Texas Competitiveness: Creating a State Economic Strategy · • Competitiveness is the...

1 Copyright 2011 © Professor Michael E. Porter

2011 State Competitiveness – Rich Bryden

Texas Competitiveness:

Creating a State Economic Strategy

For further material on regional competitiveness and clusters: www.isc.hbs.edu/econ-clusters.htm

For state economic profiles: www.isc.hbs.edu/econ-statesregions.htm

Professor Michael E. Porter Harvard Business School

March 28, 2012

http://www.isc.hbs.edu/econ-clusters.htmhttp://www.isc.hbs.edu/econ-clusters.htmhttp://www.isc.hbs.edu/econ-clusters.htmhttp://www.isc.hbs.edu/econ-statesregions.htmhttp://www.isc.hbs.edu/econ-statesregions.htmhttp://www.isc.hbs.edu/econ-statesregions.htm



The Economic Challenge for Governors in 2011

Enhancing State

Competitiveness

Achieving Fiscal Stability

3 Copyright 2011 © Professor Michael E. Porter 2011 State Competitiveness – Rich Bryden

What is Competitiveness?

• Competitiveness is the productivity with which a state utilizes its human, capital, and natural endowments to create value

• Productivity determines wages, jobs, and the standard of living

• It is not what fields a state competes in that determines its prosperity, but how productively it competes


Where Does Productivity Come From?

Businesses and government play different but interrelated roles in creating a productive economy

• Only businesses can create jobs and wealth

• States compete to offer the most productive environment for business


Agenda

1. How is your state doing?

2. Why?

3. Where to go from here?

State Performance Scorecard

Explaining your state’s performance, strengths, and weaknesses Action Steps

6 2012 State Competitiveness – Rich Bryden Copyright 2012 Professor Michael E. Porter

Texas Performance Scorecard

• Processed Food (5)

• Metal Manufacturing (8)

• Forest Products (1)

• Automotive (10)

• Production Technology (6)

Prosperity GDP per Capita, 2000-2010

Innovation Patents per Employee, 2000-2010

Cluster Strength Employment in Strong Clusters, 1998-2009

Leading Clusters by employment size, 2009

(national rank)

Start Position

Trend

32

14

1-10

21-30

31-40

11-20 41-50

State Rank

Current Position

17

38

16

43

32

23

17

14 14

15

Wages Average Private Wage, 1998-2009

-2

+0

-1

+5

New Business Formation Traded Cluster Establishment Growth,

1998-2000 and 2007-2009

4 2 24 +22

Labor Mobilization Proportion of Working Age Population

in the Workforce, 2000-2010

23 23 27 +4

Job Creation Private Employment Growth,

1998-2000 and 2007-2009

11 4 11 +7

Labor Productivity GDP per Workforce Participant, 2000-2010 31 11 10 -1


$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

$60,000

$65,000

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

U.S. GDP per

Capita: $42,346

High and rising

prosperity

versus U.S.

Comparative State Prosperity Performance 2000 - 2010

Source: BEA. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.

U.S. GDP per Capita

Real Growth Rate: 0.63%

Real Growth in Gross Domestic Product per Capita, 2000 to 2010

Gro

ss

Do

mes

tic P

rod

uct

pe

r C

ap

ita,

20

10

Low and declining

versus U.S.

Low but rising

versus U.S.

High but declining

versus U.S.

Alabama

Alaska

Arizona

Arkansas

California Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming


Comparative State Labor Mobilization Performance 1999-2010

Change in Labor Force

Participation Rate: -2.4%

U.S. Labor Force

Participation Rate: 64.7%

Change in Proportion of Working Age Population in the Workforce, 1999-2010

Pro

po

rtio

n o

f W

ork

ing

Ag

e P

op

ula

tio

n i

n t

he W

ork

forc

e,

2010

High Labor Force Participation and

Participation rising versus U.S.

High but declining

versus U.S.

Low and declining

versus U.S. Low but rising

versus U.S.

Notes: Source BLS.

