1b. analysis of the forest products cluster in indiana- a framework for improving competitiveness...

8/10/2019 1b. Analysis of the Forest Products Cluster in Indiana- A Framework for Improving Competitiveness (SURVEY)

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Silas Tora

Analysis of the Forest Products Cluster in Indiana:A Framework for Improving Productivity and Competitiveness

Doctor of Philosophy

Eva Haviarova, Ph.D.

Carl Eckelman, Ph.D.

Brigitte S. Waldorf, Ph.D.

Eva Haviarova, Ph.D.

Robert K. Swihart, Ph.D. 4/27/10


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Analysis of the Forest Products Cluster in Indiana:A Framework for Improving Productivity and Competitiveness


Silas Tora

4/27/10


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ANALYSIS OF THE FOREST PRODUCTS CLUSTER IN INDIANA: AFRAMEWORK FOR IMPROVING PRODUCTIVITY AND COMPETITIVENESS

A Dissertation

Submitted to the Faculty

of

Purdue University

by

Silas G. Tora

In Partial Fulfillment of the

Requirements for the Degree

of


May 2010

Purdue University

West Lafayette, Indiana


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To my daughter Subira, you give me the joy and

strength to keep on trying.

Thank you.


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iii

ACKNOWLEDGMENTS

I would like to begin by thanking my major professor Dr. Eva Haviarova, who,

through her insightfulness, saw my ability and gave me the opportunity to pursue

this degree. Her continued support, both academically and morally, has not only

made me a better person, but also contributed to making me a successful

researcher. I also would like to express my heartfelt appreciation to Professors

Carl Eckleman, Daniel Cassen, and Brigitte Waldorf for agreeing to serve on mycommittee, and for the thoughtful advice that often served to give me a better

understanding of issues in my PhD study. And I am deeply grateful to the

Department of Forestry and Natural Resources, Purdue University, which

financially supported me through the program.

My warm thanks are due to Christine Nolan and Professor Rado Gazo for

giving me valuable educational and friendly advice. This study would not have

been possible without the help of Tracy Simmerman, Isaac Slaven, Hongtao

Zhou, Stephanie Houin, and others who tirelessly worked in the preparing and

sending of survey materials. I would also like to thank the representatives of the

forest products firms in Indiana who spent their time answering the survey.

Finally, I would like to sincerely thank friends and fellow graduate students

with whom I have had the pleasure of meeting and sharing the enjoyable

academic experiences at Purdue. In addition, I am greatly indebted to my family

for their moral support and loving environment. In particular, the unconditional

love and support of my parents, John and Keremensia Tora, have seen me

through many challenges in life.


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iv

TABLE OF CONTENTS

PageLIST OF TABLES viLIST OF FIGURES viii

ABSTRACT.. ix

CHAPTER 1. INTRODUCTION..11.1. Where do firms locate? ............................................................................ 2

1.2. Research justification ............................................................................... 4

1.3. Objectives ................................................................................................ 4

1.4. Methodology ............................................................................................ 5

1.4.1. Data description .................................................................................... 7

1.5. Summary .................................................................................................. 7

CHAPTER 2. HISTORY OF FOREST PRODUCTS INDUSTRY CLUSTER..92.1. Introduction .............................................................................................. 9

2.2. Forest products industry in the industrial revolution era (1870 -1915).... 10

2.2.1. Technology advancement in lumber processing ................................. 112.2.2. Secondary industry ............................................................................. 12

2.3. Effect of the World Wars on the forest products industry (1915 1979) 14

2.3.1. Effect of substitute material on the industry ........................................ 16

2.4. Current role of the forest products industry (1980-present) .................... 18

2.4.1. Industry composition ........................................................................... 18

2.4.2. Forest industry value chain creation ................................................... 18

2.4.3. Challenges facing the forest industry .................................................. 20CHAPTER 3. INDUSTRIAL CLUSTER BENCHMARKS.22

3.1. Introduction ............................................................................................ 22

3.1. Forest products industry clusters in Europe ........................................... 243.1.1. Wood and furniture cluster in France (Lorraine) ................................. 24

3.1.2. Wood and Furniture cluster in Denmark (Salling) ............................... 26

3.1.3. Northern Italys furniture cluster .......................................................... 283.2. U.S. forest products industry clusters ..................................................... 30

3.2.1. Oregon wood products cluster ............................................................ 30

3.2.2. Northeastern Mississippi furniture cluster ........................................... 33

3.2.3. Kentucky wood products cluster ......................................................... 34

3.2.4. North Carolina furniture cluster ........................................................... 36

3.2.5. Maine forest industry cluster ............................................................... 37

CHAPTER 4. THE FOREST PRODUCTS INDUSTRY IN INDIANA. 414.1. Introduction ............................................................................................ 41


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Page4.2. Solid economic performance .................................................................. 45

4.3. Demographic challenges ........................................................................ 474.4. Locational challenges ............................................................................. 49

4.5. Conclusions ........................................................................................... 51

CHAPTER 5. THE PRODUCTIVITY AND COMPETITIVENESS OF INDIANAWOOD PRODUCTS CLUSTERS53

5.1. Introduction ............................................................................................ 53

5.2. Concepts of competitiveness ................................................................. 55

5.2.1. Sources of competitive advantages .................................................... 565.3. Productivity measure .............................................................................. 57

5.4. U.S. forest products industry .................................................................. 58

5.4.1. Challenges and issues facing the forest products industry in Indiana 585.5. Objectives .............................................................................................. 60

5.6. Methodology .......................................................................................... 61

5.6.1. Data collection .................................................................................... 61

5.6.2. Data analysis ...................................................................................... 62

5.7. Results and discussions ......................................................................... 64

5.7.1. Descriptive results .............................................................................. 65

5.7.2. Multivariate analysis of variance results ............................................. 915.8. Conclusion ........................................................................................... 100

CHAPTER 6. GAP ANALYSIS: OPPORTUNITIES AND CHALLENGES.. 103

6.1. Introduction .......................................................................................... 1036.2. Method ................................................................................................. 104

6.3. Environmentally-sustainable processes and products ......................... 106

6.3.1. Opportunities .................................................................................... 1086.4. Recycled pallets ................................................................................... 109

6.4.1. Price comparison between recycled and manufactured pallets ........ 109

6.4.2. Opportunity ....................................................................................... 111

CHAPTER 7. SUMMARY AND CONCLUSIONS 1137.1. Study significance ................................................................................ 117

7.2. Limitations ............................................................................................ 119

7.3. Future studies ...................................................................................... 119LIST OF REFERENCES. 121

APPENDIX129

VITA136


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LIST OF TABLES

Table PageTable 3.1 Summary ofDanish furniture cluster. .................................................. 27Table 3.2 Summary of the Italian furniture cluster (in Livenza). .......................... 29

Table 3.3 Summary of the Oregon forest products cluster. ................................ 32

Table 3.4 Summary of Kentucky wood products cluster. .................................... 36Table 3.5 Summary of Mainesforest products cluster. ...................................... 40

Table 4.1 Top ten least and most vulnerable counties in Indiana. ...................... 44

Table 4.2 Economic indicators. ........................................................................... 47

