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Hamilton Countys Comparative

and Competitive AdvantagesCOMMUNITY COMPASS SPECIAL RESEARCH REPORT NO. 3-6

BUSINESS AND INDUSTRY CLUSTERS, 2003

Hamilton County, Ohio

April 2004


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The Planning Partnership is the long-rangecollaborative planning and coordinating committee ofthe HCRPC. Its mission is to bring together public,

private and civic sector organizations engaged incommunity planning in Hamilton County so thatmutual goals related to physical, economic and socialissues can be planned for comprehensively andachieved collaboratively. For more information onthe Planning Partnership, please visit the website:www.planningpartnership.org.

Community COMPASS is the ComprehensiveMaster Plan and Strategies for Hamilton County,Ohio. It is a major initiative of the PlanningPartnership. For more information on CommunityCOMPASS please visit the website:www.communitycompass.org.

Project TeamChristine Nolan, Author and Principal Researcher

Jesse Hartman, Michael Steele, MapsK.D. Rex, Andrew A. Dobson, Maps

Harry Blanton, Reviewer,Gary Conley, Reviewer,

Johnathan Holifield, Reviewer,David Main, Reviewer,Marge Rotte, Reviewer,

Howard Stafford, Ph.D., ReviewerRichard Stevie, Ph.D., Reviewer

Nick Vehr, Reviewer,George Vredeveld, Ph.D., Reviewer

Karen Ambrosius, Paul Smiley, Design and LayoutCaroline Statkus, AICP, Planning Services

AdministratorRon Miller, AICP, Executive Director

Community COMPASS Components

Title:

Subject:

Date:

Source ofCopies:

Synopsis:

Notes:

ABSTRACT

Community COMPASS SpecialResearch Report 3-6Hamilton Countys Comparative andCompetitive Advantages: Business andIndustry Clusters, 2003

Identification and analysis of businessand industry clusters in HamiltonCounty, Ohio. Explanation anddiscussion of the business and industrycluster approach to strategic economicdevelopment planning.

December, 2003

Hamilton CountyRegional Planning Commission807, County Administration Building138 East Court StreetCincinnati, OH 45202513-946-4500 (Phone)

513-946-4475 (Fax)[email protected]/hcrpc

This report uses data from the USBureau of Census, County BusinessPatterns, and many reports issued byStates, Cities, Universities, and otherorganizations and individuals in the USand elsewhere to make a preliminaryidentification of Industry Clusters thatare present in Hamilton County and theregion, and to outline the componentsand methods of an industry clusterapproach to economic development forHamilton County.

The report is part of a series of researchreports providing technical informationto support Community COMPASS(Comprehensive Master Plan andStrategies for Hamilton County, Ohio).

The content of this paper does notnecessarily reflect the official views or

policies of the Hamilton CountyRegional Planning Commission


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Community COMPASS i

Table of Contents

Glossary of Technical Terms...................................................................iii

1. Introduction ........................................................................................ 1

2. What are Clusters? ............................................................................ 2

3. Benefits of a Cluster Approach to Economic Development................ 5

4. Challenges of a Cluster Approach to Economic Development........... 9

5. Defining, Identifying and Measuring the Performance ofRegional Clusters ............................................................................ 10

6. Implementing a Cluster Strategy...................................................... 15

7. Conclusion Where Do We Go From Here?The Next Steps ................................................................................ 18

Appendix A: Hamilton County Cluster Analysis ................................. 19

Appendix B: Current Issues in Industry Classification Systems......... 47

Appendix C: Example of a Cluster Strategy ...................................... 49

Appendix D: Benchmarking Guide for Clusters ................................. 55

Appendix E: Further Reading and Resources ................................... 57


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ii HAMILTON COUNTY REGIONAL PLANNING COMMISSION / PLANNING


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Community COMPASS iii

Glossary of Terms

Term MeaningSector Sector is the name for groups of similar types of industries in an economy, for example the

manufacturing sector, the retail trade sector, the construction sectorand so on. Appendix Bcontains a list of all the sectors in the economy.

Sub-Sector Industries in sectors are classified from broad to detailed definitions. For example, theManufacturing Sector is the broad classification that includes all manufacturing industries.Within the broad sector, manufacturing industries can be more and more narrowly specified,until a specific sub-sector is reached, for example Transportation Equipment manufacturing, orSoap and Detergents manufacturing and so on.

SIC Code Standard Industrial Classification system, or code (not in use after 1997).

NAICS Code North American Industrial Classification System, or code (in use from 1998).

Specialized Industries Industry X represents a greater share of the local economy than the share of Industry X in theUS economy as a whole. Industry X isspecializedin that particular location.

Clustered Industries A geographically limited critical mass (i.e., sufficient to attract specialized services, resources,and suppliers) of companies that have some type of relationship to one anothergenerally acomplementariness or similarity in product, process, or resource (A Governors Guide to Clus-ter-Based Economic Development p. 37)

Sub-Clusters Within large clusters there are often sub-groupings of similar industries with their own special-ized needs in addition to the needs of the broad cluster. These are sub-clusters. An examplemight be Machinery manufacturing, or Transportation Equipment manufacturing within the

broad Advanced Manufacturing Cluster.

Value-Added At each step of the production process, value is addedto the final product. Some products andservices fetch a greater price than others and require a greater amount of skill to produce hence, we have high value-added products and services, and lower value-added products andservices.

Import Substitution When goods and services are produced, they require inputs along the way to the final product.Sometimes the needed inputs are not available locally, and they must be imported from otherareas. This means that some of the value of the product leaks out of the region in the form

of payments for these imported inputs. If needed inputs can be produced locally, this leakagecan be reduced. Substituting local inputs for imported inputs is termed Import Substitution.

Driver Industries These are the industries that export goods and services to other regions and nations. Moneyearned from exports is new and additional money to the home region. Therefore, it is said thatdriver industries are the chief creators of new wealth in a county or region.

Support Industries These are the businesses and industries that provide inputs and support to the driver industries.They may include services such as accounting, legal advice, advertising and also lower paidactivities such as janitorial services, catering and so on. They also include government ser-vices such as specialized infrastructure, clean water supply and hazardous waste disposal.They include distribution and warehousing services, as well as products such as packaging,furniture and paper. It is easy to see that businesses large and small can provide a largeamount ofsupport activity in addition to what they themselves produce, and that this support

activity also generates income.Multiplier Effects Multipliers refer to the amount of money generated in the region for each $1 spent by the clus-

ter industries in the region, or to the number of additional jobs generated by the addition ofjobs in the cluster driver industries. Multipliers are calculated by the US Bureau of EconomicAnalysis, based upon the 5-year Economic Census.

Social Capital Stocks of social trust, norms, and networks that people can use to solve common problems.Networks of civic engagement, such as business and neighborhood associations and coopera-tives are an essential form of social capital. The denser these networks, the more likely mem-

bers of a cluster will cooperate for mutual benefit. ( A Governors Guide to Cluster-BasedEconomic Development , p.38).


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iv HAMILTON COUNTY REGIONAL PLANNING COMMISSION / PLANNING


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Community COMPASS 1

1. Introduction

This report considers the potential effectiveness of a cluster approach in providing long-rangeeconomic benefits for Hamilton County residents and businesses. In a cluster approach,economic development is viewed through a lens that focuses on groups of industries that areconnected to each other and interdependent in a variety of ways. Each group forms a business

or industry cluster. Cluster strength is thought to be what drives the creation of wealth in anarea or region, and because of this the cluster approach seeks to undertake a sequence of stepsdesigned to maintain or increase the competitive strength of the clusters that are present (ordesired) in the area.

In todays environment of increasing globalism, metropolitan regions and localities struggle forways to establish or maintain a competitive advantage and economic vitality. Many want tomaintain both a competitive edge locally, and yet collaborate for regional economic wellbeing.Sometimes these aims conflict with each other. Public policy and planning attempt to supportthese goals, yet there are few established mechanisms for achieving them.

The business and industry cluster approach to economic development can be a useful tool tohelp in solving some of these thorny problems because it provides a framework forcollaboration. At the same time it allows localities to capitalize on their economic strengths andspecializations to maintain a vital and competitive economy.

Across the US, and in several foreign countries1, states, regions and localities are adoptingeconomic development strategies that focus on a areas specialized industries, its clusteredindustries, and/or its industries that combine specialization with regional clustering. This specialreport brings Hamilton County into the arena by making a preliminary identification of home-grown business and industry clusters and explaining how the industry cluster approach can bemade to work to the advantage of Hamilton Countys jurisdictions, businesses and evenhouseholds.