Alabama

Alaska

Arizona

Arkansas

California

Colorado Connecticut

Delaware

Florida Georgia Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin Wyoming

50%

55%

60%

65%

70%

75%

-7% -6% -5% -4% -3% -2% -1% 0% 1% 2%


Texas

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Comparative State Labor Force Productivity Performance 2000-2010

Real Growth in Gross Domestic Product per Labor Force Participant, 2000-2010

Gro

ss

Do

mes

tic P

rod

uc

t p

er

Lab

or

Fo

rce

Pa

rtic

ipa

nt,

2

01

0

Highly productive

and productivity

rising versus U.S.

High but

declining

versus U.S.

Low and

declining

versus U.S.

Low but rising

versus U.S.

U.S. GDP per Labor Force Participant

Real Growth: 0.803%

U.S. GDP per Labor Force

Participant: $85,229

Wisconsin

Oklahoma

Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.

Delaware

Alaska

Wyoming

Connecticut

New York

North Dakota

New Jersey Massachusetts

California Louisiana Hawaii

Maryland

Oregon

South Dakota Nebraska

Virginia

Washington Illinois Colorado

Nevada

Georgia

Ohio Michigan Arizona

South

Carolina

North Carolina Minnesota

Pennsylvania Indiana Rhode Island

New Mexico Iowa

West Virginia

Alabama

Arkansas Idaho Mississippi

Montana Vermont

Maine

Kentucky

New Hampshire Utah Kansas

Tennessee Florida Missouri


$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

$120,000

$130,000

$140,000

$150,000

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Comparative State Employee Productivity Performance 2000-2010

Real Growth in Gross Domestic Product per Employed Worker, 2000-2010

Gro

ss

Do

mes

tic P

rod

uct

pe

r E

mp

loye

d W

ork

er,

2

01

0

Highly productive

and productivity

rising versus U.S.

High but

declining

versus U.S.

Low and

declining

versus U.S.

Low but rising

versus U.S.

U.S. GDP per Employed Worker

Real Growth: 1.42%

U.S. GDP per Employed

Worker: $94,315

Wisconsin

Oklahoma

Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate.

Delaware

Alaska

Connecticut

New York

Wyoming

Montana Vermont

Maine

North Dakota

Oregon

California New Jersey Massachusetts

Louisiana Hawaii

Maryland Washington

Texas

Illinois Nevada

Colorado

Virginia

North Carolina

South Dakota

Alabama West Virginia

Mississippi Idaho

Iowa

Nebraska Indiana

Rhode Island

Ohio

Georgia

Arizona New Hampshire

Missouri

South Carolina Kentucky

Michigan Utah Kansas

Pennsylvania Minnesota

New Mexico

Tennessee Florida

Arkansas


0

5

10

15

20

-6% -4% -2% 0% 2% 4% 6%

Comparative State Innovation Performance 2000 - 2010

Growth Rate of Patents per 10,000 Workers, 2000 to 2010

Pate

nts

per

10,0

00 W

ork

ers

, 2010

Source: USPTO utility patents, Bureau of Labor Statistics. Note: Growth rate calculated as compound annual growth rate (CAGR).

U.S. average Growth

Rate of Patenting:

+2.25%

Arkansas Louisiana

Montana South Dakota West Virginia

Alaska

Idaho

Pennsylvania

Mississippi

Washington (16.5, +10.6%)

Oregon

New Jersey

Ohio

Delaware

Vermont

California

Massachusetts

North Carolina

North Dakota Wyoming

Georgia

Nebraska

Maine

Utah

Michigan

Minnesota

Colorado

New Hampshire Connecticut

Wisconsin

Rhode Island

Kansas

Nevada Iowa

Texas

Arizona

New York

Illinois

Maryland

Indiana New Mexico

Florida

Tennessee

South Carolina Kentucky

Alabama

Oklahoma

U.S. average Patents per

10,000 Employees: 7.77

High and improving

innovation rate versus U.S.

High and declining

innovation

Low and declining innovation

Low and improving

innovation

= 2000 patents in 2010

= 500 patents in 2010

Hawaii

Missouri

Virginia

12 Copyright 2011 © Professor Michael E. Porter 2011 – State Competitiveness – Rich Bryden

Why?

What Drives State Productivity?

3. Policy

Coordination

among Multiple

Levels of

Geography/

Government

1. Quality of the

Overall Business

Environment

2. Cluster

Development


Why?


