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Ketels - New Learnings on State and Regional Competitiveness: What Does it Mean for Tennessee?

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New Learnings on State and Regional Competitiveness: What Does it Mean for Tennessee?

New Learnings on State and Regional Competitiveness: What Does it Mean for Tennessee?

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  • Dr. Christian Ketels Harvard Business School 19 October 2011 Nashville, TN
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  • 1. New Learnings on State and Regional Competitiveness: What Does it Mean for Tennessee? Dr. Christian Ketels Harvard Business School 19. October 2011 Nashville, Tennessee20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 1 Copyright 2011 © Professor Michael E. Porter
  • 2. The Economic Challenge in 2011 Achieving Fiscal Stability Enhancing Competitiveness20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 2 Copyright 2011 © Professor Michael E. Porter
  • 3. What is Competitiveness? • Competitiveness is the productivity of the economy mobilizing the working age population and of employees to create value • Productivity determines wages, jobs, and the standard of living • It is not what fields a state competes in that determines its prosperity, but how productively it competes • Productivity is strongly driven by the specific conditions in a particular field, not just economy-wide factors20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 3 Copyright 2011 © Professor Michael E. Porter
  • 4. Tennessee Performance Scorecard Current Position Trend Change in RankProsperityGDP per Capita, 1999-2009 38 42 -8WagesAverage Private Wage, 1998-2009 28 33 -1Job CreationPrivate Employment Growth, 40 39 -52007-2009 and vs. 1998-2000Labor MobilizationProportion of Working Age Population 40 36 -3in the Workforce, 1999-2010Labor ProductivityGDP per Worker, 1999-2009 34 34 -8New Business FormationTraded Cluster Establishment Growth, 45 26 -12007-2009 and vs. 1998-2000InnovationPatents per Employee, 1999-2009 39 37 -4Cluster StrengthEmployment in Strong Clusters, 1998-2009 44 39 -7 • Automotive (4)Leading Clusters • Chemical Products (2) State Rank 21-30by employment size, 2009(national rank) • Motor Driven Products (1) 1-10 31-40 • Building Fixtures, Equipment and Services (12) 11-20 41-50 • Furniture (7)20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 4 Copyright 2011 © Professor Michael E. Porter
  • 5. What Drives State Productivity? 1. Quality of the 2. Cluster Overall Business Development Environment20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 5 Copyright 2011 © Professor Michael E. Porter
  • 6. Quality of the Overall Business Environment Context for Firm Strategy and Rivalry Rules and incentives that encourage local competition, investment and productivity Factor – e.g., tax policy that encourages Demand (Input) investment and R&D Conditions Conditions – Flexible labor policies – Intellectual property protection – Antitrust enforcement Access to high quality business Sophisticated and demanding local inputs needs and customers – Human resources – e.g., Strict quality, safety, and – Capital access environmental standards – Physical infrastructure Related and – Consumer protection laws – Administrative processes (e.g., Supporting – Government procurement of permitting, regulatory efficiency) Industries advanced technology – Scientific and technological – Early demand for products and infrastructure services Local availability of suppliers and supporting industries • Many things matter for competitiveness • Economic development is the process of improving the business environment to enable companies to compete in increasingly sophisticated ways 6Source: – CT Governor’s Economic Summit – v5 20111006 Michael Porter – Prepared by C. Ketels, R. Bryden and J. Hudson Copyright 2011 © Professor Michael E. Porter
