June 2007 Ministry of Agriculture, Food and Rural Affairs

Using Community Economic Analysis for Strategic

Decision MakingStephen Morris, M.A.E.S., Ec.D.Community Economic Analysis SpecialistEmail: stephen.morris@ontario.caWebsite: www.reddi.gov.on.ca

Ontario Ministry of Agriculture, Food and Rural Affairs

Session Objectives

At the end of this session, you will understand:

• How Community Economic Analysis (CEA) can support a BR+E initiative

• Be familiar with two types of analysis (there are many others!)

• Sources of Information

Ontario Ministry of Agriculture, Food and Rural Affairs

What is Community Economic Analysis (CEA)?

• Community Economic Analysis is using data to:– Identify & understand local conditions and trends– Assess the size & performance of local industries

• Sets the context for local economic development strategies

How Can CEA Support BR+E?

Project Implementation Process:

Stage 1: Project Planning & Business Survey

Stage 1: Project Planning & Business Survey

Stage 2: Immediate Follow-up

Stage 2: Immediate Follow-up

Stage 3: Data Analysis

& Recommendations

Stage 3: Data Analysis

& Recommendations

Stage 4: Public Meetings & Consultations

Stage 4: Public Meetings & Consultations

Can assist with project planning

Can assist in data analysis process

Ontario Ministry of Agriculture, Food and Rural Affairs

The Ultimate BR+E Program

• The ultimate BR+E Program would visit every business in the community.

• Due to time and budget limitations it is not possible to survey all businesses.

• A “sample” of businesses is used.

How did you select those businesses? Why?

Ontario Ministry of Agriculture, Food and Rural Affairs

Rules of Community Economic Analysis

1. Do not rely on any single piece of information or number generated by the analysis

2. Compare your community’s results with similar communities (pop’n, geog., industry, etc.)

3. Measure local economic trends over time to determine the direction of change

4. Use a variety of information sources

Putting Community Economic Analysis in Context

Competitive Advantage AnalysisCompetitive Advantage Analysis– Provides a broad picture of the local Economy– Reveals how business sectors are performing (I.e.

growing/declining) in the community

Community Business ProfileCommunity Business Profile– Provides a snapshot of the businesses in the community– Confirms the number and size of local businesses

BR&E SurveyBR&E Survey– Provides detailed information about the industries and

business operating in your community

General

Specific

Ontario Ministry of Agriculture, Food and Rural Affairs

Competitive Advantage Analysis

• Provides a broad picture of the local economy, and reveals how business sectors are performing (I.e. growing/declining) in the community

• Identifies potential of business sectors for growth or retention targets

• Combines: Sector specialization (Location Quotient)

+

Trend analysis (Leading-Lagging)

=

Competitive Advantage Analysis

Ontario Ministry of Agriculture, Food and Rural Affairs

Location QuotientIs a simple employment ratio that measures specialization (strength) of of a sector

• It can indicate if sector is producing more than meets local needs (e.g. Ratios over 1.25)

• Or it can indicate for retail and services sectors if there is a potential gap (e.g. ratio less than 0.75)

Ontario Ministry of Agriculture, Food and Rural Affairs

Location Quotient Example

Jacobville, 2001 (pop. 6,000)

ManufacturingTotal Local jobs: 3,000

# local jobs in Manu: 600

% local jobs in Manu: 20%

% provincial jobs, Manu: 20%

Location Quotient =

20% ÷ 20% = 1 (medium)

Forestry & LoggingTotal Local jobs: 3,000

# local jobs in Forestry: 150

% local jobs in Forestry: 5%

% Ontario jobs, Forestry: 0.1%

Location Quotient =

5% ÷ 0.1% = 50 (very high)

Ontario Ministry of Agriculture, Food and Rural Affairs

Provides an assessment on the relative sector growth

1) How the performance of the sector compared to the overall economy.

2) How the local sector performance compared to the sector.

Leading - Lagging Analysis

Ontario Ministry of Agriculture, Food and Rural Affairs

Leading - Lagging Analysis

Provincial Sector: – “Leading” – if sector’s

growth exceeded provincial overall growth rate

– “Lagging” – if sector’s growth was lower than provincial overall growth rate

Local Sector: – “Leading” – if sector’s

growth was greater than provincial sector’s growth

– “Lagging” – if sector’s growth was lower than provincial sector’s growth

Ontario Ministry of Agriculture, Food and Rural Affairs

Competitive Advantage Analysis

Ontario Ministry of Agriculture, Food and Rural Affairs

Competitive Advantage Analysis

• Current Strength

• Emerging Strength

• Prospects limited by external trends

• Prospects limited by weak base & external trends

• High priority retention target

• Prospects limited by weak base & declining competitiveness

• Prospects limited by external trends & declining competitiveness

• Prospects limited overall

Industry Targeting ClassificationIndustries are classified into one of eight categories:

Competitive Advantage Analysis Example: Manufacturing in Jacobville

1) Does the location quotient indicate a specialization for the industry?YES

Current SpecializationNO

Not a Current Specialization

YES - Leading

HighPriority

RetentionTarget

CurrentStrength

Prospects limited due to external

trends

Prospects limited by external trends

& declining competitiveness

EmergingStrength

Prospects limited by

weak base & declining

competitiveness

Prospects LimitedOverall

Prospects limited by

weak base & external

trends

NO - Lagging NO - LaggingYES - Leading

YES -Leading

YES –Leading

YES – Leading

YES – Leading

NO – Lagging

NO – Lagging

NO – Lagging

NO – Lagging

2) Is the industry growing at a faster rate than the overall growth rate?

3) Is local employment in the industry growing at a faster rate than the overall growth rate for the industry?

