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August 22, 2022

The role of state-level Economic Development Corporations in the US defense industry

The primary role of EDCs is to attract new business and support existing businesses operating in the area.

By GlobalData

The US defense market is vast. Whilst transparent, the sheer size of it can make it a challenge for foreign OEMs looking to participate in the highly lucrative and productive space. At Farnborough International Airshow 2022, there was a notable presence of US State Economic Development Corporations (EDCs) looking to attract new business to their states and encouraging co-operation with those already present. EDCs are one path into the US market, and act in a similar way to trade associations or, in some cases, formalized industry clusters. They are sometimes given different names: Louisiana’s EDC is known as Louisiana Economic Development, Mississippi’s is the Mississippi Development Authority, and Oklahoma Commerce is another. For brevity, this briefing will simply reference the states name when referring to various EDCs.

The primary role of EDCs is to attract new business and support existing businesses operating in the area. One of the best ways to do this is to offer significant financial incentives. Each EDC has some form of offering ranging from tax credits and tax exemptions to loans and grants. States often end up competing to offer the most attractive economic environment. For example, in Arkansas, those qualifying for federal R&D tax credit, can apply for further R&D tax credits at 20% of eligible costs, whereas Louisiana offers 30% R&D tax credit.

By operating at the state level, the EDCs often cover territory with equivalent GDPs of many European states (the GDP of California is larger than that of France, for example) thus allowing for greater specialization in the support and information they offer, as well as being able to fully exploit technological, manufacturing, and industrial niches that they have. For example, Louisiana has a strong space industrial presence, as does Florida, and North Carolina has a high concentration of aerospace companies. By fostering these areas of specialization, the EDCs can help develop industrial clusters within and across their territory.

Supply chains across the aerospace and defense industries can be vast and complex to navigate. One benefit offered by EDCs is the provision of supply chain tools for those wishing to navigate the often-complex web of participants in any given contract. Oklahoma runs CONNEX, a supply chain database tool that aims to connect manufacturers and suppliers. Tools such as these facilitate the smooth operation of business and can promote cooperation in R&D work, and later stage manufacturing process.

State EDCs are multifaceted organizations that take on many aspects of trade associations, formalized industry clusters, and governmental representation. They have the potential to benefit the US defense industry by offering spaces for cooperation and collaboration, offering support (financial and information) to those looking to operate, or already operating, in the states aerospace and defense industries.

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