Date of Meeting: June 19, 2008

# 3 ECONOMIC DEVELOPMENT COMMITTEE

ACTION ITEM SUBJECT: Industry Cluster Focus for Economic Development

ELECTION DISTRICT: Countywide CRITICAL ACTION DATE: At the pleasure of the Board RECOMMENDATIONS: Staff: Recommends a position be dedicated to each of these industries: Federal/Government Contracting Overlay, Information and Communication Technology (ICT) Cluster, and 50% of a position to the International Overlay. Also commit $150,000 for contractor services, collateral development and staff related travel associated with the International Program and $100,000 for industry research analysis and cluster support services (refer to table on page A-10 of Attachment I.) BACKGROUND: During the FY 09 budget process, the Board of Supervisors appropriated $340,000 for industry cluster development. Of this amount, $90,000 from General Fund revenues is to be used to hire one cluster development manager, and $250,000 from Restricted TOT revenues is to be used for an International Economic Development program and/or for other key industry clusters. For the latter amount, the level of increased staff /contractors needs to be determined. At the May 8, 2008, Economic Development Committee meeting, the Department of Economic Development presented an overview of the international program area and five clusters that had been identified as the core focus of suburban economic development for Board consideration. The committee requested that Staff bring an Action Item to the June Economic Development Committee meeting that included additional data and information about each of the clusters and program areas, decision criteria for selecting clusters and programs, and solicit input from the brokerage community for their recommendations. The Department of Economic Development has completed a high-level cluster analysis and additional research to support their recommendations for cluster strategies and programming for FY09. The attached white paper, “Cluster Analysis, Strategy, and Development White Paper,” (Attachment I) provides a general overview of the value of employing a cluster strategy for economic development, summarizes the analysis for each cluster and program overlay, lists site selection criteria used by companies when choosing a location for their company, discusses specialized industry sectors and emerging clusters for consideration, and provides recommendations. Staff was asked to address the total square footage and economic impact of Loudoun’s existing clusters. Ben Mays, Management & Financial Services, will be present at the committee meeting to discuss this request for information. Additionally, the Committee asked for comparative information

June 19, 2008 Economic Development Clusters

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on other jurisdiction’s efforts at attracting clusters and business growth. Although this information is difficult to fully capture, staff will be prepared to provide information at the meeting. ISSUES: Initiating a successful cluster development strategy and international program requires a sustained focus and funding over a number of years to achieve results. Return on investment is difficult to predict initially, as it depends on many factors outside of the County’s control. Based on contacts with other jurisdictions who have invested in long-term international programs, staff estimates that results, in the form of new business growth from abroad, will take 3-5 years depending on business conditions; results from domestic cluster development/national marketing are expected to show tangible results in three years. Having said that, performance measures/indicators will be established with the Economic Development Committee to demonstrate the level of effort expended and how well the program is progressing. Based on the Board’s discussions during budget worksessions, the Committee needs to prioritize and recommend to the full Board the clusters/areas where the Department of Economic Development will focus its resources given the funding allocated for FY 09. Following the recommendation by the Committee, Staff will prepare an action item for a July business meeting of the full Board of Supervisors. Additionally, Staff will prepare an action item for the July Economic Development Committee that will outline performance measures for each of the targeted suburban cluster programs and overlay programs. FISCAL IMPACT: The Board needs to approve the cluster focus and staffing/contractor level and create any positions to support this use. These funds have been dedicated as part of the FY09 budget discussion. It is expected that those efforts funded through Restricted TOT revenues will continue to be funded from the same source in future fiscal years. ALTERNATIVES:

1. The Board may choose to focus on alternative clusters or utilize the funds in a different manner.

2. The Board may take no action. DRAFT MOTIONS: 1. I move that the Economic Development Committee forward the staff recommendations to the Board of Supervisor’s for approval. OR 2. I move an alternative motion.

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ATTACHMENTS: 1. Cluster Analysis, Strategy, and Development White Paper 2. Industry Sector Code Listings for Each Cluster 3. Cluster and Overlay Summaries 4. Broker/Developer Answers to Questions

STAFF CONTACTS:

Larry Rosenstrauch, Department of Economic Development Tricia Simons, Department of Economic Development Robyn Bailey, Department of Economic Development

ATTACHMENT I

Industry Cluster Analysis, Strategy, and Development White Paper

Industry cluster is a broad concept rather than a precise term. A cluster consists of firms and related economic actors and institutions that draw productive advantage from their mutual proximity and connections.

“Cluster analysis is best viewed as a general mode of inquiry rather than a narrow technical methodology in regional economic analysis. The perspective emphasizes the value of cluster studies as starting points for open discussions among public officials, business leaders, and the lay public about their values and priorities for economic development.” (Edward Feser and Michael Luger) “Too often economic development focuses on individual firms and specific events (expansions, relocations, layoffs). Such approaches often miss the opportunity to address the underlying causes of industry growth and development. The cluster approach can help deepen the practice of economic development to build better communications among the firms that make up the regional economy and to focus public policy on those issues that are likely to have the greatest long-term effect on growth.” (Joseph Cortright)

Why Businesses Choose to Cluster One key to understanding clusters is to recognize that there are multiple dimensions to cluster relationships, including geography, social networks, technology, and production flows. Not all clusters operate in all dimensions. Clustering is about proximity; the underlying rationale is that businesses that are closer to one another have advantages that are unavailable to businesses that are farther away. There is no single cause of clustering, and advantages likely vary over the life cycle of a cluster. Some factors are more important to the establishment of a cluster, while others play a larger role in its growth. Advantages that result from clustering include:

• Competition: Markets thrive on competition. Clusters, however, exhibit a type of a competition that nonetheless enjoys certain economies of scale from sharing local workforce, institutions, suppliers, and infrastructure. In a cluster, economies of scale are achieved while preserving the distinctness of individual firms and fueling competition as opposed to squelching it.

