Opportunities for Economic Development

By Ronald F. Smith, P.E

What is "economic development"? Or more importantly, what does it mean to community-based organizations? The focus of economic development has to be related to the needs of the community, i.e. creating jobs within the community. The measure of economic development at some point will be correlated to the goods and services consumed by the community, which are produced within the community. From a macro-economic perspective one strives to optimize the balance of trade, that is minimize imports and maximize exports. From the perspective of supply and demand, economic development opportunities will exist when a local supply can be created to fill an existing demand at a lower cost, and preferably a higher quality. In order for a business to succeed there must be a market for the products which that business provides, and a successful business will serve this demand cost-effectively.

Economic development has been an interest of mine since the early 80's. I formed The Economic Coalition in 1983, an organization whose purpose was to help create jobs by the development and support of community-based businesses. The activities of the organization focused on developing plans for, and piloting micro-businesses. We looked at the community from a macro-economic perspective, and developed micro-economically viable strategies for business development within the areas discussed in the following sections.



Why This Approach Works


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Education and Training:

Education is necessary for mobility through our culture, and therefore should be one of the primary concerns within our communities. Education and training provide opportunities for viable businesses. Examples of community educational needs include:

The education and training focus can be integrated with each of the business categories discussed in the following sections to yield jobs, rather than "dead-end" training.


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Copyright 1996 Ronald F. Smith, P.E. All rights reserved. No part of this work may be reproduced in any form without written permission from the publisher.













Child-Related Businesses:


Daycare, after-school care, summer camps, and supplemental education programs all offer economic development opportunities. Providing for the care and education of our children is a necessary responsibility of the community, as more and more parents are incorporated into the work force. In order to provide our children with the maximum opportunity to succeed in society, the various elements of an effective educational process must be developed and integrated into our communities. The need exists for affordable daycare, after-school care, supplemental education programs which reinforce the learning process, as well as summer programs to expose our children to more of the world while providing healthy recreational outlets.



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Copyright 1996 Ronald F. Smith, P.E. All rights reserved. No part of this work may be reproduced in any form without written permission from the publisher.













Food-Related Businesses:


The potential for food-related businesses will exist as long as people need to eat to survive. Typically low income areas have provided opportunities for "mom and pop" operations which have had to sell at inflated prices in order to survive, as well as fast food chains which sell fountain drinks and fries at inflated prices, and take advantage of the economies-of-scale of large purchases to turn profits. Some of the opportunities for food-related businesses include the following:

The opportunity for food-related businesses is unique in that the price is very elastic within this arena. At one extreme one finds cheap and fast food, and at the other extreme one finds gourmet, or ethic foods that often seem over-priced. One of the keys to success within this area is the understanding of the market dynamics which govern food purchases.





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Copyright 1996 Ronald F. Smith, P.E. All rights reserved. No part of this work may be reproduced in any form without written permission from the publisher.










Mini-Manufacturing and Production Operations:


The production of goods close to the market provides an extremely viable business opportunity. The prices for most consumer goods are inflated by advertising, packaging, transportation, labor costs, and excessive profits. This opens an opportunity for the community to change its consumption patterns thereby creating jobs at the local level, without the penalty of additional costs. Labor intensive operations offer the least inertia for start-up and the most potential for long term survival in the market place. A few examples of viable environmentally compatible operations are listed below.

Packaging

There are numerous packing operations that have to be done manually. This labor intensive segment of operations offers opportunities for business development. Large corporations are looking more and more toward outsourcing to reduce packing costs. Community-based businesses can take advantage of low overhead and labor rates to capture part of this emerging business segment.

Repackaging

There are a wide variety of consumer and commercial products that can be purchased in bulk and repackaged close to the market to yield enough of a margin to justify a viable business. The elimination of fancy packaging and shipping costs can often be enough of an edge to allow a competitive advantage in the marketplace.

Formulation

The mixing of raw materials to produce consumer products is one of the simplest unit operations utilized in manufacturing , and requires a minimum of equipment. Products such as cleaning supplies, cosmetics, shampoos, deicing solutions are all formulated products which can be produced at the community level with a minimum of capital investment.

Vehicle Rehabilitation

There is a limited market for vehicle rehabilitation, that is completely rebuilding a vehicle to factory specifications. This opportunity can be coupled with training programs to produce competent auto painters, body repair persons, and engine rebuild technicians.

