Clusters in Rural Economies

Response to Adversity

Cluster initiatives often occur as a response to an unfavorable or declining economic situation. Inner cities and rural regions of the country are often hardest hit by the sturctural economic change that has been sweeping the country for decades. Communities experiencing a shared plight come together to combine their talents, contribute to each other, and to target their combined efforts to sucessfully compete on a global scale.

North Carolina's Rural vs. Urban Unemployment Rates 2000-2003. Source: N.C. Rural Economic Development Center

In a major contribution to the Initiative's knowledge of clusters Stuart Rosenfeld conducted a workshop based on his book "Just Clusters."In the book "Just Clusters," Dr. Stuart Rosenfeld of Regional Technology Strategies writes, "...it is important to remember that a large number of the most successful cluster-based developments in the last decade have been responses to an economic crisis or problem. Adversity has proven to be a much stronger force for bonding and cooperation than prosperity."

Although joined by their shared economic situation, rural regions still face difficulties in replacing maturing or declining clusters. Rosenfeld continues, "The first lesson for areas dominated by mature clusters with declining sales is not to panic, but to assess strengths, determine whether the downturn is temporary or structural, and, if the latter, look for alternative markets and products."

To counter the negative economic impact of declining or mature clusters Rosenfeld recommends innovation as a source of rejuvenation, exploiting existing core competencies within the region, and targeting efforts at value-adding sectors in pursuit of a self-sustaining cluster.

Thompson Hall Wilkes Community College

In North Carolina, Rosenfeld reports, that companies in mature clusters surviving global competition and the recent recession are agile, innovative, and serve specialized niche markets.

The existence of a cluster, however, does not ensure that benefits will extend to members of all social classes. According to Rosenfeld, clusters must improve an individual's opportunity for employment, advancement, and income. As the cluster's impact on the region grows the supply of technically skilled labor, or middle-skilled labor, must keep pace.

Middle-skilled workers are typically more attached to the region and were educated locally. Rural educational institutions, specifically community colleges, tend to be more connected with the needs of the regional economy and better able to provide workers with specialized training.

The investment in education by an individual can result in higher wages within a cluster environment. A Harvard study by Michael Porter found a positive association in a Tenessee Valley Authority cluster study between clustering and income growth in rural regions. Also within rural regions, employees working in a cluster earned 13% more on average than workers not working within a cluster.

Many cluster initiatives begin with education or workforce training programs. Rosenfeld cites a lack of basic skills, industry knowledge and appropriate work habits as a major obstacle to cluster development in a rural region.

Knowledge and Innovation in Rural Regions

Clusters enhance competitiveness by enabling the occurance of innovation, and by supporting the commercialization of innovations. By enabling innovation, the cluster organization can expand the ability of businesses to enter new markets, create new products, and improve processes. Successfully commercializing innovations often involves the emergence of startup and spin-off companies. To maximize the rural cluster's competitiveness the region must develop the service support structure, especially access to investment capital, that is required to nurture small business growth.

Cluster efforts targeted at creating an environment supportive of innovation are more open to identifying opportunities where existing industries can benefit from new knowledge and new growth-stage industries can benefit from knowledge already embedded in the region. Rosenfeld identifies a tendency to exclude mature industries from cluster initiatives, and also writes that the "real danger" to regions is overlooking their strongest assets, mature clusters, and missing possible opportunties to enter new markets or develop new products.

A distinguishing mark of cluster development is the strategy's inclusion of a wide variety of organizations from local governments and colleges/universities to companies and trade associations. Coordinated efforts between universities, trade associations, and cluster businesses allow for the leveraging of combined assets in the pursuit of knowledge. For example, a university in a rural region may not have an existing research focus directly related to the needs of the cluster, but using information provided by cluster businesses via an intermediary, such as a trade association, the university can then pursue recruitment of faculty with experience in the area relevant to the cluster. Ultimately it is the ability of a region to collectively increase its knowledge that will determine the prospects for new business formation, new product development, and a generally enhanced level of competitiveness.

Perhaps Wisconsin's Industry Cluster Initiative said it best in their Cluster Organizing Guide, "The key to innovation and competitiveness in a global economy is based on a region's ability to support and enhance the growth of interrelated industries that a particular region specializes in."