Source: US International Trade Administration
This post contains external links. Please review our external linking policy.
Kara Mazachek is an Economic Research Analyst at SelectUSA
One thing we learned in 2020 is that plans can change very quickly and that the future is never certain – even in business and the economy. As economic development organizations (EDOs) reevaluate their strategic plans, it may be difficult to identify a clear path forward. State and local EDOs, especially those with a strong concentration in only a few key industries, need to implement economic diversification strategies to ensure their economies can continue to provide job opportunities and sustainable economic growth.
Industry diversification enables an economy to be more adaptable and sustainable because the community’s well-being is not directly tied to one sector’s success. It prevents declining property values, provides a defense against unemployment and poverty, and overall, protects other industries within the economy. Diversification allows businesses of all sizes and in other industries to thrive. Additionally, as the economy grows, diversification creates ripple effects, providing room for new businesses to set up operations.
The metropolitan statistical areas (MSAs) of Orlando, Florida; Austin, Texas; and San Jose, California are great examples of economic diversification. Not only do these MSAs have the highest employment growth over the last ten years when compared to other MSAs, but they all have some of the strongest industry clusters in the country for multiple industries.
Austin, Texas had a 41 percent increase in employment over the past decade. According to the latest available data from the U.S. Cluster Mapping Tool, the MSA specializes in business services, information technology, jewelry and precious metals, marketing, design, and publishing, and music and sound recording industries. Not only does Austin’s economy support five large industries, but these industries also support smaller, linked industries like the nonmetal mining, performing arts, education, distribution and ecommerce and financial services industries. Excerpt visuals from the U.S. Cluster Mapping Tool are available below.
Orlando, Florida has a similar story. The economy had strong clusters in four industries in 2017: environmental services, hospitality, performing arts, and video production. In turn, these industries strengthen the communications and transportation industries. It may be no surprise, then, to learn that total employment in the Orlando metro area has increased 33 percent over the past ten years, based on estimates from JobsEQ.
San Jose, California also saw a 32 percent increase in employment over the past ten years. The business services, education, information technology, marketing, design, and publishing, and music and sound recording industries dominate the economy and also support the medical devices, lighting, distribution and ecommerce, and communications industries.
In addition to developing a diversified economy, one way to enhance a local economy is through attracting foreign direct investment (FDI). Not only did FDI support the creation of 7.8 million U.S. jobs in 2018, but foreign-owned companies also spent $66.9 billion in research and development and accounted for 24 percent of all U.S. goods exports. The presence of foreign subsidiaries not only generates money into the local economy but also creates jobs for U.S. workers.