Rural Knowledge Clusters: The Challenge of Rural Economic Prosperity

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Rural Knowledge ClustersThe Challenge of Rural
Economic Prosperity

• Lee W. Munnich, Jr.
• Senior Fellow and Director,
• State and Local Policy Program
• Humphrey Institute of Public Affairs
• University of Minnesota

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Overview

• The Challenge of Rural Economic Prosperity
• Rural Knowledge Clusters as a Model of Rural
  Innovation
• Case Studies Evidence of Rural Knowledge
  Clusters
• Key Findings and Implications for Economic
  Development

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1. The Challenge of Rural Economic Prosperity

• Double-edged sword Access to global markets but
  exposure to global competition
• Rural areas produce goods vulnerable to changing
  export conditions
• Rural disadvantages affect performance
• geographic (inability to achieve equivalent
  economies of scale and specialized division of
  labor)
• structural (migration from rural communities)
  help to explain the underperformance of rural
  economies relative to urban ones.
• Rural areas have lower levels of educational
  attainment, patenting and venture capital
  investment than metropolitan areas

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The Knowledge Economy

• In todays economy, innovation is survival, no
  matter what your product or service line is.
• Any innovation requires knowledge about the
  technologies, processes, markets, etc., that make
  it work
• The economic development challengeproviding a
  fertile environment for innovation

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2. Rural Knowledge Clusters as a Model of Rural
Innovation

• Rural knowledge clusters A definition
• Innovative, interrelated groups of firms
• Located outside metropolitan areas
• Deriving competitive advantages through
  accumulated, embedded, and imported knowledge
  among local actors and institutions.

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Models Become Important for Economic Development
Practice

• Deindustrialization in 1970s and early 1980s led
  to renewed focus on industrial location and
  regional competitiveness
• Growing interest in models of innovative and and
  competitive economies
• Silicon Valley emerging center of global
  high-tech development free-wheeling
  entrepreneurship synergistic relationships
  between higher education and industry (Saxenian
  1994)
• Third Italy flexible specialized networks of
  small producers in relatively low-tech sectors
  like shoe production (Piore and Sabel 1984)

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Industry Clusters as an Economic Development
Strategy

• Michael Porter, The Competitive Advantage of
  Nations (1990), drew together reemergent theories
  of regional development with elements of business
  strategy to explain internal dynamics of
  successful economies in terms of key industry
  clusters
• Countless states, regions and localities
  throughout the world have adopted
  cluster-basedeconomic development strategies
  (Wait 2000).

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Michael PortersDiamond of Advantage
Chance

Government

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SLPP Industry Cluster Studies in Minnesota

• 1995 Twin Cities
• 1996 Southeast Minnesota
• 1998 Southwest Minnesota
• 1998 Northwest Minnesota
• 2001 Northeast Minnesota

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Rural Knowledge Cluster Studies

• University of Minnesota Extension concept
  development
• Minnesota State Colleges and Universities case
  studies
• Economic Development Administration review of
  literature and practice
• USDA Fund for Rural America research,
  application, education

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Rural Knowledge Clusters What Matters?

• Competitive advantage e.g. a rich base of
  skilled workers, access to proximate market
  opportunities, local entrepreneurial culture
• Historical development and evolution of local
  knowledge base rarely appears out of thin air
• Institutions formal and informal foster the
  creation, diffusion, and renewal of the local
  knowledge base

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3. Case Study Evidence of Rural Knowledge
Clusters in Minnesota

• Wireless and radio frequency technologies
  (Mankato)
• Automation and motion control technologies
  (Alexandria)
• Recreational transportation equipment (Northwest
  Minnesota)
• Advanced composite materials (Winona)
• Precision Agricultural Machinery (Southwest
  Minnesota)

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Case Study Questions

• What is the history of the cluster? What
  individuals have been most important to its
  development?
• What is the knowledge base embodied in this
  cluster? What indicators of knowledge can be
  identified?
• What companies and industries comprise this
  knowledge cluster? What institutions relate to
  them and what role have they played?