3. Policy

Coordination

among Multiple

Levels of

Geography/

Government

1. Quality of the

Overall Business

Environment

2. Cluster

Development


Quality of the Overall Business Environment

Context for Firm

Strategy and Rivalry

Related and Supporting Industries

Factor (Input)

Conditions

Demand Conditions

Sophisticated and demanding local

needs and customers – e.g., Strict quality, safety, and

environmental standards

– Consumer protection laws

– Government procurement of

advanced technology

– Early demand for products and

services

Rules and incentives that encourage

local competition, investment and

productivity – e.g., tax policy that encourages

investment and R&D

– Flexible labor policies

– Intellectual property protection

– Antitrust enforcement

Access to high quality business

inputs – Human resources

– Capital access

– Physical infrastructure

– Administrative processes (e.g.,

permitting, regulatory efficiency)

– Scientific and technological

infrastructure

Local availability of suppliers and

supporting industries

• Many things matter for competitiveness

• Economic development is the process of improving the business environment to enable companies to compete in increasingly sophisticated ways


Improving the Business Environment

Common Action Items

1. Simplify and speed up regulation and permitting

2. Reduce unnecessary costs of doing business

3. Establish training programs that are aligned with the needs of the

state’s businesses

4. Focus infrastructure investments on the most leveraged areas for

productivity and economic growth

5. Design all policies to support emerging growth companies

6. Protect and enhance the state’s higher education and research

institutions

7. Relentlessly improve the public education system, the essential

foundation for productivity in the long run


Why?


3. Policy

Coordination

among Multiple

Levels of

Geography/

Government

1. Quality of the

Overall Business

Environment

2. Cluster

Development


What is a Cluster?

A geographically concentrated group of interconnected

companies and associated institutions in a particular field

Traded Clusters

• Compete to serve national

and international markets

• Can locate anywhere

• 30% of employment

Local Clusters

• Serve almost exclusively

the local market

• Not directly exposed to

cross-regional competition

• 70% of employment



Research Organizations

Biological

Products

Specialized Risk Capital VC Firms, Angel Networks

Biopharma-

ceutical

Products

Specialized Business

Services Banking, Accounting, Legal

Specialized Research

Service Providers Laboratory, Clinical Testing

Dental Instruments

and Suppliers

Surgical Instruments

and Suppliers

Diagnostic Substances

Containers

Medical Equipment

Ophthalmic Goods

Health and Beauty

Products Teaching and Specialized Hospitals

Educational Institutions Harvard, MIT, Tufts,

Boston University, UMass

Cluster Organizations MassMedic, MassBio, others

Example: Massachusetts Life Sciences Cluster

Analytical

Instruments

Cluster



Equipment

Suppliers

(e.g., Oil Field

Chemicals,

Drilling Rigs,

Drill Tools)

Specialized

Technology

Services

(e.g., Drilling

Consultants,

Reservoir Services,

Laboratory

Analysis)

Subcontractors

(e.g., Surveying,

Mud Logging,

Maintenance

Services)

Business

Services

(e.g., MIS

Services,

Technology

Licenses,

Risk Management)

Specialized Institutions (e.g., Academic Institutions, Training Centers, Industry Associations)

Oil

Trans-

portation

Oil

Trading

Oil

Refining

Oil

Distribution

Oil

Wholesale

Marketing

Oil

Retail

Marketing

Gas

Gathering

Gas

Processing

Gas

Trading

Gas

Trans-

mission

Gas

Distribution

Gas

Marketing

Example: Houston Oil and Gas Cluster

Oil & Natural Gas

Completion &

Production

Oil & Natural Gas

Exploration &

Development

Upstream Downstream

Oilfield Services/Engineering & Contracting Firms



Strong Clusters Drive Regional Performace

Source: Porter/Stern/Delgado (2010), Porter (2003)

• Specialization in strong clusters

• Breadth of industries within each

cluster

• Strength in related clusters

• Presence of a region’s clusters in

neighboring regions

• Job growth

• Higher wages

• Higher patenting rates

• Greater new business

formation, growth and survival

On average, cluster strength is much more important (78.1%) than cluster mix

(21.9%) in driving regional performance in the U.S.