As part of its foundation research for the economic development component of the county plan,Community COMPASS2, Hamilton County Regional Planning Commission (HCRPC) hasconducted an analysis of trends in the structure and composition of the county economy andlabor market, in the context of the Cincinnati metropolitan region.3

In addition, HCRPC has researched the classification and composition of business and industryclusters identified in a number of other US metropolitan regions, and has used this taxonomy tomake a preliminary and provisional identification of ten clusters present in Hamilton County. Inthis effort, HCRPC considers both high- and lower-value added clusters and specializedindustries, in the interests of providing job and income opportunities across the full range ofcounty residents and business owners. Hamilton Countys clusters are described in this report.

1 See Appendix B for an Australian example; some other examples include the States of Arizona, Minnesota, New York and

Connecticut; St. Louis, Louisville, Cleveland, Pittsburgh, Tucson; Santa Fe; San Diego, Minneapolis-St Paul and Portland, Oregon.

2 Comprehensive Master Plan and Strategies for Hamilton County, Ohio.

3 State of the County Report: Economy and Labor Market, Community COMPASS Report No. 16-1, Hamilton County Regional

Planning Commission, July 2003

WHY ADOPT ACLUSTER BASEDECONOMICDEVELOPMENTSTRATEGY?

Improved ClusterCompetitiveness

Leads to better jobs and a

stronger economy Brings key industry

stakeholders together

Creates significantopportunities for placesand regions


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2 HAMILTON COUNTY REGIONAL PLANNING COMMISSION / PLANNING

All of the clusters found for Hamilton County are present in one or more of the comparisonregions, where they are stronger in some and weaker in others.

There are undoubtedly many more clusters that exist in Hamilton County and the region.Additionally, the clusters identified by HCRPC may need to be broken down into smaller sub-clusters or even separate clusters in order for the analysis and data to be most effective anduseful.

The cluster strategies and experience of other regions suggest that the final identification of the

composition of a regions most important clusters should take place in collaboration withbusiness leaders and representatives of cluster member industries who, after all, can be expectedto be the most knowledgeable about the relationships of industries within the clusters.4

HCRPCs cluster research and analysis is intended as a starting point for a broad communityeconomic development initiative to understand the economy, and to enable targeting of scarceresources towards those sectors that will produce the most benefit for County households,

businesses and government revenue streams. The cluster analysis is provided as a basis forlonger-term strategic economic development planning for Hamilton County as recommended inthe countywide plan Community COMPASS. Specifically, the analysis addresses needswithin the following elements of the county plan:

Initiative 4: Comprehensive Economic Development Plan

Initiative 5: Business Attraction, Retention, Startups and Spinoffs

Initiative 6: Regional Development Initiatives Initiative 27: Revitalization, Including First Suburbs

Anticipated practical benefits from the application of knowledge obtained through carrying outthis project include:

Improving the capacity of local economic development officials to target jobs andindustries (retention, expansion and attraction) that will benefit their residents and

jurisdiction tax-bases. Construction of a long-range framework for sustaining and enhancing economic vitality in

an older Midwestern metropolitan region (Hamilton County and the Cincinnati CMSA). Enhancing the efficiency and effectiveness of taxpayer-generated economic development

resources.

2. What are Clusters?

Industry clusters are geographic concentrations of competing, complementary, orinterdependent firms and industries that do business with each other and/or have common needs

for talent, technology, and infrastructure. The firms included in the cluster may be both

competitive and cooperative. They may compete directly with some members of the cluster,purchase inputs from other cluster members, and rely on the services of other cluster firms in

the operation of their business.5

The industries that make up a cluster are not necessarily the same types of industries. Forexample, the cluster will contain support industries such as business services, plus a numberof industries that supply inputs needed for production and industries that purchase the productsthat are created. However, a cluster will usually contain several or even many driverindustries that do, or produce, essentially the same thing. They compete with each other, but atthe same time all benefit from both the competition and the agglomeration6 economy that theyform. Figure 1 gives an example of industries that are part of the Biomedical/BiochemicalCluster, showing how they are connected with each other.

4 Technical analysis (specifically Input-Output analysis) can indicate which sets of industries are most closely tied together in the

processes of production and marketing, however the expert knowledge of economic development community stakeholders, including

planning and economic development experts in the county and region is considered invaluable and necessary in the process of cluster

definition.

5 University of Minnesota Extension Service, 1999

6 Agglomeration economies are spatial concentrations of like industries examples would be Silicon Valley, Los Angeles and the movie

industry and (a more local example) Kings Automall in Hamilton County.

WHY CONDUCTCLUSTER ANALYSIS?

To Improve:

Understanding of theeconomy

Relations betweensuppliers and customers

Local infrastructure

Strategic targeting ofresources

Image of the region as aworld-class competitor

Job/skills match in a

region


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Community COMPASS 3

Clusters form around firms that drive wealth creation in an area or region, primarily throughexport of goods and services. These core exporting firms bring new money into the area, andtheir needs support the development of local industries.

Industries in a cluster arelocated close to each other,in the same city, county orregion. Because of this, theyhave both the opportunityand potential to developsynergies with each other(interactions that include thesparking of new ideas, newways of doing things, new

products and technologies)due to opportunities forcontinual close contact andinformation sharing. Thesetypes of benefits are calledspillovers. Because clustermembers are geographicallyclose together, they can

experience cost efficiencies for example, transportationcosts are minimized.

Because of the spatiallocation aspect of industryclusters, an opportunityemerges for counties andlocalities to link theireconomic developmentefforts more closelytogether. They can linkeconomic development morestrongly to the kind of landuse planning they want, as well as to their land and infrastructure resources. To assist inenabling this process to occur, HCRPC has produced maps showing the approximate location ofHamilton Countys clusters by zip code area in the county (see Appendix A).

Clusters occur and grow naturally in regional and national economies. Nevertheless, studiesof famous clusters such as Silicon Valley show that clusters can develop even more strength andinnovative power when they are active or organized, meaning that the firms within theclusters consciously work together to improve their competitive position and address common

problems. However, organized industry clusters are far more than just narrowly focused tradeassociations. They can contribute broadly to the well-being of the region by addressingworkforce recruitment and training issues, developing needed infrastructure, and establishingresearch and training programs at universities and technical colleges, to name a few.7

The Importance of Emerging Clusters

Clusters are dynamic. The relative strength and importance of industries changes over time.Businesses and industries often experience changes that are due to life-cycle effects. Forexample, a company offering a new product or service will likely go through a period where its

product is in very high demand due to its novelty and relative scarcity. This is the super-profit period. Gradually, this high-demand period diminishes and smoothes out and othercompanies join in the competition to sell the product. Prices even out, and the industry becomesmature. The industry may even go into decline and die after a while, as need for its productsand services dwindles because of changes in taste or technology. A good example of this would

be the death of the steamboat-building industry in Cincinnati. Alternatively, an industry may

7 Ibid.

Figure 1MODEL OF A BIOMEDICAL/BIOCHEMICAL CLUSTER

BIOMED/BIOTECH CLUSTER

Core IndustriesPharmaceuticals and Medicines

Diagnostic SubstancesBiological ProductsMedical Instruments

Medical Equipment and SuppliesIndustrial Chemicals

Medical ChemicalsBotanicals

SUPPORT INDUSTRIESTesting Laboratories

Computer and Data ProcessingServices

UniversitiesBiological and Medical R&D

FinanceIntellectual Property Attorneys

BUYERSDoctors and Dentists

Hospitals and other MedicalFacilities

Wholesalers/ExportersRetailers:

Druggists, specialty stores

MilitaryOther Industries

SPECIALIZEDINFRASTRUCTUREClean Water Supply

Hazardous Waste DisposalWholesale and Distribution

ServicesSpecialized Construction and

Real Estate

SUPPLIERSMedical Plastics

Glass ManufacturesMetal Manufacturers

Basic Organic and Inorganic

Chemicals Manufacturers

BIOMED/BIOTECH CLUSTER

Core IndustriesPharmaceuticals and Medicines

Diagnostic SubstancesBiological ProductsMedical Instruments

Medical Equipment and SuppliesIndustrial Chemicals

Medical ChemicalsBotanicals

SUPPORT INDUSTRIESTesting Laboratories

Computer and Data ProcessingServices

UniversitiesBiological and Medical R&D

FinanceIntellectual Property Attorneys

BUYERSDoctors and Dentists

Hospitals and other MedicalFacilities

Wholesalers/ExportersRetailers:

Druggists, specialty stores

MilitaryOther Industries

SPECIALIZEDINFRASTRUCTUREClean Water Supply

Hazardous Waste DisposalWholesale and Distribution

ServicesSpecialized Construction and

Real Estate

SUPPLIERSMedical Plastics

Glass ManufacturesMetal Manufacturers

Basic Organic and Inorganic

Chemicals Manufacturers

Source: Hamilton County Regional Planning Commission

CLUSTERS ARE:

Local concentrations ofcompetitive firms that:

Buy and sell from eachother

Use similar technologies

Share a labor pool

Share supply chains

Include supportingservices and specializedinfrastructure

Include both high and low-value added employment

Drive the creation ofwealth in a region


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decline due to successful competition from other regions at home or abroad, as in the case of thesteel industry in the Midwest. Whole clusters, as well as individual industries, display thesekinds of behaviors and effects.