• Innovation: Competition necessitates innovation. Clusters facilitate innovation

by assembling brainpower from related industries in one place. Innovation is especially enhanced with the presence of universities and research institutions, but even without them, clusters have greater power to attract venture capital, R&D investment, and public funding for research. Entrepreneurship, as well, thrives in clusters as new opportunities are seen that lead to new businesses being formed. Spin-off companies formed by innovative employees add to the competitive environment or provide a pioneering approach to delivering the product.

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• Knowledge Spillovers: Strong social capital within clusters allows for

cooperation between firms and executives whenever such cooperation does not interfere with competition. Further, cluster networks that result from the sharing of labor as well as the social interactions that occur outside of business activities result in an increased amount of information sharing in spite of competition. Such knowledge spillovers accelerate the pace of, and need for, innovation and enhance the overall productivity of the cluster.

• Shared Infrastructure, Institutions, and Suppliers: In addition to shared

talent, firms in a cluster also have equal access to local amenities such as utilities, fiber, universities, and finance institutions. For workforce development, it is much easier for universities to serve a cluster than an individual firm. Finance institutions, which are especially familiar with cluster-specific activities, are therefore more knowledgeable and efficient in allocating resources for enterprise finance and start-up entrepreneurship. These resources can be allocated to new, established, and emerging corporations.

• Talent Pool: Clusters allow companies to share a talent pool with industry-

specific skills. As a result, firms do not have to search far to find the proper skill sets. Employees, as well, enjoy a degree of job security in knowing that if the firm they work for no longer needs their skills, another firm in the region probably will. Once the cluster develops a reputation outside the region, it enjoys the ability to attract top talent, since potential employees, too, recognize the benefits to labor resulting from cluster economics.

How Clusters Form and Grow Clusters are fostered, not constructed. Most of the world’s successful clusters have evolved through a favorable string of events, though strong roots were in place long before the clusters formed and grew. The growth of the largest clusters has been driven by market demand and entrepreneurial drive – offered through a supportive business environment. Some clusters began as large companies that originally located in less-populated areas to take advantage of low wages and surplus labor markets and that later fostered spin-offs. Some regions have seeded clusters via recruitment and incentives, usually in weak economies and typically at a high cost. No single sequence of events, actions, or environmental and economic conditions fit all clusters. What Companies Consider When Locating Site selection includes many factors. There are general site selection criteria that many businesses use when making a decision about where to locate. An annual survey is conducted by Area Development magazine. The 2007 ranked results were published in their March/April 2008 issue:

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Site Selection Factors, 2007

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5

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9

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Highway accessibility

Labor costs

Energy availability and costs

Availability of skilled labor

Occupancy or construction costs

Available land

Corporate tax rate

State and local incentives

Environmental regulations

T ax Exemptions Many clusters use criteria that overlap the list above, going beyond it with more cluster-specific selection criteria. For example, government contractors value proximity to customer, responsiveness in product development, and flexibility and lowest cost of operation and product delivery. High-tech firms value a qualified workforce, company image, proximity to universities with strong R&D, a pro-business environment, and quality of life elements. Medical device companies in the Life Science cluster consider availability of qualified workforce, cost of doing business, the regulatory environment, and community attitude. International companies typically rank a pro-business environment as their number one criterion which often excludes locations in states that do not have right-to-work laws; however, other criteria include access to customer base, suppliers, innovation, and direct flights to their country of origin. Cluster Development While there is no easy blueprint for successful cluster development, a carefully-tailored public policy and strategic plans can greatly influence the success factors in nurturing and growing clusters. This is where Loudoun government can play a strong role. General guidelines for cluster strategies include:

• Organize service delivery to address cluster businesses’ needs collectively • Target investments – in innovation, entrepreneurship, and recruitment – to

clusters • Increase clusters’ networking and learning for competitive advantage • Improve the workforce and its readiness for work in the cluster

Any of these strategies must be carried out with attentive consideration for how the government can add value beyond the outcomes that markets and market actors produce on their own. Many case studies suggest that clusters require a decade or more to develop depth and a real competitive advantage. In an article from the Economic Development Journal, Creating Economic Clusters, the authors state that, “Long-term” is an important, but often overlooked, aspect of the cluster-building process; clusters exhibit

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“long gestation periods” of ten to fifteen years. Determining cluster strategies is completely cluster-dependent, determined by the cluster’s stage of development, cluster priorities, and market imperfections and preferences. Cluster Analysis for Loudoun County Methodology The clusters were defined using standardized groupings of North American Industrial Classification System (NAICS) codes. These groups include industries that are linked together and have inter-industry relationships. A listing of all of the NAICS codes used to build the data for each cluster is included in Attachment II. Using generally defined criteria for identifying clusters allows for comparisons to and analyses of other counties and regions, but there are disadvantages as well. The industry classifications are self-reported by the companies. Companies may have multiple lines of business but choose to report in only a certain category. This can result in firms that are known to participate within a certain cluster not being included. The reverse is true as well. Despite these limitations, this data is the best available. Once the clusters were defined, the Department of Economic Development (DED) analyzed five-year growth trends (2002-2007) of firms and employment in each cluster. To understand the relative concentration, or strength, of each cluster, DED calculated the location quotient (LQ). The LQ is a measurement commonly-used to indicate the extent to which a certain geography (e.g. metro region or county) is more specialized in an industry than the nation as a whole. The LQ is defined as the ratio of a particular industry’s share of local employment to that same industry’s share of national employment. An LQ of one (1.0) means that an industry represents the same share of the local economy that it does of the national economy; higher values indicate a cluster is relatively more concentrated in a geographic area than in the nation. A high LQ in a group of related industries in a particular region suggests that a cluster exists. Cluster Analysis Results DED has summarized the quantitative analyses in a one-page format for each cluster/overlay that was originally identified for the Board (Attachment III). The summaries also include Loudoun’s major employers and prospect activity, a general overview of the cluster, and current prospect activity in Loudoun.

