South Dakota is ahead in Economic Development- For more than 20 years, the state has been recruiting new and expanding high-tech businesses, by building information technology capability and offering incentives other than cash handouts.

Melanie Nichols leans over a massive microscope. With suction and tiny tools, she gently nudges a cow’s egg into place, then pierces the shell with a thin glass tube, extracts DNA and releases the egg. She repeats the process dozens of times each day.

By:
Anne Fitzgerald
Des Moines Register
Sioux Falls, SD
http://www.dmregister.com

While Nichols and her team toil in the "manipulation room" at Hematech Inc., state lawmakers in Iowa and other farm states are doing some engin- eering of their own.

In a quest to recast economies traditionally rooted in agriculture, they are tapping the biotech-based "life sciences," an emerging industry that uses biotechnology to manufacture pharmaceuticals and other products from farm crops and livestock.

South Dakota has a head start.

For more than 20 years, the state has been recruiting new and expanding high-tech businesses, by building information technology capability and offering incentives other than cash handouts.

South Dakota has no income tax or personal property taxes. Its public schools and universities are wired for both Internet and Intranet access, and they are equipped for video conferencing. Colleges and universities collaborate closely with business in building both people resources and physical infrastructure. Divided by the Missouri River, South Dakota has two cultural and economic regions, and each has gained population and high-tech business. The most dramatic growth has been in Sioux Falls.

After lawmakers repealed South Dakota’s laws capping interest rates in the early 1980s, Citigroup moved credit card operations from New York to Sioux Falls. First Premier Bank opened banking and credit card operations. Wells Fargo expanded operations. Those three companies alone employ about 6,000 people in this city.

In all, more than a dozen major banking and financial services companies have opened or expanded operations in South Dakota, primarily in the Sioux Falls area, employing more than 20,000 people.

High-tech manufac- turing has taken off, too. Iowa-grown personal computer maker Gateway Inc. moved its manufacturing operations across the border to South Dakota. Hutchinson Technology Inc., a Minnesota computer equipment manufacturer, opened operations in Sioux Falls. Sencore, maker of electronic testing equipment, relocated here. Those companies employ about 3,000 people in the Sioux Falls area.

By various measures, Sioux Falls ranks among the nation’s best communities and among the best places in the country to locate a high-tech business.

In the early 1990s, Money magazine dubbed it the nation’s most livable city, recognition echoed by others. In 1999, Forbes magazine ranked Sioux Falls 22nd among the best places to do high-tech business, besting Boston, Chicago and the Twin Cities. Last year, Forbes ranked it as the fifth-best small metro area to start a business or career.

During the 1990s, this city’s population grew by about 3,000 people a year. Jobs increased at a similar rate.

Adversity sparked much of the growth. Problems endemic throughout largely rural Middle America – dwindling rural population, old-economy infrastructure and brain drain – intensified with the farm crisis of the 1980s. Departures drained rural communities of their best and brightest, sapping hope for future farmers. Young college graduates fled the state.

The exodus alarmed Alered Kurtenbach, a South Dakota State professor of electrical engineering who saw no reason for his home state to lose so much talent. While teaching, he founded Daktronics, a business that makes electronic scoreboards and billboards, in part, to prove that high-tech, well-paid jobs would help stem the decline.

His hunch was right.

The company, based in Brookings, an hour north of Sioux Falls, employs about 1,000 people, including hundreds of college students and graduates.

Brookings, home to South Dakota State University, has sprouted other tech-related businesses, including several linked to the crop seed industry.

They include Mid-West Seed Services, established by Tim Gutormson, a South Dakota native who for several years worked for the seed quality laboratory at Iowa State University in Ames. His crop seed testing company now rivals Iowa State’s world-renowned lab.

In Sioux Falls, banking and financial services companies had become well established by the mid-1990s, generating dozens of affiliated businesses and producing a booming economy. But concerns were mounting that more jobs would be needed to support the region’s growing population.

The area Chamber of Commerce and the Sioux Falls Development Foundation created Forward Sioux Falls, a group intended to chart future economic growth.

David Link, executive vice president at Sioux Valley Hospital, is an information technology specialist who leads the group’s technology committee. Four years ago, he convened a group of 25 community and business leaders to brainstorm about the next phase of economic development. Link asked those assembled to offer their ideas on what Sioux Falls needed. Someone suggested developing the city as a regional technology center. Others agreed. Work began.

The group did a comprehensive inventory of educational resources in the region to assess what was available and what was needed. It took a similar look at technological resources, and drew up a detailed directory of existing technology businesses.

Surveys revealed shortcomings in the region, like the lack of a major technology research university and a shortage of electrical engineering graduates.

With Link in the lead, the group pushed to build on regional strengths and address weaknesses.

Sioux Valley, the flagship of this state’s largest regional health care network, and the University of South Dakota’s medical school, both in Sioux Falls, established a health research foundation, led by John Koch, associate dean of research and graduate education at the medical school.

Koch studied other research centers in states such as Massachusetts to see how they were able to attract high-tech business. Rich Naser, head of technology efforts for the Sioux Falls Area Chamber of Commerce, was looking at that, too.

They and others crafted a collective vision for future economic growth.

This time, they would woo white lab coats, not just white collars.

This time, they would target "knowledge jobs" – highly skilled, high-wage jobs in information technology, biotechnology and light manufacturing.

