Aerospace & Defense Industry in Arizona
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Aerospace & Defense Industry in Arizona An Intellectual Roadmap for Economic Development March 29, 2011 Prepared by: L. William Seidman Research Institute W.P. Carey School of Business Arizona State University Tel: (480) 965-5362 Fax: (480) 965-5458 www.seidmaninstitute.com Prepared for: Science Foundation Arizona This project was supported by the Governor’s Office of Economic Recovery and Science Foundation Arizona. Executive Summary Arizona’s Aerospace & Defense (A&D) industry faces several challenges to its continued growth thanks to an increasingly competitive economic landscape and the changing technological needs of the military. This current report, commissioned by Science Foundation Arizona (SFAz): • summarizes the current state of the A&D industry within Arizona; • identifies key players and developments that could yield additional growth to the industry; • provides an overview of best practice in other states; • evaluates the threats, opportunities, weaknesses and strengths of Arizona’s A&D industry; • identifies a range of strategic choices open to the A&D industry within Arizona today; and • recommends a plan to enable the industry to maximize its opportunities while simultaneously minimizing the impact of any weaknesses and protecting itself against threats. Drawing from a literature review and in-depth interviews with five industry stakeholders, the report examines the business environment, the supply chain, research competitiveness, workforce, educational policies, and the case for an Aerospace Institute, leading to the development of seven key messages: • Arizona needs small businesses and entrepreneurs to support the operations of medium and large manufacturers, and to drive the innovation of new technologies or new applications of existing technologies; • The optimal strategy for promoting growth within the A&D industry is to focus upon established operations and competencies; • Arizona’s congressional delegation needs to take a more proactive role within industry caucuses, and more aggressively champion investment by the Department of Defense within the State; • An Arizona Aerospace & Defense Institute (ADI) is needed to align research and development with commercial and military needs; • The provision of STEM education within Arizona should be advanced; • Gaps within Arizona's A&D industry should be acknowledged, but not all of them need to be necessarily addressed; Seidman Research Institute, W. P. Carey School of Business Page ii • The industry needs to leverage local strengths in research and geography, complemented by targeted tax incentives, to foster future growth. A comparison with three competitor states (Alabama, Florida and Virginia) is also made to provide further insight into best practice, highlighting both the importance of federal contracts and collaboration between stakeholders. Collating these preliminary analyses within a point of intersection framework, the report recommends the following roadmap as a springboard to the future success of the Arizona A&D industry: • Arizona’s A&D industry is currently quite disparate and will benefit from greater collaboration between industry, research and the military; • This collaboration is ideally best served by the establishment of an Aerospace Institute, facilitating the exchange of ideas and needs between all stakeholders; • Current core competencies in areas such as national defense, cyber warfare, intelligence and surveillance, special operations, counter terrorism and border security have to become the main focus of future development; • The Department of Defense is receptive to working outside the confines of Washington, DC. However, to take advantage of this opportunity, Arizona needs much greater support from its congressional delegation; • Arizona’s universities must work hand-in-hand with the business development teams at very large manufacturers such as Boeing and Raytheon to maximize share of the research dollars available, and produce work of value both commercially and militarily; • Closely aligning the efforts of research and industry around established themes in A&D and through collaborative efforts, guided by the likes of an Aerospace Institute, will enable Arizona to offer the Department of Defense beginning-to-end solutions based on existing and solid competitive advantages; • Further analysis is required to account for the lack of Second-Tier Suppliers within the State, the impact this has upon the industry, and the optimum strategy to remedy the situation. Seidman Research Institute, W. P. Carey School of Business Page iii Table of Contents Executive Summary ....................................................................................................................................... ii 1. Introduction .............................................................................................................................................. 3 2. Literature Review and Analysis ................................................................................................................. 4 2.1 Literature Review ................................................................................................................................ 4 2.1.1 The Business Environment ............................................................................................................... 5 2.1.2 The Supply Chain .............................................................................................................................. 6 2.1.3 Research Competitiveness ............................................................................................................... 6 2.1.4 Workforce/STEM Education ............................................................................................................ 6 2.1.5 Aerospace Institute .......................................................................................................................... 7 2.2 Industry Leader Interviews ................................................................................................................. 8 3. Competitor Strategies ............................................................................................................................. 11 3.1 Alabama ............................................................................................................................................ 11 3.2 Florida ............................................................................................................................................... 12 3.3 Virginia .............................................................................................................................................. 13 4. Economic Landscape & Key Players - Points of Intersection .................................................................. 14 4.1 Identifying Clusters ........................................................................................................................... 14 4.1.1 Very Large Manufacturers (VLMs) ................................................................................................. 15 4.1.2 Second-Tier Suppliers .................................................................................................................... 15 4.1.3 Research Entities ............................................................................................................................ 16 4.1.4 Workforce ...................................................................................................................................... 17 4.1.5 Military ........................................................................................................................................... 20 4.2 Key A&D Themes ............................................................................................................................... 20 4.3 Points of Intersection ........................................................................................................................ 23 5. TOWS Analysis ......................................................................................................................................... 24 5.1 The Four Strategies of a TOWS Matrix .............................................................................................. 25 5.2 Developing a TOWS Matrix for Arizona’s A&D Industry ................................................................... 26 6. Conclusions & Recommendations for Future Research ......................................................................... 32 Bibliography ................................................................................................................................................ 34 Appendix ..................................................................................................................................................... 37 A.1 Arizona’s Research Programs and Centers ....................................................................................... 37 Seidman Research Institute, W. P. Carey School of Business Page 1 A.2 Number of 2000 – 2010 Graduates by Most Recent Degree and University ................................... 41 A.3 Additional Technical Degree Programs at Branch Campuses ........................................................... 45 Glossary ....................................................................................................................................................... 46 Table of Figures Table 1: List of