Powdered Metal Cluster Has Widespread Impact

By Zanetta Doyle, Digest Editor

Cluster-based business has been referred to as an innovative approach to encourage successful business development, regional economic growth and higher wages for rural workers.

According to EDA’s Cluster-Based Economic Development: A Key to Regional Competitiveness, industry clusters are defined as collaborating and competing industries that share common buyer-supplier linkages and a foundation of specialized economic institutions. This simultaneous competition and collaboration makes the most of employee skills and new technological opportunities to improve efficiency, develop innovative products and succeed in new markets.

Since 1986, the North Central Pennsylvania Regional Planning and Development Commission (RP&DC) in Ridgway, Pennsylvania has actively been involved in the development and implementation of the powdered metal (P/M) industry cluster. Donald Masisak, Deputy Director of Economic Development for the North Central Pennsylvania RP&DC, said their realization of powdered metal as a business opportunity began in 1974 when they established a growth strategy. “It’s really an exciting industry, and we’ve been able to see it grow,” said Masisak. “It went from a black art to a science today.” In Ridgway, there are 20 companies within a P/M cluster in the three-county region and 60 companies within a cluster in the six-county region. “The region is recognized worldwide as the P/M capitol,” Masisak added.

The North Central RP&DC is considered one of the major players in the P/M industry cluster arena for rural areas. They currently have three multi-tenant industrial complexes that house more than 40 companies, with 28 involved in powdered metal.

The Metal Powder Industries Federation (MPIF), reports that the P/M parts and products industry in North America estimated sales of over $5 billion in 2001. It is comprised of companies that make conventional P/M parts and products from iron and copper-base-powders; and companies that make specialty P/M products such as superalloys, porous products, friction materials, strip for electronic applications, high strength permanent magnets, magnetic powder cores and ferrites, tungsten carbide cutting tools and wear parts, metal injection molded parts and tool steels. The value of U.S. metal powder shipments was $1.737 billion in 1997. Annual worldwide metal powder production exceeds one million tons.

While wood and powdered metal industries are the primary clusters for the RP&DC, powdered metal has made a significant economic impact. Of the total 110 loans made by North Central, from their Economic Development Administration Revolving Loan Fund (EDA/RLF), 32 loans have been to powdered metal parts producers or related businesses. In addition, of the total 704 jobs created by the EDA/RLF loans, 431 were created by P/M businesses.

Powdered metal parts are formed or pressed from metal. Pressure and heat are used to form precision metal parts and shapes. Powder is compacted (at room temperature) automatically in rigid precision dies to 50 tons per square inch into an engineered net-shape part such as a gear.

The brisk and continuous growth of this industry has also spread into education. Pennsylvania State University at the DuBois Campus has added a Powdered Metallurgy Associates degree to their curriculum. And, in 1998, North Central RP&DC built the 25,000 square foot Industrial Technical Education Center (ITEC) to provide training in various areas related to powdered metal. Two such courses are the Machine Trades program, which prepares entry level machinists or tool and die makers, and the Die-Setting program, which prepares entry-level die-setters. Masisak explained that one-third of the center’s construction costs were paid for by donations received from P/M firms within the cluster. He added that ITEC boasts a 92 percent placement rate in the P/M industry.

Opponents of industry clusters note that industrial specialization is a risky business because if the specific industry dies, so do the supporting companies within the cluster. Masisak said he understood that argument, but added that it’s important not to become complacent, and in the case of P/M, to recognize the opportunities for new product application. For example, while the automotive industry is the largest user of powdered metal parts, the demand has spread to lawn and garden tools, appliances, and medical supplies. P/M is also replacing welded or forged parts.

He explained that regions considering getting involved in industry clusters must do their homework, make sure their product is industry driven, and be responsive and patient. “The key for us was making it a part of our economic development strategy and working in harmony with the P/M industry,” Masisak said. “You must be willing to be creative and capitalize on the opportunities when they present themselves.”

For More Information Contact: Donald Masisak of the North Central Pennsylvania RP&DC at 814/773-3162 or email dmasisak@ncentral.com; For more information on the powdered metal industry, visit the Metal Powder Industries Federation at www.mpif.org.

The Other Side of Clusters

By Erik R. Pages, Policy Director, National Commission on Entrepreneurship

When I hear talk of cluster-based economic development, I’m often reminded of Garrison Keillor’s Lake Wobegon where all the kids are above average. As economic developers, we all seek to develop clusters, but we often strive to develop only the “best” or the “above average” clusters. In other words, everyone wants to develop biotech, but many regions don’t want to focus on building less glamorous businesses or clusters.

There are some very useful insights and tools that can be utilized by pursuing cluster-based economic development. Yet this approach creates two potential dilemmas at the same time. First is the issue of what we might call “cluster envy.” Do economic developers use cluster analysis to strengthen existing business resources or do they use it to build a case for “developing” a new cluster? Using such research to expand your program offerings or to fill service gaps (e.g. sector-specific workforce training) makes sense. But, in practice, many regions seem to use cluster analysis as justification to grasp for the next “hot” industry. Today, biotech serves the role that semiconductors played in the 1980s and 1990s.

The second challenge revolves around the primary role of your economic development organization. Do you build on your region’s existing competitive strengths or do you try to diversify your local economy? The right answer is you do both, but, in practice, time and resource constraints often dictate one primary focus. In most cases, diversifying the local economic base should assume priority—-at least as part of a long-term strategy. Focusing on a single cluster can be risky if the targeted sector declines; a diverse local economy offers better insurance if such downturns occur.

Cluster analysis and development strategies offer useful tools for development professionals—-if used in an appropriate manner. If used without realistic expectations, these approaches may simply distract your organization from the important mission of building a strong and diversified local economic base.

Editor’s note: The Digest thanks Erik Pages for submitting this article. The National Commission on Entrepreneurship, located in Washington, DC, was created to focus public policy on the role of entrepreneurship in the national economy and to articulate policies that will foster its continued growth. The NCOE is a resource for anyone interested in entrepreneurship and public policy. For more information visit www.ncoe.org.

This article is intended to create discussion and debate. It does not represent the official position of the Economic Development Digest or any of its funders.

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