Untangling the Web of Clusters

As you search for new locations economic developers will boast about their industry clusters and why you need to be part of it. However, do you completely understand why locating in a cluster would be right for your company?

By Rachel Duran

http://bxjonline.com/bxj/article.asp?magarticle_id=622

With all the hype about industry clusters and corridors, it’s easy to lose sight of their true advantages of clusters. Here is how to truly understand the clustering concept and get past the marketing cluttering.

With clustering, it comes down to what type of industry you are involved in.

For instance, the biggest clustering, in terms of numbers of facilities and people, will be geographic clustering, says Dennis Donovan, director of global site selection, The Wadley-Donovan Group, a Grubb-Ellis Company, based in Edison, N.J.

“Clusters are more geographically driven by customer location as opposed to being industry driven, wherein companies are migrating because similar companies are there,” Donovan says. “I don’t see that happening to any great degree.”

He says companies are clustering geographically in industries such as plastics, auto, and aerospace with the emphasis on reducing costs throughout the entire supply chain. “This is creating the imperative for more regional manufacturing plants and of course distribution centers,” Donovan says. “This causes clustering far more so than what we see in the popular press, which is the biotech clusters. And those do exist.”

Donovan says that although geographic clustering is more prevalent than clustering where companies site based on a concentration of existing industry, he says this clustering is happening on a smaller scale. Those clusters include biotech, semiconductors, pharmaceuticals, and certain types of R&D, for example.

These clusters tend to be predominately in technology- sensitive sectors and apply more so to R&D operations as opposed to manufacturing or back- office, Donovan says.

He says high-tech clusters cut across industry lines. For example, one company may put in an R&D center for food processing, and another company may put in an R&D center for semiconductors. “They will rely on basically the same things: an attractive quality of life, good air service, or a reputation as a high-tech node,” Donovan says. “So you see a place like Austin, Texas or Colorado Springs or Boston attracting R&D centers for multiple industries. So, in a sense, that is clustering.”

True Value

While Although it greatly depends on what type of industry you are in, is there a universal way companies can determine the true value clusters? Yes, there is. “I would say there are three values,” says Dr. Kurt Dassel with the Monitor Group in Cambridge, Mass.

Dassel says successful clusters send a signal that risks are lower because other companies have succeeded over time. “There is something there that works,” he says.

Additionally, companies can be more efficient in a cluster because of the mass of talented workers. There will also typically be technical colleges and universities and even some K-12 programs that will cater to your business.

“There will also be a lot of suppliers, goods and services in a cluster,” Dassel says. “They can get materials to you faster and more cheaply. If there is a problem, you can interact with your suppliers to quickly solve the problem.”

Dassel says the third value of a cluster is the faster rate of innovation. “There are more talented people who are thinking of your line of business and coming up with new ideas,” he says. “So you learn about products and services more quickly.”

Another things companies should notice about a cluster is the level of collaboration between the public and private sectors working with higher education to improve the business environment. Notice if they are investing in schools and universities. Are they investing in the infrastructure? Are they creating organizations so companies can network better?

“If I see a partnership that has long-term staying power, I know this cluster can help me when problems arise,” Dassel says.

Donovan says companies should also look at the industry mix to determine the kinds of industries that could be attracted to an area. The companies don’t necessarily have to be in one cluster. There could be many companies outside of an industry that can take advantage of the resources in an area.

Donovan notes that 75 to 80 percent of sitings are branch operations attracted to areas that meet their specific needs. To these companies, it is in a sense irrelevant if whether a community promotes itself as a cluster because companies are gravitating toward resources they identify are associated within a community.

“For R&D, that is a different story,” Donovan says. “They are willing to pay a premium to be in an area with a concentration of comparable activities.”

Donovan offers a cautionary note for companies when it comes to clustering. He says although cluster development is increasing in the country, he thinks it is a gross miscalculation by some communities to promote clusters. “The cluster approach only makes sense when there is a legitimate cluster,” he says. “Just because there are comparable companies in an area doesn’t mean that they have to be there, or that the community should be doing cluster development.”

Donovan has this advice for a manufacturing, distribution operation or back- office operations planning to expand: “I would be concerned about an area that has a large clustering of facilities in my industry because the price of admission may be too high. Too much of a concentration could lead to escalating costs for competition for labor.”

In order for a companycompanies to make the most of clustering, they must first understand whether they need to cluster based on geography or based on similar types of companies in an area. If you determine that locating in a cluster is right for you, make sure the cluster is actually a legitimate one and that the community is actively strengthening it. Following this advice should keep the clustering concept in focus during your site location search.

For complete details about the companies and organizations featured in this article visit:

The Monitor Group, http://www.monitor.com

The Wadley-Donovan Group, a Grubb-Ellis Company, http://www.wadley-donovan.com

Route 1 Research Corridor: A Cluster You Can Use

As you conduct cluster research, you should have discovered it is the organized communities you should give more weight to. Take New Jersey’s Route 1 Research Corridor.

Caren Franzini, CEO, New Jersey Economic Development Authority, says the Route 1 Research Corridor continues to prosper because the base of pharmaceutical and life sciences companies is a magnet for similar companies.

“In the Route 1 Research Corridor, companies have access to a talented labor pool, access to leading academic research, access to major highways and great residential communities surrounding the corridor,” Franzini says.

The Route 1 Research Corridor runs from New Brunswick to Princeton. The corridor’s assets include Princeton University, Rutgers University, the Sarnoff Research Center, the Technology Centre of New Jersey, and more global pharmaceutical companies, such as Bristol-Myers Squibb and Johnson & Johnson, than any other state.

