The Wisconsin Economic Future Study

The Wisconsin Economic Future Study Statewide and Regional Analysis

Executive Summary Prepared by The MPI Group, Inc. June 2013

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The Wisconsin Economic Future Study Statewide and Regional Analysis

© 2013 The MPI Group, Inc. All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means without permission from The MPI Group, Inc. DISCLAIMER: This publication was prepared for the Wisconsin Economic Development Corporation (WEDC). The statements, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the view of the WEDC.

1.1 Wisconsin Economy

W

isconsin’s economy has weathered the recession and, led by manufacturing industries, rebounded to a position of competitiveness vs. other states. But just as in sluggish economies around the globe, businesses in Wisconsin must continually adapt to emerging trends, to new best business practices, and, most important, to the markets they serve. The Wisconsin Economic Future Study was designed to help the state identify industries that drive economic growth in the state, as well as clearly connect those driver industries with countless others — statewide and within seven Wisconsin regions — that allow the drivers to thrive and deliver economic prosperity to the state and its population. Understanding the connection of industries and how they flourish — or languish — together is critical information upon which to build future economic growth. The Wisconsin Economic Future Study does that by: • Establishing a pragmatic framework by which to evaluate Wisconsin industries and then identifying industries that drive Wisconsin’s economy based on application of that framework (Chapter 2). • Examining historical trends in Wisconsin’s business community in recent years (Chapter 3). • Comparing key Wisconsin economic measures with the performances of eight competitive states (Chapter 4). • Identifying specific Wisconsin driver industries and industry clusters (the establishments that contribute to drivers) that lead the state’s economy (Chapter 5). • Assessing Wisconsin competitiveness by examining export, innovation, and workforce performances of Wisconsin’s driver industries compared to competitive states and the United States as a whole, and reviewing the state’s business climate and the challenges it poses for business and government (Chapter 6). • Identifying driver industries and industry clusters within seven Wisconsin economic regions (Chapters 7-13). As with many state and regional economies, this study finds that manufacturing is the engine that drives the Wisconsin economy across the state and within regions of the state. Each dollar of manufactured goods in the United States creates another $1.43 of activity in other sectors, and two-thirds of U.S. research and development capacity is concentrated in the manufacturing sector.1 All but one driver industry identified by the Wisconsin Economic Future Study is within manufacturing. But that does not mean that manufacturing alone drives the Wisconsin economy. Manufacturing in the state is inextricably linked to non-manufacturing sectors — financial, legal, logistics, health, accounting, transportation, etc. — for myriad supports, services, and buy-sell relationships. 1

The Economic Overview of Manufacturing, Working for America Institute, 2013.

Wisconsin Economic Future Study 1

1.2 Key Study Findings 1.2.1 Wisconsin Economic Performance

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ince 2007, Wisconsin has exhibited employment performance comparable to the overall United States.2 But two other statewide indicators — gross state product and productivity (output per worker) — have underperformed vs. national benchmarks.3 Compared to eight states — Georgia, Illinois, Indiana, Michigan, Minnesota, North Carolina, Ohio, and Pennsylvania — that are of a size, industry composition, and competitiveness similar to Wisconsin, the state outperforms some and underperforms others on these key measures, with variations in performance from year to year. Understanding the industries that “drive” the Wisconsin economy and how to better support those industries can help to improve the state’s economic performance. For Wisconsin to take advantage of economic opportunities and improve the state’s performance vs. the country and competitive states, public and private entities must focus on those industries that are most competitive and have the greatest potential for national and global prominence — the state’s driver industries.

1.2.1 Statewide Driver Industries

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he fundamental methodology for discovering driver industries, the primary economic forces in an economy, is based on an analytical tool developed by Ned Hill and John Brennan; Hill is part of the research team that created this report.4 The statistical methodology of Hill and Brennan differs markedly from other approaches in that it is far more comprehensive and analytical. For the Wisconsin Economic Future Study, the analysis used for identifying driver industries is based on the characteristics of each of the region’s 4-digit NAICS5 industry groups with at least 100 employees in 2011. For each 4-digit industry, a diverse set of 12 variables is used to characterize the individual industry. Each of the variables is an indicator of the past or present economic performance of the industry and represented in two groups: measures of competitiveness (including productivity) and measures of export orientation and regional centrality (including output location quotient). (See Chapter 5 and Chapter 14 for more details.) In contrast to the Hill and Brennan methodology, other common approaches to this type of research are most often limited by oversimplification. Typically, they may look only at (1) a select group of industries instead of all possible industries, (2) case studies with their associated quantitative industry profiles, (3) quantitative analyses that cannot capture industry dynamics, and/or (4) one or very few variables as indicators of industry strength. In short, these other approaches are simply not as robust in scope or as concentrated in economic analysis as the Hill and Brennan methodology. Moody’s Economy.com. Moody’s Economy.com. 4 E. Hill & J. Brennan (2000). A Methodology for Identifying the Drivers and Clusters: The Foundation of Regional Competitive Advantage. Economic Development Quarterly, 14, pp. 65-69. 5 Throughout the Wisconsin Economic Future Study, businesses in the state are, with a few exceptions, described by North American Industry Classification System (NAICS) coding nomenclature (see section 2.5 for details). 2 3

