South Carolina Competitiveness: Creating a State Economic Strategy

South Carolina Competitiveness: Creating a State Economic Strategy Professor Michael E. Porter Harvard Business School March 28, 2012 For further material on regional competitiveness and clusters: www.isc.hbs.edu/econ-clusters.htm For state economic profiles: www.isc.hbs.edu/econ-statesregions.htm 1 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

What is Competitiveness? Competitiveness is the productivity with which a state utilizes its human, capital, and natural endowments to create value Productivity determines wages, jobs, and the standard of living It is not what fields a state competes in that determines its prosperity, but how productively it competes 2012 State Competitiveness Rich Bryden 3 Copyright 2012 Professor Michael E. Porter

Where Does Productivity Come From? Businesses and government play different but interrelated roles in creating a productive economy Only businesses can create jobs and wealth States compete to offer the most productive environment for business 2012 State Competitiveness Rich Bryden 4 Copyright 2012 Professor Michael E. Porter

Agenda 1. How is your state doing? State Performance Scorecard 2. Why? 3. Where to go from here? Explaining your state s performance, strengths, and weaknesses Action Steps 2012 State Competitiveness Rich Bryden 5 Copyright 2012 Professor Michael E. Porter

Prosperity GDP per Capita, 2000-2010 South Carolina Performance Scorecard Start Position 41 Trend 47 Current Position 48-7 Wages Average Private Wage, 1998-2009 36 46 45-9 Job Creation Private Employment Growth, 1998-2000 and 2007-2009 Labor Mobilization Proportion of Working Age Population in the Workforce, 2000-2010 42 44 34-10 42 45 38-7 Labor Productivity GDP per Workforce Participant, 2000-2010 45 45 39-6 New Business Formation Traded Cluster Establishment Growth, 1998-2000 and 2007-2009 Innovation Patents per Employee, 2000-2010 28 28 22-6 36 37 40-4 Cluster Strength Employment in Strong Clusters, 1998-2009 10 34 20-1 Leading Clusters by employment size, 2009 (national rank) Heavy Construction Services (12) Automotive (11) Textiles (3) Motor Driven Products (4) Plastics (17) State Rank 2012 State Competitiveness Rich Bryden 6 Copyright 2012 Professor Michael E. Porter 1-10 21-30 31-40 11-20 41-50

Gross Domestic Product per Capita, 2010 $65,000 $60,000 Comparative State Prosperity Performance 2000-2010 High but declining versus U.S. Delaware Connecticut Alaska Wyoming High and rising prosperity versus U.S. $55,000 $50,000 New Jersey Massachusetts New York $45,000 $40,000 $35,000 $30,000 $25,000 U.S. GDP per Capita: $42,346 Georgia Michigan Nevada Low and declining versus U.S. North Carolina Colorado Washington Texas New Hampshire California Illinois Minnesota Wisconsin Hawaii Rhode Island Kansas U.S. GDP per Capita Real Growth Rate: 0.63% Maryland Nebraska Louisiana Indiana Pennsylvania Ohio Tennessee Utah Vermont Missouri Florida Oklahoma Arizona Maine New Mexico Kentucky Alabama Idaho Montana South Carolina Arkansas West Virginia Mississippi -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Real Growth in Gross Domestic Product per Capita, 2000 to 2010 Source: BEA. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. Low but rising versus U.S. 2012 State Competitiveness Rich Bryden 7 Copyright 2012 Professor Michael E. Porter Virginia Iowa South Dakota Oregon North Dakota

Proportion of Working Age Population in the Workforce, 2010 75% 70% 65% 60% Comparative State Labor Mobilization Performance 1999-2010 High but declining versus U.S. Michigan Delaware Indiana Georgia Alabama New Hampshire Wisconsin Alaska Colorado Utah Maryland Nevada Idaho Missouri Minnesota Nebraska Montana Hawaii Texas Oregon North Carolina Tennessee South Carolina Mississippi South Dakota Wyoming Washington Illinois Massachusetts Ohio Maine California Pennsylvania Arizona Florida Oklahoma New York Kentucky New Mexico Arkansas High Labor Force Participation and Participation rising versus U.S. Iowa Vermont Kansas New Jersey Louisiana North Dakota Virginia Connecticut Rhode Island U.S. Labor Force Participation Rate: 64.7% 55% West Virginia Change in Labor Force Participation Rate: -2.4% Low and declining Low but rising 50% versus U.S. versus U.S. -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% Change in Proportion of Working Age Population in the Workforce, 1999-2010 Notes: Source BLS. 2012 State Competitiveness Rich Bryden 8 Copyright 2012 Professor Michael E. Porter

