Category: Advanced Technology

Manufacturing, Information, and Professional Business Services Drive Colorado Economy

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All industries play different and important roles in our economy. Some pay high wages or create new jobs, while others provide services that generate tax revenue.

Economic developers welcome the creation of any job, but they emphasize the recruitment and retention of companies that have primary jobs. A primary job brings in money from outside the local community and often pays higher than average wages. As a result, these jobs create wealth and other local jobs.

In Colorado most primary jobs are in the Manufacturing, Information, and Professional Business Services sectors. They account for about 29% of total state private sector employment and 35% of the state’s private sector Real GDP. Colorado’s Advance Technology cluster is a subset of these three sectors.

In recent years, the Mining and Logging sector has employed about 1.5% of total private sector workers, yet it has accounted for about 6% of the state’s private sector output. The Real Estate and Finance group of sectors are also small from an employment perspective; however, they make a significant contribution, 23%, to the state’s private sector output.

Tourism and retail are important for different reasons. First, they touch the economies of all 64 counties.
Colorado’s scenic mountains provide the state with a distinctive competency, that cannot be replicated. Sales tax from the retail sector are a funding source for special districts and state and local governments. These sectors are important because they employ about 1 out of every 4 workers. Combined, they are responsible for about 11% of the state’s private sector output.

Finally, industries such as health care, personal services, utilities and the remaining sectors are important
because they add to the quality of life. These and the remaining sectors employ 35-40% of private sector workers, while being responsible for about 25% of private sector output.

The above analysis is based on 2009 data. The Bureau of Economic Analysis is scheduled to release its 2010 data within the month. Watch for more in-depth analysis at www.cber.co.

©Copyright 2011 by CBER.

Colorado Photonics Cluster Outperforms Job Growth for State

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Can you remember the names and order of all the planets?

Ball Aerospace announced that task just got tougher. In a presentation at the May 18th meeting of the Colorado Photonics Industry Association (CPIA), the local aerospace company discussed their role in the search to find habitable planets.

Pictures taken from a satellite built by Ball, as part of the Kepler project, have confirmed 15 new planets and their composition. That is just the beginning. About 1,000 additional potential planets have been discovered and are being evaluated. Expectations are that 80% will be classified as planets.

A second segment of the CPIA program included a presentation on the performance of the Colorado economy and a review of the Governor’s Bottom-Up Economic Development plan. That discussion focused on the importance of Advanced Technology in Colorado and the growth of the photonics cluster.

The AT cluster is a subset of the Information; Manufacturing; and Professional, Scientific and Technical Services sectors. About 20% of the state’s private sector workers are employed by companies in these three sectors, yet they account for about 35% of the state’s private sector Real GDP.

By comparison, tourism accounts for about 5% of Real GDP and retail is 6%. Both sectors are important to the state in different ways.

The tourism sector is an important part of the economy for the state’s 64 counties. Major attractions include Rocky Mountain National Park, Mesa Verde, mountain sports, and shopping at Cherry Creek mall.

Retail is important to local governments. They derive between 50 to 75% of their total revenue from retail sales taxes. As well, the state and special districts rely on retail sales taxes as their primary source of revenue.

The economic review concluded with a look at an analysis of data  that showed the growth of the photonics cluster between 2004 and 2010. Cluster growth for this six year period exceeded total state growth in all but one employment size category.

In short, the cluster benefitted from growth of renewable energy companies, but suffered from the decline of the state’s semiconductor industry. The analysis illustrates the importance of enabling technologies and how they play a key role in the success of companies in a wide array of industries.

©Copyright 2011 by CBER.

Do Colorado Companies Receive Their Fair Share of VC Funding?

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Colorado policy makers and business leaders take great pride in the state’s innovation and cowboy entrepreneurial spirit, but do Colorado’s innovators receive the funding or venture capital necessary to take their companies and ideas to the next level?