2

Wisconsin Economic Future Study

Wisconsin is home to 37 statewide driver industries; all but one of the statewide driver industries is manufacturing in nature (the exception is the Electronic Shopping and Mail-order Houses industry group). This should not be surprising given that Wisconsin’s manufacturers employed more than 400,000 workers, carried payrolls of more than $21 billion, and spent more than $91 billon on materials and more than $4 billion on capital expenditures in 2011.6 The gross state product of Wisconsin manufacturing is $51.3 billion.7 While there are many other important non-manufacturing industries throughout Wisconsin that are necessary for the ongoing success of the state’s economy, this study found only one of them to be a driver industry. The 37 statewide driver industries indicate concentrations that afford them a competitive advantage over those industries in other states. From an economic perspective, driver industries are relatively concentrated in a region and produce more goods than can be consumed locally. These companies sell their products outside of the region, thereby bringing new monies back into the region. Thus, they drive regional economic growth.8 It is important to note that a single firm does not comprise an “industry.” Even a small, highly successful firm does not generate enough business volume to meet the threshold for the designation of driver industry. However, such an organization may eventually become or form the catalyst of a driver industry in the future. Remember, too, that even a group of strong product- or service-specific companies, such as local restaurants, are necessary for a vibrant economy but do not typically have the buy-sell relationships outside of the state or outside of the region to constitute a driver industry. Other complex, emerging, and/or evolving industries have not yet been classified within broad government or independent systems in a manner that adequately approximates their economic impact. For example, electronic devices such as smartphones and tablets are as much reliant on downloadable applications that enhance their value as the hardware within these devices, but no one classification has yet to adequately address these combined traits. Similar issues exist with medical equipment as well as the publishing industry (i.e., books viewed on electronic readers). Figure 1-1 expresses the economic health of the driver industries in Wisconsin by two primary factors — their “competitiveness” in terms of export orientation or specialization on the X axis (i.e., the horizontal axis)9 and their “growth” on the Y axis (vertical). • Competitiveness is measured in terms of the output location quotients, which is a ratio of the industry’s concentration in the state compared to the industry’s concentration nationally. In general, a location quotient (LQ) above 1.2 indicates that the industry is more concentrated in Wisconsin than it is nationally. This concentration suggests that the industry exports its products, and that Annual Survey of Manufactures, United States Census Bureau, 2011 data released in 2012. Moody’s Economy.com. 8 E. Hill & J. Brennan (2000). A Methodology for Identifying the Drivers and Clusters: The Foundation of Regional Competitive Advantage. Economic Development Quarterly, 14, pp. 65-69. 9 The “competitiveness” values appear just below the “0.0%” line on the Y-axis (i.e., vertical axis). “Competitiveness” is marked in even increments—2, 4, 6, 8, 10, and ending with 12 at the far right of the chart. 6 7


Wisconsin offers competitive advantages to the industry over other states throughout the country. An industry is increasingly more competitive as it moves to the right on the X axis. And the more competitive it is, the more it sells goods outside of Wisconsin, thereby generating revenues for the state’s economy. • Growth is measured in terms of compound annual growth rates, 2008-2011, and is shown on the Y axis. An industry is growing faster as it moves upward from 0.0%; it is declining if it is below 0.0%. The area (size) of each circle in Figure 1-1 represents the gross product of each industry and indicates the industry’s size compared to the other industries. Since all of Wisconsin’s 37 driver industries have a location quotient greater than 1.2, indicating competitiveness, they are all more concentrated in the state than in the rest of the nation. This is a significant competitive advantage. And 31 of the 37 driver industries have been growing, 2008-2011. • Other Nonmetallic Mineral Products has the highest growth rate (34.6%). • Other Wood Product Manufacturing has the lowest growth rate (-27.5%). • Other Transportation Equipment Manufacturing has the highest LQ (9.06), but the industry has relatively low growth rate (2.8%) compared to Wisconsin’s other driver industries. • Electrical Equipment Manufacturing has both relatively high LQ (6.7) and growth rate (31.1%). In addition, Electrical Equipment Manufacturing is shown by the largest circle on the chart, which represents the highest gross product among Wisconsin’s industries in 2011. A comparison of driver industries in this year’s study to 2004 study drivers for Location Quotient, Output Growth, and Gross Product can be found on page 1-19 and in Chapter 5. The 37 statewide driver industries represent Wisconsin’s economic future, not only for the driver industries themselves but for the industry clusters they depend upon when purchasing inputs and selling outputs. They represent a future grounded in manufacturing with the potential for growth and global competitiveness — but not a guaranteed future. Indeed, each of these driver industries faces challenges and opportunities, both within Wisconsin and around the country. Each of the statewide driver industries are analyzed in Chapter 5 of this report, which examines: o Driver industry definition o Driver challenges o Export changes o Gross product o Employment o Top establishments o Associated industry clusters Through this analysis of the state’s driver industries, overall strategies and services that will be needed to secure Wisconsin’s economic future can begin to emerge.

4


Figure 1-1 Overview of Wisconsin’s Statewide Drivers

Methodology Used to Define Drivers and Clusters A thorough description of the research process and techniques used to identify the drivers and clusters in Wisconsin can be found in the Methodology section of Chapter 14 (About the Study).

0 very technology intensive industries, 6 moderate technology intensive driver industries, 0 low technology intensive driver industries, 31 industries with no technological intensity


1.2.3 Wisconsin Regional Drivers

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f the 37 statewide driver industries, 30 also are identified as a driver industry in two or more of seven Wisconsin regions (Table 1-1). Some statewide drivers are present in multiple regions. For example, the statewide driver Dairy Product Manufacturing is a driver in all but one region. The boundaries of seven county-based economic regions have been retained from a similar Wisconsin study on manufacturing, conducted in 2004 by the same research team. These economic regions are believed to best represent “economic” rather than political or geographic regions and are inclusive of all counties within the state. For cohesiveness of regional economies, two out-of-state counties were included for studying economic regions: Winnebago County (IL) in the South region and Houston County (MN) in the West Central II region. The seven regions and the counties that comprise each (detailed in Chapters 7-13) are as follows: • Central: Adams, Clark, Langlade, Lincoln, Marathon, Portage, Taylor, Waushara, Wood • East Central: Brown, Calumet, Door, Kewaunee, Marinette, Menominee, Oconto, Outagamie, Shawano, Waupaca, Winnebago • North: Ashland, Bayfield, Burnett, Douglas, Florence, Forest, Iron, Oneida, Price, Rusk, Sawyer, Vilas, Washburn • South: Columbia, Crawford, Dane, Grant, Green, Iowa, Juneau, Lafayette, Marquette, Richland, Rock, Saulk, Winnebago (IL) • Southeast: Dodge, Fond du Lac, Green Lake, Jefferson, Kenosha, Manitowoc, Milwaukee, Ozaukee, Racine, Sheboygan, Walworth, Washington, Waukesha • West Central I: Barron, Buffalo, Chippewa, Dunn, Eau Claire, Pepin, Pierce, Polk, St. Croix • West Central II: Jackson, La Crosse, Monroe, Trempealeau, Vernon, Houston (MN) Wisconsin regions ranked by the number of regional drivers they contain are as follows (Table 1-1): • Southeast: 41 driver industries in the region. • East Central: 29 driver industries in the region. • West Central I: 29 driver industries in the region. • Central: 20 driver industries in the region. • West Central II: 19 driver industries in the region. • North: 16 driver industries in the region. • South: 12 driver industries in the region.