Table 4.3 Demographic characteristics of FWPI counties as compared to othercounties. ....................................................................................................... 49

Table 4.4 Locational differences among Northern and Southern FWPICounties. ...................................................................................................... 51

Table 5.1 Percent sales revenue changes for different wood products firmtypes. ............................................................................................................ 65

Table 5.2 Responses (counts with row percentagesin parentheses) to determinewhether easy labor availability has a significant effect on firm typea. ........... 67

Table 5.3 Responses (counts with row percentagesin parentheses) to determinewhether labor availability has a significant effect on firm sizea. .................... 67

Table 5.4 Responses (counts with row percentagesin parentheses) to determinewhether labor availability has a significant effect on salesa. ......................... 67

Table 5.5 Responses (counts with row percentagesin parentheses) to determinewhether educational background of entry-level employees has a significanteffect on firm typea. ....................................................................................... 69

Table 5.6 Responses (counts with row percentagesin parentheses) to determinewhether educational background of entry-level employees has a significanteffect of firm sizea. ........................................................................................ 70

Table 5.7 Responses (counts with row percentagesin parentheses) to determinewhether easy labor availability has a significant effect on firm revenuea. ..... 70

Table 5.8 Responses (counts with row percentagesin parentheses) to determinewhether skill level of entry-level employees has a significant effect on firm

typea. ............................................................................................................ 73

Table 5.9 Responses (counts with row percentagesin parentheses) to determinewhether skill level of entry-level employees has a significant effect on firmsizea. ............................................................................................................. 73


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Table PageTable 5.10 Responses (counts with row percentagesin parentheses) to

determine whether skill level of entry-level employees has a significanteffect on salesa. ............................................................................................ 74

Table 5.11 Responses (counts with row percentagesin parentheses) to

determine whether training resources for advancement of employeeperformance and profitability has a significant effect on firm typea. .............. 78

Table 5.12 Responses (counts with row percentagesin parentheses) todetermine whether training resources has a significant effect on firm sizea.. 78

Table 5.13 Responses (counts with row percentagesin parentheses) todetermine whether skill level of entry-level employees has a significanteffect on salesa. ............................................................................................ 79

Table 5.14 Results of labor-related factors in a multivariate analysis withbusiness type as the dependent variable. .................................................... 92

Table 5.15 Results of labor-related factors related factors in a multivariateanalysis with firm size as the dependent variable. ........................................ 92

Table 5.16 Results of labor-related factors in a multivariate analysis with salesas the dependent variable. ........................................................................... 93

Table 5.17 Results of labor-related factors in a multivariate analysis withproduction volume as the dependent variable. ............................................. 93

Table 5.18 Results of training resources-related factors in a multivariateanalysis with firm type as the dependent variable. ....................................... 94

Table 5.19 Results of training resources-related factors in a multivariateanalysis with firm size as the dependent variable. ........................................ 95

Table 5.20 Results of training resources-related factors in a multivariateanalysis with sales as the dependent variable. ............................................. 95

Table 5.21 Results of training resources-related factors in a multivariateanalysis with production volume as the dependent variable. ....................... 96

Table 5.22 Results of competitiveness- and productivity-related factors in amultivariate analysis with firm type as the dependent variable. .................... 97

Table 5.23 Results of competitiveness- and productivity-related factors in amultivariate analysis with firm size as the dependent variable. .................... 98

Table 5.24 Results of training competitiveness- and productivity-related factorsin a multivariate analysis with sales as the dependent variable. ................... 98

Table 5.25 Results of competitiveness- and productivity-related factors in amultivariate analysis with production volume as the dependent variable. ..... 99

Table 6.1 Measure of the scaled challenges for survival, future growth, andcompetitiveness factors levels. ................................................................... 105

Table 6.2 Comparison of per trip cost of pallets of different materials. ............. 112

Appendix TableTable A.1 Correlation Matrix for Labor-related questions ................................. 134

Table A.2 Correlation Matrix for Training, Communications andCompetitiveness ......................................................................................... 135


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LIST OF FIGURES

Figure PageFigure 2.1 Forest product industry value chain. .................................................. 19Figure 4.1 Indiana counties specializing in FWPI. .............................................. 43

Figure 4.2 Distribution of FWPI counties and remaining counties acrossvulnerability score. ........................................................................................ 45

Figure 4.3 Educational attainment levels of adult residents in FWPI counties .... 48

Figure 5.1 Percent availability of labor force, benefits, and investment in youngworkers in the wood products industry. ........................................................ 68

Figure 5.2 Educational background of entry-level employees in the woodindustry. ........................................................................................................ 71

Figure 5.3 Level of entry-level employees. ......................................................... 74

Figure 5.4 Training to enhance employees job performance and/or skills foradvancement. ............................................................................................... 76

Figure 5.5 Training resources needs to advance employee job performanceand companys profitability. .......................................................................... 77

Figure 5.6 Type of communication with suppliers and consumers. .................... 81

Figure 5.7 Communication improvement requirement with suppliers andconsumers. ................................................................................................... 82

Figure 5.8 Business relationship with competitor................................................ 83

Figure 5.9 Sources of information on new technologies, new productionmethods and new market opportunities. ....................................................... 84

Figure 5.10 Sources of major raw material. ........................................................ 86Figure 5.11 Sources of advice and technical assistance. ................................... 87

Figure 5.12 Challenges for survival and future growth. ...................................... 89

Figure 5.13 Most important things to ensure competitiveness. ........................... 90Figure 6.1 Determination of an existing gap in the wood products industry

cluster in Indiana. ....................................................................................... 106

Figure 7.1 Comparison of labor education and skill level by forest productsindustry type. .............................................................................................. 115

Figure 7.2 Comparison of labor education and skill level by forest products

industry firm size. ........................................................................................ 115


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ABSTRACT

Tora, Silas G. Ph.D., Purdue University, May 2010. Analysis of the ForestProducts Cluster in Indiana: A Framework for Improving Productivity andCompetitiveness. Major Professor: Eva Haviarova.

The forest products industry is faced with several challenges that range from

the acquisition of materials to marketing of the finished products. These

challenges require that firms consider the past, current, and future trends, and

determine what factors have made them successful and which ones need

improvement. An industrial analysis provides the tools necessary to determine

the challenges and strength of the industry. In addition the analysis provides a

necessary baseline to be used in the regular monitoring of the industry.

Through the use of secondary data and a survey developed by the author,

this study examined the composition, opportunities, and challenges facing the

forest products industry in Indiana. The study used factors related to human

resources, communication, and competitiveness in analyzing the industrys

productivity and competitiveness. Previous studies have shown that there are

strong industrial competitive clusters mainly in rural Indiana. However, this study

found that these clusters are faced with major challenges in terms of human

resource- and competitiveness-related factors. In addition to suggesting methods

to tackle the challenges, the study provides a gap analysis showing the

opportunities available within the clusters, and their impact on the overallperformance of the industry.


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CHAPTER 1. INTRODUCTION

Various studies ( e.g. Florence (1948), Hoover (1948), Fuchs (1962), Enright

(1990), Krugman (1991), Ellison and Glaeser (1997) have shown that industries

are usually concentrated in particular states, regions, or urban areas, forming so-

called industry clusters. Formally, industrial clusters are defined as

geographically proximate concentration of similar, related, or complementary

industries, 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 (Rosenfeld 1995).

