Regional Analysis of Industry_ Target Industry Identification .ppt

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					Regional Analysis of Industry Dynamics
and Target Industry Identification

    Eric Rinehart
    Economic Development Solutions, Inc.

  Industry Targeting Methods      pp 2-3
  Target Industry Data            pp 4-5
  Available Sector Data           pp 6-7
  Regional Analysis of Industry   pp 8-12
      Employment Growth
      Income Sales Growth
      Investment Growth
  Practical Applications          pp 13-14
  Next Steps                      p 15
Industry Targeting
 Uses statistics on industries as a technique for
 focusing economic development efforts.
     Essentially, ‘growth’ information is used to
      segment the industries into ‘markets’ ...
     To identify industry dynamics, in particular growth
      prospects and area/ industry compatibility
 Thus, the data & statistics to be collected is
 driven by the use requirements.
Why Identify Target Markets

 Better Knowledge of Customers
     Patterns and Dynamics of Growth
 Limited Resources of Time and Money
     Focus Energy and Efforts
 Maximize Return on Investment and Results
     Identify prospects vs. 1000’s of direct mail
Industry Targeting Methods

    Identifying the Common Themes
Daryl McKee – Business Screen

 1st: Screen for Attractiveness
     national and regional growth rates
     number of establishments, location quotients
 2nd: Screen for Area Competitiveness
     cost structure of location factors/inputs
     supply (access) to locations factors/inputs

                                    A Targeting Approach
Don Walls Associates
  1st: Identify the Export base
      Strong national markets (output/demand)
      Strong international markets (export share)
  2nd: Consider Forecast Growth Rate
  3rd: Identify Illinois Advantage:
      Supplier channels (weighted avg. availability of inputs)
  4th Consider Benefit to the State:
      Enhanced productivity, (high output per worker)
                                       A Targeting Approach
Ross Boyle
 1st Identify Probable Sources of New Investment
    National and
    Regional
 2nd Match Requirements to Community Capacity
    Market Access
    State Competitiveness
 3rd Identify those Most Desirable (Among those for
 which the area has an advantage)
                                A Targeting Approach
Eastern Seaboard Region
 1st: Identify Industry Growth Prospects
     Ten Year Employment Change
     Current Employment and Establishments
 2nd: Consider Industry Location Requirements
     Industry Avg. Wage; Gas/Electric Fuel Cost
 3rd: Gauge Area Competitive Position
     Payroll Costs State vs region
     Value-Added, State vs region
 4th: Determine Industry Benefit
     State industry multipliers
                                       A Targeting Approach
DRI Approach
 1st Consider Prospects:
    Could add a substantial number of relatively high-
     income jobs
    Will find a significant market for its products inside
     and outside of Illinois
 2nd: Consider Illinois Impacts
    Have high inter-industry multipliers suggesting a
     larger total positive economic impact (GSP)
    Can find many of its critical inputs (including labor)
     in the state
 3rd: Consider the larger context
    Are less volatile or have business cycles that are
     asynchronous with either the US or the state
                                        A Targeting Approach
Common Elements
 Identify Industries in the Export Base
 (significant sales to outside consumers)
 Identify the Industries of Consequence
 (important enough or large enough in size to be a market segment)
 Identify Prospective [attractive] Industries
 (strong national prospects; potentially mobile)

 Identify Compatible Industries
 (competitive community advantages)
 Identify Industries Providing Community Benefits
 (positive potential impacts on the community)

                             and Common Development Questions
Mathematically; Target Industry
Sectors  Market Segments where
Target Industry Data
Relate Data Collected to Goals

 Primary Goals of     Type of Growth
   Development       Statistics to Select
  Jobs Created or    Industry Employment
  Retained           Data;
  Expenditure on     Industry Output and
  Payroll            Income Data;
  Investment in      Industry Investment
  Plant/Equipment    Data
Data Collection Decisions: Generally
 Time Frame: to calculate trend statistics
     a base year and the most current year for past trends
     Forecasts to estimate future scenarios
 Data Sources: to assure reliability
     Public: Co. Business Patterns, Annual Survey of Mfg.
     Private: American Business Info., Dun & Bradstreet
 Geographic Area of Analysis: to make comparisons
     U.S., Midwest, state, labor market, commuting zone
The Export Base Industries
      Policy/Data Decisions in Defining the Market Segments

