Detecting Regional Competitive

Advantage
 Module 3
Module Objectives

Describing a Collaborative
Regional Economic
Development Framework

Leading the Planning Effort

* Conceptualizing regional
advantage

*Organizing the analysis

Detecting Regional Advantage
*Analyzing regional connections

*Reviewing key tools

& techniques
Formulating Strategies

Executing Your Plan

 Scenario
• You’ve developed a regional call to action around a
set of perceived challenges:
– Slowing or declining employment opportunities in
traditionally strong industries in various parts of the region
– New job opportunities in a diversity of seemingly unrelated
industries, some of which pay low wages
– A host of training demands as regional labor force seeks to
transition to new industries
– Uncertainty with respect to individual & joint infrastructure
constraints and needs given economic transition underway
 What’s next?
• Information gathering, but what kind?
• Assess your region’s economic competitive
advantages
– What is the relevant region?
– What kinds of analysis should you undertake?
– What indicators should you assemble?
– How should the study be organized and carried out? Who
should do it?
• Assess your region’s capacity to implement a
strategy (addressed in Module 4)
 Objectives
I. Basic concepts of competitive advantage
II. Guides for organizing your regional analysis
III. Approaches to analyzing regional connections
IV. An overview of tools & data for detecting regional
competitive advantages
– Foundations: Amenities, costs, infrastructure
– Understanding your economic base, talent base, capacity
for innovation & new ideas generation, capacity for new
business formation & old business regeneration
 I.
Basic Concepts
 Influences on Competitiveness
• The success of businesses in Macroeconomic, political,
a location depends on their legal context
own strategies
(microeconomic factors)…
Productivity growth
• …as well as factors in the
broader place in which
companies do business Microeconomic
foundations
(macroeconomic conditions)
Company
• Places as jurisdictions have operations &
strategy
Micro business
environment

control over some of the Internal External

latter and can influence
some of the former From Porter (May, 2000)
 Porter Diamond Theory Perspective
Local context
• Four major “encourages
determinants of Firm strategy, investment and
sustained
structure and
competitive rivalry upgrading”
advantage of
industries
• Industries are Related and
Demand
located in supporting
conditions
industries
places, and
therefore places Clusters, not
influence industries
“Sophisticated and
industry success Factor conditions demanding local
customers”

Factor quantity,
From Porter (May, quality, cost
2000; 1990)
 Businesses, Industries & Places
• Economic value is created by the business enterprise,
but industries and places help shape, nourish, sustain
or erode it
• The source of place prosperity in Porter’s diamond
theory is consistent with many other regional macro
theories
– Entrepreneurship
– Creative destruction,
– Endogenous growth
– Innovation
 Regional Competitive Advantage
• Businesses are competitive to the degree they are
able to generate profits in contested markets
• Places are “competitive” to the degree their
residents are able to build wealth
• Local private sector businesses are not the sole
source of wealth building opportunities for
residents
– Other sources are government & non-profit
organizations, investments & transfers, non-local
businesses
 Geography of Wealth Creation
• Origins of • Examples:
wealth – A business that draws on a regional
creation in labor pool to achieve productivity
a place are gains & thus profits
rarely – A supplier business serving a distant
strictly market
local – Faculty at a local university
conducting federally funded R&D
– Restaurants & hotels serving tourists
visiting multiple nearby destinations
– Consumer services industries
targeting retirees
 Lessons
• We can think of the competitive advantage of a place
in terms of the sources of local wealth creation
• Some of those sources are regional, others are
national or global
– Moreover…the geographies of wealth creation are
becoming increasingly complex
• We can define the analysis supporting regional
strategic planning as an effort to identify the sources
of local wealth creation in a set of places for which
economic opportunities are jointly determined
 II.
Organizing the Analysis
 Five Overall Guides
• Building blocks of local wealth creation
• Flexible understanding of geography
• Comprehensive versus focused
• Analysis as ongoing inquiry, not a one-time
enterprise
• Analyze—report—interpret—adjust—analyze:
Build leadership into the analysis phase
 1) Five Building Blocks
• A way to organize inquiry into the sources of
regional wealth creation
What you make, including ECONOMIC ENTRE- Your capacity to create
your existing & BASE PRENEURSHIP companies wholly new or
prospective industry from existing firms
clusters

What you do: your Your capacity to innovate

workforce skills & and generate new ideas
INNOVATION
human capital base
TALENT & IDEAS

