This is the final part of our series looking at our new industry cluster concept. In this piece we look at how the data can be used to identify your region’s strengths, opportunities and threats, along with some potential applications this leads to. You can read the previous parts here and here.
Having defined our clusters, divided them into tradable and local, and used the Location Quotient and projected national growth metrics, we are now in a position to identify the sectors which give a region an edge over other areas (strengths), the sectors which they could be focusing on developing (opportunities), and the sectors which could be in danger (threats).
Strengths, opportunities and threats
What do we mean by strengths, opportunities and threats? We would define them as follows:
Strengths – Industries that are growing nationally, and in which your region has a comparative advantage over other areas of the country, meaning that your region is well placed to benefit.
Opportunities – Industries that are growing nationally, but which your region does not yet enjoy a comparative advantage, meaning that you could look to potentially grow them.
Threats – Industries in which your region enjoys a comparative advantage over other areas, but which may be under threat as nationally they look set to decline in the coming years.
Using our data, we can plot out the clusters according to these definitions. In the graph below,
we have used data from an anonymised region to show how this can be done:
In the upper right quadrant are clusters which have a comparative advantage (i.e. LQ over 1.2) and which are projected to grow significantly nationally (which we have marked as being anything over 2.3% growth). These can rightly be considered the region’s strongest sectors. In the lower right quadrant are clusters which the region has a comparative advantage in, but which are projected to decline nationally. These sectors can therefore be considered under threat. And in the upper left quadrant are clusters which are set to grow nationally, but which the region does not currently have a comparative advantage in. These can be considered to present the best opportunities for growth. The lower left quadrant are clusters that are set to decline nationally, but because they have a low LQ, any decline will not constitute a huge threat to the region.
Mapping out strengths, opportunities and threats like this is a helpful way to get a sense of which sectors to prioritise investment of time and resources. Yet we can then dig even deeper into the data to gain much more useful insight into the workings of the local economy.
As we pointed out in Part 1, our industry clusters are made up of 4-digit SIC industries. This means that once we have identified a cluster as being of interest, we can delve into it to get far more granular details. In the table below, for example, we have opened up one of the “opportunity clusters” from the chart above — Business Services — to reveal data on the underlying industries:
What this does is helps us identify further opportunities for developing this particular cluster. Those industries where there is a comparative advantage in the region, and which are projected to grow nationally can be considered the cluster’s strengths (green), whilst those industries which do not yet have a comparative advantage in the region, but which are projected to grow nationally, can be seen as opportunities (orange). Since the opportunity sectors are connected to the strength industries, either by a similar workforce or supply chain connection, this indicates that there may well be room for these to grow.
How to use the data
What we have shown above has demonstrated how industry clusters can be used to lift the lid on your region’s strengths, opportunities and threats. However, the true value ultimately lies in how you can use it to retain, grow and attract business to your area. Below are just three ways that you could use industry clusters and the type of data shown above to develop a sound strategy for growth:
Broaden your industries
Having identified the clusters and underlying industries that are strongest in your region, you can use the insight to make the case that other, similar businesses would benefit from the skilled workforce and supply chain connections that your region has to offer.
Diversify your economy
After identifying the best opportunities for growth, you can also use data for the rest of the country to identify where these industries are located, which in turn can help you to learn from those areas, and put your region ahead of the curve in terms of anticipating growth.
Manage Your Risks
By identifying the clusters that are most under threat in your region, because they have a comparative advantage over other areas, but are declining nationally, you are in a far better position to plan a contingency strategy to deal with potential business closures.