Gross Domestic Product per Labor Force Participant, 2010 $140,000 $130,000 Comparative State Labor Force Productivity Performance High but declining versus U.S. 2000-2010 U.S. GDP per Labor Force Participant Real Growth: 0.803% Delaware Highly productive and productivity rising versus U.S. Alaska $120,000 Wyoming $110,000 Connecticut New York $100,000 $90,000 $80,000 $70,000 $60,000 Nevada Low and declining versus U.S. Washington South Carolina New Jersey Texas Illinois Colorado Pennsylvania Georgia Rhode Island Ohio Michigan New Hampshire Utah Arizona Florida Missouri Kentucky Maine Vermont Massachusetts California Louisiana Virginia North Carolina Minnesota Indiana Oklahoma Kansas Iowa New Mexico Tennessee Alabama Wisconsin West Virginia Arkansas -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Real Growth in Gross Domestic Product per Labor Force Participant, 2000-2010 Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. 9 U.S. GDP per Labor Force Participant: $85,229 North Dakota Low but rising versus U.S. 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter Hawaii Idaho Mississippi Montana Maryland Nebraska Oregon South Dakota

Gross Domestic Product per Employed Worker, 2010 $150,000 $140,000 Comparative State Employee Productivity Performance High but declining versus U.S. 2000-2010 U.S. GDP per Employed Worker Real Growth: 1.42% Delaware Highly productive and productivity rising versus U.S. Alaska $130,000 $120,000 Connecticut New York Wyoming $110,000 New Jersey California Massachusetts $100,000 $90,000 $80,000 $70,000 $60,000 Low and declining versus U.S. Washington South Carolina Texas Illinois Virginia Nevada Colorado Minnesota Pennsylvania Georgia Michigan Kansas Florida Utah Ohio Arizona Missouri New Hampshire Kentucky Wisconsin Maine Vermont Louisiana North Carolina Montana 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Real Growth in Gross Domestic Product per Employed Worker, 2000-2010 Sources: BEA, BLS. Notes: GDP in real 2005 dollars. Growth rate is calculated as compound annual growth rate. 10 U.S. GDP per Employed Worker: $94,315 North Dakota Low but rising versus U.S. 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter Idaho Hawaii Rhode Island Indiana Nebraska Oklahoma Iowa New Mexico Tennessee Arkansas Maryland Alabama West Virginia Mississippi South Dakota Oregon

Patents per 10,000 Workers, 2010 20 High and declining innovation Comparative State Innovation Performance 2000-2010 U.S. average Growth Rate of Patenting: +2.25% California Vermont 15 Idaho Massachusetts Washington (16.5, +10.6%) Minnesota 10 5 0 Connecticut New Jersey Delaware New Hampshire Colorado Michigan -6% -4% -2% 0% 2% 4% 6% Growth Rate of Patents per 10,000 Workers, 2000 to 2010 Source: USPTO utility patents, Bureau of Labor Statistics. Note: Growth rate calculated as compound annual growth rate (CAGR). 2012 State Competitiveness Rich Bryden 11 Copyright 2012 Professor Michael E. Porter Oregon High and improving innovation rate versus U.S. U.S. average Patents per 10,000 Employees: 7.77 New York Utah Texas Arizona Illinois Wisconsin North Carolina Pennsylvania Maryland Rhode Island Ohio New Mexico Indiana Iowa Nevada Florida Kansas Tennessee Missouri Georgia Virginia Oklahoma Kentucky North Dakota Wyoming Montana South Carolina Alabama Louisiana South Dakota West Virginia Nebraska Hawaii Arkansas Alaska Mississippi Low and declining innovation Maine Low and improving innovation = 2000 patents in 2010 = 500 patents in 2010

Why? What Drives State Productivity? 1. Quality of the Overall Business Environment 2. Cluster Development 3. Policy Coordination among Multiple Levels of Geography/ Government 2012 State Competitiveness Rich Bryden 12 Copyright 2012 Professor Michael E. Porter

