| Understanding Your Industry: Survey of Economic Development Research Directors
A few years ago the SLPP conducted
a survey of state Economic Development Research Directors. Of
the fifty state offices contacted, 35 participated in the survey.
The purpose of the survey was to determine:
- how many states employ an industry-based strategy as part
of their economic development efforts,
- how these states identify and analyze their industries,
- the data and techniques they use in their analysis,
- how they translate this research into economic development
programs, and
- the need for greater access to data and assistance with industry
analysis at the state and local level.
The survey was conducted as part of the Humphrey Institute's
Database for Economic Adjustment project. The project, which is
funded in part by a Department of Defense grant to examine ways
in which communities can adapt to economic changes, seeks to provide
a framework communities can use to understand and analyze their
industries. Research and experience have shown that communities
that possess a clear understanding of their key industries and
are able to capitalize on their strengths enjoy the greatest success
in their economic transitions.
The information from the survey will be used in the development
of a World Wide Web site that provides communities with the tools
and data sources they need to analyze their industries and offers
examples of how other states and communities are both performing
industry analysis and turning this analysis into successful economic
development strategies.
States with industry-based strategies
Of the 35 states that participated in the survey, 28
have an industry-based focus as part of their economic development
strategy and three states are in the process of shifting to one.
In eight of the states, the industry focus is the strategy's key
component. In one case, a research director commented that their
industry strategy "serves as the foundation of the economic
development office's work." Four states do not include an
industry-based component in their economic development strategies.
Table 1. States with industry-based economic development
strategies
How industry strategies and analysis are used
Of the states that have some form of industry-based strategy,
seven focus their efforts on mostly business attraction or marketing.
Industry analysis is used in national advertising campaigns, prospecting
trips, trade shows, and marketing publications. One state researcher
said that his state uses the information to attract firms that
fit with the industries it believes are the "driving force"
in the economy.
Ten states use industry analysis for primarily business retention
and expansion efforts. In one state, for example, industry research
led to the revision of state laws local insurance firms felt hindered
their expansion in the state. Other states assign representatives
to work with clusters of industries. These representatives help
organize the clusters, match industries with state programs, and
identify state and local policies that harm business expansion
and retention. Eleven states use the industry analysis for business
attraction, retention, expansion, and creation purposes. For example,
one state, which views itself as the "technology state",
focuses its efforts on recruiting and starting firms that complement
existing technology firms as well as building workforce skills
related to these particular technologies.
Table 2. How states use industry analysis
Industry clusters
Most of the states' industry strategies are centered
around industry clusters, which include groups of industries related
by any number of criteria. One researcher from a state whose industry
strategy is the foundation of its economic development efforts
said that his "state pays attention to and tries to help
other industries, but cluster industries have more clout."
Another research director said his state is moving to an industry
cluster approach because several cross-cutting issues can be addressed
more efficiently and effectively by working with groups of related
firms rather than on a firm by firm basis.
The role of the state with respect to industry clusters varies
only slightly. Most states see their role as initial facilitator
or organizer. For example, one researcher said his department
believes its job is to "incubate an industry cluster."
In doing this, the department organizes firms in a cluster until
they reach a "critical mass" at which time the state
leaves it to the firms to organize themselves. Meanwhile, the
department will work on making regulatory and tax reforms to help
the clusters grow.
Several researchers said their departments have assigned staff
members to specific industry clusters. These representatives keep
the clusters informed about state policies, collect industry information
the state uses for analysis, and promote state and local policies
that help strengthen the clusters. One director said his department's
industry cluster representatives serve as "broker agents"
who help match manufacturers' needs with suppliers. Another director
said that after the research office identified plastics as an
increasingly important sector in the state, the economic development
department organized a state plastics association and held a "plastics
summit". Plastics firms were surprised by how large the industry
was in the state. Since the summit, the firms formed an active
organization and held another well attended summit with state
legislators.
In determining industry clusters, many researchers and states
look beyond Standard Industrial Classification codes to supplier
links. For example, one state includes firms in certain plastics
and wood industries in its jewelry cluster since they were identified
as important suppliers to the jewelry making industry. A researcher
director reported that his state groups industries by "function
not product". Another said that her state has a health/biomedical
cluster that includes health care, pharmaceutical, and medical
devices industries. Other states group industries based on labor,
energy, and transportation requirements as well as common technologies
and workforce skills. One state has identified 45 specific industries,
which are divided into three tiers based on likelihood of success.
The 15 industries with the greatest likelihood of success are
the targets of the economic development department's business
attraction efforts.
Criteria used to identify key industries
In addition to identifying industry clusters, researchers
also employ a variety of criteria to identify key industries.
