"Regional Competitiveness in Central Massachusetts." (Pdf)

Regional Competitiveness in Central Massachusetts

Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School

Central Massachusetts Regional Competitiveness Council Meeting Techman International Charlton, MA October 10, 2003

This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2002, (World Economic Forum, 2002), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter. Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu Sources of Prosperity

ProsperitProsperityProsperityy

ProductivityProductivity “Competitiveness”

InnovativeInnovative CapacityCapacity

z The most important sources of prosperity are created not inherited

z Productivity does not depend on what industries a region competes in, but on how it competes

z The prosperity of a region depends on the productivity of all its industries

z Innovation is vital for long-term increases in productivity

z A local context and rules that encourage investment and sustained upgrading Factor –e.g., Intellectual property Factor Demand (Input) protection Demand (Input) Conditions Conditions z Meritocratic incentive systems Conditions Conditions across all major institutions z Open and vigorous competition z Presence of high quality, among locally based rivals z Sophisticated and demanding local specialized inputs available customer(s) to firms z Local customer needs that anticipate –Human resources those elsewhere –Capital resources RelatedRelated andand z Unusual local demand in specialized –Physical infrastructure SupportingSupporting segments that can be served –Administrative infrastructure IndustriesIndustries nationally and globally –Information infrastructure –Scientific and technological z Access to capable, locally based suppliers infrastructure and firms in related fields –Natural resources z Presence of clusters instead of isolated industries

• Successful economic development is a process of successive economic upgrading, in which the business environment in a nation or region evolves to support and encourage increasingly sophisticated ways of competing RCC Central 10-10-03 CK RB3 3 Copyright © 2003 Professor Michael E. Porter Composition of Regional Economies United States

NaturalNatural ResResource-ource- TradedTraded ClustersClusters LocalLocal ClustersClusters DrivenDriven IndustriesIndustries

Share of Employment 31.6%31.6% 67.6%67.6% 0.8%0.8% Employment Growth, 1990 1.7%1.7% 2.8%2.8% -1.0%-1.0% to 2001

Average Wage $46,596$46,596 $28,288$28,288 $33,245$33,245 Relative Wage 133.8133.8 84.284.2 99.099.0 Wage Growth 5.0%5.0% 3.6%3.6% 1.9%1.9%

Relative Productivity 144.1144.1 79.379.3 140.1140.1

Patents per 10,000 21.321.3 1.31.3 7.07.0 Employees

Number of SIC Industries 590590 241241 4848

Note: 2001 data, except relative productivity which is 1997 data. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School Specialization of Regional Economies Select U.S. Geographic Areas

DenvDenverer, ,C COO ChiChiccagoago LeatherLeather and and Spo Sporrtingting Goo Gooddss Communications Equipment Communications Equipment Boston OOilil and and Gas Gas ProProccessedessed Food Food Boston Aerospace Vehicles and Defense AAnnalyticalalytical I nInststrumrumeentntss SSeeattlattle-Be-Beelllleevvue-ue- Aerospace Vehicles and Defense HHeeavyavy Machiner Machineryy EducaEducationtion and and Know Knowledgeledge C Crreationeation EvEveerrett,ett, WA WA CCoommunmmunicationsications Equ Equipipmmenentt AeAerospacerospace Veh Vehicicleless and and Wichita,Wichita, KS KS Pittsburgh,Pittsburgh, PA PA DDeefensefense AeAerospacerospace Veh Vehicicleless and and CConstructiononstruction Ma Matteerrialsials FFisishhinging and and Fis Fishhinging DeDefefensense MMeetatal lManu Manufacfactuturringing ProducProductsts HHeeavyavy Machiner Machineryy EducaEducationtion and and Know Knowledgeledge AAnnalyticalalytical I nInststrumrumeentntss OOilil and and Gas Gas CCrreationeation

SSaann FrFraanncicisscco-o- OaklaOaklanndd--SaSann JJoosese BayBay ArAreeaa CCoommunmmunicationsications EEqquiuipmpmeenntt AAggricultriculturalural RaRaleleigh-Durigh-Durhhamam, ,NC NC ProducProductsts CCoommunmmunicationsications Equ Equipipmmentent InfoInforrmmationation InfoInforrmmationation Techno Technologylogy TTeechnochnologylogy EducaEducationtion and and KnoKnowwledgeledge Cr Creationeation

