Exports, 

Competitiveness, 

and Synergy 

In Appalachian Industry Clusters 

 

A Report to the Appalachian Regional Commission 

February 1997 

Submitted by 

Stewart A. Rosenfeld 

Regional Technology Strategies, Inc. 

Post Office Box 9005 

Chapel Hill, North Carolina 27515 

saros@mindspring.com 

With assistance from 

Kenan Institute of Private Enterprise 

Alabama International Trade Center 

Creative Strategies, Inc. 

Prepared for the Appalachian Regional Commission under contract CO-11806C-96 
Executive Summary 

This report analyzes seven industry sectors pre-selected by the Appalachian Regional 

Commission on the basis of their importance to the region’s economy and export potential. The 

seven clusters are: miscellaneous plastics parts (SIC 308)*, electronic components (SIC 3670); 

household furniture (SIC 2510); knitting mills (SIC 2250); medical devices (SIC 3840); 

industrial machinery (SICs 3540, 3550, 3560, and 3590); and environmental technologies (see 

appendix for sector classifications). The targets of this analysis are small and mid-sized 

manufacturing enterprises (SMEs), which have been found to be slow to modernize and hesitant 

to export. These SMEs cluster, dominate many rural economies, and, with the downsizing of so 

many large corporations, comprise a potential source of growth. 

Three basic assumptions about business practice underlie our study. 

1. Businesses tend to cluster (i.e., certain types of businesses are more likely to be found in 

some areas than others), and this ought to affect policy. 

2. Companies clustered in a region are interdependent (i.e., formally and informally rely on 

each other for information, specialized services, parts, supplies, workers, technologies, and 

sales) 

3. Companies that learn about and use the most advanced and appropriate technologies, invest 

in the skills of their work force, and either possess or can access specialized expert advice 

and assistance are more competitive than those that do not. 

What is a Cluster? 

One definition of a business cluster, as defined by a group of experts assembled under a project 

supported by the Appalachian Regional Commission, is “a geographically bounded 

concentration of similar, related or complementary businesses, with active channels for business 

transactions, communications and dialogue, that share specialized infrastructure, labor markets 

and services, and that are faced with common opportunities and threats” (See Figure 1) More 

specifically, successful (synergy producing) clusters are characterized by: 

• a critical mass of similar, or related, economic enterprises; 

• specialized services and infrastructure; 

• accessible and rapid exchange of information and knowledge; 

• a workforce skilled in and well-informed about the industry; 

• competition to keep firms on their toes and spur innovation; 

• high rates of new businesses formation to imitate and innovate, fill needs, or diversify; and 

• social infrastructure with sufficient trust to enable firms to cooperate and learn from each 

other. 

 

* SIC refers to the Standard Industrial Classification system (SIC) used to classify each industry in the 

United States economy. This report uses the system detailed in 1987 Standard Industrial Classification 

Manual by the Executive Office of the President, Office of Management and Budget, National Technical 

Information Service, Springfield, VA. 

ii
Industry clusters were first noted in Western Europe—particularly in northern Italy where the 

production of such things as chairs, ski boots, ceramic tiles, and packaging equipment is highly 

concentrated in distinctive regions. In the U.S., carpet manufacturers near Dalton, Georgia, 

electronics and computer companies in the Silicon Valley, metalworking firms along the 

Connecticut River valley, and optics and imaging companies around Rochester, New York are 

examples of recognized industry clusters. Some of the regions selected in this study are 

similarly well-known and often cited as clusters: hosiery firms n North Carolina’s Catawba 

Valley (see Figure 1) and furniture companies in Northeastern Mississippi. But even where 

clusters are less obvious and in less concentrated, businesses tend to locate near compatible and 

similar businesses—their suppliers, customers, partners, and even competitors—to take 

advantage of specialized services, information, and resources; economies of scale; and strength 

of numbers. 

Research Questions 

Our assumptions stimulated a series of research questions about the exporting and export 

capabilities, competitiveness issues and the intensity and impacts of interdependencies and 

connections of SMEs. Do small and mid-sized companies—where they are most concentrated in 

areas of the ARC—interact and take advantage of their complementary strengths and potential 

economies of scale? Do they in fact think and act for their collective advantage as a cluster and 

do they produce synergy? 

To learn more about the ways in which companies function as a system, the research team

defined specific geographic areas where firms were found to be most highly concentrated. These 

were Greenville-Spartanburg, South Carolina (industrial machinery); Pittsburgh, Pennsylvania 

(medical devices); Binghamton, New York (electronic components); Erie, Pennsylvania (plastic 

parts); Chattanooga-Oak Ridge, Tennessee (environmental technologies); Tupelo, Mississippi 

(household furniture); and Hickory, North Carolina (knitting mills). Many of these “cluster 

hubs” can trace their beginnings to either (1) a technological innovation or (2) a branch plant 

location, followed by (3) entrepreneurial energy of employees who see opportunities for new or 

competing market niches and start their own companies. Researchers interviewed ten exporters, 

ten non-exporters, and six support services to learn about sources of information and assistance 

SMEs used, perceptions of competitive advantages, obstacles to exporting, geographic 

advantages, forms and levels of interaction, and export performance. 

The research team also analyzed national and regional (ARC states) export data and trends for 

recent years. Most of the region’s states export at a rate below the national average, and most 

are experiencing growth in exporting—especially of manufactured products—at a rate above the 

national average. Thus, most ARC states are making progress toward the region’s goal of 

bringing its export performance up to the national average. Southern ARC states posted the 

fastest rates of growth in the value of manufactured exports. 

Findings 

The interview surveys and analyses led to the following findings. 

iii
• Exports are considered important to firms’ future business performance. Even though many 

exporters only export a small fraction of their total output, more than half rated foreign 

markets as “very important” to their business and another 20 percent rated it as “important.” 

• Exporters relied slightly more on private sector for trade leads than on the public sector. 

Export consultants and agents were the most frequent source of general leads, but customers 

themselves were the most frequent source of specific leads, especially for environmental 

technology companies. 

• Among ten potential barriers presented to companies and services, all classes of respondents 

ranked “lack of information” very high. Exporters ranked “getting paid” as their largest 

obstacle, while support services ranked it last and non-exporters, well below average. Trade 

barriers was ranked third among exporters but last among non-exporters, and eighth among 

support services. Foreign regulations, not explicitly included on the survey instrument, 

nevertheless was also mentioned frequently by firms. 

• The criteria firms selected as their primary competitive advantages varied by cluster, but 

overall quality ranked highest among both exporters and non-exporters. “Quality” ranked 

particularly high in the knitwear and plastics clusters, while “reputation” and “customer 

service” were ranked highest among industrial machinery exporters and non-exporters, both 

of whom work closely with users to customize products to their needs. 

• Working capital was more problematic than investment capital for SMEs. Responses to 

access to investment capital were split, with a third rating it as a very large problem, a third 

as no problem, and a third in the middle. It was of most concern to the industrial machinery 

and electronics components clusters, where all but two firms rated investment capital needs 

high and two-thirds rated working capital needs high. 

• Trust is assumed by many observers of industry relationships to be an important factor in the 

strength of a cluster. High levels of trust increase opportunities for firms to take advantage 

of their collective capabilities and knowledge. Firms’ ratings of trust were dichotomous, 

with half rating trust “above average” and half “below average.” Support services tended to 

rate it higher than average. 

• Among location advantages of firms in clusters, proximity to suppliers and customers ranked 

first, industry specific skills of the work force ranked second, and good distribution channels 

ranked third. Support services placed distribution channels first, skilled work force second, 

and access to R&D and technical assistance, third (which SMEs ranked next to last). 

Opportunities for Improving Export Performance and Competitive 

Advantages 

• Overcoming SMEs’ difficulty in “getting paid” Community banks are likely to know local 

industries best but have little expertise in exporting. A number of niche export finance 

intermediaries are emerging to target small and mid-sized exporters. Cluster would benefit 

from help in connecting the new-to-export companies with community banks that are 

familiar with and accessible to SMEs. 

• Reducing unit costs of international marketing and sales: Expense was cited as a major 

barrier to entering export markets. A suggested action is to develop a cadre of skilled 

brokers and offer incentives for export cooperatives or networks. 

• Increasing participation in trade shows: Overseas trade shows, though costly, are 

important sources of sales leads. A suggested action is to organize groups of small and midiv
sized companies to attend trade shows together, sharing costs of booths, or simply gathering 

information and making contacts that would be shared with others in cluster. Reverse trade 

missions could bring delegations from other countries to visit the cluster allowing it to 

become more familiar with its products and capabilities and develop personal relationships. 

• Emphasize design: Although design ranked high among competitive factors, it is given 

little emphasis and short shrift by educational programs and services. Colleges ought to play 

a key role in integrating design into technical curricula and support services ought to include 

specialized design firms. 

• Improving education and information about export procedures and foreign market 

requirements. These services exist in most states but are not easily accessed by rural or 

remote companies. One suggestion is assistance to SMEs in making greater use of 

telecommunications, both for education and information. 

• Identifying and targeting gaps in cluster. View the cluster as a system and look for 

disruptions in or impediments to the flow of information and business transactions or 

between firms, weak elements such as lack of important suppliers or industry specific 

training. Then look for strategies that improve the entire systems. 

• Improving flow of expert information to SMEs: One of the major weaknesses in most of 

the systems analyzed is use of public sector services. Responses from businesses suggest a 

dearth of specific, niche-market oriented information companies need to export—best 

obtained from experts in the industry. Regional brokers could help SMEs locate the 

information or, if unavailable, contract for and partially subsidize the studies, and put 

together companies with similar needs to share the information costs. 

• Merging export/marketing programs with technology diffusion/business assistance 

programs that target clusters. SMEs have considerable trouble sorting out and evaluating 

the multitude of technical assistance programs at their disposal. A “one stop” agency—a 

long sought ideal of many public agencies—might be more effective if organized around 

industry rather than function. Community colleges may be well positioned to serve in this 

capacity and broker specialized services for a cluster. 

• Encouraging networking. Although there is no long-standing and well-patterned “habits of 

cooperation” among firms in most regions, many see a potential for creating new 

mechanisms to allow firms to explore opportunities for joint export development. While 

many of these firms do compete with each other in regional markets to supply larger 

customers, a large number have differentiated themselves with their special capabilities over 

the past few years, thus increasing the likelihood of cooperating on mutually beneficial 

issues. 

Highlights of Clusters 

A. Environmental Technologies in Eastern Tennessee 

• The environmental technologies (ET) cluster in East Tennessee is concentrated in Oak 

Ridge, where firms have located to be near Department of Energy (DOE) clean-up sites and 

the Oak Ridge National Laboratories, but with smaller concentrations in Knoxville and 

Chattanooga. 

v
• The world market for environmental technologies is estimated to be $400 billion in 1994, and 

is projected to grow by some $100 billion by 2000. The U.S. accounts for about 40 percent 

of the total. 

• The best market opportunities for remediation technologies in the next five years are 

Germany, Mexico, South Korea, and the most promising new markets over the next ten years 

are China, India, and Brazil. Exporting firms surveyed, mentioned mainly sales in Russia, 

Central Europe, and Southeast Asia. 

• Export sales provided about six percent of 1994 revenues for U.S. environmental 

technologies firms, with about five percent of ET industry revenues in ARC states. In both 

the U.S. and ARC states, exports contributed about one percent of total export revenues. The 

most active ET exporting countries, Germany and Japan, earned 30 and 24 percent, 

respectively, of revenues from exports. 

• The Oak Ridge ET cluster has capacity to manage and remediate radioactive and mixed 

hazardous wastes and decontaminate and decommission nuclear facilities that is unmatched 

in the world. Chattanooga has unique expertise in electric vehicles. 

• In Oak Ridge, a government-dominated market has shaped the development of a cluster 

where firms cooperate with each other and partner on most projects. Yet there are few local 

sources of business services and capital. 

• Branch offices of larger ET firms have shown limited interest in exporting from East 

Tennessee sites. The relative isolation of the East Tennessee location is a disadvantage for 

exporting as is the high cost of marketing abroad. Smaller firms look to export sales to help 

mitigate cutbacks in DOE contract work. The cutting edge technology and highly skilled 

work force in East Tennessee are advantages for exporting. 

• Industry associations lead efforts to increase non-local marketing, including reverse trade 

missions to reduce the cost of international marketing. But these efforts are new, and the 

associations have limited resources. 

B. Plastics Parts in Northwestern Pennsylvania and Ohio 

• The global market for U.S. plastic products has grown substantially in the past three years. 

Yet exported products remain a relatively small percentage of overall industry shipments 

because most plastics parts companies make sub-assembly parts and sell to large original 

equipment manufacturers. Most firms that do export tend to be large, international and 

vertically integrated companies but percentage of their products exported is quite low. Many 

other plastic parts are exported indirectly as a part of another product. 

• The most promising market for U.S. plastics are Canada and Mexico due to the close 

proximity and interrelated markets of those two countries. The implementation of trade 

agreements will further increase shipments to these markets. The U.S. enjoys a trade surplus 

of approximately $1.5 billion in plastic parts. Canada, Taiwan, China and Japan are the 

biggest exporters of plastics to the U.S. 

• The plastics part cluster is centered in Erie, Pennsylvania and includes eight counties in 

Pennsylvania and four in Ohio. Overall, the ARC region is not as strong in plastic as the 

Northeast and the Midwest. In Erie, however, it has one of the nation’s leading centers of 

plastics production. Erie is the birthplace of the plastics processing technique “injection 

molding” and most plastics parts firms specialize in this type of operation. This process is 

vi
primarily used to produce sub-assembly parts for large original equipment manufacturers 

(OEMs). 

• The major impediment to exporting is both lack of unique, completed products and general 

lack of interest in foreign markets among company owners, especially those who operate 

SMEs. Most firms are able to stay competitive within a 300-mile radius and have little 

interest in expanding beyond that region. 

• The area possesses several resources aimed specifically at helping plastics firms become

more competitive, including a federally funded manufacturing extension center, but very few 

concentrate on export promotion. 

• If this cluster of plastics firms continues to produce mainly sub-assemblies and parts, there 

may be little potential for exports. The best hope for those that do want to export is in 

NAFTA members Mexico and Canada. There also may be potential for some larger plastics 

firms to export, as large, multi-national corporations seek one global supplier for various 

products. 

• The only way to increase the export potential of small and medium sized plastics firms may 

be to offer assistance in developing unique products that could be sold directly overseas and 

to encourage firms to tap directly into the Mexican and Canadian markets, where subassembly plastics parts might be needed. 

C. Medical Equipment and Supplies in Southwestern Pennsylvania 

• The U.S. medical equipment and supplies industry constitutes one of the United States’ 

strongest exporting industries, with 23 percent of all products manufactured in the U.S. 

heading to foreign markets. The U.S. has 59 percent of the world market. Three reasons for 

this success are the U.S.’ reputation for high quality, its cutting edge technologies and new 

discoveries, and its service. 

• The most promising markets for U.S. medical products are Latin America, Japan, the rest of 

Asia, and the European Union. The U.S. possesses 21 percent of Japan’s total market share, 

62 percent of Canada’s, 25 percent of France’s and 20 percent of Brazil’s. 

• The ARC region is not particularly strong in medical devices. Most clusters within the 

industry are near large medical centers and research universities, which are not prevalent in 

the Appalachian region. Pittsburgh, with two strong research universities and large hospitals, 

had the highest concentrations. Medical devices firms also are found in the eight 

surrounding counties. 

• Although this area has the strongest medical device firm presence in the ARC region, it is 

home to a below-average concentration of firms and employees compared to the U.S. 

Further, local companies make a wide range of products and have no special market niche. 

Thus, it does not meet criteria for a “cluster” based on either concentration or 

interdependencies. Because of the small size of the cluster, there are few services in the area 

that specifically cater to the unique needs of medical device firms. 

• The few large companies in the area already export heavily, but because so many of the 

smaller firms provide local hospitals with fitting devices for specific patients, they are not 

good candidates for exporting. 

• In general, most firms that want to export are already be doing so. Most of the steps that 

could be taken to increase the level of exporting among these firms would be regulatory 

vii
reforms by the U.S. Food and Drug Administration or by foreign nations. Firms cited 

stringent foreign requirements as a major impediment to increased exports. 

• If Pittsburgh wants to build a true medical device cluster, it will have to successfully recruit a 

number of large firms to add to the few that already operate in the area might be an 

appropriate strategy and look for ways to develop a supplier base, a long-term strategy. 

Given that smaller companies often spin out from larger ones, the location of a few industry 

giants could also spawn new and vibrant SMEs. 

D. Knitting Mills in North Carolina and Virginia 

• The knitting mill cluster in North Carolina/southwest Virginia/northeast Tennessee produces 

hosiery, knit outerwear, knit underwear, and knit fabric. More than 130 companies employ 

almost 20,000 people in a 20-county area. 

• Global markets are significant for niche knit products, including branded items, specific use 

products (such as athletic or medical goods), and products with a strong design component. 

“American Casual” style apparel and textiles are increasingly popular in Japanese and 

European (particularly the United Kingdom) markets. 

• The U.S. faces stiff foreign competition from low-wage countries in high labor content knit 

products that must be cut and sewn, such as sweaters and shirts. The U.S. has a stronger 

competitive position for low labor content goods, such as hosiery and knit fabric. The 

quality of U.S. yarns and fibers used in high end products represent a competitive advantage. 

ARC knit producers are, on the whole, as competitive as the average U.S. firm. Within the 

textile and apparel industries, knit goods is one of the most competitive sectors in export 

markets. Firms are fairly technologically advanced. 

• The cluster is comprised mostly of hosiery companies (55 percent of employment), followed 

by knit outerwear (26 percent), and knit underwear (9 percent). Since the South produces 

most of the nation’s textiles and apparel, the cluster is located within an even larger 

concentration such firms. 

• Most hosiery firms produce basic “commodity” goods that are not export appropriate. 

Strong foreign competition exists for “cut and sewn” knit products. As a result, most firms 

are small and have little marketing capabilities and are unaware of how to find and sustain 

exporting relationships. Companies must currently self-finance export activities.

• Export potential exists for some, but not the majority, of firms in the cluster. Realizing this 

potential will take more tailored and more easily accessible information about export markets 

and better economies of scale to pay for costs associated with exporting. Many firms are 

now receptive to the idea of entering export markets due to consolidation of U.S. retail 

markets and overcapacity within the sector. 

• The cluster is a mature production system with strong support services, and cooperation 

among companies is fairly common. Good distribution and transportation infrastructure 

support exporting efforts. 

E. Electronic Components in New York 

• The ARC is relatively weak in terms of electronics, with export growth well below the 

national average. Among ARC states, New York has the highest level of employment in 

electronics components and a major cluster is in the Southern Tier of New York and the 

viii
cities of Binghamton, Johnson City, Endwell, Endicott, and Vestal. York’s electronics 

cluster is fairly diverse with one of its unique features being linkages with ceramics firms in 

the western part of the region. 

• The global market is highly competitive, price sensitive and mainly for commodities. 

Competition in the electronics industry is fierce, and to be successful a company must have 

superior technology and/or be highly price competitive. 

• The greatest export potential for U.S. electronics components is in markets that are 

sophisticated and require high levels of technology, such as semi-conductors. The primary 

customers for electronic components are large, multinational firms that have facilities in 

countries with few regulations and relatively inexpensive labor costs. Primary markets for 

U.S. electronics include Canada, Mexico, Singapore, Japan, and Taiwan. 

• The cluster has is a strong base of technological support for firms, including particularly 

strong programs of basic and applied research and development in electronics “packaging” 

(the physical environment in which chips are contained and operate). Firms view the 

region’s labor force as a significant competitive advantage. 

• Larger firms have a great deal of expertise in export sales. A few small electronics firms in 

the Southern Tier have become adept exporting, but most do not. Most supply components 

and sub-assemblies to larger firms who may export them as fully assembled products. 

• A major barrier to exporting among non-exports is that they are assembly “job shops” or 

contract manufacturing facilities who view themselves as too small and locally linked to 

have export capability. Other firms, such as coils and transformers businesses, do not 

compete because of the enormous price competition from firms in low-wage rate areas. 

• There appears to be significant opportunities to expand exports, especially from firms who 

had been content to service domestic and regional markets. Much of this potential comes 

from firms beginning to apply their specialized capability in electronics packaging. 

• Rather than generic export assistance, it appears that the most rewarding export promotion 

strategy would be to develop a consortium of exporters and non-exporters who would seek to 

develop joint marketing and market servicing capabilities in target countries. 

F. Household Furniture in Alabama and Mississippi 

• This “cluster” is actually two distinct and independent clusters that grew out of the hard work 

of early entrepreneurs. Northwest Mississippi is home to 318 firms with almost 50,000 

people and specializes in upholstered pieces. Northeast Alabama has 205 firms with 15,000 

people specializing in solid wood pieces. 

• Overseas markets are importing more American furniture, buying $1.3 billion in 1995. The 

ARC region has contributed a major share of the growth in U.S. furniture exports. Firms 

believe exporting is very important to the future of their industry. The best sales prospects 

are Canada and Mexico (NAFTA), Japan, the Middle East (Saudi Arabia), and emerging 

markets in Latin America 

• The niche of both clusters are quality-oriented, promotional (low cost) furniture—solid wood 

in Alabama and upholstered furniture in Mississippi. The cluster’s competitive strengths are 

in price, design, and access to quality raw materials and suppliers within the local area. 

• Promotional furniture is being exported to targeted customer groups abroad, but firms pursue 

a "passive” approach of order taking from buyers at domestic trade shows. Companies with 

full-time export staff who travel abroad are most successful. 

ix
• Barriers to exporting cited by companies were lack of specific market and customer 

information. And, lack of skilled labor was cited by a large number of respondent companies 

as a major impediment to both domestic and export performance. 

• The potential to produce and grow via exports is much greater than currently realized. Firms 

export, on average, less than three to five percent of total sales. 

• To realize the clusters’ full potential the region must increase worker skills to operate 

advanced machinery. Firms must commit resources to hire specific staff, seek out foreign 

markets and export. 

G. Industrial Machinery in North and South Carolina 

• The industrial machinery cluster is centered in the Greenville/Spartanburg area of South 

Carolina but extends into Western North Carolina. This highly differentiated cluster 

produces a wide range of machinery, with the greatest concentrations in automotive and 

textile machinery. It is composed predominantly of small and mid-size firms and is 

noteworthy for its high percentage of foreign-owned firms. The cluster is competitive, 

technologically advanced, and constitutes one of the leading machinery clusters in the U.S. 

• Industrial machinery has high export potential, and the majority of final equipment makers 

are already exporting. However, a significant portion of industrial machinery firms are tool 

and die or other small job shop operations, performing custom work to order and with less 

possibility of exporting. Thus, there is more potential to raise exports by helping small and 

mid-size firms penetrate new markets and expand sales to existing markets than helping 

current non-exporters to export. 

• The U.S. is highly competitive in industrial machinery and exports industrial machinery to 

all of the world's markets, with the majority going to Canada and Western Europe. But the 

best mix of prospects varies substantially depending on the specific type of machinery 

produced. Europe, Japan, and certain former Soviet states provide serious competition for 

specific kinds of machinery. 

• Firms in the Greenville/Spartanburg area and service providers alike reported that exporting 

is an important and growing part of their strategy. The main barriers cited as impeding more 

aggressive expansion of exports were lack of market-specific information, lack of export 

finance and/or concerns regarding international payments, unfavorable policy conditions in 

target markets and/or subsidies by competing countries, and high costs of international 

marketing. 

• Based on the export orientation of this cluster, its highly competitive position on world 

markets, and the barriers cited, it appears that this sector offers good potential for further 

export development. The best prospects for this cluster are: (1) programs to help firms gain 

better product-specific and country-specific marketing information at lower costs, such as 

cost-sharing of specialized consulting or trade show attendance by a group of firms and (2) 

measures to develop better export finance access for these firms, such as collaboration with 

local banks to improve their linkage to international financing sources. 

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Findings 

This study focused on places in Appalachia where sectors are clustered. Does clustering matter 

and how does it affect businesses’ ability to learn, modernize, and export? It is difficult to make 

meaningful generalizations that can be applied to other locations because each cluster selected 

and studied is unique and the way it functions is a product of the type of goods it produces, the 

customers it targets, and the level of interdependencies among its companies and services (See 

Table 1). 

In fact, the clusters as defined by products and the places with the highest concentrations of 

companies making those products did not all turn out to be clusters as defined by 

interdependencies and system characteristics. The medical devices cluster, for example, 

comprised too few firms with too diverse products and customers and is imbedded in too large 

an industrial base to be considered a cluster in any sense of the word. Industrial machinery 

producers are more tightly linked to their customers’ clusters than each other, although the 

smaller supplier firms may constitute a truer and more interconnected cluster. Too little 

information was gathered about the latter firms to judge their degree of interconnections. Plastic 

parts and electronics components are clusters of suppliers that achieve external economies as a 

result of their numbers and are dependent on their customers. 

An analysis of two other clusters, household furniture and environmental technologies, revealed 

that they were each actually two distinct clusters. This illustrates the danger of using only lowlevel (two- or three-digit) SIC codes to define clusters. Household furniture producers operate as 

a strong cluster producing upholstered furniture in northeastern Mississippi and a slightly weaker 

cluster producing solid wood pieces in northern Alabama. In Tennessee, the cluster around Oak 

Ridge concentrates on nuclear energy and waste and the cluster around Chattanooga on 

conventional manufacturing environmental problems. Knitting mills as an entire sector is not a 

cluster but its largest component, hosiery, is a very complex cluster, again illustrating the 

problem in using three-digit or lower SIC codes. Hosiery firms are tightly linked to each other 

but not nearly as tightly to other types of knitting mills. 

In only three of the clusters do concentrations and connections appear to improve firms’ interest 

in and ability to export. Knitting mills (hosiery), furniture, and environmental technologies are 

favorably affected by collective marketing and/or better access to information. Electronic 

components has the potential to benefit from such activities but does not yet. Industrial 

machinery markets are too diverse and customer specific, and are dependent on customer 

relationships. The medical devices cluster around Pittsburgh, as defined by current members, is 

tied to local customers, and plastic parts has little potential because its capabilities are too 

ubiquitous and readily replicable locally. 

Despite the individuality of the clusters, the accumulated knowledge does lead to some findings 

about export potential. Each cluster has some but not all of the strengths necessary for success in 

exporting, and therefore each has areas in which it can improve its performance—if it so 

chooses. 

xi
• Clusters that are mainly suppliers of larger firms (e.g., plastics parts and electrical 

components) are less likely to export than those that sell to final users (e.g., industrial 

machinery and household furniture). 

• Clusters that compete on design or innovation (e.g., environmental technologies and 

industrial machinery) are more likely to have a future in exporting than those that compete 

on the basis of lowest price (e.g., plastics parts and knitwear). 

• Clusters that are internally networked and can take advantage of external economies of scale 

(e.g., hosiery and environmental technologies) are more likely to be able to export and adopt 

new technologies than those that are not (e.g., medical devices). 

• Clusters that are composed of larger companies (e.g., industrial machinery and are more 

likely to export than those comprised of small companies (e.g., knitting mills and . 

• Clusters with strong and specialized support services—especially those with marketing 

expertise, (e.g., hosiery and plastics parts)—are more likely to export than those with 

fragmented or generic services (e.g., medical devices and industrial machinery). 

• Clusters with pro-active companies that seek out markets (e.g., industrial machinery and 

environmental technologies) are more likely to export than those that are “order takers” (e.g., 

household furniture) 

• Within clusters, firms that are more technologically advanced (often the larger SMEs) are 

more likely to be exporters than the less advanced firms. 

Finally, for the benefit of future cluster analyses, it is important to note that three-digit SIC codes 

do not adequately classify clusters. Some are too broad (i.e., hosiery is a cluster but other 

knitting mills in SIC 225 are dissimilar and unconnected); some are too restrictive (i.e., they miss 

vertically integrated clusters where suppliers are part of cluster); and some are too new and 

undefined by product (i.e., environmental technologies). 

xii
Table 1

Summary of Cluster Characteristics 

Cluster Main

Customer 

Base 

Specialized 

Services & 

Infrastructure 

Export Performance Export 

Potential 

Synergy Competitive

Advantage 

Export 

Prospects 

Electronic 

Components 

(NY, PA) 

Large final 

producers 

Strong technology

services; private 

 support services 

Fairly high among 

highEnd and specialized 

producers 

Strong for

specialized 

products 

Significant but 

informal 

cooperation 

Labor skills; “niche” 

capabilities 

Strong base 

exists to 

support export 

expansion 

efforts 

Environmental 

Technologies 

(TN) 

Government Two industry

associations; federal 

labs; university

expertise; training 

programs 

Minimal but growing 

recognition of need to 

export due 

government cutbacks 

Very strong 

particularly for 

nuclear cleanup as 

environmental 

concerns rise 

Firms highly

competitive but 

form partnerships 

for specific 

contracts 

Highly skilled labor; 

Specialized 

facilities; 

Cutting edge 

products and 

services 

Strong if firms 

Broaden 

horizons and 

build 

infrastructure 

to overcome 

locational 

disadvantages.

Household 

Furniture 

(AL, MS) 

Retailers Showrooms;

technology centers

Minimal Strong in newly

developing 

economies 

Informally 

networked to share 

resources, solve 

problems 

Price; access to raw 

materials

Good if firms 

overcome 

passive 

marketing and 

network to 

share costs 

Industrial 

Machinery (SC, 

NC) 

Manufacturers Technical colleges 

best source 

High among midsized firms; low 

among small 

suppliers

High More tightly

linked to 

customers’ clusters 

than each other 

Technologically

advanced; 

internationally 

competitive 

Expansion 

possible with 

more support 

services in 

place 

Knitting Mills 

(NC, VA) 

Large retail 

chains 

Technology center;

active trade 

association 

Small, individual 

efforts 

Strong for highend, branded 

goods with low 

labor content 

Hosiery intensely 

networked; 

collective identity 

Design, quality; 

strong suppliers

Good for firms 

with 

appropriate 

products 

(relatively few 

firms)

Medical Devices 

(PA) 

Hospitals and 

physicians 

None Virtually none Very high for

sector overall, but 

low for firms in 

cluster 

No 

interdependencies 

Firms are too 

dissimilar to jointly 

characterize 

Insufficient 

concentrations; 

Inappropriate 

products 

Plastics (PA, OH) Manufacturers R&D at local 

university; dedicated 

extension services 

Moderate among 

larger firms; minimal 

among small firms 

Limited because 

most products are 

not export 

appropriate 

Substantial 

linkages among 

firms; regional 

cluster identity 

Skilled labor; sector 

expertise; price and 

quality 

General lack of 

interest in 

exporting 

13
Figure 1 

Knitting Mills Cluster 

Base 

Materials 

Nylon 

Wool 

Cotton 

Synthetics

Suppliers 

Fiber 

Yarn 

Fabric 

Needles 

Chemicals 

Packaging 

Elastics 

Trimmings

Knit Under & 

Outerwear 

(30)

Hosiery 

(88)

Misc. Knit 

(6) 

Machinery 

and Equipment

Knitting Machines 

 (imported) 

Packaging Equip. 

Dyeing Equip. 

Machine Parts 

 and Services 

CAD/CAM Equip. 

Printing Equip. 

Hosiery 

Services

NAHM 

CHA 

CVHTC

General 

Services 

NC Indust. Ext. 

NCSU Coll. of 

 Textiles

Export Assistance 

 Center (US DOC)

Consultants

Infrastructure 

Education and Training, Financing, Transp. 

(Cat. Valley Comm. Coll., Bank of Granite)

* figures in parentheses indicate number of establishments 

Supplier 

Services 

Value Systems

Other 

Manuf.

Foreign 

Distributers

Domestic Retailers 

and Distributers

Knit Fabric 

(8)

14
Table of Contents 

VOLUME 1 

Acknowledgements 

Executive Summary 

PART ONE: FRAMING THE SITUATIONS 

A. Why Worry About Exports?

Driving Exporting and Modernization 

Fusing Modernizing and Exporting 

Exporters, Sectors and Industry Clusters 

B. Choosing Appalachia’s Key Industry Clusters 

C. Posing the Questions 

D. Industry Clustering within the Appalachian Region 

Gathering Information 

E. National and Regional Trends in Exports 

Recent Export Trends 

Export Intensity 

Manufactured Exports 

F. Who Exports What and Where?

G. Where are the Emerging Markets? 

PART TWO: OBSERVATIONS, ANALYSES, AND LESSONS FROM EXPERIENCE 

A. Setting Cluster Boundaries 

B. The Birth of Clusters: Innovations and Branch Plants 

Specialized Services and Skilled Workers 

C. Becoming Global: Export Assistance and Performance 

Highlighting Clusters’ Export Activity 

Barriers to Exporting 

Rating Export Capabilities 

D. Making Things Better: Competitiveness and Modernization Assistance 

Access to Capital 

E. Cluster Power: Impacts of Proximity, Association and Interdependence 

Highlighting the Clusters’ Inner Workings 

F. Locational Advantage 

Outside the Cluster 

G. Building a Profile of Cluster Power 

H. Opportunities for Improving Export Performance and Competitive Advantage 

I. Conclusions 

Appendix: Data Sources and Methodology 

15
VOLUME 11: CASE STUDIES 

Industrial Machinery in South and North Carolina 

Clustered with its Customers (Jennifer Bremer) 

Environmental Technologies in Eastern Tennessee 

Natural Networkers (Pat Dusenbury) 

Household Furniture in Alabama and Mississippi 

Exporting for Mass Consumption (Brian Davis) 

Knitting Mills in North Carolina and Virginia 

Committed to Cooperation (Cynthia Liston) 

Electric Components in New York 

A Self Aware Cluster (Brian Bosworth) 

Plastic Parts in Northwestern Pennsylvania and Ohio 

Successful, Clustered, and Ubiquitous (Dan Broun) 

Medical Devices in Pennsylvania 

Still Undeveloped Potential (Dan Broun) 

16
Acknowledgments 

This project was a team effort, with the Alabama International Trade Center (AITC), the Kenan 

Institute for Private Enterprise (KIPE), and Creative Strategies, Inc. (CSI) playing key roles. Pat 

Dusenbury of CSI did the trend analysis for the ARC states and national overviews and analyzed 

environmental technologies; a team at KIPE led by Jennifer Bremer and including Barbara 

McMurray and Kathleen McDevitt contributed the cluster specific export analyses in the 

appendices to the individual case studies and analyzed industrial machinery; and Brian Davis at 

AITC helped identify exporters in all clusters and analyzed the household furniture clusters. 

RTS principal Brian Bosworth and RTS staff members Daniel Broun and Cynthia Liston carried 

out the other four cluster analyses. Each brought a different perspective to the project—

particularly with respect to trade issues—that complemented RTS’ experience in industrial 

competitiveness issues and programs. In addition, Pat Dusenbury and Cynthia Liston 

contributed to and edited the final report. 

A number of others also contributed to the study. University of North Carolina graduate student 

Theodore Noell did most of the data analyses and mapping of employee and establishment 

concentrations. Richard Bell conducted the interviews for the plastics and medical devices 

clusters and Robin Alpaugh did the same for the electronic components cluster. 

Within the clusters, Paul Fogleman, executive director of the Carolina Hosiery Association was 

extremely helpful, setting up interviews at his offices and providing a history of the hosiery 

industry. Tom Trevor of Chattanooga State Technical College assisted in arranging interviews 

with environmental technology firms in his area. 

Finally, Carol Conway of the Southern Growth Policies Board provided us with a great deal of 

useful background reports and materials plus advice at various stages as the project progressed. 

Stuart Rosenfeld 

Project Director 

February 24, 1997 

17
PART ONE: FRAMING THE SITUATIONS 

A. Why Worry About Exports? 

Appalachia, like the rest of the United States, looks increasingly to foreign markets for its 

sources of economic growth. National economic data, backed by mounting research, 

underscores the importance of exports to the region's industrial Competitiveness. For too long, 

U.S. firms have taken the country's large and expanding domestic markets for granted and 

assumed that U.S. customers could absorb all of their production and generate continuing 

growth. Thus, they assumed, there was little need to aggressively seek customers outside U.S. 

borders. 

As a result, U.S. companies, according to Conway and Nothdurft, have been “the world's biggest 

export underachievers.” Exports as a percent of GNP are less than half of what they are in 

Germany, Japan, Canada, and the United Kingdom combined. But this situation is rapidly 

changing. Last year total exports for U.S. firms were 52 percent higher than in 1990.12 A small 

number of the nation's largest companies (about fifty) still account for almost half of U.S. 

exports, but with rapid rises in imports competing for domestic markets, consolidation of retail 

markets, and growing opportunities abroad, exporting has become an important consideration—

if not imperative—for firms of all sizes. 

Smaller firms in particular have been slow to exploit export opportunities. Often their 

management lacks the specialized expertise, resources, access to necessary information, and 

capital of large companies. In 1995, only 14 percent of firms with between 20 and 100 

employees were direct exporters, and in almost half of those firms no more than five percent of 

sales were exported. Less than nine percent of firms with fewer than 30 employees export. 

These data have led to government to focus on SMEs, and since the enactment of the Trade and 

Competitiveness Act of 1988, U.S. federal and state policy has paid greater attention to the 

capabilities and competencies of small and medium-sized business enterprises (SMES) with 

respect to both meeting market requirements and levels of modernization. In 1993 the 

recommendations of the President's Competitiveness Policy Council contained in its “Trade 

Policy for a More Competitive America” led off by exhorting the government to “stimulate an 

‘export mentality’ by concentrating on the untapped export potential of small and mid-sized 

businesses.”3

Exports, we know, create jobs, and companies that do export exhibit significantly more 

(statistically different) of the characteristics associated with higher performance companieshigher value added per employee, higher wages, salaries and benefits, higher capital 

expenditures per employee, and higher investments in plant and equipment per employee. High 

technology industries tend to export more than lower technology industries, but the differences 

in indicators of performance hold, in general, across all sectors of manufacturing. In 

transportation equipment, for example, value added per employee for exporters was 48 percent 

higher than for non-exporters, investment in plant and equipment was 47 percent higher, and 

salaries and wages were 23 percent higher.4 Exports also have a large multiplier effect. Every 

single manufacturing job directly associated with exports creates slightly more than two 

additional jobs indirectly associated with exports.5

18
It is not at all surprising to find that the vast majority of exporting in the United States is done by 

large, multi-branch corporations-which could account for the higher average wages in exporting 

firms since larger companies on average pay higher wages. But since much of the data used to 

measure exports—such as the Annual Survey of Manufacturers— includes large establishments, 

it is difficult to capture accurately the full export value of the small and mid-sized companies 

that comprise a large proportion of the industrial base of Appalachia. Data analyses have shown, 

for example, that most of the value of exported goods comes from lower tier suppliers. These 

firms are indirect exporters and may have to meet demands of export markets even if they do not 

transact business directly. 

Driving Exporting and Modernization 

Government-sponsored technical assistance programs, for the most part, have separated the 

related goals of and support services for technological development/utilization and market 

development/exports. Consequently, each set of programs is driven by a different set of 

assumptions about the competitiveness of SMEs. 

• Government programs that promote greater adoption of technologies (popularly called 

"industrial modernization") are based on an accumulation of survey evidence showing that, 

on average, SMEs in the U.S. lag behind SMEs in leading foreign competitor nations in 

technology adoption. Experts contend that American SMEs can and will be more competitive 

in global markets and better able to export if they increase and expand their uses of advanced 

technologies. Engineering problems drive the activities of agencies that are formed to assist 

with modernization and staffed by technicians and engineers more interested in and 

knowledgeable about improving product than expanding customer bases. Such governmentassisted efforts include industrial and manufacturing extension services, quality certification 

programs, technology transfer programs, university-based technology centers, community 

colleges' continuing education divisions, technology trade shows, and state technology 

councils. 

• Government programs that promote exporting also justify their activities on surveys—but 

about markets, not technologies. These data inevitably show low proportions of exporters 

among SMEs. Programs to encourage exporting, experts assert, may require firms to 

modernize because new customers are likely to be more demanding. For example, western 

European nations that have high quality standards and Pacific Rim nations with demanding 

delivery schedules as well as quality requirements will cause SMEs to invest in new 

technologies. Market trends and opportunities drive programs that work with marketing—

particularly exports—and their staffs are often former marketing and sales managers and 

economists, many with little knowledge of production issues. These include state-operated 

foreign trade offices, trade missions, small business development centers, world trade 

centers, export service directories, trade shows, and trade lead services.6

Unfortunately, the value of technology in opening new markets has been difficult for many 

companies to accept because equipment manufacturers have promoted their new technologies far 

more as a labor saving than capacity building device. For decades, machine builders advertised 

the labor reductions possible with their equipment as justification for investments. In the 1980s, 

19
however, when quality and flexibility emerged as the new foci of modernization, companies 

began to invest in new technology not just for cost savings but to also meet rising quality 

standards and produce smaller runs of more specialized goods. In the 1990s, time is emerging as 

yet another new competitive advantage, and modernization is also being pursued to reduce time 

to market or order. 

This policy dichotomy between modernization and marketing divides the delivery of services 

and creates unnecessary confusion for the smaller firms because the two strategies of 

modernization and market development are not separated in the decision-making processes of 

small businesses managers and often handled by the same people. In fact, programs that 

promote modernization ultimately will expand market opportunities, and policies that promote 

exports ought to eventually require modernization. To adopt new technologies, SMEs have to 

justify their investment and training costs on a cash flow basis, which generally is related to new 

markets and sales growth. At the same time, firms considering new markets often find that they 

need to modernize in order to be “export-ready,” and meet the quality, design, and delivery 

standards of their competition. Most government programs are not organized to address these 

issues holistically. 

Fusing Modernization and Exporting 

Where programs are becoming more demand driven, the barriers between modernization and 

export assistance programs are fading, and distinctions between production and marketing 

capabilities are diminishing. For example, members of the new Manufacturing Extension 

Partnership (MEP), established by the National Institute of Standards and Technology (NIST) in 

1988 to enhance technology transfer, increasingly are being asked to provide their clients with 

assistance in domestic and foreign market development. Each of the Appalachian states has a 

state program supported by NIST aimed at assisting Appalachian SMEs modernize, e.g., the 

West Virginia Partnership for Industrial Modernization which includes the Richard C. Byrd 

Center, Marshall University, and West Virginia University; the Virginia Alliance Competitive 

Manufacturing, which includes the A.L. Philpott Manufacturing Center, the Manufacturing 

Technology Center at Wytheville Community College, and the Center for Innovative 

Technology; the Southeastern Manufacturing Technology Center in South Carolina; the North 

Carolina Manufacturing Extension Partnership headquartered at North Carolina State University; 

and the Southwestern Pennsylvania Industrial Resource Center in Pittsburgh. 

Further, a new set of programs established by modernization advocates to encourage inter-firm

collaboration (“networks”) as a means for enhancing the capabilities of SMEs found much 

greater interest in marketing and exporting than in technological advancements. Accordingly, 

these centers recognize that exporting is a leading driver for competitiveness, and therefore 

technical assistance is now a priority of many of the Manufacturing Extension Partnership 

centers. The more effective programs are those able to address the multi-dimensional needs of

SMES, which include not only technology and training, but the skills, finances, and contacts to 

be able to export. 

Most programs that target SMEs, however, operate on very small budgets, have little long-term

security, and are asked to very quickly move toward self-sufficiency. This drives them toward 

20
more urban areas, larger companies that are better able to pay for services, and shorter-term, less 

strategic, projects that can yield quicker returns. Modernization programs, in particular, 

continually struggle to maintain a presence in rural areas and there are few provisions for the 

diseconomies of scale associated with more rural areas and very small companies. 

Exporters, Sectors, and Industry Clusters 

At the heart of this project is the knowledge (based on existing research) that virtually all small 

and mid-sized businesses do business in the context of complex production and social systems 

that include other firms with similar or complementary products, materials, supplies, services, 

resources, capital, and distribution channels. To take advantage of external economies of scale 

and access to information and innovation, firms with common needs or interests tend to cluster 

together in spatially bounded regions.7 Although clusters are most often designated by standard 

industrial classifications (SICs) of their products, firms also cluster around other commonalities. 

The element binding firms together may be a marketing strategy, exemplified by the crafts 

cooperative Watermark, in North Carolina whose products include ceramics, wood, and fabrics. 

he element could be a common core technology, illustrated by the optics and imaging 

technologies in Rochester, New York, or biotechnology in central Kentucky. It may be a similar 

set of labor market skills, such as the metals industries in the multi-county Region 2000 of 

central Virginia. 

Clusters Count, But Clusters are More Than “Counts” 

Defining and understanding clusters is much more difficult than spotting concentrations. It 

involves a set of intangible factors, e.g., social infrastructure; access to information, services, and 

capital; and linkages to other markets. An industry duster has a critical mass of companies with 

like interests, a set of specialized services, an experienced labor market, suppliers, and relevant 

R&D. Every agglomeration of companies with a common interest does not function effectively 

as a duster and produce synergy. Synergy depends on relationships within the cluster and the 

ability and willingness to recognize and act on complementarities and common interests by 

forming various kinds of alliances, sharing non-proprietary information, and challenging each 

other to improve and innovate. It depends on the entrepreneurial energy and the rate of new 

business spin-offs. And it depends on the presence of leadership and a collective vision for the 

cluster. These process-oriented attributes depend in turn on the region's social infrastructure—

the associations and organizations that bring business people together where they can get to 

know and trust each other. 

The factors that affect the flow of information and foster alliances, we believe, also influence 

success in export readiness and activity. Research on clusters demonstrates that high 

concentrations of companies making similar products, complemented by their suppliers generate 

sufficient demand to attract specialized services and labor markets, stimulate flow of information 

about market opportunities and emerging trends, and facilitate inter-firm cooperation. Clustering 

of like or related businesses also leads to the obvious conclusion that specialized factors are 

more important to a region's economy than generic factors. 

Although ARC specifies sector-based clusters, in investigating clusters, the research team looked 

for firms with products complementary to those of the targeted sectors, which also might be able 

21
to take advantage of similar export services and markets. For example, the firms that comprise 

the industrial machinery sector are not simply an independent cluster but inputs in other clusters. 

The industrial machinery cluster in South Carolina emerged from the needs of the textile and 

knitting industries in the 1950s, electronic components is an input to the industrial machinery 

industry, and plastic parts are required to produce many electronic components. 

B. Choosing Appalachia's Key Industry Clusters 

Despite the steady march of jobs from the production sector to the service sector, Appalachia 

remains a manufacturing intensive region. It accounted for about 1.9 million jobs in 1993. The 

northern part of the region (Pennsylvania, New York, and Ohio) and a southern wedge from

South Carolina running through Alabama and Tennessee have the largest concentrations of 

manufacturing employment. As shown in Table 1, non-durable goods industries are more 

concentrated in Appalachia than in the rest of the U.S. 

The selection of industries for analysis is based in part on a prior study by the Kenan Institute of 

Private Enterprise at the University of North Carolina8 of the structure of manufacturing within 

the ARC region, as defined by maps of concentrations of industries within ARC's local 

development districts (LDDs) according to their three-digit Standard Industrial Classifications*

(SICs). The study compares ARC to national profiles and differentiates between small (less than 

100 employees) and mid-sized firms (100 to 500 employees). It then estimates the “export 

potential” for each sector by applying national data on export value per job at the two-digit SIC 

level to the ARC industrial profiles and calculates a hypothetical surplus or deficit based by 

comparing the export value per job for the ARC states' economies to the national economy. For 

example, food processing shows a deficit of about 25 percent in exported goods per job 

compared to the national figure because the industry is underrepresented in Appalachia. In 

contrast, furniture shows a surplus of nearly 50 percent in exported goods per job because it is 

has proportionately more employment in the region. The investigators' assumption was that 

some industries are more inclined to export than others and therefore the region should direct its 

efforts to industries with the most export potential. 

 

* SIC refers to the Standard Industrial Classification system (SIC) used to classify each industry in the 

United States economy. This report uses the system detailed in 1987 Standard Industrial Classification 

Manual by the Executive Office of the President, Office of Management and Budget, National Technical 

Information Service, Springfield, VA. 

22
Table 1 

Concentrations of Industries in Appalachia, 1993 

SIC Industry Ratio of % or ARC mfg employment to %

of National mfg employment 

20 Food processing 0.79

21 Tobacco 1.50

22 Textiles 3.40

23 Apparel 1.81

24 Wood products 1.34

25 Furniture 1.96

26 Paper 0.94

27 Printing & publishing 0.56 

28 Chemical 1.02

29 Petroleum 0.67

30 Plastics 1.06

31 Leather 1.00

32 Glass 1.46

33 Foundries 1.68

34 Fabricated metals 0.87

35 Industrial Machinery 0.85

36 Electronics 0.85

37 Transportation 0.47

38 Instruments 0.52

39 Miscellaneous 0.63

To make an initial selection of clusters for this analysis, defined by three-digit SICs, the 

Appalachian Regional Commission used the following factors: 

• Kenan's Local Development District (LDD) maps of sector employment and firm

concentrations of small and mid-sized companies; 

• presence of sector concentrations in multiple areas (and states) within the region; 

• a mix of traditional and mature sectors with more rapidly changing sectors; and 

• potential value to region. 

Export intensity was not a major consideration in the selection, and some of the clusters selected 

had low rates of exports. The process resulted in two traditional sectors (household furniture and 

knitting mills); four more technologically advanced sectors (plastic parts, electronic components, 

industrial machinery not elsewhere classified, and medical devices); and one emerging industry 

believed to have high growth potential but not identified by a single set of SICs (environmental 

technologies). 

Household furniture (SIC 2510) The household furniture manufacturing industry is made up 

of producers of wood, upholstered, metal and other furniture, and mattresses and bedsprings. In 

the second half of the 1990s, household furniture shipments in constant dollars are expected to 

23
increase three to five percent annually. Total U.S. employment in household furniture 

manufacturers was 250,000 in 1992 with the ARC region home to approximately 75,000 of these 

jobs. North Carolina, Mississippi and Alabama had the highest concentrations-approximately 

24,000, 19,000 and 5,000 jobs, respectively. 

Industrial machinery (SICs 3540, 3550, 3560, & 3590) This category includes four SIC 

codes: machine tools, special industry machinery, general industrial machinery, and industrial 

machinery not elsewhere classified. The companies with these SICs produce a wide range of 

specialized machinery for a variety of industrial processes—e.g., textile, woodworking, paper 

and printing, and food processing. They also produce machinery common to many 

manufacturers such as furnaces, pumps and pumping equipment, pistons, ball and roller 

bearings, compressors, and blowers and fans. This cluster, combined with the closely related 

3550 and General Industrial Machinery (3560), employs 721,000 in the United States in 1992 

and almost 70,000 in the ARC region. Pennsylvania (20,000), Tennessee (9,000), South Carolina 

(9,000), and New York (7,000) have a significant portion of these jobs. 

Electronic Components (SIC 3670) Components are fundamental building blocks for the 

electronics industry. A wide variety of products make up the electronics components category, 

including electron tubes, printed circuit boards, semiconductors and diodes, capacitors, resistors, 

coils and transformers and connectors. Demand for electronic components comes primarily from

the computer, telecommunications, instrumentation, medical equipment, and transportation 

industries. These components accounted for about 507,000 U.S. jobs in 1992. The ARC region 

has 38,000 electronics components manufacturing jobs, with heavy concentration in western 

New York (17,000) and Pennsylvania (9,000). 

Environmental Technologies and Services (SICs N/A) The environmental technologies and 

services industry includes industrial air pollution control equipment, water and wastewater 

systems, solid waste recycling, hazardous and toxic waste technologies, and the emerging 

pollution prevention industry. This relatively young industry has evolved in response to 

enactment and enforcement of pollution control legislation in the United States and growing 

concerns about the risks and costs of pollution. Because the environmental equipment industry 

includes many diverse products, services, and technologies, it is extremely difficult to estimate 

market size or employment levels in environmental goods and services using SIC code-based 

data. Industry analysts estimate the national environmental technologies employment reached 

1,263,000 in 1994. Employment estimates for the ARC region are not available. 

Medical Instruments and Supplies (SIC 3840) The U.S. medical and dental instruments and 

supplies industry is a diverse and technologically dynamic sector consisting of surgical and 

medical instruments, surgical appliances and supplies, dental equipment and supplies, X-ray 

apparatus and tubes, electromedical equipment, ophthalmic goods, and used and refurbished 

medical equipment. Nationwide, industry employment was 253,000 in 1992, with 16,000 in the 

ARC region. Tennessee, Georgia and Pennsylvania have the strongest presence, with a 

combined total of about 10,300 (2,700, 2,200 and 5,400, respectively). 

Plastics Products (SIC 3080) Companies within this duster produce plastic parts for use by the 

electronics, health care, construction, transportation, automotive and food packaging industries. 

Production processes involve the transformation of primary plastic inputs into plastic shapes 

24
with specific characteristics. There were 637,000 plastics products jobs in the U.S. in 1992. In 

the ARC, employment in companies producing plastics products was about 60,000. 

Pennsylvania, with 18,000 jobs, and eastern Ohio, with 6,000, together make up a significant 

portion of this employment. 

Knitting mills (SIC 2250) Knitting mills are part of the textile industry but face pressures more 

similar to the apparel industry. The category consists of producers of hosiery, socks, knit 

underwear and outerwear, and knit fabrics. Total U.S. employment in knitting mills was almost 

190,000 in 1992. About 51,000 of the jobs were in the ARC region, with North Carolina 

(20,000), Alabama (12,000) and Tennessee (7,000) having the highest concentrations. 

Given these as starting points for the study, the research team set out to refine the sector 

selection in order to apply a cluster approach and search for interdependencies among firms that 

affected competitiveness and export readiness. This process resulted in two modifications to the 

original selection. First, plastic parts was separated from plastics commodities to focus on a 

single type of process. Second, the classification for industrial machinery was expanded to 

include three closely related three digit sectors: metalworking, general, and special industrial 

machinery. 

C. Posing the Questions 

This report is based on a number of assumptions about what makes Appalachian businesses and 

economies competitive. The first is clustering: although the region as a whole is diversified, 

certain types of businesses are more likely to be found in some areas than others, and related 

businesses tend to cluster in particular sub-regions. This proximity to one another gives them

certain advantages over firms that are more dispersed and isolated. 

The second is connections: when companies in a region are interdependent, i.e., formally and 

informally rely on each other for information, specialized services, parts, supplies, workers, 

technologies, and sales, they are more competitive collectively than companies in regions that 

are not well connected to each other. Further, clustered companies that are linked to external 

sources of information, innovations, and customers—throughout the world—are more 

competitive than companies that are provincial and unconnected. 

The third is competencies: companies that learn about and use the most advanced and 

appropriate technologies, that invest in the skills of their work force, and that either possess or 

can access expert advice and assistance are more competitive than those that do not. 

These three assumptions—clustering, connections, and competencies—led to a series of 

questions about the export readiness, competitiveness, and interdependencies of Appalachian 

businesses. 

Export issues and capabilities

• Who exports what and where? What are the major exported products and what countries are 

their major destinations? 

25
• What entities help SMEs export and how do SMEs rate their services? Is the propensity for 

an SME to export related to the strength and accessibility of export assistance and support 

services? 

• How important is exporting to Appalachian SMEs?

• What conditions impede exporting and what are SMEs’ needs?

Competitiveness issues and conditions

• What must SMEs do to prepare for exporting? Are SMEs that export more likely to be 

modernizers because of the standards imposed by foreign markets and competition? 

• What organizations help SMEs improve their operations and become export ready?

• What advantages or disadvantages do SMEs ascribe to their location? Are rural SMEs less 

likely to be exporters than urban SMEs due, for example, to distance from distribution hubs, 

access to fewer specialized services and information, and increased transaction costs?

Interdependencies and connections

• What special advantages accrue from proximity to and relationships with other SMEs? 

• Are firms that are embedded in tight production and social systems better able and more apt 

to export?

D. Industry Clustering within the Appalachian Region 

While the preliminary data analyses used to help select sectors showed absolute concentrations 

of firms by SIC code, they did not indicate relative importance to local economies and thus 

generally favor large urban population concentrations. An alternative measure called a “location 

quotient” indicates relative concentrations. The location quotient is a ratio of the fraction of a 

region's employment (or number of establishments) in a specific industry compared to that same

fraction of the national employment (or establishments) in that same sector compared to total 

national industrial employment (or establishments). 

Number of employees (establishments) in sector, in region 

Total number of employees (establishments) in region 

 L.C. = ---------------------------------------------------------------------------------

Number of employees (establishments) in sector, in nation 

Total number of employees (establishments) in nation 

Thus, a location quotient of 1.0 indicates that a region is at the national average while a location 

quotient greater than 1.0 indicates a higher than average concentration of that sector in a region. 

It is important to note that a high employment location quotient for employment may be due to a 

dominant branch plant rather than a cluster of firms. Further, these measures were based on the 

U.S. Department of Commerce's 1993 County Business Patterns, which Generally undercount 

employment and establishments. 

Location quotients for the six clusters that could be defined by SIC codes were calculated for 

each county in the ARC region and then combined with the quantity of jobs and establishments 

to identify potential clusters of firms in groups of contiguous counties. The analyses, described 

in detail in individual case studies in the appendices, pointed to the locations most likely to 

26
benefit from interdependencies and produce synergy. A small number of counties had high 

employment locations quotients but small numbers of companies and were eliminated from

cluster analysis. 

Gathering information 

After selecting the sites, the field research teams set out to learn about the components of the 

clusters—the exporting and non-exporting firms; the services, institutions, and agencies that 

support them; and the infrastructures that undergird them. The goal was to identify factors that 

influence exporting, export readiness, and competitiveness, find out how proximity influences 

outcomes, i.e., whether clustering of the industry produces synergy, and whether a collective 

identity exists and does enhance performance. 

The main source of information was a survey of small and mid-sized exporters, non-exporters, 

and support services conducted over the telephone and followed up by fax. The survey also 

included technology extension services, banks, trade associations, marketing services, freight 

forwarders, trade centers, and community colleges. In each cluster, the target was at least ten 

exporters, ten non-exporters, and six support services. Names and addresses for companies in 

the relevant SICs in each cluster were obtained from Dunn & Bradstreet, state catalogues, and 

other technical assistance providers. 

Each research teams tried to connect with a local organizations known and respected by the 

potential respondents to identify exporters (general business data bases do not identify 

exporters), send letters of introduction and support and, in a few instances, to help collect 

information, provide an entr?, and secure cooperation. For example, the hosiery trade 

association and community college in North Carolina, industrial resource center in Pittsburgh, 

Plastics Technology Center in Erie, and the manufacturing extension office in Binghamton, New 

York all lent their names and assistance. One consequence of asking local agencies to assist in 

gaining access to firms, however, is that the sample of respondents is biased in favor of members 

or customers of these organizations, and therefore they are not statistically representative of the 

universe of manufacturers in the cluster. The major impact of that bias is toward greater use of 

agency provide information and services. 

E. National and Regional Trends in Exports 

Increasing the value of goods and services exported from the United States in order to reduce the 

U.S. international trade deficit is a national goal. But equally important, export sales represent 

revenues for U.S. industry and jobs for U.S. workers, and individual states and regional 

organizations have adopted the goal of increased export sales to provide income and support 

employment. Consequently, they want to know just how successful they are. But good 

information by sector at the state level is poor and county level non-existent. 

The Massachusetts Institute of Social and Economic Research (MISER) refines data compiled 

from Shippers Export Declarations to produce a data series that is published in the National 

Trade Data Base. These data show the value and destination of exports from each state by two27
digit SIC industry. For the six target industries that are defined by SIC codes, export statistics in 

the analysis are based upon the MISER data in the National Trade Data Base. For the target 

industry environmental technologies, which cannot be defined by SIC codes, data produced by 

Environmental Business International Inc. is used for the analysis. Data sources are described in 

more detail in Appendix G, Data Sources and Methodology. 

The MISER data has two limitations. First, only the state of West Virginia is wholly within the 

Appalachian Region; the other twelve states are parts of states. Since no sub-state data exist, for 

the national and regional trends analysis, statewide data serves as a surrogate for the ARC 

regions of each state. Second, MISER data describes two-digit SIC industries, but ARC defined 

six of its target industries at the three-digit SIC level or lower. 

The export performance analysis uses national and state gross product data provided by the U.S. 

Department of Commerce Bureau of Economic Analysis (BEA), but the most recent gross state 

product (GSP) statistics available from BEA are for 1992. The 1993-1995 GSP for the ARC 

member states was estimated using recent growth in BEA state personal income data and trends 

in the relationships between personal income and GSP (methodology described in Appendix A). 

Products of the trade flow analysis include an evaluation of overall export performance indicated 

by the contribution to that income that exports of goods make to the economy—for the 

Appalachian Region and individual member states. Comparisons between export performance 

of ARC states and national averages assess progress toward the ARC strategic plan objective, 

“Appalachian export performance will increase u to the national average.” The analysis begins 

with an overview of the last three years’ national exporting trends and then moves to more 

detailed analysis of the Appalachian States’ export performance in the target industries selected 

by ARC. 

Recent Export Trends 

Between 1993 and 1995, the total value of goods exported from the United States increased by 

just over 25 percent—from $432 billion to $529 billion. Exported goods include manufactured 

products (the output of SIC industries 20 through 39), commodities such as coal or wheat, and 

miscellaneous materials, which include scrap and waste. The value of manufactured exports for 

those categories increased at the slowest rate, an even 25 percent, while the value of commodity 

exports increased by just over 31 percent. Table 2 reports growth in U.S. exports of goods for 

three categories. 

28
Table 2 

Total Value of Goods Exported, USA, 1993-1995 (Billions of Dollars) 

TYPE OF GOODS 1993 1994 1995 1993-95 Change

Manufactured Goods $423.2 $468.9 $529.0 $105.8 

Commodities $31.7 $32.6 $41.6 $9.9 

Misc., Including Scrap & Waste $9.9 $10.9 $12.4 $2.5 

Total Exports $464.9 $512.4 $583.0 $118.1 

During the same 1993-95 interval, the total value of goods exported from the ARC states 

increased by just under 24 percent—from $127 billion to $157 billion, a rate of increase slightly 

below the national average. Clearly, ARC states participated in the nation’s expanded export 

activity but have not led that growth. In contrast to national trends, the ARC states’ combined 

totals showed little variation among the rates of growth for manufactured goods and for 

commodities, while the percentage increase in miscellaneous goods exports was less than half 

that for the other categories. Table 3 shows recent trade data for the combined ARC states. 

Table 3 

Total Value of Goods Exported, ARC States, 1993-1995 (Billion of dollars) 

TYPE OF GOODS 1993 1994 1995 ‘93-’95 Change 

Manufactured Goods $116.7 $127.7 $144.7 $28.0 

Commodities $6.6 $6.7 $8.2 $1.6 

Misc. w/Scrap & Waste $3.6 $3.7 $4.0 $0.4 

Total Exports Of Goods $126.9 $138.1 $156.9 $30.0 

The slower growth rate for 1993-1995 goods exports from ARC member states suggests that the 

region is not making progress toward its target, the national average. However, this data 

describes trends in entire states, and except for West Virginia, only portions of these states lie 

within the ARC region. More detailed analysis is needed to assess with greater certainty 

whether of not the ARC is indeed losing ground rather than gaining on the national average. 

Figure 1 illustrates in more detail differences between recent export trends in the three major 

categories of exported goods among ARC states and for the national as a whole. The ARC 

states' rate of increase in the value of goods exported was lower than the national average in 

every category. The deficit is smallest for manufactured goods. 

29
Figure 1 

Manu. Commodit y Misc. Total

Goods

0.00%

10.00%

20.00%

30.00%

40.00%

Manu. Commodit y Misc. Total

Goods

Rate of Increase in Exports

 1993-1995

UNITED STATES

ARC STATES

Export Intensity 

Because the size of economies vary among ARC states, it is difficult to compare state exporting 

performance. One means for adjusting for size differences is to calculate the value of exports 

from a state as a percentage of its gross product (i.e., the total value of goods and services 

produced by the state). The resulting percentage describes the contribution of income from

exports to the total economy. It also provides a basis for comparing ARC states to one other and 

to a national average. Figure 2 shows the export intensity for the ARC states for 1993-1995. 

