Cluster Presentation Cluster Presentation to National Economic & Social Development Board (NESDB) Bangkok, Thailand May 24, 2006 Michael Luger Professor

Cluster PresentationCluster Presentationto

National Economic & Social Development Board (NESDB)

Bangkok, Thailand

May 24, 2006

Michael LugerProfessor of Public Policy, Planning, and Business

Director, C3E

The Carolina Center for Competitive Economies (C3E) Kenan Institute for Private Enterprise

My experience in cluster analysis and cluster-based

planning

Teach Publish refereed articles on topic Write reports for clients, mostly in NC; see

www.c3e.unc.edu (elaborate) Advise and lecture in many states and nations

NAS, EU, NZ, AUS


http://www.c3e.unc.edu/

Smart Places for Smart People:Smart Places for Smart People:Using Cluster-Based Planning

in the 21st-Century Knowledge Economy

Michael LugerProfessor of Public Policy, Business, and Planning and

Director, Carolina Center for Competitive Economieswww.c3e.unc.edu


Smart Places for Smart People

The title refers to a growing understanding within the economic development and policy communities that the U.S. cannot compete with low-cost, low-skilled countries for old-economy jobs, but rather, must turn to high-skilled, high-value added jobs appropriate for an advanced, increasingly high-tech economy. The challenge is to find the right types

of jobs that can transform all communities into smart places.


Summary Cluster-based planning is widely used to address

challenges faced by regional, state, and national economies It has a valid conceptual basis in regional

economics going back to Marshall Its recent popularity can be attributed to its use

around the world by Porter and associates Despite unavoidable technical/data problems,

cluster-based planning has been a useful “mode of inquiry” that successfully brings together business, government, and education leaders around common economic problems


Summary But, economies today are markedly

different than in Marshall’s time, or even in the latter 20th–century The “standard” approach to cluster-

based planning is rooted in the “old economy,” missing opportunities consistent with the “new economy” of the 21st- century


Summary The central point of presentation: cluster-

based planning today must be different from in the past because of the realities of the “new economy.” Specifically,

1. recognize that regional clusters are not appropriate for all parts of a region, but need to be stepped down to fit the capacity of individual communities, and

2. define clusters in more than the traditional way (i.e., as industrial subgroups linked with other industrial subgroups due to trading relationships)


Summary I describe an innovative approach consistent with

these principles by one of the country’s smart regions: the Research Triangle of North Carolina.

Leaders commissioned cluster-based planning effort that identified strong and growing targets for recruitment and expansion.

Rather than stopping there, task force formed a research consortium to implement the plan in a way that recognized intra-regional differences in capacity, and the ever-changing technology content of businesses.

The consortium redid and and stepped-down Porter’s analysis to the sub-regional level, and defined clusters around occupations and technologies, as well as industry codes


Outline Brief description and critique of standard

approach to cluster-based planning What the “new economy” requires of

cluster-based planning The North Carolina case model


Description and critique of standard approach to cluster-based planning

Description of technique Starts with national benchmark

clusters, created via factor analysis of input-output coefficients, using 4-digit SIC/NAICS industries





Description of technique Usually using employment data by county

aggregates, asks to what extent those clusters are present in the region

• Constructs LQs and changes in LQs Identifies regional clusters that are growing

in employment nationally





Allows discussion of pros and cons of different cluster priorities and supporting policies



This graphic raises questions for the public and private sectors, based on values and political agendas:o How, if at all, should existing clusters be

reinforced?o Should declining clusters be saved? How?o How, if at all, should emerging clusters be

encouraged?o How many resources, if any, should be put into

potential clusters?


Description and critique of standard approach to cluster-based planningCluster analysis is not particularly scientific

• Cluster analysis often consists of ad hoc construction of industry agglomerations of interest to policy-makers, planners, other cluster advocates

invoked to legitimize policy choices that would otherwise have been made (CHT, good or bad?)

