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High Technology Sector in Orange County

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  • 1. Issue 3The High Technology Sector in Orange Countyby Luis Nieves-Ruiz, AICPIntroductionHigh technology has become the latest “buzz word” for local economic development officials andcommunities across the United States. Local governments are increasing their investment to attract“innovation” industries to replicate the success of California’s Silicon Valley and North Carolina’sResearch Triangle areas. These areas are considered hot spots for technological innovation at thenational level. High Tech industries bring high-wage positions and can lead to economicdiversification and economic resiliency. The emerging biotechnology clusters in Jupiter and Port.St. Lucie are two good examples of Florida’s efforts to become a new powerhouse in the innovationeconomy.Similar efforts have also sprung up in the Central Florida area. In 2005, Orange County outlined avision of a “high tech/high value” corridor in east Orange County stretching from the University ofCentral Florida to the Orlando International Airport. Soon thereafter, both Osceola and SeminoleCounties announced their own respective plans to develop similar areas to stimulate the creation ofhigh technology parks and attract clean industries. While these are great efforts, few of the plansactually define what is considered a “high tech” industry. Moreover, there have been very fewstudies that profile the characteristics of the local high technology sector. This third article of theEconomic Research initiative defines high technology industry and discusses Orange County’s hightechnology economy.What is “high tech”?Our search did not find an actual definition of high technology industries. The AeA (formerly knownas the American Electronics Association) defines high technology industries as those that fall withinthree broad categories: high-tech manufacturing, communications services, and software andcomputer services. However, it does not include other cutting edge industries, such asbiotechnology, engineering services, and research and testing industries. Another importantresearch institute, the Milken Institute, also does not have a definition per se, but it lists nineteenhigh tech industry categories organized by NAICS code. These sectors are depicted in Exhibit 1.The Milken Institute recently published North America’s High Tech Economy: The Geography ofKnowledge Based Industries, which ranked all of North America’s metropolitan regions according totheir performance as clusters of technological activity using the aforementioned sectors. TheOrlando-Kissimmee Metropolitan Statistical Area (MSA) was ranked 43rd among the top fifty hightech areas, up from 46th in 2003. The MSA had a total of 63,600 high tech jobs in 2007. Thehighest ranked industry was the Commercial and Service Industry Machinery (NAICS 3333),ranked number 7 in North America. Establishments within this industry specialize in manufacturingoptical equipment.To determine the role of Orange County in the regional high tech economy, staff assessed thelocation quotients for all the high tech sectors studied by the Milken Institute. Exhibit 2 shows the ECONOMIC OUTLOOK SEPTEMBER 2009
  • 2. high tech industries with the highest location quotients. To complement this information, staff alsoresearched the number of establishments within these categories using the InfoUSA businessdatabase. Exhibit 1: Milken Institutes High Technology Sectors NAICS Industry Description Code 3524 Pharmaceutical and Medicine Manufacturing 3333 Commercial and Service Industry Machinery 3341 Computer and Peripheral Equipment Manufacturing 3342 Communications Equipment Manufacturing 3343 Audio and Video Equipment Manufacturing 3344 Semiconductor and Other Electronic Manufacturing 3345 Navigational, Measuring, Electromedical, and Control Instruments 3346 Manufacturing and Reproducing Magnetic and Optical Media 3364 Aerospace products and Parts 3391 Medical Equipment and Supplies 5112 Software Publishers 5121 Motion Picture and Video Industries . 