1

Industry Clusters in Appalachia: Key Sectors, Trends and Development Potential

Presented by Lisa Petraglia, EDR Group, Inc. and Greg Bischak, ARC

ARC Fall ConferenceOctober 6th, 2005

What is an Industry Cluster?• Industry clusters are geographic concentrations

of interconnected businesses and institutions that enhance the productivity of the core industries through the growth of:• Complementary goods and services;• Supplier & buyer networks;• Specialized local labor markets;• Exchange of information and technical knowledge;• Competitive and collaborative relationships among

firms and institutions.

2

Alfred Marshall’s “Industrial Districts”First Framed Cluster Idea

• “When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighborhood to one another” Principles of Economics, 1890

Common Cluster Examples

• Auto industry and related products and services:• Detroit, MI; Turin, Italy; Nagoya, Japan.

• Information and computer technologies:• Silicone Valley, CA; Austin, Texas, Route

128, MA;• Motion picture industry:

• Hollywood, CA; Rome Italy, Paris, France.

3

Kernel of Core Industries

ProfessionalServices

Technical Services

Education &Training

Generic Industry Cluster

Raw Materials &Semi-finished

Goods

Marketing &Distribution

Process & Production Machinery

Customers Exports

The Cluster Advantage• Clusters affect the competitive potential of core

industries by:• Enhancing productivity;• Spurring innovation;• Increasing export potential;• Stimulating business formation.

• Businesses enjoy economies of scale from region’s shared assets and relationships.

• Growth in business income and demand for subsidiary services reinforces cluster assets.

4

Appalachia’s Cluster’s• Automobiles, Auto-parts and Related Products

Industries (AL, SC, NC, TN, KY, GA, OH, PA, MS, and WV).

• The Furniture and Related Products Industries (MS, NC, AL and TN).

• The Wood Products Industry (MS, KY, NC, PA, TN, WV, OH, NY, and others).

• The Textiles and Related Products Industries (GA, NC, and SC).

• The Apparel and Related Products Industries (widely distributed throughout region).

5

Other Regional Clusters

• Industrial machinery (PA and SC). • Medical devices in Pittsburgh, Pennsylvania.• Electronic components in Binghamton, New York.• Chemicals & Plastics (PA, OH, and WV).• Environmental technologies (widely distributed).

• (Sources: Exports, Competitiveness, and Synergy in Appalachian Industry Clusters, Rosenfeld, Ed. ARC, 1997; and Economic Development Role of Business Associations Serving Appalachian Industries, Lynn McCormick, ARC, 2000.

Industrial Clustering in the Appalachian Region - Forestry

Location Quotients

59.5 – 587.0

34.8 – 59.4

12.6 – 34.7

1.1 – 12.5

Randolph County, WV

Calhoun County, MS

Potter County, PA

6

Industrial Clustering in the Appalachian Region - Logging

Location Quotients

45.5 – 89.2

20.1 – 45.4

7.2 – 20.0

1.0 – 7.1

Randolph County, WV

Calhoun County, MS

Potter County, PA

Industrial Clustering in the Appalachian Region -

Location Quotients

46.8 – 76.6

23.6 – 46.7

10.1 – 23.5

1.0 – 10.0

Sawmills &

PlaningMills

Randolph County, WV

Calhoun County, MS

Potter County, PA

7

Industrial Clustering in the Appalachian Region -

Location Quotients

208.1 – 467.0

89.0 – 208.0

27.6 – 88.9

1.0 – 27.5

Dimension Hardwood & Flooring

Mills

Randolph County, WV

Calhoun County, MS

Potter County, PA

Industrial Clustering in the Appalachian Region -

Location Quotients

350.8 – 608.0

174.6 – 350.7

64.9 – 174.5

1.0 – 64.8

UpholsteredHouseholdFurniture

Calhoun County, MS

8

Industrial Clustering in the Appalachian Region -

Location Quotients

54.3 – 112.5

30.3 – 54.2

9.0 – 30.2

1.2 – 8.9

Wood Office Furniture

Calhoun County, MS

Industrial Clustering in the Appalachian Region -

Location Quotients

107.3 – 196.4

48.8 – 107.2

13.1 – 48.7

1.0 – 13.0

Furniture and

Fixtures, NEC

9

Appalachia’s Key Industries & Trends

Appalachia’s economy is specialized in manufacturing and mining:

• Appalachian jobs comprise 10.3% of US manufacturing jobs;

• 13.7% of US mining jobs;

• Growing jobs in durable goods;

• Declining jobs in most non-durables and mining sectors.

-200 -100 0 100 200 300 400 500 600 700 800 900

Thousands

DurablesNon-Durables

MiningConstruction

Trans&Pub UtilFin&Ins&Real

Retail TradeWholesale

ServicesAgri&For&Fish

State & LocalFederal

Federal MilFarm

Appalachian Job Changes 1992-2002

10

Producer Services in Appalachia

• A key component of cluster development is the growth of producer services supplied to goods producing sectors.

• Producer Services include: • finance, insurance and real estate.• professional services such as: legal, engineering and

architectural services, research & testing, management and public relations, and accounting, auditing and other services.

• business services include advertising, computer and data processing, services to buildings, rental & leasing.

