U.S. Regional Cluster Mapping Current Research and Tools for Practice

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1 U.S. Regional Cluster Mapping Current Research and Tools for Practice C2ER Webinar October 25, 2012 Rich Bryden Director of Information Products Institute for Strategy and Competitiveness Harvard Business School 1 Copyright 2012 Professor Michael E. Porter

2 What Determines Competitiveness? Quality of the Regional Business Environment Microeconomic Competitiveness State of Cluster Development Sophistication of Company Operations and Strategy A critical mass of interconnected firms and associated institutions in particular fields, linked by commonalities and complementarities. Macroeconomic Competitiveness Social Infrastructure and Political Institutions Monetary and Fiscal Policies Endowments The Determinants of National Competitiveness, Delgado, Ketels, Porter, Stern, NBER working paper, June Copyright 2012 Professor Michael E. Porter

Massachusetts Medical Devices Cluster 20120602 Michigan State

and Tourism Transportation and Logistics

Pharmaceuticals 1910 1930 1950 1970 1990

4 The Evolution of Regional Economies San Diego Climate and Geography Hospitality and Tourism Transportation and Logistics Sporting Equipment U.S. Military Aerospace Vehicles and Defense Power Generation Analytical Instruments Communications Equipment Information Technology Education and Knowledge Creation Medical Devices Bioscience Research Centers Biotech / Pharmaceuticals State Competitiveness Rich Bryden 4 Copyright 2011 Professor Michael E. Porter

5 Composition of Regional Economies, United States Local Clusters Serve almost exclusively the local market Not exposed to cross-regional competition for employment NGA 2011 Wisconsin Rich Bryden 71.7% of employment 61.8% of income 3.5% of patents 27.4% of employment 37.3% of income 96.4% of patents Source: Michael E. Porter, Economic Performance of Regions, Regional Studies (2003); Updated via Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School 5 Traded Clusters Serve markets in other regions and countries Free to choose location Exposed to competition from other regions Resource-based Clusters Location determined by resource availability <1% of income, employment, and patents in the U.S. Copyright 2011 Professor Michael E. Porter

6 Jewelry & Precious Metals Footwear Financial Services Processed Food Business Services Apparel Leather & Related Products Fishing & Fishing Products Composition of the Economy Linkages Across Clusters Agricultural Products Distribution Services Publishing & Printing Oil & Gas Transportation & Logistics Education & Knowledge Creation Chemical Products Plastics Hospitality & Tourism Information Tech. Medical Devices Biopharmaceuticals Entertainment Aerospace Vehicles & Defense Analytical Instruments Tobacco Communications Equipment Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. Lightning & Electrical Equipment Prefabricated Enclosures Building Fixtures, Equipment & Services Power Generation Motor Driven Products Furniture Heavy Construction Services Aerospace Engines Textiles Heavy Machinery Construction Materials Forest Products Production Technology Mining & Metal Manufacturing Sporting & Recreation Goods Automotive 6 Copyright 2012 Professor Michael E. Porter

7 Clusters and Regional Prosperity Recent Findings Drivers of Regional Job Growth, Wages, Patenting, New Business Formation, and Success of Startups Specialization in strong clusters Breadth of position within each cluster Positions in related clusters Presence of a region s clusters in neighboring regions Not significant Positions in high-tech versus other clusters Source: Porter, The Economic Performance of Regions, Regional Studies, 2003; Delgado/Porter/Stern, Clusters and Entrepreneurship, Journal of Economic Geography, 2010; Delgado/Porter/Stern, Clusters, Convergence, and Economic Performance, mimeo., Michigan State Competitiveness Rich Bryden 7 Copyright 2012 Professor Michael E. Porter

Clusters and Economic Outcomes: Entrepreneurship The Evidence CLUSTER The stronger the cluster, the higher the survial rate of new businesses Survial Rates of New Businesses (+) New Industries (+)