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1.2.4 Industry Clusters

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he driver industries form the heart of a linked group of companies — industry clusters. Many non-driver industries and their firms are critical components within industry clusters. Clusters are a geographic concentration of firms in the same industry that have close buy-sell relationships with other industries in the region, use common technologies, or share a specialized labor pool that, together, provide the driver-industry firms with a competitive advantage over the same industry in another region, state, or country. Figure 1-2 Structure of a Competitive Industry Cluster10

Customer Industries (sell)

Technology

Driver Industries

Labor

Supplier Industries (buy)

Statewide, the cluster-discriminant analysis assembled 287 4-digit NAICS industries into 10 groups (clusters). Each industry is described with 12 economic indicators. Among the economic indicators there are measures that point to industries that are part of the regional base11 (driver industries). These economic indicators include high concentration of industry employment and output in the state (location quotient12 of employment and location quotient of output), high regional wages relative to U.S. wages, large regional industry’s share of national industry output, and high labor productivity. Two of the 10 clusters comprise 37 driver industries. Hill & Brennan, 2000. Economic base analysis divides all industries in a region into two categories: basic and non-basic. Basic industries are those that are exporting from the region and bringing wealth from outside. These industries comprise the economic base of the region. 12 LQ = (gi/g) / (Gi/G), gi = State of Wisconsin Gross Product in industry, g = Total Gross Product in The State of Wisconsin, Gi = US Gross Product in industry, G = Total U.S. Gross Product. A location quotient > 1.2 indicates specialization in an industry. 10 11


A number of the 37 statewide drivers are closely related by a product they deliver and, as a result, by the use of inputs, shared technology, and labor talent. These industries are grouped under the 3-digit NAICS code and constitute a group of 16 statewide drivers presented in Table 1-1. Table 1-1 Statewide Driver Industries State Drivers NAICS

Industries italicized in the table are positively related to both a function of the discriminant analysis that points to the economic base industries and to the function that discriminates industries of high labor productivity.

Industry Description

Statistical Cluster

1 3114 Fruit and vegetable preserving and specialty 5 2 3115 Dairy product manufacturing 6 3 316 Leather and allied product manufacturing (partial) 3161 Leather and hide tanning and finishing 5 3162 Footwear manufacturing 5 4 321 Wood product manufacturing (partial) 3212 Plywood and engineered wood product mfg. 5 3219 Other wood product manufacturing 5 5 322 Paper manufacturing (complete) 3221 Pulp, paper, and paperboard mills 6 3222 Converted paper product manufacturing 5 6 3231 Printing and related support activities 5 7 3256 Soap, cleaning compound, and toiletry mfg. 5 8 3261 Plastics product manufacturing 5 9 327 Nonmetallic mineral product manufacturing (partial) 3272 Glass and glass product manufacturing 5 3279 Other nonmetallic mineral products 5 10 3315 Foundries 6 11 332 Fabricated metal product manufacturing (partial) 3321 Forging and stamping 5 3322 Cutlery and handtool manufacturing 5 3324 Boiler, tank, and shipping container mfg. 5 3325 Hardware manufacturing 5 3326 Spring and wire product manufacturing 5 3327 Machine shops and threaded product mfg. 5 3328 Coating, engraving, and heat treating metals 5 3329 Other fabricated metal product manufacturing 5 12 333 Machinery manufacturing (complete) 3331 Agriculture, construction, and mining machinery mfg. 5 3332 Industrial machinery manufacturing 5 3333 Commercial and service industry machinery 5 3334 HVAC and commercial refrigeration equipment 5 3335 Metalworking machinery manufacturing 5 3336 Turbine and power transmission equipment mfg. 5 3339 Other general purpose machinery manufacturing 5 13 335 Electrical equipment, appliance, and component manufacturing (partial) 3352 Household appliance manufacturing 5 3353 Electrical equipment manufacturing 6 14 336 Transportation equipment manufacturing (partial) 3362 Motor vehicle body and trailer manufacturing 5 3369 Other transportation equipment manufacturing 6 15 337 Furniture and related product manufacturing (complete) 3371 Household and institutional furniture mfg. 5 3372 Office furniture and fixtures manufacturing 5 3379 Other furniture related product manufacturing 5 16 4541 Electronic shopping and mail-order houses 5 8


Table 1-2 Matrix of Wisconsin’s Driver Industries in the State and by Region NAICS Title 2123 Nonmetallic mineral mining and quarrying 3111 Animal food manufacturing 3113 Sugar and confectionery product manufacturing

State- Central East North South South- West West wide Central east Central I Central II х

3114 Fruit and vegetable preserving and specialty

х

3115 Dairy product manufacturing

х

х

х

х

х

х

х

х

х

х

х

х

х

х

х

3116 Animal slaughtering and processing

х

х

х

х

3118 Bakeries and tortilla manufacturing

х

3119 Other food manufacturing

х

х

х

х

х

х

3132 Fabric mills

3161 Leather and hide tanning and finishing

х

3162 Footwear manufacturing

х

3211 Sawmills and wood preservation

х

3212 Plywood and engineered wood product mfg.

х

х

х

х

х

3219 Other wood product manufacturing

х

х

х

х

х

3221 Pulp, paper, and paperboard mills

х

х

х

х

х

3222 Converted paper product manufacturing

х

х

х

х

х

3231 Printing and related support activities

х

х

х

х

х

3255 Paint, coating, and adhesive manufacturing 3256 Soap, cleaning compound, and toiletry mfg.

х

х

3261 Plastics product manufacturing

х

х

х

х

х

3262 Rubber product manufacturing 3272 Glass and glass product manufacturing 3273 Cement and concrete product manufacturing

