale needs to embrace the important
  market knowledge that is available from this and
  other research.
• Proactively lead and effectively execute
  thoughtful, effective strategic initiatives to
  sustain its strong current position and to enter
  the Next Economy.