Chapter 9Industrial RecruitmentEconomic theories cluster t.docx

Chapter 9:
Industrial Recruitment
When business and government bargains…
A Review of Various Economic TheoriesLevel of
FocusEconomic Theories that
Address the Focus
Global
Classical economics
Neo-classical economic (supply side)
Marxist economics
Country
Mercantile economics
Neo-mercantile economics
(state corporatism)
Demand-side economics (Keynesian)
Dependency theory economics
Regional
Cluster (location) economics
Municipal entrepreneurism
Cluster Theory
Clusters are geographic concentrations of interconnected

companies, specialized suppliers, firms in related industries,
and associated institutions in a particular field that compete but
also cooperate.
They draw more customers to the area.
Because of proximity in clusters, new ideas are quickly
transferred (copied) and refined or reinvented, leading to further
innovation.
Because of the reputation and vitality of clusters, they tend to
draw in not only more customers, but also new businesses.
Wine Region Example
1. Wine
tastings
2. Wine
specialization
3. Improved
critical mass
Leads to
Higher wages
Economic
dynamism
Government’s role
remove obstacles, relax constraints;
support resources such as necessary infrastructure;
support human capital development such as education and
training programs;
assist export promotion;
encourage local R & D efforts;
sponsor forums to bring cluster participants together;
encourage industrial parks;
sponsor independent testing or certification if it is useful.

Political Context of Local Economic Development
There is not a single perspective on growth.
Local preferences can vary significantly, and range from ‘any-
growth-at-any-cost,’ all the way to ‘fighting-all growth-at-any-
cost.’
We look at three perspectives.
Pro-Growth Model
A pro-growth model is a coalition interested in the development
and re-development of land.
is interested in raising the aggregate value of land by increasing
the overall development of land or the intensification of its use.
Land intensification means converting farm and open space to
residential and commercial, or lower class housing to high rises
or “high-class” commercial.
Economic growth may be focused on blight; when it is, it is
called redevelopment.
Blight is
A concentration of buildings that are in serious decay or unsafe
and that often have serious building code violations,
Poor real estate values, high vacancy rates, and numerous
abandoned buildings and lots.
Land use patterns that reduce incentives for renovations or new
development because of an excess of bars, liquor stores, or

other businesses that cater exclusively to adults, and that tend
to encourage public safety problems,
Absence of neighborhood grocery stores and businesses that
support residents,
High crime rates, and/or
Residential overcrowding.
Role of government is generally especially
important when blight is the target of growth.
“Growth Machine”
When there is a powerful and successful pro-growth group that
dominates the policy, administrative, and business agendas, it is
often called a “growth machine.” A true growth machine
includes:
large public entrepreneurs connected to the community who
want to sponsor new development,
a generally supportive public of new development, and
a strong support base in government (especially the city council
or board of supervisors).
Question: Which of the following cities demonstrated the
strongest characteristics of a “growth machine” in the recent
economic boom?
Claremont, built-out college town
San Marino, built-out city with beautiful homes
Redlands, a college town that prides itself on being a small city
Beverly Hills
Victorville, a high-desert city eager to expand

Range of Growth Within “Pro-Growth”
Balanced economic development model: focuses on following
comprehensive plans, restraining zoning ordinances for all but
the most well considered cases, and ensuring that infrastructure
and other costs are fully included in the planning approval
process.
“Boom model”: Rapid and relatively unrestrained growth, which
leads to large economic swings of local investment. Weak
regulation and planning.
A Slow and No Growth Model
The slow growth model is supported by coalitions interested in
slowing or stopping various types of development because the
effects of fast growth are considered too negative.
Slow/No growth advocates worry about sprawl, traffic
congestion, environmental degradation, insufficient
infrastructure, excessive cost shifting to current tax payers for
development projects, and degradation of existing communities
by downgrading current use, among others.
Close up look at one slow growth concern: Sprawl
Sprawl, in the narrower sense, refers to the lax use of land.
The National Trust for Historic Preservation calls sprawl
“poorly planned, low-density, auto-oriented development that
spreads out from the center communities.”
Sprawl takes many forms