Location Quotient - 1.92 (high)Location Quotient - 1.92 (high)YES

Current Specialization

2) Is the industry growing at a faster rate than the overall growth rate?

3) Is local employment in the industry growing at a faster rate than the overall growth rate for the industry?

3) Is local employment in the industry growing at a faster rate than the overall growth rate for the industry?

1) Does the location quotient indicate a specialization for the industry?YES

Current SpecializationNO

Not a Current Specialization

YES - Leading

HighPriority

RetentionTarget

CurrentStrength

Prospects limited due to external

trends

Prospects limited by external trends

& declining competitiveness

EmergingStrength

Prospects limited by

weak base & declining

competitiveness

Prospects LimitedOverall

Prospects limited by

weak base & external

trends

NO - Lagging NO - LaggingYES - Leading

YES -Leading

YES –Leading

YES – Leading

YES – Leading

NO – Lagging

NO – Lagging

NO – Lagging

NO – Lagging

Location Quotient - 1.92 (high)Location Quotient - 1.92 (high)YES

Current Specialization

Manufacturing sector grew at 12.7% compared to

an Overall Growth rate of 12.5%

Manufacturing sector grew at 12.7% compared to

an Overall Growth rate of 12.5% YES - Leading

2) Is the industry growing at a faster rate than the overall growth rate?

Competitive Advantage Analysis Example: Manufacturing in Jacobville

3) Is local employment in the industry growing at a faster rate than the overall growth rate for the industry?

1) Does the location quotient indicate a specialization for the industry?YES

Current SpecializationNO

Not a Current Specialization

YES - Leading

HighPriority

RetentionTarget

CurrentStrength

Prospects limited due to external

trends

Prospects limited by external trends

& declining competitiveness

EmergingStrength

Prospects limited by

weak base & declining

competitiveness

Prospects LimitedOverall

Prospects limited by

weak base & external

trends

NO - Lagging NO - LaggingYES - Leading

YES -Leading

YES –Leading

YES – Leading

YES – Leading

NO – Lagging

NO – Lagging

NO – Lagging

NO – Lagging

Location Quotient - 1.92 (high)Location Quotient - 1.92 (high)YES

Current Specialization

Manufacturing sector grew at 12.7% compared to

an Overall Growth rate of 12.5% .

Manufacturing sector grew at 12.7% compared to

an Overall Growth rate of 12.5% .YES - Leading

2) Is the industry growing at a faster rate than the overall growth rate?

Local employment in Manufacturing declined by 5.6% compared

to the sector which grew by 12.7%.

Local employment in Manufacturing declined by 5.6% compared

to the sector which grew by 12.7%.

NO – Lagging

3) Is local employment in the industry growing at a faster rate than the overall growth rate for the industry?

HighPriority

RetentionTarget

Competitive Advantage Analysis Example: Manufacturing in Jacobville

Classification Decision Tree(McLean & Voytek)

1) Does the location quotient indicate a specialization for the industry?YES

Current SpecializationNO

Not a Current Specialization

YES - Leading

HighPriority

RetentionTarget

CurrentStrength

Prospects limited due to external

trends

Prospects limited by external trends

& declining competitiveness

EmergingStrength

Prospects limited by

weak base & declining

competitiveness

Prospects LimitedOverall

Prospects limited by

weak base & external

trends

NO - Lagging NO - LaggingYES - Leading

YES -Leading

YES –Leading

YES – Leading

YES – Leading

NO – Lagging

NO – Lagging

NO – Lagging

NO – Lagging

2) Is the industry growing at a faster rate than the overall growth rate?

3) Is local employment in the industry growing at a faster rate than the overall growth rate for the industry?

Ontario Ministry of Agriculture, Food and Rural Affairs

Limitations of Competitive Advantage Analysis

• Time period 1996 - 2001• Based on Census responses • Employment by place of residence (doesn’t accurately reflect local

business mix)

• Results based on employment, some sectors becoming more capital / technology intensive may show decline in employment despite higher productivity

Ontario Ministry of Agriculture, Food and Rural Affairs

Community Business ProfileUsing Canadian Business Patterns data• Provides a snapshot of the businesses in

the community

• Confirms the number and size of local businesses by sector

• Data collected June & December each year; very current

Ontario Ministry of Agriculture, Food and Rural Affairs

Ontario Ministry of Agriculture, Food and Rural Affairs

www.reddi.gov.on.ca• Choose 3 levels of geography

• 5 Types of Analysis (Competitive Advantage, Community Business Profile, Labour Flow, Retail Sector, Socio-Economic)

• Select all sectors or one sector for an area…and level of industry (1, 2, 3 digit)

• compare selected community with others in province, region, or of similar population

• Produce charts and colour maps

Ontario Ministry of Agriculture, Food and Rural Affairs

http://censtats.census.gov/cbpnaic/cbpnaic.shtml

U.S.- County Business Patterns

Ontario Ministry of Agriculture, Food and Rural Affairs

CEA is more Art than Science

Data is retrospective, “like driving while looking in the rear view mirror”

Ontario Ministry of Agriculture, Food and Rural Affairs

Summary

CEA informs BR&E by:

• Identifying the structure and size of local sectors

• Identifying local and regional trends (growth/decline)

• Highlights sectors that are vulnerable

• Highlights local sectors that have growth potential

June 2007 Ministry of Agriculture, Food and Rural Affairs

Using Community Economic Analysis for Strategic

Decision MakingStephen Morris, M.A.E.S., Ec.D.Community Economic Analysis SpecialistEmail: stephen.morris@ontario.caWebsite: www.reddi.gov.on.ca