The interest in agglomerations and industry clusters has grown considerably

over the last two decades. This is due in part to the awareness created by

Porters (1990) study on the competitiveness of nations, and the much-talked-

about success of some of high-tech clusters, namely Silicon Valley in California

and Route 128 in Boston, Massachusetts (Dorfman, 1983; Saxenian, 1994). As a

result, local, regional, national, and international governmental agencies

implemented policies to boost competitiveness and to help regional economies

develop by encouraging firms to form and build up industrial clusters (Barkley

and Mark 2001).


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The forest products industry is historically known to be located within rural

areas in the United States. Typically, the rural areas contain more abundant

forests (Webster and Chappelle 1989). The forestry industry represents primary,

reconstituted, and value-added firms. The primary firms process round wood into

dimensional material, for instance plywood mills and sawmills. Reconstituted

firms use wood residues, chips, and wood pulp to produce goods that have

intermediate or final demand. Examples include particle board, paper, and

oriented strand board manufacturers. Value-added wood products firms

represent firms that utilize primary and reconstituted firms products to produce

finished products. Examples include printing paper, cabinet manufacturers and

furniture.

1.1. Where do firms locate?

Classical location theory has its foundation in two problems (Norman 1979).

The first problem is, given the locations of all other economic agents, how should

a particular agent, such as a firm, be located to minimize either cost or a known

fixed demand? By using the location theory of least cost approach, a firm is able

to solve this problem (Zhang 2002). The second problem is, given that similar

firms are in direct competition with one another, how will they locate and what

market areas will they control, given their knowledge of demand conditions?

Theories of central place and interdependence are used to analyze this problem.


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Weber (1909) was the first to use the least cost approach. He investigated the

general factors influencing the location of an industry and what role each factor

played in affecting its industrial location. The theory is based on the following

assumptions: (1) the firms technology exhibits constant returns to scale; (2)

production factors are available in unlimited supply at fixed prices independent of

location; (3) these factors are either available everywhere in the market or

located in a few fixed locations; (4) demand is known and fixed in terms of space

and amount; and (5) transportation costs for each commodity vary directly with

weight and distance transported. The most favorable location for a firm is one

that reduces production and transportation costs with the above named

assumptions. In the case of two inputs located at different points and one product

market located at a third point, Weber showed that the optimal location was one

which was situated within a triangle formed by linking the product market point

with the two input points. He also argued that the optimal location is found by

taking into consideration the relative strength of two material pull forces and the

product market pull force. Weber set up the paradigm for location of facilities

(such as plants, warehouses, military bases, schools, waste material dumps, fire

engine depots, hospitals, administrative buildings, and department stores) based

on minimization of transportation costs.

Lsch (1940) introduced the theory of central place and interdependence in

1938. According to this theory, a firm is assumed to maximize its profit by

selecting a location, in addition the theory notes that there are no unusual profits

in economic activities that are open to everybody. The Lsch theory examined


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the diverse and unlimited areas where consumers were evenly distributed.

Instead of supply, the theory assumed a downward-sloping demand curve for

any product.

1.2. Research justification

A report by Bio-crossroads (2006) on agricultural economy identified the

forest products industry as one of the five major industrial clusters in Indiana.

According to the report, the industry contributes approximately 31.4 percent of

agricultural sector jobs. This finding necessitated a study in order to determine

the industrys source of strengths. In addition to the strengths, it was also

important to discern the underlying challenges that might be facing the industry

and effective ways to tackle them.

Through empirical research, we will be able to assess the strengths and

challenges contributing to industrial clustering of the forest products industry in

Indiana.

1.3. Objectives

The main objective of the study was to determine the factors that contribute to

the strengths and challenges of forest products industry clusters, and to

determine how these factors influence the industrys competitiveness and

productivity.


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The minor objectives were:

i. Determine how counties with a concentration of forest and

wood products clustersin Indiana compare with other counties in

the state in terms of demography and location;

ii. Determine the effect of labor-related factors on the

productivity and competitiveness of the industry;

iii. Determine if factors related to resources and training have

an effect on the strength of the industry;

iv. Determine how communication, information sharing and

other competitiveness-related factors influence productivity.

1.4. Methodology

In performing an industrial cluster analysis, several methodologies have been

suggested in the literature (Hofe V. R., and Chen K., 2006). The three most

commonly used methodologies include industrial cluster analysis following the

theoretical principles of localization economies (e.g. Rosenfeld, 1995; Schmitz

and Nadvi, 1999); industrial cluster analysis based on inter-industry relationship

and done by the use of input-output tables (Czamanski and Ablas 1979; Feser

and Bergman, 2000); and lastly, industrial cluster analysis utilizing value chain

linkages and technology innovation (Porter, 1980 and 1990). This study uses the

last method with a modification on the value chain to include only the primary

value chain, and not the supporting counterparts. The study reviewed some

forest products clusters in Europe and the U.S. in an effort to determine their


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reasons for success, and to see whether those successes can be reproduced in

Indiana. The selection of the reviewed clusters was based on their level of

establishment, contribution to local economy, and similarity to Indianas possible

industrial cluster.

The first part of the study used publicly available data to determine how the

counties with forest and wood products clusters in Indiana performed. The

analysis determined that human resources and transportation were the two most

common factors that affected the industry and offered suggestions for further

analysis. The analysis in this studyutilized the rurality measure developed by

Waldorf (2006) to determine whether the clusters were located in urban or rural

areas.

To examine the factors suggested from the results of the publicly available

data analysis, the study was narrowed to specifically observe the forest products

industry. In addition to the suggested factors, other additional factors were added

to the study. A survey was utilized in the collection of information. The survey

was sent to a comprehensive list of firms generated from several government

and private sources, with a focus on firms that used a wood resource as a major

input. The survey was divided into four sections, each covering a different factor

of interest, namely: labor resources; training resources; communication; and

competitiveness. The firms in the industry were grouped as logging, primary,

secondary, and reconstituted. These firms represented the primary levels of the

forest products industry value chain. The analysis was based on a methodology

developed in a similar study by Bumgardner et al.(2004) that used chi square


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tests for independence with firm category and multivariate analysis of variance

(MANOVA) to determine if overall differences existed between the levels.

1.4.1. Data description

The data used in this study included both primary and secondary sources.

The primary data was obtained from a questionnaire sent to the forest products-

based industries in Indiana. The secondary data used in this study was collected

from various sources, and spanned the time period from 2001 to 2004. The data

was classified using the standard NAICS code definition of industries. The data

was a compilation of various data sets listed below:

Public company records

Specialized information from local organizations, including Indiana

Hardwood Lumbermens Association, Indiana Department of Natural

Resources, and Indiana Business Research Center data (through the

Purdue Center for Regional Development)

1.5. Summary

The chapters are arranged so that each new chapter builds on information

presented on the previous chapter. In Chapter 1, the introduction defines and

describes the concept of industrial clusters, and gives a summary of background

theory on the concept. Chapter 2 explores the historical background of the forest

products industry in Indiana. The chapter outlines the changes that have


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occurred through various periods of development, and concludes with the current

challenges that are facing the industry. Chapter 3 presents examples of forest

industry concentrations in the U.S. and Europe. This chapter also offers insight

into the challenges facing clusters, and explains why these clusters are

successful. In Chapter 4, publicly available data is used to determine whether the

impact of location and social economic factors affect the forest and wood

products industry. The chapter looks at labor, transportation networks, and level

of income to determine whether the industry is affected. Chapter 5 explores the

productivity and competitiveness of the forest products industry in Indiana.

