ICIC Overview

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Industry Clusters and Inner City Economic
Revitalization
National Governors Association Atlanta,
Georgia June 6-7, 2002
Alen Amirkhanian VP, Research and
Strategy Initiative for a Competitive Inner City
(ICIC)
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Contents

• The role of clusters in comprehensive inner city
  economic development strategy
• Examples of inner city cluster-led strategies
• Recommendations for State government action

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Initiative for a Competitive Inner City

• ICIC Mission
• Transform thinking, reinvigorate market forces,
  and engage the private sector in fostering
  healthy economies in Americas inner cities that
  create jobs, income, and wealth opportunities for
  inner-city residents.
• Seven years of pioneering research on inner-city
  business growth opportunities, including the
  ICIC/Inc. Magazine Inner City 100
• Advisory services to many cities through the City
  Advisory Practice
• Program to engage 350 urban business schools
• Affiliates in 3 cities to catalyze on-the-ground
  private sector activity
• Private equity fund (Inner City Ventures)

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Defining Inner City

• Poverty at least 1.5 times MSA poverty
• MHI at least half of MSA MHI
• Unemployment at least 1.5 times MSA unemployment
• Or
• Poverty 20
• And
• Exclude Central Business Districts (CBDs)

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The business agenda is a complementary part of
the building economically healthy inner cities
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A Sustainable Model for Inner-City Business
Development

• 1) A strategy based on competitive advantages and
  genuine business opportunities
• 2) A shift from a focus on community deficiencies
  (subsidies) to market opportunities (investment)
• 3) A comprehensive strategy for inner city
  business growth focused on private sector
  engagement
• 4) A framework that links the inner city economy
  to regional business clusters

Objective widen prosperity to all of our citizens
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What is our Intended Outcome?
Critical mass of initiatives and improvements
that will a) Position the inner city to compete
for jobs and investment within the regional
economy b) Make inner cities a better place in
which to live and work c) Increase job, income,
and wealth opportunities of inner-city residents
Thinking about inner city economic growth in this
way avoids misguided debates
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Inner City Competitive Advantages
Strategic location

• Located near regional transportation and
  telecommunications infrastructure nodes

Underserved local market
Underutilized Workforce

• Largest pool of available workers in the US amid
  a tight labor market

• 85 billion of annual retail spending power
• 540 thousand businesses with more than 80
  billion in commercial services demand

Inner-city
Linkage to industrial/regional clusters

• Opportunity to leverage proximity to regional and
  industrial clusters

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Inner City 100 Companies Build on Competitive
Advantages

• Vital Statistics 2002
  Winners
• Average five year growth rate 1996-2000
• Average sales in 2000
• Average hourly wage
• Percent minority-owned
• Percent living in the inner city

Total IC 100
539
19.0 M
12.44
33
44
Employment among the Inner City 100
doubled between 1996 and 2000, creating 7,984
jobs
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Business Development Strategy Alternative Growth
Strategies for Inner-City Neighborhoods
Growth Trajectory (Employment, revenue, wages,
and utilized real estate)
Cluster strategy, Underutilized assets, business
environment, ...
Small-businesses strategy
Microenterprise strategy
No-growth strategy
Time
Today
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Developing an Inner City Business Development
Strategy
Understand the business base quality of
business environment
Create a leadership group for action
Institutionalize efforts in the public and
private sectors
Identify market opportunities and underutilized
assets
Address Barriers to Competitiveness and Growth
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Components of Inner City Economic Growth Strategy
A comprehensive view of inner city business and
wealth growth
Bus. Environ. Improvements
Wealth Creation Strategies
Positive Image Strategies
Cluster-led Strategies
Addressing cross-cutting issues that impact
company competitiveness regardless of cluster

• Linking inner-city assets with regional cluster
  and growth opportunities
• Harnessing agglomoration economies
• For local services clusters, reversing
  outmigration

• Facilitating employer-assisted asset-building
• Encouraging savings
• Homeownrshp

• Media coverage of inner city businesses that are
  succeeding
• Inner City 100

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Defining Clusters and Explaining Regional
Economies

• A cluster is a geographically proximate group of
  interconnected companies and associated
  institutions in a particular field, including
  producers, service providers, suppliers, and
  universities.
• Clusters arise out of the linkages or
  externalities that span across industries in a
  particular location.
• Clusters are both a descriptive tool and a
  prescriptive tool.

