Automation Alley s Annual Technology Industry Report:

November 12, 2008 Automation Alley s Annual Technology Industry Report: Driving Southeast Michigan Forward Prepared by: Scott D Watkins, Senior Consultant Cameron Van Wyngarden, Consultant Lauren Hathaway, Analyst Foreword by: Patrick L Anderson, Principal and CEO Anderson Economic Group, LLC East Lansing Chicago 1555 Watertower Place, Suite 100 East Lansing, Michigan 48823 Tel: (517) 333-6984 Fax: (517) 333-7058 http://wwwandersoneconomicgroupcom 2008, Anderson Economic Group, LLC Permissions for reuse granted given proper citations provided

Table of Contents Foreword i Defining Technology Industry Clusters i Automation Alley s Continued Technological Leadership ii Conclusion iv Introduction 1 Purpose of Report 1 Overview of Report 1 Automation Alley: Regional Overview 2 Automation Alley s Technology Industry 2 Technology Industry Sectors 4 Indicators of Tomorrow s Technology Today 5 Industry Survey 6 Automation Alley: Regional Overview 9 Geographic Overview 9 Population Data and Trends 10 Income Data and Trends 10 Workforce Data and Trends 11 Additional Demographic Data 12 Defining the Technology Industry 14 The Technology Industry in Automation Alley 16 Technology in Automation Alley: The Big Picture 16 Technology Industry Sectors 18 Advanced Automotive Sector 20 Advanced Manufacturing Sector 22 Chemical and Material Sector 24 Information Technology Sector 26 Life Sciences Technology Sector 28 Other Technologies Sector 30 Indicators of Tomorrow s Technology Industry 32 Science and Engineering Graduate Students 32 University Research and Development 32 Utility Patents 34 Business Innovation Research (SBIR) Program Awards 35 Defense and Homeland Security 36 Anderson Economic Group, LLC TOC

Table of Contents Technology Industry Survey 38 Purpose of Survey 38 Methodology 38 Respondent Demographics 38 General Attitudes On the Economy 38 Business Performance and Growth 40 Appendix A: Technology Definition Methodology A-1 Review of Existing Definitions 1 Selecting NAICS to Include: First Cut 2 Selecting NAICS to Include: Second and Third Cuts 2 Finalizing the Definition 3 Technology Cluster Classifications 3 Additional Methodological Notes 4 Appendix B: Bibliography B-1 Appendix C: Other Definitions of the Technology Industry C-1 American Electronics Association (AeA) 1 The Pittsburgh Technology Council 1 Carnegie Mellon and SSTI 1 Daniel Hecker, United States Bureau of Labor Statistics 2 Anderson Economic Group (2001) 2 Appendix D: Demographic and Socioeconomic Data D-1 Appendix E: Automation Alley Technology Industry Data E-1 Data Collection and Estimation 1 Data Adjustments 2 Appendix F: Project Team F-1 Patrick L Anderson 1 Scott D Watkins 2 Anderson Economic Group, LLC TOC

Foreword Foreword The pulse of Automation Alley s technology industry continues to beat strongly, despite a wounded economy Yes, high fuel costs, strong competition, and legacy costs have inflicted pain on the advanced automotive sector of Automation Alley However, the region s technology industry has proven it can stand on its own, and advance despite the automotive industry s struggles, statewide economic malaise, and nationwide economic uncertainty This report, the fourth annual assessment of Automation Alley s technology industry, illustrates the impressive size and breadth of the industry, and offers evidence of future growth and advancements The analysis also shows that the region s technology industry reaches beyond advanced automotive technologies While employment in the advanced automotive sector has declined, jobs have been added in sectors like advanced manufacturing and the life sciences The analysis further shows that even without the advanced automotive sector, Automation Alley s technology industry is a much larger part of the economy than it is at the state and national levels Indeed, with advanced automotive the Automation Alley technology industry is 63 percent larger than the national industry in terms of share of total employment It is still 13 percent larger if advanced automotive is excluded from the comparison Also included in this report are results from the first-ever survey of Automation Alley technology companies With assistance from Mitchell Interactive, we collected information from 200 technology businesses throughout Automation Alley The findings help us pick up where employment and payroll data from past years leave off, providing an even clearer picture of the industry today As would be expected, most respondents viewed the overall economy as weak However, most also expected improvements in the coming months, and had positive views of the region as an environment in which to operate a technology business DEFINING TECHNOLOGY INDUSTRY CLUSTERS A hallmark of this effort is a rigorous definition of the technology industry, which is based on recently published research by the US Department of Commerce, Anderson Economic Group, and a handful of other experts Our definition includes six specific technology clusters: Advanced Automotive Advanced Manufacturing Chemical and Material Information Technology Life Sciences Other Technologies Anderson Economic Group, LLC i

