Gears of War 3, a highly anticipated title from Cary-based Epic Games, is set to hit stores in fall 2011.| Photo courtesy of Epic Games

If North Carolina’s newly enacted tax incentives for the video game industry are anything like those in Texas, they could give the area some much-needed job growth.

A new report from the Lone Star State attributes the addition of 1,700 jobs in the gaming industry over the last year-and-a-half in large part to tax incentives passed in 2007. North Carolina’s own tax incentive package went into effect this week with the start of the New Year.

Signed at the Cary headquarters of Epic Games in July, the law grants a 15 percent tax credit to companies on development costs greater than $50,000, capped at $7.5 million. Working with community college and universities in the state boosts the credit to 20 percent. In Texas, qualifying developers get back 5 to 6.25 percent of what they spend in the state for projects greater than $100,000.

The prospects for job growth in North Carolina’s gaming industry are good, according to N.C. State economics professor Mike Walden, author of North Carolina in the Connected Age. But he said incentives might not be the main reason.

In an e-mail interview Friday morning, Walden said the state’s vibrant tech sector, higher education community and the presence of a young, well-educated workforce make the Triangle attractive to developers.

“Even without incentives, I think the gaming industry will expand in the Triangle region of North Carolina,” Walden said in an e-mail.

Walden points out that tax credits can certainly “sweeten the deal” for gaming companies looking to relocate or expand, but he said it’s hard to assess whether the incentives are the deciding factor.

“Before the state offers incentives, they make a projection of whether the incentives will ultimately ‘pay for themselves’ by creating enough additional tax revenue from the new economic activity,” he said in an e-mail. “Of course, the question is always whether the firm would have located here even without the incentives. We never know.”

In fact, Walden said the ground is so fertile for the gaming industry here in the Triangle those incentives might not be necessary at all.

“Only my opinion, but if there’s a high chance the firms would locate here without the incentives, then ‘saving’ the incentives for firms more difficult to attract would be the better policy,” Walden said in an e-mail.

With unemployment in the Triangle now up to 7.9 percent in November, the state could certainly use almost 2,000 more jobs from the growing gaming industry.

Hopefully, not everything’s bigger in Texas.

But along the way from startup to giant, those companies go through a second stage of growth, during which they add employees and revenue but are still growing fairly quickly. It’s these second-stage companies that are the unsung heroes of North Carolina’s economy, according to Penny Lewandowski of the Edward Lowe Foundation. In 2008, the last year for which figures are available, 9.7 percent of the resident companies in the state were second stage, but they accounted for almost 35 percent of the state’s jobs.

Penny Lewandowski, director of entrepreneurship development, Edward Lowe Foundation.

The same trend is true in other regions of the country, says Lewandowski, where second stage companies account for a disproportionate number of jobs. (Readers interested in researching trends in company size and job creation can consult the web site youreconomy.org, another initiative of the foundation.)

“These companies are carrying the heavy load of job creation,” Lewandowski says.

Lewandowski, the foundation’s director of entrepreneurship development, came to the Triangle a few weeks ago for the North Carolina Companies to Watch (CTW) awards presentation. The CTW program, sponsored by CED in partnership with the Edward Lowe Foundation, honors privately held second stage companies, those with 10-99 employees and between $1 million and $50 million in revenue. The winners demonstrated exceptional revenue and/or job growth, innovation in marketing or use of technology, and community involvement.

In all, 25 firms were named North Carolina Companies to Watch in the first annual competition. (The complete list appears at the end of this article.)

443 new jobs in a down economy

It’s important to recognize second stage companies, Lewandowski says, because local economies grow through expansion of existing companies rather than the relocation of other companies to a region. “Grow your own” seems to work better than recruitment as an economic engine, in her observation.

As Lewandowski pointed out in her remarks at the awards ceremony, in the four years ending in 2009, the winning companies alone have generated $334 million in revenue and added 443 employees. And that’s in a down economy.

Joan Siefert Rose, president of CED.

Joan Siefert Rose, president of CED, which assists entrepreneurs in the Research Triangle and throughout the state, worked with the foundation to bring Companies to Watch to North Carolina. “We thought it was a great fit and an extension of CED’s work,” she says. That’s in part because many of the startups helped by CED have now successfully transitioned to being second stage companies. “They’ve created jobs and value” for the state, she says, echoing Lewandowski’s observation.

Winners a snapshot of N.C.’s “innovation economy”

In addition, the 25 winners “paint the picture of what the state’s entrepreneurial scene looks like,” Rose says. The winning companies are diverse, representing manufacturing, gaming, software as a service, health sciences and online retailers, a mix that accurately profiles what Rose calls the “innovation economy” in North Carolina.