Traditional Urban Sprawl: Close-in LA
Town homes, low apartment buildings, residential homes with
small yards
Low Density Sprawl
residential homes with large lots
Commercial Strip Sprawl
businesses line streets and signage is prominent
Scattered Sprawl
occasional homes and business scattered across open landscape
People drive more in sprawling communities, and have a heavier
environmental set of issues to contend with
Sprawl is an expensive model to maintain well

No-growth
variant
The no-growth model is a specialized case which is created by a
coalition interested in stopping all growth to the degree
possible. No-growth models tend to be promulgated in fully
built-out areas, especially when they are historical districts,
cities that are already highly desirable, and areas undergoing
gentrification in which modern and mass structures are not
wanted.
A no-growth model can still encourage replacement and
upgrades, but do so very selectively.
Smart Growth:
A Rational Compromise?
Smart Growth Is a public-private approach to managing growth
that emphasizes growth through careful planning.
A definition of smart growth is “an urban planning and
transportation theory that concentrates growth in the center of a
city to avoid urban sprawl; and advocates compact, transit-
oriented, walkable, bicycle-friendly land use, including mixed-
use development with a range of housing choices” (Daniels
2001).
The recommended practices of smart growth include:
high density, mixed land use,
strong use of planning with clustered development and
protection of agricultural and open space (such as the use of
“urban growth boundaries”),
full costing and implementation of infrastructure at beginning
of construction,

integration of affordable housing and social equity concerns,
traffic grids allowing for alternate routes,
more emphasis on non-automotive means including pedestrian
walkways and bike paths,
narrower streets
California and Smart Growth
CA has sought to strengthen planning. First, in 1963, it created
the Local Agency Formation Commission (LAFCO) to oversee
city incorporations, annexations, and creation of special
districts. A part of this was the requirement for comprehensive
planning by established cities.
Currently, the State’s Commission for Local Governance for the
21st Century sets out five principles for California's growth,
including:
the requirement for regional perspectives,
the requirement for greater efficiency of land use,
greater public investment,
fiscal reform, and
adherence to equity considerations.
But success by Smart Growth advocates has been partial
because Californians love their cars and residential styles
Successes do include: higher standards for cars and gas in
terms of pollution reduction, modest attempts to increase mass
transit (with very modest results in most cases), increased use
of planning and zoning to diminish sprawl somewhat,
reinvestment in downtowns, promotion of infill projects to keep
areas aesthetically pleasing and viable
Smart Growth in Pictures

Infill buildings and lamp posts added; street resurfaced
Street trees, light rail, bike lanes added
The Factors Determining the Bargaining Positions of Business
Government sets up standard business conditions that apply
across-the-board to all businesses.
But what if business wants “special” conditions and has a lot to
offer a governmental area?
Although government tries to deal with all business in the same
general way, when larger commercial ventures arise, there are
strong reasons to adjust local requirements.
Reasons for each sector to bargain
Public Sector
Public interest
Tax revenue (especially high-producing tax generating
businesses)
Jobs (low and high end)
Low-income housing
High-end housing
Amenities
Environmental protection
Private Sector
Corporate interest
New business opportunities
Tax breaks

Guaranteed income streams (partnerships)
Assistance with infrastructure improvements
Special assistance…
Three major factors that affect the bargaining relationship and
the amount of leverage that business and government each has:
market conditions: cyclical and local circumstances or forces
that make cities more or less appealing to private investors for
financial reasons
political conditions: the political process through which public
sector decisions that can affect economic development
the planning system: relationships and methods used by
government to regulate the marketplace and substantially affect
bargaining power
Market Conditions
When a jurisdiction is poorly off in the long-run, or is
experiencing a downturn, conditions are especially good for
business to bargain.
On the other hand…
When a jurisdiction is well-off, it has far less incentive to
accommodate business.
Political Conditions
When voters are not paying attention, business has more
opportunity to strike favorable deals with politicians and
administrators.
Political conditions become negative for business when there is

