Competitive Advantage – Oklahoma

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Competitive advantage is a theory that has been used to help direct economic development since the 1990s. This page concerns the application of the theory to the economy of the State of Oklahoma with data separated for the Oklahoma City and Tulsa Statistical Metropolitan Areas.

Historical background[edit]

The term "competitive advantage" is a concept developed in the mid 1980 by Michael Porter. Porter's theory is an outgrowth of the Law of Comparative Advantage, formulated by David Ricardo at the end of the 18th Century.

Comparative advantage[edit]

In the history of economics, the "Law of comparative advantage" was formulated by David Ricardo (1772–1823), member of Parliament, financier and speculator, who was also one of the most influential of the classical economists. A discussion of Comparative Advantage is a discussion of foreign trade and an argument for Laissez-faire political economics. Ricardo's principal concern was how to distribute production in a way that improves real income[1] Ricardo's principles are based on relative advantage (and not the Absolute advantage of Adam Smith)[2] and is a precursor to the concept of Economies of scale in Economic development. Ricardo provides a hypothetical example of producing cloth and wine in England and Portugal, where Portugal is the low cost producer of both. However, because England is more efficient at producing cloth than Portugal, and Portugal more efficient at producing wine, both countries benefit if England specialized in producing cloth and Portugal specializes in producing wine.[3]

Competitive advantage[edit]

"Competitive advantage" is a theory proposed by Michael Porter, Harvard University Professor in the Harvard Business School, in 1985. It was noted that the theory of Comparative Advantage could lead to specialize in exporting primary goods and raw materials that trap countries in low-wage. Rather, Porter adopts a resource-based view by suggesting that an organization will have Competitive Advantage when it has resources and capabilities that are superior to its competitors, enabling it do deliver superior value. Porter notes that:

"A firm is profitable if the value it commands exceeds the costs involved in creating the product. Creating value for buyers that exceeds the cost of doing so is the goal of any generic strategy. Value, instead of cost, must be used in analyzing competitive position ..."[4]

Porter proposes that there are three basic strategies that one can employ to achieve Competitive Advantage, 1) Cost Leadership (low cost) and 2) product differentiation, and 3) Focus (a niche that can be exploited)

Competitive advantage and economic development[edit]

Three significant measures of competitive advantage are Average Wage, employment growth and Patents.[5][6]

Patents[edit]

Patents do not measure all innovation activity (ex. software is not patented), however, it is one of the most comprehensive measures of innovation available.[7] While patents do not correlate with employment growth, there appears to be a strong correlation between patenting intensity and average wages.[8] For 2009, the national average of patents per 10,000 employees is 6.95. The average for the State of Oklahoma is 3.1, for Oklahoma City Metro 2.1, and for Tulsa Metro 3.1. The top two patent owners for the years 2000 through 2009 were both located outside the Oklahoma City and Tulsa Metros, Halliburton in (Duncan, Oklahoma) with 530 and ConocoPhillips in (Ponca City, Oklahoma) with 147.

Regional economies[edit]

There are three broad types of industries that make up a Regional Economy:[9]

  • Local Industries – employment in endeavors that are basic and relatively evenly distributed across all regions. Examples include health care, education, city and county government, retail, utilities, financial services, some types of construction, etc. Local Industries only complete is a limited way with other regions. Nationally, Local Industries represent about 67.4% of employment.
  • Resource Dependent Industries – employment in industries located primarily where needed natural resources are found. Examples include food manufacturing, mining, etc. These industries compete with other domestic and international location. Nationally, Resource Dependent Industries represents about 0.8% of employment, with average wages 18% above those of Local Industries.
  • Traded Industries – endeavors that sell products and services across regions, often internationally. Traded Industries locate in a particular area based on broad competitive considerations and synergies based on other related businesses also located in the area. Several headquarter operations of a national companies would typically be classified as a Trade Industry, rather than Local Industry. Nationally, Traded Industries represents about 31.8% of employment, with averages wages 66% above those of Local Industries.

Cluster[edit]

Porter defined a cluster as a:

geographically proximate group of interconnected companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various types. Examples of clusters are financial services in New York (Wall Street), medical devices in Boston, and IT in Austin, Texas and Silicon Valley. Clusters are important because of the externalities that connect the constituent industries, such as common technologies, skills, knowledge, and purchasing inputs.[10]

On a national basis, different clusters employ different numbers of people (ex. Business Services 4,667,320 employees vs. Foot-Wear 23,962 employees) with different income levels. The chart below shows 2009 employment patterns and rankings in various national clusters for the State of Oklahoma and the Metropolitan areas in Oklahoma City and Tulsa. The assumption is that if a cluster is ranked on a national level, it would be treated as a "Traded Industry" rather than a "Local Industry" because it would be more likely to export goods and services out of the local economy.