Furniture Refinishing

The furniture refinishing business can succeed in an environment where there is a large supply of quality used furniture. In areas where there are Victorian homes doors, moldings, wainscots, etc. can be refinished to support a growing restoration market.


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Copyright 1996 Ronald F. Smith, P.E. All rights reserved. No part of this work may be reproduced in any form without written permission from the publisher.













Construction Related Businesses:


Most urban areas have a wide selection of available real estate that can be regenerated to provide a base of operations for a wide variety of emerging enterprises. In addition, there are usually a lot of old properties with continuing maintenance needs. The housing and commercial building stock provide the following types of opportunities:




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Copyright 1996 Ronald F. Smith, P.E. All rights reserved. No part of this work may be reproduced in any form without written permission from the publisher.












Recycling Businesses:


Recycling is a potential, as well as desired business within the realm of community-based economic development. The dollars within the waste streams which leave our community must be recovered and turned into jobs that benefit the community. Opportunities exist within the following areas:

The types of potential businesses range from the collection and resale of materials, to the production of intermediate and finished goods.


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Copyright 1996 Ronald F. Smith, P.E. All rights reserved. No part of this work may be reproduced in any form without written permission from the publisher.













Energy-Related Businesses:


Energy conservation is an area in which interest rises and falls with the price of crude oil, however it should be a continuing concern as a world wide issue. At the community level potential jobs can be created in the following areas:



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Entertainment:


Entertainment offers viable economic development opportunities at the community level. Live entertainment, movies, plays, dance performances, etc., all can be revenue generating operations. The requirements for a successful operation include a venue and a plan for attracting customers.



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Services:


As new businesses form and grow, the need for technical and business services expands also. The success of community-based businesses generates more opportunities for services, and the retention of more cash within the community.



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Venture Opportunities:


As economic development proceeds there will arise opportunities for ventures that capitalize on the changing dynamics of consumer or commercial markets. Community-based businesses have rarely had access to venture capital funds, however this is an essential component for economic development. A good idea can translate into a viable enterprise with the input of expertise and adequate capital.



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Why This Approach Works:

Within the categories described above we developed plans for economically viable businesses, and in some cases ran pilot operations. The objective was to produce the goods and services consumed by the community within the community, while minimizing capital requirements. The true measure of economic development was thought to be related to the extent that the community was able to provide for it's own needs. These businesses would eventually evolve to the level where they would be able to take advantage of sales opportunities in regional, national, or even international markets.

The success of business is based on the demand for products, which the consumer purchases by balancing quality and price. The prices of most consumer goods are inflated by the following items:

If one is able to reduce or eliminate any of these items, while maintaining product quality, the product or service he provides can become competitive. Major manufacturers take advantage of economies of scale, and mass production scenarios to generate large revenues. However the price of their products in the marketplace is constrained by the items listed above.

This strategy for economic development focuses on the design and implementation of flexible unit operations, which employ labor-intensive production methodologies to produce goods close to the marketplace. In other words, small facilities that produce a variety of products for diverse markets, utilizing unskilled labor. This is a departure from the traditional plant design concepts. The typical industrial facility is capital intensive, and produces products for regional, national, or international markets. This type of production strategy has required increasingly more skilled workers to operate, as more complex technology have been employed to produce more products, at a lower cost. There are, however, elements of even the most automated business that are labor intensive. These are the types jobs we are losing to Mexico, China, Korea, etc., as result of corporate outsourcing. The reduction of labor costs as been a major driving force in business for over a century, and the corporate solution to staying competitive has been to automate or out source.

The process for economic development begins with the determination of viable economic development opportunities. Site specific studies are necessary to evaluate project feasibility, and the development of business plans and provision of support mechanisms such as daycare facilities, business and technical support, financing, etc. are necessary to get a potential business venture up and running. The incubator concept must be taken a step further. We can encourage the formation and growth of viable new businesses by providing conceptual and logistical support. Adequate capitalization is critical for the growth and success of a business, however the minimization of capital requirements, and a good business plan make potential ventures attractive to lenders and investors. In order for a business to survive:

Successful competition in local, regional, state, national and world markets depend upon these factors.




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P.O. Box 42792
Philadelphia, PA 19101, U.S.A.

Phone: (215)498-0795

E-mail:appropriatetech@hotmail.com

Copyright 1996 Ronald F. Smith, P.E. All rights reserved. No part of this work may be reproduced in any form without written permission from the publisher.


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