30/03/2001 ITT – Lecture 9 1

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving

Firm Performance in the U.S.Author: Michael Oden, Ph.D.

Presentation by: João LetrasRodrigo Rodrigues

Engineering and Technology Management

30/03/2001 ITT – Lecture 9 2

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

Topics to be Addressed:

1. Introduction

2. Inter-Firm Copperation and Collective Efficiencies

3. Case Studiesa) Furniture Industryb) Aerospace Manufacturingc) Advanced IT technology in Rural Region

4. Conclusions

30/03/2001 ITT – Lecture 9 3

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

1. Introduction

Evolution of economic development theory

• prior 1980s: how the relationships between local assets and firms influenced location and investment decisions

• after 1980: how inter-firm relationships influence firm location and investment decisions

30/03/2001 ITT – Lecture 9 4

Factors for this change in the way of thinking:

• decline and restructuring in U.S. mass production

• prominence of regional cases

• disintegration of large firms

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 5

U.S. Firm Characterisation

• Heavy on Competition / Light on Cooperation

• “Arms Length” transactions / Rigid Hierarchies

• Weak Ties between Firms and Suppliers

• Legal Conflicts with Competitors and Suppliers

• Poor Coordination by Business Associations, Unions, Gov. Support Structures

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 6

Goals of national and state programs for industrial policy in U.S.:

• stimulate technology adoption and process improvement

• improve access to capital

• stimulate and share research and development

• improve relationships/logistics between suppliers and producers

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 7

Key Factors For Aiding Competitiveness:

•State, Federal and Local Government Funding

• Government Intervention

• Creation of Inter-Firm Intermediaries

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 8

2. Inter-firm Cooperation and Collective Efficiencies

• Geographical Clustering

• Joint Projects

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 9

Horizontal, Peer Firms

Vertical, Supplier Firms

Direct Inter-firm Cooperation

Sharing labor, equipment, capacity, knowledge, marketing plans

Joint ventures, large firm supplier networks, joint design, quality control standards

Indirect Cooperation through Intermediary Institutions

Industry trade associations providing training, marketing services, lobbying, technology and technical assistance

Supplier network association, inter-sectoral associations and R&D consortiums

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 10

Types of Collective Action and Collective Efficiencies

• Influencing Government Policies +• Market Coordination -• Market Development +• Improving Labor and Mngt. Skills +-• Improving Quality through Organizational or Technical Change +-• R&D +• Improving Labor Standards+Norms -• Strategic Planning and Markt. For Industry +-

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 11

3. Case Studies

a) Furniture Industry

b) Aerospace Manufacturing

c) Use of Advanced IT in Rural Region

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 12

3 a. Furniture Industry

• Employs 490.000 Nationally

• Concentrated in NC, L.A., Mississippi, N.Y., MI

• 70% of Establishments have less than 20 employees

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 13

3 a. Furniture Industry – Intermediary Inst.

• Concentration in NCAFMA, IHRFA, NHFA.

• Services Provided- Import/Export Contacts- Lobbying Activities- Training Centres (Operational+Mngt Skills)- R&D (Industrial Extension)- Strategic Planning on Retail

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 14

3 a. Furniture Industry – Problem and Solution

• National Associations Create Geographical Asymmetries (NC Cluster)

• Little attention given to skills upgrading

SOLUTION: . Creation of Local Institutions (TMFA) . Encourages Use of Local Suppliers

. 38% regional employment growth 1986-96 (national = 2%)

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 15

3 b. Aerospace Manufacturing

• Heavily Dependent on Gov. Investment (80’s)

• 2,2 million workers in 1988 / 1,7 million in 1998

• L.A. (CA), Seattle (WA), St. Louis (MO), Boston (MA), Long Island (NY)

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 16

3 b. Aerospace Manufacturing

• Deep Relation Between Companies and Suppliers• Intense collaboration with Suppliers• Limited to Specific Projects

Associations (Gov. Lobbying and Promote Exports):• Aerospace Industries Association• American Electronics Association• National Machine Tool Association

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 17

3 b. Aerospace Manufacturing – Problem and Solution

• Long Island most affected by cutbacks. Dramatic downsizing (>10.000 in 5 years). Profound Regional Restructuring. Not a Cyclical Phase

SOLUTION: . Department of Economic Development

. Agglomerated all Actors

. Coordinate Applications for Fed. Assist.

. Implement and Package Programs

. Market Services to Clients

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 18

3 b. Aerospace Manufacturing – Solution

• New Programs Tailored to Defence Needs• Firms Cover 50% Technical Assistance Costs• Case by Case Analysis of Firms

PROGRAMS:• Industrial Effectiveness Program• Econ. Development Skills Training Program• Global Export Market Service• Assistance for support on R&D

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 19

3 b. Aerospace Manufacturing – Results

• New Process, Market, Product, Capital • Establish a Reward System for Meeting Goals• Create a System to Monitor Performance

• Still, Recovery was not complete• Abandon Defence Contract Dependency• Despite no guarantee in data validity:

. Reduction in Gov. Dependency

. Increase in employment

. Sales Growth and Diversification

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 20

3 c. Use of Advanced IT in Rural Region

Telecommunications:

a) Catalyses Economic Growth;

b) Enhance Intra and Inter-Community Communication;

c) Information Exchange.

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 21

3 c. Use of Advanced IT in Rural Region

Problems in Rural Areas:

a) Population Density and Income;

b) High Connecting Costs (no economies of scale/scope). Results in negative feedback loop;

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 22

3 c. Use of Advanced IT in Rural Region - Solution

ACEnet Ventures:

• Non-Profit Community Development Institution

• Serves 27 High Poverty+Unemployment Counties

• Low Median Income

• Attempt to Develop Industrial Structure and Culture

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 23

3 c. Use of Advanced IT in Rural Region - Solution

ACEnet Goals:• Improve Access• Increase Technology Literacy• New Internet Technology

. Competitiveness . Market Reach

ACEnet Technology Center Initiatives:• High-Speed Portal / ISP• Training in Basic Computer and Internet Skills• Stimulus to Business Startups on E-Commerce

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.

30/03/2001 ITT – Lecture 9 24

4. Conclusions

• U.S. viewed as having weak Inst. of Collective Action

• Industry Associations focused on lobbying and marketing activities

• Government action fills gaps but does not substitute

Relation to Case Studies:

Government Action vs. Collective Action vs. Associations

Increasing Collective Efficiencies: The Role of Regional Initiatives in Improving Firm Performance in the U.S.