Industry Clusters…Industry Clusters…

…and Community Planning

Scott Sheely

Executive Director

Lancaster County Workforce Investment Board

Economic Policy, Productivity, Economic Policy, Productivity, andand

Competitive AdvantageCompetitive Advantage

From the work of Michael Porter

Harvard University

Sources of Competitive Sources of Competitive AdvantageAdvantage

Business environment (taxes, supportive infrastructure);

Location; Local infrastructure (roads, utilities,

communications);Knowledge base (workforce, education

system);

Sources of Competitive Sources of Competitive AdvantageAdvantage

Local markets;Intense local rivalry with competing firms;Variety of local suppliers and other inputs

to the core industry;Skilled local workforce that is attuned to the

needs of the industry.

Where Should We Invest Our Where Should We Invest Our Public Dollars?Public Dollars?

Local industries that have a chance for long-term growth and success because they have some sort of local competitive advantage;

Local industries with a competitive advantage that grow gold-collar (high skill, high pay, high demand) jobs.

What is an Industry Cluster?What is an Industry Cluster?

“A cluster is a geographically proximate group of interconnected

companies and associated institutions in a particular field, linked by

commonalities and complementarities.”

Michael Porter

Cluster ComponentsCluster Components

End-product or service companies;Suppliers of specialized inputs,

components, machinery, financing and services;

Firms in related and downstream industries (channels, distribution networks, customers);

Producers of complementary products;

Cluster ComponentsCluster ComponentsSpecialized infrastructure providers;Government and other institutions

providing specialized training, education, information, research, and technical support;

Standards-setting and influential government agencies;

Trade associations and other collective private sector bodies.

Clusters and Clusters and CompetitiveCompetitive Advantage Advantage

Productivity• Efficient access to information, specialized inputs

and employees, institutions, and “public goods”• Achieving complementarities across business• Better incentives and performance measurement

Innovation• Ability to perceive and respond to innovation

opportunities• Rapid diffusion of improvements

Clusters and Competitive AdvantageClusters and Competitive Advantage

New Business Formation• Perceiving opportunities for new business• Lowering barriers to entry (including perceived

risk)

Competition is fundamentally affected by externalities/linkages across firms, industries, and

associated institutions

Successful Cluster InitiativesSuccessful Cluster Initiatives

Shared understanding of competitiveness and the role of clusters;

Private sector led with government participation;

Focus on removing obstacles and easing constraints to cluster upgrading (rather than seeking subsidies or limiting competition;

Encompass (over time) all clusters in a region;

Successful Cluster InitiativesSuccessful Cluster Initiatives

Appropriate cluster boundaries;Wide involvement of cluster participants as

well as associated institutions;Attention to personal relationships to

facilitate linkages, foster open communications, and build trust;

A bias toward action;Institutionalized by the private sector.

An Industry Cluster-Based An Industry Cluster-Based Approach to Conceptualizing Approach to Conceptualizing

Workforce DevelopmentWorkforce Development

Cluster Definition;Survey of Occupations; Understanding Career Ladders;Mapping of Skills;Address Barriers and Gaps in System of

Skill Acquisition.

Cluster DefinitionCluster Definition

Quantitative analysis of employment and payroll data;

Qualitative research into the web of relationships in the cluster;

Validation with cluster employers;Drawing and redrawing the map.

Quantitative Analysis of Quantitative Analysis of Employment and Payroll Employment and Payroll

DataData

“Understanding Your Industries”

From the work of Lee Munnich

Hubert H. Humphrey Institute of Public Affairs

University of Minnesota

Questions to Ask Questions to Ask in Analysis of Datain Analysis of Data

Which industries are growing and which are declining?

What is the importance of an industry to the local economy relative to its importance to the national economy?

How competitive are regional industries when compared to their national counterparts?

The Data ItselfThe Data Itself

Collected by the PA Department of Labor and Industry…

Employment;Firms;Payroll;

Reported out by three and four digit Standard Industrial Classification (SIC) categories;

The Data ItselfThe Data Itself

Includes the data from a base year for comparison (1995) and the data from the most current year (2000);

Uses local data and comparable data from national statistics.

Statistical MeasuresStatistical Measures

Employment and change in employment in an industry;

Location quotients and change in location quotients;

Shift share analysis;Payroll per employee by industry and

change in payroll per employee.

Growth or DeclineGrowth or Declinein Employmentin Employment

Simplest indicator of the health of a industry or sector;

Percentage comparison between base year and current year;

Collect for different levels of aggregation (two, three, or four digit SIC)

Location QuotientLocation Quotient

A measure of an industry’s concentration in an area relative to the rest of the nation.

