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S A N D A G INFOM A Y - J U N E 1 9 9 8 T H R E E D O L L A R S SANSAN DIEGODIEGO REGIONALREGIONAL EMPLOYMENTEMPLOYMENT CLUSTERSCLUSTERS Engines of the Modern Economy ✦ Biomedical Products ✦ Biotechnology & Pharmaceuticals ✦ Business Services ✦ Communications ✦ Computer & Electronics Manufacturing ✦ Defense & Transportation Manufacturing ✦ Entertainment & Amusement ✦ Environmental Technology ✦ Financial Services ✦ Fruits & Vegetables ✦ Horticulture ✦ Medical Services ✦ Recreational Goods Manufacturing ✦ Software & Computer Services ✦ Uniformed Military ✦ Visitor Industry Services INTRODUCTION After nearly two decades of economic stability, the San Diego region experienced a recession that deeply impacted the structure of the local After decades of rapid job economy. The recession that began in 1990 turned out to be, for this region growth and economic stability, and for California, the worst recession in the last 50 years. As a result of in 1990 the San Diego region defense industry cutbacks, the loss of numerous major financial institutions, was hit hard by the worst and the real estate downturn, the San Diego region experienced a significant recession in the last 50 years. loss of employment opportunities and witnessed the departure of many long- time residents once employed in these industries. At the root of the local recession is the basic restructuring of the San Diego The San Diego region must area’s economy. The restructuring, which cost the region thousands of high- now assess the fundamental paying jobs and many of the businesses that created them, continues, even as structure of its economy and the economy recovers. The San Diego region is transitioning into what can be determine what direction to referred to as a modern, export-driven economy. This transition makes it take into in the 21st century. clear that the San Diego region must now look deeply at the fundamental structure of its economy and determine what direction it will take into the 21st century. THE SAN DIEGO REGION’S MODERN EXPORT-DRIVEN ECONOMY The productivity of regional economies, including ours, depends on the Globally competitive, export- sophistication and efficiency of all its industries. Each industry contributes to oriented industries drive the determining the output per worker of the economy. However, it is important regional economy. to distinguish between those industries that are primarily local and those that are export-oriented, selling their products and services nationally or internationally. These two types of industries have very different roles in economic growth. Industries that compete nationally and internationally drive the regional economy and have far greater long-term growth potential. Because they compete at a global level, opportunities for growth in these industries are not constrained by the size of the local market, and they can expand far beyond Today, clusters serve as the it. In addition, export-oriented businesses bring outside dollars into our driving force of the local region. These dollars drive the regional economy as firms buy products and economy . services from other sectors in the area. Their employees also spend their paychecks at local stores and restaurants, and buy local homes. Our ability to create wealth and high-quality jobs—to create prosperity—throughout our entire economy is dependent on the health of these industries. Today, new industries like biotechnology, software, environmental technology, and communications do not fit the classic industry sector definitions. It has become difficult to answer the question, “how is the local biotechnology . and allow us to better industry doing?” Businesses broadly labeled “biotech” straddle industries, describe regional economic refusing to fall neatly into traditionally defined categories. When basic dynamics. questions about employment growth in our region become complex issues, something is wrong with the way we are looking at our economy. The use of clusters as a descriptive tool for regional economic relationships provides a 2 INFO SANDAG / SourcePoint May - June 1998 richer and more meaningful representation of local industry drivers and regional dynamics than the one provided by the traditional system.1 The traditional system tells us where we have been, clusters show us where we are headed. Clusters are a different way of looking at existing relationships that are Industrial clusters are part of already present in the local economy. Cluster industries can be thought of as a dynamic environment in part of a two-way ladder based on regional economic inter-relationships, which each sector plays an providing opportunity for movement up and down. Money and products important role in the region’s move up and down the ladder every day, creating