8 Clusters and Economic Outcomes: Entrepreneurship The Evidence CLUSTER The stronger the cluster, the higher the survial rate of new businesses Survial Rates of New Businesses (+) New Industries (+) New Business Formation (+) The stronger the cluster, the more dynamic is the process of new business formation The stronger the cluster, the more likely new industries within the cluster are to emerge The stronger the cluster, the higher the job growth in new businesses Job Growth In New Businesses (+) Source: Porter, The Economic Performance of Regions, Regional Studies, 2003; Delgado/Porter/Stern, Clusters and Entrepreneurship, Journal of Economic Geography, 2010; Delgado/bPorter/Stern, Clusters, Convergence, and Economic Performance, mimeo., Michigan State Competitiveness Rich Bryden 8 Copyright 2012 Professor Michael E. Porter

9 Cluster Efforts Enhancing Competitiveness: The Case for Action Agglomeration largely driven by business environment conditions and automatic cluster effects in a market process BUT Exploitation of localized spill-overs not automatic Exploration of opportunities for joint action not automatic Cluster efforts enable locations to benefit more from what they have 9 Copyright 2012 Professor Michael E. Porter

10 Cluster Efforts Enhancing Competiveness Creating Positive Feed-Back Loops Clusters as Tool Better Actions More Impact Cluster initiatives provide a platform to discuss necessary improvements in competitiveness at the level where firms compete The organization of economic policies around clusters leverages positive spill-overs and mobilizes private sector co-investment 10 Copyright 2012 Professor Michael E. Porter

11 The EDA Sponsored U.S. Cluster Mapping Project Research Better cluster data New regional data New cluster initiative data More on cluster pathways EDA Cluster Mapping Project Next phase of comprehensive, actionoriented analysis Action New interface; focus on engagement and learning New tools New project and community content Step change in scope and quality of public and private efforts 2011 State Competitiveness Rich Bryden 11 Copyright 2011 Professor Michael E. Porter

13 Policy and Impact Study: Mobilizing Oregon Clusters Liz Redman Oregon Business Council

14 Lessons Learned About Cluster Development: #1 Involve private sector leadership Engage business leaders and industry membership groups to inform the vision for economic development and respond to regional challenges.

15 Lessons Learned About Cluster Development: #2 Recognize the value of all clusters Focus on traded-sector Encourage self-identification Geography, sector, workforce, inputs, management processes, suppliers, and customer base all serve as cluster linkages

16 Lessons Learned About Cluster Development: #3 Keep the network open Participation open to all Emerging and experienced clusters included A shared resource base helps mobilize resources

17 Lessons Learned About Cluster Development: #4 Diversify funding sources and maximize operational efficiency Mix of public, private & philanthropic funding In-kind contributions from participants Small operating budget and staff

18 Lessons Learned About Cluster Development: #5 Align staff characteristics with responsibilities Serving as connective tissue requires salespeople and networkers Recognize that value is perceived but hard to quantify

20 Milwaukee s national employment share, 2010 Cluster Composition of the Milwaukee Metro Economy 2.5% 2.0% Production Technology Lighting and Electrical Equipment Overall change in the Milwaukee Share of US Traded Employment: -0.05% Heavy Machinery Medical Devices (2.74%, %) Footwear (3.28%, +0.75%) Metal Manufacturing 1.5% 1.0% 0.5% 0.0% Power Generation and Transmission Sporting, Recreational and Children's Goods (-1.16%) Motor Driven Products Milwaukee Overall Share of US Building Fixtures, Equipment and Services Traded Employment: 0.76% Forest Products Leather and Related Products Employment Added Jobs Lost Jobs -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 2012 State and Metro Competitiveness Rich Bryden Automotive Publishing and Printing Distribution Services Heavy Construction Services Chemical Products Business Services Analytical Instruments Agricultural Products Furniture Jewelry and Precious Metals Transportation and Logistics Change in Milwaukee share of National Employment, 2000 to 2010 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Financial Services Plastics Textiles Apparel Biopharmaceuticals Processed Food Education and Knowledge Creation Entertainment Prefabricated Construction Enclosures Materials Aerospace Engines Information Technology Hospitality and Tourism Communications Equipment Employees 6,500 = 20 Copyright 2012 Professor Michael E. Porter

