Cluster Study · Business School Professor Michael Porter. In his 1990 book The Competitive Advantages of Nations, Porter argues that economic vitality is a direct product of the

ClusterStudyComposite Industry Analysis

June 2004www.smifoundation.org

TABLE OF CONTENTS

PageI. Introduction: Industry Inventory.......1

II. Southern Minnesota Composites Cluster.........................5

III. Cluster Findings & RecommendationsFor Composites.............................13

IV. Conclusion: Lessons For Economic Growth..........................19

Appendix A: Cluster Analysis Methodology.......22Appendix B: Cluster Study Participants.............25

INTRODUCTION:INDUSTRY INVENTORY

BACKGROUNDIn September 2003, Southern Minnesota Initiative Foundation (The Foundation),in conjunction with Humphrey Institute’s State and Local Policy Program (SLPP)and Minnesota’s Department of Employment and Economic Development(DEED) completed an Industry Inventory for 20 counties in southeast andsouth central Minnesota. The Industry Inventory identified and categorizedsouthern Minnesota’s diverse industries based on representation andperformance within the southern Minnesota economy. “Star,” “Emerging” and“Anchor” industry categories provided a framework for reviewing trends,performance and industry development patterns. The project then appliedinnovation and competitiveness criteria to assist in pinpointing a select numberof industries for indepth review. Criteria included:

▼ Higher levels of export▼ Demonstrated innovations in product development & production▼ Relative market potential▼ Relative employment growth potential▼ Quality of employment▼ Employment concentration

The goal of the cluster study process is to assist the region and the state ingaining an objective understanding of these industries. The Foundation is alsointentionally re-applying the cluster analysis process to its regional economicdevelopment strategy. This report contains the research team’s analysis andrecommendations for the composites cluster.

DEFINITION OF INDUSTRY & KNOWLEDGE CLUSTERA cluster is a geographic concentration of competing, complementary, orinterdependent firms with a common need for talent, technology, infrastructure,etc. Cluster relationships are dynamic and evolve in reaction to market andother forces. Clusters exist around firms and industries that are basic—thosethat export goods and/or services outside of their local region.

Often clusters act as the dynamic, driving force in local, regional, and stateeconomies. Clusters offer good jobs to regional residents, contributing to thearea’s quality of life. As global pressures evolve and intensify, clusters arebetter positioned to adapt to this challenge than isolated firms.

2004 Southern Minnesota Initiative Foundation page 1

I.

As the market for goods and services becomes more global in scope, firms andregions must act pro-actively to retain and enhance their competitive advantage. A competitive advantage is commonly defined as “something that gives a firm(or a person or a country) an edge over its rivals”1.

Unable to compete simply on cost with cheaper foreign competition, regionalbusinesses, policy makers, and institutions need to work together to developstrategies that promote the state’s industries. In this way, they will take fulladvantage of those competitive features that differentiate the region on state,national, and international levels.

Cluster strategies focus on enhancing existing industries and networks. Byidentifying the competitive advantages that make certain southern Minnesotaclusters strong, regional stakeholders can intelligently formulate their economicdevelopment policies and programs. Informed programs are attuned to themost beneficial and cost-effective areas in which to focus limited resources oftime, energy, and funding.

1) http://www.economist.com/research/Economics/2004 Southern Minnesota Initiative Foundation page 2

THE KNOWLEDGE CLUSTER MODELSLPP Director and Senior Fellow Lee Munnich’s Knowledge Cluster Model wasused to analyze and assess clustering activity in the region’s compositesindustry.

The Knowledge Cluster Model builds off of the industry cluster work of HarvardBusiness School Professor Michael Porter. In his 1990 book The CompetitiveAdvantages of Nations, Porter argues that economic vitality is a direct product ofthe competitiveness of local industries. Local conditions have a profound effecton international competitiveness. Contrary to popular belief, these conditionsare not always cost-related factors or the existence of a natural resourceendowment.

Drawing from his research both in the United States and around the globe,Porter found that competitive regions shared a handful of traits. These traitsdifferentiated the regions from other less successful areas, enabling them tocompete—and succeed—in an increasingly global marketplace. The four keydeterminants of competitiveness, which Porter calls the “Diamond ofAdvantage”, are (illustration on page 4):

Factor endowments/conditions: specialized labor pool, specializedinfrastructure and even selective disadvantages that drive innovation

Home demand conditions: local customers who push companies toinnovate, especially if their tastes or needs anticipate global or localdemand

Related and supporting industries: internationally competitive localsupplier industries who create business infrastructure and spurinnovation and spin-off industries

Firm strategy, structure and rivalry: intense local rivalry among localfirms that is more motivating than foreign competition and a local“culture” which influences individual firm’s attitudes toward innovationand competition


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MICHAEL PORTER’S “DIAMOND OF ADVANTAGE”2

In addition to these four areas, Porter acknowledged the roles that chance andgovernment can play in shaping a regional industry’s competitive status. Often,historical accident and/or government actions play significant roles in the earlydevelopment or site location of local industry clusters.

The Knowledge Cluster Model incorporates Porter’s diamond and innovation asthe basis for competitiveness. It places additional emphasis on institutions andthe local industrial knowledge base. In researching rural vitality in greaterMinnesota, Munnich found that successful clusters derive a competitiveadvantage from accumulated, embedded and imported knowledge among itslocal actors and institutions. This knowledge develops and becomes moresophisticated over time. Minnesota examples include the recreational transportation equipment cluster, the automation and motion control cluster inAlexandria, the composites cluster in Winona and the wireless cluster inMankato.