Clusters and Economic Diversification

Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.

Furniture Building

Fixtures,

Equipment &

Services

Fishing &

Fishing

Products

Hospitality

& Tourism Agricultural

Products

Transportation

& Logistics

Plastics

Oil &

Gas

Chemical

Products

Biopharma-

ceuticals

Power

Generation

Aerospace

Vehicles &

Defense

Lighting &

Electrical

Equipment

Financial

Services

Publishing

& Printing

Entertainment

Information

Tech.

Communi-

cations

Equipment

Aerospace

Engines

Business

Services

Distribution

Services

Forest

Products

Heavy

Construction

Services

Construction

Materials

Prefabricated

Enclosures

Heavy

Machinery

Sporting

& Recreation

Goods

Automotive

Production

Technology Motor Driven

Products

Mining & Metal

Manufacturing

Jewelry &

Precious

Metals

Textiles

Footwear

Processed

Food

Tobacco

Medical

Devices

Analytical

Instruments Education &

Knowledge

Creation

Apparel

Leather &

Related

Products


The Evolution of Regional Economies San Diego

U.S.

Military

Communications

Equipment

Sporting

Equipment

Analytical Instruments

Power Generation

Aerospace Vehicles

and Defense

Transportation

and Logistics

Information Technology

1910 1930 1950 1990 1970

Bioscience

Research

Centers

Climate

and

Geography

Hospitality and Tourism

Medical Devices

Biotech / Pharmaceuticals

Education and

Knowledge Creation

23 2011 – State Competitiveness – Rich Bryden Copyright © 2011 Professor Michael E. Porter

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

24.0%

28.0%

32.0%

36.0%

40.0%

44.0%

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

Change in Texas share of National Employment, 1998 to 2009

Texas n

ati

on

al

em

plo

ym

en

t sh

are

, 2009

Employees 41,000 =

Traded Cluster Composition of the Texas Economy

Overall change in the Texas Share of US

Traded Employment: 7.82%

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.

Texas Overall Share of US Traded

Employment: 1.11%

Added Jobs

Lost Jobs

Employment

1998-2009

Oil and Gas Products and Services

Footwear

Heavy Construction Services

Jewelry and Precious Metals

Production Technology

Aerospace Vehicles and Defense

Apparel

Information

Technology


2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

-1.2% -0.8% -0.4% 0.0% 0.4% 0.8% 1.2% 1.6% 2.0%

Change in Texas share of National Employment, 1998 to 2009

Texas n

ati

on

al

em

plo

ym

en

t sh

are

, 2009

Employees 38,000 =

Traded Cluster Composition of the Texas Economy (continued)

Overall change in the Texas Share of US

Traded Employment: 7.82%


Texas Overall Share of US Traded

Employment: 1.11%

Added Jobs

Lost Jobs

Employment

1998-2009

Analytical

Instruments

Tobacco

Entertainment

Prefabricated

Enclosures

Building Fixtures,

Equipment, and

Services

Metal Manufacturing

Power Generation

and Transmissions

Lighting and

Electrical Equipment

Leather and

Related Products

Distribution Services

Construction Materials

Motor Driven Products

Financial

Services

Plastics

Furniture

Textiles

Business

Services

Hospitality

and Tourism

Automotive

Processed Food

Chemical Products

Publishing

and Printing

Education and

Knowledge Creation

Biopharmaceuticals

Heavy Machinery

Sporting, Recreational

and Children’s Goods

Agricultural Products

Forest Products

Communications

Equipment

Aerospace Engines

Transportation and Logistics

Fishing and Fishing Products

Medical

Devices

25 2011 State Competitiveness – Rich Bryden Copyright © 2011 Professor Michael E. Porter

