Knowledge-economy plum at stake

BYLINE: Jenny Munro jmunro@greenvillenews.com

BUSINESS WRITER

South Carolina recently lost one of Michelin North America's research and development projects to Canada, and now another is up for grabs.

Gone is the X One truck tire industrial research. In jeopardy is its research and development on the Tweel -- a non-pneumatic tire and wheel assembly, said Michael Fanning, the Greenville-based company's vice president of corporate communications.

"At this time, we're looking at R&D on the Tweel," he said, adding that a decision is expected this year.

Michelin has talked with South Carolina officials and others about available incentives and packages. However, it's too early to make decisions about where Tweel production might be located since more research is needed.

"Research and development is incredibly important to South Carolina," said Joel Sawyer, a spokesman for Gov. Mark Sanford. "In this global economy, it's not just who can produce cheaply. It's who can innovate."

"Michelin has designed a very exciting product, and we are in active discussions with the company," said Kara Borie, a spokeswoman for the state Department of Commerce.

Sawyer said the state is aggressive about attracting both research and development operations as well as production facilities.

"We think we can compete with the best of them," he said.

Michelin's announcement that competitiveness is now part of research location decisions "falls into the category that the world is flat and here is another dimension of that," said Bruce Yandle, economist and dean emeritus of Clemson University's College of Business and Behavioral Science.

Research and development is exciting, he said, because "it's part of the knowledge economy."

In fact, R&D "represents something we haven't had enough of" over the years as the region built a branch-plant economy, said Jim Clinton, executive director of the Southern Growth Policies Board, based in Research Triangle Park.

Actually, some of Greenville's changes -- a more diverse residential mix, quality-of-life factors and nearby colleges and universities -- make the community more accommodating for R&D, Yandle said.

Those changes become "part of the competitive environment," he said. "Subtleties are all the more important."

Still, industrial research on the X One wide tire, produced both in Waterville, Canada, and in Spartanburg, has been moved to Canada, although the initial research leading to the tire was conducted by Greenville-based Michelin Americas Research and Development Corp., Fanning said.

"We did a side-by-side comparison" of packages offered by South Carolina and Canada, he said. When property taxes and incentives were considered, Canada won out.

Canada offered Michelin an interest-free loan of $9 million in U.S. currency to gain the research project, which is based near a manufacturing facility making the product, he said.

The overall investment for the expansion of the plant in Nova Scotia is $80 million.

"We have seen other states such as Oklahoma and other countries such as Canada become more competitive" when it comes to research and development incentives, he said.

Canada aggressively courted Michelin to gain the project, which began about a year ago, said Lynn Mann, Michelin spokeswoman.

This is the first time Michelin has undertaken R&D within its Canadian truck tire line, according to Peter MacKay, minister of foreign affairs and minister of the Atlantic Canada Opportunities Agency.

The "investment will be a catalyst for future R&D investment in Atlantic Canada," MacKay said when the investment was announced in September. "The project is important in terms of creating and retaining employment in rural Nova Scotia, particularly for our youth. This is great news for Nova Scotia, the Atlantic region and Canada."

The Canadian research group of 10 to 20 employees is developing the next generation of manufacturing equipment to allow larger scale production of the X One, Mann said. In addition, the group could develop prototypes for new truck tires based on the X One.

"You've designed the tire, validated the tire. Now you've got to make the tire," she said.

Although it is rare for R&D, even industrial research, to be done in areas other than South Carolina, Michelin has conducted industrial research in both Alabama and Indiana because the plants making the tires were there, she said.

The new development in R&D does not mean South Carolina will not play a significant role in Michelin's North America research, Fanning said.

"We have a significant footprint here in South Carolina," he said, "and we will continue to support it. We've been well served by South Carolina leadership in the past. In the future, we will have to look at this research and development on a case-by-case basis."

MARC, based at Donaldson Center, is a stable operation, he said. At the end of 2006, MARC reported 950 employees, up from 888 at the end of 2005.

Engineers and researchers at the organization, which opened in 1975 with the initial manufacturing locations, conduct fundamental materials research to the development of cutting-edge technologies. Not only do researchers work on tires, they also could develop treads for work boots or athletic shoes.

The organization also includes Laurens Proving Grounds, various testing tracks in nearby Laurens County.

When making decisions about R&D, various factors are considered, he said. A major one is having a critical mass of people who can do the research and development. Another is the planned manufacturing location of the new product.

But "incentives must be considered," he said.

South Carolina created a tax credit in 2000 that is specifically targeted to research and development, Borie said. R&D operations can offset up to 50 percent of their tax liabilities and can carry the credit forward for 10 years.

A bill has been filed to expand those credits to more types of R&D groups, she said.

In addition, R&D organizations also can use state grants and job tax credits that are available to any employer, she said.

Yandle pointed out that South Carolina has more experience in creating incentive packages for production operations than for R&D operations.

"What is critical for R&D organizations is different from manufacturing," he said. "Capital is critical for both, but for R&D it is human capital. We are probably better at putting together incentives for manufacturing concerns."

Clinton said most communities have not paid much attention to attracting research operations because "the pattern is that R&D is co-located at the headquarters." The South generally has "built the current economy on primarily low taxes and low wages to lure manufacturing. But you're starting to see more activity."

While admitting that most localities are learning the game of R&D recruitment, Clinton said his organization encourages states to become more active.

Yandle also said communities could work more to attract and retain research and development organizations. They need to ensure the community is an attractive place to live -- that it's a "cool" city with plenty of entertainment.

The Upstate has some strengths, he said. A Clemson study of more than 150 metropolitan statistical areas placed Clemson at No. 14 in a study of the cities from 1995-1999, he said. In 2000, Greenville had 26 college graduates per 100 residents, higher than the national average of 24 per 100.

Local and state officials also need to understand what a research organization needs, Yandle said.

"You want to be in a situation where you have an ongoing conversation with leaders of communities and leaders of R&D organizations so you're not caught by surprise," Yandle said.

Clinton said it's not uncommon for economic development agencies to seek outside companies and forget those already in their state, perhaps generating more jobs than any outside company.

And "these are well-paying jobs," he said.