Government

Chance

Demand ConditionsFactor

Conditions

Firm Strategy,Structure,

and Rivalry

Related andSupported Industries

SOUTHERN MINNESOTA’SCOMPOSITES CLUSTER

Composites materials are incorporated into many of the products, structuresand devices you use each day. Understanding exactly what composites are,however, can be a bit tricky.

On a very basic level, composites are structural materials comprised of two ormore similar or dissimilar component materials. Composites incorporate thecharacteristics of component materials, combining selected properties togenerate one superior, synergistic material.

Technically, most modern engineering composites are comprised of athermosetting resin matrix combined with a fibrous reinforcement. Someadvanced thermoplastic resins are also used, while some composites employmineral filler reinforcements, either alone or in combination with fibrous types.Cellular reinforcements (foams and honeycombs) are also used to impartstructural integrity while maintaining a very light weight2.

Common reinforcements include glass, carbon and aramid fibers. Glass is byfar the most widely used fibrous reinforcement; hence the terms “GRP” (glassreinforced plastic), “Fibreglass” and “FRP” (fiber reinforced plastic) are oftenused to describe materials created from composites.

Almost any article that can be produced with traditional materials (e.g. metals)can be manufactured from composites. Applications include sporting goods,automotive, aerospace, marine, electronics and civil infrastructure.

An established cluster of composites firms exists in and around southeastMinnesota. The scenic Mississippi River is home to a number of composites-related firms. Winona County is five times as concentrated in resin compounding employment than the US as a whole. The county has a 30%higher concentration than the nation in composites products manufacturing3.These concentrations denote a peculiar specialization in composites and hintthat the region enjoys certain competitive advantages in these industries. Similarcomposites clusters exist in San Diego and Delaware.

2) Winona State University. "Composite Materials Engineering Program"; http://www.winona.edu/engineering/ (accessed March 22, 2004).3) United States Census Bureau. "2000 County Business Patterns"; http://www.census.gov/epcd/cbp/view/cbpview.html.


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LOCATION: SOUTHERN MINNESOTA COMPOSITES CLUSTER Composites firms in the region range from large, multi-national corporations tosmall companies with only a few employees.

HISTORYThe southern Minnesota composites knowledge cluster is largely the product ofthe entrepreneurial efforts of two brothers in the post-WWII period. In 1948,Ben and Rudy Miller, whose father Joseph had formed Miller Waste Mills inWinona in the 1920s to collect cotton waste and other fabric materials for reprocessing, launched a manufacturing company called Fiberite. The Millerbrothers began experimenting with phenolic and melamine resins, using them tocoat cotton fiber waste. The emerging markets in military and civilian aerospacepurchased their final innovative products.

As Fiberite began to grow during the 1960s and 1970s, it fueled a series ofspin-off ventures. As new uses and avenues for commercialization arose,employees of Fiberite left to start their own companies. Several of today’s cluster companies, such as RTP and PCI (now Ticona), were formed from thisprocess. Entrepreneurial spirit led engineers like Ron Hawley and Stan Prosento strike out on their own and explore new applications for composites


technologies. Spin-off activity was financed in part by local banks that wereaware to the specific needs of the industry.

The composites knowledge cluster around Winona has grown and developedsince its early days, but remains marked by its historical origins. Theengineering school at Winona State University has been named after the MillerBrothers, recognizing both their financial contributions to the University’sengineering programs and their role in promoting opportunities for engineers inthe composites industry. The ongoing presence of “founding fathers” like Miller,Hawley and Prosen helps to form the cluster’s collective identity and strengthenits connection to the Winona area.

Table 1: Employment Data: County, Region and Cluster

Winona County Southeast Region Total Employment 28,535 261,119 Unemployment Rate 3.70% 4.10%*Winona ranks 8th largest Minneosta population center, 2001

Company Employment Range City Est. Sales (millions) PublicRTP Co 250-499 Winona $50 to 100 NoCytec Engineered Materials Inc. 100-249 Winona $100 to 500 NoStrongw ell 100-249 Chatfield $20 to 50 NoPenda Glasstite Inc. 100-249 Dunnell $20 to 50 NoTicona Celstran 50-99 Winona $50 to 100 NoWe-no-nah Canoes Inc 50-99 Winona $20 to 50 NoComposite Products Inc. 50-99 Winona $5 to 10 NoGeotek 20-49 Stew artville $10 to 20 NoCodaBow International 10-19 Winona $2.5 to 5 NoMiken Composites not available Caledonia not available No

Sources:MN DEED. "Winona Minnesota: Community Profile"; http://w w w .mnpro.com; (last updated 9/6/2002).Department of Employment and Economic Development. "Profiles of Minnesota's Economy and Population, 2002-2003"; http://w w w .dted.state.mn.us/PDFs/c-book.pdf; (updated June 2003).ReferenceUSA Business Database. http://w w w .referenceusa.com (accessed 4/8/2004).

