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How Communities Can Retain and Attract Businesses by Understanding Their Industry Clusters

May 21, 2015 by Luke Mason

This article is the second in a series of blog posts intended to provide insights into the ways labor market data can benefit economic development professionals and the communities they serve. To learn about EMSI’s new software for economic developers, click here.

EMSI_EDO cluster graphic, blog 515In the state of Oklahoma, economic development officials focus on economic systems, what they refer to as “ecosystems.” In the Dayton, Ohio, area, the regional economic development organization prioritizes four “targeted growth areas.”

In other regions, practitioners and policymakers call these groups of industries by their more common name: clusters.

The terms and definitions differ, but pretty much every state and region has a set of industry groups that dictate new policies, initiatives, and research. For economic developers, these clusters or ecosystems are vital to retaining and attracting businesses.

Cluster Analysis for Business Retention and Expansion

As the Detroit Regional Chamber defines them, “Industry clusters illustrate a region’s particular industry strengths due to the concentration of businesses and their connection to a specially skilled workforce and network of suppliers.”

It’s important, then, to explore occupation data and supply chains in addition to total employment, concentration, wages, and more by industry. It’s equally important to validate your data analysis with on-the-ground and qualitative information by talking to businesses, conducting surveys, and tapping into databases of local businesses.

All of this analysis can serve as the backbone of a business retention and expansion strategy. Consider the example of the Dayton Development Coalition (DDC).

DDC creates a Retention & Expansion Scorecard that provides a data-driven look at both high-impact and at-risk companies in the Dayton area. Researchers at DDC combine a three-tiered cluster analysis with a talent gap analysis to create the Scorecard.

What’s involved in the three tiers?

Tier 1

First, DDC sifts through clusters based on the three following characteristics:

  • High demand – This includes the number of current estimated jobs in the region and projected growth rates.
  • Significance to regional economy – This includes contributions to the community and local perceptions of how important the businesses in those clusters are to the region.
  • Presence of a champion – Is there a trade association or leading business that serves as an advocate for an industry or cluster of industries?  

Tier 2

Second, DDC looks at three data metrics and assesses the career pathways potential of the occupations inside the cluster.

  • Location quotient – Groups of industries that are heavily concentrated in the Dayton area (e.g., aerospace) usually rise to the top of the list.
  • Jobs multiplier – Using EMSI’s Input-Output tool, the Coalition can see which industries inside particular clusters create the most spin-off jobs in the region based on their presence.
  • High-wage occupations – EMSI’s built-in staffing patterns (which link industries to occupations) and wage data help DDC determine which clusters offer the most lucrative wages across the spectrum of jobs in those industries.
  • Accessibility – How accessible are occupations inside the cluster from a career pathways perspective? This hits on the importance of keeping a workforce development and education focus when identifying clusters.

Tier 3

Lastly, DDC looks at how immediate the demand is within an industry cluster. Are there workforce gaps that can be addressed quickly? Can regional entities help a company with training or finding talent? Here, DDC works with workforce boards, one-stop career centers, and colleges to see what options are available to help the companies inside specific industry clusters.

For more on the Dayton Development Coalitian’s research, read this economic development best practice.

Cluster Analysis for Business Attraction

Identifying and refining clusters isn’t just helpful for business retention and expansion. This work also can be valuable when it comes to business attraction.

It makes sense to recruit businesses that align to or could support industries in your core clusters. If done correctly, this strategy can actually strengthen your business attraction and retention efforts, since the supporting industries you recruit can help firms in the core industries thrive through tighter supply chains, a larger supply of potential workers, and the like.

The next step is to look for regions with a strong job count and concentration in high-leakage industries. This can serve as a targeted approach to business attraction.

Supply chain analysis is a critical piece to this process. Once you’ve identified the core industries in your clusters, you can look at the inputs from other industries that those core industries purchase. You can also analyze how much of that amount is spent inside the region versus outside the region. If an industry can’t buy what it needs in the region, it buys what it needs from outside of the region, which means that money has left the regional economy. A good bit of leakage, as economists call it, is unavoidable, but you can target the gaps in industry supply chains to see where you can plug holes and avoid further leakage.

The next step is to look for regions with a strong job count and concentration in high-leakage industries. This can serve as a targeted approach to business attraction, as Angela Ladetto of the Detroit Regional Chamber said during a recent presentation. And simultaneously, it can strengthen your existing clusters.

EMSI Developer is the latest in the line of data software provided by EMSI. Designed specifically for economic developers, it offers tools for strategic planning, recruitment, workforce analytics, and a regional dashboard—along with national data at the county and ZIP code levels. For more information, click hereOr, to schedule a demo, please contact us.

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