an active citizen base that scrutinizes all government deals,
even those deals that may seem advantageous at first glance.
Also, when there is a lot of political competition between
parties, or among local candidates, bargains with business may
be heavily scrutinized for competitive political advantage.
Planning System
The leverage that business has is much enhanced when
government is not tightly organized. In the US, which has a
federal system, local governments have a good deal of
autonomy, and that creates both a lot of zoning variation as well
as a lot of competition among jurisdictions.
In unitary states (e.g., Europe, Japan, Singapore), or where a
strong land planning culture predominates, business advantage
is generally far less in bargaining.
Question: Winter Park
A very high-end retailer wants to locate in the greater Orlando
area (Orange County, Florida. How favorable are the market
conditions, political conditions, and planning system for the
retailer to locate in the City of Winter Park?
Market conditions: There are many locations in the region in
which to locate businesses in general, and thus a lot of
competition. Winter Park is a particularly “fashionable”
address and there is, in general, a great demand to locate in this
particular city by high-end businesses. Orlando’s reputation as
an address has improved over the years, and Winter Park is not
as well known as other high-end cities across the country.
Political conditions: The citizens of this wealthy community
are extremely engaged in civic affairs. Because the citizens
were displeased with the local power company, they recently
used an option to purchase it.
Planning system: As with most American urban areas, Orange

County, Florida, allows its cities to compete with relatively
little intervention. In fact, sometimes the County quietly
competes with the cities, too, for low cost and cost-intensive
businesses.
Mark along the spectrum how favorable or unfavorable the
bargaining position is for a retailer who wants to locate in
Winter Park in this scenario?Favorable to the
retailerUnfavorable to the retailerMarket conditionsPolitical
conditionsPlanning system conditions
Mark along the spectrum how favorable or unfavorable the
bargaining position is for a retailer who wants to locate in
Winter Park in this scenario?Favorable to the
retailerUnfavorable to the retailerMarket conditionsPolitical
conditionsPlanning system conditions
Example of Bargaining Success:
The Mission Inn—The 1880s to 1930s (the good years)
Hard times set in…

Great Depression
It was sold by the family in 1956.
Rise of Las Vegas
Bought by City in 1976 to save building
Used for a variety of purposes including student housing!
Major effort to redevelop the property starting 1985
Developer 1 with city: $30 million was not enough!
Developer 2 and 3: failed attempts
Developer 4: Duane Roberts and success; reopened in 1992
Recent return to success looks like…
Example of Bargaining Excess:
Indianapolis and the United Airlines Maintenance Hub
in 1989 when United Air Lines announced that it was creating a
new maintenance hub that would employ 7,000 people and
would result in hundreds of millions in new investment.
Ninety localities investigated the option
The competition was so fierce that United Airlines then made
the bids secret and delayed the decision so the competition
could play out.
Ultimately, the lucky city was Indianapolis, a city eager to
bring high-end mechanics jobs to the area. Hurrah!
Good bargaining conditions for UA.
Market: Indianapolis desperate and business could be flexible in
locale

Political conditions: Citizens wanted and politicians
inexperienced
Planning system: 90 cities competing, driving up the required
government investment
(The city and state put $300 million into the deal.)
At its height, the facility employed less than 3,000, rather than
the expected 7,500 employees.
The rent of $700,000 was a fraction of the cost of the bond
repayment at $14,000,000 a year.
United Airlines declared Chapter 11 bankruptcy in 2002, and
soon announced that it would be closing the facility
United was able to renege on its bond obligations due to
bankruptcy restructuring
The city, which had co-signed because the investment was on
city land, could not.
While the city and its airport now fully own the massive
maintenance facility and they rent out parts of it, it will likely
always be vastly underutilized, employing hundreds rather than
thousands, and financially act a drain.
Moral of the story: Like all business ventures, economic
development is subject to failure as much as success. Quality of
ideas, practical planning, and good implementation are critical
success. From the government perspective, not all economic
development is necessarily good or appropriate.
How Government Should Be Protecting the Public Interest
Create a clear project plan
Reduce incentives for dysfunctional competition among
governments
Allow regional authorities a larger share in major initiatives