The winners also included a mortgage firm that doubled its revenue and “a staffing firm that changed their business model, leading to more customers in 2009 than the prior three years combined,” according to Lewandowski. Other winning companies broke new ground in water treatment and solar photovoltaics.

Companies to Watch is a recognition program created by the Edward Lowe Foundation, which supports second stage entrepreneurial companies through a variety of programs, mostly aimed at entrepreneurial support organizations (ESOs) like CED. “Second stage companies have different needs from startups,” Lewandowski says, “and we help ESOs understand how to serve them.”

Winners and their families at the Companies to Watch awards banquet. Left photo: Roland Johnson, CEO of Piedmont Pharmaceuticals, with his wife and mother. Middle photo: Jean Orelian, CEO of SciMetrika, with his wife Valerie and a friend. Right photo: April Mills of Dickson Hughes talks with Isaak Kunkel, vice president of engineering for winner Digitalsmiths. Photos courtesy CED.

Nominations for 190 companies were received for North Carolina’s competition. The winners were:

• 3tailer

• Affinergy Inc.

• BlueStripe Software, Inc.

• Bronto Software

• Clinipace Worldwide

• Consolidated Asset Recovery Systems, Inc.

• DataChambers, LLC

• Digitalsmiths

• Entex Technologies Inc.

• goodmortgage.com

• Inlet Technologies

• Kyma Technologies, Inc.

• Liquidia Technologies, Inc.

• Piedmont Pharmaceuticals, LLC

• PocketGear, Inc.

• SciMetrika, LLC

• Semprius, Inc.

• ShareFile

• ShopBot Tools, Inc.

• The Select Group

• Themis Group, Inc.

• TheraSim, Inc.

• TransEnterix, Inc.

• Tranzyme Pharma

• Yap

Watch CED’s web site for announcements about next year’s competition.

Click here to view the embedded video.

They have recently been digging around and finding projects with which I am involved in one way or another:

For example, a few days ago, they profiled science blogs in general and scienceblogs.com in particular, but mainly focused on ResearchBlogging.org which aggregates and gives a stamp of approval to blog posts covering peer-reviewed research. The aggregator is a local thing – it is a brainchild of Dave Munger here in Davidson, NC, and it was first announced to the world at the 2008 Science Online conference here in RTP.

Blog posts that show up on ResearchBlogging.org are also tracked by PLoS articles as a component of the PLoS article-level metrics program, designed to provide researchers, readers and administrators better insight into the quality, visibility and popularity of scientific papers than any single-digit metric can accomplish (most notoriusly, the incredibly misused Impact Factor).

The blogging guidelines for getting onto the PLoS press list are taken directly from ResearchBlogging.org. Aggregation on ResearchBlogging.org is also a requirement for eligibility for our Blog Pick Of The Month prize.

A couple of days ago, folks at Knight Science Journalism Tracker stumbled onto an article in Raleigh News & Observer and were curious where the original local science reporting is coming from, knowing that the paper has laid off its science reporters a while ago.

Having a lot of well-connected readers and commenters, they got their question answered quickly: the brand new Monday Science section, a collaborative project of Charlotte Observer and Raleigh News & Observer (both owned by McClatchy group).

Instead of full-time reporters sitting in the newsroom, the articles are written by freelance writers (mostly) residing in the area, including Dave Munger (remember Cognitive Daily blog?), DeLene Beeland, Sabine Vollmer (former science reporter at N&O), Cassie Rodenberg and a number of others (mainly writers organized around SCONC).

But the new Monday section is not the only thing the folks at Knight Science Journalism Tracker learned about in this effort. They also heard about – and thus blogged about – Science In The Triangle.org (and its blog), a new online project designed to fill in the vacuum in science, environmental and medical reporting left by the deep cuts in local newsrooms. The site is still in its infancy, but we are working on it. Currently we have one videographer (Ross Maloney), one professional journalist (Sabine Vollmer), and two bloggers (DeLene Beeland and myself). I hope you take a look, subscribe/bookmark, and watch the site evolve in the future.

On Tuesday, legislators finished a grueling session that had been dominated by spending cuts to close a multi-billion dollar shortfall in revenue. The cuts will reduce the amount of funding the N.C. Biotechnology Center will receive during the current fiscal year to $14.8 million, from $17.5 million in fiscal 2009.

The pool of money the biotech center will have available to loan to young, unprofitable research and development companies – to help them get off the ground and grow their business – shrunk by half to about $2 million, according to spokesman Chris Brodie.

The biotech center’s loans have long been stepping stones for very young biotech companies to prepare for venture capital investments, expand and create jobs.

Further cuts in the biotech center’s budget, which is entirely state-funded, are projected for the following fiscal year, Brodie said.