LLooss AAnngelesgeles AArreaea Apparel Apparel AtlantAtlantaa, ,GA GA Building Fixtures, San Diego Building Fixtures, San Diego CConstructiononstruction Ma Matteerrialsials Equipment and Leather and Sporting Goods Equipment and Leather and Sporting Goods TTrranspoansporrtatationtion and and Lo Loggisisticstics Services Power Generation Houston Services Power Generation Houston BusBusinesinesss Se Servrviciceses EEnntteertrtaiainmnmeenntt EducaEducationtion and and Know Knowledgeledge HHeeaavyvy Construc Constructiontion Se Serrvvicesices CCrreationeation OOilil and and Gas Gas AeAerospacerospace Veh Vehicicleless and and De Defensefense

Note: Clusters listed are the three highest ranking clusters in terms of share of national employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 5 Copyright © 2003 Professor Michael E. Porter Massachusetts Life Sciences Cluster

ClusterCluster OrganizationsOrganizations HealthHealth andand BeautyBeauty MassMedMassMedic,ic,MMassBio,assBio, otheothersrs ProductsProducts HealthHealth ServicesServices ProviderProvider

SurgSurgicalical InstrumentsInstruments aanndd SupplieSupplierrss

MedicalMedical EquiEquipmentpment SpecializedSpecialized BusinBusineessss Services Biopharma-Biopharma- Services BiologicalBiological Banking,Banking, AccountiAccountinng,g, LegalLegal Dental Instruments ceuticalceutical Dental Instruments ProductsProducts aanndd SupplieSupplierrss ProductsProducts SpecializedSpecialized RiskRisk CapitalCapital OphthalmicOphthalmic GoodsGoods VCVC FirmFirms,s, AngelAngel NetNetwwoorrkkss

Diagnostic Substances Diagnostic Substances SpecializedSpecialized ResearchResearch ServiceService ProvidProvidersers ResResearchearch OrganizationsOrganizations LaboratorLaboratoryy,, ClinicalClinical TestingTesting ContainersContainers

EducationalEducational InstitutionsInstitutions AnalyAnalytticalical InInstrustrumentsments HarvHarvarardd UnUniversity,iversity, MIT,MIT, TuftsTufts University,University, BostonBoston UUnniviversity,ersity, UMass,UMass, othotheersrs

Textiles Apparel Construction Footwear Leather Plastics Materials and Furniture Sporting Building Goods Fixtures, Chemical Oil and Equipment Products Gas and Financial Agricultural Services Products Services Pharma- Heavy Forest ceuticals Construction Products Services Education Publishing Prefabricated Processed and Medical and Printing Enclosures Food Knowledge Devices Creation

Fishing & Analytical Aerospace Aerospace Fishing Information Instruments Vehicles & Engines Products Technology Defense Automotive Tobacco Lightning & Transportation Communi- Electrical Metal and Logistics cations Equipment Manufacturing Equipment Production Hospitality Power Technology Heavy and Tourism Generation Machinery

Jewelry & Entertainment Distribution Motor Driven Precious Sporting, Services Products Metals Business Recreation and Services Children’s

Note: Clusters with overlapping borders or identical shading Goods have at least 20% overlap (by number of industries) in both directions

Hospitality and Tourism ClimateClimate Sporting and Leather Goods andand Transportation GeograGeographyphy and Logistics

Power Generation Aerospace Vehicles Communications and Defense Equipment U.S.U.S. Information Technology MilitaryMilitary Analytical Instruments

Education and Knowledge Creation Medical Devices

BioscienceBioscience Biotech / Pharmaceuticals ResearchResearch CentersCenters

1910 1930 1950 1970 1990

LifeLife SciencesSciences IndustryIndustry AssociatAssociationsions UniversityUniversity InitInitiatiatiivesves

z zz MassachusettsMassachusetts BiotechnologyBiotechnology CouncilCouncil z HarvardHarvard BiomediBiomedicalcal ComCommmuunitynity z zz MassachusettsMassachusetts MedicaMedicall DeviDevicece IInndustdustryry z MITMIT EnterpriseEnterprise ForumForum CouncilCouncil zz BiotechBiotech ClubClub atat HHarvardarvard MedicalMedical SchoolSchool z z MassachusettsMassachusetts HospitalHospital AssociAssociatiatioonn zz TechnolTechnoloogygy TTrransferansfer officesoffices

GeneralGeneral IndustryIndustry AssocAssociiationsations InformalInformal networksnetworks

zz AssociatedAssociated IndustriesIndustries ofof MassachusettsMassachusetts zz CompanyCompany alalumumnini

zz GreaterGreater BostonBoston ChamberChamber ofof CommerceCommerce zz VentureVenture CapitalCapital commcommunityunity zz HighHigh TechTech CouncilCouncil ofof MassachusettsMassachusetts zz UniversiUniversityty alalumumnini