County and Regional Employment Data

Southern Minnesota Composites Companies


Winona State University, Winona, is home to the nation’s only undergraduateengineering program devoted to the study of composites. The Miller BrothersSchool of Engineering trains the region and nation’s composites engineers, providing students with courses in Organic and Polymer Chemistry,Thermodynamics, and many other areas of knowledge required for high-skilloccupations in the composites industry.4

FIRMS AND INDUSTRIESThe firms that make up Winona’s composite cluster can be divided into twobroad categories: producers of raw composites materials and producers offinal products from composite materials. Winona’s material firms manufacture new and existing composite materials.Local materials producers include Cytec Engineered Materials Inc. (formerlyFiberite), RTP Company and Ticona Celstran. (These composites materialsfirms incorporate a significant amount of automation and increasingly incorporate ‘lean-manufacturing’ techniques to lower unit costs.)RTP, which stands for “reinforced thermoplastics,” is the only firm in this list toremain locally owned and privately held. Both Cytec and Ticona, which arecurrently subsidiaries of New Jersey-based chemicals firms, nonetheless havetheir origins in Winona. Composite product firms take composite materials withspecific properties and use them to develop innovative products for a widerange of applications. These firms develop both lighter weight, more durableimprovements to products already in existence on the market as well as newproducts with special characteristics demanded by their customers in theaerospace, automotive and other industries. Firms in the product side of the composites cluster tend to be smaller and morecraft-like in nature. They are also slightly more likely than their materialscounterparts to be locally owned. Key firms include: We-no-nah Canoe,producing an assortment of lightweight canoes and kayaks from compositematerials; Strongwell, which creates pultruded fiberglass grating and smalldiameter tubing, among other things; Composite Products Inc. (CPI), producerof molded composite products for automotive and industrial applications;CodaBow, which makes high-quality graphic fiber bows for violins, violas andcellos; Miken Composites, maker of composite softball—and now baseball—bats; and Geotek, which produces fiberglass pultrusion elements including electric utility and animal fencing systems. Watlow Polymer Technologies, adivision of St. Louis-based Watlow Electric Manufacturing Co., which makesheaters, sensors, and controls, recently merged its Winona compositesoperation with its heater line of business in Columbia, MO. In 2002, Watlow wasthe City of Winona’s 6th largest employer with 417 employees. Watlow Controls,which employs approximately 270 people, remains in Winona5.4) Winona State University. "Composite Materials Engineering Program"; http://www.winona.edu/engineering/ (accessed March 22, 2004).5) MN DEED. "Winona Minnesota: Community Profile"; http://www.mnpro.com; (last updated 9/6/2002)2004 Southern Minnesota Initiative Foundation page 8

The majority of these composites firms are located in Winona County. However,a few companies, including Strongwell (Chatfield), Miken Composites(Caledonia) and Geotek (Stewartville) are located in smaller towns in southeastMinnesota. The cluster also interacts directly with advanced materials engineering companies in the Twin Cities metro area, including 3M (which soldits composites division to Cytec). While the markets are national and international in nature, cluster companies also sell to state users of compositematerials, such as Andersen Windows in Bayport, and Cirrus Design of Duluth,an innovative designer and producer of personal aircraft incorporating advancedcomposite materials.

The diversity of activities and products within the composites cluster makes itdifficult to track using traditional industry-based employment statistics. Whilemost of the composites materials producers can be found within “CustomCompounding of Purchased Resin” (NAICS 325991) and “All Other PlasticsManufacturing” (NAICS 326199), several firms are classified according to thefinal consumer or industrial product they make (canoes, softball bats, electricalequipment).

COMPETITIVE ADVANTAGESRelated and Supporting Industries: Diverse Local Industry BaseSoutheast Minnesota has benefited from a remarkably diverse set of manufacturing enterprises. In addition to its cluster of composites companies,the area is home to manufacturers of automotive equipment, knitted goods, circuit boards, food products and electrical equipment. This diversity has benefited the composites cluster by providing new opportunities tocross-fertilize knowledge from one industry to another. For example, whenWatlow Polymer Technologies – a division of Watlow Controls, which makesheater controls – began experimenting with integrating heating elements intocomposite materials, it relied upon specialized machinery used by local knittingmills to develop an innovative technique for holding the electrical wires intoplace during the composite molding process.

Substantial Knowledge Base in CompositesOver the years southeast Minnesota has accrued a substantial base of talentwith extensive knowledge about the field of composites materials engineering –a common phenomenon in localized knowledge clusters. These talented individuals, many of whom moved to the area from around the country to workfor key companies like Fiberite, have largely remained in the local area and carried their knowledge to other local composites firms, or into new startupenterprises. The formation of a undergraduate composite materials engineeringprogram at Winona State University in 1990 offered the region a unique localsource of young workers with specialized skills in the composites field—creating2004 Southern Minnesota Initiative Foundation page 9

a substantial competitive advantage for local companies who recruit directlyfrom this talented labor pool.

Cooperation: Inter-Firm Idea and Process Sharing The composites cluster enjoys several characteristics that promote collegialand collaborative relationships between firms. The cluster’s presence in a non-metropolitan area gives it higher local visibility. The common history of localfirms around Fiberite, along with the presence and high profile of the cluster’s“founding fathers”, promotes cohesion and communication within the cluster.Finally, the relatively low degree of direct competition among firms, especiallycomposite product manufacturers, is also conducive to collaboration.

The diversity of uses for composites materials and the cooperative nature ofcluster firms often leads to idea and process sharing. When one firm has anidea for a new, marketable composite material or product but lacks the capacityor ability to bring the product to market, they can use the informal network toshare this idea with other interested parties.

Several Companies Considered ‘Go-To‘ for Product InnovationInterviews and discussions with local firm representatives reveal that thenumber of innovative companies in the cluster is declining. Several firms arenow owned by national and multinational firms who do the majority of their newproduct research and development elsewhere. Some firms, however, are stillconsidered ‘go-to’ when customers demand new products or materials. Many inthe cluster expressed a sense of urgency for the return of Winona as the centerfor composites industry innovation.

