Core industries are those that make significant contributions to the economy, such as the auto industry in the Midwest. Core industries may be defined as having:

• a large share of manufacturing value added ("value added" refers to the value of shipments/manufactured products plus receipts for services minus the direct costs of materials/supplies and indirect costs)
• the potential to increase exports or displace imports of manufactured products
• strong linkages with intermediate goods producers, for example, larger anchor firms that use manufactured outputs from smaller suppliers

Although core industries are often dominated by large corporations, large corporations may not always be a region's core industries. Because many manufacturing assistance programs serve small and medium-sized firms, core industry analysis aims to identify smaller suppliers to these large corporations. These links among companies are not always intuitive; core analysis consequently requires significant data manipulation and analysis.

Tools to measure import substitution or linkages include input-output models such as the Bureau of Economic Analysis Regional Input-Output Modeling System (RIMS) II model, which estimates demand for various products by industry.

Use

Core industry analysis can be used in planning as the basis for targeting resource allocation strategies. It provides management information about the relationship between smaller supplier firms and larger core industries. It can also generate other needs assessment research: Once the core and supplier industries are identified, their needs can be further defined by customizing other assessment tools and methods to answer industry-specific questions.

Very few manufacturing assistance programs employ core industry analysis, in part, because it requires an economic analyst with a high level of sophistication. An interested program would probably contract with an outside source such as a faculty economist or consulting firm to conduct the core industry analysis.

Case Example

Michigan's Midwest Manufacturing Technology Center (MMTC) uses the following strategy in its core agglomeration analysis, which uses a funneling approach to successively select or eliminate industry segments from the manufacturing population. The strategy consists of three tasks, as outlined below and illustrated in Figure 1.

1. To determine important export industries, MMTC uses two measures: (1) total value of exports and (2) total state/region employment. Export figures are provided by Regional Economic Models, Inc. (REMI), a firm that specializes in modeling the input-output flows of state economies. Employment data are provided by State Employment Security files (ES-202).
2. To find the industries that are major suppliers to the exporters, MMTC uses national-level data to identify the major inputs to each of the exports identified in task 1. Next, researchers confirm whether the state/region produces these inputs in sizable quantities, and-if so-they check REMI estimates of the degree to which state/regional suppliers actually sell their output to state/regional customers. Supplier industries that pass through this screening are those that have substantial area employment and are closely linked to area exporters.
3. MMTC researchers use Census Bureau data to identify exporter and supplier industries with substantial core industry components-which MMTC calls "foundation firms." The Census Bureau's County Business Patterns provides industry estimates of the average number of employees per plant as well as the number of plants that have between 20 and 500 employees.

In Michigan, MMTC researchers found that a large number of smaller firms supplied parts and components to the state's two major (large-corporation-dominated) industries-automotive assembly and office furniture. The analysis identified four supplier sectors that account for a very high proportion of automotive and office furniture value added-tooling and machine shops (for example, dies and molds), metal stamping, machine tools and industrial equipment, and plastic processing.

MMTC has since structured much of its manufacturing assistance program around service offerings and delivery mechanisms (for example, supplier networks) aimed at the four sectors identified through this analysis. It followed up the core industry analysis with sector-specific needs assessment analyses such as needs surveys and benchmarking.

Strengths

Core industry analysis provides important information for targeting industries that have a significant effect on other firms in the region, thereby maximizing economic payoffs. It is particularly appropriate for regional economies dominated by a few industry sectors that have a value chain from raw materials to finished goods located in the region.

Weaknesses

1. For economies that are characterized by diverse unrelated branch plants, there may not be a sufficiently large concentration of industry sectors to target.
2. Core industry analysis does not necessarily indicate readiness to adopt new technologies.
3. Like share and location quotient analyses, core industry analysis suffers from dated published information that reflects relationships among industries that may have existed several years ago but no longer hold true today.

For More Information

Sample tools:

1. Luria, Daniel, Roland J. Cole, and Alan Baum. "When Industrial Policy Arrives: The Allocation of Manufacturing Extension." Report prepared for the Industrial Technology Institute, Ann Arbor. October 22, 1992.

   Daniel Luria
   MMTC
   P.O. Box 1485, 2901 Hubbard Road
   Ann Arbor, MI 48106
   313-769-4377

2. Carmen Tigler
   U.S. Bureau of Economic Analysis
   BE-61 READ
   1441 L Street, NW
   Washington, DC 20230
   202-606-9900

About the case example:

3. Fogarty, Michael S., Stephen J. Gage, and Jar-Chi Lee. "Expanding the MTC Program: Economic and Design Considerations." Paper presented at the Technology Transfer Conference, Ann Arbor, MI. June 28-29, 1993.

   Stephen J. Gage, President
   CAMP/GLMTC
   4600 Prospect Avenue
   Cleveland, OH 44103
   216-432-5300

4. Georgia Institute of Technology. "Input to DARPA on Manufacturing Extension: Allocating Resources and Designing the Program." Report prepared for Economic Development Institute, Georgia Institute of Technology, Atlanta. 1992.
5. Robert Lann
   Economic Development Institute
   Georgia Institute of Technology
   Atlanta, GA 30332
   404-894-3475

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