Depoliticize the process when contracts and bidding are in
motion
Ensure administrative competence
Know who you are dealing with
Eliminate and revise an outdated economic development policy
The Strategies that Business Can Use to Increase Its Success in
Bargaining with Government
Know the local factors affecting business advantages and
disadvantages in bargaining.
Determine strategic trade-offs and win-win prospects, related to
both the community philosophy and status of bargaining
leverage.
Spend the time necessary to meet and get to know the local
players.
Integrate a CRS perspective into the planning process as both an
ethical necessity and pragmatic advantage.
Be prepared to adapt the plan.
MGMT 490
Session 1
Global Strategic Management
Professor Ranfeng Qiu
*
*

Studying this chapter should provide you with
the strategic management knowledge needed to:
Learning Objectives
Define strategic competitiveness, strategy, competitive
advantage, above-average returns, and the strategic management
process.
Describe the competitive landscape and explain how
globalization and technological changes shape it.
Use the industrial organization (I/O) model to explain how
firms can earn above-average returns.
Use the resource-based model to explain how firms can earn
above-average returns.
Define stakeholders and describe their ability to influence
organizations.
*
*
1–*
Figure 1.1The Strategic Management Process

*
The Global Competitive Landscape
1–*Market volatility and instability due to
the rapid pace of change in marketsBlurring of market
boundariesGlobalized flow of financial capitalNeed for
flexibility, speed, innovation,
and integration in the use of technologyStrategic and
operational complexity
of global-scale competitionRising product quality standards
Traditional time for adapting to changeTraditional sources of
competitive advantageTraditional managerial mindset
Decreasing
*
Professor Ranfeng QiuBlockbuster Inc., Circuit City and
Borders Group Inc.What these firms have in common? What
cause their market failures?
April, 2012, Eastman Kodak Co. was contemplating seeking
Chapter 11 bankruptcy protection.
April, 2012, B&N would have double losses in 2011 as it
previously expected, ... And it is weighing splitting off the

Nook digital-book business.
Twenty-First Century Competition
*
*
*
Twenty-First Century Competition
*
The Competitive Landscape Businesses fail every year.
“100 largest U.S. industrial corporations in 1900, only 16
remained competitive in the 1990s”
*
*
*

The Competitive Landscape Businesses fail every year…
“100 largest U.S. industrial corporations in 1900, only 16
remained competitive in the 1990s”
1. Technology Changes
2. The Global Economy
*
*
*
Nature of Competition: Strategy
Resources
Capabilities
External
environmentReturns
ROI, Stock market returns
Revenue, net (gross) marginGrowth rate (small firms)Etc.Above
Average Returns (AAR)
*
*
*Above Average Returns (AAR)in excess of what investor
expectsin comparison to other investments with similar risk

Strategic Decision Making
+
+
+
+
-
-
-
-
+
Trade-offs
*
*
Strategic Competitiveness
*
Formulation and implementation of
a superior value-creating strategy
Commitments and actions to achieve above-average
performance and returns
What the firm will do
What the firm will not do
Competitive advantage

*
Profitability differences across selected industries in the U.S
Why some industries tend to be more attractive (profitable) than
others?
Within each industry, why some firms are more successful than
others?
External vs. Internal Analysis
*
*
I/O (Industry Organization) Model vs. RBV (Resource-Based
View)
*
*

Strategic Decision Making
*
Industry Organization (I/O) Model
Resource-Based
Model
Competitive Strategy
Decision
The Industry Organization (I/O) Model
of Above-Average Returns
1–*
1–*
Figure 1.2
The I/O Model of
Above-Average
Returns

*
I/O Model Assumptions
The external environment imposes pressures and constraints that
determine strategic choices.
Similarity in strategically relevant resources causes competitors
to pursue similar strategies.
Resource differences among competitors are short-lived due to
resource mobility across firms.
Strategic decision makers are rational and engage in profit-
maximizing behaviors.
1–*
The Resource-Based Model
of Above-Average Returns
1–*
Resources
Physical, human, and organizational capital
(tangible and intangible)
Capability
An integrated set of resources
Core
competence
A source of competitive advantage