х

х

х

х

х

х

х

3279 Other nonmetallic mineral products

х

х

х

3315 Foundries

х

3321 Forging and stamping

х

3322 Cutlery and handtool manufacturing

х

3323 Architectural and structural metals mfg.

х

х

x х

х

х

х

х

х

х

х

х

х х

3324 Boiler, tank, and shipping container mfg.

х

х

х

3325 Hardware manufacturing

х

х

3326 Spring and wire product manufacturing

х

х

х

х

3327 Machine shops and threaded product mfg.

х

х

х

х

х

3328 Coating, engraving, and heat treating metals

х

х

х

х

х

3329 Other fabricated metal product manufacturing

х

х

х

х

х

х

х

3331 Agriculture, construction, and mining x x machinery manufacturing

x

3332 Industrial machinery manufacturing

х

х

х

х

х

х

х

3333 Commercial and service industry machinery

х

х

х


Table 1-2 Matrix of Wisconsin’s Driver Industries in the State and by Region (cont.) NAICS Title

State- Central East North South South- West West wide Central east Central I Central II

3334 HVAC and commercial refrigeration equipment

х

3335 Metalworking machinery manufacturing

х

3336 Turbine and power transmission equipment mfg.

х

3339 Other general purpose machinery manufacturing

х

х

х

х

х

х

х

3341 Computer and peripheral equipment manufacturing

х

3351 Electric lighting equipment manufacturing

х

х

х

х

х

х

х

х

х

х

х

х

х

х

3352 Household appliance manufacturing

х

х

х

3353 Electrical equipment manufacturing

х

х

х

3359 Other electrical equipment and х component manufacturing

3361 Motor vehicle manufacturing 3362 Motor vehicle body and trailer manufacturing 3363 Motor vehicle parts manufacturing 3366 Ship and boat building 3369 Other transportation equipment manufacturing

х

х

х

х

х

х

х

х

3371 Household and institutional furniture mfg.

х

х

х

х

х

3372 Office furniture and fixtures manufacturing

х

3379 Other furniture-related product manufacturing

х

х

х

3399 Other miscellaneous manufacturing

4233 Lumber and construction supply merchant x wholesalers 4246 Chemical merchant wholesalers

х

х

х

х

х

х

4841 General freight trucking

х

х

х

4842 Specialized freight trucking

х

4855 Charter bus industry

х

4889 Other support activities for transportation

х

5112 Software publishers

х

5182 Data processing and related services

х

5221 Depository credit intermediation

х

5241 Insurance carriers

х

х

5511 Management of companies and enterprises

х

6114 Business, computer, and management training

х

6221 General medical and surgical hospitals

х

7112 Spectator sports

х

7113 Promoters of performing arts and sports

х

7139 Other amusement and recreation industries

х

7212 RV parks and recreational camps

х

4541 Electronic shopping and mail-order houses

10


1.3 Wisconsin and Competitive States

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n addition to identifying the driver industries and their industry clusters, the study compares the performance of Wisconsin’s economy with those of a select group of states that are identified as “competitors.” In general, competitor states are those that have a significant concentration of firms and/or industries that compete with firms in the state of Wisconsin. The study identifies eight states that are primary competitors for the markets of the major driver industries in Wisconsin. These eight competitor states include two that border Wisconsin — Minnesota and Illinois — since, by their geographic location, they offer the same access to all non-governmental resources as locations within Wisconsin itself, and their proximity facilitates the flow of competing manufactured goods or access to services. Other nearby competitor states include Michigan, Indiana, and Ohio, which historically have had industrial bases similar to that of Wisconsin. Altogether, these five Great Lakes basin states offer many of same labor skills, natural resources, and transportation networks that manufacturers seek in Wisconsin’s driver industries. Three other states were included — Pennsylvania, Georgia, and North Carolina — because they are competitors of substantial size in many of Wisconsin’s driver industries. An aggregate of Wisconsin key economic performances compared to the eight states and the United States is shown in Table 1-3 (other performances and year-by-year and by-industry comparisons can be found in Chapter 4). For none of the measures (employment, gross state product, productivity, and 2000-2011 percentage changes for the three measures) does Wisconsin rank highest among the eight states; Wisconsin ranks lowest among the eight states in 2011 gross state product and 2011 productivity.13 Table 1-3 Wisconsin performance, eight competitive states, and the United States 2011 NAICS Employment

% change in employment 2000-2011

2011 Gross state product ($Mil)

% change 2011 gross state Productivity % change product (gross state product productivity 2000-2011 per employee) 2000-2011

Georgia

3,976,343 -4.8% $418,566.1 8.8% $105,264 14.3%

Illinois

5,810,501 -7.3% $673,315.1 8.6% $115,879 17.2%

Indiana

2,891,449 -7.0%

$286,637.6 10.8%

$99,133

19.1%

Michigan

4,025,171 -15.8%

$398,646.2 -9.4%

$99,038

7.6%

Minnesota

2,781,386 -1.0%

$283,459.2 15.2%

$101,913

16.4%

North Carolina

4,104,184

$442,789.0

$107,887

21.4%

Ohio

5,228,880 -9.5%

$495,364.7 -0.5%

$94,736

9.9%

Pennsylvania

5,803,644 -0.5%

$591,595.5 14.4%

$101,935

15.0%

Wisconsin

2,884,919 -2.7%

$257,457.0 11.0%

$89,242

14.0%

United States

136,524,219

-0.8%

-0.6%

$15,204,171.4

20.5%

17.8%

$111,366

Moody’s Economy.com. 13

Moody’s Economy.com.


