Sticking Together: Clustering Industry to Increase Efficiency

What People are saying• Professor Michael E. Porter: Therefore, what this says is that when we try to

understand why a region is competitive, we don’t really focus so much on what exactly that region does. What we really need to focus on is how the region does it. If you can be very productive in a field because you.ve got the right business environment in that field, because the right skills exist, because the right infrastructure exists, you can be prosperous in virtually any field.

• Chris Israel (U.S. Coordinator for International Intellectual Property Enforcement): “Of course there is no single policy formula that works to foster technology innovation and business development in all regions…Every region should NOT all expect to become "the next Silicon Valley" or the premier biotech center of excellence. Cities cannot simply decide to become good at something without a base to expand on - they must build upon existing strengths.”

• Hillary Clinton’s plan for 15 business clusters to stimulate the economy: “Senator Clinton believes we should be aggressively supporting regional clusters that leverage local assets, drive economic growth and create high-wage jobs. In addition to offering her new 40% credit for basic research, Senator Clinton will launch a new program of tax exempt bonds for states and local governments to build research parks. And she will catalyze the creation of at least 15 major research clusters during her first term.”

Reasons Clusters Occur• Seed-Based Clusters:

– Clusters can grow naturally out of other industries• Napa Valley Wine Country,

Oil Refineries in Louisiana and Texas, Georgia Carpet Manufacturing Cluster

• Man Made Clusters– Clusters can occur due to

Word of Mouth• Marketing by a Region as the

place to go for a specific industry

• Incentives provided by a region in an attempt to draw business

Benefits of Clusters

• Marketing Benefits– Association by people with a

certain area– Branding

• Economies of Agglomeration– Labor Productivity– Economies of Scale– Multiplier (Model

Determined)• New Technology

– Opportunities for technology advancement and collaboration

Labor Productivity Reexamined: The REMI Perspective

• Productivity Equation based upon concentration of Labor in a given industry

• Benefit to the Region, if Labor Productivity is above the National Standard

• Access to Labor, which is benefited by Industry Clusters also improves Labor Productivity in the REMI equation.

Flipside to Clustering• There is not always

a benefit, it must make sense for the industry.

• Industrial Flight • If the industry leaves

it can be devastating. • Ex: Michigan, Silicon

Valley Bust

What Are Your Clusters?

• Industry Examples?• Ways to grow Clusters?• What work have you

done with clusters?• What do you feel are

the most important conditions for clusters?

Simulating Industry Clusters

• Compare Motor Vehicle Manufacturing in Ohio and Florida. 1000 Jobs added in Ohio has a greater effect than 1000 Jobs added in Florida, due to clustering.

Effect on Gross State Product of 1,000 New Auto Workers

150

200

250

300

350

400

450

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ohio

Florida

What this teaches us about industry clusters

• Identifying an Industry to target that makes sense for your area is important.

• While industry clusters can be man-made, the benefit increases exponentially for areas with an already established base.

• Labor Productivity can be tricky. An increase, while helping output can actually decrease employment. While there are longer term benefits this can seem counter-productive.

Coming Up Next Time:May 19th-23rd

Bursting the Bubble:Analyzing the Real Estate Market