• Aviation, Cargo, and Logistics - Loudoun is strongly specialized in Aviation, Cargo, and Logistics, having a location quotient of nearly 3.0. The cluster is anchored by Washington Dulles International Airport, one of the fastest-growing airports, and the only large airport east of the Mississippi River with the capability to add additional runways. This cluster was negatively impacted by the bankruptcy of Independence Air and the closing of the United Airlines call center, both in 2006. These dramatic changes are reflected in the employment drop of 15

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percent between 2002 and 2007 in the Aircraft, Cargo and Logistics cluster. Despite the current economic realities of high oil prices and other airline industry issues, there are potential opportunities anticipated due to significant service enhancements, particularly the addition of 145 new weekly flights to international destinations in 2007 and the expectation of additional international service in the future.

• Information and Communications Technologies - Loudoun is also strongly specialized in Information and Communications Technologies (ICT), having a location quotient of nearly 6.5 accompanied by a dramatic increase in employment of nearly 170 percent between 2002 and 2007. ICT, while affected negatively by the “dot-com bust,” continues as Loudoun’s strongest cluster. It is anchored by local companies like AOL, Verizon Business, Neustar, and Verisign. It is important to recognize that these large companies, and the others with over 100 employees, account for 57 percent of the employment in this cluster. Small companies are also very important to the ICT cluster, generating over 40 percent of the cluster employment. Since most large companies begin as a small, start-up companies they tend to remain loyal to their home location as they grow. The regional influence of the Dulles Corridor (and its comparison to the Silicon Valley) enhances the strength and significance of this cluster.

• Life Science - The Life Science cluster exhibits signs of an embryonic cluster, with strong employment growth (150 percent) and an increasing location quotient (from 0.5 to 0.9 in the 5-year study period). Valuable assets located in the county include: the Howard Hughes Medical Institute Janelia Farm Research Campus; an active Science and Technology Cabinet; and a regional, cooperative marketing collaborative – the Northern Virginia Life Sciences Communities (including Loudoun, Fairfax, Prince William and Arlington counties, as well as George Mason University). The life science market is very competitive. Additional assets could enhance Loudoun’s competitiveness in this cluster.

Surprisingly, the Aerospace cluster, defined using national cluster definitions for aerospace, was represented by only two small companies. The “anchor” for this cluster, Orbital Sciences Corporation, as well as other companies in the cluster, classified themselves in the Information Sector versus Manufacturing. Therefore, an analysis was not completed on the Aerospace sector; however, a majority of these companies are accounted for in the ICT cluster and/or the Federal and Government Contractor overlay, discussed next.

For this analysis, staff considered Federal and Government Contractors (FGC) and International programming as overlays versus clusters because each of these categories is comprised of a cross-section of businesses from varied clusters.

• Federal and Government Contractors - FGC includes all of the clusters examined, as well as international companies. Both the number of contracts awarded to companies in Loudoun and the overall total value of these contracts

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have increased substantially between 2000 and 2007. It is worth noting that beginning in 2002, two contractors that appear to provide war-related transport services (the specific nature of which remains unconfirmed) have been awarded contracts in excess of $4.7B through 2006. Recently there has been an increase in contractors locating in Loudoun primarily because of available space.

• International – Staff based the International analysis on the 28 known foreign-owned companies that report data to the Virginia Employment Commission. European companies dominate the representation of international companies in Loudoun County, with a majority of those European companies being German. The 28 companies analyzed in Loudoun are predominantly in the Transportation & Warehousing and the Wholesale Trade sectors. Nine international companies in Loudoun were awarded contracts by the U.S. government; the nearly 200 contracts in total are valued at over $58 million.

Education has not been addressed as a cluster or an overlay. It is more appropriately categorized as an asset. Many clusters are centered around a university because of the innovation and entrepreneurship advantages it can provide to each cluster. While there are many institutions of higher learning in the Washington, D.C. region, including some with campuses in Loudoun, relationships beneficial for cluster growth are not well established. As discussed earlier, it is essential to understand the relationships and necessary assets for individual clusters to grow and prosper. With the current interest in bringing a university to Loudoun, it may be advantageous to integrate this development with cluster strategies to ensure the university asset could be leveraged by one or multiple clusters.