It shows, for example, that North Carolina, South Carolina, and Ohio were the only ARC states 

with an export intensity near or above the national average of 7.5 percent. The export intensity 

for the combined ARC states was 6.2 percent, well below the national average. Thus, most ARC 

state economies have received less benefit from export sales than average. The region-wide 

deficit in export intensity shows that the ARC states stand to benefit economically from

increasing their export performance to the national level. 

Figure 2 

Export Intensity ARC States 1993-95

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

AL GA KY MD MS NC NY OH PA SC TN VA WV

30
To facilitate comparisons of the ARC states’ export performance with the national average over 

time, export intensity can be portrayed as an index relative to the national export intensity. A 

state with an export intensity greater than the U.S. average will have an export intensity index 

(EII) greater than 1.0, while a state where exports contribute a below average share of gross state 

product has an EII below 1.0. Changes over time in a state or regional EII reflect a change in the 

contribution of goods sold abroad to the state or regional economy that is greater (an increasing 

EII) or less (a decreasing EII) than the national average. Table 4 lists the EII for each ARC 

member state for 1993 through 1995. 

Table 4 

Export Intensity Index 1993-1995 

STATE 1993 1994 1995 

Alabama 0.65 0.69 0.71

Georgia 0.67 0.75 0.80

Kentucky 0.81 0.84 0.82

Maryland 0.62 0.60 0.56

Mississippi 0.52 0.52 0.62

North Carolina 0.91 1.02 1.06

New York 0.97 0.83 0.81

Ohio 1.04 1.05 1.01

Pennsylvania 0.61 0.61 0.61

South Carolina 0.95 1.00 1.07

Tennessee 0.74 0.81 0.81

Virginia 0.86 0.87 0.87

West Virginia 0.64 0.66 0.74

All ARC States 0.83 0.82 0.82

Ohio was the only ARC state with a 1993 EII greater than one, but by 1995, both Carolinas had 

joined Ohio in exceeding the national average. Nine of the 13 ARC states posted increases in 

their EIIs between 1993 and 1995, which means that their export intensity increased more 

rapidly than the national average. One of the states with a declining EII was Ohio, but it 

remained just above one. 

The strong increases that several states recorded in their export performance as measured by the 

EII suggests that these states are taking advantage of the opportunities offered by the growth in 

international trade. The fact that the majority of ARC states still have an EII below one indicates 

that there is a significant opportunity to improve the state economy by increasing export activity 

among the states' goods producing industries. 

31
Manufactured Exports 

For both the United States and the states in the ARC region, manufactured goods are the largest 

part of exported goods, accounting for over ninety cents of every dollar received by selling 

goods abroad. Clearly, manufacturing industries are both the key to the U.S. export activity and 

in a position to benefit from increased export sales. Manufactured goods comprise a slightly 

higher proportion by value of goods exported from the ARC states than from the U.S. as a 

whole. The proportions vary slightly from year to year, but the relationship was constant from

1993 to 1995. Figure 3 compares the proportion of manufactured products among goods 

exported. 

Figure 3 

Manufactured Products as a Percent of 

Goods Exported, 1993-1995

89.50%

90.00%

90.50%

91.00%

91.50%

92.00%

92.50%

1993 1994 1995 3 YEA R

A VERA GE

A RC STA TES

US

The predominance of manufactured products among goods exported improves the export 

prognosis for ARC states. If recent growth trends in manufactured exports rather than total 

exports are considered, ARC states as a group are experiencing a growth rate only one 

percentage point below the national average. 

32
Table 5 

Manufactured (SIC 20-39) Exports from ARC States (millions of dollars) 

State 1993 1994 1995 1993-95 Increase 

Alabama $3,526 $4,252 $4,869 $1,343

Georgia $7,391 $9,212 $11,397 $4,006

Kentucky $4,393 $5,091 $5,603 $1,210

Maryland $5,152 $5,708 $5,974 $822

Mississippi $1,764 $1,956 $2,581 $817

North Carolina $10,288 $12,880 $15,576 $5,288 

New York $33,416 $30,998 $34,077 $661 

Ohio $18,558 $20,770 $22,629 $4,071

Pennsylvania $11,778 $12,946 $14,468 $2,690

South Carolina $4,996 $5,829 $7,060 $2,064 

Tennessee $5,982 $7,134 $8,045 $2,063

Virginia $8,438 $9,706 $11,012 $2,574

West Virginia $1,030 $1,226 $1,376 $346 

All ARC states $116,712 $127,711 $144,666 $27,955 

There is great variation in the value of manufactured exports among the states that comprise the 

ARC region. Much can be attributed to large differences in the scale of state economies and 

manufacturing bases. Not surprisingly, New York is the largest exporter—because it is the 

largest economy. Recent growth trends in the value of goods exported also vary widely among 

ARC member states. North Carolina experienced growth of over $5 billion in the value of

manufactured exports, while several states experienced increases of less than one billion. Table 5 

lists recent trends by state and reveals the large differences in exporting scale and experience 

among the states’ manufacturing economies. 

Comparing rates rather than absolute values of increases in the value of manufactured exports 

allows comparisons among, states despite different sized economies. It also allows comparisons 

with national performance, which was 25 percent in the value of manufactured exports. Figure 4 

shows how ARC states rank on this measure. 

33
Figure 4 

ARC States Ranked by 1993-95 Growth 

in Manufactured Exports

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

GA NC MS SC AL TN WV VA KY PA OH MD NY

Most ARC states experienced faster than (national) average growth in export sales of 

manufactured goods. The regional growth rate for manufactured exports was 24 percent, only 

one percent below the national average. Slow growth (less than onetenth of the regional average) in New York, the largest state economy, depressed the region's 

overall rate of growth. However there is no consistent relationship between size and rates of 

export growth. Rather, differences in 1993-95 export growth rates follow geographic divides. 

Southern states posted the fastest rates of growth in value of manufactured exports. Each gained 

above the regional average, as did the “border” states of West Virginia and Kentucky. 

Conversely northern states plus the border state of Maryland all experienced relatively slow 

growth. In summary, there is no consistent exporting experience within the ARC states. Most 

perform below the national average. Most are exporting at a rate above the national average. In 

other words, most ARC states are making progress toward the regional goal of “increasing 

export performance up to the national average.” 

The ARC selected seven industries to be the targets of regional export promotion. Six of the 

target industries identified by the Appalachian Regional Commission are manufacturing 

industries, while the seventh, environmental technologies, includes both manufacturing and 

service components. Table 6 lists the six industries targeted by ARC for further study that are 

defined by SIC codes. 

34
Table 6 

ARC Target Industries by SIC Code 

TARGET INDUSTRY SIC CODE 

Knitting mills SIC 225 

Household furniture SIC 251 

Misc. plastics products SIC 308 

Industrial machinery SIC 354, 355, 356, 359 

Electronic components SIC 367 

Medical instruments SIC 384 

Environmental technologies See Appendix A 

Our analysis is restricted by the fact that the MISER data reports the value and destination of 

exports from each state only by two-digit SIC industry. For the six target industries that are 

defined bv three-digit SIC codes, the two-digit SIC industry that includes the target industry 

must be used to approximate broad trends for the three-digit clusters. For environmental 

technologies, which cannot be approximated by a two-digit SIC, the analysis relies on data 

commissioned by the International Trade Administration and supplied by Environmental 

Business International, Inc. Specific data sources are described in more detail in Appendix G. 

F. Who Exports What and Where? 

Nationally, about 37 percent of all exporting is done by SMEs (companies with fewer than 500 

employees), and 80 percent of all exporting is by manufacturing sectors. Arthur Anderson, Inc. 

estimates than one fourth of all firms with fewer than 100 employees export. Further, some

types of products are more prone to be exported than others. A recent study for the ARC found 

that Chemicals and Machinery and Computer Equipment account for about a fifth of the region’s 

exports.9 These two sectors, plus electronics and transportation equipment, exhibited high 

growth between 1983 and 1991 as well. 

The Kenan Institute report concludes that four in ten SME export dollars in the ARC region are 

in three sectors—industrial machinery, electronic equipment, and chemicals. At the three-digit 

SIC level, the top six exporting sectors are plastics materials and synthetic resins (2820); motor 

vehicles, equipment, and parts (3710); industrial organic chemicals (2860); electronic 

components and accessories (3670); computer and office equipment (3570); and construction 

and related machinery (3530). These six clusters account for more than 30 percent of the 

region’s exports. Lower value sectors such as household furniture (ranked lst) and men’s and 

boy’s clothing (ranked 2nd) employ many more people in Appalachia but export much less. 

Despite efforts to promote exports ubiquitously, all companies do not have the same potential or 

predilection to export. In general, the farther down the supply chain a company is situated, the 

lower its value added, the more closely it works with its customers, and the less likely it is to be 

an exporter. Knitting mills that produce gray goods for the finishers, for example, and toot and 

die companies that serve fabricators are not likely to be exporters. 

35
Further, the size of a company is directly related to the probability it exports, although not 

necessarily its success in exporting. Larger companies that have greater internal specialization 

and production capacity, and more resources are more apt to export. Globally, mid-sized, family 

owned firms are well represented among the most entrepreneurial and dynamic companies. In 

Germany, these mittlestand firms are the most successful segment of the economy, and in Italy 

the media industria are quickly gaining the same reputation.10 In Appalachia, too, such midsized firms have been found to be regional leaders, and on average, the firms surveyed and 

identified as exporters as part of this research are larger than the non-exporters. 

Management is also a key factor in export performance. A study of the wood products industry 

in the northwest United States found that the greater managers’ innovativeness and knowledge, 

the greater the export performance.11 Another recent study based on environmental technology 

industries found that learning-oriented firms and managers who are optimistic about the future 

are more likely to be exporters.12 Although we were unable to formally test this hypothesis, the 

interviews with exporters appear to confirm this. They tended to be much more enthusiastic 

about the future and more open to new ideas. 

Where are the Emerging Markets? 

Companies are able to draw on a wealth of information from both the public and private sectors 

about current and emerging foreign markets for their general types of products. These reports 

provide current dollar amounts, rates of exports, and patterns over time for particular countries or 

groups of countries such as the European Union or Asian “newly industrialized countries” 

(NICs). Although this general information alone does not produce customers, it suggests where 

to direct marketing resources. Following are summaries of ARC's key clusters. 

Industrial machinery is an active exporting sector with roughly a quarter of its production sent 

out of the country. Half of its exports in 1995 were to five countries—Canada, Mexico, Japan, 

Germany, and Korea. These five, along with Italy and Japan, are also major competitors of U.S. 

firms. The largest increases in exports from 1994 to 1995 were to competitor nations Korea, 

Germany, and Japan—mainly in special market niches. Japan, for example, imports special 

semi-conductor and filtering equipment from the U.S. and Korea is a customer for nonmetalworking machine tools, gas turbines, and thermal processing equipment. 

Environmental technologies have growing global markets driven by increasing desires for 

pollution prevention and cleanup. They is already estimated at $408 billion. The most 

promising markets for remediation technologies over the next five years are expected to be 

Germany, Mexico, and Korea. Mexico now imports about 28 percent of all its pollution 

prevention equipment from the U.S., Canada imports 30 percent, and Korea imports nine percent 

of its environmental technologies. The Canadian market tends to be smaller firms, and its 

government is encouraging alliances or networks with U.S. companies to address environmental 

needs holistically. Five to ten years from now, Brazil, China and India are expected to be prime 

markets because of their investments in nuclear power. 

Plastic parts exported $6.7 billion worth of goods in 1995, which was more than 50 percent 

higher than its total exports for 1992. This sector had a net trade surplus of $1.5 billion. Most 

36
plastics parts are inputs to other industries—particularly electronics, health care, construction, 

transportation, automotive, and food packaging firms. The leading exporters are large, 

international, and vertically integrated companies. Much of the industry’s growth is due to 

increased replacement of other materials by plastics to improve design and reduce weight and 

costs. Major threats to growth are environmental awareness and regulations, especially in the 

European Union countries. The fastest growing markets are expected to be in NAFTA members 

Mexico and Canada; Mexico is projected to increase annually by 10 percent and Canada by 12 

percent. 

Electronic components firms annually export about a quarter of their output, which was $45.5 

billion in 1995. Japan, Singapore, Canada, Mexico, and Taiwan are major markets. Yet the U.S. 

overall is a net importer of electronic equipment. Including computers, computer peripherals, 

and parts, the U.S. had a trade deficit of $11.1 billion in 1995, exporting approximately $129.5 

billion and importing $177.1 billion. The electronic component industry has grown significantly 

over the last four years and, with increasing demand for electronic equipment such as HDTV and 

computers, the market is expected to continue to grow. 

Household furniture’s major markets are in the NAFTA countries, Europe (especially 

Germany), the Middle-East, and Japan. The U.S. furniture export market is quite highly 

developed in Canada and Mexico, and moderately developed in Europe and the Middle East but 

underdeveloped in Latin America and Asia. South America is also emerging as an importer of 

furniture as trade barriers are lowered and disposable income grows. The best prospects for 

overseas markets are generally believed to be high-end branded furniture, although this analysis 

suggests that there is a large, growing potential market for well-made promotional furniture 

among the middle classes in newly developed economics. 

Combining several knit sub-sectors (hosiery, fabric, and shirts), U.S. exports were $1.35 billion 

in 1995. While exports are growing to some countries, the industry is not generally considered a 

significant exporter. In 1993, for example, the U.S. exported only about five percent of U.S. 

hosiery production. Several strong markets are Canada, Mexico, Japan, and the United Kingdom

where “American casual” styles are popular among middle and upper income classes. (The U.S. 

Department of Commerce’s trade data does not directly coincide with SIC codes. Also, these 

data are distorted by “maquiladora production,” where workers partially produce goods in the 

United States which are then finished in Mexico or Caribbean nations, then re-imported for sale 

in the United States.) 

37
Table 7 

Total Value of Export, in Millions of Dollars, and Emerging Foreign Markets 

Cluster Exports 1993 Exports 1995 Promising Markets 

Industrial 

Machinery 

n/a 30,692 Canada, Mexico, Japan, Germany, 

and Korea 

Plastics Parts $4,471 $6,774 Canada, Mexico, Japan, 

Netherlands 

Environmental 

Technologies 

n/a $10,800

(1994, est.) 

Canada, Mexico, Japan, France, 

Korea 

Electronic 

Components 

$62,343 $92,203 Japan, Taiwan, Singapore, Canada, 

and Mexico 

Household 

Furniture 

$1,183 $1,320 Canada, Mexico, Germany, Japan, 

Brazil, Saudi Arabia 

Knitting Mills $324 $441 United Kingdom, Canada, Mexico, 

Japan 

Medical Devices $7,632 

(1992) 

$10,281 Japan, Canada, France, Korea, 

Brazil 

38
PART TWO: OBSERVATIONS, ANALYSES, AND LESSONS FROM 

EXPERIENCE 

This second part of the report draws on all of the information from the seven targeted industry 

clusters acquired from surveys, interviews, reports, and extant data to (1) assess export 

performance, competitive advantages, and potential for improved performance; (2) estimate 

small and mid-sized companies’ potential for exports and competitiveness; and consider the 

strength of the systems in which they operate. Although the information was gathered from

within the Geographically constrained clusters, the lessons are not limited to those sub-regions. 

Much the what has been learned from firms and services applies to the industry throughout the 

ARC region. 

Most of the new information was obtained from personal and telephone interviews. In each 

cluster the team interviewed ten exporters, ten non-exporters, and at least six service providers. 

The analysis also includes a small number of interviews with firms outside of the cluster in areas 

of the ARC region without significant concentrations of companies (“clusterless”) in order to 

learn more about the effects of distance from a specialized infrastructure. Because we chose to 

gather in-depth information from a small number of companies rather than cursory information 

from a large number, there was no attempt to select random samples. In fact, the process of 

using local industry experts to gain access to small and mid-sized firms and convince them to 

give us the time that was required to complete the detailed survey most likely resulted in biasing 

some part of the information collected; many of our contacts suggested firms with which they 

had worked, and some of these firms are probably somewhat atypical just by the fact that they 

had used external services. 

In considering the data, there were striking differences between exporters and nonexporters responding to the surveys. Exporting firms, for example, were on average larger than 

non-exporters. Of the exporters interviewed, 48 percent had fewer than 100 and 28 percent had 

more than 250 employees. Of the non-exporters, 70 percent had fewer than 100 employees and 

17 percent had more than 250 employees. Exporters purchased a larger share of their inputs 

locally; 86 percent purchased more than 10 percent and 52 percent purchased more than half of 

their inputs from suppliers within 100 miles of their plant. Among non-exporters, 66 percent 

purchased more than 10 percent locally and 34 percent purchased more than half locally. This is 

somewhat surprising, since larger, exporting firms might be expected to have more contacts and 

options among potential suppliers and to draw from a larger area. 

Each cluster is assessed on its own merits but, where appropriate, information is pooled across 

clusters to make some assessments of particular strengths and weaknesses in the region. 

A. Setting Cluster Boundaries 

On the assumption that space and distance affect relationships and thus some of the competitive 

advantages of clusters, the project team estimated geographic boundaries for each of the sectors 

studied. This was accomplished by mapping concentrations of companies and employees and 

39
calculating location quotients for establishments and employment (i.e., the ratio of the fraction of 

total establishments or employment in the sector in the county divided by the same fraction in 

the nation as a whole) by ARC county. The raw numbers and relative concentrations were 

mapped to search for groups of counties that fit both criteria. When these data were mapped, 

natural “breaks,” where concentrations and location quotients dropped dramatically became 

obvious. The resulting cluster geographies are described in the following paragraphs. Many of 

the clusters, of course, overlap into non-ARC counties. Thus, border areas may actually be home 

to some of the specialized service used by ARC-based companies, and some of the services 

interviewed were just outside of the ARC boundaries. But firm-specific data was collected only 

from firms within the region. The geographies of the seven clusters are described below. 

Household furniture companies are heavily concentrated in seven ARC counties in Mississippi 

that are home to 139 furniture companies employing almost 16,000, and in three ARC counties 

in Alabama which have 49 companies employing almost 3,000. Although published data 

establishes the boundaries of this “cluster,” a careful analysis reveals that the concentration of 

companies is not really a single cluster but divided between two distinct clusters in adjoining 

regions that are separated by not only a state boundary but also by history and types of product. 

Alabama companies make an assortment of wood pieces while Mississippi’s niche is upholstered 

furniture, and there is little sharing between the two. 

The knitting mill cluster, which is dominated by hosiery manufacturers, extends through 

western North Carolina, adjacent counties in Virginia, and slightly into Tennessee. It also 

includes a smaller number of knitwear manufacturers producing among other things sweaters 

and blankets. Nine North Carolina counties contain 251 knitting industry firms employing over 

25,000 workers and three Virginia counties have eight companies employing 2,500. The 

location quotients for employment in the cluster are greater than “20” in eleven counties in this 

cluster, i.e. the industry is at least twenty times as concentrated in those counties as in the nation 

as a whole. Much of the support for hosiery resides in Hickory in Catawba County, adjacent to 

the ARC region’s boundary. 

The plastic parts cluster is centered in the city of Erie and includes eight counties in 

Pennsylvania and four in Ohio. These plastics manufacturers are primarily sub-assemblers of 

products for large original equipment manufacturers. The Pennsylvania counties are home to 

151 companies with 10,000 employees and the Ohio counties have 36 firms with 2,600 

employees. Location quotients are higher than 3.0 in eight of the counties, which is quite 

striking in an industry so ubiquitous in the U.S. 

The environmental technologies cluster is the one cluster not defined by counties because the 

firms comprising the cluster include a wide range of types of businesses that are not easily 

aggregated. Instead this cluster follows a “technology corridor” in Tennessee that runs along a 

100 mile stretch of interstate connecting Oak Ridge with the city of Chattanooga. The two poles 

of the cluster, however, represent different types of interest and expertise in environmental 

technology. Oak Ridge is characterized by nuclear-based environmental technologies and 

services and R&D while Chattanooga is an older industrial city committed to both a clean 

environment and to developing a local environmental technology industry base. 

40
Industrial machinery manufacturers are highly concentrated in the South Carolina ARC 

counties, and is one of the nation’s premier clusters according to DRI/McGraw-Hill.13 in terms 

of scale and importance to the region’s manufacturing base. The six South Carolina counties 

have 301 companies employing 12,800 people. This cluster also extends into the more urban 

counties of western North Carolina, where 83 industrial machinery companies employ 1,900 

workers. The cluster comprises about five percent of all employment but—in South Carolina—

about a sixth of all manufacturing employment. 

The electronic component industry is concentrated in the nine ARC counties that comprise the 

southern tier of New York (16,500 jobs) and spills over into the northern adjacent counties of 

Pennsylvania (8,700 jobs). Like industrial machinery, this cluster was recognized by 

DRI/McGraw Hill as one of the nations' premier clusters. The location quotients in four of the 

New York counties are greater than 1110,11, meaning that the proportion of employment in this 

sector is ten times the national ratio of employment. Two of the Pennsylvania counties have 

location quotients of four or greater. 

The medical devices industry is concentrated in seven counties surrounding and including 

Pittsburgh, although compared to the other six clusters in terms of scale and concentration, it is 

quite weak. There are 45 companies with SIC 3840 in the eight counties employing 3,400 

workers. The one county that also has a high employment location quotient is the site of a single 

large manufacturer. 

B. The Birth of Clusters: Innovations and Branch Plants 

Each of the geographic areas selected for the analyses have some of the characteristics of 

effective or working clusters, most of which have developed over many decades. The roots of 

these clusters, as of most dusters, are imbedded in some serendipitous historical event. Many of 

these clusters can trace their origins to either (1) a technological innovation or (2) a branch plant 

location, followed by (3) entrepreneurial energy of employees who see opportunities for new or 

competing market niches and start their own companies. 

• Mississippi’s furniture cluster grew out of the region’s successful recruitment of Futorian 

Furniture Company to the state in 1948, which first introduced mass production technologies 

to the furniture industry, previously operated as a craft. Many of the largest companies are 

part of the progeny of that single innovative company and the owners proudly call 

themselves “graduates of Futorian University.” 

• Alabama’s furniture cluster developed opportunistically, to take advantage of the region’s 

growing mobile home industry. Workers trained in that industry saw opportunities to design 

and build promotional furniture for the customers of that low-cost housing industry. 

• Pennsylvania’s plastics parts cluster developed to support Erie Resistor, a plastics 

manufacturer that, in 1935, became the first company in the nation to use injection molding. 

Many of its employees took that new technology outside and started their own companies, 

and that entrepreneurial spin-off mentality persist today. Two companies interviewed, for 

example, were started by employees of a third. The area’s large and successful tool and die 

41
industry was able to support the industry with the precision molds it needed and helped spark 

growth. By 1953, 14 million pounds of plastic were shipped into the region to leave as 

products ranging from buttons to auto parts. 

• Tennessee’s environmental technologies cluster was a response to environmental 

problems, i.e., high rates of pollution from nuclear products at Oak Ridge and heavy industry 

in Chattanooga. The need to clean up these two areas gave rise to the birth of a new 

industry. The Oak Ridge National Laboratories was became a source of expertise and 

entrepreneurs, and many of its former professional employees are the entrepreneurs behind 

recent startups. 

• South Carolina’s industrial machinery cluster began in the 1950s when textile magnates 

attracted foreign machine tool builders to support and enhance their industry. Leaders in that 

traditional industry were able to connect the importance of access to the latest advances in 

technology to their own success, and to bring that technology closer to home, they 

successfully recruited Swiss and German machine tool builders. 

• New York’s electronic components cluster evolved in the 1960s from employees of the 

large IBM facility there. In this relatively young cluster, enough company employees took 

the skills and knowledge honed at IBM to develop their own independent market niches or to 

become suppliers of IBM. 

• North Carolina’s hosiery cluster owes its scale to the large branch plants such as Sara Lee 

and Kaiser-Roth that located there much earlier and then gradually discontinued lines or 

moved operations to lower cost regions. Many of the employees took their skills and 

borrowed capital to purchase used equipment and set up shop themselves. 

These diverse histories illustrate that clusters cannot be formed out of whole cloth even with 

strong public policies accompanied by sufficient resources. Certain conditions must exist. But 

clusters can be made more effective and stronger when their interconnections and collective 

needs are recognized by government and taken into account policy implementation. 

Specialized Services and Skilled Workers 

One of the main advantages of clusters is their tendency to create and attract highly specialized 

services and knowledge and to develop skilled labor markets to meet their employment needs. 

Specialized assistance is more useful and valuable to firms than general knowledge. Engineers 

who know the language of the industry and know about special advanced technologies in use and 

in development, bankers who understand the trends and patterns of the industry, and market 

specialists who know where and who the customers are more likely to solve problems, make 

loans, and find new markets than their counterparts who know their respective discipline but not 

the specifics of the industry. Similarly, workers who are familiar with the industry are more 

highly valued than those who are not. Even though corporate leaders proclaim their desire for 

employees with general abilities, who know how to learn, problem solve, and communicate, 

owners of small companies without human resource directors or training programs (and even the 

line managers of large corporations) prefer new hires who know the business. 

42
What sort of specialized services and skilled labor forces have the seven clusters been able to 

attract or develop?

• North Carolina’s knitting mill cluster (hosiery subset), as a result of its regional trade 

association, acquired state support for a hosiery technology center located at the local 

community college and, in 1996, was able to add a satellite center at another community 

college located on the periphery of the cluster. The local bank president attends association 

meetings and, according to industry spokespersons, is the only banker in the state with 

intimate knowledge of the hosiery business. North Carolina State University and 21 cluster 

members formed a network to attempt to develop an advanced boarding technology, and the 

university's technology extension service will soon assign an engineer to work with the 

cluster. Although marketing and exporting expertise are still concentrated in New York, this 

cluster, with assistance from the North Carolina Alliance for Competitive Technologies, is 

attempting to build capacity locally. The skilled labor market in the area is also considered a 

major advantage by firms, although there is concern about the shrinking labor market as 

youth turn away from manufacturing. 

• New York’s electronic components cluster relies on a number of strong federal and state 

funded research and development facilities, one at Cornell University, one at Alfred 

University, and another at State University at Binghamton. A manufacturing extension 

service center staffed by people with electronics industry experience provides technical and 

managerial assistance. Further, the region has a number of banks, advertising agencies, and 

legal services with staff with knowledge of the industry. There is little industry expertise 

within the cluster, however, in marketing and exports. 

• Pennsylvania’s plastics parts cluster, as it developed fostered the accumulation of technical 

expertise, including the Penn State-Erie plastics center and Plastics Technology Deployment 

Center (PTDC), and there is a considerable pool of skilled workers due to the large number 

of family businesses and local plastics training programs. But no export programs in the area 

yet target the cluster. 

• South Carolina’s industrial machinery cluster is supported by a number of organizations, 

such as the Southeast Manufacturing Technology Center and the area’s three technical 

colleges, with expertise in their specific process technologies. But none of the support 

services and associations interviewed engaged in exports professed any expertise in the 

cluster. 

• The scale of Mississippi/Alabama’s household furniture cluster has led to a number of 

targeted support services, including an automated upholstered furniture technology center at 

the community college, a furniture mart, a furniture research center at the University in 

Mississippi, and an export/technology forestry team and trade experts at the University of 

Alabama and in Mississippi. There is a sizable labor pool familiar with and experienced in 

the industry, but business is concerned that it is both diminishing and not able to adapt to the 

new technologies. Government services do not appear to be targeted to or expert in the 

needs of the furniture industry. 

43
• Tennessee’s environmental technologies cluster is supported by the very services and 

institutions that gave birth to it—the federal labs and agencies, state universities, and the 

Tennessee Valley Authority. The university and two technical colleges have special 

advanced and associate degree and shorter certificate programs in environmental 

technologies. Further, the state’s department of economic and community development has 

an environmental technologies sector team. An environmental technologies specialist will be 

assigned to the U.S. Department of Commerce’s International Trade Export Assistance 

Office in Chattanooga. 

C. Becoming Global: Export assistance and performance 

The seven clusters selected for analysis each exhibit somewhat different export market 

characteristics and structures, which have implications for the types of services they need. Two 

clusters—knitting mills and household furniture—sell to retail markets and therefore depend 

heavily on distributors, trade shows, and field agents to find customers. Most firms are simply 

order takers, and only the more aggressive companies actively pursue new foreign markets. 

Their most important capabilities are delivery and design so that they can adapt to changing 

consumer tastes. Two clusters—industrial machinery and environmental technologies—sell 

their products to other industries and depend on trade journals, shows, and sales offices, and 

reputation. Their most important capabilities are quality and service, which generally requires 

on-site attention after the sale. Two other clusters—plastics parts and electronic components—

are integrated into more complex industrial or consumer products that may eventually be sold 

overseas. These companies are less likely to be direct exporters unless they have some special 

patent or unique product feature or competency needed by foreign companies, in which case the 

product sells itself. Their most important capabilities are reliability and design, and they may 

have to meet special foreign product design requirements. Finally, medical devices are sold to 

professionals, and the firms interviewed in the area selected exhibit little export potential. 

For the most part, firms interviewed believed that exports are important to their future business 

performance. Even though many exporters only export a small fraction of their total output, 

more than half rated foreign markets as “very important” to their business and another 20 percent 

rated it as “important” (see Figure 5). Almost 70 percent of support services rated foreign 

markets as “important.” 

Exporters in the seven clusters relied slightly more on private sources for trade leads the public 

sources. Export consultants and agents were the most frequent source of general leads, but 

customers themselves were the most frequent source of specific leads, especially in 

environmental technologies. Universities were used only by the furniture cluster, which 

probably can be attributed to the source of contacts being the university. Knitting mills used 

federal agencies for general but not specific leads, and the industrial machinery cluster used state 

agencies for general leads but not specific leads. 

44
Figure 5 

Ratings of Importance of Foreign Markets by Exports and Support Services, Percent 

1-

LO

2 3 4 5-

HI

0

10

20

30

40

50

60

1-

LO

2 3 4 5-

HI

Ex por t er s

Ser v ices

Highlighting Clusters’ Export Activity 

In the household furniture cluster, exporting is a passive activity. Companies show their 

products and respond to orders-which may or may not originate in other countries. The 

companies interviewed rate exporting as “important” and, in principal, are more than willing to 

export. But few make any concerted efforts to find new export markets. In each furniture subcluster (solid wood in Alabama and upholstered furniture in Mississippi), the larger companies 

are both the major exporters and more advanced companies most likely to invest in new 

equipment and training. The strongest specialized services of both regions are for technology 

and training, with little support for export, with the exception of the University of Alabama. 

Both states will provide limited assistance when asked, but neither has any significant expertise 

in or support for exporting household furniture on staff. 

Knitting mills in western North Carolina, like furniture, have been relatively passive exporters, 

relying on trade shows and marketing brokers to find outlets for their goods. A few small firms 

aggressively pursue new foreign markets, but these are exceptions and their exports generally are 

only a small percent of their total sales. Exporting is not commonplace. In fact, it was difficult 

to find active exporters in this industry cluster. Sock producers are split between greige, 

finishers, and integrated firms, and the companies producing greige (an input to the final 

product) would be unlikely to export. The women’s sheer hosiery and knit underwear producers 

are mainly larger multi-national corporations, not SMEs, and, therefore, more likely to export. 

Most companies make low- or mid-price range products for sale in discount and department 

store chains, but those making high-end and specialized niche products for domestic outlets can 

also succeed in Japanese and European markets where “Made in the USA” labels on knit goods 

carry a certain cache and are valued for their design and quality. Some companies export under 

45
their own brand name while others profit from licensing agreements to make products under 

brand names such as “Keds” or “Wrangler.” 

In the industrial machinery cluster, virtually all mid-size and large firms that can export are 

already doing so—mainly with overseas shipments directly from the plant. Nation-wide, 92 

percent of plants with more than 500 employees and 72 percent of plants with 100-500 

employees export. For this group, growth will come from increasing export sales not from

introducing new-to-export firms to the benefits of international marketing. There is still 

substantial opportunity for growth in exports per firm, given that direct exports average only 23 

percent of sales for the largest plants and 18 percent for the mid-size plants. Non-direct 

exporters are the job shops and suppliers of common parts and components. Most of the 

exporters polled had been exporting for over 20 years, and exports exceeded 20 percent of sales 

for 7 of the 10 exporting firms. 

The environmental technology cluster, despite huge projected global market for the industry, 

are not major exporters. That may be because so much of the Oak Ridge cluster views 

government, not the private sector, as its primary client, and foreign governments may resist 

hiring a U.S. firm, preferring to purchase the technology and do it themselves. Given the 

specialized nature of their products or services, they market directly to the customer. Exporting 

does not require product changes; most projects are tailored to a specific client and situation in 

the U.S. and elsewhere. However, exporting does require adjustments to accommodate 

differences in culture and in business practices—and usually requires an off-site partner, which 

adds to the difficulties and costs. Despite the obstacles, U.S. environmental technologies firms 

are becoming increasingly interested in export opportunities. And because of their dependence 

on government for contracts, they look to the federal agencies for export information and 

assistance more than other clusters. 

The medical devices cluster in the Pittsburgh area is not yet a significant exporter, and exhibits 

little promise for future exports. Many of the firms manufacture surgical supplies, which tend to 

be unsuited to export. Most are low-tech and some such as orthopedic appliances, which 

account for 20 percent of the employment in this sub-sector-serve local customers who request 

products designed to fit particular patients. Further, employment in this sub-sector is made up 

almost entirely of two large companies, one a manufacturer of personal safety devices for the 

mining industry, and the other a manufacturer of respiratory and patient ventilation products. 

Most interviewed believe that exports are “very important” to their industry’s future. Yet, 

clearly, any significant future export development is contingent on building on the region’s 

technical expertise to expand the cluster’s product lines or by recruiting new companies. 

The firms in the plastics parts cluster in the Erie area, like the plastics sector nationally, do not 

heavily export because so many of the skills and technologies used in the industry are common 

to so many localities. Many of the inputs customers require are injected molded parts, which can 

be manufactured nearly anywhere. Therefore few niche markets exist for this miscellaneous 

products cluster. Most companies receive large orders and produce them to a customer’s design, 

competing more on quality, delivery, and price than on innovative or unique design. The 

cluster’s major strength is its proximity to industries in the larger, heavily industrialized Great 

Lakes region and its technology infrastructure. 

46
Barriers to Exporting 

What are some of the obstacles to exporting? During interviews, executives from both exporting 

and non-exporting firms were asked to rank factors that made exporting difficult or not an option 

for their firm. Service providers also were asked to rank factors inhibiting export activity in the 

target industry. Aggregating the weighted averages of the responses produced a ranking of 

export barriers as perceived by exporters, non-exporters, and support services (see Table 8). 

While there was some agreement among the three classes of respondents—for example, all three 

ranked lack of information very high—there were also striking disparities. The largest 

difference in opinion was in “getting paid.” Exporters, who obviously had experienced the 

problem frequently, ranked it as their largest obstacle. The support services, however, rated it 

last and non-exporters, well below average. Another disparity occurred in trade barriers, which 

exporters ranked third, non-exporters, last, and support services, eighth of ten. Lack of time was 

ranked the second biggest obstacle by support services, fifth by non-exporters, but only seventh 

by exporters. Unfamiliarity with the exporting process was scored high by services (third) and 

non-exporters (fourth) but low by exporters. Foreign regulations, not explicitly included on the 

survey instrument nevertheless also was mentioned frequently by firms. 

Clearly, doing business abroad imposes additional costs on small firms. Transportation costs 

were a distant second biggest obstacle for non-exporters, followed closely by high exporting 

costs, and lack of familiarity with the exporting process. Non-exporters do not know enough 

about foreign markets, are wary about the added costs, and not willing to invest time and money 

to see if exporting would be profitable. 

There were also significant differences among clusters. Each had a slightly different perspective 

that reflects the natures of their products and markets. Household furniture producers, for 

example, were concerned about foreign exchange rate fluctuations and high tariffs. The 

industrial machinery companies viewed' financing their high cost products as a primary obstacle 

facing local firms. Environmental technology firms noted the high cost of establishing and 

maintaining an overseas presence, which is exacerbated by the lag between starting to market 

abroad and realizing revenues from the typical project. They also noted difficulties in finding 

dependable foreign on-site partners and then maintaining communications between the home 

base and projects multiple time zones away. Plastics firms added concerns about foreign 

regulations of imports and taxes. Medical devices had the same concern. Other nations have 

stringent requirements about products entering their markets and require all imports to meet 

product design standards. 

Technology-based clusters encounter difficulties from U.S. government regulations related to 

technology secrecy and, for the medical devices firms, difficulty on both ends of the sale in 

getting necessary government approvals of their product. A representative of one medical 

devices firm suggested worldwide standards for medical devices. The environmental 

technologies cluster specializes in nuclear issues and works with top secret facilities, and 

consequently frequently faces a web of red tape. Similar complaints were voiced by electronic 

components firms, and some work through congressional offices to speed trade approvals. 

47
Table 8 

Rankings of Barriers to Exporting by Exporters, Non Exporters, and Support Services 

Barrier Exporter 

NonExporter Support 

Service 

Getting paid 1 7 10 

Lack of information 2 1 1 

Tariffs/trade barriers 3 10 8 

High marketing/sales costs 4 3 7 

Transportation costs 5 2 6 

Lack of capital 6 6 4.5 

Too little time 7 5 2 

Unfamiliar with process 8 4 3 

Design specifications 9 9 4.5 

Language 10 8 9

Rating Export Capabilities 

Based on the results of the interviews and the lead researchers’ best judgment, Table 9 represents 

an attempt to assign a preliminary relative rating to each element of infrastructure that supports 

exports within each of the seven clusters. The scale is only an exploratory attempt to formulate a 

quantitative profile of a cluster’s export infrastructure and a rough indicator of export 

capabilities. It will require considerable additional work to further refine it and assess its 

validity. Where possible—such as interest in exporting and assigned importance to exporting—

the interview results are applied. Elements not obtained from data are based on researchers’ 

educated best guesses. Each element is ranked on a scale from 1 (low) to 5 (high). Although 

comparisons must be taken with a great deal of caution since the ratings were made on an 

individual basis without standards, they suggest, for example, that household furniture and 

industrial machinery (end use machines) products are most universally appropriate for export 

and that furniture has the best access to generic information about foreign markets. 

48
Table 9 

Comparative Ratings of Export Infrastructure 

FACTOR Hous.

Furn.

Indust. 

Mach. 

Knit. 

Mills

Elec. 

Com.

Med. 

Dev. 

Env. 

Tech.

Plas.

Parts

Transportation 

and distribution 

5 5 5 3 4 1 4

Generic information 

and services 

5 4 3 3 4 2 4

Specialized information 

and services 

4 3 3 3 1 1 4

Importance of exports 3 4 4 4 3 4 2

Appropriateness 

 of products 

5 5 3 4 3 4 2

Interest in exporting 5 5 3 4 3 4 2

Capital availability n/a n/a 2 3 3 1 3

D. Making Things Better: Competitiveness and Modernization Assistance 

One of the most important assumptions driving current industrial modernization policy is that 

U.S. manufacturers no longer can compete on the basis of price alone. Quality, reliability, 

design, and delivery times are equally, if not, more important to increasingly discriminating and 

demanding customers. Therefore, the project team asked companies and support services 

surveyed to select the two factors most important to their competitiveness from among those in 

Table 10 asked them to add their own. Among exporters, product quality and customer service 

garnered the most votes. 

• Quality ranked particularly high in the knitwear and plastics clusters. 

• Reputation and customer service were highest among industrial machinery exporters and 

non-exporters, who tend to work closely with users to customize their machines to their 

needs. 

Non-exporters’ choices were distributed more evenly, with all but timely delivery selected about 

the same number of times. Support services strongly emphasized product quality, and also 

product design. 

Despite the number of national initiatives to organize programs to help SMEs modernize, few 

have reached the firms in these clusters. Few companies are customers and many remain 

unaware of them as sources of information for exporters, with the exception of universities for 

49
the furniture industry. By and large they rely heavily on other companies for information, e.g., 

suppliers, customers, equipment producers, and even competitors. Most industrial machinery 

firms surveyed had never received export assistance from trade promotion organizations, did not 

seek out information about exporting or export services from public sources, and were in fact 

unfamiliar with the availability of such services. When public sector agencies were named by 

companies, it may be simply because these same services were used as contacts to identify 

respondents (in order to gain cooperation). Thus, on this particular question, the responses may 

be biased. 

Table 10 

Number of Times Factor Was Selected As One of Two Most Important Competitive 

Advantages and Rank Order (in parentheses) 

Advantage Non-Exporters Exporters Services Not Inside**

Product design 14 (3) 15 (2/3) 16 (2) 3 (3/4) 

Customer service 20 (2) 12 (5) 8 (5) 3 (3/4) 

Price 12 (4/5) 14 (4) 9 (3/4) 2 (5) 

On time delivery 7 (6) 3 (6/7) 7 (6/7) 1 (6) 

Product quality 24 (1) 15 (2/3) 18 (1) 5 (1) 

Reputation 12 (4/5) 16 (1) 9 (3/4) 4 (2) 

Other* 1 (7) 3 (6/7) 7 (6/7) 0 (7) 

* Support services and one exporter added location (1)and labor force skills (4) as leading advantages. 

** Companies, both exporters and non exporters, located in areas distant from the cluster. 

Figure 6 displays an index of the degree of use of a variety of sources of technical information 

for the combined clusters. Among exporters, which were generally slightly larger companies, the 

largest source of information was other companies. Therefore, despite the mistrust and 

competitiveness, these companies look to other firms most frequently for information. A close 

second source was customers and third was trade journals/internet and universities. 

Environmental technologies was the single cluster that did make considerable use of government 

sources, in part because government is so readily accessible in the Oak Ridge area and in part 

because it is a leading customer. 

50
Figure 6 

Ot her Government

Agencies

SBCs

Journals/ Int ernet

Government

Technology Assist ance

Privat e Consult ant s

Suppliers

Equipment Vendors

Communit y Colleges

Cust omers

Trade

Associat ions/ Chamber

Universit ies

Ot her Companies

0 0 .5 1 1 .5 2 2 .5 3

Ot her Government

Agencies

SBCs

Journals/ Int ernet

Government

Technology Assist ance

Privat e Consult ant s

Suppliers

Equipment Vendors

Communit y Colleges

Cust omers

Trade

Associat ions/ Chamber

Universit ies

Ot her Companies

I ndex of Uses of Var i ous Sour ces of I nf or m at i on

Non-Export ers

Export ers

Note: The score is weighted according to the reported frequency of use and divided by the 

number of respondents. 

51
Access to Capital 

Policy-makers often view capital as a potential barrier for companies outside of major 

metropolitan financial centers—particularly for SMEs. The project team asked non-exporters to 

rate the degree to which both lack of investment and working capital impeded their efforts. 

Across all clusters, working capital was more problematic than investment capital (see Figure 7). 

Sixty percent of the firms cited it as a problem. Responses to investment capital were split with 

a third of the firms rating it as a very big problem, a third as no problem, and a third somewhere 

in the middle. Breaking the issue down by cluster, it was of greatest concern in South Carolina’s 

industrial machinery cluster and New York’s electronics components cluster, where all but two 

firms rated investment capital needs high and two-thirds rated working capital needs high. 

Figure 7 

Percent Distribution of Ratings of Capital Availability Among Non-Exporters 

Inv est -

ment

Working

0

5

10

15

20

25

30

35

Inv est -

ment

Working

Type of capital

1 LOW

2

3

4

5 HIGH

E. Cluster Power: Impacts of proximity, association, and interdependence 

The project team selected regional boundaries for clusters on the basis of concentrations of 

employers and employees and importance to local economics. The factors that make these 

groups of firms “clusters" and influence their ability to generate synergy, however, are more than 

mere counts of businesses. Rather, successful clusters arise from dynamic activities and 

resources, such as access to specialized information and assistance, means and tendencies to 

associate and learn from one another, reliance on local suppliers, availability of skilled and 

experienced labor, tough competition, entrepreneurial energy, and shared vision. 

Each of the seven clusters has some of these elements, but in some they are much stronger than 

in others. For example, knitting mills, household furniture, environmental technologies, and 

52
plastics are the most self-aware clusters. Their members recognize their importance to the 

regional economy, take advantage of their strength of numbers, collectively address common 

needs and problems, and rely heavily on other local companies. Medical devices is a weaker 

cluster with its members overshadowed by other sectors in the heavily industrialized 

metropolitan area. Although it has been targeted by the state because of the industry’s growth 

potential, there is little unity or interaction among member firms and minimal export activity. 

The industrial machinery cluster is imbedded in a diverse web of manufacturing companies and 

its members relate as much to the industry they serve as other firms in their industries. (As 

comedian Steve Wright once said, “Anywhere is walking distance—if you have the time.”) 

Therefore, although they have many common needs and specialized services, these companies’ 

most valued relationships are with the member firms of the clusters that their customers 

represent as much as each other. Textile machine builders, for example, are part of the region’s 

textile cluster, metal-bending or cutting machines may be linked to the auto industry, and 

extrusion machines to the plastics industry. 

Trust is a major factor in the strength of a cluster, increasing the opportunities for firms to take 

advantage of their collective capabilities and knowledge. Increasingly respected experts, 

borrowing heavily from the writings of Alexis de Tocqueville, are relating economic growth to 

high levels of trust.14 Considering the clusters as a whole, ratings of trust were dichotomous. 

Exactly half of the respondents rated trust above average and half rated it below average (see 

Figure 8). Support services, which had a more global view of the cluster, tended to rate it higher. 

Within clusters, industrial machinery exporters and household furniture exporters rated 

themselves lowest and electronics components, environmental technologies, and knitting mills 

the highest. 

53
Figure 8 

Distribution of Ratings of Trust Among Exporters and Support Services, Percent 

1-

LOW

2345-

HIGH

0

5

10

15

20

25

30

35

1-

LOW

2345-

HIGH

Expo rt ers

Services

Highlighting the Clusters’ Inner Workings 

Household furniture cluster is bifurcated between the two states. Each has elements of an 

autonomous cluster with Mississippi, where concentrations and numbers are greater, exhibiting a 

stronger cluster structure. Synergy is fostered in part by common resources and in part through 

an informal social infrastructure and labor market than allows information and innovations to 

travel freely as employees and managers move from firm to firm. With respect to marketing, 

there are common elements that provide opportunity to connect the two: they both produce 

promotional, low-to mid-price range household furniture and both sell to similar markets. 

Moreover, their products are complimentary, not competitive. Therefore, cooperative export 

development seems feasible. 

The hosiery firms that make up the largest segment of the knitting mill cluster is tightly bound 

by an active regional trade association and a regional industry-led technology and training hub at 

the community college, both of which provide the social glue that builds trust. The strength of 

this trade organization and the cohesiveness it has imbued in its members have brought to the 

cluster new specialized services and resources and resulted in a regional plan for the cluster that 

highlights collective marketing and exporting goals. Many members freely associate and take 

pride in their high levels of cooperation. They in fact view collaboration as their best chance to 

adjust to changing technologies and a consolidating customer base and to survive in highly 

competitive markets. 

Plastic parts service providers indicated that the clusters’ atmosphere is fairly conducive to trust 

because many companies—especially those exporting—are not in direct competition with each 

other. Firms are quite aware of the strength and scale of their sector. Collectively, the larger 

54
companies have helped establish the Penn State-Erie plastics center which, along with the 

Plastics Technology Deployment Center, sponsors “consortia” geared to particular elements of 

the plastics industry. For example, the “blow molding consortium” supplies specific training and 

technical assistance to firms specializing in that method of plastics processing. The Society of 

Plastics Engineers is also quite active and provides networking opportunities. For the smaller 

companies, most collaboration revolves around meeting orders too large to fill alone. Many of 

the firms indicated a willingness to explore other formal forms of collaboration. 

Environmental technologies companies in Oak Ridge have several characteristics of a 

successful cluster. A highly skilled labor force follows government contracts from firm to firm. 

Although competitive firms, they draw on a network of technical expertise that strengthens all 

participants, and it is common for firms to form partnerships on a project-by-project basis to 

compile the strongest array of skills. Vertical partnerships include mentoring relationships with 

small firms, especially firms that are classified as disadvantaged or certified by the Small 

Business Administration 8(a) program. On their own, small and medium sized firms partner 

horizontally and vertically, acting as sub-contractors on some contracts and prime contractors on 

others. Most Oak Ridge firms belong to and participate in local business associations, such as 

the East Tennessee Environmental Business Association and the East Tennessee Economic 

Council, both of which foster exchange among members. Further, the labor market is very fluid 

and, similar to Silicon Valley, people move freely from firm to firm taking knowledge with 

them. The industry concentrations act as an information resource for firms, but it is also 

apparent that information technology is moving free of geographic bounds. Those asked how 

often they used various sources of information most frequently cited other companies and the 

internet. 

Industrial machinery is highly concentrated in the South Carolina ARC counties— 

one of the nation's premier clusters according to quantitative analyses by DRI/McGraw-Hill. It 

is a cluster in terms of scale and importance to the region’s manufacturing base. Yet this 

research suggests that industrial machinery companies in this region do not have a strong 

tradition of working together. The mid-sized machine builders in the cluster are not highly 

competitive with each other since these high exporting firms generally have narrow market 

niches. Instead, these companies are oriented toward their customers and the clusters in which 

their equipment is used. They are, in fact, often a source of innovation within their customer 

clusters. Inter-firm relationships tend to be vertical, with their suppliers. Yet the concentration 

has led to a number of specialized services, especially in the technical colleges. The smaller and 

less direct export-prone supplier companies in the cluster, such as tool and die makers, are more 

likely to network and take advantage of interdependencies, both with their peers and their 

machine builder customers. 

The medical devices companies examined in this research do not meet the requirements 

generally associated with a cluster. The concentration of firms is low compared to other sectors, 

there is no self awareness of any concentration of firms or of the competencies and/or products 

of others in the cluster. In addition, there are no specialized trade associations to facilitate 

interaction (except for those that serve all high tech firms), and, as a result, little cooperation 

among firms. The main positive attributes of the area are the local sources of technology 

development and expertise, and the markets created by a large medical sector—both of which 

create possibilities for future growth. And, indeed, Pennsylvania would like to develop this 

55
cluster, building upon the research and development resources in place, because of its national 

growth potential. 

Electronic components firms are cognizant of the importance of their industry to the entire 

region. Specialized technology, marketing and work force training institutions exist that 

probably are not matched anywhere else in Appalachia. A number of larger customer firms in 

the region—many of them Original Equipment Manufacturers (OEMs)—drive and shape 

demand, and smaller, specialized supplier firms both cooperate and compete to meet those needs. 

The cluster has a history technological capability in sophisticated packaging processes, several 

entrepreneurial firms, a strong research and development base supported by higher education 

institutions, and a large and well skilled work force. 

F. Locational Advantage 

If firms do in fact cluster—which data on plant location by SIC confirm—one might ask what 

conditions or local factors cause that to happen? What are locational advantages that companies 

and services view as most important to the clusters' competitiveness? The industry specific 

skills of the work force ranked first (Table 11). Even in areas where there are labor shortages, a 

density of companies creates an experienced labor pool from which new and growing companies 

can draw. Despite some poaching from one another, as Mississippi's furniture companies noted, 

the advantages of a large number of workers knowledgeable in the industry outweighs such 

disadvantages. This is important to the industrial machinery cluster in South Carolina, which is 

supported by specialized training programs at the region's three technical colleges, and knitting 

mills, which are not well served by most community colleges and therefore rely heavily on the 

specialized training developed within the region. Human resources are crucial to knowledgebase industries. For example, the environmental technologies industry also depends upon a 

skilled labor force. 

The second most important factor was proximity to suppliers and customers and good 

distribution channels. Even though in today’s global world of manufacturers suppliers can be 

anywhere, most companies would choose to have suppliers nearby if at all possible. Proximity to 

suppliers is important to the furniture cluster, which uses inputs having a high shipping cost to 

value ratio. Similarly, proximity to customers is important to greige manufacturers in the 

knitting products cluster. Proximity to customers is also important for specialized products 

produced to individual situations, a situation common to segments of the medical devices and 

industrial machinery industries. Proximity to suppliers is less important for inputs with low 

shipping cost to value ratios such as specialized instruments used by environmental technology 

firms. Overall, more than half of the exporters interviewed buy more than half of their inputs 

from companies within a 100 mile radius of their plant. 

The next most important factor cited in interviews was the intangible “quality of life.” Most 

people like where they live and work or they would not be there. Most of the companies are not 

recruited but started as spin-offs from larger companies that may have been recruited years 

earlier and long time residents of the area. This was especially common in the industrial 

machinery cluster. Quality of life is a key factor predicting that the environmental technologies 

cluster in East Tennessee will survive the closure of its primary local customer. Fewer 

56
companies rated factors relating to opportunities to interact, such as proximity of other firms or 

good industry associations, among the most important locational factors. 

Table 11 

Rankings of Weighted Ratings of Geographic Advantages 

Advantage Rank/SMEs Rank/Services 

Proximity to customers 4 8 

Distribution channels 3 1 

Quality of Life 6 4.5 

Skilled labor force 2 2 

Government support 9 7 

Close to other like firms 7 6 

Access to R&D, Technical services 8 3 

Proximity to suppliers 1 4.5 

Industry associations 5 9 

Outside of the cluster 

The team appended interviews with nine companies in industry sectors selected but located in 

regions outside of the cluster boundaries (Kentucky, West Virginia, and Virginia) to gain any 

insights into differences in responses that might indicate a disadvantage. Based on limited 

responses from this very small sample, there were no discernible differences in the distribution 

of responses (one example shown in Table 7). Combining responses from exporters and nonexporters, the relative rankings of competitive advantages, barriers, and sources of information 

were quite similar among firms in and outside of the cluster. The scale of the effort and design 

of the research, unfortunately, did not allow for an actual comparison of the elements that would 

be expected to vary between clustered and non-clustered firms, such as level of access to 

information, technical assistance, strength of capital and labor markets. 

G. Building a Profile of Cluster Power 

Clusters are generally described in literature and in research studies in terms of quantitative 

measures of industry concentration and scale. System attributes are generally limited to supplier 

linkages. Our analysis moves beyond these quantitative factors and attempts to look at clusters 

as interdependent systems. The central element is, in each case, the firms in the cluster. 

Supporting elements are the (a) sources of innovation, technology, research and development (b) 

suppliers of parts, materials, and equipment, (c) specialized services, (d) distribution 

infrastructure, and (e) customers. The connecting arrows represent dominant flows of capital, 

products, and information. 

Because clusters are complex systems and not simple agglomerations, however, they cannot be 

simply represented by indices or even graphics. Therefore, as with export power, we have 

57
developed a preliminary profile for rating the “power” of the cluster using a set of elements that 

characterize strong clusters throughout the world. This is not a scientific profile based on hard 

data; it is simply an attempt to develop a potential model that can look beyond the counts of 

companies and bodies and offer an alternative view of a cluster effectiveness and ability to 

produce synergy. 

The first element represents concentration and scale, the common measures of cluster power. 

The second element estimates innovation within the cluster, and whether members firms are on 

the cutting edge of adopting new technologies. The third, fourth, and fifth elements estimate the 

presence of and level of specialization of support services, suppliers, and the cluster’s labor pool. 

The sixth and seventh elements are indicators of the flow of information and innovation within 

the cluster, and opportunities for interaction and association that represents. The eighth and 

ninth are estimates of the strengths of leadership and self-awareness. The final two elements 

represent entrepreneurial energy and competition. 

Unlike the export capacity cluster (Table 9), the competitiveness profile for each of the seven 

clusters was rated by multiple team members, but with lead researchers’ judgment given greater 

weight. Like the earlier profile, it uses a scale of 1 (lowest) to 5 (highest). 

58
 

Table 12 

Estimated Comparative Competitive Profile of Cluster Power: 

A Preliminary Model 

FACTOR Hous.

Furn.

Indust.

Mach

Knit. 

Mills

Elec. 

Com.

Med. 

Dev. 

Env. 

Tech. 

 Plas. 

Parts 

Concentration/scale (critical mass 

of companies in region, loc. 

quotients.) 

4.8 4.2 5.0 4.2 1.4 4.2 4.2

Adoption of advanced techniques 

and technology (rates of 

investment) 

3.4 4.0 3.5 4.0 3.3 5.0 3.6

Specialized support services 

(knowledge of and value to 

services) 

2.4 3.0 3.8 3.0 2.0 1.8 4.6

Local subs/supply relationships 

(links between regional businesses) 

4.6 4.0 4.5 3.8 2.8 3.0 4.3

Skilled work force (size of labor 

pool w/experience in industry) 

2.0 4.8 3.8 3.0 3.2 4.5 4.3

Social Infrastructure: associations 

(membership and activity) 

3.0 2.6 4.3 3.6 1.4 3.8 3.6

Networking (sharing, pooling 

resources, alliances) 

1.6 2.2 4.0 3.8 1.0 3.5 3.4

Export infrastructure (average 

ratings from Table 7) 

4.5 4.3 3.3 3.4 3.0 2.4 3.0

Cluster awareness (recognition of 

interdependencies) 

4.2 2.2 4.8 3.4 1.0 4.0 4.8

Leadership (numbers of lead and 

innovative firms) 

4.8 2.3 3.8 3.5 1.8 3.5 4.0

Entrepreneurial energy (rate of new 

business spin-offs) 

4.5 4.0 2.3 3.5 1.6 3.8 3.7

Competition (strengths of other 

local companies) 

4.6 3.6 4.0 4.0 2.0 4.2 3.5

Table 12 shows the team’s best estimate of the relative strengths and weaknesses of each cluster. 

The ratings in the table suggest, for example, that household furniture and knitting mills are the 

most concentrated clusters; that knitting mills and plastics the most self-aware clusters, furniture 

the most entrepreneurial (perhaps because the initial investment is lowest); industrial machinery 

and environmental technologies have the most highly skilled and specialized work forces; and 

environmental technologies the quickest to adopt new technologies. With additional effort, more 

rigorous measures for each dimensions could be developed and benchmark established. 

Perhaps more important, the profiles point out shortcomings and gaps that suggest attention. For 

example, skilled work force rates low for household furniture and electronic components. This 

59
could reflect a gap in specialized training or simply a shortage in labor market supply. 

Environmental technologies, medical devices, and furniture all rate low in specialized support 

services. And there was little evidence of industry leadership in the industrial machinery cluster. 

Social infrastructure was lowest in medical devices and industrial machinery. Environmental 

technology, plastics, and medical devices were rated relatively weak in export infrastructure. 

Shoring up these weaknesses ought to improve the cluster as a whole. 

H. Opportunities for Improving Export Performance and Competitive 

Advantage 

Increasing Exports 

Economic development theory tells you to exploit competitive advantages and counter the 

disadvantages and for export promotion, suggests a focus on industries with products most likely 

to find a market overseas. Research and site visits revealed that the seven ARC target clusters 

include four very different categories of firms based upon the export outlook for their product. 

The following discussion refers to the target cluster, not to a national industry. Firms in a single 

cluster often are divided between these categories. 

The first two categories offer the most promising targets for export promotion, those firms with 

products appropriate for exporting. Some of these firms already are exporting, looking to 

increased exports as a business opportunity, and seeking larger foreign orders. The first category 

is firms that sell final products for consumption through retailers. These companies are 

generally, but by no means all, larger firms. Selling to retailers requires knowledge of consumer 

tastes and preferences and quick response. Numerous firms in the household furniture cluster 

and the finished hosiery segment of the knitting cluster fall into this category. 

The second category is firms that usually sell to other companies and have unique products or 

occupy special niches. Certain producers of industrial equipment and electronic components as 

well as many environmental technology firms fall into this category. Selling to industry or 

government requires an intimate knowledge of the customer’s facilities and needs and often, the 

ability to provide continuing service and training. Any follow-up requirements add complexity 

to the export process, but numerous firms in these industries have demonstrated that export sales 

can be profitable. In this arena, the technological expertise of US firms is a distinct competitive 

advantage. 

The third category is also firms that usually sell to other companies, but their products tend to be 

standardized commodities on the market. These firms face difficulties in foreign markets, 

because their products are low value and easily replicated in localities with lower wage rates 

than the US. Shipping costs add to the exporting disadvantage when the products have a high 

shipping cost to value ratio. This third category includes portions of the knitting and plastics 

clusters, the firms that manufacture greige (unfinished) hosiery or simple extruded plastic parts. 

It also includes portions of the electronics components industry, manufacturers of less 

sophisticated coils, transformers, and printed circuit boards. Some of these suppliers, such as the 

plastics parts and electronic components manufacturers, may export indirectly, by making parts 

used in goods that are sold to foreign markets. While these companies often have to meet 

60
foreign quality standards, they do not have to process exports or have internal expertise; their 

customer is the exporter. 

The final category is the firms that have little or extremely limited export potential. this may be 

because their customers are local, or because their product is tailored to the individual customer. 

This category includes that portion of the medical devices industry most often found in the target 

area, firms manufacturing prosthetics for local physicians. It also includes the tool and die 

companies that support industrial machinery or plastics companies. For these firms, proximity to 

customers is crucial to competitive advantage, and by definition, exporting involves distance 

from customers. 

Firms in categories one and two offer the most likely targets for increased export sales, but they 

still face barriers to exporting. Reducing those barriers offers a strategy for increasing exports, 

and the cluster structure includes strategic avenues for interventions. The interviews found that 

lack of information kept firms out of export markets. Information on export markets and 

information about exporting procedures is available from public and private sources. 

Apparently, the target audience is not aware of the available information or else that information 

is too difficult to access and use. Improved services to SMEs would address these barriers. An 

industry or trade association is an excellent conduit for enhanced services. 

Other frequently mentioned barriers relate to the additional marketing and transportation costs 

associated with doing business overseas. These costs can be reduced through group services and 

collective exporting, which is an option if firms in a cluster have built the trust and networks so 

that they can work together. Again, industry or trade associations provide a structure for this 

activity. The following recommendations describe specific options to address export barriers 

that were mentioned in discussions with firms and service providers. 

• Overcoming SMEs’ difficulty in “getting paid”: Community banks are likely to know 

clusters the best but have little expertise in exporting. Large banks that know exporting have 

little expertise in clusters or want to deal with SMEs. A number of niche export finance 

intermediaries are emerging that are targeting small and mid-sized exporters. One 

suggestion is to help connect these new companies with the community banks that are more 

familiar with and accessible to SMEs. 

• Reducing unit costs of international marketing and sales: Expense was cited as a major 

barrier to entering export markets. National programs in British Columbia, New Zealand, 

and Australia have proven quite effective in establishing exporting networks that allow forms 

with complementary products to target foreign markets and share the costs of doing business 

there. A suggested action is to develop a cadre of skilled brokers and offer incentives for 

export cooperatives. 

• Increasing participation in trade shows: Overseas trade shows, although costly, are 

important sources of sales leads. A suggested action is to organize groups of small and midsized companies to attend trade shows together, sharing costs of booths, or simply gathering 

information and making contacts that would be shared with others in cluster. Another 

possible intervention is support for reverse trade missions, bringing delegations from other 

countries to visit the cluster, become familiar with its products and capabilities, and build 

61
personal relationships. Such reverse trade shows are especially suited to high tech clusters, 

giving firms a chance to showcase their capabilities. 

• Improving education and information about export procedures and foreign market 

requirements: These services exist in most states but are not easily accessed by rural or 

remote companies. One suggestion is to help SMEs make greater use of 

telecommunications, both for education and information. For example, Trident Technical 

College in South Carolina and West Virginia University at Parkersburg are developing a 

export certification program that will be able to be accessed and delivered via the internet 

anywhere in the ARC region. 

