Maryland Manufacturing in the
Global Digital Economy
Maryland Advisory Commission on Manufacturing Competitiveness
January
February
23,2007
2006
Table of Contents
 Executive Summary
 Purpose and Overview: Manufacturing in Maryland
 Advanced Technology Manufacturing
 Cluster Overview and Benefits
 Cluster Identification, Development, and Support
 Recommendations and Next Steps
 Appendix
 Current Situation of Maryland’s Manufacturing
− Competitive Advantages
− Challenges
 Cluster Background
− Cluster Classification
− Cluster Policies and Pitfalls
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Executive Summary
 Maryland manufacturing contributes significantly to the development of the knowledge
economy in the global digital arena
 Maryland’s manufacturing sector is being transformed throughout the state; and although it
appears to have experienced a steady decline…
 The traditional manufacturing workforce in 2003 was 5.9% compared to more than 9% in early
1990s
 Gross State Product (GSP) related to traditional manufacturing was 7.2% in 2001 compared to
approximately 10% in early 1990s
 …And despite a drop in the job growth and GSP, the manufacturing sector has actually
 Steadily increased the total output since 1992
 Created significant earnings and jobs in other sectors
 And provided a strong foundation for managing the global supply chain
 In addition, traditional metrics and classification schema do not fully capture the full breadth of
manufacturing and related capabilities in the state and across the globe
 Research and analysis into the multiplier effect across the manufacturing sector in Maryland
revealed that the following industries have traditionally provided the most economic value to
the state
 Food and beverage manufacturing
 Printing and related support activities
 Transportation equipment manufacturing
 Chemical Manufacturing
 Furniture and related product manufacturing
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Executive Summary (Continued)
 To foster manufacturing growth, Maryland should continue to support targeted traditional
manufacturing clusters:
 Traditional: Food and Beverage Manufacturing, Printing, Aerospace and Defense, Modern
Agriculture, and Distribution and Warehousing
 More importantly though, Maryland should emphasize a manufacturing transition that supports
the knowledge economy and the commercialization of Maryland’s core research competencies:
 Strategic technology: Bio-technology, Information Technology, Nanotechnology, Miniaturization,
Transportation Systems, Energy, Aerospace & Defense, Advanced Agriculture, and Craft
Manufacturing
 The focus should be on growing those manufacturing capabilities that leverage Maryland’s
unique position in the realm of disruptive research competencies and process innovation
 Maryland should follow a rigorous approach to promote the creation, development, and
maintenance of clusters—especially those that leverage the global supply chain for Maryland
manufacturing
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Purpose
February 23, 2006
Purpose
The State of Maryland:
Has proximity to major markets
Unparalleled access to state and national governments
A base of natural, technological, and transportation resources
A strong history of innovative manufacturing
This suggests manufacturing should have a favorable future in
Maryland
by leveraging its disruptive research competencies and
manufacturing process innovation to enhance its ability to
manage the global supply chain
The purpose of this report is to provide a critical understanding of
where and how the state should focus its key resources
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Overview:
Manufacturing in Maryland
February 23, 2006
Manufacturing in Maryland has reached a critical inflection point
The strong role manufacturing has traditionally played in Maryland’s economy
has been declining since the early 1990s
 Its contribution to the state’s Gross State Product (GSP) declined from 10% to
7.2% in 2001
 Employment dropped from 9.3% of Maryland’s workers to 5.9% in 2003
Manufacturing as % of GSP
Manufacturing as % of Total Employment
MD
US
% of GSP
20%
15%
US
MD
10%
2003
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
Time
1978
0%
1977
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
5%
1990
%
25%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Time
Though this decline appears to paint a dire picture, it is largely due to faster growth in
other sectors, process automation, and increased productivity…
…Maryland’s manufacturing output and growth rate have actually been expanding.
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Though Maryland’s manufacturers have seen steady growth,
not all types of manufacturers have grown at the same rate
Manufacturing can be broken into the following groups:
 Traditional manufacturing is well established and has served Maryland well in the past, but
has limited growth potential and does not capture new industries nor leverage many of
Maryland’s strengths
 Advanced technology manufacturing involves more risk but offers more growth potential
as it supports and aligns with industry throughout the global knowledge-based economy
Traditional
Growth Rate
Advanced Technologies
Growth Rate
Tobacco
1.21%
Aerospace and Defense
8.47%
Chemical manufacturing
2.04%
Transportation systems
8.94%
Printing and related support activities
2.92%
Energy
11.57%
Transportation equipment manufacturing
7.58%
Information Technology
12.59%
Food and Beverage
7.75%
Bio-technology
19.46%
Furniture and related product manufacturing
11.32%
Nanotechnology
25.00%
Miniaturization
34.00%
(Source: Stern School of Business, NYU, January 2005)
In addition to offering strong rates of growth, research shows advanced
technology manufacturing provides an additional benefit to the State
economy through strong multiplier effects…
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Advanced technology’s higher growth rates and stronger multiplier
effects can significantly increase economic activity in Maryland
The State’s existing base of traditional manufacturers is relatively established and
slow growing
Traditional
Tobacco
Food and Beverage
Printing
Advanced Tech.
Transportation Systems
Information Technology
Biotechnology
Benefits to MD*
$1.92
$1.92
$1.94
Benefits to MD*
$2.01
$2.06
$1.96
Jobs**
2.0
Growth
Low
2.0
1.1
Medium
Low
Jobs**
Growth
2.13
1.42
N/A
Medium
High
High
Economic
Activity
Example Multiplier Effects
Emerging Industries
Traditional Industries
Time
Supporting the development of higher-growth industries will allow Maryland to
increase its economic base without disturbing traditional manufacturing
businesses
* Benefits to MD: each $1 activity in the industry generates X amount of activity in other industries.
** Jobs: based on the direct-effect multiplier of employment, each job added in that industry adds an additional number of jobs in the area.
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While Maryland has much to offer high-growth advanced
technology manufacturers, challenges remain to be addressed…
Strengths
Challenges
• Proximity to the Federal Government provides
opportunities to enhance lobbying efforts
• Access to 92 million consumer base within
500 mile radius provides opportunities to be
close to wide range of customers
• Significant drop in the manufacturing
workforce does not bode well with the
manufacturing businesses
• Access to the port of Baltimore, one of the
busiest ports in the US offers assembly
opportunities at the dock before exporting
• Gap in education of the manufacturing
workforce results in lacking in basic skills and
higher training costs
• Intensity in R&D demonstrates commitment to
innovation and process improvement
• Vibrant economy that has ample access to
venture capital and the value generated by IPOs
• Highly educated workforce provides a skilled
workforce base
• Manufacturing assistance programs focused
on enhancing manufacturing through tax
incentives, sharing of technology and resources
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• Manufacturing image suffers an outdated
reputation and fails to communicate modern
aspects of the manufacturing environment
• Infrastructure issues such as traffic congestion
and high cost of housing makes it difficult to
attract employees
• Taxes and Government regulations lead to a
high cost of doing business
• Low export dollar per capita and lack of
significant FDI indicates a lack of openness to