Quality of the Overall Business Environment Context for Firm Strategy and Rivalry Factor (Input) Conditions Access to high quality business inputs Human resources Capital access Physical infrastructure Administrative processes (e.g., permitting, regulatory efficiency) Scientific and technological infrastructure Rules and incentives that encourage local competition, investment and productivity e.g., tax policy that encourages investment and R&D Flexible labor policies Intellectual property protection Antitrust enforcement Related and Supporting Industries Local availability of suppliers and supporting industries Demand Conditions Sophisticated and demanding local needs and customers e.g., Strict quality, safety, and environmental standards Consumer protection laws Government procurement of advanced technology Early demand for products and services Many things matter for competitiveness Economic development is the process of improving the business environment to enable companies to compete in increasingly sophisticated ways 2012 State Competitiveness Rich Bryden 14 Copyright 2012 Professor Michael E. Porter

Improving the Business Environment Common Action Items 1. Simplify and speed up regulation and permitting 2. Reduce unnecessary costs of doing business 3. Establish training programs that are aligned with the needs of the state s businesses 4. Focus infrastructure investments on the most leveraged areas for productivity and economic growth 5. Design all policies to support emerging growth companies 6. Protect and enhance the state s higher education and research institutions 7. Relentlessly improve the public education system, the essential foundation for productivity in the long run 2012 State Competitiveness Rich Bryden 15 Copyright 2012 Professor Michael E. Porter

What is a Cluster? A geographically concentrated group of interconnected companies and associated institutions in a particular field Traded Clusters Compete to serve national and international markets Can locate anywhere 30% of employment Local Clusters Serve almost exclusively the local market Not directly exposed to cross-regional competition 70% of employment 2012 State Competitiveness Rich Bryden 17 Copyright 2012 Professor Michael E. Porter

Example: Massachusetts Life Sciences Cluster Health and Beauty Products Teaching and Specialized Hospitals Cluster Organizations MassMedic, MassBio, others Surgical Instruments and Suppliers Medical Equipment Dental Instruments and Suppliers Biological Products Biopharmaceutical Products Specialized Business Services Banking, Accounting, Legal Ophthalmic Goods Specialized Risk Capital VC Firms, Angel Networks Diagnostic Substances Containers Research Organizations Specialized Research Service Providers Laboratory, Clinical Testing Analytical Instruments Cluster Educational Institutions Harvard, MIT, Tufts, Boston University, UMass 2012 State Competitiveness Rich Bryden 18 Copyright 2012 Professor Michael E. Porter

Example: Houston Oil and Gas Cluster Upstream Downstream Oil & Natural Gas Exploration & Development Oil & Natural Gas Completion & Production Oil Transportation Gas Gathering Oil Trading Gas Processing Oil Refining Gas Trading Oil Distribution Gas Transmission Oil Wholesale Marketing Gas Distribution Oil Retail Marketing Gas Marketing Oilfield Services/Engineering & Contracting Firms Equipment Suppliers Specialized Technology Services Subcontractors Business Services (e.g., Oil Field Chemicals, Drilling Rigs, Drill Tools) (e.g., Drilling Consultants, Reservoir Services, Laboratory Analysis) (e.g., Surveying, Mud Logging, Maintenance Services) (e.g., MIS Services, Technology Licenses, Risk Management) Specialized Institutions (e.g., Academic Institutions, Training Centers, Industry Associations) 2012 State Competitiveness Rich Bryden 19 Copyright 2012 Professor Michael E. Porter

Strong Clusters Drive Regional Performace Specialization in strong clusters Breadth of industries within each cluster Strength in related clusters Presence of a region s clusters in neighboring regions Job growth Higher wages Higher patenting rates Greater new business formation, growth and survival On average, cluster strength is much more important (78.1%) than cluster mix (21.9%) in driving regional performance in the U.S. Source: Porter/Stern/Delgado (2010), Porter (2003) 2012 State Competitiveness Rich Bryden 20 Copyright 2012 Professor Michael E. Porter

Clusters and Economic Diversification Jewelry & Precious Metals Footwear Financial Services Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. 2012 State Competitiveness Rich Bryden Processed Food Business Services Apparel Leather & Related Products Fishing & Fishing Products Agricultural Products Distribution Services Publishing & Printing Oil & Gas Transportation & Logistics Education & Knowledge Creation Chemical Products Plastics Hospitality & Tourism Information Tech. Medical Devices Biopharmaceuticals Entertainment Aerospace Vehicles & Defense Analytical Instruments Tobacco Communications Equipment Prefabricated Enclosures Lighting & Electrical Equipment Building Fixtures, Equipment & Services Power Generation Motor Driven Products Furniture Heavy Construction Services Aerospace Engines Textiles Heavy Machinery Construction Materials Forest Products Production Technology Mining & Metal Manufacturing Sporting & Recreation Goods Automotive 21 Copyright 2012 Professor Michael E. Porter