Foreword We have consistently used these definitions across our four annual reports, allowing for accurate comparisons across years and across regions The methodology is documented in this report, its appendices, and in Automation Alley s 2005, 2006, and 2007 Annual Technology Industry Reports AUTOMATION ALLEY S CONTINUED TECHNOLOGICAL LEADERSHIP Automation Alley is a leader in advancing the reach of technology, and, as the following 10 points show, remains well poised to continue in that role 1 Despite overall economic declines and significant restructuring in the automotive industry, Automation Alley s technology industry has remained strong, with 20 percent employment growth outside of the advanced automotive sector From 2005 to 2006, Automation Alley s technology industry saw an overall small decline (just 03 percent) in employment This decline, however, was confined primarily to the advanced automotive sector When advanced automotive is removed from the equation, Automation Alley s technology sector shows a 20 percent employment gain from 2005 to 2006, with life sciences and advanced manufacturing leading the way 2 Automation Alley has a significantly higher concentration of technology industry employment than is found across the national economy In 2006, the industry employed 311,438 people in Automation Alley, representing 147 percent of employment in the region Nationally, 91 percent of all employment was in the technology industry This puts Automation Alley 63 percent above the national average for share of employment in the technology industry, and shows that the technology industry is clearly more concentrated in Automation Alley 3 The advanced automotive sector remains the cornerstone of Automation Alley s technology industry, but the other five sectors have proven capable of standing on their own In 2006, the advanced automotive sector was by far the largest employer among the technology industry sectors However, the other sectors have proven their ability to stand on their own Even if advanced automotive is not included in a comparison, Automation Alley has 94 percent of its total employment in the technology industry more than 13 percent above the national average of 83 percent 4 Automation Alley remains the center of the global automotive industry While much has been made of the recent struggles of the Detroit Three, Automation Alley remains the center of the global automotive industry The region is home to research, development, design, and testing centers for domestic and foreign manufacturers alike, and 112 percent of all advanced automotive employment in the United States Anderson Economic Group, LLC ii

Foreword 5 The life sciences technology sector is rapidly growing as Automation Alley establishes itself as a leader, both in Michigan and across the country, in life sciences in Automation Alley s life sciences technology sector grew by 132 percent from 2005 to 2006, and the average wage for workers in the sector grew by 44 percent to over $97,000 in 2006 The sector also accounted for 17 percent of all employment in Automation Alley, well above the national level of 10 percent, clearly indicating the region s strong position in the life sciences technology sector 6 businesses in Automation Alley are attracting big funds for research and development The US Business Administration s Business Innovation Research (SBIR) program has funded millions of dollars of research and development activities at small businesses throughout Automation Alley In 2006, small businesses in Automation Alley received 97 such awards The value of these awards was $388 million, which surpassed the previous high from 2005 7 Automation Alley universities commitment to the research and development of technology has yielded billions of dollars in research grants, and their technology-oriented programs are growing to help meet the demand for high-skilled science and engineering workers Research and development spending by Automation Alley universities topped $1 billion for the fourth year running, growing from $646 million in 1998 to over $104 billion in 2006 Automation Alley universities also enrolled a total of 12,194 science and engineering graduate students in 2006, 335 more than the prior year and 64 percent of the total science and engineering graduate student enrollment in the state 8 Defense and homeland security continue to play a critical role in expanding the region s industries and universities The Departments of Defense and Homeland Security continue to offer a catalyst for technology research and development among Automation Alley s universities and businesses This can be expected to grow further as the military takes a lead role in alternative fuel research, and with the Army s recent relocation of its robotics development program to the Detroit Arsenal in Macomb County 9 Technology businesses in Automation Alley are increasingly optimistic about southeast Michigan s environment for technology businesses Fifty-nine percent of respondents believe that southeast Michigan s environment for a technology company improved or remained steady over the past 12 months, and 76 percent of respondents believe it will improve or remain steady over the next 12 months This increase demonstrates optimism for southeast Michigan as a growing technology hub Anderson Economic Group, LLC iii

Foreword 10 Despite a stagnant economy, technology businesses in Automation Alley reported largely positive news about their employment levels and revenue trends Over the past 12 months, 26 percent reported adding employment and 52 percent saw employment levels hold steady Further, 67 percent of respondents said they experienced an increase in revenues; another 20 percent said revenues held steady over the past 12 months, and 75 percent responded that revenues were expected to grow over the next 12 months CONCLUSION Without question, we are in challenging economic times at the global, national, and local levels This reality stands in stark contrast to the years of economic expansion and stability that have prevailed in recent times We cannot overlook this reality However, we also cannot overlook the strength of Automation Alley s technology industry, the region s dominance in the global automotive industry, and the significant university investments and programs in Automation Alley Concentrated efforts to promote the industry, support entrepreneurs, and encourage innovation will be crucial to the continued success of the region s technology industry in coming years With leadership from groups like Automation Alley, there is no reason why the region cannot further enhance its role as a primary center of technology Patrick L Anderson is the founder of Anderson Economic Group, LLC, a business consulting firm headquartered in Michigan with offices in Illinois and Texas He is the author of more than 100 published works, and the executive editor of The State Economic Handbook, published annually by Palgrave Mac- Millan He was the winner of the 2004 Edmund A Mennis prize for the best writing in business economics, given by the National Association for Business Economics Mr Anderson grew up in Oakland County Anderson Economic Group, LLC iv