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Components of Inner City Economic Growth Strategy
A comprehensive view of inner city business and
wealth growth
Bus. Environ. Improvements
Wealth Creation Strategies
Positive Image Strategies
Cluster-led Strategies
Traded
Local

• Growth opportunities
• Supplier relationships
• Cooperative activities
• Specialized business resources
• Entrepreneurship
• Cross-cutting business environment issues

• Everything in traded and more
• Local unmet demand
• Population growth

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St. Louis MSA Business Base
Percent of Employment/Revenue
1999 Profile
City Total
Inner City
St. Louis City (21)
MSA1
85,600 1,325 157.8
13,099 15.3 280 21 34.4 22
7,854 9.2 60 168 13 60 21.2 13 62
Establishments Share of MSA () Share of
City() Employment2 (K) Share of MSA () Share
of City () Est. revenues (B) Share of MSA
() Share of City ()
St. Louis
Inner City (13)
Remainder of MSA (79)
Inner-City St. Louis represents 60 of the Citys
employment and revenue
Notes (1) The St. Louis MSA includes St. Louis
City, St Louis, St. Charles, Franklin, Jefferson,
Warren, Lincoln, Madison-IL, St. Clair-IL ,
Monroe-IL, Clinton-IL, and Jersey-IL. (2) The
employment estimates exclude public-sector jobs
including the US Postal Service.
Source 1999 ABI data 1999 St. Louis Business
Journal Book of Lists ICIC analysis.
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St. Louis Inner-City Clusters (1999)
Inner-City Share of MSA Employment in the Cluster
()
70
Beverages
55
Chemical Products
Medical Sciences
30
Communications Utilities
25
Education Knowledge Creation
Transportation Logistics
20
Commercial Services
Personal Services
15
Tourism Entertainment
Financial Services
10
Metal Mfg.
Construction Services Materials
Retail
5
Professional Services
0
21
0
5
10
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Cluster Share of Total Inner-City Employment
()
Notes () Retail, Commercial Services,
Personal Services, and Professional Services are
not included in Harvard Cluster Mapping Project.
() Percentages will not total 100 due to
overlapping of industries among clusters.
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Cluster Prioritization Criteria

• Ultimately all clusters must be analyzed.
  Economic Development professionals should not be
  picking winners.
• But as a first step, given limited resources
  focus clusters can be selected that offer the
  most immediate opportunities for inner-city job
  and business growth

Economic Performance
Inner-City Fit

• Economic engines
• High growth potential
• Less vulnerable to business cycles

• Derive competitive advantages from IC location
• Job opportunities that match skills
• Entrepreneurial potential
• Quality of jobs

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Average Annual Employment Change (1993-1998) St.
Louis Inner City and MSA
12.5
Change in Inner-City Employment (Total Average
1.1)
Change in MSA Employment (Total Average 2.1)
Note () Changes reflect data for core
industries within each cluster.
Source Missouri Department of Economic
Development Michael E. Porter Cluster Mapping
Project ICIC analysis.
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St. Louis Inner-City Clusters (1999)
Inner-City Share of MSA Employment in the Cluster
()
70
Beverages
55
Chemical Products
Medical Sciences
30
Communications Utilities
25
Education Knowledge Creation
Transportation Logistics
20
Commercial Services
FOCUS CLUSTERS
Personal Services
15
Tourism Entertainment
Financial Services
10
Metal Mfg.
Construction Services Materials
Retail
5
Professional Services
0
21
0
5
10
15
Cluster Share of Total Inner-City Employment
()
Notes () Retail, Commercial Services,
Personal Services, and Professional Services are
not included in Harvard Cluster Mapping Project.
() Percentages will not total 100 due to
overlapping of industries among clusters.
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Case Studies

• Case 1 Bridgeport META (cluster upgrading)
• Case 2 St. Louis Construction (cluster-led
  workforce training)

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Metal Manufacturing Is Bridgeport, CTs Most
Prominent Cluster
Clusters Share of Total City Revenue ()
Metal Manufacturing
Medical Devices Health Services
Financial Services
Construction
Entertainment Tourism
Pharmaceuticals
Office Services
Retail Services
Transportation Logistics
500estab.
Commercial Services
Plastics
Info. Technology
Social Services
Clusters Share of Total City Employment ()
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Bridgeport, CTs Metal Manufacturing Cluster Was
Not Performing Up to National Standards
Despite national growth in metal manufacturing,
Bridgeports metal manufacturing cluster remained
stagnant from 94-99
Threat
Bridgeport will lose an essential part of its
economic base if metal manufacturers do not adapt
to the new market
Potential to retain existing companies and jobs
and build on this strong manufacturing base.
Opportunity
KEY CHALLENGE How can Bridgeports metal
manufacturers become more competitive and share
in national growth?
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Bridgeport Formed the Metal Manufacturing
Education Training Association To Increase Firm
Competitiveness
METAL
Workforce Development
Lean Manufacturing
Purchasing
Marketing
Utilities Benefits Insurance Cutting
Supplies Waste Transportation
Expert-Led Workshops Shared Learning Technology/
Automation
Joint Business Opportunities Shared Marketing
Costs
Cluster-Specific Skills Training Job
Placement Apprenticeships
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Bridgeport METAL Progress