Other Specialized Industry Sectors The clusters and overlays analyzed in this report were originally identified by anecdotal and quantitative information as well as expert judgment and familiarity. DED reviewed all industry sectors with activity in Loudoun and Northern Virginia at the most detailed 6-digit NAICS code level. Using only location quotients (LQ) for this cursory review, industries with exceptionally high LQs were identified to determine if they fit in clusters that should be considered in the development strategy. Significant Loudoun sectors with exceptionally high LQ include:

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ATTACHMENT I

NIACS Description 2007 LQ

541360 Geophysical Surveying and Mapping Services 9.4 541890 Other Services Related to Advertising 9.0 332323 Ornamental and Architectural Metal Work Manufacturing 7.2 541618 Other Management Consulting Services 6.5 561730 Landscaping Services 5.5 115210 Support Activities for Animal Production 5.2 327991 Cut Stone and Stone Product Manufacturing 4.6

524292 Third Party Administration of Insurance and Pension Funds 4.2

541860 Direct Mail Advertising 3.4 611620 Sports and Recreation Instruction 3.2 237120 Oil and Gas Pipeline and Related Structures Construction 3.0 561790 Other Services to Buildings and Dwellings 2.7 522291 Consumer Lending 2.6 541330 Engineering Services 2.4 541620 Environmental Consulting Services 2.3 312130 Wineries 2.1

Northern Virginia sectors with high LQs included:

NIACS Description 2007 LQ 522294 Secondary Market Financing 41.0813920 Professional Organizations 9.8212313 Crushed and Broken Granite Mining and Quarrying 9.1

541611 Administrative Management and General Management Consulting Services 8.2

813910 Business Associations 7.2541618 Other Management Consulting Services 6.2611430 Professional and Management Development Training 5.9712120 Historical Sites 5.5561210 Facilities Support Services 5.2236117 New Housing Operative Builders 4.7541720 Research and Development in the Social Sciences and Humanities 4.3611420 Computer Training 4.3541330 Engineering Services 4.0541620 Environmental Consulting Services 4.0

The brief analysis described above was considered along with a study conducted in 2005 by the Virginia Economic Development Partnership and the Virginia Community College System. They completed an extensive Industry and Occupational Cluster Analysis for the Northern Virginia region.

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ATTACHMENT I

Based on their findings, the state agencies recommended these industry clusters as potential targets:

• Communication, Publishing, and Broadcasting • Entertainment • Electronics Equipment and Instruments Manufacturing • Finance and Insurance • Health Care • Information Technology & Professional Services • Machinery & Equipment Manufacturing • Medical Related Products Manufacturing • Wood Products & Furniture Manufacturing

While there are other industry sectors in Loudoun and Northern Virginia that are identified as having high LQs, many are in sectors that are driven by population growth, may not have high wages, or are industries that may not benefit as much from a cluster focus. Emerging Clusters In an age where new industries are rapidly forming, new clusters and cross-cluster “overlays” continue to emerge across the United States and the world. All of them signal a new wave of innovation and may redefine some economic development landscapes of the future. Before launching into new clusters, it is important to recognize that there is general agreement in the academic community that it is difficult, if not impossible, to intentionally create industry clusters where they do not already exist. Although public policies have served as a mechanism for growth, it is just as likely that it was inadvertent as much as intentional. The best role for public policy in “creating” a cluster is to understand the conditions needed to establish the new cluster such as institutions supporting knowledge creation, programming to support entrepreneurship, and removing barriers for creation of new firms. Based on the demographics of the Washington, D.C. metropolitan area – a workforce that is highly educated and concentrated with scientists, engineers, and other technical expertise – it is likely that some emerging or embryonic clusters are developing in the region or could develop in the near future. These include:

• Digital Media - a sub-set of the ICT cluster, digital media is emerging in places such as Florida and California. This cluster includes animation, simulation, and gaming and requires a workforce in graphic design services and internet publishing.

• Nanotechnology – Nanotechnology could be thought of more as an “overlay” (as defined in this paper) than a cluster and involves research and development of extremely small components and structures, transcending many disciplines. Nanotechnology applications are found in industries like ICT, electronics,

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mechanical engineering, construction, forest, energy, environment, chemical, health and well-being.

• Photonics – Photonics , based on the “photon,” the elementary particle of all light wavelengths, is one of the fastest-growing high-tech industries in the world. Photonics technology is used to develop lasers, fiber optics, satellites, holographs, flat screen displays, DVDs, scanners, and many other medical and consumer devices. There appear to be potential synergies of photonics with Loudoun’s existing clusters.

• “Green” - The Greater Washington Initiative reports, “Green business and innovation is a new multibillion-dollar segment of the economy — and the Greater Washington region has positioned itself to be a leading player.” They tout the existence of a local “green collar workforce,” ready to responsibly take on environmental challenges of a fast-paced economy. While a new emerging market in green technology exists, a complementary challenge for the area is for the existing industries to adapt green technology to their operations, leading to enhanced efficiency and reducing the negative costs inflicted on the environment. For example, several of Loudoun’s data centers have already bought into the Green Grid idea for improving IT energy efficiency. These businesses are realizing that green practices not only take a responsible approach to the environment, but also reduce energy costs for more efficient production. “Going Green” offers a competitive advantage that, as energy costs escalate, local companies cannot afford to overlook.

Prior to making any recommendations and developing a cluster strategy for these and other emerging clusters, DED recommends that additional resources be dedicated to understand the nature and potential of these as clusters, including the assets and themes that Loudoun can leverage in furthering their growth. Recommendations Based on the strengths of Loudoun, exceptional LQs in certain clusters and overlays, and professional expertise, DED recommends:

• Utilizing the $90,000 specifically identified in the FY09 Budget to create a new position dedicated to the federal/government contracting cluster overlay, including aerospace. This dedicated focus will allow the department to understand the needs of this cluster and begin working closely with the current businesses within this cluster in order to increase Loudoun’s visibility in this market, thus leading to greater cluster growth.

o Requires a new FTE. • Dedicating a position to the information communications technology cluster.

