Industry Clusters

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  • Outlier Would never have looked at Manufacturing
  • Outlier Would never have looked at Manufacturing
  • Outlier Would never have looked at Manufacturing
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  • Industry Clusters

    1. 1. Industry Clusters and Inner City Economic Revitalization Alen Amirkhanian VP, Research and Strategy Initiative for a Competitive Inner City (ICIC) National Governors’ Association Atlanta, Georgia June 6-7, 2002
    2. 2. Contents <ul><li>The role of clusters in comprehensive inner city economic development strategy </li></ul><ul><li>Examples of inner city cluster-led strategies </li></ul><ul><li>Recommendations for State government action </li></ul>
    3. 3. Initiative for a Competitive Inner City <ul><li>ICIC Mission: </li></ul><ul><li>Transform thinking, reinvigorate market forces, and engage the private sector in fostering healthy economies in America’s inner cities that create jobs, income, and wealth opportunities for inner-city residents. </li></ul><ul><ul><li>Seven years of pioneering research on inner-city business growth opportunities, including the ICIC/Inc. Magazine Inner City 100 </li></ul></ul><ul><ul><li>Advisory services to many cities through the City Advisory Practice </li></ul></ul><ul><ul><li>Program to engage 350 urban business schools </li></ul></ul><ul><ul><li>Affiliates in 3 cities to catalyze on-the-ground private sector activity </li></ul></ul><ul><ul><li>Private equity fund (Inner City Ventures) </li></ul></ul>
    4. 4. <ul><li>Poverty at least 1.5 times MSA poverty </li></ul><ul><li>MHI at least half of MSA MHI </li></ul><ul><li>Unemployment at least 1.5 times MSA unemployment </li></ul><ul><li>Or </li></ul><ul><li>Poverty > 20% </li></ul><ul><li>And </li></ul><ul><li>Exclude Central Business Districts (CBDs) </li></ul>Defining Inner City St. Louis ILLINOIS East St. Louis MISSOURI
    5. 5. The business agenda is a complementary part of the building economically healthy inner cities Housing Health Education Business & Wealth Healthy Inner-City Communities
    6. 6. A Sustainable Model for Inner-City Business Development <ul><li>1) A strategy based on competitive advantages and genuine business opportunities </li></ul><ul><li>2) A shift from a focus on community deficiencies (subsidies) to market opportunities (investment ) </li></ul><ul><li>3) A comprehensive strategy for inner city business growth focused on private sector engagement </li></ul><ul><li>4) A framework that links the inner city economy to regional business clusters </li></ul>Objective: widen prosperity to all of our citizens
    7. 7. What is our Intended Outcome? <ul><li>Critical mass of initiatives and improvements that will: </li></ul><ul><ul><li>a) Position the inner city to compete for jobs and investment within the regional economy </li></ul></ul><ul><ul><li>b) Make inner cities a better place in which to live and work </li></ul></ul><ul><ul><li>c) Increase job, income, and wealth opportunities of inner-city residents </li></ul></ul>Thinking about inner city economic growth in this way avoids misguided debates Place vs. people Place and people Retention vs. attraction Retention and attraction They will be about ... Strategies will not be ... Government vs. business Government and business
    8. 8. Inner-city Strategic location <ul><li>Located near regional transportation and telecommunications infrastructure nodes </li></ul>Underserved local market <ul><li>$85 billion of annual retail spending power </li></ul><ul><li>540 thousand businesses with more than $80 billion in commercial services demand </li></ul>Underutilized Workforce <ul><li>Largest pool of available workers in the US amid a tight labor market </li></ul>Linkage to industrial/ regional clusters <ul><li>Opportunity to leverage proximity to regional and industrial clusters </li></ul>Inner City Competitive Advantages
    9. 9. Inner City 100 Companies Build on Competitive Advantages <ul><li>Vital Statistics: 2002 Winners </li></ul><ul><li>Average five year growth rate 1996-2000: </li></ul><ul><li>Average sales in 2000: </li></ul><ul><li>Average hourly wage: </li></ul><ul><li>Percent minority-owned: </li></ul><ul><li>Percent living in the inner city: </li></ul>539% $19.0 M $12.44 Employment among the Inner City 100 doubled between 1996 and 2000, creating 7,984 jobs Total IC 100 33% 44%
    10. 10. Microenterprise strategy Small-businesses strategy Cluster strategy, Underutilized assets, business environment, ... Time Growth Trajectory (Employment, revenue, wages, and utilized real estate) Business Development Strategy: Alternative Growth Strategies for Inner-City Neighborhoods Today No-growth strategy
