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
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