  • 7. Indicative Qualities of the Tennessee Business Environment • Low costs • Attractive quality of life • Central location • Significant number of institutions for higher education • …20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 7 Copyright 2011 © Professor Michael E. Porter
  • 8. Leading Patentees from Tennessee Rank Institution Number of Patents 1 EASTMAN CHEMICAL COMPANY 204 2 UT-BATTELLE, LLC 180 3 BLACK & DECKER INC. 142 4 THOMAS & BETTS INTERNATIONAL, INC. 119 5 WARSAW ORTHOPEDIC, INC. 117 6 VANDERBILT UNIVERSITY 76 7 SDGI HOLDINGS, INC. 58 8 HUNTER FAN COMPANY 53 9 MAYTAG CORPORATION 48 10 MARS INCORPORATED 44 11 U OF TENNESSEE RESEARCH FOUNDATION 42 12 SIEMENS ENERGY & AUTOMATION, INC. 4020111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 8 Copyright 2011 © Professor Michael E. Porter
  • 9. What is a Cluster? A geographically concentrated group of interconnected companies and associated institutions in a field of several related industries Traded Clusters Local Clusters • Compete to serve national • Serve almost exclusively and international markets the local market • Can locate anywhere • Not directly exposed to • 30% of employment cross-regional competition • 90% of patenting • 70% of employment • 10% of patenting20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 9 Copyright 2011 © Professor Michael E. Porter
  • 10. Broad Composition of the Economy Tennessee United States 100% 26% 29% 27% 31% 80% 60% NR +5% +3.3% Traded 40% Local 73% 69% 72% 68% 20% 0% 1999 2009 1999 200920111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 10 Copyright 2011 © Professor Michael E. Porter
  • 11. Related Clusters and Economic Diversification Fishing & Fishing Products Textiles Entertainment Prefabricated Hospitality Enclosures Agricultural & Tourism Products Processed Food Transportation Furniture & Logistics Building Aerospace Fixtures, Construction Vehicles & Equipment & Materials Distribution Information Defense Services Jewelry & Tech. Services Precious Lightning & Heavy Metals Construction Business Analytical Electrical Services Services Education & Instruments Equipment Knowledge Medical Power Forest Products Creation Generation Devices Communi- Publishing cations Financial & Printing Biopharma- Equipment Services Heavy ceuticals Machinery Motor Driven Production Chemical Products Technology Products Tobacco Oil & Apparel Gas Mining & Metal Automotive Plastics Aerospace Manufacturing Engines Footwear Leather & Related Sporting Products & Recreation GoodsNote: Clusters with overlapping borders or identical shading have at least 20% overlap(by number of industries) in –both directions. R. Bryden and J. Hudson 20111006 – CT Governor’s Economic Summit v5 – Prepared by C. Ketels, 11 Copyright 2011 © Professor Michael E. Porter
  • 12. Cluster Development Cluster Presence and Economic Performance • Specialization in strong clusters • Job growth • Breadth of industries within each • Higher wages cluster • Higher patenting rates • Strength in related clusters • Greater new business • Presence of a region’s clusters in formation, growth and survival neighboring regionsSource: Porter/Stern/Delgado (2010), Porter (2003)Bryden and J. Hudson 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. 12 Copyright 2011 © Professor Michael E. Porter
  • 13. Traded Cluster Composition of the Tennessee Economy 10.0% Overall change in the Tennessee Share of US Traded Employment: -0.28% Chemical Products 9.0% Tennessee national employment share, 2009 8.0% Motor Driven Products 7.0% Automotive 6.0% 5.0% Prefabricated Enclosures Furniture 4.0% Textiles Apparel 3.0% Tennessee Overall Share of US Transportation and Traded Employment: 2.01% Logistics 2.0% Employment 1998-2008 1.0% Information Added Jobs Footwear Technology Lost Jobs 0.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Change in Tennessee share of National Employment, 1998 to 2009 Employees 13,000 =Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute forand J. Hudson 13 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Copyright 2011 © Professor Michael E. Porter