Introduction I Introduction PURPOSE OF REPORT In 2005 and 2006, and again in 2007, Anderson Economic Group completed comprehensive assessments of the technology industry in Automation Alley These reports quantify the size of the industry in terms of employment, establishments, and payroll They also assess important areas of the technology industry, which signal the direction that the industry may take in coming years, including R&D spending and patent awards We assemble this information to provide businesses, government officials, educational institutions, and residents in Automation Alley with an understanding of the role technology plays in the region The information also provides benchmarks for measuring changes and advances in the industry over time OVERVIEW OF REPORT This report opens with an overview of the Automation Alley region, followed by a discussion of how we define the technology industry as containing the following sectors: Advanced Automotive Advanced Manufacturing Chemical & Material Information Technology Life Sciences Other Technologies We then quantify the technology industry in Automation Alley in terms of employment, number of private businesses, and payroll Industry data are presented for 1998 and 2004 through 2006 to illustrate how the industry, and each of its sectors, have evolved in recent years Also, this year we have added an analysis of the share of total employment that is in the technology industry and its sectors We present this for Automation Alley relative to the state and national shares This provides a location quotient, which measures the concentration of industry employment in one region relative to another 1 The report also assesses activities taking place today that signal future growth of the technology industry in Automation Alley This includes quantitative measures such as patent awards, university research and development, and qualitative assessments of items such as university programs and industry promotion activity 1 A location quotient over 10 indicates an industry is more concentrated in the regional economy being assessed than in the overall economy with which it is being compared For example, a 15 location quotient for an industry in region X relative to the same industry in region Y indicates that the industry is 15 times more concentrated in region X than in region Y From this you can conclude that the industry is a larger part of region X s economy than it is of region Y s This does not necessarily offer a measure of strength, though a high concentration of workers in a given industry, or set of industries, may be attractive to businesses that benefit from clustering, or locating near others with similar expertise Anderson Economic Group, LLC 1

Introduction We conclude the report with a new section highlighting the findings of a survey of technology businesses in Automation Alley The survey, conducted by Mitchell Interactive, polled 200 businesses to gauge their attitudes on the regional economy and their businesses performance The findings from this survey are summarized in Technology Industry Survey on page 38 AUTOMATION ALLEY: REGIONAL OVERVIEW Automation Alley is an eight-county area in Southeast Michigan, with some of the busiest international border crossings and international ports in the world The Automation Alley counties, as shown in Figure 3, Automation Alley Regional Map, on page 8, are Genesee, Livingston, Macomb, Monroe, Oakland, St Clair, Washtenaw, and Wayne With a population of more than five million, Automation Alley makes up more than half of Michigan s total population and nearly half of total employment in the state Per capita income in Automation Alley is nearly $1,000 above the national level, and $1,700 above the state level More detailed economic and demographic information for Automation Alley can be found in Section II, Automation Alley: Regional Overview, and in Appendix D: Demographic and Socioeconomic Data AUTOMATION ALLEY S TECHNOLOGY INDUSTRY Size of the Industry Automation Alley s technology industry remains an integral part of the region s economy In 2006, the industry employed 311,438 people, representing 147 percent of all employment in the region 2 At the state and national levels, the technology industry accounted for 128 percent and 91 percent of employment respectively (see Figure 1 on page 3) This shows that the technology industry is clearly more concentrated in Automation Alley than in the overall state and national economies 2, establishment, and payroll data in this report is from the US Census County Business Patterns, and does not include self-employed persons, railroad employees, agricultural production workers, and government workers Anderson Economic Group, LLC 2

Introduction FIGURE 1 Technology Industry s Share of, 2006 A closer look also shows that Automation Alley s technology industry reaches well beyond advanced automotive, which remains the largest sector in terms of employment in the region If you exclude advanced automotive from the definition of the technology industry, the region still has 94 percent of its total employment, and 154 percent of payroll, in technology sectors This compares to 81 percent employment and 140 percent payroll for the state, and 83 percent employment and 141 percent employment for the nation and Trends employment levels in Automation Alley s technology industry remained relatively steady from 2005 to 2006, with a 03 percent overall decline The majority of this decline is attributable to losses in the advanced automotive sector When this sector is excluded from the overall definition, we see that employment in the remaining sectors increased by 20 percent in Automation Alley (3,885 jobs), compared to 11 and 19 percent increases at the state and national levels The average wage in the technology industry increased in Automation Alley, the state, and the nation from 2005 to 2006, and wages in Automation Alley remain well above average levels For 2006, the average technology industry wage in Automation Alley was $70,311 (a 18 percent increase over 2005) The state level was $65,370, and the national level was $65,892 Anderson Economic Group, LLC 3

Introduction TECHNOLOGY INDUSTRY SECTORS While overall technology industry employment declined from 2005 to 2006, it is notable that each of Automation Alley s technology sectors experienced somewhat unique changes in employment and wages, which are shown in Table 1 TABLE 1 Automation Alley and Payroll by Technology Sector, 2005 v 2006 : 2005 More specifically: : 2006 Change in 2005 2006 Change in Advanced Automotive 117,401 112,542-41% $66,935 $66,236-10% Advanced Manufacturing 31,243 32,453 39% $59,547 $58,456-18% Chemical and Material 9,044 8,584-51% $57,856 $61,892 70% Information Technology 56,873 56,771-02% $65,076 $67,632 39% Life Sciences 32,043 36,275 132% $93,055 $97,141 44% Other Technologies 65,808 64,813-15% $70,703 $71,770 15% Technology Industry 312,412 311,438-03% $69,068 $70,311 18% Source: Anderson Economic Group, LLC Data: US Census Bureau, County Business Patterns 2006 Advanced Automotive This sector continues to be the largest technology industry employer in the region, accounting for 361 percent of all technology industry employment, and 53 percent of employment across all industries in the region in 2006 At the state and national levels, respectively, the advanced automotive technology sector accounted for 47 and 08 percent of total employment These measures show that advanced automotive in Automation Alley is 632 times more concentrated than at the national level, illustrating the region s continued role as an automotive leader Advanced Manufacturing This sector proved resilient in light of pressures on manufacturers, with employment growing by 37% from 2005 to 2006 The average wage in the sector was $58,456 for 2006, down just slightly from 2005, but still above the $56,054 level from 2004 Overall, the sector accounts for 15 percent of employment in Automation Alley, which is a lower concentration than at the state and national levels This, along with the relative size of the region s advanced automotive sector, shows that manufacturing in Automation Alley is clearly automotive centered Chemical and Material In 2006, Automation Alley s chemical and material technology sector had employment of 8,584, down 51 percent from 2005 Despite this drop, total payroll increased by 15 percent, and the average wage rose 70 percent to $61,892 Overall, the sector accounted for 04 percent of all private sector employment, which, when compared to the state s and the nation s shares, yields a location quotient of 074 This show s that the sector is less concentrated in Automation Alley than at the state and national levels Anderson Economic Group, LLC 4