Loudoun maintains strength in this cluster, and with a dedicated focus, the Department will be able to increase its expertise in this area to support attraction

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and expansion of the cluster. This dedicated focus will also enhance networking opportunities for businesses currently located in Loudoun.

o Utilizes existing FTE.

• Dedicating 50 % of a position to the international overlay, to recruit and retain targeted cluster companies from outside the United States. This is a diversification investment strategy to balance Loudoun’s portfolio of companies and expand business investment opportunities. The department does not anticipate this investment will immediately result in a significantly larger international businesses base. However, the expertise gained and the ability to understand and provide the unique resources required by these companies will provide a strategic advantage for Loudoun’s recruitment efforts in the medium term.

o Utilizes one-half of an existing FTE..

• Committing $150,000 for the international program to include contractor services, collateral development, and staff related travel. The contractor will be located in the international market and will be directed to complement existing target cluster initiatives.

o Requires new contractor.

• Committing $100,000 for industry research analysis/cluster support services. o Requires new FTE.

Summary

Amount Source of Funding Function $ 90,000 1 New FTE - General

Fund Federal/Government Contracting Overlay

$100,000 1 New FTE - Restricted TOT Fund

Industry Research Analysis /Cluster Support Services

$150,000 Restricted TOT Fund International Program -- Existing FTE ICT Cluster -- 50% of Existing FTE International Overlay

Assumptions

• Metropolitan Washington Airports Authority (MWAA) and Washington Airports Task Force (WATF) will take the lead on the Aircraft, Cargo and Logistics cluster.

• Life Science will continue to receive support through pre-established initiatives

(i.e. Medical Automation Conference, Northern Virginia Life Sciences Communities, and Science & Technology Cabinet) in order to increase Loudoun’s position/recognition. Because competition in this market is fierce, additional assets that could enhance Loudoun’s competitiveness include: readily available wet lab space; increased state and local financial incentive options; a Loudoun-

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based research university or innovation facility to support the cluster; a coordinated state, regional and local vision with sustainable, financially-supported programs. Staff will be working with top leadership of Howard Hughes Medical Institute Janelia Farm Research Campus to define an effective cluster development strategy and to identify valuable opportunities.

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References Andersson, T., Serger, S.S., Sorvik, J., and Hansson, E.W. (2004, August). The Cluster policies whitebook. International Organization for Knowledge Economy and Enterprise Development. Cortright, J. (2006, March). Making sense of clusters: regional competitiveness and economic development. The Brookings Institution Metropolitan Policy Program. Feser, E.J. and Luger, M.I. (2003). Cluster analysis as a mode of inquiry: its use in science and technology policymaking in North Carolina. European Planning Studies 11(1), p. 11-24. Mauk, B. (2008). Interview with Assistant Director of the UNC-Chapel Hill Office of Economic and Business Development on May 27, 2008. Osama, A. and Popper, S.W. (2006). Creating economic clusters. The IEDC Economic Development Journal, 5(3), p. 6-13. Porter, M.E. (1998, November-December). Clusters and the new economics of competition. Harvard Business Review, p. 77-90. Stewart, L.S. and Luger, M.I. (2003, November). Best practices in the implementation of cluster-focused strategy. A report prepared by the Office of Economic Development, Kenan Institute, UNC-Chapel Hill. Solvell, O., Lindqvist, G. and Ketels, C. (2003, August). The Cluster initiative greenbook

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ATTACHMENT II

NAICS Code Groupings by Cluster Aircraft, Cargo and Logistics Cluster NAICS Code Description

481111 Scheduled Passenger Air Transportation 481112 Scheduled Freight Air Transportation 481211 Nonscheduled Chartered Passenger Air Transportation 481212 Nonscheduled Chartered Freight Air Transportation 484110 General Freight Trucking, Local 484121 General Freight Trucking, Long-Distance, Truckload 484210 Used Household and Office Goods Moving 484220 Specialized Freight (except Used Goods) Trucking, Local 484230 Specialized Freight (except Used Goods) Trucking, Long-Distance 486110 Pipeline Transportation of Crude Oil 486910 Pipeline Transportation of Refined Petroleum Products 486990 All Other Pipeline Transportation 488111 Air Traffic Control 488119 Other Airport Operations 488190 Other Support Activities for Air Transportation 488490 Other Support Activities for Road Transportation 488510 Freight Transportation Arrangement 488991 Packing and Crating 491110 Postal Service 492110 Couriers and Express Delivery Services 493110 General Warehousing and Storage 493120 Refrigerated Warehousing and Storage 493190 Other Warehousing and Storage

532411 Commercial Air, Rail, and Water Transportation Equipment Rental and Leasing

541614 Process, Physical Distribution, and Logistics Consulting Services 722310 Food Service Contractors

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Information & Communications Technology Cluster NAICS Code Description

332710 Machine Shops 333313 Office Machinery Manufacturing 333319 Other Commercial and Service Machinery 333411 Air Purification Equipment Manufacturing 336412 Aircraft Engine and Engine Parts 511120 Periodical Publishers 517110 Wired Telecommunications Carriers 517210 Wireless Telecom. Carriers (except Satellite) 517410 Satellite Telecommunications 517911 Telecommunications Resellers 517919 All Other Telecommunications 518210 Data Processing and Related Services 519120 Libraries and Archives 519130 Internet Pub. & Broadcasting & Web Search 519190 All Other Information Services 532420 Office Equipment Rental and Leasing 541511 Custom Computer Programming Services 541512 Computer Systems Design Services 541513 Computer Facilities Management Services 541519 Other Computer Related Services 811211 Consumer Electronics Repair/Maintenance 811212 Computer and Office Machine Repair 811219 Other Electronic Equipment Repair