globalization and makes economies less
competitive
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To emphasize the role of the emerging knowledge economy and
traditional manufacturing, one must address the manufacturing image
 By addressing the evolution of traditional manufacturing into world class competencies
and emphasizing the emerging knowledge economy, Maryland can improve
manufacturing’s image
 Messaging should be directed at customers, service providers, and the perception of the
general public
 The approach will necessitate aligning and connecting customers to resources, as well as
sharing results throughout the manufacturing industry and with the public
Focus on Companies
Establish meaningful relationships with manufacturer
Connect Appropriate Solutions
Focus on Business Competitiveness and growth (Supply Chain)
Assess Impact
Communicate Results
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Focus on Public Perception
Focus on Service Providers
Identify Key Audiences
Develop successful approaches for changing perceptions
Develop advocates for industry’s public perception
Assess Impact
Communicate Results
Identify Key Service Providers
Coordinate Among Providers
Align Various Programs of value to the Industry
Make it a customer friendly system
Reduce costs through cooperation
Assess Impact
Communicate Results
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The Pappas Commission Report has identified near-term actions
Maryland should take to support the growth of advanced technology
The report’s recommendations are intended to:
1. Make Maryland more competitive in attracting and growing
technology companies
2. Increase the commercialization of research and development
(R&D) being created by the many government laboratories
and universities within Maryland’s borders
3. More effectively market Maryland as a center of valuable R&D
and as a home to many leading technology companies
The following pages provide specific recommendations to enhance Maryland’s ability
to attract high-growth manufacturers
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To make Maryland more competitive in attracting and growing
technology companies…
…Maryland should:
1. Increase state pension funds investment in private equity
2. Raise investment by Maryland banks in Small Business Investment
Companies
3. Restore and increase funding for investment financing programs
4. Encourage foundations in Maryland to invest in technology companies
5. Use State tax incentives to affirm that Maryland welcomes and encourages
advanced technology investments
a. Promote investment in advanced technology equipment and
construction materials
b. Align Maryland’s tax policy for capital gains on technology
investments to be similar to Federal tax policy
c. Increase research and development credits for businesses
d. Provide investment tax credits for early stage investors
6. Survey CEOs on regulatory processes
7. Invest in the Business/Technology Case Management Program
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To increase the commercialization of R&D being created by the
laboratories and universities within Maryland’s borders…
…Maryland should:
1.
2.
3.
4.
5.
6.
7.
8.
9.
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Establish a permanent State Chief Technology Officer
Increase utilization and effectiveness of Maryland Technology Councils
Encourage entrepreneurial initiatives and technology transfer
Support the State’s incubator network with capital and operating funds
for best practices
Allow State higher education institutions greater leeway under State
personnel and procurement rules for activities that are not directly
supported by State General Funds
Increase state funding for academic research
Encourage Maryland research consortia to compete for large federal
funding opportunities
Create alternative financing vehicles to create more laboratory space at
Maryland’s Universities
Promote increased coordination at University and college technology
transfer offices
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To more effectively market Maryland as a center of valuable R&D,
and as a home to many leading technology companies…
… Maryland should:
1. Increase state pension funds investment in private equity
2. Leverage the Office of the Governor to encourage and sustain
Maryland’s advanced technology enterprises
3. Develop a comprehensive marketing strategy to “brand” Maryland as a
leading home for technology business and innovation
4. Create a central database of Maryland academic and federal laboratory
technology resources
5. Pursue targeted international investment in Maryland
6. Create an Executive Job Corps
7. Create a Governor’s Science Advisory Board
To effectively capitalize on its manufacturing strengths and overcome existing
weaknesses, Maryland must focus its limited resources on strategically supporting
key manufacturers.
The following section provides a model for identifying these opportunities and
optimizing use of the State’s resources.
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To this end, Maryland should marshal its manufacturing resources from
around the state and across the globe to reinforce this transformation
The approach outlined herein is intended to:
1. Make Maryland more competitive in attracting and growing
manufacturing companies that emphasize disruptive
innovation and research
2. Increase the emphasis that Maryland places on
manufacturers who provide creative advances in processes
3. Encourage manufacturers who aggressively engage
customers beyond the current customer set, particularly in
terms of leveraging the global supply chain
The following pages provide specific recommendations to enhance Maryland’s
ability to attract high-growth manufacturers in the new IT – “Innovation and
Transformation”
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Cluster Overview and Benefits
February 23, 2006
Promoting industry clusters is an effective means for a state to
foster economic growth
Clusters are geographically related networks of businesses that promote efficiency
with varying degrees of interdependency
A Cluster and its Levels of Interdependency
 Core companies form the basis for the cluster
and the impetus for the value from the cluster
 Supporting companies and institutions (e.g.,
universities) provide crucial support to the core
and may include customers, suppliers and
partners to the core companies
 Related businesses provide a more indirect
support to the core by enabling supportive
companies or providing services to the core
companies
Core
 Impacted businesses are affected by the
cluster but do not directly relate to the
activities of the cluster, such as restaurants or
real estate support
Supporting
Related
Impacted
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Clusters provide economic advantages to business, which in
turn drive benefits to the state
Business Benefits
State Benefits
 More Efficient Access to Inputs:
Raw materials
Industry-specific suppliers
Skilled labor
 Higher Employment
Retention of existing companies and jobs
through high switching costs
Creation of new jobs in growing industries
Creation of new jobs through spillover and
multiplier effects
 More Efficient Processing:
Fast diffusion of knowledge, innovations,
 Higher Incomes
benchmarking, etc.
Economies of scope and scale
Industry-specific services (e.g., legal,
finance)
Increased demand for labor
Higher average skill level
 Increased Tax Revenue
Higher personal incomes
Higher corporate incomes
Increased economic activity (sales tax,
 More Efficient Access to End Markets:
Existing customers
New customers
gasoline tax, telecom tax, per capita tax,
property tax, etc.)
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Having a skilled labor force is one of the key factors for the
success of clusters
Success Factors
Value to Clusters
Skilled Labor Force
 Most important determinant for a cluster’s success
 Knowledge of the industry supplemented by formal
education drives the cluster and attracts new
members
R&D Capability
 Availability and accessibility of research centers
and expert individual researchers to provide
cutting-edge research and solve pressing problems
Proximity of
Suppliers
 Proximity of suppliers assist in reduced inventory
carrying costs, innovation, and delivery time
 Quick dissemination of information between cluster
members and knowledge sharing reduces product
development and R&D costs
Access to
Specialized
Services
 Specialized services provide functions tailored to