Most business leaders and policy makers answer the question with a resounding “No!” It is their belief that the local entrepreneurial community would be stronger if Colorado innovators had greater access to local capital.

On the other hand, the National Federation of Independent Business (NFIB) research resoundingly states that most businesses are adequately funded and that their greatest need is to have more customers. Admittedly, the NFIB customer base includes small businesses other than those who seek VC funding, so their results may not be totally representative of the VC community.

Some venture capitalists claim that Colorado lacks the critical mass of companies in any one cluster to warrant the attention that companies and policy makers feel they deserve. It is their belief that quality innovation will attract sufficient funding, no matter the location.

Price Waterhouse Coopers (PWC) Moneytree conducts research regarding the number of VC deals and investments for the U.S. and the states. Since 1995:
• Colorado companies have received 1.6 to 4.2% of total U.S. investment.
• Colorado companies have received 2.2 to 3.4% of total U.S. deals.
• The average size of an investment per deal is similar for Colorado and the U.S.
• Colorado has approximately 2.0% of total U.S. private sector firms.

Based on the number of companies in Colorado, the state typically receives more than its share of VC funding. The question is, “Do Colorado companies receive their fair share of VC funding?”.

For additional slides about Colorado’s VC funding  go to the PWC website.

©Copyright 2011 by CBER.

Michael Porter Highlights Colorado’s Strengths and Weaknesses in New Study

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Harvard Business Professor Michael Porter is widely recognized for his research in the competitiveness of cities, states, regions, and nations. His studies have emphasized clusters, specialized skills, infrastructure, and commerce as distinguishing factors that delineate the prosperity of these areas.

Most recently Porter measured the performance of clusters within each of the states at the National Governors Association Winter Meeting 2011 (February 26). At that meeting he talked about strategies that would allow the states to become more competitive in the future .

In addition, Porter prepared economic profiles for each of the 50 states. The 50-slide PowerPoint presentations, which were released at the NGA meeting, are formatted in a way that allows for easy comparisons between the states.

For example, it is to match Colorado’s biotech cluster against others in the nation. In 2008, Colorado was ranked 25th in biopharmaceuticals, with 2,032 employees and 11th in medical devices with 13,440 workers.

Each presentation begins with a performance snapshot with a position and trend ranking, by quintile, in five key areas. As well, Porter identified the “strong” clusters for each state.

Colorado’s overall prosperity rating was in the second quintile; however, it was rated in the 4th trend quintile. Essentially the state has strong output per capita; however, it is trending downward. This might suggest Colorado’s competitive position might be in jeopardy.

A second area of possible concern is labor mobilization (labor force/civilian population). On a positive note, Colorado is in the top ten; however, it is in the fourth trend quintile. Again, this is a strength that is trending downward.

There is better news for Productivity (average private wages) and Innovation (Patents per 10,000 workers). Colorado was ranked in the second quintile in both strategic categories. From a trend perspective it was also in the second quintile. These are areas where the state has maintained its strengths and remained competitive.

Finally, the state was ranked in the second quintile for cluster strength and in the top trend quintile. This points to increased strength, as defined by greater market share, in its “strong clusters”.

Porter identified Colorado’s top five clusters as:
• Business Services
• Distribution Services
• Entertainment
• Oil and Gas Products and Services
• Aerospace Vehicles and Defense.

The presentation highlights subtle strengths and weaknesses not mentioned in this brief overview. As such, it is recommended reading for any one interested in understanding the opportunities and challenges Colorado might face moving forward.

 

©Copyright 2011 by CBER.

Colorado’s Bottom-Up Economic Development Strategy

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The first week in February Governor Hickenlooper (call me “John”) hosted the ninth stop in his Bottom-Up Economic Development tour across Colorado. For about two hours, the region’s top economic developers discussed job creation, economic development, and steps for increasing government efficiencies.