Oklahoma Industry Employment Rank.[11] Oklahoma Clustering: Based on Industry Clustering in the US Economy [12]
State of Oklahoma . Oklahoma City . Tulsa
Cluster Okla. Rank Employees  % of Nation OKC Rank Employees  % of National Tulsa Rank Employees % of National
Primary Linked Clusters
Oil & Gas Production Services [13] 3 50,529 9.11% 3 13,938 2.51% 6 9,575 1.73%
Aerospace Vehicles and Defense [14] 17 4,437 1.26% 18 3,917 1.12%
Analytical Instruments [15] 26 6,241 31 4,122
Transportation and Logistics [16] 29 19,227 38 10,416
Entertainment [17] 13 19,803 1.84% * 2,748 38 5,488
Hospitality & Tourism [18] 30 20,819 35 11,893
Heavy Manufacturing Linked Clusters
Motor Driven Products[19] 9 11,802 4.56% 11 3,820 1.47% 14 3,591 1.39%
Production Technology [20] 16 10,666 2.08% 10 8,3634 1.63%
Heavy Machinery [21] 17 6,614 2.05% 22 2,172
Metal Manufacturing [22] 22 13,901 28 7,418
Automotive [23] 24 7,985 * 3,717
Agriculture Linked Clusters
Processed Foods [24] 25 18,797
Agricultural Products [25] 39 1,348
Other Non-Linked Clusters
Heavy Construction Services [26] 18 28,212 2.08% 31 8,367 20 11,294 0.83%
Business Services [27] 25 54,195
*Significant at the local level but not ranking in the national top 40

Clusters not ranked in Oklahoma[edit]

Significant Local Industries not yet qualifying for Traded Industries include Aerospace Engines, Biopharmaceuticals, Education and Knowledge creation, and Information Technology.

Oklahoma City, Oklahoma and the State of Oklahoma are spending significant effort to create a Traded Industries Biopharmaceutical Cluster at the University of Oklahoma Health Sciences Center, coordinated by the non-profit Oklahoma BioScience Association. The region's employment in this area grew 17.8 percent between 2001 and 2008, outpacing the 15.9 percent growth nationally.[28]

Significant Oklahoma clusters[edit]

Oil and gas cluster[edit]

The oil and natural gas industry has historically been a dominant factor in the state's economy, second only to agriculture. The Tulsa Metropolitan Area has been home to more traditional oil companies such as ONEOK, Williams Companies, Helmerich & Payne, Magellan Midstream Partners with significant presence from ConocoPhillips. Oklahoma City is home energy companies such as Devon Energy, Chesapeake Energy, OGE Energy, SandRidge Energy, Continental Resources. Duncan, Oklahoma is the birthplace of Halliburton Corporation. Significant research and education is done in the field by the Oklahoma University's Mewbourne College of Earth and Energy.

HVAC manufacturing sub-cluster[edit]

The state has a large concentration of companies that manufacture products that heat and cool buildings (HVAC), a sub-cluster of Motor Driven Products. Among the companies in Tulsa are AAON (the former John Zink Company). In Oklahoma City are International Environmental, ClimateMaster, Climate Craft, and ClimaCool (subsidiaries of LSB Industries). Also, Governair and Temtrol (subsidiaries of CES Group) and York Unitary division of Johnson Controls have a major presence in the Oklahoma City metro.

Oklahoma State University has a major research effort in developing the Geothermal heat pump, and is headquarters for the International Ground Source Heat Pump Association,[29] Oklahoma State University–Okmulgee is known in the industry for its Air Conditioning Technology programs.

Aeronautical economic focus[edit]

Excluding governmental and education sectors, the largest single employers in the state tend to be government employees in the aeronautical sector. Tinker Air Force Base and the FAA's Mike Monroney Aeronautical Center in Oklahoma City, and American Airlines[30] Engineering center, Maintenance Facility and Data Center in Tulsa provide the state with a comparative advantage in the Aeronautical sector of the economy. AAR Corporation has operations in both Oklahoma City and Tulsa, and The Boeing Company and Pratt & Whitney are building a regional presence next to Tinker AFB.

