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Advantages of the Industry Cluster Approach to Economic Development. Mary Jo Waits Morrison Institute for Public Policy Arizona State University. Why New Approach to Economic Development. Key messages: Be more strategic / be a more intelligent player

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advantages of the industry cluster approach to economic development

Advantages of the Industry Cluster Approach to Economic Development

Mary Jo Waits

Morrison Institute for Public Policy

Arizona State University

why new approach to economic development
Why New Approach to Economic Development

Key messages:

  • Be more strategic / be a more intelligent player
  • Old ways of analyzing the economy are not enough anymore
  • Location still matters—but for different reasons
traditional economic development programs are increasingly criticized for
Traditional economic development programs are increasingly criticized for...
  • not focusing on key goals(increasing the competitiveness of business),
  • targeting individual firms,
  • not thinking strategically,
  • not reaching enough firms to make a difference,
  • presenting a fragmented and confusing maze of programs and services,
  • not being industry driven, and
  • not being accountable to private sector clients or public sectors funders.
place still matters but for different reasons
Place Still Matters — But for Different Reasons

“The enduring competitive advantages in a global economy lie increasingly in local things—knowledge, relationships, motivation—that distant rivals cannot match.”

“This role of location has been long overlooked, despite striking evidence that innovation and competitive success in so many fields are geographically concentrated.”

Michael Porter

-

arizona s experience using industry clusters as
Arizona’s experience using industry clusters as...
  • an analytical tool (e.g., to better understand the economy and deploy resources strategically);
  • an organizational tool (e.g., to engage industry leaders in a regional strategy and foster communication networking and improvement among companies); and
  • a service delivery tool (e.g., to provide high-value specialized services)
assessing strengths

Export-Driven Industries

e.g. Semiconductors aerospace

biomedical copper

computer equipment knowledge

High % of state’s employees

Low % of state’s employees

Medium % of state’s employees

$

$

Medium value added

High value added

Low value added

Assessing Strengths

Model 1: Creating Wealth

Global Economy

New $

Exports

Products/Services

Linkage Industries

e.g. business services transportation

metals distribution

Products/Services

Population-Driven Industries

e.g. Retail hotels

real estate construction

Population Growth

Tourists

identifying industry clusters
Identifying Industry Clusters
  • Business Interdependence:

Arizona chose clusters where businesses relate to each other through the buyer-supplier “food chain,” as competitors, or as partners.

  • Export Oriented:

Many of the companies in the cluster sell products or services to companies outside the region.

  • Concentration:

Employment in the cluster is more concentrated in the region than the national average, and the cluster is an existing or emerging area of specialization.

  • Significant Size or Rapid Growth:

The cluster is of a significant size or, if new, has an above average growth rate compared to that of the U.S. as a whole.

arizona clusters
Arizona Clusters
  • High Technology (aerospace and information)
  • Food, Fiber, Natural Products
  • Minerals and mining
  • Tourism
  • Transportation
  • Business Services
  • Bioindustry
  • Software
  • Environmental Technology
  • Optics
  • Senior Industries
  • Plastics & Advanced Materials
key arizona industry clusters by employment size concentration and growth 1989 1999
Key Arizona industry clusters by employment size, concentration and growth, 1989-1999

Source: Collaborative Economics, Inc.

charge to each cluster
Charge to Each Cluster
  • Catalogue the key components of the cluster
  • Articulate anachievable vision of what the cluster can become over the next 10-20 years
  • Identify opportunities for growing the cluster in the desired direction by expanding existing companies and attracting outside companies
  • Identify opportunities formore synergy within the cluster
  • Identify needs for specific economic foundations and proposed strategies
software cluster diversity
Software Cluster Diversity

Employment concentration in Arizona relative to the nation

(national concentration - 1.0)

arizona cluster activities

Arizona Cluster Activities

Co-inform

Co-learn

Co-market

Co-purchase

Co-produce

Co-build economic foundations

power of collaboration optics cluster example
Power of Collaboration: Optics Cluster Example
  • Identify critical mass

optical components; optical design software; lasers for medical, industrial and graphics application; optical telescopes; digital electronic camera