The cuts, made necessary by the fallout of one of the longest and fiercest recessions since the Great Depression, come at a time when investors are renwing their interest in biotech companies.

Several publicly traded drug development companies have been able to raise cash in stock sales recently – Durham-based Inspire Pharmaceuticals collected more than $100 million in a secondary offering Monday. The same day, Wall Street completed the first initial public offering of a pharmaceutical company in nearly two years.

This renewed interest could free up new venture capital, the lifeblood of the biotech industry, especially for very young companies.

That’s why the budget cuts, necessary as they may be, come at such an unfortunate time for North Carolina’s biotech industry just as the recession is easing. Especially budding members of the industry, which is concentrated in the Triangle, could miss out on venture capital and wither on the vine.

Life science fund to attract jobs fails to pass

Legislators also dealt a blow to another effort to create jobs in the biotech, pharmaceutical and medical device industries.

In a last minute decision Monday, House members shelved a bill that would have established an investment fund to attract to North Carolina small and mid-size companies preparing to start production.

Economic development recruiters have long wanted an incentive vehicle to attract such companies, which tend to be too small to qualify for traditional state incentives but add corporate headquarters and high-paying manufacturing jobs to North Carolina.

Filed in the Senate in March and passed to the House in July, the bill would have allowed investors, such as banks and insurance companies, to pay money into the fund. The money would have been converted into loans of up to $30 million for life science companies interested in buying or expanding manufacturing facilities in North Carolina.

Fund investors would have been eligible for tax credits in case of losses. That raised questions among some House members and prompted the bill’s sponsor to ask that the bill be shelved until the legislature returns in the spring.

Crisco told the several dozen people who attended the forum that he has visited China more than a dozen times since 1980. He called China a leading trader with a $1.8 billion impact on North Carolina’s budget. And he talked about a trip planned later this year to Beijing and Shanghai, where North Carolina opened a trade office in January. Gov. Beverly Perdue has agreed to accompany him on the visit, Crisco said.

The industries North Carolina will focus on include aviation, financial services and life sciences, he added. “International trade is the future for our economy.”

Hosted by the Greater Raleigh Chamber of Commerce, the forum was part of a roadshow put together by the U.S. Department of Commerce to talk about international trade, including international free trade agreements. In Raleigh, the roadshow featured speakers from local companies and organizations doing business in China and out-of-town business consultants looking to score clients.

Despite the challenges of setting up shop in China – “China is not for sissies,” William Zarit of the U.S. Commercial Service, the trade promotion unit of the International Trade Administration, told the forum crowd – several North Carolina companies and organizations have established operations in China. They include the Lord Corp., a Cary-based company that makes chemicals and parts for vehicles and helicopters, and the Hamner Institutes for Health Sciences in Research Triangle Park.

Lenovo, a Chinese company that bought IBM’s personal computing division in 2005, has one of its world headquarters in Morrisville.

North Carolina hasn’t always welcomed the Chinese, said Duane Long, who built the World Trade Park in Raleigh and helped establish the North Carolina China Center. About eight years ago, Long said in his forum presentation, former Gov. Mike Easley turned down a group of Chinese businessmen interested in investing in North Carolina, because so many North Carolina manufacturing jobs were going to China.

The investors went to South Carolina instead, Long said. Today, six Chinese companies have operations in South Carolina.

“Now, the atmosphere [in North Carolina] has changed,” he said, referring to efforts by Crisco and Perdue to improve the state’s trade relations with China.

Cheep Chinese goods, which gained unrestricted access to the U.S. in 2001, cost North Carolina an estimated 80,000 manufacturing jobs over eight years, a 2008 report by the Washington, D.C.-based Economics Policy Institute suggested. Nationwide, the number of jobs lost was about 2.3 million.

China is a fierce, global competitor with an abundant labor force whose low wages can reduce production costs by about 70 percent compared to the U.S., said David Hale, president of New York-based consulting firm International Smart Sourcing.

Corruption, maintaining quality control and protecting intellectual property can be major challenges for U.S. companies doing business in China, Hale said. But China also has a growing middle class with an enormous consumer purchasing power. Chinese consumers bought more than 1 million cars in March alone, he said.

The Lord Corp. first set up operations in China in 1987, Richard McNeel, the Lord Corp.’s chief executive, told the forum. According to its Web site, the company now has two manufacturing sites, a research and development laboratory and a customer service center, all in Shanghai.

Most of the Lord employees in Shanghai are Chinese and the manufacturing plants produce mostly for the Chinese market, McNeel said. Lord’s sales in China are projected to reach $50 million this year, or about 8 percent of the company’s annual sales, he said. But China is the market where Lord’s sales are growing fastest.

Lord employs about 2,600 worldwide, including more than 300 in Cary.