    11. 11. Developing an Inner City Business Development Strategy Understand the business base & quality of business environment Identify market opportunities and underutilized assets Institutionalize efforts in the public and private sectors Address Barriers to Competitiveness and Growth Create a leadership group for action
    12. 12. Components of Inner City Economic Growth Strategy A comprehensive view of inner city business and wealth growth Bus. Environ. Improvements Addressing cross-cutting issues that impact company competitiveness regardless of cluster Wealth Creation Strategies <ul><li>Facilitating employer-assisted asset-building; </li></ul><ul><li>Encouraging savings; </li></ul><ul><li>Homeownrshp </li></ul><ul><li>Linking inner-city assets with regional cluster and growth opportunities; </li></ul><ul><li>Harnessing agglomoration economies </li></ul><ul><li>For local services clusters, reversing outmigration </li></ul>Positive Image Strategies <ul><li>Media coverage of inner city businesses that are succeeding </li></ul><ul><li>Inner City 100 </li></ul>Cluster-led Strategies
    13. 13. Defining Clusters and Explaining Regional Economies <ul><li>A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, including producers, service providers, suppliers, and universities. </li></ul><ul><li>Clusters arise out of the linkages or externalities that span across industries in a particular location. </li></ul><ul><li>Clusters are both a descriptive tool and a prescriptive tool. </li></ul><ul><li>Export products beyond their region--driving economies </li></ul><ul><li>Higher than average concentration of inter-related industries </li></ul><ul><li>Examples: Automotive, Footwear, Wine </li></ul><ul><li>36% of US employment </li></ul><ul><li>$41,678 Avg. wage </li></ul>Traded Clusters <ul><li>Serve local demand </li></ul><ul><li>No higher than average concentration--similar business prevalent in most localities </li></ul><ul><li>Examples: Local Personal Services, Local Retail, Local Construction </li></ul><ul><li>64% of US employment </li></ul><ul><li>$26,049 Avg. wage </li></ul>Local “Clusters” <ul><li>Natural Resource-Driven industries are location-specific industries that depend upon the availability of scare resources. </li></ul><ul><li>Examples: Mining, oil & natural gas exploration, forestry </li></ul><ul><li>0.8% US employment </li></ul><ul><li>$31,264 Avg. wage </li></ul>Natural Resource Clusters
    14. 14. Components of Inner City Economic Growth Strategy A comprehensive view of inner city business and wealth growth Bus. Environ. Improvements Wealth Creation Strategies Positive Image Strategies Cluster-led Strategies <ul><li>Everything in traded and more </li></ul><ul><li>Local unmet demand </li></ul><ul><li>Population growth </li></ul>Traded Local <ul><li>Growth opportunities </li></ul><ul><li>Supplier relationships </li></ul><ul><li>Cooperative activities </li></ul><ul><li>Specialized business resources </li></ul><ul><li>Entrepreneurship </li></ul><ul><li>Cross-cutting business environment issues </li></ul>
    15. 15. St. Louis MSA Business Base Notes: (1) The St. Louis MSA includes St. Louis City, St Louis, St. Charles, Franklin, Jefferson, Warren, Lincoln, Madison-IL, St. Clair-IL , Monroe-IL, Clinton-IL, and Jersey-IL. (2) The employment estimates exclude public-sector jobs including the US Postal Service. Source: 1999 ABI data; 1999 St. Louis Business Journal Book of Lists; ICIC analysis. 1999 Profile MSA 1 City Total Inner City Establishments Share of MSA (%) Share of City(%) Employment 2 (K) Share of MSA (%) Share of City (%) Est. revenues (B) Share of MSA (%) Share of City (%) 85,600 1,325 $157.8 13,099 15.3% 280 21% $34.4 22% 7,854 9.2% 60% 168 13% 60% $21.2 13% 62% Remainder of MSA (79%) St. Louis Inner City (13%) St. Louis City (21%) Percent of Employment/Revenue Inner-City St. Louis represents 60% of the City’s employment and revenue
    16. 16. Notes: (*) Retail, Commercial Services, Personal Services, and Professional Services are not included in Harvard Cluster Mapping Project. (***) Percentages will not total 100 due to overlapping of industries among clusters. 0% 5% 10% 15% 20% 25% 30% 0% 5% 10% 15% 55% 70% 21% Medical Sciences Retail Beverages Chemical Products Communications & Utilities Education & Knowledge Creation Tourism & Entertainment Personal Services Professional Services Financial Services Metal Mfg. Construction Services & Materials Transportation & Logistics Commercial Services St. Louis Inner-City Clusters (1999) Inner-City Share of MSA Employment in the Cluster (%) Cluster Share of Total Inner-City Employment** (%) Approx 1,000 estab.