Introduction Information Technology This sector of Automation Alley s technology industry had a 2006 employment level of 56,771, just 102 fewer than in 2005 s, however, grew by 38 percent over the period, resulting in a 2006 average wage of $67,632 Information technology employment accounted for 27% of all employment in Automation Alley Compared to the state, this is a 134 location quotient, and compared to the nation the location quotient is 088 This suggests that Automation Alley s information technology industry is a larger part of the region s economy relative to the state, but a smaller part relative to the nation Life Sciences Technology From 2005 to 2006, this sector continued its trend of rapid growth and impressive wages, with a 117 percent employment increase and average wages jumping by 42 percent to $97,141 With 36,275 employees, this sector accounted for 17 percent of all employment in Automation Alley, whereas the state level was 14 percent and the national level 10 percent This higher concentration of employment in the life sciences technology industry gives Automation Alley a 121 location quotient relative to the state, and 166 relative to the nation, and indicates that the sector plays a larger role in Automation Alley than in the other respective economies Other Technologies This sector has also experienced significant growth in employment and wages in recent years, though from 2005 to 2006 employment saw a modest decline to 64,813 jobs Most of the jobs and growth in this sector stem from the architectural and engineering services subsector, which had 2006 employment of 54,383 in Automation Alley This, compared to the state, yields a location quotient of 146 Compared to the nation, the location quotient is 221, showing clearly that Automation Alley is a center for architectural and engineering work, which isn t surprising given the larger number of automotive research and design talent in the area See Table 1, Automation Alley and Payroll by Technology Sector, 2005 v 2006, on page 4 for a complete look at the sector-by-sector change Further data and discussion of the industry as a whole start at The Technology Industry in Automation Alley on page 16 Additional data on the technology industry is also presented in Appendix E: Automation Alley Technology Industry Data INDICATORS OF TOMORROW S TECHNOLOGY TODAY In addition to the technology industry data summarized above, there are other variables that are important to consider when assessing the technology economy of a region These include activities in the public sector, such as university research and enrollment, research grants, and military programs Private-sector forces, including patenting and entrepreneurship, are also important indicators for the technology industry as they too can be a measure of potential growth The Indicators of Tomorrow s Technology Industry on page 32 presents data showing the continued growth and diversification for Automation Alley s technology industry Among the highlights, universities within Automation Alley enrolled 12,194 science and engineering graduate students in 2006 This is 335 more Anderson Economic Group, LLC 5

Introduction than the prior year, and accounts for 64 percent of the total science and engineering graduate student enrollment in the state Businesses and universities within Automation Alley also continue to receive patents for new advances, and to invest significantly in research and development, as evidenced by the more than $1 billion of research and development expenditures made by the universities in Automation Alley FIGURE 2 R&D Expenditures by Automation Alley Universities ($000) INDUSTRY SURVEY In addition to the employment, payroll, establishment, and other technology industry indicators presented in the above sections, we also surveyed 200 technology businesses in Automation Alley to measure their attitudes on the state and local economies, as well as their recent and expected business performance Among the survey s findings were: A general level of optimism concerning the state and regional economy, with more respondents indicating they feel the economy will rate from 6 to 10 (with 10 indicating the most favorable performance) over the next 12 months when compared to the most recent 12 months Sixty-one percent of respondents said Southeast Michigan was a favorable environment in which to grow a technology company, while only 11 percent said the region s overall economy was favorable Sixty-five percent of respondents said that they experienced revenue increases in the past 12 months, and 75 percent expect revenue to grow over the next 12 months An additional 20 percent reported steady revenues in the past 12 months, while only 5 percent anticipate revenue to decline in the next 12 months In the past 12 months, 52 percent of respondents reported that they maintained their employment levels Further, 26 percent reported that they added full-time Anderson Economic Group, LLC 6

Introduction employees, outweighing the 22 percent reporting a reduction in employment levels Anderson Economic Group, LLC 7

Introduction FIGURE 3 Automation Alley Regional Map Tuscola County Saginaw County 75 Sanilac County Genesee County Flint Lapeer County Blue Water Bridge Shiawassee County 69 Bishop International 69 St Clair County 75 94 Macomb County 96 Livingston County 59 Oakland County Sterling Heights 696 Warren 23 Livonia Detroit Washtenaw County Ann Arbor 24 Wayne County Detroit-Windsor Tunnel Ambassador Bridge 12 Detroit Metropolitan Wayne County 275 Canada 75 Lenawee County Monroe County Legend Canada Crossings 23 Toledo Automation Alley's HQ Automation Alley Lucas County Fulton County Toledo Express Wood County Miles 0 5 10 20 30 Ottawa County Source: Analysis by Anderson Economic Group, LLC Base map provided by ESRI, Inc 2008 Anderson Economic Group, LLC 8

