Tuesday, January 10, 2006

Headhunter on Houston as a "principal city of the world"

The Moneymaker interview in the Chronicle today has some interesting comments on Houston by the local managing director at Korn/Ferry International, which is an executive recruiting firm.

Eric Nielsen has seen steady improvement in Houston's image over 20 years and has watched the city become what he calls "a principal city of the world."

The city's growth is encouraging for Nielsen, the managing director of Korn/Ferry International's local office. An executive recruiter, Nielsen looks inside Houston and elsewhere to fill crucial roles in the city's energy-based economy.

The more people willing to relocate here, the better for him.

"Houston is generally an attractive place," he said. "Some people love Houston and would never want to leave. Some people would not want to live here.

"The city is incredibly resilient. Every day it's becoming a more important place to be. Bigger decisions are being made here. It's evolving. Houston has a very bright future."

Nielsen said Houston's energy sector is stronger than before Enron's bankruptcy and remains a net creator of jobs.

...

Q: Do you think the Houston economy is as dependent upon the energy industry as in the past?

A: A lot of time has been spent trying to define Houston as not as dependent upon energy as it once was, but I don't think it's a bad thing that we have such a strength here, in an industry that has such promise for the future. It brings a lot of opportunities and resources to this city. You operate at a disadvantage if you don't have a presence in Houston.

That said, if a major pharmaceutical company ever moves to Houston, we could have an incredible opportunity in health care and life sciences. Not that we don't already. We already have the largest medical center in the world, and the most research being done there — but a lot of opportunities that come out of there are not commercialized locally. They tend to go someplace else to be commercialized. If a major pharmaceutical company were to move its corporate headquarters here, that could be another catalyst, and another industry that makes a lot of sense.

I'll second that. But he's also right about the importance of the energy industry. Most "big name" U.S. cities have diversified economies, but at least one core industry cluster that really drives the local economy and growth: NY and finance, DC and government, Chicago and Midwestern industrial headquarters, Detroit and autos, San Francisco/Silicon Valley and tech, LA and entertainment. Subtract Detroit (for obvious reasons), and you have Big Five largest, most important and highest profile metros in the country. If you wanted to list the large, high-growth candidates with the potential to break into this top tier of cities, in addition to Houston, you'd have DFW, Atlanta, Phoenix, Miami-Ft.Lauderdale, and maybe Riverside-San Bernadino if you consider them separate from LA (which I don't think I would). Of those, only Houston has a driving core industry, although a case could be made for Latin American finance and trade as the core industry of Miami (but not Ft.Lauderdale). Houston and Miami can also make the strongest cases as international business centers. The rest of the cities are really "miscellaneous diversified," typically with a regional/national business focus. I don't know if that will make a difference in how these cities are viewed vs. the Big Five over the next couple of decades, but I do think it will certainly help Houston drive its growth and development and make a very strong case.

5 Comments:

At 3:34 PM, January 11, 2006, Anonymous Anonymous said...

The notion that energy is a stable core industry is a false one-- and one that has Houston being more like Detroit than the other cities listed. And like Detroit got blindsided by Japanese carmakers, all it takes is the development of a non-oil based fuel and then Houston's economy will be ruined.

This is unlike NYC, Boston, SF, etc in that finance depends on the entire economy, and that having leading tech and biotech firms create cutting edge jobs that spawn more cutting edge jobs through startups. And even though we have the largest medical center, we do not have much in the way of pharmaceutical or biotech or tech here. The biggest tech employer here is TI, based in Dallas. That's about it.

Houston will rise and fall with the energy industry. One can only hope the energy industry is less like Detroit's auto industry in that it will be made obsolete by innovations elsewhere, and more like Boston or NY's more robust economy that is diversified and generalized enough not to be influenced by the whims of Saudi princes.

 
At 5:31 PM, January 11, 2006, Anonymous RedScare said...

"all it takes is the development of a non-oil based fuel and then Houston's economy will be ruined."

It's that simple, huh?

Aside from the incredible difficulty of developing non oil-based fuels, followed by redeveloping everything to run on them, oil is the basis of plastics, fertilizer, much electricity generation, blah, blah, blah.

And when this non oil-based fuel is developed, who is going to produce, distribute and market it? Probably the experts at energy production and distribution. That would be Houston's oil companies.

 
At 6:15 PM, January 11, 2006, Blogger Tory Gattis said...

> The biggest tech employer here is TI, based in Dallas. That's about it.

Don't forget about HP/Compaq, BMC, and NASA.

The tech change concern is a legitimate one. I could imagine, for instance, sometime in the next decade or two, advanced solar cells at home that generate electricity while also separating hydrogen from water to create fuel for the household cars (whether they run on fuel cells or hydrogen internal combustion). There would be a long transition period, of course, but no doubt the oil & gas industry would seriously decline.

For a parallel, look at Chicago, which has plateaued and may even be in a genteel decline as manufacturing migrates from America to Asia. On the other hand, I don't think Detroit is a good example, where the fundamental tech hasn't really changed or eliminated cars, the American makers simply never learned to compete.

So, diversification of Houston's economy is certainly a worthy goal: the port, Latin American trade, biotech, etc. And we need to make good investments in city infrastructure now (inc. education) so we have the assets to carry us forward through the transition, unlike many rust belt cities.

In some ways, Dubai might be an example to look at, which is making many incredible (and some just crazy) investments so it will be well positioned when the Emirate runs out of oil in the next decade.

 
At 10:04 PM, January 11, 2006, Anonymous RJ said...

To expand on anon's thoughts, there are some definite scenarios that could hurt us:

1) If the peak oil folks are right, then we may see a transition in the domestic energy portfolio to nuclear, wind, solar, and clean coal among other sources, none of which are Houston's bread and butter, not even close. A decline in oil and gas spells trouble.

2) Alternatively, if technological breakthroughs, new discoveries, and increased access to certain fields create a sudden abundance of oil, then it's the mid 80s all over again for Houston's energy sector as prices fall through the floor.

3) NASA... Imagine if the fiscal conservative wing of the GOP gains control of the party, and if the party as a whole retains control over Congress. In that environment, it's easy to envision a definite redefinition and sharp reduction in scope of NASA's mission, which means billions of dollars removed from the Houston economy.

4) Health care. So it's the first year in the second term of Hillary Clinton's presidency (riding the coattails of VP Obama, no doubt). The greying baby boomers have pushed health care to the top of the domestic agenda, and given her a mandate to act. The President proposes to replace the existing tangled mess of a system and its high costs with a different tangled mess of a system with price caps and managed care. Goodbye hospital profits, goodbye rich doctors, goodbye medical innovation... a definite ouch for the Houston economy.

There are a BUNCH of ifs here, but nothing that's implausible. What's a bit frightening actually is that the health care and NASA scenarios can happen just from a series of votes in Washington. Further, our focus on oil and gas does not inspire confidence when looking decades into the future. That just leaves the Port...

 
At 7:48 AM, January 12, 2006, Anonymous RedScare said...

rj, while Peak Oil should be a huge concern for anyone planning on living say, 20 or 30 years, its effect will be felt nationwide, not just Houston. In fact, the resulting skyrocketing oil prices will probably help cushion Houston a bit, though Houston will be hurt in gas prices, electricity prices and oil RELATED industries that use oil as feedstock, such as plastics and fertilizer.

The flourishing economies of China and India will probablt prevent a repeat of the 80s. However, a worldwide recession, possibly due to high oil prices, could reduce demand, causing a big drop temporarily.

New energy sources will gain acceptance slowly, allowing oil companies to reposition themselves to take advantage. Many are quietly planning for the future now.

 

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