An industry’s share of local employment divided by the industry’s share of national employment.

Meaning of the Location Meaning of the Location QuotientQuotient

If the location quotient is 1, the industry’s share of local employees is the same as the industry’s share nationally;

A location quotient greater than 1 means the industry employs a greater share of the local workforce than the industry employs nationally;

A location quotient between .85 and 1.15 is considered close enough to 1 that it is not significant.

Shift Share AnalysisShift Share Analysis (Local Competitive Advantage) (Local Competitive Advantage)

Calculates what part of local job growth can be attributed to…

Growth in the national economy;Growth in the sector nationally;Growth from local competitive advantage as

compared to growth nationally.

It does not tell the researcher why the industry added or lost jobs.

Payroll per EmployeePayroll per Employee

One of the simplest measure of the quality of jobs in a given industry;

Payroll by industry divided by employment by industry;

Can be extended to look at payroll per employee over time or in comparison to national payroll per employee figures for the industry.

Analysis of the DataAnalysis of the Data

Filtering and PrioritizingFiltering and Prioritizing

Increases in employment;Location quotients in excess of one;Employment increases as a result of local

competitive advantages;Increases in payroll per employee.

Lancaster County Lancaster County Large Industry SegmentsLarge Industry Segments

Eating and Drinking Places (581) Elementary and Secondary Schools (821) Grocery Stores (541) Nursing and Personal Care (805) Hospitals (806) Commercial Printing (275) Personnel Supply Services (736) Trucking and Courier (421) Offices of Medical Doctors (801) Commercial Banks (602)

Lancaster County Growth Lancaster County Growth Drivers (CEC)Drivers (CEC)

Grocery Stores (541) Commercial Printing (275) Nursing and Personal Care (805) Motor Vehicles, Parts and Supplies (501) Air Transportation (451) Department Stores (531) Electronic Components (367)* Medical Instruments (384)* Dairy Products (202) Offices of Medical Doctors (801)

Lancaster CountyLancaster CountyGrowth Drivers (CEC)Growth Drivers (CEC)

Telephone Communications (481) Groceries and Related Products (514) Producers, Orchestras, Entertainers (792) Automotive Repair Shops (753) Advertising (731) Real Estate Operators (651) Misc. General Merchandise Stores (539) Periodical Printing (272) Millwork, Plywood and Structural (243) Services to Buildings (734)

Linking and ConceptualizingLinking and Conceptualizing

Do the high performers relate to one another in any way?

What do the high performers look like in the context of a cluster as defined by Porter?

What does the cluster itself look like?

Lancaster County Industry Lancaster County Industry ClustersClusters

Health CareConstructionFood ProcessingCommunicationsBiotechnologyMetals and Metal FabricatingAutomotive

Health CareHealth Care

Industries• Long-term Care• Acute Care• Mental Health and Mental Retardation• Outpatient and Private Practice• Wholesale and Retail• Insurance

Health CareHealth Care

Employment• Grew 2,520 jobs or 12.9% since 1995• Average earnings of $30,149• 4% less concentrated than US average• 22,030 is 10.1% of Lancaster County

employment in 2000

Health CareHealth Care

Key Segments• Nursing and personal care facilities (805)

(very high employment, high LQ, and high CEC)

• Hospitals (806) (very high employment)• Offices of medical doctors (801) (high

growth in employment, high CEC)

Health CareHealth CareTop Occupations Nursing Aides Registered Nurses Licensed Practical Nurses Physicians and Surgeons Home Care Aides Medical Secretaries Dental Hygienists and Assistants Residential Counselors Lab Technologists

ConstructionConstruction

Industries• Contractors• Building Supply Manufacturing• Real Estate• Engineering and Architectural Services

ConstructionConstruction

Employment• 26,505 is 12.1% of Lancaster County

employment in 2000• Grew 5,184 jobs or 24% since 1995• Average earnings of $34,491• 23% more concentrated than US average

ConstructionConstructionKey Segments• Residential and non-residential building

construction (152, 154) (high employment and high LQ)

• Plumbing, heating, and air conditioning (171) (high employment and high LQ)

• Masonry, stonework, and plastering (174) (high employment and high LQ)

• Millwork, plywood and structures (243) (high employment, high LQ, and moderate CEC)

• Household and public building furniture (251, 253) (high LQ)

ConstructionConstruction

Top Occupations Carpenters Plumbers Electricians Assemblers and Fabricators Brickmasons Painters Brickmason and Carpenter Helpers Cost Estimators HVAC Mechanics