Automation Alley: Regional Overview II Automation Alley: Regional Overview GEOGRAPHIC OVERVIEW Automation Alley is comprised of eight counties in Southeast Michigan, and is home to major cities including Detroit, Ann Arbor, and Flint As shown in Figure 3 on page 8, Automation Alley includes Genesee, Livingston, Macomb, Monroe, Oakland, St Clair, Washtenaw, and Wayne counties Automation Alley is bordered on the south by Ohio and on the east by Ontario, Canada The region is very close in proximity to several other major markets Major interstates including I-94, I-75, and I-96, as well as extensive road networks connect the region to the rest of the United States The area is only a few hours drive from Toledo and Cleveland, Ohio; Chicago, Illinois; and Toronto, Ontario The Ambassador Bridge, Detroit-Windsor Tunnel, and Blue Water Bridge also make Automation Alley a connector for the United States and Canada In 2007, 1 million trucks crossed the US Border in Detroit, making it the busiest border crossing for trucks In Port Huron, there were 770,000 truck crossings, making it the fifth busiest crossing 3 Rail and water networks also facilitate trade between Automation Alley and the rest of North America The Port of Detroit spans 35 acres along the Detroit River, providing an international shipping port for businesses in Automation Alley In 2006, nearly $900 million in goods were imported through the Detroit/ Wayne County Port and more than $32 billion were exported At the Port of Port Huron in St Clair County, an additional $152 million in goods were imported in 2006 and $12 billion were exported 4 Port Huron was also the busiest port for train crossings with 4,459 in 2007 Detroit was fourth busiest with 3,546 train crossings last year 5 There are several airports that service Automation Alley, making travel for leisure or business convenient In 2007, Detroit Metro Airport serviced over 15 million passengers on over 200,000 passenger flights, making it the 11th largest airport in the country 6 Other Automation Alley airports include Willow Run in Wayne County, Bishop International in Genesee County, and Oakland County International in Oakland County 3 United States Bureau of Transportation Statistics, Intermodal Transportation Database 4 http://wwwworldportsourcecom report of data from STAT-USA and the Foreign Trade Division, US Census 5 United States Bureau of Transportation Statistics, Intermodal Transportation Database 6 United States Bureau of Transportation Statistics, Intermodal Transportation Database Anderson Economic Group, LLC 9

Automation Alley: Regional Overview POPULATION DATA AND TRENDS With a population of 53 million, Automation Alley is home to over half of all Michigan residents, as shown in Table 2 below Between 2000 and 2007, Automation Alley s population changed little, increasing by just 010 percen per yeart, while population across the United States increased by 096 percent annually From 2006 to 2007 both Automation Alley and the State of Michigan saw slight decreases in population despite continued population growth for the nation as a whole TABLE 2 Population in Recent Years Annual 2000 2006 2007 Change 2000-2007 2006 to 2007 Change Automation Alley 5,277,403 5,341,636 5,313,906 010% -052% State of Michigan 9,955,417 10,107,940 10,071,822 017% -036% United States 282,194,308 298,754,819 301,621,157 096% 096% Source: US Census Bureau, 2007 Population Estimates, Census 2007 Analysis: Anderson Economic Group, LLC Population Density As shown in Figure 5, Population Density in Automation Alley, on page 13, the region includes three densely populated urban areas, including Greater Detroit, Ann Arbor, and Flint The region also includes a growing suburban ring and more sparsely populated rural and agricultural outer areas In recent years, population density has been increasing in areas outside the main urban centers, though this trend has slowed with higher gas prices and less demand in the housing market Areas of recent growth include Livingston County, North and Northwest Oakland County, and Northern Macomb County INCOME DATA AND TRENDS TABLE 3 Per Capita Income Throughout the 1990s, Automation Alley saw steady growth in per capita income This growth has slowed, however, from 2000 to 2006 While the country as a whole experienced an annual average 27 percent increase in per capita income, Automation Alley and Michigan saw less than 14 percent average annual growth The State of Michigan has fallen below the national average per capita income level, but Automation Alley has maintained a per capita income above the country average 2000 2006 Annual Change (2000-2006) Automation Alley $24,405 $26,294 125% State of Michigan $22,168 $24,097 140% United States $21,587 $25,267 266% Source: US Census Bureau, American Factfinder Analysis: Anderson Economic Group, LLC Anderson Economic Group, LLC 10