  • formed association
  • state and local recognition: “seat at the table”
  • national recognition—Business Week: “Optics Valley”
  • 4-year program to build exports
  • joint ventures among optics firms
  • joint ventures with other clusters
  • workforce development: community colleges, school-to-work grant
power of collaboration high tech clusters example
Power of Collaboration:High-Tech Clusters Example
  • Formed 2 regional associations
  • Major cities compete for “critical mass” identity
  • Joint venture with Tempe to create “Tech Oasis” image
  • Tech Tuesday- 500 to 700 young professionals
  • ADOC, Greater Phoenix and Greater Tucson Councils assign staff by clusters
  • Joint ventures to start Venture Capital Conference and Arizona Tech Incubator
  • Joint ventures to change university patent policy
  • Workforce development: community colleges, school-to-work grant
  • Successful legislative agenda
  • Push for Governor’s Partnership for the New Economy
  • Sales tax increase earmarked for university research
history of tech transfer
History of Tech Transfer
  • Pre-1990: few inventors, limited activity
  • 1980s industry view: ASU/UA tech transfer too difficult
  • 1996: New tech transfer staff and policies at ASU, UA
  • 1996-1999: Industry/University team designs new ABOR Intellectual Property policy, among most liberal in USA
  • 2000: APNE pushes tech transfer/economic development
  • 2001: Prop 301 expands tech transfer/econ. development
shortcomings in the current trade development system
Shortcomings in the current trade development system
  • One Shot—with the top goals often being quantity over quality, program staff generally have only 1 or 2 interactions with a given company;
  • One Type—most services are limited to relatively early-stage and generic assistance;
  • One-On-One—staff deal with individual companies and assume that brochures and seminars are a way to achieve scale; and
  • One Sided—programs often sustain only superficial relationships with business leaders, private organizations or other actors in the business development system.

Source: Carol Conway, Corporation for Enterprise development, May 1995

clusters offer special opportunities to better provide assistance by
Clusters offer special opportunities to better provide assistance by:
  • offering a “critical mass” of customers for consultants and government
  • formally incorporating businesses and trade associations in program design
  • providing services tailored to industry
  • facilitating firmscollaborating to compete globally
slide22

AZ’s Industry Clusters and ASU Research

Transportation &

Distribution

Environmental

Technology

Software &

Information Industry

Optics

High

Technology

Bioindustry

Environmental Sciences

Planetary Sciences

Materials

Biosciences & Bioengineering

Biosciences & Biotechnology

Information Science & Information Technology

Manufacturing

what are proposition 301 funds used for
What are Proposition 301 funds used for?
  • Funds for workforce development, tech transfer, research
  • UA, ASU, NAU all have IT and Biomed/Biotech research
    • UA also supports research on optics and water
    • ASU also has materials and manufacturing research
    • NAU also has environmental science and technology
  • Research topics relate to GSPED clusters
priority cluster growth targets
Priority Cluster Growth Targets

Greater Phoenix can join the top-tier in the identified clusters by striving toward the following targets:

12,300 net new jobs

12,900 netnew jobs

27,700 netnew jobs

20,500 netnew jobs

32,500 netnew jobs

Maintain current employment concentration of 260% of national concentration.

Grow to the current US level of concentration.

Maintain concentration of 140% of the current US concentration in high wage segments.

Return to 1990 concentration of 220% of the US level (increasing concentration in higher-wage sectors of the cluster)

Build concentration to 120% of the current US concentration.