Entrepreneurial
Energy
 Small firms rely on research institutions,
industry and are integral to cluster’s success
associations or other special services in order to
remain competitive
Example
 Specialized skills were vital to the
development of the semiconductor in the
Silicon Valley
 Specialized optics and imaging institutes
and active professional associations
provided channels for developing an optics
and imaging cluster in Rochester, NY
 Hosiery cluster in North Carolina also
encompasses yarn, needle, dyestuff and
packaging materials suppliers
 Proximity assists the cluster in organizing
events for exchange of knowledge
 The Industrial Technology Institute in Ann
Arbor, MI was established to support the
modernization of the auto industry
 Entrepreneurial energy was one of the key
reasons for the success and expansion of
the Silicon Valley
 Entrepreneurs highlight benefits of the cluster and
will attract new members
Shared Vision and
Leadership
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 Increases competitiveness and profitability of its
member firms
strengthened the buying power against
major customers such as Wal-Mart by
negotiating collectively
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 North Carolina, hosiery industry
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Cluster Identification,
Development and Support
February 23, 2006
Clusters can be classified in six main groupings…
While there is no set criteria by which to classify clusters, there is value in
assessing them to determine which have the potential to add the most value to
the state economy
Competitive
Clusters with scale, such as Hollywood, Silicon Valley, or Detroit
Strategic
Clusters with high growth rates, such as biotech
Emerging
Clusters which are small but vital to region’s interests
Potential
Clusters with some core competency that might be developed, such
as environmental technology
Mature
Stabilizing
Clusters with low or no employment growth
Clusters which add diversity to economy, such as tourism or
business services
Using the taxonomy discussed above, emerging clusters should receive first
attention followed by strategic and potential, as these are most likely to
promote manufacturing growth
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Maryland should focus on developing strategic clusters which
are well-positioned for strong growth
Manufacturing can be broken-down in into two main groups:
 Traditional
Including mature, competitive and stabilizing clusters
 Advanced Technology Including emerging, strategic and potential clusters
 Traditional manufacturing is well established and
 Advanced technology manufacturing has risk but
has served Maryland well in the past, but needs
to find way to grow and remain profitable
much more growth potential because it supports
new technology and industry throughout the global
knowledge-based economy
Traditional Manufacturing
•
•
•
•
•
•
Advanced Technology Manufacturing
Food and beverage
Tobacco
Printing and related support activities
Transportation equipment manufacturing
Chemical Manufacturing
Furniture and related product manufacturing
•
•
•
•
•
•
•
•
•
Bio-technology
Information Technology
Nanotechnology
Miniaturization
Transportation systems
Energy
Aerospace and Defense
Advance Agriculture
Craft Manufacturing
If Maryland can establish itself as a leader in advanced technology
manufacturing, it will be well-positioned for future prosperity
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Maryland has multiple characteristics that make it attractive to
strategic technology manufacturing
Maryland Strengths
 Industries such as Bio-technology,
Information Technology and
Aerospace & Defense require a
highly educated workface
 A strength in R&D is also critical in
emerging industries such as
Nanotechnology and
Miniaturization
 Venture capital is critical to
developing new technologies,
products and industries
• Highly educated workforce provides a skilled
source of labor
• Intensity in R&D demonstrates commitment to
innovation and process improvement
• Vibrant economy that has ample access to
venture capital and the value generated by IPOs
• Proximity to the Federal Government provides
opportunities to enhance lobbying efforts
• Access to 92 million consumer base within
500 mile radius provides opportunities to be
close to wide range of customer
• Access to the port of Baltimore, one of the
busiest ports in the US offers assembly
opportunities at the dock before exporting
• Manufacturing assistance programs focused
on enhancing manufacturing through tax
incentives, sharing of technology and resources
These strengths will also help support the transition of Maryland’s existing
manufacturing base to benefit from the global knowledge-based economy
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Maryland should not solely focus on advanced technology to the
detriment of the traditional manufacturing base
• Both traditional and advanced manufacturing clusters can be
cataloged and characterized
• One valuable analysis tool assesses traditional and advanced
manufacturing based on importance to Maryland and potential
industry growth
Value Threshold Chart
High
High
Value
Value to MD Economy
Medium
• Clusters beyond the
“Investment Threshold”
are prioritized for support
and development
• Clusters near or below the
“Investment Threshold”
can be developed to
transition to higher value
Low Value
Medium
Low
Low
Advanced
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Growth Potential
Traditional
Investment
Threshold
High
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With proper support, traditional clusters can transition to
advanced technology clusters or high value clusters
The Operational AdvantageTM framework can be used to identify and execute
operational process improvement initiatives based on their alignment with
corporate objectives
Operational Advantage™ Program
 Driven by company
strategy and goals
 Structured root cause
analysis turns
problems into projects
 Knowledge is captured
into the program
 Complete set of
training materials
 Comprehensive
project definition and
planning process
 Chooses tools based
on the problem to be
solved
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1
Strategic
Objectives
4
Program
Management
Company
Strategy
3
Improvement
Initiatives
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2
Operational
Objectives
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 Embedded project
management
requirements
 Results sustained
through ongoing
iterative program
 Project status
monitoring and
reporting
 Incentive
compensation
program
 Job descriptions
 Metrics and goal
setting
The Operational AdvantageTM Program features a
comprehensive, easy to use toolkit
Processes, diagnostics and tools are simple to understand and use and contain
numerous examples so employees with little familiarity can successfully participate
Guide for Choosing Improvement Initiatives
1
Shareholder Value
Performance Expectations
Strategic Objectives
Profitability
Improve
Product
Quality
Reduce
Cost
Strategic
Objective
Growth
Develop
New
Products
& Tech.
Improve
Customer
Service
Participants identify
the company strategy
Enter New
Markets
3
4
Comprehensive diagnostics
drive to the identification of
the root causes of
performance issues
All necessary analytical
tools link directly from the
diagnostics
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Process Design Tool
Process which is not meeting
customer expectations
Challenge
Reduce Cost
Back
2
Reduce
Cost
Improve Sales,
General &
Administrative
Processes
Improve
Field
Service
Processes
Improve
Engineering
Processes
Reduce
Cost
Through
High
Quality
Improve
Scheduling
& Production
Control
Processes
Improve
Inventory
Management
Processes
Improve
Sourcing
Processes
Improve
Maintenance
Processes
Improve
Production
Processes
Improve
Accounts
Receivable
Processes
Improve
Dispatch &
Transportation
Processes
Improve
Asset
Management
Processes
Improve
Safety
Processes
Operational Objective
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Improve Engineering Processes
Improve
Engineering
Processes
Back
Improve
Accuracy of
Engineering
& Drawings
Improve
Producibility
of Designs
Reduce
Engineering
Cycle Time
Applicable
Situations
Operational
AdvantageTM
processes guide the
selection of the
highest priority
Operational Objectives
and Improvement
Initiatives
Process Step
Opportunity
Implementation & Benefit
Tracking
Description
People to Involve