11

18.5%

This report also examines Wisconsin’s exports from driver industries, grouped to 3-digit NAICS subsector manufacturing levels for access to data and then compared to the eight competing states and the U.S. total. There was an increase in Wisconsin’s exports in 13 out of 14 3-digit NAICS driver industries for 2010-2011, with the Transportation Equipment Manufacturing subsector (NAICS 336) the exception that experienced a decline. Details in Chapter 6 show the trends in a particular driver industry with dollar value exported; the state’s share in the U.S. market for 2009, 2010, and 2011; and the percentage change between 2010 and 2011.14 For example: • Wisconsin increased its exports in the Wood Product Manufacturing subsector by 12% between 2010 and 2011, which almost doubled the growth rate of U.S. total exports in the industry. • In the Paper Manufacturing subsector, the U.S. has increased its exports to the world by 24.3% from 2009 through 2011 with a 5.3% increase from 2010 to 2011. Wisconsin accounts for 3.7% of U.S. total exports in the Paper Manufacturing subsector and experienced the fastest growth rate, 43.7% since 2009 and 9.6% from 2010, among the competitor states. • Between 2010 and 2011, Wisconsin increased its exports in the Printing and Related Support Activities industry group by 20.7%, while overall U.S. exports in this industry decreased by 2.2%. • Wisconsin has increased its exports in the Fabricated Metal Products subsector since 2009, along with overall U.S. exports in this subsector. The growth rate of Wisconsin’s exports (16.6%) exceeded that of the U.S. total (10.5%) between 2010 and 2011. In 2011, Wisconsin was ranked 16th in the nation for exports in Fabricated Metal Products Manufacturing. Eight out of nine 4-digit NAICS level industry groups under the Fabricated Metal Products Manufacturing subsector are driver industries in Wisconsin. • Between 2010 and 2011, Wisconsin showed a 15.1% increase in Electrical Equipment, Appliance and Component Manufacturing, while U.S. total exports increased by 8.9%. Chapter 6 of the study also presents in-depth innovation analysis and comparisons vs. the eight competitive states and the United States, as well as a detailed review of Wisconsin workforce characteristics. Highlights include: • Innovation: Research findings elsewhere suggest a correlation between a higher share of technology-intensive industries and an increasing rate of growth in gross state product (GSP) over time. The overall Wisconsin economy experienced growth of GSP by 7.1% between 2002 and 2011, compared to the growth of GSP in very technology-intensive industries of 39%. But technology-intensive GSP as a percentage of the Wisconsin private sector was only 15.0% vs. 17.2% among the eight competing states, and 18.8% nationwide.15

14 15

Foreign Trade Division, U.S. Census Bureau. Moody’s Economy.com.

12


• Workforce: Disproportionately more (5.1 percentage points) Wisconsin adults age 25 and older have only a high school education than adults 25 and older in the nation as a whole. Compared to the nation, disproportionately fewer (-4.5 percentage points) Wisconsin adults failed to finish high school. Compared to the nation, a slightly higher proportion (1.8 percentage points) of Wisconsin adults have completed some postsecondary education or have an associates degree. Compared to the nation, a slightly lower proportion of Wisconsin adults have college degrees (-0.6 percentage points for bachelor’s degrees and -1.6 percentage points for graduate/professional degrees).16 When “high school/GED” and “less than high school” are combined into a single “low-attainment” category, the four-category distributions of educational attainment are similar for Wisconsin and the United States, with Wisconsin having a slightly higher proportion of low-attainment (0.6 percentage points) and middle attainment (1.5 percentage points) adults, and a slightly lower proportion of advanced-attainment (-0.6 percentage points) and high-attainment (-1.6 percentage points) adults.17

1.4 Wisconsin Business Readiness, Climate, and Challenges

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ince all but one driver industry in Wisconsin is manufacturing, this study also explores the strengths and weaknesses within the state’s manufacturing base in more detail. As with the entire United States, in general, Wisconsin manufacturing suffered through a reorganization of facilities and worker dislocations to other parts of the world. Globalization was a survival strategy for many manufacturers in search of lower labor costs, and this strategy moved from basic commodities to even more complex goods. And while globalization will not disappear, there are many signals that U.S. manufacturing is again thriving and that goods now are moving back to facilities in the United States (onshoring). States whose economies rely on manufacturing, such as Wisconsin, can be expected to thrive in the evolving global marketplace, provided organizations and the entities that govern and support them recognize the opportunities now emerging from the onshoring trend.

1.4.1 Readiness among Manufacturers

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esearch by The MPI Group among manufacturers across the United States — the Next Generation Manufacturing (NGM) Study — sought to identify futurelooking performances and practices in place among U.S. manufacturers, to determine how much progress U.S. manufacturers have made in implementing Next Generation strategies, and to measure manufacturers’ progress toward achieving world-class status in the 21st century. The most recent NGM Study was conducted in 2011 by the Manufacturing Performance Institute (MPI) with the American Small Manufacturers Coalition (ASMC), an association of manufacturing extension centers that work to improve the innovation and productivity of America’s manufacturing community. One ASMC program of primary focus is the National Institute of Standards and Technology (NIST) Manufacturing Extension Partnership (MEP) program. MPI, ASMC, and MEPs across the country promoted the NGM Study. 16 17

2009-2011 American Community Survey Integrated Public Use Microdata Series (3-year estimate). 2009-2011 American Community Survey Integrated Public Use Microdata Series (3-year estimate).


13

The NGM Study assessed how well manufacturers recognize and execute key strategies that can help them to compete in the future: • Customer-focused innovation: Develop, make, and market new products and services that meet customers’ needs at a pace faster than the competition. • Engaged people/human capital acquisition, development, and retention: Secure a competitive performance advantage by having superior systems in place to recruit, hire, develop, and retain talent. • Superior processes/improvement focus: Record annual productivity and quality gains that exceed the competition through a companywide commitment to continuous improvement. • Supply-chain management and collaboration: Develop and manage supply chains and partnerships that provide flexibility, response time, and delivery performance that exceed the competition. • Sustainability: Design and implement waste and energy-use reductions at a level that provides superior cost performance and recognizable customer value. • Global engagement: Secure business advantages by having people, partnerships, and systems in place capable of engaging global markets and talents better than the competition. The study also examined best practices to support execution of those strategies and performance goals against which to measure their progress. Following an NGM path — or ignoring it — can be the difference between success and failure for individual manufacturers and for U.S. and Wisconsin manufacturing in general. The NGM Study findings show: • Most Wisconsin manufacturers recognize the importance of the NGM strategies (rated 4 or 5 on a scale of 1-5 where 5 equals highly important) to their business success, and, with the exception of the global engagement strategy, a higher percentage of Wisconsin manufacturers than national manufacturers recognize the importance of the strategies. Wisconsin manufacturing executives see global engagement as the least important strategy among the six. Table 1-4 Strategy Importance to Organization Success over the Next Five Years (% of manufacturers rated 4 or 5 on a scale of 1-5 where 5= highly important)