    17. 17. Cluster Prioritization Criteria <ul><li>Economic engines </li></ul><ul><li>High growth potential </li></ul><ul><li>Less vulnerable to business cycles </li></ul><ul><li>Derive competitive advantages from IC location </li></ul><ul><li>Job opportunities that match skills </li></ul><ul><li>Entrepreneurial potential </li></ul><ul><li>Quality of jobs </li></ul>Economic Performance Inner-City Fit <ul><li>Ultimately all clusters must be analyzed. Economic Development professionals should not be picking winners. </li></ul><ul><li>But as a first step, given limited resources focus clusters can be selected that offer the most immediate opportunities for inner-city job and business growth </li></ul>
    18. 18. Average Annual Employment Change* (1993-1998) St. Louis Inner City and MSA Source: Missouri Department of Economic Development; Michael E. Porter Cluster Mapping Project; ICIC analysis. Note: (*) Changes reflect data for core industries within each cluster. 12.5% % Change in MSA Employment (Total Average +2.1%) % Change in Inner-City Employment (Total Average +1.1%)
    19. 19. Notes: (*) Retail, Commercial Services, Personal Services, and Professional Services are not included in Harvard Cluster Mapping Project. (***) Percentages will not total 100 due to overlapping of industries among clusters. 0% 5% 10% 15% 20% 25% 30% 0% 5% 10% 15% 55% 70% 21% Medical Sciences Retail Beverages Chemical Products Communications & Utilities Education & Knowledge Creation Tourism & Entertainment Personal Services Professional Services Financial Services Metal Mfg. Construction Services & Materials Transportation & Logistics Commercial Services St. Louis Inner-City Clusters (1999) Inner-City Share of MSA Employment in the Cluster (%) Cluster Share of Total Inner-City Employment** (%) FOCUS CLUSTERS Approx 1,000 estab.
    20. 20. Case Studies <ul><ul><li>Case 1: Bridgeport META (cluster upgrading) </li></ul></ul><ul><ul><li>Case 2: St. Louis Construction (cluster-led workforce training) </li></ul></ul>
    21. 21. Metal Manufacturing Is Bridgeport, CT’s Most Prominent Cluster Cluster’s Share of Total City Revenue * (%) Cluster’s Share of Total City Employment * (%) ~500 estab. Financial Services Transportation & Logistics Retail Services** Commercial Services** Metal Manufacturing Medical Devices & Health Services Construction Pharmaceuticals Info. Technology Plastics Entertainment & Tourism Office Services Social Services
    22. 22. Bridgeport, CT’s Metal Manufacturing Cluster Was Not Performing Up to National Standards <ul><ul><ul><ul><li>Potential to retain existing companies and jobs and build on this strong manufacturing base. </li></ul></ul></ul></ul>KEY CHALLENGE: How can Bridgeport’s metal manufacturers become more competitive and share in national growth? Opportunity Threat Despite national growth in metal manufacturing, Bridgeport’s metal manufacturing cluster remained stagnant from 94-99 <ul><ul><ul><ul><li>Bridgeport will lose an essential part of its economic base if metal manufacturers do not adapt to the new market </li></ul></ul></ul></ul>
    23. 23. Bridgeport Formed the Metal Manufacturing Education & Training Association To Increase Firm Competitiveness Workforce Development Lean Manufacturing Purchasing Marketing Joint Business Opportunities Shared Marketing Costs Utilities Benefits & Insurance Cutting Supplies Waste Transportation Cluster-Specific Skills Training Job Placement Apprenticeships Expert-Led Workshops Shared Learning Technology/ Automation METAL