Improving Competitiveness 

Exports and competitiveness are intrinsically interconnected. Exporters must be globally 

competitive, and therefore actions that improve the performance of a company with respect, for 

example, to quality delivery, design or costs, improve its export capacity. Government agencies 

have recently come to the realization that SMEs are important to regional economies and that 

they have distinctive needs and that scarce resources can be best optimized by addressing 

collective and common needs of clustered SMEs. 

The assumption behind sector or cluster analysis is that specialized services and infrastructures, 

tailored to the specific needs of an industry, are more useful to companies than generic services 

and infrastructures. Companies prefer to deal with—and receive better service from—others 

who understand their business. That leads to policies for industry-specific services with their 

hubs in the general vicinity of the largest concentrations of companies. Other competitive 

advantages accrue from closer access to suppliers and equipment manufacturers, particularly in 

situations where suppliers’ expertise and knowledge is vital to the final product and interaction 

enhances the design, where transportation costs are high, and where technologies are changing 

rapidly. The last is particularly important now that leading economists have discovered that 

“proximity of others users of advanced technologies is associated with higher rates of 

adoption.”15 They accrue from labor markets able to meet changing employment needs with 

minimal retraining. 

All of these factors are part of what economists call “external economies of scale.” They are 

optimized in regions where leadership, vision, social infrastructure, and levels of trust allow 

technology and knowledge transfer to flourish and companies to take advantage of their mutual 

complementarities and interdependencies. 

• Identify and target gaps in cluster. View the cluster as a system and look for disruptions in 

or impediments to the flow of information and business transactions between firms, or weak 

elements such as a lack of important suppliers or industry specific training. Then look for 

strategies that improve the entire systems. 

• Improve flow of expert information to SMEs: One of the major weaknesses in most of the 

systems analyzed was the use of public sector services. While support services believed they 

were serving the companies well, the companies claimed it is too general. Therefore, they 

look most often to the private sector for specific information. Yet the responses from

62
businesses suggest a dearth of the very specific, niche-market oriented information 

companies need to export, which can best be obtained from experts in the industry. Regional 

brokers could help SMEs locate the information or, if unavailable, contract for and partially 

subsidize the studies, and put together companies with similar needs to share the information 

costs. 

• Emphasize design: Although design ranked high among competitive factors, it is given 

little emphasis and short shrift by educational programs and services. Those that do may 

emphasize design for manufacturability but not the creative and aesthetic qualities of final 

products that are increasingly important when competing in global markets with nations 

noted for their design, such as Denmark or Italy. Colleges ought to play a key role in 

integrating design into technical curricula and support services ought to include specialized 

design firms. 

• Merge export/marketing programs with technology diffusion/business assistance 

programs that target clusters: SMEs have considerable trouble sorting out and evaluating 

the multitude of technical assistance programs at their disposal. A "one stop" agency-a long 

sought ideal of many public agencies-might be more effective of organized around industries 

rather than functions. Some Manufacturing Extension Program agencies are moving in this 

direction, enlarging their scopes to address a fuller range of needs of SMEs, yet they are, at 

the core of their mission, still engineering oriented. Community colleges may be better 

positioned to serve in this capacity, brokering specialized services for the cluster. Itawamba 

Community College in Mississippi, for example, specializes in upholstered furniture 

production and Catawba Valley Community College in North Carolina specializes in hosiery 

production. The latter is also becoming involved in marketing and exporting issues. 

• Encourage networking: Although there is no long-standing and well-patterned “habits of 

cooperation” among firms in most regions, many see a potential for creating new 

mechanisms to allow firms to explore opportunities for joint export development. While 

many of these firms do compete with each other in regional markets to supply larger 

customers, a large number have differentiated themselves with their special capabilities over 

the past few years, thus increasing the likelihood of cooperating on mutually beneficial 

issues. Thus, they may find there is now less direct competition and more opportunities for 

cooperation. In fact, virtually all of the firms surveyed for this project expressed interest in 

at least exploring new and closer forms of cooperation. The knitting mills in North Carolina 

have carried this the farthest among the seven clusters, creating informal production 

networks and formal marketing and R&D networks. 

63
I. Conclusions 

This study focused on places in Appalachia where sectors are clustered. Does clustering matter 

and how does it affect businesses’ ability to learn, modernize, and export? It is difficult to make 

meaningful generalizations that can be applied to other locations because each cluster selected 

and studied is unique and the way it functions is a product of the type of goods it produces, the 

customers it targets, and the level of interdependencies among its companies and services (See 

Table 13). 

In fact, the clusters as defined by products and the places with the highest concentrations of 

companies making those products did not all turn out to be clusters as defined by 

interdependencies and system characteristics. The medical devices cluster, for example, 

comprised too few firms with too diverse products and customers and is imbedded in too large 

an industrial base to be considered a cluster in any sense of the word. Industrial machinery 

producers are more tightly linked to their customers’ clusters than each other, although the 

smaller supplier firms may constitute a truer and more interconnected cluster. Too little 

information was gathered about the latter firms to judge their degree of interconnections. Plastic 

parts and electronics components are clusters of suppliers that achieve external economies as a 

result of their numbers and are dependent on their customers. 

An analysis of two other clusters, household furniture and environmental technologies, revealed 

that they were each actually two distinct clusters. This illustrates the danger of using only lowlevel (two- or three-digit) SIC codes to define clusters. Household furniture producers operate as 

a strong cluster producing upholstered furniture in northeastern Mississippi and a slightly weaker 

cluster producing solid wood pieces in northern Alabama. In Tennessee, the cluster around Oak 

Ridge concentrates on nuclear energy and waste and the cluster around Chattanooga on 

conventional manufacturing environmental problems. Knitting mills as an entire sector is not a 

cluster but its largest component, hosiery, is a very complex cluster, again illustrating the 

problem in using three-digit or lower SIC codes. Hosiery firms are tightly linked to each other 

but not to other types of knitting mills. 

In only three of the clusters do concentrations and connections appear to improve firms’ interest 

in and ability to export. Knitting mills (hosiery), furniture, and environmental technologies are 

favorably affected by collective marketing and/or better access to information. Electronic 

components has the potential to benefit from such activities but does not yet. Industrial 

machinery markets are too diverse and customer specific, and are dependent on customer 

relationships. The medical devices cluster around Pittsburgh, as defined by current members, is 

tied to local customers, and plastic parts has little potential because its capabilities are too 

ubiquitous and readily replicable locally. 

Despite the individuality of the clusters, the accumulated knowledge does lead to some findings 

about export potential. Each cluster has some but not all of the strengths necessary for success in 

exporting, and therefore each has areas in which it can improve its performance—if it so 

chooses. 

64
• Clusters that are mainly suppliers of larger firms (e.g., plastics parts and electrical 

components) are less likely to export than those that sell to final users (e.g., industrial 

machinery and household furniture). 

• Clusters that compete on design or innovation (e.g., environmental technologies and 

industrial machinery) are more likely to have a future in exporting than those that compete 

on the basis of lowest price (e.g., plastics parts and knitwear). 

• Clusters that are internally networked and can take advantage of external economies of scale 

(e.g., hosiery and environmental technologies) are more likely to be able to export and adopt 

new technologies than those that are not (e.g., medical devices). 

• Clusters that are composed of larger companies (e.g., industrial machinery and are more 

likely to export than those comprised of small companies (e.g., knitting mills and . 

• Clusters with strong and specialized support services—especially those with marketing 

expertise, (e.g., hosiery and plastics parts)—are more likely to export than those with 

fragmented or generic services (e.g., medical devices and industrial machinery). 

• Clusters with pro-active companies that seek out markets (e.g., industrial machinery and 

environmental technologies) are more likely to export than those that are "order takers" (e.g., 

household furniture). 

• Within clusters, firms that are more technologically advanced (often the larger SMEs) are 

more likely to be exporters than the less advanced firms. 

Finally, for the benefit of future cluster analyses, it is important to note that three-digit SIC codes 

do not adequately classify clusters. Some are too broad (i.e., hosiery is a cluster but other 

knitting mills in SIC 225 are dissimilar and unconnected); some are too restrictive (i.e., they miss 

vertically integrated clusters where suppliers are part of cluster); and some are too new and 

undefined by product (i.e., environmental technologies). 

65
Endnotes 

1

 Carol Conway and William E. Nothdurft, The International State: Crafting a Statewide Trade Development System, (Washington, DC: The 

Aspen Institute, 1996).

1

 Robert L. Rose and Carl Quintanilla, “How Some Companies Land Sales Far Beyond the U.S.,” Wall Street Journal, December 20, 1996. 1

 Trade Policy Subcouncil, A Trade Policy for a More Competitive America (Washington, DC: Competitiveness Policy Council, March 1993). 1

 Rodney A. Erickson, Susan W. Friedman, and Samuel X. Lowe, State Industrial Exports, Export Promotion Programs, and Export Targeting. 

(Washington, DC: Economic Development Admin, 1995). 1

 Lester A. Davis, U.S. Jobs Supported by Goods and Services Exports. Research Series OMA-1-95 (Washington, DC: U.S. Department of 

Commerce, May 1995). 1

 Erickson, Friedman, and Lowe, State Industrial Exports, Export Promotion Programs, and Export Targeting.. 1

 Stuart Rosenfeld, Industrial Strength Strategies: Regional Business Clusters and Public Policy (Washington, DC: Aspen Institute, 1995) and 

OverAchievers: Business Clusters that Work (Chapel Hill: Regional Technology Strategies, Inc., 1996). 1

 Jennifer Bremer, Made in Appalachia: Targeting Appalachian Industries for Export Growth (Unpublished report, Washington, DC: 

Appalachian Regional Commission, August 1996). 1

 Rodney A. Erickson, Samuel X. Lowe, and David Hayward, Appalachian Competitiveness in a Global Economy: Industrial Exports and 

Exporter Establishments, Paper prepared for the Appalachian Regional Commission and presented at the annual meeting of the Southern

Regional Science Association, May 1995, p. 12. 1 The Economist, March 2, 1996, pp. 57-58. 1

 Anne Ilinitch, et al. Developing Intangible Resources: The New Battleground for Export Success Among Small and Medium-Sized Firms, 

CINTRAFOR Working Paper 45, College of Forest Resources, Universoty of Washington, 1996. 1

 William J. Burpitt and Dennis A. Rondinelli, “Export Promotion Policies and Small-Firm Decision-Making: The Role of Organizational 

Learning,” Unpublished Paper, Kenan Institute of Private Enterprise, University of North Carolina, Chapel Hill, NC, 1996. 1

 DRI/McGraw-Hill, America’s Clusters, Report for the Conference “Building Industry Clusters,” June 1995. 1

 See Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (New York: Free Press, 1995); Rosabeth Moss Kantor, World

Class (New York: Simon & Schuster, 1996); and Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy (New York: 1993). 1

 Jeffrey C. Fuher and Jane Sneddon Little, “Technology and Growth: An Overview,” in New England Economic Review (November/December 

1996) pp. 3-25. 1

 Because the lines differentiating these categories and other SIC 35 industries are difficult to draw at the firm, or even regional level, the scope of 

the inquiry was broadened to include other industrial machinery, such as farm equipment (352) and construction equipment (353). Industries 

excluded from the analysis include 351 (engines and turbines), 357 (computers and office equipment), and 358 (refrigeration and heating 

equipment). Despite this exclusion, SIC 35 data are used in the analysis of recent export trends (unless otherwise noted), because neither 

industrial outlook nor state-level data are generally available at the three-digit level.

1

 Standard Industrial Classification Manual; Executive Office of the President, Office of Management and Budget (Washington, DC: 

Government Printing Office, 1987). 1

 The statistics in this section are drawn from Selected Characteristics of Manufacturing and Wholesale Establishments that Export: 1992,

published by the Census Department. 1 America’s Clusters: Building Industry Clusters, DRI/McGraw-Hill, San Francisco: June 1996 (available from the National Technical 

Information Service as PB96-212253). 1

 See The Report Card on Trade, Kenan Institute, March 1995. 1

 Percentages are based on surveys that include about two-thirds of all exporters. 1

 Exports exceed output

1

 Much of this information was collected and reported by Mississippi State University graduate student Albert Nylander. It is supplemented by

this author’s interviews with business leaders in Tupelo. 1

 Numbers in this section are for all Furniture and Fixtures (SIC 25), the only level at which state export statistics are available. Household 

furniture is a subset of this group. 1

 ibid.

1

 ibid.

1

 Congressional Budget Office, Trade Restraints and the Competitive Status of the Textile, Apparel, and Nonrubber-Footwear Industries,” 

(Washington, DC: The Congress of the United States, December 1991). 1 1994 Industrial Outlook, (Washington, DC: Government Printing Office, 1995). 1

 Redman, John and William Amt, The Tsunami, Phoenix, Tequila Sunset and Fedex Scenarios: Trade Policy and the Future of America’s Rural 

Apparel Industry, (Washington, DC: The Aspen Institute, 1995). 

1

 The name of the company has been changed for confidentiality purposes.

66
Appendix 

Data Sources and Methodology 

Export Data 

The data used for the analysis of export performance in the six target industries that can be 

defined with contemporary SIC codes is taken from US Exports by State of Origin of 

Movement, Foreign Trade Division, the US Bureau of the Census (MISER revision), which is 

published on CD ROM as part of the National Trade Data Base. This statistical series is based 

upon data collected by the US Customs Service through the Shipper's Export Declaration (SED), 

which must be completed by the exporter when the goods are shipped. 

Among the information gathered by the SED are the point of origin, commodity classification, 

country of destination and dollar value of the shipment. The commodity classification is 

translated by Census to the appropriate product-based SIC code. The point of origin is defined 

as the place from which the merchandise starts its export journey, the place of the commodity of 

the greatest value, or the place of consolidation. The intent is to identify the location where the 

goods were sold to a foreign purchaser and became an export. This location does not always 

coincide with the location at which the exported good product was grown, mined, or 

manufactured. 

The Foreign Trade Division (FTD) began collecting this information by state in 1985, when the 

state of origin question was added to the SED. Since then, it has worked to improve the accuracy 

of the data. Because some 10 to 15 percent of SEDs are incomplete, FTD began contracting with 

the Massachusetts Institute for Social and Economic Research (MISER) in 1987 to assign states 

and SIC codes to export shipments with incomplete SEDs. MISER continues to refine this data, 

and it is available in a timely manner. However, there remain distortions caused by ambiguity 

about when a product becomes an export. A second shortcoming in the context of this report is 

that the MISER data is available only for two-digit SIC industries, and the target industries 

selected by the ARC are defined at the three-digit level. 

The Industry Division of the Census has published annual export data by three-digit SIC industry 

in a publication entitled Exports from Manufacturing Establishments, which used information 

From the Census and Survey of Manufactures. Although there was a substantial time lag in the 

release of this data, it was the best available information on the state level describing the export 

of manufactured products. However, in spring of 1996, Census ceased publication of that data 

series. The last year of data published was for calendar year 1992 and did not go below the twodigit level. 

As noted in the text, environmental technologies (ET) is not susceptible to definition by the 

contemporary SIC code system. Moreover, its products include services as well as goods, and 

the MISER data reports only on the export of goods. The International Trade Administration has 

selected ET as a target industry and is working with the Environmental Protection Agency and 

Census to develop a data series that will measure environmental technologies revenues, 

employment, and exports. To enable some initial analysis of ET exports, ITA contracted wiffl 

the Environmental Business International Inc. to produce estimates of ET exports. Those 

estimates were mode for the calendar year 1994 and are the source of the state and notional ET 

export statistics used in this report. 

EBI segments the environmental industry into services, products and equipment, and resources. 

67
Those segments can be translated into the context of the SIC system. Service activities fall under 

major SIC groups 73 .(business services), 87 (engineering, research, management, and related 

services), and 16 (heavy construction other than buildings). Equipment producers include 

manufacturing firms plus special trade contractors from SIC 17. Resource conservation firms 

include portions of utilities, SIC group 49, plus resource recovery firms, which are considered 

SIC manufacturers or business services, depending upon their customers and contractual 

arrangements. The following lists potential SIC codes for environmental technology firms. 

SIC Codes for Environmental Technology Firms 

1389 oil and gas field services NEC 

1623 water main line construction 

1629 waste disposal, water, wastewater, and water power plant construction, 

1711 water system balancing and testing 

1799 asbestos and lead paint removal 

2299 processing of textile mill waste and recovering fibers 

2493 reconstituted wood products 

2499 reqround sawdust, pressed logs of sawdust 

2679 converted paper and paperboard products NEC 

2899 water treatment compounds 

3089 plastic products NEC, inc. recyclables and underground storage tanks 

3272 incinerators, concrete 

3341 recovery and refining of non-ferrous metals 

3399 recovery of iron ore from open hearth slag 

3443 heating equipment, inc. wood waste burning and biomass systems 

3564 air purification and dust collection equipment 

3567 incinerators, metal: domestic and commercial 

3569 air separators 

3589 water treatment equipment, industrial scrubbers and sweepers 

3634 air purifiers, portable 

3823 water quality monitoring systems, industrial process control instruments 

3826 analytical instruments 

3829 measuring and controlling instruments 

4941 water supply systems, except irrigation 

4952 sewerage systems 

4953 waste materials disposal, including hazardous incinerator operation 

4959 sanitary services NEC 

5075 air pollution control equipment and supplies - wholesale 

5093 waste rags, rubber, wholesale 

737 computer programming, data processing, other related services 

7389 business services NEC,. including solvent recovery, aluminum processing scrap metal, 

plastic, fiber, paper recycling 

8711 engineering services, except architectural and surveying 8731 engineering laboratories, commercial physical research; ex testing 8734 testing laboratories, pollution testing, except automotive emissions 

EBl data include public sector operation of water and sewer facilities and of waste management, 

including resource recovery. However, they do not include government regulatory activities, 

which would fall under SIC code 9511, government environmental protection, quality and 

control agencies. 

68
Estimating the Gross Product 

Domestic Product data quarterly with only a few months lag. However, the most recent Gross 

State Product data available from the Bureau of Economic Analysis was for calendar year 1992. 

The 1993 through 1995 Gross State Product for the ARC states was estimated by using a model 

which was developed by Creative Strategies, Inc. and is described below. 

1. Individual ARC state shares of the 50-state Total Personal Income were calculated using 

BEA data for each year 1990 through 1995. 

1990-92 (Gross State Product/Gross Domestic Product)

State Personal Income/SO-State Total Personal Income 

2. Individual ARC state shores of the Gross Domestic Product was calculated using BEA 

data for each year 1990 through 1992. 

Gross State Product/Gross Domestic Product 

3. The ratio between individual ARC state shares of the Gross Domestic Product and 

individual ARC state shares of the 50-state total personal income was calculated for the 

1990- 1992 (Gross State Product/Gross Domestic Product)

1990-92 (State Personal Income/50-State Total Personal Income) 

This produced a projection factor for each state. The project factors reflect the varying 

composition of state personal income and ranged from a high of 1.039 for Tennessee and 

Georgia to a low of 0.8666 for Maryland. 

4. The projection factor was applied to the individual ARC state shares of the 50-state Total 

Personal Income for each year 1993 through 1995. This produced a projected state share of 

Gross Domestic Product for each year. 

projection factor X 1993 State Personal Income

1993 50-State Total Personal Income

projection factor X 1994 State Personal Income

1994 50-State Total Personal Income

projection factor X 1995 State Personal Income

1995 50-State Total Personal Income

1. The Gross Domestic Product was multiplied by the appropriate projected state share to 

produce and estimated Gross State Product for each year 1993 through 1995. 

1993 projected state share of GDP X estimated 1993 GDP 

1994 projected state share of GDP X estimated 1994 GDP 

1995 projected state share of GDP X estimated 1995 GDP 

69
Volume II: Case Studies 

INDUSTRIAL MACHINERY IN SOUTH AND NORTH CAROLINA 

CLUSTERED WITH ITS CUSTOMERS 

by Jennifer Bremer 

Kenan Institute of Private Enterprise 

Preface 

Few regions in the United States can boast of the industrial success of the GreenevilleSpartanburg area and the surrounding counties comprising Appalachian South Carolina, 

particularly with foreign industry. Nearly two in five workers are employed in manufacturing in 

the region and the local Chamber claims that the I-85 business corridor has the nation’s highest 

number of engineers per capita. The state is home to international firms from 18 countries, 

including 50 foreign U.S. headquarters. The city of Spartanburg alone has 83 international 

companies from 14 countries. The region includes a foreign trade zone, one of the few high 

schools in the nation that offer an international baccalaureate diploma, and dozens of special 

associations, programs and schools that make foreign workers and managers feel welcome and 

comfortable. 

The roots of the region’s industrial base lie in its textile industry, which once dominated South 

Carolina’s economy. In the late 1950s, local business leaders recognizing the importance of 

innovation, traveled to Europe—mainly Germany, Switzerland, and Austria—to entice the 

industry’s machine tool builders to locate facilities closer to its manufacturers. Those first few 

successes formed the core of the region’s industrial machinery cluster, which subsequently grew 

and diversified attracting many other closely and loosely related businesses. 

Summary of Key Findings 

Industrial machinery is an important element of the ARC region’s manufacturing sector. An 

important concentration of companies in this industry is found in the region of the Carolinas 

surrounding South Carolina’s Greenville-Spartanburg metropolitan area. This section discusses 

the cluster—based in part on the results of a survey of 20 industrial machinery firms and seven 

support services in the region—and draws implications for public policies that would expand the 

cluster’s export activity and accelerate its modernization. 

The overall findings are: 

• The industrial machinery is highly clustered but also highly diversified internally. Although 

textile machinery was important in its development, it does not dominate the cluster; it also 

includes other sectors such as automotive parts and diversified metal products. 

• The industry is further divided between (a) manufacturers who produce a final product, 

nearly all of whom export, and (b) job shops, which have fewer opportunities to export 

because they manufacture to special order and generally supply other members if the cluster. 

70
• Nearly all of the firms with high export potential are already exporters—many of them at a 

high level. About a third of all exporters in the region are foreign owned firms or foreign 

transplants. 

• Industrial machinery companies in the area do not have a strong tradition of cooperation. In 

general, these companies have specialized products and are more oriented toward their 

respective customers than each other. Yet they do have many common interest and concerns, 

such as skill development and process technologies. 

• Industrial machinery firms in the cluster rely primarily on private sector sources for 

assistance with marketing and technology issues. Only a minority use government agencies 

or other public sector sources, such as technical colleges for training. 

• Companies cite worker skills and transportation infrastructure, and quality of life as the 

primary advantages of their location. The local presence of companies in the same

industry—whether competitors, suppliers, or customers—does not given as a major factor by 

respondents. 

General Industry Description 

The target industry “industrial machinery” includes establishments in all segments of SIC 35, 

which is highly diversified. Special emphasis was placed on four related three-digit industries: 

354, 355, 356, and 359.16 These industries are:17

• SIC 354, machine tools, includes machinery for forming, cutting, and shaping metal, power 

tools, molders’ patterns, tools and dies, rolling mill machinery, welding apparatus, and 

related parts and equipment. 

• SIC 355, special industry machinery: manufacturers of equipment for establishments for 

specific industries, including textiles, woodworking, paper, printing, food products, and a 

miscellaneous category that covers everything from ammunition loading to zipper-making 

machinery. 

• SIC 356, general industry machinery: manufacturers of equipment used across a broad range 

of industrial plants, including pumps, roller bearings, compressors, fans, gears, power 

transmissions for industrial machines, furnaces, and ovens. 

• SIC 359, miscellaneous industrial machinery: carburetors, pistons, rings and valves, fluid 

power cylinders, pumps and motors, non-laboratory scales, and industrial and commercial 

machinery not elsewhere classified—including establishments that produce or repair 

industrial machinery parts for others. 

The industrial machinery sector, in contrast to some of the consumer product clusters, is more 

diversified and, within firms, more specialized in its products. This has several important 

implications for our analysis, and for efforts to work with the sector. 

First, industrial machinery markets are diverse and respond to trends in the specific industries of 

which they are a part, not to any general markets for machinery. These markets are closely 

linked to the industry they serve. Trends within each subsector are dictated by technological 

change and the fortunes of the industry that will use the equipment, as well as broad economic 

71
and market conditions. The market for machine tools responds to events in the metal forming 

industries, for example, and is generally unrelated to the market for textile equipment or pumps 

and compressors. 

Second, even though the products are highly diverse, the production processes used to make 

industrial machinery are broadly similar. Technological change occurs both through the process 

with which the machine is produced and in the ways in which the machine will be used in the 

production process for which it is designed. This, while process technologies are more common, 

product related technological change is industry- and company-specific. 

Third, companies tend to have strong relationships with their customers, their suppliers (some of 

which are other job shop industrial machinery companies), and other companies in their 

subsector, rather than with other final industrial machinery companies located nearby with 

unrelated industries. 

Fourth, the industrial machinery industry is dominated by small and mid-size firms. With the 

exception of the construction machinery sector and computer equipment (included in SIC 35 but 

not discussed here), most firms have fewer than 100 employees. The only exceptions are in 

areas where a product has sufficiently broad use to create a large, reasonably homogenous 

market, such as that for industrial pumps. The diversity and specialization of the industrial 

machinery sector tends to impede the formation of large, market dominating firms. 

Structural and Market Patterns 

The major customers for industrial machinery companies are, by definition, other manufacturers. 

Firms in this sector fall into two major categories: job shops and batch producers. This 

distinction has important implications for the firms’ relationships with customers, marketing 

strategies, and manufacturing activities. 

The job shop category is comprised of small shops producing custom products to order. They do 

not produce a “product line” but perform work to customer’s orders. Job shops are typified by 

tool and die operations, common to any major industrial region, which provide highly 

specialized inputs with which the equipment produces the intended part. A close working 

relationship with the customer is fundamental to this business, and these companies tend to serve 

customers in a concentrated geographic area, or cluster. 

Batch producers, on the other hand, use a more standardized manufacturing process to produce 

in larger quantities. Although improving communication and transportation systems are 

encouraging batch producers to behave more and more like job shoppers, with shorter runs 

and/or customized products, they nonetheless produce an identifiable product line that can be 

described in a catalog and exhibited at a trade show. 

Among job shops, the primary marketing task is maintaining customer relationships. Some job 

shops serve a single large customer and many do not have a dedicated marketing staff. New 

business in this category generally is through word of mouth, as plants seek a particular expertise 

that the jobber offers. Quality and reputation are therefore of primary importance to the success 

of the firm. Job shops are often in keen competition with each other. 

72
Batch producers tend to be more specialized than job shops, producing a specific kind of 

equipment for specific industries. The level of competition varies greatly from subsector to 

subsector, with many small and mid-size firms essentially monopoly producers of a specific type 

of equipment, such as circular knitting machines or pad-batch dying equipment. As a result of a 

trend among their large customers towards outsourcing, more and more batch producers are first 

tier suppliers, supplying components or sub-assemblies to major manufacturers. It is not 

uncommon for such a supplier to serve a single customer exclusively. For example, one of the 

firms surveyed manufactures sub-assemblies for Volvo. This firm’s managers do not consider 

themselves exporters even though all of their product eventually ends up in foreign markets 

because direct sales are to another U.S.-based manufacturer that completes the product for 

Volvo. Batch producers tend to differentiate themselves by price and customer service. 

Exporting Patterns 

In 1995, industrial machinery accounted for approximately 20 percent of the value of 

manufactured products exported from the United States and 18 percent of the value of 

manufactured exports from the ARC states. Although the Appalachian region is not selling quite 

as much industrial machinery abroad proportionally, it is a leading industrial sector in terms of 

the value of goods exported. Between 1993 and 1995 U.S. exports of industrial machinery grew 

by over $25 billion, from $80.1 billion to $105.9 billion, a 32.2 percent increase. Industrial 

machinery is exported to all of the major markets served by the U.S. Emerging market countries, 

such as Taiwan and Brazil, are growing markets for these products, while Canada, Europe, and 

Japan are established customers. 

The distinction drawn between job shops and batch producers has important implications for 

exports. As a rule, job shops do not export because they rely on close, continual 

communications with their customers. Exporting is not currently an option, although as use of 

the information highways increase, opportunities could arise. In contrast, the vast majority of 

batch producers are already exporting. If they are not, it may be because they are pursuing a 

business strategy that precludes exporting, such as producing sub-components for a U.S. firm

under license or to a customers’ design. Since they cannot export the product they currently 

produce, such firms would clearly have to undertake a substantial marketing and product 

development effort in order to be able to export, an option that may not be financially feasible or 

attractive. 

Foreign-owned firms are quite important to the exporting performance in the 

Greenville/Spartanburg cluster. Although hard data are not available, discussions with informed 

observers indicate that about one-third of the industrial machinery firms in the area are foreign 

transplants or foreign-owned. These include both foreign firms that invested to establish plants 

in the area and local firms that were acquired by an offshore investor. Foreign ownership can be 

an advantage for exporting, particularly if the parent firm has a strong international marketing 

presence and a sales network from which the U.S. subsidiary can benefit. 

In some cases, however, foreign ownership effectively blocks exports. This may happen when 

the parent firm already serves export markets from its existing plants or has chosen to establish a 

plant in the United States precisely to tap into the U.S. market. In either case, exporting may not 

be part of its strategy for the subsidiary. In such cases, lack of information about export 

opportunities, lack of export services, etc., are clearly not the constraint to exporting. 

73
Overall, however, the presence of foreign firms is a positive factor. It can support the growth of 

export expertise in the region as a whole by increasing awareness of international markets or 

supporting the development of international shipping expertise. Though difficult to document, 

this could give a substantial boost to the export capabilities of local firms. Table 13 shows 

exports of SIC 35 products from the ARC states and Carolinas. 

Table 13 

Value of Industrial Machinery and Computer Equipment Exports 

(1993-1995, millions of dollars) 

AREA 1993 1994 1995 1993-95 

Change 

% 

Change 

U.S. 80,141.5 91,074.9 105,947.6 25,806.1 32.2

ARC States 19,211.1 22,051.8 26,020.4 6,809.3 35.4

 ARC as % U.S. 24.0 24.21 24.6 26.4 109.9

Carolinas 2,906.6 3,607.1 4,759.1 1,852.5 63.7

 Carolinas as % U.S. 3.6 4.0 4.5 7.2 197.8

The ARC member states experienced a slightly higher export sales growth rate than the United 

States but did not close the gap in exports as a percent of shipments in between the ARC region 

and in the nation. Nonetheless, in the 1993-95 period, the 13 ARC states accounted for almost 

one of every four dollars in export sales of U.S. industrial machinery. These statistics 

demonstrate the growing importance of the Carolinas in industrial machinery (although, again, 

the inclusion of computer equipment requires caution in drawing conclusions from these figures 

alone). Industrial machinery in the Carolinas displayed an even higher level of export growth 

than the ARC region as a whole, nearly double the national average. 

Defining the Cluster 

The ARC target industry industrial machinery includes establishments from three SIC codes, 

355, 356, and 359. SIC 355, special industry machinery, includes establishments primarily 

engaged in manufacturing machinery—and parts, attachments and accessories for that 

machinery—for specific industries. These specific industries include textiles, woodworking, 

paper, printing, food products, plus a miscellaneous category, special industry machinery not 

elsewhere classified, which ranges from ammunition loading to zipper making machinery. 

SIC 356, general industry machinery, includes establishments primarily engaged in 

manufacturing machinery—and parts, attachments and accessories for that machinery—that has 

broad applicability in industrial processes. This encompasses as pumps, roller bearings, 

compressors, fans, gears, power transmissions for industrial machines, furnaces and ovens. SIC 

359, miscellaneous industry machinery includes carburetors, pistons, rings, and valves; fluid 

power cylinders, pumps, and motors; non-laboratory scales; and industrial and commercial 

machinery not elsewhere classified. It also includes establishments that produce or repair 

industrial machinery parts for others. (Standard Industrial Classification Manual; Executive 

Office of the President, Office of Management and Budget, 1987.) The target industry 

comprises a large part of SIC major industry 35, industrial and commercial machinery and 

74
computer equipment. SIC 35 data is used in this analysis of recent export trends. Unless 

otherwise noted, the industrial machinery sector analysis, like the export analysis in Chapter 1, 

uses the MISER export data, as provided in the National Trade Data Base, for the years 1993 

through 1995. 

Recent Export Trends 

Between 1993 and 1995 US exports of industrial machinery grew by over $25 billion, from

$80.1 billion to $105.9 billion. At the same time, exports from ARC member states rose from

$19.2 billion to $26.0 billion, an increase of almost $5 billion. The value of recent industrial 

machinery exports is presented in Table 14. The increased sales represent a 32.2 percent 

increase for the United States, and a 35.4 percent increase for the combined ARC member states. 

The higher growth rate for the ARC states indicates that as a group, the ARC states are moving 

closer to the national average. 

Table 14 

Value of Industrial Machinery, Computer Equipment Exports 

1993-1995 (millions of $) 

AREA 1993 1994 1995 1993-95 CHANGE 

ARC States $19,211 $22,051 $26,020 $6,809 

United States $80,141 $91,074 $105,947 $25,806 

In 1993-95, the 13 ARC states accounted for almost one of every four dollars in export sales of 

US industrial machinery. Because of the faster growth rate for the ARC states, that ratio 

increased from 24.0 percent in 1993 to 24.6 percent in 1995. Figure 9 depicts the region’s 

contribution to national export sales of industrial machinery, including computers. 

75
Figure 9

ARC Share of US Industrial Machinery Exports

(millions of dollars)

0.00

20,000.00

40,000.00

60,000.00

80,000.00

100,000.00

120,000.00

Rest of US

ARC States

1993 1994 1995

The largest amount of industrial machinery exporting is in the northern Appalachian states. New 

York, with 1995 export sales exceeding $6 billion, is by far the largest exporting state for 

industrial machinery, and Ohio is second with $4.6 billion. A second tier of states, North 

Carolina and Pennsylvania, exported approximately $3 billion each, while Virginia firms had $2 

billion in 1995 export sales. 

Between 1993 and 1995, the dollar value of industrial machinery exports increased for every 

ARC member state. New York and North Carolina experienced the largest increase in the dollar 

value of industrial machinery exports, some $1.4 billion each, while Ohio firms added $ 1 

billion. No other state experienced growth near that magnitude. The smallest sales increases 

were for the states of West Virginia and Mississippi. Table 15 lists the 1993 through 1995 value 

of textile exports attributed to each ARC member state, and the changes that occurred during that 

interval. 

 

Table 15 

Value of Industrial Machinery, Computer Equipment Exports by State, 1993-1995 

(millions of $) 

AREA 1993 1994 1995 ‘93-’95 Change 

Alabama $404.6 $468.9 $518.2 $113.7 

Georgia $1,177.8 $1,421.7 $1,738.8 $561.0 

Kentucky $766.8 $852.3 $931.1 $164.3 

Maryland $617.8 $623.4 $767.4 $149.5 

Mississippi $155.0 $164.8 $235.2 $80.2 

North Carolina $1,741.0 $2,342.1 $3,182.7 $1,441.8 

New York $4,826.8 $5,556.4 $6,291.7 $1,464.9 

Ohio $3,556.0 $4,064.0 $4,646.2 $1,090.2 

76
Pennsylvania $2,486.6 $2,560.4 $2,855.4 $368.8 

South Carolina $1,165.6 $1,265.0 $1,576.4 $410.8 

Tennessee $832.7 $901.0 $1,105.7 $273.0 

Virginia $1,437.7 $1,792.8 $2,120.8 $683.1 

West Virginia $42.8 $38.9 $50.9 $8.1 

Absolute numbers tell part of the story, but the impact of a given increase or decrease in export 

sales depends in part upon the amount of export activity. Calculating the rate of change helps 

put the movement in perspective. The rate of change in industrial machinery exports for the 

ARC states, depicted in Figure 10, confirms the wide variations in export growth suggested by 

the absolute numbers. It also demonstrates the importance of looking at rates as well as absolute 

numbers. A$1.4 billion increase in sales produced a growth rate of over 80 percent in North 

Carolina and a growth rate of 30 percent in New York. Mississippi, Georgia, and Virginia also 

show relatively high rates of growth. 

Figure 10 

Percent Growth in Industrial Machinery Exports 1993-1995

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

AL GA KY MD MS NC NY OH PA SC TN VA WV

Export Intensity 

Another way to accommodate size differences among states so that comparisons can be made is 

to calculate the value of textile exports as a percentage of the gross state product (GSP). That 

ratio measures the contribution that industrial machinery exports make to the state economy. It 

is the target industry counterpart of the state export intensity calculated in Figure 1. The US 

export intensity for industrial machinery for the 1993-95 period was 1.34 percent. For the ARC 

states, it was 0.98 percent. The difference describes the gap between the contribution that export 

sales of instruments and related products are making to the regional economy and the 

contribution they would make if export performance was at the national average. It reveals that 

as a group, the ARC states are receiving less than average benefit from the export of industrial 

machinery. The experience varies among individual states. Figure 11 ranks the ARC states by 

their 1993-95 textile export intensity. 

77
Figure 11 

ARC States Ranked by Industrial Machinery Export

Intensity

0.00%

0.50%

1.00%

1.50%

2.00%

SC OH NC NY VA KY PA GA TN AL MD MS WV

Calculating the export intensity brings a new state, South Carolina, to the forefront. The stateby-state variation in industrial machinery export intensity shows a clear geographic 

concentration in three states, North and South Carolina and Ohio, which have export intensities 

above the national average. A second tier of states—New York, Virginia, and Kentucky—have 

export intensities above the regional average of 0.98 percent. The other seven of the thirteen 

ARC states have export intensities below both national and regional averages. 

To facilitate comparisons over time of ARC states’ industrial machinery export performance 

with that of the nation, export intensity can be calculated as an index relative to the national 

average. The resulting number is the export intensity index (EII) for the target industry. The 

national export intensity changes over time, but the national EII is always one. States where 

industrial machinery exports make a contribution to the economy that is greater than the national 

average have an industrial machinery EII above 1.00. Conversely if industrial machinery 

exports make a relatively small contribution to the state economy, the EII is less than 1.00. 

Changes over time in the target industry EII reflect changes in the contribution of target industry 

exports to the state economy that are more positive (an increasing EII) or less positive (a 

decreasing EII) than the national trend. 

The industrial machinery EII confirms that South Carolina leads the ARC states in exporting 

performance for industrial machinery. Only North Carolina and Ohio join South Carolina in 

having an EII over one. Both Carolinas are experiencing a rising EII, while Ohio remains 

essentially stable. Georgia, Virginia, and Mississippi have EIIs that are below average but 

rising. The remaining seven ARC states also have relatively low industrial machinery EIIs, but 

they are not closing the gap. Table 16 lists the textile EII for each ARC state. 

78
Table 16 

Industrial Machinery & Computer Equipment Export Intensity Index, 1993-1995 

AREA 1993 1994 1995 

Alabama 0.39 0.39 0.37

Georgia 0.56 0.60 0.62

Kentucky 0.77 0.75 0.71

Maryland 0.40 0.36 0.38

Mississippi 0.25 0.24 0.29

North Carolina 0.80 0.95 1.10 

New York 0.75 0.76 0.75 

Ohio 1.10 1.11 1.09

Pennsylvania 0.71 0.65 0.63

South Carolina 1.24 1.19 1.27 

Tennessee 0.56 0.53 0.56

Virginia 0.70 0.77 0.78

West Virginia 0.10 0.08 0.09 

Despite the predominance of below average and falling EIIs, the combined industrial machinery 

EII for the ARC states rose slightly, from 0.73 in 1993 to 0.75 in 1995. The increase is due to 

the very strong performance of a few states. The low but rising regional EII indicates that there 

is opportunity for economic growth by increasing export sales of industrial machinery produced 

in the ARC states. 

Exports by Firm Category 

The latest export data by firm size (1992) demonstrates the breadth of exporting activity in the 

industrial machinery sector. Virtually all midsize and large firms in this industry that can export 

are already doing so. Nationwide, 92 percent of plants with more than 500 employees and 72 

percent of plants with 100-500 employees export directly, that is, with the overseas shipment 

made directly from the plant. Given that the direct export figure excludes exports through 

another unit of the same firm (e.g., a central warehouse at another location) as well as exports 

through a wholesaler or distributor, and given that some firms are unable to export (e.g., their 

sole product is produced under license for a domestic customer), it is evident that the vast 

majority of firms that can export, do export. This opinion is confirmed in discussions with 

knowledgeable practitioners in the industry, both in the cluster and nationally. 

For this group, growth will come from increasing export sales, not from introducing wholly newto-export firms to the benefits of international marketing. There is still plenty of room for growth 

in exports per firm, given that direct exports average only 23% of sales for the largest plants and 

18% for the midsize plants. 

What is generally not recognized is that a large share of small industrial machinery firms are 

already exporting. Nationwide, only 23% of SIC 35 manufacturing plants with fewer than 100 

79
employees export directly, but this figure is heavily skewed by the presence of small job shops 

and other micro-firms in this category. Non-exporters among small firms average only 10 

employees, compared to average employment of 24 among small industrial machinery firms that 

export. When one factors in the important role that wholesalers play in machinery exports by 

small firms, activity not captured in these statistics, it is evident that even in the small plant 

category, a large share of firms with the potential to export are already exporting. 

This pattern is even stronger in the SIC 35 category in the Carolinas. In South Carolina, for 

example, 83% of midsize plants and 93% of large plants export directly. Non-exporters among 

the small plants tend to be the tiny firms, averaging only 10 employees compared to 28 for the 

small firms that export (among those with under 100 employees). 

Another important measure of export penetration is the proportion of the labor force currently 

working in a plant that exports. The bottom line here is that most workers in the sector in South 

Carolina are employed by a plant that exports: 45 percent of the employees in small plants and 

an impressive 79% of all industrial machinery employees work in an exporting plant. 

Locational Patterns 

The industrial machinery sector has two main focal points within the ARC region, the heavy 

industrial Pittsburgh area, and the “Threeville” area (the triangle formed by Greenville, 

Knoxville, and Huntsville). Table 17 shows the distribution of plants and jobs for the sectors of 

the industrial machinery sector chosen in the ARC region. 

Table 17 

Industrial Machinery Plants and Jobs in SIC 354, 355, 356, and 359 

Plants by State % of total ARC Jobs by State % of ARC

Alabama 398 12.74 7616 8.7

Georgia 267 8.55 6222 7.1

Kentucky 96 3.07 2193 2.5

Maryland 19 0.61 536 0.6

Mississippi 81 2.59 1869 2.1

New York 137 4.39 8844 10.1 

North Carolina 174 5.57 4601 5.3 

Ohio 209 6.69 5138 5.9

Pennsylvania 896 28.69 25791 29.6

South Carolina 245 7.85 9096 10.4 

Tennessee 313 10.02 7977 9.1

Virginia 89 2.85 11735 13.4

West Virginia 231 7.40 15384 17.6 

Total 3155 107002

The industry is broken down as shown in Table 18 for North and South Carolina. 

80
Table 18 

Industrial Machinery Cluster: Establishments and Employment by State 

Industry North Carolina South Carolina Total 

plants jobs

(‘000) 

plants jobs

(‘000) 

plants % of 

ARC 

jobs 

(‘000) 

% of 

ARC 

Construction 

machinery (353) 

8 803 11 490 19 5 1293 7

Metal forming (354) 52 919 61 3850 113 13 4769 19

Special industrial

machinery (355) 

29 696 82 3829 111 27 4625 29

General industrial

machinery (356) 

22 1907 26 2782 48 16 4689 18

Industrial machinery

NEC (359) 

115 1195 126 1895 241 11 3090 11

Total 226 5520 306 12846 532 54 18466 58

Appalachian Region Data 

Key elements of the machinery industry cluster include, in addition to the firms themselves, the 

suppliers and distributors that serve the industry. 

Suppliers. The basic building materials for industrial machinery include metal components; 

plastic fittings, parts, and hoses; industrial fluids, computer and other controls, and mechanical 

and electrical assemblies. Many of the secondary materials, tools, and machines serving the 

industry are made by the industrial machinery sector itself, so many of the suppliers of 

companies in these industries are also in the industry, and may be machinery exporters 

themselves. 

The most important supplier relationships within the industry are among industrial machinery 

firms, e.g., between machine tool builders and customers who use machine tools to produce 

textile machinery. Because both customer and supplier tend to be small firms and to have 

longstanding relationships, interfirm relationships are often personalized, based on mutual 

knowledge and loyalty rather than the volume of the sales. At the same time, the equipment 

industry is highly globalized, and special purpose machinery used even by small firms may be 

sourced in Europe or Japan (generally through a local distributor). Because of the high value of 

this equipment, however, and the importance of the buyer-supplier linkage to both parties, these 

relationships can be quite close despite the distances involved. In-plant visits by manufacturers’ 

representatives help to maintain these ties and identify new technologies for the customer, as 

well as new market needs for the manufacturer. The survey findings discussed below 

demonstrate that these supplier contacts are the primary source for new machinery and 

production techniques. 

Other supply relationships are less critical, both to the supplier and the customer. Many of the 

supplies used by the industry (industrial fluids, plastics) are also used by a wide range of firms, 

including the industrial machinery firm’s own customers, often in much larger quantities. 

81
Coupled with the small scale of most machinery manufacturers, this factor reduces the 

importance of any single customer to this group of suppliers and leads to a less personal 

relationship. This generalization does not apply to such subsectors as construction machinery or 

industrial pumps, where large firms are dominant (Deere, Komatsu-Dresser, etc.) and therefore 

the importance of the customer to the supplier is much greater. 

Distributors. Industrial machinery is sold through a number of distinct channels, including 

contractual relationships, direct sales, and agency relationships, as indicated in the cluster 

diagram presented later in this section. In many cases, the equipment produced by smaller 

plants, in particular, is produced to order from a longstanding customer. Such relationships may 

continue for several years at a stretch. Both batch producers and small job shops rely on this 

approach, the latter to a much greater degree than the former. In this situation, it is common for 

firms to seek new customers entirely by word of mouth, an approach that is common to small 

tool-and-die operations and other jobbers. As a result, many companies do not have a sales staff, 

much less formal relationships with distributors. 

More formal sales structures include direct sales to customers through an in-house sales force, 

independent agents, and distributors, often used in combination. Depending on the number of 

customers served, the sales volume per customer, and the geographic distribution of the 

customers, an industrial equipment manufacturer may deal directly with the customer through an 

in-house sales force (or, for small firms, even through senior management). Smaller customers 

and those located far from the plant are likely to be served through a distributor, if the 

manufacturer produces equipment that lends itself to this approach (i.e., equipment that is 

sufficiently standardized for a distributor to be able to represent the supplier). Depending on the 

product and the relationships among the supplier, distributor, and customer, the distributor may 

have a large role in customizing the product for the client, training, and after-sales service. 

An additional factor in this equation is the comparative underdevelopment of the distribution 

network in the Southeast compared to the nation as a whole.18 In general, the wholesale sector 

in the southeast is made up of smaller firms than is the wholesale network in the country as a 

whole. South Carolina, for example, has a total of 966 wholesalers serving the machinery, 

equipment, and supplies category (SIC 508), with average sales of $2.3 million, or 1.6 

wholesalers for every SIC 35 plant. Sales through this channel were equivalent to only 39% of 

the value of industrial plant shipments; that is, South Carolina wholesalers sold $0.39 for every 

dollar of shipments by South Carolina manufacturers. (This comparison is offered as a measure 

of the relative scale of operation of the two marketing segments; it is not suggested that Carolina 

firms sell wholesale only through Carolina wholesalers, nor that Carolina wholesalers carry only 

Carolina products.) By comparison, the nation as a whole has 74,000 such wholesalers with an 

average of $3.1 million in sales, an average of 1.4 per SIC 35 manufacturing plant, and their 

sales equaled 89% of total national shipments by manufacturers. 

The reasons for this phenomenon are not clear. It may be due to the prevalence of branch plants 

in the southeast, associated with national and, increasingly, international companies that are 

headquartered outside of the region. Many branch plants are limited to production only, with the 

central distribution, product design, and marketing functions carried out through their 

headquarters. As a result, they would be expected to make much less use of local distribution 

services for both purchasing and sales, which in turn might be expected to lead to the slower 

82
development of these networks seen in the southeast. The relatively lower numbers of senior 

marketing, design, and management personnel in the region that would also be expected to result 

from the heavy concentration of branch plants may also lead to reduced development of new 

businesses, including distributors, as there are fewer senior sales personnel, technicians, and 

managers “going out on their own” to build a new business. Further research is needed to clarify 

this issue. 

Heavier use of distributors in the industrial machinery sector should encourage export expansion, 

all else being equal. Overseas sales of commodities requiring substantial training and after-sales 

service, such as industrial machinery, generally require an in-country presence. Large firms 

often establish a sales subsidiary or wholly owned distribution system, but most small firms rely 

on distributors. Because industrial machinery firms are already accustomed to using distributors 

domestically, they should be relatively well-positioned to establish and use such networks 

overseas. 

The Industrial Machinery Cluster in North and South Carolina 

The concentration of industrial machinery firms around Greenville and Spartanburg, South 

Carolina has long been recognized as an important center for this industry. The cluster is an 

intriguing blend of established local firms with relatively new local startups and a heavy 

admixture of foreign firms. It does not appear that transplant firms from within the United States 

are an important factor in this cluster. The foreign firms that are a particularly noteworthy 

element in this cluster were attracted beginning in the 1950s and 1960s as the result of an 

intensive recruitment effort spearheaded by local business leaders, particularly the chamber of 

commerce and local textile leaders. 

The Greenville/Spartanburg industrial machinery cluster is one of the strongest technologyoriented clusters in the Appalachian region. Of the 380 industrial clusters identified in a recent 

DRI/McGraw-Hill study, only a handful were in the Appalachian region.19 One of these is the 

industrial machinery concentration in Greenville/Spartanburg. DRI ranked this cluster as 18th in 

the industry, with particular strength in textile machinery and steam engines and turbines. 

Greenville also was included as the nation’s 14th-ranked cluster for automotive parts (including 

tires) and as the top-ranked cluster for textiles and apparel. 

To analyze the industrial machinery cluster in the Appalachian counties of North and South 

Carolina, the study team conducted in-person and telephone interviews with 10 exporters, 10 

non-exporters, and 7 service providers. Additional informal interviews were conducted with a 

number of individuals knowledgeable regarding technology, exports, and overall developments 

in the sector. Finally, four firms from outside the region were interviewed for comparison, to 

test whether there were fundamental differences between firms in the cluster and isolated firms. 

Virginia/ARC was selected for these interviews, to provide the perspective of a relatively underindustrialized part of the Appalachian region. In making the selection, preference was given to 

small and mid-size firms in the Spartanburg/Greenville area, the heart of the industry. 

Additional information was taken from national trade data and from informal interviews. Table 

19 provides data on the number of establishments and jobs in this cluster with comparisons to 

total employment in each county. 

83
Table 19 

Establishments and Employment by County for Industrial Machinery Cluster 

State County Units Jobs Total

Employed

Empl. 

Share 

% of 

Cluster 

Avg. 

Empl. 

North Carolina Buncomb 56 1,495 80,604 1.9 8.8 26.7 

North Carolina Henderson 27 438 23,560 1.9 2.6 16.2 

South Carolina Anderson 36 884 49,199 1.8 5.2 24.6 

South Carolina Cherokee 7 1,171 16,853 6.9 6.9 167.3 

South Carolina Greenville 116 5,309 205,350 2.6 31.3 45.8 

South Carolina Oconee 20 698 19,109 3.7 4.1 34.9 

South Carolina Pickens 31 2,461 29,186 8.4 14.5 79.4 

South Carolina Spartanburg 89 2,305 102,388 2.3 13.6 25.9 

Cluster total 382 14,761 526,249 100 39.6

Green/.Spar. 205 7,614 307,738 4.8 44.9 37.14

Several conclusions from this table deserve to be highlighted. First, this is a highly concentrated 

cluster, with 48 percent of manufacturing plants and 45 percent of manufacturing jobs located in 

the two counties of Greenville and Spartanburg. Second, the cluster is dominated by small firms, 

with average employment per plant of only 40 workers. Finally, this is an important cluster, but 

scarcely dominant in the region’s economy, accounting for just under 5 percent of off-farm jobs. 

84
Figure 12 

Industrial Machinery Cluster in the Carolinas 

85
Other data confirm that this is a highly diversified cluster. Although it may have had its start 

historically in the development of the textile machinery industry to serve the local spinning and 

weaving industry, it is now much more generalized, with strong concentrations in metalworking, 

general industrial machinery, and engines, as well as in the special industry category that 

includes textile equipment. The development of the automotive industry in the area, which will 

accelerate as the impact of the new BMW plant works its way through the local economy, is 

symptomatic of this development. Indeed, individuals knowledgeable regarding the sector 

indicate that the majority of the textile machinery firms are not local firms that grew up when the 

industry developed in the nineteenth century, but instead more recent immigrants, many of them

from Europe, that were attracted to the region as part of a conscious local recruiting effort in the 

1950s and 1960s. 

Description of Survey Participants 

There are more than 400 manufacturing plants in the industrial machinery manufacturing 

category in the 11-county region making up the Greenville/ Spartanburg cluster, which includes 

part of North Carolina, but is heavily concentrated in the Appalachian counties of South 

Carolina. In this region, the study team surveyed ten exporters, ten non-exporters, and seven 

service providers to determine the export potential and barriers, and usage and assistance of 

export services. 

In keeping with their industry, the firms surveyed were highly diversified in terms of product 

mix, including packing equipment, rollers and pavers, material handling equipment, carding 

machines, lawn vacuums, and parts feeding equipment. Many of the companies are the sole or 

major international supplier of the product or have established, long-term relationships with 

customers, and thus perceive themselves to have little direct competition. The composition of 

this group was as follows: 

• Sixty percent of the exporters interviewed were from North Carolina, while 40 percent were 

from South Carolina. 

• All of the companies are privately owned or closely held corporations. 

• Ninety percent of the companies had fewer than one hundred employees, and 40 percent had 

fewer than fifty. 

The non-exporters constituted a mix of job shops making specialized machinery to order and 

equipment manufacturers who either don’t produce an exportable product (profit margins too 

small, produce a specialized product used only in the United States, etc.), or have customer 

relationships that do not allow for exporting, such as sole source relationships. The composition 

of this group was: 

• The firms were divided evenly between North and South Carolina. 

• Ninety percent of the companies were privately or closely held corporations; one firm was 

foreign owned. 

• All of the companies had fewer than one hundred employees, with half having fewer than 

twenty-five employees. 

86
Economic Status 

Because the industrial machinery sector is highly diverse and the performance of any given firm

is more closely tied to its customers’ industry than the machinery sector, it is difficult to 

generalize about performance in the cluster. The following discussion is based on the 

performance reported by the survey firms, but it must be emphasized that the findings from such 

a small sample cannot be applied to a specific firm or subsector. They nonetheless provide 

useful insights into the export operation of the industry, the barriers they face, and the problems 

they see in developing their markets. 

The firms surveyed reported several trends: 

• Sales have continued to increase, with 75 percent of the respondents citing increases of at 

least 10 percent, although two firms reported a decline. 

• Export sales have not increased at a commensurate rate, with only half of the exporters 

experiencing growth of 10 percent or more; however, no firm reported a decline in exports. 

• Wage growth has been steady in the sector, at an average three to five percent per year. 

Competition 

Exporters, non-exporters, and service providers interviewed put different emphases on the traits 

that they saw as competitive advantages for their industry. Exporters responded that they rely 

most heavily on their reputation, quality and price, followed by design. Non-exporters placed 

more emphasis on product quality and working relationships with customers, with design and 

price as important secondary traits. Service providers fall somewhere between, seeing the 

competitive advantages of the industry as product design, product quality, and customer service. 

The study team interprets this difference as due in large part to the difference between the 

exporters group, which typically manufactures a batch product line for a relatively large group of 

customers, and non-exporters, which are typically job shops or contract manufacturers serving a 

single client. In the cluster area, and indeed in the nation as a whole, most industrial machinery 

manufacturers export. The team encountered only one or two firms among the non-exporters 

that had the potential to export, given their product mix and customer relations. 

 

New technology is seen as an important element of competitiveness in the sector. The survey 

findings indicate that the primary vehicles for acquiring new technology is through vendor 

relationships and trade organizations, particularly trade association-based trade shows and trade 

journals. 

The Greenville/Spartanburg cluster does not appear to operate at a disadvantage technologically, 

compared to other regions. The support service providers and exporters interviewed for the most 

part placed the region in the top forty percent in terms of technology utilization. Companies 

reported receiving their new technological information primarily from suppliers, trade journals 

and other trade media (including the Internet), and equipment vendors (tied for first place, with 

over half of the firms reporting each of these sources), customers, trade associations and 

chambers of commerce, and other companies, in that order. They reported only infrequent use of 

87
such public channels as universities, colleges, small business centers, and government 

technology assistance centers. 

There was no significant difference between exporters and non-exporters in this regard. Of 32 

citations by exporters of frequent or occasional use of a source for information and assistance, 27 

(86 percent) were from private sources, compared to 30 out of 34 (88 percent) for non-exporters. 

Several companies cited trade shows, journals, and other national association activities as 

sources of information. This relative reliance on national sources may be related to the diversity 

of the industry. As the industry is highly diversified, many of a given company’s colleagues, 

suppliers, competitors, and customers are likely to be in different states or even different 

countries. It is therefore natural for the firms to look to venues offering a way to exchange 

information within their own industry grouping, rather than to look to local organizations that are 

unlikely to have the detailed knowledge of, say, vacuum manufacture. Location did not appear 

to be a barrier to the flow of information for this group, and most attended national and 

international trade shows to keep current in the technology and make contacts. 

Although the survey did not explore labor force development in detail, this was clearly of 

importance to the firms, based on the advantages cited for their location and informal comments. 

The noted technical schools in the region must be given a substantial share of the credit for the 

strength of the region’s labor force, but do not appear to be making an important contribution to 

the trade skills or technological development of this sector. 

Exporting 

The value of industrial machinery exports in the Greenville/Spartanburg cluster grew by 63.7 

percent between 1993 and 1995. In 1995, the Carolinas exported 18 percent of the industrial 

machinery exported by the industry in the ARC region as a whole. Examining the growth rates 

of the states in the cluster, it is evident that, between 1993 and 1995, North Carolina’s machinery 

exports grew at over 80 percent, the highest growth rate in the ARC region, and South Carolina 

achieved a growth rate of approximately 35 percent, fifth ranked in the region. As mentioned 

previously, North and South Carolina are the highest ranked states in the Appalachian region in 

terms of export intensity, and display strong and growing export intensity indices. 

The companies and service providers surveyed confirmed the importance of export markets to 

the sector, and the strong growth of export markets in their regions. Eighty percent of the 

exporters said that exports are important or very important to their industry’s future. Most of the 

exporters polled had been exporting for over 20 years, and exports exceeded 20 percent of sales 

for 7 of the 10 firms. As a whole, the group’s exports averaged 30 percent of sales. Yet of the 

exporters polled, only two had full time staff devoted to exporting and increasing export markets. 

In some cases, this may be evidence of a passive approach to exporting, but, given the 

importance given to exports by the firms and exports’ share in total sales, as well as the reliance 

on distributors in this industry internationally, the lack of a dedicated export staff cannot be 

interpreted as a sign of low interest in or commitment to exporting. With a typical workforce of 

50 or fewer employees, few of these firms have a large enough sales force to make specialization 

in exports appropriate or necessary. 

88
As with assistance with technological issues, firms turned to their private sector colleagues for 

help with exporting. Among them, the exporters providing detailed information cited 26 sources 

for export information. Of these, 20 (77 percent) were from the private sector (with consultants 

and agents the leading source), five were from government sources, and one from a chamber of 

commerce. The nature of the assistance used differed as well, with public sources providing 

trade leads only, and the private sector providing both leads and technical assistance with the 

export process. These findings are consistent with more extensive survey work completed by the 

Kenan Institute.20

Information and financing are the primary obstacles noted by both exporters and service 

providers. As experienced exporters, the industrial machinery firms interviewed repeatedly 

commented on the difficulties they face in finding export finance. This situation is increasingly 

common among U.S. small and midsize exporters, as their export sales increase as a share of 

their total sales volume and exceed their capacity to finance them internally. For these 

experienced exporters, finance is a major problem that is not being effectively addressed by 

export support organizations. 

Other perceived obstacles to exporting by exporters included access to information about 

overseas distributors, foreign markets, and technologies, and access to financing for themselves 

and for their customers. Service providers saw the major obstacles to be tariffs and government 

trade barriers, financing, information, and lack of time. Most firms had never received export 

assistance from trade promotion organizations, did not seek out information about exporting or 

export services from public sources, and were unfamiliar with the availability of such services. 

At the same time, several companies cited the subsidies and other financial assistance available 

to their overseas competitors (particularly European firms) and were disparaging of U.S. efforts 

to compete with this support. Indeed, none of the exporters had made use of the limited financial 

support for exporters that is offered by ExIm Bank or SBA (the former is generally not available 

for small exporters, or is too expensive, despite some progress in the past two years). Exporters 

cited getting paid and tariffs or other government barriers as other important barriers 

(demonstrating that they are, indeed, experienced exporters!). 

With regard to export services, it is intriguing that the two public sector export advisors 

interviewed regarded information on markets as an unimportant problem for exporters, whereas 

the firms themselves ranked it first in importance, with 7 of the 10 firms giving it 4 or 5 out of a 

possible 5. This difference may be attributable to a different perception regarding the 

information needs of exporters. As experienced exporters, the firms surveyed clearly have 

figured out what they need to know to make an overseas sale. Their challenge is to find 

additional, customer-, product-, and market-specific information that will help them find and win 

new customers, particularly in markets where they are not currently active. 

For these experienced exporters, basic information on exporting and general leads (of the “things 

are hopping in Brazil” sort) are equally useless. They are too sophisticated to need the latter, but 

not sufficiently market-savvy to know how to capitalize on the latter. How should they approach 

the market in Brazil? Is there likely to be a market for their product and, if so, what types of 

modifications are likely to be needed? The answers to these questions are rarely available from

public sources and, even if they are, the exporters are generally not skillful in wading through the 

89
morass of public information to find the data they need (as regular users of these data sources, 

we fully understand why they do not try to penetrate the trade information thickets). 

 

Dynamism 

As previously mentioned, this sector is highly fragmented by subsector, and firms therefore tend 

to relate to each other within their own subsectors, making use of structures that link the 

subsector together, such as trade shows and industry associations, rather than local organizations. 

This is not a cluster that values cooperation among firms in the region, or that displays a high 

degree of trust. The firms ranked trust at 3 on a scale of 5 and could cite few examples of 

cooperation between firms. Interestingly, firms tended to cluster, either ranking cooperation at 2 

or 5 with no firms in the middle. Firms displayed a willingness to collaborate, or to participate 

in a collaborative program for the sector if one were to be developed, but expressed little demand 

for this type of program. 

Some firms are active in broader private sector groups, such as the local chamber or economic 

development organizations, which could possibly provide a venue for programming. Given the 

diversity of firms in such organizations, however, it would be difficult to develop effective 

programs serving their needs. One possibility would be skills training for export processing, 

such as the international trade certificate program developed by Trident in South Carolina. One 

of the technical colleges in the cluster region is in fact considering offering this program, which 

would appear to be a promising step to provide concrete help to the area’s exporters. 

Asked to cite the sources of strength for industrial machinery in the Carolinas, firms gave top 

ranking to “quality of life,” suggesting that the respondents had chosen the Carolinas for reasons 

unrelated to the machinery industry as such. The availability of skilled labor ranked second, and 

was also emphasized in the respondents’ informal comments. The generally excellent training 

support offered by the technical colleges in this region deserves recognition as a significant 

source of the region’s continuing and growing competitiveness. Production of a high-quality, 

high-value product, such as exportable industrial machinery, depends on skilled labor, and firms 

gave this factor high marks in explaining their choice of location in the Carolinas. 

Exporters and non-exporters differed in the extent to which they relied on local suppliers. 