The Evolution of Regional Economies San Diego Climate and Geography Hospitality and Tourism Transportation and Logistics Sporting Equipment U.S. Military Aerospace Vehicles and Defense Power Generation Analytical Instruments Communications Equipment Information Technology Education and Knowledge Creation Medical Devices Bioscience Research Centers Biotech / Pharmaceuticals 1910 1930 1950 1970 1990 2012 State Competitiveness Rich Bryden 22 Copyright 2012 Professor Michael E. Porter

South Carolina national employment share, 2009 Traded Cluster Composition of the South Carolina Economy 3.5% 3.0% Overall change in the South Carolina Forest Products (+1.05%,3.81%) Power Generation and Share of US Traded Employment: -0.29% Textiles Motor Driven Products (+2.46%,6.12%) Transmission (-5.19%, 11.65%) Construction Materials (-0.65%, 4.63%) Automotive (+1.37%, 3.03%) 2.5% Chemical Products (-2.87%, 2.41%) Heavy Construction Services Production Technology Lighting and Electrical Equipment Plastics 2.0% 1.5% 1.0% Apparel Furniture (-1.77%, 1.57%) Biopharmaceuticals Communications South Carolina Overall Share of US Equipment Traded Employment: 1.37% Business Services Entertainment Hospitality and Tourism Building Fixtures, Equipment and Services Heavy Machinery Metal Leather and Manufacturing Related Products Information Technology Processed Food Publishing and Printing Education and Knowledge Creation Financial Employment 0.5% Services Agricultural Products 1998-2009 Distribution Services Analytical Instruments Added Jobs Sporting, Recreational and Jewelry and Precious Metals Children s Goods Oil and Gas Lost Jobs Products and Services 0.0% -1.0% -0.5% 0.0% 0.5% 1.0% Change in South Carolina share of National Employment, 1998 to 2009 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 23 Prefabricated Enclosures Aerospace Engines Transportation and Logistics Medical Devices Fishing and Fishing Products Aerospace Vehicles and Defense Employees 4,600 = 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

Job Creation, 1998 to 2009 Transportation and Logistics Education and Knowledge Creation Information Technology South Carolina Job Creation in Traded Clusters 1998 to 2009 Business Services Distribution Services Medical Devices Automotive Aerospace Vehicles and Defense Motor Driven Products Aerospace Engines Agricultural Products Fishing and Fishing Products Heavy Machinery Oil and Gas Products and Services Footwear Hospitality and Tourism Leather and Related Products Jewelry and Precious Metals Plastics Forest Products Lighting and Electrical Equipment Analytical Instruments Prefabricated Enclosures Publishing and Printing Sporting, Recreational and Children's Goods Biopharmaceuticals Building Fixtures, Equipment and Services Financial Services Entertainment Construction Materials Processed Food Metal Manufacturing Communications Equipment Power Generation and Transmission Production Technology Furniture Heavy Construction Services Chemical Products Apparel Textiles 40,000 20,000 0 Net traded job creation, 1998 to 2009: -106,029-20,000-40,000-60,000 Indicates expected job creation given national cluster growth.* -80,000 * Percent change in national benchmark times starting regional employment. Overall traded job creation in the state, if it matched national benchmarks, would be -102,702 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2012 State Competitiveness Rich Bryden 24 Copyright 2012 Professor Michael E. Porter