    24. 24. Bridgeport METAL: Progress <ul><li>11 companies , 1579 employees , over $235 million in annual sales </li></ul><ul><li>Secured over $2 million dollars in funding </li></ul><ul><li>Companies continue to invest time ( over 1,500 hours to date) and money ( over $160,000 ) notwithstanding the deep recession in manufacturing. </li></ul><ul><li>Facilitated the transfer of “best practices ” across company lines </li></ul><ul><li>Increased the willingness of small manufactures to collaborate with government to improve competitiveness </li></ul>Workforce Development Lean Manufacturing <ul><li>Completed a needs assessment and gap analysis of the workforce </li></ul><ul><li>Conducted 34 customized training classes for 400 employees </li></ul><ul><li>Training has resulted in a 53% increase in proficiency overall, </li></ul><ul><li>Companies also noted immediate benefits in morale and motivation . </li></ul><ul><li>METAL has been a catalyst for institutional change -Housatonic Community College (HCC), </li></ul><ul><li>Training is helping employees retain their jobs </li></ul><ul><li>Conducted over 30 kaizen/training events at 7 companies </li></ul><ul><li>Lean Program has (1) reduced work in process by 50% , (2) reduced set-up times on machines by 50%, (3) reduced floor space for shipping and receiving by 20%-25% , and (4) reduced parts travel distances by 25% </li></ul><ul><li>Developed a Lean Expert Certification Program </li></ul>Overall
    25. 25. Case Studies <ul><ul><li>Case 1: Bridgeport META (cluster upgrading) </li></ul></ul><ul><ul><li>Case 2: St. Louis Construction (cluster-led workforce training) </li></ul></ul>
    26. 26. St. Louis Construction Labor Supply Gap Total Construction Jobs Year Construction Labor Gap 2,695 4,562 6,563 9,279 3,383 Source: 1999 F.W. Dodge; Missouri Depart of Transportation; ICIC analysis. <ul><li>Construction jobs pay up to $24 per hour plus benefits , and do not require advanced education. </li></ul><ul><li>Existing union membership is projected to decline over the next several years due to retirement and a relatively small number of apprentices (approximately 3,000). </li></ul><ul><li>With training, there will be significant opportunity for inner-city residents to step into these positions. </li></ul>Increase number of inner-city and minority workers in the construction trades Recommendation
    27. 27. St. Louis Construction Unions & Industry Are Working Together To Address This Issue <ul><li>Implementation vehicle: </li></ul><ul><li>Chair of working group: Craig Schnuck, CEO, Schnuck Markets </li></ul><ul><li>Members of working group: </li></ul><ul><ul><li>Head of St. Louis Unions </li></ul></ul><ul><ul><li>CEOs of two major construction firms </li></ul></ul><ul><ul><li>East-West Gateway Coordinating Council </li></ul></ul><ul><li>Progress to date: </li></ul><ul><li>Working on the standardization of apprenticeship application processes across trades </li></ul><ul><li>Information outreach on construction career opportunities to inner city schools and community centers in 2000 </li></ul><ul><li>PRIDE, a consortium of unions, contractors and others, has funded a $10,000 project to better understand barriers to minorities entering the construction field. (Completed in Nov 2001) </li></ul><ul><li>Currently pushing for a city ordinance that will strongly encourage the use of apprentices on public works projects, and public/private partnerships </li></ul>
    28. 28. From Opportunity to Action Identify Opportunity Make Recommendations Identify Implementation Vehicle Drive to Action Chicago Railroads <ul><li>Industry-designed training </li></ul><ul><li>Labor shortage due to aging workforce </li></ul><ul><li>800-1000 jobs opening </li></ul><ul><li>Over 90% of graduates placed </li></ul><ul><li>Public/private partnership with local community college </li></ul>St. Louis Metal Mfg <ul><li>Exceptionally high-quality metal manufacturer’s which were lagging national trends in sales and employment </li></ul><ul><li>Capitalize on St. Louis metal manufacturing by </li></ul><ul><li>Marketing of regional strength </li></ul><ul><li>Joint marketing by companies in city </li></ul>Boston Zoo <ul><li>Develop plan to turn zoo into major urban attraction </li></ul><ul><li>Weak link to strong tourism cluster </li></ul><ul><li>Underperforming vs. other metro zoos </li></ul><ul><li>Creation of eco-tourism destination </li></ul><ul><li>Attendance doubled and revenues tripled </li></ul><ul><li>Zoo task force </li></ul><ul><li>Mayor’s office </li></ul><ul><li>Public/private partnership b/w state, local technical college, private and non-profit representatives </li></ul><ul><li>Marketing program with 3-year timeline developed </li></ul><ul><li>Launch contingent on funding from state or other source </li></ul>