Texas Job Creation in Traded Clusters 1998 to 2009

Jo

b C

reati

on

, 1998 t

o 2

009

-100,000

-50,000

0

50,000

100,000

150,000

200,000B

usin

ess S

erv

ice

s

Oil a

nd

Ga

s P

rod

ucts

an

d S

erv

ice

s

Dis

trib

utio

n S

erv

ice

s

He

avy C

on

str

uctio

n S

erv

ice

s

Tra

nsp

ort

atio

n a

nd

Lo

gis

tics

Ed

uca

tio

n a

nd

Kn

ow

led

ge

Cre

atio

n

Fin

an

cia

l S

erv

ice

s

Ho

sp

ita

lity

an

d T

ou

rism

En

tert

ain

me

nt

Pro

du

ctio

n T

ech

no

log

y

Ae

rosp

ace

Ve

hic

les a

nd

De

fen

se

Je

we

lry a

nd

Pre

cio

us M

eta

ls

Po

we

r G

en

era

tio

n a

nd

Tra

nsm

issio

n

To

ba

cco

Bio

ph

arm

ace

utica

ls

Co

nstr

uctio

n M

ate

ria

ls

Fis

hin

g a

nd

Fis

hin

g P

rod

ucts

Fo

otw

ea

r

Ae

rosp

ace

En

gin

es

Le

ath

er

an

d R

ela

ted

Pro

du

cts

Lig

htin

g a

nd

Ele

ctr

ica

l E

qu

ipm

en

t

Ag

ricu

ltu

ral P

rod

ucts

Sp

ort

ing

, R

ecre

atio

na

l a

nd

Ch

ild

ren

's G

oo

ds

Me

dic

al D

evic

es

Pro

ce

sse

d F

oo

d

Bu

ild

ing

Fix

ture

s, E

qu

ipm

en

t a

nd

Se

rvic

es

Te

xtile

s

Mo

tor

Dri

ve

n P

rod

ucts

Fu

rnitu

re

Pre

fab

rica

ted

En

clo

su

res

He

avy M

ach

ine

ry

Me

tal M

an

ufa

ctu

rin

g

Au

tom

otive

Fo

rest P

rod

ucts

Pu

blish

ing

an

d P

rin

tin

g

An

aly

tica

l In

str

um

en

ts

Pla

stics

Ch

em

ica

l P

rod

ucts

Info

rma

tio

n T

ech

no

log

y

Co

mm

un

ica

tio

ns E

qu

ipm

en

t

Ap

pa

rel

Net traded job creation,

1998 to 2009:

+272,373

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. * Percent change in national benchmark times starting regional employment. Overall traded job creation in the state, if it matched national benchmarks, would be 40,599

Indicates expected job creation

given national cluster growth.*


$0 $25,000 $50,000 $75,000 $100,000 $125,000

TobaccoHospitality and Tourism

ApparelFootwear

Fishing and Fishing ProductsFurniture

Prefabricated EnclosuresConstruction Materials

Sporting, Recreational and Children's GoodsAgricultural Products

Leather and Related ProductsBuilding Fixtures, Equipment and Services

TextilesProcessed Food

AutomotiveLighting and Electrical Equipment

Transportation and LogisticsMotor Driven Products

Metal ManufacturingJewelry and Precious Metals

Heavy MachineryPublishing and Printing

EntertainmentForest Products

Production TechnologyEducation and Knowledge Creation

Heavy Construction ServicesBiopharmaceuticals

Analytical InstrumentsPlastics

Aerospace EnginesCommunications Equipment

Medical DevicesDistribution Services

Business ServicesChemical Products

Aerospace Vehicles and DefenseInformation Technology

Financial ServicesOil and Gas Products and Services

Power Generation and Transmission

Texas Wages in Traded Clusters vs. National Benchmarks

Wages, 2009

Texas average traded

wage: $58,045


U.S. average

traded wage: $56,906

l Indicates average

national wage in

the traded cluster

27 2011 - State Competitiveness – Rich Bryden Copyright © 2011 Professor Michael E. Porter