Exporters reported local purchases averaging 36 percent of their sales, while non-exporters 

reported the value of local purchases at only 13 percent of sales. Half of the non-exporters (five 

firms) estimated local purchases at five percent or less of total sales, whereas only one exporter 

gave such a low percentage. Given that exporters produce a different range of products and are 

more likely to be batch producers, it is difficult to interpret this finding. The difference may be 

due to a lower rate of outside purchases overall by the non-exporters (that is, they fabricate a 

higher share of the total product in-house), rather than to a lower rate of local purchases relative 

to purchases from outside the area. 

 

Contrasts with Industrial Machinery Firms Outside the Cluster 

90
The study team conducted a limited survey effort focusing on industrial machinery firms in 

western Virginia, to complement the work on the Greenville/Spartanburg cluster. It proved 

difficult to locate industrial machinery firms in the Kentucky-W. Virginia-Virginia region, and 

those interviewed tended to serve industries that are historically strong in that region, such as 

mining. Although it is difficult to generalize from the small sample (four firms were 

interviewed), there appear to be few differences between those in the cluster and those outside it. 

The two exporters interviewed both exported at a rate well below the average for the Greenville 

cluster, but with such a small sample it is difficult to generalize from their responses on this 

issue. By contrast, the four firms showed a very similar pattern on local sourcing, with the 

exporters sourcing a much higher percentage of their inputs locally (approximately 30 percent) 

than the non-exporters (about five percent). 

 

The firms interviewed tended to cite very similar strengths and weaknesses to those in the 

cluster. Access to skilled labor and transportation infrastructure were seen as important 

advantages, as was the quality of life. The private sector was the leading source of trade 

assistance for these firms as for those in Greenville. Interestingly, the team encountered one 

exporter using the Export Import Bank to finance exports, indicating that firms in this relatively 

remote location have no special problems in gaining access to services. 

Export Prospects for Industrial Machinery 

This discussion focuses on the core elements of the industrial machinery sector: metalworking 

machines and equipment (SIC 354), special industry machinery (SIC 355), general industrial 

machines and equipment (SIC 356), and other industrial machinery not otherwise classified 

(n.e.c.) (SIC 359). The research team examined these sectors’ export performance and potential 

using information from the Department of Commerce’s Country Commercial Guides for the 

listed countries, the International Trade Commissions U.S. Trade Shifts in Selected Commodity 

Areas, and interviews with industry experts and U.S. manufacturers. Statistical accuracy and 

comparability to other sources are affected by a number of factors, including lack of published 

figures in certain markets, variances in data collection techniques, different sources of data, and 

industry definitions. 

The companies in this sector historically have been focused on domestic markets, but as the U.S. 

market is flooded by imports and markets in the United States have become developed, U.S. 

manufacturers have increasingly looked internationally for new and quickly growing markets 

(see Table 20). Compared to other industries, the industrial machinery industry exports a large 

percentage of its shipments, with small companies exporting 16 percent of dollar value of 

shipments, medium sized companies (100-499) exporting 18 percent, and large companies 

exporting 23 percent.21

91
Table 20 

Foreign and Domestic Exports, “Free Along Side,” $ millions 

FY 1995 NAFTA Japan EU-15 Asian 

NICS

Other 

Americas 

Rest of 

world

Total

Metalworking 

machinery, equip. 

(SIC 354) 

$ 2,263 $ 279 $ 1,235 $1,007 $ 525 $ 576 $ 5,885 

% of total 38% 5% 21% 17% 9% 10% 100%

Spec indust mach 

(SIC 355) 

$ 1,458 $ 1,210 $2,252 $2,777 $ 775 $ 897 $9,369 

% of total 16% 13% 24% 30% 8% 10% 100%

General ind mach 

& equip. (SIC 356) 

$ 4,076 $ 660 $ 2,074 $ 2,352 $ 1,142 $ 1,359 $11,663 

Fluid power pumps, 

etc. (SIC 359) 

$ 1,217 $ 257 $812 $ 943 $ 178 $ 365 $ 3,772 

% of total 35% 6% 18% 20% 10% 12% 100%

% of total 32% 7% 22% 25% 5% 10% 100%

Total : Industrial 

Machinery 

$ 9,015 $ 2,406 $ 6,374 $ 7,080 $ 2,620 $ 3,197 $30,692 

% of total 29% 8% 21% 23% 9% 10% 100%

U.S. total exports, 1995 by area and three-digit SIC product groups; (Census Bureau; foreign and domestic exports, 

Free Along Side; $ millions). 

Table 21 

Exports of Domestic Merchandise, Percent of Output (SIC 354) 

 Value in Millions Percent

Sub-sub-sector 1993 1992 1991 1993 1992 1991

3541 machine tools, metal cutting 

types 

$ 974.5 $1,017.1 $ 877.5 33 33 31 

3542, 

35495 

machine tools, metal forming 

types 

$ 769.4 $ 818.8 $ 677.5 37 43 35 

3543 industrial patterns $ 32.2 $ 10.7 $ 5.7 5 2 1 

3544, 

3545, 1 

special dies, tools, jigs, and 

fixtures 

$1,239.2 $ 132.6 $ 863.1 9 8 7 

35455 precision measuring tools $ 53.5 $ 62.0 $ 48.0 14 15 11 

3546 power driven hand tools $ 600.1 $ 567.6 $ 549.6 20 24 25 

3547 rolling mill machinery $ 203.2 $ 115.2 $ 134.1 38 21 30 

3548 welding apparatus, electric $ 655.3 $ 624.2 $ 599.1 24 26 25 

total $4,527.4 $3,215.6 $3,754.6

92
As data Table 21 indicate, machine tools (SIC 354) have moderate export dollar values, 

excepting special dies, tools, jigs, and fixtures, which are job shop operations, and do not 

traditionally export. The companies making SIC 354 products export between five (SIC 3543, 

Industrial Patterns) and 39 percent (SIC 3547 Rolling Mill Machinery) of their total sales. 

Further, for every sub-sector except precision measuring tools (SIC 35455), the percent of 

exports compared to total domestic output increased between 1991 and 1993. These companies, 

already among the most export oriented, are becoming even more export oriented. 

Table 22 

Exports of Domestic Merchandise and Percent of Total Output, 1991-93 (SIC 355) 

 Value in Millions Percent

Sub-sub-sector 1993 1992 1991 1993 1992 1991

3552 textile machinery $ 522.9 $ 547.1 $ 534.4 34 41 43

3553 woodworking

machinery 

$ 169.0 $ 132.9 $ 127.0 19 17 19

3554 paper industries

machinery 

$ 652.0 $ 582.0 $ 636.9 29 26 31

3555 printing trade

machinery 

$1,064.0 $1,053.6 $1,072.0 46 46 34

3556 food products

machinery 

$ 695.7 $ 687.1 $ 621.0 30 33 32

35592-4, 6, 7 special ind mach n.e.c. $2,481.1 $2,002.9 $2,025.7 44 42 48

Total $5,584.7 $5,005.6 $5,017.0

Table 22 indicates that, special industry machinery (SIC 355) have moderate export dollar 

values, excepting SIC 3555, printing trade machinery, which has strong export values, exporting 

almost half of its products. Overall, the special industry machinery sector is more export 

oriented, exporting between 19 percent and 46 percent of its production, but these numbers have 

decreased through the first part of the 1990s. 

93
Table 23 

Exports of Domestic Merchandise and Percent of Output, 1991-93 (SIC 356) 

 Value in Millions Percent 

Sub-sub-sector 1993 1992 1991 1993 1992 1991

3561 pumps and

pumping 

equipment 

$1,183.6 $1,045.2 $1,035.8 24 23 23

3562 ball and roller 

bearings 

$ 657.9 $ 659.3 $ 673.7 15 16 17

3563 air and gas 

compressors 

$1,220.1 $1,214.2 $1,153.4 32 34 32

3564, 36341 blowers and fans $ 765.1 $ 807.4 $ 880.3 19 23 28

3565 packaging mach. $ 672.3 $ 606.3 $ 610.7 22 21 22

3566 speed changers,

drives, and gears 

$ 466.1 $ 413.2 $ 373.9 24 24 20

35671, 4, 5 industrial furnaces 

and ovens 

$ 368.2 $ 336.7 $ 371.4 29 28 32

3568 power transmission

equipment, n.e.c. 

$ 281.9 $ 252.6 $ 235.0 12 11 10

3569, 35492, 

3559, 5, 8, 35676 

general industrial 

machinery, n.e.c. 

$3,330.8 $3,208.4 $3,020.6 28 30 29

Total $8,946.0 $8,543.3 $8,354.8

Table 23 indicates that general industrial machinery, (SIC 356) have experienced small to 

moderate export growth in value and are exporting a constant percentage of output over time. 

The sub-sub-sectors that are growing strongly in this sub-sector, are SIC 3563, air and gas 

compressors, SIC 3561, pumps and pumping equipment, SIC 3566 speed changers, drives, and 

gears, and SIC 3568, power transmission equipment. The sub-sector SIC 356 exports between 

12 percent and 29 percent of its domestic output. 

94
Table 24 

Exports of Domestic Merchandise and Percent of Output (SIC 359) 

 Value in Millions Percent

Sub-sub-sector 1993 1992 1991 1993 1992 1991

3593, 

35942 

fluid power cylinders and 

related equipment 

$266.8 $ 286.4 $ 297.7 14 14 15 

35943-6 fluid power pumps and 

motors

$246.1 $ 248.8 $ 218.7 25 25 16 

3596 scales and balances, 

except laboratory 

$126.4 $ 120.4 $ 115.6 19 18 18 

35994 machinery, except

electrical, n.e.c. 

$1,918.0 $1,576.9 $1,498.3 a

22 87 65

total $2,557.3 $2,232.5 $2,130.3

Table 24 indicates that other industrial machinery not otherwise classified (SIC 359) have 

experienced small to moderate export growth in value and are exporting a constant percentage of 

output over time. The sub-sub-sector that is growing strongly in this sub-sector, is SIC 35994, 

machinery, except electrical, n.e.c. The sub-sector SIC 356 exports between 14 percent and over 

100 percent (exporting more than domestic production) of its domestic output. Export data are 

not available for the sector as a whole, and only limited data is available on the sub-sectors, so 

the remaining portion of this report will cover the industrial machinery sector as a whole. 

Table 25 

Exports by Selected Country Destination, 1994-1995 

U.S. Machinery Exports 

$ Million 

Total 

Exports

Canada Mexico Japan Germany Korea

1994 49.8 12.3 6.7 2.6 1.7 2.4

1995 57.0 13.0 5.9 3.5 2.3 3.8

% of Total 100% 23% 10% 6% 4% 7% 

% Change 14% 6% -12% 36% 38% 58%

Table 25 indicates that Canada, Mexico, Japan, Germany and Korea were the primary export 

markets for industrial machinery, accounting for 50 % of total exports. In 1995 the U.S. had a 

trade deficit of $3.4 billion for these sectors. 

Canada: The U.S. exported $13 billion in industrial machinery products in 1995, 23% of U.S. 

total exports in this sector. Demand for U.S. machinery is expected to grow due to the revival of 

the economy, the strengths of the automobile and forest products industries, the strong linkages 

between U.S. and Canadian firms, and the financial benefits of NAFTA. 

Mexico: The United States is a net importer of machinery from Mexico. In 1995, the U.S. 

exported approximately $740 million in industrial machinery to Mexico. Demand for U.S. 

95
machinery was weak because of the continuing economic fallout after the peso crisis. The major 

competitors in this market are the Germans, Italians, and Japanese. The market seems to be on 

the road to recovery, and the United States is well positioned to take advantage of the new 

economic stability due to market proximity and benefits from the NAFTA agreements. 

Japan: The United States benefited from a 36% increase in exports to Japan in 1995, 6% of 

U.S. totals for industrial machinery, but continued to have a trade deficit of $8.8 billion. The 

primary export markets in Japan were centrifuges and filtering equipment and specialized 

semiconductor manufacturing equipment. 

Germany: Germany is a major producer of industrial machinery, and is a primary competitor of 

the United States in almost every major market. This market is considered saturated in many 

sectors, but the United States has strengths and market share in some specialty equipment. 

Korea: The United States had a $1.4 billion (58 percent) rise in exports to Korea. This 

increased the trade surplus with Korea by $1.2 billion to $2.6 billion. Korea is currently taking 

on large infrastructure projects, and making additions to capital equipment that drives its major 

export industries. Some of the largest gains in the Korean market were in non-metalworking 

machine tools, gas turbines, and thermal processing equipment. 

Specific Market Analysis 

• Textile Machinery (SIC 3552). The textile machinery sub-sector exports almost half of its 

production. Major markets include China, Canada, Japan, Mexico, Germany, Thailand, and 

Italy. The sector is expected to continue to be successful, but will need to focus on its ability 

to include energy efficiency and pollution prevention features on new equipment. 

• Packaging Machinery (SIC 3565). In 1993, the packaging machinery sub-sector exported 

approximately 22 percent of its products. NAFTA countries accounted for about 35 percent 

of exports. Other primary markets were Italy, Spain and the United Kingdom. The primary 

competitors in this industry are the Western Europeans. NAFTA and the EU tariff reductions 

are expected to cause a shift in this market balance. 

• Paper Industries Machinery (SIC 3554). Canada is the major export market for paper 

industries machinery, with Mexico, Germany, and Japan as other major purchasers. Russia is 

also showing promise as an export market. U.S. manufacturers have a strong competitive 

position in de-inking systems and other machinery used in recycling paper products. With 

the increase in global consciousness around paper-recycling sales in this sub-sector are 

expected to grow strongly. 

Summary 

The United States industrial machinery sector exports approximately a quarter of its production, 

with a weighted average exports by production of 26 percent in 1993, 29 percent in 1992 and 25 

percent in 1991. Almost fifty percent of the export sales in this sector come from five categories, 

SICs 3541 (machine tools, metal cutting types),3544, 3545, 1 (special dies, tools, jigs, and 

fixtures), 3555 (printing trade machinery), 35592-4, 6, 7 (special industry machinery, n.e.c), 

96
3561 (pumps and pumping equipment), 3563 (air and gas compressors), and 35994 (machinery, 

except electrical, n.e.c.). 

The industrial machinery is and continues to be one of the United States strongest sectors in 

terms of exports. Export growth has grown consistently to the major industrialized markets, and 

as new markets develop, such as those in Asia and Latin America, industrialized machinery 

manufacturers are preparing to increase their exports to those countries. 

Implications for Export Development and Modernization in the 

Industrial Machinery Cluster 

The industrial machinery cluster has high potential to continue its export growth and its role as a 

leading source of high-valued U.S. exports. Several factors underlie this positive perspective: 

• It produces a high-value product, which is and will remain the type of product that the U.S. 

exports most effectively. 

• It produces a high-quality product that is used by a rapidly growing customer base (that is, 

industry), particularly in the emerging market countries to which U.S. exports are growing 

most rapidly and which do not produce a full range of such equipment themselves. 

• It is a technology-driven industry, that increasingly derives its growth from the incorporation 

of information technology (computer controls, etc.), at which the U.S. excels. 

 

The success of this cluster is dependent on a skilled labor base and a strong transportation 

system, rather than proximity to the customer. The choice of the Carolinas as a location is thus 

based on factors (including quality of life) that do not readily translate to the economically 

depressed parts of the ARC region. It may be difficult to transfer the success of this cluster to 

other regions of the ARC states unless these regions take steps to upgrade their skilled labor 

pool, transportation infrastructure, and such other “quality of life” factors as tend to feature in 

any location decision. It is noteworthy that the growth of the Greenville/Spartanburg cluster had 

its origin in precisely this type of local initiative, in which local business leaders joined together 

with the state to improve support services, particularly worker training, and to attract outside 

investors. 

The foregoing analysis provides several pointers to the type of program likely to provide an 

effective export development and competitiveness program for this sector. Such a program

would have the following features: 

• It would target specific subsectors that are important in the region and offer strong export 

growth potential (additional research would be required to narrow down the list of prospects, 

but textile machinery and automotive machinery are two possible candidates). 

• It would target current exporters, with a view to increasing their exports by helping them to 

penetrate new markets by bringing them together with potential customers and providing 

concrete market information relevant to their sector. 

• It would focus on linking exporters to distributors and other private service providers 

knowledgeable about these markets and on supporting export penetration of new markets 

97
through such mechanisms as support to trade show attendance, possibly in conjunction with 

national trade associations (building on an approach with which the exporters are already 

comfortable). 

• It would strengthen relationships between the good local job shop suppliers and the strong 

original equipment manufacturers and organize groups of firms to address their common 

problems and needs, such as skill upgrading, work force development, and technical support. 

• It would incorporate an export finance component, addressing a key need of experienced 

exporters and helping to build a base of financial support for exporters in the Carolinas, 

particularly among community banks. 

The survey findings and interviews with service providers demonstrate that the exporters in this 

industry are highly experienced and sophisticated, despite their location in a region identified as 

economically underdeveloped. Any program designed to assist them must meet them on their 

own turf, and provide services that respond to the needs of this dynamic and skilled groupof 

firms. 

Overall, the evidence from those surveyed does not suggest an approach that treats all industrial 

machinery firms uniformly, although it does leave the door open for collectively addressing 

generic issues that apply to common needs, such as training of skilled labor and specialized 

technology services. Rather, for exporting, the data indicate an approach more linked to the 

clusters to which the firms sell (e.g., automotive or textile). 

Geographic location is not the primary factor for marketing among the original equipment 

manufacturers in this industry, whose members are accustomed to working with suppliers and 

customers across substantial distances. But it is important in terms of labor force, quality of life, 

and business climate. The specificity of the technologies and markets in the industrial sector 

suggest strong links to the customer base, which may be local, and the need to improve access to 

wholesalers and distributors suggests that a sub-sector focus (working with firms in one or more 

subsectors across the ARC region) would be more appropriate for this industry than a regional 

focus. Automotive machinery exporters in Spartanburg, and their export markets, have more in 

common with automotive producers in than they do with textile machinery manufacturers that 

happen to be located nearby. 

98
ENVIRONMENTAL TECHNOLOGIES IN EASTERN TENNESSEE 

NATURAL NETWORKERS 

by Pat Dusenbury 

Creative Strategies, Inc 

Preface 

Cold War activities of the federal government virtually created Oak Ridge, a city of some 30,000 

people nestled in a scenic Tennessee mountain valley 25 miles west of Knoxville. Scientists at 

the Oak Ridge National Laboratory (ORNL) developed nuclear weapons and conducted related 

research and weapons-grade uranium was produced at a nearby facility on the federal 

reservation. The Cold War has ended, but the highly sophisticated R&D facilities remain sites 

severely polluted by radioactive and hazardous by-products of government activities. Now the 

responsibility of the Department of Energy (DOE), the federal facilities in Oak Ridge include, in 

addition to ORNL, facilities once so secret that they still are known only by their map 

coordinates—Y-12 and K-25. 

DOE operations in Oak Ridge purchase each year hundreds of millions of dollars in 

environmental goods and services for facilities management and operation and for clean-up 

projects. A number of environmental technology firms opened Oak Ridge offices in the late 

1980s when DOE strongly encouraged the ORNL contractor for operations and management to 

expand its sub-contracting. The acceleration of clean-up work effectively opened the door to 

another group of environmental technology firms in Oak Ridge. Government procurement has 

shaped the local environmental technology industry. Most large U.S. environmental technology 

firms, believing it almost essential to securing DOE contracts for work there, have a branch 

office in Oak Ridge. The number and proportion of smaller firms have increased in recent years, 

consequent to federal procurement regulations that encourage prime contractors to subcontract 

with small and disadvantaged firms. 

Chattanooga is establishing itself as an environmental technologies cluster from a different sort 

of pollution. An old industrial hub, it was rated in 1969 as the most polluted city in the US. 

Since then it has worked to clean up its environment, achieved clean air standards, and, in the 

process, redefined itself as a living laboratory for environmental technology. There is strong 

emphasis on environmental issues in the operation of existing industry. A 1996 Chattanooga 

Summit highlighted several local industries that had reduced harmful by-products or wastes 

through improved technologies and processes. Thus, Chattanooga’s environmental technologies 

cluster is built into the existing industrial base. River Valley Partners, the local economic 

development agency for greater Chattanooga has adopted a plan that includes environmental 

services and equipment among its target industries, and a 7,000 acre army munitions factory in 

Chattanooga is being redeveloped as an eco-industrial center. Target industries for the facility 

include recyclers, plus the environmental technology, chemical, and distribution industries. This 

cluster and the exports that can result, at this point, still lie latent, but given the resources and 

emphasis, it does appear to have considerable potential. 

99
General Industry Description 

The National Science and Technology Council (Technology for a Sustainable Future, July, 

1994) recognizes and defines four types of environmental technologies: pollution avoidance, 

monitoring and assessment, control, and remediation. Therefore, it encompasses businesses that 

are: 

• avoidance technologies to reduce or eliminate the production of hazardous substances 

through product substitution or redesign of industrial processes; 

• monitoring and assessment technologies to measure and track the condition of the 

environment and the releases of pollutants; 

• control technologies to render hazardous substances harmless before they enter the 

environment; 

• remediation technologies to render hazardous substances harmless after they enter the 

environment; and 

• restoration technologies to improve an environment already adversely affected. 

Consistent with those categories, the U.S. Department of Commerce has defined the 

environmental technologies industry. The following definition, which will be used for this 

report, is set forth in a “Fact Sheet” produced by the International Trade Administration 

Environmental Technologies Exports project: 

Environmental Technologies (ET), advances sustainable development by reducing risk, 

enhancing cost effectiveness, improving process efficiency, and creating products and 

processes that are environmentally beneficial or benign. The ET sector includes: air, water, 

and soil pollution control; solid and toxic waste management; site remediation; and 

environmental monitoring and recycling. 

The Department of Commerce’s definition proceeds from the understanding that ET firms deal 

with harmful by-products of human activity. Industry products involve both goods and 

services—and frequently are combinations of the two. Environmental technology products 

embrace a range of items produced by industries with many different SICs that includes a large 

service component as well as manufactured goods. Defining environmental technologies 

industries is further complicated by the fact that products and technologies used in 

environmental applications may have other industrial applications. For example, certain filters 

used in textile dyeing are also used to screen pollutants from a waste stream. Thus, an 

environmental technology or product may be defined by its use rather than in its production 

process. 

National Overview 

Environmental Business International, a widely recognized source of Environmental 

Technologies industry information, estimates the 1994 industry revenues in the United States 

firms to be $170.4 billion, up from $145.0 billion in 1990. That revenue total is projected to 

exceed $200 billion by 1999. Table 26 shows recent and projected industry revenues for each 

product segment. Total revenue growth is projected to slow slightly from a 1990-1994 annual 

average just over four percent to a 1994-1999 average of four percent. 

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Table 26 

U.S. Environmental Industry Revenues 

1990 & 1994, and 1999 Projected 

Environmental Industry 

Segment

1990 

revenues ($ 

billion)

1994 

Revenues 

($ billion)

1990-94 

Revenue 

Increase 

199 Proj.. 

Revenues 

($ billion)

1994-99 

Projected 

Increase 

SERVICES

analytical 1.5 1.6 6.7% 1.9 18.8%

water treatment 19.8 25.7 29.8% 33.6 30.7%

solid waste management 26.1 31.0 18.8% 37.7 21.6%

hazardous waste mngmt. 6.3 6.4 1.6% 5.6 (12.5%)

remediation/industrial 8.5 8.6 1.2% 10.2 18.6%

consulting/engineering 12.5 15.3 22.4% 19.3 26.1%

EQUIPMENT

water equip & chemicals 12.1 13.5 11.6% 17.1 26.7%

instruments/info systems 2.0 2.9 45.0% 3.6 24.1%

air pollution control 10.7 11.7 9.3% 12.9 10.3%

waste management 10.4 11.2 7.7% 10.9 (2.7%)

process/prevention tech 0.4 0.8 100.0% 1.5 87.5%

RESOURCES

water utilities 19.8 24.2 22.2% 30.0 24.0%

resource recovery 13.1 15.4 17.6% 20.1 30.5%

environ. energy sources 1.8 2.2 22.2% 3.2 45.5%

 TOTAL 145.0 170.4 17.5% 207.7 21.9%

Note: Columns may not total due to rounding. Resource recovery revenues are solely those generated by the sale

of recovered materials; they exclude revenues from waste collection. 

Source: Environmental Business Journal, EBI, (San Diego CA) April-May 1995. 

Projected revenue changes for the various environmental industry segments range from an 

increase of 87.5 percent in process and prevention technologies to a decline of 12.5 percent in 

hazardous waste management. The only other industry segment expected to earn less in 1999 

than in 1994 is waste management equipment. These revenue projections—along with the 

healthy growth projected for the resource recovery segment—reflect the on-going movement of 

the U.S. environmental technologies market away from “end of the pipe” waste management and 

toward waste minimization through modifications in production processes, improved 

technologies, re-use and recycling. Remediation technologies are giving way to prevention 

technologies. 

Information about individual firms is provided by an industry report in the August 12, 1996 issue 

of ENR, an environmental industry magazine. Although some 60,000 U.S. firms provide 

environmental products and services, a relatively few large corporations dominate the industry. 

ENR reported that the top 200 U.S. environmental technologies firms combined to earn almost 

$20 billion in 1995, and the eleven largest firms accounted for half of those revenues. Bechtel 

Group Inc., Rust International, and Foster Wheeler each earned over $1 billion from

101
environmental services and products. The other eight firms reported environmental revenues 

between $500 million and $1 billion each. 

Most environmental firms also offer non-environmental services and products, and the 

importance of environmental revenues to total sales varies widely from firm to firm. The largest 

environmental technologies consulting and construction firm in the U.S., Bechtel Group, earned 

only 18 percent of its revenues from environmental work; the second largest firm, RUST 

International, earned 74 percent of its 1995 revenues from environmental work. In construction 

particularly, the line between general purpose and environmental projects is blurring, and only 

three of the 43 firms with over $500 in 1995 environmental revenues earned 100 percent of their 

revenue from environmental operations. General construction projects can help smooth ups and 

downs in environmental contract work. 

Despite gloomy market projections for environmental technologies industry segments dealing 

with hazardous waste, the clean-up, management, disposal and recycling of hazardous wastes 

continues to be the top source of income for the largest firms in the industry. Dealing with 

hazardous waste, including radioactive and mixed waste, provided over $10 billion of the just 

under $20 billion in environmental revenues earned by the 200 largest U.S. environmental firms 

in 1995. The second largest market was for water quality products and services, which produced 

$4.5 billion in revenues. Remaining revenues were produced by air quality ($2.4 billion), solid 

waste management ($2.0 billion), and miscellaneous environmental services ($1.0 billion). 

EBI estimates that the worldwide market for environmental goods and services reached $408 

billion in 1994. The U.S. accounts for some forty percent of the global market, making it the 

largest single market in the world by a wide margin. That margin is expected to shrink because 

the environmental technologies market in the U.S. is maturing, and its rate of expansion is 

projected to slow. Actual decline is forecast for the U.S. hazardous waste clean-up and 

management markets. International markets, however, are projected to grow at an increasing 

rate over the next several years, and hazardous waste remediation and management is expected 

to contribute a large part of that growth. 

Until recently, the strong domestic demand for environmental services and products has reduced 

the incentive for American firms to market overseas as aggressively as firms from Japan and 

Germany, for example. Those two countries are leading exporters of environmental 

technologies. German companies earned 30 percent of 1994 revenues from export sales, while 

Japanese firms earned 24 percent. The comparable share for U.S. firms was only six percent. 

ENR projects growing foreign sales for U.S. environmental technologies firms, and for the 200 

largest U.S. firms, overseas markets provided 10 percent of 1995 revenues. Efforts to expand 

U.S. exports of environmental products can expect to meet stiff competition from German and 

Japanese firms who were there first and want to hold onto their markets. 

Market Patterns 

The public sector is the best customer for environmental goods and services, and the largest 

share of revenue earned by the top 200 firms came from customers in federal, state, and local 

governments. While the federal government currently accounts for almost two of every three 

102
dollars in industry revenues from the public sector, the trend toward privatization of government 

services is expected to create more demand for water and solid waste from local governments. 

Table 27 shows 1995 environmental technologies revenues by source for the 200 largest U.S. 

firms. 

Table 27 

Sources of Environmental Revenues, 200 Largest U.S. Firms, 1995 

TOP 200 ET FIRMS REVENUES 

1995 MARKETS FOR ET BILLIONS OF $ % OF TOTAL 

Private Sector Firms $9.14 45.7 

Federal Government $7.09 35.5 

State and Local Gov. $3.75 18.8 

Source: Calculated from information in “The Top 200 Environmental Firms”, ENR, August 12, 1996. 

Private companies—large manufacturers, chemical firms, and utilities—are an important market 

for environmental services and products. Manufacturers may provide in-house environmental 

services, and some corporations purchase environmental technologies companies to keep that 

business in the corporate family. For example, Dow Chemical now owns 60 percent of Radian, 

the seventeenth largest U.S. firm. Private sector demand for environmental technology products 

and services has been driven by the need to comply with government regulations. This produced 

a compliance-based emphasis on control and remediation plus a unique life cycle for 

environmental products, which is summarized as follows: 

1. Published research, or less often a catastrophic event, makes the public aware of an 

environmental problem. 

2. The public demands that the government take action. 

3. The government adopts legislation and promulgates regulations. 

4. Enforcement commences, creating demand for the environmental technology—goods and 

services—that will “clean it up.” 

5. Regulated industry looks for ways to avoid the clean up costs, including less costly 

solutions such as waste reduction. 

6. Production processes are modified to reduce waste and thus the demand for the “clean it 

up” technology. 

Industry leaders recognize that many environmental problem areas are far along their life cycle. 

For example, in most of the US, leaking underground storage tanks have moved to step six. 

Clean-up and remediation of U.S. sites polluted by hazardous and radioactive waste is 

proceeding. When it is completed, the domestic market will shrink dramatically, because 

practices that created the contamination are now illegal. Export sales offer firms a way to extend 

the product life of their environmental technologies, which can increase profitability. However, 

the environmental technologies industry is not yet one of the nation’s major exporters. 

According to EBI, 1994 export sales of U.S. environmental equipment and products reached $4.8 

billion and accounted for just one percent of manufactured exports from the United States. The 

combined export sales of environmental equipment and products from the ARC member states 

103
was $1.3 billion also one percent of the value of their total manufactured exports. Export sales 

of manufactured products is only part of environmental exports. Service and resource provision 

are important segments of the environmental technologies industry and contribute to export 

sales. Table 28 lists export totals for each industry segment. 

Table 28 

1994 Environmental Technology Exports ($ billions) 

AREA SERVICES EQUIPMENT RESOURCES TOTAL 

ARC States $0.6 $1.3 $0.9 $2.9 

United States $2.3 $4.8 $3.0 $10.1 

In 1994, the 13 ARC states accounted for $ 0.30 of every dollar in environmental technologies 

export sales. A comparison of exports by segment reveals that good and equipment provide a 

proportionately larger share of environmental technology export sales in the ARC member 

states, while services provide a proportionately smaller share. Figure 13 illustrates the ARC 

states’ share of U.S. exports. 

Export activity among the largest U.S. environmental technology firms presents a mixed picture. 

Many large environmental corporations not only export but also have international offices or 

subsidiaries. Still, fewer than half of the top 200 firms reported international revenues in 1995. 

Revenues from outside the United States accounted for only $2 billion of the almost $20 billion 

earned by the 200 largest firms in 1995. Only seven of the top 200 U.S. companies earned at 

least 30 percent, the average for the German environmental technologies industry, of revenues in 

non-U.S. markets. Smaller firms are less likely to participate in foreign markets. 

Figure 13 

ARC Share of 1994 ET Exports by Industry Segment (millions of dollars)

0

2

4

6

8

10

12

SERVICES EQUIPMENT RESOURCES TOTAL

Rest of US

ARC States

The large size and strong growth of the domestic market may have reduced the incentive for U.S. 

environmental firms to enter the international market, but the U.S. market has entered a period of 

transition. The U.S. is becoming a mature market for clean-up and remediation, the largest 

104
environmental industry segment in terms of revenues generated. As environmental problems are 

addressed, the U.S. remediation market is projected to shrink. These projections make foreign 

markets more attractive to U.S. firms, especially those firms that specialize in end of the pipe 

management and remediation. 

Western Europe is currently the top foreign market for U.S. environmental technologies firms, 

but it too is a mature market and shifting attention from end of the pipe management to waste 

reduction. In contrast, Eastern Europe, Latin America, Asia, and Africa are emerging and 

growth markets with extensive need for remediation and for construction of environmental 

infrastructure. These markets are limited by the resources available to pay for environmental 

goods and services. 

Federal and state governments actively promote environmental exports. The President’s 

Environmental Technologies Export Initiative identifies the most promising ET export markets 

and prepares export market plans for those countries. The U.S. Department of Commerce targets 

environmental technologies for export promotion and in 1994, set up the Environmental 

Technologies Exports (ETE) office of the International Trade Administration to lead its efforts. 

ETE implements the President’s Initiative and provides grants to fund private sector for 

environmental technologies export promotion activities with outreach, trade promotion, business 

counseling, and training. According to the National Association of State Development Agencies 

(NASDA), several states also have targeted environmental technologies as an industry with 

export potential. ARC member states promoting exports include Georgia, Kentucky, Maryland, 

Mississippi, North Carolina, Pennsylvania, Tennessee, and Virginia. 

Locational Patterns: Environmental Technologies in Appalachia 

Because the industry is not described by SIC codes, standard data sources do not provide 

information on the location of environmental technologies firms or distribution of employment 

on state or sub-state levels as they do for the other target industries. A special report produced 

by EBI for ETE estimates the number of firms and jobs in environmental industries by state in 

1994. Table 29 summarizes information on the number of firms and jobs for each ARC state. 

Together the ARC states accounted for 31 percent of the nation’s environmental firms and 33 

percent of its environmental technologies employment. Individual states show wide variation in 

the size of the industry. The largest number of environmental firms and highest environmental 

technology employment are in the northern tier of ARC states, which have the largest economic 

bases. A similar pattern is found in the state-by-state distribution of environmental technologies 

revenues. The highest are estimated for the northern tier of ARC states. 

EBI estimates of state level revenues for the environmental technologies industry show relatively 

strong growth in revenues within the ARC states. Between 1992 and 1994, the environmental 

technologies industry in the ARC member states experienced a 36.0 percent rate of growth, 

while national industry revenues expanded by 27.5 percent. As a result, the ARC states’ share of 

national environmental technologies revenues increased from 30.6 percent in 1992 to 32.7 

percent in 1994. The industry’s growth trends are positive for all ARC states, and the rate of 

growth is above the national average in seven of the thirteen ARC member states. Table 30 

describes the growth trends between 1992-1994 for the ARC member states. 

105
Table 29 

Companies and Jobs for ARC States, 1994 

STATE # OF FIRMS # OF JOBS 

Alabama 1,252 18,273 

Georgia 2,312 27,361 

Kentucky 1,161 15,348 

Maryland 2,070 20,318 

Mississippi 537 8,306 

New York 6,394 95,553 

North Carolina 2,161 28,157 

Ohio 4,207 56,080 

Pennsylvania 4,952 63,558 

South Carolina 1,257 17,683 

Tennessee 2,115 22,672 

Virginia 2,618 28,241 

West Virginia 585 10,270 

Table 30 

Industry Revenues by State, 1992-1994 (millions of dollars) 

STATE 1992 

REVENUES 

1994 

REVENUES 

1992-1994 

CHANGE 

1992-1994 %

CHANGE 

Alabama $1,999 $2,459 $460 23.0%

Georgia $2,738 3,767 $1,029 37.6%

Kentucky $1,651 2,066 $415 25.1%

Maryland $2,050 2,812 $762 37.2%

Mississippi $970 1,124 $154 15.9%

New York $8,156 12,979 $4,823 59.1%

North Carolina $2,947 3,819 $872 29.6%

Ohio $5,539 7,540 $2,001 36.1%

Pennsylvania $6,677 8,422 $1,745 26.1%

South Carolina $1,753 2,388 $635 36.2%

Tennessee $2,625 3,084 $459 17.5%

Virginia $2,681 3,886 $1,205 44.9%

West Virginia $1,170 1,346 $176 15.0%

ARC States $40,956 $55,692 $14,736 36.0%

United States $133,700 $170,436 $36,736 27.5%

The northern tier ARC states also have the highest environmental technologies export values. 

Together, New York, Ohio, and Pennsylvania account for over half of the value of 

environmental exports from the thirteen member states. Almost $600 million of 1994 ET exports 

106
originated in Pennsylvania. New York was a close second with just under $500 million in export 

sales, followed by Ohio with just over $450 million. Georgia and Virginia are in the second tier 

of exporters, with between $200 and $300 million in export sales. At the other end of the scale, 

Kentucky and Mississippi originated less than $50 million of exports in 1994 (see Table 31). 

Table 31 

Exports of Environmental Technologies by Industry Segment for ARC States, 1994 

(millions of dollars) 

STATE SERVICES EQUIPMENT 

& PRODUCTS

RESOURCES TOTAL 

Alabama $21.0 $51.8 $54.9 $127.7 

Georgia $47.9 $139.3 $74.1 $253.1 

Kentucky $22.9 $33.9 $22.9 $79.6 

Maryland $35.4 $69.9 $54.2 $159.0 

Mississippi $6.7 $10.1 $21.1 $38.0 

New York $129.6 $169.5 $259.4 $549.0 

North Carolina $39.3 $76.5 $62.8 $178.5 

Ohio $91.9 $266.4 $97.6 $456.0 

Pennsylvania $128.7 $354.2 $111.1 $594.0 

South Carolina $11.9 $33.7 $43.3 $89.2 

Tennessee $28.8 $32.3 $45.8 $107.0 

Virginia $55.9 $98.5 $74.9 $229.3 

West Virginia $4.6 $8.5 $23.3 $36.5 

Absolute numbers tell part of the story, but the impact of a given level of employment, revenues, 

or export sales depends in part upon the overall size of the economy. One way to accommodate 

size differences so that comparisons can be made is to calculate the value of environmental 

technologies exports as a percentage of the gross state product (GSP). That ratio measures the 

contribution that environmental technologies exports make to a state’s economy. Figure 14 

ranks the ARC states by their 1994 environmental technologies export intensity. 

Export intensity also allows comparisons between the ARC states and the national average. The 

environmental technologies export intensity for the Appalachian Region states is 0.13 percent, 

while the ratio for the nation as a whole is 0.16 percent. That gap describes the additional 

contribution that export sales of environmental technologies products would make to the regional 

economy if export performance was at the national average. Within the region, environmental 

technologies export intensity varies widely. Adjusting for the size of the state economy brings 

North Carolina to the forefront as the regional leader in environmental technologies exporting 

and moves New York from the top to the bottom of the list. 

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Figure 14 

 

Environmental Technologies Export Intensity, 1994

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

NC PA OH AL GA VA MD SC WV KY TN MS NY

To facilitate comparisons of ARC states’ environmental technologies export performance with 

that of the nation and each other, export intensity can be calculated as an index relative to the 

national average. The resulting number is the export intensity index (EII) for the target industry. 

The national EII is always 1.00. States where environmental technologies exports make an above 

average contribution to the economy have an environmental technologies EII greater than 1.00. 

Conversely if environmental technologies exports make a relatively small contribution to the 

state economy, the EII is less than 1.00. For example, the EII for the combined ARC states is 

0.81, almost twenty percent below the national average. Table 32 lists the environmental 

technologies EII for each ARC state. 

Table 32 

Industry Export Intensity Index by State, 1994 

STATE EXPORT INTENSITY 

INDEX 

STATE EXPORT INTENSITY 

INDEX 

Alabama 0.91 Ohio 1.05

Georgia 0.89 Pennsylvania 1.27

Kentucky 0.59 South Carolina 0.70

Maryland 0.77 Tennessee 0.54

Mississippi 0.46 Virginia 0.83

New York 1.92 West Virginia 0.67 

North Carolina 0.21 ARC States 0.81 

The environmental technologies EII reveal a relatively large contribution to the state economy in 

only three ARC states. North Carolina’s EII is almost 2.00, indicating that the contribution of 

environmental technologies export sales to the state’s economy is almost double the national 

108
average. Pennsylvania and Ohio also have an EII greater than one, while Alabama, Georgia, and 

Virginia have an EII less than one, yet above the ARC average. 

The EBI data describes the state industry but does not identify concentrations of environmental 

technologies firms within the ARC region counties of these states. In the absence of quantitative 

data, descriptive information from individual states is used to define the locational pattern of the 

industry within an individual state and identify concentrations that are not in the ARC region. 

For example, North Carolina state data shows a strong environmental technologies industry with 

a large export component, but further investigation reveals the largest concentration in the 

Research Triangle Area and a second, smaller concentration along the I-85 corridor between 

Greensboro and Charlotte. Neither is in the ARC region. 

Environmental technologies is a knowledge-intensive industry, and therefore it tends to locate 

near research and development resources such as federal laboratories and R&D universities. It is 

also an industry that counts polluters among its best customers, and thus it locates in proximity 

to environmental problems. In Appalachia, those factors merge in the Knoxville, Oak Ridge, 

Chattanooga corridor to produce the largest concentration of environmental technologies firms 

not only in the ARC Region but also in the world. Other ARC locations with a strong 

environmental technologies industry presence include Pittsburgh, where university-related 

research facilities are an asset and Greenville-Spartanburg, where manufacturing activities have 

created a market for environmental services. 

Components of the Environmental Technologies Industry 

Environmental technologies industries market goods, services and frequently a combination of 

the two in the context of a single project or product. Within the broad category of environmental 

services are analytical services, water treatment, solid waste and hazardous waste management, 

remediation or clean-up and industrial services, consulting and engineering (see Appendix B). 

Environmental equipment includes water treatment equipment and chemicals, measuring and 

analytical instruments and information systems, air pollution control equipment, waste 

management equipment, as well as process and prevention technology. Finally, ET industry 

members provide potable water, recycle and recover usable materials from waste, produce 

energy from solar, wind, and geothermal resources, and encourage lower use of energy resources 

with process improvements. 

Regulations have driven the growth of the industry, and so regulators should be recognized as an 

important component of the industry. These regulation—most notably federal EPA 

regulations—have also been force behind industry research and development. Regulations not 

only create demand for environmental technologies, they also encourage innovation. If a 

company can develop a technology or application that regulators deem to be the best available 

technology for a certain application, the market for that technology or application is guaranteed. 

The Environmental Technologies Industry in East Tennessee 

The cluster selected for this study is in southeastern Tennessee. Originally defined as the 

technology corridor running from Chattanooga north to Oak Ridge and Knoxville, a visit 

revealed that the corridor is actually two centers, each with its own distinctive character, 

109
connected by 100 miles of Interstate 75. The economic base and culture in Oak Ridge is heavily 

governmental, and in Chattanooga it is private. Knoxville has a higher proportion of privatesector oriented environmental firms than Oak Ridge but is still in the government environmental 

orbit. 

Oak Ridge: Cleaning up the Mess 

Government facilities and operations created the cluster in Oak Ridge. Department of Energy 

(DOE) operations in Oak Ridge include the Oak Ridge National Laboratory plus two facilities, 

Y-12 and K-25—so secret that they are known only by their map coordinates. Although 

enriched uranium operations at Y-12 uranium manufacturing and storage facility are inactive, the 

facility continues to receive materials obtained through international non-proliferation activities. 

DOE operations in Oak Ridge create a market for hundreds of millions of dollars in 

environmental goods and services each year—for management and operations of the facilities 

and for clean-up of environmental damage caused by previous, cold war related activities. That 

market has attracted a concentration of ET firms that is the largest in the world. Environmental 

technology firms believe that an Oak Ridge office is almost essential to getting DOE contracts 

for work there, and so most large U.S. ET firms maintain a presence in Oak Ridge. 

The Oak Ridge National Laboratories have been in operation for decades, but relatively few ET 

firms have been in Oak Ridge that long. Several firms opened Oak Ridge offices in the late 

1980s when DOE strongly encouraged its prime contractor for operations and management to 

expand sub-contracting, thus opening up the market for more environmental technology firms. 

Another group of ET firms opened their doors in Oak Ridge in 1994, when the clean-up 

accelerated. Government procurement regulations call upon prime contractors to subcontract 

with small and disadvantaged firms, and so that a large number of small and 8(a) firms 

developed to fill that niche. Unlike the large firms that operate in Oak Ridge as branch offices, 

smaller firms usually have headquarters offices in East Tennessee. 

The US environmental technologies industry is extremely diverse, but the Oak Ridge industry 

concentration is highly specialized; its focus is the management of radioactive and mixed 

hazardous/radioactive materials—including waste, the remediation of environmental damage 

caused by previous improper management of those wastes, and the decontamination and 

decommissioning of nuclear facilities. Individual firms and project teams provide services and 

equipment for the containment, characterization, and monitoring of radioactive and mixed wastes 

as well as technologies for waste destruction/stabilization and for waste separation/extraction. 

Because of the public health aspect, specialities also include health physics and emergency 

preparedness. 

DOE facilities both dominate the Oak Ridge market for environmental services and drive the 

search for new technologies by the local industry. The top DOE priority is developing 

technologies for economical and effective clean-up of its Oak Ridge and similar facilities. 

Private industry echoes this orientation, and so the Oak Ridge environmental industry is research 

and development oriented. Both DOE and local firms have begun to seek broader applications 

for the technologies developed to implement projects in Oak Ridge—at other nuclear facilities 

and in the management of other hazardous substances. 

110
Chattanooga: Building a New Image and Cluster 

Chattanooga is an old industrial center, rated in 1969 the most polluted city in the US. Since 

then it has worked to clean up its environment, achieved clean air standards, and, in the process, 

redefined itself as a living laboratory for environmental technology. There is strong emphasis on 

environmental issues in the operation of existing industry. A 1996 Chattanooga Summit 

highlighted several local industries that had reduced harmful by-products or wastes through 

improved technologies and processes. For example, BASF Corporation reduced its generation of 

ignitable hazardous wastes by converting waste to a salable co-product and saves $23,000 a year. 

In a similar effort, DuPont reduced its hazardous waste generation by 95 percent and saved some

$300,000 the first year by purifying acid for re-sale rather than disposing of it. Thus, 

Chattanooga’s environmental technologies cluster is built into the existing industrial base. 

The environmental emphasis in Chattanooga extends to economic development activities, but an 

industry cluster in Chattanooga is more potential than realized at this point. River Valley 

Partners, the local economic development agency for greater Chattanooga has adopted a plan 

that includes environmental services and equipment among its target industry clusters. A 7,000 

acre army munitions factory in Chattanooga is being redeveloped as an eco-industrial center. 

The huge expanse of government-owned property includes areas suffering from pollution plus an 

analytical laboratory. It is being marketed as a ”no risk” site for testing environmental sensors 

and monitors, assessment, mitigation, and treatment techniques. Target industries for the facility 

include recyclers, plus the ET, chemical, and distribution industries. The latter due to its 

location near Interstate 75. 

Creating an environmental technologies cluster has proven to be formidable, and some early 

efforts were not able to become self-sufficient. Chattanooga State Technical Community 

College received a grant from Regional Technology 

Strategies, Inc. to form networks of small and medium sized environmental technologies firms in 

a mutually supportive problem solving framework. They established a pilot materials waste 

exchange and a small network of platers. A French-American Environmental Technology 

Center was created with the support of Oak Ridge National Laboratories, Chattanooga, TVA, the 

University of Tennessee, the National Technology Applications Corporation Center for 

Hazardous Materials Research at the University of Pittsburgh, the EPA, and—from France—the 

Ministry of Research and Industry, Ministry of Environment, City of Evry, and University of 

Evry. The agreement culminated in the signing in August 1991 of a Chattanooga-Evry 

Environmental Partnership. Neither the network nor the French-American Center was able to 

survive the end of outside funding. However, ideas such as materials waste exchange survived 

the demise of their institutional framework, and other efforts have been more successful. 

The experience with local transit demonstrates what Chattanooga intends to achieve in 

environmental technologies. In 1991, the local transit agency issued an RFP for electric buses 

that would move people throughout downtown Chattanooga without adding to air pollution. A 

local company, Advanced Vehicle Systems (AVS), was created to respond and won the contract. 

Electrotek, the only electric-vehicle testing facility in the U.S. was already in Chattanooga. The 

first electric buses began rolling in 1993. The AVS electric buses are really rolling laboratories 

with constantly evolving technology demonstrate their effectiveness in operation, and have 

111
attracted worldwide attention. The attention is beginning to produce sales orders. A firm that 

manufactures a key component may re-locate from the northeast to Chattanooga. This success is 

inspiring continued efforts to build the local economy around the ET industry. 

Currently, there is relatively little interaction between the environmental technologies industries 

in Chattanooga and those in Oak Ridge/Knoxville. Individuals interviewed in Chattanooga 

complained that they could not get people in Oak Ridge to return calls. Chattanooga appears to 

view the Oak Ridge/Knoxville cluster as impractical and not market-oriented, while standing in 

awe of its technical expertise. Industry executives in Oak Ridge, when asked about 

Chattanooga, seemed surprised by the very question. However, DOE administrators reported 

that there are limited efforts to establish links. The weak connection is unfortunate given the 

enormous potential for shared benefits and synergy from cooperation between the research and 

the living laboratories. Because of that potential, the original target area definition has been 

maintained. 

112
Figure 15 

East Tennessee Environmental Technologies Cluster 

113
Economic Status of the East Tennessee Environmental Technologies Cluster 

Federal contracts for environmental services in Oak Pine produce a high level of volatility for 

individual firms but maintain a strong overall market. Fortunes rise and fall with government 

contracts—with the U.S. Department of Energy for environmental management and clean-up at 

the Oak Ridge facilities and with Lockheed Martin, the DOE management and operations 

contractor for the facilities. The market environment is highly competitive. 

The small sample of environmental firms interviewed for this project showed an extreme 

variation in recent growth trends that underlines the volatility of the Oak Ridge market and 

reinforces the broader industry assessment. The number of firms interviewed is too small to 

extrapolate to the whole local industry and is presented as descriptive information only (see 

Table 33). 

Table 33 

Recent Trends in Sales, Employment and Wages, 

3-Year Change* Total Sales Employment Ave. Wages** 

>10% increase 14 12 8 

<10% increase 2 0 5 

little or no change 3 4 4 

decrease 1 4 0

* The two relatively new firms use two-year trends to avoid a base level of zero.. 

** Three of the firms interviewed declined to answer. 

The summary of interview information actually understates the cluster’s volatility. Of the 14 

firms reporting sales increases over ten percent, nine firms, including two measuring only twoyear records, actually had increases greater than fifty percent. Conversely three of the four 

firms reporting employment decreases, laid off over ten percent of their employees. Wage rates 

for workers in the East Tennessee firms, in contrast, were relatively stable. Those that increased 

over ten percent generally were attributed to keeping pace with inflation and only increased 

slightly over ten percent for the three years. 

Networking in Pursuit of Contracts 

Most contracts are awarded to a team of firms, and teams form on a project by project basis to 

put together the capabilities required to answer DOE and Lockheed Martin requests for 

proposals. Firms newly on winning teams can go from a staff of fewer than ten people to well 

over a hundred in response to the signing of a contract. Firms on the losing team make a similar 

adjustment, but in the other direction. For the branch offices of large companies, the adjustment 

can involve transferring personnel as well as lay-offs. Smaller firms have to find another market 

or reduce staffing drastically. The local labor market is fluid, and provides the mechanism for 

adjustment. Individuals follow government contracts, moving from jobs at a losing firm to jobs 

at a winning firm. 

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The local industry group, the East Tennessee Environmental Business Association (ETEBA) 

reports that during 1996, its members experienced significant decreases in environmental 

technologies revenues earned from contracts with DOE and its prime management and 

operations contractor, Lockheed Martin. The end of the cold war reduced nuclear weapons 

production, and DOE environmental management budgets have declined annually since 1994. A 

recent members’ survey found that ETEBA member firms earned approximately half their 

revenues outside the local market. Clearly, the movement away from overwhelming dependence 

on the federal Oak Ridge facilities has begun, although some of the outside revenues are still 

from work at other DOE nuclear facilities. 

The Knoxville cluster has weaker links to the DOE facilities and more firms that serve a 

primarily private sector market. One hundred miles to the south, Chattanooga’s cluster focuses 

on private sector clients. Knoxville and Chattanooga both have a population and industrial base 

large enough to generate a demand for services and products. The Tennessee Valley 

Administration (TVA) headquarters in Chattanooga adds a public sector component to the 

industry there. TVA is one of the city’s largest employers but is reducing staff. 

Competitiveness of the East Tennessee Environmental Technologies Cluster 

Oak Ridge environmental technologies firms are world leaders in cleaning up radioactive and 

mixed (hazardous and radioactive) wastes. They are supported by the Oak Ridge National 

Laboratories, which include 15 state of the art, experimental science facilities for use by DOE 

researchers. These labs are available to selected researchers from educational institutions and 

the private sector as “user facilities.” Access is determined on a case-by-case basis depending 

upon scientific validity of the proposed research. The Materials and Chemistry Laboratory 

(MCL) is DOE’s first environmental technologies user facility. MCL gives users access to 30 

labs where they can develop, validate and demonstrate environmental technologies for treating 

any hazardous and/or radioactive material, using an unmatched array of cutting edge analytical 

instruments and supported by MCL staff expertise. 

DOE recognizes the large environmental business sector in East Tennessee as a resource and has 

tried to promote cooperation between Oak Ridge’s resources and the private sector, including 

Chattanooga firms in its programs. A Center for Environmental Technology financed 

technology demonstration and transfer involving Oak Ridge and Chattanooga as well as 

initiatives to identify international market opportunities for local environmental products and 

services. In the last two years, collaborative work and promotion of technology transfer to the 

private sector for commercialization has received less attention because budgetary pressures on 

DOE have increased. Today, the technology program is no longer funded, and economic 

development activities have taken a back seat to the implementation of the DOE Ten-Year 

(clean-up) Plan. 

Technical Services and Intellectual Resources 

The intellectual infrastructure and resources for technology transfer supporting the cluster in 

East Tennessee include higher education as well as the National Laboratories and TVA. The 

University of Tennessee’s (UT) flagship campus in Knoxville has an Energy, Environment and 

Resources Center that does contract research in environmental technologies, most of which is 

funded by the state or federal government. The Center works on research projects with the Oak 

115
Ridge National Laboratories and TVA through a Joint Institute for Energy and Environment, 

formed by the three entities. Technology transfer is encouraged. One of the firms interviewed 

assays the health of microbes that have been put into the soil to clean up pollution with a unique 

technology developed by a UT professor. The University of Tennessee at Chattanooga is adding 

its first Ph.D. program in environmental engineering. 

The concentration of environmental technologies firms, outstanding local school system, training 

programs at community colleges and the University of Tennessee support the high level of 

human resources required by the industry. Chattanooga State Technical Community College 

offers a two-year course in specialized areas for environmental technicians, which includes many 

college graduates among its students. The Continuing Education Department offers certificate 

courses and exams in environmental specialties such as hazardous materials management. 

Roane State Community College Institute for Environmental Health and Safety in Oak Ridge 

offers training and consulting services to meet environmental industry needs, including OSHA 

and EPA AHERA and ASHARA model Accreditation Programs. Training courses are offered 

both on campus and on-site. The service firms and R&D facilities, which dominate the 

environmental technologies industry in Oak Ridge, employ the highest percentage of research 

and management staff. These positions are most likely to require advanced degrees, and many of 

the jobholders are educated outside East Tennessee. 

East Tennessee firms are highly competitive on national and world markets—when they choose 

to compete. Public and private research facilities are excellent, and at all levels, technical 

expertise is abundant. The local labor force is highly skilled and highly educated, especially in 

environmental technologies related to management of radioactive substances. Moreover, salaries 

are relatively low, reflecting the local cost of living. There are exceptions, but for most firms, 

especially in Oak Ridge, marketing outside the local area has not been a high priority. DOE 

dominates the local environmental market. The top DOE priority is developing technologies for 

economical and effective clean-up of its Oak Ridge and similar facilities. Private industry 

echoes this orientation. Several firms with offices in Oak Ridge are multi-national corporations 

that serve DOE from Oak Ridge offices. 

Chattanooga firms lack the critical mass found in Oak Ridge, but local resources promote 

competitiveness. These include a local government commitment to developing a strong 

environmental technologies industry; the Volunteer Site industrial park, with its laboratory and 

real world testing facilities; and the TVA headquarters office, which is a source of expertise in 

management of environmental projects. A TVA engineering laboratory at Norris, Tennessee, 

about 15 miles north of Oak Ridge, also is part of the cluster. It functions like a private 

enterprise and generates revenues by developing and then selling or licensing technologies to 

TVA and other customers, including customers outside the U.S. Although TVA does most of its 

environmental research at its laboratory in Muscle Shoals, Alabama, the TVA Norris Lab 

develops and sells environmental technologies. Exporting infrastructure in Chattanooga includes 

a licensed Foreign Trade Zone, with a sub-zone proposed for the Volunteer Site 

116
Environmental Technologies Exports from East Tennessee 

When industry executives interviewed for this study were asked about exporting, many initially 

defined that as meaning outside Oak Ridge, not outside the U.S. Their response underlines the 

very strong focus on the local market that has prevailed until recently. 

Project interviews were structured to include ten firms that sell goods or services abroad from an 

East Tennessee office and ten firms that do not. When the ten exporters were asked to rank the 

importance of foreign markets to the industry’s future, only one described exports as not very 

important. The others divided evenly, with three each selecting three, four, and five on a fivepoint scale of importance. Still, half of these firms earned five percent or less of their 1996 

revenues in foreign markets. The others estimated that exporting accounted for from under 

twenty five to approximately fifty percent of revenues. Most export sales occur in the context of 

very large, multi-year projects, and so year to year variations are, like overall revenues, 

extremely volatile. 

The most-often mentioned export destinations for environmental goods and services were Russia 

and the other countries that were part of the USSR, Central Europe, Germany and Japan, 

countries in Southeast Asia. The U.S. Department of Commerce International Trade 

Administration ETE Office produces market reports for several of the countries mentioned as 

export destinations, but no exporter interviewed was familiar with the reports. In several cases, 

however, a federal government agency was involved in securing the initial export opportunity by 

providing trade leads, access to decision makers, and—in one case—by paying for the work 

through a foreign assistance grant. DOE provided funding because the project called for 

disposition of nuclear waste, an area of expertise for Oak Ridge firms that has political as well as 

environmental importance due to concerns over proliferation of nuclear weapons. The U.S. 

Trade and Development Agency also promotes ET exports by funding feasibility studies, reverse 

trade missions, business conferences and training grants. 

As noted above, environmental technologies firms in Oak Ridge have begun seeking broader 

markets. The interviews, while too few to extrapolate, suggest a recent movement toward 

increased exporting. Only two of the exporters had been selling abroad since the 1980s, while 

three began exporting in 1996. Six of the ten had at least one individual assigned to export sales, 

part-time if not full-time. Exporting rarely requires modifications in standard operating 

procedures relative to environmental products or service provisions. Most projects are tailored 

to a specific client and situation in the U.S. and elsewhere; exporting requires adjustments to 

accommodate differences in culture and in business practices. 

Obstacles to Exporting 

The biggest barrier to increased export sales is the cost in money and time of doing business 

abroad. The high cost of marketing, establishing and maintaining a presence is exacerbated by 

the lag between starting to market abroad and realizing revenues from the typical project with its 

long lead time. As a result, breaking into foreign markets requires deep pockets, which many 

small firms lack. Great distance and time zone variations add complexity to the partnerships and 

collaborations by which most projects are implemented. Off-site environmental technology 

projects often involve a local partner, and several people mentioned the difficulty of finding a 

117
dependable local partner for a project outside the US. Another issue arises from the knowledge 

dependence of environmental technologies. Foreign governments may resist hiring a U.S. firm

to provide an environmental service, preferring to purchase the technology and do it themselves. 

Firms wants to sell their services and hold on to their technological secrets. 

More and better market information was mentioned most frequently as something that would 

help exporters increase their overseas sales. Help in identifying foreign partners, joint marketing 

efforts, and bringing potential clients to Oak Ridge instead of having firms go abroad were also 

suggested. Exporting is a new experience for most of the firms interviewed, and if export sales 

increase as a share of total revenues, management may become willing to invest more heavily in 

overseas marketing. 

Among the firms interviewed that did not export from their East Tennessee office, half have 

considered seeking customers from other countries. The reasons they have not done so relate to 

lack of resources—time, money, and information. Also, this industry includes new firms that 

have not thoroughly explored the domestic market and want to pursue that avenue first. The 

firms that had not considered exporting from East Tennessee were branches or subsidiaries of 

large corporations with international divisions operating from a different location. 

East Tennessee Cluster Dynamics 

The East Tennessee concentration of companies in and around Oak Ridge has several 

characteristics of a successful cluster. Firms are highly competitive with each other, but also 

value the network of expertise that strengthens all of them. It is common for firms form

partnerships on a project by project basis to compile the strongest array of skills. One 

respondent noted the shifting alliances when asked to rank the level of trust and cooperation 

among local environmental technology firms. When firms are partners, it is high; but next year 

when the same firms are competitors, it is low. Competition is tough. Still, for every person who 

rated inter-firm trust and cooperation as below average, three people rated it above average. 

The larger firms, most branch offices of national corporations, compete horizontally and partner 

vertically. Vertical partnerships include mentoring relationships with small firms, especially 

firms that are classified as disadvantaged or certified by the Small Business Administration 8(a) 

program. Large firms invite participation of SDBE and 8(a) firms to strengthen proposals for 

government contracts, and because government contracts dominate this market, 8(a) and SDBE 

firms are important. On their own, small and medium sized firms partner horizontally and 

vertically, acting as sub-contractors on some contracts and prime contractors on others. 

Recent years have seen an increase in the number and proportion of small firms in East 

Tennessee. As noted above, when government procurement regulations began to encourage subcontracting with small and disadvantaged businesses small and disadvantaged businesses came 

into the market. A second force is at work here, too. East Tennessee is seeing environmental 

technology company start-ups as a result of lay-offs at major facilities—TVA in Chattanooga 

and DOE facilities in Oak Ridge 

Most Oak Ridge environmental technology firms belong to and participate in the local business 

associations, the East Tennessee Environmental Business Association (ETEBA) and the East 

Tennessee Economic Council (ETEC), which recently spun off from the Chamber of Commerce. 

118
ETEC works to promote economic development based upon the skilled work force, technologies, 

and facilities that have been created by the federal activities in East Tennessee. ETEBA serves 

the local environmental industry, a subset of ETEC members. Both organizations are in 

transition periods, trying to gear up to address the impacts of cutbacks on the federal reservation 

in Oak Ridge. ETEC is moving to become self-supporting, and ETEBA has drafted a strategic 

plan, which if accepted, would commit the organization to hire professional staff and take a more 

active posture in representing its members. Members include an increasing proportion of small 

companies. 

The industry concentration is an information resource for firms, but it is also apparent that 

information technology is moving free of locational bounds. During interviews, people were 

asked how often they used various sources of information. The two most frequently used 

resources are other companies and the Internet. Several people remarked that the Internet was 

becoming an increasingly useful source of information. Community colleges were least often 

used as an information resource, perhaps because the technology involved is so advanced (Table 

34). The ratings are calculated from the interview responses. Each frequently is worth three 

points, occasionally is worth two points, rarely is worth one point and never is worth zero. 

There are weak points in the East Tennessee cluster. The most significant is the local business 

support infrastructure. The area has not developed a resource pool of lawyers, accountants or 

other business services specializing in environmental technologies. The fact that the largest 

firms are branches of national corporations may well have depressed the demand for those 

services from local sources. When firms were asked where they received assistance in entering 

export markets, most replied that they did not receive assistance. 