Food ProcessingFood Processing

Industries Agricultural Production Agricultural Services Processing of Food Wholesale Food Distribution

Food ProcessingFood Processing

Employment• 15,933 is 7.3% of Lancaster County

employment in 2000• Grew 673 jobs or 4.4% since 1995• Average earnings of $32,061• 90% more concentrated than US average

Food ProcessingFood ProcessingKey Segments Poultry and eggs (025) (high LQ) Veterinary and other animal services (074, 075)

(high LQ) Meat products (201) (high employment, high LQ,

and moderate CEC) Dairy products (202) (high employment, very high

LQ, and high CEC) Grain mill products (204) (high employment, very

high LQ)

Food ProcessingFood Processing

Key Segments Bakery products (205) (high employment and very

high LQ) Sugar and confectionary products (206) (high

employment and very high LQ) Grocery distribution (514) (high employment,

high LQ, and high CEC)

Food ProcessingFood ProcessingTop Occupations Packaging Machine Operators Agricultural Workers Truck Drivers Freight Movers Industrial Machine Mechanics Bakers Precision Food Workers Sales Representatives Food Batchmakers

CommunicationsCommunications

IndustriesPrintingCommunicationsPrecision Electronics ManufacturingAdvertisingComputer Services

CommunicationsCommunications

Employment• 18,367 is 8.4% of Lancaster County

employment in 2000• Grew 2,519 jobs or 15.9% since 1995• Average earnings of $40,936• Concentrated at the US average

CommunicationsCommunications

Key SegmentsNewspaper printing (271) (high

employment and high LQ)Commercial printing (275) (very high

employment, very high LQ, and high CEC)Household audio and video equipment

(365) (high LQ)

CommunicationsCommunications

Top Occupations Hand Packers and Packagers Precision Printing Workers Sales Representatives Offset Lithographic Press Operators Printing and Binding Workers Writers and Editors Computer Programmers and Support Specialist

BiotechnologyBiotechnology

IndustriesPharmaceutical ManufacturingMedical Instruments ManufacturingMedical and Dental LabsResearch and Testing

BiotechnologyBiotechnology

Employment• 2,281 is 1.1% of Lancaster County

employment in 2000• Grew 650 jobs or 39.9% since 1995• Average earnings of $51,517• 8% less concentrated than US average

BiotechnologyBiotechnology

Key SegmentsDrug manufacturing (283) (high LQ)Medical instruments and supplies (384)

(high growth rate and high CEC)

BiotechnologyBiotechnology

Top Occupations Electrical and Electronics Engineers Computer Engineers Precision Assemblers Biological Scientists Inspectors and Testers Biological Technicians Packaging Machine Operators Animal Caretakers

Metals and Metal FabricatingMetals and Metal Fabricating

IndustriesPrimary Metal ProductsFabricated Metal ProductsIndustrial Machinery and EquipmentElectrical EquipmentTransportation Equipment

Metals and Metal FabricatingMetals and Metal Fabricating

Employment• 17,395 is 8.0% of Lancaster County

employment in 2000• Lost 539 jobs or 3% since 1995• Average earnings of $40,153• 55% more concentrated than US average

Metals and Metal FabricatingMetals and Metal Fabricating

Key SegmentsNonferrous rolling and drawing (335) (high

employment and high LQ)Fabricated metal products (340) (high

employment and high LQ)Electrical equipment and supplies (369)

(high growth and high LQ)

Metals and Metal FabricatingMetals and Metal Fabricating

Top Occupations Assemblers Industrial Truck and Tractor Operators Extrusion and Drawing Operators Industrial Machinery Mechanics Machine Forming Operators Precision Assemblers Machinists Foundry Operators and Tenders

AutomotiveAutomotive

IndustriesWholesale Motor Vehicles, Parts and

SuppliesNew and Used Car DealersRetail Auto and Home Supply StoresService StationsAuto Repair Services

AutomotiveAutomotive

Employment• 9,094 is 4.2% of Lancaster County

employment in 2000• Grew 1,653 jobs or 22.2% since 1995• Average earnings of $26,290• 31% more concentrated than US average

AutomotiveAutomotive

Key SegmentsMotor Vehicles, Parts, and Supplies (501)

(high growth rate, very high LQ)New and Used Car Dealers (551) (moderate

growth, good LQ)Auto Repair Services (750) (high growth

rate, moderate LQ, good CEC)

AutomotiveAutomotive

Top Occupations Auto mechanics and service technicians Retail salespersons Truck drivers Marketing and sales supervisors Parts salespersons Cashiers Helpers and movers