The most frequently discussed topic was transportation and the top priority was to complete FasTracks in a timely and cost effective manner. In addition leaders made a case for completion of the final leg of the beltway (between Broomfield and Golden) around the city, expansion of commercial air, maintenance of our bridges and highways, and reduction of congestion along I-70 into ski country.

Panelists felt that innovation and the attraction/retention of primary jobs was critical if we are to maintain our regional and national competitiveness. They also cited the need to have a well-trained workforce and an efficient, accountable, and adequately funded education system. As well, it is imperative that Coloradans work together to maintain the quality of life that makes the state so attractive. This will require leaders to address issues related to our water supplies, develop parks and recreation areas, invest in infrastructure, and utilize the state’s unique assets to attract commerce.

The metro area’s economic diversity was evident as leaders spoke in support of industries and clusters endemic to their region. For example, they addressed the need for the state to be more “military-friendly”, consider construction of nuclear power plants, understand the importance of refineries, realize the value of our construction and extractive industries, and support gaming and tourism.

As the Bottom-Up discussions continue, it would be beneficial to reflect on past economic-development successes. For example, consider the public-private partnership, the former Colorado Advanced Technology Institute (CATI). During the late 1980s, CATI was established to guide the development of science and technology and the growth of select high-tech clusters. Specifically, the group’s work laid the groundwork for the state’s photonics, materials, hardware, software, telecommunications, and bioscience clusters. While it may not be appropriate to resurrect CATI as it existed, there is merit in having the an organization that would fill many of CATI’s roles in fostering long-term growth.

Four years ago, a state job cabinet was formed, town meetings were held across the state to gather input, and plans were put in place. While that effort was well intended, it did not have the desired impact. Hopefully this Bottom-Up Planning approach with be more successful.

A well-thought out economic development plan couldn’t come at a better time. Colorado employment remains below the 2001 peak and it will be years before state payrolls return to the pre-Great Recession high mark.

©Copyright 2011 by CBER.

REO – Bright Light in the Down Economy

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Although Colorado’s high tech cluster has been hit hard during the “lost decade” there are some bright spots. On November 17 the Colorado Photonics Industry Association (CPIA)  recognized Research Electro-Optics, Inc. (REO)  as one of those bright spots when it named it the 2010 Colorado Photonics Company of the Year.

REO is a precision optics and thin film coating company founded in Colorado in 1980. It services small to medium to high volume OEMs including manufacturers of defense and aerospace systems, laser systems, semiconductor tools, medical systems, life sciences instrumentation and telecommunications equipment.

In recent years REO has expanded its staff and increased its new manufacturing and technology assets. REO officials indicated that they have been profitable for all of the past six years, with double-digit growth in several of those years. The company is privately held, with 2010 annual sales projected to be in the neighborhood of $40 million.

The Colorado photonics cluster received a boost during the mid-1980s, around the time REO was started. At that time, the Colorado Advanced Technology Institute (CATI) provided a small matching grant for at National Science Foundation Center of Excellence at CU and CSU. That grant ultimately led research that was commercialized to form 20 companies.

As an enabling technology, photonics touches many industries, such as aerospace, renewable energy, homeland security, biomedical devices, telecommunications, and defense. This allows companies, such as REO to diversify their product line and clients, thus insulating them from turbulent economic times.

Congratulations to REO!

©Copyright 2011 by CBER.

KC Fed Cites Growth in 10th District High-Tech

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The Denver Business Journal recently reported that the Kansas City Federal Reserve Beige Book stated that during late July and August, consumer spending in the 10th District “increased slightly from the previous period, and high-tech and transportation firms reported moderate growth.”

Colorado’s Office of Labor Market Information  (LMI) group has produced a definition of Advanced Technology (AT) and a data series based on this definition. That definition suggests that AT includes much of the Manufacturing; Information; and Professional, Scientific, and Technical Services sectors (PST).

Based on their definition of AT, the cluster does not appear to be performing as well in Colorado as their counterparts in other parts of the 10th district.

©Copyright 2011 by CBER.