Because of the life-cycle effect, businesses and industries are constantly seeking (or creating)new needs for new products and technologies. They must innovate constantly in order to stayalive. Because of the need for constant innovation and improvement in business and industry(now made even greater because of increased competition from overseas), it becomes extremelyimportant for localities to identify and encourage theiremerging clusters because they are theeconomic drivers of the future they will replace older and fading industries.

Research, strategic action planning and resource allocation are essential to identify, maintainand further develop our industry clusters. The more active linkages that exist (i.e. are physicallylocated) between the industries in a cluster in the County and region, the greater the amount ofvalue-added to the products of the County and region. The amount of value-added to a productwithin county or regional boundaries makes a big difference when the final product is shippedoff for export to another region or country. This value-added will return as new and additionalincome to the region. It will affect the amount of the Gross Regional Product (income).

What is the Cluster Approach?

Not so long ago, regional planners and economic analysts used economic base analysis as theirmajor tool for understanding which industries were the main drivers or creators of wealth in

an area. Basic industries were those that exported goods to places outside the city or region.Because additional, new money can only come into an area from outside that area, industriesthat produce for export are the ones that can add to an areas aggregate wealth. Formerly, onlymanufacturing and primary resource-based industries (such as mining, forestry and agriculture)were considered as basic industries. Now, due to the changing nature of service industries,some of these too are considered as exporting industries. Some examples of these might be

professional services such as consulting services, industrial design services, engineering andadvertising.

The more recent approach to understanding how a local or regional economy works, and whatare the drivers or engines of economic growth and prosperity, is to detect and analyze local

business and industry clusters. Techniques to support and strengthen the regions existingclusters, and its emerging clusters are then undertaken to maintain, stabilize or grow the localeconomy.

The methods and tools8 used to distinguish the existence of clusters and emerging clusters in alocal or regional economy are not much different from those used to determine basic industries.However, the results and the approach are said to be more useful because they reveal muchmore about how the economy actually works. This makes it much more likely that attempts toimprove or strengthen local economies will be successful. The cluster method has evolved outof several years of research and observation by microeconomists and regional economicanalysts, such as Michael Porter at the Harvard Business School.

Many states, cities and metropolitan areas or regions are now undertaking cluster analyses andstrategies as part of overall economic development efforts to boost their competitiveness in boththe national and global economies. These initiatives are usually undertaken in partnershipsamong government, private business, universities and/or research organizations, and are oftenembedded in an overall community economic development plan (for example, Santa Fe, NM) or

a state economic development plan (Louisiana, Arizona).In developing its database and preliminary cluster analysis, HCRPC has researched thecomposition of clusters identified in the following metropolitan areas:

1. Portland, OR 5. Tucson, AZ2. Minneapolis-St. Paul, MN 6. Cleveland, OH3. St. Louis, MO 7. Louisville, KY4. Pittsburgh, PA 8 San Diego, CA

HCRPCs research benefited from the work done in cluster development strategies by theNational Governors Association, Harvard Business Schools Institute for Strategy and

8 Input-Output analysis, Shift-share analysis, and location quotients, for example.

HOW IS THISAPPROACHDIFFERENT?

Traditional economicdevelopment:

One firm at a time

Individual problems andneeds

Clusters offer analternative:

Solve groups of industryproblems/needs

Build sustained business-to-business connections

Invest and assist groups offirms to build synergy andeconomic impact


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Community COMPASS 5

Competitiveness, the Battelle Institute in Ohio, and the States of Connecticut and New Yorkamong others.

3. Benefits of a Cluster Approach to EconomicDevelopment

In the Cincinnati metropolitan region, the Greater Cincinnati Chamber of Commerce and the

Hamilton County Regional Planning Commission are working in conjunction to produce thetechnical analyses necessary for developing a cluster strategy that can be tailored to the needsand resources of each county within the Cincinnati CMSA and to the metropolitan region as awhole.

Among the many benefits of a cluster approach to economic development is its versatility andthe range of benefits and outcomes that can be achieved. Although it is often stressed that theregion is the correct level for implementation of a cluster strategy, it is argued here that even thesmallest locality can benefit by taking advantage of cluster research and the economicintelligence that it provides. Some of the identified benefits are described below.

3.1 Benefits to Established and Emerging Industries

Most cluster studies stress the importance of business and industry leadership and commitmentin implementing a cluster strategy. Consequently, most studies are very clear about the

potential benefits that business and industry can obtain from participation in such an effort. Themajor benefit to firms is, ofcourse, an increase in theircompetitive edge andtherefore in their ability togenerate profits.

Both established andemerging industry clusterscan benefit through an activecluster strategy, throughaccess to information flowsand extensive networks, aswell as to specializedservices and coordinatedservice delivery, bettercommunications and aconstructive relationshipwith governments, and animproved capacity to set

priorities.

Another example ofidentified cluster benefits comes from the Center for Best Practices of the National GovernorsAssociation, shown in Figure 2.

3.2 Targeting, Marketing, Start-Ups, Expansion and Retention

Adoption of a cluster strategy can present significant opportunities to localities, regions,entrepreneurs and the business community.

Identification of specific business and industry clusters can help local economic developerstarget their efforts towards firms that would benefit from moving to the region due to the

presence of clusters that fit their operation. The presence of an industry cluster in an areaprovides evidence that the location is attractive to these types of manufacturers.9

Similarly, economic developers can use cluster data and information to convince firms thatmight wish to move away that they are better off where they are by demonstrating thecompetitive advantage this cluster has in the locality. Conversely, an economic developer

9 Barkley and Henry, Clemson University, South Carolina, 2002.

Figure 2

Hard Benefits of Clusters

Asset Benefits

Local supply chains Design efficiencies

Specialized workforce Higher productivity

Specialized service Faster and easier access

Choice of inputs Lower costs, higher quality

Range of firms Joint ventures, network opportunities

Soft Benefits of Clusters

Asset Benefits

Association Collective vision, planning, influenceTrust Inter-firm collaboration and networks

Learning (1) Technology transfer and innovation

Learning (2) Tacit knowledge and know-how

Informal labor markets Efficiencies, career ladders

Source: A Governors Guide to Cluster-Based Economic Development, NGA, 2002, p.10


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may judge that a retention effort is of little value, if the cluster analysis shows that thebusiness or industry is in fact declining.

Chambers of Commerce and others wishing to boost their city, county or region tooutsiders can market the presence of strong or emerging clusters, together with a pool oflabor that serves them. An example is shown in Figure 3, adapted from New York Stateseconomic development website NY State nylovesbiz.com.

Opportunities for expansion open up with the economic intelligence that is developed

through the technical part of a cluster analysis. For example, a business or industry that issupplying a cluster driver industry can see that there are several more of the same type ofdriver industry in the area (county or region) and may decide to try and gain more business,or to expand its line of products.

Entrepreneurs wishing to start a new business can find a niche or supply a gap (industriesthat are necessary but missing) in the local clusters. These activities also have the effect of

providing import substitution in the local economy, and increase the value-added toregional products. The economic intelligence generated by a cluster analysis is invaluableto those seeking to begin or expand their businesses.

Research has shown that industry clusters have greater potential for new firm spin-offs thangroupings of unrelated firms.10

3.3 Workforce Development

Clustered industries benefit from pooled labor markets that is, over time a pool of workersdevelops that have the skills and experience to work in those industries. The industries candraw upon this pool as they need when one industry needs workers, another may be letting goworkers so that each can benefit. Workers benefit too, by having a pool of industries that theycan use to switch jobs. A rich, or thick industry cluster stabilizes the labor force by providing

10 Barkley and Henry, ibid.

Figure 3NEW YORK STATE NYLOVESBIZ WEBSITE

Industry Clusters List

High Tech Economy

Investing in NYS

New York State Economy

Productive Workforce

Superior Infrastructure

Quality of Life

New York State - Home to Business

Industry Clusters

Industry clusters are groups of related industries located in one or moreregions of the state.

