Are Clusters the Future of Advanced Manufacturing?

October 2, 2012

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Much as Silicon Valley became the center of the tech revolution, many manufacturing firms are beginning to cluster in key regions, bolstering advanced manufacturing and setting a path for the future.

It’s no coincidence that Silicon Valley and Massachusetts’s so-called “Brainpower Triangle” are both within hours of two of the most prominent technology schools in the U.S.: California Institute of Technology (CalTech) in Pasadena and the Massachusetts Institute of Technology (MIT) in Cambridge. Once the first companies were well established and the next-generation companies began to flourish in these areas, other tech businesses began to pop up like mushrooms on a tree stump, forming “business clusters.”

A “business cluster” refers to an area that is home to many companies or organizations working within the same industry. The term was popularized by Harvard professor Michael Porter in his 1990 book, The Competitive Advantage of Nations, in which he describes how businesses can gain an edge by concentrating their resources in one area.

The ability to transition from a university setting to a business is a key element of establishing an industry cluster. The University of Toledo in Ohio is home to the Wright Center for Photovoltaics Innovation and Commercialization. It’s not a surprise, therefore, that Toledo has become a hot spot for the U.S. solar industry, with a concentration of investors, a critical mass of solar engineers and a rising cluster of start-ups and established solar companies, including First Solar, one of the world's largest manufacturers of photovoltaic modules.

Cluster benefits seem to be particularly significant in manufacturing. Early in their development, companies can gain real value from personal interactions, according to Dave Karpinski, vice president at nonprofit economic development group NorTech. Engineers can have physical access to the manufacturing floor to keep track of progress of designs, while entrepreneurs are able to meet like-minded people to explore new ideas or partnerships.

Companies can also benefit from the presence of trade associations. Manufacturers, resellers and suppliers in the same region form symbiotic relationships more easily and better understand one another’s businesses, and companies can more easily purchase or commission industry-specific equipment.

"The cycle of innovation can happen at a much higher rate of speed,” Karpinski told IndustryWeek.

Economic development groups like NorTech can help make clusters happen due to their skill in convincing new businesses about the benefits of geographic co-location. But business clusters can also arise by circumstance rather than design.

Areas suffering from layoffs may have a critical mass of unemployed workers with the right skills. This is partly why Chattanooga, Tenn., for example, is home to so many automotive manufacturing facilities.

Some industries’ waste products form the raw materials for other industries. The outskirts of Cleveland, Ohio, are becoming a center for biomass production facilities. The area’s location – surrounded by vast farmlands – means companies that operate anaerobic digestion plants that produce biofuel have plenty of raw materials in the form of agricultural waste.

U.S. manufacturers are struggling to fill jobs: Employers say they are unable to fill about 5 percent of open jobs because of a lack of skilled workers. New or expanding companies can benefit from locating in areas where their particular industry is understood and where there may be pools of skilled, experienced workers coming out of community college programs dedicated to certain sectors.

One of the reasons manufacturers are returning production to the U.S. from places such as China is because keeping research and development and manufacturing processes separated by continents (not to mention language and culture) presents obstacles to innovation.

In a 2008 book called Outsourcing America: The True Cost of Shipping Jobs Overseas and What Can be Done About It, authors Ron and Anil Hira write that “the prevailing management approach is to locate R&D as close to manufacturing production as possible. As manufacturing moves overseas, it is inevitable that both engineering work and R&D will follow.”

In other words, keeping manufacturing processes in the U.S. doesn’t simply retain manufacturing jobs – it may also have long-term implications for the U.S. economy.

The strategy of promoting manufacturing clusters to boost the economy isn’t lost on the Obama administration. Earlier this year, the White House launched a manufacturing initiative with a goal of boosting regional industry clusters by creating a network of economic development efforts and manufacturing assets. With a budget of $26 million for grants to innovators, the Advanced Manufacturing Jobs and Innovation Accelerator Challenge will target 12 industries for cluster development across the U.S.

It’s not merely a theory. Research has found that, on average, a company located within a business cluster experiences better chances of survival and stronger growth than a company located in isolation. Think of it as a mutual support network for manufacturing.

For a key providing the full listing of the manufacturing clusters specifically supported by the U.S. Small Business Administration, as seen in the map image attached to this article, please click HERE.

 

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