This article was originally published at Business In Focus, for the August 2014 issue.
The community grew up around the University of Michigan, which is one of the top three publicly funded research universities in the nation. The institution both attracts and develops talent, and encourages a culture of innovation. “Ann Arbor is a significant area of innovation in the United States,” Mr. Krutko points out. “We are bringing new innovations and new companies into existence in a place with a very high quality of life. We are in the same category as Boulder, Colorado; Madison, Wisconsin; Corvallis, Oregon; and Austin, Texas – communities built around a strong research university and have leveraged that significant research component into a very rich entrepreneurial environment. People and companies are flocking here because there is opportunity within a high quality of life environment.”
It didn’t happen by accident. “There has been a concerted effort of the local private sector, local government and academic institutions (including Eastern Michigan University and Washtenaw Community College) to accelerate the economic development and we have had tremendous results,” Mr. Krutko says. His organization, Ann Arbor SPARK, has been at the forefront of these community-wide efforts. “We focus on regional development,” he explains. “We work with the entire scale [of business], from someone who is an initial entrepreneur with a product that they want to commercialize, to very large companies like Toyota. We are a full service shop.” The team focuses on Ann Arbor, which has a population of 114,024 (including students), as well as surrounding Washtenaw and Livingston counties with a total population of greater than 560,000.
The community is seeing concrete results from the efforts of Ann Arbor SPARK and other likeminded organizations and government initiatives; the region’s education, automotive research and tech sectors have also helped cushion the local economy from the recent downturn. “Starting in 2008, over the great recession, we have had an unemployment rate consistently below that of the nation as a whole,” Mr. Krutko reports. “And, we have recovered all of the jobs that we lost in the great recession; the entire state of Michigan still has 120,000 jobs to go to get to that point. We are a unique area inside the state of Michigan. We are a high tech, innovative, cutting edge community.”
Not only has the area regained all of the jobs that were lost during the recession, many of the new jobs are in more lucrative industries. “We not only recovered all the jobs, but the mix of jobs has changed. As a region, we were about two thirds manufacturing in terms of private sector GDP, and one third professional / technical. The most recent data shows that it is now fifty/fifty.” The life sciences and IT sectors are doing particularly well. “We have not only done well in terms of how the economy has functioned and where we are in terms of unemployment, but also the economy has shifted.”
Automotive research remains a core industry, but its focus is beginning to shift along with the rest of the regional economy. “We are building on this heritage of automotive research,” Mr. Krutko explains. The industry’s roots go back nearly 40 years, to when the EPA chose Ann Arbor for the site of a major testing facility. “Everybody selling vehicles in the United States had to have their car or truck tested here, and that resulted in a number of folks identifying this as a good business environment so they really ramped up their presence here.”
Today, Ann Arbor’s automotive research centers around foreign owned automotive companies. Toyota alone employs as many as 1,700 engineers in the city. “They have a research facility here where they design and test every vehicle that Toyota sells in North America,” Mr. Krutko says. “Hyundai-Kia has a similar facility here also,” and the industry’s new focus in Ann Arbor is largely on the integration of information technology into vehicles. “What’s going on in transportation is almost revolutionary.”
The community is working to secure a new 400 acre, state of the art R&D facility that would specialize in driverless cars, a concept that was considered science fiction just a few years ago. “It is not your grandfather’s test track,” Mr. Krutko says. “[It would study] things like how a Volvo talks to a Toyota that is following behind an Eagle semi-truck. How does that all work?” Answering questions like these “is going to be a real emphasis for our region moving forward.”
The University of Michigan is leading the way with a smaller, 32 acre version. The facility, which is set to open early this fall, recreates a city, complete with a four-lane highway, construction barrels, stoplights, road signs, intersections, rotaries, and a railway crossing. A public-private partnership between the University of Michigan Transportation Research Institute and the Mobility Transformation Center, this next generation test track will help the industry develop safe automated vehicles.
The federal government has also chosen Ann Arbor as the test site for leading edge telemetry devices. “Right now approximately 2,000 cars here have telemetry devices installed in them and regular people in Ann Arbor are driving those vehicles around,” Mr. Krutko shares. “These cars are getting information from the surrounding infrastructure. The idea is that, by providing that additional information, it provides additional safety. And that additional safety is a big payoff.” The program’s first round has been successfully completed and it is about to be expanded to include 5,000 cars by 2017.
Automotive research initiatives, as well as other tech sectors, find a welcoming, low cost home in Ann Arbor. “We compete very aggressively with other technology clusters in the United States,” Mr. Krutko remarks. “Our cost structure here is about a third less than other [tech] places in the country. So we have had a number of Silicon Valley companies make investments here because they see that their return is much better than if they were in other locations.” Employers can save on wages by about one third, but the cost of living is also significantly lower, “so those employees do very well,” Mr. Krutko explains. “I often tell people that I have three times the house for 40 percent of the money.” Mr. Krutko was recruited in 2011 from Silicon Valley to lead SPARK. This affordable housing is also situated close to the region’s jobs, so employees don’t have to suffer long commutes in order to own a nice home. “Those are things that make Ann Arbor very attractive to businesses. They can find the talent they need – the talent loves to live here – and we are a very affordable location.”
Employees and business owners will also find a wealth of arts and culture and entertainment opportunities. “Because we have a large university, the types of entertainment options here do rival some other [more populated] locations,” Mr. Krutko says. “We are known as a very appreciative audience.” Theatres, galleries, museums, festivals, and events abound. Ann Arbor also boasts a vibrant downtown, with plenty of restaurants and retail.
In addition, Ann Arbor prides itself on maintaining a diverse community. “We are a very open community,” Mr. Krutko says. “We have people from all over the world who come here to go to school and then find that this is a place where they want to live. There are people from Asia, Africa, Europe, South America, and the Middle East – all here, a part of this community.” This diversity also brings an economic boost with it. “It makes it easy for us to attract foreign direct investment,” Mr. Krutko points out. “Last year we had around $70 million invested from overseas in new projects here. That is a real positive for us.”
To be sure, Ann Arbor has a winning combination of education and technology – as well as pro-business policies and a low cost of living – that should keep the city’s economy strong for the long term. “We have a really rich environment that is focused on the future,” Mr. Krutko summarizes. Word is out, and an increasing number of people are eager to add their talents to this leading edge destination.
