Detroit: America’s Next Tech Hub

I recently took on a new role at Oracle as an account executive for high-growth companies in Michigan. I chose Michigan as the state to work in after reading about the fascinating city of Detroit. Detroit is a case study in urban reinvention. A city once flourishing and fading with the tides and trends of the automobile industry, Detroit has repositioned itself as a potential tech hub of the future. Detroit is successfully establishing the framework for sustained technical growth and innovation. Below, I’ve highlighted three key reasons why Detroit’s tech scene is America’s next tech hub.

1. Education

Michigan is a state disproportionately comprised of high-caliber universities. The University of Michigan, ranked 27th, is undoubtedly a top public university in America, with its Ross School of Business ranked 10th nationally. Michigan State is also ranked by U.S. News and World Report in the top 100, with Michigan Technological University, Andrews University, Central Michigan University, Western Michigan University, Wayne State University, and Eastern Michigan University all falling in the top 300. On a more granular level, three universities in Michigan rank in the top 75 for engineering, and eight rank in the top 200 (US News).

The key benefit of Michigan’s strong university system is added productivity from better-prepared workers. Graduates of Michigan’s university system are properly trained to produce and innovate at a high level. This is impactful because college graduates have a high propensity to stay within the state following graduation. In fact, a U-M survey found that 63 percent of respondents remained in Michigan following graduation, and that this percentage has increased in recent years. As the largest city in the state, Detroit is specifically poised to reap the benefits of this growing trend.

The productivity increases of a strong university system do not simply imply that workers are smarter. A secondary causal factor is a fascinating phenomenon known as human capital transfers (Moretti). Human capital transfers are essentially when a population of intelligent individuals exchange ideas and collaborate on projects. Individually, each worker is able to produce at a certain level, but as a collective, the aggregate productivity is increased. This is the exact scenario that helped Silicon Valley grow into the tech center seen today. In essence, Detroit’s high-caliber university environment has yielded a workforce that’s greater than the sum of its parts.

2. Focused Innovation

Detroit, nicknamed the Motor City, is home to the Big Three of American automobile manufacturers: Ford Motor Co., General Motors Co., and FCA. Historically, these companies have served as the primary employers within the region. In recent years, however, the industry has declined as a source of employment. Reduced labor needs have resulted from increased automation and robotic machinery, as well as a constant incentive to cut labor costs to remain competitive with foreign automobile manufacturers.

The Heckscher–Ohlin model of trade states that countries should specialize in the goods and services produced most efficiently (Heckscher 1933.) Productivity is defined in this model as a product of capital endowments and labor force preparedness. In Detroit, the labor market-preparedness is related to the aforementioned excellence of its university system. The capital endowments characteristic of Detroit are direct results of its legacy of automobile manufacturing.

While the volume of jobs available in the direct production of automobiles has subsided, the proliferation of complementary industries has flourished. This revival is a result of significant investments in vehicle-related R&D. Michigan ranked first nationally in vehicle-related R&D activity, spending $13.5 billion and employing 65,000. In response, Michigan’s education system has aligned itself accordingly, with the U-M spending the most of any public university in R&D (Hill 2002).

This environment of focused specialization at the university and enterprise level has allowed the Detroit automotive tech scene to flourish. Companies including May Mobility, Lear, Vroom, as well as the aforementioned Big Three and their suppliers, are among those leading the way in this innovative field. As a result, patent growth in Michigan has grown 4.3 percent versus the 2 percent national average (State of the Region). With strong participation at both the startup and Fortune 500 level, Detroit is perfectly positioned to become a dominant hub of specialized car technology in the future.

3. Investment

A key indicator of a city’s future economic outlook is its level of foreign and domestic investment. In 2016, Detroit received $2 billion in FDI for 76 projects, resulting in the creation of 7,658 jobs. Of these 76 projects, more than 50 percent involved transportation equipment manufacturers (State of the Region 2018-2019). On a more granular level, 36 percent of foreign direct investment comes from Japan and Germany combined. (Select USA Gov.) This intuitively makes sense since Japan and Germany are majorly aligned with Detroit’s focus on manufacturing and automobiles.

In addition to Michigan’s foreign direct investment, the state’s domestic investment has similarly increased. Detroit venture-backed startups grew 54 percent over the last four years, with IT-specific startups growing 56 percent over this timeframe (Crain’s). Leading venture capital firms, including Detroit Venture Partners, Ludlow Ventures, and Arboretum Ventures, among others, have provided credibility and support to the burgeoning startup scene. As this tech scene continues to expand, leading companies have begun establishing a presence in the state. Amazon and Google are two examples of companies that have chosen to invest in Detroit. As investments in the state continue to grow in the coming years, Detroit can leverage its strong education system and strategy of focused innovation into sustained technological growth.

What’s Next:

Detroit has made great strides as establishing itself as a burgeoning tech scene. However, significant work is still necessary. Simply look to Austin, Texas for an example of how a city can leverage a similarly strong university and innovation environment into technological development. In order for Detroit to capitalize on its position, companies must act proactively instead of reactively. Technology decisions must be made with a forward-thinking mindset focused on adaptability and efficiency. The framework is in place for significant development moving forward. A pivotal focus must now be on fostering and stimulating the environment with a cohesive and strategic execution plan.

https://www.dbusiness.com/tech-mobility-news/blog-detroit-americas-next-tech-hub/