Resource-Based Model Assumptions
Firms acquire different resources.
Firms develop unique capabilities based on how they combine
and use resources.
Resources and certain capabilities are not highly mobile across
firms.
Differences in resources and capabilities are the bases of
competitive advantage and a firm’s performance rather than its
industry’s structural characteristics.
1–*
Resources As Core Competencies
1–*
Costly to imitate
Rare
Nonsubstitutable
Valuable
How resources become core competencies

1–*
Figure 1.3
The Resource-Based
Model of Above-Average
Returns
*
Vision StatementA Successful Vision
is an enduring word picture of what the firm wants to be and
expects to achieve in the future.
stretches and challenges its people.
reflects the firm’s values and aspirations.
is most effective when its development includes all
stakeholders.
recognizes the firm’s internal and external competitive
environments.
is supported by upper management decisions and actions.
1–*
Mission StatementAn Effective Mission
specifies the present business or businesses in which the firm
intends to compete and customers it intends to serve.

has a more concrete, near-term focus on current product markets
and customers than the firm’s vision.
should be inspiring and relevant to all stakeholders.
1–*
Classification of Stakeholders
*
Capital Market Stakeholders
Product Market Stakeholders
Organizational Stakeholders
Categories of stakeholders
*
Stakeholder involvement
Two issues:
1. Divide the returns
Capital Market
Product Market
Organizational
2. Increase the returns
*

*
External Environmental AnalysisGeneral environment
Focused on the futureIndustry environment
Focused on factors and conditions influencing a firm’s
profitability within an industryCompetitor environment
Focused on predicting the dynamics of competitors’ actions,
responses and intentions
*
*
Studying this chapter should provide you with
the strategic management knowledge needed to:
Learning Objectives
Explain the importance of analyzing and understanding the
firm’s external environment.
Define and describe the general environment and the industry
environment.

Discuss the four activities of the external environmental
analysis process.
Name and describe the general environment’s seven segments.
*
*
The interactions of three external environments
*
*
Figure 2.1The External Environment
*
*

Table 2.1 The General Environment: Segments and Elements
*
*
External Environmental AnalysisGeneral environment
Focused on the futureIndustry environment
Focused on factors and conditions influencing a firm’s
profitability within an industryCompetitor environment
Focused on predicting the dynamics of competitors’ actions,
responses and intentions
*
*
Table 2.2 Components of the External Environmental Analysis
External Environmental Analysis
*ScanningIdentifying early signals of environmental changes
and trendsMonitoringDetecting meaning through ongoing
observations of environmental changes and
trendsForecastingDeveloping projections of anticipated
outcomes based on monitored changes and
trendsAssessingDetermining the timing and importance of
environmental changes and trends for firms’ strategies and their

management
*
Opportunities and ThreatsOpportunity
A condition in the general environment that, if exploited
effectively, helps a firm achieve strategic
competitiveness.Threat
A condition in the general environment that may hinder
a firm’s efforts to achieve strategic competitiveness.
*
*
Segments of the General Environment
*
The Demographic Segment
Population
size

Age
structure
Geographic
distribution
Ethnic mix
Income distribution
Segments of the General Environment (cont’d)The Economic
Segment
Uncertainty in
Market growth rates
Consumer demand
Inflation and interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal and business savings rates
Gross domestic product
*
*
Segments of the General Environment (cont’d)The

Political/Legal Segment
Regulations
Consumer privacy laws
Lobbying
Antitrust, deregulation laws
Taxation
*
*
Segments of the General Environment (cont’d)The Sociocultural
Segment
Changing attitudes and cultural values
Attitudes and approaches to health care
Attitudes about quality of worklife
Diverse and aging workforce
Women in the workplace
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences
*
*

Segments of the General Environment (cont’d)The
Technological Segment
Product innovations
Rapid technological change and the risk of disruption
Knowledge application
Growth of the Internet
New communication technologies
*
*
Segments of the General Environment (cont’d)
*
*
Segments of the General Environment (cont’d)The Physical
Environment Segment
Emerging trends oriented to sustaining the world’s physical
environment
Recognition of the interactive influence of ecological, social,
and economic systems
Growing concerns for sustainable industry development and
increased corporate social responsibility for the future effects of

globalized operations
*
*
The concept of “value”
*
*
Core principles of businessThe value chainValue creation and
value captureAdded valueWillingness to pay (WtP)Opportunity
cost (O.C)Value “wedge”
*
*