 By Inspection:              Mathematically:
     Resource Based             Location Quotient > 1.1
     Industrial Based           Export Share > 50%
     Innovation Based           Output/Demand > .9
The Set of Consequential Industries
      Policy/Data Decisions in Defining the Market Segments

 Quantity Measures             Quality Measures
    Amount of                     Skill of Labor
      Employment                   High Proportion Blue Collar
                                   High Proportion White Collar
    Amount of                     Output/Income
      Output                       Output per Worker
                                   Average Payroll or Wage
    Amount of
                                   Job Skill Requirement
      Investment                   Labor Intensive = low VA
                                   Capital Intense = high VA
The Prospects (Mobile) Industries
       Policy/Data Decisions in Defining the Market Segments

  Historical Growth              Projected Growth
  Rate (Relative)                Rate (Relative)
      Output,                       Output,
      Employment,                   Employment,
      Investment                    Investment
The Compatible Industries
       Policy/Data Decisions in Defining the Market Segments

 Cost Minimization              Profit Maximization
     Labor                         Employment
     Inputs                        Output
     Capital                       Investment
The Beneficial [Impact] Industries
       Policy/Data Decisions in Defining the Market Segments

 Fiscal Impact                Goal Achievement
     Income Goals:               Income Goals:
      Sales Taxes                  Output Multiplier
     Employment Goals:           Employment Goals:
      Income Taxes                 Employment Multiplier
     Investment Goals:           Investment Goals:
      Property Taxes               Investment Multiplier
Available Sector Data

     Structure of the US Economy
Standard Industrial Classification
                               3-Digit 4-Digit
  Agriculture          01-09     3       58
  Mining               10-14     6       31
  Construction         15-17     3       26
  Manufacturing        20-39     136     456
  TransCommUtilities   40-49     20      67
  Wholesale Trade      50-51     2       69
  Retail Trade         52-59     8       64
  Fin Ins RE           60-67     7       53
  Services             70-87     65      150
  Public Admin.        90-97     0       27
   Total                         252     1002
North Amer. Industry Classification

  Sector 11: 111-115   Agriculture
  Sector 21: 211-213   Mining
  Sector 22: 221       Utilities
  Sector 23: 233-235   Construction
  Sector 31-33         Manufacturing
  Sector 42: 421-422   Wholesale Trade
  Sector 48-49         Transportation/Warehousing
  Sector 51:           Information (Communication)
  Sector 52            Finance & Insurance
  Sector 53            Real Estate; Rental; Leasing
North Amer. Industry Classification

 Sector 54:      Professional & Scientific
 Sector 55       Management of Companies
 Sector 56:      Admin. Support; Waste Mgmt
 Sector 61:      Educational Services
 Sector 71       Arts Entertainment Recreation
 Sector 72:      Accommodation Food Service
 Sector 81:      Other Services
 Sector 92:      Public Administration
Employment Data

 County Business Patterns
    Employees; Establishments; Estab. by Employment Size
 State Departments of Employment Security
    Establishments; Number Employed by Geographic Area
 Bureau of Employment Statistics
    Occupational Employment and Wage Estimates
Output and Income Data

 Economic Census- Geographic Area Series
 The Assets and Expenditures Survey 1992,
 Bureau of Economic Analysis Regional Accts
 Bureau of Econ Analysis Input Output Tables
Investment Data
 Annual Capital Expenditures Survey: 94- 97;
 Statistical Abstract of the U.S Table No 897
 Net Stock of Fixed Private Capital by Industry: 90-97
 Corp Income Tax Returns, Selected Balance
 Sheet, Income Statement, and Tax Items by Industrial
 Division and Asset Size. SOI Bulletin 96 Summer
 Bureau of Econ Analysis Fixed Asset Data
Bureau of Economic Analysis
Industry and Wealth Data
Industry and Trade Outlook
First Use of the Data

Regional Analysis of Industry and
Basic Target Industry Identification
                 EXPORT BASE SET
                 CONSEQUENTIAL SET
                 PROSPECTS SET
                 COMPATIBILITY SET
                 BENEFICIAL SET
Define Data Manipulation Methods

 Use Statistics to Screen for:
      Export Base Industries: LQ e > 1.1 or LQ va >1.1
      Consequential Industries: Quantitative Measures e, va, i
 Use Shift Differential to Plot Statistics on:
      X-Axis: National Growth Prospects (Attractive Industries)
      Y-Axis: Area Advantage (Compatible Industries)
      Z-Axis Industries’ Impact i.e. Community Benefit