    29. 29. Recommendations for State Economic Development Policy <ul><li>Overall </li></ul><ul><li>Make inner city business and job competitiveness and growth a key component of regional economic development strategies that the State government supports </li></ul><ul><li>Make cluster-led growth strategies a critical part of inner city economic growth strategies adopted by regions and localities -- inner cities have assets; inner cities will grow by linking to growth </li></ul><ul><li>Ensure economic development strategies focus on other factors key to business and job growth: business environment improvements, positive image strategies, and wealth creation strategies. </li></ul>
    30. 30. Recommendations for State Economic Development Policy <ul><li>Overall </li></ul><ul><li>Invest in improved economic intelligence -- map clusters, benchmark performance </li></ul><ul><li>Encourage private-sector leadership in devising and implementing cluster-based networks or collaborative efforts -- both within the inner city and regionally </li></ul><ul><li>Encourage partnerships between local academic institutions, governments, community groups and business to spur cluster growth </li></ul><ul><li>Prioritize investment in cross-cutting business environment issues that arise from cluster working groups -- workforce, infrastructure, capital, marketing, etc. </li></ul><ul><li>Market inner city success -- inner city success stories are critical battling misperception </li></ul>
    31. 31. WWW.ICIC.ORG
    32. 32. Cluster Core* Inputs/Suppliers* Customers Specialized Institutions Critical Support Cluster (*) The company lists for each industry are not exhaustive. The actual number is often far greater. (**) Not in St. Louis inner city. St. Louis Metal Manufacturing Motors & Generators <ul><li>Emerson Electric** </li></ul><ul><li>MagnaTEK </li></ul>Food & Drinking Places National Fast-Food Chains, etc. Construction Regional commercial and industrial construction projects Research & Tech Transfer <ul><li>MAMTC </li></ul><ul><li>SLU Consort. for Supply Chain Mgmt s </li></ul><ul><li>Mid-Tec </li></ul><ul><li>UM-Rolla Industrial Assessment Center </li></ul>Auto Parts & Access <ul><li>Federal Mogul </li></ul><ul><li>Supreme Corp. </li></ul>HVAC Equipment <ul><li>Zipf-Air** </li></ul><ul><li>Watlow** </li></ul>Tool & Die Casting <ul><li>Bodine Aluminum </li></ul><ul><li>Progressive Die </li></ul>Metal Stamping <ul><li>Nooter </li></ul><ul><li>Thiel </li></ul>Metal Fabricators <ul><li>Duke </li></ul><ul><li>Boss Metal Fab. </li></ul>Building Materials <ul><li>Custom Steel </li></ul><ul><li>Atlas Iron Works </li></ul>Metal Coat&Engrave <ul><li>Precoat Metals </li></ul><ul><li>US Metallizing </li></ul>Industrial Machinery <ul><li>Semcor </li></ul><ul><li>Grant Iron & Motor </li></ul>Metal Heat Treating <ul><li>Paulo Productions </li></ul><ul><li>Lindberg Heat Treat </li></ul>Industrial Supplies <ul><li>Tri-Star Industrial </li></ul><ul><li>CEE KAY Supplies </li></ul>Metal Svc Centers <ul><li>US Metal </li></ul><ul><li>Cardinal Steel </li></ul>Scrap & Waste <ul><li>Grossman </li></ul><ul><li>St. Louis Shredding </li></ul>Automotive GM**; Daimler-Chrysler**; Tower Auto** Aerospace & Defense Boeing**; ESCO Electronics** <ul><li>Ranken Technical </li></ul><ul><li>Cornerstone </li></ul>Training Trade Orgs / Industry Networks <ul><li>St. Louis Manufacturer’s Association </li></ul><ul><li>MO Merchants & Manufacturers’ Assoc. </li></ul><ul><li>Sheet Metal Workers (Locals 93 & 36) </li></ul><ul><li>Machinists (District 9) </li></ul><ul><li>Steel Workers </li></ul>Labor Unions Transportation & Logistics

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