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Mankato Key Facts

• Population (2000) 105,238
• Major Cities
• Mankato 32,427
• North Mankato 11,798
• Waseca 8,493
• Population Density (pop/sq mi) 65
• (Twin Cities 601 MN state 62)
• Population Growth (1990-2000) 5
• (MN non-metro 4 US non-metro 9)
• Job Growth (1990-2000) 26
• (MN non-metro 25 US non-metro18)
• Blue Earth, Nicollet and Waseca Counties
• Source Census Bureau Bureau of Economic
  Analysis

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Mankato Wireless and Radio Frequency Technologies

• Key Industries
• Telecommunications Services(NAICS 5133/SIC
  4812) 
• 2000 Employment 500, 2 more concentrated than
  U.S. overall
• Semiconductor other electronic component
  manufacturing (NAICS 3344/SIC 3679)
• 2000 Employment 1,043, 333 more concentrated
  than U.S. overall
• Communications equipment mfg (NAICS 3342/SIC
  3661)
• 2000 Employment 384, 255 more concentrated than
  U.S. overall
• Source County Business Patterns

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Mankato Wireless and Radio Frequency Technologies

• Key Employers
• EI Microcircuits (Mankato) 162 employees
• EF Johnson Co. (Waseca) 243 employees
• HickoryTech (Mankato) 525 employees
• Johnson Components (Waseca) 210 employees
• Midwest Wireless (Mankato) 356 employees
• PrePaid Systems (Mankato) 5 employees
• Thin Film Technology (North Mankato) 130
  employees
• Winland Electronics (Mankato) 107 employees
•  
• Source MN Dept of Trade and Econ Development

 
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• Mankato Rural Knowledge Cluster Profile

• Competitive Advantages
• Skilled, specialized labor force
• Diverse market opportunities
• Cooperative interfirm relations

• Firms and Industries
• Wireless service providers
• Electronic components for wireless applications
• Training in wireless technology

• History
• EF Johnson radio manufacturer, incubator of
  local talent
• Informal networking through ham radio club

• Wireless and radio frequency technologies

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Alexandria Key Facts

• Population (2000) 210,059
• Major Cities
• Alexandria 8,820
• Fergus Falls 13,471
• Moorhead 32,177
• Population Density (pop/sq mi) 26
• (Twin Cities 601 MN state 62)
• Population Growth (1990-2000) 6
• (MN non-metro 4 US non-metro 9)
• Job Growth (1990-2000) 25
• (MN non-metro 25 US non-metro 18)
• Becker, Clay, Douglas, Grant, Otter Tail, Pope,
  Stevens, Traverse, and Wilkin counties (Region
  4).
• Source Census Bureau Bureau of Economic
  Analysis

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Alexandria Automation and Motion Control
Technologies

• Key Industries
• Packaging Machinery (NAICS 3339/SIC 3565)
• 2000 Employment 1,209, 446 more concentrated
  than U.S. overall
• Machine Shops and Related (NAICS 3327/SIC
  3599, 3451, 3452)
•  2000 Employment 844, 210 more concentrated
  than U.S. overall
•  
• Source County Business Patterns

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Alexandria Automation and Motion Control
Technologies

• Key Employers
• 3M (Alexandria) 317 employees
• Alexandria Extrusion (Alexandria) 274 employees
• Brenton Engineering (Alexandria) 127 employees
• Douglas Machine (Alexandria) 492 employees
• Minnesota Automation (Crosby) 120 employees
• Massman Automation (Villard) 100 employees
• Schott Automation (Garfield) 35 employees
• Thiele Engineering (Fergus Falls) 81 employees
•  Source MN Dept of Trade and Econ Development

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• Competitive Advantages
• Industry collective action around shared needs
• Shortage of skilled labor in related industries

• Firms and Industries
• Industry packaging and material handling
  machinery
• Other light manufacturing industries

• Institutions
• Alexandria Technical College, Ctr for Automation
  Motion Control
• MN Mfg Automation Coalition
• Tri-State Manufacturers Assoc.
• Minnesota Technology Inc.
• West Central Initiative

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Northwest Minnesota Key Facts

• Population (2000) 88,472
• Major Cities
• Crookston 8,192
• East Grand Forks 7,501
• Roseau 2,756
• Thief River Falls 8,410
• Population Density (pop/sq mi) 11
• (Twin Cities 601 MN state 62)
• Population Growth (1990-2000) -2
• (MN non-metro 4 US non-metro 9)
• Job Growth (1990-2000) 16
• (MN non-metro 25 US non-metro 18)
•  
• Kittson, Marshall, Norman, Pennington, Polk, Red
  Lake, Roseau counties (Region 1)
• Source Census Bureau Bureau of Economic Analysis