INSTITUTIONSFrom the composites cluster’s standpoint, Winona State University (WSU) hasbecome very important in recent years. This is due in large part to WSU’sgrowing orientation toward the composites industry. WSU has the onlyundergraduate composites engineering program of its kind in the country,graduating approximately 20 to 25 students per year. Local companies mostoften hire from these graduates. WSU’s Composite Materials Technology Center(COMTEC), offers engineering and testing services to companies on a fee-for-service basis. COMTEC is of particular importance to smaller firms – whichdescribes most of the Winona composites firms – that cannot afford to purchaseand maintain all the equipment necessary to test their products.

The decline of the local Society for the Advancement of Material and ProcessingEngineering (SAMPE) chapter in the mid-1990s created a need for networkingopportunities among Winona composites firms. The establishment of theWinona Composites Consortium filled this void. The Consortium meets on a2004 Southern Minnesota Initiative Foundation page 10

quarterly basis, featuring presentations by local composites companies and university researchers in the area of composites engineering. The Consortiumserves as a vehicle for more formalized communication and collaborationamong local firms.

Winona’s local technical college, Minnesota State College – Southeast Technical(MSC-ST), has also been active in preparing local workers for employment inthe composites industry. The college, traditionally involved in more generaltechnical education, established a two-year composites technician program inthe early 1990s. The program was designed in coordination with the input andexpressed skill needs of the local industry. This highly effective program waseventually discontinued, due in large part to the saturation of the local technician labor market. Firms report that the graduates from this program werehighly qualified—several of their most productive employees today are graduates of the program. The college’s recent efforts in the area of employer-based customized training have been successful as well. To date, these effortshave focused primarily on process and quality improvement. Initiatives withcompanies like Composite Products Inc. and Cytec have been supportedthrough Minnesota Job Skills Partnership (MJSP) grants.

At least one cluster firm has a relationship with the University of Minnesota’sTwin Cities Campus. The firm partners with the Chemical EngineeringDepartment in the areas of core materials research.

The Winona Area Industrial Development Association (WAIDA) has recentlypurchased 210 acres of farmland on the fringe of Winona. This land is slatedfor future industrial development. However, the acreage is on agriculturalreserve until 2008. After that time, coordination between the cluster and WAIDAcould lead to additional land for expansion of existing land-locked compositescompanies—particularly new research and development centers.


Competitive Advantages

• Diverse local industry base

• Substantial knowledge base

in composites

• Cooperative relations: inter-

firm idea and process sharing

• Several companies

Considered 'go-to' for product

innovation

Firms and Industries

• Composite materials

producers

• Existing products improved

through use of composite

materials (i.e. kayaks, violin

bows)

History

• Miller brothers form

Fiberite after WWII

• Initial growth in aerospace,

military

• Evolution of commercial

composites uses and spin-

off/startup activity led to

new firms

• Local firms begin to be

acquired by national firms

Institutions

• Winona State— Composite

Materials Engineering

Program

• Winona Composites

Consortium

• Minnesota State College –

Southeast Technical

• Winona Area

d l Development Association

• University of Minnesota

Composites

Composites Cluster: Southeast MinnesotaCluster Diagram


CLUSTER FINDINGS FOR COMPOSITES

The research team conducted targeted data analysis, industry interviews androundtables with experts in the industry. The resulting cluster analysis outlinesthe current dynamics of the industry, presents findings and concludes with recommendations for the industry, economic development, higher education andpolicy-makers.

STRENGTHS OF THE CLUSTERStrong Regional Identity and Loyalty to Area: The area provides a strong sense ofplace for composites firms and a community that is committed to retaining the industry.area knowledge, particularily in Winona, of the field is very high.

Sophisticated Composites Knowledge Base: Extremely knowledgeable workforcecontinues to be a factor in the success of area firms. Employees are knowledgeable oftheir own processes, as well as those of other businesses in the region.

Peer Network: Strong informal connections among and between firms, entrepreneursand their employees creates an atmosphere of friendly idea exchange. Potentialcommercial product ideas that fit more appropriately within another firms’ niche areopenly shared. This spirit of cooperation is enhanced by shared concerns aboutremaining competitive in global market.

Southern Minnesota Culture of Innovation: A ‘reservoir of confidence’ from pastexperiences and successes encourages entrepreneurship and innovation. The potential for composites applications are unlimited.

Localized Value Chain: Forward and backward value chain linkages exist within themidwest region. Entrepreneurs have filled the void for dyes and other products locally.RTP, Ticona, and Cytec supply some raw materials locally. However, resin and otherbasic raw materials still need to be imported from petroleum rich areas national orinternative.

Market Potential: Current growth is credited to the US Defense Department and military contracts. Space exploration initiatives will fuel innovation and demand for newcomposites in the aerospace industry. Construction and automotive materials showpotential for increasing composites demand and spawning innovation.

Availability of Local Composites-Focused Capital: Local firms believe new ideaswith strong potential have been able to find capital through an informal, local angelnetwork.

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CHALLENGES TO THE CLUSTER‘Uneven Playing Field’: Differences in cost structures (e.g. health care, taxes),regulations, hazardous materials laws (e.g. recent terrorism-related export regulations)and product liability between states and between US and foreign locations create anuneven playing field for establishing and operating composites businessesdomestically.

Influence of Broader Competitiveness: Minnesota’s relatively higher taxes are adeterrent to further investment in Minnesota by the industry.

