University of Minnesota
HHH
http://www.hhh.umn.edu/centers/hhh
myU OneStop



The Humphrey School of Public Affairs is the University of Minnesota's school of policy and planning.


State and Local Policy Program

10 Principles of Economic Development

Industrial Focus

  • Have you identified and do you regularly track the progress of key industry sectors or clusters in your area?
  • Have you organized your economic development activities to understand industry linkages and support industry clusters?

Rather than targeting individual firms or businesses, economic development agencies should focus on supporting clusters of industries that are well-suited to an area. A clearer understanding of supplier-producer relationships can assist government in its efforts to boost the economic base and productivity levels of the region.

Michael Porter in his book The Competitive Advantage of Nations (1990) suggests that to find answers on the competitiveness of nations, you must focus on specific industries and industry segments. This understanding of industry clusters can be critical in making effective public policy decisions in such areas as education and training, science and technology, and infrastructure investment. Similarly, such an understanding of industry clusters can help in shaping and implementing a state or local economic development strategy. Porter proposes four key determinants of competitiveness, which he calls the "Diamond of Advantage," based on cases from around the world.

Michael Porter's Diamond of Advantage

1. FACTOR CONDITIONS: a specialized labor pool, specialized infrastructure and sometimes, selective disadvantages that drive innovation.

2. HOME DEMAND: local customers who push companies to innovate, especiall if their tastes or needs anticipate global demand.

3. RELATED AND SUPPORTING INDUSTRIES: competition among local suppliers for related industries, creating a high quality, supportive business infrastructure and spurring innovation and spin-off industries.

4. INDUSTRY STRATEGY /RIVALRY: intense local rivalry among local industries that is more motivating than foreign competition and a local “culture” which influences individual industries’ attitudes toward innovation and competition.

*Michael E. Porter, The Competitive Advantage of Nations (New York: The Free Press, 1990).

Several states and regions have used or are using the Porter approach in examining industries, assessing public policies, and redefining economic development strategies. These include the states of Massachusetts, California, and Minnesota.

Oregon has organized its economic development strategy to focus on key industries. Oregon Shines, the state's 1989 strategic planning document that set the stage for major redesign of economic development funding and programs, emphasized the importance of promoting Oregon's key industries. The Oregon legislature adopted a list of thirteen key industries in 1991 and directed the state economic development department to work with these industries to promote the state economy. The Oregon Key Industries program is not a recruitment program but a commitment to help industry groups work together to become more competitive. The program brings together key industry leaders in roundtables to discuss competitive problems and opportunities; it also promotes flexible networks of businesses to develop new markets, produce new products, and increase profits through network brokers and small matching grants.