Location, Infrastructure, Amenities,

Factor Costs

The basic conditions defining the

economic milieu of the region
 2) Understanding of Geography
• We’re accustomed to thinking about geography as a
container
– Example: We undertake analysis for a defined set of
spatial units, e.g., a metropolitan area made up of multiple
counties
• Many tools available to help us use geography to
understand our economic assets (i.e., as an indicator)
– Example: GIS techniques that identify locations where
industries are clustered
 Examples
Geography as Employment in US
container
furniture industry

More employment
Megaregion

40%
Geography as
35%
indicator
30%
25%
20% Employment growth
15%
by state, 1989-99
10%
5%
0%
US NC GA MA MI PA TX VA
 3) Comprehensive vs. Focused Analysis
• We have a specific issue Comprehensive
or problem that needs to • We seek a full picture of
be addressed our region’s economy,
• We need analysis to in order to form a
know what to do about general strategy
it – Broad scope makes
– Clear problem statement analysis more complex
helps narrow the scope, and involved
methods and data – Potential for high costs
in time and effort
Focused
Comprehensive: Organize Findings
using SWOT Framework
External Appraisal Internal Appraisal
Threats &
Strengths &
Opportunities in
Weaknesses of Region
Environment

Key Success Distinctive

Factors Competencies

Creation of Strategy
 4) Analysis as Ongoing Inquiry
• One-time studies of limited value
– Trends change quickly
– Data collection “start up” costs high
– After comprehensive studies, subsequent planning often
requires additional, focused analysis
– Regional planning process can be used as a way to build
“economic intelligence function”
• Wholly out-sourcing work not recommended
– Need an ability to do analysis to commission, interpret, and
implement analysis
 5) Build Leadership into Analysis
• Heavy element of regional analysis is
interpretation, adjustment, and re-analysis
– It is fundamentally exploratory
• Assembled leadership team and stakeholders
for regional planning effort an important
source of expertise
• Analysis gains credibility if leadership
feedback is solicited and incorporated as work
is conducted
 Example: Industry Cluster Analysis
Methods typically
quantitative, may Analysis of Industrial Base Ideal is analysis &
use benchmarks planning on an
Initial Target Clusters ID’d ongoing basis
Methods heavily
qualitative, focus
Analysis of Target Clusters: Regional SWOT
group modal
approach Key phase of
Leadership/Stakeholder Review industry cluster
analysis is
Target Refinement/Refocusing
leadership &
Methods heavily stakeholder
qualitative, key review
informant Analysis of Targets: Global Assessment
interviews modal
approach
Strategy Formulation

Strategy Implementation

Monitoring and Evaluation

 III.
Understanding Regional Connections
 Conceptualizing Regions
• What is a region?
– A geographical area of similar characteristics
• Homogeneity within
• Heterogeneity between (different from other places)
– A place of interest to people, with a unique identity and meaning
• Why regions?
– Indicator of change, capture trends
– Potential for economies of scale, greater efficiencies
– Measure of personal ability, faults, achievements
– Understand challenges and opportunities under similar
conditions
 Regional Scales
Defined
Planning
Area

State

Nation

Working
Region of
Neighbors
 Identify Interactions
• Commuter Flows- Census Bureau Journey to Work
– Labor market area
– Net job exporter or net job importer?
– What industrial strengths does your jurisdiction have within the region?
• Trade Flows- Commodity flows
– Clusters of industry chains- industrial cluster analysis
– Value chains of major industries/services
• Demographic needs
– Elderly population, minority communities, school districts
• Existing Administrative Districts
– Federal Reserve Districts
– Homeland Security regions
 What Makes Sense
• Sometimes neighboring counties don’t have
anything in common
• Don’t let state lines define regions
• Don’t be afraid to go beyond county lines to
identify townships or major cities for
rural/metro interests
• Find areas that share interests and goals
Planning Region as Labor Market
Legend
Commute Region
Non core
Micropolitan
Metropolitan
Census Urban Areas
Interstate
Highway
Commuting Flows Analysis
 Using Regions
• A given place will often have multiple
overlapping and distinct “regions” that are
relevant for economic development
– Appropriate region will depend on strategies and
concerns at hand
• Some regions will only be used for data
analysis and comparison factors
• There is rarely a single definitive region for
any locality
 IV.
Tools & Data Overview
Foundations: ECONOMIC
BASE
ENTRE-
PRENEURSHIP