Chapter 6 provides an insight into possible forest products industry-related

businesses that can be introduced to increase the industrys contribution to the

states economy. The chapter specifically studies the pallet recycling business

and the sustainable products industry as two possible areas of interest. In

addition, the chapter illustrates the opportunities that are possible with the use of

a sustainable production process.


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CHAPTER 2. HISTORY OF FOREST PRODUCTS INDUSTRY CLUSTER

2.1. Introduction

Indiana was primarily an agricultural state until after 1880 (Clark 1987).

Manufacturing developed primarily to utilize native coal, timber, and agricultural

products to serve the needs of the agricultural population. Hardwood forests,

which covered a large part of the state, provided an easily exploited natural

resource. A large amount of capital was invested in the lumber industry, and in

the manufacturing of wooden products such as furniture and wagons (Blyth et al.

1982). During 1880s, more workers were employed in the cutting of the timber

and the fabrication of the wooden products than in any other manufacturing field

(Whitten and Whitten, 1990). Since the amount of capital required to start a

sawmill business was small, many mills employing only a few people sprang up.

In the late 1800s, Indiana had more than 2,000 sawmills that processed lumber

and prepared it for shipment (Clark 1987). Shipping was done through the Ohio

River in the southern counties. Building of the railways enabled a steady

expansion of the lumber industry by providing easier transportation for forest

products.

Improved production technologies during the industrial age led to an increase

in production volumes. Increased production resulted in an increased competition


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for raw materials, which gave the large- and medium-sized establishments an

advantage, and in turn, caused the smaller-sized mills to close (Clark 1987). By

1966, the number of mills had declined to 518 (Blyth et al. 1982); today, only 334

mills remain. Despite the decline in the number of mills, there has been an

increase in the number of secondary firms established in the same period. The

industry has generally managed to retain its characteristic elements of a small

business structure in which family members are recruited as additional resource

for capital and management skills, but reliance on an informal network of

business relationships in dealings is also significant. In addition, the unique

demand for lumber, like walnut, continues to place a premium on Indiana wood

products (IHLA, 2007). The remaining sections of this chapter will cover the

contributions of various historical periods to the improvement of the industry

based on published information, beginning with the industrial revolution age to

the current period.

2.2. Forest products industry in the industrial revolution era (1870 -1915)

There was a tremendous growth in the economy of the United States after the

Civil War (Niall 2005). With increased wealth, consumers preferences for the

aesthetic and functional qualities of products increased. For the forest products

industry, there was an increase in demand for fine furniture, comfortable

carriages, and attractive interior surfaces (Clark 1987). There was also increased

demand by other industries such as railroads, vehicles, and agricultural


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equipment that required strong, durable, and easily shaped wood (Whitten and

Whitten 1990).

During this period, demand for hardwood lumber production increased from

about two billion board feet annually to 11 billion in the U.S., which resulted in

substantial production increases for mills in the Midwest and Southern hardwood

areas (Whitten and Whitten 1990). The Central region (which consisted of

Indiana, Illinois, Ohio, West Virginia, Kentucky, and Missouri) produced 50

percent of the nations hardwood lumber. Indiana was the leading producer

among these states (Clark 1987). It had more than 40 hardwood lumber species,

with the dominant species being oak, walnut, maple, poplar, hickory, cherry, elm,

and ash, as well as the lesser-used species such as butternut, sycamore, beech,

locust, and dogwood. Due to rich soils and a slow growing process that is

engendered by the Midwestern climate, hardwood timber from Indiana developed

grain patterns with relatively few imperfections that achieved world-quality

standards, especially for oak and walnut (Clark 1987). Indiana led the country in

the annual production of both oak and walnut, with nearly 700 million and 25

million board feet, respectively.

2.2.1. Technology advancement in lumber processing

Technology advancements during the industrial revolution focused on

improvements in the speed of cutting large size logs into standard sizes with

smooth surfaces while minimizing waste. Unlike the earlier period when mills

were animal and water powered, mills in the industrial revolution period were


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steam powered. Steam power, coupled with the circular saw, which had been

patented in England in the 1770s, provided a continuous cutting motion that

doubled production speed (Evelyn M., 1965). However, since the saw blades

resulted in massive lumber waste caused by thick large kerf, these saws

remained best suited for the production of rough lumber such as construction

boards and railroad ties. Developed in the 1880s, the band saw provided an

efficient sawing method for hardwoods (Dopp 1913). Most mills added band mills

as supplements to the circular saws because they increased the amount of

uniform lumber and reduced waste due to the thin blades. More advances in

machining resulted in the specialized sawing processes that included re-saws,

edgers and trimmers as essential equipment in the milling operation.

Other subsidiary technologies reduced the amount of time required to dry

wood. John Stephenson Co. of New York City was the first to devise a steam kiln

that extracted almost four hundred pounds of water in less than four days (Evelyn

M., 1965). By the beginning of the twentieth century, dry kilns controlled both

temperature and humidity. Drying schedules were based on research results

following input from university and government scientists.

2.2.2. Secondary industry

The improved sawing and drying technologies resulted in the establishment of

hundreds of shops and factories in Indiana and surrounding states whose

primary resource was oak, walnut, hickory, maple, ash, and other hardwoods.


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The shops and factories were the core of the regional development that resulted

in the establishment of industrial towns and cities (Clark 1987).

One of the lumber industrys limitations was a lack of regional and national

transportation networks linking the primary producers in rural areas to the

secondary industries, which were located primarily in urban areas. The creation

of more integrated railroad networks near the turn of the century resulted in the

development of more substantial secondary industries, such as the wagon and

carriage, furniture, and agricultural implement industries (Nicholls 1970). Overall,

the expansion of the railroads to small towns opened new markets for Indiana

lumber companies (Whitten and Whitten 1990).

The increased demand created by railroad expansion necessitated expansion

by most lumber manufacturers. Since Indiana hardwood species were known for

their high quality properties, most secondary manufacturers established their

production plants in Indiana. This resulted in the industry being a leading

employer in Indiana for over thirty years, until the beginning of the twentieth

century (Clark D. L., 1987). In addition, the industry created a large demand for

iron, steel, and glass products, resulting in considerable growth of the

manufacturing sector as a whole.

There was an increased demand for labor and raw material due to the rising

number of small manufacturing firms with a low entry capital requirement. As a

result, a number of the firms organized themselves into larger corporately owned

factories in order to realize the economies of scale (Foner 1997). By 1900, the

average number of employees per agricultural implement factory in Indiana was


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75, while the average in carriage and wagon factories was 25. In addition, nearly

70 percent of the furniture companies were incorporated (Clark 1987).