Empire State Development (ESD) has identified 13 major industry clusters,including manufacturing

clusters, services clusters, and a few that are hybrids of both.

ESD uses industry clusters as a framework for understanding the state andregional economies, andguiding economic development policy and initiatives. ESD and its partnershave employed cluster-basedanalysis in the development of business marketing, export promotion,workforce policy development,regional economic planning, and other activities.

To the right are links to profiles of New York State's industry clusters. Each profile provides a formaldefinition of the cluster, a summary of national and international market trends affecting the cluster, trendsin New York cluster employment, and a summary of the cluster's presence in the state's economic development regions.

New York State

Industry Clusters List

Computer Hardware & Electronics

Industrial Machinery & Systems

Transportation Equipment

Bio Medical

Business Services

Communication & Media Services

Financial Services

Materials Processing

Optics & Imaging

Software Industries

Food Processing

Distribution

Source: http://www.nylovesbiz.com/NYS_Home_To_Business/Industry_Clusters/default.asp


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Community COMPASS 7

workers with the assurance they can likely find another job if they need to without having tomove away from the area. Knowing that this possibility exists can be an attractor for workers tomove to, or stay in, the region.

Another benefit relates to workforce training: clusters can more easily make their needs forparticular skills and training programs known to workforce development specialists andeducation institutions. Education institutions, knowing that a particular cluster is attempting toexpand in certain directions, can design specialized training programs accordingly.

3.4 Efficient and Effective Service Delivery

A benefit to public agencies is claimed to be an increase in the efficiency and effectiveness ofpublic resources used for economic development. Rather than directing resources in a scatter-shot fashion at individual businesses and industry sectors, the cluster approach can address thecommon needs of whole groups of industries. Individual industries will still require assistanceand attention, of course, and no incoming, expanding or startup industry need be turned away

because it does not belong to an identified cluster. However, broad strategies to advance clustergroups can be devised to address cluster-wide needs for example, workforce development andinfrastructure such as transportation, waste disposal, power and telecommunications.

Cluster authority Michael Porter has noted that there is an expanded role for local and regionalgovernments in working with the cluster concept and strategy for economic development. Hewrites that: Governments more decisive influences are often at the microeconomic level.

Removing obstacles to growth and upgrading of existing and emerging clusters should be apriority. Clusters are a driving force in increasing exports, and magnets for attracting foreigninvestment.11

In addition to the activities recommended by Porter, government agencies can provide servicesby

Studying the economy toidentify emerging orexisting clusters

Conducting research tohelp the clusters definethemselves

Facilitating the meeting of

cluster members Responding to clusterpriorities with appropriateand requested assistance

Helping to coordinate thedelivery of services to theclusters

Developing broadstrategies to complementexisting industries in anarea

Identifying available land;providing appropriate zoning and streamlining the development process

A broad range of other policy options is also available at various levels of government, asshown in Figure 4. Many of these strategies could be pursued at the level of the local

jurisdiction, economic development department or chamber of commerce.

3.5 Improve Local and County Government Revenue Streams

Improving local revenue streams is a potent motivator for local and county governments tosupport a cluster strategy. Job creation is associated with improved earnings tax receipts, andcan be improved even further when quality, high-paying jobs are the targets for attraction. Jobgrowth is also associated with improved sales tax receipts at the county level. Increases in thenumber and kind of firms operating in an area are also associated with improved property taxes,

11 Porter:1990:198-9

Figure 2POLICY OPTIONS FOR STATE, COUNTY AND LOCAL GOVERNMENTS

Organize service delivery around clusters Strengthen networking and build bridges

Aggregate, collect, and sort informationby cluster Form cross-agency quick-response teams

Encourage and support multifirm activity Build incentives for multifirm applicationsto funding programs

Establish or recognize cluster organizationsand alliances Facilitate external linkages

Encourage cluster communications channels

Target investments to clusters Develop human resources for clusters

Invest in cluster R&D and innovation Invest in cluster technology centers or parks Support cluster entrepreneurial activity Market clusters and build cluster markets

Develop a skilled and specialized labor force Engage community-based employmentintermediaries Qualify people for cluster employment Establish cluster skills centers Support regional skill alliances

Adapted from: A Governors Guide to Cluster-Based Economic Development, NGA, 2002, p.21


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provided the jurisdiction does not give away these benefits as part of a package to attract abusiness.

Researchers at Clemson State University have shown that:

The multiplier effects associated with attracting new firms to a cluster generally are greaterthan those resulting from noncluster firms.

Members of industry clusters have stronger employment growth over time than firms thatare not in clusters.12

3.6 Build Social Capital through Networks and Linkages

If implemented fully, a cluster strategy for economic development would have as an effectbuilding and strengthening networks and linkages in the county and region. Current theoryspeculates that it is through such mechanisms that knowledge and information are spread, andinnovations are hastened and facilitated. In other words, implementation of a cluster strategycould enhance the formation ofsocial capital in the county and region. Current theoryconcerning social capital can be summarized as follows:

Social capital is broadly defined as the network of social ties or associations an individualacquires, and the level of trustworthiness and reciprocity that exists across those connections.13

Social capital is built by bonding or bridging. Bonding describes the degree of interactionsa member has with other group members. Bridging deals with a groups interactions with othergroups.14 The greater the degree of bonding, the greater the sense of self-worth and purpose.The greater the degree of bridging, the greater the ability to diffuse and acquire new

information. It follows that increasing either or both of these facets will in turn increases social

capital15 (emphasis added).

These types of activities and outcomes apply also to businesses and cluster partners, as can beseen when considering the role recommended for businesses participating in an active cluster:

Participate in defining the cluster Organize cluster activities Establish cluster priorities, partner with government and others Work with member industries to maximize competitive advantage Create economic prosperity in the region

An excellent example of social capital building that is currently occurring in Hamilton County is

the Planning Partnership formed by HCRPC in May, 2000. This organization, which includes30 government jurisdictions and 13 affiliate organizations, is building social capital by regularlyconvening representatives county-wide to share in planning and development efforts, shareknowledge and insights, and through the vehicle of the Community COMPASS Plan to

build collaborative efforts to move the County forward in the twenty-first century. This is anactivity that has not occurred before. Adoption of a cluster strategy to implement the EconomicProsperity goal of the countywide plan could be expected to increase bonding and bridgingactivities between localities and the business community in Hamilton County.

4. Challenges of a Cluster Approach to EconomicDevelopment

During the mid 1990s, the Minneapolis Metropolitan Council and the State of Minnesota began

to expend considerable effort on the development of a cluster approach for their long rangeeconomic development initiatives. In this process, they outlined the challenges they expected toface in implementing a cluster strategy as shown in Figure 5:

12 Barkley and Henry, ibid.

13 For more on the differences between Civic Engagement and Social Capital, see The Greater Cincinnati Foundation. Social Capital

in Greater Cincinnati. The Institute for Policy Research, University of Cincinnati. 2003.

http://www.greatercincinnatifdn.org/page225.cfm

14 For additional information see: The Greater Cincinnati Foundation. Social Capital in Greater Cincinnati. Op. cit.

15 Adapted from HCRPC Report on Social Capital, forthcoming 2003.


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Community COMPASS 9

The caution shown by the Minnesota analysts is helpful in clarifying issues that are important toconsider in adopting the cluster approach. For example, business people and economicdevelopment specialists may find it difficult to buy in. Some reasons for this difficultyinclude:

A belief that anything that has a longer-term time horizon is of little use in the world ofeconomic development, because planning by businesses is not usually done in the publiceye (therefore it is unpredictable), but once the business planning process is complete,

business decisions have to move quickly. Government, however, moves only slowly. The political climate can change quickly and completely owing to the election process. Externally-generated events can comprehensively change the economic development

climate (for example, natural disasters; financial crises; wars; terrorist acts and so on).

In response to thesechallenges, the clusterapproach asserts that thestate of a local or regionaleconomy does not have to beentirely determined by fixedresources, by externalconditions, or by habitualways of thinking and acting.

Instead, areas can choose toexert at least some influenceover economic conditions,and choose to expand theirresources, for their own

benefit. The longer termstrategic planning processfor cluster development isflexible, and should includecontinuous monitoring ofeconomic conditions inorder to take advantage ofnew opportunities (forexample, identifyingemerging clusters) andaddress changes such asdownward trends.