South Carolina Wages in Traded Clusters vs. National Benchmarks Power Generation and Transmission Aerospace Vehicles and Defense Information Technology Forest Products Chemical Products Medical Devices Biopharmaceuticals Financial Services Business Services Distribution Services Analytical Instruments Production Technology Metal Manufacturing Heavy Machinery Heavy Construction Services Automotive Plastics Lighting and Electrical Equipment Publishing and Printing Processed Food Construction Materials Furniture Transportation and Logistics Textiles Building Fixtures, Equipment and Services Leather and Related Products Sporting, Recreational and Children's Goods Agricultural Products Motor Driven Products Education and Knowledge Creation Prefabricated Enclosures Jewelry and Precious Metals Entertainment Hospitality and Tourism Apparel Oil and Gas Products and Services Communications Equipment Aerospace Engines Tobacco Fishing and Fishing Products Footwear South Carolina average traded wage: $40,142 $0 $25,000 $50,000 $75,000 $100,000 $125,000 Wages, 2009 l Indicates average national wage in the traded cluster U.S. average traded wage: $56,906 Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2012 State Competitiveness Rich Bryden 25 Copyright 2012 Professor Michael E. Porter

Productivity Depends on How a State Competes, Not What Industries It Competes In State State Traded Wage versus National Average Cluster Mix Effect Relative Cluster Wage Effect State State Traded Wage versus National Average Cluster Mix Effect Relative Cluster Wage Effect Connecticut +27,171 7,028 20,142 Oregon -10,359-1,304-9,056 New York +24,102 3,628 20,474 Missouri -10,427-1,425-9,002 Massachusetts +16,169 4,391 11,778 Alabama -10,934-3,563-7,371 New Jersey +13,535 3,761 9,774 Florida -11,007-1,559-9,448 California +9,573 349 9,224 Wisconsin -11,722-3,516-8,206 Maryland +6,651 2,496 4,155 Nebraska -11,777 241-12,018 Washington +5,652 2,692 2,960 Utah -11,992 2,072-14,064 Virginia +5,319 1,617 3,702 Tennessee -12,172-3,156-9,016 Illinois +2,658 16 2,642 Indiana -12,554-4,840-7,714 Colorado +1,662 2,416-754 Vermont -13,368-1,572-11,796 Texas +352 2,494-2,142 Oklahoma -13,572 497-14,069 Delaware +164 11,060-10,896 Nevada -14,277-2,365-11,911 Alaska -930-2,417 1,487 North Dakota -14,394 1,004-15,397 Pennsylvania -3,970-995 -2,975 South Carolina -15,276-5,067-10,209 Louisiana -4,280 95-4,375 Arkansas -15,378-4,560-10,818 Georgia -5,322-1,102-4,220 Hawaii -16,043-12,555-3,487 Minnesota -5,576-425 -5,150 New Mexico -16,123-288 -15,835 New Hampshire -6,387 374-6,761 Kentucky -16,215-5,024-11,191 Arizona -7,021 1,149-8,169 Maine -16,379-968 -15,412 Kansas -7,705 2,241-9,946 Iowa -16,606-2,721-13,885 Wyoming -8,057 1,040-9,097 West Virginia -16,645-3,894-12,751 Michigan -8,176-2,544-5,633 Idaho -18,671-787 -17,884 North Carolina -9,245-4,330-4,915 Mississippi -19,942-5,291-14,651 Ohio -9,284-2,495-6,788 Montana -20,073-2,259-17,815 Rhode Island -9,791-2,290-7,501 South Dakota -20,968 289-21,257 On average, cluster strength is much more important (78.1%) than cluster mix (21.9%) in driving regional performance in the U.S. Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 2009 data. 26 2012 - State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

South Carolina Cluster Portfolio, 2009 Jewelry & Precious Metals Financial Services Apparel Processed Food Leather & Related Products Business Services Fishing & Fishing Products Distribution Services Publishing & Printing Agricultural Products Oil & Gas Transportation & Logistics Education & Knowledge Creation Chemical Products Plastics Hospitality & Tourism Information Tech. Medical Devices Biopharmaceuticals Entertainment Aerospace Vehicles & Defense Analytical Instruments Tobacco Communi cations Equipment Lighting & Electrical Equipment Prefabricated Enclosures Building Fixtures, Equipment & Services Power Generation & Transmission Motor Driven Products Furniture Heavy Construction Services Aerospace Engines Textiles Heavy Machinery Construction Materials Forest Products Production Technology Metal Manufacturing Footwear LQ > 1. Sporting & Recreation LQ, or Location Quotient, measures the state s share in cluster employment relative to its overall share of U.S. employment. Goods An LQ > 1 indicates an above average employment share in a cluster. Automotive 2012 State Competitiveness Rich Bryden 27 Copyright 2012 Professor Michael E. Porter LQ > 4 LQ > 2