2.3. Effect of the World Wars on the forest products industry (1915 1979)

The outbreak of World War I in 1914 led to an increase in demand for

hardwoods. These hardwoods were needed for U.S. military purposes,

particularly gunstocks and airplane propellers (Bryant, 1919). Because of the

large number of wholesalers, small sawmill owners, and secondary

manufacturers, the National Hardwood Lumber Council of the National Defense

sought the assistance of the National Hardwood Lumber Association (an

organization established in 1898 to harmonize hardwood lumber grading rules in

the U.S.). The NHLA was designed to act as an intermediary in expediting and

streamlining transactions (Whitten O. D. and Whitten B.E., 1990). By specifying

that NHLA rules were to govern hardwood purchases, the U.S. government, in a

sense, established the NHLA as the national marketing agent for hardwoods.

Throughout WWI, military and defense contractors filled their demands by

applying the NHLA rules (Silver J. W. 1957). In order to reduce any confusion or

conflict for the various suppliers within the hardwood industry, the NHLA, using

input from various industry associations, established a national system for

grading and inspection of hardwood lumber. This system was adopted in 1918

(Clark, D.L., 1987).


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After the War, the U.S. had to readjust to a less-productive economy. Inflation

rose due to the decreased domestic demand (Cooley, T. and Ohanian, L., 1991).

Record price levels affected many commodities in 1919 and 1921. Hardwood

lumber prices increased from 33 to 296 percent within that period. Additionally,

the open competition plan idea suggested by the American Hardwood

Manufacturers Association contributed to record high prices (Milton N., 1923).

According to the plan, members of the association held price meetings in which

they exchanged price and production information, and then formulated

predictions on future supply and demand (Arthur E., 1912). In 1920, the Federal

Trade Commission determined that the open competition plan was in violation

of the Sherman Anti-Trust Act. Through the Justice Department, the commission

filed a temporary restraining order that stopped the 365 association members

from using the plan (James W., 1957). Though the AHLA disputed the decision in

the Supreme Court, a permanent injunction was reached against the open

competition plan, stating that information was only available to sellers, and they

could tactfully use it to influence market forces towards lower production and

higher prices. Herbert Hoover, the Secretary of Commerce in 1921, sought to

reorganize the market effort of the hardwood business by placing the production

and price information gathering activities under the Commerce Department

(Smith J. R. 1920). The Commerce Department also acted as an intermediary for

collection and dissemination of hardwood information. For the Indiana wood

industry, this regulation of the market meant increased prosperity, but changing


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from the traditional concepts of grading and marketing meant the industry had to

be modified.

The primary goal of the wood industry during this time period was to simplify

the variety of manufacturing techniques and the large number of products that

were characteristic of an era that was primarily small manufacturers who were

producing almost solely for local market (Clark 1987). The hardwood and

secondary firms, largely made up of individual or family owned small-scale

enterprises, were representative of such firms. As a result, it was difficult for

government agencies to regulate the industry by imposing standardized

procedures at a speed or to a degree similar to those imposed on the mass

production industries (Whitten and Whitten 1990). Instead, the industry managed

to control the tension among various groups of manufacturers, wholesalers, and

consumers through its own internal mechanisms.

2.3.1. Effect of substitute materials on the industry

Beginning in the 1950s, the forest products industry faced increased

competition from metals and plastics. In addition, the quality hardwood lumber

supply was rapidly diminishing (International Labor Organization 1991). The

market for high quality hardwood needed for furniture, cabinets, and musical

instruments diminished. At the same time, the market for low quality lumber used

for pallets, pulp and railroad crossties continued to sustain the mills. Buyers and

sellers maintained the tradition of transacting through personal relationships with


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shared mutual confidence and understanding, where each party would treat the

other with honesty and fairness.

The Indiana hardwood lumber industry maintained some of its traditional

traits. Ninety percent of commercial forests were still owned by individuals while

less than one-fourth of the states mills owned their own timberland (Hutchison

O., 1956). A survey of one thousand Indiana sawmills conducted in the mid-

1950s showed that only 30 mills produced more than one million board feet

annually. Ten years later, 43 percent of the mills manufactured less than 100,000

board feet per year, while the rest sawed less than 350,000 board feet. This

figure corresponds to capacities of many mills at the turn of the century (Clark

1987). The majority of the mills in this period produced lumber that was intended

for only few products; numerous mills operated part-time to produce pallet lumber

and red and white oak timber railroad ties.

Despite the substitution challenges, many wood industries in the post-WWII

period survived by duplicating business strategies employed by other

manufacturing industries. Searching for new sources of supply, new markets,

and limiting the overhead expenses through effective management also

contributed to continued success in the industry. Several additional factors such

as scientific advancements in manufacturing and utilization efficiencies,

improvement in woodlot management, and reforestation programs have

increased the wood supply (Bramble 1965).


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2.4. Current role of the forest products industry (1980-present)

Since the early 1980s, the forest products industry has steadily improved the

quality of products and production processes (Bael and Sedjo 2006). These

advancements came as a result of enhanced transportation and communication

networks. In addition, the effect of market globalization has led to increased

competition from other regions, thus forcing the local firms to adapt to changing

times.

2.4.1. Industry composition

The wood industry is composed of small, family-owned businesses. Non-

industrial, private landowners own approximately 71 percent of the forest growing

within the U.S. (FIA, 2006). Between 1996 and 2005, forest growth exceeded

removal by 42 percent (U.S. Census, 2006). Within Indiana, 83 percent of the

forests are small and privately owned (Bratkovich S., et al. 2003)

Estimated U.S. consumption of hardwood lumber in 2005 was over 11 billion

board feet; thus, the wood industry makes a major contribution to U.S. economy

(U.S. Census 2006). This hardwood lumber is processed into other high-value

products such as cabinets, furniture, pallets, flooring, and architectural millwork.

2.4.2. Forest industry value chain creation

The concept of value chain creation includes all of the value-adding activities

within a firm. The activities include inbound logistics, production, outbound


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logistics, marketing and sales, and services (Kaplinsky R. 2004). Inbounds are

the goods and services that go into the manufacturing of a product; outbounds

are finished goods coming from a manufacturing firm which are ready for

consumption. For the wood industry, the value chain is composed of loggers,

sawmillers, secondary manufacturing firms, lumberyards, exporters, construction,

marketing and sales, and services (Figure 2.1). In order for firms to perform well,

there should be a balance between the inbounds and outbounds. This means

that a manufacturer must have a good control on both inbound and outbound.

Figure 2.1 Forest product industry value chain.

When examining the wood industry inbounds chain as a whole, the logs are

the highest input item and can either be obtained from government-managed

forests, or from individuals and families. Individuals and families usually have an

Machinery Seeds Water fertilizers

Forestry Sawmills

andPanels

Furniture

Industries

Buyers Consumers

Chemicals Machinery Logistics,

Quality

Design Chemical Machinery Logistics

& Quality

Domesticwholesalersandretailers

Foreignwholesalers& retailers

RecycleReuseDispose


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incentive to manage with long-term sustainable benefits in mind. Well-managed

forests typically show an increase in timber quality and quantity.

Outbounds, including furniture, pallets and boxes, building materials, and

exports, vary in terms of price, species, grade, and moisture content. Competitive

market advantage can be gained through efficient planning of the supply chain,

improved demand forecasts, and control of manufacturing processes.