  • 14. Traded Cluster Composition of the Tennessee Economy (continued) 3.3% Tobacco Building Fixtures, 3.0% Equipment and Services Construction Materials Lighting and Forest Electrical Equipment Tennessee national employment share, 2009 2.7% Products Processed Food Plastics 2.4% Metal Manufacturing Publishing and Printing Medical Devices 2.1% Heavy Construction Leather and Related Products Services Tennessee Overall Share of US Hospitality and Tourism 1.8% Traded Employment: 2.01% Entertainment Sporting, Recreational and Children’s Goods Financial Services 1.5% Distribution Heavy Machinery Biopharmaceuticals Education and Services Knowledge Creation 1.2% Production Agricultural Products Technology Business Services 0.9% Analytical Aerospace Vehicles Instruments Power Generation and Defense Jewelry and Precious Metals 0.6% and Transmission Employment Communications Equipment 1998-2008 Oil and Gas Products 0.3% Overall change in the Tennessee and Services Added Jobs Share of US Traded Aerospace Engines Employment: -0.28% Lost Jobs 0.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% Change in Tennessee share of National Employment, 1998 to 2009 Employees 13,000 =Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute forand J. Hudson 14 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Copyright 2011 © Professor Michael E. Porter
  • 15. Job Creation, 1998 to 2009 -40,000 -30,000 -20,000 -10,000 0 10,000 20,000 Transportation and Logistics 30,000 Business Services Education and Knowledge Creation Information Technology Distribution Services Financial Services Medical Devices Agricultural Products Entertainment Oil and Gas Products and Services Fishing and Fishing Products Aerospace Engines Jewelry and Precious Metals 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson Tobacco Heavy Machinery Leather and Related Products given national cluster growth.* Indicates expected job creation Communications Equipment Biopharmaceuticals Footwear15 Chemical Products Sporting, Recreational and Childrens Goods Construction Materials 1998 to 2009 Power Generation and Transmission Lighting and Electrical Equipment Analytical Instruments Aerospace Vehicles and Defense Prefabricated Enclosures Hospitality and Tourism Forest Products Building Fixtures, Equipment and Services Production Technology Plastics Publishing and Printing Tennessee Job Creation in Traded Clusters Textiles Heavy Construction Services Processed Food -109,250 Furniture 1998 to 2009: Metal Manufacturing Automotive Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Net traded job creation, Motor Driven Products ApparelCopyright © 2011 Professor Michael E. Porter * Percent change in national benchmark times starting regional employment. Overall traded job creation in the state, if it matched national benchmarks, would be -101,659
  • 16. Tennessee Wages in Traded Clusters vs. National Benchmarks Aerospace Engines Financial Services Information Technology Aerospace Vehicles and Defense Entertainment Chemical Products Analytical Instruments Medical Devices Distribution Services Biopharmaceuticals Business Services Forest Products Tobacco Power Generation and Transmission Publishing and Printing Oil and Gas Products and Services Processed Food Agricultural Products Heavy Machinery l Indicates average Heavy Construction Services national wage in Lighting and Electrical Equipment the traded cluster Communications Equipment Production Technology Metal Manufacturing Plastics Sporting, Recreational and Childrens Education and Knowledge Creation Textiles Automotive Tennessee average traded Jewelry and Precious Metals wage: $43,022 Building Fixtures, Equipment and Services Transportation and Logistics Motor Driven Products Construction Materials Prefabricated Enclosures Leather and Related Products Furniture Apparel Hospitality and Tourism U.S. average Fishing and Fishing Products Footwear traded wage: $56,906 $0 $25,000 $50,000 $75,000 $100,000 $125,000 Wages, 2009Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 16 Copyright © 2011 Professor Michael E. Porter
