Targeting Industry Groups

The possibility of designing a reliable method for identifying prospects by matching an area's assets with an industry group's needs has tantalized marketers from the earliest days of organized area promotion. On the surface, the concept appears to be as good as apple pie, motherhood and Old Glory.

Even those totally lacking in area marketing experience can easily see that some industry groups obviously fit certain locales. Pulp and paper mills go to river sites in pulpwood-producing areas. Potential sites are so well-defined that two competitive secret location studies may recommend the same piece of ground.

Similarly, certain petrochemical plants can be located only where there are other plants producing specific interrelated products. Matching an industry group's need with the area's asset may not be a big problem.

These spectacularly obvious match-ups are the exception, however. For most industry groups, many locations are possible. Hundreds of areas have potential for a large variety of industry groups. Systematic approaches to area/industry matching can thus become very complicated and frustrating.

Two of the approaches which have been used most often by area researchers and marketers are input/output analysis and profile-matching. In the former, the study area boundaries are defined and data are collected to describe all economic activity in terms of what comes in and what goes out. The objective is to identify supply-and-demand gaps which may be filled by new local activity. The technique encounters myriad practical problems, such as lack of sufficient valid data and the unmeasured influence of other spheres of economic activity on the local sphere.

Profile-matching involves the establishment of a set of location criteria for an industry group -- a perilous task -- and matching this against an inventory of area assets. The prime reason for disillusionment with this method is the fact that many of the desirability criteria are based on erroneous thinking. For example, many areas announce that they are limiting their search to "clean" industries.

This may have made sense in 1960, but it accomplishes little today for the simple reason that "unclean" plants cannot be built legally in any state. Federal EPA regulations are all-pervasive. For new plants of the 1990's, therefore, the dirty smokestack is a myth. The most wearisome phrase of all -- one that is heard in hundreds of communities -- is "we want industries like electronics." Those who utter this phrase have a mental image of a small plant producing very expensive little black boxes so quietly the neighbors don't know the plant is there. They have never seen such a company after 10 years of frantic growth, sprawling over the community in multi-plant facilities, with traffic jams on all sides and toxic wastes streaming into the collector system.

Certainly, it makes sense for an area group to make a special effort to attract firms which appear to fit the resources of the area. A part of the marketing budget may be devoted to a particular industry group, such as food processing or metal fabrication.

However, the area agency which invests most of its budget in one or two groups is taking a big risk. A safer approach is to maintain a steady program in the main stream -- targets identified by such institutions as Site Selection magazine..

Some rather elaborate matching programs have been undertaken using automated data systems. Some years ago the State of Arizona launched a plan called ATOM (Arizona Trade-Off Model) which was built on an extensive data bank of community information. Maintaining such a data bank is very expensive.

The EDA invested in an even more elaborate program covering all of the so-called "depressed areas" of the nation. And, the Department of Agriculture has promoted a computer-matching service in the Four Corners area of the Southwest.

It is interesting to observe that among professional facility planners working for large firms, there was never much excitement about these plans. Most have faded away.

If industry executives are unimpressed by the generalized matching games, they are even less attracted to the "desirability rating" which has been attempted in many states and areas. This is a strategy for seeking to attract not those plants which may fit economically, but only those considered desirable. This road is full of pitfalls.

Type of facility

1. Office facilities: HQ, regional or local.
2. Manufacturing plants: multi-purpose; process; product line (international, national, or special)
3. Distribution facilities: global, regional, or local.
4. Other: R & D, customer service, mixed uses.

Even within these categories, there can be wide variations in location criteria. The astute marketer will seek to define a composite FACILITY PROFILE.

Another approach is a geographic/age sort which identifies industries, such as leather or textiles which were historically centered in certain areas. There is an assumption that many such firms occupy obsolete facilities on small urban sites offering no room for expansion.

In the past, most industry group sorts were made by using the Standard Industrial Classification (SIC) coding system promulgated by the Bureau of the Budget. The most common technique was to look for four-digit groups having a growth rate substantially higher than average.

Such statistical methods for identifying growth categories are useful, but they are by no means the ultimate answer. Some of the limitations are obvious. Industry groups tend to grow in surges or cycles, not along smooth linear paths. A group which has a low growth rate for several years may be on the verge of a period of rapid growth.

It must be noted that the government measures forests, not trees. By contrast, the new plant reports compiled each year by Site Selection magazine provide the only real count of individual projects. Frequently, the government reports show one kind of industry group growing fastest, while at the same time the Site Selection tally shows a different group is actually building the most new plants.

Clearly, matching procedures, no matter how elaborate, have serious limitations. What appears to be a good economic fit to an area marketer may not come close to fitting the strategy of the target industry. The marketer may be unaware of changes in industry strategy such as:

1. Launching of new product lines. Each new product line raises the possibility of a new mix of location factors.
2. Shifting transport modes. Significant changes in transportation policy may change the geography of the industry.
3. Introduction of new production method. Such changes, prompted by energy costs or other factors, may change location factors for new facilities.
4. Shifting raw material base. The resource picture changes constantly, with attendant site ramifications.

To summarize, the marketer should think of industry group selection and matching as a theoretical process which establishes a useful background for the more important screening of specific companies and executives.