Technology Industry Report
Automation Alley’s 2016
Southeast Michigan vs. Silicon Valley
FOREWORD
Ken Rogers, Executive Director, Automation Alley You’ve seen the headlines:
But at Automation Alley, our
In nearly every category,
experience doesn’t fit this paradigm.
tech executives saw more in
“Could Detroit become the next
Over the past 10 years of publishing
Southeast Michigan: more ROI,
Silicon Valley?”1
this report, we have seen Southeast
more opportunity, more support.
Michigan compete strongly with “Why Detroit could be the next
Silicon Valley in the tech industry.
And the news is exciting for job
Silicon Valley (and vice versa)”
And every day, we work with
seekers as well as those looking
technology companies that are
to start or grow a business in
expanding rapidly and developing
Southeast Michigan. In 2016, more
industry-disrupting technology.
tech executives expect to make new
2
“Detroit: The next Silicon Valley?”
3
These headlines are intended to shock, because most people’s
hires, increase company revenue
Southeast Michigan is the place to grow a technology business.
perceptions of
and invest in R&D than their Silicon Valley counterparts — not to mention that a paycheck in Detroit goes much farther than a paycheck
the two regions
To change this outdated perception
in San Jose. (See pg. 11 for the
couldn’t be more
of Southeast Michigan, we talked
difference in rent and housing value
different. The
to the people most familiar with the
for the two regions.)
prevailing attitude — both inside
tech industry in the two regions:
and outside of Michigan — is that
tech executives in Southeast
Forget what you know about Silicon
Southeast Michigan is stuck in
Michigan and Silicon Valley.
Valley. Forget what you think you
the past, that Detroit is, was and
know about Southeast Michigan.
always will be, a “Rust Belt” town. In
And this was their overwhelming
Let’s write a new headline for
contrast, Silicon Valley is perceived
response: Southeast Michigan is
tomorrow’s paper: “Silicon Who?
as the epicenter of high-tech
the place to grow a technology
Tech Industry Booming in
innovation and opportunity.
business.
Southeast Michigan.”
4 | 2016 TECHNOLOGY INDUSTRY REPORT
Thank You to our Sponsors
Copyright Notice and Permissions This entire report is copyright (c) 2016 by Automation Alley. All rights reserved, except permission to reproduce in its entirety, including this notice, for Automation Alley news media and research purposes. Resale without permission, and use in derivative works, is expressly prohibited. “Fair use” excerpts may be included in news or research reports provided a complete citation is given to Automation Alley. 1) K White, Sarah. “Could Detroit become the next Silicon Valley?” CIO.com. CIO, 05 November 2015. Web. 03 Feb. 2016. 2) Katz, Bruce. “Why Detroit could be the next Silicon Valley (and Vice Versa).” Fortune.com. Fortune, 07 Apr. 2015. Web. 03 Feb. 2016. 3) Harlow, Poppy. “Detroit: The next Silicon Valley?” CNNMoney. Cable News Network, 20 May 2011. Web. 08 Feb. 2016.
AUTOMATIONALLEY.COM | 5
ABOUT THIS REPORT Southeast Michigan vs. Silicon Valley Southeast Michigan is a hotbed
vast business opportunity and
of technology and innovation, and
technological impact. In addition to
according to the industry’s top
assessing data for the Southeast
executives, it’s a region that rivals
Michigan region, the report looked
even Silicon Valley as the best place
at data for five of the nation’s
to do business.
leading technology hubs: San Jose, Chicago, Boston, Seattle
That’s the conclusion of Automation
and Austin.
Alley’s survey of senior executives currently working in the technology
As Michigan’s leading technology
industry in Southeast Michigan and
business association, Automation
Silicon Valley. The results of this
Alley publishes this report to
report predict growth for Southeast
increase awareness of Southeast
Michigan technology companies
Michigan as a leading center
in 2016 and showcase regional
for tech talent, innovation and
strengths that rival those of
opportunity in America. We
Silicon Valley.
encourage the region’s leaders and influencers, as well as companies
This survey — coupled with
and individuals, to use the report
key economic indicators and
as a tool to attract talent and
employment and growth projections
investment to the region and to
for 2016, provided by East Lansing-
advocate for the technology industry
based Anderson Economic Group
of Southeast Michigan.
