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Industry Clusters…

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Title: Industry Clusters…


1
Industry Clusters
  • and Community Planning
  • Scott Sheely
  • Executive Director
  • Lancaster County Workforce Investment Board

2
Economic Policy, Productivity, andCompetitive
Advantage
  • From the work of Michael Porter
  • Harvard University

3
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5
Sources of Competitive Advantage
  • Business environment (taxes, supportive
    infrastructure)
  • Location
  • Local infrastructure (roads, utilities,
    communications)
  • Knowledge base (workforce, education system)

6
Sources of Competitive Advantage
  • 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.

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Where Should We Invest Our 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.

9
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

10
Cluster 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

11
Cluster Components
  • Specialized 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.

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15
Clusters and Competitive 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

16
Clusters 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

17
Successful 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

18
Successful 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.

19
An Industry Cluster-Based Approach to
Conceptualizing Workforce Development
  • Cluster Definition
  • Survey of Occupations
  • Understanding Career Ladders
  • Mapping of Skills
  • Address Barriers and Gaps in System of Skill
    Acquisition.

20
Cluster 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.

21
Quantitative Analysis of Employment and Payroll
Data
  • Understanding Your Industries
  • From the work of Lee Munnich
  • Hubert H. Humphrey Institute of Public Affairs
  • University of Minnesota

22
Questions to Ask in 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?

23
The 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

24
The 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.

25
Statistical 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.

26
Growth or Declinein 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)

27
Location Quotient
  • A measure of an industrys concentration in an
    area relative to the rest of the nation.
  • An industrys share of local employment divided
    by the industrys share of national employment.

28
Meaning of the Location Quotient
  • If the location quotient is 1, the industrys
    share of local employees is the same as the
    industrys 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.

29
Shift Share Analysis (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.

30
Payroll 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.

31
Analysis of the Data
32
Filtering 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.

33
Lancaster County Large 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)

34
Lancaster County Growth 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)

35
Lancaster CountyGrowth 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)

36
Linking 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?

37
Lancaster County Industry Clusters
  • Health Care
  • Construction
  • Food Processing
  • Communications
  • Biotechnology
  • Metals and Metal Fabricating
  • Automotive

38
Health Care
  • Industries
  • Long-term Care
  • Acute Care
  • Mental Health and Mental Retardation
  • Outpatient and Private Practice
  • Wholesale and Retail
  • Insurance

39
Health 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

40
Health 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)

41
Health Care
  • Top Occupations
  • Nursing Aides
  • Registered Nurses
  • Licensed Practical Nurses
  • Physicians and Surgeons
  • Home Care Aides
  • Medical Secretaries
  • Dental Hygienists and Assistants
  • Residential Counselors
  • Lab Technologists

42
Construction
  • Industries
  • Contractors
  • Building Supply Manufacturing
  • Real Estate
  • Engineering and Architectural Services

43
Construction
  • 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

44
Construction
  • Key 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)

45
Construction
  • Top Occupations
  • Carpenters
  • Plumbers
  • Electricians
  • Assemblers and Fabricators
  • Brickmasons
  • Painters
  • Brickmason and Carpenter Helpers
  • Cost Estimators
  • HVAC Mechanics

46
Food Processing
  • Industries
  • Agricultural Production
  • Agricultural Services
  • Processing of Food
  • Wholesale Food Distribution

47
Food 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

48
Food Processing
  • Key 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)

49
Food 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)

50
Food Processing
  • Top Occupations
  • Packaging Machine Operators
  • Agricultural Workers
  • Truck Drivers
  • Freight Movers
  • Industrial Machine Mechanics
  • Bakers
  • Precision Food Workers
  • Sales Representatives
  • Food Batchmakers

51
Communications
  • Industries
  • Printing
  • Communications
  • Precision Electronics Manufacturing
  • Advertising
  • Computer Services