State

State Traded Wage versus

National Average

Cluster Mix Effect

Relative Cluster

Wage Effect State

State Traded Wage versus

National Average

Cluster Mix Effect

Relative Cluster

Wage Effect

Connecticut +27,171 7,028 20,142 Oregon -10,359 -1,304 -9,056

New York +24,102 3,628 20,474 Missouri -10,427 -1,425 -9,002

Massachusetts +16,169 4,391 11,778 Alabama -10,934 -3,563 -7,371

New Jersey +13,535 3,761 9,774 Florida -11,007 -1,559 -9,448

California +9,573 349 9,224 Wisconsin -11,722 -3,516 -8,206

Maryland +6,651 2,496 4,155 Nebraska -11,777 241 -12,018

Washington +5,652 2,692 2,960 Utah -11,992 2,072 -14,064

Virginia +5,319 1,617 3,702 Tennessee -12,172 -3,156 -9,016

Illinois +2,658 16 2,642 Indiana -12,554 -4,840 -7,714

Colorado +1,662 2,416 -754 Vermont -13,368 -1,572 -11,796

Texas +352 2,494 -2,142 Oklahoma -13,572 497 -14,069

Delaware +164 11,060 -10,896 Nevada -14,277 -2,365 -11,911

Alaska -930 -2,417 1,487 North Dakota -14,394 1,004 -15,397

Pennsylvania -3,970 -995 -2,975 South Carolina -15,276 -5,067 -10,209

Louisiana -4,280 95 -4,375 Arkansas -15,378 -4,560 -10,818

Georgia -5,322 -1,102 -4,220 Hawaii -16,043 -12,555 -3,487

Minnesota -5,576 -425 -5,150 New Mexico -16,123 -288 -15,835

New Hampshire -6,387 374 -6,761 Kentucky -16,215 -5,024 -11,191

Arizona -7,021 1,149 -8,169 Maine -16,379 -968 -15,412

Kansas -7,705 2,241 -9,946 Iowa -16,606 -2,721 -13,885

Wyoming -8,057 1,040 -9,097 West Virginia -16,645 -3,894 -12,751

Michigan -8,176 -2,544 -5,633 Idaho -18,671 -787 -17,884

North Carolina -9,245 -4,330 -4,915 Mississippi -19,942 -5,291 -14,651

Ohio -9,284 -2,495 -6,788 Montana -20,073 -2,259 -17,815

Rhode Island -9,791 -2,290 -7,501 South Dakota -20,968 289 -21,257

Productivity Depends on How a State Competes,

Not What Industries It Competes In

On average, cluster strength is much more important (78.1%) than cluster mix

(21.9%) in driving regional performance in the U.S.

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2009 data.


Furniture Building

Fixtures,

Equipment &

Services

Fishing &

Fishing

Products

Hospitality

& Tourism Agricultural

Products

Transportation

& Logistics

Texas Cluster Portfolio, 2009

Plastics

Oil &

Gas

Chemical

Products

Biopharma-

ceuticals

Power

Generation &

Transmission

Aerospace

Vehicles &

Defense

Lighting &

Electrical

Equipment

Financial

Services

Publishing

& Printing

Entertainment

Information

Tech.

Communi

cations

Equipment

Aerospace

Engines

Business

Services

Distribution

Services

Forest

Products

Heavy

Construction

Services

Construction

Materials

Prefabricated

Enclosures

Heavy

Machinery

Sporting

& Recreation

Goods

Automotive

Production

Technology Motor Driven

Products

Metal

Manufacturing

Apparel

Leather &

Related

Products

Jewelry &

Precious

Metals

Textiles

Footwear

Processed

Food

Tobacco

Medical

Devices

Analytical

Instruments Education &

Knowledge

Creation

LQ > 4

LQ > 2

LQ > 1.

LQ, or Location Quotient, measures the state’s share in cluster employment relative to its overall share of U.S. employment.

An LQ > 1 indicates an above average employment share in a cluster.


Texas Performance Scorecard

• Processed Food (5)

• Metal Manufacturing (8)

• Forest Products (1)

• Automotive (10)

• Production Technology (6)

Prosperity GDP per Capita, 2000-2010

Innovation Patents per Employee, 2000-2010

Cluster Strength Employment in Strong Clusters, 1998-2009

Leading Clusters by employment size, 2009

(national rank)