14

Wisconsin

National

Process improvement

91.6%

86.6%

Human-capital management

88.4%

77.7%

Customer-focused innovation

86.3%

84.0%

Supply-chain management

76.3%

72.2%

Sustainability

67.4% 59.2%

Global engagement

41.5%

50.4%


• Many Wisconsin manufacturers are progressing toward world-class status with individual NGM strategies (rated 4 or 5 on a scale of 1-5 where 5 equals world-class), but there is a large execution gap — the difference between the percentage of Wisconsin firms that recognize the importance of a particular NGM strategy and the percentage of firms near or at world-class status in that strategy. Wisconsin manufacturers are least likely to be at or near world-class capabilities with global engagement. Table 1-5 Organization Progress toward World-Class Status (% of manufacturers rated 4 or 5 on a scale of 1-5 where 5= world-class)

Wisconsin

National

Process improvement

53.7%

42.7%

Customer-focused innovation

48.4%

43.2%

Human-capital management

33.0%

30.4%

Supply-chain management

33.0%

29.4%

Sustainability

32.6% 27.5%

Global engagement

17.9%

25.3%

• Many Wisconsin manufacturers, like manufacturers across the country, lack key success factors — talented people, business systems and equipment, companyspecific strategies — necessary to achieve next-generation success, and, because of this, they face competitive disadvantage against those companies that do.

1.4.2 Business Climate

C

ountless means are available to evaluate the business climate in Wisconsin, with some factors more likely to affect some companies more than others. This study also examined how independent organizations ranked Wisconsin’s business climate and compared those rankings vs. the rankings of the eight competitive states where possible: • Wisconsin ranked 17th among the 50 states in CNBC’s “America’s Top States for Business 2012.” CNBC scored all 50 states on 51 measures of competitiveness developed with input from business groups including the National Association of Manufacturers and the Council on Competitiveness. Wisconsin’s overall business climate ranks in the middle of the pack when compared to its eight competitive states.18 • Forbes’ “Best States for Business” ranked Wisconsin 42nd in the nation. Forbes measures six categories for businesses: costs, labor supply, regulatory environment, current economic climate, growth prospects, and quality of life, and the publication factors in 35 points of data to determine the ranks in the six main areas. Wisconsin’s business climate ranks below all but Michigan among the eight competitive states.19 18 19

“America’s Top States for Business 2012,” CNBC, July 10, 2012. “Best States for Business,” Forbes, Dec. 12, 2012.


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• Site Selection’s “Top 2012 State Business Climate Rankings” ranked Wisconsin 13th in the nation. The rankings are based 50% on a survey of corporate site selectors and 50% on five other criteria, three of which require states to demonstrate a strong record of attracting capital investment.20 • The nonprofit Tax Foundation measures how each state’s tax laws affect economic performance with the 2013 State Tax Business Climate Index. The Index is a relative, hierarchical structure compiled from five weighted tax measures (individual income tax, sales tax, corporate income tax, property tax, and unemployment insurance tax), and states are assigned a rating (0=worst and 10=best) in each. Each component consists of multiple variables, with 118 variables in all, and is based on taxes in place on July 1, 2012. The 2013 Index ranked Wisconsin 43rd among all states and Washington, D.C., the same as in the 2012 Index and down from a rank of 41st in the 2011 Index. Wisconsin’s tax climate ranks near the bottom of the eight competitive states.21

1.5 Conclusion

W

hether any of Wisconsin’s driver industries can sustain the performances that have helped them prosper to date depends, first and foremost, on how their leaders and workers embrace and manage the complexities of a highly competitive and changing global marketplace. After global recession, a global recovery — no matter how fitful — offers rare growth opportunities to the state’s driver industries. At the same time, state and regional policies, regulatory frameworks, and tax structures will have an impact on competitiveness, but they alone cannot be expected to drive organizations to succeed. Nonetheless, Wisconsin must create a business and social environment that fosters (or at least does not hinder) responsible growth-oriented business leadership. Wisconsin’s efforts to capitalize on global growth through changes in statewide policies, regulations, and tax structures should be addressed within the context of Wisconsin’s driver industries and industry clusters. Strategies for aiding an industry should also consider its growth/competitiveness positions within specific regions. In particular, the driver and cluster industry findings of this study can serve as the bases to convene working groups focused on the 37 statewide driver industry categories, with regional representation, to develop plans and recommendations specific to each industry. Notwithstanding regional differences, however, a number of statewide, cross-industry issues must be addressed by any new plans — reflecting statewide, collaborative actions required for Wisconsin to claim its place among the world’s elite business locations. Wisconsin can positively impact driver industries and the business climate in the state in four ways: 20 21

Mark Arend, “Competition is Fun,” Top 2012 State Business Climate Rankings, Site Selection, November 2012. Scott Drenkard and Joseph Henchman, 2013 State Business Tax Climate Index, Tax Foundation, October 2012, http://taxfoundation.org/article/2013-state-business-tax-climate-index

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• Nurture driver industries, concentrating state and regional economic development efforts on strengthening driver industries and the industry clusters around them: • Strengthen driver-industry supply chains and the systems (broadband) and infrastructure (transportation hubs) that allow them to communicate and conduct commerce. • Further develop the research/technology/innovation centers that support Wisconsin’s 37 driver industries, helping them to create new technologies, implement new business processes, and commercialize new products and services. • Develop regional purchasing and management cooperatives for driver industries with large footprints across many of the state’s economic regions. • Continue to support Wisconsin exports from driver industries and help these businesses grow exports or begin their efforts to penetrate global markets. • Create an ongoing “Economic Future” structure that helps businesses foster and sustain improvement. Given the breadth of the business base and turnover among executives within it, ongoing efforts for improvement across industries often lose steam as executives retire, relocate, and transfer. Good ideas are forgotten, and plans are shelved. But by creating an ongoing “Economic Future” structure — incorporating stakeholders and organizations from across the state — focused on disciplined examination and promotion of success factors for driver industries and industry clusters, the state can improve its overall competitiveness: • Regularly research and examine driver industries in the state, diving deeper into internal management and operating processes of companies and inviting their executives to present success stories — and challenges — from their industries. • Keep legislators focused on the performances of driver industries — supporting them as necessary and highlighting their successes as examples of what is possible within the state. It is often easy for legislators or executives to chase “the next big thing” in economic development; Wisconsin’s driver industries include firms that have carried the Wisconsin economy for decades. • Collaborate as Wisconsin public leaders and institutions — Departments of Commerce, Workforce Development, Natural Resources, and the Wisconsin Economic Development Corp. — to coordinate actions that will support the growth of driver industries and industry clusters.