5 step data driven process for designing processes

Eliminates unnecessary steps

Often focuses on new measurements

Utilizes many of the current tools
 A team of people who have an understanding of all
aspects of the business that will be effected
 People, who have experience with Continuous
Improvement and many of the tools and concepts
 Cross-functional team members, to provide a variety
of perspectives
 DMADV is an acronym for the phases:
1. Define (the business objective)
2. Measure (develop measurement criteria)
3. Analyze (the process design options)
Benefits
4. Design (develop new process)
5. Verify (test new process)
Define Phase
 Allows the company to ensure that a project is on task,
will be completed on time, and solve problems as they
arise
In this document, each of these phases will be addressed on separate tabs.
Note: You may have to revisit a phase if you do not have enough information. An example of this
would be while in the Analyze
phase youDefine
are reviewing
the data
anddesign
you findactivity.
that you do
not is being designed? Why? Note: make sure that the
Definition:
the goals
of the
What
have enough to isolate the root cause. In this case you would need to go back to the Measure
goals are consistent with customer requirements and business strategy
phase to gather more data.
This tool differs from Process
Improvement
in that thisand/or
tool is about
designing,
not making
Objective:
To identify
validate
the process
design opportunity, develop the business process, define
incremental improvements to an existing process
critical customer requirements, and prepare to be an effective project team.
1
Deliverables
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Project Charter
 What are the strategic drivers for the project?

Project Plan
 What is the problem or opportunity we are trying to address?

Organizational Change Plan
 Why is process improvement (DMAIC) not adequate?

Risk Management Plan
 What is the scope of the project?

Review presentation and Storyboard presentation
 What is the project timeline and completion date?
 What team resources are needed?
Reduce
Cost of
Engineering
Processes
 What are the major risks associated with the project? When and
how will we address those risks?
Steps
Process Cost
 How can we make sure the organization embraces and supports
the changes resulting from the design?
3. Develop the organizational change plan
Tools
Project Charter tool
Barrier Analysis tool
WBS tool
Customer Focus tool
4. Identify the risks
5. Hold a review
Improvement Initiatives
4
Questions

2. Develop the project plans
Process Time
Process Design
 The existing process has been optimized but still doesn't meet customer specification levels
 Also known as, DMADV, it is an advanced process for continuous improvement.
1. Develop the charter
Process Quality
Tool
 A process is not in existence at your company and one needs to be developed, or
Confidential
Pareto Chart tool
Project Plan tool
Statistical Process Control tool
Main Activities
Tips

Validate/Identify Business Opportunity

Validate/Develop Team Charter
 At the top level, the goals will be the organization's strategic
objectives, such as higher return on investment or market share

Develop Team Guideline & Ground Rules
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 At the operations level, the goal might be to increase the
throughput of the engineering department
 At the project level, goal might be to redesign the project
management process
2
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The Operational Advantage TM Program has defined five major strategylevel improvement objectives focused on profitability and growth
Improve Quality
Improve
Customer
Service
Profitability
Strategic Objectives are tied to critical
business metrics, providing the initial
links in the accountability chain
Growth
Reduce Costs
Develop New
Products &
Services
Increase
Gross Margin
Reduce
Working
Capital
Grow Revenue
Enter New
Markets
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Increase
Operating
Earnings
Improve
Return on
Assets
Each Strategic Objective is further decomposed into Operational
Objectives that focus on a company’s specific transitional needs
Strategic
Objective
Profitability
Growth
Improve Prod. Improve Cust.
Quality/
Service/
High Quality High Service
Provider
Provider
Operational Objective
Reduce Cost/
Low-Cost
Provider
Improve
SG&A
Improve
Engineering
Processes
Improve
Inventory
Management
Processes
Improve
Dispatch &
Transport.
Processes
Improve
Improve
Asset
Maintenance
Management
Processes
Processes
30
Enter New
Markets
Improve
Scheduling
& Production
Control
Processes
Improve
Production
Processes
Improve
Quality of
Engineering
Improve
On-Time
Delivery
Improve
Mfg.
Flexibility
Improve
Marketing
Capabilities
Improve
Reduce Cost
Field Service
through
Processes High Quality
Improve
Accounts
Receivable
Improve
Quality of
Production
Improve
Customer
Service
Processes
Improve
Product/
Technology
Development
& Launch
Improve
Sales
Pipeline
Processes
Improve
Sourcing
Processes
Improve
Quality
Processes
Improve
Safety
Confidential
February 23, 2006
Develop New
Products &
Technology
© Copyright 2006 Archstone Consulting LLC
Identifying and developing clusters requires a similar
systematic and disciplined approach
• Develop selection
criteria
• Develop minimum
requirements to
qualify for state
sponsorship
- Promising
Technology
- Competitive
Advantage
Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters
- Project management
team
- Project timelines
• Develop a committee
of government and
private sector
• Identify impact on
strategic technology
manufacturing sector

• Attributes of the
execution plan
• Conduct quantitative
and qualitative
evaluation
- Economic Benefit

• Develop detailed
execution plan

Develop a
Cluster
Specific
Strategy
Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication
- Communication plans
- Legal documents