The state has a significant military (Air Force) presence with bases in Enid, Oklahoma (Vance Air Force Base) and Altus, Oklahoma (Altus Air Force Base), in addition to Tinker AFB in Oklahoma City. Additionally, Tinker houses the Navy's Strategic Communications Wing One.

However, because data above is based on SIC codes, and because there is significant work at Tinker AFB and the FAA's Mike Monroney Aeronautical Center that could be classified as being in the clusters of Aerospace Vehicles & Defense, Aerospace Engines, Information Technology, and Communications Equipment Tinker AFB that is classified using military and not manufacturing SIC codes, the impact of these clusters is understated in the Oklahoma Economy.

Tinker AFB[edit]

Main article: Tinker AFB

Tinker AFB is the state of Oklahoma's second largest employer (only the State of Oklahoma is larger) with around 27,000 employees plus additional sub-contractors.[31] It is estimated that about 1/3 of employees and 20% of the base's 15,000,000 square feet (1,400,000 m2) of building space is devoted to maintenance and repair operations on various air force and navy aircraft and missile systems. In addition to Building 3001 at 1,300,000 square feet (120,000 m2), there are two Public/Private Partnerships at Tinker, devoted to aircraft and engine maintenance and repair.

  • The Maintenance Repair & Overhaul Technology Center (MROTC) [32] is a 370-acre (1.5 km2) world-class Maintenance, Repair and Overhaul Technology Center built on the south east site of Tinker AFB, sharing runways and security with the base. The MROTC is available for both military and private aircraft maintenance.
  • The Tinker Aerospace Complex[33] (sometimes called TAC or Building 9001) housed in the former General Motors Oklahoma City Assembly Plant located west of the runway on the south side of the base. The facility covers 2,500,000 square feet (230,000 m2) and 407-acre (1.65 km2). A major focus of TAC is to rebuild military aircraft engines, both Air Force and Navy. About 20% of the building is available for lease to defense contractors working on base.

In addition, Tinker has significant Information Technology and Communications Equipment cluster capabilities.

  • The 38th Cyberspace Engineering Group (AFSPC) has worldwide responsibility for engineering, installation, and interoperability of all communications and electronic facilities for the Air Force.
  • The 3rd Combat Communications Group (AFSPC) provides deployable communications, computer systems, navigational aids and air traffic control services anywhere in the world.
  • Defense Mega Center Oklahoma City is the local branch of the Defense Information Systems Agency. The Mega center operates computer systems for the base and serves 110 other bases in 46 states.

FAA Center[edit]

The FAA Aeronautical Center in Oklahoma City is the US Department of Transportation's largest employment concentration outside of Washington DC, with around 7,000 direct employees plus additional subcontractors.[34] The center has three primary focuses relating to Aerospace Vehicles and Defense, Information Technology and Communications Equipment clusters:

  • FAA Academy – trains most of the world's Air Traffic Controllers
  • FAA Logistics Center – responsible for supporting the equipment of the National Airspace System of air traffic controllers and aviation safety inspectors. The center also provides consulting, engineering, repair, distribution, and technical support for air traffic control services in the United States and 44 different countries.
  • Civil Aerospace Medical Institute is responsible for the medical certification, education, research, and occupational medicine wing of the Office of Aerospace Medicine (AAM)
  • Enterprise Services Center—focuses on solving the back-office, business type needs of the Federal Government with Accounting Services, Information Technology Services, and Procurement Management Services. In addition to servicing the needs of the Department of Transportation, other Federal clients include Department of Education, U.S. Air Force, Social Security Administration, Department of Homeland Security, Office of Personnel Management, Department of Commerce, U.S. Department of Agriculture, Environmental Protection Agency

Aviation based education/training[edit]

For aeronautical education and training, Tulsa hosts the Spartan College of Aeronautics and Technology that offers training in aviation and aircraft maintenance. Oklahoma University and Oklahoma State University both offer aviation programs. The FAA's Academy is responsible for training air traffic controllers.