— highlights Southeast Michigan’s
6 | 2016 TECHNOLOGY INDUSTRY REPORT
SOUTHEAST MICHIGAN TECHNOLOGY COMPANIES ARE MORE OPTIMISTIC ABOUT 2016 GROWTH THAN THEIR COUNTERPARTS IN SILICON VALLEY
99% of Southeast Michigan Technology Companies Project Revenue Growth in 2016 While tech executives from both
Percentage of executives who expect their
areas are optimistic about their
company revenue to grow in 2016
company revenue in 2016, those from Southeast Michigan are more confident about their company’s
SOUTHEAST MICHIGAN
revenue projections than their Silicon Valley counterparts.
SILICON VALLEY
99% 90%
8 in 10 Southeast Michigan Technology Executives Plan to Invest in R&D and Make New Hires in 2016 While the majority of tech executives surveyed plan to increase investment in research and development in 2016, slightly more (83 percent) Southeast Michigan executives expect an increase. In Silicon Valley, 81 percent of executives surveyed expect an increase in R&D investment. Also, more executives from Southeast Michigan than Silicon Valley reported their company is planning to grow their talent base in 2016. In addition, the percentage of respondents who expected their employee headcount to decrease in Silicon Valley is higher than that of Southeast Michigan.
8 | 2016 TECHNOLOGY INDUSTRY REPORT
THE FACTS
How do you expect your employee headcount to change in 2016?
Southeast Michigan Increase - 82% Stay the Same - 15% Decrease - 3%
• Employment in the technology
• The number of technology-focused
industry in Southeast Michigan
jobs in Southeast Michigan
increased by an estimated 4.3%
increased by an estimated
between 2014 and 2015, and
4.1% between 2014 and 2015.
employment between 2015 and
Technology-focused employment
early 2016 is projected to increase
is projected to increase by
by 1.5% to 269,877 jobs.
2.2% from 2015 into early 2016 to 195,745 jobs in Southeast Michigan.
Tech industry employment is projected to increase to 269,877 jobs in 2016.
Silicon Valley Increase - 81% Stay the Same - 12% Decrease - 7%
The 3 industry sectors in
The 3 technology-focused jobs
Southeast Michigan that are
in Southeast Michgian that are
projected to have the largest
projected to have the largest
increase between 2015 and
increase between 2015 and
early 2016:
early 2016:
• Related and other technology*: 65,399 (2.6% increase) • Advanced automotive: 92,031 (1.8% increase) • Life sciences: 17,279 (0.9% increase)
• Architecture and engineering: 94,222 (3.0% increase) • Technology management: 13,841 (2.1% increase) • Computer and mathematics: 70,783 (1.5% increase)
*To estimate employment for 2014 through 2016, Anderson Economic Group considered statewide employment trends for related subsectors, which include mining (NAICS 21); professional and commercial equipment and supplies merchant wholesalers (NAICS 4234); and architectural, engineering, and related services (NAICS 5413). AEG also considered Detroit and Ann Arbor Metropolitan Statistical Area-level trends for higher-level industry sectors, including merchant wholesalers’ durable goods (NAICS 423) and professional scientific and technical services (NAICS 54). NAICS 423 was available for the Detroit MSA only.
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SOUTHEAST MICHIGAN IS A BETTER PLACE FOR TECHNOLOGY PROFESSIONALS TO BUILD THEIR CAREERS THAN SILICON VALLEY
Southeast Michigan Technology Executives Agree Their Region Provides More Networking Opportunities Than Other Metro Areas Percentage of executives who think there are more networking opportunities in their region compared to other metro areas
THE FACTS Southeast Michigan was home to 30 colleges and universities that offered science, technology, engineering and mathematic
81% 77%
SOUTHEAST MICHIGAN SILICON VALLEY
More Southeast Michigan Tech Executives See Opportunity for Ongoing Education Than Silicon Valley Executives Percentage of tech executives who believe their region has leading academic institutions for self-advancement
(STEM) degree completions in the 2013-2014 school year. STEM Degree Completions:
Southeast Michigan: 9,335 Silicon Valley: 5,483 During the 2013-2014 school year, there were 9,335 STEM degree completions in Southeast Michigan, compared to 5,483
85%
SOUTHEAST MICHIGAN SILICON VALLEY
10 | 2016 TECHNOLOGY INDUSTRY REPORT
68%
STEM degree completions in the same school year in the San Jose metro area.