      Separate Detail Methods for Output, Employment and Investment
Select Statistical Measures
              State   National Compatible
           Prominence Prospects in the State                Graph

Sales or      Value      Sales Grth%/    Output/       X-Nat Outlook Y-
              Added       Inc. Grth%     Demand        St Endowment
Output                                                 Z-Performance
Employ- Absolute Emp. Industry             Area        X-Nat Outlook Y-
           Growth    Differential       Differential   St Endowment
 ment                                                  Z-Performance

Invest- Absolute      Invest     Output Grth%          X-Nat Outlook Y-
                                                       St Endowment Z-
 ment Invest Growth Differential - Emp Grth%           Performance

           Separate Measures for Output, Employment and Investment
Collect and Format the Data
                  Export     Consequ     Prospec-     Com-        Benefit
                   Base       ential       tive       patible    (Impact)
 SIC               Data/       Data/       Data/       Data/       Data/
                 Indicator   Indicator   Indicator   Indicator   Indicator

       Separate Tables for Output, Employment and Investment Data
                                                Industry Analysis Matrix

Plot the Data
Area Compatibility

                                National Prospects (Attractiveness)
                     Separate Scatterplots for Output, Employment and Investment
Define Performance Categories
  Vibrant – Industry’s growth in the United
  States and in your State exceed average
  Growth – Industry shows strong national
  growth and modest growth in the state
  Stable – Strong state growth but modest
  growth in the nation
  Declining – Industry’s growth is low both in
  the U.S. and in your State
Plot Performance Categories
                                            Sta ble          Vibrant
Area Compatibility



                         National Prospects (Attractiveness)
                     Separate Categories for Output, Employment and Investment
Aggregate Data into Categories

  Clusters – Business Services, Durable Goods;
  Consumer Goods; Distribution; etc.
  Quality – by wage levels and/or skill levels
  (high wage versus family wage industries)
  Competitive Advantage – resource-based;
  capital-based; service-based; and information-
  based industry

Potentially Separate Aggregates for Output, Employment & Investment
Employment Growth Indicators
  Export Base Industries Data/Indicator
     Employment Location Quotient
  Consequential Industries Data/Indicator
     Absolute Employment Growth 1992-1997
  Prospective Industries Data/Indicator
     Industry Employment Differential
  Compatible Industries Data/Indicator
     Area Employment Differential
  Beneficial Impact Data/Indicator
     Employment Multiplier
The Industry and Area Differentials
  Industry Employment Differential, is the
  difference between the national growth rate of
  industry i and the overall national growth rate.

  Area Employment Differential, is the difference
  between the state growth rate of industry i and the
  national growth rate of industry i.
Employment Growth Suggested Data
                 Export    Consequ Prospec-      Com-      Benefit
                  Base      ential   tive       patible   (Impact)
       State 97 Location    New       Indus.     Area     Employ
        Empl. Quotient      Jobs     Different Different Multiplier

                            Z-axis    X-axis    Y-axis
Employment Categories & Analysis
                                                      Sta ble         Vibrant
 (Competitiveness : Area Differ.)
    Area Compatibility Value


                                    Retention                      (Recruitment)

                                               National Prospects Value
                                         (Attractiveness: Industry Differential)
Income/Sales Growth Indicators
  Export Base Industries Data/Indicator
      Value-Added Location Quotient
  Consequential Industries Data/Indicator
      Payroll Payments 1992-1997
  Prospective Industries Data/Indicator
      Sales Growth in Relation to Income Growth
  Compatible Industries Data/Indicator
      St. Output +    St. Demand [from input output
  Beneficial Impact Data/Indicator
      Income Multiplier [from econometric models]
The Market Share Ratios
 National Sales Prospects, the national growth rate of
 sales of an industry divided by the national growth
 rate in income.