Economic Forces: The forces of global competition and outside ownership haveconverted composites activity from innovation of new and better products to ‘lean manufacturing’, productivity increases and increasingly capital-intensive manufacturingof existing products.

Cyclical Training Needs: A discontinued technical training program helped meet theindustry’s initial technician needs. Job market saturation at the time ended theprogram. After the program ended, firms have had to internalize much of their job-specific training. Technical training needs to be re-introduced periodically to coincide with changes in the business cycle.

Lack of Formal, Focused Institutional Arrangements: The cluster does not have alead partner in the area of testing and materials services for solid-state compoundingand nano-particles.

Lack of Demanding Local Customer: By and large there are no local customersspurring innovation by demanding new products with specific properties.

Shift from Innovation to Manufacturing: At one time area firms were responsible formuch of the innovation in the composites industry. Today, local firms are focusedalmost exclusively on the manufacturing of existing products. Cluster firms fear that iflocal companies are no longer viewed as the “go-to,” or solution provider, the economicimpact of the cluster could be diminished.

Infrastructure and Facilities: The shrinking supply of available manufacturing land inthe Winona area and lack of convenient air and interstate transportation access hurtsthe areas prospects of remaining a national hub of composites activity.

1996 to 2004: Comparing the Industry Analysis

The most profound difference between the 1996 and 2004 composites industryanalysis is the shift related to research, development and innovation. In 1996many of the cluster industries' corporate office, R&D and manufacturing were alllocated in the area. Since that time, there have been changes in ownership tolarger, international business entities and relocations of corporate offices. As aresult of

Economic and regulatory factors influencing profitability and the reality of competing on a global stage, the industries in the cluster have experienced a

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shift away from research and development innovations to manufacturing efficiency and profitability.

Workforce continues to be a cluster concern. The previous study referencedconcerns related to the non-technical aspects of workers skills such as "softskills" like problem solving, teamwork, communication, motivation and workhabits. These may still be of concern, but were not identified by participants asprimary topics. Instead, the need to be responsive and replenish the technicaland desired skill set of the composites industry workforce was referencedincluding reinstituting the technical college's training curriculum. In 1996 factors affecting the ability to attract or engage the workforce - child care andelderly care, affordable housing alternatives - were presented by participants.They were absent in the 2004 industry input.

The knowledge base, entrepreneurial spirit, and interaction betweenbusinesses or peer networks were identified as strengths during the previousstudy and remained so during this most recent analysis. The lack of "homedemand" for the product remains unchanged, and the industries' response istheir "home market" is the national and international stage.

Infrastructure issues like waste disposal concerns and highway transportationbottlenecks referenced in 1996 were not sited in 2004. Regulatory issues, however, continue to be expressed as a concern. In 1996 industry concernsfocused on operational efficiencies such as redundancies in compliance. Today,regulatory concerns were amplified and redirected at the adverse impact theyare having on the industry's ability to survive and compete globally.

RECOMMENDATIONS FOR EXPANDING THE CLUSTER’S COMPETITIVE ADVANTAGES

The research team’s review of the cluster’s industry dynamics producedrecommendations for effective strategies and opportunities for continuing thecomposites industry’s success. The recommendations were compiled into fivemajor themes: research and innovation; cluster and industry branding andawareness; formation of strategic partnerships; global marketplace andexpansion of the knowledge cluster.

RESEARCH AND INNOVATIONThe composites cluster and all relevant economic development interests shouldwork immediately and cooperatively to return the innovation and new applicationdevelopment spotlight to southern Minnesota. Timely action is critical. Asresearch and development begins to go abroad to reduce costs or find moresupportive environments, manufacturing and the entire industry are very likely tofollow. 2004 Southern Minnesota Initiative Foundation page 15

Create a cooperative Research and Development Center or Center for Innovation torestore the region’s role in composites innovation.

Expand Winona State University’s capacity to be a research leader and catalyst incomposites product and materials innovations.

Market new product development and innovations effectively to local, metro andnational venture capital resources.

Educate investors on the industry to reverse current trends toward domesticdistribution centers for foreign-designed and produced composite goods.

Develop partnerships with the University of Minnesota in advanced thermoplastics andthermosets.

CLUSTER AND INDUSTRY BRANDING AND AWARENESSThe cluster and Minnesota economic development interests must increaseawareness of southern Minnesota as the global “Center for Innovation andExcellence” in composites. An integrated partnership will have a powerful effecton industry growth and sustainability.

Partner to host an international symposium for the industry within the next 24 months.

Create greater awareness of the area firms and cluster to national and internationalcomposites markets such as Delaware and San Diego.

Develop a cluster strategy for marketing and connecting to emerging markets includingAsia and other foreign manufacturing centers. For example, consider ways to connectto the University of Minnesota’s large Chinese student population, organizations andprofessional contacts.

Include the composites industry in all existing and future efforts to promote Minnesota’sregions and industries to interested parties.

Organize an alumni and corporate network with Winona State University’s compositesengineering program.

Create statewide awareness of the link between composites firms and the well being ofthe region using technology and traditional marketing in print, media and throughtradeshows.

FORMATION OF STRATEGIC PARTNERSHIPS New technologies bring new growth and jobs. Minnesota and the region have aunique knowledge cluster linked to this industry. Talent and resourcesrepresented by current industry experts, retired executives, entrepreneurs andMinnesota’s respected academic and research community can be linked andstrategically tapped to strengthen and expand Minnesota’s dominance incomposites engineering and innovation. Partnerships between the compositescluster and lead public and private institutions should be created orstrengthened to fully leverage Minnesota assets in the area of compositesengineering, application development and technology innovation.