EconomicEconomic DevelopmentDevelopment InInititiatiatiivesves JointJoint ResearchResearch InInititiatiatiivesves

z z MassachusettsMassachusetts TechnoTechnologylogy CollaborativeCollaborative zz NewNew EnglandEngland HealthcareHealthcare InstituteInstitute z z MassMass BiomedicalBiomedical InitiativesInitiatives zz WhiteheadWhitehead InstituteInstitute ForFor BiomedicalBiomedical zz MassMass DevelopmentDevelopment ResearchResearch z zz MassachusettsMassachusetts AlliAllianancece forfor EconomicEconomic z CenterCenter forfor IntegratioIntegrationn ofof MMeedicidicinene andand DevelopmentDevelopment InnovativeInnovative TechnologyTechnology (CIMIT)(CIMIT)

World Economy

Groups of Neighboring Nations

Nations

States, Provinces

Metropolitan Areas

Smaller Cities and Counties

Regional Competitiveness Councils and Town/City Borders

z Foundations of Regional Competitiveness

z Assessing the Competitiveness of Central Massachusetts

z Action Agenda

z Wages in Central Massachusetts are at the state’s average and have been growing at 5% annually over the last five years, higher than the U.S. average

z Employment growth has over the last five years reached 1.7% annually, far below the US and Massachusetts average – Employment in traded cluster has even decreased, making Central Massachusetts the only region in the state with jobs losses in any broad group of clusters

z Establishment growth has outpaced the U.S. average and put the region among the leading Massachusetts regions

z Patenting rates of 13 patents per 10,000 employees in 2001 put the region far ahead of the national average and in the leading group of Massachusetts regions

8.0%

Greater Boston 7.0% Northeast

CAGR of Average Wage, 6.0% Cape and Islands 1997–2001

Central 5.0% US Average Wage Growth: 4.56% Southeast

4.0% Pioneer Valley

Represents employment of 3.0% 250,000 in 2001 Berkshire US Average Wage: $34,669 2.0% 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 Average Wage, 2001 Data: private, non-agricultural employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 14 Copyright © 2003 Professor Michael E. Porter Wages in Traded and Local Industries Massachusetts Regions

$45,000 US Average Traded Wage: $44,956 Greater Boston $40,000

Massachusetts, Average $35,000 all regions Local Wage, 2001

Southeast $30,000 Central Northeast

Cape and Islands Pioneer Valley US Average Local Wage: $28,288 $25,000 Berkshire

$20,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 $70,000 $75,000 $80,000

Average Traded Wage, 2001

Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 15 Copyright © 2003 Professor Michael E. Porter Comparative Performance of Regions Wage Growth and Employment Growth 9.0%

8.0% Greater Boston

7.0% Northeast

CAGR of Cape and Islands Average Wage, 6.0% 1997–2001 Central

Southeast 5.0% US Average Wage Growth: 4.56%

4.0% Pioneer Valley

Represents employment of 3.0% Berkshire US Average 250,000 in 2001 Employment Growth: 2.21% 2.0% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% CAGR of Employment, 1997–2001 Data: private, non-agricultural employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 16 Copyright © 2003 Professor Michael E. Porter Job Creation Massachusetts Regions

60,000 NetNet jobjob creationcreation inin tradtradeded NetNet jobjob creationcreation inin lolocalcal 50,000 clusters,clusters, 1997-2001:1997-2001: clusters,clusters, 1997-2001:1997-2001: -1,758-1,758 +15,423+15,423

40,000 , 1997-2001

n 30,000

Creatio 20,000 Job 10,000

-10,000 t t l y n e a r e r o l t t l nds s n a a l heas heas o t kshi s V r r ntral Ce B o e r out N B S te Ce a oneer e i pe and I P Gr a C

Data: private, non-agricultural employment. Note: Regional data does not total precisely to statewide data due to omissions for confidentiality in the regions. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 17 Copyright © 2003 Professor Michael E. Porter Comparative Performance of Regions Establishment Formation in Traded Clusters 4.5% US Average Employees per Traded Establishment: 23.8 4.0% Northeast

3.5% Central

US Average Rate of CAGR of Traded Traded Establishment 3.0% Berkshire Establishments, Formation: 2.79% 1997–2001

Greater Boston 2.5% Cape and Islands Southeast

2.0%

Represents 1.5% 4,000 traded Pioneer Valley establishments in 2001 1.0% 5 1015202530 Employees per Traded Establishment, 2001

Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 18 Copyright © 2003 Professor Michael E. Porter Comparative Performance of Regions Wages and Patenting Rates

60,000 US Average Patenting Rate: 7.71 per 10,000 Workers

55,000 Greater Boston

50,000

45,000 Northeast Average Wage, 2001

40,000

US Average Southeast Central 35,000 Wage: 34,669

Pioneer Valley 30,000 Berkshire Represents 500 Cape and Islands patents in 2001 25,000

20,000 0 5 10 15 20 Patents per 10,000 Workers, 2001 Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 19 Copyright © 2003 Professor Michael E. Porter Patents by Organization Central Region

Organization Patents Issued from 1997 to 2001

1 COMPAQ/DIGITAL EQUIPMENT CORPORATION 101 2 EMC CORPORATION 46 3 SAINT GOBAIN/NORTON INDUSTRIAL CERAMICS CORP. 41 4 QUANTUM CORP. (CA) 39 5 HYBRIDON, INC. 32 6 MORGAN CONSTRUCTION COMPANY 28 7 NORTON COMPANY 27 8 UNIVERSITY OF MASSACHUSETTS 21 9 UNIVERSITY OF MASSACHUSETTS MEDICAL CENTER 21 10 MACNEILL ENGINEERING COMPANY, INC. 20 11 SEPRACOR INC. 19 12 3COM CORPORATION 18 13 SUN MICROSYSTEMS, INC. 16 14 AMERICAN SUPERCONDUCTOR CORPORATION 14 15 RAYTHEON COMPANY 14 16 SHIPLEY COMPANY INC. 13 17 AVERY DENNISON CORPORATION 13 18 SIMPLEX TIME RECORDER COMPANY 11 19 GILLETTE COMPANY 11 20 CABOT SAFETY INTERMEDIATE CORPORATION 10 21 PIONEER CONSOLIDATED CORP. 8 22 BASF AKTIENGESELLSCHAFT 8 23 DATA GENERAL CORP. 8 24 POLAROID CORPORATION 7 25 WORCESTER POLYTECHNIC INSTITUTE 7 26 ALPHA BETA TECHNOLOGY, INC. 7 27 GENZYME CORPORATION 7 28 WORCESTER FOUNDATION FOR EXPERIMENTAL BIOLOGY, INC. 7 29 ANALOG DEVICES, INC. 7

Note: The USPTO assigns location based on the inventor’s address rather than that of the institutional owner. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 20 Copyright © 2003 Professor Michael E. Porter Composition Central Massachusetts

z Central Massachusetts has as strong position with more than three times the employment expected given the region’s size in three traded clusters – Plastics – Communication equipment – Construction materials

z Central Massachusetts is losing employment and national position in a number of manufacturing-dominated clusters – Chemical Products, Metal Manufacturing, Analytical Instruments, and Plastics – Information technology is the only cluster with significant size that added jobs and gained national share

z Among local clusters, the only broad segment of the region’s economy to grow employment, local health services and local real estate accounted for more than 55% of all job creation

z Wages lag the Massachusetts average in all major clusters of the regional economy

0.90% Plastics 0.80% Communication Equipment

0.70% Construction Materials

0.60% Publishing and Printing Share of 0.50% Financial Services National Education and Knowledge Creation Cluster Medical Devices Employment 0.40% Chemical Products Leather and Related Products in 2000

0.30% Information Technology Region’s Metal Manufacturing Production Technology 0.20% Share of National Analytical Instruments Employment: 0.192% 0.10% Power Generation and Transmission

0.00% -0.30% -0.20% -0.10% 0.00% 0.10% 0.20% 0.30% Change in Share, 1997–2001

= 0–499 = 500–1,999 = 2,000–6,999 = 7,000+

Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 22 Copyright © 2003 Professor Michael E. Porter Specialization By Traded Cluster Central Region

0.35%

Publishing and Printing Education and Knowledge Creation 0.30% Metal Manufacturing Financial Services Information Technology Leather and Related Products 0.25% Forest Products Production Technology Medical Devices Region’s Share of 0.20% Distribution Services Automotive Share of National National Heavy Construction Services Employment: Cluster 0.192% Employment in 2000 0.15% Analytical Apparel Instruments Transportation and Logistics Hospitality and Tourism 0.10% Furniture Business Services

0.05% Textiles

0.00% -0.12% -0.10% -0.08% -0.06% -0.04% -0.02% 0.00% 0.02% 0.04% 0.06% 0.08% 0.10% Change in Share, 1997–2001