 State Sales Endowment, the State output for an
 industry divided by the State demand for the industry

                         in part from input output analysis
Income/Sales Growth Suggested Data
       State     Export   Consequ Prospec-     Com-       Benefit
       1997       Base     ential   tive      patible    (Impact)
 SIC   Indust   Val Added Payroll    Sales%/ Output/D Income
        Sales   Loc Quot            Income% emand Multiplier

                           Value    3D Sales/ St Share
                           Added    2D Sales Ind. GNP

                           Z-axis    X-axis    Y-axis
Income/Sale Categories & Analysis
                                             Stable          Vibrant
(Ill. Output/Ill. Demand)
Area Compatibility Value

                                                             (New Markets)

                                                      Supply Gap
                                                 (Import Substitution)

                                       National Prospects Value
                            (Nat. Sales Growth % /Nat Income Growth %)
Investment Growth Indicators
  Export Base Industries Data/Indicator
      Investment Location Quotient
  Consequential Industries Data/Indicator
      Investment Amount (or Investment Index) 1992-1997
  Prospective Industries Data/Indicator
      Industry Investment Differential
  Compatible Industries Data/Indicator
      Output Growth Rate – Employment Growth Rate 92-97
  Beneficial Impact Data/Indicator
      Investment Multiplier [from econometric models]
Relative Investment - Proxies

 Investment Differential, the difference
 between the national growth rate of investment
 in industry i and the overall national growth
 rate in investment.
 Output - Employment, the State output growth
 rate for an industry minus the state
 employment growth rate for the industry
Investment Growth Suggested Data
                Export    Consequ   Prospec     Com-        Benefit
                 Base      ential     tive     patible     (Impact)
 SIC   Num of    Invest   Invest    Invest    Output – Invest
       Estab.   Loc Quo    Level    Differ    Employ Multiplier

                                    Invest    Invest per     K/L
                                    Index       capita      Ratio
                           Z-axis   X-axis      Y-axis
Investment Categories & Analysis
(Output Grwth % – Emp. Grwth %

                                         Stable           Vibrant
     Area Compatibility Value



                                 National Prospects Value
                                 (Investment Differential)
Basic Target Industry Identification

 Practical Applications
              National       Area         Impact
              Prospects    Advantage      Measure
Example #1   Historical    Historical    Employment
Employment Industry Diff. Area Differ.     Growth
Example #2   Forecast      Forecast        Forecast
Employment Industry Diff. Area Differ.   Emp. Growth
 Example #3   Export        Output         Income
   Output   Growth Rate    Multiplier       Effect
#1: Historical High-Growth, High-Wage Industry

                                   70%                                           478
                            203                                                                  208
  Area % Deviation

                                   30% 640

                                   10%                   873         801

                                   -10% 0%                     874               450           620
                     -40%   -20%                         20%               40%               60%             80%
                                   -30%                    872                         737

                                   -50%                                            809

                                          Industrial % Deviation
                                                                                                     Emp. Grow th
#2 Forecast: High-Growth, High-Wage Industry



                                                  806                       805
                                                                 738                      801                 808
                           170                    700
                                            0                                     804                   807
Area Differential

                    -0.4   -0.2           620 0                  0.2                0.4               0.6           0.8   1
                                  150                                                           802
                                                         873                                                        737
                                    420            734
                                          -0.05                 450                                                           Emp. Change 97-10



                                                                  Industry Differential
#3 Historical Output and Income Drivers.
                                                                        Illinois Drivers


                           15                                                                                                           34
Output Multiplier


                            5                         96
                                      118 108
                                     117     106
                                         158 157           121
                                                 44    57                                         41
                            0                                    98
                    -50%        0%             50%               100%             150%              200%             250%               300%   350%

                                                                 Expected Export Growth Rate 1997-2010

                                     Bubble Size Proportional to Total Expected Income Growth Created by Growth in Industry's Exports
                                                                Bubble Numbers Refer to REMI Industry Code
The Limits and Caveats
 Contingent Response: The community leaders
 make the final determinations
 Context: The Community’s goals (which the data
 should reflect) determines the target industries
 Preferences: We assume measured behaviors like
 employment & payroll = community preferences
 Reliability: Only as good as the data used
 and the data does mask underlying dynamics
 Measures the kinds of performance
 characteristics of importance to developers
     Income; Employment; and Gross Product
 Demonstrates economic dynamics
     Advantage; Location; Causation; Structural Adjustment
 Relates info on our day to day customers
     Trade Promotion; Investment Locations,
     Productivity/Modernization; Entrepreneurial Adjustment
  Analyzed targeting techniques; possible sources of
  data; and the methods and procedures to be used
  Selected the growth dimensions for study, in this
  case output, employment and investment because
  of their relation to development goals;
  Identified data sources and methods to measure
  historical and accurately project growth for
  industry segments along those dimensions;
  Developed tables and graphs of the data;
  Drew conclusions about the industries according
  to performance classes we chose.



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