Automation Alley: Regional Overview More detailed information on the demographic data that is presented in this section can be found in Appendix D: Demographic and Socioeconomic Data on page D-1 WORKFORCE DATA AND TRENDS Labor Force According to the US Bureau of Labor Statistics, approximately 51 percent of Michigan s 2007 labor force was located in Automation Alley Unfortunately, a larger share (54 percent) of the state s unemployed labor force was also in Automation Alley, as the region s unemployment rate for 2007 was 75 percent Also notable is that the overall size of the labor force in both Automation Alley and in Michigan has continued to decrease in recent years This may be due to people moving out of the state or voluntarily leaving the workforce because they are not able to find work For a visual of labor force trends, see Figure 4, Unemployment Rate in Automation Alley, Michigan, and Nation, on page 12, and for detailed unemployment data, see Appendix D: Demographic and Socioeconomic Data Education In 2006, approximately 87 percent of Automation Alley s adult population had graduated from high school or obtained an equivalent degree, and 17 percent of Automation Alley s population had graduated from college with at least a bachelor s degree In addition, 11 percent of Automation Alley s population hds obtained a graduate or professional degree This is slightly higher than national and statewide statistics Within Automation Alley, counties that stand out are Washtenaw, Livingston, and Oakland all have adult populations where more than 21 percent hold at least a bachelors degree, which exceeds the national average of 172 percent These rates have also been increasing over the years See Table 4 below for more information For detailed education data by county in Automation Alley, see Table 4 on page D-6 TABLE 4 Education Attainment by Adult Population, 2006 High school graduate and beyond Graduate or professional degree persons 25 years+ Associate s degree Bachelor s degree Automation Alley 3,503,374 3,054,623 257,792 577,849 369,821 State of Michigan 6,638,666 5,788,917 514,685 1,016,033 609,429 United States 195,932,824 164,779,505 14,486,202 33,496,187 19,394,708 Source: US Census Bureau, American Factfinder Analysis: Anderson Economic Group, LLC Anderson Economic Group, LLC 11

Automation Alley: Regional Overview FIGURE 4 Unemployment Rate in Automation Alley, Michigan, and Nation 110 Unemployment rate (%), seasonally adjusted 100 90 80 70 60 50 40 Automation Alley Michigan Nation 30 20 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Data Source: US Bureau of Labor Statistics, Local Area Unemployment Statistics; National Statistics (Current Population Survey) Analysis: Anderson Economic Group, LLC ADDITIONAL DEMOGRAPHIC DATA Detailed demographic data is presented in Appendix D: Demographic and Socioeconomic Data Data is presented for the State of Michigan, the nation, Automation Alley as a whole, and for each individual county Anderson Economic Group, LLC 12

Automation Alley: Regional Overview FIGURE 5 Population Density in Automation Alley Tuscola County Saginaw County 75 Sanilac County Genesee County Flint Lapeer County Blue Water Bridge Shiawassee County 69 Bishop International 69 St Clair County 75 94 Macomb County 96 Livingston County 59 Oakland County Sterling Heights 696 Warren 23 Livonia Detroit Washtenaw County Ann Arbor 24 Wayne County Detroit-Windsor Tunnel Ambassador Bridge 12 Detroit Metropolitan Wayne County 275 Canada 75 Legend Lenawee County Monroe County 1 Dot = 200 2007 Population Canada Crossings 23 Automation Alley's HQ Toledo Automation Alley Lucas County Fulton County Toledo Express Wood County Miles Ottawa County 0 5 10 20 30 Analysis: Anderson Economic Group, LLC 2008 Data: Base map and data provided by ESRI, Inc 2007 Anderson Economic Group, LLC 13

Defining the Technology Industry III Defining the Technology Industry The first step in any successful industry analysis is to properly define the industry To do this for the technology industry, we have derived a definition using North American Industry Classification System (NAICS) codes, which is how the United States Census reports industry data This definition provides a solid foundation for our analysis and makes possible the year-to-year data comparisons that illustrate the evolution of the industry Table 5 depicts our definition of the technology industry, by cluster The methodology used to define the technology industry is described in greater detail in Appendix A: Technology Definition Methodology This definition is consistent with that used in our prior technology industry assessments for Automation Alley TABLE 5 Definition of the Technology Industry by Cluster NAICS Industry Title Advanced Automotive 3361 Motor Vehicle Manufacturing 3362 Motor Vehicle Body & Trailer Manufacturing 3363 Motor Vehicle Parts Manufacturing Advanced Manufacturing 3329 Other Fabricated Metal Product Manufacturing 3331 Agriculture, Construction, & Mining Machinery Manufacturing 3332 Industrial Machinery Manufacturing 3333 Commercial & Service Industry Machinery Manufacturing 3336 Engine, Turbine, & Power Transmission Manufacturing 3339 Other General Purpose Machinery Manufacturing 3345 Navigational, Measuring, Electromedical, & Control Instruments Manufacturing 3353 Electrical Equipment Manufacturing 3359 Other Electrical Equipment & Component Manufacturing 3364 Aerospace Product & Parts Manufacturing 3369 Other Transportation Equipment Manufacturing Chemical and Material 3241 Petroleum & Coal Products Manufacturing 3251 Basic Chemical Manufacturing 3252 Resin, Synthetic Rubber, Artificial Synthetic Fibers, & Filaments Manufacturing 3253 Pesticide, Fertilizer, & Other Agricultural Chemical Manufacturing 3255 Paint, Coating, & Adhesive Manufacturing 3256 Soap, Cleaners, & Toilet Preparation Manufacturing Anderson Economic Group, LLC 14