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Specific partnerships to explore: University of Minnesota: The cluster needs a major partner with capacity for responsiveness and innovation. A direct partnership between the industry cluster andthe University of Minnesota Carlson School of Management-Institute of Technology tofurther new product development, assist with expanding composites cluster cross connection to other industries and increase national and international reputation andconnections. A partnership could be modeled on current partnerships between theUniversity of Minnesota and Mayo Clinic.

University of Wisconsin –Madison: The cluster should take advantage of geographic proximity to leverage the University’s solid-state compounding expertise and reputation.

Cross Cluster Collaborations: Minnesota’s clusters can benefit by creating networking,benchmarking and collaborative connections with other US or internationally basedcomposites clusters such as the Delaware and San Diego composites cluster. Interactand exchange with other intersecting business clusters like the medical technologiescluster.

The Department of Employment and Economic Development (DEED): DEED shouldplace promotion and support for the composites cluster within its “Grow Minnesota”program, JobZ initiatives Bio-Science Zones and other programs designed to enhancebusiness development.

Regional Economic and Business Development Resources: Form a rapid response,including bridges to the finance and investment community, for entrepreneurs andbusiness start-up in composites. Economic development partners can take the lead inensuring that business development and investment resources – public as well asprivate – understand the composites industry and are adept at meeting the needs ofcomposites entrepreneurs and businesses. Support broader/collaborative economicdevelopment initiatives.

GLOBAL MARKETPLACE Business resources must understand the global context of the industry and thinkand respond in manners that reflect a global sophistication and awareness.

The cluster could work with appropriate partners to convene a ‘Southern MinnesotaCompeting in the Global Marketplace’ conference. Invitees could include state, localand national policy makers; regulatory bodies; other regional cluster and industry rep-resentatives; educational institution representatives and any other relevant parties.

The conference would give regional firms the opportunity to make known the specificimpediments they are dealing with competing in the global marketplace—specificallywith low-cost manufacturing regions around the globe.

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2004 Southern Minnesota Initiative Foundation page17

EXPANSION OF THE KNOWLEDGE CLUSTER Southern Minnesota should support and nurture the clusters talent and knowledge pool, from research and development to technology advances.

The most pressing workforce development issue is the closing of Minnesota State College–Southeast Technical’s technician training program. The cluster should workwith MSC-ST to create a dynamic relationship, in which the program can be madeavailable as local needs for technicians arise.

Mentoring and career ladder relationships should be investigated to connect local youthto the industry and enhance the stability of the knowledge cluster.

Establish a composites graduate program within Winona State University and partnerwith key institutions such as the Carlson School of Managment at the University of MN.

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INDUSTRY CLUSTER DYNAMICS: Supporting Factors■ Firms and leaders are aggressive, energetic, and innovative■ Community committed to supporting its success■ Existing, established cluster with infrastructure and knowledge cluster in place■ Market applications are expanding and evolving (e.g. aerospace,

military, biotech, construction, etc.)■ Strong, established institutional support network■ Cluster contributes to an overall vibrant culture of entrepreneurship,

small business and innovation ■ Evidence of local pool of venture capital, firm alliances and investors■ The industry is evolving and providing opportunities for strategic public

and private investment to have an impact on the industry's future■ Winona State University is a recognized, respected partner and has the

only undergrad composites engineering program in the nation■ Many cluster jobs are good, high-paying and rewarding

INDUSTRY CLUSTER DYNAMICS: Limiting Factors■ Manufacturing of products is vulnerable to global competition■ Market maturity will produce increased competition■ Local business activity may be moving to distribution centers with few,

low-paying jobs■ Many firms no longer have local or "founder" ownership ■ Research and development are moving to low-cost foreign locales■ Difficult to protect trade secrets and innovations within international

marketplace■ Distance from major airport and lack of local business and conference

lodging creates geographic isolation■ Location of raw materials in other regions (e.g. Texas, East Coast) will

influence industry activity to locate there■ Global pressures threaten the extinction of viable composites

2004 Southern Minnesota Initiative Foundation Page 18

CONCLUSION: LESSONS FOR ECONOMIC GROWTH

The prosperity of southern Minnesota is tied to the viability and innovation of itsfirms and industries. Strong, internationally competitive firms and industriesenable needed public and private income generation in the forms of businessownership, investment, employment and tax base. Southern MinnesotaInitiative Foundation appreciates the vital link between business developmentand sustainable communities.

In an expanding global marketplace, many businesses are not able to competeor survive on cost alone. In response, the southern Minnesota region mustutilize its existing competitive advantages and provide an environment forinnovation and business success. Through support for workforce training andeducation, cross-industry networking, innovative partnerships, industrymarketing, and local entrepreneurs, communities and southern Minnesotaleaders and businesses can play an important role in keeping our firms and oureconomy strong.

The Foundation's Industry Inventory and Cluster Analysis Project revealed sixrecurring themes for economic and business development:

1) Entrepreneurial Support: Leaders from several industries examined felt that entrepreneurial development is hampered by a lack of operational and financial support forwould-be entrepreneurs and spin-off businesses.

Local government and economic development attention must focus on whether or not suchentrepreneurial support mechanisms exist. If they do, why aren't they being utilized? Whyis there a general lack of awareness of these services? What services are offered and whatis there capacity to meet the need? How can these services be better promoted, so as toserve the needs of under-served small business and entrepreneurial ventures in the region?If local capital and start-up financing is available, how can entrepreneurs connect with them?