a dynamic environment economic efficiency and dependent upon the efficiency of the entire region. It is this emphasis on prosperity. movement between clusters and non-cluster industries that creates opportunity. At the core of a cluster are concentrations of interdependent, internationally Clusters are groups of competitive firms in related industries. The cluster’s core firms can include complementary, competing, companies that make or help make a final product, as well as specialized and inter-dependent industries suppliers and service providers. Focusing on the entire range of an industry, that drive wealth creation in a from the initial stages of production to the time that the product or service is region, primarily through the completed, has become an increasingly important and often utilized tool in export of goods and services. regional development strategies. Clusters include large companies and small companies, and provide both low- and high-paying job opportunities. Intense competition and close cooperation spur innovation across cluster A competitive advantage today industries, often spawning the development of entirely new companies and is driven by the ability of firms industries. Clusters are dynamic and over time may evolve or change their to continuously innovate and focus. As they develop, cluster firms create demand for new types of products upgrade. and services, some of which can be supplied by existing firms while others result in the creation of new local firms. In short, the cluster dynamic gives companies and their regions a competitive leg-up against others. In the San Diego region, 16 industry clusters serve as the engines of the local economy.2 Clusters are groups of inter-related industries that drive wealth The San Diego region creation in a region, primarily through export of goods and services. About has 16 export-oriented one-third of the region’s 1,017,000 non-military employment is in cluster industrial clusters. industries. The San Diego region is restructuring into a “Modern Export-Driven Economy.”(See Figure 1.) The sixteen export-oriented industrial clusters play a fundamental role in the local economy and are emerging as the engines of economic activity, capable of providing a rising standard of living for the San Diego region. 1 The traditional system for describing industries is the Standard Industrial Classification (SIC) Code . The SIC system is based on a four-digit industry coding system that groups industries by sectors such as Wholesale Trade, Services, and Manufacturing. SIC codes will soon be replaced by a new industrial classification system called the North American Industry Classification System (NAICS). The NAICS will be more detailed than the current system and allow for multi-national data comparisons between the North American Free Trade Agreement (NAFTA) member countries. 2 One of the 16 clusters is a Uniformed Military cluster. It is export-oriented because it brings in significantly more tax dollars than the region pays. Because the information we have on the Uniformed Military cluster is more limited than the other clusters, it has been excluded from further analysis in this report. In 1996 there were approximately 94,000 people employed by the Uniformed Military cluster in the San Diego region. May - June 1998 SANDAG / SourcePoint INFO 3 Figure 1 MODERN EXPORT-DRIVEN ECONOMY Cluster Industries are Emerging as the Engines of Economic Activity Domestic & Global Markets 10 P ro S d er u v c i t N c s Final goods e e & w s and services $ Export-Oriented Clusters ✦ Biomedical Products ✦ Financial Services ✦ Biotech & Pharmaceuticals ✦ Fruits & Vegetables ✦ Business Services ✦ Horticulture ✦ Communications ✦ Medical Services ✦ Computer & Electronics Manufacturing ✦ Recreational Goods Manufacturing ✦ Defense & Transportation Manufacturing ✦ Recreational Goods Manufacturing ✦ Entertainment & Amusement ✦ Uniformed Military ✦ Environmental Technology ✦ Visitor Industry Services P ro S d er u v c i t $ c s Inter-industry e & s transactions Linkage Industries / Suppliers Industries providing the factors of production for the cluster industries and serving the local market. Income, Foundation and investment potential and taxes of local economy Public /Private Infrastructure Support ✦ Human Resources ✦ Capital Finance ✦ Technology Research & Development ✦ Tax & Regulatory Environment ✦ Physical Infrastructure Source: San Diego Regional Technology Alliance, compiled by SANDAG. 4 INFO SANDAG / SourcePoint May - June 1998 The clusters drive wealth creation in the region by exporting goods and services and attracting new wealth from both domestic and international markets. All employment categories, cluster and non-cluster, are responsible Industrial clusters are at

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