Another challenge is thatcluster development is timeconsuming, labor intensiveand demands patience and

persistence over quite longperiods. Many economicdevelopment agencies andchambers of commercemight feel that they do not

have the manpower or capacity to devote to this process. Even if this is the case, however, it isnot generally recommended that the process be handed over entirely to external consultants.Local expertise is thought to be the best source of cluster information. A response to thischallenge might be that in implementing a cluster approach, collaboration and task-sharing iskey no one agency, business or locality has to (or perhaps even should), go it alone.

Additionally, the idea that a cluster strategy risks picking winners and losers also deservesconsideration. In free market economics, the market is assumed to be the best determinant ofthe success or failure of firms and industries. In fact, many industries world-wide are known to

be supported by government in one way or another, and across the globe regions are preparingto compete fiercely, based upon their competitive advantages. The cluster approach does notadvocate leaving any business or industry out in the cold. It does, however, recommendfocusing resources upon key clusters.

Figure 5BENEFITS AND CHALLENGES OF A CLUSTER STRATEGY

Key Benefits Key Challenges

Creates a framework for collaboration

Relies on an existing organizationalinfrastructure

Helps build a common agenda

Helps achieve economies of scale

Uses workforce shortage to focus on higherwage and competitive advantage industries

Focuses and coordinates existingresources

Provides information for educators (jobdescriptions)

Facilitates developing a higher competencelevel

Mitigates inter-industry competitive fears(builds trust and cooperation) onceimplemented

Needs to be industry driven

Defining the industry cluster could be achallenge

Selecting scale of strategy (regional,county, local)

Avoid creating factions in the businesscommunity

There may be private industryskepticism

The nature of the political system andtraditional educational institutions maybe a challenge

There may be a risk of dominance bybig business

Public sector response must be quick

There may be institutional barriers toimplementing such a strategy

Risks picking winners and losers

Defining government's role

Setting the criteria to define a cluster

Source: Twin Cities Industry Cluster Study, Minneapolis Metropolitan Council, 1995.


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Finally, a major challenge faced by cluster developers is that of measuring the success of thestrategy. Many cluster programs are still in the process of developing, and have not been inimplementation long enough to draw many solid conclusions about whether the strategy has

been successful in its goals. The State of Arizona, however, has been pursuing a cluster strategysince 1992, and a recent report on their efforts documents considerable success in generatingmillions of dollars in new sales through the restructuring and consolidation of programs to

promote exports in three of the states identified clusters.16 The South Australian BusinessVision 2010 group (Appendix C) has recently issued an evaluative review17 of its cluster

strategy, and has concluded that the region has benefited by a cumulative amount $(A)475million, for a cumulative cost of $(A)15 million since 1995.

Monitoring and evaluation of cluster programs would be an important part of anyimplementation initiatives in Hamilton County, and are part of the Results Accountabilitycomponent of the Community COMPASS Plan. Appendix C gives a model benchmarking andindicator system for measuring cluster strategy progress. This model is drawn from the

National Governors Associations report A Governors Guide to Cluster-Based EconomicDevelopment(2002).

5. Defining, Identifying and Measuring Regional Clusters

How Are Clusters Identified?

In this study, HCRPC has made a preliminary and provisional identification of ten clusters inHamilton County by studying the component industries in clusters identified in othermetropolitan regions in the US. In this task, HCRPC researched published lists of identifiedclusters together with the types of industries they contained (see below), in eight USmetropolitan areas (page 9). HCRPC grouped together similar clusters from each metro area,studied the component industry lists, and finally developed an aggregate list of industrycomponents for each cluster. This cluster classification, or taxonomy, was then used to identifyclusters in the Hamilton County economy. The cluster descriptions and the geographic locationof cluster industries in Hamilton County are shown in Section 8. Over time, more clusterdefinitions can be added to this cluster list, as desired and as revealed by the technical analysis.

Working with the cluster taxonomy as a guide, HCRPC has identified the following clusters:

Hamilton County Preliminary Cluster and Cluster ComponentIdentification

Advanced Business and Financial Services (contains the following sectors and their sub-sectors: Monetary authorities - central bank; Depository credit intermediation;

Nondepository credit intermediation; Activities related to credit intermediation; Security

and commodity contracts intermed and brokerage; Other financial investment activities;

Other investment pools and funds; Insurance carriers; Agencies and other insurance

related activities; Management, scientific and technical consulting services; Advertising

and related services; Other professional, scientific, technical service; Management ofcompanies and enterprises; Office administrative services; Facilities support services;

Employment services; Business support services; Other support services; Activities related

to real estate; Commercial, industrial equipment, rental and leasing; Lessors of othernonfinancial intangible assets; Legal services; Accounting, tax preparation, bookkeeping,

payroll services; Architectural, engineering and related services; Specialized designservices; Computer systems design and related services)

Advanced Manufacturing (contains the following sectors and their sub-sectors: Primarymetal manufacturing; Fabricated metal product manufacturing; Machinery

manufacturing; Computer and electronic product manufacturing; Electrical equipment,appliance and component manufacturing; Transportation equipment manufacturing)

16 Mary Jo Waits, op. cit., pp47-48

17 http://www.clusters.com.au/Documents/blandyrviewExecSum.pdf


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Community COMPASS 11

Advanced Materials (contains the following sectors and their sub-sectors:Basic chemicalmanufacturing; Nonferrous (excluding aluminum) production and processing;

Photographic & photocopying equipment manufacturing; Semiconductor and other

electronic component manufacturing; Navigation, measuring, medical, control instruments

manufacturing; Resin, synthetic rubber, artificial and synthetic fibers, filamentsmanufacturing)

Arts, Entertainment and Recreation (contains the following sectors and their sub-sectors:Travel arrangement and reservation services; Performing arts, spectator sports, andrelated industries; Museums, historical sites and like institutions; Amusement, gambling

and recreation industries; Traveler accommodation; Food services and drinking places;

Passenger car rental and leasing; Sporting and athletic goods manufacturing; Doll, toy

and game manufacturing; Sporting and recreational goods and supply wholesale; Scenic

and sightseeing water transportation )

Biomedical/Biotechnical (contains the following sectors and their sub-sectors:Commercial and service industry machinery manufacturing; Pharmaceutical and medicine

manufacturing; Electromedical apparatus manufacturing; Analytical laboratory instrumentmanufacturing; Irradiation apparatus manufacturing; Medical equipment and supplies

manufacturing; Dental laboratories; Drugs and druggists' sundries wholesale; Testing

laboratories; Scientific R&D services; Medical and diagnostic laboratories; General

medical and surgical hospitals)

Chemicals(contains the following sectors and their sub-sectors: Basic chemicalmanufacturing; Pesticide, fertilizer and other agricultural chemical manufacturing; Paint,coating and adhesive manufacturing; Soap, cleaners and toilet preparation manufacturing;

Other chemical product and preparation manufacturing; Plastics product manufacturing;

Rubber product manufacturing; Other nonmetallic mineral product manufacturing;Chemical and allied products wholesale; Petroleum bulk stations and terminals;

Petroleum prod wholesale (excluding bulk stations, terminals))

Food Processing and Technology (contains the following sectors and their sub-sectors:Animal food manufacturing; Grain and oilseed milling; Sugar and confectionery product

manufacturing; Fruit and vegetable preserving and specialty food manufacturing; Dairy

product manufacturing; Animal slaughtering and processing; Bakeries and tortillamanufacturing; Other food manufacturing; Beverage manufacturing)

Information, Communications and Media(contains the following sectors and their sub-sectors: Newspaper, periodical, book, database publishers; Motion picture and videoindustries; Sound recording industries; Radio and television broadcasting; Cable networksand program distribution; Information services; Printing and related support activities)

Information Technology (contains the following sectors and their sub-sectors:Mechanical power transmission equipment manufacturing; Computer and electronic

product manufacturing; Electrical equipment manufacturing; Other communication andenergy wire manufacturing; Current-carrying wiring device manufacturing; All other

miscellaneous electrical equip and component manufacturing; Computer and peripheral

equip and software wholesale; Other electronic parts and equipment wholesale; Software

publishers; Telecommunications; Data processing services; Professional, scientific andtechnical services; Computer systems design and related services; Management, scientific

and technical consulting services; Scientific R&D services)

Transportation, Distribution and Logistics (contains the following sectors and their sub-sectors: Air transportation; Water transportation; Truck transportation; Transit and

ground passenger transportation; Scenic and sightseeing transportation; Transportationsupport activities; Couriers and messengers; Warehousing and storage)

Detailed characteristics of these clusters are described in Appendix A of this report, and it isstressed that the current analysis is provisional and preliminary only. This initial clusteridentification is provided as a basis for future refinement by cluster working groups or advisorycommittees.