2.4.3. Challenges facing the forest industry

Currently, there are several challenges that are facing the Indiana forest

industry. These challenges include: availability of labor; environmental

regulations; international trade practices; quality of raw material inputs; and

advancements in research and development.

The labor force within the industry has been declining in the last two decades.

This decline is attributed to the factors of increased of cheap imports and the

increased availability of wood substitutes with better-engineered properties. Due

to job insecurities resulting from increased competition, some experienced and

qualified workers are moving to other industries offering better job security

(Schuler and Ince 2005). These two factors have affected many firms abilities to

remain competitive.

Despite the increasing competition, some of Indianas forest products

industries are still very competitive. Unlike previous time periods when resources

were evenly distributed throughout the state, forest resources are now primarily

concentrated in the southern part of the state. Through support from the Indiana


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Hardwood Lumbermens Association (IHLA), the primary wood industry has

managed to remain competitive in both local and international markets.

Availability of quality input is another major concern, especially to the

sawmillers. Because most of the hardwood forests in the state are privately

owned, it is difficult for firms to determine with certainty the quality of logs they

will receive. The industry can profit from more efficient production processes that

optimize the log sawing. The development of engineered wood with properties

similar to solid wood could increase industry competitiveness.

In this environment of constant competition, declining timber resources, and

substitute materials, only firms that simultaneously sustain their source of supply,

retain their customers, and cultivate new markets will survive (Panwar, et al.

2006). To overcome supply, production, labor, marketing, and management

challenges, a personal knowledge of and attention to the problems of timber

quality, sawing and drying processes, employee relationships, sales, research,

and management is required.


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CHAPTER 3. INDUSTRIAL CLUSTER BENCHMARKS

3.1. Introduction

The modern analysis of economic interactions in space stresses the

significance of agglomeration, which includes regional concentration, spatial

clustering, and path dependence. Agglomeration has been described and

analyzed in some detail by numerous researchers, including Marshall (1890),

Weber (1909), Hoover (1948), Lloyd and Dickens (1977), Krugman (1991),

Porter (1990), and Enright (1994).

Using the small- and medium-sized businesses located in Italy and Germany,

Marshall (1890) provided the benchmark literature used for industrial districts and

clusters studies. From this study, Marshall identified three main sources of

agglomeration externalities that are related to inputs, labor market, and

knowledge externalities. The input externalities were based on the fact that firms

in the same industry that are located in close proximity will attract suppliers to

locate near them. This results in transportation cost savings and efficient service.

Labor market externalities ensured that firms in a cluster attracted specialized

workers, thus making the firms more efficient. Knowledge externalities enabled

the exchange of knowledge and information, which resulted primarily in

technology and information spillover.


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Literature on industrial clustering in the forest products sector is limited. In

1987, Abt looked at the local impact of raw materials and labor for three lumber-

producing regions in the U.S. He discovered that significant regional differences

exist, and that a stable input trend was more important than price and technology

trends. Smith and Munn (1998) added to Abts study by examining labor and

capital impacts to two regions containing logging industries using the maximum

likelihood estimation technique. They concluded that capital and labor were

substitutes with changes in input prices and output demands. Both studies

obtained remarkable results, but failed to identify the locational advantages for

the firms. Leigh (2000) examined changes in the woodworking industry caused

by global competition. Leigh noted that the woodworking industry location was

influenced by the input raw material sources as well as the location of growing

economies with construction activities. She concluded that success of the

woodworking industry depended on the use of advanced machines in production.

However, the study did not provide a detailed analysis of global competition and

competitiveness in the woodworking industry. Bowe S., et al. (2004) developed

models to study the location of forest products industries. Although the models

developed included important input and output variables, they did not utilize any

locational analysis; they simply applied ordinary least square methodology to

location quotients. They also failed to take into account the contribution of

variables, such as labor, shown to influence the spatial clustering of firms

(Diamond and Simon 1990).


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This chapter profiles some important regional concentrations of the forest

products industry. The properties and strengths of these concentrations are

considered benchmarks for analyzing the forest products industry in Indiana.

3.1. Forest products industry clusters in Europe

Industrial clusters, especially in the forest products industry, are more

established in Europe than in the rest of the world. These clusters have led to the

industrial reorganization of firms, ranging from large operations engaged in high-

volume production to small-scale firms, therefore strengthening the local

economies and encouraging networking among firms. In this chapter, furniture-

manufacturing clusters in France, Denmark, and Italy are chosen to present a

good representation of clusters that have relevant assets and competitive

advantages. These advantages can be used to improve Indianas forest products

industry.

3.1.1. Wood and furniture cluster in France (Lorraine)1

The wood and furniture cluster in France is located in Lorraine, a region in

eastern France. The cluster is located in a region with 850,000 hectares of

forestland, and has an annual production of 148 million board feetof lumber.

1Information on Wood and Furniture Cluster in Lorraine, France was obtained from the clusters

websiteHTTP://WWW.PLAB.FR/ENGLISH/INDEX.HTM and a report by Forest and Wildlife

Research Center, Mississippi State University and Regional Technologies, Inc. (2002) on the

Micro Economic Environment Assessment Report for Mississippis forest products and furniture

cluster.
http://www.plab.fr/english/index.htmhttp://www.plab.fr/english/index.htmhttp://www.plab.fr/english/index.htmhttp://www.plab.fr/english/index.htm


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There are 483 firms distributed over the twenty-mile radius of the cluster

employing 6,700 people. Liffol-Le-Grand Basin contains the greatest

concentration, with 110 furniture firms that employ approximately 2,000 people,

accounting for two-thirds of the working population in the basin. Liffol-Le-Grand is

also considered the capital of the furniture industry, with twenty-five percent of

national production.

The main products manufactured within the cluster are specialized chairs and

chair frames. Due to the regular vocational training established by Furniture

Industries' Professional Training Association, the cluster ensures the availability

of a sustained labor force. The vocational training focuses on high school and

undergraduate students who are interested in joining the wood and furniture

industry. In addition, there are professional training associations. For instance the

association in Liffol- le-Grand ensures continued provision of training for workers.

Due to the extensive investment in training, the clusters competitive advantages

include a large pool of well-trained artisan designers and craftsmen, and the

employees knowledge of the industry.

An agency composed of representatives from the furniture firms and local

economic representatives is the main group responsible for coordinating

activities within the cluster. Known as the Lorraine Agency for Wood-Made

Furniture Industry, it provides advice and services to the manufacturing firms.

Agency services include the creation of a common web portal, technical and

commercial workshops, and export groups.


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3.1.2. Wood and Furniture cluster in Denmark (Salling)2

The wood and furniture cluster in Denmark is centered in Salling, a region in

the western part of Jutland. The cluster developed in the early 1960s as a result

of rapid export market demand. Currently, the cluster spreads over an 80-mile

radius and contains a total of approximately 400 firms (Table. 3.4). The cluster

has an annual revenue of about 3.7 billion US dollars, and employs nearly

14,000 people. Due to inferior production techniques, the firms in the cluster tend

to be small, specialized, and labor intensive. The clusters growth is attributed to

strong entrepreneurial skills, friendly labor and wage regulations, collaborative

philosophy among firms, and well-developed local service support system.