= 0–499 = 500–1,999 = 2,000–6,999 = 7,000+

Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 23 Copyright © 2003 Professor Michael E. Porter Employment By Traded Cluster Central Region Rank in MA Financial Services 3 Education and Knowledge Creation 4 Plastics 1 Distribution Services 4 Business Services 5 Communications Equipment 3 Heavy Construction Services 4 Metal Manufacturing 3 Publishing and Printing 5 Hospitality and Tourism 6 Automotive 1 Information Technology 3 Transportation and Logistics 3 Chemical Products 3 Production Technology 5 Construction Materials 1 Processed Food 5 Medical Devices 4 Forest Products 4 Analytical Instruments 4 Entertainment 6 Apparel 3 Building Fixtures, Equipment and Services 5 Furniture 4 Lighting and Electrical Equipment 4 Leather and Related Products 5 Prefabricated Enclosures 1 Heavy Machinery 4 Textiles 5 Power Generation and Transmission 3 Agricultural Products 4 Sporting, Recreational and Children's Goods 4 Jewelry and Precious Metals 7 Biopharmaceuticals . Oil and Gas Products and Services . Motor Driven Products . Footwear . Fishing and Fishing Products . Aerospace Vehicles and Defense . Aerospace Engines . 0 2,000 4,000 6,000 8,000 10,000 12,000 Employment, 2001 l - Indicates expected employment at rates in the state benchmark for traded clusters. Rank is across 7 state regions. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 24 Copyright © 2003 Professor Michael E. Porter Job Creation By Traded Cluster Central Region

2,000 NetNet jobjob creatcreationion inin tradedtraded 1,500 clustersclusters fromfrom 1997-2001:1997-2001:

1 1,000 -1,758-1,758 -200 500 1997 , n o i

t 0 Crea

b -500 o J

-1,000

-1,500 l y t t s g s y e s s s r y e s s s s s s s s t g s t e s l s l t t t t r n v n es g m e r e es g c e e on i i es c d n l e a i a n i t u en c i ce s i on e i r t o r c a t i n o c c t t i uc t i i ent t t c uc l i o ood i l i i uc uc i r e uc o i s u e u p v vi s s a x v n m t v o o n v e r i m r ur a F rv r s t m e e m r nm r od c r p od ch no i n gi od od od e p i r G r os e M o d r e e a u i r

r o Ap Te l r a h Pl h ai t r fa u S D m e s t c u S Fu c l

P ' c P S P Lo S r u us q s P s Se P l d P l M st n q t e l d T e n e C n d e s n s o d n Au a a n d t s ca i a i on E en e i s o e a i T E e a l T I r on i vy M c n e c c t t v l r i t dg d ur e i an r i n a an n t d a t e

a E r a l l u an t e oc e n M r l c y o ed E o i o l e l uc i t i r i t c i ng an u b n i t i r ons e r t F uc h s M D em t i t nan a w H P r c ri ta on t e i r a i t hi nd T i t yt al c h c d P o r t l R t e uc i a F o s s a i ns e Bu r t i m i n

g C a a c d l l d C ns r t i p M o pm b o n n r n od D A b o an r a fo o o ui f M u A y C i un a d K C d E an r t P p q r l e y l In P Hos r a s m a e E P he , n an m w an s eav o o ner r e i on an e t ng H J i e T eat i C t t L ur a ea t G r r x gh i c uc e Li e d F w g E o R , n P i d l ng i i t u or B p S Indicates expected job creation at rates achieved in national benchmark clusters, i.e. % change in national benchmark times initial employment. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 25 Copyright © 2003 Professor Michael E. Porter Relative Cluster Performance Central Region 0.192% of U.S. Employment 1.8 Apparel 47.9% of traded employment 1.6 Prefabricated Leather and Related Products 17.8% in clusters gaining share Enclosures 30.1% in clusters losing share Production Technology Textiles 1.4 Heavy Forest Products Construction Materials Construction Services Information Plastics 1.2 Technology Education and Knowledge Creation U.S. Automotive Chemical Products Communication Equipment average 1.0 Publishing and Printing cluster Metal Manufacturing wage 0.8 Distribution Medical Devices Services 0.6 Financial Services

Relative Cluster Wage, 2001 Relative Cluster Entertainment 0.4 Agricultural Products

0.2

0.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Relative Cluster Employment, 2001

Red = Gaining Share = 0–249 = 500–1,999 = 2,000–6,999 =7,000+ Black = Loosing Share

Note: US wage and employment benchmarks Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 26 Copyright © 2003 Professor Michael E. Porter Job Creation By Local Cluster Central Region

6,000 NetNet jobjob creatcreationion inin locallocal 5,000 clusters,clusters, 1997-2001:1997-2001:

1 +15,423+15,423

-200 4,000 1997 , n o

i 3,000 t Crea b

o 2,000 J

1,000

-1,000 , y s s t e al e es es es es t es ng i l ies i s a c alit ic ic ic d ic ic s uc t hing and and e and ons ent it v v v v , ilit i oods v s n s ent y r er r t r ri s r ion r l) p e od m e ehic e a e e e e a ion and s G r m ent on es t Ut h es c i Clot t oc V but S a unit sso ic i r r ic al il r lopm h rvi v v t o al S ood a m a uc r ial S t r e edic ial P r aining ainm t ganiz ic al Ho r e ablis o r e duc t ehold t edia t r t Se Loc M and S onal S r T Acce s al Real E al Com al F s s e M t r O age P Dev t E Loc r nanc c al E on- e n i al M al Ret i e Cons al Healt Loc ndus al Com Loc N Loc and Dis and S v and and S ( e oduc Loc Civ al F al P Loc Loc al E al Hous r al Logis al I B Loc Loc P Loc Loc Loc Loc Loc Loc

Indicates expected job creation at rates achieved in national benchmark clusters, i.e. % change in national benchmark times initial employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 27 Copyright © 2003 Professor Michael E. Porter Wages By Traded Cluster Central Region with State Benchmarks

Information Technology Forest Products Power Generation and Transmission Business Services Communications Equipment Production Technology Financial Services Prefabricated Enclosures Chemical Products Heavy Machinery Heavy Construction Services Leather and Related Products Automotive Plastics Analytical Instruments Construction Materials Processed Food Publishing and Printing Textiles Education and Knowledge Creation Lighting and Electrical Equipment Metal Manufacturing Distribution Services Apparel Medical Devices Building Fixtures, Equipment and Transportation and Logistics Sporting, Recreational and Jewelry and Precious Metals Region’s average Furniture Hospitality and Tourism traded wage: Entertainment $45,413 Agricultural Products

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000

Wages, 2001 l - Indicates Massachusetts average wage in the cluster. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 28 Copyright © 2003 Professor Michael E. Porter Leading Sub-Clusters by Location Quotient Central Region, 2001

Share of Rank among Lo c atio n Cluster Subcluster National Massachusetts Employment Quotient Employment Regions Fina ncia l S e rvice s Insurance Products 2.57 0.49% 2 5,925 Education and Knowledge Creation Educational Facilities 2.63 0.51% 2 746 Synthetic Rubber 6.87 1.32% 2 152 Plastics Plastic Products 4.93 0.95% 1 5,791 Plastic Materials and Resins 3.42 0.66% 2 1,032 Distribution Services Apparel and Accessories Wholesaling 2.91 0.56% 3 1,228 Specialty Office Machines 46.97 9.03% 1 1,857 Communications Equipment Electrical and Electronic Components 5.71 1.10% 3 1,768 Heavy Construction Services Fabricated Metal Structures and Piping 2.24 0.43% 1 869 Saw Blades and Handsaws 21.98 4.23% 2 356 Wire and Springs 3.71 0.71% 1 653 Metal Manufacturing Precision Metal Products 3.16 0.61% 1 688 General Industrial Machinery 1.74 0.33% 3 166 Paper Products 4.49 0.86% 3 754 Publishing and Printing Printing Services 3.64 0.70% 2 1,804 Automotive Production Equipment 6.68 1.28% 1 1,748 Peripherals 3.00 0.58% 3 701 Information Technology Electronic Components and Assemblies 2.52 0.48% 3 1,477 Chemical Products Other Processed Chemicals 8.16 1.57% 1 1,484 Fabricated Plate Work 3.21 0.62% 1 499 Process Machinery 2.19 0.42% 3 341 Production Technology Ball and Roller Bearings 2.18 0.42% 1 140 Machine Tools and Accessories 2.09 0.40% 3 344 Tile , Brick a nd Gla s s 9.09 1.75% 1 909 Construction Materials Rubber Products 2.95 0.57% 4 280 Me dica l De vice s Ophthalmic Goods 20.20 3.88% 1 1,039 Analytical Instruments Optical Instruments 10.34 1.99% 3 453 Paper Industries Machinery 5.88 1.13% 3 149 Forest Products P a pe r Mills 1.70 0.33% 2 770 Apparel Knitting and Finishing Mills 4.31 0.83% 2 721 Leather Products Coated Fabrics 5.76 1.11% 4 97 Textiles Specialty Fabric Processing 2.71 0.52% 3 64 Power Generation and Transmission Turbines and Turbine Generators 4.20 0.81% 1 143

Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 29 Copyright © 2003 Professor Michael E. Porter Sole Proprietorship Employment and Growth

Sole Proprietorship Central Region Employment 2001 8,000 SoleSoleSole pr propriproproprietietorshietororshipsshipsps::: 41,41,991991 Professional, scientific, asasas %% % ofof of totaltotal total eemp:memp:p: 12.312.3%% 7,000 and technical services CAGRCAGRCAGR 1991998-2001: 1998-2001:8-2001: 1.381.38%% Construction 6,000 Other services 5,000

Retail trade 4,000 Health care and Real estate, rental and leasing social assistance 3,000 Administrative, support and waste mgmt

2,000 Arts, entertainment, and recreation Finance and insurance Educational services Wholesale trade 1,000 Manufacturing Transportation and warehousing Information services Agriculture, forestry, Utilities Accommodation and food services and publishing (-15.8%, 71) fishing and hunting 0 -6%-4%-2%0%2% 4%6%8%10%12%

Compound Annual Growth Rate (CAGR) of Sole Proprietorship Employment, 1998–2001

Note: Data available on county basis only; the allocation to Massachusetts regions is only approximate. Source: U.S. Census Bureau, Nonemployer Statistics RCC Central 10-10-03 CK RB3 30 Copyright © 2003 Professor Michael E. Porter Business Environment Central Massachusetts

z The Business environment in the Central region is seen in most dimensions to match or slightly exceed the Massachusetts average – Cost of living and cost of doing business are seen as the strongest advantages relative to the rest of the state; labor force skills also receive high grades – The level of local competition in Central Massachusetts, however, is perceived as lower than in the other regions of the state; cluster linkages are not seen to currently contribute to regional success

z While companies are overall satisfied with their location in Central Massachusetts, they rank the region low in attractiveness for the industry compared to other parts of the state

z Priorities for government in the Central region mirror the Massachusetts average on most dimensions – Relatively higher importance is seen in the attraction of suppliers and service providers to the region

Strongly Strongly Mean Agreement Disagree Agree 1234567

The communications infrastructure in your local region

fully satisfies your business needs. Advanced educational programs provide your business with high quality employees

Specialized facilities for research are readily available The overall quality of life in your region makes recruitment and retention of employees easy The available pool of skilled workers in your region is sufficient to meet your growth needs.

The overall quality of the K-12 education system is high. The cost of living in your region makes recruitment and retention of employees easy. Qualified scientists and engineers in your local region are in ample supply. Basic education and English language instruction for immigrant workers meet the needs of my organization The overall quality of transportation is very good relative to other regions The cost of doing business is low relative to other regions The institutions in your local region that perform basic research frequently transfer knowledge to your industry. Access to risk capital (e.g. venture capital, angel capital) is easy.

Berkshire Cape and Islands Central Greater Boston Northeast Pioneer Valley Source: Professor Michael E. Porter and Monitor Group Southeast Massachusetts RCC Central 10-10-03 CK RB3 32 Copyright © 2003 Professor Michael E. Porter Regional Comparisons Rules and Incentives Governing Investment and Competition

Strongly Strongly Disagree Mean Agreement Agree 1234567

State environmental standards and safety regulations are strict.

Local environmental standards and safety regulations are strict.

Local competition in your industry is intense. The number of local competitors for your business in your local region is high. Local regulations affecting your business are appropriate and assist with your firm's ability to succeed. Investment in R&D is encouraged by state and local taxes and incentives State regulations affecting your business are appropriate and assist with your firm's ability to succeed. State government's overall responsiveness and ability to work with the needs of business is high. Local government's overall responsiveness and ability to work with the needs of business is high. State and local government support for investment in R&D (e.g. funding business incubators, creating consortia) is ample.

Berkshire Cape and Islands Central Greater Boston Northeast Pioneer Valley Southeast Massachusetts Source: Professor Michael E. Porter and Monitor Group RCC Central 10-10-03 CK RB3 33 Copyright © 2003 Professor Michael E. Porter Regional Comparisons Positive Impact on the Local Business Environment

Percent of Respondents which Ranked 0% Characteristic Among the Top Five Most Positive 100%

Overall quality of life for employees

Available pool of skilled workforce

Cost of doing business (e.g. real estate, wages, utilities, etc)

Specialized needs of local customers

Quality of transportation (e.g. ease of access, traffic)

Availability of advanced educational programs

Quality of local K-12 schools

Demanding local customers that provide feedback

Relationships between firms and organizations in your cluster

Level of locally based competition in your industry

Access to capital

Quality and in-region location of your suppliers

Local government's overall responsiveness to the needs of business

Berkshire Cape and Islands Central Greater Boston Northeast Pioneer Valley Southeast Massachusetts Source: Professor Michael E. Porter and Monitor Group RCC Central 10-10-03 CK RB3 34 Copyright © 2003 Professor Michael E. Porter Regional Comparisons Regional Strategy & Summary of the Regional Business Environment

Strongly Strongly Disagree Mean Agreement Agree Does your local region have a well articulated economic strategy 1234567 and are you an active participant in it?