Aerospace

Bio-industry

Advanced Financial & Business Services

High-technology

Software

benefits of cluster approach to economic development
Benefits of Cluster Approach to Economic Development
  • First time tomix entrepreneurs and traditional business (banks, utilities) CEOs in process to develop an economic development strategy
  • Cluster-based approach provided a more in-depth understanding of the state economy
  • Produced an industry-driven strategy
  • Recognized that industry does not speak with a single voice
  • Created abroader constituency for economic development
  • Changed theway we define the customer
staying with it
Staying with It
  • 1990-91 ASPED process
  • 1992- GSPED; Clusters Incorporate
  • 1992-93 regional ED, universities follow framework
  • 1994 Senate asks for senior industry cluster
  • ASU initiates USDOC & USAEP grants (5)
  • Governor’s race (1994)
  • ADOC targets staff and programs to clusters ($ 167 M workforce; $500,000 CECD)
staying with it1
Staying with It
  • GPEC targets staff & programs to clusters
  • Several clusters hire ex. directors
  • 5 high-tech clusters hire lobbyists
  • ADOC updates cluster studies
  • New Economy: A Guide for Arizona (1999)
  • Phoenix & Tucson Chambers adopt clusters
  • Governor’s new economy task force
  • Proposition 301 sales tax increase for K-12 education & university research (2000)
  • Legislature funds new economy initiatives
staying with it2
Staying with It
  • Five Shoes Waiting to Drop on Arizona’s Future
  • Greater Phoenix Economic Summit (2001-02)
  • GPEC and ADOC emerge stronger on clusters (new studies)
  • Legislature keeps cluster funds & NE initiatives in 2002–03 budget ( -$ 800 M)
  • 2 universities, state, 2 cities, 5 clusters, ED groups form Arizona Biotech Biomedical Institute (ABBI)
  • Feasibility study for ABBI research infrastructure (target $ 100 M)
why clusters are important to regions
Why Clusters are Important to Regions
  • Clusters generate wealth, exports, jobs, sources of information
  • Firms are attracted to clusters because of:
    • economies of scale
    • productivity advantages
    • marketing and other competitive advantages
  • Globally, clusters are driving regional growth
clusters offer special opportunities to better provide assistance by1
Clusters offer special opportunities to better provide assistance by:
  • reaching and educating all competitive companies in a sector
  • accelerating the learning curve and confidence with opportunities for firms to learn from firms
  • offering a format for delivering well-coordinated services
knowledge employment
Knowledge Employment

Knowledge Industry Employment Concentrations

Source: Index of the Massachusetts Innovation Economy, 1998.

high technology location factors
Traditional

Business Costs

Tax Structure

Compensation Costs

Space Costs

Capital Costs

Business Climate

Specific to High-Tech

Proximity to Excellent Research Institutions

Access to Venture Capital

Educated Workforce

Network of Suppliers

Technology Spillovers

Climate and Quality of Life

High-TechnologyLocation Factors

Existing High-Tech Presence

Source: Milken Institute, America’s High-Tech Economy, 1999

8 distinguishing characteristics
8 Distinguishing Characteristics
  • Technology is a given
  • Globalism is here to stay
  • Knowledge builds wealth
  • People are the most important raw material
  • There’s no such thing as a smooth ride
  • Competition is relentless
  • Alliances are the way to get things done
  • Place still matters—but for different reasons
firms cluster in one place for bottom line reasons
Firms Cluster in One Place for Bottom Line Reasons
  • Reduce transaction costs
  • Specialize
  • Exploit one another’s specialties
  • Increase rates of innovation
  • Pursue joint solutions to common problems
  • Build a common labor pool, technology, infrastructure:
  • Learn collectively what it takes to be competitive
comparison of high technology centers
Comparison of High Technology Centers
  • Places specialize
  • Knowledge differs from place to place
  • History matters
  • High tech is not a monolith

Cortright and Mayer, “Regional Connections: A Comparison of High Technology Centers,” December 1999

place still matters but for different reasons1
Place Still Matters — But for Different Reasons

“The enduring competitive advantages in a global economy are often heavily local, arising from concentrations of highly specialized skills and knowledge, institutions, rivals, related businesses, and sophisticated customers.”

- Michael Porter

Harvard Business School

Anything that is available to rivals

elsewhere is essentially nullified as a

source of competitive advantage.