• Existing and emerging clusters can be identified in the data; potential clusters cannot

“capacity” vs. “ambition” in cluster-based planning



Cluster analysis is not particularly scientific

• Even so-called technical approaches are assumption-based, data-specific, and subjective

Requires assumptions about the uniformity across places of trading relationships

Requires judgment in the application of the econometric technique commonly applied

Outcomes depend on datasets (years, level of detail, and benchmark regions)

Technical approaches do not name clusters; researchers do



Name this cluster



• The “standard” technical approach to cluster development identifies appropriate clusters for large regions, or for networks of regions, without differentiating for differences in sub-regions’

infrastructure

labor force



• The “standard” technical approach to cluster development leads to false positives and false negatives in recruiting



• The last two criticisms (that cluster analysis…

does not recognize differences within regions, and

focuses on industrial code assigned to businesses)

• are inconsistent with realities of the 21st-century “new economy”


What the “new economy” requires

“The New Economy is about the transformation of all industries and the overall economy. . . [and] represents a complex array of forces. These include the reorganization of firms, more efficient and dynamic capital markets, more economic "churning" and entrepreneurial dynamism, relentless globalization, continuing economic competition, and increasingly volatile labor markets.”

Rob Atkinson, former VP of PPI



• These forces have at least two consequences that are played out at the local level: a growing disparity between the

dynamic new economy locations and the more static old economy locations.

breakdown of traditional definitions of industry.



In light of the regional differences just shown, Porter’s recommendation to consider for the region such clusters as:

Environmental sciences Biotechnology and information technology Telecommunications and medicine Biotech and agri-business

did not get buy-in from many of the 16/19 counties in the region, but not in the core. All they saw in this list was some prospects for agri-business


A smart region responds

We redid the Porter study with more recent years of data, and a step-down to three sub-regional areas

Most appropriate industry clusters based on their existing competitive advantage and their prospects for job growth



We redid the Porter study with more recent years of data, and a step-down to three sub-regional areas



We then analyzed occupational needs of these clusters to see if appropriate supplies are in each of the sub-regions


A smart region responds Third, we sought to give economic developers in the region real companies to recruit and retain, minimizing the false positives and negatives. Example:



But, False positive: some businesses in

the electronics components industry will have no linkages locally, and are a waste of time to go after



And, False negative: businesses not in the

“missing components” column of industries is connecting with other IT businesses and would value co-location, but is missed by recruiters

A smart region responds Cluster businesses in a third way: by shared technology/application area, to add another filter


•This two-way screen will reduce false positives.

•It also provides a new basis for the region to market itself to the world.. Flushing out of the brush companies that could not have been foreseen as linked to the region (reducing false negatives)


Additional thoughts

• N.C. example represents an outstanding model of business-government-university partnering in economic development

• The very concept of clusters is one of networks.. Whether those networks are among trading partners, employers and workers, or among technical personnel advancing a technology

• I did not specify “small” vs. “large” businesses, but size matters in cluster-based planning

• Small businesses value, and benefit most, from the cluster services and support that are provided


Additional thoughts

• Entrepreneurship: CED, KFBS, and NCCCS have been key

members of working group and task force in cluster study, pro-actively advising on how different clusters would provide e-ship opportunities

• Provide courses and training to potential entrepreneurs

RPTF (2001) established rural venture fund and led to creation of Rural E-ship Institute to provide guidance and funds to displaced and underemployed workers, and others, in region

Golden LEAF



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Center for Competitive Economies (C3E)

C3E is a university-based center that works to address the challenges of global competitiveness in the 21st century. We work with leaders to create custom solutions that build on the unique assets of their region.

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The diversity of our projects demonstrates the scope and depth of our expertise. Including:

Identifying Opportunities Creating Rural

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While Economic Development trends have come and gone over the last twenty years, our core expertise has remained; helping regions make strategic decisions and lasting investments.

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Core Expertise

The diversity of our projects demonstrates the scope and depth of our expertise. These include:

Identifying Opportunities: Strategic planning and investment for competitiveness Creating Rural Competitiveness: Closing the economic disparity gap Mobilizing Knowledge Resources: Real estate approaches including Research Parks and incubators Assessing Competitive Finance: Aligning incentives and investments to achieve strategic goals Bridging Sustainability and Economic Development: New policies for a changing world

I dentifying Opportunities Strategic planning and investment for competitiveness

Today's global economy requires businesses, governments, and non-profits to be more proactive in constructing policy initiatives to remain competitive.

C3E works with leaders in an inclusive process to formulate innovative strategy and policy solutions. This process includes:

Generating insight though comprehensive analysis; Creating actionable and achievable plans; and Providing ongoing analysis and benchmarking.