Firms in the cluster belong to the Association of Danish Furniture Industries,

which assists them with sales and market information. The firms also collaborate

with each other in developing new products, sharing machine and equipment,

and sharing personnel. The clusters success is based primarily on the informal

way of doing business. This informality results in the establishment of long-term

relationships among producers, suppliers, and customers, developed over time.

Skills are passed on informally, with some of the skilled workers from a firm

starting their own business.

Danish furniture cluster competitive advantages are in the forms of sustained

supply of knowledgeable workforce, continued innovation, and market

2Information on the Furniture Cluster in Central Jutland, Denmark was obtained from a Danish

furniture website:http://www.danishfurniture.dkand Regional Technology Strategies Inc. 2003

report on wood products clusters:HTTP://RTSINC.ORG/PUBLICATIONS/PDF/MT_WOOD.PDF
http://www.danishfurniture.dk/http://www.danishfurniture.dk/http://www.danishfurniture.dk/http://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://www.danishfurniture.dk/


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information availability. The cluster is located strategically close to the worlds

largest furniture showroom where trade shows are presented annually, thus

providing the much-needed market awareness. In addition to the showroom,

there is an engineering school specializing in wood and furniture located at the

center of the cluster, thus ensuring a constant supply of trained labor. The

schools curriculum is designed so that students gain industrial experience while

taking classes. In addition to training, the school also conducts research and

provides technical assistance to the firms.

Table 3.1 Summary ofDanish furniture cluster.

Approximate size Radius 80 miles

Specialization Modern household

Approximate number of firms 400

Key assets

Technology Institutes

Furn. Industry Associations

Apprenticeship

Competitive advantageDesign capabilities

Tacit Knowledge

Government role Indirect only


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3.1.3. Northern Italys furniture cluster3

The Italian furniture cluster is located in Livenza, a region consisting of 800

core firms producing lumber and furniture. Known popularly in Italy as industrial

districts, the clusters were formed as a result of the socially inclined business

model. Due to the models success, the Italian government offered its support to

the cluster concept by passing the Industrial Districts Act of 1999. Currently, the

cluster has approximately 1,400 firms employing about 12,000 people, including

suppliers and supporting industries (Table 3.5). Despite its varied products, this

cluster is more focused on the production of office and kitchen furniture.

The center of this cluster is Pordenone, a city that hosts an annual trade show

and the Office of the Furniture Consortium Association (producers association).

The firms also utilize the local Chamber of Commerce in order to market their

products. The cluster is characterized by small- and medium-sized firms that

specialize in producing components to be assembled by larger firms to form a

finished product. The large firms are also tasked with the distribution and sales of

the finished products.

3Information on the Northern Italys Furniture Cluster was obtained from

HTTP://WWW.FURNISHINGFROMITALY.COM/LIVENZA/MENUDATI.ASP and Regional

Technology Strategies Inc. 2003 report on wood products clusters:

HTTP://RTSINC.ORG/PUBLICATIONS/PDF/MT_WOOD.PDF
http://www.furnishingfromitaly.com/livenza/menudati.asphttp://www.furnishingfromitaly.com/livenza/menudati.asphttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://www.furnishingfromitaly.com/livenza/menudati.asp


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In most cases, small firms are started by former employees of larger firms

who have strong entrepreneurial skills. Due to the closely-knit community, it

follows that cluster strengths are highly integrated supply chain networks which

allow firms to specialize and excel in various aspects of production.

Table 3.2 Summary of the Italian furniture cluster (in Livenza).


Specialization Kitchen, Office furniture


Key assets Trade associations

School furniture

Competitive advantage Flexible specialization

Design

Government role Ind. District Act of 1999


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3.2. U.S. forest products industry clusters

3.2.1. Oregon wood products cluster4

The spotted owl, typically found in the U.S. and Canadian west coast old

growth forests, was designated as an endangered species in the late 1980s by a

court ruling (Marcot and Thomas 1997). With more than one-third of its

manufacturing jobs in the primary wood industry firms at the time, the ruling

economically devastated Oregon. To tackle the problem, the state formed an

Interim Legislative Committee on Forest Products Policy (ILCFPP). The

committees task was to change the emphasis from the primary wood products

manufacturing to secondary wood products manufacturing.

To achieve the change from primary wood industry to the secondary industry,

the state of Oregon sent members of ILCFPP to Europe to study how the forest

products industries in Italys industrial districts and Denmark forest products

industries remained competitive. When the committee members returned with

their findings, the state commissioned a study of the forest products industry. The

study was reviewed by a series of focus groups, with more emphasis given to

small businesses. The study recommended several courses of action, including:

flexible manufacturing networks; technical assistance; financial incentives; and a

4Information on Oregon wood products clusters are from

HTTP://WWW.OREGONCLUSTERS.ORG/FOREST.HTML and a 2003 USDA report by Jason

P. Brandt, Todd A. Morgan, Thale Dillon, Gary J. Lettman, Charles E. Keegan, and David L.

Azuma on Oregons Forest Products Industry and Timber harvest.
http://www.oregonclusters.org/forest.htmlhttp://www.oregonclusters.org/forest.htmlhttp://www.oregonclusters.org/forest.html


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cluster coordinating body. As a result of the study, Oregons Senate Bill 364 was

passed in July 1991, establishing the Oregon Wood Products Competitiveness

Corporation (WPCC). Using lessons learned from Europe, the state established

extension service vouchers with incentives for multi-firm projects, networks, and

capital access programs, but left operations to WPCC directors. The WPCC's

board, comprised of private industry representatives, eventually traveled to

Europe to fully understand the concept. However, unlike the European programs

that included financial incentives, the board suggested a strategy that resulted in

the improvement of social and capital infrastructure, and in the capacity for

growth. The board also believed that, with time, networks and opportunities

would be formed as firms collaborated with one another.

3.2.1.1. Current situation

The Oregon wood products industry is experiencing market growth despite

the current increase of imports to local markets, which has led to a general

decline in employment. The growth is mostly in rural areas where forest products

industry-allied jobs contribute significantly to local economies. The secondary

wood products industry employs about 40 percent of total forest products

industry workers, and is composed of approximately 800 firms out of the 1862

firms. In general secondary industry accounts for approximately 37 to 42 percent

of all manufacturing employment in Oregon (Table 3.3).

The key strength of the secondary indstry is the Northwestern Wood Products

Association (NWPA), which replaced the Wood Products Competitiveness


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Corporation (WPCC). Its goals are to promote and improve the competitiveness

of the Oregon forest products industry through access to market, capital, and

workforce. Collaboration between the NWPA and Oregons community colleges

ensures the development and implementation of curricula that suits the industry.

The Oregon State University Extension Forestry program also serves as a

source of technical information through research and development, and market

guidance.

Table 3.3 Summary of the Oregon forest products cluster.