Prosperity GDP per Capita, 2000-2010 South Carolina Performance Scorecard Start Position 41 Trend 47 Current Position 48-7 Wages Average Private Wage, 1998-2009 36 46 45-9 Job Creation Private Employment Growth, 1998-2000 and 2007-2009 Labor Mobilization Proportion of Working Age Population in the Workforce, 2000-2010 42 44 34-10 42 45 38-7 Labor Productivity GDP per Workforce Participant, 2000-2010 45 45 39-6 New Business Formation Traded Cluster Establishment Growth, 1998-2000 and 2007-2009 Innovation Patents per Employee, 2000-2010 28 28 22-6 36 37 40-4 Cluster Strength Employment in Strong Clusters, 1998-2009 10 34 20-1 Leading Clusters by employment size, 2009 (national rank) Heavy Construction Services (12) Automotive (11) Textiles (3) Motor Driven Products (4) Plastics (17) State Rank 2012 State Competitiveness Rich Bryden 28 Copyright 2012 Professor Michael E. Porter 1-10 21-30 31-40 11-20 41-50

Cluster Development Common Action Items 1. Build on the state s existing and emerging clusters rather than chase hot fields 2. Pursue economic diversification within clusters and across related clusters 3. Create a private sector-led cluster upgrading program with matching support for participating private sector cluster organizations Government should listen and remove obstacles to cluster improvement 4. Align other state economic policies and programs with clusters 2012 State Competitiveness Rich Bryden Source: Porter/Stern/Delgado (2010), Porter (2003) 29 Copyright 2012 Professor Michael E. Porter

Aligning Economic Policy and Clusters Business Attraction Education and Workforce Training Export Promotion Natural Resource Protection Clusters Science and Technology Investments (e.g., centers, university departments) Standard Setting / Certification Organizations Specialized Physical Infrastructure Environmental Improvement Clusters provide a framework for organizing the implementation of many public policies and public investments to achieve greater effectiveness 2012 State Competitiveness Rich Bryden 30 Copyright 2012 Professor Michael E. Porter

Geographic and Governmental Influences on Productivity Nation Neighboring State State Neighboring State Metropolitan Areas Metropolitan Areas Metropolitan Areas Rural Regions Rural Regions Rural Regions 2012 State Competitiveness Rich Bryden 32 Copyright 2012 Professor Michael E. Porter

Defining the Appropriate Economic Regions Charlotte Economic Area Greenville Economic Area VA Augusta Economic Area NC Raleigh Economic Area SC Myrtle Beach Economic Area GA Columbia Economic Area Charleston Economic Area Savannah Economic Area The economies of states are often an aggregation of distinct economic areas with differing circumstances Source: Data from Bureau of Economic Analysis 2010. Prof. Michael E. Porter, Cluster Mapping Project, Harvard Business School; Richard Bryden, Project Director. 2012 State and City Competitiveness Rich Bryden 33 Copyright 2012 Professor Michael E. Porter

South Carolina Metropolitan Areas Spartanburg MSA Greenville MSA Anderson MSA Charlotte MSA Florence MSA Columbia MSA Sumter MSA Myrtle Beach MSA Augusta MSA Charleston MSA 2012 State and City Competitiveness Rich Bryden 34 Copyright 2012 Professor Michael E. Porter

Average Private Wage, 2009 Wage Performance in South Carolina Metropolitan Areas $44,000 South Carolina Growth Rate of Wages: 2.60% U.S. Growth Rate of Wages: 3.01% $42,000 Augusta MSA* U.S. Average Private Wage: $42,403 $40,000 $38,000 Spartanburg MSA Charleston MSA $36,000 Greenville MSA Charlotte MSA* Columbia MSA $34,000 Florence MSA $32,000 South Carolina Average Private Wage: $33,523 $30,000 Anderson MSA Sumter MSA Rest of State $28,000 Myrtle Beach MSA* $26,000 1.5% 2.0% 2.5% 3.0% 3.5% *South Carolina portion only Source: Census CBP, authors analysis. Note: Bubble size in chart is proportional to employment in 2009. 35 2012 State Competitiveness Rich Bryden Growth Rate of Private Wages, 1998-2009 Copyright 2012 Professor Michael E. Porter

