New Approaches to Cluster-Led Economic De-velopment:

A Comparative Analysis of Federal Policies and Metro Level Strategies in the USA

Kathleen LeeSenior Vice President, StrategyGreater Phoenix Economic Council USA

Parallel Session 1.4: New Direction in Cluster Policy for Sustainable and Inclusive Competitiveness

Manufacturing is still vital to US economy

New manufacturing is driven by process and product innovation

Cluster policies can acceleratemanufacturing innovation

Cluster development must beinclusive and advance the idea of “shared prosperity”

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MAIN ARGUMENTCluster Development is Critical to U.S. Manufacturing Revival

CLUSTER DEVELOPMENTTheories

Co-location of interrelated industries Benefit from agglomeration of workforce, infrastructure, creativity, innovation

Externalities

Vertically disintegrated industrial Structure leading to agglomeration economies; emphasis on lean produc-tion

Network and Lean Production

International spatial division of labor reinforces north-south divide even while technologies support leap frogging

Globalization

Historical determinism limits replicatio-nand challenges intentional planning

Path Dependency

CLUSTER DEVELOPMENTPractices

Infrastructure investment (transportation, IT, energy), workforce development, university R&D

Investment in “industrial commons”

Strategies focus on attracting and retaining corporate investment through targeted finan-cial incentives

Business Attraction and Retention

Reinvestment in the urban core in older Industrial regions and emergence of multi-nodal development patterns in new regions

Place-Based Economic Development

Laissez-faire approach to organizing economic activities across space

Primacy of Free Market Policies

CLUSTER DEVELOPMENTNew Federal Program to Spur Manufacturing Innovation

“Through long-term partnerships, the [National Network of Manufacturing Innovation] institutes will be able to maintain a sustained focus on manufacturing technology innovation, workforce development, the transfer of promising new processes and technologies to the manufacturing sector, and the support of small- and medium-sized enterprises and aspiring start-ups for developing advanced manufacturing know-how and capabilities.”

Executive Office of the President National Science and Technology Council, Advanced Manufacturing National Program Office, January 2013

NATIONAL NETWORK OF MANUFACTURING INNOVATIONNNMI Cluster Approach: Leveraging Cluster Attributes

Cluster Attributes NNMII Goals

Co-location of interrelated economic activities

Leverage local strengths / clusters to support development of key innovation technologies

Knowledge spilloverAddress the gap in the continuum of research

discoveries to development and scale-up manufacturing

Shared resources: “industrial commons” R&D, engineering, manufacturing capabilities / shared-use facilities

Networked institutions Government, industry, and academia partnerships / broad stakeholder base

Virtuous cycle of growth Strengthen innovation ecosystem

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No Agency Technology Location Mfg LQ Fed $ Match $ Est.

1 DoD 3D/Additive Youngstown, OH 1.61 $30M $30M Aug-12

2 DOE Wide Bandgap (WBG) Semiconductors Raleigh, NC 0.66 $70M $70M Jan-14

3 DoD Digital Manufacturing and Design Chicago, IL 1.08 $70M $248M Feb-14

4 DoD Lightweight Metals Detroit, MI 1.56 $70M $70M Feb-14

5 DOE Advanced Composites Knoxville, TN 1.12 $70M $180M Jan-15

6 DoD Integrated Photonics Rochester, NY 0.68 $110M $500M Jul-15

7 DoD Flexible Hybrid Electronics San Jose, CA 1.82 $75M $90M Aug-15

Since 2012, the US federal government has invested 7 manufacturing innovation institutes in order to facilitate rapid commercialization of technologies, increase productivity, and ensure U.S. competitiveness.

NATIONAL NETWORK OF MANUFACTURING INNOVATIONCurrent Status

NATIONAL NETWORK OF MANUFACTURING INNOVATIONOpportunities and Challenges Ahead

Opportunities Challenges

Learning from industry consortium models (e.g., SEMATECH), NNMII

relies on industry investment, expertise, R&D and commercialization

Pre-competitive collaboration is difficult to sustain beyond

federal funding stage

Development and deployment of cross-industry technologies; emphasis on applied research

(R5 and above) in order to accelerate commercialization and market development

Short-term industry outlook; Intellectual property regimes

Leverage existing clusters that have ready workforce and industrial capacity

Investment concentrating in old industrial belt; national scope

while the firms are global

The National Network for Manufacturing Innovation Institute is a new breed of applied research centers designed to “enable U.S. industry and academia

to solve the scale-up challenges that are relevant to industry.”

3,207 establishments3.4% of total establishments-4.7% 5-year declineTrending with US

116,741 jobs6.6% of total jobs2.7% 5-year growthBetter than US

$69,463 average wage45% more than all industries12.6% 5-year growthTrailing US

$18.3B output8.5% of total output14.7% 5-year growthBetter than US

GREATER PHOENIX MANUFACTURINGBy the Numbers

GREATER PHOENIX MANUFACTURINGKey Trends

Steady growth in the number of jobs and output combined with the long-term decline in the number of establishments indicate an ongoing trend of consolidation amongst manufacturing firms.

Consolidation

Arizona manufacturing exports are growing faster than total output. Demand for Arizona products overseas is driving the overall growth in manufacturing in the state.