My organization can contribute significant value to an economic development

strategy.

My organization is an active participant in the execution of this strategy.

Local business and government leaders have articulated a clear strategy for promoting the economic development of the local region.

The state has articulated a clear strategy for the region.

Summary of the Regional Business Environment 1234567

Overall, this region in Massachusetts is a good place for my company to do

business. Overall, my region has strengths in my industry compared to other regions in Massachusetts.

Berkshire Cape and Islands Central Greater Boston Northeast Pioneer Valley Southeast Massachusetts Source: Professor Michael E. Porter and Monitor Group RCC Central 10-10-03 CK RB3 35 Copyright © 2003 Professor Michael E. Porter Regional Comparisons Priorities for Government Not at All Critically Important Mean Importance Important 12345

Promote world-class primary and secondary education Improve state government support for transportation and other physical infrastructure Promote specialized education and training programs to upgrade worker skills Improve local government support for transportation and other physical infrastructure Implement tax reform to encourage investment in innovation (e.g. R&D tax credits) Simplify compliance procedures for government regulations (e.g. one-stop filing, websites, etc)

Promote universal computer literacy

Improve information and communications infrastructure Support the particular needs of start-up companies (access to capital, incubators, management training) Assist in attracting suppliers and service providers from other locations Speed-up regulatory approval process in line with product life- cycles Catalyze partnerships among government agencies, industry and universities

Provide services to assist and promote local exports Increase government support for funding of specialized research institutes, labs, etc.

Increase funding for university-based research

Berkshire Cape and Islands Central Greater Boston Northeast Pioneer Valley Source: Professor Michael E. Porter and Monitor Group Southeast Massachusetts RCC Central 10-10-03 CK RB3 36 Copyright © 2003 Professor Michael E. Porter Regional Competitiveness Central Massachusetts

z Foundations of Regional Competitiveness

z Assessing the Competitiveness of Central Massachusetts

z Action Agenda

OldOld MModelodel NewNew ModelModel

•• GovernmentGovernmentdrivesdrives economiceconomic •• EEconomicconomic developmentdevelopment isis aa developmentdevelopment throughthrough policypolicy collaborativecollaborative processprocessinvolvinginvolving decisionsdecisions andand incentivesincentives governmentgovernment atat multiplemultiple levels,levels, companies,companies, teachingteaching andand researchresearch institutions,institutions, andand institutionsinstitutions forfor collaborationcollaboration

• A company’s competitive advantage is partly the result of the local environment • Company membership in a cluster offers collective benefits • Private investment in “public goods” is justified

• Take an active role in upgrading the local infrastructure •Nurture local suppliers and attract new supplier investments • Work closely with local educational and research institutions to upgrade quality and create specialized programs addressing cluster needs • Provide government with information and substantive input on regulatory issues and constraints bearing on cluster development • Focus corporate philanthropy on enhancing the local business environment

• An important role for trade associations – Greater influence – Cost sharing

ContextContext forfor FirmFirm StrategyStrategy andand RivalryRivalry

• Aggressive trade associations (Medical Alley Association, High Tech Council) • Effective global marketing of the cluster and of Minnesota as the FactorFactor “The Great State of Health” DemandDemand (Input)(Input) • Full-time “Health Care Industry ConditionsConditions ConditionsConditions Specialist” in the department of Trade and Economic Development

• Joint development of vocational- • State sanctioned technical college curricula with the reimbursement policies medical device industry to enable easier adoption • Minnesota Project Outreach exposes and reimbursement for businesses to resources available at innovative products university and state government RelatedRelated andand agencies Supporting • Active medical technology licensing Supporting through University of Minnesota IndustriesIndustries • State-formed Greater Minnesota Corp. to finance applied research, invest in new products, and assist in technology transfer

z Mount cluster development efforts for established and emerging traded clusters – Use targeted investment attraction efforts

z Develop a distinct strategic profile for the region, leveraging its geographical position in proximity to Greater Boston – Strengthen the business environment strategically in areas central to the region’s strategic profile