  • 17. Productivity Depends on How a State Competes, Not What Industries It Competes In State Traded State Traded Wage versus Relative Wage versus Relative National Cluster Mix Cluster National Cluster Mix Cluster State Average Effect Wage Effect State Average Effect Wage Effect Connecticut +27,171 7,028 20,142 Oregon -10,359 -1,304 -9,056 New York +24,102 3,628 20,474 Missouri -10,427 -1,425 -9,002 Massachusetts +16,169 4,391 11,778 Alabama -10,934 -3,563 -7,371 New Jersey +13,535 3,761 9,774 Florida -11,007 -1,559 -9,448 California +9,573 349 9,224 Wisconsin -11,722 -3,516 -8,206 Maryland +6,651 2,496 4,155 Nebraska -11,777 241 -12,018 Washington +5,652 2,692 2,960 Utah -11,992 2,072 -14,064 Virginia +5,319 1,617 3,702 Tennessee -12,172 -3,156 -9,016 Illinois +2,658 16 2,642 Indiana -12,554 -4,840 -7,714 Colorado +1,662 2,416 -754 Vermont -13,368 -1,572 -11,796 Texas +352 2,494 -2,142 Oklahoma -13,572 497 -14,069 Delaware +164 11,060 -10,896 Nevada -14,277 -2,365 -11,911 Alaska -930 -2,417 1,487 North Dakota -14,394 1,004 -15,397 Pennsylvania -3,970 -995 -2,975 South Carolina -15,276 -5,067 -10,209 Louisiana -4,280 95 -4,375 Arkansas -15,378 -4,560 -10,818 Georgia -5,322 -1,102 -4,220 Hawaii -16,043 -12,555 -3,487 Minnesota -5,576 -425 -5,150 New Mexico -16,123 -288 -15,835 New Hampshire -6,387 374 -6,761 Kentucky -16,215 -5,024 -11,191 Arizona -7,021 1,149 -8,169 Maine -16,379 -968 -15,412 Kansas -7,705 2,241 -9,946 Iowa -16,606 -2,721 -13,885 Wyoming -8,057 1,040 -9,097 West Virginia -16,645 -3,894 -12,751 Michigan -8,176 -2,544 -5,633 Idaho -18,671 -787 -17,884 North Carolina -9,245 -4,330 -4,915 Mississippi -19,942 -5,291 -14,651 Ohio -9,284 -2,495 -6,788 Montana -20,073 -2,259 -17,815 Rhode Island -9,791 -2,290 -7,501 South Dakota -20,968 289 -21,257 On average, cluster strength is much more important (78.1%) than cluster mix (21.9%) in driving regional performance in the U.S.20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 17 Copyright 2011 © Professor Michael E. Porter
  • 18. Tennessee Cluster Portfolio, 2009 Fishing & Fishing Products Textiles Entertainment Prefabricated Hospitality Agricultural Enclosures & Tourism Products Processed Food Transportation Furniture & Logistics Building Jewelry & Distribution Aerospace Fixtures, Construction Precious Services Vehicles & Equipment & Materials Metals Information Defense Services Tech. Lighting & Heavy Electrical Construction Business Analytical Services Education & Instruments Equipment Services Forest Financial Knowledge Power Medical Products Services Creation Generation & Devices Communi Transmission Publishing cations & Printing Biopharma- Equipment Heavy ceuticals Machinery Motor Driven Production Apparel Chemical Products Technology Products Tobacco Leather & Oil & Related Gas Metal Automotive Products Plastics LQ > 4 Aerospace Manufacturing Engines LQ > 2 Footwear LQ > 1. Sporting & Recreation GoodsLQ, or Location Quotient, measures the state’s share in cluster employment relative to its overall share of U.S. employment.An LQ >CT Governor’s Economic Summit – v5 –averageC. Ketels, R. Bryden andshare in a cluster. 20111006 – 1 indicates an above Prepared by employment J. Hudson 18 Copyright © 2011 Professor Michael E. Porter
  • 19. Local Cluster Composition of the Tennessee Economy Employment Other, 267,204 Local Health Services, 346,342 Local Motor Vehicle Products and Services, 80,796 Local Community and Civic Organizations, 84,932 Local Financial Services, Local Commercial 94,197 Services, 256,836 Local Retail Clothing and Accessories, 99,305 Local Logistical Services, 100,421 Local Hospitality Local Real Estate and Establishments, Construction, 164,195 224,612Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute forand J. Hudson 19 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Copyright 2011 © Professor Michael E. Porter