517 Telecommunications 518 Data Processing, Hosting, and Related Services 5191 Other information Services 5413 Architectural, Engineering, and Related Services 5415 Computer Systems Design and Related Services 5417 Scientific Research and Development Services 6215 Medical and Diagnostic Labs Source: Milken InstituteBesides Commercial and Service Industry Machinery, other high tech industries with high locationquotients were Data Processing, Hosting, and Related Services, which provides infrastructure forweb hosting and streaming; Architectural, Engineering, and Related Services, which includes theplanning and design of buildings and testing laboratories that are engaged in performing physical,chemical, and other analytical testing services; and, Telecommunications, which are primarilyengaged in operating or providing access to facilities for the transmission of voice, data, text, sound,and video. Finally, Scientific Research and Development Services establishments conduct researchand experimental development in the physical, engineering, and life sciences. Exhibit 2: High Technology Sectors with Highest Location Quotients in Orange County Industry Orange Establishments Number of County LQ Employees3333 Commercial and Service Industry Machinery 5.02 9 2,920518 Data Processing, Hosting, and Related Svcs. 1.49 99 2,1335413 Architectural, Engineering, and Related Svcs. 1.45 606 11,647517 Telecommunications 1.21 258 6,7715417 Scientific Research and Development Svcs. 1.14 95 3,890Sources: BLS Location Quotient Calculator, InfoUSA 2009While NAICS codes are widely used to study local economies, they are less effective when used tostudy some high tech industries. These are industries that are hard to define, because they use a ECONOMIC OUTLOOK SEPTEMBER 2009
  • 3. variety of new technologies and encompass several fields. Thus, they would not be directly counted in aranking system like Milken’s. The best example is the Modeling, Simulation, and Training Sector(MS&T), which is one of Orange County’s largest technology industries. There is no traditional NAICSclassification for the MS&T sector because most of the companies within this industry perform tasks andcreate technologies that defy traditional industry codes. This makes it extremely difficult for researchersto quantify the impact that this industry has at the national and local level. However, these companiesare technology-intensive and rely on state-of-the art information and interaction software. Therefore,they are an important high technology industry.What is Modeling, Simulation, and Training?A simulation is typically the implementation of developed models that are used in a variety ofapplications, such as military and flight training, entertainment, test and evaluation, education, analysis,digital media, and product design (Hagen, Martin & Caswell, 2002). Orange County’s industry started inthe 1960s, when the Navy transformed a former Air Force base into a training facility and started to useearly versions of simulator technologies. The opening of UCF in 1968, then known as FloridaTechnological University, and the first moon landing helped to establish the area’s simulation industry.In 1980, UCF officials offered the Navy 40 acres next to the campus to establish what is now known asCentral Florida Research Park.The rush in homeland security investment after the 9/11 attacks created a boost for the research parkand its simulation companies. In 2002, a total of 102 MS&T companies created approximately 5,591jobs in the Orlando MSA (Hagen, Martin & Caswell, 2002). Team Orlando, the Army’s office ofsimulation and training in Orlando, awarded $17.5 billion in contracts earlier this year, most of whichwent to simulation and training firms in Central Florida Research Park. Exhibit 3: Orange County’s MS&T Companies by NAICS Code 6% 541 Prof., Scientific & Tech.Svcs 8% 443 Electronic & Appliance Stores 8% 34% 999 Unclassified Establishments 11% Other Classifications 14% 611 Educational Services 19% 928 National Security 334 Comp. & Electronic Prod. Manuf. Sources: InfoUSA 2009 and Orlando Business Journal’s 2009 Book of Lists.Using the InfoUSA establishment data (2009), staff found more than 130 MS&T companies in OrangeCounty. Less than half of these companies are within the “high tech” sectors defined by the MilkenInstitute. Exhibit 3 shows the industry sectors that comprise the local MS&T sector. The majority ofthese companies (45) are within the Professional, Scientific, and Technical Services category. MS&Tcompanies within this subsector are classified within diverse industries, such as engineering services,custom computer services, human resource consulting, process and logistics. A second group was ECONOMIC OUTLOOK SEPTEMBER 2009