Life Science Cluster NAICS Code Description

325199 All Other Basic Organic Chemicals 325414 Other Biological Product Manufacturing 334510 Electromedical Apparatus Manufacturing 334516 Analytical Laboratory Instruments 339113 Surgical Appliance and Supplies Manufacturing 339116 Dental Laboratories 541380 Testing Laboratories 541711 Research and Development in Biotechnology 541712 R&D Phys. Eng. & Life Sci. (ex Biotechnology) 621511 Medical Laboratories 621512 Diagnostic Imaging Centers

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Overview

This cluster includes passenger and cargo carriers; transportation companies, hauling freight; state-of-the-art telecommunications -- from satellites to radio tags -- to track cargo and ensure fast and secure delivery of shipments; and warehousing services. Dulles Airport has a $4 billion capital projects pro-gram, including a new runway to accommodate a 67% increase in operations by 2010. In general, air traffic has achieved annual growth rates well above historical averages, even with high fuel prices and security concerns. Remarkable service enhancements were witnessed at Dulles in 2007 including: 145 new weekly flights to seven new international destinations; and direct flights to six new countries includ-ing Beijing, China. In 2008, flights will be added to service Bogota, Dubai, Moscow, and Istanbul.

Washington Dulles International Airport offers airlines, airfreight forwarders and shippers unique and profitable advantages as an international and domestic cargo gateway. Dulles's air and road feeder net-work, central mid-Atlantic location, low costs and modern infrastructure together make it one of the most efficient and economical cargo gateways in the U.S. With nearly 340 departures per week to major cargo centers in Europe, Asia, Central and South America, the Middle East and Africa, airlines serving Dulles offer shippers and forwarders a wide array of options to move goods to and from these areas. Combined with the nearly 2500 weekly departures to U.S. destinations, Dulles carriers can offer exten-sive service options for both domestic and international customers. The Washington Airports Task Force (WATF) works closely with the Metropolitan Washington Airports Authority (MWAA) to strategi-cally position Dulles Airport. The airport is unique on the East Coast in having substantial expansion capacity. In addition to this ca-pacity to expand airport operations, the MWAA purchased an 800-acre adjacent property, with the po-tential for complementary economic development opportunities. Planning policy along with appropriate zoning have been established to protect the airport. This estab-lishes an important advantage for Loudoun, particularly as Fairfax has been redeveloping their flex/industrial product to office, leaving Loudoun as the location of choice for support services for the airport.

Major Employers

500-999 Employees • United States Postal Service—provides the

nation with reliable, affordable, universal mail service.

• Gate Gourmet - the world's largest inde-pendent provider of airline catering and pro-visioning services

• Air Serv—Humanitarian relief organization that provides air transportation exclusively to the global humanitarian community.

• FAA—provide air traffic control and naviga-tion for both civil and military aircraft.

250-499 Employees • Fed Ex—provide shipping, logistics man-

agement, and supply chain management

2007 Prospect Activity

• One prospect located in Loudoun in 2007.

• This one prospect will occupy 14,400 square feet.

Aircraft, Cargo and Logistics Cluster

ATTACHMENT III

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Overview

Information & Communications Technology (ICT) is a blanket term that includes equipment and technol-ogy involved with the communication of information.

A study by Gartner reports that ICT spending has been mostly immune to the recent economic down-turn. Based on a global survey of CEOs by PricewaterhouseCoopers, “Technology CEOs are the most confident, with 60% saying they are ‘very confident’ of achieving revenue growth over the next 12 months, compared to a global average of 50% across all industries. This finding reflects the unrelenting demand for new technologies, especially in the emerging markets.” The survey finds communications CEOs only slightly less confident (59% ) and reports that Technology and Communications CEOs are equally optimistic for growth over the next three years.

ICT companies tend to pay high wages; require high-skilled labor; be innovation- and entrepreneurship-driven; dependent on secure, redundant and reliable infrastructure; and affordable power.

Loudoun’s existing cluster is substantial and robust, including brand names such as AOL and Verizon Business. While AOL has moved their headquarters to New York, the bulk of their professional and technical staff remain on the Loudoun Campus. Verizon Business plans to relocate much of their re-gional workforce to their Loudoun campus over the next few years. Also, the Data Center market is a strong submarket that is currently experiencing substantial growth.

Due to Loudoun’s proximity to the federal government in Washington, D.C., to Washington Dulles Inter-national Airport, and ability for direct connect to MAE-East, there is a high concentration of ICT compa-nies that have contracts with the government.

Major Employers

1000-4,999 Employees • AOL—making transition from subscrip-

tion internet provider (dial-up) to global advertising-supported Web company

• Verizon Business—delivers advanced IP, data, voice and wireless solutions to large business and government.

500-999 Employees • Verisign— leading secure sockets layer

(SSL) Certificate Authority enabling se-cure e-commerce and communications for Web sites

250-499 Employees • Neustar—a clearinghouse for communi-

cation service providers and enterprises worldwide

• MasTec—end-to-end telecommunica-tions and energy infrastructure service provider

2007 Prospect Activity

• 5 prospects located or expanded in Loudoun in 2007.

• These 5 prospects will occupy approximately 500,00 square feet of space.

Information & Communications Technology Cluster

ATTACHMENT III

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ICT—Firm Trends

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ICT—Location Quotient Trends

The number of ICT firms increased by a sub-stantial 215 percent between 2002 and 2007. Companies with over 100 employees represented 2 percent of the firms, and 57 percent of the employment. While the “large” firms account for a considerable amount of the employment, Loudoun has some signifi-cant small companies that have experienced substantial growth and success, including Prototype Productions and Equinix.