Southeast Michigan Trumps Silicon Valley When It Comes to Cost of Living Percentage of tech executives who think their region has a lower cost of living compared to other metro areas
74%
• In 2013, the median gross rent
five comparison areas, 49% or more
in the Southeast Michigan region
SILICON VALLEY
of renters pay $1,000 in rent.
was $855, below the national average and the lowest of the
• Of the six comparison areas, Silicon
comparison regions.*
Valley has by far the highest median gross rent, at $1,629.
Fewer than 35% of renters in Southeast Michigan pay $1,000 or more in gross rent
• In 2013, the Southeast Michigan region had the most affordable housing of the six comparison areas, with a median housing
• Fewer than 35% of renters in
48% SOUTHEAST MICHIGAN
THE FACTS
value of $127,904. In contrast,
Southeast Michigan pay $1,000 or
the median housing value in San
more in gross rent, while in the other
Jose in 2013 was $654,800.
* Comparison regions include the Detroit, San Jose, Chicago, Boston, Seattle and Austin metro areas.
The Majority of Southeast Michigan Tech Executives See Diverse Technology Opportunities in the Region Percentage of respondents who think their region offers diverse technology opportunities and experiences
SOUTHEAST MICHIGAN SILICON VALLEY
80% 72%
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SOUTHEAST MICHIGAN
IS A BETTER PLACE FOR TECHNOLOGY COMPANIES TO DO BUSINESS THAN SILICON VALLEY
Southeast Michigan Yields Greater ROI, According to Area Tech Executives Percentage of tech executives who believe technology companies can have greater return on investment if they have a business location in their metro area
83% SOUTHEAST MICHIGAN
69% SILICON VALLEY
Southeast Michigan Technology Executives See Greater Support from the Government Than Their Silicon Valley Counterparts Percentage of tech executives who believe technology companies can benefit from government support if they have a business location in their metro area
Nearly 7 in 10 (68 percent) Southeast Michigan tech executives believe technology companies can benefit from a
75%
lower cost of capital if they have
63%
a business location in their metro area, compared to 60 percent in Silicon Valley.
12 | 2016 TECHNOLOGY INDUSTRY REPORT
SOUTHEAST MICHIGAN
SILICON VALLEY
Southeast Michigan Tech Executives Think It’s Easier to Retain Talent Than Their Silicon Valley Counterparts
THE FACTS • Michigan’s overall tax burden, at 8.9%, is lower than the national average (9.1%).
Percentage of executives who believe it is easier for technology companies to retain talent in their region compared to other metro areas
74% SOUTHEAST MICHIGAN
67%
• Michigan has the second lowest public utilities sales tax at 0.1%, the second lowest corporate income tax at 0.6%, and the lowest rate for license fees at 0.3% among the six comparison regions.
Michigan’s overall tax burden, at 8.9%, is lower than the national average (9.1%)
SILICON VALLEY
• Michigan has lower public utilities sales tax, corporate
Southeast Michigan Trumps Silicon Valley When it Comes to Tax Burden
income tax, license fees, and general sales tax than California. In addition, the commercial and industrial electricity costs in Michigan are also lower than that in California.
Percentage of tech executives who think their region has a lower tax burden
• Public utilities sales tax: MI (0.1%) vs. CA (0.4%)
compared to other metro areas
• Corporate income tax: MI (0.6%) vs. CA (0.8%) • License fees: MI (0.3%) vs. CA (0.7%)
63% SOUTHEAST MICHIGAN
48% SILICON VALLEY
• General sales tax: MI (1.6%) vs. CA (1.8%) • Commercial electricity (cents/kWh): MI ($10.42 cents) vs. CA ($18.22 cents) • Industrial electricity (cents/kWh): MI ($7.07 cents) vs. CA ($13.96 cents) * Comparison regions include the Detroit, San Jose, Chicago, Boston, Seattle and Austin metro areas.
