Share and location quotient analyses are basic methods for identifying significant industries in a region. Share analysis determines which industries in the region have the largest share of establishments or employees. Industry shares are determined by dividing the number of establishments (or employees) in each manufacturing-related standard industrial classification (SIC) by the total number of establishments (or employees) in all manufacturing industries. Usually two-digit SICs are used for broad policy planning and three- or four-digit SICs for more specific program administration issues.

Location quotients identify those industries whose regional shares are larger than their shares in the U.S. industrial base. These quotients are calculated by dividing the proportion of a service area's economic activity in an industry by the proportion of the nation's economic activity in that same industry. Industries with location quotients greater than 1.0 are assumed to be critical to the service area's economy because they generate income through exports to other states or countries. Location quotients may be based on shares of establishments or employees to determine level of economic activity.

Sources of information used to calculate industry share and location quotients include the following:

• General-purpose manufacturers directories (for example, Manufacturing News, American Business News, Harris Industrial Directories and the Thomas Register) based on surveys or company subscriptions
• On-line databases, such as Dun &AMP Bradstreet and the Electronic Yellow Pages
  
• Government publications, particularly those of the U.S. Census Bureau, such as County Business Patterns (which has annual statistics on number of establishments, employment and payroll by industry within each county based on firms' tax and regulatory records); The Census of Manufactures (various volumes summarizing a census of manufacturing establishments conducted every five years that provides data on number of establishments, employment, payroll, value of shipments, cost of materials, value-added and capital expenditures by states, metropolitan statistical areas, counties, places, industry groups and individual industries); and Annual Survey of Manufacturers (various volumes summarizing roughly the same kinds of data as in The Census of Manufactures, but drawn from an annual survey of manufacturing establishments based on a probability sample)

Use

Share and location quotient analyses can be used to target services (allocate resources) to certain segments of manufacturers. In general, however, these methods confirm what is already known from experience about which industry sectors contain the largest number of establishments.

Share analysis is the most commonly used regional needs assessment tool. It is most often conducted during program planning. Because of the simplicity and low cost of the analysis, industry shares can be calculated at any stage in service delivery as part of an ongoing market intelligence effort. Additionally, share analysis provides information often needed to obtain federal funding.

Case Example

Indiana Business Modernization and Technology Corporation (BMT), a statewide industrial extension program, used location quotient analysis in its initial planning to obtain insight into the state's manufacturing base. (See Table 2.) BMT calculated location quotients for selected manufacturing sectors in the state for 1980 and 1986, and compared the results with those for the United States as a whole. The researchers also examined employment growth from 1980 to 1988.

This analysis revealed that the fastest growing sector with a location quotient greater than one was miscellaneous plastic products. This sector grew by nearly 57 percent over the period. Between 1980 and 1986, it increased its contribution to Indiana's basic economic activity relative to national economic activity, with location quotient increases from 1.60 to 2.17. BMT is now creating a plastics center and plastics injection molding networks. Location quotient analysis provided important data for the decision, but other information (for example, historical program data) was critical to BMT's industry targeting decision.

Strengths

Share and location quotient analyses are comparatively easy, low-cost ways to identify the relative importance of industrial sectors.

Weaknesses

1. Share and location quotient analyses do not indicate other characteristics about manufacturing firms or sectors-such as needs, readiness for assistance, significance in the economy or interrelationships among firms.
2. One of the biggest problems with these forms of analysis is that they tend to rely on out-of-date information. Sources such as the Annual Survey of Manufacturers and County Business Patterns are usually two or three years out of date, and the Census of Manufactures can be as much as five years out of date. Industry classifications are dated as well. Many new companies will show up in miscellaneous categories because they do not easily fit into established ones. Also, industry categories may be too broad to be helpful. For example, share and location quotient analyses might highlight printing and publishing firms, but these firms could be either quick-copy stores or manufacturers of printing equipment. SIC review on a company-by-company basis is the most accurate-although time-consuming-way to address these problems.

----------------------------------------------------------------------|---------------
SIC    Industry sector          1980      1988      Growth    1980-88   1980      1986      
----------------------------------------------------------------------|----------------
308    Miscellaneous Plastic    21,470    33,620    12,150    56.6%     1.60      2.17      
       Products                                                                             
384    Surgical, Medical &      4,550     6,975     2,245     53.3%     1.12      1.34      
       Dental Instruments                                                                   
275    Commercial Printing      9,730     13,460    3,730     38.3%     0.90      1.01      
243    Millwork & Plywood       8,260     10,400    2,140     25.9%     1.86      1.94      
371    Transportation           49,580    59,310    9,730     19.6%     2.48      2.67      
       Equipment                                                                            
382    Laboratory App. &        7,000     7,445     445       6.4%      0.95      0.95      
       Analytical, Optical,                                                                 
       Measuring &                                                                          
       Controlling Instruments                                                              
283    Drugs                    16,930    16,970    40        0.2%      3.58      4.34      
271    Newspapers: Publishing   10,730    10,720    (10)      (0.1%)    1.05      1.04      
       and/or Printing                                                                      
344    Fabricated Metal         14,680    14,150    (530)     (3.6%)    1.21      1.38      
       Products                                                                             
367    Electronic Components    13,810    13,300    (510)     (3.7%)    1.00      0.83      
       & Accessories                                                                        
354    Metalworking Machinery   13,070    11,790    (1,280)   (9.8%)    1.51      1.79      
       & Equipment                                                                          
346    Metal Forging &          15,280    12,960    (2,320)   (15.2%)   2.20      2.42      
       Stampings                                                                            
365    Audio, Video Equipment   24,560    17,600    (6,960)   (28.3%)   8.43      12.47353  
       & Recordings                                                                         
331    Blast Furnaces, Basic    68,123    37,250    (30,873)  (45.3%)   5.37      6.42      
       Steel                                                                                
366    Communications           14,704    5,341     (9,363)   (63.7%)   1.08      0.66      
       Equipment                                                                            

Source: Indiana Corporation for Science and Technology, "State Technology Strategy: Final Report" (Indianapolis, November 1989)

3. As a corollary to (2), above, comparing changes in industry shares over time may be difficult when the methodologies or definitions used to generate the data change.

For More Information

About the case example:

1. Robert B. Bassler
   Indiana BMT Corporation
   One North Capital, Suite 925
   Indianapolis, IN 46204-2242317-635-3058

Data:

2. U.S. Bureau of the Census. County Business Patterns. Washington, DC: U.S. Government Printing Office. 1992. For sale by the Superintendent of Documents, U.S. Government Printing Office (paper); and Bureau of the Census, Data User Services Division (disk).
3. U.S. Bureau of the Census. Census of Manufactures. Washington, DC: U.S. Government Printing Office. 1992. For sale by the Superintendent of Documents, U.S. Government Printing Office (paper); and Bureau of the Census, Data User Services Division (disk).
4. U.S. Bureau of the Census. Annual Survey of Manufacturing. Washington, DC: U.S. Government Printing Office. 1991. For sale by the Superintendent of Documents, U.S. Government Printing Office.

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