Average Private Wage, 2009 Employment Performance in South Carolina Metropolitan Areas $45,000 South Carolina Growth Rate of Employment: 0.10% U.S. Growth Rate of Employment: 0.52% $40,000 Augusta MSA* U.S. Average Private Wage: $42,403 Greenville MSA Charleston MSA $35,000 Spartanburg MSA Charlotte MSA* Florence MSA Columbia MSA South Carolina Average Private Wage: $33,523 $30,000 Sumter MSA Anderson MSA Rest of State Myrtle Beach MSA* $25,000-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Growth Rate of Private Employment, 1998-2009 *South Carolina portion only Source: Census CBP, authors analysis. Note: Bubble size in chart is proportional to employment in 2009. 36 2012 State Competitiveness Rich Bryden Copyright 2012 Professor Michael E. Porter

Geographic and Governmental Influences on Productivity Nation 1. Influence and access federal policies and programs Neighboring State State Neighboring State 4. Integrate policies and infrastructure planning with neighbors Metropolitan Areas Metropolitan Areas Metropolitan Areas 2. Work with each metro area to develop a prioritized strategic agenda Rural Regions Rural Regions Rural Regions 3. Connect rural regions with proximate urban areas 2012 State Competitiveness Rich Bryden 37 Copyright 2012 Professor Michael E. Porter

Agenda 1. How is your state doing? State Performance Scorecard 2. Why? 3. Where to go from here? Explaining your state s performance, strengths, and weaknesses Action Steps Biggest Action Item of All 2012 State Competitiveness Rich Bryden 39 Copyright 2012 Professor Michael E. Porter

Create an Economic Strategy What is the distinctive competitive position of the state or region given its location, legacy, existing strengths, and potential strengths? What unique value as a business location? For what types of activities and clusters? Define the Value Proposition Develop Unique Strengths What elements of the business environment can be unique strengths relative to peers/neighbors? What existing and emerging clusters represent local strengths? Achieve and Maintain Parity with Peers What weaknesses must be addressed to remove key constraints and achieve parity with peer locations? Economic strategy requires setting priorities and moving beyond long lists of separate recommendations. 2012 State Competitiveness Rich Bryden 40 Copyright 2012 Professor Michael E. Porter

How Should States Compete for Investment? Tactical (Zero Sum Competition) Strategic (Positive Sum Competition) Focus on attracting new investments Compete for every plant Offer generalized tax breaks Provide subsidies to lower / offset business costs Every city and sub-region for itself Government drives investment attraction Also support greater local investment by existing companies Reinforce areas of specialization and emerging cluster strength Provide state support for training, infrastructure, and institutions with enduring benefits Improve the efficiency of doing business Harness efficiencies and coordination across jurisdictions, especially with neighbors Government and the private sector collaborate to build cluster strength 2012 State Competitiveness Rich Bryden 41 Copyright 2012 Professor Michael E. Porter

Harnessing the New Process of Economic Development Competitiveness is the result of both top-down and bottom-up processes in which many companies and institutions take responsibility Old Model New Model Government drives economic development through policy decisions and incentives Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations 2012 State Competitiveness Rich Bryden 42 Copyright 2012 Professor Michael E. Porter

Example: Organizing for Economic Development Cluster Committees South Carolina Council on Competitiveness Executive Committee Chaired by a business leader and reporting to the governor Convenes working groups, provides direction and strength, holds working groups accountable Coordinating Staff Task Forces Automotive Apparel Cluster Activation Education / Workforce Hydrogen / Fuel Cells Agriculture Research / Investment Start-ups / Local Firms Textiles Travel and Tourism Distressed / Disadvan. Areas Measuring Progress Effective economic policy also requires coordination within government 2012 State Competitiveness Rich Bryden 43 Copyright 2012 Professor Michael E. Porter

Summary The goal of economic strategy is to enhance productivity. This is the only way to create jobs, high income, and wealth in the long run Improving productivity and innovation must be the guiding principles for every state policy choice Improving productivity does not require new public resources, but using existing resources better Improving productivity demands that governors mobilize the private sector, not rely on government alone Economic strategy is non-partisan and about getting results 2012 State Competitiveness Rich Bryden 44 Copyright 2012 Professor Michael E. Porter

Next Steps 1. Reach out to your team 2. Reach out to the business community 3. Take advantage of Harvard Business School data and tools to support this effort. Go to www.isc.hbs.edu. The prosperity of the U.S. economy will depend more on the success of states in improving competitiveness than what happens in Washington 2012 State Competitiveness Rich Bryden 45 Copyright 2012 Professor Michael E. Porter