Defining the Technology Industry TABLE 5 Definition of the Technology Industry by Cluster (Continued) NAICS Industry Title 3259 Other Chemical Product & Preparation Manufacturing Information Technology 3341 Computer & Peripheral Equipment Manufacturing 3342 Communications Equipment Manufacturing 3343 Audio & Video Equipment Manufacturing 3344 Semiconductor & Other Electronic Component Manufacturing 3346 Manufacturing & Reproducing Magnetic & Optical Media 5112 Software Publishers 5161 a Internet Publishing & Broadcasting 5171 Wired Telecommunications Carriers 5172 Wireless Telecommunications Carriers (except Satellite) 5173 Telecommunications Resellers 5174 Satellite Telecommunications 5179 Other Telecommunications 5181 b Internet Service Providers & Web Search Portals 5182 Data Processing, Hosting, & Related Services 5415 Computer Systems Design & Related Services Life Sciences 3254 Pharmaceutical & Medicine Manufacturing 3391 Medical Equipment & Supplies Manufacturing 5417 Scientific R&D Services Other Technologies 2111 Oil & Gas Extraction 4234 c Professional & Commercial Equipment & Supplies Merchant Wholesalers 5413 Architectural, Engineering, & Related Services a Year 2002 NAICS 5161, 5171, 5172, 5173, 5174, and 5179 were substituted with year 1997 NAICS 5133 for 1998-2002 data analysis b Year 2002 NAICS 5181 and 5182 were substituted with year 1997 NAICS 5140 for 1998-2002 data analysis c Year 2002 NAICS 4234 was substituted with year 1997 NAICS 4214 for 1998-2002 data analysis Anderson Economic Group, LLC 15

The Technology Industry in Automation Alley IV The Technology Industry in Automation Alley TECHNOLOGY IN AUTOMATION ALLEY: THE BIG PICTURE The technology industry is a central part of Automation Alley s economy In 2006, the region s technology industry had 311,438 employees, representing nearly 15 percent of the region s private sector employment The industry s payroll totaled $219 billion, representing more than 23 percent of all private sector payroll in the region 7 The average wage paid to an Automation Alley technology industry employee was $70,311 a 18 percent increase over the 2005 average wage, and well above the industry s $52,904 average wage in 1998 See Figure 6 and Figure 7, as well as Appendix E: Automation Alley Technology Industry Data TABLE 6, Payroll, and Automation Alley Technology Industry Est Est 1998 361,900 $19,146,016 $52,904 7,550 591 8,142 2004 332,531 $21,847,549 $65,701 7,632 518 8,150 2005 312,412 $21,577,557 $69,068 7,529 508 8,037 2006 311,438 $21,897,585 $70,311 7,384 502 7,886 Change from 2005-2006 -03% 15% 18% -19% -12% -19% Source: Anderson Economic Group, LLC Data: US Census Bureau, County Business Patterns Relative Industry Size The technology industry accounts for a much larger share of total employment and payroll in Automation Alley than in the State of Michigan, and the country as a whole As shown in Table 7 and Table 8, 147 percent of all private sector employment in Automation Alley is in the technology industry, compared to only 128 percent for Michigan and 91 percent for the United States as a whole Not surprisingly, this trend holds for payroll as well, with 234 percent of Automation Alley s private-sector payroll being generated by the technology industry, compared to 210 percent for the state, and 151 percent for the country These measures of employment and payroll concentration show that Automation Alley is a clear leader in the technology industry, not only at home in Mich- 7 According the the United State Census Bureau, County Business Pattern data does not include government employees, except those working in federally-chartered savings institutions, Federally-chartered credit unions, and hospitals Anderson Economic Group, LLC 16

The Technology Industry in Automation Alley igan, but also on the national level Further, this strength is not solely dependent on the automotive industry, which has fueled Automation Alley s economy for decades Excluding advanced automotive, the region still has 94 percent of its total employment and 154 percent of payroll in the technology industry, compared to 81 percent employment and 140 percent payroll for the state, and 83 percent employment and 141 percent payroll for the nation FIGURE 6 Technology Industry s Share of in Automation Alley, 2006 FIGURE 7 Technology Industry s Share of in Automation Alley, 2006 Anderson Economic Group, LLC 17

The Technology Industry in Automation Alley TABLE 7 Share of in Technology Industry by Sector, 2006 Automation Alley State of Michigan United States Advanced Automotive 53% 47% 08% Advanced Manufacturing 15% 19% 18% Chemical and Material 04% 06% 05% Information Technology 27% 20% 31% Life Sciences 17% 14% 10% Other Technologies 31% 22% 18% Technology Industry 147% 128% 91% Source: Anderson Economic Group, LLC TABLE 8 Share of in Technology Industry, by Sector, 2006 Automation Alley State of Michigan United States Advanced Automotive 80% 70% 10% Advanced Manufacturing 20% 26% 26% Chemical and Material 06% 09% 08% Information Technology 41% 32% 55% Life Sciences 38% 35% 20% Other Technologies 50% 38% 32% Technology Industry 234% 210% 151% Source: Anderson Economic Group, LLC TECHNOLOGY INDUSTRY SECTORS As noted earlier, we have defined the technology industry by NAICS industry codes, which group businesses by their primary activity In total, we identified 42 four-digit NAICS sectors that represent the technology industry We then grouped these sectors by business activity and identified six main sectors: Advanced Automotive Chemical and Material Life Sciences Advanced Manufacturing Information Technology Other Technologies The composition of Automation Alley s technology industry, by sector, is shown in Figure 8, which can be compared with Figure 9 to see how the industry mix has changed over time Advanced Automotive remains the largest component of the technology industry in Automation Alley, accounting for 36 percent of employment, but its role is less significant than it was in 1998, when it accounted for 45 percent of employment The life sciences and the other technologies sectors have grown to represent larger shares of the region s technol- Anderson Economic Group, LLC 18

