The Athletic and Outdoor cluster in Portland Joe Cortright Business Summit: Stretegic Innovation Partnerships

4 September

Oregon’s Athletic & Outdoor Cluster

September 2013

Project funded by Portland Development Commission, Oregon Business

Development Department, Oregon Business Council

Joe Cortright, Impresa, Inc.

Roadmap Definition Metrics

Value Chain Industry Structure & Rivalry

Evolution Implications

Definition Athletic & Outdoor Cluster

Firms that design, produce and market

apparel, footwear and related equipment for sports, recreational and casual use

Core NAICS Codes for Athletic & Outdoor Cluster

NAICS Code Sector Name 315 Apparel Manufacturing 3162 Footwear Manufacturing 33992 Sporting and Athletic Goods Manufacturing 42391 Sporting and Recreational Goods and Supplies Merchant Wholesalers 4243 Apparel, Piece Goods and Notions Merchant Wholesalers 5414 Specialized Design Services 3322 Cutlery and Handtool Manufacturing 33699 Motorcycle, Bicycle, and Parts Manufacturing

Note: Not an exclusive list of firms that are included in the cluster; firms in other NAICS categories, for

example, professional services, are part of the cluster, but not the “core.”

Footwear

Apparel

Gear and Tools

Most US Knives are designed or

manufactured in Portland

Leatherman, Gerber, Kershaw and Others

Related Industries

Supporting Industries

Marketing/Advertising/ Branding

IP Attorneys

IT

Logistics/Inventory Management

Packaging Design

Marketing

Distribution

Product Design

Sustainability

Industry analysts

Orientation

Methodology Statistical Analysis

Focus Groups and Interviews On-Line Survey

Survey Methodology

Online business survey

80 responses Response rate: 21.7%

Response rate, core firms: 19.6% Response rate, service firms: 29.3%

Questions Firm history: founding & entrepreneurial

background Geography of business partners Interactions with local customers/users

14

Key Metrics

14,000 Employees 700 firms with a payroll 3,200 “non-employer” firms Average wage: $82,700

High Wages

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

1st Qtr

Metro Average Industry Average

Industry Characteristics

•Non-Durable •Fashion and Performance •Globalized, Outsourced Manufacturing •Some Technical Differentiation •High Marketing Component •Dominant Brands, Niche Players

A Global Marketplace

Sales by Market Area

Company U.S. Rest of World

Nike 34.1% 65.9%

Adidas 23.3% 76.7%

Columbia 55.2% 44.8%

LaCrosse 94.8% 5.2%

Note: For Adidas U.S. data covers is N. America.

Source: Company Annual Reports

Advertising Expense

Company Amount Percent of Sales

Nike 2,351.0 12.3%

Adidas 2,000.6 13.2%

Columbia 65.2 4.9%

LaCrosse 3.1 2.2%

Nike: includes endorsement contracts.

Amounts for Adidas converted from Euros to Dollars at 1.40 dollars/euro

Patent Analysis Patents by Firm

Market Share of Patents in Key Classifications Time Series data on patents

Relative contribution to Oregon patenting

Footwear Patents

Footwear Patents (Class 36), by State, 1990 to 2010 1 Oregon 274 2 California 239 3 Massachusetts 182 4 Washington 72 5 Florida 54 6 Michigan 54 7 North Carolina 49 8 New York 48 9 Ohio 44 10 Vermont 44

Athletic & Outdoor Cluster Characteristics

and Value Chain

Athletic & Outdoor value chain

Source: adidas 2009 Annual Report, page 88

Portland: high value functions

Source: adidas 2009 Annual Report, page 88

Portland specializes in these

steps in the value chain

Interactions with local customers

29

completely unimportant

somewhat unimportan

t

neither unimportant

nor important

somewhat important

extremely important

Valid N

Material development

17.7% 9.7% 17.7% 33.9% 21.0% 62

Material improvement

12.9% 11.3% 19.4% 37.1% 19.4% 62

Visual design & styling

4.8% 3.2% 12.7% 25.4% 54.0% 63

Feedback on product concept & prototype

7.9% 4.8% 11.1% 25.4% 50.8% 63

Testing products

7.9% 7.9% 11.1% 25.4% 47.6% 63

Brand image

4.8% 3.2% 14.3% 27.0% 50.8% 63

Suggestions & ideas for new applications

8.1% 4.8% 17.7% 38.7% 30.6% 62

How important are each of the following interactions with local users/consumers to your

company`s development of products (Please choose one rating in each row)?