  • 20. Tennessee Job Creation in Local Clusters 1998 to 2009 80,000 70,000 Net traded job creation, 1998 to 2009: Job Creation, 1998 to 2009 60,000 +164,016 50,000 Indicates expected job creation 40,000 given national cluster growth.* 30,000 20,000 10,000 0 -10,000 -20,000 -30,000 Local Motor Vehicles Local Health Services Local Hospitality Local Financial Services Local Retail Local Education and Local Food and Local Community Local Personal Services Local Utilities Local Logistical Services Local Real Estate and Local Entertainment and Local Household Goods Local Industrial Goods Local Commercial Establishments Beverages Services Construction Services Training Media* Percent change in national benchmark times starting regional employment. Overall traded job creation in the state, if it matched national benchmarks, would be -101,659Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 20 Copyright © 2011 Professor Michael E. Porter
  • 21. Tennessee Cluster Portfolio Observations • Few clusters with strong specialization • Strong position in some clusters that are contracting nationally • Areas of cluster strength not connected • Cluster portfolio changing20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 21 Copyright 2011 © Professor Michael E. Porter
  • 22. Geographic and Governmental Influences on Productivity 1. Influence and access Nation federal policies and programs Neighboring State State Neighboring State4. Integrate policies and Metropolitan Areas 2. Work with each metro infrastructure planning Metropolitan Areas area to develop a Metropolitan Areas with neighbors prioritized strategic agenda Rural Regions 3. Connect rural regions Rural Regions with proximate urban Rural Regions areas20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 22 Copyright 2011 © Professor Michael E. Porter
  • 23. Defining the Appropriate Economic Regions Johnson City Economic Area Knoxville Economic Area Nashville MO Economic Area WV KY VA TN NC AR Asheville Economic Area Atlanta Memphis MS AL Economic Area GA Economic Area Tupelo Economic Area Huntsville Economic Area The economies of states are often an aggregation of distinct economic areas with differing circumstancesSource: Data from Bureau of Economic Analysis 2010. Prof. Michael E. Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director. 20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 23 Copyright 2011 © Professor Michael E. Porter
  • 24. Employment Performance in Tennessee Metropolitan Areas $45,000 U.S. Average Private Wage: $42,403 Nashville MSA $40,000 Memphis MSA* Knoxville MSAAverage Private Wage, 2009 Tennessee Average Private Wage: $37,196 $35,000 Kingsport MSA* Chattanooga MSA* Jackson MSA Cleveland MSA $30,000 Johnson City MSA Morristown MSA Clarksville MSA* Rest of State Tennessee Growth Rate U.S. Growth Rate of Employment: 0.07% of Employment: 0.52% $25,000 -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% Growth Rate of Employment, 1998-2009 *Tennessee portion only Source: – Census CBP, authors’v5analysis.byNote: “Bubble” size in chart is proportional to employment in 2009. 20111006 CT Governor’s Economic Summit – – Prepared C. Ketels, R. Bryden and J. Hudson 24 Copyright 2011 © Professor Michael E. Porter
  • 25. Effect of Urban and Rural Areas on Average State Wages U.S. States, 2008 Average Average Overall Overall Wage Relative Relative Wage Relative Relative Difference Metro- Metro Rural Difference Metro- Metro Rural State to U.S. Rural Mix Wage Wage State to U.S. Rural Mix Wage Wage New York 15,412 982 14,078 353 Nevada -4,560 815 -5,752 377 Connecticut 10,919 1,013 9,592 315 Louisiana -4,739 -630 -4,764 655 Massachusetts 10,197 1,674 8,333 190 Kansas -5,371 -2,175 -2,535 -661 New Jersey 8,488 1,631 6,765 92 North Carolina -5,505 -1,262 -3,796 -446 Alaska 6,538 -1,438 5,158 2,818 Tennessee -5,992 -538 -4,973 -481 California 5,584 1,476 3,844 265 Florida -6,132 -128 -6,074 70 Illinois 3,427 411 3,277 -261 Indiana -6,225 -630 -5,665 70 Washington 3,013 832 2,122 58 Oklahoma -6,501 -2,030 -4,496 25 Delaware 2,664 -191 2,895 -40 Hawaii -6,583 -1,892 -4,871 179 Maryland 2,201 1,159 775 267 Utah -7,054 169 -7,273 50 Virginia 1,182 509 709 -36 Vermont -7,280 -6,080 -968 -232 Minnesota 1,024 -903 2,130 -202 Nebraska -7,419 -2,652 -3,621 -1,146 Colorado 539 -110 -66 714 Alabama -7,544 -1,206 -5,701 -636 Texas 325 350 -234 209 Maine -7,697 -2,479 -5,243 24 New Hampshire -504 -2,856 924 1,428 Kentucky -7,978 -2,179 -5,285 -515 Pennsylvania -1,184 262 -1,480 34 Iowa -8,096 -3,123 -4,509 -464 Michigan -1,785 -165 -1,576 -44 New Mexico -8,531 -1,843 -6,548 -140 Rhode Island -2,143 1,720 -3,846 -17 South Carolina -9,137 -609 -8,203 -325 Wyoming -2,478 -6,929 -2,304 6,755 Arkansas -9,482 -2,207 -6,283 -992 Georgia -3,136 -120 -2,542 -475 Idaho -9,766 -1,928 -6,872 -966 Ohio -3,925 -224 -3,799 98 North Dakota -9,973 -2,963 -6,607 -403 Arizona -3,962 937 -4,897 -2 West Virginia -10,074 -3,104 -7,013 43 Oregon -4,116 -359 -3,505 -251 South Dakota -10,976 -3,811 -5,475 -1,690 Wisconsin -4,336 -910 -3,419 -7 Mississippi -11,446 -4,569 -5,493 -1,383 Missouri -4,540 -573 -3,103 -865 Montana -11,792 -5,468 -5,495 -829 Metro-rural mix: average wage impact from a state’s relative proportion of metro and rural regions Relative metro wage: average wage impact from state relative performance in metro regions Relative rural wage: average wage impact from state relative performance in rural regions On average 66.3% of the average wage gap in a state is due to the metro wage effect.Note: Data are based on private, non-agricultural employment.Source: – CT Governor’s Economic Summit – v5Cluster MappingR. Bryden and Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 20111006 Prof. Michael E. Porter, – Prepared by C. Ketels, Project, J. Hudson 25 Copyright 2011 © Professor Michael E. Porter
  • 26. Getting to Action 3. Organization 1. Analysis 2. Strategy and Tools20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 26 Copyright 2011 © Professor Michael E. Porter
  • 27. Tennessee’s Jobs4TN Plan20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 27 Copyright 2011 © Professor Michael E. Porter
  • 28. Focusing on Existing Businesses The Jobs4TN Plan20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 28 Copyright 2011 © Professor Michael E. Porter
  • 29. How Should States Compete for Investment? Tactical Strategic (Zero Sum (Positive Sum Competition) Competition) • Focus on attracting new investments • Also support greater local investment by existing companies • Compete for every plant • Reinforce areas of specialization and emerging cluster strength • Offer generalized tax breaks • Provide state support for training, infrastructure, and institutions with enduring benefits • Provide subsidies to lower / offset • Improve the efficiency of doing business costs business • Every city and sub-region for itself • Harness efficiencies and coordination across jurisdictions, especially with neighbors • Government drives investment • Government and the private sector attraction collaborate to build cluster strength20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 29 Copyright 2011 © Professor Michael E. Porter
  • 30. Prioritizing Key Clusters The Jobs4TN Plan Prioritized clusters • Automotive • Chemicals • Transportation and Logistics, Distribution • Business Services • Healthcare • Advanced Manufacturing • Selection based on revealed economic performance and presence of strong cluster anchors20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 30 Copyright 2011 © Professor Michael E. Porter
  • 31. Tools The Role of Cluster Initiatives Cluster initiatives are collaborative activities by a group of companies, public sector entities, and other related institutions with the objective to improve the competitiveness of a group of interlinked economic activities in a specific geographic region • Upgrading of • Upgrading of cluster- company operations specific business and strategies across environment a group of companies conditions • Strengthening of networks to enhance spill-overs and other economic benefits of20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson clusters 31 Copyright 2011 © Professor Michael E. Porter