To succeed, they would have to develop an infrastructure focused on education, research and business development. The team plotted a multipronged strategy that included building a "knowledge community" on the city’s north side, next to a state-funded technology institute. The hope is that it will spur high-tech economic growth. Plans call for:

* Building a $3 million, 40,000-square-foot technology business accelerator center, with ground to be broken next month.

* Developing a technology and research park for new, expanding and relocating companies.

* Constructing a graduate education research center for applied research in engineering, information technology, and biological and medical sciences.

Hematech, a biotech business that has become part of this year’s legislative debate in Des Moines, is the sort of business being sought.

A pioneer in cattle cloning and other animal-based technologies, the company relocated in Sioux Falls a year ago. Established on the East Coast, Hematech partners with Kirin Co., a Japanese beer maker with a pharmaceutical division.

After eggs are extracted from cow ovaries procured from packing plants, scientists remove DNA from the eggs and insert cells with genes bearing a desired trait. Hematech clones embryos from the modified eggs, replicating the desired traits. Trans Ova Genetics of Sioux Center, Ia., then implants the embryos in recipient cows, which produce cloned calves.

South Dakota’s tax-free status attracted Hematech, but that was just part of a package that prompted the company to leave Massachusetts and Kansas and to open here. Resources within a 100-mile radius, touted by business and community leaders, include:

* More than 30 colleges, universities and technical schools with more than 40,000 students.

* The University of South Dakota’s medical school, next door to Sioux Valley Hospital.

* Clusters of entrepreneurial activity, including numerous startup biotech businesses.

* Several large, high-tech employers, including Qwest Corp., McLeodUSA Inc., Gateway, Novartis and Daktronics.

* Advanced telecommunications and Internet capabilities, supported by both public and private entities, including the U.S. Geological Survey’s Earth Resources Observation Systems, which distributes satellite data worldwide.

Hematech also was drawn by this city’s proximity to cattle production, packing plants and to Trans Ova, which raises to maturity the cloven-hoofed clones the Sioux Falls company engineers. Before moving, Hematech was shipping embryos by overnight delivery to Trans Ova. Much of the time, however, embryos didn’t survive the trip. Now the companies are about an hour’s drive apart, and a courier makes daily deliveries.

"We’re going to need a lot of cows," said Jim Barton, Hematech’s chief executive. The company "can’t be in Boston or San Diego or New York City. . . . It has to be near animals and an agricultural infrastructure."

Attracting Hematech was a home run "that will open many other doors," said Dan Hindbjorgen, vice president of the Sioux Falls Development Foundation.

He said, "It’s a great example, but just one example" of what farm states like his must do to reshape their economies to capture jobs and income in the information age. The four-state region around Sioux Falls takes a "grow-your-own" approach to economic development.

People worry less about state boundaries than politicians in Pierre or Des Moines. They know commerce doesn’t stop at the border.

For years, Jan Schuiteman, a Sioux Center native who is chief executive of Trans Ova, has preached the value of business based on regional interests, rather than state lines.

Sioux Falls leaders share his sentiment.

"If we think we’re going to compete with the research triangle in North Carolina and Silicon Valley in California, we’re going to have to work together," said Koch, head of the health research foundation. "We aren’t big enough to fight the big boys.""

"We look at this as a regional approach," said Hindbjorgen, the Sioux Falls Development Foundation official. "If Iowa succeeds, if northwest Iowa succeeds, we think we succeed as well. . . . There is a terrific regional opportunity here for both states."

Sioux Falls, S.D. – Hematech Inc. employees gave Sioux Falls the nod over Omaha, Sioux City and Sioux Center, in part, because it offered this: A quality of life that has earned it a reputation as a place with big city amenities and the feel of a small town.

Last year, when co-founders Jim Barton and Jim Robl visited for the first time, Dan Hindbjorgen, a local economic development official, took them to the Washington Pavilion of Arts & Science, a massive, multipurpose arts and entertainment center housed in a century-old, pink quartzite building that spans a city block.

"Wow, this is a real city," Barton recalled saying as he stood on the stage of the Great Hall.

Sioux Falls has not abandoned agriculture. One of the chamber of commerce’s biggest annual events is a weeklong livestock expo in January. A billboard on the east edge of town touts ethanol, a corn-based fuel additive gaining widespread acceptance as an alternative to petroleum-based products. Pickups pulling horse trailers share streets with cars carrying kids to school.

At the same time, coffeeshops, bistros and chamber music concerts are commonplace. Downtown features historic districts and blocks of small shops and eateries. The Washington Pavilion, also downtown, has 1,835-seat and 300-seat theaters, six art galleries, a large-screen movie theater, and science discovery and visual arts centers.

Late last month, a traveling production of the Broadway musical hit "Rent" played to capacity crowds in the Great Hall. This month, as the Big Sioux River thaws, bicyclists, runners and inline skaters will take to a 16-mile pathway that courses through the city, alongside the river.

Although he resides on the East Coast, where the company’s financial, legal and governmental relations operations are based, Hematech chief executive Barton travels here often. Robl, the scientific brains behind the business, has moved his family to Sioux Falls to run that part of the company.

Eddie Sullivan, a senior scientist who manages the company’s quality control, lived in Phoenix. One of the location scouts for Hematech, he fell in love with Sioux Falls, but found one thing lacking: a Mongolian barbecue restaurant.

Recently, one opened near Hematech, on the city’s south side. Sullivan and co-workers lunch there often.