Profiling basic
conditions in the INNOVATION
TALENT & IDEAS
region & regional Location, Infrastructure,
Amenities, Factor Costs
characteristics
 IEDC Data Standards as Guide
• 1,200 data elements, 25 • Benchmark one place
spreadsheets against others, observe
• 2/3 of data is available weaknesses/strengths
from public data • Tailor planning
sources, the rest is local approaches
knowledge • Advantages beyond site
• Develop the extensive selection, a yearly
database over time, update and way to track
focus on key indicators the process of your
economy
 Location
• Key indicators • Leading employers, new &
• Other expanding companies
indicators • Research bases, R&D personnel
• Population and labor force
demographics
• Available land and buildings
• Data Sources • Business Directory, Reference
USA, BLS, Census, Dun &
Bradstreet, cbre.com,
economicmodeling.com,
LocationOne
 Amenities
! Key indicators • Quality of life data- climate,
housing, healthcare
! Other indicators • Environmental conditions
• Higher education resources,
vocational schools, community
colleges
• Census, ERS Amenities Scale,
! Data Sources nces.ed.gov,
epa.gov/water/region,
epa.gov/air/data/, hhs.gov
 Infrastructure
! Key indicators • Utilities
! Other indicators • Transportation Modes- air, rail,
water, road
• International Resources
• Government
! Data Sources • Transtats.bts.gov, fra.dot.gov,
FAA, nerc.gov/regional,
usatradeonline.gov
 Costs
! Key • Real and personal property tax,
indicators average costs of sites, average salary
by occupation, worker’s
compensation & unemployment
insurance, percent of workforce
organized, cost of living
! Data Sources • BLS/CEW, Office of Workers’
Compensation/BLS,
Unionstats.com,
taxsites.com/state.html,
payrolltaxes.com, coli.org, National
Assn of Realtors
Understanding the ECONOMIC ENTRE-
PRENEURSHIP
BASE
Regional
Economic Base with INNOVATION

Industry Cluster TALENT & IDEAS

Location, Infrastructure, Amenities,

Analysis Factor Costs

 Industry Cluster Analysis
• A type of analysis that views firms, and therefore
industries, as interdependent, not isolated
– Functional, Spatial/geographic, Temporal
• A way of understanding a region’s economic base at
a given point in time
• Not a means of identifying fixed competitive
strengths; clusters are always changing
• Therefore, must be exploratory, spatial and dynamic
in approach and perspective
 What is a regional industry cluster?
• A cluster is a geographic concentration of interrelated
competitive firms and institutions with sufficient established
or prospective scale to generate external economies…making
the whole greater than the sum of its parts

With different “vintages”…

Established
Competitive High scale and growing
Mature High scale and stable, or declining
Stabilizing High scale and diversifying into new areas
Prospective
Emerging Low scale but high recent growth
Strategic Based on plans, needs, investments
Potential Pinned on hopes and dreams
 To Analyze
• Define business interdependence
• Make conceptual & empirical “leap” to
sectoral interdependence
• Measure sectoral interdependence to derive
cluster “templates”
– Invoke an assumption regarding geography
• Build appropriate datasets to utilize templates
– Refining geographic presentation/use
Enterprises Sectors Clusters

Second “mapping”
Sectors to clusters

First “mapping” Firms to sectors

 How to do this “mapping”?
• In large scale quantitative analyses, first
mapping is dictated to us
• Second mapping requires definition of
functional interdependence, as well as an
assumption of geography at which that
functional interdependence is defined
• Once we have that mapping, we can apply to
regional data
 U.S. Industries Value Chains, Clusters
“Global”
linkages

Target: Clear Strengths

Target: Specializations
Study
Region
Past Performance

Regional
Projected
Growth
Target: Gaps Regional
Historical
Target: Emerging Opportunities Performance
Projected Growth
Regional Specialization

Under-represented in Region
 Example Scanning Analysis
National growth,
post-recession?
Concentrated in U.S . '02-'06 LA '02-'05
Louisiana or LA S pecialization G row th G row th
region?