Trade Flows

Donguan

Los Angeles

Memphis

Container to LA Rail to Memphis

Portland

Athletic & Outdoor Value Chain

Function Location Wage Production China $2 to $3/hour Distribution Midwest $12-14/hour

Design, Finance Marketing, Mgt. Portland $40/hour

Firm Structure, Strategy and Rivalry

Portland’s Big Three

Firm Portland Worldwide Nike 5,700 34,300 Columbia 1,500 3,100 Adidas 800 38,982

Rivals

Interfirm Labor Mobility

Workers at incumbent firms, 2008 8,490

Workers moving to other Oregon firms 1,767 (20.8%)

To other Athletic & Outdoor cluster firms 295

To other incumbents 133

To startups 162

Competitive Advantage

Design with fashion and performance

Highly talented workers

The local innovative milieu Worker/Users Active Living

“The Hybrid Lifestyle”

Self-Reinforcing

Lifestyle Talent

Culture

Cluster

U. S. Competitor Regions Principal Athletic & Outdoor Competitor Regions,

Employment and Location Quotients, 2008

NAICS 315 3162 4243 43434

Industry Apparel Footwear Apparel Wholesaling.

Footware Wholesaling

Portland 500 (0.32) 345 (2.77) 6,017 (5.17) 5,246 (24.87)

Los Angeles 63,010 (7.31) 786 (1.14) 23,309 (3.6) 3,557 (3.04)

New York 28,634 (2.32)

Boston 1,551 (0.42) 929 (3.13) 3,916 (1.41) 866 (4.99)

Seattle 1,621 (0.63) 503 (1.44)

San Francisco 3,148 (1.02) 2,051 (0.89) 419 (1)

Boulder 71 (0.63) 866 (1.44)

Memphis 295 (0.32) 1,851 (2.69)

Evolution

Physical Activity

Compared to the average for the US, Portlanders are:

Twice as likely to go camping 60% more likely to go hiking or backpacking

40% more likely to golf or hunt Region ranks last in theme park attendance

Oregonians rank lowest in sedentary life styles and 2nd highest of vigorous physical activity

How it started

• In the late 60s the jogging craze takes off in many towns led by Eugene Oregon

• A guy starts selling Japanese running shoes out of the back of his station wagon

Emergence of firms in Portland, Oregon

Source: Portland Athletic & Outdoor Industry Research Project

42

Nike Inc.

Columbia

Sportswear

adidas America

Sports Inc.

Moved to PDX:

Yakima Racks (2004)

Keen (2006)

Icebreaker, Li Ning (2007)

1980s:

Nike`s trans-

formation into a

global brand

1990s:

Competitors

move to PDX,

esp. adidas

America

2000s:

Expansion &

diversification of

industry

through

spinoffs

& new

firms

moving to

region

Three Phases

Source: Portland Athletic & Outdoor Industry Research Project

43

Nike Inc.

Athletic and

Outdoor Cluster

Micro-foundations of Clusters

•Labor Market Pooling

•Supplier Specialization

•Knowledge Spillovers

•Entrepreneurship

•Path Dependence and Lock-In

•Culture

•Local Demand

Creation

•Labor Market Pooling

•Supplier Specialization

•Knowledge Spillovers

•Entrepreneurship

•Path Dependence and Lock-In

•Culture

•Local Demand

Growth

•Labor Market Pooling

•Supplier Specialization

•Knowledge Spillovers

•Entrepreneurship

•Path Dependence and Lock-In

•Culture

•Local Demand

Today’s Competitiveness

•Labor Market Pooling

•Supplier Specialization

•Knowledge Spillovers

•Entrepreneurship

•Path Dependence and Lock-In

•Culture

•Local Demand

Implications

Co-Evolution of industry and attitudes

Phase I: growth of recreation and fitness as a socially valued and acceptable idea

Phase II: growing informality in social and business relations (jeans, ties)

Phase III: creation of new forms of recreation (windsurf, kiteboard, cyclocross, dragon-boat,

etc. Phase IV: Hybrid lifestyle, blurring boundaries

between work and social life.

Path dependence and selection

Social interaction—the big sort More fun to be in a place where others share

your values Externalities in consumption—need people with similar interests to maximize utility

associated with consumption Cities are selection environments for new

lifestyles

Example: Bike Culture(s)

Spandex Fixies

Cyclocross City Bikes Art Bikes

Bike Gallery Manifesto

Live to Bike Eat to Live Work to Eat Bike to Work

Compensation is multi-faceted; more

than money

Direct compensation Future value (skills, reputation and contacts

acquired) “Know how” and “know who”

Consumption externalities

Cluster Drivers Duranton & Puga: Functional Specialization

Von Hippel: User-Innovation Porter: Local Demand

Saxenian: Business Culture Schoales: Alpha Cluster

Implications

Economic & social innovation are complements

Changes in values and lifestyles create market niches

Portland’s culture is ahead of the curve in generating social innovations, and giving local

firms insight into future market niches