Overseas demand drives manufacturing growth

Around 37% of manufacturing jobs in the region require more than a high school diploma. Increasing average wages in manufacturing along with higher than national productivity growth indicate a shift to high-tech production requiring higher-skilled and more educated workers.

Transition to a higher-skilled workforce

Many local manufacturers face difficulty finding skilled technical workers (according to recent interviews with more than 35 electronics firms). Unemployment among production workers in the greater Phoenix region is lower than the nation.

Skilled technical workers needed

Innovation and integration of technologies will drive new growth in these sectors, while competition for new investment will continue to intensify.

Aerospace and electronics are main anchors

Critical mass of firms and industries, entrepreneurs, and institutions

Existing specializations in semiconductors and electronics

Research capabilities at local universities and industry

Strong interests among firms and ecosystem players to collaborate

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METRO PHOENIX SENSOR TECHNOLOGY CLUSTER INITIATIVEBusiness Case

Aerospace & DefenseGeneral Dynamics C4 SystemsL3 CommunicationsHoneywellOrbital Sciences Corp.The Boeing CompanyLockheed MartinNorthrop GrummanRaytheonUnited Technologies – Goodrich and Hamilton SundstrandBombardierNammo Talley

Sensor DevelopersBurge EnvironmentalTF Sensors, LLCFlow TechnologyInterfaceValidity SensorsFreescaleMicrochip TechnologyPCB PiezotronicsColnatecKutta TechnologiesMedtronicBenchmark Electronics

Simulation, Test Bed & Research CentersBanner Simulation SystemsMIHS Simulation CenterArizona Simulation Technology & Education CenterArizona Center for Simulation & InnovationArizona State UniversityUniversity of ArizonaASU’s Biodesign InstituteASU’s Center for Innovations in MedicineProject HoneybeeA.T. Still School of Osteopathic MedicinePIMA Medical Institute

HealthcareBanner HealthMayo ClinicCancer Treatment Centers of AmericaDignity HealthVeteran’s Administration Healthcare SystemArizona State HospitalUniversity of Arizona Medical CenterSt. Joseph’s Hospital and Medical CenterUlthera, Inc

Systems IntegratorsParallel Design (GE Healthcare)MedtronicGeneral DynamicsHoneywellSt. Jude Medical, Inc.

Funding/Start-up ResourcesThe Arizona Innovation Accelerator FundAngel Investment Tax Credit ProgramResearch and Development Refundable Tax CreditArizona Innovation ChallengeArizona Furnace Technology Transfer AcceleratorArizona Fast GrantVenture ReadyEO AcceleratorLaunchpoint, Technology AcceleratorASU Startup AcceleratorSmall Business Capital Investment Tax Credit Program

Environmental SensingArizona Dept. of Environmental QualityCentral Arizona ProjectCounty of Maricopa Env Svcair QualityState of AZ Department of Water ResourcesArizona National Parks ServiceEnvironmental Protection AgencyArizona Department of AgricultureArizona Department of Health ServicesArizona Game and Fish DepartmentArizona Department of Mines and Mineral ResourcesState Land Department

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METRO PHOENIX SENSOR TECHNOLOGY CLUSTER INITIATIVESensor Assets in Arizona

Sensor Consortium

Sensor Technology Companies

End Users

UniversitiesGovernment

& Civic Organizations

New technology, existing technology

in alternative application

Commercialization Products in the Marketplace

ICCAM

System Integrators

Equipment Makers

METRO PHOENIX SENSOR TECHNOLOGY CLUSTER INITIATIVEConsortium Model

Market Develop-

ment

Business Services

Commer-cialization

Asset InventoryMarket InsightsInnovation ForumOnline ForumMember MatchingStandards Clearinghouse

Regulatory AssistanceManufacturing Assistance

International Market Expansion

Advanced Development LabDesign & Integration LabTest & Evaluation Center

METRO PHOENIX SENSOR TECHNOLOGY CLUSTER INITIATIVESensor Assets in Arizona

METRO PHOENIX SENSOR TECHNOLOGY CLUSTER INITIATIVEOpportunities and Challenges Ahead

Opportunities Challenges

Existing concentration of semiconductor, electronics, and defense firms

Established regional know-how in sensorsA supplier base in microelectronics manufacturing

Research capabilities at the universities and industry

Local firms are global and already have established R&D centers elsewhere;

Need for industry champions; Limited local resources and development tools

Large and growing market (healthcare, infrastructure, environmental)

Institutional mechanisms for collaboration and coordination not developed

Large engineering and technical workforce; entrepreneurial ecosystem

Human capital locked in existing industries; re-skilling required

Form a financially independent and sustainable industry consortium to promote research, development and commercialization of sensor technologies.

CONCLUSIONNew Cluster Development Model

IntentionalityRenewed focus on intentional planning in cluster development. NNMII combines old and new approaches; harnesses market strategies; and becoming model for regional/local efforts

New/Old GeographiesNNMII investment pattern (and to some extent state-led initiatives) suggests potential revival of old industrial belt states, re-emphasizing north-south divide within the U.S.

SustainabilityStrong commercialization and market development is required to sustain centers beyond initial investment

Integrated StrategyBuilds on localized clusters at national level; provides role for institutions (e.g., universities andcolleges, industry associations, economic development organizations) to expand and deepen the ecosystem

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Politics Still MatterPolitics play an important role in investment flows at national and local levels

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