2) Global Marketplace: Firms interviewed expressed concerns that they are increasinglyfacing an "uneven playing field”. Industry representatives commented on policy makers'inability to understand global competition. Antiquated legislation, regulations and proceduresmake successful business operation increasingly difficult. Business leaders felt that lawmakers must have a stronger understanding of the problems facing Minnesota and USbusinesses. Regulatory and investment policies must be informed by the realities of globalcompetition and commerce.

IV.


3) Research and Development: Industries must innovate to survive. Multiple industriesexpressed the need for greater involvement by the University of Minnesota in development,testing and licensing of new products. Customized models for regional and industry engagement must be strengthened or devel-oped by the University. Industry and regional engagement must be placed as a supportedpriority for the University departments that provide important translational and research linksto private industry.

4) Regional Industry Branding: The state's economic and business development agenciesand providers must recognize, understand and promote regional industry strengths.Statewide leadership and coordination is needed to increase the impact and results of theresources dedicated to promotional and marketing efforts. Industry marketing must bestrategic, intentional and customized to each industry’s target audience. Marketing capabili-ties at all levels, including individual business marketing skills, must be enhanced forMinnesota industries to realize their potential in both the national and international marketplace and investment community.

5) Workforce Development: Knowledge based approaches to workforce development andplanning feeds industry cluster development, stabilization and growth. Industry leadersstress the need for the continuous updating of job-related skills and knowledge. Emphasiswas often placed on math, foreign language and computer literacy, starting with K-12achievement. In the face of increased global competition, regional firms unable to competesimply on cost must rely on skilled, productive, self-sufficient employees to maintaincompetitiveness. Additionally, some firms are unable to staff key positions, both white andblue-collar, due to the continual 'brain drain' - young, skilled workers leaving the region forlarger urban areas. Minnesota must renew its commitment to workforce and educationalquality by investing appropriately throughout the spectrum of education and training, including engaging K-12, higher education, private training vendors and industry in boldefforts to ensure Minnesota's competitive advantage in workforce quality, flexibility and innovation.

6) Capital Formation Needs: Southern Minnesota businesses need equity capitalinvestment to create high quality jobs and wealth. Commercial banks, government, and non-profit lenders provide a wide array of debt capital for our businesses. These programshave been, and will continue to be, important to growing businesses in our region. But ourability to help entrepreneurs create wealth and jobs is limited by the lack of equityinvestment capital for high potential early stage businesses. Start-up technology and biotechbased businesses often require large quantities of capital in development costs long beforethey go to market. Many high growth markets require an emerging business to grow veryrapidly to gain the market share required to preempt entry by competitors or to reacheconomies of scale that make their business profitable. Furthermore, the majority of assetsof such businesses are their intellectual property, which commercial lenders find difficult tocollateralize. A range of financing options - venture funds, angel networks and mutual fundsas tools for pooling equity investment capital - need to be explored, understood and functioning effectively for regional businesses and entrepreneurs.

One theme unites each of the lessons uncovered in the research - innovation.Peter Drucker defines innovation as, " …a change that creates a new dimensionof performance”. In an age of hyper-competition, global markets and rapid firetechnological change, only those firms that are able to innovate will survive.Doing so requires even the smallest businesses to be connected to the global


market and open to the disruptive influences of technological change.Employers need to be able to retool their employees' skills as quickly as theyretool their production equipment. Employees need to be adaptable andresponsive to change. Government needs to reward businesses for theirproductivity improvements, just as they do for job creation. Universities andcolleges need to forge strong bonds with businesses to translate the researchgoing on in their labs to new products and processes.

Translating the findings and recommendations from this and other industryresearch will further strategic economic development. By focusing on established and growing industry clusters, the state and southern Minnesota cannurture the growth and sustainability of businesses and quality jobs.

Copies of the Industry Inventory and the two additional Industry Cluster Analysiscompleted in this project can be found at www.smifoundation.org


APPENDIX ACLUSTER ANALYSIS METHODOLOGY

I. Contacting and Consulting Regional Industry Leaders

Creating the list of questions for use in industry stakeholder round tables and one-on-one interviews was an iterative process. Striving for consistency and depth in questioning, the team created and revised several drafts of potential questions. It wasdecided that any questions used in the round table or subsequent interviews shouldmeet the following criteria. Questions should:

- validate or invalidate the assumptions made during the team’s industry rankingprocess

- be general and not lead conversations or answers (several of the old questions impliedjob creation)

- pertain to three main themes: innovation, relationships, and industry selection assumptions

- represent two categories: - standardized questions asked of all industries- topical, discretionary questions used to delve deeper into important topic areas- include questions that overlap with The Foundation’s Voices program and its focus

on health care, transportation and quality of life/place/family/community resources/culture

PRIORITY QUESTIONS

UNDERSTANDING THE INDUSTRY1) What are the assets, challenges, and opportunities facing the industry today?2) What are the formal or informal relationships between the firms in the room? 3) For your industry, what percentage of production activity takes place in southern

Minnesota? For your company, what percentage of production activity (product manufacturing) takes place in southern Minnesota? If elsewhere, why?

4) What percentage of your output is sold outside of the region? (level of export)5) What are the key policy issues facing the industry?6) How does your industry raise capital?

WORKFORCE COMPOSITION AND DEVELOPMENT1) What is your capacity for continued or additional quality employment in your

industry? In the region? What would impede or facilitate this growth? 2) Of the skills that your industry current needs, which are plentiful in the region?