References[edit]

  1. ^ Spiegel, Henry William. "The Growth of Economic Thought" Prentice-Hall, Englewood Cliffs, New Jersey, 1971, (13-365387-0), p 328
  2. ^ Spiegel, ibid, p 329
  3. ^ Spiegel, ibid, p 330
  4. ^ Porter, M.E. "Competitive Advantage: Creating and sustaining Superior Performance (Revised Edition) The Free Press, 2004, ISBN 0743260872, p 38
  5. ^ While the United States Patent and Trademark Office requires inventors to list their home address, most patents are assigned to companies that employ the inventors.
  6. ^ Porter, Michael E., (August–October 2003). ""The Economic Performance of Regions"". Regional Studies. 37.6&7: 549–578 [550–551]. 
  7. ^ Porter, 2003, p 552
  8. ^ Porter, 2003, p553
  9. ^ Porter, 2003, p559-560
  10. ^ Porter, 2003, p 562
  11. ^ "Institute for Strategy and competitiveness at Harvard Business School". 
  12. ^ Porter, 2003, p 564
  13. ^ Oil % Gas Production and Services subcategories: Hydrocarbons, Oil & Gas Exploration & Drilling, Oil & Gas Machinery, Petroleum Processing, Pipeline Transportation
  14. ^ Aerospace Vehicles and Defense subcomponents: Aircraft, Defense Equipment, Missiles & Space Vehicles
  15. ^ Analytical Instruments subcomponents:
  16. ^ Transportation and Logistics subcategories: Airports, Air Transportation, Bus Transportation, Marine Transportation, Transportation Arrangement & Warehousing, Transportation Support & Operations
  17. ^ Entertainment subcomponents: Entertainment Equipment, Entertainment Related Services, Entertainment Venues, Recorded Products, Video Production and Distribution
  18. ^ Accommodations and Related Services, Boat Related Services, Ground Transportation, Scenic & Sightseeing Transportation, Tourism Attractions, Tourism Related Services, Water Passenger Transportation
  19. ^ Motor Driven Products subcomponents: Appliances, Batteries, Motorized Equipment, Motors & Generators, Refrigeration and Heating Equipment, Specialized Machinery, Specialized Pumps, Tires
  20. ^ Production Technology subcomponents: Ball and Roller Bearings, Fabricated Plate Work, Industrial Patterns, Industrial Trucks and Trailers, Machine Tools & Accessories, Process Equipment Sub-systems & Components, Process Machinery
  21. ^ Heavy Machinery subcomponents: Construction Machinery, Farm Machinery, Machinery Components, Mining Machinery, Railroad Equipment & Rental, Valves & Pipe Fittings
  22. ^ Metal Manufacturing subcomponents: Environmental Controls, Fabricated Metal Products, Fasteners, General Industrial Machinery, Iron & sheet Mills & Foundries, Laundry & Cleaning Equipment, Metal Alloys, Metal Furniture, Metal Processing, Nonferrous Mills & Foundries, Precision Metal Products, Pumps, Saw Blades & Handsaws, Wire & Springs
  23. ^ Automotive subcomponents: Automotive Components, Automotive Parts, Forgings and Stamping, Glass, Marine & Tank & Stationary Engines, Motor Vehicles, Production Equipment, Small Vehicles & Trailers
  24. ^ Processed Foods subcomponents: Processed Foods subcategories: Baked Packaged Foods, Candy & Chocolate, Coffee & Tea, Flower, Food Products Machinery, Malt Beverages, Meat & Related Products and Services, Metal & Glass Containers, Milk & Frozen Desserts, Milling, Paper Containers & Boxes, Processed Dairy & Related Products, Specialty Food & Ingredients
  25. ^ Agricultural Products subcomponents: Agricultural Products, Farm Management & Related Services, Fertilizers, Irrigation Systems, Milling & Refining, Packaging, Wine and Brandy
  26. ^ Heavy Construction Services subcomponents: Ceramic Tile, Equipment Distribution & Wholesaling, Explosives, Fabricated Metal Structures & Piping, Final Construction, Primary Construction Materials, Subcontractors
  27. ^ Business Services subcomponents: Computer Programming, Computer Services, Engineering Services, Facility Support Services, Management Consulting, Marketing Related Services, Printing Services, Professional Organizations and Services
  28. ^ "Oklahoma Bio News" (PDF). Retrieved 2012-02-18. 
  29. ^ "What is IGSHPA?". Igshpa.okstate.edu. Retrieved February 24, 2011. 
  30. ^ American Airlines maintenance and engineering division
  31. ^ "Oklahoma City MSA Major Employer List, Greater Oklahoma City Chamber of Commerce". Retrieved 2012-02-21. 
  32. ^ http://www.aeroeoc.com
  33. ^ http://www.tinker.af.mil/tac/index.asp
  34. ^ "Oklahoma City MSA Major Employer List, Greater Oklahoma City Chamber of Commerce". Retrieved 2012-02-21. 

External links[edit]