• 11 companies, 1579 employees, over 235 million
  in annual sales
• Secured over 2 million dollars in funding
• Companies continue to invest time (over 1,500
  hours to date) and money (over 160,000)
  notwithstanding the deep recession in
  manufacturing.
• Facilitated the transfer of best practices
  across company lines
• Increased the willingness of small manufactures
  to collaborate with government to improve
  competitiveness

Overall

• Completed a needs assessment and gap analysis of
  the workforce
• Conducted 34 customized training classes for 400
  employees
• Training has resulted in a 53 increase in
  proficiency overall,
• Companies also noted immediate benefits in morale
  and motivation.
• METAL has been a catalyst for institutional
  change -Housatonic Community College (HCC),
• Training is helping employees retain their jobs

Workforce Development
Lean Manufacturing

• Conducted over 30 kaizen/training events at 7
  companies
• Lean Program has (1) reduced work in process by
  50, (2) reduced set-up times on machines by 50,
  (3) reduced floor space for shipping and
  receiving by 20-25, and (4) reduced parts
  travel distances by 25
• Developed a Lean Expert Certification Program

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Case Studies

• Case 1 Bridgeport META (cluster upgrading)
• Case 2 St. Louis Construction (cluster-led
  workforce training)

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St. Louis Construction Labor Supply Gap

• Construction jobs pay up to 24 per hour plus
  benefits, and do not require advanced education.
• Existing union membership is projected to decline
  over the next several years due to retirement and
  a relatively small number of apprentices
  (approximately 3,000).
• With training, there will be significant
  opportunity for inner-city residents to step into
  these positions.

Total Construction Jobs
Year
Construction Labor Gap
2,695
4,562
6,563
9,279
3,383
Source 1999 F.W. Dodge Missouri Depart of
Transportation ICIC analysis.
Increase number of inner-city and minority
workers in the construction trades
Recommendation
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St. Louis Construction Unions Industry Are
Working Together To Address This Issue

• Progress to date
• Working on the standardization of apprenticeship
  application processes across trades
• Information outreach on construction career
  opportunities to inner city schools and community
  centers in 2000
• PRIDE, a consortium of unions, contractors and
  others, has funded a 10,000 project to better
  understand barriers to minorities entering the
  construction field. (Completed in Nov 2001)
• Currently pushing for a city ordinance that will
  strongly encourage the use of apprentices on
  public works projects, and public/private
  partnerships

• Implementation vehicle
• Chair of working group Craig Schnuck, CEO,
  Schnuck Markets
• Members of working group
• Head of St. Louis Unions
• CEOs of two major construction firms
• East-West Gateway Coordinating Council

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From Opportunity to Action
Identify Implementation Vehicle
Identify Opportunity
Make Recommendations
Drive to Action

• Develop plan to turn zoo into major urban
  attraction

• Weak link to strong tourism cluster
• Underperforming vs. other metro zoos

• Creation of eco-tourism destination
• Attendance doubled and revenues tripled

• Zoo task force
• Mayors office

Boston Zoo

• Industry-designed training

• Over 90 of graduates placed

• Public/private partnership with local community
  college

• Labor shortage due to aging workforce
• 800-1000 jobs opening

Chicago Railroads

• Capitalize on St. Louis metal manufacturing by
• Marketing of regional strength
• Joint marketing by companies in city

• Public/private partnership b/w state, local
  technical college, private and non-profit
  representatives

• Exceptionally high-quality metal manufacturers
  which were lagging national trends in sales and
  employment

• Marketing program with 3-year timeline developed
• Launch contingent on funding from state or other
  source

St. Louis Metal Mfg
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Recommendations for State Economic Development
Policy

• Overall
• Make inner city business and job competitiveness
  and growth a key component of regional economic
  development strategies that the State government
  supports
• Make cluster-led growth strategies a critical
  part of inner city economic growth strategies
  adopted by regions and localities -- inner cities
  have assets inner cities will grow by linking to
  growth
• Ensure economic development strategies focus on
  other factors key to business and job growth
  business environment improvements, positive image
  strategies, and wealth creation strategies.

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Recommendations for State Economic Development
Policy

• Overall
• Invest in improved economic intelligence -- map
  clusters, benchmark performance
• Encourage private-sector leadership in devising
  and implementing cluster-based networks or
  collaborative efforts -- both within the inner
  city and regionally
• Encourage partnerships between local academic
  institutions, governments, community groups and
  business to spur cluster growth
• Prioritize investment in cross-cutting business
  environment issues that arise from cluster
  working groups -- workforce, infrastructure,
  capital, marketing, etc.
• Market inner city success -- inner city success
  stories are critical battling misperception

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WWW.ICIC.ORG
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St. Louis Metal Manufacturing
Cluster Core
Inputs/Suppliers
Customers
Specialized Institutions
Critical Support Cluster
() The company lists for each industry are not
exhaustive. The actual number is often far
greater. () Not in St. Louis inner city.