The Value Chain
Customers
Suppliers
Focal Business
Money Flow
Products/Outputs
Resources/Inputs
*
*
Professor Ranfeng QiuSuppliers and buyers/customers
Anyone willing to buy from / sell to your products (business).
Value
is created by business interaction with suppliers and customers
along a value chain.
Value and value chain
*
*

Professor Ranfeng QiuAdded value = total value with you –
total value without you
Added Value
*
*
Consulting firms
Car manufacturers
Retail stores
Coffee shops
Value capture vs. value creation
*
*
Firm A takes firm B’s market share.
For instance, in the ever slower cellphone market, Motorola’s
share was eaten by Nokia, Samsung, LG and Apple.
Professor Ranfeng QiuHow is “value” measured?
Customers value the products they are buying

Suppliers value the resources they are selling
Value for a firm
*
Customers
Suppliers
Focal Business
*
Principle of Business
WtP - the most a customer would pay for a good or service in
relation to next best alternative
Opportunity cost (O.C) - the least a supplier would pay for a
good or service in relation to the next best alternative
Value wedge – the difference between WtP and O.C
*
*
Principle of Business

*
*
Someone might argue that firm maximize its value by lowering
purchasing price from the suppliers and increase selling price to
customers. But NO!!!! DO NOT Mix up Price/Costs with WtP
and OC.
Why?
Because customers and suppliers will be upset and they will
switch to other firms.
Ex.
Subway, bakery will provide bread to other sandwich stores and
customers would turn to Mcdonald’s, Wendy’s…
Your supplier
You are a customer looking to make one purchase from Firm 1
or Firm 2.
You have a WtP of $50 for firm 1 and a WtP of $70 for firm 2.
Given the prices below, which firm do you prefer? Why?
Firm 1 price =$40
Firm 2 price = $50
*
Fim 2
$10
$70
Firm 1
$5
$50

*
Someone might argue that firm maximize its value by lowering
purchasing price from the suppliers and increase selling price to
customers. But NO!!!! DO NOT Mix up Price/Costs with WtP
and OC.
Why?
Because customers and suppliers will be upset and they will
switch to other firms.
Ex.
Subway, bakery will provide bread to other sandwich stores and
customers would turn to Mcdonald’s, Wendy’s…
Your customer
Consider 2 firms in a market:
You are a supplier. Firm 1 offers to pay you $10 for one unit of
your goods. Firm 2 offers to pay you $16 for one unit of your
goods.
As a supplier, why might your opportunity cost be different for
firm 1 and firm 2?
*
Firm 2
$10
$70

Firm 1
$5
$50
*
Quick factsPremium coffee shops.The number of coffee cafes in
the U.S -- 500 in 1992 to 10000 to 1999
Team Discussion - Starbucks
*Café lattePriceMcCafe$2.30Starbucks$3.10Octane$4.00
McCafe from McDonalds
http://www.youtube.com/watch?v=6S6kH6YRSa4

*
*
Local small premium coffee shops
https://www.youtube.com/watch?v=b3gxSyjpRZU
*
*
Material 1
Video:The Robot Revolution: The New Age of Manufacturing |
Moving Upstream
https://www.youtube.com/watch?v=HX6M4QunVmA
material 2
video2: How to gain control of your free time | Laura
Vanderkam
https://www.youtube.com/watch?v=n3kNlFMXslo
material 3
the ppt
For each module that the writing task is assigned respond to the
following questions:
1. What are the three most important takeaways/lessons from
the material provided in this module? (100 words or more).

2. How is the material provided in this module is helping
your grow as a student and as an individual, in general? (100
words or more).
3. What was your favorite idea that you came across in the
material provided in this module? (100 words or more).
4. Drawing on the material that was provided what else would
you like to know? What other related questions/ideas/topics
would you like to explore in the future? (100 words or more).

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