Every state looks at an industry's total employment and share
of state employment. Many states also look at wages and industry
output. One researcher said his state focuses some of its efforts
on industries and businesses that provide "family wage jobs"
paying more than $30,000 a year. Some states focus on industries
they believe have the greatest growth potential and have developed
various techniques to measure and predict growth. A few states
try to promote industries that are "environmentally sound"
or clean.
Researchers in some states try to identify and promote or attract
industries whose needs match the states' comparative advantage
in areas such as energy availability and price, transportation
and communication networks, and labor skills and costs. A couple
of research directors said their states try to take stock of their
specific labor skills and technologies and then focus attraction
efforts on industries that require or complement these skills
and technologies. Other states, however, simply want high-tech
industries.
One state with a large share of both high-tech, high-performance
and low-tech, declining industries tries to promote the former
while offering support to the latter, which continue to play an
important role in the state economy. Two states with undiversified
economies try to develop clusters around their traditional industries.
For example one state would like to use the warm water generated
in energy plants to promote and support greenhouse businesses.
Another state, which is largely agricultural, is exploring a variety
of new industries that will provide value-added opportunities
for its farm products.
Table 3. Criteria used to identify key industries
and clusters
In the survey, research directors were asked about specific
evaluative measures or techniques they use to identify key industries.
The examples given in the question included location quotients,
shift-share analysis, and input-output analysis. Research directors
in five states reported that their offices use all of the techniques
listed in the question. Sixteen directors said that their offices
use some of the techniques, and fourteen said they do not use
any of the techniques. Some of the research directors commented
that their offices rely on other state departments and universities
for analysis and that those organizations sometimes use the techniques,
particularly input-output analysis. Several research directors
commented that their offices are moving toward more qualitative
analysis, and one director said that his office does not use "academic
approaches". Focus groups and interviews with firms and associations
are being used more frequently to analyze industries. One state,
for example, identifies clusters through interviews with firms
about their suppliers.
Data sources used in industry analysis
The research directors were also asked about sources
of data and information their offices use to understand and identify
key industries. All of the directors were familiar with federal
data sources and have used Bureaus of Labor, Census, and Economic
Analysis data. The reliance on federal data varied significantly
across states. Some researchers performed almost all of their
analysis with federal data. Many researchers, however, used federal
data as a first level of analysis and to make comparisons with
other states. These states derived whatever they could from the
federal sources and then performed more detailed analysis with
state, private, and other data sources.
Although the researchers found the federal data sources to be
reliable and valuable, many wished that the data could be released
on a more timely basis. Several directors complained about the
lag time for the release of data and the infrequency with which
some data are produced. Specific concerns include the need for
more sub-state level data and data on self-employment and productivity.
Most of the researchers also use state ES-202 employment data.
However, the availability and quality of that data appear to vary
from state to state. Some states find that disclosure limitations
hamper the data's use and effectiveness. One research director
said that ES-202 data in his state are available at only the one-digit
level. Another said that the high level of aggregation masks many
dynamic and growing industries since they are lumped with other
less productive or relevant industries. Another researcher finds
ES-202 data to be unreliable since administrative files are used
as statistical files even though the two types of data are not
necessarily interchangeable.
Researchers access federal and state data from a variety of
sources, including printed documents, computer disks, CD-ROMs,
the Internet, and the World Wide Web (WWW). Most of the researchers
said they are accessing more and more of their data from the WWW.
A couple of researchers said that it is sometimes difficult to
find the data they need on the WWW and commented that a Dewey
Decimal-type system is needed. One research director said that
"since there are many sources all over the place, it is difficult
to find what you need."
Several research directors said that their offices collect a
lot of important data through surveys and from industry associations
and companies. Other important sources for some states include
investment house and university research and reports; Federal
Reserve data, analysis, and reports; and manufacturers directories.
A list of data sources identified in the survey is included in
the following table.
Table 4. Data sources used by state economic development
researchers
Need for assistance and access to data at
the local level
In the survey, research directors were asked about the
need for greater access to data and assistance with industry analysis
at the local level. All but one of the research directors said
that local governments and economic development organizations
could use assistance in both areas. The one who said that assistance
was not needed believed that even if local practitioners were
able to access data and perform analysis, "they might not
have the time or inclination to use it." This sentiment was
echoed in some of the other researchers' comments. Specifically,
these researchers believed that some people at the local level
might not know how to use the data if they had it or would use
it to tout their strengths in marketing efforts, not for analytical
purposes. Most of the research directors, however, said that greater
access to data as well as guidance on how to use the data would
be welcome at the local level. They also said that techniques
for analyzing data and assistance in interpreting the results
of that analysis are needed. A few directors said that some local
areas do an excellent job analyzing their industries and implementing
programs related to that analysis.
Table 5. Types of data and analytical assistance
required at the local level
Appendix
Table 6. States whose research directors participated
in the survey 
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