A Practitioner’s Perspective On Understanding And Developing Industry Clusters

August 14, 2014


By: Jeff Marcel, Senior Partner, TIP Strategies

At TIP, we stay abreast of the practical work it takes to grow local economies, and we explore and rethink targeted approaches to economic development work. In this blog, I’ll share with you some of the things I learned about developing industry clusters.

As the former president and CEO of the Economic Development Council of Seattle and King County, it was my job to figure out how the organization could influence businesses’ decisions to come, stay, and invest in the Seattle region. The targeted industry cluster approach we established has yielded benefits to the Seattle region by increasing jobs and investment and by building an appreciation and understanding about what drives the local economy.

During the ten years I led the EDC’s economic development efforts, we established multiple cluster strategies targeting aerospace, clean technology, maritime, financial services, interactive media, life science, medical devices, and fashion and apparel industries. Frankly, the traditional economic development incentive tools in Washington State didn’t compare well with the competition, so we experimented with various industry cluster development programs out of necessity. We discovered valuable approaches to working with and within industries to encourage their growth.

Lesson 1: Run data to find industry clusters without assuming anything beforehand.

Alan Mulally, the former head of Boeing Commercial Airplanes and current CEO of Ford, famously said, “The data will set you free.” Assuming the industry cluster data you compile is accurate and current, you’ll be able to look at reality squarely. Data may reveal facts you weren’t aware of and can provide a sense of trends in growth or contraction. Examining the Financial Services industry cluster in the state of Washington is a perfect example of this. After the global financial crisis of 2008, the Seattle region lost one of its most iconic corporations, Washington Mutual, also known as WAMU. This was a sizeable loss, and many interpreted it as the end of the financial services industry in the state. The EDC ran the numbers and found that, although 3,400 jobs were lost at the WAMU headquarters, the industry across the state still accounted for 130,000 jobs in 2010, with 8,200 establishments in the accounting, banking, investment services, and insurance sectors. This information was not only a surprise to economic developers but to local industry as well.

Lesson 2: Speak the language your target audience appreciates: the language of data.

But this data isn’t just an educational opportunity for the practitioner. It is incumbent on the economic developer to educate the rest of the community about the importance of industry clusters to the local economy. This is doubly true for educating policy makers who may move forward with decision making without a full sense of what drives the local economy. The data should also be used to educate business decision makers and industry leaders. A spreadsheet that lists company names, operations, employee count, revenue, and associated business costs means more than a glossy community-marketing brochure. An example of this work is the analysis the EDC conducted on the interactive media-video game software development industry in the state of Washington starting in 2007. We compiled a list of over 150 companies in the industry, mapped their locations, and conducted an economic impact analysis quantifying annual revenue growth for 2006 at $4.2 billion. We also calculated the number of jobs at over 15,000 and provided a breakdown of occupations serving the industry and their wage rates. This data quickly spread across the internet and advanced the region’s reputation as a significant center for the industry. Business leaders in the area have utilized the information in their decision making process, and the effort has been responsible for bringing new companies and talent to the community. Additionally, local political leaders understand the industry is a real economic powerhouse for the region and needs to be prized.

Lesson 3: Know the sectors or niches in the industry cluster you are targeting for growth; they are not all the same and may have different needs and drivers of success.

The industry cluster approach is a targeted way to get the most out of your resources—you can’t be everything to everyone, so figure out what you have or what you want, and go after it full force. But don’t stop at the industry level: specify which sectors within the industry are present. We often hear communities proclaim a desire to grow their clean technology industry. While “clean technology” is an industry cluster, it encompasses many sectors including alternative fuels, wind energy, electric grid efficiency, natural gas, solar energy, energy storage technologies, recycling technologies, energy efficiency technologies for buildings, and much more. Digging deeper into what exists in your community and refining your targets is essential, because the regulatory environment, technologies, skills sets, and business models can be very different for each sector. At the EDC, one of the first industry clusters we targeted was the clean technology industry. We thought it fit with our community’s technological expertise and our culture of environmental stewardship. We hadn’t compiled or studied the data sufficiently to know which sectors existed, but we knew the major companies involved and were keenly aware of our community’s commitment to being “green.” Through painstaking outreach, we found one of our unique strengths. We learned there were an estimated 8,800 jobs in the state of Washington in fields related to energy efficiencies for buildings, including architecture and design, construction and engineering, and software development. That niche of expertise and concentration in the clean technology cluster has provided direction for the EDC’s efforts and allows the organization to articulate who the community is and what it offers.

Lesson 4: Know what makes your community uniquely suited for the industry beyond the numbers.