The Technology Industry in Automation Alley ogy industry, providing a more diverse base in which workers can search for employment FIGURE 8 by Technology Sector in Automation Alley, 2006 FIGURE 9 by Technology Sector in Automation Alley, 1998 Anderson Economic Group, LLC 19

The Technology Industry in Automation Alley ADVANCED AUTOMOTIVE SECTOR Automation Alley s advanced automotive sector, which includes the industry sectors shown in Table 9, is comprised of companies that use and develop technologies in the manufacturing and development of motor vehicles and motor vehicle components This includes automobile manufacturing, truck trailer manufacturing, other motor vehicle electrical and electronic equipment manufacturing, motor vehicle brake system manufacturing, and other such businesses Also included in the sector are research units that focus on technologies such as vehicle safety and alternative energy sources TABLE 9 The Advanced Automotive Sector and Subsectors NAICS Industry Title 3361 Motor Vehicle Manufacturing 3362 Motor Vehicle Body & Trailer Manufacturing 3363 Motor Vehicle Parts Manufacturing The advanced automotive sector employed 112,542 people in 2006, accounting for 361 percent of the region s technology employment and 53 percent of total private sector employment This high concentration of employment shows that Automation Alley is still a dominant region when it comes to the automotive industry The location quotient for Automation Alley s advanced automotive sector was 114 compared to Michigan, and 632 compared to the nation in 2006 This indicates that the industry was 632 times more concentrated in Automation Alley than it was at the national level From 2005 to 2006, the most recent period for which data is available, Automation Alley s advanced automotive sector shrank in terms of employment and establishments, continuing the recent trend and reflecting the struggles of the overall automobile industry The decline, however, was less severe than in prior years Further, average wages declined slightly, but remain well above the 1998 level Within the sector, the motor vehicle manufacturing (NAICS 3361) and motor vehicle parts manufacturing (NAICS 3363) subsectors were by far the largest and most concentrated in Automation Alley, with 2006 location quotients of 928 and 685, respectively, when compared to national industry employment In fact, the data show that 164 percent of all motor vehicle manufacturing and 121 percent of all motor vehicle parts manufacturing in the United States are concentrated within Automation Alley Anderson Economic Group, LLC 20

The Technology Industry in Automation Alley TABLE 10, Payroll, and - Advanced Automotive Sector, 1998-2006 Est Est 1998 163,485 $8,743,020 $53,479 362 200 562 2004 127,832 $7,984,235 $62,459 375 180 555 2005 117,401 $7,858,227 $66,935 359 177 536 2006 112,542 $7,454,308 $66,236 352 171 523 Change from 2005-2006 -41% -51% -10% -20% -34% -24% Source: Anderson Economic Group, LLC Data: US Census Bureau, County Business Patterns FIGURE 10 Share of in Advanced Automotive Sector, 2006 Anderson Economic Group, LLC 21

The Technology Industry in Automation Alley ADVANCED MANUFACTURING SECTOR Businesses in the advanced manufacturing sector develop and utilize technologies for manufacturing processes not directly involving motor vehicles This includes manufacturers of office machines; industrial manufacturing equipment; air and gas compressors; fluid power cylinders (eg, hydraulic and pneumatic); electron tubes (cathode ray tubes); aircraft manufacturing; and process, physical distribution, and logistics consulting services TABLE 11 The Advanced Manufacturing Sector NAICS Industry Title 3329 Other Fabricated Metal Product Manufacturing 3331 Agriculture, Construction, & Mining Machinery Manufacturing 3332 Industrial Machinery Manufacturing 3333 Commercial & Service Industry Machinery Manufacturing 3336 Engine, Turbine, & Power Transmission Manufacturing 3339 Other General Purpose Machinery Manufacturing 3345 Navigational, Measuring, Electromedical, & Control Instruments Manufacturing 3353 Electrical Equipment Manufacturing 3359 Other Electrical Equipment & Component Manufacturing 3364 Aerospace Product & Parts Manufacturing 3369 Other Transportation Equipment Manufacturing The advanced manufacturing sector employed 32,453 people in 2006, which was 104 percent of all technology employment in Automation Alley After exhibiting a decline in total employment between 1998 to 2003 and employment growth between 2003 and 2004, the advanced manufacturing sector again experienced 39 percent growth from 2005 to 2006 The total number of advanced manufacturing establishments fell slightly from 2005 to 2006 (from 877 to 875), but total payroll increased by 20 percent during that period The average wage declined 18 percent from 2005 to 2006, as the growth in employment outpaced the growth in payroll The 2006 location quotient for the sector was 079 compared to Michigan, and 084 compared to the nation Within this sector, the engine, turbine, and power transmission equipment and other general purpose machinery manufacturing subsectors had location quotients of 213 and 178 relative to the nation, showing some specific areas of concentration within the region Anderson Economic Group, LLC 22

The Technology Industry in Automation Alley TABLE 12, Payroll, and - Advanced Manufacturing Sector, 1998-2006 Est Est 1998 46,886 $2,355,793 $50,245 970 93 1,063 2004 32,876 $1,842,821 $56,054 849 62 911 2005 31,243 $1,860,428 $59,547 810 67 877 2006 32,453 $1,897,062 $58,456 804 71 875 Change from 2005-2006 39% 20% -18% -07% 60% -02% Source: Anderson Economic Group, LLC Data: US Census Bureau, County Business Patterns FIGURE 11 Share of in Advanced Manufacturing Sector, 2006 Anderson Economic Group, LLC 23