52
Communications
  • 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

53
Communications
  • Key Segments
  • Newspaper 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)

54
Communications
  • 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

55
Biotechnology
  • Industries
  • Pharmaceutical Manufacturing
  • Medical Instruments Manufacturing
  • Medical and Dental Labs
  • Research and Testing

56
Biotechnology
  • 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

57
Biotechnology
  • Key Segments
  • Drug manufacturing (283) (high LQ)
  • Medical instruments and supplies (384) (high
    growth rate and high CEC)

58
Biotechnology
  • Top Occupations
  • Electrical and Electronics Engineers
  • Computer Engineers
  • Precision Assemblers
  • Biological Scientists
  • Inspectors and Testers
  • Biological Technicians
  • Packaging Machine Operators
  • Animal Caretakers

59
Metals and Metal Fabricating
  • Industries
  • Primary Metal Products
  • Fabricated Metal Products
  • Industrial Machinery and Equipment
  • Electrical Equipment
  • Transportation Equipment

60
Metals 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

61
Metals and Metal Fabricating
  • Key Segments
  • Nonferrous 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)

62
Metals 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

63
Automotive
  • Industries
  • Wholesale Motor Vehicles, Parts and Supplies
  • New and Used Car Dealers
  • Retail Auto and Home Supply Stores
  • Service Stations
  • Auto Repair Services

64
Automotive
  • 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

65
Automotive
  • Key Segments
  • Motor 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)

66
Automotive
  • Top Occupations
  • Auto mechanics and service technicians
  • Retail salespersons
  • Truck drivers
  • Marketing and sales supervisors
  • Parts salespersons
  • Cashiers
  • Helpers and movers

67
Lancaster CountySignificant Industry Segments
  • Business Services
  • Chemicals, Rubber, and Plastics
  • Education
  • Financial Services
  • Hospitality
  • Retail
  • Transportation
  • Wholesale Trade

68
Other Lancaster CountyIndustry Segments
  • Government
  • Personal Services
  • Textiles
  • Tobacco
  • Utilities

69
Qualitative Research into the Web of
Relationships in the Cluster
  • Understanding Clusters

70
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71
Diamond of Advantage
  • Factor conditions
  • Demand conditions
  • Firm strategy, structure, and rivalry
  • Related and supporting industries

72
Factor Conditions
  • The areas position in factors of production,
    such as skilled labor or infrastructure,
    necessary to compete in a given industry.

73
Factor 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

74
Factor 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

75
Factor 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 industrys particular needs.
  • These factors are more scarce, more
    difficult for foreign competitors to imitate
    and they require sustained investment to create.
  • Michael Porter

76
Implications 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.

77
Demand Conditions
  • The nature of home market demand for the
    industrys product or services.

78
Firm Strategy, Structure, and Rivalry
  • The conditions in the area governing how
    companies are created, organized and managed as
    well as the nature of local rivalry.

79
Strategy 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

80
Strategy 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.

81
Rivalry
  • The presence of strong local rivals is apowerful
    stimulus to the creation and persistence of
    competitive advantage
  • Domestic rivalry puts pressure on companies to
    innovate and improve.

82
Values and the Workforce
  • A nations 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 nations 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.

83
Values and the Workforce
  • Nations tend to be competitive in
    activities that people admire or depend on the
    activities from which the nations heroes
    emerge.
  • Michael Porter

84
Implications for Workforce
  • Addressing workforce shortages is not just a
    question of providing more informationit 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.

85
Related and Supporting Industries
  • The presence or absence in the area of supplier
    industries and other related industries that are
    internationally competitive.

86
Home-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.

87
Implications 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 industrystate-of-the-art, world
    class, continually improving.

88
Validation with Cluster Employers
  • Building a Consensus

89
Drawing and Redrawing the Map
  • Fine-Tuning the Results with Implications for
    Regional Cooperation

90
Contact
  • Scott Sheely
  • Executive Director
  • Lancaster County Workforce Investment Board
  • 313 W. Liberty St., Suite 114
  • Lancaster, PA 17603
  • 717-735-0333
  • ssheely_at_paonline.com
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