How are Clusters Measured and Evaluated?


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Three principal methods for measuring and evaluating clusters are discussed below. Thesemethods are: Location Quotient analysis, Shift-Share analysis and Input-Output analysis. Thisreport includes the results of the first two types of analysis, and recommends that Input-Outputanalysis be conducted once a decision has been reached to pursue a cluster strategy.

Location Quotient Analysis

Measurement of growth rates and location quotients18 for each industry or group of industries ina region is the first step towards determining where the regions comparative advantage lies.

Location quotients show where industry sectors in particular localities (like Hamilton County)are more strongly represented than they are in the nation as a whole. If a sectors locationquotient is greater than 1, then it is said that the locality is more specialized in that industry

than the nation is, and that the industry is likely producing for export as well as localconsumption. The dynamics of specialization can also be measured by comparing changes inthe location quotients of sectors and sub-sectors from year to year.

Location quotients are usually calculated using total employment or total income for eachindustry or industry group as a basis. However, several other bases (occupations, for example)could be used depending upon the purpose of the analysis. Calculation of growth rates is alsoimportant for obtaining an initial idea of likely trends in any particular industry or group ofindustries.

The first task in cluster identification and analysis is to assemble two (or more) sets of data from

different time periods in the study region or county, calculate the location quotients for eachsector and sub-sector, and measure changes over time in the size of the location quotients.

In this project, we used data from the US Bureau of Census County Business Patterns annualdata sets, with a base year of 1998, and comparison years of 2000/2001. The base year of 1998was chosen because this is the year when the US Department of Commerce switched from usingthe Standard Industrial Classification system (commonly known as the SIC codes) to the NorthAmerican Industrial Classification System (NAICS codes). This switch and its implications aredescribed in Appendix A.

When the location quotients for each sector and sub-sector in the local economy have beencalculated, together with the changes from the beginning period to the ending period, the sectorsare then sorted according to a method developed by the Boston Consulting Group to showwhich sectors and clusters are more or less specialized than the nation, and whether they are

increasing or decreasing in their degree of specialization.According to this method of sorting the data, sectors and clusters will fall into one of thefollowing four categories:

1. Specialized, and becoming increasingly specialized (Stars)2. Not specialized, but becoming increasingly specialized (Emerging)3. Specialized, but decreasing in degree of specialization (Transforming)4. Not specialized and decreasing in degree of specialization (Declining)

This initial analysis of economic sectors and clusters begins to give policymakers and otherstakeholders some idea of what is happening in the local economy, and which industries andclusters might need support to mitigate decline or to give an extra boost to growth. Figure 6shows the relative positions of Hamilton Countys identified clusters, as compared to the sameclusters nation-wide, from 1998 to 2000.

18(R1/R2)

Location Quotient = (N1/N2)

Where:R1 = Regional Employment In Industry XR2 = Total Regional Employment

N1 = National Employment In Industry XN2 = Total National Employment

If L.Q. < 1, Region is less specialized in industry X, and needs to import goods to satisfy local demandIf L.Q. = 1, Region produces just enough in industry X to satisfy local demandIf L.Q. > 1, Region is more specialized in industry X and exports goods to other regions


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The location quotients for each cluster in 2000 are shown along the bottom axis of the chart. Alocation quotient of 1 means that the cluster industries are present in Hamilton County toexactly the same degree as they are in the nation. Larger location quotients (right hand side ofthe chart) indicate that the cluster presence is more concentrated in Hamilton County comparedto the nation the county is more specialized in those industries and clusters. This is the

position of the Food Processing, Chemicals, Advanced Business and Financial Services,Advanced Manufacturing, Information, Communications and eMedia and theBiomedical/Biotechnical clusters in Hamilton County. The larger the location quotient, the

more specialized is the cluster. However, while Food Processing, Chemicals, AdvancedServices, and Advanced Manufacturing were increasing in specialization from 1998-2000(Stars), Biomedical/Biochemical and Information, Communications and eMedia weredecreasingin their degree of specialization in the area (Transforming).

Conversely, the clusters withsmaller overall locationquotients (left hand side ofthe chart) are lessconcentrated in HamiltonCounty than in the nation.Their presence is weaker.They may need to bestrengthened if they are

thought to be of strategicimportance to the countyeconomy. Two clusters Information Technology andArts and Entertainment were increasing theirspecialization from 1998-2000. They are (or, at least,were until the onset of the2001 recession) Emergingclusters. However, theAdvanced Materials cluster,and the Transportation,

Logistics and Distributioncluster, were not onlyunspecialized in the county,

but also decreasing inspecialization (Declining).This is bad news, especiallywhen considering AdvancedMaterials, which is a hightechnology cluster capableof producing the materials and technology of the future. This cluster may be a candidate forsupport, but will require further analysis to determine the likely costs, benefits and outcome ofsuch a strategy.

The size and direction of the change in location quotients of the clusters, adds a dynamic

element to the analysis, enabling a preliminary evaluation of current cluster performance andproviding some guidance as to which clusters might be candidates for targeting. The process forselecting candidate clusters for targeting is discussed further in the next section.

Criteria for Selecting Target Industries and Clusters

In successfully implementing a cluster strategy, prioritization of cluster components (businessand industry sectors and sub-sectors) for allocation of resources is a must if resources are to beused efficiently. It is usually recommended that prioritization of allocation of resources for thedevelopment or strengthening of specific clusters or cluster components take place within a

partnership or other type of collaborative group of stakeholders.

Figure 6HAMILTON COUNTY PRELIMINARY CLUSTER SPECIALIZATION MATRIX

"EMERGING" "STARS"(Not Specialized/Increasing Concentration) (Specialized/Increasing Concentration)

Financial Services62,356 Employees

e m ca s

Arts, Entertainment, Recreation and27,975 Employees

49,521 Employees

Food Processing and Technology8,741 Employees

"DECLINING" "TRANSFORMING"(Not Specialized/Decreasing Concentration) (Specialized/Decreasing Concentration)

Information, Communications and eMedia25,767 Employees

Transportation, Logistics and Distribution16,017 Employees

32,567 Employees

4,148 Employees

27,947 Employees

13,807 Employees

Advanced Business and

2000 LOCATION QUOTIENTS

Advanced Materials

Biomedical/Biochemical

Information Technology

Advanced Manufacturing

Visitor Industries

1 1.25 1.5 1.750.750.50.250 2

NEGATIVE CHANGE IN LOCATION QUOTIENTS

POSITIVE CHANGE IN LOCATION QUOTIENTS

2.25

Source: Hamilton County Regional Planning Commission, County Business Patterns.Note: The size of the circles reflects the size of the cluster in terms of number of employees.


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In selecting clusters and industries within them to be targeted by a development strategy, policymakers and planners can choose from amongst the following list of selection criteria,19 addingother criteria as necessary and desired in the locality

Industry/Cluster is or has

Average per capita payroll wages at or higher than the national industry average Relative immunity to recessions e.g. food, household products, pharmaceuticals and

medicines etc.

High total earnings High potential to generate tax revenues Export products, or potential for export Potential for import substitution (fills a need that is presently being supplied from outside

the region) A high amount of value-added in the region A high industry multiplier (amount of money generated in the region for each $1 spent by

the cluster industries in the region; or additional jobs generated ) A cluster location quotient larger than 1 Experiencing or has experienced both national and regional employment growth Growth in the cluster and its industries is attributed more to regional factors than national or

industry mix factors as demonstrated by shift-share analysis Positive local employment projections

Part a category of industries targeted by the State for development, or capable of attractingState attention.

Shift-Share Analysis

Although location quotients are useful in giving an initial picture of strengths and weaknesses ina local economy, they do not explain the sources of change, give a full picture of how thecomposition of local employment differs from national patterns or explain how the performanceof the local economy differs from that of the nation. Shift-Share analysis can help to providethis missing information. The results of the Shift-Share analysis for Hamilton Countys clustersis shown in Appendix A of this report.