Recruit
Companies to
Fill Gaps in
Develop
Communication
Cluster
Plan

31
• Identify major
companies in the
area
• Develop cluster
strategy for each
of the clusters
• Conduct survey
with select
companies
• Prioritize clusters
• Identify trends
across major
industries
• Allocate
resources, funds
and efforts based
on prioritization
• Identify gaps in
the clusters
• Take measures • Carefully plan
to formalize
and manage
cluster
processes
communications
designed to
diversify a
• Organize
culture
committee for
each cluster
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC

Develop an
Execution
Plan

• Develop Communication
Plan
- Improve
manufacturing image
- Facilitate
manufacturing
education initiative
- Facilitate risk taking
for entrepreneurs
Maryland has ample data available to identify traditional and
emerging advanced technology manufacturing clusters
Profile Manufacturing Industry

 Maryland’s manufacturing sector has experienced steady decline
Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy
 Workforce in 2003 was 5.9% compared to more than 9% in early 1990s
 Gross State Product (GSP) was 7.2% in 2001 compared to approximately 10% in early

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication


1990s
 Despite a drop in the job growth and GSP, the manufacturing sector has
 Steadily increased the total output since 1992
 Created significant earnings and jobs in other sectors
 Research and analysis into the multiplier effect across the manufacturing sector in
Maryland revealed that the following industries provided the most economic value to the
state*
 Food, beverage and tobacco manufacturing
 Printing and related support activities
 Transportation equipment manufacturing
 Chemical Manufacturing
 Furniture and related product manufacturing
 However, advanced technology manufacturing offers significant opportunity for
Maryland to invest in the future
* The multiplier effect accounts for the total impact of the manufacturing sector on Maryland’s output, employment and earnings, indicating that it is larger than the
direct manufacturing measures indicates
32
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC

Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan

Promising technology and economic benefits are key criteria
for developing clusters
Classify Mfg Industry into Clusters
 Institutionalizing an unbiased evaluation process for
developing clusters depends on both qualitative and
quantitative criteria
Qualitative Criteria

Profile
Manufacturing
Industry
• Economic Value to the State
• Environmentally Friendly
• Size of the industry
• Legal Requirements
• Growth Potential
• Resources Requirements
• Funding Requirements
• Location and Area Requirements
• Tax incentives
• Impact on Other Industries
• Tax Revenues
Confidential
February 23, 2006

Develop a
Cluster
Specific
Strategy
Quantitative Criteria
• Promising Technology
33

Classify
Manufacturing
Industry into
Clusters
© Copyright 2006 Archstone Consulting LLC

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication



Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan

Cluster classification assists in focusing resource and fund
allocations
Classify Mfg Industry into Clusters
 Clusters can be classified into one of the six categories:
 Competitive
 Strategic
 Emerging
 Potential
 Mature
 Stabilizing

Those that have scale, such as Hollywood, Silicon Valley
or Detroit

Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication


Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan


Small but vital to region’s interest
Those with high growth rates, such as bio-tech
Those with core competencies that might be developed, such as environmental tech.
Those with low or no employment growth
Those that add diversity to economy, such as tourism or business services
The table below classifies major Maryland’s industries into clusters based on jobs and
GSP growth information
Industry
Cluster Type
Leather and Leather Products
Strategic Cluster
Fila, Clemco
Textile Mill Products
Strategic Cluster
Krenik Manufacturing Company, Offray, Gore, MD Screen Printers, Inc.
Lumber and Wood Products
Strategic Cluster
Large variety of companies that use wood as an intermediate product during the manufacturing process
and others that produce finished wood products. i.e. American Woodmark
Fabricated Metal Products
Emerging Cluster
Fabricators Steel and Manufacturing Corp., Industrial Knife Company, Stromberg Sheet Metal, Swales and
Associates, Master-Halco, DynCorp, MaTech, Thermoform, East Alcoa
Chemicals and Allied Products
Competitive Cluster
Millenium Inorganic Chemicals, WL Gore, FMC Corp., Alpharma, Proctor and Gamble Cosmetics, WR
Grace, Qiagen, Unilever, Medimmune
Food and Beverage Products
Competitive Cluster
Giant Food, Nafco, Dreyer’s, Marktek Biosciences Corporation, Faidley’s Seafood, Clipper City Brewing
Company, Solo Cup, McCormick, BD Biosciences, Phillips Seafood, Breyers, Perdue Chicken
Industrial Machinery and Equipment
Mature Cluster
Micros Corp., BP Solar, Mack Trucks, Black and Decker, GM Powertrain, National Jet
Printing and Publishing
Mature Cluster
Harland Company, Custom Direct LLC, Moore Wallace BCS, Cadmus
34
Companies Within the Cluster
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Traditional manufacturing industries add value to other sectors in
areas such as product development, environment and transportation
Classify Mfg Industry into Clusters


Profile
Manufacturing
Industry
Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication

Traditional Manufacturing Industries
Food and
Beverage
Printing
Manufacturing
Bio-Technology
Modern
Distribution and
Defense
Agriculture
Warehouse
Environmental Friendly,
Product Development
Information Technology
Emerging Manufacturing Industries
Aerospace and
Product Development
Print Management
Software
Miniaturization, Product
Development
Printing Material
Development
Miniaturization, Product
Development, R&D
Genetic Modifications
Miniaturization, Product
Development
Bio-intensive Growth
Nanotechnology
Genetic Modifications
Miniaturization
RFID, Product
Development
Transportation System
Transportation Solution
Development
Transportation Solution
Development
Environmental Friendly
Environmental Friendly
Intelligent Transportation
System Solutions
Development, Product
Development
RFID, Product
Development
Transportation Solution
Development
Energy (hydrogen, fuel
cell, alternative energy)
Next generation sensors
for process control,
Defense, Security
Aerospace and Defense
Advanced Agriculture
Environmental Friendly
Product Development,
Genetic Modifications,
Environmental Friendly
Genetic Modifications,
Environmental Friendly
Craft Manufacturing
Environmental Friendly
Industries
35
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Transportation


Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan

Cross cluster themes that support multiple industries will also enhance
Maryland’s strategic ability to focus critical manufacturing resources
Classify Mfg Industry into Clusters

Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy


Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication

Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan

Industries
Traditional
Manufacturing
Industries
Strategic
technology
Manufacturing
Industries
36
Next
Generation
Sensors for
Process
Control
Protecting
Intellectual
Property
Cross Cluster
Themes
Security
Food and Beverage
Manufacturing
X
X
X
Printing
X
X
X
Aerospace
X
Modern Agriculture
X
Distribution and
Warehouse
X
Bio-Technology
X
X
IT
X
Nanotechnology
Defense
X
Miniaturization
X
Environmental
Friendly
X
X
X
Transportation