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• Address the real and perceived skills shortages in the state. The availability of talent is a critical factor for the long-term success of Wisconsin’s driver industries. The private, public, and nonprofit sectors must collaborate in developing innovative solutions to attract and train workers at all skills levels — from frontline employees to tooling specialists to R&D scientists to senior management: • Strengthen ties between driver and industry cluster firms and the state’s workforce development boards, technical schools, and universities to design workforce development strategies and encourage placement of management, engineering, and technical talent with Wisconsin firms. • Incorporate manufacturing into academic and technical institutions’ curricula and into more K-12 education programs. Expand internship opportunities that can provide a first-hand look at manufacturing and provide evidence of the level of skills, technology, and education necessary to succeed in driver industries. • Benchmark innovative workforce development models across the country, identifying best practices from other states and countries that support economic competitiveness and investment.

• Develop a cohesive, engaging “new story” about manufacturing in Wisconsin that promotes its viability as a career and strong future. Engage industry, government, and academic leaders in this effort, but also engage the target audience’s current role models (e.g., sports figures, musicians, artists), discussing the business roots in their families and their role in their connections to Wisconsin industry.

• Establish a legislative approach that examines policies affecting driver industries and industry clusters, identifying the programs that constituents can and will support, with the goal of developing a broad package that supports Wisconsin business. The first step: review the policies, practices, and issues identified by business executives as potential barriers and manage them in relation to all the state’s needs: • Healthcare costs • Taxes • Skill shortages • Regulations • Infrastructure • Business liability • Funding/financing • Exporting.

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Table 1-6 Ranking of Driver Industries, Location Quotient Location Location quotient, quotient, Driver Industry (2013 report) 2011 Driver Industry (2004 report) 2003 1. Other transportation equipment 9.06 1. Other transportation equipment 22.00 2. Electrical equipment mfg. 6.65 2. Electrical equipment mfg. 9.74 3. Pulp, paper, paperboard mills 6.50 3. Pulp, paper, paperboard mills 7.44 4. Dairy product mfg. 5.87 4. Dairy product mfg. 6.69 5. Foundries 5.63 5. Foundries 4.88 6. Turbine & power transmission equipment mfg. 4.48 6. Agriculture, construction, and mining 4.48 7. Industrial machinery mfg. & specialty 4.43 7. Fruit and vegetable preserving 4.12 8. Leather and hide tanning & finishing 4.22 8. Cutlery and handtool 3.94 9. Printing & related support activities 4.02 9. Other electrical equipment and component 3.40 10. Converted paper product mfg. 3.96 10. Metalworking machinery 3.24 11. Other fabricated metal product mfg. 3.76 11. Other wood product mfg. 3.20 12. Other wood product mfg. 3.13 12. Industrial machinery 3.14 13. Cutlery & handtool mfg. 3.12 13. Veneer, plywood, and engineered wood product 3.02 14. Forging & stamping 3.08 14. Other fabricated metal product 2.90 15. Plastics product mfg. 3.07 15. Other general purpose machinery mfg. 2.84 16. Boiler, tank, shipping container mfg. 3.06 16. Hardware 2.80 17. Household appliance mfg. 3.04 17. Converted paper product 2.78 18. HVAC & commercial refrigeration equipment 3.01 18. Forging and stamping 2.72 19. Other general purpose machinery mfg. 2.99 19. Motor vehicle body and trailer 2.66 20. Footwear mfg. 2.94 20. Commercial and service industry machinery 2.36 21. Glass and glass product mfg. 2.88 21. Soap, cleaning comp., and toilet prep. 2.00 22. Electronic shopping & mail-order houses 2.84 22. Machine shops 1.94 23. Hardware mfg. 2.79 23. Sawmills and wood preservation 1.94 24. Agriculture, construction, and mining. 2.71 24. Glass and glass product 1.38 machinery mfg 25. Motor vehicle body and trailer mfg. 2.68 26. Household and institutional furniture mfg. 2.58 27. Metalworking machinery mfg. 2.57 28. Fruit and vegetable preserving & specialty 2.56 29. Other nonmetallic mineral products 2.52 30. Machine shops & threaded product mfg. 2.43 31. Coating, engraving, heat treating metals 2.40 32. Commercial & service industry machinery 2.31 33. Other furniture related product mfg. 2.27 34. Soap, cleaning compound, toiletry mfg. 2.02 35. Spring and wire product mfg. 1.89 36. Plywood & engineered wood product mfg. 1.87 37. Office furniture and fixtures mfg. 1.59 Moody’s Economy.com * Note: The 2003 Location Quotient is estimated from the previous 2004 report. Wisconsin Economic Future Study