Shift-Share analysis seeks to explain changes in an economy by decomposing actual changesthat have occurred into three main sources:

1. The influence of national growth (or decline) on industry or cluster X.This is called the National Share. For example, between 1998 and 2000, totalemployment in the US as measured by the County Business Patterns data grew 5.5 percent.The national share applies this 5.5 percent to Hamilton County employment in the base year(1998) and estimates how employment would be expected to expand if the nationalinfluence were felt by every industry. For example, if manufacturing grew locally at thesame rate as national employment overall, 4,075 jobs would have been added between 1998and 2000.20

2. The influence of industry share on the growth (or decline) of industry or cluster X.

Industry share refers to the rate of growth in each industry at the national level, for examplehow much all manufacturing industries grew from 1998 to 2000 throughout the nation.Industry share measures the effect of the national growth in each industry reflected in localchanges in employment. As with the national component, the change in employment by the

industry overall is applied to the total change in local employment in the industry.Continuing with the manufacturing example, one would have expected local manufacturingto decline by 6,138 jobs based on national performance of the manufacturing sector.

19 Some of these criteria have been adapted from a 1996 study Greater Cincinnatis Target Industries, done for the Cincinnati Gas and

Electric Company (Cinergy) by the University of Cincinnati Center for Economic Education, which identified industries in the Greater

Cincinnati area that would be most likely to be successful in the region and (to) enhance the economic efficiency of the existing industry

structure.

20 This section on shift-share analysis is largely adapted or reproduced from the excellent explanation given in Greater Cincinnatis

Target Industries, Center for Economic Education, University of Cincinnati, September, 1996.


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3. The Regional Share effect on growth (or decline) of industry or cluster X.

The National share and the Industry share reveal the changes that would have occurred inthe local economy if it corresponded exactly to national and industrial structure and trends.When these two (computed) shares are subtracted from the actualshift in employment, aresidual change remains. This is the change in employment that cannot be explained byeither general economic conditions (the national share) or industrial trends (the industryshare). This change, the regional share, reveals the effects on local employment of factorsthat are special to Hamilton County. The regional share effect tells us that certain industries

enjoy advantages (or disadvantages in the case of declines) from the regional economy,from factors such as labor force skills, access to transportation, excellent supply chains,effective and efficient service delivery and so on.

In shift-share analysis, industries that are the best targets for economic development efforts arethose with the largest regional share effect on growth. The same holds true for shift-shareanalysis of business and industry clusters, but with some important additional considerations.First, clusters do not usually represent just one industry or one industry sector there will beseveral industries and subsectors within a cluster, and they can

be expected to differ in their regional share effects. Thesedifferences can reveal to a cluster developer where to focusefforts to strengthen and build the cluster. Secondly, a localityor region may decide to target resources to a cluster even if,overall, the regional share effect is small or even negative.

This could happen, for example, if the State has decided toallocate large resources to development of correspondingsectors state-wide, and these sectors happen to be weak in alocal economy.

Input-Output Analysis

The final part of the technical analysis to identify clusters and to measure their strength andlikely impacts on a local or regional economy is the Input-Output analysis. Input-Outputanalysis is a highly technical exercise, based upon the development of multipliers (for jobs andearnings) for each sector and sub-sector of the economy. Input-Output tables, developed by theBureau of Economic Analysis (BEA) of the US Department of Commerce, are used not only tocalculate the impacts (output) of each input in the economy, they are also used to show thestrength of interactions (purchases and sales) between related sectors of the economy. Because

of this, input-output analysis is used to evaluate the strength of the interrelationships betweenindustries within a cluster. The Input-Output tables are known as RIMS II, (Regional Input-Output Modeling System), and are available on a county or regional basis from the BEA. Input-Output tables for counties and regions are also available from private consulting firms, such asthe Minnesota IMPLAN Group, Inc., or the REMI model.

Input-Output analysis will provide final technical definition of the cluster. Input-outputanalysis has not been conducted in this study. HCRPC has applied for grant monies to performthis part of the technical cluster analysis at a later date, when and if a decision is taken to pursuea cluster strategy locally.

6. IMPLEMENTING A CLUSTER STRATEGY

While there are an increasing number of comprehensive documents available that detail how toimplement a cluster strategy, there are no exact blueprints that can be followed. Part of thechallenge is that while there are a large number of common elements and strategies available forimplementing a cluster initiative, each locality or region is unique in its different needs,structural characteristics, political landscapes, histories, economic, cultural and human resourceendowments.

This means that if Hamilton County and the Cincinnati Metropolitan Region wish to undertake acluster approach to economic development, the initiative and strategies will have to be custom-tailored to local structure, capacity and needs. However, the cluster approach is flexible andadaptive enough to accomplish this.

SHIFT SHARE ANALYSIS

Actual Shift in Employment in Industry X- Shift due to national change- Shift due to industrial trend in industry X

= Shift due to regional trends and conditionsSource: Center for Economic Education, University of Cincinnati, 1996.


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Drawing upon a number of reports21 from areas that are implementing a cluster strategy,HCRPC has synthesized an approach that can used for developing and implementing a cluster

program:

Step 1: Assess potential benefits and challenges, and gathersupport for the cluster strategy

1.1. Conduct research to identify a workable approach and the benefits and challenges ofimplementing a cluster strategy (this task has been done for Hamilton County, in thisreport).

1.2. Many areas reporting on cluster strategy implementation stress the importance ofgathering political and business support for the considerable effort involved in putting acluster program into effect.

1.3. Support at the State level is generally stressed as a highly important (though not crucial)element in the success of cluster programs.

1.4. Buy-in from business community leaders, local elected officials and senior economicdevelopment specialists and planners is crucial and can make or break a cluster endeavor.

Step 2: Identify the Clusters22

2.1 Gather industry and employment data and make a preliminary identification of clusters(this task has been done for Hamilton County, in this report).

2.2 Measure local cluster strength and growth trends relative to the clusters in the nationaleconomy (Location quotient and shift share analysis. This task has been done forHamilton County in this report).

2.3 Measure strength of linkages between industries in each cluster (input-output analysis).2.4 Appoint or recruit cluster working groups or cluster advisory groups for each of the

identified clusters.2.5 Convene working groups to give expert local knowledge and input for refinement of

cluster identities, cluster strengths and cluster weaknesses.2.5.1 Catalog the key components of the clusters and map interrelationships among

firms (combination of input-output analysis and local knowledge).2.6 Refine cluster analysis and cluster content (i.e. which industries really do belong in each

cluster).2.7 Identify clusters that are not present in the county or regional economy, but which might

have a good fit and whose presence would be beneficial to the area.

Step 3: Activate the Clusters

3.1 Convene cluster working groups or cluster advisory groups to articulate an achievablevision of what the cluster can become during the desired planning horizon (10, 20, 30years).

3.2 Convene working groups to select cluster development strategies.3.2.1 Identify opportunities for growing the cluster in the desired direction by expanding

existing companies, starting new companies and attracting outside companies.3.2.2 Identify needs for specific support actions and strategies.

3.3 Identify opportunities for more synergy within each cluster.3.4 Provide assistance and resources to facilitate cluster activity (places to meet, facilitators,

cluster experts, recorders, logistics etc), at least to begin with, or until each cluster hasestablished itself.

21 A Governors Guide to Cluster-Based Economic Development National Governors Association, Washington DC, 2002.

http:/www.nga.org/center/

Cluster-Based Community Development Strategies Carnegie Mellon Center for Economic Development, Pittsburgh, PA, 2002.

http://www.heinz.cmu.edu/ced/

The Added Value of the Industry Cluster Approach Waits, M.J, Economic Development Quarterly, Feb. 2000

Industry Clusters, An Economic Development Strategy for Minnesota, University of Minnesota Extension Service, Jan. 1999

22 Most of Steps 2 through 4 are attributable to A Governors Guide to Cluster-Based Economic Development, NGA, 2002


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Step 4: Support and Expand the Clusters

4.1 Target investments to clusters, according to identified needs and with sensitivity to thelife-cycle stage of the cluster (for example, an emerging cluster will have different needsthan a mature cluster).

4.1.1 Identify and inventory the types of sites and buildings needed by industry clusters.4.1.2 Identify the geographic location of cluster industries and re-orient community land

use planning and zoning to encourage more clustering.4.1.3 Assess and attend to the infrastructure needs of clusters.

4.2 Invest in cluster R&D23 and innovation, using funds from private, State and Federalsources.

4.3 Establish cluster-specific technology centers or parks.4.3.1 Go after talent.4.3.2 Find anchor tenants.4.3.3 Build on existing amenities.

4.4 Support cluster-based entrepreneurial activity (for example, cluster spinoffs).4.4.1 Attract similar and related firms to business incubators.4.4.2 Embed entrepreneurial education into cluster activities.4.4.3 Establish cluster expertise at small business assistance centers.4.4.4 Form networks of entrepreneurs.