  • 4. classified as Electronic and Appliance Stores. The rest of the companies belonged to an array ofindustries, including manufacturing, educational services, performing art related companies, andnational security companies. Fourteen percent of the companies were unclassified.The lack of a specific NAICS code for MS&T companies made this search very time consuming.Therefore, staff decided to search for clusters or concentrations of these companies. Clusteringmakes it easier for high technology companies to share resources and new technologies. Exhibit 4: MS&T Clusters in Orange County Source: InfoUSA 2009, 2009 Book of ListsAs noted in Exhibit 4, there are four MS&T clusters in Orange County. These four clusters account for85 percent of all companies and 44 percent of all the MS&T workers in Orange County. The first andlargest cluster, the Alafaya-Rouse Road cluster, has 85 companies near UCF, including the CentralFlorida Research Park on the south west part and north of University Boulevard. All of these companiesare associated with national security efforts. The Aloma-University corridor contains twelve companiesand is probably an outgrowth of the previous cluster, as most of these companies are also associatedwith national security issues. There are also two smaller clusters. One is located within the City ofOrlando, and it includes several Department of Defense offices that likely support the simulationcompanies. A smaller cluster is south of West Sand Lake Road. While it includes some national securitycompanies, it also has two entertainment companies. ECONOMIC OUTLOOK SEPTEMBER 2009
  • 5. ConclusionsTechnological innovation is expected to become the future driver of economic development, as it bringshigher-wage jobs and economic diversity to our community. Other jurisdictions across the UnitedStates will continue to compete fiercely to attract these jobs, but Orange County shows strength in avariety of high tech sectors, including Commercial industry and machinery, Data Processing andHosting, and Telecommunications. Based on our analysis, the County also has a high number ofestablishments dedicated to Modeling and Simulation Training (MS&T). This field is very hard todefine, as it encompasses engineering, training, education, and a variety of disciplines. This could verywell affect the County’s position in economic rankings such as the Milken Institute’s high tech index.The recent arrival of the Burnham Institute would certainly increase our area’s high technology profileat the national level. A future issue in these series will discuss the role of biosciences and the healthcare industry in Orange County’s economy.ReferencesBurnett, R. Army deals in limbo. Orlando Sentinel. Originally published on July1, 2009. Retrieved August 7, 2009 from http://www.orlandosentinel.com/business/orl-bizfuture-combat fallout070109070109jul01,0,6513272.storyBureau of Labor Statistics, U.S. Department of Labor. 2007 Location Quotient Statistics for Orange County, Orlando MSA, and State of Florida. Retrievd on March 11, 2009 from http://data.bls.gov LOCATION_QUOTIENT/servlet/Lqc.ControllerServletCorthright, J. and Mayer, H. High Tech Specialization: A Comparison of High Technology Centers. The Brookings Institution. January 2001. Retrieved June 2009 from http://www.brookings.edu/reports/2001/01labormarkets_joseph-cortright-and-heike-mayer.aspx.Devol. R.C. Klowden K., Bedroussian A and Benjamin Y. North America’s High Tech Economy: The Geography of Knowledge-Based Industries. Milken Institute.Executive Office of the President, Office of Management and Budget. (2007). North American Industry Classification System United States 2007. Lanham: BernanHagen, G. Martin, B., Caswell, S. (2003). Impact of Florida’s Modeling, Simulation and Training Industry. Orlando: National Center for Simulation (NCS)infoUSA Database License Group. (May,2009). Orange County Business Leads Report .Lohr, Steve. Unboxed-Governments Embracing a Role in Innovation? New York Times. Originally published on June 20, 2009. Retrieved on August 7, 2009 from http://www.nytimes.com/2009/06/21/technology/21unboxed.html?emc=eta1Orlando Business Journal. 2009 Book of Lists. Volume 29, Issue 29. December 19, 2008Stokes, M. Team Orlando Military boasts large presence in Research Park. East Orlando Sun. May 21-June 17, 2009. Originally published in the East Orlando Sun. Retrieved on August 7, 2009 from http://enewsbuilder.net/orcc/e_article001449453.cfm?x=bfD44hs,b10gGhlb Orange County Growth Management Department Issues Month of Publication Planning Division Research & Intergovernmental Coordination Section Post Office Box 1393 Leisure and Hospitality October Orlando, FL 32802-1393 Telephone: 407.836.5600 Health Care and Biotechnology December Fax: 407.836.5862 E-Mail: planning@ocfl.net ECONOMIC OUTLOOK SEPTEMBER 2009