Specialization Kitchen, Office furniture

Approximate number of firms 1,862

Key assets Trade associations

Port access

Competitive advantage Access to Pacific

Skilled workforceGovernment role Oregon Wood Products Act

1991 (State enacted legislation:

WPCC now NWPA)


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3.2.2. Northeastern Mississippi furniture cluster5

Morris Futorian opened the first furniture manufacturing plant in New Albany,

Mississippi in 1948. Futorian applied the concept of mass production introduced

by the automotive industry to the furniture industry. Futorian was attracted to

Mississippi by the abundant supply of cheap labor, raw material, and business

friendliness. Over time, employees trained in mass production methods began

their own businesses. As the number of furniture companies in the area

increased, the number of other companies providing supplies and services also

increased. Improved support from local government and community leaders

helped attract more suppliers and other non-upholstery furniture companies. With

the increased momentum, firms started the Tupelo Furniture Market and trade

show in early the 1980s to help market low-priced furniture.


The U.S.s largest upholstered furniture producer is the ten-county region of

Appalachia in Northeastern Mississippi, located around Tupelo. Although

furniture produced in the region is not considered as fashionable as North

Carolinas traditional pieces or Oregons stylish pieces, they are functional

5Information on the Northern Mississippi Furniture cluster was obtained from Tupelo Furniture

Market (HTTP://WWW.TUPELOFURNITUREMARKET.COM)and a report by the Forest and

Wildlife Research Center, Mississippi State University and Regional Technologies, Inc. 2002 on

the Micro Economic Environment Assessment Report for Mississippis forest products and

furniture cluster.
http://www.tupelofurnituremarket.com/http://www.tupelofurnituremarket.com/http://www.tupelofurnituremarket.com/http://www.tupelofurnituremarket.com/


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products distributed primarily through mass marketing to chain stores. The

regions furniture industry contains about 200 manufacturers employing

approximately 25,000 people (33 percent of the areas population)

The clusters key strengths are the massive Tupelo showrooms, skilled labor

force, superior technology, and large numbers of suppliers. Proximity to suppliers

is considered the main competitive advantage. Supporting institutions such as

the Community Development Foundation, Itawamba Community College, and

Mississippi State University offer assistance in terms of business management

services, product promotion, research product testing, and employee training.

3.2.3. Kentucky wood products cluster6

The Kentucky wood products cluster, like the Oregon cluster, used the

European clusters as its model to develop a suitable collaborative strategy for

small- and mid-sized businesses. The strategy was to encourage networking

among firms.

The Kentucky Wood Products Competitiveness Corporation (KWPCC) and

the Kentucky Forest Products Council were created in 1994 by a bill the

Kentucky legislature passed. The KWPCC acted as a community corporation

with the duty of providing information, developing workforce training services,

and raising financial support for new technologies. Other duties included the

6Information on Kentucky Wood Products Clusters was obtained from the government archives

atWWW.E-ARCHIVES.KY.GOV/ and the Regional Technology Strategies Inc. 2003 report on

wood products clusters:HTTP://RTSINC.ORG/PUBLICATIONS/PDF/MT_WOOD.PDF
http://www.e-archives.ky.gov/Minutes/legislate/eco_dev/981015.htmhttp://www.e-archives.ky.gov/Minutes/legislate/eco_dev/981015.htmhttp://www.e-archives.ky.gov/Minutes/legislate/eco_dev/981015.htmhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://www.e-archives.ky.gov/Minutes/legislate/eco_dev/981015.htm


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maintenance of the Quicksand Wood Utilization Center to monitor the industry;

management seminars; workforce training programs; and technical advice and

assistance. To encourage collaboration, the corporation offered incentives to

three or more firms who formed manufacturing networks.


To enhance its performance, KWPCC has opened several technology centers

in conjunction with the Kentucky Community and Technical College System

(KCTCS). The technology centers, including one located at Jefferson Community

College, are responsible for training, technical assistance, and community

outreach. The Kentucky Advanced Technology Institute in Bowling Green is

another center that is charged with improving production processes through the

use of advanced technology such as CNC panel processing. Finally, there is the

Wood Utilization Center, based at both the University of Kentucky and Hazard

Community College, which provides training. The corporation has also formed

partnership with technology centers in three counties, thus allowing its members

accessibility to information regarding technological advancements. To encourage

continued training, KWPCC facilitates practical work experience that translates to

academic credit for students. A summary of the cluster composition is given in

Table 3.4 below.


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Table 3.4 Summary of Kentucky wood products cluster.


Specialization None


Key assets Technology center

Competitive advantage Timber supply

Low wages

Government role Kentucky Wood Products

Competitiveness Act of 1996

3.2.4. North Carolina furniture cluster7

The furniture cluster in North Carolina is within a two-hundred-mile radius of

Newton, Hickory, and Lenoir regions. The cluster has established its name as the

U.S.s center for the furniture industry, despite the recent production and market

shifts. Some of the clusters core competitive advantages are high-quality yet

low-cost home furnishings. The cluster also has a variety of firms, ranging from

the custom furniture makers to the mass producers. For customers, the regions

primary attraction is the manufacturing firms concentration ensuring the ability to

find desired products in one location.

Of the three regions, Hickory is the largest, containing 250 firms that provide

employment for about 33,500 people. This concentration of firms has led to the

7Information on North Carolina Furniture Clusters was obtained from Duke University 2004 report

on furniture industry and the global economy, and Regional Technology Strategies Inc. 2003

report on wood products clustersHTTP://RTSINC.ORG/PUBLICATIONS/PDF/MT_WOOD.PDF
http://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdfhttp://rtsinc.org/publications/pdf/mt_wood.pdf


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development of trade shows and exhibitions in the area. The result has been an

increase in revenue for the firms. The shows and exhibitions are facilitated and

supported by both public and private support institutions. In addition to attracting

consumers, firms also benefit through the formation of business networks and

collaborating partners.


Consumers of the custom furniture industry require quick delivery times,

quality, low price, and customized designs. Thus, the driving force for the

furniture industry today is to please the changing demand patterns of home

furnishing customers. There are several ways that local firms can address the

growing demands; for example, by serving as a channel for cheap, imported

furniture. The firms can also be part of the import structure. One setback for

embracing imports is the possibility that a firm may lose its competitive edge, in

addition to the loss of experienced workers who help to ensure quality products.

3.2.5. Maine forest industry cluster8

Through formation of an industrial association, policy makers in Maine believe

that firms will be able to collaborate and to compete, especially the forest

8Information on Maine Forest Products Cluster was obtained from a 2005 report on Maine

technology sectors and clusters commissioned by Maine Technology Institute.

HTTP://WWW.MAINETECHNOLOGY.ORG/ASSETS/CLUSTER_FULL_REPORT_8._FOREST_

PRODUCTS_AND_AGRICULTURE.PDF
http://www.mainetechnology.org/assets/Cluster_Full_Report_8._Forest_Products_and_Agriculture.pdfhttp://www.mainetechnology.org/assets/Cluster_Full_Report_8._Forest_Products_and_Agriculture.pdfhttp://www.mainetechnology.org/assets/Cluster_Full_Report_8._Forest_Products_and_Agriculture.pdfhttp://www.mainetechnology.org/assets/Cluster_Full_Report_8._Forest_Products_and_Agriculture.pdfhttp://www.mainetechnology.org/assets/Cluster_Full_Report_8._Forest_Products_and_Agriculture.pdf

1b. analysis of the forest products cluster in indiana- a framework for improving competitiveness...

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