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CLUSTER DEVELOPMENT
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By Bryan Bezold
The RCGA’s economic development strategy, based on the concept of
industry clusters, is the region’s pathway to robust and stable
economic growth.
A cluster is a network of interconnected businesses that draw off
common pools of skilled labor, suppliers, and even customers. According
to Harvard Business School Professor Michael Porter, “Clusters affect
competition in three broad ways: first by increasing the productivity
of companies based in the area; second, by driving the direction
and pace of innovation; and third, by stimulating the formation
of new businesses, which expands and strengthens the cluster itself.”
St. Louis’ technology based clusters also affect the region’s broader
economy in two powerful ways: by paying above average salaries that
support retail spending across the economy, and by demanding a wide
array of professional services and production inputs from local
firms. The plant and life sciences, information technology, and
advanced manufacturing industry clusters all connect to the broader
St. Louis economy, and most importantly, all three pay wages above
the region’s average.
Given the region’s agricultural traditions and strong research base,
Plant and Life Sciences are a natural fit for the St. Louis region.
Some recent economic development successes provide examples of the
value of this cluster to St. Louis. One of these successes is The
Solae Company. Solae uses soybeans to manufacture a variety of sophisticated
protein products used in different foods. For a company that employs
roughly 500 people, Solae has an outsized impact on the region.
First of all, Solae pays wages that exceed the region’s average,
so its employees spend a little more than the average St. Louisan
at local merchants. Second, Solae’s production inputs, particularly
soybeans, support a lot of other business activity in the region.
Farmers in Missouri and Illinois, for example, produced 604 million
bushels of soybeans in 2002.
Pfizer’s retention of 1,600 jobs in St. Louis is a similar example
of the BioBelt cluster’s success in St. Louis. The 1,600 highly
skilled scientists and technicians at Pfizer earn considerably more
than average, further supporting businesses around the region. In
the case of Pfizer the region’s research infrastructure, two medical
schools and a population of educated researchers, form a solid connection
between Pfizer and the regional economy. That connection is part
of the reason why Pfizer has chosen to locate a Center of Excellence
in the production of protein based medicines at the former Pharmacia
campus.
The Solae Company produces soy-based ingredients with
direct health benefits for the industrial market and
is an example of a company that fits into the food
products and life sciences manufacturing cluster.
Solae’s corporate headquarters was recently recruited
to St. Louis. |
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The IT industry is also woven through the regional economy, in much
the same way that IT is now woven through the fabric of business.
The acquisition of Bridge Information Systems and subsequent expansion
by Reuters, a worldwide provider of financial information and news,
highlights the value of St. Louis as an IT location. Reuters employs
a total of 740 people, locally and St. Louis is one of four worldwide
software development centers for Reuters. Reuters’ presence in helps
boost the region’s IT cluster by creating local career opportunities
with a world famous IT brand. That makes St. Louis a more desirable
location for IT workers, and thus makes it easier for St. Louis
firms to find IT workers.
Finding skilled workers isn’t just an issue for IT firms, as MasterCard
demonstrates. In today’s economy, IT is a part almost every business.
During 1999, the RCGA and our regional economic development partners
helped convince MasterCard to locate its Global Technology Operations
Center in O’Fallon, Missouri. The technical scope of MasterCard’s
operations is impressive (and were documented in the November 2003
issue of Commerce); 40 million transactions are processed
through the O’Fallon facility every day. That kind of volume requires
sophisticated information technology and sophisticated professionals.
That’s why the average salary at MasterCard is over $74,000 a year.
The impact of IT on productivity on manufacturing has been well
documented, and is visible here in St. Louis. Firms in St. Louis’
advanced manufacturing cluster have an outsized impact on the regional
economy. Like the IT and BioBelt clusters, advanced manufacturing
cluster jobs pay more than the regional average. And like the other
clusters, advanced manufacturing jobs support and enhance other
businesses in the community. Today St. Louis has above average concentrations
in industries such as aerospace, motor vehicle, and pharmaceutical
manufacturing. In these fields, increased use of information and
other technologies has increased productivity and allowed real wages
to grow. High wages make this cluster an important part of our economy.
At Ford’s Hazelwood plant, the average salary of the workers who
make the Lincoln Aviator is over $60,000. The RCGA and our regional
economic development partners were able to convince Ford to keep
the Hazelwood plant open for at least three more years for a variety
of reasons, but the productivity of the region’s manufacturing workforce
was one of them. That workforce also played a role in GKN Aerospace’s
decision to acquire metal fabrication assets from former McDonnell
Douglas. Now GKN employs 1,200 people supplying metal products to
Boeing, the largest manufacturer in St. Louis.
GKN’s relationship with Boeing typifies how clusters work. It was
to GKN’s advantage to be near Boeing, just as its advantage for
Monsanto to be in the same community as the Donald Danforth Plant
Science Center. Successful cluster development is an ongoing process,
and is well underway in St. Louis.
Bryan Bezold is the chief economist at the RCGA.
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