Full Chain

Full Chain

Full Chain
Linked

Linked

Linked
Core

Core

Core
ID Industry NAICS LA or
O il, G as & Energy region
6 O il & gas extraction 211 1 1 1 1 1 1 0 0 0 growth?
53 P etroleum & coal product mfg 3241 1 0 1 0 1 1 0 1 0
129 P ipeline transportation 486 1 1 0 0 1 1 1 0 1
84 A gricultural, construction & mining machinery mfg 3331 1 0 0 1 0 0 0 0 0
12 W ater, sewage and other systems 2213 1 1 1 0 1 1 1 1 1
10 P ower generation & supply 2211 1 0 1 0 1 1 0 1 1
150 A rchitectural & engineering services 5413 1 0 0 1 1 1 1 1 1
11 Natural gas distribution 2212 0 1 1 0 0 1 0 1 0
9 Nonmetallic mineral mining & quarrying 2123 0 1 1 1 1 1 0 1 0
105 Misc electrical equipment mfg 33599 0 1 0 1 0 1 1 1 1
7 Coal mining 2121 0 1 1 1 1 1 0 1 1

Individual core industry

Industries in core industry value chain Assessment:
Core industry value chain in total Core size, mix & chain depth
Good US growth
Strong recent LA performance
ESTABLISHED
 Example Scanning Analysis
National post-
recession growth?
Concentrated in
U.S . '02-'06 LA '02-'05
Louisiana or LA S pecialization G row th G row th
region?

Full Chain

Full Chain

Full Chain
Linked

Linked

Linked
Core

Core

Core
ID Industry NAICS
LA or
Inform ation Technologies region
140 Data processing & related services 5182 0 0 0 0 1 1 1 1 1
152 Com puter system s design & related services 5415 0 0 0 1 1 1 1 1 1 growth?
139 W eb publishing, broadcasting, ISPs & search portals 51A 0 0 0 0 0 1 0 0 1
133 Software publishers 5112 0 0 0 0 1 1 0 1 1
94 Com m unications equipm ent m fg 3342 0 0 0 0 0 0 1 1 1
96 Sem iconductor & electronic com ponent m fg 3344 0 1 0 0 1 0 0 1 1

Individual core industry

Industries in core industry value chain
Core industry value chain in total

Assessment:
Core small, mix limited, little depth
Good US growth
Strong recent LA performance
PROSPECTIVE
 Reminders
• A type of analysis that views firms, and therefore
industries, as interdependent, not isolated
– Interdependence has three dimensions: Functional,
spatial/geographic, temporal
• A way of understanding a region’s economic base at
a given point in time
• Not a means of identifying fixed competitive
strengths
• Therefore, must be exploratory, spatial and dynamic
in approach and perspective
Talent: ECONOMIC ENTRE-
BASE PRENEURSHIP

Understanding
Regional INNOVATION
TALENT
Workforce Skills
& IDEAS

Location, Infrastructure, Amenities,

Factor Costs
 Understanding Talent
• Why is talent important
– Businesses want to hire top talent, talent drives innovation
and entrepreneurship
• What is talent?
– Skills, training, education, intuition, specialization, and
capacity
– Talent comes in all ages and occupations
– Talent is more than education—it is leadership, experience,
skills, embedded human capital
• What do you measure?
 Measuring Talent
• What are the region’s established knowledge, skills and abilities
(KSAs)?
• Find occupation/skill clusters
– Is the economy diverse or specialized?
– Sources: OES, Census occupations, ONET
• What type of skills do your major occupations need?
– Sources: Conduct employer surveys to determine necessary
skills and measure current worker’s abilities
• Analyze education provision and performance at all levels
– Sources: Test scores, teacher & graduate retention rates, placement,
outcomes
 Regional Workforce Adaptability
• Are your workers technology oriented?
– Source: computers/pop, internet use on the job and at home
• Is your area engaged in adaptive worker training?
– Source: Catalogue agencies involved in workforce training,
industry type, skills taught
• Is the population supportive of change and new
ideas?
– Source: Community attitude surveys, past reactions to
change and new ideas
 Emerging KSAs
• Benchmark against leading occupations
– Example: Creative Class
• Identify technology advances in key industries
and links to workforce demands
• Developing a segment of your workforce to
compensate for skills that are not currently
present
 Demographic Influences
• Is your region retaining the skills it creates?
– Out-migration, age mix shifts, educational attainment
trends
• What type of skills are you attracting?
– New companies, new workers, salaries
• Is your economy absorbing population changes?
– Latent talent, underutilized workers, unemployment
rates, under-employment
Regional ECONOMIC
BASE
ENTRE-
PRENEURSHIP