21 Job Creation, Education and Knowledge Creation Medical Devices Milwaukee Metro Job Creation in Traded Clusters Business Services Entertainment Transportation and Logistics Processed Food Information Technology Aerospace Engines Communications Equipment Hospitality and Tourism Prefabricated Enclosures Biopharmaceuticals Fishing and Fishing Products Aerospace Vehicles and Defense Construction Materials Oil and Gas Products and Services Textiles Jewelry and Precious Metals Apparel Footwear Agricultural Products Furniture Leather and Related Products Financial Services Chemical Products Building Fixtures, Equipment and Services Analytical Instruments Power Generation and Transmission Forest Products Sporting, Recreational and Children's Goods Heavy Machinery Plastics Distribution Services Lighting and Electrical Equipment Heavy Construction Services Publishing and Printing Motor Driven Products Production Technology Metal Manufacturing Automotive 10,000 5,000 0 Net traded job creation, : - 41,197-5,000-10,000 Indicates expected job creation given growth in subclusters nationally.* -15,000 * Percent change in national benchmark times starting regional employment. Overall traded job creation in this region, if it matched national benchmarks, would be -38,544. Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director State and Metro Competitiveness Rich Bryden 21 Copyright 2012 Professor Michael E. Porter

22 Milwaukee Metro Wages in Traded Clusters vs. National Benchmarks Financial Services Heavy Machinery Information Technology Production Technology Business Services Heavy Construction Services Distribution Services Automotive Metal Manufacturing Forest Products Analytical Instruments Sporting, Recreational and Motor Driven Products Lighting and Electrical Equipment Jewelry and Precious Metals Building Fixtures, Equipment and Plastics Agricultural Products Biopharmaceuticals Medical Devices Publishing and Printing Transportation and Logistics Communications Equipment Processed Food Education and Knowledge Creation Chemical Products Construction Materials Furniture Textiles Hospitality and Tourism Entertainment Oil and Gas Products and Services Power Generation and Transmission Aerospace Vehicles and Defense Tobacco Aerospace Engines Leather and Related Products Prefabricated Enclosures Fishing and Fishing Products Footwear Apparel 2012 State and Metro Competitiveness Rich Bryden 0 20,000 40,000 60,000 80, , ,000 Wages, 2010 l Indicates average national wage in the traded cluster Milwaukee average traded wage: $53,271 U.S. average traded wage: $60,502 Note: Wages are not available in all clusters due to data suppression to protect confidentiality. Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 22 Copyright 2012 Professor Michael E. Porter

24 BEA Economic Regions 3. Customize Regions Albany Economic Area VT NH NY Boston Economic Area MA CT RI PA NJ Hartford Economic Area New York Economic Area Economic Area definitions from U.S. Bureau of Economic Analysis 24 Copyright 2012 Professor Michael E. Porter

25 Automotive Cluster Specialization by Economic Area Detroit-Warren-Flint, MI (LQ=6.51, Share=13.8%) 4. Macro View of Clusters Adjacent EAs tend to specialize in the same cluster Regions with high cluster specialization and high share of US employment (LQ>1.3 and top 10 employment) Regions with high cluster specialization and moderate share (LQ>1.3 and cluster employment > 1000) 25 Copyright 2012 Professor Michael E. Porter

5. New Analyses 2011 State Competitiveness Rich

Clusters, Cluster Initiatives, and Regional Competitiveness: What Have We Learned?

Clusters, Cluster Initiatives, and Regional Competitiveness: What Have We Learned? Prof. Christian H. M. Ketels Institute for Strategy and Competitiveness Harvard Business School Innovative Foresight Planning