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METHODOLOGY This report contains two separate studies. One study is the technology industry data collection and analysis for the metro Detroit region. Automation Alley commissioned the East Lansing, Mich.-based Anderson Economic Group LLC. (AEG) to conduct the study. The second study is an online survey among 150 senior executives who are currently working in the technology industry in the Southeast Michigan and the Silicon Valley areas.
Study 1 Methodology:
To complete the analyses and benchmark the technology sector in metro Detroit against five other metropolitan areas in the United States including Chicago, Seattle, Austin, Boston, and San Jose, AEG: • Collected data from the U.S. Census Bureau and the Bureau of Labor Statistics to analyze the technology industry, establishments, and workforce (occupations) of the technology sector. • Collected data from the National Center for Education Statistics on degree completions in Science, Technology, Engineering, and Mathematics (STEM) fields as a measure of preparation for continued growth. • Collected data from the U.S. Census Bureau, U.S. Energy Information Administration, and the State Business Tax Burden Study created by Anderson Economic Group to analyze indicators on the cost of living and cost of doing business in each metropolitan area as measures of the desirability of the region for both businesses and potential employees. • Analyzed employment trends in technology industry clusters in metro Detroit from 2006 through 2013, state14 | 2016 TECHNOLOGY INDUSTRY REPORT
level technology industry data for 2011 through 2015, and top-level industry employment levels for the Detroit and Ann Arbor metropolitan statistical areas (MSAs) for 2011 through 20151. Due to the fact that MSA-level data for more recent years (2013-mid 2014) are primarily available at higher-level NAICS codes, AEG’s estimates for technology clusters are based on actual, but partial, employment data, as well as statewide trends. • Analyzed occupational employment trends in metro Detroit from 2011 through 2014, 2010-2020 occupational employment forecasts for the Detroit and Ann Arbor MSAs, state-level technology industry employment for 2011 through 2015, and top-level industry employment for the Detroit and Ann Arbor MSAs for 2011 through 20152. Since 2014 is the most recent year for which actual occupational employment data is available, AEG used employment data for industries corresponding to each technology occupational cluster to inform their estimates for 2015 and 2016. Data at the MSA level was primarily available at broad NAICS categories. State-level data was available at more specific NAICS code levels.
Below are the sources for the technology industry data
• Industry Data: The industry data used in this analysis was obtained from the United States Census Bureau County Business Patterns program. The vintage is 2013, which represents the most current data available at the time of publication. • Occupation Data: The occupation data used in this analysis was obtained
from the United States Bureau of Labor Statistics Occupational Employment Statistics program. The vintage is 2014, which represents the most current data available at the time of publication. • University STEM Degree Data: The university degrees data used in this analysis was obtained from the National Center for Education Statistics Integrated Postsecondary Education Data System data center, Compare Individual Institutions option. The vintage is 2013-2014, which represents the most current data available at the time of publication. The degrees total includes all levels [associate’s, bachelor’s, master’s, and doctor’s (research/ scholarship, professional practice, and other)], but not certificates. The Classification of Instructional Programs (CIP) codes used are based on IPEDS’ predefined “Postsecondary Awards in Science, Technology, Engineering, and Mathematics” variable3. These include programs in: ◦◦Computer and information sciences ◦◦Engineering ◦◦Engineering technologies ◦◦Biological and biomedical sciences ◦◦Mathematics and statistics ◦◦Physical sciences ◦◦Science technologies • Population Data: The population data used in this analysis was obtained from the United States Census Bureau Population Estimates. The vintage is 2014, which represents the most current data available at the time of publication. • Cost of Living Data: The housing data used in this analysis was obtained from the United States Census Bureau, American Community Survey 2013 5-year estimates. The vintage is 2013, which represents the most current data available at the time of publication. • Cost of Doing Business Data: The