Table 34 

Information Resources for East Tennessee Firms 

Information Resource All Firms (20) Exporters(10) Non-exporters (10) 

Other Companies 46 26 20 

Internet/Journals 46 24 22

Customers 41 21 20

Equipment Vendors 34 18 16 

Suppliers 33 16 17

Private Consultants 33 17 16 

Trade Assoc’s/Chambers 32 17 15 

Other Gov’t Agencies 31 21 10 

Universities 26 13 13 

Gov’t Tech. Assistance 25 16 9 

Small Business Centers 22 12 10 

Community Colleges 12 7 5 

Local financial resources also receive a strong vote of no confidence as a source of long term

capital. This has not been a problem because most Oak Ridge firms have been able to access 

other resources. Subsidiaries and branch plants get capital infusions from their parent or 

headquarters. Smaller, independent firms also reported generating capital internally. Key 

119
sources of capital have been government contracts and grants to fund research and development. 

One person attributed the very conservative posture of local banks to continuing fallout from the 

Bucher Brothers banking collapse in Chattanooga a few years back. 

What Will the Future Bring? 

Export Potential 

There is no question that the larger firms in the East Tennessee environmental technologies 

industry have the capacity to export; the question is whether or not they will choose to export 

from an East Tennessee office. Most have offices in major cities where air service is far more 

convenient for overseas travel. The smaller environmental technology firms are more closely 

tied to East Tennessee and would export from that location if they exported. The smaller firms 

also have unique technologies and capabilities, especially for cleaning up and managing 

radioactive and mixed hazardous-radioactive waste. Clearly, their technological capacity 

provides them with a product that is competitive on international markets. 

More than one environmental technology firm that did not market abroad but had considered 

exporting reported that an unsolicited inquiry from a potential foreign customer piqued their 

interest in exporting, at least temporarily. Management skills, most notable marketing capacity, 

may not be adequate to the task, frequently because the small firm cannot make or chooses not to 

make the necessary investment of time and staff resources. If the local market declines as sharply 

as is projected, more small firms may decide that they have to make that investment. For small 

companies, the key barrier to increased exporting is the high cost of marketing abroad. 

Export support services are available locally, but most focus on manufacturing and not on the 

environmental technologies industry. Chattanooga has a Foreign Trade Zone (FTZ) and a World 

Trade Club. The Tennessee Small Business Development Centers, operated through the 

University of Memphis, has an International Trade Center in Chattanooga, which is staffed by 

one person who works closely with the Chattanooga Chamber of Commerce. That office offers 

seminars and one-on-one counseling to help firms enter export markets. It does not target any 

particular industry but works mostly with manufacturers. The U.S. Department of Commerce 

has an International Trade Administration Export Assistance Office in Chattanooga, but it has 

not been staffed since September, 1996, and calls are referred to the Nashville office. The 

Department of Commerce has an environmental technologies sector team and will fill the 

Chattanooga position with a person from that team. 

Knoxville also has a Foreign Trade Zone (FTZ). The Knoxville FTZ has four sites, two of which 

are active. The active sites are 45.6 acres with a 120,000 square foot warehouse in Knoxville 

and a 27,000 square foot cargo warehouse at the Knoxville Airport. The inactive sites are almost 

4.5 acres in Blount County Industrial Park, which is five miles from the Knoxville Airport, and 

6.5 acres in Valley Industrial Park in Oak Ridge, which is owned by the City of Oak Ridge. 

Growth Potential 

120
The next couple years are expected to bring increasing volatility and difficult adjustments to the 

local ET industry. As the DOE Ten-Year Plan begins to be implemented, the type of ET services 

sought by DOE will shift from study and containment to clean-up. Moreover, the government 

market for ET in Oak Ridge is shrinking. Diminished local demand is leading some firms to 

seek broader markets, including private sector and foreign markets. Others are cutting back their 

Oak Ridge presence. Some local offices of large multi-national corporations, are expected to 

close their local office when the DOE work dries up. One industry observer noted that only one 

large firm actually owns its Oak Ridge facility; the others all rent. To date, closings appear to be 

more rumored than actual. No-one named a specific firm that had already shut down its local 

operation or announced plans to do so. Still, the immediate question is about survival not 

growth. The issue is whether or not East Tennessee will be able to retain enough of the world’s 

largest concentration of ET firms to have a viable industry cluster. 

To a large extent, decisions made outside East Tennessee will shape the future of the ET cluster 

there. Decisions about DOE contracts will be made in Washington. Decisions about closing or 

continuing branch office operations will be made in distant headquarters. The Oak Ridge 

community wonders if the branch offices close, can the small firms make it on their own. ETEC 

has organized to promote continued federal presence and to exploit the enormous economic 

development potential of the federal investments in place. ETEBA is trying to expand its 

capacity to promote the economic interests of its members. 

The future outlook also depends upon the locational advantages and disadvantages of the East 

Tennessee location for environmental technology industries. The high quality of life is an 

important locational advantage. Costs of living are reasonable, public schools are excellent, and 

the scenery is spectacular. The area is already seeing start-up activity from people laid off by 

large firms and government facilities. Rather than go elsewhere for a job, people are trying to 

create their own jobs so that they can remain in the Oak Ridge area. 

The interviews produced a sharp contrast in those assessments between the firms that export and 

those that do not. Representatives of the environmental technology firms that do not export from

their East Tennessee office find the primary advantages of an East Tennessee location to be 

geographic. The most mentioned advantage is proximity to customers, an advantage that could 

shrink with the value of local DOE contracts. The non-exporters also valued the good 

distribution channels, primarily the interstate highway network. Interstate highways 75, 40, and 

81 pass through the area and represent a more lasting geographical advantage. A second tier of 

locational advantages reflect the industry concentration—access the R&D services and 

technology, proximity to other firms, and the skilled labor force. 

The environmental firms that export from an East Tennessee location have a totally different 

perspective on locational advantages. Proximity to customers is not mentioned except as a 

negative—the distance from customers. The advantages all relate to the industry concentration. 

Those most frequently mentioned are access to R&D services and technology, proximity to other 

firms, and the skilled labor force. In Chattanooga, local government support is an asset. 

A similar dichotomy appears when disadvantages of the East Tennessee location are considered. 

The non-exporting firms complain about the poor quality of local business services and the high 

dependence upon federal contracts. The exporters consistently describe poor service for air 

travel as the biggest disadvantage. Less important are deficiencies in distribution channels and 

121
weak business services. As the East Tennessee environmental technologies industry shifts from

public sector to private sector markets, traditional sources of capital probably are becoming more 

important. It is not clear that the local lending community is prepared to meet that challenge. 

Local lenders are a limited source of working capital and lines of credit, but firms often have to 

go to Nashville or Memphis for specialized services. 

Both ETEBA and ETEC have developed new strategic plans to address the transition from

public to private markets in response to the phasing out of DOE activities at Oak Ridge. Despite 

the weakening demand from its primary customer, the Oak Ridge/Knoxville ET industry faces 

the future with a strong resource base in terms of work force, technologies, and facilities. 

Human resources are outstanding, and the high quality of life makes people want to stay in Oak 

Ridge. This is a very positive factor is assessing the future of this knowledge-intensive industry 

in Oak Ridge. Already new firms are being started by highly skilled individuals laid off by large 

environmental technology firms. 

Making the Oak Ridge/Knoxville to Chattanooga Linkage 

The luxury of large, long-term government contracts has allowed Oak Ridge environmental 

firms to avoid more difficult markets and harder to manage working situations. Chattanooga was 

included in the target area for this report not because it has an environmental technologies 

industry cluster but because it offers a future direction for the environmental technologies cluster 

in Oak Ridge. Chattanooga has a stronger market orientation than Oak Ridge, and that extends 

to foreign markets. 

Efforts to realize the economic development potential of the environmental technologies 

expertise and facilities that federal activities have build in East Tennessee should encourage 

cooperation between the environmental technology communities in Oak Ridge and Chattanooga. 

Oak Ridge can bring technical expertise and the habit of working cooperatively to the 

partnership. Chattanooga can bring a living laboratory and a private sector market orientation 

determined to translate technology into profitable business. 

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Appendix A 

Environmental Technologies 

Environmental technologies make up a $ 408 billion market worldwide, which continues to grow 

rapidly as constituencies in countries across the world lobby their governments for pollution 

prevention and remediation regulations and urban and industrial growth add new customers for 

basic services. Additionally, environmental restrictions on imports, such as the EU regulations 

and the ISO14000 series regulations, encourage less developed countries to focus on the 

environmental effects of their production methods. Table 1 illustrates the strength of the 

international environmental market by country and segment. 

In 1995, DOE commissioned an assessment of export opportunities for selected remediation 

technologies developed or under development at DOE and the national laboratories, including 

ORNL. Analysis of the International Environmental Restoration and Waste Management 

Market; An Overall Assessment of Selected markets and Technologies, was prepared by the 

University of Tennessee and Martin Marietta Energy Systems, Inc. Foreign markets were 

evaluated based upon the presence of waste generating industries, the regulatory and 

enforcement climate, the availability of funds to finance environmental activities, the acceptance 

of US technology, and the presence of remediation sites. 

Most countries are just beginning to identify their remediation needs, and so the demand is 

primarily for containment, characterization, and monitoring technologies. As they progress and 

become more sophisticated, the demand will shift to waste destruction/stabilization and 

separation/extraction technologies. 

During the next five years, Germany, Mexico, and South Korea represent the best overseas 

markets for remediation technologies. Moreover, Germany was seen as a basis for entering the 

Central European market, which has extensive need for remediation. The greatest market 

opportunities in the next five to ten years include China, India, and Brazil. All six of the target 

countries operate nuclear power production facilities. 

Japan meets the criteria for inclusion as a marketing target, but that country was dropped from

the list because it is such a difficult market to penetrate. Japan buys less than one percent of its 

environmental technologies from other countries. Although the US accounts for about 70 

percent of that one percent, the research team felt that the limited resources available to promote 

exports of US remediation technologies would be better invested in a more hospitable market. 

Country Analysis 

Environmental technology, as defined for this section, includes production of goods and services 

for measuring, preventing, limiting, or treating environmental damage, the pollution of water, 

air, land, noise pollution and solid waste. The study team recognizes that untraded services, such 

as garbage collection are not included in the data, thus the quoted figures may be slightly 

distorted. The analysis is based on information from the Department of Commerce’s Country 

Commercial Guides for the listed countries, the International Trade Commissions document U.S. 

Trade Shifts in Selected Commodity Areas, and interviews with industry experts and U.S. 

manufacturers. Statistical accuracy and comparability to other sources are affected by a number 

123
of factors, including lack of published figures in certain markets, variances in data collection 

techniques, sources of data, and industry definitions. 

Japan: Due to a very competitive domestic market, Japan only imports approximately 0.74% 

of its pollution prevention equipment and services. The U.S. supplies 71% of these imports, 

which is less than 1% of Japan’s total market share. Following commitments made by Japan 

during the Rio Summit of 1992, and a tightening regulatory structure in Japan, the market for 

environmental products in Japan is expected to expand nearly 10% to over $19.3 billion in 1997. 

A key factor in this market expansion is Japan’s imminent adoption of ISO14000. Equipment 

and services with high demand in this expanding market are likely to be those utilizing 

biotechnology applications for waste treatment and contamination remediation. Cost effective 

U.S. technologies dealing with soil and groundwater contamination are also anticipated to do 

well in Japan. 

Air pollution prevention and control equipment is another area of expansion, as the air quality 

standards have become tighter at the national level. Japan currently accounts for 15% of the 

global air pollution prevention and control equipment market. The largest consumers in Japan 

are thermal electric power producers, petroleum refineries, and steel and chemical 

manufacturers. The fastest growing market for air pollution prevention and control equipment is 

in equipment for municipal solid waste incinerators, a disposal process becoming more common 

as landfill space becomes increasingly scarce. From 1990 to 1995, Japans imports of equipment 

in this area increased 75%, and in 1995, 60% of the equipment imports came from the U.S. 

Table A-1 

Market for Environmental Technologies: Japan, $ in Millions 

1995 1996 1997 

Total Market Size $ 16,270 $17,590 $ 19,360 

Total Local Production $ 16,500 $17,950 $ 9,750 

Total Exports $ 350 $ 500 $ 550 

Total Imports $ 120 $ 140 $ 160 

Imports from the U.S. $ 85 $ 100 $ 120 

U. S. Market Share 1% 1% 1% 

Japan: Leading Sectors for U.S. Exports and Investments, Country Commercial Guides, U.S. Department of 

Commerce

Mexico: Mexico imports approximately 40% of its pollution prevention equipment and 

services. The U.S. supplies 69% of these imports, or 28% of Mexico’s total market share. From

1995 to 1997, U.S. pollution prevention equipment exports to Mexico in the sectors of air 

pollution, solid waste and toxic waste are expected to grow an average of 8%. 

Some of this growth may be regulatory driven, as Mexico City authorities have recently 

announced a five-year program targeted at reducing air pollution in Mexico City and twelve 

other municipalities in the State of Mexico. This air quality program, at an anticipated cost of

US$13.3 million, requires installation of air emission control equipment in industry, vehicle 

inspection, and erosion reduction measures. 

124
Another anticipated area of market growth for environmental equipment and services in Mexico 

is in municipal landfill construction and management. It is expected that private companies will 

be awarded 15 new concessions for landfills in mid-sized cities within the next five years. 

Imports of U.S. environmental equipment may be stimulated by a recently introduced tax 

incentive program, which allows private companies to write off the value-added tax for 

purchases of environmental equipment used to comply with environmental regulations. 

Industry sectors in Mexico that appear to be promising markets for U.S. exports include: air 

emissions control equipment and systems, emissions testing equipment, hazardous and toxic 

waste management equipment, solid waste management equipment, and solid waste recycling 

equipment. 

Table A-2 

Market for Environmental Technologies: Mexico, $ in Millions 

1995 1996 1997 

Total Market Size $ 1,882 $ 1,773 $ 1,784 

Total Local Production $ 1,267 $ 1,241 $ 1,254 

Total Exports $ 141 $ 239 $ 287 

Total Imports $ 756 $ 771 $ 817 

Imports from the U.S. $ 522 $ 532 $ 607 

U. S. Market Share 28% 30% 34% 

Mexico: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, U.S. Department of Commerce 

Canada: Canada imports approximately 38.8% of its pollution prevention equipment and 

services, 77% of which is provided by the U.S. This is approximately 30% of Canada’s total 

market. As demand for pollution prevention equipment grows, it is matched by expansion of 

the need for services and management expertise within certain industries. The demand for 

pollution prevention equipment and services is expected to grow between three and five percent 

annually. 

Industries that show the greatest promise for U.S. exports include: air pollution reduction, water 

and wastewater treatment, and hazardous waste. Mining and forestry industries are focusing 

more on air pollution reduction with the move towards adopting ISO14000 standards. In 

addition, many Canadian air filtration companies have begun to show interest in capturing CFCs. 

In the area of water and wastewater treatment, some municipal governments are interested in 

privatization options with hopes of reducing spending. Finally, in the area of hazardous waste, 

several military sites have been targeted for waste evaluation, followed by treatment or removal 

of contaminated soil. 

Due to the small size of most Canadian firms active in the provision of pollution prevention 

equipment and services, a team approach is favored for many projects. This team approach will 

provide opportunities for U.S. firms with specific capabilities in the provision of services, 

equipment, or components to complement the existing Canadian firms. U.S. companies may be 

assisted in this end by a recent policy statement, the Canadian Environmental Industry Strategy, 

issued by the federal government, which has dedicated funding to programs supporting joint 

125
ventures, strategic alliances, and consortia, both in Canada and off-shore. U.S. companies may 

qualify for this program in partnership with Canadian companies. 

US pollution prevention equipment has a very strong reputation in Canada among end-users, 

consultants, and companies, for being more advanced based on the size and history of the U.S. 

market.

Table A-3 

Market for Environmental Technologies: Canada, $ in Millions 

1995 1996 1997 

Total Market Size $ 4,227 $ 4,460 $ 4,629 

Total Local Production $ 3,331 $ 3,517 $ 3,679 

Total Exports $ 744 $ 797 $ 877 

Total Imports $ 1,640 $ 1,740 $ 1,827 

Imports from the U.S. $ 1,260 $ 1,300 $ 1,365 

U. S. Market Share 30% 29% 29% 

Canada: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, DOC; US$ millions 

Korea: Korea imports approximately 47% of its pollution prevention equipment and services, 

20% of which is provided by the U.S. This is approximately 9% of Korea’s total market share. 

Rapid industrial growth has resulted in substantial increases in pollution, which in combination 

with a rising standard of living have resulted in increased environmental awareness. The size of 

the Korean market, import markets are both expected to rise sharply over the next few years. 

This expansion will be due in part to the more stringent regulations that the government is 

placing on industrial emissions and attempts to streamline pollution prevention and clean up 

projects by employing more efficient processes and equipment. Sales of equipment and 

expertise in specific industries, in addition to joint venture manufacturing and construction 

ventures hold strong potential for U.S. participation. 

The best prospects for sales of U.S. equipment in Korea are: automatic strainers, aerators, ozone 

generators, FRP chains, decanting centrifuges, water reuse systems, sludge dewatering 

equipment, screw-decanters, and hydrasive screw/ultra-screen systems. Due to a tightening of 

standards on sulfur dioxide, this may be one of the most lucrative areas for imports. 

Although the U.S. holds a smaller share of the import market than Japan, which holds 

approximately 45% of the market, U.S. equipment is generally regarded as being equal to or 

superior to Japanese equipment. However, U.S. sales still lag behind those of Japan due to a 

perceived lack of follow-up service. The Korean Government is seeking to diversify its 

international trade, and has established a policy intended to reduce Japanese imports. 

126
Table A-4 

Market for Environmental Technologies: Korea, $ in Millions 

1995 1996 1997 

Total Market Size $ 1,369 $ 1,774 $ 2,132 

Total Local Production $ 836 $ 1,114 $ 1,344 

Total Exports $ 104 $ 130 $ 155 

Total Imports $ 637 $ 790 $ 943 

Imports from the U.S. $ 127 $ 165 $ 205 

U. S. Market Share 9% 9% 10% 

Korea: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, U.S. Department of Commerce. 

France: France imports approximately 25% of its pollution prevention equipment and services. 

The U.S. supplies 10% of these imports, or 2.45% of France’s total market. Major competition 

in this field comes from Germany, the UK, Sweden, the Netherlands, and Switzerland. The 

French market for environmental technologies has been dampened by a slowdown in the 

economy, but is expected to grow strongly in the next 10 years due to new French legislation and 

desire to bring France’s environmental protection standards up to those of the rest of the 

European Union. The French Ministry of Environment is focusing on issues of cleaning up 

contaminated land sites. Some of the technologies that they are pursuing in relation to this are 

landfill management techniques, waste incineration, recycling methods, and bio-remediation. 

To address European directives, France has developed a long-term plan to develop their 

environmental standards. Massive expenditures in water distribution, waste water treatment 

infrastructure, and environmental equipment and services will be made over the next ten to 

fifteen years. The most promising prospect for U.S. exporters to France’s environmental 

technologies market is to focus on high-tech, innovative and unique or proprietary pollution 

control. 

Table A-5 

Market for Environmental Technologies: France, $ in Millions 

1995 1996 1997 

Total Market Size $ 13,240 $13,913 $ 14,607 

Total Local Production $ 20,368 $20,765 $ 21,801 

Total Exports $ 10,387 $10,382 $ 10,682 

Total Imports $ 3,259 $ 3,530 $ 3,488 

Imports from the U.S. $ 325 $ 353 $ 419 

U. S. Market Share 2.45% 2.54% 2.87% 

France: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, U.S. Department of Commerce. 

127
Summary 

As the environmental market continues to grow internationally, the United States has an 

excellent opportunity to position itself as a world leader in environmental technology. The 

strengths of the U.S. market stem both from technological strengths and the benefits of being one 

of the first countries to focus on the environment on a large scale. Some of these strengths 

include: 

• innovative technologies for a variety of environmental problems; 

• excellent reputation for technology and service; and 

• strong export promotion programs. 

The best prospects for the U.S. environmental technologies market lie with sophisticated 

environmental technology and specialty products. 

128
Appendix B 

Standard Industrial Classification Codes for Environmental Industry 

Firms 

1389 oil and gas field services not elsewhere classified (NEC) 

1623 water main line construction 

1629 waste disposal plant, sewerage treatment plant construction, 

1711 water system balancing and testing 

2299 processing of textile mill waste and recovering fibers 

2493 reconstituted wood products 

2499 reqround sawdust, pressed logs of sawdust 

2679 converted paper and paperboard products NEC 

2899 water treatment compounds 

3089 plastic products NEC, including recycled 

3272 incinerators, concrete 

3341 recovery and refining of non-ferrous metals 

3399 recovery of iron ore from open hearth slag 

3443 heating equipment, inc. wood waste burning and biomass systems 

3564 air purification and dust collection equipment 

3567 incinerators, metal: domestic and commercial 

3569 air separators 

3589 water treatment equipment, industrial scrubbers and sweepers 

3634 air purifiers, portable 

3823 water quality monitoring systems, industrial process control instruments 

3826 analytical instruments 

3829 measuring and controlling instruments 

4941 water supply systems, except irrigation 

4952 sewerage systems 

4953 waste materials disposal, including hazardous incinerator operation 

4959 sanitary services NEC 

5075 air pollution control equipment and supplies—wholesale 

737 computer programming, data processing, other related services 

7389 business services NEC, including solvent recovery, aluminum processing (recycling); 

scrap metal, plastic, fiber, paper recycling 

8711 engineering services, except architectural and surveying 

8731 engineering laboratories, commercial physical research; except testing 

8734 testing laboratories, pollution testing, except automotive emissions 

EBI data describing ET revenues include public sector operation of water and sewer facilities 

and of waste management and resource recovery. However, they do not include the regulatory 

participation of government, which would fall under SIC code 9511, government. environmental 

protection, quality and control agencies. 

129
HOUSEHOLD FURNITURE IN ALABAMA AND MISSISSIPPI (SIC 251) 

EXPORTING FOR MASS CONSUMPTION 

by Brian Davis 

Alabama International Trade Center, University of Alabama 

Preface 

Competitive pressures in the U.S. furniture industry are pressing manufacturers to look outside 

the U.S. for new markets. Several trends within the industry point toward an increasingly 

competitive environment. Sales have been increasing by less three to six percent per year, 

consolidation among a smaller number of large firms are dominating shipments and product 

brands within the industry, low profitability is low as evidenced by low after tax returns on sales, 

and advances in production technologies are increasingly important but costly for smaller firms. 

Export markets can provide an outlet for future growth for Appalachia’s furniture manufacturers. 

One of the highest concentrations of furniture companies in the nation is located in northeastern 

Mississippi and northwestern Alabama. The furniture industry in this region has a number of 

advantages—it is strategically located near major wood and suppliers, it has a good reputation 

for traditional styles of furniture, and it is home to a domestic trade show that attracts 

international attention. There is some evidence that the region’s furniture manufactures are 

starting to take advantage of export opportunities—but at a lower rate than the industry 

nationally. U.S. export shipments of household furniture grew by 75 percent from $756 million 

in 1990 to over $1.3 billion in 1995. 

The industry has not fully realized its potential to export. Executives in the furniture industry 

located in the ARC cluster are optimistic that exporting increase. Yet firms are reluctant to 

aggressively seek out foreign markets. Unlike the U.S. hardwood lumber and components 

industry, the main furniture manufacturer’s association in the U.S. has virtually no export 

promotion programs. Few companies in the cluster have full-time export managers who travel 

abroad, seek foreign distributors, or attend overseas trade shows. Export sales of the industry’s 

top 25 firms are, on average, three to five percent of total sales. Many firms export in a reactive 

manner by “order-taking” from the growing number of foreign buyers who attend the U.S. 

furniture shows. 

Given the scale and capacity of the industry, its strategic location near quality, wood-based raw 

materials, and its utilization of advanced production methods, it is surprising that exports have 

not been greater. There are two critical problems impeding the growth of exports and 

accompanying growth in employment: (1) lack of skilled workers to run advanced woodworking 

equipment, and (2) lack of active, internal export systems within the firms. To help 

Appalachia’s furniture industry grow, demonstration projects should be initiated within this 

cluster to assist firms with cooperating on worker training and export development. 

130
Introduction 

In the northeastern corner of the state of Mississippi, centered in the city of Tupelo (perhaps best 

known as the birthplace of Elvis Presley), about 250 companies employing 22,000 people last 

year (up from 7,800 in 1980) produce mid-range furniture for mass markets.23 Of the 14,904 

new jobs in industry Mississippi reported during 1992, 41 percent were in furniture. The tencounty Appalachia region anchored by Tupelo has become the second largest producer of 

upholstered furniture in the nation, behind only the Hickory-High Point region of North 

Carolina, and it is the nation’s leader in mid-range recliners and incliners. “Almost everyone 

you meet around here,” observed one company owner, "has [or will have] worked in furniture by 

age thirty." The products of this cluster are not the fashionable traditional pieces of North 

Carolina or stylized pieces of Oregon, but functional furniture made in quantity and distributed 

largely though mass marketing to chain stores. In Alabama another, less dense and smaller 

cluster of furniture companies makes solid wood furniture purchased by retailers as low-priced 

promotional pieces. 

Industry Structure 

The ARC target industry SIC 251, household furniture, includes wooden, upholstered, and metal 

household furniture; mattresses, foundations and convertible beds; television, sound system, and 

sewing cabinets; plus household furniture not elsewhere classified such as porch, lawn, and 

camp furniture. (Standard Industrial Classification Manual; Executive Office of the President, 

Office of Management and Budget, 1987.) Household furniture industries are part of SIC major 

industry 25, furniture and fixtures. SIC 25 data is used in this analysis of recent export trends. 

National overview and market patterns 

Furniture manufacturing is no longer a traditional domestic industry but is global. The U.S. 

represents the world’s largest furniture market. It is a net importer of furniture and advanced 

furniture manufacturing equipment. The South, in particular, is known world-wide as a hub for 

furniture production. Over 70,000 visitors each year—10 percent from abroad—come to High 

Point, North Carolina to buy furniture at its semi-annual trade shows. 

U.S. trade in furniture—both imports and exports—has grown over the last 20 years. As Table 

35 shows, exports grew by approximately 75 percent, from $ 756 million in 1990 to over $ 1.3 

billion in 1995. Imports grew by 62 percent over the same period, from $ 2.7 billion in 1990 to 

over $ 4.4 billion in 1995. Yet the industry’s exports as a percent of sales ranks low among 

states in the ARC region. It ranks only 37th among the top 50 three-digit sectors, far below the 

national average for the industry. 

U.S. exports of household furniture in 1995 were less than five percent of domestic shipments. 

The top 25 U.S. furniture manufacturers exported, on average, less than five percent of total 

sales. Imports accounted for 24 percent of the domestic market. China will soon outpace 

Taiwan as the major import supplier of furniture; Italy and Germany lead as U.S. import 

suppliers of advanced woodworking machinery. 

131
Table 35 

U.S. Import- Export Trade in Household Furniture 

1990-1995 ( $ Value Millions) 

--------------------------------------------------------------------------------------------------------------------

- 

Product Category 1990 1995 % Change 

-------------------------------------------------------------------------------------------------------------------- 

Total HHF (SIC 251) 

Exports $ 756 $ 1,320 75 % 

 Imports $ 2,738 $ 4,448 62 % 

Wood HHF (SIC 2511) 

Exports $ 382 $ 669 75 % 

 Imports $ 1,711 $ 2,826 65 % 

Uph. HHF (SIC 2512) 

 Exports $ 128 $ 163 27 % 

 Imports $ 295 $ 430 45 % 

------------------------------------------------------------------------------------------------------------------- 

Source: U.S. Department of Commerce 

Exports of both wood and upholstered furniture accounted for approximately 60 percent of U.S. 

exports of all household furniture categories. The leading export destinations for household 

furniture in 1995 were Canada, Japan, Mexico, Saudi Arabia, and the United Kingdom. The top 

five import suppliers of household furniture were Canada, Taiwan, China, Italy, and Mexico. 

Domestic Trends 

Domestic industry shipments in 1995 exceeded $ 18 billion, with a retail market estimated to be 

over $ 50 billion. A small number of large firms dominate; 25 account for almost 50 percent of 

total shipments. Industry analysts point toward several trends in the domestic furniture industry 

that signal changes and possible reasons for the industry to be more aggressive to looking for 

exports markets. 

• The industry is in a state of flux. Consolidation quickened in 1996 with industry leaders 

getting larger through mergers and acquisitions. Some large firms, however, are losing 

market share to aggressive, relatively young, small niche firms (many of which don’t survive 

long). 

• Sales growth in 1995 was flat and growth slow in 1996 (average of 3.7 percent). But they 

are expected to increase in 1997, with estimates of growth rates at just less under six percent. 

• The industry’s financial performance is poor and companies are highly leveraged. Average 

debt to equity ratio doubled in the last ten years, profit margins are slim, and after-tax return 

on sales is only 2-3 percent. Some firms may not be able to withstand a market downturn. 

• Utilization of advanced manufacturing technology is widespread among 

• large companies, but increases in skills needed to operate the technology has not kept pace. 

Labor skills and worker training are one of the greatest concerns of industry—next to 

government regulation, wood supply, and price competition. 

• Manufacturing strategies are important with a growing demand for short production runs, 

just-in-time (JIT) delivery, and a more outsourcing of parts. 

132
• The industry has an abundance of design expertise and product variety. U.S. manufacturers 

introduce new product lines with innovation in finishings, materials, style and pricing semiannually at each market. 

• The bulk of the domestic retail trade is dominated by a few traditional styles and brands 

made by industry leaders. Smaller firms follow with new introductions and pursue niche 

markets.

Recent Export Trends24

In 1995, furniture and fixtures accounted for 0.6 percent of the value of manufactured products 

exported from the United States and 0.6 percent of the value of manufactured exports from the 

ARC states. The similar ratio indicates that the ARC states contribute a proportionate share by 

value of US furniture and fixture exports. The U.S. 1995 furniture and fixtures export total of 

$3,234 million represented an increase of just over $218 million dollars from 1993 when 

furniture export sales were $3,015 million. At the same time, furniture manufacturers in the 

ARC states increased their export sales from $880 million in 1993 to $893 million in 1995, an 

increase just under $ 13 million. This growth in export sales represents an increase of 7.3 

percent for the United States and only 1.5 percent for the combined ARC member states. Table 

36 lists the 1993 through 1995 values for furniture exports for the states that are members of the 

ARC and for the US as a whole. 

Table 36 

Value of Furniture and Fixture Exports, 1993-1995 (millions of $) 

AREA 1993 1994 1995 1993-1995 CHANGE 

ARC States $880.0 $924.3 $892.8 $12.8 

United States $3,014.9 $3,289.0 $3,233.5 $218.7 

As a result of the recent very slow growth for the multi-state total, the ARC states are providing 

a diminishing share of the nation’s furniture exports, by value. Figure 16 shows the ARC 

contribution to United States furniture export sales. Appalachia’s share decreased from 29.2 

percent in 1993 to 27.6 percent in 1995. 

133
Figure 16

0

500

1000

1500

2000

2500

3000

3500

1993 1994 1995

Rest of US

ARC States

ARC

The ARC furniture industry is clustered in several sub-areas within the region, with North 

Carolina, Tennessee, and Ohio the leading furniture exporting states. Table 37 lists the 1993 

through 1995 value of furniture and fixture exports attributed to each ARC member state, and the 

changes in the value of exports over the three years. The value of furniture exports decreased in 

eight ARC states and increased in five. The changes ranged from a gain of over $37 million for 

Ohio furniture exports to a loss of over $33 million in Mississippi. 

The change in dollar value tells only part of the story. The impact of a given increase or 

decrease in export sales depends in part upon total export activity. For example, South Carolina 

had a $10 million decline in exports that cut foreign sales almost in half, but a similar drop in 

Virginia exports translated into a much smaller percent decrease in exports. Calculating the rate 

of change helps put the movement in perspective. Table 37 shows that the rate of change in 

furniture exports varies dramatically among the ARC states. Seven of the ARC states had 

absolute decreases in the value of furniture and fixture exports—the highest number of states 

with declining export sales for any targeted cluster. 

134
Table 37 

Value of Furniture and Fixture Exports by State, 1993-1995 (millions of dollars) 

AREA 1993 1994 1995 ‘93-’95 Change 

Alabama $42.3 $40.3 $29.3 $(13.0) 

Georgia $35.4 $32.8 $35.2 $(0.2) 

Kentucky $33.0 $43.2 $49.5 $16.5 

Maryland $11.0 $11.9 $9.2 $(1.8) 

Mississippi $91.3 $74.8 $57.9 $(33.5) 

North Carolina $181.3 $211.9 $202.7 $21.4 

New York $88.6 $79.1 $82.3 $(6.2) 

Ohio $115.1 $149.3 $152.4 $37.3

Pennsylvania $71.9 $70.1 $74.7 $2.8

South Carolina $21.6 $18.0 $11.8 $(9.8) 

Tennessee $126.7 $137.9 $135.5 $8.8

Virginia $60.5 $54.3 $51.6 $(8.9) 

West Virginia $1.2 $0.6 $0.8 $(0.4) 

Figure 17 

Percent Change in Furniture Exports

1993-95

-60%

-40%

-20%

0%

20%

40%

60%

AL GA KY MD MS NC NY OH PA SC TN VA WV

As Figure 17 shows, Kentucky had the highest growth rate in value of furniture exports, at 

almost fifty percent in just two years—although the growth in the dollar value of exports was 

small. Ohio also experienced relatively strong growth. Most states, however, showed sharp 

declines. South Carolina, Mississippi, and West Virginia each lost more than a third of their the 

value of furniture exports, and Alabama lost thirty percent. 

135
Export Intensity 

Another technique for accommodating size differences among the ARC states so that export 

performance can be compared across the states and with the national average is to calculate the 

value of furniture exports as a percentage of the gross state product (GSP). That ratio measures 

the contribution that furniture exports make to the overall state economy. 

The furniture export intensity for the Appalachian region states is 0.04 percent, just below the 

national rate of 0.05 percent. The difference describes the gap between the contribution that 

export sales of furniture and fixtures is making to the regional economy and the contribution it 

would make if export performance was at the national average. It reveals that as a group, the 

ARC states are receiving slightly less than average benefit from the export of furniture and 

fixtures. However, export intensity varies widely between ARC states. 

Three ARC states have furniture export intensities well above regional and national averages 

(see Figure 18). The highest furniture export intensity is in Mississippi—despite recent steep 

declines still almost three times the regional average. Furniture export intensities for North 

Carolina and Tennessee also are strong. Moreover, those two states have increased exports, 

albeit small in percentage terms. Ohio has a furniture export intensity equal to the national 

average, and Alabama is at the regional average. The eight other ARC states have ratios below 

both national and regional averages. Maryland and West Virginia, with few furniture exports, 

have export intensity very close to zero. 

To compare export performance over time, ARC states’ export intensity can be calculated as an 

index relative to the national average. The national Export Intensity Index (EII) is always 1.0. 

Therefore, states where furniture exports make an above average contribution to the economy 

have an EII greater than one and where exports make a relatively smaller contribution to the state 

economy, it is less than one. The ARC states combined had a 1995 furniture EII of 0.84, down 

from 0.88 in 1993. 

136
Figure 18 

Furniture Export Intensity 1993-1995

0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

0.12%

0.14%

0.16%

MS NC TN KY OH AL VA GA NY PA SC MD WV

Changes over time in the EII reflect a change in the contribution of that industry’s exports to the 

state or regional economy that is greater (an increasing EII) or less ( a decreasing EII) than the 

national trend. Calculating the EII for individual states allows a state-by-state assessment of 

exporting performance in the target industry (see Table 38). The ARC states show wide 

variation in their furniture and fixture EII. Mississippi, North Carolina, and Tennessee have an 

EII well over 2.0 for furniture and fixtures. At the other extreme, West Virginia has an EII of 

0.05. 

Kentucky had the largest increase in furniture EII, reflecting strong growth in furniture exports. 

At the other extreme, a sharp decline in the furniture export intensity index for Mississippi 

reinforces the absolute and percentage declines in the value of its furniture exports, while the fact 

that its EII is still above 2.0 signifies the importance of furniture exports to the state’s economy. 

North Carolina and Tennessee show a high and reasonably steady furniture EII, while an 

increase in the furniture EII for Ohio brought it over 1.0. Alabama, which had a furniture EII 

above 1.00 in 1993, experienced a steep decline that brought it below the national average. 

137
Table 38 

Furniture and Fixture Exports SIC Code 25 

National Export Intensity Index, 1993-1995 

STATE 1993 1994 1995 

Alabama 1.07 0.93 0.70

Georgia 0.45 0.38 0.41

Kentucky 0.88 1.05 1.23

Maryland 0.19 0.19 0.15

Mississippi 3.94 2.96 2.33

North Carolina 2.23 2.38 2.30 

New York 0.37 0.30 0.32 

Ohio 0.95 1.13 1.17

Pennsylvania 0.55 0.49 0.54

South Carolina 0.61 0.47 0.31 

Tennessee 2.27 2.26 2.25

Virginia 0.79 0.65 0.63

West Virginia 0.08 0.03 0.05 

Industry Concentrations 

Household furniture is the ARC region’s largest single employer-sector, with more than 75,000 

employees in 1991. Much of the industry is concentrated in two regions. One is centered in 

Hickory and High Point, North Carolina, just outside of the eastern boundary of Appalachia. But 

the entire cluster extends well into the ARC region in western North Carolina and eastern 

Tennessee. The other cluster is in northeast Mississippi and northern Alabama. While the ARC 

areas of these two states are contiguous, their household furniture manufacturers are not closely 

linked and do not share services or interact to any extent. Thus, they really comprise two distinct 

clusters, one in Mississippi and one in Alabama. 

In Mississippi, household furniture production is dominated by the upholstered household 

furniture (Table 39), taking up over 70 percent of the state’s total number of furniture 

establishments. This cluster is the nation’s leading center for the production of upholstered 

furniture. It contains 92 percent of all the upholstered establishments in the ARC cluster. 

In Alabama, firms make a more diverse range of household furniture, with about 65 percent of 

the companies engaged in the production of solid wood and other household furniture products 

(Table 39). Firms in the ARC counties represent about 86 percent of all the wooden furniture 

manufacturers in the two states. Alabama’s cluster, while not as well known for furniture, ranks 

fourth in the U.S. in total shipments behind North Carolina, Mississippi, and Tennessee. 

Furniture production in Alabama and Mississippi employed over 64,000 people in over 500 

manufacturing establishments in 1995, according to surveys conducted by each states’ official 

economic development agencies. Approximately 70 percent of the employment in furniture 

production in Alabama and Mississippi was concentrated in the household furniture sector. 

138
Table 39 

Concentration of Furniture Industry in Alabama and Mississippi ,by Products, 1995 

 Mississippi Alabama Total 

Sector # Firms Employ. # Firms # Emp # Firms # Empl. 

2512 Upholstered 107 19,519 30 1,073 137 20,592 

2511 Wood 51 5,089 81 5,935 132 11,024 

2515 Mattresses 69 12,570 16 496 85 13,066 

25/14-29 Other HF 14 2,461 14 1,803 28 4,264 

Total Household 

Fur 

241 39,639 141 9,307 382 48,946

Non-HF (office) 77 9,990 64 5,554 141 15,544 

All Categories 318 49,629 205 14,861 523 64,490 

Percent State/ 

Total MS + AL 

60 75 40 25 

Note: Figures are for entire states, not only ARC counties. 

Source: Annual Survey of Manufacturers, 1995. Alabama Development Office and Mississippi 

Department of Economic and Community Development. 

Within these two furniture producing states, there are clusters of companies located in a tencounty area centered around Tupelo, Mississippi and a seven-county area centered around 

Haleyville, Alabama. As Table 40 and the map in Figure 19 indicate, these clusters contains 

over half of household furniture establishments and half the employment of the total furniture 

industry in both Alabama and Mississippi combined. 

Table 40 

Profile of Household Furniture Industry Cluster 

ARC Counties of Mississippi and Alabama, 1995 

MS MS AL AL Total Total 

# Firms # Employed # Firms # Employed # Firms # Employed 

ARC 

Cluster 

122 23,289 76 5,080 198 28,369

State Total 241 39,639 141 9,307 382 48,946 

ARC / 

State 

0.50 0.58 0.53 0.54 0.51 0.57

Source: Annual Survey of Manufacturers, ADO and MSDECD, 1995. 

139
Figure 19 

140
Table 41 

Product Concentration within the ARC Furniture Cluster 

Alabama and Mississippi, 1995, (Number of Establishments) 

Category Mississippi Alabama Total 

ARC (1) State ARC (2) State ARC 1+2 MS+AL 

Upholstered 94 107 8 30 102 137 

Wooden 8 51 51 81 59 132 

Total 102 158 59 111 161 269

ARC / State 0.64 0.53 0.60 

Note: (1) Itawamba, Monroe, Chickasaw, Pontotoc, Lee, Union, Tishamingo, Prentiss, 

 Tippah, and Alcorn counties. 

(2) Franklin, Marion, Lauderdale, Cullman, Morgan, Winston, and Walker counties. 

Source: Annual Survey of Manufacturers, 1995 from the Alabama Development Office and the 

Mississippi Department of Economic and Community Development. 

Table 42 

Household Furniture by County and State with the Number of Establishments, 

Employment and Location Quotient 

County State Establishments Employment Location Quotient 

Chicasaw MS 38 4,796 216.7

Itawamba MS 7 942 65.8

Lee MS 26 3,533 35.2

Monroe MS 14 1,925 59.2

Ponotoc MS 32 3,183 162.4

Pretiss MS 12 869 43.7

Tishomongo MS 10 438 27.5

Franklin AL 7 33 1.3

Marion AL 6 293 11.2

Winston AL 36 2,571 100.5

Origin of clusters 

The two furniture clusters grew out of the hard work of early entrepreneurs. Mississippi’s 

industry cluster was born when Morris Futorian, a Russian immigrant living in Chicago, became 

convinced in the 1940s that upholstered furniture could be made more affordable by mass 

producing it using the lessons of the automobile industry. Turned away by North Carolina which 

prided itself on craft production, Futorian found in Mississippi access to raw material, lower cost 

labor, and a community open to his ideas and willing to raise money for his plant. He opened the 

doors of his new company in New Albany in 1948. 

To this day, mass production methods distinguish Mississippi's upholstered furniture industry 

from North Carolina's, where more firms use flexible, modular production methods with a team

of workers often producing an entire piece. The plant that Futorian started now is part of the 

Mohasco Corporation and covers over 25 acres. Over time, many of Futorian’s employees 

141
acquired a sufficient store of skills and knowledge of the industry—and also some of his 

entrepreneurial drive—to leave and set up their own shops. Many of the people trained in 

Futorian’s methodology and “apprenticeships” are now the industry leaders in the U.S. 

upholstered industry based in and around Tupelo—Action Industries, Franklin, and 

PeopLoungers. They refer to themselves as graduates of the “University of Futorian.” Factory 

spawned factory, and as the cluster grew it attracted other companies producing similar and 

compatible furniture as well as parts, suppliers, and support services. Community leaders also 

worked to recruit key suppliers to the area, such as producers of mattresses, frames, and springs 

and are presently working to attract a fabric company. The state, aiming to diversify, also 

aggressively has recruited non-upholstered furniture companies such as Krueger International, an 

office furniture maker that moved to Tupelo in 1963. 

In Alabama, the furniture industry in remote Haleyville was a spin-off from the growth and 

development of the manufactured housing industry concentrated in the area. The mobile home 

industry got a boost in the early 1960s from entrepreneur Don Tidwell who started his own 

business to build and assemble mobile homes. By the mid-1970s there were some 50 mobile 

home plants in the area. Tidwell trained a number of people to operate his numerous plants. 

Many left to start factories to supply the local industry with furniture and other components. 

Today those entrepreneurs own and manage some of the leading wooden furniture 

manufacturing establishments in the area that are known nationally for promotional (low cost) 

residential furniture—Harden, Quality Dinette, and Caldwell Chair. 

The promotional furniture industry has its own trade show and furniture market based in Tupelo. 

This trade show was started in the early 1980s by local entrepreneurs in the furniture industry 

who saw a niche for the promotional, lower-priced furniture trade that was not a large 

component of the High Point market. Today the market is recognized in the industry, is held 

twice per year, and attracts over 20,000 buyers each year. 

Industry Suppliers 

The sources of much of the new technology for the industry—the machine builders—are global 

and easily accessible by U.S. manufacturers. German and Italian companies are the main source 

of new equipment, and their representatives regularly call on ARC manufacturers. Furniture 

executives and purchasing managers shop for supplies and equipment at a bi-annual International 

Woodworking Fair (IWF) held in Atlanta and at numerous regional shows. The IWF attracts 

worldwide suppliers and buyers. Thus, in the finished furniture trade, U.S. manufacturers do not 

have to go far to see and purchase new equipment. 

Suppliers, however, tend to be local—one of the competitive advantages of these clusters. Many 

producers of raw materials, panels, veneers, springs and other hardware, foams, fabrics, and 

finishing materials are nearby and easily accessible. According to Mississippi development 

officials, the region is home to about 75 percent of the suppliers of its upholstered furniture 

industry. For example, Tupelo has one of the largest producers of polyurethane foam in the U.S. 

and serves as a fabric distribution center. While this has been a major advantage, some industry 

executives are cautious about the upward trend in prices and pressures on the supply of wood 

based materials. 

142
The ARC Clusters 

Description of the survey respondents 

Over 160 establishments manufacture household furniture in the ARC clusters in Northeast 

Mississippi and Northwest, Alabama. The Alabama International Trade Center surveyed 20 

companies—ten firms that export and ten firms that do not export. These companies include: 

• twelve that make wooden household furniture and eight that make upholstered furniture; 

• six exporters in Mississippi and four in Alabama, with the reverse for the non-exporting 

participants—six in Alabama and four in Mississippi; 

• six exporters that are privately owned and four branch plants, eight non-exporters that are 

privately owned and two branch plants; and 

• a mix of industry leaders and small companies (four with more than 500 employees and ten 

with fewer than 10 employees). 

Economic Status 

The cluster’s future is in a state of flux, corresponding to national trends. Large firms are 

growing larger, smaller firms are growing rapidly, but firms of all sizes are experiencing 

downturns in sales and employment. Companies surveyed reported the following trends: 

Downward pressure on sales and prices due to sluggish consumer demand and increased 

competition. Sales had advanced slightly (less than 10 percent) over years previous among a 

majority of respondents. 

• Some upward pressure on wages (less than 10 percent) due to demands for higher skilled 

workers. 

• Exports were up over previous years for those already exporting. Nine of the ten exporters 

reported an increase in export sales. Exports represented, on average, five to eight percent of 

overall sales efforts. Half of the exporters had a full time export sales manager. 

Competitive Situation 

Companies within the cluster were unanimous in believing that in today’s competitive economy, 

they need a combination of all the factors listed in the survey to be successful: design, quality, 

price, service, customer relations, and delivery. But when forced to choose among them, price 

and product design (at low cost) were cited as their greatest competitive advantages. Some noted 

pressures for faster delivery times from consumers and retailers and a move toward out-sourcing. 

Comparing adoptions of new technologies and techniques to others in their industry outside of 

the cluster, executives believe that they are more advanced than the industry on average (in the 

upper twenty percent), perhaps because they use mass production methods for their less 

customized products. CNC machinery and other advanced machinery is commonplace in the 

region’s large and mid-sized firms, if not the small firms. Many of the people from firms 

interviewed travel to woodworking equipment shows in Italy and Germany and regularly attend 

the International Woodworking Fair in Atlanta. 

143
The single most important obstacle to growth—noted by every respondent—was skilled labor 

shortages. They cannot use new technologies effectively without skilled employees to operate 

them. Some firms noted a shortage of workers altogether, regardless of skills. Others were 

concerned about high labor turnover rates. Workers will move to other local manufactures in the 

same or related industry within the cluster area for higher pay. 

Export Behavior 

A majority of the firms within Alabama and Mississippi in these ARC clusters produce furniture 

that is aimed at U.S. promotional markets to attract buyers and build volume sales. Therefore, 

the product ranks low in the price spectrum. Can such low priced promotional wood and 

upholstered furniture be exported? Industry analysts and support service staff made several 

comments that suggest problems in achieving success in overseas markets: 

• promotional furniture has an element of being "cheap" while overseas customers are looking 

for American style furniture that is quality oriented and higher priced and 

• upholstered furniture is difficult to export because its bulk makes transportation costs high. 

Our findings indicate that these statements are misleading. First, furniture pricing for the U.S. 

wholesale and retail market does not necessarily mean that products are not of high quality. 

Many companies interviewed were proud that they offer value to their customers by selling 

quality furniture at low prices. The survey also revealed an interesting industry practice with 

respect to quality versus price. The same products sold through promotional channels can also 

be sold to higher-end markets. But firms making promotional items are unable to enter these 

markets alone because of high costs of marketing, advertising, and sales promotion needed to 

establish their own product image and brand. Instead, they sell to higher end markets by 

cooperating with large U.S. companies that control domestic markets 

Second, many of the firms interviewed are already selling promotional furniture overseas. 

Promotional furniture is exported to Europe and Japan, two regions known as primary markets 

for upper-end, high-priced goods. Yet two promotional firms were doing well targeting 

segments of the European and Japanese consumers who want lower-priced, quality-oriented 

furniture. As in the domestic market, export markets offer opportunity for all types of products 

sold at different price levels. Further, some companies interviewed are targeting large emerging 

markets in newly-developed nations that have large numbers of potential consumers at lower 

income levels. Because of rapid economic growth, upwardly mobile consumers with rising 

income are able to purchase reasonably priced furniture. 

Third, companies that want to export can export. Those that are committed to exporting and 

have hired a full-time export managers are able to promote and sell their products to foreign 

customers. Committed exporters also are able to sell upholstered and wooden furniture that is 

produced fully assembled rather than as "knock-down" furniture for export shipment, despite the 

higher costs of shipping the products overseas. Some of the larger industry leaders in 

upholstered furniture have pursued a strategy of international licensing to overcome high 

transportation costs and tariffs. They ship components to partners overseas that assemble and 

sell the furniture through its own distribution channels under license. 

144
A majority (80 percent) of respondents agreed that exports are “important” or “very important” 

to the industry’s future. Yet only five respondents had a full-time export sales manager actively 

seeking out foreign representatives at trade shows abroad. These exporting firms were relatively 

new at it, with less than five years experience on average. Exports accounted for less than eight 

percent of total sales on average. The other five exporting firms were “order takers” from

contacts that visit the shows in High Point or Tupelo and did not have overseas representatives 

or distributors. 

The more successful exporters employ a full-time export sales manager, travel to overseas trade 

shows, and seek out foreign based distributors. Exporting firms have learned to adapt their 

products to foreign standards (flammability laws in UK), customer preferences (firmer seat 

cushions in Germany), and industry norms (smaller scale furniture in Japan). Perceived 

obstacles are largely external to the firms. The top two barriers cited were lack of market 

information and transportation costs. Foreign exchange rate fluctuations and high tariffs rank 

top among their other concerns. 

Most firms had not received export assistance, did not seek out information about exporting or 

export service providers, and were generally unfamiliar with the availability of export services. 

This is largely due to the nature of the domestic market—orders are taken at shows where 

foreign buyers are shopping for the latest American styles. They contend that they get all the 

international contacts they need at the High Point furniture shows. The exports of many firms 

interviewed are secured in this reactive, order taking manner. As a result, as Table 43 shows, 

furniture exports from Mississippi are at the same level in 1995 as in 1990. Alabama doubled its 

furniture exports over the period 1990-95, but they still are negligible as a percent of sales. 

Table 43 

Furniture Exports from Mississippi and Alabama, 1990 and 1995, $ in millions 

--------------------------------------------------------------------------------------------------------- 

 1990 1995

---------------------------------------------------------------------------------------------------------- 

 MS $ 58 $ 57 

 AL $ 15 $ 30

 Total $ 73 $ 87 

Percent of U.S. Total 

 HH Furniture Exports 0.09 0.06 

----------------------------------------------------------------------------------------------------------- 

Source: U.S. Department of Commerce 

The top five markets for furniture exports for in 1995 from Mississippi were Canada, Germany, 

Saudi Arabia, Israel, UAE, and Japan, and from Alabama, Canada, Mexico, Saudi Arabia, 

Kuwait, and Japan. The items respondents believed to be most useful to exporters are (1) access 

to credit for foreign customers, (2) more information on foreign distributors and retailers, and (3) 

support for attending furniture trade shows abroad. 

145
Service Providers 

Ten organizations responded to the ARC survey of support services to the cluster. Most are state 

supported institutions that provide services for product testing, technical training, and exporting. 

A majority believe that exporting will be “important” or “very important” to the industry’s 

future. This group noted that: 

• the top two competitive advantages of the industry are product design and price; 

• the main barriers to exporting are (1) lack of market information, (2) product specifications, 

transportation costs, and (3) export procedures; and 

• to increase exports, owners must be committed, have dedicated export staff and budgets, 

travel to foreign trade shows, and improve product quality and price. 

The research uncovered no significant export initiative in Alabama that exclusively focused on 

furniture exports. Given the economic development potential of this industry and the potential 

for export expansion, more could be done. Alabama’s Forestry Commission (AFC) has a multiagency task force called the Forestry TEAM that supports a full-time trade specialist at the AITC 

to work on export of wood products. A portion of this person’s time is devoted to furniture 

exports and the preparation of an industry wide export directory. The Forestry TEAM devised 

an economic development strategy which targets the secondary wood industry. These agencies 

(the Alabama Development Office, Alabama Forestry Commission, Auburn University’s Forest 

Products Development Center, and the Alabama International Trade Center at the University of 

Alabama) have collaborated to start an advanced woodworking training center at Northwest 

Shoals Community College near Haleyville, Alabama. It will start operation in January 1997 

and focus on worker training for the secondary wood products industry, including furniture. 

Despite the specialized services for the industry, there is no specific furniture export initiative in 

Mississippi. The community college and state university offer technical services that are wellreceived by industry but not concentrated on furniture SMEs. The official state trade 

organizations of neither state explicitly targets household furniture. Mississippi’s Department of 

Economic and Community Development and the Alabama Development Office both invite firms 

to participate in its overseas promotion events and have worked with furniture companies, but 

that is the extent of their involvement. 

Key Services 

The Community Development Foundation (CDF), a non- profit, private foundation primarily 

recruits industry to the Tupelo area but has taken a number of initiatives to support and expand 

the furniture industry and its suppliers in Tupelo. They have eight staff available to work with 

companies, offering business management services, problem solving, and special projects such 

as quality circles to boost the local cluster. CDF was instrumental in getting the Tupelo furniture 

mart started and they have promoted trade missions for furniture to the Middle East. 

Mississippi Department of Economic and Community Development’s International Trade 

Department provides research, trade leads, and overseas promotion for Mississippi companies. 

The wood products sector is one of its industry targets where they attend foreign trade shows for 

the lumber industry, The wood product efforts do not include the furniture cluster, but the office 

146
does provide leads and promotion for a number of furniture companies. One state trade official, 

however, was pessimistic about the prospects for export opportunities for two reasons: the 

promotional, low priced products and the inability to ship in a “knocked-down” stage. The 

official contended that firms had to offer higher quality, higher priced goods and make it 

knocked down in order to compete in overseas markets.

Itawamba Community College offers services specifically geared toward the upholstered 

companies located within about a l00 mile radius from Tupelo, including a two-year associate 

degree; training in and demonstrating new technologies, placement services, and diagnostic 

problem solving. It is well-known nationally and is a member of the Consortium for 

Manufacturing Competitiveness and Trans-Atlantic Technology and Training Alliance, and 

could be helpful in making European connections. Given the demand, graduates are placed in 

local factories immediately. The budget for marketing and promotion is quite small, and the 

center worked with only 25 firms in 1996—mostly medium to large size companies. SMEs 

generally either cannot afford or don't yet see the value in the Center’s services. 

Mississippi State University’s Furniture Research Unit is part of the University's Forest Product 

Laboratory and focuses exclusively on the furniture industry in Mississippi. It operates 

statewide and provides research, product testing, demonstration technologies and transfer, 

extension and education, and publications. They have been instrumental in helping firms with 

competitiveness and productivity, The unit has at least six full-time research and industry 

oriented staff split their time between teaching, research, and extension activities. Staff members 

have developed new “furniture” specific software to help firms utilize raw materials and other 

advanced production methods. While the unit does not offs export services, they have worked 

on projects with firms to find ways to “knock-down” upholstered furniture. They also worked 

with the AITC on an ARC sponsored furniture export conference in Tupelo in 1990. 

Based on information gathered in the survey, Hinds Community College’s International Trade 

Center helped one firm with export procedures and contacts. The Alabama International Trade 

Center at the University of Alabama helped two firms with market research, contacts, in-house 

training, promotion of trade shows, and foreign study tours of factories. 

The Alabama Forestry Commission’s Forestry TEAM has a furniture specific export initiative for 

Alabama with two distinct components. One is working with individual furniture companies to 

provide export research, in-house training, and counseling. This part is done through the AITC 

at the University of Alabama. Working with the Japan External Trade Organization, it has been 

successful in helping furniture companies target Japanese markets. The AFC and AITC, in 

cooperation with the Appalachian Regional Commission, will offer in-house export training 

programs to 5 to 10 furniture companies during 1996-1998. The second component of the 

Forestry TEAM is the improvement of the skill levels of work force. Beginning in late 1996, the 

Alabama Center for Advanced Woodworking Technology, which operates out of the Northwest 

Shoals Community College, will help furniture manufacturers with training and production 

technology.

147
Figure 20 

148
Figure 

Household Furniture Cluster in Alabama and Mississippi

Household Furniture

Manufacturers

Wooden

(59) 

Raw Materials

Lumber

Dimension

Fabric

Springs

Veneer

Finishing

Hardware

Panels

 Machinery & 

Processing

CNC Machines

CAD - CAM

•Software

•Basic Machines

•Panel & Solid

•IWF-Ligna

 shows

Domestic Market

Trade Shows

High Point Tupelo

Retail

Trade

Foreign Market

Reps - Distr.

Trade Shows

Retail Foreign

Licensing

Assembly

Operations

Upholstered

(102)

Mfg. 

Gallery

Business

Services

Design 

Engineering 

Logistics

Finance

Technology

Training & 

Testing Services

Itawamba CC

MS-State Univ.

ACAWT

CDF

Export

Services

CDF-Tupelo

TEAM-AITC

State-ED

149
150
Dynamic Factors and Linkages

Companies contend that their location gives them certain advantages—e.g., access to raw 

materials, lower wage rates, and transportation efficiencies (proximity to major markets). The 

main disadvantage again was lack of skilled labor and competition for labor within the cluster. 

About 80 percent of firms surveyed purchased over 75 percent of their raw materials and 

supplies within a 100-mile radius of their factory. (See Figure 20 for a graphical presentation of 

the relationship between furniture manufacturers, raw material suppliers, industrial suppliers, 

business, technical and export services, and the penetration into the domestic and foreign 

markets.) 

Projections 

• The skill levels of the existing work force must be raised. Companies are using more 

advanced machinery and production methods, but cite a strong need for skilled workers 

The main forum that affords executives the opportunity to meet and talk with peers is the 

furniture markets in High Point and Tupelo. Most firms belonged to and received benefit from

the American Furniture Manufacturers Association (AFMA). Outsourcing, while a growing 

national trend, was not particularly evident among the group interviewed. Some firms were 

working through sub-contractors on furniture parts to cut costs and eliminate the need for 

equipment. 

Cooperation among firms was rare and without exception executives felt there was a very low or 

low level of trust between firms. The reason cited for this was intense competition among 

producers of similar product lines within the cluster. There were only two concrete examples of 

cooperation cited. One firm had joined with another non-competitor to quote on a potential 

export order. Two other firms that are part of a large holding company participated in a worker 

tour to review equipment. Executives interviewed felt that cooperation would be welcome in 

technical, problem solving areas, but not in the area of design, marketing and sales. Firms noted 

that they would cooperate on export sales promotion with non-competing lines. Two 

organizations in Alabama and Mississippi replied that cooperation would become more common 

but that there would have to an external stimulus. 

Companies Outside the Cluster 

Four firms were interviewed that were located outside the heart of the ARC cluster (over 150 

miles). There were no noticeable differences among firms in the outlying areas of the cluster in 

terms of access to suppliers, services, information gaps, export trends, competitiveness issues, 

and use of technology. The industry is fairly harmonized. 

Export Potential and Growth 

This sector is not fully exploiting its potential to grow through exporting. Another downturn in 

the U.S. market would likely trigger a move to look at exports. Looking for exports when the 

domestic economy is down is exporting for the wrong reasons. There are two obstacles to 

overcome before a real shift in export development can occur. 

151
trained to run the machinery. This is essential to stay competitive on the domestic market 

and the export market. 

• More skilled and more committed workers are needed. More youth have to be 

encouraged to pursue technical employment opportunities in the industry and more 

companies have to find ways to reward and involve workers in ways that build loyalty. 

• Firms need to transition from the passive (order-taking) export sales approach which is 

commonplace to a more aggressive stance. Companies must hire export specific staff and 

provide them with a budget to seek out foreign markets, attend trade shows abroad, and 

identify and establish distribution networks. 

Employment growth will not likely come in this industry from the domestic market. 

Employment in the ARC region within the furniture sector can expand, however, if something is 

done to remedy both the skill levels of workers and the export capability of the firms to 

aggressively pursue trade abroad. The potential exists and the ARC can play a role in 

stimulating that development. 

• The firms were not proactive exporters now, but see it as a future opportunity. The firms that 

had full-time export managers were doing better than those that did not have one. 

• The firms were not cooperative now evidenced by the low level of trust, but they would be 

willing to do so in the areas of technical support and export development among noncompeting firms. 

• The industry has several “export” advantages including close access to wood based raw 

materials and other components, a growing reputation overseas for quality craftsmanship in 

furniture, an abundance of product design and production capabilities, and a large number of 

firms that are flexible enough to introduce new product lines twice per year at the domestic 

trade shows. 

• Lack of skilled workers and the need for training on advanced manufacturing equipment and 

accompanying production systems was a barrier to growth. 

• Export promotion which provides more market information, foreign product specifications, 

and access to foreign trade shows was a primary need. Mississippi and Alabama firms share 

common export market destinations for their products, making cooperation more likely for 

overseas shows. 

• Strengthen worker training programs that currently exist at the community college and 

University level in Alabama and Mississippi. Tie funding to participation among groups of 

non-competing furniture lines. 

Suggestions 

The industry is ripe for cooperation and networking. ARC pilot initiatives in the two areas of 

export development and worker training would be well-received by the industry. The survey 

highlighted several facts that support this statement. 

The ARC can play a role in stimulating the development of worker training and export 

development. Companies within the cluster were independent minded, but looked to industry 

shows and associations for the leadership. Programs which would help stimulate the formation 

of industry-led initiatives would be more likely to succeed. 

152
• Provide training for increasing the internal export commitment of furniture manufacturers 

including training of management, sales, and order processing staff on export procedures. 

Help companies set up export sales departments. There is a lack of knowledge about how to 

export within the firms, what assistance is available, and how to utilize it. 

• Evaluate the need, feasibility, and cost for a major, regional export promotion service at the 

industry level that links the association (American Furniture Manufacturer’s Association) to 

various programs at the federal, state and local level. 

• Based on the outcome of the feasibility study, start a small, trial program which combines 

the resources and interests of organizations in the lead furniture producing cluster areas of 

Appalachia including North Carolina, Mississippi, and Alabama. This effort should include 

a number of new program elements and carefully delineated roles among organizations 

within the region. 

- Grant support for participation in overseas furniture trade shows. Funding should 

help defray the cost of booth space, not overseas travel. Link the funding to conditions that 

2-3 firms cooperate in sharing a booth space. 

- Conduct new market research which profiles overseas furniture markets distributor 

profiles, product specifications, and retailing trends. The research should be readily usable 

to generate sales not dust on a shelf. 

- Target and promote the use of existing export financing programs specifically to 

furniture companies that have export potential. Existing programs at EXIM, SBA, the state, 

and the private banking sector for working capital, export receivables financing, export 

credit insurance, and other related programs such as linked-deposits. These programs were 

relatively unknown to the furniture companies surveyed within the cluster. 