Start Position

Trend

32

14

1-10

21-30

31-40

11-20 41-50

State Rank

Current Position

17

38

16

43

32

23

17

14 14

15

Wages Average Private Wage, 1998-2009

-2

+0

-1

+5

New Business Formation Traded Cluster Establishment Growth,

1998-2000 and 2007-2009

4 2 24 +22

Labor Mobilization Proportion of Working Age Population

in the Workforce, 2000-2010

23 23 27 +4

Job Creation Private Employment Growth,

1998-2000 and 2007-2009

11 4 11 +7

Labor Productivity GDP per Workforce Participant, 2000-2010 31 11 10 -1


Cluster Development

Common Action Items

Source: Porter/Stern/Delgado (2010), Porter (2003)

1. Build on the state’s existing and emerging clusters rather than chase

“hot” fields

2. Pursue economic diversification within clusters and across related

clusters

3. Create a private sector-led cluster upgrading program with matching

support for participating private sector cluster organizations

• Government should listen and remove obstacles to cluster

improvement

4. Align other state economic policies and programs with clusters


Aligning Economic Policy and Clusters

Specialized Physical

Infrastructure

Natural Resource

Protection

Environmental Improvement

Science and Technology

Investments

(e.g., centers, university

departments)

Education and Workforce Training Business Attraction

Export Promotion

• Clusters provide a framework for organizing the implementation of many

public policies and public investments to achieve greater effectiveness

Standard Setting / Certification

Organizations

Clusters


Why?


3. Policy

Coordination

among Multiple

Levels of

Geography/

Government

1. Quality of the

Overall Business

Environment

2. Cluster

Development



Geographic and Governmental Influences on Productivity

State

Metropolitan Areas

Neighboring State

Nation

Rural Regions

Neighboring State

Metropolitan Areas Metropolitan Areas

Rural Regions Rural Regions

34 Copyright © 2011 Professor Michael E. Porter 2011 State and City Competitiveness – Rich Bryden

Defining the Appropriate Economic Regions

Source: Data from Bureau of Economic Analysis 2010. Prof. Michael E. Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director.

The economies of states are often an aggregation of distinct

economic areas with differing circumstances

Amarillo

Economic Area

Lubbock

Economic Area

OK

KS

Abilene

Economic Area

Wichita Falls

Economic Area

El Paso

Economic Area

Midland

Economic Area San Angelo

Economic Area

San Antonio

Economic Area

Killeen

Economic Area

Austin

Economic Area

Corpus Christi

Economic Area

McAllen

Economic Area

Beaumont

Economic Area

Dallas

Economic Area

Texarkana

Economic Area

Oklahoma City

Economic Area

AR

LA TX

NM

35 Copyright © 2011 Professor Michael E. Porter 2011 State and City Competitiveness – Rich Bryden

Texas Metropolitan Areas

San Antonio MSA

Wichita Falls

MSA

Amarillo MSA

Houston MSA

Beaumont MSA

Brownsville MSA

College Station MSA

Corpus Christi MSA

Dallas MSA

El Paso MSA

Austin MSA

Laredo MSA

Longview MSA

Tyler MSA

Lubbock MSA

McAllen MSA

Midland MSA

Odessa MSA

San Angelo MSA

Killeen MSA

Waco MSA

Sherman MSA

Texarkana MSA

Victoria MSA

Abilene MSA



$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%

Wage Performance in Texas Metropolitan Areas

Growth Rate of Private Wages, 1998-2009

Ave

rag

e P

riva

te W

ag

e,

20

09

*Texas portion only

Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009.

U.S. Average

Private Wage: $42,403

U.S. Growth Rate

of Wages: 3.01%

Texas Growth Rate

of Wages: 3.07%

Texas Average


San Antonio MSA

Waco MSA

Rest of State

Wichita Falls MSA

Victoria MSA Tyler MSA

Sherman MSA

Texarkana MSA* San Angelo MSA

Odessa MSA

Midland MSA

McAllen MSA

Lubbock MSA

Laredo MSA

Longview MSA

Houston MSA

Killeen MSA

El Paso MSA

Dallas MSA

College Station MSA

Corpus Christi MSA

Beaumont MSA

Brownsville MSA

Amarillo MSA

Austin MSA

Abilene MSA



$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

$55,000

-0.5% 0.5% 1.5% 2.5% 3.5% 4.5%

Employment Performance in Texas Metropolitan Areas

Growth Rate of Private Employment, 1998-2009

Ave

rag

e P

riva

te W

ag

e, 2

00

9

*Texas portion only

Source: Census CBP, authors’ analysis. Note: “Bubble” size in chart is proportional to employment in 2009.