4.5 Market clusters and build cluster markets.4.5.1 Use the support structure developed by the cluster strategy to attract additional

cluster firms and to retain and expand existing firms.4.5.2 Assign marketing staff on a cluster basis.4.5.3 Use cluster data and knowledge in marketing materials.

4.6 Provide new data and analysis on a publicly accessible website for the benefit of clustergroups and new entrepreneurs.

4.7 Strengthen networking and associative behavior.4.7.1 Establish and recognize cluster associations and alliances (Government

recognition is said to be particularly effective).4.7.2 Facilitate external connections and participation in global networking (to promote

exports, assist smaller firms that lack resources to do this on their own).4.8 Encourage intercluster communications channels, using newsletters, websites, magazines,

networking events and partnering formats.4.9 Develop human resources for clusters.4.9.1 Obtain State support for the development of a more skilled and specialized labor

force.4.9.1.1 Contextualize education (relate education to cluster needs).4.9.1.2 Establish cluster skills centers (can be virtual centers).4.9.1.3 Build career paths and ladders that qualify people for cluster

employment.4.9.2 Support Regional Skills Alliances or Supply-Chain Training Associations to cut

costs of specialized training programs and retain cluster industries in the region.

Step 5: Monitor and Evaluate Cluster Progress

5.1 The county or regional economy should be kept under continuous observation to track

cluster performance, progress towards building critical mass, and to identify new oremerging clusters.5.2 Request cluster working groups to report out annually, support the reporting process

with hard data.5.3 Request feedback from cluster advisory groups regarding the adequacy and success of

support efforts.5.4 Encourage and assist in forming new cluster groups as the opportunity arises.

23R&D Industry research and development activities


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7. CONCLUSION WHERE DO WE GO FROM HERE?

Because of its versatility, the cluster approach to economic development is both useful andpopular. Used to its broadest extent, a cluster strategy can potentially hit many targets at onceand address different issues at the same time (for example, workforce training, educationcurricula, as well as infrastructure, communications and energy issues). Additionally, it canserve as a vehicle for collaboration and increase the cohesiveness of public policy initiatives.

A decision to develop and implement a cluster strategy for the long-range economic vitality ofHamilton County and its jurisdictions must come from a broad range of elected officials such asthe County Commissioners, Township Boards of Trustees and municipal Councils, as well asEconomic Development specialists and planners, in coalition with Chambers of Commerce and

business and industry leaders in the County.

Hamilton County Regional Planning Commission has prepared the necessary groundwork forthe launching of a cluster initiative, if such is desired by the community. The Greater CincinnatiChamber of Commerce (GCCC) is currently funding a cluster analysis project for the remainingcounties in the Cincinnati CMSA. When this project is complete, the region as a whole will

possess an invaluable set of knowledge and tools upon which to base its economic developmentplanning and strategies.

Next StepsFollowing the cluster how to outlined in Section 6 of this report, a valuable next step towardsimplementing a cluster strategy would be the engagement of a leadership group composed of

business community leaders, elected officials and senior economic development specialists andplanners to champion the initiative and move it along.

As the Greater Cincinnati Chamber of Commerce is preparing a cluster analysis for theCincinnati region, (based upon many of the insights generated by HCRPCs study of HamiltonCounty), scheduled to be completed early in 2004, the Chamber may be the logical leader incarrying out this step. However, the Chambers efforts could be greatly strengthened by supportfrom the Boards of County Commissioners in each county of the Cincinnati CMSA.

Hamilton County is continuing its effort to educate and inform its jurisdictions and economicdevelopment planners about the benefits and challenges of cluster development by means of

publication of this report, as well as data and maps on the HCRPC website, and a cluster howto workshop scheduled for December 12th, 2003.

For Hamilton County, a logical next step might be to initiate a pilot project to select and activatea cluster, using the experience to prepare the path for a full-scale regional cluster developmentstrategy. If this step is undertaken, the County would need partners including the Chambers ofCommerce, business and industry leaders from the cluster that is selected, and jurisdictionswithin the County. This would entail the formation of a cluster advisory group or clusterworking group, as outlined in Section 6, Step 2.4. A working group should be convened togive expert local knowledge and input for refinement of cluster identities, cluster strengths andcluster weaknesses and input-output analysis should be performed to catalog the keycomponents of the cluster and map interrelationships among firms. The cluster should then beactivated and supported, according to its needs, as outlined earlier.

Publication of the Greater Cincinnati Chamber of Commerces region-wide cluster study willplay a vital role in the implementation and potential success of the strategy that has beendiscussed in this report. Until the publication of the regional study, however, Hamilton Countyand its jurisdictions can continue to make incremental efforts that will assist in building a basisfor long-range economic vitality for the County and its communities, and this experience willassist other counties in the region if they choose to become part of the cluster initiative.


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Appendix A:

Hamilton County Cluster Analysis

This section includes maps, showing Zip Code area locations of cluster industries, brief com-mentaries on cluster industry performance from 1998 to 2000, and tables showing detailed indi-cators for cluster industries.


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HAMILTON

COUNTYZIPCO

DEAREAS


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HAMILTON

COUNTYJURIS

DICTIONSAND

NEIGHBORHOODS


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HAMILTON

COUNTYINDUS

TRYCLUSTERS,2003


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Analysis

As might be expected, business establishments in this cluster are heavily concentrated in andaround the Central Business District in the City of Cincinnati and in the Northeast quadrant ofHamilton County where client businesses and industries are concentrated.

Star performers in this cluster include Interior, Graphic and Industrial design services; spe-cialized real estate and investment and insurance financial services; accounting; testing labora-tories, and custom computer programming services.

Emerging industries in this cluster also include specialized financial services, legal services

(law offices), services related to sales and marketing, and human resources services.

Industries in this cluster that depend upon face-to-face contacts can be expected continue toremain heavily concentrated around central business districts and centers of government, al-though this picture may change if client industries move outwards. It is also uncertain whatthe effects of increasing electronic communications will be on the location choices of these in-dustries.

ADVANCED BUSINESS AND FINANCIAL SERVICES CLUSTER,HAMILTON COUNTY FIRMS BY EMPLOYMENT SIZE AND ZIP CODE AREA , 2000


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Table 1ADVANCED BUSINESS AND FINANCIAL SERVICE CLUSTER

NORTH AMERICAN INDUSTRIAL CLASSIFICATION SYSTEM

(NAICS) SECTOR AND SUB-SECTOR CODES AND NAMES

Total Mid-March

Employees,

Hamilton County

2000

Change inTotal

Employees,

Hamilton County

1998-2000

Location

Quotients for

Employment, by

Sector, Hamilton

County, 2000

Percent Change

in Location

Quotients for

Employment,

Hamilton County,

1998-2000

Annual Payroll

($1,000),

Hamilton County

2000

Annual Payroll

per Capita,

Hamilton County

2000

REGIONAL

SHIFT

Total Business

and Industry

Establishments,

Hamilton Co.,

2000

(1) (2) (3) (4) (5) (6) (7) (8)00 TOTAL HAMILTON COUNTY ALL INDUSTRIES 556,563 25,435 1.00 0.0% 19,359,336 34,784 -0.71% 24,896

SUMMARY CLUSTER DEFINITION514 Information & data processing services 1,476 -48 0.57 -28.8% 67,688 45,859 -40.03% 76

52 Finance and Insurance (less Commercial Banking) 20,029 1,951

5313 Activities related to real estate 2,420 107 0.98 -3.1% 85,163 35,191 -4.12% 228

533110 Lessors of other nonfinancial intangible asset 109 42 0.84 39.8% 5,586 51,248 45.55% 12

541 Professional, scientific & technical services 38,322 4,211

TOTAL 62,356 6,263 2.22 4.5%

CLUSTER INDUSTRY DETAILSSpecialized, increasing specialization and positive regional shift

541410 Interior design services 375 200 1.74 79.2% (D) (D) (D) 56

523930 Investment advice 433 253 1.34 72.8% 16,080 37,136 100.41% 45

541614 Process, phys dist & log consulting services 251 107 1.43 45.9% 9,204 36,669 54.03% 20

541620 Environmental consulting services 546 167 2.06 30.1% 22,396 41,018 32.54% 32

524292 Insurance & pension funds, third party admin 1,113 299 1.85 28.4% 39,172 35,195 29.51% 28

541430 Graphic design services 1,204 286 3.30 21.3% 66,061 54,868 22.27% 102

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