Lancaster CountyLancaster CountySignificant Industry SegmentsSignificant Industry Segments

Business Services Chemicals, Rubber, and Plastics Education Financial Services Hospitality Retail Transportation Wholesale Trade

Other Lancaster CountyOther Lancaster CountyIndustry SegmentsIndustry Segments

GovernmentPersonal ServicesTextilesTobaccoUtilities

Qualitative Research into Qualitative Research into the Web of Relationships in the Web of Relationships in

the Clusterthe Cluster

Understanding Clusters

Diamond of AdvantageDiamond of Advantage

Factor conditionsDemand conditionsFirm strategy, structure, and rivalryRelated and supporting industries

Factor ConditionsFactor Conditions

The area’s position in factors of production, such as skilled labor or infrastructure,

necessary to compete in a given industry.

Factor ConditionsFactor Conditions

“In the sophisticated industries that form the backbone of any advanced economy, a nation does not inherit but instead creates the most important factors of production such as skilled human resources or a scientific base.”

Michael Porter

Factor ConditionsFactor Conditions

“The stock of factors that a nation enjoys at a particular time is less important than the rate and efficiency with which it creates, upgrades, and deploys them in particular industries.”

Michael Porter

Factor ConditionsFactor Conditions

“Simply having a general work force that is high school or even college educated represents no competitive advantage in modern international competition.”

“To support competitive advantage, a factor (like work force) must be highly specialized to an industry’s particular needs….”

“These factors are more scarce, more difficult for foreign competitors to imitate – and they require sustained investment to create.”

Michael Porter

Implications for WorkforceImplications for Workforce

Skilled workforces can be created;Skill training that creates a competitive

advantage is done in the context of a particular industry cluster;

Skills must be constantly upgraded and people deployed in creative ways.

Demand ConditionsDemand Conditions

The nature of home market demand for the industry’s product or services.

Firm Strategy, Structure, and Firm Strategy, Structure, and RivalryRivalry

The conditions in the area governing how companies are created, organized and managed as well as the nature of local

rivalry.

Strategy and StructureStrategy and Structure

National circumstances and context create strong tendencies in how companies are created, organized, and managed;

No one managerial system is universally appropriate;

Competitiveness in a specific industry results from the convergence of the management practices and organizational modes favored in the country and the sources of competitive advantage in the industry;

Strategy and StructureStrategy and Structure

Countries differ markedly in the goals that companies and individuals seek to achieve;

Company goals reflect the characteristics of national capital markets and the compensation practices for managers.

RivalryRivalry

The presence of strong local rivals is a…powerful stimulus to the creation and persistence of competitive advantage;

Domestic rivalry puts pressure on companies to innovate and improve.

Values and the WorkforceValues and the Workforce

“A nation’s success largely depends on the types of education its talented people choose, where they choose to work, and their commitment and effort. The goals a nation’s institutions and values set for individuals and companies and the prestige it attaches to certain industries guide the flow of capital and human resources – which, in turn, directly affects the competitive performance of certain industries.”

Values and the WorkforceValues and the Workforce

“Nations tend to be competitive in activities that people admire or depend on – the activities from which the nation’s heroes emerge.”

Michael Porter

Implications for WorkforceImplications for Workforce

Addressing workforce shortages is not just a question of providing more information…it is closely related to questions of personal, familial and societal values;

Americans value the independence of the “professional” and push their children toward the college degree as the way to vocational success in spite of the evidence to the contrary.

Related and Supporting Related and Supporting IndustriesIndustries

The presence or absence in the area of supplier industries and other related

industries that are internationally competitive.

Home-Based SuppliersHome-Based Suppliers

Deliver the most cost-effective inputs in an efficient, early, rapid and preferred way;

Short lines of communication and quick flow of information often leads to the exchange of ideas that support innovation;

Sources of new knowledge and skills.

Implications for WorkforceImplications for Workforce

Conceive industry clusters broadly to account for the flow of information and skills in the workforce;

Position the workforce system to be a valued supplier for industry…state-of-the-art, world class, continually improving.

Validation with Cluster Validation with Cluster EmployersEmployers

Building a Consensus

Drawing and Redrawing the Drawing and Redrawing the MapMap

Fine-Tuning the Results with Implications for Regional

Cooperation

ContactContact

Scott Sheely

Executive Director

Lancaster County Workforce Investment Board

313 W. Liberty St., Suite 114

Lancaster, PA 17603

717-735-0333

ssheely@paonline.com