U.S. Average


U.S. Growth Rate

of Employment: 0.52%

Texas Growth Rate

of Employment: 1.51%

Texas Average


Houston MSA

Waco MSA

Rest of State

Wichita

Falls MSA

Tyler MSA Victoria MSA

Sherman MSA

Texarkana MSA*

San Antonio MSA

San Angelo

MSA

Odessa MSA

Midland MSA

Lubbock MSA

McAllen MSA Laredo MSA

Longview MSA

Killeen MSA

El Paso MSA

Dallas MSA

College Station MSA

Corpus Christi MSA

Beaumont MSA

Brownsville MSA

Amarillo MSA

Austin MSA

Abilene MSA



Geographic and Governmental Influences on Productivity

State

Metropolitan Areas

Neighboring State

Nation

Rural Regions

Neighboring State

Metropolitan Areas Metropolitan Areas

Rural Regions Rural Regions

1. Influence and access

federal policies and

programs

4. Integrate policies and

infrastructure planning

with neighbors

2. Work with each metro

area to develop a

prioritized strategic

agenda

3. Connect rural regions

with proximate urban

areas



Agenda


2. Why?






Agenda


2. Why?




Biggest Action Item of All


Define the Value Proposition

Create an Economic Strategy

Develop Unique Strengths Achieve and Maintain

Parity with Peers

• What elements of the business

environment can be unique strengths

relative to peers/neighbors?

• What existing and emerging clusters

represent local strengths?

• What weaknesses must be addressed to

remove key constraints and achieve

parity with peer locations?

• What is the distinctive competitive position of the state or

region given its location, legacy, existing strengths, and

potential strengths? – What unique value as a business location?

– For what types of activities and clusters?

• Economic strategy requires setting priorities and moving beyond long lists of

separate recommendations.


How Should States Compete for Investment?

Tactical

(Zero Sum

Competition)

Strategic

(Positive Sum

Competition)

• Focus on attracting new investments

• Compete for every plant

• Offer generalized tax breaks

• Provide subsidies to lower / offset

business costs

• Every city and sub-region for itself

• Government drives investment

attraction

• Also support greater local investment

by existing companies

• Reinforce areas of specialization

and emerging cluster strength

• Provide state support for training,

infrastructure, and institutions with

enduring benefits

• Improve the efficiency of doing

business

• Harness efficiencies and

coordination across jurisdictions,

especially with neighbors

• Government and the private sector

collaborate to build cluster strength



Harnessing the New Process of Economic Development

Old Model

• Government drives economic

development through policy

decisions and incentives

New Model

• Economic development is a

collaborative process involving

government at multiple levels,

companies, teaching and research

institutions, and private sector

organizations

Competitiveness is the result of both top-down and bottom-up processes

in which many companies and institutions take responsibility



Example: Organizing for Economic Development

South Carolina Council

on Competitiveness

Research /

Investment

Executive

Committee

Measuring

Progress

Chaired by a business leader and reporting

to the governor

Convenes working groups, provides

direction and strength, holds working groups

accountable

Task Forces

Education /

Workforce

Coordinating

Staff

Cluster Committees

Start-ups /

Local Firms

Cluster

Activation

Distressed /

Disadvan.

Areas

Hydrogen /

Fuel Cells

Travel and

Tourism

Apparel

Agriculture

Automotive

Textiles

Effective economic policy also requires coordination within government



Summary

• The goal of economic strategy is to enhance productivity. This is the only

way to create jobs, high income, and wealth in the long run

• Improving productivity and innovation must be the guiding principles for

every state policy choice

• Improving productivity does not require new public resources, but using

existing resources better

• Improving productivity demands that governors mobilize the private

sector, not rely on government alone

• Economic strategy is non-partisan and about getting results



Next Steps

1. Reach out to your team

2. Reach out to the business community

3. Take advantage of Harvard Business School data and tools to support

this effort. Go to www.isc.hbs.edu.

The prosperity of the U.S. economy will depend more on the success of

states in improving competitiveness than what happens in Washington
http://www.isc.hbs.edu/

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