Importance of Producer Services

• Producer services are vital for the retention and expansion of manufacturing in a region.

• Appalachia has a job gap in producer services, but the gap has narrowed over the last 15 years.• In 1997 there were 1 million jobs in 88,000

establishments in the producer services sectors.

• Up from a half million jobs in 1982.

• (draft study by Center for Economic Studies, U.S. Bureau of the Census, March 3, 2003)

11

The Knowledge-Based Economy of Appalachia

• Appalachia has 100 major science & technology clusters of businesses, universities & colleges and labs in related fields.

• Science & technology-related employment stood at 1.07 million workers in 1998.• (Regional Technology Assets and Opportunities

by Ed Feser & Harvey Goldstein, ARC, 2002)

Appalachia’s High-Tech Industry Clusters

• Chemicals and plastics; • Motor vehicles and related products; • Industrial machinery; • Information technology and instruments; • Aerospace; • Communications services and software; and • Pharmaceuticals and medical technologies.

12

Figure 38Technology clusters: Industrial machinery

Buffalo, Rochester

Albany-Schenectady

Reading, Allentown

Cincinnati, Middleton

Cleveland, Canton, Akron, Youngstown

Greenville-Spartanburg

Lynchburg

Binghamton

Johnstown

Erie

Pittsburgh

Mansfield

Charlotte

Asheville

Nashville-Davidson

Harrisburg

GA Tech

U. of Alabama, Huntsville

PennState

Cornell

U. of Tennessee, Knoxville

Greensboro

Statesville

Atlanta

Starkville, Columbus

Huntsville

Altoona

State College

Concentrations of both production (value-chain or S&T occ. employment) and innovation (patents, ranked universities, or federal innovation grants) are labeled. All indicators are specific to technology area.

ARC boundary

Map Legend

Sig. emp. Gi or LQ> 1.1, counties

Sig. patent Gi or LQ > 1.25, counties

Analysis buffer

Metro area, S&T workers LQ >1.25

Research universities, 1st Tier

Research universities, 2nd Tier

Two-year college completions, 1997/98> 750250 - 749100 - 249

=1-2 SBIR/STTR/ATP awards (scaled)

Figure 36Technology clusters: Chemicals & plastics

Cincinnati

Charleston

Huntsville, Decatur

Erie, Cleveland, Akron

Reading, Allentown

Newburgh

Buffalo, Rochester

State College

Binghamton

Albany-Schenectady

Washington, DC

Greenville, Spartanburg

Johnson City

Asheville

Parkersburg

Wheeling

Pittsburgh

Atlanta

ChattanoogaAuburn

Concentrations of both production (value-chain or S&T occ. employment) and innovation (patents, ranked universities, or federal innovation grants) are labeled. All indicators are specific to technology area.

ARC boundary

Map Legend

Sig. emp. Gi or LQ> 1.1, counties

Sig. patent Gi or LQ > 1.25, counties

Analysis buffer

Metro area, S&T workers LQ >1.25

Research universities, 1st Tier

Research universities, 2nd Tier

Two-year college completions, 1997/98> 750250 - 749100 - 249

=1-3 SBIR/STTR/ATP awards (scaled)

GA Tech

Penn State

Cornell

13

Research Strengths of Appalachian Universities & Colleges

• Competitive strengths in engineering, physical sciences and increasingly life sciences.

• Grants proportionately more degrees in:• Basic medical sciences, environmental engineering,

mathematics, materials engineering, biochemistry and biomedical engineering;

• Rising national rankings of research programs at:• Carnegie Mellon, Georgia Tech, Penn State, University of

Kentucky, Virginia Tech, Mississippi State, Ohio State and West Virginia University.

Economic Development Roles of Higher Education

• Two-year community and vocational colleges provide the capabilities to integrate advanced education with occupational training (120 in the Region).

• Four-year comprehensive and land grant colleges can focus technology transfer activities on local economic development to help foster entrepreneurial efforts (32).

• Over 100 four-year liberal arts colleges provide very good access to higher education throughout the region, especially in counties with higher poverty rates.

• There are 15 Research Universities located in the Region, and double that number adjacent to the Region.

14

Development Opportunities for Higher Educational Institutions

• Expand the institutional, curricular, and telecommunications linkages among the different tiers of higher education institutions to provide access to the high-tech assets and research of the research universities.

• Forge public-private partnerships with private, science-based corporations, federal labs, universities and private foundations to advance knowledge-based economic development projects.

Appalachia’s Challenges in Promoting Cluster Development

• Job gap in creation of high-wage jobs, particularly in information services, producer services and high-tech industries.

• More pronounced effects of global competition & trade adjustment.

• Shrinkage (out-migration) of “prime-age” workforce.

• Unleashing growth in Appalachian metro counties to neighboring rural counties in distress or at-risk.

15

Cluster Strategies for Appalachia

• Business formation in producer services.• Exploit entrepreneurial opportunities in producer services

related to branch plants.

• Promote technological, supplier & customer links among industries nearby in region.

• Strategic investment to improve educational attainment rates at all levels.

• Focused diversification strategies for distressed and at-risk counties.

• Investments in IT-services and training.

Visit www.edrgroup.com to obtain an electronic copy of this

presentation