From Hotels To High-Tech: The Clusters

The San Diego Association of Governments, aka Sandag, counts 16 traded clusters in the San Diego economy. These clusters offer the potential for expansion beyond local markets and as such, the potential for economic growth. The 16 clusters employ one-quarter of the region’s total workers.

The clusters are:

Biomedical products.

Biotech and pharmaceuticals.

Communications.

Computer and electronics.

Defense and transportation

equipment.

Design.

Environmental technology.

Entertainment and amusement.

Financial services.

Fruits and vegetables.

Horticulture.

Publishing.

Recreational goods.

Software.

Specialty foods.

Travel and hospitality.

— Brad Graves

The presence of Concentrix Solar Inc. speaks volumes about the San Diego business ecosystem.

The German-based solar equipment company opened its U.S. headquarters in the University Towne Center neighborhood last year. The maker of utility-scale concentrated photovoltaic systems has eight employees and plans to hire four more. Future plans include a factory somewhere in the United States.

Clark Crawford, the U.S. chief for Concentrix, said he was pleased to locate in San Diego, where he could be close to customers and the wider technology community — including UC San Diego, which uses one of the photovoltaic systems.

Solar energy is part of an increasingly important clean technology “cluster” that is growing in San Diego.

It’s one of many clusters.

Clusters can be defined as a specialized group of companies, suppliers, service providers and research institutions. A pool of workers with unique, specialized knowledge — who often move from company to company — is another key component.

Harvard University’s Michael E. Porter is one academic who has written about clusters.

A notable example of a cluster is the biotechnology community centered on Torrey Pines Mesa, near UCSD, the Salk Institute for Biological Studies and several other research institutions. In recent decades, law firms that make bioscience their specialty have planted themselves in nearby Carmel Valley.

The cluster concept is a way of understanding businesses in a community. It’s also a way of understanding potential areas of growth.

The Key Clusters

Duane Roth, chief executive officer of Connect — an organization that links young businesses with the resources they need to grow — divides the San Diego economy into five clusters.

The key clusters, Roth asserts, are the four that import money from out of town. These drive the rest of the local economy.

They are:

• The technology innovation/manufacturing cluster, which according to Connect employed 137,450 workers in 5,950 companies during the first quarter of 2010. The cluster takes in wireless communications, biotech and small, emerging areas such as recreational goods.

• Research institutions. San Diego has 82, which employ 30,000 people, said Steve Hoey, a Connect employee who compiles the organization’s quarterly Innovation Report. The number excludes the U.S. Navy’s Space and Naval Warfare Systems Command, aka Spawar, which operates its own research lab and has 4,500 employees.

Research institutions bring in roughly $5 billion a year from Washington, D.C., Roth said. Sources include the National Institutes of Health and the U.S. Department of Defense.

Star researchers attract money, Roth added. They include J. Craig Venter of the J. Craig Venter Institute and Larry Smarr of the California Institute for Telecommunications and Information Technology.

• The cluster taking in conventions, tourism and gaming employs 152,600 people, according to the San Diego Convention & Visitors Bureau. It imports money in a relatively low-tech way: Tourists bring the cash.

• San Diego also has its military cluster. According to an April report from the San Diego Military Advisory Council, the Defense Department directly employed 137,000 people in fiscal 2008, the last year for which statistics were available. Government contractors received $8.9 billion in contracts in fiscal 2008, SDMAC reported. It’s another instance of Washington sending money to San Diego.

• The remaining cluster is local services — the restaurants, auto dealers and hospitals.

A ‘Feedback Loop’When things go well, Roth said, the initial four clusters pour money into the fifth. People buy homes, buy cars and dine out. Money recycles in the community. It’s a “feedback loop,” Roth said.

The danger, Roth said, is assuming that local commerce is the only thing that matters in the economy. “It’s the beneficiary of the traded economy,” Roth said, referring to the four other clusters that import money from outside the area.

Politicians may be too concerned about the last cluster and not the preceding four, he added.

Roth said that people concerned about San Diego’s economic development should ask themselves how they can promote the four clusters. What’s more, he said, they ought to familiarize themselves with the top challenge to each of those clusters.

For example, in the tourism cluster, Roth said, there is the need for an expanded convention center. Boosters of a $710 million, 400,000-square-foot addition say the current center turns away large amounts of business every year.

“Build the convention center, guys,” Roth said. “We can’t afford not to.”

Sandag’s Cluster Count

Various people view the cluster concept differently.

The San Diego Association of Governments, or Sandag, has identified 16 clusters in the San Diego region. They range from biomedical products to travel and hospitality; a list of all 16 is printed next to this article. The clusters are largely export-oriented and most pay high wages, Sandag says.

Sandag compiled the list a few years ago and plans to revise it soon, said Marney Cox, Sandag’s chief economist.

Cox asserts the best way to grow these clusters is to make large capital improvements that appeal to businesses in the clusters that are seeking out places to expand.

San Diego did the right thing in the late 1980s and early 1990s, Cox said, when the San Diego County Water Authority inked a deal with the Imperial Irrigation District to guarantee additional water for the region. Cox said that created confidence in the biotech community that San Diego could be a manufacturing center. In 2002, Idec Pharmaceuticals broke ground on a manufacturing plant in Oceanside. Genentech Inc. bought the 500,000-square-foot plant in 2005.

Access to world markets is another important thing San Diego needs, Cox said.

Frequently that discussion turns to a perennial debate in San Diego politics: How to expand Lindbergh Field. An alternative, Cox said, would be to improve ground transportation to Los Angeles, and access world markets from its airports and harbors. One way to accomplish that, Cox said, might be to lay a second track along the length of the Los Angeles-San Diego rail line to increase freight capacity.

Cox argued for a careful, studied approach to making improvements. Resources, after all, are limited.