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Table 1-7 Ranking of Driver Industries, Output Growth Change (%), CAGR (%) Driver Industry (2013 report) 2008-2011 Driver Industry (2004 report) 1998-2003 1. Other nonmetallic mineral products 34.60% 1. Other transportation equipment 11.00% 2. Electrical equipment mfg. 31.11% 2. Other Electrical Equipment and Component 9.50% 3. Dairy product mfg. 29.64% 3. Electrical equipment mfg. 8.30% 4. Converted paper product mfg. 24.30% 4. Dairy product mfg. 4.60% 5. Glass and glass product mfg. 23.10% 5. Converted Paper Product 4.20% 6. Fruit and vegetable preserving & specialty 22.76% 6. Glass and Glass Product 4.15% 7. Soap, cleaning compound, toiletry mfg. 20.13% 7. Sawmills and Wood Preservation 3.20% 8. Motor vehicle body and trailer mfg. 19.71% 8. Fruit and vegetable preserving & specialty 2.15% 9. Electronic shopping & mail-order houses 19.10% 9. Pulp, paper, paperboard mills 2.10% 10. Cutlery & handtool mfg. 18.39% 10. Other wood product mfg. 2.00% 11. Pulp, paper, paperboard mills 17.86% 11. Veneer, Plywood & Engineered Wood Product 1.05% 12. Household Appliance mfg. 17.45% 12. Other Fabricated Metal Product 0.30% 13. Industrial machinery mfg. 15.37% 13. Commercial and Service Industry machinery 0.30% 14. Commercial & service industry machinery 14.28% 14. Soap, cleaning comp., and toilet prep. 0.15% 15. Spring and wire product mfg. 14.12% 15. Motor Vehicle Body and Trailer 0.10% 16. Agriculture, construction, and mining 13.46% 16. Other general purpose machinery mfg. -0.60% machinery mfg. 17. Coating, engraving, heat treating metals 11.37% 17. Machine Shops -1.05% 18. Metalworking machinery mfg. 10.85% 18. Foundries -1.40% 19. Machine shops & threaded product mfg. 10.79% 19. Metalworking machinery -1.50% 20. Other fabricated metal product mfg. 10.07% 20. Agriculture, Construction, and Mining -2.00% 21. Footwear Mfg. 8.51% 21. Hardware -3.20% 22. HVAC & commercial refrigeration equipment 7.30% 22. Cutlery and Handtool -3.65% 23. Plastics product mfg. 5.57% 23. Industrial machinery -4.45% 24. Boiler, tank, shipping container mfg. 5.03% 24. Forging and Stamping -5.05% 25. Hardware mfg. 4.81% 26. Foundries 3.63% 27. Leather and Hide Tanning & Finishing 3.00% 28. Other transportation equipment mfg. 2.76% 29. Other general purpose machinery mfg. 2.63% 30. Turbine & power transmission equipment mfg. 1.95% 31. Printing & related support activities 1.14% 32. Forging & stamping -1.89% 33. Other furniture related product mfg. -2.89% 34. Household and institutional furniture mfg. -10.02% 35. Office furniture and fixtures mfg. -23.82% 36. Plywood & engineered wood product mfg. -24.15% 37. Other wood product mfg. -27.54% Moody’s Economy.com * Note: The gross state product (output) percentage change of 2008-2011 was calculated using only years 2008 and 2011. The output compound average growth rate between 1998 and 2003 is estimated from the previous 2004 report. The compound annual growth rate was calculated by taking the n-th root of the total percentage growth rate, where n is the number of years in the period being considered. This can be written as follows:

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Table 1-8 Ranking of Driver Industries, Gross Product ($ millions) Gross Gross Gross Product, Product, Product, 2003 Driver Industry (2013 report) 2011 Driver Industry (2004 report) 2003 ($ in 2011) 1. Electrical equipment mfg. $2,706 1. Pulp, paper, paperboard mills $3,276 $4,005 2. Converted paper product mfg. $2,619 2. Electrical equipment mfg. $2,911 $3,559 3. Pulp, paper, paperboard mills $2,608 3. Converted paper product $2,022 $2,472 4. Plastics product mfg. $2,598 4. Dairy product mfg. $1,469 $1,796 5. Printing & related support activities $2,297 5. Other general purpose machinery mfg. $1,173 $1,434 6. Dairy product mfg. $2,063 6. Foundries $1,099 $1,344 7. Other fabricated metal product mfg. $2,022 7. Machine shops $1,090 $1,333 8. Other general purpose machinery mfg. $1,509 8. Fruit and vegetable preserving $1,026 $1,254 9. Agriculture, construction, mining $1,494 9. Other fabricated metal product $1,025 $1,253 machinery mfg. 10. Machine shops & threaded product mfg. $1,489 10. Metalworking machinery $951 $1,163 11. Electronic shopping & mail-order houses $1,439 11. Agriculture, construction, and mining $929 $1,136 12. Foundries $1,390 12. Other electrical equipment & component $924 $1,130 13. Industrial machinery mfg. $1,113 13. Other wood product mfg. $882 $1,078 14. Turbine & power transmission equipment mfg. $1,106 14. Other transportation equipment $859 $1,050 15. Fruit and vegetable preserving & specialty $999 15. Industrial machinery $752 $919 16. Metalworking machinery mfg. $794 16. Soap, cleaning comp., and toilet prep. $625 $764 17. Soap, cleaning compound, toiletry mfg. $746 17. Forging and stamping $417 $510 18. HVAC & commercial refrigeration equipment $710 18. Veneer, plywood, engineered wood $374 $457 19. Household and institutional furniture mfg. $690 19. Motor vehicle body and trailer $322 $394 20. Other wood product mfg. $630 20. Cutlery and handtool $283 $346 21. Forging & stamping $578 21. Commercial & service industy machinery $278 $340 22. Other transportation equipment mfg. $569 22. Glass and glass product $235 $287 23. Boiler, tank, shipping container mfg. $565 23. Sawmills and wood preservation $212 $259 24. Household appliance mfg. $525 24. Hardware $177 $216 25. Coating, engraving, heat treating metals $511 26. Motor vehicle body and trailer mfg. $506 27. Commercial & service industry machinery $505 28. Glass and glass product mfg. $473 29. Other nonmetallic mineral products $332 30. Cutlery & handtool mfg. $270 31. Office furniture and fixtures mfg. $262 32. Spring and wire product mfg. $147 33. Hardware mfg. $146 34. Plywood & engineered wood product mfg. $141 35. Other furniture related product mfg. $119 36. Footwear mfg. $43 37. Leather and hide tanning & finishing $29 Moody’s Economy.com * Note: The Gross State Product 2003 data are inflated to 2011 dollars using the U.S. Consumer Price Index for all urban consumers.


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