  • 32. The Role of Government in Cluster Initiatives Government Government Government should may should not• Support all existing • Initiate/ • Pick favored and emerging Convene clusters clusters • Co-Finance • Pick favored• Participate companies• Enable data • Subsidize or collection and distort dissemination at the competition cluster level • Define cluster• Be ready to action implement priorities recommendations 32 Copyright 2011 © Christian Ketels
  • 33. Cluster Policy: Breaking the Glass Ceiling From a few successful …to a more cluster islands… competitive economy • Systematic use of clusters as a delivery channel for microeconomic policies • Active management of regional cluster portfolios that engage many clusters and harness cross-cluster linkages • Design of feed-back mechanisms from cluster efforts to general business environment upgradingLocations will only be able to harness the full potential of cluster efforts, if they match a bottom-up operational approach with a clear top-down concept for the use of clusters in economic policy 33 Copyright 2011 © Christian Ketels
  • 34. Cluster Portfolio Policy• Existing clusters – Already meeting the market test with significant economic activity Cluster initiatives• Emerging clusters – Becoming visible around individual companies and at borders of existing clusters• New clusters – Start-ups and chance events create Cross-cutting the seeds of emerging clusters policies 34 Copyright 2011 © Christian Ketels
  • 35. Tools Organizing Public Policies Around Clusters Business Attraction Education and Workforce Training Science and Technology Infrastructure Export Promotion (e.g., centers, university departments, Clusters technology transfer) Natural Resource Standard setting Protection Specialized Physical Environmental improvement Infrastructure • Clusters provide a framework for organizing the implementation of many public policies and public investments directed at economic development to achieve greater effectiveness20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 35 Copyright 2011 © Professor Michael E. Porter
  • 36. Feed-back Mechanisms What can be changed? Initiate general changesWhat’s wrong? Cluster What’s right? Highlight Identify broader general features of challenges the region 36 Copyright 2011 © Christian Ketels
  • 37. Clusters and Economic Strategy Positioning • Identifies, communicates, and strengthens the specific value proposition of the location Business Cluster Environment Portfolio• Improves the • Accelerates growth in economic platform for those fields where the all clusters and country has some companies strengths • New clusters emerge from established clusters 37 Copyright 2011 © Christian Ketels
  • 38. Tools What is Different about Cluster-Based Economic Policy? Cluster vs. Narrow Industries Public-Private Regional Collaboration Perspective Focus on upgrading productivity Demand- Build on driven Regional Policy Strengths Priorities20110226 – NGA v0302a 38 Copyright 2011 © Professor Michael E. Porter
  • 39. Organization Public Private Engagement Old Model New Model • Government drives economic • Economic development is a development through policy collaborative process involving decisions and incentives government at multiple levels, companies, teaching and research institutions, and private sector organizations • Competitiveness is the result of both top-down and bottom-up processes in which many companies and institutions take responsibility • A dedicated institutional structure, like a competitiveness council, can play an important role in enhancing impact and sustainability of collaboration20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 39 Copyright 2011 © Professor Michael E. Porter
  • 40. Issues for Discussion • Analysis of business environment conditions across the state • Design of the cluster engagement program • Framework for collaboration within the state and across state borders • Institutional structure for public private collaboration • Tracking policy impact20111006 – CT Governor’s Economic Summit – v5 – Prepared by C. Ketels, R. Bryden and J. Hudson 40 Copyright 2011 © Professor Michael E. Porter