Innovation
Capacity TALENT
INNOVATION
& IDEAS

Assessment Location, Infrastructure, Amenities,

Factor Costs
 One R&D/Innovation Model
Research

General knowledge

Firm specific knowledge and platforms

Identify Invent and/or Conduct

produce detailed Redesign then Distribute and
potential analytic design and produce good market
market design testing
 R&D and Innovation Producers
• Regional innovation base built on
– Larger companies
– Smaller companies & entrepreneurs
– Universities
Often doing
– Private R&D houses different types of
– Federal R&D labs innovation, but
considerable
– State R&D labs feedback among
them
– Community colleges
Innovation Does Not Respect Geography
• Part of the regional innovation system is its
capacity to absorb ideas & innovations from
elsewhere
– Neighboring & distant regions
– Companies & industries to which it is linked
– Knowledge spillovers from university research
 Analysis Aims to Answer
• What are the region’s most nationally competitive R&D
assets?
• Within each academic institution, what are the greatest relative
strengths?
• What are the industry sectors/technology areas of greatest
strength among private industry R&D performers?
• What are the emerging areas of R&D strength? (Change in
rank and $ research funding)
• How effective are regional universities at commercializing
new ideas and innovations?
 Indicators & Sources
• Total research expenditures by institution and discipline (NSF-CASPAR)
• NSF research funding
• NIH research funding (NIH)
• Any state research funding agencies or sources
• National Research Council rankings of strength of faculty
• U.S. News and World Reports university (reputational) rankings
• Academic Analytics faculty scholarly productivity indexes
• Websites of universities, departments, and research centers
• Utility patents by region and industry sector (USPTO)
• Small Business Innovation Research grants, by region and industry sector
• Directories of independent research laboratories
 Analysis Approach

Industrial R&D Strengths

Strengths Assessment
Assessment •Academic
•Established •Private
economic base •Established
•Prospective •Prospective
economic base

Set of existing & emerging

Set of joint science/industrial science strengths/investment
strengths/investment opportunities
opportunities
Regional ECONOMIC
BASE
ENTRE-
PRENEURSHIP

Entrepreneurship
Capacity TALENT
INNOVATION
& IDEAS

Assessment Location, Infrastructure, Amenities,

Factor Costs
 Defining Entrepreneurship
People with
underutilized talent
Small
businesses
Social Entrepreneurs

•Youth leaders
•Community programmers
•Club leaders Entrepreneurship High growth
businesses

The unemployed
Innovators
Youth
Retirees
Self- Employed
 Assessment Approaches
• Quantitative
– Public Data & Previous
reports
• Provides basic scope of existing
entrepreneurship
• Data are not extensive
• Compare your area to other
regions, states
Previous Reports
• Qualitative
– Surveys & Interviews
• Community specific
• Gathered on the ground
• Richest data available but local
• Essential to effective policy
design and a deeper
understanding of
entrepreneurship

63
 Quantitative Assessment
Current Status Capacity
• BEA-REIS data • Educational attainment
• Census Bureau • Immigration and diversity
– Decennial Census
• Financial resources
– Nonemployer Statistics
• Business resources
• County Business Patterns
• SBUS Business Tracking
Longitudinal Studies Form hypotheses about
• Survey of Business Owners the entrepreneurial
• Current Population Survey activity & capacity of
your region
• American Community
Survey
 Qualitative Assessment
Current Status Capacity
• Community surveys • Community readiness to
create programs
• Interviews
– Small businesses, self-
• Existing programs
employed, business leaders • The ability to create
• Group assessment tools programs
– Leadership and networks
– Community identifies goals
• Entrepreneur identification
Focused
– Assess ambitions and needs investigation
tests hypotheses
formed partially
with quantitative
assessment
 Entrepreneurship Mapping in
Perspective
Intensity of resources and time should reflect
intended outcomes, regional support and
anticipated participation

Intensity Scale of Entrepreneurial Mapping Techniques

Census Community Self Employed Small Business Full

data Perceptions Inventory Interviews Community
Asset
Mapping
Review
 What We Covered
I. Basic concepts
II. Organizing your regional analysis
III. Analyzing regional connections
IV. Overview of tools & data for detecting
competitive advantage
 The Five Building Blocks
• A way to organize inquiry into the sources of
regional wealth creation
What you make, including ECONOMIC ENTRE- Your capacity to create
your existing & BASE PRENEURSHIP companies wholly new or
prospective industry from existing firms
clusters

What you do: your Your capacity to innovate

workforce skills & and generate new ideas
INNOVATION
human capital base
TALENT & IDEAS

Location, Infrastructure, Amenities,

Factor Costs

The basic conditions defining the

economic milieu of the region
 What’s Next?
• How do we put the different analyses together
to inform the design of regional development
strategies?
– Integrate with assessment of regional planning
capacity in a SWOT process
– Module 4
– Tomorrow!