A model for such an industry wide effort exists within the hardwood lumber industry in the 

United States. This industry is highly competitive in nature and is a “commodity” type product. 

The industry associations cooperate and are funded in part by the U.S. Department of 

Agriculture’s Foreign Agricultural Service. Programs include overseas offices, export research, 

working on product specifications in foreign markets, training of and hosting foreign buyers, 

organizing foreign industry tours, and other product specific export promotion. 

153
Appendix C 

Industry Analysis: Household Furniture 

The study team examined the export performance and potential of SIC 251, household furniture, 

using information from the Department of Commerce’s Country Commercial Guides for the 

listed countries, the International Trade Commissions document U.S. Trade Shifts in Selected 

Commodity Areas, and interviews with industry experts and U.S. manufacturers. Some of the 

export data, particularly statistics to Latin America may be distorted because of direct sales and 

shipments to customers that are not counted in the statistical data. Statistical accuracy and 

comparability to other sources are affected by a number of factors, including lack of published 

figures in certain markets, variances in data collection techniques, sources of data, and industry 

definitions. 

Growth of sector over time, foreign and domestic Exports, F.A.S.; $ millions 

The United States is a net importer of furniture, with export values less than 25 percent of import 

values. As Table C-1 shows, more than half of U.S. furniture exports are shipped to the NAFTA 

countries; Canada and Mexico. A reduction and elimination of tariffs due to the NAFTA treaty, 

and the relatively inexpensive shipping costs make Canada and Mexico strong markets for most 

types of household furniture. In the European Union and the Middle East the successful markets 

for U.S. furniture are high end, stylized, and branded furniture, although producers of 

promotional furniture are beginning to make inroads, too. 

Table C-1 

NAFTA 

 $693 $65 $35 $116 $118 

1994 $744 $67 $72 $111 $120 $58 $13 $2 $ 1,307 

1995 $704 $81 $80 $112 $107 $76 $11 $1 $ 1,320 

Other 

Central 

America 

East Asia 

NICs 

EU - 15 Middle 

East 

South 

America

Former 

Soviet 

Republics 

Central & 

Eastern 

Europe 

World

Total 

1993 $47 $19 $1 $ 1,183 

U.S. Total Exports, 1995 by Area and Three-digit SIC Product Groups; (Census Basis; foreign 

and domestic Exports, F.A.S.; $ millions. 

Furniture exports are expected to remain fairly constant over the next five years, increasing three 

to five percent in dollar sales. The majority of furniture exports are miscellaneous wood 

products, accounting for 28% of total furniture exports in 1995. The primary markets for 

household furniture include NAFTA countries, Europe, and the Middle-East. South America is 

emerging as an importer of furniture as trade barriers are lowered and disposable income

increases. The following data combine growth and value figures to determine the best long-term

export markets. As Table C-2 shows the best potential markets for U.S. exporters are Canada, 

Japan, Mexico, Saudi Arabia, and Germany. 

154
Table C-2 

U.S. Domestic Exports, F.A.S. $ thousand 

Canada Japan Mexico Saudi Arabia 

1993 $ 566,115 $ 52,671 $ 127,586 $ 79,455 

1994 $ 564,342 $ 79,091 $ 179,631 $ 75,578 

1995 $ 627,133 $ 93,331 $ 76,954 $ 56,976 

$ 61,018 $ 40,660 $ (22,479) 

% change 11% 77% -40% -28% 

1995-1993 $ (50,632) 

Germany Brazil Kuwait 

$ 6,537 $ 13,660 

$ 10,392 $ 24,056 $ 14,762 $ 10,399 

$ 24,051 $ 16,645 $ 14,122 

$(1,879) $ 17,514 $ 13,930 $ 2,985 $ 5,606 

-7% 268% 307% 22% 66%

Singapore Colombia 

$27,177 $ 4,535 $ 8,516 

$ 21,966 

$ 25,298 $ 18,465 

U.S. Department of Commerce; Office of Consumer Goods, U.S. Domestic Exports. 

Country Analysis 

Canada: As Table C-3 shows, Canada has a steadily increasing market in furniture. There was 

a slow-down of purchases in 1993 and 1994 due to the recession, but the consumer purchasing 

indicators are showing a resurgence of the economy. Currently, housing starts are up, consumer 

confidence is growing, and interest rates are at a long time low. These events should increase 

the market for furniture in Canada and thus, U.S. furniture sales to Canada. 

Table C-3 

U.S. Exports to Canada, 1993-1995, $ in thousands 

1993 1994 1995 Change, 

1994-1993 

Change, 

1995-1994 

% Change, 

1993-1994 

% Change, 

1994-1995 

$566,115 $564,342 $627,133 ($1,773) $62,791 -0.03% 11%

U.S. Department of Commerce; Office of Consumer Goods, U.S. Domestic Exports, F.A.S. $ 

thousand 

Japan: As Table C-4 shows Japan imports approximately 8.5 % of its furniture, including office 

and home furnishings. The U. S. supplies 12 % of those imports, or 1 % of Japan’s total market 

share. Household furniture accounts for approximately 60-70 % of the entire market. The 

market for U.S. furniture in Japan is expected to increase steadily due to the growing reputation 

for quality and style of U.S. furniture and the appreciation of the yen. Increased tourism to the 

United States has increased Japanese knowledge and appreciation of western-style furnishings. 

The two primary areas of growth in Japan are high-end quality furniture and contracted furniture. 

155
Table C-4 

Japan: Current and Projected Market, $ in millions 

1995 1997 

Total Market Size $ 2,699 $ 2,610 $ 2,628 

Total Local Production $ 2,506 $ 2,380 $ 2,356 

Total Exports $ 37 $ 34 $ 32 

 $ 230 $ 265 $ 304 

Imports from the U.S. $ 28 $ 28 $ 29 

U. S. Market Share 1% 1% 1%

1996 

Total Imports 

Japan: Leading Sectors for U.S. Exports and Investments, Country Commercial Guides, U.S. 

Department of Commerce. 

Mexico: U.S. exports to Mexico decreased dramatically in 1995 due to the Peso crisis, as 

shown by Table C-5. With the devaluation of the peso, U.S. made furniture prices rose 

considerably, and thus were priced significantly higher than domestic brands. In addition, 

Mexican furniture manufacturers are increasing their efforts to both improve their Mexican 

market share, and gain market share in the United States. As Mexican producers focus on the 

low- and mid-priced segments, the best markets in Mexico for household furniture are the higher 

end markets where brand names and styling override price. 

Table C-5 

Exports to Mexico, 1990-1995, $ in millions 

1990 1991 1992 1993 1995 

Value of Exp $69,761 $98,508 $125,673 $127,586 $179,631

$28,747 $1,913 $52,045 ($102,677)

% change 41% 28% 2% 41% -57%

1994 

$76,954 

Value change $27,165

U.S. Department of Commerce; Office of Consumer Goods, U.S. Domestic Exports 

Saudi Arabia: As Table C-6 shows, Saudi Arabia is the largest furniture market in the Middle 

East, with the majority of demand on high-end products for consumption by upper-middle and 

high income Saudis and expatriates, and younger Saudis who find U.S. products fashionable. 

Household furniture is approximately 60% of the market, and is expected to grow 3-4% annually 

over the next three years. The United States is well on its way to overtaking Italy in the Saudi 

Arabian market. Some of the factors included in this market shift are: the increasing prestige of

U.S. products, the perceived quality of U.S. furniture, particularly brand name furniture, and 

competitive pricing due, in part, to favorable exchange rates with the Lira. 

156
Table C-6 

Saudi Arabia: Current and Projected Market, $ in millions

1995 1996 1997 

Total Market Size $ 395 $ 406 $ 420 

Total Local Production $ 40 $ 42 $ 44 

Total Exports $ 16 $ 17 $ 18 

Total Imports $ 371 $ 381 $ 394 

Imports from the U.S. $ 78 $ 82 $ 86 

U. S. Market Share 20% 20% 20%

Saudi Arabia: Leading Sectors for U.S. Exports and Investments, Country Commercial Guides, 

U.S. Department of Commerce. 

1992

Germany: Germany, like the rest of the European Union (EU), is largely self-sufficient in 

furniture, as shown by Table C-7. Its major trading partners are other EU countries. Imports of 

U.S furniture are steadily increasing, due to the increased reputation of U.S. furniture. The best 

prospects for this market are in high-end furniture. 

Table C-7 

Exports to Germany, 1990-1995, $ in millions

1990 1991 1993 1994 1995

$16,187 $20,697 $22,948 $27,177 $21,966 $25,298

Value change $4,510 $2,251 $4,229 ($5,211) $3,332

% change 28% 11% 18% -19% 15% 

U.S. Department of Commerce; Office of Consumer Goods, U.S. Domestic Exports 

The U.S. furniture export market is highly developed with Canada and Mexico, and moderately 

developed in Europe and the Middle East, but is underdeveloped in Latin America and Asia. 

The best prospects for the overseas markets are high end branded furniture. Overall the furniture 

market is growing slowly for three primary reasons: 

• the U.S. furniture manufacturers have focused so intensely on the U.S. market that they have 

not seriously explored export markets; 

• the U.S. has a distinctive style that has only recently begun to be demanded by the rest of the 

world; 

• furniture is a heavy, labor intensive product that is made by many countries, so imported 

furniture is often not price competitive with domestic production; and 

• promotional furniture has growth potential in export markets as well. Producers of 

promotional furniture can follow the lead of high end exporters to build their own sales 

networks abroad. 

Summary 

NOTE: Projected figures for 1996, 1997, and 1998 are estimates made by U.S. embassy officials 

in the respective countries. The country by country industry analysis may differ in exact 

composition from the selected SIC code. The general category contains approximately the same

products. 

157
KNITTING MILLS IN NORTH CAROLINA, TENNESSEE, AND VIRGINIA 

COMMITTED TO COOPERATION 

Knitting mills remain one of Appalachia’s most stable and most mature industries, employing 

more than 50,000 people in more than 450 companies. Although that number is declining as a 

result of automation and intensified import competition, it still ranks fifth among Appalachia’s 

top 50 sectors and is home to 28 percent of the nation’s total jobs in that sector. Historically, the 

businesses, which have competed mainly on the basis of cost, have been drawn South by the 

lower wages and surplus and non-union labor. The sector has not been large exporters; in 1991, 

only 2.4 percent of the sector’s output was exported, placing it 39th among Appalachia’s top 50 

sectors. 

by Cynthia Liston 

Regional Technology Strategies, Inc. 

Preface 

That situation may be changing. A small number of consolidated retail outlets now virtually 

control domestic markets and are able to force manufacturers to produce and quickly deliver 

smaller batches at lower costs—and take back unsold merchandise. As s result of these tight 

domestic markets, more aggressive small and mid-sized firms are looking for new outlets for 

their merchandise overseas where retailers are still more independent and numerous. Some

hosiery firms are also banding together in networks to give them more leverage with customers 

and reduce their market development costs. A study tour of northern Italy’s knitwear industry in 

spring of 1996 by a group of industry representatives demonstrated the potential for exports 

among even small firms, and the importance of more immediate access to advances in 

technology, vis à vis with machine builders, and the value of cooperative efforts. 

General Industry Description 

National Overview 

Knitting mill production nationwide has increased significantly since the mid 1980s, while wage 

growth has been moderate and employment growth has been very low. 

158
Table 44 

Knitting Mills in the United States, 1986-1994 

1986 1988 1990 1992 1994 % chg, 

86-94 

Value of Shipments (106) $12,203 $13,224 $14,597 $16,96

8 

$19,12

8 

57 

Employees 189,900 197,400 197,900 193,20

0 

194,40

0 

2 

Average Wage/Hour $6.45 $6.96 $7.16 $7.74 $8.36 30 

Source: Annual Survey of Manufacturers, U.S. Bureau of the Census. 

As the Table 44 shows, while the value of shipments from knitting mills nationwide increased 57 

percent from 1986 to 1994 (not adjusted for inflation), employment fluctuated with the 

economy—growing in the late 80s, declining during the early 90s recession and rebounding 

slightly more recently. The overall job growth was an anemic two percent during the period. 

Production wages experienced moderate growth of 30 percent over the eight year period. 

The ARC target industry SIC 225, knitting mills, comprises (1) integrated mills that purchase the 

input materials for knitted goods and then manufacture and sell those goods; (2) contract mills 

that manufacture knit goods using input materials owned by the contractor; and (3) jobbers who 

purchase input materials, contract with mills to produce knit goods from the material, and sell 

the product. Knitting mill products include hosiery, socks and gloves; knit outerwear, underwear 

and nightwear; fabrics, and other knit articles. (Standard Industrial Classification Manual; 

Executive Office of the President, Office of Management and Budget, 1987.) The knitting mill 

industry is part of SIC major industry 22, textile mill products, which also includes woven 

material producers, dyeing and finishing, carpets and rugs, yarn and thread mills, and 

miscellaneous textiles such as rubberized and coated fabrics, cords and twine. 

Components of the Knitting Mill Industry 

The following is a brief discussion of the primary sectors that comprise the knitting mill industry 

and recent trends affecting their growth and competitiveness. 

Hosiery and Knit Underwear: The hosiery and knit underwear sectors mostly produce 

standardized products that require little or no additional sewing. These include brand-name

socks, pantyhose and tights such as Hanes, Fruit of the Loom and L’Eggs as well as generic 

brands sold by discount retailers. Firms producing women’s pantyhose and knit underwear have 

rapidly consolidated in recent years. More than 70 percent of women’s pantyhose were 

produced by the nation’s eight largest producers in 1987, up from about 40 percent in 1967. For 

knit underwear, the largest eight firms produced slightly more than 80 percent in 1987, up from

about 55 percent in 1967.25

Other hosiery firms (i.e., socks and tights producers) have not experienced this same

consolidation. In 1987, only about 35 percent of total production came from the industry’s eight 

largest firms, up from about 31 percent in 1967. For those products, manufacturers are still best 

159
characterized as small, frequently rural firms. Yet there are signs that consolidation is beginning 

to occur among sock producers as well. 

Like other components of the textile industry, U.S. hosiery and knit underwear producers have 

experienced tremendous productivity increases since 1960 with women’s hosiery ranking fourth 

among 450 manufacturing sectors in productivity growth between 1960-89, and other hosiery 

producers ranking 52nd.26 Increasing wages and almost zero job growth, as indicated in Table 1, 

have accompanied the rise in productivity. 

Knit Fabric Trends: The major supplier of fabric for knit apparel producers come from the knit 

fabric sector. These companies produce knit fabric by looping yarn into a series of 

interconnected loops, rather than interlacing strands of yarn as when fabric is woven. The knit 

fabric sector had 669 establishments in 1992 and employed almost 42,000 workers in 1994. The 

industry grew tremendously in the 1970s when knit clothing such as leisure suits came into 

vogue. After years of shrinking markets, the industry is once again experiencing market growth 

due to the rising popularity of active wear. 

Like the hosiery and knit underwear sectors, knit fabric producers have achieved significant 

productivity increases since 1960, ranking 36th among the 450 manufacturing sectors in 

productivity growth. The sector is highly automated; labor costs were on average 16 percent of 

unit costs in 1989, about the average for manufacturers. The knit fabric industry is quite 

concentrated with the largest eight firms producing more than half of the US output. 

Knit Outerwear: Knit outerwear in many ways shares more in common with what is 

traditionally called the apparel industry than other knit products because its production involves 

more labor-intensive cutting and sewing, processes which are still typically manual. The apparel 

industry is made up of primarily small and medium-sized firms (fewer than 500 employees), 

many of which are subcontractors to clothing labels such as Liz Claiborne or the Gap. 

Productivity rises have been less evident among knit outerwear firms compared to other knitting 

sectors. Therefore, competitive issues such as moving from inefficient bundle production 

systems to modular manufacturing systems which speed up the manufacturing process and 

reduce inventory costs are critical to these companies. 

Industry-Wide Competitiveness Issues 

The general productivity rises among knitting mills stand in contrast to the apparel

industry (SIC 23) which, because it is more labor-intensive, has lost a considerable share of the 

domestic market to foreign competitors. This is evidenced by a comparison of industry ratios of 

the dollar value of domestically produced shipments (including exports) to the dollar value of 

domestic consumption. For the entire textile industry (SIC 22), this ratio remained close to 100 

percent between 1960 and 1990, meaning that US textile production remained approximately 

equally competitive with foreign production. For the apparel industry, however, the ratio 

declined from 98 percent in 1961 to 66 percent in 1990. 27 

It is important to note, however, that these measures do not take into account the impact quotas 

and tariffs have had in restraining imports. Therefore, as the full ramifications from NAFTA and 

the ten year phase out of textile quotas take effect, the challenges for the industry will be serious. 

This is in part because US duty reductions will be much greater for hosiery and underwear than 

160
for most other types of clothing, and because knit apparel producers who move to lower labor 

cost regions will be more likely to buy foreign knit fabric from those same regions. 

Also, even though knit production is less labor-intensive than many other sectors of the textile 

and apparel industry, labor content is still a significant component of production costs, putting 

high-wage countries such as the US at a disadvantage. In addition, the knitting process is 

technologically basic (as opposed to specialized) and overhead is relatively low (in the US, 

entrepreneurs have been known to start their companies with one or two knitting machines in a 

home garage). These low barriers to entry combine to give some significant competitive 

advantages to places such as Mexico or Asian nations where textile and apparel production is on 

the rise. 

In response, many analysts forecast that in order to thrive US knit producers need to capitalize 

on their competitive advantages: proximity, quality and design. The market issues section 

below will discuss these in further detail. 

Productivity increases in knitting mills have been fueled by new knitting machines that are much 

faster than previous machinery. According to the National Association of Hosiery 

Manufacturers, labor content for hosiery companies, for example, typically ranges between 18 to 

24 percent of product value. While older knitting machinery was made in the US and Great 

Britain, today almost all machines come from Italy, Eastern Europe (particularly 

Czechoslovakia) and less often Japan. In fact, the last US manufacturer of knitting machinery—

Crawford—went out of business last year. New machines are computerized and driven by 

electronics, requiring different skills from technicians used to maintaining mechanical 

equipment. 

Many believe a byproduct of the overall rise of productivity among knitting mills has been 

overcapacity in the industry. This has led to intense competition and declining prices. 

Inefficient companies and those unwilling to adapt to changes in the market are struggling. For 

example, in the summer of 1995 three long-time hosiery companies in North Carolina—each 

employing more than 400 workers—were in the news: one closed, another filed for Chapter 11 

bankruptcy, and the third announced it was unable to meets payroll. 

Newer equipment is expensive—up to $50,000 for a single knitting machine. High investments 

inhibit the kind of entrepreneurism that existed for many years as enterprising operators and 

technicians purchased surplus equipment that cost a fraction of what it does today and set up 

their own shops. Today, the high costs of equipment necessary to compete make 

entrepreneurship much riskier and more difficult. 

Despite new equipment that has been widely adopted by large and some smaller knitting 

manufacturers, many small knitting mills still successfully use older equipment, often times 

tweaking such machinery to enhance its capabilities and improve its efficiency. However, 

greater production capabilities across the board have driven prices down and changed the 

dynamics of the market. 

161
Market Issues 

As mentioned, the essential competitive advantages on which American knitting mills depend 

are proximity, quality and design. Proximity refers to the advantage producers have in the U.S. 

market, whereas, quality and design refer to advantages in both domestic and international 

markets.

QR requires close cooperation and trust between retailers, manufacturers and their key suppliers 

(particularly yarn producers) because companies must exchange potentially sensitive 

information, such as pricing data, on an almost daily basis. It also requires sophisticated 

communication networking including, but not limited to, Electronic Data Interchange. U.S. 

firms are much better positioned to take part in QR networks than foreign competitors who are 

more distant (textiles shipped from Asia typically two to three months to arrive) and harder to 

connect to the U.S. market. 

Proximity: “Quick Response (QR)” manufacturing is being adopted by the most advanced 

apparel and textile companies as a way to build stronger relationships and better market positions 

with retailers. Succinctly, QR means the rapid translation of consumer purchasing information 

from retailers to manufacturers and their suppliers. Inventory is “pulled” rather than “pushed” 

through the production pipeline. For example, as soon as a shirt is purchased, data about size 

and style is passed down to manufacturers and suppliers so that popular choices are replenished 

quickly and unpopular styles are not over-produced. In addition to quickly replenishing stock, 

QR enables companies to offer a wider choice of styles, reduce inventory levels (and thereby 

costs), and better anticipate future demand (increasing markets).28

Quality and Design: U.S. knitting mills have the reputation for producing high quality products 

that have appeal to both domestic and international markets. While occasionally modifications 

in design are necessary for exporting, many customers in Japan, Canada and European countries 

seek the casual “American look” meaning firms need no more than change packaging to export. 

According to officials at the International Trade Administration, knit products that are high 

quality, are medium to high end products and exhibit a strong design component are the 

strongest performers in export markets. As the following export trend analysis shows, overall 

US textile exports have performed well since 1993. 

Export Trends 

In 1995, textile mill products accounted for 1.1 percent of the value of manufactured products 

exported from the United States and 2.7 percent of the value of manufactured exports from the 

ARC states. (SIC 22 data is used in this analysis. Unless otherwise noted, the textile industry 

analysis, like the export analysis in Chapter 1, uses the MISER export data, as provided in the 

National Trade Data Base, for the years 1993 through 1995.) The higher proportion for the 

region reflects the fact that Appalachian Regional Commission member states are a major source 

of United States textile exports. Between 1993 and 1995 US textile exports grew by just over a 

billion dollars, from $5.07 billion to $6.12 billion. At the same time, exports from ARC member 

states rose from $3.29 billion to $3.92 billion, an increase of some $630 million. The value of 

recent textile mill product exports are presented in Table 45. The increased sales represent a 

162
20.6 percent increase for the United States, and a 19.2 percent increase for the combined ARC 

member states. 

Table 45 

Value of Textile Mill (SIC Code 22) Exports, 1993-1995 (millions of $) 

Area 1993 1994 1995 1993-1995 Change 

ARC States $3,290.5 $3,591.5 $3,922.0 $631.5 

United States $5,071.7 $5,536.6 $6,115.1 $1,043.4 

In 1993-95, the 13 ARC states accounted for almost two of every three dollars in export sales 

from US textile mills. Textiles is the only industry targeted by this project with export sales so 

dominated by ARC member states. The slower rate of growth in textile exports from the ARC 

states has not changed this dominance (see Figure 21). 

Figure 21 

ARC Share of US Textile Exports

(Millions of Dollars)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1993 1994 1995

Rest of US

ARC States

Both the textile industry and textile exporting are most concentrated in the southeastern ARC 

states. The highest dollar value of textile exports in 1993 originated in Georgia and in 1994 and 

1995, in North Carolina. Table 46 lists 1993 through 1995 values of textile exports attributed to 

each ARC member state, and the changes that occurred during that interval. Textile exports have 

been volatile. Changes range from an increase of over $400 million in North Carolina to 

decreases of $60 million and more in New York and Georgia. 

Absolute numbers tell part of the story, but the impact of a given increase or decrease in export 

sales depends in part upon the amount of export activity. Calculating the rate of change helps 

put the movement in perspective. The rate of change in textile exports for the ARC states, 

depicted in Figure 22, reinforces the strong position of North Carolina and confirms the volatility 

suggested by the absolute numbers. It also shows the most dramatic textile export growth in 

Mississippi, which experienced a 95 percent increase. Textile exports from both Virginia and 

163
West Virginia increased by 67 percent from 1993 to 1995. In contrast, New York, Georgia, and 

Ohio saw the value of their textile exports decline. 

Figure 22 

Percent Change in Textile Exports

1993-95

-20%

0%

20%

40%

60%

80%

100%

AL GA KY MD MS NC NY OH PA SC TN VA W V

Table 46 

Value of Textile Mill Exports by ARC State, 1993-1995 (millions of $) 

Area 1993 1994 1995 ‘93-’95 Change 

Alabama $84.6 $92.3 $109.9 $25.3

Georgia $809.8 $774.8 $749.8 $(60.0) 

Kentucky $31.2 $41.4 $41.4 $10.2

Maryland $63.9 $88.7 $63.6 $(0.3) 

Mississippi $40.3 $67.1 $78.3 $38.0

North Carolina $768.7 $919.3 $1,170.2 $401.5 

New York $613.2 $587.2 $547.7 $(65.6) 

Ohio $96.8 $95.5 $89.9 $(7.0) 

Pennsylvania $120.9 $141.3 $172.2 $51.3

South Carolina $416.1 $477.6 $547.8 $131.7 

Tennessee $118.2 $147.3 $139.0 $20.8

Virginia $124.8 $156.9 $208.8 $84.0

West Virginia $2.1 $2.1 $3.5 $1.4 

Export Intensity 

Another way to accommodate size differences and facilitate comparisons among the ARC states 

to calculate the value of textile exports as a percentage of the gross state product (GSP). That 

ratio measures the contribution that textile exports make to the state economy. It is the target 

industry counterpart of the state export intensity. Figure 23 ranks the ARC states by their 1993-

95 textile export intensity. 

164
Figure 23 

Textile Export Intensity

1993-95

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

SC NC GA MS AL NY TN VA MD PA KY OH WV

The textile export intensity for the combined Appalachian Region states is 0.16 percent, which 

twice the ratio for the nation as a whole, 0.08 percent. That difference describes the additional 

contribution that export sales of textile mill products are making to the regional economy 

compared to the contribution it would make if export performance was at the national average. 

Within the region, textile export intensity varies widely. The variation by state shows a clear 

geographic concentration in three contiguous states, North and South Carolina and Georgia, 

which are the only ARC states with a textile intensity index above the multi-state average. The 

next highest state export intensity is less than one-fourth the ratio for any of those three. 

Mississippi, Alabama, New York, Tennessee, and Virginia all have textile export intensities that 

are below the ARC average but above the national average. The remaining five ARC states are 

below the national average. 

To facilitate comparisons over time of ARC states’ textile export performance with that of the 

nation, export intensity can be calculated as an index relative to the national average. The 

resulting number is the export intensity index (EII) for the target industry. The national EII is 

always one, and states where textile exports make an above average contribution to the economy 

have an textile EII greater than one. Conversely if textile exports make a relatively small 

contribution to the state economy, the EII is less than one. The textile EII reveals that textile 

exports make a relatively large contribution to the state economy in eight of the 13 ARC states 

(see Table 47). 

165
Table 47 

Textile Mill Products Export Intensity Index, 1993-1995 

Area 1993 1994 1995 

Alabama 1.27 1.27 1.38 

Georgia 6.09 5.34 4.61

Kentucky 0.49 0.60 0.54

Maryland 0.66 0.84 0.55 

Mississippi 1.03 1.58 1.67

North Carolina 5.61 6.14 7.01 

1.50 1.32 1.14 

Ohio 0.47 0.43 0.37

Pennsylvania 0.55 0.59 0.65

South Carolina 7.00 7.36 7.62 

Tennessee 1.26 1.44 1.22

Virginia 0.96 1.11 1.34

West Virginia 0.08 0.07 0.11 

New York 

Changes over time in the textile EII reflect a change in the contribution of textile exports to the 

state economy that is greater (an increasing EII) or less (a decreasing EII) than the national trend. 

For the aggregated ARC states, the textile EII is essentially stable, just below two or almost 

twice the national average. However, most ARC member states increased their textile export 

intensity between 1993 and 1995, and it appears that textile exports represent a regional strength. 

In the Carolinas, the contribution of textile export sales to gross state product is more than seven 

times the national average and increasing. In Georgia, the third ARC state with a very high EII, 

however, the EII is dropping, reflecting the decline in textile exports from Georgia. Alabama, 

Mississippi, Virginia, and to a lesser extent Pennsylvania exhibit strong increases in their textile 

EII. 

Appalachian Locational Patterns 

Textile mills (SIC 22) exist in almost every state; however, the South employs by far the largest 

share of textile workers. The industry is largely rural: in more than 60 percent of nonmetro 

counties in Alabama, Georgia, North Carolina, South Carolina, and Tennessee, at least 10 

percent of overall employment was in the textile or apparel industry in 1987. Of the five “core” 

states for apparel and textile production—Alabama, Georgia, North Carolina, South Carolina and 

Virginia—these industries employ eight percent of private non-farm employment and 30 percent 

of manufacturing employment. Knitting mills employ 15.6 percent of all textile and apparel 

workers in these same states.29

Within the ARC region, two significant knitting mill clusters emerged from analysis of 

employment, establishments and location quotients at the county level. The first cluster is on the 

eastern edge of the ARC region in North Carolina, spilling over to southwestern Virginia and 

northeastern Tennessee. The second cluster is in the area where the Alabama, Tennessee and 

Georgia borders meet. The hub of this cluster is Ft. Payne, Alabama. RTS chose to analyze the 

166
North Carolina/Virginia /Tennessee area as the primary cluster for this project because it 

employs more people (19,920 versus 6,400), has a large number of SMEs (132), and plays a 

more important role in the regional economy. 

The balance of knitting mills in Appalachia are scattered. Small concentrations are located in 

parts of New York (Schoharie county) and Pennsylvania (Schuylkill county). 

The North Carolina/Virginia/Tennessee Knitting Mill Cluster 

Companies in Primary Cluster, by Number of Employees 

Within the ARC region’s North Carolina (including adjacent counties in Southwestern Virginia 

and Eastern Tennessee) knitting mill cluster, there are 132 knitting establishments that employ 

almost 20,000 people, according to Dun and Bradstreet data. Table 48 classifies these 

establishments by size and Table 49 classifies them by their primary four-digit SIC code. As 

evident, knitting mills encompass both final product apparel producers and firms who produce 

fabric for use by other manufacturers. 

The table 49 shows that the preponderance of knitting mill establishments in the cluster are 

hosiery firms. The hosiery sector (women’s hosiery, except socks plus other hosiery) together 

represents 55 percent of the cluster’s employment and 88 establishments. The second largest 

category is knit outerwear with 26 percent of the cluster’s employment and 25 establishments. 

Knit underwear (primarily three large Sara Lee plants) follows with 9 percent of employment; 

knit fabrics combine for six percent, and knitting mills, not elsewhere classified, represent about 

four percent of employment. 

Table 48 

# of Employees # of Companies 

>500 17

250 - 499 

15 

45 - 84 13 

33 

<15 51

12 

85 - 249 

15 - 44 

167
Table 49 

ARC North Carolina/Virginia/Tennessee Knitting Mill Cluster 

Primary SIC 

Classifications 

Number of 

firms 

Employees Share of Cluster 

Employment 

Average # of 

Employees per 

firm 

Women’s hosiery, 

except socks 

22 4,921 25% 224 

Other Hosiery 66 5,955 30% 90 

Knit outerwear mills 25 5109 26% 204 

Knit underwear mills 5 1,725 9% 345 

8 1,109 6% 139 

Lace and warp knit 

fabrics mills 

2 385 2% 193 

Knitting mills, n.e.c. 4 723 4% 181 

 TOTAL 132 19,920 100% 151 

Weft knit fabric mills 

Source: Dun and Bradstreet 

The cluster is characterized by significant autonomy—89 of the knitting mills in the cluster are 

single location establishments or headquarters compared to 43 which are branch plants or 

divisions of larger companies. And many of the branch plants in the cluster belong to 

corporations with a large number of establishments, and even division headquarters, in North 

Carolina (e.g., Sara-Lee, Kayser-Roth), meaning corporate actions are heavily influenced by 

decision makers located in or near the cluster. 

It is not surprising that the hosiery industry figures so prominently in the cluster. In 1994, North 

Carolina’s 360 producers produced 56 percent of the US output of hosiery, accounted for $1.8 

billion in annual sales, and, together with their suppliers, employed 42,000 people. Nearly three 

in five of these firms employ fewer than 50 employees. About one-third of all hosiery 

manufacturers in the state are located in the Hickory metropolitan area (one county east of the 

ARC border in North Carolina), a significant number are near Mt. Airy, and the rest are 

concentrated near Greensboro, Burlington and Asheboro, areas of the state that are not in the 

ARC region. 

This cluster also extends across state lines to southwestern Virginia where a concentration of 

knitting mills are found in Carroll , Pulaski, and Smyth counties, and to northeastern Tennessee 

where a small concentration exists in Washington county. As Figure 23 and Table 50 show the 

relative importance of knitting mills to the local economies of the cluster. The higher the 

location quotient (the ratio of the percentage of county employment within an industry compared 

to the percentage of total manufacturing employment in the county), the greater the impact of the 

industry on the county. 

168
Table 50 

Establishments, Employment, and Location Quotients for Knitting Mills 

by County, 1993 

County State Establishments Employment Location Quotient 

135 148.2

63.7

Caldwell NC 17 679 13.0

Forsyth NC 8 2,617 9.6

McDowell NC 8 621 20.4

Rutherford NC 3 843 20.6

Surry NC 33 7,460 114.9

Wilkes NC 9 2,656 60.9

Yadkin NC 3 1,000 59.9

Carroll/Galax VA 3 762 29.5

Pulaski VA 2 1,396 64.9

Smyth VA 3 310 12.5

Alexander NC 5,687 

Burke NC 35 3,718 

Note: The loation quotient is the ratio of the fraction of all employment in that sector within the 

region divided by the fraction of that sector of all employment in the nation. 

It is important to note that industrial clusters do not, of course, follow jurisdictional lines. Thus, 

although the specific companies under analysis for this research are mostly located in the ARC 

region, the cluster straddles the ARC border and extends much farther east in North Carolina. 

Many other knitting establishments, support organizations and suppliers that regularly interact 

with firms in the ARC region are located beyond the ARC “border.” Because it would be 

arbitrary to ignore these firms and organizations that in many cases are closely linked to the 

ARC firms, their inclusion in this research where appropriate was imperative. 

This cluster (including those nearby firms outside of the ARC region) exemplifies a regional 

production system because almost all of the elements of a production system, e.g., suppliers, 

associations, services and skilled labor, are located in a relatively small and rural geographic 

region. Those companies interviewed estimated that at least 25 and in some cases as much as 90 

percent of inputs were purchased locally. Suppliers include the firms that produce the raw yarns, 

elastic, dyes, needles, labels and packaging materials that these firms need. The impact of 

suppliers and support organizations will be explored in more detail later. 

History of the knitting cluster 

The Catawba Valley Hosiery Association (now the Carolina Hosiery Association) was 

established by the chamber of commerce in 1958 as a “hosiery club” and was spun out as a fullfledged autonomous association in 1960. The 1960s and 1970s were good economic times for 

the “lifestyle entrepreneur,” the independent owner/manager. At that time, according to longtime industry participants, there was little trust among firms and no collaboration among 

companies. 

169
During the 1980s, however, retailers began to consolidate and 90% of new market growth 

stemmed from the top 10 retailers. Retailers decided they wanted to work directly with 

manufacturers and cut out the “middle men” distributors. Most hosiery firms found they 

couldn’t depend on New York City-based distributors and brokers and had to learn how to 

market themselves. Smaller firms—particularly grey good producers that knit unfinished socks 

which finishers dye and package—in turn became more dependent on subcontracts from larger 

mills, although some continued to sell through brokers. 

Cluster’s Competitiveness and Technology Issues 

The CVHTC began its operations in 1992 at Catawba Valley Community College on the strength 

of its association in the state legislature. Successful lobbying resulted in a special appropriation 

outside of the educational funding channels to create this unique Center. The bill gave the 

association authority to select the director—a person with extensive industry experience—and 

govern the Center. Soon after, the Southeastern Manufacturing Technology Center in Columbia, 

South Carolina—under a grant from the National Institute of Standards and Technology’s 

Manufacturing Extension Partnership—assigned a field agent to the center to supplement the 

center’s technology resources. 

Although the basic knitting process has become much more efficient since the 1960s (as 

described earlier), certain processes particular to the hosiery industry have not enjoyed the same

advances. Seaming operations to close the toes of socks use the same technologies developed in 

the 1950s. And “boarding,” the process that uses heat to give hosiery products a foot-shaped 

appearance, remains a labor-intensive, repetitive and uncomfortable job, much as it did thirty 

years ago. About two dozen hosiery firms—through the Carolina Hosiery Association—have 

joined forces with North Carolina State University to attempt to develop technology that will 

automate the boarding process. Finishing operations—folding, inspecting, labeling/packaging 

and boxing goods for shipment—are manual jobs where ergonomics is an issue and attracting 

workers is difficult when labor markets are tight. Finally, standardizing quality standards (such 

as color and wash fastness) is another technology area which the sector is trying to address 

through cooperative projects. 

Because hosiery companies are typically small, there are few companies with R&D budgets 

sufficient to develop technologies to respond to these issues. As illustrated by the joint 

“boarding” research project; however, firms are beginning to work together to solve mutual 

problems. Much of this exchange takes places through the Catawba Valley Hosiery Technology 

Center (CVHTC), associated with the Catawba Valley Community College in Hickory. 

In 1995, the Center received a specific appropriation from the North Carolina General Assembly 

to continue its role in supporting the state’s hosiery firms. And, the North Carolina Industrial 

Extension Service last year announced that it will host a full-time industrial engineer at the 

Center to offer further technical assistance to knitting mills. The Center demonstrates new 

equipment, offers work force and management training courses and carries out specific 

technology-related projects for the hosiery industry. 

North Carolina State University’s College of Textiles in Raleigh and TC2 (Textile and Clothing 

Technology Corp.) in nearby Cary, while not located in the cluster itself, are also sources of 

technology assistance for the textile and apparel industries, including knitwear companies. 

170
 

Competitive Advantages of the Cluster 

Service providers that support knitting companies in the cluster interviewed for this project cited 

on time delivery, product quality, and knowledge of the products and processes as the cluster’s 

competitive strengths. 

(1) other companies 

(2) suppliers 

(3) equipment vendors 

(4) customers 

Before reporting findings from the interviews conducted for this project, it is important to note 

companies that participated were not randomly chosen due to budget limitations. Most of the 

companies contacted were referred to RTS by an industry trade association or a regional high 

technology center associated with a community college. Therefore, it is very likely that these 

firms are more likely to seek assistance and interact with other companies in the region than a 

random sample of the companies in the cluster. 

The exporting companies interviewed for this report most often cited their strongest competitive 

advantages as product design, followed by on time delivery and company reputation. Nonexporters cited quality, followed by on time delivery and customer service. This should not 

necessarily be interpreted that quality does not matter to exporters: it could be considered a 

“given” by companies with exportable products. 

Services 

Despite the many public services in this part of the region, the companies surveyed 

overwhelmingly get assistance and their information about new technologies from other 

companies. Only one respondent frequently uses any public agency—a community college—for 

such assistance, while two others sited occasionally using a community college and one reported 

using a small business center. Respondents most common sources of information, in order of 

preference, are: 

Exporting companies report receiving general export leads most often from the US Department 

of Commerce’s Export Assistance Center (EAC) in Greensboro, NC (cited three times). 

Distributors, agents and North Carolina’s world trade center follow were each once as sources of 

general help. These companies reported receiving specific leads equally from the EAC, 

consultants/agents, distributors and customers (all once). Export consultants/agents and freight 

forwarders were cited most often as sources for technical assistance (each twice), followed by 

banks and distributors (each mentioned once). 

Exporting companies reported most often self-financing these transactions. One company 

reported using a regional bank; one has used an Export/Import bank; one company said it 

requires foreign customers to pay up-front; and another reported purchasing insurance to cover 

any potential losses. 

171
Exporting from the Cluster 

According to export service providers, small to medium sized knitting mills in the cluster that 

directly export primarily ship goods to Japan and Europe. Some shipments also go to the Middle 

East and South America. High-end and specialized niche products can succeed in Japanese and 

European markets where “Made in the USA” labels on knit goods carry a certain caché and are 

valued for their design and quality. Some companies export under their own brand name while 

others profit from licensing agreements to make products under brand names such as “Keds” or 

“Wrangler.” At least one knitting mill in the cluster exports medical apparel such as specialty 

bras and compression hosiery for cardiac patients. A hosiery company that is very close to the 

ARC “border,” produces a broad range of very high quality sport specific socks that are 

successful in overseas markets. Another company produces made-to-order, high end knit fabric 

for other manufacturers such as automakers and the computer industry. Other knitting 

companies are indirectly exporting through subcontracts with larger companies and through 

brokers or agents, mostly in New York, who export. 

(1) lack of information about markets 

(2) unfamiliarity with export process 

(3) lack of capital 

(4) lack of time 

(5) getting paid 

(1) lack of information about markets 

(2) marketing and sales costs 

(3) getting paid 

(4) tariffs or government trade barriers 

(1) lack of information about markets 

(2) lack of time as the largest barriers, and 

(3) product design specifications 

Meanwhile, for goods such as knit underwear and hosiery where labor content is fairly low (and 

thereby the U.S. is more competitive), demand for high quality, expensive U.S. products in other 

countries is finite. One industry analyst interviewed said that while he could envision exporting 

of hosiery goods, for example, rising from the current five percent of US production to ten 

percent, he does not think it would reach higher. “There’s only so much demand for U.S.-

Barriers to exporting 

On the whole, however, most knitting mills in the cluster do not export. The obstacles nonexporting companies interviewed for this research most often rated high were, in order of 

importance: 

The two obstacles exporting companies interviewed for this research most often rated high were: 

Services working with the cluster agreed with the firms. Those interviewed that ranked barriers, 

in order of importance, as: 

According to organizations that provide export assistance, several factors impact the ability of 

knit producers to export. First, as mentioned earlier, knit outerwear products are high in labor 

content because parts must be cut and sewn. For example, the knit sweater industry now has 

significant import penetration from Asia and Central America and U.S. exports are low. 

172
produced high end and niche products in foreign markets.” The largest markets for underwear 

and hosiery are “commodity” basic products, a fact which holds true in U.S. and in other 

countries’ markets. Transportation and labor costs make the U.S. uncompetitive in foreign 

markets for these basic goods. 

In the interviews, most hosiery companies reported sharing equipment and supplies when 

necessary and, through the CVTC, undertaking some joint training and R&D. Joint marketing, 

however, is fairly rare because competition for customers is keen despite cooperation in 

production. 

 concentration of apparel and textiles in the region. This is in part stems from the fact that the 

non-hosiery knitting companies in the cluster produce a wider variety of products ranging from

industrial fabrics to gloves to underwear, despite the fact that the basic technology is similar. 

Moving to issues pertaining to the firms, export assistance providers said they believe that of 

those firms that are “export ready” (have both the capacity and the appropriate products), a key 

to being successful at exporting is to make a concrete, strategic commitment to (and investment 

in) exporting. Small, isolated shipments to foreign markets are often inefficient. Another key 

element for success is a strong relationship with overseas distributors who can effectively serve 

foreign markets that tend to be much more fragmented than U.S. markets. This can be a 

problem, according to one industry analyst, because U.S. manufacturers have a reputation for 

turning to foreign customers during economic downturns in the U.S. and then retrenching to 

domestic markets when the economy recovers. 

Non-exporting companies frequently rated lack of capital as a barrier to exporting, while 

exporters generally didn’t report capital difficulties. Without a broader sample and more indepth surveys, it is impossible to know exactly why. One reason could be that exporting, a 

relatively rare practice among SME knitwear producers, is a proxy for a strong financial position 

and market outlook which allows the company to either self-finance their exporting or use 

commercial financial services. Although exporters did not report serious capital difficulties, 

there was strong sentiment from many of the companies interviewed that few of the region’s 

financial institutions have a good understanding of the knitting industry. One bank in Hickory—

Bank of Granite—was frequently cited as the exception. 

Dynamism and Linkages 

The firms interviewed fall into two general categories—hosiery companies (which represent 

more than half of the cluster’s employment and the majority of the SMEs) and other knit 

producers. Based on the interviews for this research (and prior RTS work with the hosiery 

industry in North Carolina), it quickly became apparent that the hosiery component of the 

knitting cluster is a more self-contained and self aware production system than the knitting 

cluster as a whole. Exhibiting what some call “friendly competition,” these firms cooperate 

considerably in certain areas—both informally and through formal subcontracting relationships. 

These subcontracting practices (particularly between large and smaller producers) provide extra 

production capacity for companies and allow firms to offer more product lines through access to 

a broader range of knitting equipment than just what they have on their own factory floor. 

Based on our interviews, non-hosiery knit companies are more isolated from each other and less 

aware of belonging to a cluster other than there being a general 

173
They did not express having significant relationships with other knitting companies and 

described more “solitary” behaviors. One of these company executives stated that while his firm

would not cooperate with direct competitors, he thought the company would be interested in 

closer relationships with non competing knit producers. 

Future of Exporting from the Knitting Cluster 

Not every knit producer is export ready or appropriate (one industry analyst estimated fewer than 

10 percent in the cluster currently are). For hosiery and underwear firms, there will likely 

continue to be a sizeable domestic market for companies that produce medium- to low-end 

“commodity” knitwear. These sectors are more import protected than other knit sectors due to 

the products’ low labor content and high transportation costs (relative to product value). 

Successful firms in this category will continue to become more efficient, forge closer ties with 

U.S. retailers through “Quick Response” strategies, and engage in flexible production through 

subcontracting relationships. Nonetheless, more consolidation among domestic market firms is 

likely as less efficient companies fall to increasing demands from retailers and overcapacity. 

Knit outerwear and fabric producers that make medium-to low-end goods, however, will likely 

face stiffer competition from imports and “QR” strategies will be even more important to retain 

market share. 

Several companies mentioned the abundance of local suppliers (the percentage of products 

purchased from within a 100 mile radius averaged more than 60 percent) as an advantage for the 

cluster. Others cited the availability of a labor force with knowledge of the industry as a 

competitive advantage, although the region’s low unemployment rate in recent years makes labor 

scarcity a problem at times. 

Considering both the longevity and magnitude of this cluster, knitting companies located in the 

region may take for granted some of the advantages that come from the large concentration of 

firms. In addition to the proximity of suppliers (with the exception of machinery firms) and a 

labor force knowledgeable in the industry, customers are willing to travel to the region to meet 

with companies. Yet while some firms capitalize on the concentration of firms to a greater 

degree than others through informal and formal information exchange and sharing, based on the 

interviews for these projects, there are opportunities for increased cooperation that would yield 

benefits to the cluster. Increased cooperation in expanding exports is one of those areas. 

Small and medium-sized knitting companies can and are exporting. While it is unrealistic to 

expect a majority of knitting companies to export due to constraints described earlier, clearly, 

there are export markets for knit products made in the Appalachian region that are not being 

fully tapped. 

We can, on the other hand, also characterize companies that are likely candidates to successfully 

enter export markets: firms that have considerable domestic markets for high-end or niche 

products with a strong design component, have efficient production processes, and those willing 

and able to make a strategic commitment to cultivating and sustaining export customers—a 

commitment which largely entails time and capital. To aid these companies, cluster-based 

174
strategies that address non-exporters’ lack of familiarity with how to find export customers and 

undertake export transactions would seem most beneficial. 

One step in that direction already in place is a group of hosiery companies that, through the 

Carolina Hosiery Association, recently joined together to form a marketing network. The 

alliance plans to hire a marketing executive who will represent the firms in new markets, 

including foreign ones. By joining forces, the companies will achieve sufficient scale to more 

effectively find new customers than would be affordable on an individual company basis. This 

model is particularly attractive with respect to exporting since finding and sustaining 

international relationships is more time intensive and costly than establishing domestic contacts. 

Interviews for this project revealed considerable interest among companies in exporting. A 

surge in exporting by those companies already “export ready” might encourage some non export 

ready companies to move into higher value-added and niche products in order to export. 

Because such goods have higher margins and are more resistant to foreign competition than lowend goods—particularly for non-hosiery producers—their increased production would benefit 

the overall health of the cluster and, consequently, the cluster’s regional economy. Knitwear 

producers, many of which are in the Appalachian region, are not fully tapping foreign demand 

for U.S. knit products. 

Exporting Isn’t Just for the Big Boys 

One small hosiery company interviewed for this project exports about 25 percent of its total 

sales, mostly to Europe. This firm, which has fewer than 50 employees, doesn’t have the newest 

equipment. And, obviously its small size means it doesn’t enjoy large economies of scale. But 

the firm was recently bought by a dynamic leader who has relentlessly, and successfully, pursued 

overseas markets. With initial assistance from the U.S. Department of Commerce’s Export 

Assistance Center, today the owner maintains weekly contact with foreign distributors. Exported 

products are mostly durable exercise socks whose quality, the owner claims, largely stems from

locally-produced yarn that exceeds the quality available in other nations. The result: the 

company reports significant increases in sales and wages over the past three years. 

Unfortunately, this company represents the exception, rather than the rule, among small knitting 

mills. 

175
Figure 24 

Knitting Mills in NC/VA/TN

Base 

Materials 

Nylon 

Wool 

Cotton 

Synthetics

Suppliers 

Fiber 

Yarn 

Fabric 

Needles 

Chemicals 

Packaging 

Elastics 

Trimmings

Knit Under & 

Outerwear 

(30)

Hosiery 

(88)

Misc. Knit 

(6) 

Machinery 

and Equipment

Knitting Machines 

 (imported) 

Packaging Equip. 

Dyeing Equip. 

Machine Parts 

 and Services 

CAD/CAM Equip. 

Printing Equip. 

Hosiery 

Services

NAHM 

CHA 

CVHTC

General 

Services 

NC Indust. Ext. 

NCSU Coll. of 

 Textiles

Export Assistance 

 Center (US DOC)

Consultants

Infrastructure 

Education and Training, Financing, Transp. 

(Cat. Valley Comm. Coll., Bank of Granite)

* figures in parentheses indicate number of establishments 

Supplier 

Services 

Value Systems

Other 

Manuf.

Foreign 

Distributers

Domestic Retailers 

and Distributers

Knit Fabric 

(8)

 

176
Appendix D 

Industry Analysis: Knitting Mill Products 

The following analyses rely heavily on trade patterns in the general category of apparel, as there 

were insufficient data to examine knitwear exports as such. Industry experts suggested that knit 

products follow the trends of the apparel industry overall, perhaps being slightly more successful 

due to the high capital and low labor content of the products. Statistical accuracy and 

comparability to other sources are affected by a number of factors, including lack of published 

figures in certain markets, variances in data collection techniques, sources of data, and industry 

definitions. 

The knitted products industry is characterized within the apparel industry as capital intensive and 

specialized. The companies in the United States that are most successful at exporting tend to be 

those that offer specialty or niche products. 

Table D-1 

SIC 225 1995 Industry Exports, F.A.S. $ millions 

F Y 1995 NAFTA EU-15 OTHER 

AMERICAS

TOTAL

 $246 $37 $67 $45 $66 $759 

JAPAN ASIAN 

NICS 

REST OF 

WORLD

Knit fabrics 

and hosiery 

$298 

U.S. Total Exports, 1995 by Area and Three-digit SIC Product Groups; (Census Basis; foreign 

and domestic Exports. 

Tables D1-D6 examine the export performance of several sub-sectors of SIC 225. Industry 

experts suggest that these sub-sectors are the most heavily exported products in SIC 225, thus, in 

the absence of more composite data examining the performance of these sub-sectors will provide 

a good approximation of the entire sector. These numbers are distorted by maquiladora 

production, where goods partially produced in the United States are finished overseas, then reimported for sale in the United States. This practice affects the numbers such that it is difficult 

to determine what the best country prospects are for knitwear exports. 

Table D-2 

Knit and Knit Pile Fabrics Exports, 1993-95, $thousands 

World Canada Mexico Japan UK 

1993 $324,191 $117,615 $ 18,015 $ 9,288 $ 13,698 

1994 $346,156 $132,811 $ 25,227 $ 10,272 $ 11,818 

1995 $440,578 $152,270 $ 33,688 $ 16,206 $ 12,616 

 $116,387 $ 15,673 $ 6,918 

% Change 36% 29% 87% 74% -8% 

Absolute 

Change 

 $ 34,655 $ (1,082) 

Table D-3 

177
Women’s and Girls’ Other Knit Shirts Exports, 1993-95, $ thousands 

World Mexico UK 

1993 $237,734 $ 15,191 $ 49,198 $ 83,330 $ 2,280 

1994 $308,597 $ 14,606 $ 99,972 $ 85,729 $ 5,271 

% Change 40% 21% 55% 24% 294% 

Canada Japan 

1995 $333,892 $ 18,320 $ 76,340 $103,131 $ 8,979 

Absolute Change $ 96,158 $ 3,129 $ 27,142 $ 19,801 $ 6,699 

Table D-4 

Women’s and Girls’ T-shirts and Tank Tops Exports, 1993-95, $ thousands 

World Canada Mexico Japan UK 

1993 $206,732 $ 31,130 $ 12,167 $ 79,041 $ 5,605 

1994 $238,789 $ 43,364 $ 39,302 $ 85,003 $ 3,442 

1995 $315,670 $ 49,845 $ 52,224 $106,855 $ 5,036 

 $108,938 $ 40,057 $ (569) 

% Change 53% 60% 329% 35% -10% 

Absolute Change $ 18,715 $ 27,814 

Summary of Knit Shirts, Knit and Pile Fabrics, and T-shirt and Tank-Tops, $ thousand 

Table D-5 

World Japan UK 

 $ 768,657 $ 79,380 $171,659 $ 21,583 

 $ 893,542 $190,781 $164,501 $181,004 

1995 $1,090,140 $220,435 $162,252 $226,192 $ 26,631 

Absolute Change $ 321,483 $ 56,499 $ 82,872 $ 54,533 $ 5,048 

% Change 42% 34% 104% 32% 23% 

Canada Mexico 

1993 $163,936 

1994 $ 20,531 

178
Table D-6 

Summary of Hosiery, $ thousand 

Hosiery World Canada Japan UK 

1993 $ 207,583 $ 32,819 $ 11,478 $ 22,492 $ 5,120 

1994 $ 220,222 $ 43,220 $ 13,585 

$ 256,880 $ 5,782 $ 19,994 

Absolute Change 

Mexico 

 $ 24,555 $ 5,600 

1995 $ 45,472 $ 5,571 

 $ 49,297 $ 12,653 $ (5,696) $ (2,498) $ (451) 

% Change 24% 28% -50% -12% -9% 

Apparel 

Excluding maquiladora production, several strong markets are Canada, Mexico, Japan, and the 

United Kingdom. 

Canada: The recession in Canada slowed purchase of apparel for several years. Now that 

consumer confidence is up and primary indicators announce the end of the recession, apparel 

markets are expected to grow. U.S. suppliers of high quality niche-market clothing have 

excellent opportunities to enter and succeed in this market. Competitive advantages of U.S. 

suppliers include elimination of tariffs on U.S. origin goods, relatively low costs of production, 

and market proximity. The best prospects in the Canadian market include cotton pullovers and 

cardigans, T-shirts, singlets and other vests, and cotton shirts. 

Mexico: Mexican middle and upper economic class shoppers traditionally bought their designer 

clothing abroad. This trend has been changing as local department stores carry more 

international items. Design, quality, and price are the key sales factors in this market. Industry 

expectations are that the market for imported apparel will increase approximately 30%. 

Competitive advantages of U.S. suppliers include elimination of tariffs on U.S. origin goods, 

and market proximity. The best prospects in the Mexican market include cotton knitted 

undershirts, and knitted sweaters, pullovers, and vests. 

Japan: The Japanese market is moving away from the European designer look and “American 

Casual” is becoming the new fashion. The newest fashions are brand names such as J. Crew, 

DKNY, and Calvin Klein. T-shirts, sweatsuits, and clothing with team logos are also very 

popular in this market. Unfortunately this trend does not translate into the more basic items such 

as U.S. manufactured women’s or children’s wear, or underclothing. The best prospects are 

those listed above, and generally fall into the categories of men’s and women’s outer garments. 

United Kingdom: The United Kingdom has a strong market for U.S. designed and 

manufactured apparel. The market is expected to continue to grow, particularly in the fashionoriented “over-fifties” market. The market for U.S. manufactured men’s and women’s apparel in 

the U.K. is fairly developed, but the children’s market is a yet undeveloped market for U.S. 

manufacturers. The best prospects in the U.K. market are men’s, women’s and children’s 

outerwear, particularly branded clothing. 

179
Summary 

The apparel industry has historically not been very export oriented. As U.S. markets become

saturated and apparel manufacturers face stiff competition from countries with lower labor costs, 

they look to international markets. The U.S. enjoys success in these markets with niche 

products, including branded items, specialized products, medical knit products, and stylized 

products. Products that are more labor intensive, for example embroidered products, and 

standard products essentially the same as local production, are less competitive internationally. 

As less developed countries such as Korea and Mexico invest in the technology to make 

knitwear, it is likely that the market for un-branded, non-specialty knitwear will decline. 

180
181

themselves with their special capabilities over the past few years. Thus, they may find there is 

ELECTRONIC COMPONENTS IN NEW YORK (SIC 367) 

A SELF AWARE CLUSTER 

by Brian Bosworth 

Regional Technology Strategies, Inc. 

Preface 

The electronics industry cluster in the southern tier of New York is a classic small industry 

cluster of the variety that drive regional economies across the United States. Because of its 

scale and diversity, it is not as immediately apparent as other larger and more concentrated 

clusters but this region is clearly the dominant part of Appalachia for the production of 

electronics components. Moreover, the diversity of the southern New York electronics cluster 

suggests the potential for long-term growth through continuous innovation and new market 

applications. 

The cluster has a long history in the Southern Tier; in fact, it used to be bigger than it is now. 

The roots of the electronic cluster in Binghamton and the surrounding region go back 30 and 40 

years with the development of computer manufacturing and electronics for the defense 

aerospace industry. In more recent years there has been enormous change in these two 

industries. IBM now has one plant, not three, in the region. Several facilities have changed 

hands as the defense industry consolidates and retrenches. 

From that historical perspective, what is going on now in the region might look like the 

“shrinking” of a mature cluster. But, if one were not aware of that background, the glass might 

look half full rather than half empty. This cluster of electronics firms has several important 

assets. It has history of technological capability in sophisticated packaging processes. There 

are several entrepreneurial firms in the region, there is a strong research and development base 

supported by higher education institutions, there is an apparently large and well skilled work 

force and there are important growth opportunities within the electronics industry. 

Moreover, there is potential in this region for more explicit policies and programs to encourage 

inter-firm cooperation to promote export development. In this region of small cities and rural 

towns, the owners and managers of many firms are quite familiar with each other. Many have 

spun out from some to the larger electronics and computer firms which have downsized over the 

past several years. These larger firms are far less vertically integrated than they used to be. 

They are doing far more strategic outsourcing and they are involving their suppliers and 

contractors in design and engineering. These new relationships may be helping to build the 

foundation for new collaborations in export development. 

Although there is no long-time and well-patterned “habits of cooperation” among electronics 

firms in this region, many see a potential for creating new mechanisms to allow firms to explore 

opportunities for joint export development. While many of these firms do compete with each 

other in regional markets to supply larger customers, a large number have differentiated 
182

assistance. Rather, it appears that the most rewarding strategy might be to develop a consortium

of exporters and non-exporters who would seek to develop joint marketing and market servicing 

now less direct competition and more opportunities for cooperation. In fact, virtually all of the 

firms surveyed for this project expressed interest in at least exploring new and closer forms of 

cooperation. 

While many firms in the region now export, there appears to be significant opportunities to 

expand exports, especially among firms that up to now have been content to service domestic 

and regional markets. Among the larger firms (IBM, Universal Instruments, Amphenol 

Aerospace, Dovatron, CAE Electronics, Loral, Martin Marietta, and others), there is a great deal 

of expertise in export sales and in servicing foreign customers. They have the internal capacity 

to optimize export opportunities without relying on external assistance. A new program to boost 

exports logically would focus on smaller firms with fewer resources. A few of the small 

electronics firms in the Southern Tier export, demonstrating that it is possible, but most do not. 

Yet they do supply components and sub-assemblies to larger firms that then export fully 

assembled products. Therefore, these suppliers have already demonstrated that their products 

are exportable. There appears to be “generic” export assistance capability within the region and 

in the private sector there are services with specialized expertise in the industry. 

The issue is not just a matter of aggregate demand and mastering the paperwork and logistics 

management complexities of foreign sales, although these can be daunting for small firms. 

Rather, successful exporting requires developing and supporting specialized products and 

gaining capacity to service customers who expect customized application support. Although 

firms in the region that do not export may be concerned about the paperwork and logistics 

management issues, the most important barrier seems to be their ability to build capacity in 

foreign markets to understand the precise needs of the buyers and service the application 

requirements. 

Almost by definition, electronic components are part of larger products, incorporated into 

electronically powered and controlled devices. Companies supplying these components and 

sub-assemblies must be able to work with their customers in the application process. 

Unsophisticated, commodity-like components that require little support in application usually 

can be made more cheaply elsewhere. Those firms in this region of New York that provide 

basic coils, transformers, and printed circuit boards cannot expect to compete effectively with 

cheaper wage rate areas of the world where commodity products can be produced at lower costs 

than in the U. S. (although there may be some opportunities for very high volume, high speed 

manufacture of printed circuit boards and other components in the U. S. that would make export 

sales feasible). On the other end of the scale, the successful export of manufacturing and 

assembly machinery has a high and increasing entry cost. The best export opportunities 

apparently lie in technologically advanced capacitors, resistor chips, connectors, and printed 

circuit board assemblies. The sales have to be at the scale that support the development of 

specialized application support at the customer's site. If several firms were to work 

cooperatively in developing a shared capacity to play this role, it might lead to significant 

growth in export opportunity. 

In light of this, it appears feasible to stimulate the export of electronics from this region through 

thoughtful public policy and creative program assistance. However, it may be that what the 

industry most needs is not just more of what is already available in the form of generic export 
183

establishments. Clearly, there are several very large employers in New York relative to the 

capabilities in target countries. 

General Industry Description 

National Overview 

The electronics components industry (SIC 367) consists of several related but distinct product 

groups. It includes the following. 

electron tubes SIC 3671 

printed circuit boards SIC 3672 

semiconductors and diodes SIC 3674 

 capacitors SIC 3675 

 resisters SIC 3676 

coils and transformers SIC 3677 

 connectors SIC 3678 

other components (switches, relays, assemblies, etc.) SIC 3679 

Long-term growth prospects appear strong and most forecasts see annual growth at the 6 to 8 

percent level into the next century, below the non-recession year growth rates of the 1980s and 

1970s, but still solid growth. However, the industry will face much higher performance 

expectations. Producers will be expected to add functionality and continue to miniaturize their 

products. Demand will continue to come from the computer industry (although the trends here 

will be for very application specific components), from telecommunications, instruments, 

medical equipment and transportation industries. 

Job growth prospects are less positive. Employment has fallen in these industries reflected new 

production technologies. Because these components are now being manufactured in several 

relatively cheap wage rates nations, the trend here in the United States will be to continue to 

substitute technology for labor, so future job growth is unlikely in 367 per se although there may 

be growth in some of the industries producing the new assembly and manufacturing equipment. 

These are fiercely competitive industries, where the U. S. faces an overall trade deficit, partially 

because of rising demand in the U. S. from goods producers recovering to the level of 

production of the 1980s. Most U. S. exports go to newly industrializing countries in East Asia 

and to Canada and Mexico. These same countries, plus Japan are the leading source of imports. 

Semiconductors and related devices constitute over one-half the value of all electronic 

component shipments. American firms have invested heavily in new facilities for 

semiconductor production, contributing to a resurgence in competitiveness. 

Electronics in the ARC Region 

Almost 45 percent the ARC region's total employment in electronics components is 

concentrated in nine ARC counties in New York. Of just over 38,000 jobs in SIC 367, 16,500 

are located in this region. Another 8,700 are in nearby counties in the northern tier of 

Pennsylvania. However, New York is home to only about 18 percent of the total number of 
other parts of the Appalachian region. There are a few other clusters of electronics firms in 

Appalachia but much smaller in total employment. There are 28 firms in northeastern Alabama 

employing only about 4,200 people and 17 in western South Carolina employing about 5,200. 