The Hamner Institutes established a drug research and development partnership with China Medical City about two months ago. An initial $5 million investment by a Chinese company that is setting up its U.S. headquarters at the Hamner Institutes is part of the partnership.

Bill Greenlee , CEO of the Hamner Institutes, called China Medical City, a research park under construction about three hours north of Shanghai, “RTP on steriods.” Already, there’s interest in collaborating with the Hamner Institutes on occupational health risks, such as exposure to chemicals on the job, Greenlee said at the forum.

Two years ago, I spoke with seven people who were involved in establishing one of North Carolina’s biggest economic engines in the mid-1950s. The interviews, which ran in the News & Observer, offered many interesting nuggets of information and a few surprises. But I was struck most by an old, black-and-white photo.

Taken from the air, it showed brush, grass and trees as far as the eye could see. That was RTP before three universities – Duke University in Durham, the University of North Carolina in Chapel Hill and N.C. State University in Raleigh – a developer and state leaders pursued the idea to turn thousands of rolling acres covered with poor soil into a research park.

Back then, RTP promised to raise North Carolina’s per capita income, which was one of the lowest in the nation, stop the brain drain of college graduates and generate more tax dollars for state, county and local governments. A handful of recruiters worked their contacts to convince research-oriented companies in the Northeast and Midwest to expand their labs in North Carolina. Their efforts finally paid off in 1966, when IBM decided to open shop in RTP.

In 1959, the year RTP was officially opened as the second research park in the U.S., it was 4,400 acres. Three companies that had established operations employed fewer than 300. Of all the industries in the Triangle, only 15 percent were technology-based, new-line industries.

Today, RTP measures 7,000 acres and is one of 174 research parks in the U.S. More than 160 companies employ about 40,000 in the park alone. About half of the Triangle’s industry is high-tech.

Six more research parks have sprung up along I-40 and I-85 between Raleigh and Charlotte and the Triangle is one of the fastest growing areas in the nation.

Traveling on I-40, which didn’t exist in the 1950s, it’s easy to miss RTP, because most buildings are lower than the many trees surrounding them. The research park was conceived and planned during a time when America was moving to the suburbs and its layout reflects that. Now, we’re concerned with urban sprawl and traffic congestion. The Internet allows us to work from home or a coffeeshop. Countries like India and China, where labor costs are much lower than in the U.S., are competing with RTP.

The park itself has only about 530 acres left to develop. But some of the largest employers in RTP, such as GlaxoSmithKline and IBM, are scaling back. The challenges that RTP and other research parks will face in the future are among the issues that will be addressed at the International Association of Science Parks conference, which  starts June 1 at the Raleigh Convention Center.

It’s a question that more than 700 economic developers, economists, scientists, investors and business executives from around the world will explore at the three-day International Association of Science Parks conference that starts June 1 at the Raleigh Convention Center.

The IASP, which counts Research Triangle Park among its 350 members, will for the first time in its 25-year history hold its annual conference in the U.S., near RTP, which celebrates its 50th anniversary this year and is the second oldest research park in the world.

Aside from anniversaries of Triangle organizations that have mined the massive research activities in the area to create well-paying jobs – the N.C. Biotechnology Center and the Council for Entrepreneurial Development turn 25 this year – the location for the IASP conference also reflects the effects information technology is having on research and development in the U.S.: E-mail, video teleconferencing and the Internet are allowing for greater flexibility of where scientists work.

That’s great for science. But it poses a challenge for U.S. science clusters like RTP, one of the largest research parks in the world, and areas surrounding them.

North Carolina has seven research parks and about 4 million people employed in research and development statewide, including about 700,000 in the Triangle, according to labor market statistics. The state has also made it a priority to recruit biotech and pharmaceutical manufacturing jobs on the back of the existing R&D activities.

So what can research parks like RTP do to help keep existing science jobs and attract new ones? What role should research parks play in turning science into jobs in the next 50 years? And where is science going? Which innovations will change the lives of our children and grandchildren?

Many speakers at the conference will address those questions and offer answers, or at least projections. Here is a handful of some of the most influential and well known of the speakers:

• Andrew Witty, chief executive of GlaxoSmithKline, a British drugmaker that has its U.S. headquarters in RTP and has been cutting jobs for about 18 months.
• Anthony Townsend, research director of the Institute for the Future in Palo Alto, Calif.
• Ross DeVol, director of regional economics at the Milken Institute in Santa Monica, Calif.
• Shirley Ann Jackson, president of Rensselaer Polytechnic Institute in Troy, New York.
• Gene DePrez, a corporate location consultant and former IBM executive.

To follow the discussion and contribute to the debate, turn to Science in the Triangle, which will bring you updates in real time on the Web and on Twitter.