Which of these skills are in short supply? What are the future skill needs of the industry? Where are these skills being acquired?

INNOVATION1) How often are new, innovative products or processes introduced in your

industry? Are the firms in this room directly involved in this innovation? What 2004 Southern Minnesota Initiative Foundation page 22

drives this innovation? (rate of innovation)2) To what extent is the higher education or a public/nonprofit research institute

involved in driving or facilitating innovation within the industry?3) Are you seeing connections, either direct or indirect, to bio or life science

innovations or processes in your industry?4) What is your industry’s growth potential? Will this growth occur here in the

region? (relative market growth potential)

SOUTHERN MINNESOTA FACTORS AND ASSETS1) Why are you all located here? What are the specific aspects of this region that

keep you here? Does this location give you a competitive advantage over competitors outside of the region?

2) What community factors or community infrastructure make location in southern MN viable? Are there factors that threaten your ability to remain in MN?

LEVEL OF EXPORT/VALUE-ADDED PROCESSES1) Do value-added production processes take place here in the region or elsewhere? If

elsewhere, why?2) Do you purchase your production/service inputs in the region? If not, what are

local suppliers lacking?

RATE OF INNOVATION1) To what extent is innovation emphasized in your industry? What are specific

examples?2) How many patents/trademarks do you obtain per year?

EMPLOYMENT CONCENTRATION AND FIRM RELATIONSHIPS1) Do the firms in the local industry coordinate for shared goals? Do you purchase

inputs together? Share R&D expenses? Participate in industry groups? 2) Are there specialized labor characteristics or infrastructure here? What sort of

quality of life aspects does this region provide to your firm and its employees?3) What advantage do you, as individual firms, derive from this location and close

proximity to competitors?

INDUSTRY CLUSTER AND FIRM STRATEGIES1) When and where was your company founded?2) What were your initial products and services?3) Why did your firm initially locate in the region?4) What keeps your firm in the region?5) What part of your firm is located in the region (HQ? Manufacturing? Sales?)

WORKFORCE1) What workforce skills are crucial to the success of your firm?2) Where do most of your workers come from (professional, semi-skilled, unskilled)?3) What is your firm doing to overcome workforce shortages or skill gaps?

TRAINING1) Where do your workers acquire their initial training?2) Where do you turn for continued training?


3) Are local education and training institutions fulfilling your workforce development needs? What are their strengths and weaknesses?

4) How much interaction occurs between your firm and the local K-12 school system, technical colleges, and four-year colleges (curriculum design input, mentoring, internships)?

EMERGING TECHNOLOGY1) If you are interested in using emerging technology to a greater extent, what are the

barriers to making that happen (i.e. infrastructure, security, skill of your workforce, management trust issues)?

SUPPLY, DEMAND, COMPETITION, AND INFRASTRUCTURE1) What are the specific factors of production for your firm/industry? Where are they

purchased? Are there local providers for these products and services? If so, why does your company/industry purchase outside of the region?

2) About what percent of your demand is local, regional, national and international?3) What institutions or individuals purchase your goods and/or services? Where are

they located? Are there potential purchasers locally who purchase outside of the region? If so, why?

4) Where are your competitors located? (local, regional, national and international)5) What specific modes of transportation are utilized by your business and industry?

How would you rate the quality of those modes in the region (availability, efficiency, effectiveness, etc.)? In what specific ways and in which specific locations could transportation be improved to better meet the needs of the industry?

6) What is your relationship with local and state government agencies?7) Is your firm involved with the community? If so, in what way?8) In what way is your organization/industry involved with shaping public agency and

community policies and practices to be more conducive to your industry’s success?9) From your industry perspective, what one piece of advice would you give the

education and economic development community?

BIOSCIENCE1) How well do area educational institutions prepare students for careers in bio-science? 2) How does your industry connect to emerging innovations coming out of the

bio-sciences?3) In what ways have you been involved with commercializing bioscience innovations?

PUBLIC POLICYWhich of these public policy areas have the greatest impact on your day-to-day success? Which on your company’s long-term success? Transportation infrastructure –roads, rail, air; Health care costs and access;Workforce development services and education;Early childhood development; K-12 education; Higher education access andquality


APPENDIX BCLUSTER STUDY PROJECT PARTICIPANTS AND CONTACTS

City of Winona: Judy BodwayCoda Composites Company: Jeff Van Fossen, Stan ProssenComposites Products: Charles Weber, Ron HawleyCytec Engineered Materials: Scott TjossemGeoteck, Inc.: Conrad FingersonMiken Sports: Peter GriffithPlastiComp: Steve BowenRTP Company: Steve MakiTicana Celstran: Dean WendlerWe-No-Nah Canoes: Rich EnohsWinona Area Chamber of Commerce: Della Schmidt, Harlan Knight, Dave ArnoldWinona State University: Dr. Fariborz Parsi

Research Team

Southern Minnesota Initiative FoundationTrixie Ann Golberg, PresidentTom Shea, Voice Program OfficerJonathan Zierdt,Project ConsultantJohn Dinusson,Business Development ConsultantBrad Brown,Business Success Program Officer

State and Local Policy ProgramHubert H. Humphrey Institute of Public AffairsUniversity of Minnesota Lee W. Munnich, Jr., Senior Fellow and Program DirectorColbey Sullivan, Research Assistant


Documents

Cluster Study · Business School Professor Michael Porter. In his 1990 book The Competitive Advantages of Nations, Porter argues that economic vitality is a direct product of the