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Northwest Minnesota Recreational Transportation
Equipment

• Key Industries
• Other transportation equipment
  manufacturing (NAICS 3369/SIC 3799)
• 2000 Employment 2,197, 20,500 more concentrated
  than U.S. overall
• Source County Business Patterns

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Northwest Minnesota Recreational Transportation
Equipment

• Key Employers
• Arctic Cat (Thief River Falls) 1,500 employees
• Machinewell (Grygla) 110 employees
• Polaris Industries (Roseau) 2,100 employees
• TEAM Industries (Bagley) 250 employees
• Source MN Dept of Trade and Economic Development

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• Competitive Advantages
• Demanding local customers
• Intense interfirm rivalry
• Diffusion to new products and industries

• Firms and Industries
• Snowmobile manufacturing
• All-terrain vehicles
• Equipment suppliers and machine shops

• Institutions
• Northland Community Technical College
• Minnesota Job Skills Partnership
• Racing culture snowmobile racing circuit

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Winona Key Facts

• Population (2000) 112,517
• Major Cities
• Winona 27,069
• Lake City 5,054
• Population Density (pop/sq mi) 44
• (Twin Cities 601 MN state 62)
• Population Growth (1990-2000) 5
• (MN non-metro 4 US non-metro 9)
•  Job Growth (1990-2000) 21
• (MN non-metro 25 US non-metro 17)
• Blue Earth, Nicollet and Waseca counties
• Source Census Bureau Bureau of Economic Analysis

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Winona Advanced Composite Materials

• Key Industries
• Custom compounding of purchased resin (NAICS
  325991/SIC 3087)
•  2000 Employment 517, 537 more concentrated
  than U.S. overall
• All other plastics products manufacturing
  (NAICS 326199/SIC 3089)
•  2000 Employment 241, 30 more concentrated than
  U.S. overall
•  
• Source County Business Patterns

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Winona Advanced Composite Materials

• Key Employers
• RTP Company (Winona) 407 employees
• Cytec Engineering (Winona) 175 employees
• Ticona Celstran (Goodview) 69 employees
• We-no-nah Canoe (Winona) 75 employees
• Watlow Polymer Technologies (Winona) 24 employees
• AFC Strongwell (Chatfield) 200 employees
• Composite Products Inc. (Winona) 50 employees
• CodaBow Composites (Winona) 15 employees
• Miken Composites (Caledonia) 15 employees
• Geotek (Stewartville) 35 employees
•  Source MN Dept of Trade and Economic
  Development

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• Competitive Advantages
• Diverse local industry base
• Skilled worker base around composite engineering
• Cooperative relationships

• Firms and Industries
• Composite materials producers
• Existing products improved through use of
  composite materials (i.e. canoes, heated
  plastics, automotive products, violin bows)

• History
• Miller Brothers formed Fiberite after WWII
• Initial growth in aerospace, military
  applications
• Spinoff/startup activity to new firms

• Institutions
• SAMPE professional society
• Winona St composite eng
• COMTEC applied RD/testing
• Winona Composites Consortium
• Technical college custom training, technical
  education

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Southwestern MinnesotaPrecision Agricultural
Equipment

• Agricultural sprayer technology
• Potential pitfall of having a cluster of
  companies doing essentially the same thing,
  rather than diverse activities around the same
  technology
• Vulnerability that comes from non-local ownership

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4. Key Findings

• History and context are important in the
  development of rural knowledge clusters.
• A core knowledge base can be instrumental in
  driving multiple industries and applications.
• Developing comparable quantitative indicators of
  knowledge is extremely difficult.
• The acquisition of local firms by non-local firms
  can either bolster or threaten the vitality of
  rural knowledge clusters, depending on the
  circumstances.
• Two different strategic approaches can boost the
  vitality of rural knowledge clusters an
  institutional strategy and an entrepreneurial
  strategy.

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Implications for Economic Development

• Understand your local knowledge base.
• Foster linkages between firms and local
  institutions that support them
• Develop strategies for promoting innovation
  around rural knowledge clusters
• Dont try to go it alone promote a regional
  vision to guide local strategies

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For further information contact Lee W.
Munnich, Jr. Senior Fellow and Director,
State and Local Policy Program Humphrey
Institute of Public Affairs University of
Minnesota

• Lmunnich_at_hhh.umn.edu
• http//www.hhh.umn.edu/centers/slp/
• [phone]