Feature Stories - September 2000

What’s Hot in Nevada

High Growth Industries Help Diversify Economy

by Patricia Martin

It’s a struggle, but there are signs that Nevada is gaining ground in its efforts to diversify the state’s gaming-dominated economy. While a whopping 24 percent of Nevada’s workers still earn their living in the casino, hotel and recreation sectors, other industries are beginning to bloom. And agencies working to diversify the state’s economy are optimistic that the new growth can be sustained in the coming years as more big-name companies continue to discover the other Nevada.  

Back Office and Administration

"When you have names like Ford Motor coming here, that says something.  Other companies take note," said Somer Hollingsworth, chief executive officer and president of the Nevada Development Authority (NDA), a non-profit agency whose mission is to lure non-gaming industries to Southern Nevada. Hollingsworth was referring to Ford Motor Co.’s recent decision to establish a major regional administrative office in Las Vegas. The newly opened facility, operated by Ford Credit, a financial unit of the Detroit automaker, is already expected to employ some 700 people during its early stages of operation. And Ford expects the Las Vegas office will grow, resulting in even more job opportunities for Southern Nevada.  "It’s possible that number could double in the coming years," Hollingsworth said.

Indeed, back-office and consolidated administrative operations are now considered one of the hotter new-growth sectors in Nevada, since they generally require big facilities that employ large numbers of people. Buildings can often range in size from 60,000 square feet to 100,000 square feet or more, and house anywhere from 600 to 1,000 employees. "And these types of businesses often pay good wages," commented NDA’s Hollingsworth. "At Ford Credit, for example, hourly wages for a lot of the workers exceed $17.00."

It is difficult to determine just how many new jobs are being created in back-office operations, since the state’s statistics on business services include several other types of businesses.  But figures compiled by the Research and Analysis Bureau of the state Department of Employment, Training and Rehabilitation show job growth in the business services’ sector jumped nearly 9 percent from 1997 to 1999 when 8,700 new jobs were created. Currently, 60,100 people are now employed in this area. "And it is expected (that number) will continue to grow," said Michael Clarke, an economist with the Research and Analysis Bureau.

Distribution and Industrial Parks

Meanwhile, the continuing growth in distribution outlets and industrial parks is also helping to diversify the state’s economic base. In Northern Nevada, for instance, barnesandnoble.com, the New York bookseller’s e-commerce arm, recently chose the Reno area for a 600,000 square-foot Western distribution center that will create hundreds of new jobs. Its competitor, Amazon.com, also selected an area near Reno for a huge distribution facility, now totaling some 500,000 square feet, which currently employs nearly 300 people. Representatives from both companies expect those operations will grow and create even more jobs in the future.   

Industry observers point to several reasons why Northern Nevada should continue to attract these types of operations, including the area’s accessibility to the Interstate-80 corridor, which is essential in servicing both Northern and Southern California. Interstate-80 also intersects with I-5, a vital link to markets in the Pacific Northwest. "If you look at I-80 and how it intersects with the I-5 corridor, you can see how... it allows a company to support its entire West Coast operations," said Steven Spaulding, vice president at the Las Vegas office of ProLogis Trust, the nation’s largest owner of industrial properties.

Nevada’s extremely business-friendly tax policy is another reason experts believe this sector will continue to sustain its growth. "The tax situation is so favorable for business in general, and inventories are treated very  favorably as well,  that it’s just a natural for some businesses to come here," said Gary Baker, senior vice president and managing partner at the Reno office of  Lee & Associates, a commercial real estate services firm. "Reno has now become a very well known and favorable location nationwide. And it’s been attracting a huge number of logistics-related companies in addition to dot com companies for the distribution portion of their businesses," he added.

According to figures compiled by Lee & Associates, the mushrooming Reno-Sparks area
has been absorbing industrial space at an astonishing rate of several million square feet per year for the past few years. In 1999, for instance, industrial users gobbled up three million square feet of space. That was up from 2.5 million square feet in 1998. And by June of this year, a whopping 1.7 million square feet had already been absorbed. "And we’re not seeing a slow down in terms of inquiries or closed transactions," Baker said.

Despite the robust growth, vacancy rates have continued to hover at healthy levels.  In fact, rates fell from 10.2 percent to roughly 8 percent this past year alone.  "That’s a very significant drop over a short period of time.  Actually, to have a diminishing factor is really astounding when you consider all the activity in the marketplace," Baker said.