The Electronics Cluster in Southern New York 

Though small relative to other regions of the country (such as the huge agglomerations in 

northern California, Greater Boston, or the Phoenix area), the southern New York state cluster is 

clearly the dominant electronics concentration in Appalachia. It is also a “self aware” cluster. 

In 1995, DRI/McGraw Hill ranked this cluster as the second most 'powerful” electronics cluster 

in the United States (second to the San Francisco-Oakland-San Jose electronics cluster in 

California). 

Electronics firms are cognizant of the importance of their industry to the entire region. Other 

economic institutions seem to share that perception. Specialized technology, marketing and 

work force training institutions have emerged that probably are not matched anywhere else in 

Appalachia. 

On a small scale, this cluster may be a good illustration of what Michael Porter had in mind 

when he described how cooperation and competition among interdependent clusters of firms in a 

region shape the competitive advantage of that region. There are a number of larger customer 

firms in the region—many of them Original Equipment Manufacturers (OEMs)—that drive and 

shape demand. Smaller, specialized, supplier firms both cooperate and compete in meeting 

those customer needs. The region has a common market of specialized labor and underlying 

technological drivers—advanced ceramics and newer electronics “packaging” technology that 

optimize advances in the miniaturization of circuits and other components. 

This nine-county area in New York is know as the Southern Tier. It is 

predominately rural, from the Catskills in the east to the farmlands of the Finger Lakes area in 

the west. The region is blessed by a particularly strong set of higher education resources 

including the public research institutions of Cornell University, Binghamton University, and 

Alfred University and several other two and four year institutions with strong technical 

education programs. The population of this nine county area is about 730,000 and has been 

generally stable for several years. 

The Southern Tier electronics cluster is somewhat hard to analyze because it includes several 

SIC codes. Historically, the largest employer in the region has been IBM, which has made 

computers, peripherals, and computer equipment. These products are classified under SIC 357. 

Presently, several of the strongest companies in the region manufacture the equipment and 

machines used in manufacture of circuit board and other electronic components. This 

production is classified under other SIC codes. The picture is further complicated in that several 

of the largest customers in the region of the output of the electronics components are in such 

diverse industries automobiles and aerospace. 

The region may be defined in very narrow or wider terms. Most narrowly, it is Broome County, 

New York and specifically a 15-mile sprawl of five cities along the Susquehanna River—

Binghamton, Johnson City, Endwell, Endicott, and Vestal. Most of the electronics firms are in 

184
Broome County and most of them in one of those four cities. Nearly 9,000 people work in the 

electronics industries (SIC 367) of Broome County alone. A wider definition of the region 

would include Delaware, Otsego and Chenango Counties to the north and east, and Tioga, 

Chemung, Tompkins, Schuler, and Steuben to the west. There are also significant employment 

in electronics to the south in the Pennsylvania counties of Susquehanna. In these other 

counties—not including Pennsylvania—there are another about 7,000 employees in electronics 

components (SIC 367). Employment in other related SIC industries linked to the electronics 

components employs over 10,000 people. This cluster this is very significant in an area where 

total manufacturing employment is less than 70,000. 

There are at several component parts of the electronics industry cluster in the Southern Tier. 

Figure 25 shows a simplified representation of cluster relationships At the core, there are several 

dozen companies scattered through the region (and into northern Pennsylvania) who produce 

electronic components in the 367 SIC range. Only a few of them are semiconductor 

manufacturers; most produce printed circuit boards and passive components (capacitors, 

resisters, coils and transformers, connectors, switches, relays and assemblies). A few (including 

a large Toshiba plant in Horsehead, NY, employing over 1500) are engaged in the manufacture 

of electron tubes. Location quotient analysis reveals that each of these four digit level 

industries, except semiconductors, has a very strong concentration in this area. Most of the 

firms in the 367 SIC range are smaller firms and they mostly supply larger firms also in the 

region who sell sophisticated machines and systems often with defense applications (although 

most of these firms are seeking to diversify into commercial markets or have already managed 

that transition). There is apparently a fair amount of transactions among the firms in the 367 

SIC range, within and among the four digit product classifications. 

A third significant part of the cluster consists of several companies in diverse fields who are 

Several groups in the cluster consists of firms which sell materials and services as inputs to the 

electronics firms or which make the equipment used in the manufacture of the electronic 

components, especially the printed circuit boards. For example, Universal Instruments is a 

Binghamton-headquartered worldwide provider of electronic circuit assembly equipment for 

surface mount and throughhole assembly. Because this equipment itself incorporates 

sophisticated electronic systems, including circuit boards, Universal sometimes buys from and 

sells to the same companies—its suppliers frequently are also its customers. Although 

Universal is the dominant equipment manufacturer in the region, there are other firms which sell 

the specialized equipment and tools use in the manufacture of electronic components. Dover 

Electronics (which is owned by Dover Technologies which also owns Universal) makes microelectronics circuit packaging. There also are a number of plastics firms and metalworking firms 

that provide producers and services. 

Business service firms supply banking, advertising, accounting and legal services, often with 

relatively specialized capacity by people who have deep experience in the electronics sector. 

Technical service firms include specialized electronics design, engineering, and systems 

integration providers as well as research support and technical information and scanning 

services. There are a growing number of small software companies chiefly in Tompkins County 

who are focused primarily on supporting the electronics industry. Utilities are important service 

providers. For example, firms in the region are very concerned about what they see as relatively 

high costs of electricity. 

185
large customers of electronics component manufacturers. This includes a ,mini-cluster” of 

companies that makes flight simulators (AAI Mircoflight, CAE Electronics, Binghamton 

Simulator, Lockheed Martin's Aircraft Control Systems [formerly GE] and Doron Precision). 

These companies started by serving the defense industry but some are now branching out into 

commercial markets. Several firms have been bought and sold, as larger defense-focused 

corporations seek to reposition themselves through acquisitions and divestitures. Several other 

firms produce computer hardware and peripherals (SIC 35). While many manufacture some of 

their own electronic components, they also outsource to other companies in the region. The 

largest employer is this category is IBM, which produces computer hardware in Endicott. Its 

has downsized its operations in Broome County significantly over the past several years from

three plants to just one but continues to be a major employer in the region. 

186
Figure 25 

Electronic Components Cluster 

187
Other major customer/sectors for electronics include several aerospace manufacturers (such as 

Lockheed Martin) and automotive and truck manufacturers. Over the long term, there appear to 

be opportunities to use advanced electronics in the manufacture of rail transit equipment in 

Steuben and Chemung Counties. Loral Corporation's Federal Systems Group in Owego 

(formerly one of IBM's facilities) is another large customer. 

A key element in the cluster is the strong base of technological support for firms that are most 

technology dependent. The Integrated Electronics Engineering Center (IEEC) at the State 

University of Binghamton is particularly strong in basic and applied research and development 

for electronics packaging. Many firms in the cluster have a vital interest in packaging 

technology. The form and process in which semiconductor chips with circuitry are integrated 

into larger microelectronics assemblies is known as packaging technology. Research focuses on 

materials and processes and assembly procedures that can enhance the performance of chips by 

providing a smaller and more flexible scale; reducing weight; cutting power consumption; 

dissipating heat more efficiently; reducing environmental hazard; optimizing portability; 

withstanding changes in temperature, vibration and mechanical stress; making more effective 

interconnections; and measuring performance. The IEEC is a National Science Foundation 

(NSF) and State designated “university cooperative research center” and also designated and 

funded by the State as a Center for Advanced Technology (CAT) in electronics packaging. In 

addition to running several major research projects selected by industry and directed by faculty 

of the University, IEEC provides outreach services to small and mid-sized firms on technology 

related issues. 

Cornell University, less than an hour's drive from Binghamton, supports the Cornell Advanced 

Packaging Fabrication Facility, a well-equipped laboratory able to fabricate chips for special 

applications in support of the research needs of firms in the region. A portion of IEEC's CAT 

budget is allocated to the Fabrication Facility at Cornell University. 

The Center for Advanced Ceramic Technology at Alfred University (in Allegheny County at the 

western fringe of the Southern Tier region, tightly linked to private research facilities of 

Corning, Inc. (in Corning, New York), is another of the State's Centers for Advanced 

Technology. As noted, these facilities are almost as important to the electronics industry as to 

the glass and ceramic materials industry, in which Corning is a dominant player. The 

application of advanced ceramics to electronics constitutes the fastest growing part of the 

ceramics industry. Ceramics are used in electronic substrates and packages, capacitors, 

resistors, ignition elements, lasers and sensors. The western region of the Southern Tier is home 

to several world class ceramics firms and research facilities and their ties to the electronics area 

gives the latter a significant competitive asset. 

A non-profit corporation known as the Alliance for Manufacturing Technology (AM&T) in 

Binghamton provides technical and managerial improvement services to small and mid-sized 

manufacturing companies throughout the nine-county region. Supported by the state and federal 

government’s Manufacturing Extension Partnership, AM&T has several staff members with 

specialized background in the electronics industry. A few once worked for area firms. 

188
Export Potential of Electronics in the ARC 

Value of Electronic, Electric Equipment, Except Computer (sic code 36) Exports,

1993-1995 (millions of dollars)

The ARC target industry SIC 367, electronic components and accessories, comprises a wide 

array of products which themselves are subject to major differences in the level of complexity or 

sophistication. It includes establishments primarily engaged in manufacturing electron tubes 

(3671), printed circuit boards (3672), semiconductors and related devices (3674), electronic 

capacitors (3775), resistors (3676), coils and transformers (3677), connectors (3678), and 

electronic components not elsewhere classified such as electronic video and sound system

components, rheostats and switches, quartz crystals, and microwave components (3679). It is 

part of SIC major industry 36, electronic and other electrical equipment and components, except 

computer equipment. (Standard Industrial Classification Manual; Executive Office of the 

President, Office of Management and Budget, 1987.) SIC 36 data is used in this analysis. 

Recent Export Trends: In 1995, electronic equipment accounted for 17.4 percent of the value 

of manufactured products exported from the United States and 10.2 percent of the value of 

manufactured exports from the ARC states. The much lower share in the region indicates that 

the ARC member states contribute a relatively small share of United States electronic equipment 

exports. 

In 1995, United States producers sold $92.2 billion of electronic equipment to customers in 

other countries. This represented an increase of almost $30 billion over the 1993 export sales of 

$62.3 billion. the 1995 exports of electronic equipment from producers in ARC member states 

reached $14.8 billion in 1995, up from $11.2 billion in 1993. The value of recent electronic 

equipment exports are presented in Table 51. The increased sales represent a 47.9 percent 

increase for the United States, and a 32.7 percent increase for the combined ARC member 

states. The ARC states experienced strong growth, but it was well below the national average. 

Table 51

Area 1993 1995 1993-1995 Change 

ARC States $11,151 $13,140 $14,792 $3,641

United States $62,343 $75,557 $92,204 $29,860

 1994 

Due to slower growth for the combined ARC states during this interval, the ARC states 

collective contribution to US electronic equipment exports dropped by almost two full 

percentage points, from 17.9 percent in 1993 to 16.0 percent in 1993. Figure 26 depicts the 

region's shrinking contribution to national electronic equipment export values. 

189
Figure 26 

ARC Share of US Electronic Equipment Exports 

(millions of dollars)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Rest of US

ARC States

Electronic and electrical equipment exporting activity is unevenly distributed across the 

Appalachian Region. Electronic and electrical equipment export activity is so concentrated 

that New York alone accounts for 40 percent, of the ARC states total 1995 electronic 

equipment exports. Overall, electronic equipment exports come predominantly from the 

northern ARC states, but North Carolina is also a major exporter. Table 52 lists the 1993 

through 1995 value of electronic equipment exports attributed to each ARC member state, and 

the changes that occurred during that interval. 

Table 52

Value of Electronic Equipment Exports by State, 1993-1995 (millions of dollars)

Area 1994 

Alabama

$622.2 $956.0

$292.7 $317.4 $335.1 $42.5

Maryland $482.1 $517.1 $673.9 $191.8

Mississippi $146.7 $191.5 $183.7 $37.0

N. Carolina $1,110.5 $1,272.2 $1,383.4 $272.9 

 $3,863.2 $1,038.4 

Ohio $1,197.2 $1,428.5 $1,649.8 $452.6 

 $1,668.3 $2,052.4 $2,235.9 

S. Carolina $490.6 $550.5 $533.8 $43.3 

$506.4 $702.7 $684.7

Virginia $630.5 $784.6 $951.6 $321.1

 $6.9 $6.3 $10.1 

 1993 1995 1993-1995 Change 

$440.2 $561.3 $599.1 $158.9 

Georgia $892.6 $333.8 

Kentucky 

New York $3,557.1 $4,595.5 

Pennsylvania $567.7 

Tennessee $178.3 

W. Virginia $3.2 

Every ARC state experienced an increase in the value of electronic equipment exported, but in 

several states, the dollar value of the increase was small. The 1993-1995 change data confirms

190
the dominant position of New York in electronic equipment exports. Only North Carolina, 

Pennsylvania, and Ohio had 1995 exports with a total value higher than the 1993 to 1995 

increase in value for electronic equipment exports from New York. 

Figure 27 

Absolute numbers tell part of the story, but the impact of a given increase or decrease in export 

sales depends in part upon the amount of export activity. Calculating the rate of change helps

put the movement in perspective. The rate of change in textile exports for the ARC states, 

depicted in Figure 27, reduces the interstate differential shown by the absolute numbers and 

highlights several states with a relatively low dollar value of exports but high growth rates. 

Percent Change in Electronic Equipment Exports 1993-

1995

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

AL GA KY MD MS NC NY OH PA SC TN VA WV

Between 1993 and 1995, Georgia and Virginia saw exports of electronic equipment from their 

producers increase more rapidly than the national average. West Virginia, which has the lowest 

amount by value of electronic equipment exports experienced a rate of growth just slightly 

below the national rate. Maryland, Ohio, Alabama, Tennessee, and Pennsylvania experienced 

1993 to 1995 growth rates in electronic equipment exports that were below the national average 

but above the combined ARC state average. 

Export Intensity: Another way to accommodate size differences among the ARC states so that 

comparisons can be made is to calculate the value of electronic equipment exports as a 

percentage of the gross state product (GSP). That ratio measures the contribution that electronic 

equipment exports make to the state economy. The US electronic equipment export intensity for 

1993 through 1995 was 1.11 percent. The combined export intensity for the ARC states was 

only a little over half that, 0.57 percent. The difference describes the gap between the 

contribution economy and the contribution they would make if export performance was at the 

national average. The large discrepancy indicates that there is a lot of room for the ARC states 

as a group to increase their exports of electronic equipment. Figure 28 ranks the ARC states by 

their 1993-95 electronic equipment export intensity. 

191
Figure 28 

ARC States Ranked by Electronic Equipment Export

Intensity

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

NY NC PA SC AL OH TN GA VA MD KY MS WV

No ARC state approaches the national average in electronic equipment export intensity. New 

York, clearly the predominant state in the region, has the highest ratio, but it is still far below 

the national average. On this measure, New York does not stand far above the other ARC 

states, and there is no clear state or group of states leading the region. Except for West Virginia, 

which has an extremely low value, the other ARC states are more closely clustered in terms of 

export intensity for electronic equipment than for the other target industries 

To facilitate comparisons over time of ARC states' electronic equipment export performance 

with that of the nation, export intensity can be calculated as an index relative to the national 

average. The resulting number is the export intensity index (EII). The national Ell is always 

1.0, and states where electronic equipment exports make an above average contribution to the 

economy have an electronic equipment Ell greater than 1.0. Conversely if electronic equipment 

exports make a relatively small contribution to the state economy, the Ell is less than 1.0. The 

latter describes the situation in the ARC region where every state had an Ell well below 1.0 for 

every year in the analysis, 1993 through 1995. 

Changes over time in the textile EII reflect a change in the contribution of textile exports to the 

state economy that is greater (an increasing EII) or less (a decreasing EHII) than the national 

trend. The electronic equipment Ell for ARC states combined fell from 0.54 in 1993 to 0.49 in 

1995. Thus, electronic equipment exports make a contribution to the regional economy that is 

approximately half the national average and falling. The electronic equipment industry does not 

yet represent a regional exporting strength. Moreover, the 1995 electronic equipment Ell was 

lower than the 1993 index in every ARC state except Georgia, where it was 0.01 higher. 

Georgia and several other states saw an increase in the Ell from 1993 to 1994 that was followed 

by a larger decline from 1994 to 1995. Table 53 lists the electronic equipment Ell for each ARC 

state. 

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Table 53 

Electronic Components Export Intensity Index, 1993-1995 

Area 1993 1994 1995 

0.54

0.34 0.29

Maryland 0.41 0.36 0.39

0.31 0.33

0.66 0.62

New York 0.71 0.64 0.63

Ohio 0.48 0.47 0.44

Pennsylvania 0.62 0.63 0.56

South Carolina 0.67 0.62 0.49

0.44 0.40

0.41 0.40

West Virginia 0.02 0.02 0.02

Alabama 0.57 0.50

Georgia 0.38 0.45 0.39

Kentucky 0.38

Mississippi 0.26

North Carolina 0.55

Tennessee 0.50

Virginia 0.40

In this project, 17 firms in the Southern Tier electronics cluster were surveyed. Of these, 8 firms 

are exporters and 9 are non-exporters. Because the surveys focused chiefly on small and midsized firms, the majority who participated in the surveys are privately held establishments. The 

two large establishments with over 500 workers were both publicly held corporations. 

Growth: Most of the companies reported modest increases in sales over the past three years. 

Five of the eight exporters reported sales growth of over 10% and one (the largest) reported 

sales growth of over 100%. Exporting firms reported slightly higher levels of growth than the 

non-exporters although a few of the non-exporters indicated substantial recent growth in sales. 

All of the exporting firms indicated that they have increased average wages in the last three 

years—half between 0 and 10 percent and half between 10 and 20 percent. All but two of the 

non-exporters had increased wages, at about the same levels. 

The Survey of Firms 

Response to questions about changes in employment revealed no discernible pattern. About half 

the firms had increased employment and half have stayed the same or decreased. There was no 

significant difference between the exporters and non-exporters in this dimension, although one 

exporter reported big employment growth (over 500 new employees in the past four years). 

Importance of exports: Exporters with the highest percent of their sales or who reported that 

export sales are very important to their future are firms that make relatively sophisticated 

products for special application, such as special purpose connectors, assembly systems, or 

control devices. All of these companies accorded very high importance to distribution systems 

and customer service capability. Some reported that the time it took to complete federal 

government procedures for obtaining export approval frustrated them. They emphasized that 

customers have very specify applications of the products that usually are time sensitive and they 

193
are not patient with slow delivery. A few companies indicated that they rely on the offices of 

their congressional representatives and senators to smooth the export approval process. 

Barriers to export: For companies that do not now export, the most important barriers are lack 

of information about markets and customers and a concern about high costs of marketing and 

sales. Export success requires a strong ability to support the customer in the application of the 

component or subassembly. Developing this capability is a significant barrier for the small 

company which cannot afford to spend a great deal of time in pre-production design and 

engineering consultation, service and troubleshooting with companies located that far away. 

Competitive Advantage: Most of the firms—both exporters and non-exporters—were 

reluctant to single out one or two factors of competitive advantage. For almost all of them, 

design, price, quality, delivery and customer relationships were of equal import. Some of the 

firms were willing to discuss the advantage they derive from being part of a concentrated group 

of similar and complementary firms. They see the strength of the overall cluster as giving them

individual competitive advantage. 

Getting information and assistance: The survey indicated that respondents get most of their 

general and trade-specific information and assistance from the private sector, not from

government related organizations or programs. Most important are their customers, followed by 

suppliers, equipment vendors, and other companies. Most responded that they use small 

business centers , government agencies and community colleges rarely or never. Despite the 

proximity of strong universities, few cited them as sources of assistance—although those that 

did leaned heavily on them and indicated that they were especially helpful. The firms 

responding to questions about specific and general trade leads indicated that they rely mostly on 

private sector sources, especially customers and sometimes distributors. 

Firms that do export generally view exports as very important to their future. Firms that do not 

export are generally willing to consider it in the future. However, some of the firms that do not 

export now seem to have a very realistic view of their 

prospects within their current production capabilities and product mix. As revealed by this 

sample survey, many non-exporters are assembly “job shops” or contract manufacturing 

facilities who are too small and localized to have export capability. Their niche lies in their 

flexibility to quickly meet the requirements of larger local firms who outsource specialized 

components. Other firms, such as some in the coils and transformers business, see themselves 

as non-competitive in international markets where they would face enormous price competition 

from firms in low wage rate areas. 

Work force issues: A few other issues emerged from the surveys. First, labor force skills and 

availability are viewed as a significant competitive advantage for exporters and non-exporters 

alike. At every opportunity, the firms interviewed (and the service organizations that work with 

them) cited the skilled work force as a significant asset to the electronics cluster in the Southern 

Tier. Electronics is a “traditional” industry in the Southern Tier that has long hosted large 

electronics manufacturers that have made a sizable human capital investment in the technical 

skills important needed by the industry. As larger firms downsized in the 1980s, the specialized 

labor pool became more available to the smaller, more entrepreneurial firms in the region. 

Community colleges and four-year schools are apparently continuing to produce skilled 

194
technicians and engineers required by firms in the region, and none cited current shortages as an 

obstacle to exports. 

Potential for cooperation: A second important result of the surveys has to do with the 

potential for collaboration among firms in this industry. Every firm surveyed was receptive to 

the idea of greater collaboration within the electronics cluster in the Southern Tier. Many 

indicated that they are already involved in one or more collaborative activities with other firms 

and would be open to others. Even firms not now cooperating with other businesses registered 

an interest in exploring opportunities for joint programs. A few of the firms indicated that there 

did not appear to be mechanism or institutions which facilitated cooperation, but nonetheless 

were interested in seeing if they might be established. This level of support is quite surprising. 

It suggests that the firms are not as worried about direct competition or proprietary advantage as 

is frequently suspected. It further suggests that many of the firms are moving toward market 

niches where their competition is not local, but rather global. 

Typical of the comments from firms on this topic were the following observations: 

• “currently loan equipment to another firm: would consider working together with others in 

the future” 

• “would consider future cooperation” 

• “now cooperating on a small scale and would be willing to look at future opportunities” 

• “have collaborated with friendly competitors” 

• “have cooperated in joint ventures with other local firms and would consider more” 

• “absolutely interested in working together” 

A few firms, however, expressed concern about the aging of the work force. The work force in 

the Southern Tier is somewhat older than in the rest of New York. Much of the region is rural, 

and, although it has many physical attractions, lacks the excitement of larger metropolitan areas. 

This leads a few firms to worry about a current or potential “brain drain” from the area as 

younger people seek economic opportunity in bigger cities. Some of the firms are working 

closely with the educational institutions of the region to strengthen worker training programs 

and attract young people into the technical proficiencies demanded by this industry. 

The willingness to explore new forms of cooperation is also important in that it may help 

resolve some the key barriers to export market entry and expansion; i.e., the time and cost of 

building up a customer development and service presence in foreign markets. Strategies which 

help the smaller and mid-sized firms to better serve export customers in the on-site application 

of product purchases would be a significant contributor to boosting exports. 

Most of the institutionalized inter-firm relationships apparently fail to convert this willingness to 

work together into specific activities or outcomes. Most of the firms report that they belong to 

trade and industry associations and their employees to professional engineering societies. 

However, it appears that most of these groups are external rather than internal to the cluster. 

There is no general association focused around the electronics cluster within the region. 

Electronics business-based association relationships tend to include a few firms in the region 

and several firms outside the region. As a result, firms may be missing the opportunity to 

explore complementary relationships and inter-dependencies of the sort most likely to lead to 

joint action in the pursuit of export opportunity. 

195
The Capacity of Service Providers 

As noted earlier, the Southern Tier is—by New York City standards at least—a thinly populated 

rural area. About 730,000 people live in the nine-county area. While the electronics cluster 

stands out, the rest of the economy is diversified with a greater reliance on agriculture than most 

of the rest of the state. Although there are many specialized technical support services very 

knowledgeable of the cluster, such as IEEC at Binghamton University and the Alliance for 

Manufacturing and Technology—as noted earlier—the local and regional economic 

development agencies display little of that specialization. With a few exceptions, they tend to 

be general purpose economic development agencies with no specialized competence in 

electronics or in export development. Instead, organizations provide general assistance and 

information about export development and, while they serve the electronics firms along with 

others, they lack any specialized experience. On the other hand, there is strong private sector 

consulting capability in the region very familiar with and experienced in the electronics 

industry. 

It has not been feasible to design a strategy of export development for the electronics cluster in 

the Southern Tier as part of this initial study. However, some ideas have emerged from the 

interviews and surveys which suggest a starting point for the formulation of a strategy. Five key 

findings shape this approach. 

1. There seems to be clear potential to increase electronics exports from this region. Several

firms already are exporting and the larger ones have very specialized knowledge and market 

support capability. There business strategies seem to rely heavily on continuing and 

increasing exports. In other words, within the private sector community of this region, 

there is extensive and sophisticated knowledge of exports markets and marketing processes. 

2. Several of the smaller firms are providing components and sub-assemblies to these larger 

firms and therefore their products are meeting the test of foreign markets. Many of these 

smaller firms have specialized product capability. There is extensive technical knowledge 

and technology assistance systems in the region to support the firms as they seek to meet 

the exacting standards of foreign markets. 

3. Mastering the paperwork logistics of export sales is daunting for the smaller nonexporting 

firms, but it is not the only problem and it may not be the most important. Exporting in this 

industry frequently requires the ability to serve customers in foreign markets and to provide 

application support. Larger firms have this capability in place. Setting up this market 

service capability is an expensive proposition for smaller firms. 

4. According to the secondary data that is available, this is primarily a cluster of 

complementary firms rather than a cluster of competing firms. Of course, some of the firms 

are in very direct and fierce competition in local markets. But there is evidence (even 

though more research would clearly be advisable) of substantial segmentation and 

“niching” among many of these firms. Many may have found specialized demand in the 

Some Beginning Steps Toward an Export Development Strategy 

196
region that has led to complementarity in their processes and product mixes. 

5. Electronics firms in the region display a willingness to work together. Even though there 

are no highly evolved trade or industry associations, the firms seem to know each other 

quite well. They work together in discrete projects now and they are willing to explore new 

forms of cooperation. 

These findings suggest that perhaps the many of the electronics firms in the area might be 

willing to work together on an export initiative that would contemplate a collaborative 

approach. For example, the firms might be willing to establish a joint market support capability 

in countries with especially attractive markets. They might be interested in a “buddy system” 

where the firm with export experience helps ones without it in return for other considerations. 

There may be a willingness to investigate a joint export development entity which might 

consolidate the burdensome logistic requirements while setting the basis for a cooperative 

approach to market support. 

197
Appendix E 

Electronic Components SIC 367 

The following analysis uses information from the Department of Commerce's Country 

Commercial Guides for the listed countries, the International Trade Commissions document 

U.S. Trade Shifts in Selected Commodity Areas, and interviews with industry experts and U.S. 

manufacturers. Some of the export data, particularly statistics to Latin America may be 

distorted due to maquiladora produced electronic components. Statistical accuracy and 

comparability to other sources are affected by a number of factors, including lack of published 

figures in certain markets, variances in data collection techniques, sources of data, and industry 

definitions. 

The United States is a net importer of electronic equipment. Expanding the category to 

include computers, computer peripherals, and parts, the U.S. had a trade deficit of $11.1 billion 

in 1995, exporting approximately $129.5 billion and importing $177.1 billion. These numbers 

are somewhat distorted by products that are exported for processing, then re-imported. 

The global electronic equipment market is a highly competitive price-sensitive and for the 

most part commodity-type market. Competition in the electronics industry is fierce; to be 

successful a company must either have superior technology or be highly price competitive. 

With the relatively inexpensive labor costs in Asia and Latin America, the markets that the 

United States is successful in are those that are highly sophisticated and require a high level of 

technology, such as semi-conductors and LCDs. 

The total exports of electronic components (SIC 367) in 1995 was $45.5 billion. These exports 

were broken down regionally by destination in Table E-1 as follows: 

Table E-1 

Foreign and Domestic Exports, F.A.S.; ($ in millions) 

Electronic 

Components 

NAFTA EU-15 Other 

America 

$1,319

$12,009 $4,867 $17,131

281% 

Japan Asian 

NICs 

Rest of 

World 

Total 

1992 4,368 $1,190 $2,474 $6,491 $350 $16,192 

1995 $7,248 $980 $3,279 $45,514 

% Change 275% 408% 293% 264$ 280% 248% 

U.S. Total Exports, 1995 by Area and Three-digit SIC Product Groups; (Census Basis; foreign 

and domestic Exports, F.A.S.; $ millions 

The numbers above indicate that the electronic component industry has grown significantly in 

the last four years, and with the introduction and usage of increasing amounts of electronic 

equipment such as HDTV and computers, the market is expected to continue this growth 

pattern. 

198
Country Analysis

Canada: Canada imports approximately 137 percent of its electronic components. 

Many of the electronic components are imported into Canada, incorporated into 

other products, then re-exported. The U.S. supplies 60 percent of total imports. The U.S. export 

market to Canada is thus closely linked to Canada's exports of products that contain electronics 

much of which returns to the United States. The Canadian export market in these products is 

expected to grow at approximately nine to eleven percent in the next three years. This growth, 

combined with the continuing effects of NAFTA, should make electronics components to 

Canada grow at approximately four to five percent per year for the next three years. The best 

prospects in the Canadian market are telecommunications and specialized advanced electronics 

subsectors. 

Table E-2 

Canada: Current and Projected Markets: 1995-1997 

1995 1996 1997 

Total Market Size $4,511 $4,804 $5,116 

Total Local Production $790 $918 $1,068 

Total Exports $2,451 $2,764 $3,117 

Total Imports $6,172 $6,650 $7,165 

Imports from the U.S. $3,682 $4,079 $4,519 

U.S. Market Share 81.62% 84.91% 88.33% 

Mexico: Mexico imports approximately 10% of its electronic components. The U.S. supplies 

61% of those imports, thus having a market share of 6.29%. Much of the electronic equipment 

in Mexico is maquiladora-produced, and is not included in this analysis. The primary 

competitors in Mexico are the Japanese and the Europeans. The primary opportunities in the 

Mexican market are electronics for large international firms that are opening production plants 

in Mexico that use electronic components, and the privatization of the telecommunications 

industry in Mexico. This will lead to opportunities in the sale of electronic components for long 

distance and international service. 

Table E-3

Mexico: Current and Projected Markets: 1995-1997

1995 1996 1997 

Total Market Size $1,733 $1,657 $1,714 

Total Local Production $1,606 $1,654 $1,704 

Total Exports $51 $208 $214 

Total Imports $178 $211 $233 

Imports from the U.S. $109 $130 $136 

U.S. Market Share 6.29% 7.85% 7.93% 

199
Singapore: Singapore imports approximately 171% of its electronic components. Many of the 

electronic components are imported into Singapore, incorporated into other products, then reexported. The U.S. supplies 15% of total imports. While a portion of the electronic components 

imported into Singapore are for assembly and re-export, the market for pure exports to 

Singapore is strong as international companies open and supply new facilities. The lead 

competitors in Singapore are the Japanese, Malaysians, Koreans, Taiwanese, and Thai. The best 

opportunities in the Singapore market are in integrated circuits, microprocessors, ASICS, 

DRAMs, and transistors. 

Singapore: Current and Projected Markets: 1995-1997

Table E-4

 

1995 1996 1997 

Total Market Size $12,665 $15,983 $20,175 

Total Local Production $9,642 $23,520 $15,066 

Total Exports $18,608 $23,713 $31,447 

Total Imports $21,631 $23,937 $36,556 

Imports from the U.S. $3,259 $4,236 $5,507 

U.S. Market Share 25.73% 26.50% 27.30% 

 Table E-5

Japan: Current and Projected Markets: 1995-1997

 

Japan: Japan imports approximately 50% of its electronic components. The U.S. supplies 35% 

of those imports, thus having a market share of 18%. The Japanese have a strong capability in 

this market, and are one of the U.S.'s major competitors in Japan and internationally. The most 

top opportunities in the Japanese market are in semi-conductors and flat panel displays. The 

semi-conductor market is expected to grow 18-19% annually, while the LCD display market 

will continue to grow at 20-25% annually. 

1995 1997 

Total Market Size $46,653 $56,800 $66,110 

Total Local Production $101,381 $112,100 

$78,129 $88,290 $97,300 

Total Imports $23,401 $32,900 $44,010 

$11,200 $14,700 

U.S. Market Share 17.79% 19.72% 22.24% 

1996 

$119,400 

Total Exports 

Imports from the U.S. $8,300 

Taiwan: Taiwan imports approximately 77% of its electronic components. The U.S. supplies 

18% of those imports, thus having a market share of 14%. Taiwan, like the other major Asian 

electronics importing countries imports high quality electronic equipment from foreign suppliers 

to maintain the quality of its assembly operations. Additionally, international manufacturers 

operate facilities in Taiwan that need a steady supply of high quality electronic components. 

Table E-6 

200
Taiwan: Current and Projected Markets: 1995-1997

1995 1996 

Total Market Size $18,000 $20,700 $23,800 

$12,000 $14,200 

Total Imports $13,970 $16,800 $20,100 

Imports from the U.S. $2,566 $2,800 $3,100 

14.26% 13.53% 13.03% 

1997 

Total Local Production $13,879 $15,900 $17,900 

Total Exports $9,849 

U.S. Market Share 

Summary

The United States is fairly competitive in high quality, sophisticated electronic components such 

as semi-conductors and LCD displays. Several elements of the global market include: 

• primary customers for electronic components are large international firms that establish 

facilities in countries with few regulations and relatively inexpensive labor costs. 

• most suppliers to these firms are successful in large part through maintaining customer 

relationships. 

• Components exported from the United States are placed in products and then reexported, 

either to the United States, or to other countries. 

NOTE: The projected figures for 1996, 1997, and 1998 are all estimates selected by U.S. embassy officials in the 

respective countries. The country by country analysis may differ in exact composition from the selected SIC code. 

The general category contains approximately the same products.

201
PLASTIC PARTS IN PENNSYLVANIA AND OHIO: 

 

The industry, especially as it is constituted in the Pennsylvania and Ohio counties surrounding 

the city of Erie, primarily produces sub-assembly products for large original equipment 

manufacturers. As such, while the industry is very strong, it is not a particularly vibrant 

exporting sector. Finished products are more likely to be exported and the plastics companies in 

Erie, especially the small and medium sized firms that make up the target of this study, do not 

specialize in finished goods. Unlike some other industries, where the lack of exporting can and 

most likely will affect the growth potential of firms, for most plastics manufacturing firms 

exporting does not hold the key to their future success. Instead, improvements in technologies 

and in worker skills would seem to offer the best chances for sectoral growth. 

Successful, Clustered, Ubiquitous 

by Dan Broun 

 Regional Technology Strategies, Inc. 

Preface 

While it might be a little simplistic to sum up the future of the Appalachia region in terms of

polymers, for portions of this diverse region, it is clear that plastics play a crucial role. Given the 

importance of plastics in heavy industries such as auto manufacturing, it is not surprising the 

Appalachian region’s strongest concentration of plastics firms lie in areas long considered part of 

the “rust belt.” Indeed, the area around Erie, Pennsylvania is one of the top plastics clusters in 

the entire nation, and even holds an important place in the industry’s history as the location of 

the first company to use injection molding practices. 

General Industry Description 

Industry Composition 

There are two broad industries in what might traditionally be thought of as “plastics.” The first is 

Plastics Materials and Resins (SIC 2821), the major input needed for plastics processing. The 

second is miscellaneous plastics products (SIC 308), which is the focus of this particular study. 

The miscellaneous plastics sector comprises several sub-sectors covering completed plastic 

shapes. The major sub-sectors in SIC Code 308 are: Unsupported Plastics Film and Sheet (SIC 

3081), Unsupported Plastics Profile shapes (SIC 3082), Laminated Plastics Plate and Sheet, 

Plastics Pipe (SIC 3084), Plastics Bottles (SIC 3085), Plastics Foam Products (SIC 3086) ‘ 

Custom Compound Purchased Resins (SIC 3087), Plastics Plumbing Fixtures (SIC 3088), and 

Plastics Products not elsewhere classified, (SIC 3089). This final catch-all category is by far the 

largest sub-sector with both 63 percent of the sector’s employment and its establishments 

nationwide. In fact, only one other sub-sector, plastics foam products, has over 1,000 

establishments, still well short of the miscellaneous plastics products total of over 8,000 firms. 

All told, miscellaneous plastics products is the fifth largest manufacturing sector in the United 

202
States, trailing only motor vehicle and car bodies, petroleum refining, automotive parts and 

accessories, and computers and peripherals in terms of value of industry shipments. 

Industry Growth 

The plastics industry has not experienced dramatic industry growth over the past ten years. As 

Table 54 shows, from 1986 to 1994 shipments grew at a rate of 13.2 percent, while employment 

grew at a rate of 1.8 percent, and average production wages (per hour) grew at a rate of 22.9 

percent. 

Table 54 

Industry Growth

1988 1990 1992 1994 Percent Growth 

Value of shipments 

(millions) 

$59,036 $62,390 $62,308 $68,040 13.2%

Employees (000) 584 595 574 595* 1.8%

Average production wage 

(per hour) 

8.56 9.22 9.97 11.06* 22.9%

*estimated U.S. Industrial Outlook, 1994.

These relatively anemic growth patterns are forecaster to continue with about 15 percent growth 

in shipments forecast from 1994 to 1998. More than most industries, the plastics products sector 

is dependent on the performance of other manufacturing sectors. An economic downturn, similar 

to the one experienced in the early years of this decade will have a particular effect on the 

plastics industry. Plastics products are used extensively by the electronics , health care, 

construction, transportation, automotive and food packaging industries. 

Industry Trends 

While the amount of total shipments of plastics is not expected to grow extensively in the next 

years, there may be more opportunity for smaller firms. The trend towards corporate downsizing 

should have a beneficial effect on the smaller and medium sized firms that predominate in this 

sector. In many large OEMs, smaller injection molding jobs are done even if the firm’s primary 

sector is not plastics processing. Pressure to reduce costs has and should continue to force these 

firms to outsource jobs. 

Another trend expected to affect the plastics industry in the coming years is larger plastics firms 

sending their production to low-wage country overseas. The wage gains made by building a 

product in nations such as Mexico or China offset the shipping costs of getting the products to 

their final destination. 

Locational Patterns 

Every state has some plastics manufacturing with the greatest regional 

concentrations located in the Far West, the Northeast and the Midwest. The top six states in 

terms of plastics employment- California, Ohio, Michigan, Illinois, Texas and Pennsylvanialargely reflect that regional trend. The top twelve states have 70% of the nation’s plastics 

employees. In addition to Ohio and Pennsylvania, North Carolina, Georgia, Tennessee and 

203
Kentucky are other ARC states with significant plastics employment. Georgia, Alabama and 

Tennessee have experienced significant growth in the past few years, with all three of the states 

increasing employment in plastics processing by over 30% in the years 1991 to 1994. 

Within the ARC region, the area with the most significant plastics concentration was extremely 

clear. Erie, Pennsylvania, a city of 108,000 inhabitants sitting on the northwest edge of the 

ARC’s territory, has both a historical and present day claim to being the region’s center for the 

plastics industry. Although Erie County is clearly the center of this industry, the cluster extends 

southward towards Pittsburgh and westward into Ohio. The cluster analyzed here includes 12 

counties. 

The only other geographic area with a significant concentration of plastics firms in the ARC 

Region was the Spartanburg/Greenville area of South Carolina. However, it has nowhere near 

the concentration on a scale that the Erie area possesses. 

Export Trends 

The ARC target industry SIC 308 is part of SIC major industry 30, rubber and miscellaneous 

plastics products. SIC 30 data is used in this analysis. In 1995, rubber and miscellaneous plastics 

products accounted for 2.2 percent of the value of manufactured products exported from the 

United States and 3.0 percent of the value of manufactured exports from the ARC states. The 

slightly higher ratio for the ARC member states indicates that these states contribute a relatively 

high share by value of US rubber and miscellaneous plastics products exports. 

The US 1995 rubber and miscellaneous plastics products export total increased from $9.1 billion 

in 1991 to $11.7 billion in 1995, an increase of just over $2.6 billion dollars. During the same

interval, rubber and miscellaneous plastics products manufacturers in the ARC states increased 

their export sales from $3.4 billion to $4.3 billion, a 1993-1995 increase just under $ 1 billion. 

This growth in export sales represents an increase of 28.6 percent for the United States and 25.0 

percent for the combined ARC member states. Table 55 lists the national and 13-state total 

values of rubber and miscellaneous plastic product exports for 1993 through 1995. 

Table 55 

VALUE OF RUBBER AND MISCELLANEOUS PLASTIC PRODUCT EXPORTS, 1993-

1995 (millions of dollars)

Area 1993 1994 1995 1993-1995 Change 

ARC States $3,432.2 $3,785.6 $4,290.2 $858.0 

United States $9,114.7 $10,595.0 $11,725.1 $2,610.4 

The ARC member states combined contribute well over a third of US export sales in rubber and 

miscellaneous plastics products. Due to the slightly slower 1993-1995 growth in exports from

ARC states, the multi-state contribution slipped from 38 percent in 1993 to 37 percent in 1995. 

Figure 29 illustrates the ARC contribution to US exports. 

204
Figure 29 

0

2000

4000

6000

8000

10000

12000

14000

1993 1994 1995

Rest of US

ARC States

ARC

Ohio and New York lead the ARC states in the value of rubber and miscellaneous plastics 

products exporting. These two states account for one of every four dollars earned in exports 

during 1995. However, every ARC state experienced growth in the value of this industry’s 

exports between 1993-1995. Table 56 lists the 1993 through 1995 value of rubber and 

miscellaneous plastics products exports attributed to each ARC member state, and the changes in 

the value of those exports over the three years. The gains ranged from over $231 million for 

South Carolina to $11 million for West Virginia. 

Table 56 

VALUE OF RUBBER AND MISCELLANEOUS PLASTIC PRODUCT EXPORTS BY 

STATE, 1993-1995 

(millions of dollars) 

Area 1994 1995 1993-1995 Change 

Alabama $135.9 $127.8 $155.0 $19.1 

Georgia $223.5 $248.9 $257.8 $34.3 

Kentucky $94.8 $111.3 $132.9 $38.2 

Maryland $66.2 $90.2 $100.4 $34.2 

Mississippi $38.6 $51.9 $66.8 $28.2 

N. Carolina $332.0 $369.5 $425.2 $93.2 

New York $541.5 $561.0 $675.3 $133.8 

Ohio $718.3 $715.0 $744.3 $26.0 

Pennsylvania $332.5 $373.1 $413.7 $81.3 

S. Carolina $386.3 $517.6 $617.3 $231.0 

Tennessee $269.4 $312.4 $336.2 $66.8 

Virginia $254.3 $264.9 $314.5 $60.2 

W. Virginia $39.1 $42.0 $50.8 $11.7 

 1993 

205
Absolute numbers tell part of the story, but the impact of a given increase or decrease in export 

sales depends in part upon the amount of export activity. Calculating the rate of change helps put 

the movement in perspective. Figure 30 shows the rate of change in rubber and miscellaneous 

plastic product exports among the ARC states. 

Figure 30 

Percent Change in Rubber & Misc. Plastic Product

Exports, 1993-1995

0%

20%

40%

60%

80%

AL GA KY MD MS NC NY OH PA SC TN VA WV

Mississippi, which had relatively low dollar values for rubber and miscellaneous plastic product 

exports, had an export growth rate of 73 percent. South Carolina, and Maryland also 

experienced growth rates in excess of 50 percent between 1993 and 1995, while Kentucky export 

values increased by 40 percent, and West Virginia increased by 30 percent. All other ARC states 

grew more slowly than the regional average of 25 percent. New York, which with South 

Carolina led the increase in dollar value of exports, had a relatively slow rate of growth. Ohio, 

the largest exporter, had the slowest rate of increase among all ARC states. 

Export Intensity 

Another technique for accommodating size differences among the ARC states so that export 

performance can be compared across the states and with the national average is to calculate the 

value of rubber and miscellaneous plastic product exports as a percentage of the gross state 

product (GSP). That ratio measures the contribution that rubber and miscellaneous plastic 

product exports make to the overall state economy. 

The 1993-1995 rubber and miscellaneous plastics products export intensity for the Appalachian 

region states of .17% is just above the national rate of .15%. The difference describes the 

additional contribution that export sales of rubber and miscellaneous plastic products are making 

to the regional economy above the contribution they would be making if export performance was 

at the national average. However, the experience varies among states within the ARC region. 

Figure 31 ranks the ARC member states by their 1993-1995 rubber and miscellaneous plastics 

products export intensity. 

South Carolina stands out among the ARC member states as having an exceptionally high export 

intensity that more than twice as high as any other ARC state. Ohio, Tennessee, and North 

Carolina also have export intensities that are well above both the regional and national averages, 

while Virginia and Alabama are above the national average but below the regional ratio. 

206
To facilitate comparisons of export performance over time, the ARC states’ export intensity can 

be calculated as an index relative to the national average. The resulting number is the target 

industry counterpart of the overall export intensity index calculated in Chapter 1. The national 

EII is always one, and states where rubber and miscellaneous plastics products exports make an 

above average contribution to the economy have a rubber and miscellaneous plastics products 

EII greater than one. Conversely, if rubber and miscellaneous plastics products exports make a 

relatively small contribution to the state economy, the EII is less than one. 

Figure 31

ARC States Rubber & Misc. Plastic Product Export 

Intensity

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

SC OH TN NC VA AL GA KY PA WV NY MS MD

The ARC states combined rubber and miscellaneous plastic product EII was 1.11 in 1995, down 

from 1.14 in 1993 but still above the national average. Changes over time in the EII reflect a 

change in the contribution the industry’s exports to the state economy that is greater (an 

increasing EII) or less (a decreasing EII) than the national trend. Trend data confirms South 

Carolina leadership in plastics exporting. South Carolina recorded the largest EII gain for any 

state in the region, while Ohio, the state with the second highest EII in 1993, experienced the 

largest decline. Other states with a rising EII for rubber and miscellaneous plastics include 

Mississippi, Kentucky and Maryland. Alabama and Georgia had falling EIIs, and the remaining 

states were essentially stable. Table 57 lists the rubber and miscellaneous plastics products 

export intensity index for the ARC states. 

207
Table 57 

RUBBER AND MISCELLANEOUS PLASTICS PRODUCTS EXPORT INTENSITY 

INDEX, 1993-1995 

Area 1993 1994 1995 

AL 1.14 0.92 1.01

GA 0.94 0.90 0.83

KY 0.83 0.84 0.91

MD 0.38 0.45 0.45 

MS 0.55 0.64 0.74

NC 1.35 1.29 1.33

NY 0.74 0.66 0.73

OH 1.96 1.68 1.58

PA 0.84 0.81 0.82

SC 3.62 4.17 4.48

TN 1.60 1.59 1.54

VA 1.09 0.98 1.05

WV 0.83 0.77 0.85

ARC Erie Plastics Cluster 

The ARC’s region’s Erie plastics cluster (which, as mentioned, includes counties in Ohio as well 

as Pittsburgh) has a total of 163 firms with 13,945 employees in 1993. Table 57 classifies these 

establishments by primary product according to their four-digit SIC code. 

Table 58 

Cluster by Subsector 

Primary SIC 

Classifications 

Number of 

firms 

Employees % Share of 

Cluster 

Employment 

Average # of 

employees per 

firm 

Unsupported film and sheet 6 692 5.0 115 

Unsupported plastics profiles 2 161 1.2 81 

Laminated Plastics 8 792 5.7 99 

Plastics Pipe 4 284 2.o 71 

Plastics Bottles 2 220 1.6 110 

Plastic Foam Products 10 358 2.6 36 

Plastics plumbing fixtures 2 195 1.4 98 

Plastics Products, NEC 129 11,243 80.6 87 

Source: County Business Patterns, 1993.

As in the case with the plastics industry in the rest of the nation, the “catch all” sub-sector of 

plastics products, NEC dominates the Erie cluster. In fact the percentage of employment in Erie 

208
in sector is 17 percent higher than the national average for the plastics industry. As will be 

discussed, this is primarily due to the large number of injection molding firms in the region, 

companies that usually fall under the NEC sub-sector. 

It is also interesting to note that the firm size of the plastics products, NEC sector tends to be 

smaller than that of other sub-sectors. This, in part, reflects the presence of some extremely small 

companies in this sub-sector. Many firms in SIC 3089 are simply job shops, performing as -

needed tasks for larger companies who contract out their plastics processing. 

Concentration within the cluster 

The Erie plastics cluster is strongest in Erie County, the country which, not surprisingly, 

includes the city of Erie. Other counties in the cluster with high concentrations of plastics 

industry include Guernsey and Tuscarawas Counties in Ohio. Table 58 shows the relative 

importance of plastics firms to the local economies of the duster. he location quotient was 

calculated by measuring the percentage of the county’s total employment in plastics, compared 

to (divided by) the same ratio for the nation as a whole. The relatively low location quotient for 

Allegheny County, the county containing Pittsburgh is mainly due the heavily industrialized 

nature of that county. 

 

Table 59 

Number of Establishments and Employment and Location Quotient by County 

County State Employment Establishments Loc. Quotient 

Allegheny PA 2,368 40 0.57

Beaver PA 272 8 0.65

Crawford PA 529 12 3.02

Erie PA 4,570 57 6.24

Lawrence PA 595 12 3.19

Mercer PA 510 7 1.91

Warren PA 738 4 6.86

Washington PA 644 11 1.58

Columbiana OH 807 4 4.12

Geurnsey OH 680 12 8.08

Holmes OH 331 4 4.49

Tuscarawas OH 821 16 4.25

Source: County Business Patterns, 1993. 

An argument could be made that the Erie plastics cluster extends into southwestern New York 

State and into additional counties in northeastern Ohio. In fact several of the service providers 

interviewed for this report worked with firms beyond the borders of the ARC region. An 

example of this phenomenon is the Plastics Program at Penn State Erie-Behrend College. The 

college considers counties in northeast Ohio, northwest Pennsylvania and southern New York to 

be a part of its service area. 

209
The plastics cluster is overwhelmingly autonomous—with almost 81 percent of the firms being 

either single location establishments or headquarters. The independent nature of the industry 

again reflects the preponderance of “job shop’ injection molders. 

Importance of the tool and die industry and other suppliers 

A major reason for the Erie region’s strength as a plastics duster cannot be found simply by 

analyzing the numbers and concentrations of firms within SIC 308. The plastics industry has 

flourished in and around Erie in large part due to the presence of a large and dynamic tool and 

die industry. Over 100 tool and die companies are located in the area--one of the highest 

concentrations in the nation. This industry is responsible for building the molds used in much of 

the plastics processing work done in the region. 

The relationships between the plastics firms and the tool and die manufacturers is another reason 

why analysts view Erie as an industrial cluster. However, most of the companies interviewed for 

this study did not report purchasing a high percentage of their products locally. Few said they 

purchased more than 15 percent from firms within an 150 mile radius and only two purchased 

more than 50 percent from local firms. However, the relative lack of local purchasing should not 

be overemphasized. First, since most of these firms are second or third tier suppliers they require 

few inputs beyond the industrial machinery required to mold the plastics and the resin from

which the plastic is actually made. The former is made by only a handful of companies (Conair 

Inc., one of the largest is located within this cluster) and tends to be a long-term purchase rather 

than an annual one. Resins are supplied by large multi-national petroleum companies which are 

not located within the region. Secondly, while products may not be purchased in great numbers 

from local suppliers, most firms’ main customers are within a 150 to 300 mile radius. While this 

certainly creates a vibrant internal market it definitely makes the firms less likely to export-most 

firms are resolute in their belief that they cannot compete in markets located more than 300 miles 

away from their facility. An example of this attitude comes from one mid-sized company which 

just opened up a new facility in Massachusetts. The company wanted to be closer to one of its 

most important customers Gillette, which is located in Boston. 

History of the plastics cluster 

The history of the Erie plastics cluster can be traced back 25 years before plastics processing 

became a viable industry. In 1913, the Hookless Fastener Company started a manufacturing 

facility in Meadville, a small town south of Erie. The company, later remained the Talon Zipper 

Corporation used a number of precision machining and tooling operations which would 

eventually lead to the production of precision molds for compression, transfer and injection 

molding. A number of the tool and die companies that exist in Erie were direct spin-offs of the 

larger company and the most important “sister” industry of the plastics sector became firmly 

entrenched in the region. 

Plastics manufacturing began in the region in 1935 when Erie Resistor began making plastics. 

Erie Resistor is important for the local industry for two reasons besides being the first in the area 

to manufacture plastics. First, Erie Resistor became the first company in the Untied States to use 

injection molding, the key to making plastics processing a rapid automation industry. Second, 

many of the workers on the Erie Resistor presses, like their counterparts at Talon Zipper, 

eventually left the larger firm to start their own companies. Five of the most prominent plastics 

210
companies in the region owe their origins to Erie Resistor. The industry continued to grow and 

by 1953, 14 million pounds of plastic material were shipped into the Erie region, leaving the area 

as toys, buttons and automobile parts. 

The region as a whole has followed closely the economic trends of the rest of what is often 

called the “rust belt.” The hey-day of manufacturing in the 1950s and early 1960s began to lag 

in the 1970s and 1980s as plastics, an industry heavily dependent on other sectors, faced 

significant downturns. In the 1980s, as the industry and region emerged from the worst recession 

since the 1930s, several of the larger plastics firms decided to band together to address one of the 

industry’s problems: a shortage of highly skilled workers. Working with faculty and 

administration at Penn State-Erie, the firms succeeded in opening a plastics laboratory at the 

college and creating a baccalaureate program in plastics engineering technology. Much of the 

original lab’s machinery and equipment were donated by local plastics companies who also 

helped create a $1.2 million equipment endowment fund. Presently 750 students in the 3,200 

college are enrolled in engineering or engineering technology with many of these in plastics 

engineering. The college recently instituted an associate degree program in plastics technology. 

Another program started in 1993 with the cooperation of Cleveland Advanced Manufacturing 

Program (CAMP). The college and CAMP received a $2.8 million Technology Reinvestment 

project award for the purposes of starting the Plastics Technology Deployment Center (PTDC). 

This center, affiliated with the National Institute of Standards and Technology’s (NIST) 

Manufacturing Extension Program, helps small and medium-sized plastics firms become more 

competitive. The establishment of the center is itself a statement of the recognition of the 

industry’s importance to the Erie area and to the area’s prominence as a national center of 

plastics products. PTDC is one of the very few centers in the national system of NIST extension 

centers which focuses on a particular industry. 

The Cluster Today 

While the statistics pertaining to the Erie plastics cluster tell part of the picture, firms’ attitudes 

towards a variety of issues impacting their exporting potential can only be obtained by talking 

directly to the firms themselves. To that end, the project team interviewed twenty companies—

10 exporters and 10 non-exporters. The companies were selected by a variety of means. First 

using a database from Dun & Bradstreet’s Direct Access Service, researchers identified firms 

producing goods in SIC 308. This list was then shared with staff at the Plastics Technology 

Deployment Center in Erie which pointed out good candidates for the survey. In addition to the 

suggestions made by the PTDC, the D&B list was cross listed with the journal of Commerce’s 

Directory of United States Exporters, which lists firms which export. Cold calls were made to fill 

in the remaining holes. Figure 32 depicts the relationship between plastics firms, and their raw 

material suppliers, industrial supplies, general and specialized services, export assistance, and 

the domestic and foreign market penetration. 

Figure 32 ARC Erie Plastics Cluster 

211
212
Several broad characteristics about the firms emerged: 

• All but two of the firms interviewed are locally owned. 

• The majority of the non-exporting firms were small with all but two having fewer than 100 

employees. 

• Most of the exporting firms interviewed were larger with six having more than 100 

employees and four of those having between 250 and 500 employees. 

Economic Status 

• 75% of the firms interviewed reported sales growth of between 10% and 50%. The nonexporters actually reported higher sales growth, with three of the firms interviewed reporting 

growth of greater than 50% and none with sales growth of less than 10%. 

• Employment remained fairly steady for the exporters, with most firms reporting an increase 

of less than 10 percent over the past three years. Non-exporters grew at a slightly higher rate 

with about half the firms reporting increases in employment of greater than 10 percent. 

Competitive Situation 

The survey revealed some important differences in competitive advantages between the 

exporting and non-exporting firms, or at least in how the firms themselves perceived those 

competitive advantages. The exporting firms mentioned both price and their company’s 

reputation as the most important advantages their firm possessed. This is not surprising given the 

nature of the plastics exporting business. If a firm is to compete effectively overseas, it must be 

able to supply a product cheaper than it can be produced locally. In terms of a company’s 

reputation, the just-in-time nature of much of this industry means that a product must be 

delivered in a timely fashion or run the risk of holding up the entire production process. 

For non-exporters, the competitive advantages most commonly mentioned were product design 

and product quality. These companies must meet the rigid project specifications of their 

customer if they want to continue as a primary supplier to that firm. 

The strength of the region as a whole in plastics was emphasized by the relative importance both 

exporters and non-exporters put on worker skills. Both sets of firms stated that good labor 

markets were a major region for the competitive strength of the Erie region in plastics parts. The 

region has a ready supply of skilled workers, and the continued growth of Penn State-Erie should 

only augment that. 

The firms interviewed appear to be doing quite well, with increasing sales, wages, and 

employment in the last three years. Firms appear to be performing at slightly above the national 

industry level. Among the trends gleaned from the survey 

• Wage growth remained fairly constant for the exporters, with all reporting an increase at a 

level less than 10 percent. Most of the non-exporters reported similar increases with a few 

increasing wages by between 10 and 20 percent. 

• Exporters showed rapid increases in their exports with most showing an increase in export 

sales of between 10 and 50 percent over the past three years. Still only one of the firms 

employ a person whose sole responsibility is exports. 

213
Export Behavior 

The plastics industry in the Erie area, like the sector nationally, does not heavily export. Several 

studies and reports prior to this one indicated the low emphasis on exports given by plastics 

firms and indeed, by firms in the region generally. 

• In 1989 over 1,000 tons of plastics were shipped to South America-not one ton came from

Northwest Pennsylvania. 

• A 1993 Harris survey indicated that about half of employees in Erie worked at firms that 

exported, however when these companies were surveyed separately, about a third did not 

export on an on-going basis. 

• For a Pennsylvania meeting of plastics firms, a survey was sent out to determine the topics 

for breakout sessions. Firms were asked to rank whether they had high, medium, low or no 

interest 10 possible subject areas. International trade finished second to last of all the subjects 

mentioned. Forty four percent of firms answering the survey had low or no interest and only 

23 percent had high interest in learning more about international trade. 

The survey work for this project would seem to back up these findings. Of the firms interviewed 

who exported, none exported above 15 percent of their product and most exported less than 10 

percent. These exporters believed that foreign markets were important for the future of the 

industry—but less than half of the firms classified exports as very important. 

• Marketing difficulties: The small size of most of these companies means that they can not 

afford a large marketing staff that can scout out new foreign markets or shepherd products 

from manufacture to final delivery. 

• Foreign regulations and taxes: Although there are not as many in the plastics products 

industry, foreign regulation of imports presents difficulties. A firm mentioned the V.A.T. tax 

applied on their goods as an impediment and another theorized that foreign firms are much 

more likely to use their local suppliers whom they are sure meet the complex local country 

regulations than risk an American supplier. 

• Lack of information/cultural barriers: Although not mentioned nearly as often as 

compared to some others, some firms found that they were not equipped with enough 

information to adequately negotiate through the export maze. Included in that dearth of 

information is a lack of language skills that sometimes makes shipping difficult. 

Despite the professed importance of exporting, the firms did not devote a great deal of resources 

to selling goods overseas. Only three of the companies interviewed assigned specific employees 

to be responsible for exporting and only in one of those cases did that individual devote more 

than 10 percent of his or her time to the endeavor (in that case, exporting was the individual’s 

sole responsibility). 

According to the surveyed firms, a diverse set of obstacles discourage plastics firms from

becoming more active exporters. The most prominently mentioned were: 

• Cost of shipping: The expense required to get products to market, especially the freight 

costs, often eliminate any competitive advantage the firm might have had in terms of cost. 

214
Since exporting is clearly not a common activity in the Erie region, it makes more sense to talk 

to the firms which do not export to find out why they don’t sell their products overseas. 

The three biggest barriers to entering foreign markets mentioned by non-exporters were the 

following: 

• Unfamiliarity with the export process: Firms that identified this barrier simply do not 

know how to go about starting to export. 

• Transportation costs: Firms do not think they can compete effectively with the costs of 

shipping added on to their product. 

• Lack of information: about markets and customers: Some firms do not know where they 

might export their products even if they made a commitment to enter foreign markets. 

• There is recognition that this is strong region for the plastics industry. Two strengths of the 

industry are the large presence of the tool and die industry and location near major markets. 

• The biggest barrier to firms entering foreign markets is not those mentioned by the firms, 

according to most service providers interviewed, it is simply a lack of interest. Most firms, 

including those interviewed in this survey, are doing quite well selling their products to other 

firms within a 300 mile radius. New markets, especially those with the added complication of 

being foreign, seem unnecessary. 

• Most of the non-exporting firms interviewed manufacture sub-assembly parts, products that 

tend not to be heavily exported. Fully assembled products stand a much better chance of 

ending up overseas than do those which are meant to be part of a larger product. Almost all 

the firms interviewed for this project which did not export produce custom-made injection 

molded parts for OEMs or second tier suppliers. While they may identify such things as lack 

of information and costs as barriers to exporting, a more likely explanation may be the 

products they manufacture. 

• Service providers also suggest that firm owners simply do not have the time to make the 

investment in foreign trade. Most of the plastics firms are very small shops where the firm

owner serves as everything from company president to chief marketer and the amount that he 

or she can devote to exports is minimal. 

• Service providers believe that that there is adequate support for exporting. However, there is 

no specific plastics industry initiative aimed at exporting. The agencies geared towards the 

industry tend to focus more on technical rather than market issues. The broader-based service 

providers have opted to put what cluster focus they have into other industries. For instance, 

the Northwest Pennsylvania Regional Planning Development District has a program aimed at 

the food products industry. 

Service Providers’ Perspectives 

In addition to interviewing firms, researchers for this project talked to service providers about 

the plastics industry in general and its export potential in particular. The Erie area has agencies 

which are specifically charged with assisting the plastics industry as well as assistance geared 

more generally to small business providers. 

Opinions relating to several issues emerged in talking with the service providers: 

215
216

Despite the presence of substantial resources in the region for exporting and general business 

assistance, firms interviewed tended to get information about improving their competitiveness 

elsewhere. Few of the exporting firms indicated that they used publicly-supported service 

providers as sources of information on exporting. In addition the vast majority of exporters 

indicated that they never used community colleges, government technology assistance or small 

business centers as sources of information or assistance on any business problem. Instead, most 

relied on private sources of information such as other companies, equipment vendors, and 

suppliers. 

Non-exporters also tended to shy away from using public sources of assistance. Most used 

suppliers, trade journals and equipment vendors for sources of information and assistance. 

Government sources were rarely or never used by these firms. 

Yet, on a somewhat ironic note, four of the firms interviewed cited government support as an 

advantage of doing business in the geographic location. Frequently mentioned as a plus, is the 

offered, if not taken advantage of, Pennsylvania Department of Commerce’s trade show 

assistance program. In this program, firms are given up to $2,000 to attend a trade show in a 

foreign country. The Penn St.-Erie plastics program was also mentioned by some as a general 

resource for the area. Exporters generally tended to use the service more than non-exporters. 

This is not surprising given that the exporting firms tended to be larger and more likely to use 

engineering services more the types provided by the Penn St. college. 

Dynamic Factors and Linkages 

There was not a lot of agreement among firms on what makes the Erie region a good place to do 

business. Proximity to customers, government support and general quality of life were all 

mentioned as pluses of doing business in the area. Again the presence of the tool and die industry 

was mentioned as a plus by several interviewed firms. 