The core focus of this process is on identifying existing and emerging clusters that could be a focus for new policy initiatives. These include:

Businesses in industries that are under-represented in the region Businesses that pay above-average wages and are adding employment Businesses that will likely leverage technology strengths of the region



Cluster-based strategic analysis

Real estate-basedeconomic development

Competitiveness of rural economies

Rural mini-hubs


Key projects that set the stage

Vision 2030 (1999) ICRCs (2000) Cluster plan for RTRP (2003) Research park planning, design, and impact

(ongoing)


Mini-hub feasibility study (2002)

The mini-hub idea The idea to create focused, critical masses of

economic activity that can serve as “growth poles” for their region gave rise to RTP and other research parks in the US.

Gov. Hunt advanced the creation of “Triangle East” to create a growth impulse in Wilson-Rocky Mount-Zebulon

Similar ideas were floated in the Vision 2030 report and by the Rural Prosperity Task Force


What is a “mini-hub”?What is it not?

It is a sizable real estate development suitable for target businesses

It is not a typical industrial parkIndustrial parks typically provide utilities and shell buildings for a broad range of low- to medium-skilled businesses. Generally, few other services are provided.A mini-hub is focused on target industry clusters, and provides enhanced services and facilities appropriate for those related businesses.


A mini-hub is not a traditional industrial park. Neither is it intended as a pure research or technology park, like RTP or Centennial campus.

The mini-hub is a “mid-tech park” – focusing on businesses that use skilled labor to make advanced products, rather than on R&D.

• Processing, manufacturing, and some back-office activities (sophisticated call centers, data processing and storage/retrieval) might be appropriate tenants.

• Spin-offs from RTP and Centennial campus (and elsewhere), seeking less expensive space and access to appropriate labor.


Kerr-Tar Hub: An “Enhanced” Technology

Park Special facilities

▫ Incubators or accelerators▫ Testing/research labs▫ Advanced IT capability▫ Shared meeting and conference

space

Specialized services▫ Industry-specific workforce training▫ Marketing/export promotion▫ Regulatory review/adherence▫ Business assistance


A mini-hub is connected to other resources in the region To the RTP and Centennial campus, to universities…. To other mini-hubs that might be developed


A mini-hub schematic

3 important connections: to the central hub, to each other, and to traditional parks


mini-hub

mini-hub

mini-hub

mini-hub

Centralhub

A mini-hub is a regional resource, not an economic development tool for a single county Because it is higher-end and enhanced it requires more investment If successful, it would generate more benefits than otherwise would have occurred, which would be

shared by all investors


Why would a mini-hub pay off for this region?

It would be more visible to prospects than the scattered traditional industrial parks

• The joint efforts of the counties, the state, the RTRP, site selection consultants, … and

• The appropriateness of the model to emerging business clusters

… should lead to more locations than even would locate in the sum of all industrial parks.


The involvement of several counties kicks in the Lee Act provision that a business locating in such a place qualifies for tax incentives due in the lowest tier (most distressed) county in the consortium

… should also lead to more locations


The value of the land will be greater than in a traditional industrial park, so property tax revenues may well be higher than the status quo approach

• We have examples of similar real estate developments that show this


A focus on clusters that are also the focus of state policy can leverage investments from the state or foundations

• For example, the Golden LEAF expenditure of $40 million on bio-manufacturing and the state’s likely investment in bio-processing research


Similarly, a coordinated multi-county effort is more likely to compete successfully for infrastructure money, for example, from the state and from EDA


A successful mini-hub could generate demand for the traditional industrial parks that now exist

• The RTP example

What needs to be done to make the concept work?

Then: Agree on management approach Select appropriate industrial foci Choose appropriate sites Decide on enhancements and incentives Put required incentives and other financial

mechanisms in place

#1: Get buy-in from counties Dozens of C3E presentations to county commissioners, legislators, others


Where we are today


First Hub Site:

Vance-Granville combined 1,000 acres along I-85, adjacent to

Vance-Granville Community College

Where we are today


Multi-county ownershipand governance

Nonprofit entity owns and manages

Counties share costs and revenues

Representatives from each county

Board members bring technical expertise

Where we are today Two follow-up studies underway

Cluster implementation• What businesses to go out and target

o What they makeo What they need in terms of

Labor Infrastructure Amenities Incentives

Workforce supply vs. demand

Where we are today


Commissioner Danny Wright

Documents

Cluster Presentation Cluster Presentation to National Economic & Social Development Board (NESDB) Bangkok, Thailand May 24, 2006 Michael Luger Professor