High Tech Companies

Baker attributed part of the area’s industrial growth to high-tech companies, which are increasingly building more operations in the Reno area.  While the high-tech sector isn’t growing at the pace of the aforementioned industries, it is increasingly giving Nevada more than a passing glance, particularly the Carson City, Reno and Lake Tahoe areas. "These places really are an ace in the hole for (Nevada) since a lot of Silicon Valley’s movers and shakers already spend a lot of time in the Lake Tahoe area and are very familiar with the region," said Roy Farrow, a Carson City attorney who is one of the founders of TechAlliance@NewNevada.

The recently formed non-profit corporation is designed to foster technological and entrepreneurial development in Nevada. It marks the first time in the state’s history a group is focusing exclusively on luring more high-tech firms to Nevada.

Currently, no one knows exactly how many high-tech firms reside in the Silver State or the number of new firms that have relocated here in the past few years. However, it’s estimated more than 500 companies  involved in e-commerce and Internet-related businesses are now operating  in Nevada, according to figures compiled by the Internet Business Alliance of Nevada. The group is a statewide association that provides services, support and a public voice for the industry. Meanwhile, Michael Thomas, executive director of TechAlliance, said his group is in the process of putting together a state directory that would list Nevada’s high-tech residents, but it’s still a work in progress.

It is clear, however, that Northern Nevada is becoming increasingly attractive to Silicon Valley firms. TechAlliance’s Farrow conservatively estimates that several dozen new high tech companies have relocated to that area in the past several years alone. Steven Hawk, founder and president of iGo.com, represents one of those companies. Frustrated with Silicon Valley’s exorbitant cost of living, Hawk decided a little more than two years ago to move iGo to Reno. The company provides hard-to-find, model-specific accessories for laptop computers and cellular phones via the Internet. Since iGo relocated to Nevada, its employee base has surged from 24 people to some 250 employees,  making it the fastest-growing company in Northern Nevada since its arrival.

Hawk believes there are many more firms that would follow iGo’s steps if they knew more about the area and its attributes. "Nevada has a great story to tell," he said. "We need to do as much as we possibly can to get the word out, because the reality of this area is so different from people’s perception or image of it."

Manufacturing

Northern Nevada’s high-tech growth can be seen in the manufacturing sector as well. The
Minden-Gardnerville area already has become a particularly strong magnet for the makers of high-tech products, in part because of its proximity to Carson City, which boasts the largest concentration of manufacturing operations in the state.

Firms like Hytek, a maker of micro-processors, and Cubix, a manufacturer of computer servers, have been operating in the Carson City area for years and have been serving as magnets to draw new firms as well.

TechAlliance’s Thomas is optimistic that Silicon Valley companies will also look to Northern Nevada as a site to expand their operations. Intuit, for example, recently decided to set up its corporate payroll services in Reno. The Silicon Valley firm, which manufactures software programs, is projecting that roughly 600 people will be employed at the Reno site by year’s end. "What is happening in Silicon Valley is that the high cost of living and doing business and the overall general poor quality of life is pushing companies to look for new places to do business. And Nevada, especially Northern Nevada, sits poised to attract many of these companies because of its proximity to Silicon Valley," Thomas said. "And at the same time we’re offering them an escape from the barriers of doing business there," he added.

Despite the group’s optimism, state figures show Nevada ranks as one of the lowest high-tech employment states in the country. Figures compiled in 1997 by the state’s Research and Analysis Bureau showed roughly 13,400 people were employed in the high-tech industry. That compares to a current statewide total employment base of 985,100 workers.

But manufacturing, which includes high-tech firms, did show a small gain from 1997 to 1998, when it grew 2 percent and some 1,600 new jobs were created. Currently, the state estimates that manufacturing companies overall employ about 43,500 workers.

Mining

Mining, meanwhile, which dominated Nevada’s early history, has been struggling. State figures show that the industry suffered a loss of 2,700 jobs from 1997 to 1999. As of June 2000, it’s estimated 92,500 people are still employed in this sector.

Tim Crowley, community relations and issues manager for the Nevada mining Association, pointed to several factors for the job losses including company downsizing and the price of gold. "There’s a lot of mergers and acquisitions taking place in the industry right now.... But we’re optimistic that we’ve made the necessary adjustments...," he said.

While industry players believe the diversification of the state’s economy will continue, most say the public sector needs to play a bigger role both in marketing the state and in improving the state’s educational systems.  "In order for us to continue the diversification process, we need to develop our educational systems at all levels, particularly the university level," said state economist Clarke.