Product
Development
(Commercializing
Technology)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Miniaturization
(actuators with
computing technology),
RFID
X
X
X
X
Transportation
X
Energy (hydrogen, fuel
cell, alternative energy)
X
Aerospace
X
Advanced Agriculture
X
X
Craft Manufacturing
X
X
X
X
X
X
X
Confidential
February 23, 2006
X
© Copyright 2006 Archstone Consulting LLC
X
X
X
X
X
Maryland should develop a strategy specific to each of the
target clusters
Develop Cluster Specific Strategy

Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy


Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication

1
Prioritize Clusters
2
Identify Gaps
3

Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan

Allocate Resources
Qualitative Criteria
Quantitative Criteria
Core
Supporting
Prioritization
Related
Impacted
Required
businesses/
institutions
Tier 1
Tier 2
Tier 3
37
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Marketing
R&D
Education
Incentives
The state should then determine the policies that will best
foster the targeted clusters…
Develop Policy and Communications
State Policy
Levers*,**

Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication

Efficiently Organize
And Deliver
Services
Make Targeted
Investments
Increase Cluster
Networking and
Learning
Improve Workforce
 Aggregate and publish information by cluster
 Form cross-agency quick response teams
 Invest in cluster R&D
 Establish cluster-specific technology centers or parks
 Support cluster-based entrepreneurial activity
 Reestablish or recognize cluster associations and alliances
 Facilitate external connections
 Encourage inter-cluster communications
 Develop a more skilled and specialized labor force
 Establish cluster skills centers
 Qualify people for employment
* From “A Governor’s Guide to Cluster-Based Economic Development”
** These recommendations should be planned and executed conjunction with the recommendations of the Pappas Commission
38
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC


Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan

...formalize cluster communication targeted and tailored for
specific constituencies…
Develop Policy and Communications


Profile
Manufacturing
Industry
Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication


business
 Trade shows
 Business journals
 Newsletters
 Trade associations
39
education
 Mass media
advertising
 Community out-reach
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC

Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan
 Education initiatives
 University outreach

…recruit companies by approaching a broad set and then
progressively narrowing the field until the best remain…
Recruit Companies to Fill Gaps


Opportunity
Initial
Development
Communication





Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication

Opportunity
Assessment


Develop an
Recruit
Execution
Companies to
Plan
Fill Gaps in
Develop
Communication
Cluster
Plan

Follow-up
Communication
Proposal
Presentation
Potential
Companies
Negotiation
Cluster
Company
Potential
Companies
40
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
…develop a rigorous implementation plan to execute the
strategy…
Develop Execution and Communication Plan


Profile
Manufacturing
Industry
Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy


Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication

Activities
1
2
3
4
5
6
Tier 1 Plan
• Define project management team
• Finalize approach
• Craft communication plans
• Integrate cluster companies
• Draft legal documents
Tier 1 Plan
• Define project management team
• Finalize approach
• Craft communication plans
• Integrate cluster companies
• Draft legal documents
Tier 1 Plan
• Define project management team
• Finalize approach
• Craft communication plans
• Draft legal documents
41
Project Milestones
Confidential
February 23, 2006

Week
Initiative Kick-Off
• Integrate cluster companies

Develop an
Execution
Recruit
Plan
Companies to
Fill Gaps in
Develop
Communication
Cluster
Plan
© Copyright 2006 Archstone Consulting LLC
7
8
9
10
11
…
…and implement a comprehensive communication strategy that
builds on success to create more and better clusters






Profile
Manufacturing
Industry

Classify
Manufacturing
Industry into
Clusters

Develop a
Cluster
Specific
Strategy

Establish
Policy for State
Sponsorship
Formalize
Cluster
Communication

Attract More
Companies
Improve
Image
Share
Learnings
Publicize
Wins
Document
Successes
42
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC


Develop an
Execution
Recruit
Plan
Companies to
Fill Gaps in
Develop
Communication
Cluster
Plan