The Technology Centre, located in North Brunswick, was established by the New Jersey Economic Development Authority to assist young companies in locating next to and working with the pharmaceutical and life sciences companies in the corridor.

“The 50-acre site for the centre has 330,000 square feet completed or under construction with a total build out of 500,00 square feet,” Franzini says. There are 12 tenants at the centre that employ more than 300 people. A fourth building is currently under construction at the centre. Additionally, 25 acres were recently purchased across the street from the site to accommodate continued growth.

The 20,000-square-foot Commercialization Center for Innovative Technologies will undergo expansion beginning this year. It currently contains 17 lab units of 800 square feet for early stage companies. The expansion is scheduled to add 10 more units of 800 square feet. It will also include conference facilities where small business conferences will be held to further increase interaction among the corridor’s companies.

“We do a lot of hand holding with our tenants at the commercialization center and introduce them to grants, incentives and other businesses in the state,” Franzini adds.

Start-up businessess in New Jersey received a boost when the state lowered its new job- creation threshold from 75 jobs to 10 jobs to qualify for the Business Employment Incentive Program. “We give companies a grant equal to the percentage of income tax paid by new employees,” Franzini says. “The incentive has been a major tool for pharmaceutical and life sciences companies to expand in New Jersey.”

For complete details on the Route 1 Research Corridor visit the New Jersey Economic Development Authority at http://www.njeda.com.

International Northeast Biotech Corridor Promises Rewards

The International Northeast Biotech Corridor came to fruition when Canada and the northeast region of the United States and Canada decided to work together to promote biotech. The corridor, which runs from Connecticut to Newfoundland, includes 753 biotech companies,; 2,000 support companies such as law firms and suppliers,; 412 research universities or institutions,; and 527 hospitals.

The members of the corridor from the United. States. are Maine, New Hampshire, Massachusetts and Connecticut. The Canadian provinces are New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island and Quebec.

What is the secret behind getting two countries to work together for the perceived greater good? After all, these states are competing for business investment. Each area in the corridor obviously conducts its own business- attraction efforts. The advantage of locating in the corridor is that because it is international in scope, companies can access another country’s market as well.

“The international aspect is significant,” says Paul Tessier, president of the Teague Biotech Center of Maine, located in Fairfield, which is where the headquarters for the corridor is located. “We have an incubator in Fairfield which has partnered with an incubator at the University of Sherbrooke in Quebec. If you locate in one or the other you have a foothold in the other country through this relationship.”

Tessier says future plans for the corridor include promoting intra-corridor commerce so, to the extent possible, companies in the corridor are buying from each othercan buy from one another. The corridor will also work to get the colleges and universities to work closer together to promote and assist in finding research partners in the corridor. “We also want to develop a student exchange program within the corridor with the idea that once these students graduate and are looking for research partners, they will hopefully look to these universities they have been affiliated with,” Tessier says.

For complete details on the International Northeast Biotech Corridor visit http://www.nebiocorridor.org.

Lawton is OK for Building Products and Software

In the mid-1980s, when the large Army Auxiliary, Fort Sill, in Lawton, Okla., wanted to get away from shooting live cannons and do it by simulation, two local software companies received contracts to provide the service. From that need spawned the software and simulation cluster in Lawton, which includes offices from Boeing, Raytheon and MPRI.

The building products and components cluster in Lawton, on the other hand, has been in place for years, thanks to the natural assets of southwest Oklahoma, which has one of the largest gypsum deposits in the world.

In terms of the software and simulation cluster, the two largest software companies in the state are headquartered in Lawton. “Telos-OK is a wholly owned Oklahoma company with 400 employees nationwide,” says Gary Miller, director of economic development, Cameron University. He says after the oil bust in Oklahoma in the 1980s, Cameron University began offering computer-related courses to retrain the workforce and has developed the technology as a niche.

AST, a multimedia simulation and software company, has more than 300 employees. “Our software and simulation cluster is more than code writing,” Miller says. “Some of it may be graphic design, or the development of training packages, or multi-media interplays for sophisticated training.”

Miller says the software and simulation cluster will soon feature the Center for Emerging Technology and Entrepreneurship Studies to incubate 15 young companies. The incubator will be run by an endowed chair from the business school at Cameron University, which is also developing an entrepreneurship curriculum.

In the building products and components cluster, two Lawton companies, Temple-Inland and American Gypsum, produce 1.5 billion square feet of drywall per year. Republic Paperboard is a supplier to the companies of the paper to wrap the drywall in. “When it is at full production it can produce a sheet of paper eight 8 feet wide and 1,000 miles long in 24 hours,” says Court Newkirk from the Lawton Chamber of Commerce & Industry.

Newkirk says the wallboard industry continues to thrive due not only to thebecause of the region’s natural resources, but also because of the availability of land, and workforce training. “The Great Plains Technology Center in Lawton offers one of the best manufacturing maintenance technology curriculums in the nation,” he says. “The center conducts 100 percent of the maintenance technology for Goodyear worldwide.”

An abundance of water was also important to Republic Paperboard, because its business is such a water- intensive process.

Newkirk says the cluster is also served by the Existing Industry Committee through the Lawton Chamber of Commerce & Industry. “We recently had some environmental concerns come up in Lawton, and through our committee we brought our plant managers together with the Lawton Planning Board. In two meetings we negotiated the way to solve the issues,” he says. “Everyone on both sides of the table left the room happy on issues that could have been contentious.”

To learn more about Lawton and its clusters visit Cameron University, http://www.cameron.edu, and the Lawton Chamber of Commerce & Industry, http://www.lawtonok.org.