Loudoun’s largest cluster is ICT, employing nearly 15,000 people in 2007. This is an in-crease of nearly 170 percent more than the number employed in 2002 in this cluster. Compared to an 18 percent increase overall nationally, this growth is tremendous. Lou-doun’s growth in employment during this 5 year period contributed to 110 percent of the Northern Virginia regional growth because some areas within Northern Virginia experi-enced loss in ICT employment.

The Location Quotient (LQ) for Loudoun’s ICT cluster shows that the concentration of employment in ICT locally is six-and-a-half times the concentration nationally. This sub-stantial LQ, along with strong employment growth, reinforces the importance of this cluster. The county is highly attractive to ICT companies. Maintaining this attractiveness is a key to future growth.

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Aircraft, Cargo and Logistics—Firm Trends

Aircraft, Cargo and Logistics—Employment Trends

Aircraft, Cargo & Logistics—Location Quotient Trends

Employment decreased substantially through the 5-year period from 2002 through 2007, experiencing a 15 percent loss versus a 3 percent gain that occurred nationally. The Aircraft, Cargo and Logis-tics cluster was negatively impacted by the bankruptcy of Independence Air and the closing of the United Airlines call center, both occurring in 2006.

The 2007 location quotient reflects nearly three times the concentration of employ-ment exists in Loudoun versus the U.S. However, the significant decline in Loca-tion Quotient is of concern, particularly with the current economic conditions in-cluding the continuing increase in oil prices.

In 2007, 7 percent of the companies have 100 employees or more, accounting for 67 percent of the employment.

A-15

Overview

The Life Science cluster spans different markets and includes manufacturing, services, and research activi-ties that are evolving to incorporate the latest research and scientific discoveries. Sub-sectors are Ag Feed-stock and Chemicals, Drugs and Pharmaceuticals, Medical Devices and Equipment, Bioinformatics, Re-search, Testing, and Medical Laboratories. The life science industry is also being viewed by many states nationwide and countries across the globe as the engine that will spur their economic recovery and vitality. As a result, the life science clusters around the nation and the world continue to enhance their industry’s business climate, competing against each other to improve their regional advantage and sustain their lead-ership positions as key life science clusters. In their annual review and analysis of real estate trends in the life science industry, Colliers International identifies bioinformatics as an emerging growth sector in Life Sci-ence. Loudoun’s ICT strength suggests the potential for an interesting (and profitable) cross-cluster col-laboration in this field.

In general, Life Science clusters are highly localized within a handful of metro-areas. They are also time and capital intensive, risky, and face increasing international competition. Community assets that are im-portant to Life Science companies include: access to public funding; access to local venture capital; Univer-sity partnerships; highly-skilled, scientific workforce; and a favorable legal environment. The Life Science cluster results in a longer horizon for return-on-investment due to the capital investment required.

The primary assets Loudoun has in this cluster are: $500M investment of Howard Hughes Medical Institute Janelia Farm Research Campus; proximity to research labs, universities and government agencies such as NIH; a commitment as the site for the international Medical Automation Conference through 2010; an es-tablished regional cluster, focused primarily in Maryland; and an established regional organization, the Northern Virginia Life Sciences Communities.

Additional assets that would enhance Loudoun’s competitiveness include: readily available wet lab space; increased state and local financial incentive options; a Loudoun-based research university or innovation facility to support the cluster; a coordinated state, regional and local vision that is financially-supported to achieve a successful cluster.

Major Employers

100-249 Employees • Howard Hughes Medical Institute Janelia

Farm Research Campus—the identification of general principles that govern how infor-mation is processed by neuronal circuits; and the development of imaging technologies and computational methods for image analy-sis.

50-99 Employees • Experimental Pathology—contract research

organization in toxicological pathology ser-vices

• Glen Research Corporation—chemical com-pany. Sell reagents for DNA and RNA syn-thesis, modification and purification.

20-49 Employees • EPL Archives—archival company for tissues

and bio-data

2007 Prospect Activity

• Four prospects located or expanded in Loudoun in 2007.

• These 4 prospects will occupy approxi-mately 48,300 square feet.

Life Science Cluster

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Life Science—Location Quotient Trends

Loudoun’s Life Science cluster is a small cluster, but has grown signifi-cantly over the past 5 years. The em-ployment increased by over 150 per-cent, a much faster rate of increase than growth in Northern Virginia, 66 percent, and the nation, 97 percent. More that one-fourth of the growth can be attributed to HHMI, and their em-ployment will continue to represent a substantial portion of this cluster’s growth in the coming years as they are less than half-staffed as of the 2007 data.

The Location Quotient (LQ) reflects the relative concentration of Loudoun’s Life Science cluster compared the national concentration. The positive trend of the LQ, approaching 1.0, is a potential indi-cation, particularly when associated sig-nificant employment growth, that the cluster is emerging.

During the period between 2002 and 2007, Loudoun had an increase of 14 percent. However, one of the most sig-nificant additions to the Life Science cluster during this period was the open-ing of the Howard Hughes Medical Insti-tute (HHMI) Janelia Farm Research Campus.

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A-19

Overview

The overlay includes professional and technical services and manufacturing companies, among others, that provide contractual services to the federal government, including outsourced services, research and development, etc. This overlay also includes Loudoun’s aerospace cluster. The Washington, D.C. region leads the nation in Department of Defense procurement. Forty-three of Defense News’ top 100 international defense companies have operations in Washington, D.C. region; 12 of the top 100 are headquartered or have a presence in Loudoun.