Recommendations
Maryland should pursue multiple activities to promote manufacturing:
1. Follow a rigorous approach to identify, create, promote, develop, and
maintain new and existing manufacturing clusters
2. Develop and promote a pro-manufacturing image for Maryland
3. More effectively market Maryland as a center of valuable R&D, and as
a home to many leading technology companies
4. Purse policy measures to attract technology companies to Maryland
5. Support the operational improvement of existing tradition
manufacturing capabilities within the state
If Maryland follows the above recommendations it will be well positioned to thrive
well into the future
43
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Recommendations
To increase the manufacturing commercialization of R&D being created by the laboratories and
universities within its borders, Maryland should:
1.
2.
3.
4.
5.
6.
7.
8.
9.
44
Establish a permanent State Chief Manufacturing Officer
Increase utilization and effectiveness of Maryland Manufacturing and Business
development Councils
Encourage entrepreneurial initiatives and technology transfer, especially for those
Maryland companies who can leverage manufacturing and the global supply chain
Support the State’s targeted manufacturing clusters with capital and operating
funds for best practices and operational excellence
Allow State higher education institutions greater leeway under State personnel and
procurement rules for activities that are not directly supported by State General
Funds
Increase state funding for academic research related to the broader view of the
Extended Enterprise represented by manufacturing
Encourage Maryland research consortia to compete for large federal funding
opportunities supporting the emphasis on Advanced Technology Manufacturing
Create alternative financing vehicles to create more laboratory space for applied
research and commercialization opportunities at Maryland’s Universities
Promote increased coordination at University and college technology transfer,
applied research, and advanced manufacturing offices
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Next Steps
 Apply lessons learned from Maryland biotechnology and education (Career Clusters) efforts to other
traditional and strategic technology clusters
 Build a commission-based role to coordinate cluster activities across the state’s multiple constituencies
(including business, academia, government, and advisory services)
 Further develop cluster concentrations to determine ways to marshal resources and develop
implementation plans for proposed manufacturing clusters
 Pursue ways to consolidate/coordinate multiple constituencies interested in supporting manufacturing
across the state
 Use academia’s unique position to optimize competing government (federal and state) and business
interests and gain consensus
 Identify the most effective “levers” to pull in support of manufacturing clusters
 Institutionalize the Maryland Manufacturing Strategy Process to build on the momentum generated by
coordinating activities across business, government, academia, and industry advisors
 Assess Progress
 Continually Revaluate Initiatives and Clusters
 Continue to emphasize those efforts to support the relationship between disruptive research,
innovation, and manufacturing competencies that lead to new products, processes, customers and
markets.
45
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Appendix
February 23, 2006
Current Situation
February 23, 2006
The manufacturing sector has steadily increased output as well
as assisted other sectors in increasing earnings and job growth
 Maryland’s manufacturing sector has experienced steady decline in the last decade
 Workforce in 2003 was 5.9% compared to more than 9% in early 1990s
 Gross State Product (GSP) was 7.2% in 2001 compared to approximately 10% in early 1990s
 Despite a drop in the job growth and GSP, the manufacturing sector has
 Steadily increased the total output since 1992
 Created significant earnings and jobs in other sectors
 Research and analysis into the multiplier effect across the manufacturing sector in Maryland
revealed that the following industries provided the most economic value to the state
 Food and beverage manufacturing
 Printing and related support activities
 Transportation equipment manufacturing
 Chemical Manufacturing
 Furniture and related product manufacturing
48
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Proximity to the federal government, access to 92 million consumers,
a vibrant economy and fiscal stability entices businesses…
Category
Current
Manufacturing
Sector
US
Rank
Metric
Total Mfg Employment
43
Mfg Output/GSP
46
Maryland Current Situation
148K jobs in the manufacturing sector
represents only 5.9% of Maryland’s
workforce
Manufacturing sector is suffering from a poor
image among the students
Quality of the
Work Force
Workforce Education
1
Manufacturing Education
32
Despite the highest ranking in overall
education, Maryland’s manufacturing
workforce lacks basic skills
16.5% workforce represented by unions
Taxes,
Government and
Policy
Infrastructure
Budget Deficit/Stability
AAA
Bond
Taxes
43
Rental Cost for two bedroom
apartment
39
Travel Time to Work
49
Household with internet access
6
Despite having AAA Bond rating and a low
budget deficit, environmental and
government regulations coupled with high
taxes were hurting the businesses
Proximity to the Federal Government is a big
plus
Second longest commute time and
comparatively high cost of living don’t favor
well with the businesses
Maryland has access to 92 million
consumers within 500 mile radius and one of
the busiest ports in the US
58% of households have access to the
internet
49
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
…despite a decline in manufacturing jobs, low export-dollar per
capita, and high representation of labor union
Category
US
Rank
Metric
Maryland Current Situation
Venture Capital
5
Initial Public Offering (IPO)
7
Technology
R&D Intensity
4
4.6% of GSP spent on R&D compared to
national average of 2.66%
Quality of Life
Most Livable State
14
Maryland ranks fairly high as a state to live
in, despite high number of crimes and
second worst homicide rate
Openness
Exports Per Capita
44
Foreign Direct Investment
(FDI)
26
Maryland’s $926 export-dollar per capita is
well below the US average of $1900 per
capita
Economic Dynamism
50
Maryland has a vibrant economy and is
ranked high in both venture capital dollars
and number of IPO
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Leveraging manufacturing strengths and working on overcoming
major challenges will be the key to attracting companies
Strengths
Challenges
• Proximity to the Federal Government provides
opportunities to enhance lobbying efforts
• Access to 92 million consumer base within
500 mile radius provides opportunities to be
close to wide range of customer
• Significant drop in the manufacturing
workforce does not bode well with the
manufacturing businesses
• Access to the port of Baltimore, one of the
busiest ports in the US offers assembly
opportunities at the dock before exporting
• Gap in education of the manufacturing
workforce results in lacking in basic skills and
higher training costs
• Intensity in R&D demonstrates commitment to
innovation and process improvement
• Vibrant economy that has ample access to
venture capital and the value generated by IPOs
• Highly educated workforce provides a skilled
workforce base
• Manufacturing assistance programs focused
on enhancing manufacturing through tax
incentives, sharing of technology and resources
51
• Manufacturing image suffers an outdated
reputation and fails to communicate modern
aspects of the manufacturing environment
• Infrastructure issues such as traffic congestion
and high cost of housing makes it difficult to
attract employees
• Taxes and Government regulations lead to a
high cost of doing business
• Low export dollar per capita and lack of
significant FDI indicates a lack of openness to
globalization and makes economies
less competitive
Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
State of Maryland Ranked in Selected Metrics
Category
Metric
Current Manufacturing Sector
Work Force
MD
Total Mfg Employment (in 000s)
# of Mfg Companies
Mfg Output/GSP
148
4,519
7.2%
5.9%
1.2%
N/A
43
13
46
4.0%
$48,568
16.5%
60.9
0.95
N/A
N/A
N/A
N/A
N/A
2.40%
33.30%
10
5
38
1
32
5
2
7.0%
1.9%
$2,879
AAA
N/A
N/A
N/A
N/A
25
21
30
$0.039
64.1%
57.8%
30 min.
$865
N/A
N/A
N/A
N/A
N/A
9
8
6
49
39
1,226
377
383.4
6.5%
N/A
N/A
N/A
N/A
R&D Intensity
Numbet of Patents
Science and Engineering per 100,000 Inhabitants
Scientists and Engineers as % of Labor Force
Online Manufacturers
467
237.7
12.6%
81.7%
Reported Crime per 100,000 habitants
% Change in Crime Index
Murders per 100,000 Habitants
% of People w/o Health Insurance
Most Livable State
Exports per Capita
FDI
Unemployment Rate
Avg Annual Mfg Wage
% of Labor Force Represented by Unions
Work Force Education
Education Level of Manufacturing Force
Information Technology Jobs
Managerial, Professional and Tech Jobs
State Corporate Taxes
Budget Deficit as % of GSP
Taxes, Government and Policy Average benefit per First Payment, for Unemployed
State Bond Rating
Infrastructure
Economic Dynamism
Technology
Quality of life
Openness
52
% of Total RANK
Electricity cost, Avg. revenue/KWH
Households with Computers %
Households with Internet Access %
Travel Time to Work
Rental Cost 2 Bedroom Apartment (Land Cost)
Venture Capital Per Capita
Employer Firm Births p/ 100,000 Inhabitants
Employer Firm Terminations p/100,000 Inhabitants
Initial Public Offerings
$
5.6%
$44,097
14.3%
49.2
1
$2,830
$0.053
N/A
N/A
N/A
N/A
N/A
1.70%
29.10%
6.72%
2.10%
N/A
N/A
22 min.
$720
N/A
N/A
N/A
N/A
N/A
5
10
16
7
5.0%
N/A
N/A
N/A
N/A
4.6%
1.7%
2.3%
N/A
N/A
4
19
14
6
39
2.7%
27,017
206
8.6
84.5%
N/A
N/A
4,747
-3.4%
9.4
12.0%
28.7%
2.4%
N/A
4.1%
N/A
N/A
40
23
49
23
14
3,900
-330.0%
4.6
14.7%
N/A
N/A
N/A
N/A
N/A
926
4.1%
0.97%
44
26
1,900
4.7%
Confidential
February 23, 2006
US Avg or
% of Total
Total
14,525
11.18%
386,863
N/A
14%
N/A
© Copyright 2006 Archstone Consulting LLC
Maryland Manufacturing
•Manufacturing remains an important part of Maryland’s economy, accounting
for 7.2% of the gross state product
•The total output of the manufacturing sector grew steadily from 1992 to 2001
•The multiplier effect magnifies the importance of manufacturing across the
state
Industry
Advisers
Declining
Manufacturing
Base
Government
Manufacturing
Strategy
Development
Academia
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Confidential
February 23, 2006
© Copyright 2006 Archstone Consulting LLC
Industry
Maryland
Manufacturing
Strategy
Gain Consensus
Academia is uniquely positioned to optimize competing government
(federal and state) and business interests and gain consensus.
54
Government
Interests
Business
Interests
• Tax revenue
• Full employment
• Environment
• etc.
• Low taxes
• Skilled employees
• Low regulation
• etc.
Confidential
February 23, 2006
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Arizona, Connecticut and Minnesota have successfully
implemented cluster-based policies