In terms of cooperation, most firms do not engage in formal ways with their peers. 

While most firms are members of either the Society of Plastics Engineers, the Society for the 

Plastics Industry or both, these trade associations are seen as more lobbying organizations at the 

national level rather than chances to get to know their own community. 

Some of the larger companies have engaged in some forms of cooperation, the most notable 

being the banding together to help build the Penn St.-Erie plastics center. That center, along with 

the Plastics Technology Deployment Center, has sponsored a number of what they term

“consortia,” geared to particular elements of the plastics industry. For example, the “blow 

molding consortium” supplies specific training and technical assistance to firms specializing in 

that method of plastics processing. The college and PTDC purchased three blow-molding 

machines molds and computer software to help train industry personnel in their use and to help 

firms develop new products using the technology. 

For the smaller companies, most of the collaboration has been on specific orders. If an order is 

too large they might contract out with another company. Many of the firms seemed willing to 

explore more formal ways in which such collaboration could manifest itself. 
There seems to be an adequate level of trust and cooperation in the region with most exporting 

firms rating trust as average in the region. In addition, several of the service providers 

interviewed indicated that the atmosphere as fairly conducive to trust since many companiesespecially those exporting—were not in direct competition with each other. 

Conclusions about Exporting in the Erie Region 

Through the interviews and surveys conducted with both firms and service providers in the Erie 

region, several findings emerge: 

1. Any efforts at export development in the Erie region must take into account the primary 

barrier to foreign market entry: lack of an appropriate product. Plastics firms in Erie, 

especially the smaller firms on which this study focuses, are overwhelmingly sub-assembly 

manufacturers. Exported products are almost exclusively finished products. Thus, unless 

firms in the area radically change their product line, exports will probably remain fairly 

limited. 

2. There seems to be a general lack of interest in exporting in the region. Most of the firms 

believe they are competitive within a 300 mile radius and see little reason to struggle to 

expand that market. This attitude seems fairly prevalent among plastics parts manufacturers 

throughout the state, where international trade is generally not viewed as a crucial industry 

concern. 

3. If firms do decide to export, there exists a good network of assistance providers in the Erie 

region. From the Small Business Center at Gannon University, to the Local Development 

District Office to the State Department of Commerce, resources exist for firms to get started 

in exporting. The State’s program is perhaps the most impressive because it funds companies 

to attend foreign trade shows. Not only does this attendance encourage exporting, it allows 

companies to interact, leading to future collaboration. 

4. Collaboration in the Erie region among plastics firms seems fairly strong. Several of the 

larger firms worked together to start the Penn St. plastics program. In addition, there is a 

great deal of informal cooperation between firms and the large presence of tool and die firms 

in the area reinforces the symbiotic relationships between many of the firms. Indeed, if there 

is to be an export development strategy in the region it will most like be a collaborative 

approach. Firms might join together to jointly market Erie as an international center of

plastics processing. 

217
The World and Erie: One Plastics Firm and the Challenge of Exporting 

Huron Plastics30 is one of the most successful small plastics companies located in the Erie, 

Pennsylvania region. It’s experience with exporting also can be seen as fairly representative of 

other mid-sized firms. 

Although the company has sent some products in foreign markets, its experience is fairly limited. 

While small companies in other industries might not want to export because of the cost or the 

time involved, for Huron Plastics it is a problem inherent in the product they produce. 

Like most plastics firms in the Erie region, Huron Plastics almost exclusively manufactures subassembly parts. These types of parts are simply not in great demand overseas. A foreign 

company will more likely use a local supplier who will be cheaper and just as important deliver 

the product in a very timely fashion. Indeed, most of Huron’s customers are located within a 300 

mile radius—to deliver products beyond that mile threshold might create a whole different set of 

problems.

While Huron Plastics is not making any future plans to export, the CEO realizes that there may 

come a time when in order to be competitive, they may have to change their philosophy. 

“We may be on borrowed time in terms of exporting,” he says. “For instance, one of our largest 

customers is a multi-national corporation. Eventually they will want one plastic canister for a 

product. They will not want to have to use a different supplier in every country in which they 

operate.” 

That time, however, appears to be well in the future. The owner also believes that smaller 

companies who often have a great number of customers will find even less need to export. If one 

of their customers were to demand that their suppliers conform to a particular standard, many 

firms could afford to stop supplying that customer and have other companies pick up the slack. 

For companies like Huron Plastics that rely on fewer companies with larger orders, dropping a 

customer is rarely an option. 

218
219

shapes (SIC3082), Laminated plastics plate, sheet, profiles, rods, and tubes (SIC3083), plastic pipe (SIC 3094), 

plastic foam products (SIC3086), custom compounding of purchased plastic resins (SIC 3087), and miscellaneous 

plastic products, not elsewhere classified.

Appendix F 

Industry Analysis: SIC 308 Plastics 

The following analyses and data are in reference both to SIC 308*

, and the general category of 

semi-fabricated plastics products, as there was insufficient data to examine SIC 308 alone. 

Additionally, many items that fit into this category are, indirect exports; exported as a part of 

another product. Statistical accuracy and comparability to other sources are affected by a number 

of factors, including lack of published figures in certain markets, variances in data collection 

techniques, sources of data, and industry definitions. 

The United States continues to benefit from a trade surplus of approximately $1.5 billion in 

semi-fabricated plastic products. The major plastic products producers are large, international, 

and often vertically integrated companies. The major industries leading in the use of plastics are 

electronics, health care, construction, transportation, automotive, and food packaging. 

Table F-1 

US Plastics Exports by Destination Region: 1992-1995

 

SIC 308, 

Plastics 

NAFTA Japan EU-15 Asian 

NICs 

Other 

Americas 

Rest of 

World 

Total 

1992 $2,180 $248 $913 $423 $196 $511 $4,471 

1995 $3,292 $438 $1,286 $650 $619 $489 $6,774 

Absolute 

Change 

 $1,112 $190 $373 $227 $423 $(22) $2,303 

Percent 

Change 

51% 77% 41% 54% 216% -4% 52%

U.S. Total Exports, 1995 by Area and Three-digit SIC Product Groups; (Census Basis; foreign 

and domestic Exports, F.A.S.; $ millions.) 

The data in Table F-1 indicate that the plastics market grew rapidly between 1992 and 1995, 

with a total growth of 52% in U.S. exports. The market growing most rapidly in value is the 

NAFTA market, with a growth of $1.1 billion dollars in this time period. The fastest growing 

market is represented by NAFTA, with a growth of $1.1 billion dollars. In terms of percentage 

change, sales to Latin American export markets have grown by 216%, moving from the smallest 

market at $196 million in 1992, to the second largest market at $423 million in 1995. 

 

 

* Including unsupported plastics film and sheet (SIC3081), unsupported plastics profiles, rods, tubes, and other 
Table F-2 

 Plastics in Semi-fabricated form 

World UK 

1994 $ 3,810,245 $1,017,471 $693,492 $217,472 $ 239,534 $179,576 

1995 $ 4,270,697 $1,137,867 $644,688 $244,324 $243,259 $201,139 

 $232,963 $132,025 $38,426 

26% 32%

Canada Mexico Japan Netherlands 

1993 $ 3,370,868 $ 904,904 $512,663 $185,780 $ 204,833 $172,157 

Absolute 

Change 

 $899,829 $58,544 $28,982 

% Change 27% 26% 19% 17%

% of World 100% 27% 15% 6% 6% 5%

U.S. Chemical Trade with Selected Countries, Groups and World, U.S. Exports for Selected 

Countries and Groups, Domestic Exports, F.A.S. $ thousands 

As Table F-2 indicates, for the entire category of plastics in semi-fabricated form, Canada and 

Mexico constitute the primary trading partners of the U.S. The NAFTA countries account for 

42% of exports, primarily due to close proximity and interrelated markets with the United States. 

The dramatic increase of plastics sales resulted from both increased production of products using 

plastic parts, and replacement of other materials by plastic parts. Plastics are replacing metals 

and other raw materials in production to improve design, cut costs, reduce weight and for 

corrosion resistance. 

Country Analysis

The research team examined this sectors' export performance and potential using information 

from the Department of Commerce's Country Commercial Guides for the listed countries, the 

International Trade Commissions' U.S. Trade Shifts in Selected Commodity Areas, and 

interviews with industry experts and U.S. manufacturers. 

Canada: U.S. plastics sales to Canada grew 12 % in 1993-1995 and are expected to increase 

at the same rate over the next three years. This growth is attributable to the interrelationships 

between U.S. and Canadian companies, the similarity of processes of the two countries that 

allows for ease of use of U.S. products, and the benefits of tariff reductions in the U.S. - Canada 

Free Trade Agreement (FTA), and NA.FTA. One issue that U.S. exporters will have to consider 

when exporting to Canada is the increase in environmental concern and regulations, particularly 

in relation to recycling. 

 Table F-3 

 Annual Domestic Exports to Canada, F.A.S. ($ thousands): 1993-1995 

 1993 1994 1995 % growth, '93-'94 % growth, '94-'95 

$904,904 $1,017,471 $1,137,867 12.44% 11.83% 

U.S. Chemical Trade with Selected Countries, Groups and World, U.S. Exports for Selected 

Countries and Groups, Domestic Exports. 

220
Mexico: The growth of the Mexico's plastics industry is projected at approximately 

10% per year over the next three years. The market is still recovering from the Peso 

crisis, but industry experts predict an increase of expenditure due to the improvement of 

economic conditions, population growth, and increased per capita consumption. Since much of 

the plastic producing machinery in Mexico is old and only slowly being upgraded or replaced, 

importation of semi-fabricated plastics will be necessary to supply this increase in consumption. 

The benefits of NA.FTA, and the relatively inexpensive shipping costs to Mexico, will boost 

semi-fabricated plastics industry to success in Mexico. 

Table F-4 

Annual Domestic Exports to Mexico, F.A.S. ($ thousands): 1993-1995 

1993 1994 1995 % growth, '93-'94 % growth, '94-'95 

$512,663 $693,492 $644,688 35.27% -7.04% 

U.S. Chemical Trade with Selected Countries, Groups and World, U.S. Exports for Selected 

Countries and Groups, Domestic Exports. 

Japan: The Japanese plastics (by SIC 308 code) export market grew at a compound growth 

rate of approximately 20% between 1992 and 1995. Further data on Japan's plastics market was 

not available to the study team. 

Table F-5

SIC 308, Total Foreign and Domestic Exports to Japan, F.A.S. ($ millions): 1992-1995 

1992 1995 Compound Growth 

$248 $438 20.87% 

U.S. Total Exports, 1995 by Area and Three-digit SIC Product Groups; (Census Basis; foreign 

and domestic Exports. 

The Netherlands: Exports of semi-fabricated plastics to the Netherlands grew strongly in 1993-

1994, but in 1994-1995 sales growth was down significantly. The Netherlands is a major 

importer and re-exporter of products in Europe, thus many of the products shipped to the 

Netherlands have other European destinations. The primary competitors in the European market 

are Belgium/Luxembourg, France, and Italy. 

Table F-6 

Annual Domestic Exports to Netherlands, F.A.S. ($ thousands): 1993-1995 

1993 1994 1995 % growth, '93-'94 % growth, '94-'95 

$204,833 $239,534 $243,259 16.94% 1.56% 

U.S. Chemical Trade with Selected Countries, Groups and World, U.S. Exports for Selected 

Countries and Groups, Domestic Exports. 

United Kingdom: Plastics exports to the LTK continue to grow, but future exports are 

increasingly threatened by European Union packaging directives for pollution control and 

221
recycling. Some of the modifications necessary to meet these requirements are expensive to 

implement. 

Annual Domestic Exports to the United Kingdom, F.A.S. ($ thousands) 

Table F-7 

1993 1994 1995 % growth, '93-'94 % growth, '94-'95 

$172,157 $179,576 $201,139 4.31% 12.01% 

U.S. Chemical Trade with Selected Countries, Groups and World, U.S. Exports for Selected 

Countries and Groups, Domestic Exports, F.A.S. $ thousands 

The worldwide plastics industry growth is being threatened by the increase of environmental 

awareness and regulations, but is expected to continue to grow strongly due to its advantages of 

being cheap, versatile, and convenient. As plastics are used in many, if not most products, the 

continuing market expansion in all major product areas will lead to increased exports. 

222
MEDICAL DEVICES IN PENNSYLVANIA 

STILL UNDEVELOPED POTENTIAL 

by Dan Broun 

Regional Technology Strategies, Inc. 

General Industry Overview 

The Medical Devices and Surgical Instruments sector is one of the nation’s strongest 

manufacturing sectors. Indeed, the 1994 U.S. Global Trade Outlook, a publication released by 

the U.S. Department of Commerce’s International Trade Administration, listed the sector as one 

of the ten fastest growing sectors with high export potential. The high export potential of the 

industry can certainly not be argued. Fully 23 percent of all medical devices manufactured in the 

United States are sold to foreign markets. This large level of exporting accounts for an almost $5 

billion trade surplus. Table 60 shows the growth in the medical supplies industry from 1987-

1993. 

 Table 60 

Medical Devices in the United States: 1987-1993 

1987 1988 1989 1990 1991 

Value of Shipments 

(millions) 

7,780 8,259 8,553 9,546 9,817 10,318 10,999

Employees (thousands) 73.1 75.7 83.9 88.9 87.7 87.4 89.4 

Average Production 

Wage (per hour) 

8.91 9.57 9.58 9.81 10.59 N/A N/A

1992 1993 

Source: Annual Survey of Manufacturers 

 

Components of the Medical Device Industry 

The following is a brief discussion of the primary sectors that comprise the medical supplies 

industry and recent trends affecting their growth and competitiveness. Because the SIC Code 

classification of 384 covers so many diverse industries, trends differ from sub-sector to subsector. 

Surgical and Medical Instruments (SIC Code 3841): The surgical and medical instruments subsector of the medical device industry is the second largest sector in the industry with about 

89,000 employees nationwide. The sector includes such products as syringes, clamps, 

hypodermic needles, catheters and blood pressure measuring devices. This sector primarily 

consists of non-electric diagnostic and therapeutic devices. 

Like the sector as a whole, surgical and medical instruments are growing at a rapid rate 

especially when measured by exporting. In 1993, the sub-sector reached a record high of $2.6 

billion in exports, which led to a $1.6 billion trade surplus. 

223
Surgical and medical instruments would appear to be headed for continued healthy growth. The 

U.S. Department of Commerce forecasts average annual growth in shipments to range between 6 

to 7 percent through 1998. This growth should offset any sluggishness in the domestic market. 

A major factor in the high growth of this sector is cost containment practices being implemented 

by health care facilities around the world. This particular sub-sector keeps its prices lower than 

other sub-sectors in the industry and its production costs have grown at a rate lower than other 

sectors both within and outside the overall medical device industry. The actual type of products 

contained in the sub-sector also should show strong growth. Many of the products are noninvasive, are used for procedures that do not require hospital stays, and greatly reduce fears of 

complications. Thus, devices such as internal stapling devices and laparascopic and endoscopic 

devices should be in great demand. 

The primary international competitors in this sub-sector are Germany and Singapore. Along with 

the United States, the two countries were the only major trading partners that showed trade 

surpluses for 1993. Indeed, Germany accounts for over 21 percent of all imported surgical and 

medical instruments in the United States, while Singapore accounts for 10 percent. Japan, 

Canada and Germany are the leading markets for U.S. products. 

Surgical Appliances and Supplies (SIC Code 3842): The surgical appliances and supplies subsector is the largest sub-sector in the medical devices industry. This industry encompasses a 

broad range of products including prosthetics, wheelchairs, bandages and sutures. 

The sub-sector’s employment is growing at a slightly slower rate than the surgical and medical 

instruments sub-sector. In 1993, employment increased by slightly less than one percent. 

However, the relatively slow growth in employment was countered by an impressive 11 percent 

increase in exports, the highest figure in the medical devices industry. In all, the surgical 

appliances and supplies sub-sector produced a more than $1 billion trade surplus for 1993, 

including surplus increases of more than a third with major trading partners the European 

Community and Japan. Those two markets, along with Canada and Mexico, are the biggest 

markets for the sub-sector. 

In terms of international competition, Mexico and Germany are the two biggest exporters of 

surgical appliances and supplies to the U.S., accounting for 39 percent of all imports in 1992. 

The prospects for continued growth in the sub-sector are extremely strong. Shipments are 

expected to grow at an annual rate of between 8 and 9 percent per year through 1998. A major 

reason for this growth is the aging of world populations especially in the U.S., Western European 

and Japanese markets. In addition, the same cost concerns that help the surgical and medical 

instruments sub-sector will also assist the surgical appliances and supplies sub-sector. Hospitals 

will look for products that will enable patients to more adequately take care of themselves. Thus, 

devices such as wheelchairs and prosthetics which allow for self-mobility will be in demand. 

Dental Equipment and Supplies Industry (SIC 3843): The smallest sub-sector of the medical 

devices industry is the dental equipment and supplies industry. It accounts for about 5 percent of 

the total industry’s sales. As the name suggests the sub-sector is made up of manufacturers of 

equipment, instruments and supplies used by dentists and dental labs, including such products as 

drills, sterilizers and dental chairs. 

224
Growth has slowed somewhat in the industry, with shipments increasing only by two percent in 

1993 compared with an annual growth rate of 5 percent between 1991 and 1993. Exports, 

however, remain extremely strong. Indeed, 35 percent of all shipments go to foreign markets 

translating into $258 million trade surplus in 1993. Canada, Germany and Japan are the biggest 

markets for the products. In terms of international competitors, Germany, Japan and Switzerland 

are the three biggest importers in of products into the U.S. market. Indeed, the first two nations 

account for over 60 percent of all dental equipment and supplies introduced into the United 

States. However, the U.S. still controls over 50 percent of the world market 

The industry, more so than most of the other sub-sectors in the medical device industry, is made 

up of primarily small and medium-sized firms. Block Drug, 3M and Kerr Manufacturing, are 

some of the larger firms that do manufacture products for this sector. 

The sub-sector is expected to continue its growth as new technologies such as laser treatment 

create increased demand for new products. One possible concern for subsectoral growth is the increased emphasis on ISO 9000 standards needed for export. Since most 

of the firms in this sub-sector are small and medium-sized firms, these firms will face a costburden trying to get up to speed with the new standards. 

X-Ray Apparatus and Tubes (SIC Code 3844): The X-Ray Apparatus and Tubes subsector is one of the smaller sub-sectors in the overall medical devices industry. Unlike the rest of 

the industry, its growth has not been particularly robust. This primarily due to the great expense 

of the machines produced. The move towards cost-containment in the health industry has caused 

more used and refurbished equipment to be bought. Indeed the National Electrical Manufactures 

Association reported a 150 percent increase in shipments of used equipment from 1988 to 1991. 

Despite the slow overall growth of the industry, the exporting of X-Ray apparatus and tubes is 

steadily growing. In 1993, the last year measured, exports of the product increased by eight 

percent while imports only increased four percent. Japan, Canada and Germany are the most 

common destination for the sub-sector’s products while Germany, Japan and the Netherlands 

were the most common source of U.S. imports. 

The recent trends of slow growth in general shipments and increase in exports are expected to 

continue for the rest of the decade. Concerns about cost will continue to dominate this industry 

dominated by relatively expensive products. 

Electromedical Equipment (SIC 3845): The electromedical equipment sub-sector is the third 

largest in the medical devices industry with 18 percent of the market share. This sub-sector 

includes such products as pacemakers, ultrasonic scanning devices, and magnetic resonance 

imaging equipment (MRIs). The market for these products has suffered for many of the same

reasons affecting the X-Ray sub-sector: increasing cost-consciousness of hospitals. The 

equipment making up this sector tends to be extremely capital intensive, especially MRIs. 

The export trends in the sub-sector reflect the growing price sensitivity. While products such as 

pacemakers and ultrasonic scanning devices increased by over three percent, MRI shipments 

have declined almost 20 percent. The drop in number of shipments has caused manufacturers to 

substantially lower the price of their products in some cases by as much as 50 percent. Despite 

225
these trends, the U.S. is forecast to be able to keep its dominance in the world’s market well into 

the next century. 

Overall exports of electromedical equipment have been increasing over the past years, giving the 

Untied States a healthy $1.1 billion trade surplus. Germany, Japan and the Netherlands are the 

major markets for products while Germany and Japan export almost 60 percent of the total 

amount brought into the U.S. 

Surgical, Medical and Dental Instruments in the ARC Region 

The surgical medical, and dental instruments and supplies industries are part of SIC major 

industry 38, which includes measuring, analyzing, and controlling instruments; photographic, 

medical and optical goods; watches and clocks. (Standard Industrial Classification Manual; 

Executive Office of the President, Office of Management and Budget, 1987.) SIC 38 data is 

used in this analysis of recent export trends. Unless otherwise noted, the SIC 38 industry 

analysis, like the export analysis in Chapter 1, uses the MISER export data, as provided in the 

National Trade Data Base, for the years 1993 through 1995. 

Recent Export Trends 

In 1995, SIC 38, instruments and related products, accounted for 6.1 percent of the value of 

manufactured products exported from the United States and 5.4 percent of the value of 

manufactured exports from the ARC states. The slightly lower share indicates that the 

Appalachian Regional Commission member states provide a relatively small share of United 

States instrument and related product exports. 

The total value of US instrument and related product exports was $32.3 billion in 1995, an 

increase of $5.5 billion over the $26.8 billion sold abroad in 1993. The 1995 exports of 

instruments and related products from establishments in the ARC member states reached $7.8 

billion, an increase of $1.2 billion from the 1993 total of $6.6 billion. The value of recent 

instruments and related products export sales are shown in Table 61. The increased sales 

represent a 20.6 percent increase for the United States, and a 17.6 percent increase for the 

combined ARC member states. 

Table 61 

VALUE OF INSTRUMENT AND RELATED PRODUCT EXPORTS, 1993-1995 

(millions of dollars) 

 

Area 1993 1995 1993-1995 Change 

ARC States $6,620.9 $6,898.3 $7,784.5 $1,163.6 

 $26,785.3 $28,906.2 $32,312.3 

 1994 

United States $5,526.9 

In 1993-95, the 13 ARC states accounted for approximately one of every four dollars in export 

sales from US manufacturers of instruments and related products. Figure 33 depicts the region’s 

contribution to national export totals. It shows that the region is experiencing relatively slow 

growth in its export sales from this industry. 

226
Figure 33 

ARC Share of US Instrument & Related Product Exports 

(millions of dollars)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Rest of US

ARC States

Among the seven target industries selected by the ARC, instrument and related product exports 

show the greatest concentration in a single state. New York alone supplies some 45 percent of 

the region’s exports by value. Table 62 lists recent export values for instruments and related 

products from the ARC states. 

Table 62 

VALUE OF INSTRUMENT & RELATED PRODUCT EXPORTS BY STATE, 1993-1995 

(millions of dollars) 

Area 1993 1994 1995 1993-1995 Change 

Alabama $59.8 $75.2 $74.2 $14.4 

Georgia $517.5 $602.6 $809.2 $291.7 

 $64.2 $96.4 $119.9 $55.7 

Maryland $280.4 $277.1 $293.7 $13.3 

Mississippi $14.2 $13.6 $13.3 $(0.8) 

 $323.8 $527.6 

 $3,172.8 $376.8 

Ohio $707.5 $750.7 $781.0 $73.6 

 $771.3 $809.6 $38.3 

S. Carolina $96.8 $124.5 $138.2 $41.4 

 $315.8 $35.2 

Virginia 

Kentucky 

N. Carolina $402.2 $203.8 

New York $3,140.7 $3,549.6 

Pennsylvania $803.7 

Tennessee $322.7 $351.0 

 $274.5 $268.0 $296.6 $22.1 

W. Virginia $22.4 $20.7 $20.4 $(2.0) 

In 1995, the New York total of $3.5 billion in export sales of instruments and related products 

was more than four times the amount of export sales from any other ARC state. The next highest 

instruments and related products export sales were recorded for Pennsylvania and Georgia, with 

just over $800 million each. New York also had the largest 1993 to 1995 increase in the dollar 

value of sales, but it did not dominate in this measure. Georgia and North Carolina both posted 

227
large increases in export values. However, no other ARC state experienced an increase in the 

value of exports close to these leaders. Mississippi and West Virginia experienced small 

declines. 

Absolute numbers tell part of the story, but the impact of a given increase or decrease in export 

sales depends in part upon the amount of export activity. Calculating the rate of change helps 

put the movement in perspective. The rate of change in instrument and related product exports 

for the ARC states is depicted in Figure 34 

Figure 34

Percent Change in Instrument & Related Product Exports 

1993-1995

-20%

0%

20%

40%

60%

80%

100%

AL GA KY MD MS NC NY OH PA SC TN VA WV

The rate of export growth reveals that several of the states with much smaller export totals are 

experiencing rapid increases in instrument and related product exports. Kentucky leads the 

region with an increase rate of 87 percent. North Carolina and Georgia posted gains of 63 and 56 

percent respectively, while South Carolina saw a 43 percent increase in the value of exports from

its instrument and related product producers. Alabama also had an export growth rate above the 

national average. No other ARC state, including New York, reached either the national or the 

regional growth rates for the value of instrument and related product exports. 

Export Intensity 

Another way to accommodate size differences among the ARC states so that comparisons can be 

made is to calculate the value of instrument and related product exports as a percentage of the 

gross state product (GSP). That ratio measures the contribution that instrument and related 

product exports make to the state economy. 

The instrument and related product export intensity for the Appalachian Region states is .31%, 

which is less than the .42% ratio for the nation as a whole. The difference describes the gap 

between the contribution that export sales of instruments and related products are making to the 

regional economy and the contribution they would make if export performance was at the 

national average. 

228
Despite recent slow growth New York leads the region in instrument and related product 

performance by a large margin. It is the only ARC state with an export intensity above the 

national average. The second ranked state, Georgia, is a distant second and the only other ARC 

state with an export intensity above the regional average. Clearly, the volume of exports from

New York and that State’s high export intensity skew the regional statistics to make ARC export 

performance appear stronger. Figure 35 ranks the individual ARC states by their 1993-95 

instrument and related product export intensity. 

Figure 35 

ARC States Instrument & Related Product

Export Intensity

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

NY GA OH PA TN MD NC VA SC KY AL WV MS

To facilitate comparisons over time of ARC states’ instrument and related product export 

performance with that of the nation, export intensity can be calculated as an index relative to the 

national average. The resulting number is the export intensity index (EII) for the target industry. 

The national EII is always 1.00, and states and regions where instrument and related product 

exports make an above average contribution to the economy have an instrument and related 

product EII greater than 1.00. Conversely if instrument and related product exports make a 

relatively small contribution to the state or regional economy, the EII is less than 1.00. The 

instrument and related product EII for the combined ARC states was 0.73 in 1995, down from

0.75 in 1993. 

 Changes over time in the instrument and related product EII reflect a change in the contribution 

of instrument and related product exports to the state economy that is greater (an increasing EII) 

or less (a decreasing EII) than the national trend. Thus, the EII reveals that the ARC region is 

under-performing the nation. Calculating the EII for individual states allows a state-by-state 

assessment of export performance. Table 63 lists the instrument and related product EII for each 

ARC state. 

Table 63 

INSTRUMENTS AND RELATED PRODUCTS SIC CODE 38, EXPORT INTENSITY 

INDEX, 1993-1995 

229
230

focused with the other two clusters covering a wide area somewhat hindering the chances for 

inter-firm collaboration. 

Area 1993 1994 1995 

Alabama 0.17 0.20 0.18 

Georgia 0.74 0.80 0.94 

Kentucky 0.19 0.27 0.30 

Maryland 0.55 0.50 0.48 

Mississippi 0.07 0.06 0.05 

North Carolina 0.45 0.51 0.60 

New York 1.47 1.35 1.39 

Ohio 0.66 0.64 0.60 

Pennsylvania 0.66 0.64 0.58 

South Carolina 0.31 0.37 0.36 

Tennessee 0.64 0.60 0.58 

Virginia 0.40 0.36 0.36 

West Virginia 0.16 0.14 0.12 

Both the absolute values and the trends in instrument and related product EII indicate that 

increasing export sales from this industry represents a challenge for the ARC states. Not only is 

New York the only state with an EII over one, it also shows a downward trend in the value of its 

EII. Similarly four of the five ARC states with an EII between 0.50 and 1.00 experienced 

declines in their EII between 1993 and 1995. The only exception is Georgia, which experienced 

a strong increase, from 0.74 in 1993 to 0.94 in 1995. Kentucky, North and South Carolina had a 

clear rising trend in their instrument and related product EII, and North Carolina moved above 

0.50 during the 1993-1995 interval. 

Locational Patterns in Appalachia 

As might be expected, the medical devices industry tends to cluster around metropolitan areas 

with large hospitals and significant research universities. Nationally, the largest clusters of

medical devices can be found in Boston, San Jose and the Silicon Valley, the Twin Cities and in 

Los Angeles—all areas where there is a significant medical, research and perhaps, most 

importantly, a significant technological capability. Given that the ARC is primarily a rural 

region, it is not surprising that there are relatively few medical devices firms in the region, and 

few if any,, areas of major firm concentration. The Pittsburgh, Pennsylvania metropolitan area is 

the largest urban area within the ARC region and not-surprisingly has the largest concentration 

of medical devices firms in the region. The Pittsburgh cluster has 23 percent of the firm in the 

ARC region and 32 percent of the sectoral employment. 

There are two other portions of the ARC region that might be thought of as small medical 

devices clusters. The first is located in northeast Georgia and the western Carolinas. The cluster 

has just over 16 percent of the regions sectoral employment. The other cluster is centered around 

Knoxville, Tennessee and crosses over into southwestern Virginia. This cluster has just under 16 

percent of the region’s ARC’s devices employment. As can be seen these totals are far less than 

the Pittsburgh area’s concentration. The Pittsburgh area is also much more geographically 
231

Employment per firm 

The Pittsburgh medical devices cluster stretches across eight counties in Western Pennsylvania. 

Allegheny County, which contains Pittsburgh, has the largest number of firms. However, the 

county actually has a location quotient lower than one at .93, indicating a lower concentration of 

sector firms than the nation as a whole. The low location quotient is indicative of the fact that 

although the Pittsburgh metropolitan area is clearly the leader in medical devices in the ARC 

region it is not considered a national leader in industry concentration. In fact, the metro 

Pittsburgh area ranked 21st of all urban areas in the number of medical devices manufacturers. 

Given the relatively small number of medical devices firms in Pittsburgh, an explanation is in 

order for why the area was chosen as the cluster to be analyzed. First, medical devices, as has 

been mentioned, is one of the fastest growing and most heavily exported manufacturing sectors. 

Almost any company that is to succeed in this sector must be adept at entering foreign markets. 

Second, there is recognition in the Pittsburgh business and business-support community, that 

although it may not be a prominent sector yet, it is one that should be concentrated on in the 

future. A recent report published by the Southwestern Industrial Resource Center and the 

Pittsburgh High Technology Council identified the “biomedical cluster” as one of the five most 

important industry clusters in the region. For purposes of analysis, the Council’s report included 

health care information systems and molecular biology and genetic engineering but the major 

driver was the medical devices sector. The report stated that while “Pittsburgh has emerged as a 

world class health care and health care and health-related research, development, and clinical 

center, the region’s biomedical manufacturing and commercial technology capability has been 

slower to develop.” The final reason why Pittsburgh makes sense to study is that most of the 

external elements necessary for the success of the medical devices industry are present, even if 

the concentration of firms is not. Pittsburgh has two large research universities, Carnegie Mellon 

and the University of Pittsburgh both with excellent engineering programs, a prime component 

of success in this industry. The University of Pittsburgh’s Medical Center is also world 

renowned, for among other activities, transplantation. Hospitals, especially those with strong 

research capabilities, are often sources of innovation for existing medical devices firms and 

many of the entrepreneurs come from hospitals. There is also a network of high-tech research 

facilities many of which could assist in the industry. Among these entities are the Pittsburgh 

Supercomputing Center/Meta Center, the Ben Franklin Center and the Carnegie-Mellon 

University Center of Light Microscopy Imaging and Biotechnology. 

The Pittsburgh Area Medical Devices Cluster 

The Pittsburgh area’s medical devices cluster has a total of 25 firms with more than ten 

employees, and over 50 total establishments. Firms with fewer than ten employees tend to be 

almost exclusively in the prosthetic appliances sub-sector, and were therefore not included in the 

overall analysis of the cluster. These firms take orders for prosthetic devices from local hospitals 

and therefore have no real export potential. 

 Table 64 

ARC Pittsburgh Area Medical Devices Cluster 

SIC Classifications Number 

of firms 

Employees Share of 

Cluster 

Average # of 

Employees 
232

quotient was calculated by measuring the percentage of the county’s total employment in 

Surgical and 

Medical instruments 

9 555 20.2% 51 

Surgical Appliances 

and Supplies 

11 1,897 69.1% 172 

Electromedical 5 292 10.6% 58 

Total 25 2,744 100% 110 

Source: Dunn and Bradstreet, 1996 

As Table 64 shows, establishments in the sector are divided about evenly between surgical and 

medical instruments and surgical appliances and supplies. There are no firms in the region who 

specialize in either dental instruments or X-Ray apparatus. However in terms of actual number of 

employees, Surgical Appliances and Supplies is clearly the dominant sub-sector. This is 

problematic for this study for two primary reasons. First, the surgical supplies sub-sector tends to 

be less suited to export. Most of these devices are fairly low-tech and some like orthopedic 

appliances, which accounts for 20 percent of the employment in this sub-sector, serve a local 

market that asks for products designed to fit a particular patient. The second reason for concern 

is the fact that the employment in this sub-sector is made up almost entirely of two companies, a 

manufacturer of personal safety devices for the mining industry, and a manufacturer of 

respiratory and patient ventilation products. The two companies together have 1330 employees 

or just over 70 percent of the total sub-sectoral employment. These two companies have little in 

common with the other firms in the sector which primarily custom manufacture prosthetic 

devices for local hospitals. The two companies also bring up the problem inherent in any 

analysis of the medical devices industry: the products each company make often bear little 

relation to those made by other firms. A hard hat manufactured by one company bears little 

relation to a respiratory device manufactured by another, yet both are classified as medical 

devices. Indeed, when interviewed for this report, a representative from the mine supply 

company was bewildered as why his company was included in a survey of medical devices! 

Despite this heterogeneity, there are some positive attributes about this concentration. The 

medical devices industry in Pittsburgh is fairly autonomous with only 32 percent of the firms 

being headquartered outside the region. This autonomy is encouraging in some substantial ways. 

First, branch plant managers and even more importantly, headquarters’ executives, tend to be 

less tied to a region, making them more likely to move their operations than firms owned by 

local owners. Second, branch plants use fewer inputs from local suppliers, because buying 

decisions are often made at corporate headquarters. 

However there are economic development assets associated with branch plants, including their 

rate of technology adoption. Studies show that large branch plants, regardless of the industrial 

sector in which they operate, use new technologies much faster and more completely than do 

smaller, independently owned firms. An economy with large number of firms adopting high 

technologies should drive other firms in the area to incorporate more advanced technologies as a 

means of staying more competitive. 

In terms of the geographical concentration of the medical devices industry within the Pittsburgh 

area, Allegheny County has by far the largest number of firms. However, when measured by 

location quotient it actually has a smaller number than the national average. (The location 
233

design the new technologies necessary to remain competitive in the readily changing markets of 

the industry. On both counts, the Pittsburgh area appears to be faring well, with none of the 

medical devices, compared to (divided by) the same ratio for the nation as a whole) Other 

counties such as Armstrong and Somerset actually have higher location quotients. However, 

these counties tend to have small numbers of manufacturing firms that account for the large 

location quotients in the medical devices industry. For instance, although Somerset has a very 

high location quotient of 6.55, it actually has only one firm. The location quotient is driven up by 

the small number of manufacturing employees in that county. Table 65 shows the concentration 

of firms in the region by county. 

Table 65 

Concentration of Firms within Cluster 

County State Employment Establishments Loc. Quotient 

Allegheny PA 1,550 25 0.93 

Armstrong PA 127 2 2.65 

Butler PA 194 3 1.40 

Cambria PA 131 3 0.97 

Fayette PA 156 2 1.62 

Mercer PA 132 4 1.23 

Somerset PA 399 1 6.55 

Westmoreland PA 700 5 2.38 

Profile of Cluster Firms 

In order to get a better sense of what affects the competitiveness of the region’s medical devices 

firms, telephone and personal interviews were conducted with firms in the sector as well as those 

governmental and non-governmental entities that provide service to the industry. Unfortunately, 

firms in the medical devices industry proved to be quite difficult to interview primarily because 

there is no organization in the Pittsburgh area that offers specific assistance to the sector. In 

addition, the various medical device industry associations that exist, do so primarily as a national 

lobbying organization and therefore have little if any activities at the local level. In order to get 

in touch with the firms, RTS made what were essentially “cold calls” based on a database 

accessed through Dun and Bradstreet’s Direct Access service. Through this method the project 

team contacted all medical devices firms in the region although not all agreed to participate in 

the interview process. In addition, several service providers were contacted to learn about what 

types of services they offer to the medical devices industry, their thoughts on the industry in the 

region and its potential for exporting. 

Cluster’s Competitiveness Issues 

Labor Market Skill Issues 

In general, firms interviewed in the area seem to happy with the labor skills present in the 

Pittsburgh area. The labor skills needed for the industry fall into two general categories. First, 

are the general assembly workers needed for production work and second are the engineers who 
234

that fall in the sub-sectors of medical instruments or electro-medical devices are much more 

companies citing labor as a major barrier to their competitiveness. Indeed, the presence of

universities, particularly Carnegie-Mellon, means that the firms are able to secure able engineers. 

One area where there appears to be a skill shortage is not in the technical area but rather in 

attracting entrepreneurs with enough business savvy to start and successfully operate new 

medical devices firms. Indeed the Pittsburgh High Technology Report on industrial clusters 

stated that the “limited number of entrepreneurs/managers experienced in biomedical business” 

as a key issue retarding the growth of the medical devices cluster. 

Economic Status 

Like the rest of the nation’s medical devices industry, the small cluster in Pittsburgh seems to be 

doing well. Only one of the firms interviewed reported a decrease in 

employment and sales, and several of the firms reported increases in sales of more than fifty 

percent over the last five years. In general, the firms that appeared to be doing the best were 

those who exported their products. They also tended to be larger companies. This may be 

attributed to the types of products manufactured by the smaller companies—products in the 

prosthetic industry which tends not to be as high growth as other sub-sectors in the industry. 

Again it must be stated the it is difficult to draw conclusions about such a diverse industry 

through conversations with firms that make products ranging from pacemakers, to artificial 

limbs, to baths, to respiratory equipment. While some of the markets may be the same (e.g. 

hospitals), the processes that go into manufacturing are often be vastly different. 

Competitive Situation 

It is not surprising that an industry in which a faulty product can literally be a life and death 

situation, that product quality is of utmost importance to firms. Product quality is also crucial to 

meet the rigid regulatory requirements of both the Federal Drug Administration (FDA) and 

foreign governments. Indeed, only one company surveyed did not mention product quality as a 

competitive advantage of their firm. The other major competitive advantage cited by the 

companies, primarily those involved in exporting, was company reputation. This advantage 

relates closely to product quality—customers want to purchase a product that they can trust and 

medical devices firms in the United States are generally considered to be the world’s best. The 

third competitive advantage cited by surveyed firms was product design. This highlights the 

importance of attracting quality engineers to the industry and therefore, would seem to offer a 

competitive advantage to the Pittsburgh region. As has been mentioned, Carnegie-Mellon is one 

of the finest engineering universities in the nation. 

Export Behavior 

Exporters: Without a doubt, exports are crucial to the long term success of the medical devices 

industry. However, their importance to individual firms in the Pittsburgh depends largely on 

what product they manufacture. As has been stated, the manufacturers of prosthetic devices 

generally do not export for the most part and probably never will ship their products beyond the 

immediate area. In contrast, the larger manufacturers of more technologically intensive products 
235

one public or private service provider with staff specifically focused on the medical devices 

industry. Firms use a wide range of information sources and assistance including: 

export dependent. Most of those interviewed stated that exports were ‘very important” to their 

industry’s future. 

Most of the barriers facing firms in the region that already export tend to be those that would 

affect any medical device firm in the U.S. While all firms tend to complain about governmental 

regulation of their products, medical device firms tend to have even more cause for complaint. 

According to the Health Industry Manufacturers Association, the largest trade association 

representing medical device manufacturers, medical device products designed in the United 

States take three times as along to get to market than those designed in other nations. In addition, 

the FDA until recently had stringent requirements about what products could be shipped 

overseas. 

However, it is not only the United States government which causes problems for firms when it 

comes to regulations. Other nations have stringent requirements about what products can enter 

their markets. Therefore it is not surprising that the most commonly cited barrier to exports 

mentioned by the surveyed firms was “meeting product design standards.” One company stated 

that the best way to improve the exporting of area firms was “to standardize world regulations on 

medical devices.” 

One barrier not mentioned often was a “lack of time.” This is primarily due to the fact that the 

exporting firms in the Pittsburgh area tend to be larger than many other firms which try to sell 

their products to foreign markets. Most of the companies surveyed which do export have 

someone whose main responsibility is exporting. The one firm which exported and had a small 

number of employees did cite time as a major barrier. In that case the woman who owns the 

company was in essence the export representative, spending an estimated 25 percent of her time 

dealing with export issues. 

A wide range of reasons were given as advantages of doing business in the Pittsburgh region. 

Among those mentioned were the skilled labor force, the good distribution of channels and the 

quality of life in the region. Two attributes that would indicate a high level of cluster activity 

were not stressed by the exporting firms, however. Proximity to other similar firms as rated was 

an average advantage of the region by one company, the rest did not mention it at all. Another 

advantage not mentioned often by firms was “access to research and development and technical 

services.” This again reflects the dearth of service providers with services expressly geared to the 

medical device industries. 

Non-exporters: As has been mentioned, exporting is vital to the success of most medical 

devices firms. Therefore, firms that are not exporting probably will never export-it is just not 

necessary for their business success. Small prosthetic parts manufacturers will never have call to 

send artificial limbs to far reaching places. This lack of interest in exporting was reflected in the 

survey in which firms cited no barriers to getting involved in the exporting-in reality the only 

barriers were internal, lack of interest or lack of product appropriateness. 

Service Providers and Sources of Information 

The low profile of the medical devices industry in Pittsburgh is evidenced by the absence of any 
• Equipment vendors; 

• Suppliers; 

Some firms indicated that they used universities for assistance on technical matters. Given the 

highly specialized technical nature of the field and given the strong university presence in the 

area, it is not surprising that this resource was used. However, it appears that these consultations 

were on an ad-hoc basis and none of the universities have a program aimed specifically at 

assisting medical devices firms. 

This, of course, is not to say that small medical devices firms cannot receive adequate general 

assistance. The Southwest Pennsylvania Industrial Resource Center provides a range of technical 

assistance to small manufacturers under the auspices of the federally-supported Manufacturing 

Extension Partnership. In addition, Dusquene University’s Small Business Center and the World 

Trade Center of Pittsburgh, to name two, offer information on how to get a product to market. In 

addition, some small medical device manufacturers have participated in the Pennsylvania 

Department of Commerce’s program to support attendance at foreign trade shows. 

Dynamic Factors and Linkages 

The medical device industry in Pittsburgh is characterized by extremely little collaboration. They 

do not benefit from any synergies or economies of scale associated with other similar firms being 

located nearby. The foremost reason for this lack of collaboration is the lack of any sort of what 

might be termed “cluster self-awareness”—firms do not believe that they are in a cluster. As one 

manufacturer put it “If I had wanted to locate my firm in an area with a lot of medical device 

firms, I would have gone to some place like Philadelphia.” 

This lack of awareness of each other’s existence is reflected in the absence of any real trade 

association in the area focusing on the specific needs of the local industry. Some firms belong to 

the Pittsburgh Area High Technology Consortium that does discuss issues related to the 

biomedical industry, but this tends (1) to focus on subjects beyond just the scope of the medical 

device industry, issues such as biological and genetic research, for example; and (2) meet 

infrequently. 

It is not clear that firms are resistant to collaboration—indeed exporting firms rated the level of 

trust and collaboration between firms in the region as average—rather there simply are not many 

opportunities for that trust to be put to use. One area in which it has been put to use is through 

the Pennsylvania Department of Commerce’s trade show program. In that program, companies 

are given up to $2,000 to attend trade shows in foreign countries. In most of these cases the firms 

share booth space with other similar firms—an arrangement at least one company 

found useful. However, even this company has not continued the relationships it forged when 

overseas. 

Although the numbers of horizontal relationships appear to be very limited, a significant number 

of the firms purchase their products locally and have local customers. Interestingly, the exporting 

• Trade journals; and, 

• Customers. 

236
firms interviewed tend to purchase their products much more locally than do those firms who sell 

their products to only domestic markets. In terms of the products sold, the smaller companies 

tend to serve smaller markets. Again these smaller companies tend to be in the prosthetic devices 

services that serve local hospitals. 

Companies outside the cluster 

As mentioned the medical device cluster tends to be tightly concentrated around Pittsburgh 

proper. This is especially important given both the presence of the region’s major hospitals and 

the location of the airport. The airport provides frequent international flights to take company 

employees to the trade shows that make up the heart of the marketing of medical devices. 

Indeed, if the few companies located outside Pittsburgh have a complaint about doing business 

within the cluster, it is difficult access to that airport. 

Conclusions about the Medical Devices Industry 

Through the interviews and surveys conducted with both firms and service providers in the 

Pittsburgh region, three important findings emerge: 

1. As it stands now, there is not a large enough of a concentration of medical devices firms in 

the region to justify a large scale investment in improving their exporting abilities. The 

majority of the small firms in the area concentrate on providing prosthetic devices, which by 

its nature is a business that only serves a local market. The lack of a significant medical 

devices cluster is reflected by the fact that there is no service provider that provides 

specialized assistance to meet the needs of the medical devices firms. 

2. There is very little collaboration between existing firms. Rather than reflecting inherent 

distrust among firms, it probably reflects simply the lack of concentration of firms and the 

significant diversity of the existing firms. Medical devices includes firms which make 

products which may have little in common beyond being grouped in the same SIC code. 

Therefore, they have little to talk about beyond the problems inherent to running any small 

manufacturing firm. 

3. Despite the small number of firms, Pittsburgh has many of the necessary foundations to 

support a medical devices industry. There are two large research universities with excellent 

engineering programs. The area is also home to a world-class medical facility, a major source 

of innovation in the industry. There is also a network of high-tech research facilities many of 

which could assist medical devices firms. 

237
Foreign Affairs: One Medical Devices Firm and Exports 

Lifemed Enterprises31‘ is a small, medical devices firm company located in Pittsburgh. 

Operating at the higher end of the industry, Lifemed manufactures two main products. One is a 

component part sold to large OEMs most of whom are overseas; the other is a finished product 

of which about a third is exported. 

“We have survived on exports,” the owner of the company says. 

However, she also says that exporting creates another entire set of problems. The biggest 

challenge are the new regulations established in Europe for medical devices. And even within 

the rigid standards established by the European community, individual countries, such as France, 

create even further barriers to foreign products. In part in response to these regulations, Lifemed 

is in the process of getting ISO 9000 certified. 

One of the reasons that Lifemed has been able to be so successful in the export market is the 

specific product they manufacture. 

“We don’t really have competitors,” the owner says. “We have developed a very interesting 

market niche and we market ourselves mainly on our product uniqueness.” 

In terms of actual marketing, the owner of the company is the one who must travel to the trade 

shows that make up the heart of any medical devices export strategy. She estimates that about 

25% of her time is spent handling export issues. To assist her in this job, Lifemed received 

support from the Pennsylvania Department of Commerce to attend trade shows as well as 

assistance from the Dusquene University Small Business Development Center on general export 

issues and the Ben Franklin Technology Center on product development. 

While these support services do make doing business in the Pittsburgh area easier, the owner 

doesn’t see the area as being strong for medical devices specifically. 

“I am here because I like it in Pittsburgh,” the owner says. “There really aren’t that many 

medical supply firms here. Certainly, I could associate with more firms if I was in another city.” 

238
Appendix G 

Industry Analysis: SIC 384, Surgical, medical & dental instruments 

The U.S. medical equipment and supplies industry constitutes one of the United States’ strongest 

exporting industries, having a 59% market share in the $88 billion global market. Three reasons 

for this success include the United States’ reputation for high quality, its’ cutting edge 

technologies, and service. The U.S. is seen as the leading source of technological discoveries in 

this field, a primary competitive advantage. 

The medical equipment and supplies industry has historically performed most strongly in highly 

industrialized nations that have the incomes to support advanced health care services. As Table 

G-1 shows, this market trend is shifting as rapidly industrializing countries in Asia and Latin 

America recognize the need to expand their health care systems, and acquire the income to 

support such systems. 

 Table G-1 

Foreign and Domestic Exports, F.A.S.; ($ millions) 

NAFTA Japan EU-15 Asian 

NICs 

Other 

Americas 

Rest of 

World 

Total 

1992 $1,335 $998 $3,110 $599 $337 $1,263 $7,632 

$1,303 $1,729 $4,291 $873 $875 $1,210

% Total 13% 17% 42% 8% 8% 12% 100% 

% Change -2.3% 73% 38% 46% 260% -4.3% 74% 

1995 $10,281 

U.S. Total Exports, 1995 by Area and Three-digit SIC Product Groups; (Census Basis; foreign 

and domestic Exports. 

The following data in Table G-2 combine growth and value figures to identify the best long-term

export markets: 

These data indicate that the growth of the surgical, medical and dental instruments market has 

been primarily in Latin America, Japan, Asian countries and the European Union. Sales to the 

NAFTA countries, Africa, and the rest of the world are declining. In value, 42% of exports are 

sold to ELJ-15 countries, 17% to Japan, and 12% to NAFTA countries (low growth in NA-FTA 

sales may reflect slowdowns in Mexican buying because of the Peso crisis). 

European Union: The medical equipment market continues to be strong and growing in the 

European Union owing to aging populations, continuing availability of sufficient income to 

spend on health care, and access to public health care services. Health care industries in the EU 

are under increasing pressure to increase their cost efficiency for medical care delivery though, 

which is shifting medical spending from hospital to home care products and services. 

Asia: As Asia continues to develop rapidly, there has been increasing public pressure to expand 

health care services, and revamp old and outdated equipment. This has led to rapid growth in this 

sector, particularly in high technology medical devices. 

239
Table G-2 

 Medical Equipment, and Instrumentation Exports by Regional Destination: 1993-1995 

($ thousand)

1993 $1,137,235 $946,581 $467,351 $833,188 $431,462

1994 $1,366,353 $947,209 $566,091 $912,898 $489,158

1995 $1,690,867 $994,342 $669,267 $ 1,050,281 $622,291

$ Change from ‘93’95 $ 1,553632 $ 47,761 $201,916 $ 217,093 $190,829 

% change 48% 5% 43% 26% 44% 

Japan Canada France W. Germany Netherlands 

Brazil NIS Hong 

Kong 

S. Korea Australia India S. Africa 

$136,469 $ 56,105 $ 131,207 $182,988 $281,909 $ 38,111 $50,885 

1993 $144,361 $82,205 $ 141,151 $256,825 $309,911 $ 47,827 $ 52,395 

1994 $232,712 $ 90,941 $ 164,577 $252,184 $346,260 $ 56,247 $ 65,589 

1995 96,243 $ 34,836 $ 33,37 $ 69,196 $ 64,351 $ 18,1361 $ 14,704 

71% 25% 23% 29%

% change 

$ Change 

from ‘93’95 

62% 38% 48%

Department of Commerce, Office of Microelectronics, Medical Equipment, and Instrumentation; 

$ thousand. 

This information shows that the best potential markets for U. S. exporters are Japan, Canada, and 

France. Countries with high potential for future growth are Brazil and South Korea. 

The following sections rely on information from the Department of Commerce’s Country 

Commercial Guides for the listed countries, the International Trade Commissions document U.S. 

Trade Shifts in Selected Commodity Areas, and interviews with industry experts and U.S. 

manufacturers. Some of the export data, particularly statistics to Latin America may be distorted 

because of direct sales and shipments to customers that are not counted in the statistical data. 

Statistical accuracy and comparability to other sources are affected by a number of factors, 

including lack of published figures in certain markets, variances in data collection techniques, 

sources of data, and industry definitions. 

Country Analysis

Japan: Japan imports approximately 40% of its medical equipment. As Table G-3 shows, the U. 

S. supplies 63% of those imports, or 21% of Japan’s total market share. Domestic producers are 

the primary competition for the United States in Japan as its industry is heavily supported by the 

government. The United States government and Japan continue to dialogue about limiting tariff 

and non-tariff trade barriers, with increasing success. The U.S. embassy of Japan expects the 

market for medical equipment in Japan to grow at between five and eight percent for the next 

five years. U. S. suppliers are particularly competitive in the areas of implants including 

pacemakers, artificial heart valves and artificial joints; other therapeutic devices including 

anesthesia equipment and laparascopic surgery devices; catheters; and diagnostic imaging 

240
devices including high quality ultrasound, CT and MRI equipment. (Japan: Leading Sectors for 

U.S. Exports and Investments, Country Commercial Guides, DOC) 

Table G-3 

Annual Domestic Exports to Japan, F.A.S. ($ thousands) 

Japan 1995 1996 

$15,300

Total Exports $3,032 $3,500 $ 3,600

Total Imports $5,560 $5,800 $ 5,950

$3,515 $3,800 $ 4,100

U. S. Market 

Share 

1997 

Total Market 

Size 

$16,868 $17,300 $17,650 

Total Local 

Production 

$14,340 $1,500 

Imports from the 

U.S. 

21% 22% 23% 

Source: Japan: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, DOC. 

Canada: As Table G-4 shows, Canada imports approximately 80% of its medical equipment. 

The U. S. supplies 78% of those imports, or 62% of Canada’s total market share. The primary 

reasons for the LT.S. dominance in this market are the excellent reputation for quality, extensive 

distribution networks, and good after-sales service. ‘Primary competition in the medical 

equipment sector include Canadian, German, and Japanese firms. 

Annual Domestic Exports to Canada, F.A.S. ($ thousands) 

Table G-4 

Canada 1995 1996 

$1,205 $1,068 

$485 $438 

Total Exports $242 $251 $238 

Total Imports $962 $998 $868

Imports from the U.S. $751 $778 $677 

U. S. Market Share 62% 62% 63% 

1997 

Total Market Size $1,250 

Total Local Production $503 

Source: Canada: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, DOC. 

Canada’s market for medical equipment is expected to shrink due to legislation decreasing the 

usage of the public health care system and hospitals, and increasing the emphasis on home health 

care. The shrinkage will decrease demand for medical equipment used in hospitals and increase 

demand for home care equipment. Additionally, demand for clinical laboratory equipment will 

continue to grow, due to Canada’s aging population. In summary, while there may be some shifts 

in the demand patterns of the Canadian health care sector, Canada continues to be an excellent 

export prospect for U.S. firms in the medical equipment sector. 

241
Table G-5 

France: As Table G-5 shows, France imports approximately 77% of its medical equipment. The 

U.S. supplies 25% of those imports, or 19% of France’s total market share. U.S. market share in 

France is growing gradually due to the good reputation and high technology of the products. 

France continues to have a rapidly expanding market for medical equipment due to three factors: 

overall population increases, increased life expectancy, and a strong national health care system

leading to over-consumption. Demand for home health care products is growing particularly 

strongly in France due to an increased life expectancy, and an increase in usage of same day 

surgery procedures. 

Annual Domestic Exports to France, F.A.S. ($ thousands) 

France 1996 1997 

$2,142 $2,235 $2,325 

Total Local Production $1,031 $1,046 $1,052 

Total Exports $541 $577 $605

Total Imports

$417 $440 $466 

20% 20% 

1995 

Total Market Size 

$1,652 $1,766 $1,878 

Imports from the U.S. 

U. S. Market Share 19% 

Source: France: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, DOC. 

Brazil: As Table G-6 shows, Brazil imports approximately 47% of its medical equipment. The 

U.S. supplies 42% of those imports, or 20% of Brazil’s total market share. Primary competition 

in the medical equipment sector includes European and Japanese firms. Other Asian firms are 

gaining market share through competitive pricing. 

The Brazilian health care market is growing rapidly due to the rapid development of the country, 

and internal and external funding increases in the health care field. The Brazilian government is 

introducing a special tax on financial transactions which may increase the Health Ministry’s 

budget by $6 billion, and the World Bank and International Development Bank are funding 

expansions of health care facilities. Both of these influxes of money will boost the Brazilian 

market. The United States enjoys an excellent reputation in Brazil, although there is strong 

competition in high technology medical equipment from the Europeans and Japanese, and in the 

commodity medical market from low cost producers in Asia. 

The most promising markets in Brazil are high tech medical equipment which is not locally 

produced, such as digital angiographers and magnetic nuclear resonance tomographers. 

242
Table G-6 

Annual Domestic Exports to Brazil, F.A.S. ($ thousands) 

Brazil 1995 1996 1997 

$1,130 $1,233 $1,277 

Total Local Production $750 $847 $957 

Total Exports $150 $154 $231

Total Imports $530 $540 $551

Imports from the U.S. 225 $267 $315 

U. S. Market Share 20% 22% 25% 

Total Market Size 

Source: Brazil: Leading Sectors for U.S. Exports and Investments, 

Country Commercial Guides, DOC. 

Korea: As Table G-7 shows, Korea imports approximately 75% of its medical equipment. The 

U.S. supplies 40% of those imports, or 29% of Korea’s total market share. Primary competition 

in the medical equipment sector include European and Japanese firms. 

Strong economic growth and a rising standard of living have spurred an increase in health care 

delivery systems. In response, local health care providers are very interested in upgrading their 

service quality. Accordingly, Korean demand for sophisticated medical technology has been on 

the upswing and is expected to continue to increase at a rate of 8-10 percent for the next three 

years. 

The most promising subsectors are: Medical sterilizers, rehabilitation equipment, respiration 

equipment orthopedic joint implants, diagnostic ultrasound scanners, magnetic resonance 

imaging systems, patient monitors, computer tomography scanners, catheters, artificial kidneys, 

syringes, suture needles, general surgical instruments, and operation tables. 

Table G-7 

Annual Domestic Exports to Korea, F.A.S. ($ thousands) 

Korea 1995 1996 1997 

Total Market Size $811 $850 $890 

Total Local Production $376 $380 $387 

Total Exports $175 $190 $210

Total Imports $611 $660 $713

Imports from the U.S. $232 $255 $275 

U. S. Market Share 29% 30% 31% 

Korea: Leading Sectors for U.S. Exports and Investments, 

 Country Commercial Guides, DOC. 

243
Summary 

The United States performs very strongly in international markets in the medical equipment 

sector, primarily due to its advanced technology and good reputation. The best international 

markets are ones that allow the U. S. to leverage its high-technology advantages. The primary 

competition in these markets is Japan and Europe. 

NOTE: The projected figures for 1996, 1997, and 1998 are all estimates selected by U.S. 

embassy officials in the respective countries. Additionally, the country by country industry 

analysis may differ in exact composition from the selected SIC code, but the general category 

contains approximately the same products 

244
 

Endnotes 

1

 Carol Conway and William E. Nothdurft, The International State: Crafting a Statewide Trade Development System, (Washington, DC: The 

Aspen Institute, 1996).

2

 Robert L. Rose and Carl Quintanilla, “How Some Companies Land Sales Far Beyond the U.S.,” Wall Street Journal, December 20, 1996. 3

 Trade Policy Subcouncil, A Trade Policy for a More Competitive America (Washington, DC: Competitiveness Policy Council, March 1993). 4

 Rodney A. Erickson, Susan W. Friedman, and Samuel X. Lowe, State Industrial Exports, Export Promotion Programs, and Export Targeting. 

(Washington, DC: Economic Development Admin, 1995). 5

 Lester A. Davis, U.S. Jobs Supported by Goods and Services Exports. Research Series OMA-1-95 (Washington, DC: U.S. Department of 

Commerce, May 1995). 6

 Erickson, Friedman, and Lowe, State Industrial Exports, Export Promotion Programs, and Export Targeting.. 7

 Stuart Rosenfeld, Industrial Strength Strategies: Regional Business Clusters and Public Policy (Washington, DC: Aspen Institute, 1995) and 

OverAchievers: Business Clusters that Work (Chapel Hill: Regional Technology Strategies, Inc., 1996). 8

 Jennifer Bremer, Made in Appalachia: Targeting Appalachian Industries for Export Growth (Unpublished report, Washington, DC: 

Appalachian Regional Commission, August 1996). 9

 Rodney A. Erickson, Samuel X. Lowe, and David Hayward, Appalachian Competitiveness in a Global Economy: Industrial Exports and 

Exporter Establishments, Paper prepared for the Appalachian Regional Commission and presented at the annual meeting of the Southern

Regional Science Association, May 1995, p. 12. 10 The Economist, March 2, 1996, pp. 57-58. 11 Anne Ilinitch, et al. Developing Intangible Resources: The New Battleground for Export Success Among Small and Medium-Sized Firms, 

CINTRAFOR Working Paper 45, College of Forest Resources, University of Washington, 1996. 12 William J. Burpitt and Dennis A. Rondinelli, “Export Promotion Policies and Small-Firm Decision-Making: The Role of Organizational 

Learning,” Unpublished Paper, Kenan Institute of Private Enterprise, University of North Carolina, Chapel Hill, NC, 1996. 13 DRI/McGraw-Hill, America’s Clusters, Report for the Conference “Building Industry Clusters,” June 1995. 14 See Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity (New York: Free Press, 1995); Rosabeth Moss Kantor, World

Class (New York: Simon & Schuster, 1996); and Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy (New York: 1993). 15 Jeffrey C. Fuher and Jane Sneddon Little, “Technology and Growth: An Overview,” in New England Economic Review (November/December 

1996) pp. 3-25. 16 Because the lines differentiating these categories and other SIC 35 industries are difficult to draw at the firm, or even regional level, the scope 

of the inquiry was broadened to include other industrial machinery, such as farm equipment (352) and construction equipment (353). Industries 

excluded from the analysis include 351 (engines and turbines), 357 (computers and office equipment), and 358 (refrigeration and heating 

equipment). Despite this exclusion, SIC 35 data are used in the analysis of recent export trends (unless otherwise noted), because neither 

industrial outlook nor state-level data are generally available at the three-digit level. 17 Standard Industrial Classification Manual; Executive Office of the President, Office of Management and Budget (Washington, DC: 

Government Printing Office, 1987). 18 The statistics in this section are drawn from Selected Characteristics of Manufacturing and Wholesale Establishments that Export: 1992,

published by the Census Department. 19 America’s Clusters: Building Industry Clusters, DRI/McGraw-Hill, San Francisco: June 1996 (available from the National Technical 

Information Service as PB96-212253). 20 See The Report Card on Trade, Kenan Institute, March 1995. 21 Percentages are based on surveys that include about two-thirds of all exporters. 22 Exports exceed output

23 Much of this information was collected and reported by Mississippi State University graduate student Albert Nylander. It is supplemented by

this author’s interviews with business leaders in Tupelo. 24 Numbers in this section are for all Furniture and Fixtures (SIC 25), the only level at which state export statistics are available. Household 

furniture is a subset of this group. 25 ibid.

26 ibid.

27 Congressional Budget Office, Trade Restraints and the Competitive Status of the Textile, Apparel, and Nonrubber-Footwear Industries,” 

(Washington, DC: The Congress of the United States, December 1991). 28 1994 Industrial Outlook, (Washington, DC: Government Printing Office, 1995). 29 Redman, John and William Amt, The Tsunami, Phoenix, Tequila Sunset and Fedex Scenarios: Trade Policy and the Future of America’s Rural 

Apparel Industry, (Washington, DC: The Aspen Institute, 1995). 30 The name of the company has been changed for confidentiality purposes. 31 The name of the company has been changed for confidentiality purposes 

245