While some of the contracts awarded to Loudoun companies are war-related, with the exception of 2 contractors, federal dollars coming into Loudoun have remained fairly stable since 2000. In the future, it is possible that defense spending may be curbed; however, many outsourcing activities will continue, particularly as the baby boomers currently working in federal positions exit the workforce.

A Loudoun location offers proximity and access to federal government and its decision makers. There is the potential to leverage contractor moves in Northern Virginia as a result of BRAC (Base Realignment and Closure). Many companies will be relocating due to military changes and Loudoun is well-positioned to capture a significant portion of this transition. Prince William and Stafford counties are readying sites to take advantage of being located along VRE and a major interstate.

Loudoun’s assets include real estate product/facility diversity and availability, a strong build-to-suit mar-ket, ability to meet set-back/security requirements, and fiber access. Recently, there has been an in-crease in contractors locating in Loudoun. In fact, one developer has contacted the Department with plans to develop a park exclusively for secured, defense-related tenants. With proactive marketing, it is anticipated that this cluster could deliver short-term return-on-investment.

“Overlay” of Contractors with Clusters

• ICT—653 contracts, $1B

• Aircraft—154 contracts, $40M

• Life Science—5 contracts, $154K

• International—196 contracts, $58M

2007 Prospect Activity

• Four prospects located in Loudoun in 2007.

• These four prospects will occupy ap-proximately 281,000 square feet.

Federal and Government Contractor Overlay

ATTACHMENT III

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Federal & Government Contractors—Contract Trends

Federal & Gov’t Contractors—Contracts by Industry

Federal & Government Contractors—Top 5 No. of Contracts (2000-2006)

Aero International—284

MC Dean—260

NOVA Power Solutions—180

Telos—160

Anixter—145

Total Value (2000-2006)

North American Airlines—$2,755,362,398

Evergreen Intern’l Airlines—$2,008,553,816

NLX—$576,582,183

Telos—$511,692,442

N E T Federal Inc.—$308,441,386

0% 5% 10% 15% 20% 25% 30% 35% 40%

Wholesale Trade

Prof/Tech Services

Manufacturing

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Other

Admin ServicesOver 35 percent were in the Wholesale Trade sector, which included Heckler & Koch, a German company located in Lou-doun. The sector with the second most number of contracts was the Professional and Technical Services sector, with 27 per-cent. This sector includes many of the com-panies commonly associated with federal contracting like SAIC. Manufacturing ac-counted for nearly 15 percent of the con-tracts and included companies such as AeroAstro and Orbital Sciences Corpora-tion.

From 2000 through 2006, the number of contracts that Loudoun companies were awarded increased by over 200 percent. The total value of the contracts awarded to Loudoun companies increased by 171 per-cent. This can be deceiving because there are two air transport companies that had a combined contract value of nearly $5B be-tween 2002 and 2006. Excluding these two companies from the total value of contracts award actually result in an 8 percent de-crease over the period.

A-21

Overview

International businesses, typically defined as having significant foreign ownership of at least 10%, con-tribute over $40 billion to the Washington, D.C. region’s economy, making it one of the top five core sec-tors along with government, technology, hospitality, and construction. The Washington region has more than 700 international businesses, including over 60 firms from Germany.

The United States has topped the World Economic Forum’s competitiveness rankings, cited as having a “combination of sophisticated and innovative companies operating in very efficient factor markets… ex-cellent university system and strong collaboration between the educational and business sectors in re-search and development.” Also, among all the states, Virginia was rated the number one Pro-Business State in 2007 by Pollina Corporate Real Estate, Inc. The “health” of the state is an important factor when foreign companies are looking to make foreign investments. Financial incentives are less important than whether or not the state is a “right-to-work” state. In fact, many states that have strong labor unions never “make the list” when foreign companies look to invest.

Loudoun’s international businesses have identified these reasons for choosing Loudoun: proximity to airport with flights to their home country, and other countries of interest; access to highly-skilled work-force; proximity to federal government; quality of schools; and access to beach and mountains.

An initial goal of the international program would be to focus on attracting foreign-owned corporate lo-cates from targeted clusters to Loudoun County and helping existing ones expand. This requires a business development effort to clarify target companies, develop relationships, and build presence and reputation in the markets.

Major Employers

100-249 Employees • Rehau—German, plastic injection and win-

dow fabrication.

• Gieske & Deverient Americia, Inc. — Ger-man, financial currency processing and smart cards.

• De La Rue Global Services, Inc.— United Kingdom, security printer and paper

50-99 Employees • L-3 Marine Systems—Canada, marine plat-

form control systems

• British Airways Cargo—United Kingdom, cargo

2007 Prospect Activity

• There were two International prospects that located in Loudoun in 2007. One is an aerospace company, and the other, a life science company.

• These two prospects will occupy a com-bined total of 7,300 square feet.

Note: International prospects are not dupli-cated in the cluster.

International Overlay

ATTACHMENT III

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International– Companies by Country

International—Companies by Industry

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Educational ServicesThe companies that are currently lo-cated in Loudoun are predominantly in the Transportation & Warehouse sec-tor or the Wholesale Trade Sector.

Of the 28 foreign-owned corporations reporting data to the Virginia Employ-ment Commission (VEC), they employ 1,132 people. German firms ac-counted for the largest percentage of employment. Over 90 percent of em-ployment is with companies from Euro-pean countries.

Over 90 percent of Loudoun’s interna-tional companies are from European countries. The largest group of these companies are from Germany.

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