state and local taxes paid by businesses data used in this analysis were taken from the 2015 State Business Tax Burden Ranking Report, 6th Installment, by Anderson Economic Group. The electricity data used in this analysis were obtained from the U.S. Energy Information Administration. The vintage is September 2015, which represents the most current data available at the time of publication. AEG’s industry estimates are representative of employment levels as of March 31 of each year. 2 The first year from which AEG has consistently reported occupational employment statistics for Automation Alley was 2011. AEG’s occupational estimates are representative of employment levels as of May 31 of each year. 3 While the STEM completion programs in this report are based on those included in the “Postsecondary Awards in Science, Technology, Engineering, and Mathematics” metric used in the 2012 report, the data may not be directly comparable, as the data for this report was pulled by each degree category, rather than STEM as a whole. 1
Study 2 Methodology:
The other study is an online survey among 150 senior executives who are currently working in the technology industry in the Southeast Michigan and the Silicon Valley areas between November 19-24, 2015. The respondents were recruited through Research Now online survey panel. For this study, a senior executive is defined as a professional who has a manger or above job title. In addition, the Southeast Michigan area in this study refers to the following eight counties that Automation Alley represents: Wayne, Macomb, Oakland, St. Clair, Monroe, Washtenaw, Livingston and Genesee. The total number of participants for the study was 150, with 56% of them male and 44% female. All of the respondents self-identified as a senior executive in the technology industry from either Southeast Michigan or Silicon Valley. There were 75
respondents from each area. In addition, 28% of respondents reported that they are a C-level, 9% are a VP, SVP, or EVP, 29% are a director, and 35% are a manager, supervisor, or lead. Among all respondents, 7% of respondents were 18 to 24 years old, 51% were 25 to 34 years old, 29% were 35 to 44 years old, 9% were 45 to 54 years old, 3% were 55 to 64 years old, and 1% were more than 65 years old. Among the 150 respondents, 53% were in computer and IT services. The rest of the respondents came from a variety of industry sectors, including: computer software development (13%), computer network service (5%), computer hardware development (5%), computer-generated graphics, imaging, and document management service (4%), mobile application development (3%), hardware/ software asset management (2%), internet services provider (2%), web development and programming (2%), telecommunications (2%), medical and biotechnology (2%), engineering, design, and prototyping service (1%), robotic and automation (1%), other technology based services (2%), computer product distribution (1%), and other (1%).
About Automation Alley
Automation Alley is Michigan’s leading technology business association, connecting businesses with talent, resources and funding to accelerate innovation and fuel Southeast Michigan’s economy. Since its founding in 1999, the nonprofit has grown to include nearly 1,000 tech-focused members in businesses, education and government. Automation Alley focuses its efforts in five areas: advanced manufacturing, defense, entrepreneurship, international business and talent development. For more information, visit automationalley.com.
About Anderson Economic Group Anderson Economic Group, LLC (AEG)
was founded in 1996 and today has offices in East Lansing, Michigan and Chicago, Illinois. AEG is a research and consulting firm that specializes in economics, public policy, financial valuation and market research. The firm first provided Automation Alley with a Technology Industry assessment in 2005, and has done so in subsequent years with a consistent methodology and careful definition of technology industries and occupations. For more information, visit www. AndersonEconomicGroup.com.
Cautions and Limitations of the Industry Data
The analysis and projections in this report are based on the most recent publicly available data. Because economic, market, and industrial conditions change; data can prove incomplete or misleading; and government policies are outside our control; we cannot warrant that actual employment levels during the period, or future periods, align with those estimated in this report. We recommend careful consideration be given to actual market and industry conditions by any person using portions of this analysis in any investment decision, and do not guarantee the future outcome of any business venture, government policy, or legal or regulatory proceeding.
Copyright Notice and Permissions
This entire report is copyright © 2016 by Automation Alley. Selected portions retain an original copyright © 2015 by Anderson Economic Group, LLC (AEG). AEG work is used in this report by Automation Alley with permission. All rights reserved, except permission to reproduce in its entirety, including this notice, for Automation Alley news media and research purposes. Resale without permission, and use in derivative works, is expressly prohibited. “Fair use” excerpts may be included in news or research reports provided a complete citation is given to Automation Alley. AUTOMATIONALLEY.COM | 15
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