A few of the states have successfully implemented cluster policy include
 Arizona – The Greater Tucson Economic Council has adopted cluster policies as “framework for the
overall direction of the economic development activities and allocation of limited resources
 Connecticut – The state has embarked on a cluster-based strategy built around the idea that
nurturing the state’s key industries improves the competitiveness of businesses within these industries
 Minnesota – The University of Minnesota, in association with state and local policy programs, are
examining rural knowledge clusters as a model for innovative, dynamic rural economies
 Maryland has successfully implemented cluster policy for secondary and post-
secondary education
 Additional examples of cluster policies implemented by other states are listed below
State
Kentucky
Maine
Organization
Center for Urban and Regional Studies at UNC,
Chapel Hill
Maine Science and Technology Foundation
New York
Empire State Development
North Dakota
Greater North Dakota Association
Oregon
Oregon Department of Community and Economic
Development
Wisconsin Department of Commerce
Wisconsin
55
Description of Activities
Used a sophisticated benchmarking technique to identify
clusters in Kentucky.
Commissioned a report to promote economic development
through the application of science and technology. The report
outlined eight clusters that exist in the New England area.
Identified 12 industry clusters in the state to help guide
development strategies.
The association's New Economy Initiative uses a cluster
approach to build relationships between businesses in each
cluster area.
Developed cluster groups with firms and associations in key
productive industries between 1990 and 1996.
The Department of Commerce has made the cluster approach a
focus of its economic development strategy.
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February 23, 2006
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One of the key goals of cluster-based policies is to direct funds to
the most productive industry channels
 Cluster-based economic development policies contain important “spillover”
effects that extend their influence beyond the specific business that are targeted
for support
 Cluster-based policies reinforce two linkages that help to perpetuate a skilled
and educated workforce
 Providing residents with more jobs in growing industries
 Forging a healthy collaboration between industry and educational institutions
 Cluster policies improve the scope of community involvement in the corporate
sector
 Coordination efforts between communities and cluster leaders can lead to development of child
care services, transportation improvements, and home ownership programs
 Industry clusters make it easier and more effective for town planning commissions to target
potential businesses seeking to locate in the area
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February 23, 2006
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Public policy makers should know when to pursue them and when
to push them aside for cluster-based policies to be successful
Policy makers should avoid following pitfalls while developing cluster-based
policies:
 Cluster-based policies are not the same as industrial policies – cluster-based
policy initiatives must promote the competitive advantages of an interlinked group
of related industries
 Cluster creation is best left to the market – policy makers should refrain from
the temptation to create new clusters and leave cluster formation to the market
mechanism
 Let research, not politics, drive the facilitation of clusters – policy makers
must not bow to the pressures of political lobbyists pulling for certain industries,
unless it is supported by specific research indicating tangible benefits
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February 23, 2006
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Cluster Pitfalls
 Cluster-based policies are not the same as industrial policies
 Cluster creation is best left to markets
 Let research, not politics, drive the facilitation of clusters
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Confidential
February 23, 2006
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Having a skilled labor force is one of the key factors for the
success of clusters
Success Factors
Skilled Labor Force
Value to Clusters
Most important determinant for a cluster’s success
Knowledge of the industry supplemented by
formal education drives the cluster and attracts
new members
Example
Specialized skills were vital to the
development of the semiconductor in the
Silicon Valley
R&D Capability
Availability and accessibility of research centers
and expert individual researchers to provide
cutting-edge research and solve pressing
problems
Specialized optics and imaging institutes and
active professional associations provided
channels for developing an optics and
imaging cluster in Rochester, N.Y.
Proximity of Suppliers
Proximity of suppliers assist in reduced inventory
carrying costs, innovation, and delivery time
Hosiery cluster in North Carolina also
encompasses yarn, needle, dyestuff and
packaging materials suppliers
Quick dissemination of information between
cluster members and knowledge sharing reduces
product development and R&D costs
Proximity assists the cluster in organizing
events for exchange of knowledge
Access to Specialized
Services
Specialized services provide functions tailored to
industry and are integral to cluster’s success
The Industrial Technology Institute in Ann
Arbor, Mich., was established to support the
modernization of the auto industry
Entrepreneurial Energy
Small firms rely on research institutions,
associations or other special services in order to
remain competitive
Entrepreneurial energy was one of the key
reasons for the success and expansion of the
Silicon Valley
Entrepreneurs highlight benefits of the cluster and
will attract new members
Shared Vision and
Leadership
59
Increases competitiveness and profitability of its
member firms
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February 23, 2006
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North Carolina hosiery industry strengthened
the buying power against major customers
such as Wal-Mart by negotiating collectively
Focus communication plans to improve the image of manufacturing
industry and facilitate manufacturing education initiative
Educating the workforce and managers will be key to the success of the
cluster strategy.
Coordination &
Feedback
Universities
Engineering
Business
Trade Schools
Primary
Schools
Training &
Education
Management
• Managerial Skills
• Engineering Abilities
60
Workforce
• Literacy
• Basic PC Skills
• Skilled Trades
Confidential
February 23, 2006
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