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Lenovo's 'Project Grace'

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Should US taxpayers fund public works projects in China? Such a reality may be closer than you think if Chinese PC maker Lenovo gets its way in North Carolina.

Only a handful of Reg readers complained about Lenovo's request for $14m and a host of other incentives to keep the jobs it inherited from IBM in North Carolina's Research Triangle Park area. But did you know that Chinese holding company Legend claims a 41 per cent stake in Lenovo and that the biggest shareholder in Legend - the Chinese Academy of Sciences - enjoys 65 per cent ownership of Legend? It wouldn't take much for a lucrative incentives package to make its way from the tobacco fields of the Tar Heel State right into the Three Gorges Dam.

The Star News summed up much of the situation in an Op-Ed piece titled "Lining up to blackmail us."

Many of you might be curious as to exactly what Lenovo is looking for, and we can get you pretty close to that information. We've obtained a confidential document making its way around the Durham Chamber of Commerce.

And with that, we give you "Project Grace."

From: Ted Conner
Sent: Friday, August 12, 2005 6:49 PM
To: Titus, Carolyn Subject: Project Grace - Economic Development - Confidential

Carolyn- Notes from my meeting last week regarding Lenovo, also known as Project Grace. 

Confidential Project Grace Meeting at City Hall: August 9, 2005.

1. Gary Joyner, Attorney, Kilpatrick Stockton
2. Karen Ondrick, Government and Community Relations, Lenovo
3. Brian Jesinkey, Manager-US State and Local taxes
4. Barney Earles, Senior Vice President, CB Richard Ellis (Real Estate Broker)
5. Rick Weddle, President & CEO, Research Triangle Foundation
6. Liz Rooks, Vice President, Planning and Development, Research Triangle Foundation
7. Kevin Johnson, Vice President, Business Development, Research Triangle Foundation
8. Alan Delisle, City of Durham
9. Trisha Gensic, City of Durham
10. Ted Conner, Durham Chamber of Commerce

Lenovo, the Chinese company that purchased IBM’s personal computer division is currently located in IBM leased space, but has begun the process of searching for its own space. Lenovo employs approximately 1,800 folks in RTP. Lenovo does not manufacture personal computers itself, the current activities involve the research, design, manufacturing coordination (but not the actual manufacturing), supply chain management, marketing and administrative functions.

Lenovo contracts with Sanmina, also located in Durham, to perform its US market manufacturing. Sanmina manufactures products that are specified to be labeled “Made in the USA” by its clients. Sanmina employs approximately 300 workers here in Durham. Brian Jesinkey stated that Lenovo does plan to add 400 new employees over the next several years. These jobs would come from job tasks that Lenovo currently subcontracts with other companies to perform.  Lenovo is reviewing Triangle (Durham & Wake counties) proposals for the development of a new campus of approximately 600,000 sq. ft. of office and electronics lab space.

The company is strongly considering the development of new space rather than the renovation of existing space. For the construction of the space, the normal cost of such space would run approximately $125/sq. ft. or a project value of approximately $75,000,000.  A draft job creation/investment chart is as follows (I am waiting on verification):

Date of Occupancy
1/1/2007
6/1/2009
Total Space
300,000 - 350,000 sf .ft.
200,000 - 250,000 sq. ft.
Investment
$37,500,000 - $43,750,000
$25,000,000 - $31,250,000
$62,500,000 - $75,000,000
Employees
1,000 - 1,300
800 - 1,000
1,800 - 2,200
Net New Employees
0
400
400

Lenovo, through its legal representation, provided an incentives proposal that in essence requested a full incentive package allowable under the City and County investment policies. I did comment that I observed that the maximum had been requested as the starting point for discussions.  The company is considering Atlanta, and Singapore locations as well for some or all of the space. Important issues to the company are as such:

1. Human capital 2. Occupancy costs (real estate and fixed costs) and ability to grow (space) 3. International transportation 4. Ability to occupy space/location for long term commitment 5. Need to feel wanted 6. University support

With respect to non-RTP Durham sites, Alan and I agreed based upon the comments from the company that Lenovo seems to prefer RTP for their primary Durham location choice.  We pushed for the downtown, but the company representatives said that their workforce is regional and that a location distant from RTP to the north would not be a workable location. No detailed discussions regarding specific incentives were conducted, the discussion focused on outlining the company’s space and workforce plans.

No commitments nor opinions regarding incentives were provided either. Rick Weddle made the point of saying that he thought that it was not a good idea for the company to pit one county against an adjacent county (Durham vs Wake) for incentives. He also was less than pleased that the company was looking outside of RTP. In speaking with the State, they are not pleased about this process either. The company is seeking to have development, state and community proposals completed by August 29. The company stated that they will be moving quickly to determine their preferred site/community.

Ted Conner Vice President, Economic Development Greater Durham Chamber of Commerce

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