After analyzing data and industry research, you might still find ways to differentiate your community from others with a concentration in the same space. Data analysis and industry research deepen your understanding of your community, however, there is more to a community than is apparent from general data. Qualitative differentiators may be difficult to identify, but they are worth seeking; they may include a cultural quality or an environment that arises from major participants in an industry. An example of this is Seattle’s global health sector within its life science industry cluster. Like other life science hubs, Seattle has well educated people, numerous research institutions, clinical hospitals, a world-class research university, a few hundred life science companies, a robust entrepreneurial community, and outstanding philanthropic foundations. What sets Seattle’s global health community apart from Boston, the Bay Area, or Geneva is the willingness of scientists in the Seattle region to work together across institutions. The culture is collaborative rather than cutthroat. This collaboration has led to new discoveries and the identification of efficiencies and has created an alternative environment attractive to many researchers. The spirit of collaboration is something that doesn’t usually appear in general data, but it is a real differentiator and a part of the Seattle region’s sales pitch. The only way to discover this kind of quality is to work with and get to know the local industry and appreciate its context in the overall industry cluster. What makes your community uniquely suited for the industry category you are targeting? Having available land in a business park doesn’t always strike a chord of interest with companies, but sharing something special about your community’s connection with their industry often does. A differentiator might be a company or entrepreneur whose star is rising, an industry giant, a research and development center, or university or technical college that has a special program.

All of these lessons point to the importance of economic development practitioners having a thorough understanding of the industry clusters within their communities and what makes their offering unique. The garden-variety approach of promoting greenfield real estate options, general tax incentives applicable to all companies, low cost of living, and low business costs may not be enough.

Ten ways to establish and understand your value proposition to an industry cluster and project the value of the industry cluster to others:

  1. Find a volunteer or hire a local part-time expert (e.g. a retired executive) with knowledge and credibility to lead the development of an industry cluster program.

  2. Join an industry association and be present at industry functions, locally and outside the community.

  3. Understand the needs of the local industry, then identify ways to meet those needs.

  4. Be a connector. Industry leaders are busy running successful businesses. As someone who spends time meeting with many companies and leaders within an industry, you may see opportunities of which they are unaware. Put that entrepreneurial drive into action, and be a business development resource for those companies.

  5. Educate elected officials and policy leaders about industry clusters and possible issues and conditions that have implications and impacts to their success. Take the opportunity to present an unbiased view given the practitioner’s vantage point.

  6. Spend your marketing dollars wisely, and target media resources seen as credible and established in the specific industry. Create a communications plan, and stick to it. Don’t let the inevitable “immediate special advertising” opportunity distract you from your established plan.

  7. Build industry cluster expertise. Don’t just assign a sector to someone. If your potential assignee isn’t familiar with an industry, make sure he/she at least has an interest, then invest in education to build his/her level of expertise. Or, hire someone who already has expertise and an established network and credibility—think retired Baby Boomers. Utilize this expertise to generate attention for your economic development goals by having that individual be a resource for local media. Have him/her submit industry-related articles, white papers, and editorials, and seek out speaking engagements at industry events as well as community forums.

  8. Consider hosting a state-of-the-industry annual event or other industry networking events. Provide a forum to showcase industry leaders, and present economic data about the sector or new opportunities or challenges that will impact the future of the industry.

  9. Partner with industry associations on economic development work, marketing efforts, and industry events, and host inbound and outbound industry delegations. Industry associations know the industry intimately and have a vested interest in its success, so they often make an ideal partner for economic development work.

  10. Lastly, identify other markets that have a concentration in the target industry, and collaborate with them. Find ways to encourage businesses and educational institutions to partner together, encourage industry financing opportunities, and encourage trade within the industry between both markets. When you establish these kinds of relationships, business development opportunities can expand exponentially. The key is to identify how both communities can benefit from a reciprocal agreement. Your partners will begin to look for opportunities for you just as they are in search of opportunities for themselves.


I welcome the opportunity to discuss industry cluster development programs with you and learn about the economic development efforts and target industry cluster work in your community. Please feel free to contact me at jeff@tipstrategies.com.

Jeff Marcell
Senior Partner
TIP Strategies, Inc.

  • Rollie Cole

    I love all these points. I actually did several major projects for the EDC in Puget Sound, well before your time. I would only add that sometimes the best opportunities are “alongside” a given cluster — that is, the firms and agencies and nonprofit organizations that supply goods and services to a given cluster, or use goods and services from the cluster. A cluster, of course, includes many of these entities, but many, such as law and accounting firms, government regulators, and nonprofits that provide cultural support are sometimes overlooked. For example, two of my uncles worked for Boeing in blue-collar jobs, obviously part of the aerospace cluster. But when it was doing well, sales of small motorboats went up, since then such workers could afford such items. So small boat manufacturers and retailers would be, in this case, “alongside” the aerospace cluster.

    Rollie Cole, PhD, JD
    Founder, Fertile Ground for Startups, Small Firms, and Nonprofits
    “Think Small to Grow Big”
    Author of WHOLESALE ECONOMIC DEVELOPMENT http://preview.tinyurl.com/wholesaleeconomics

  • thomas7342@mail.ru

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