Regional industry clusters breathe new life into Rochester as Kodak’s legacy seeds new business

1.17.2012 | Two recent news items showcase the strength of regional thinking. In “Despite Long Slide by Kodak, Company Town Avoids Decay,” Peter Applebome chronicles the dangers of putting all your eggs in one basket when planning an economy. In this case, Rochester, NY, had relied heavily on Kodak as the backbone of its local economy. Yet when the technology changed (in this case, the advent of digital photography), it caught Kodak unaware. Today, Kodak’s stock price has fallen to below $1 and its employees are down to 7,000, off from a high of 62,000 in the 1980s.

As one former employee put it, “We felt we were working with the most capable people in the world. And then it all sort of crumbled.”

Yet this is not the typical story of decline.

While the demise of Kodak has challenged Rochester, it also had planted the seeds of new growth. As Applebome reports, the slow fading of Kodak, rather than a sudden decline, allowed people to see the writing on the wall and use their skills learned at Kodak to form new companies in new industries. Medical technology, photonics, imaging and optics business have sprung up in Kodak’s wake.

In addition, the R&D community has shifted to the University of Rochester and the Rochester Institute of Technology (both of which were started by Kodak’s founder George Eastman himself). Kodak also left behind an industrial infrastructure that is being repurposed for smaller start-ups. Thirty-five businesses now occupy the industrial park, along with the remaining employees at Kodak.  As a result, Rochester metro area is a jobs producer. As Applebome reports, in 1980 the Rochester metro area employed 414,400 people. In 2010, it employed 503,200.

Rochester, it would seem, was quite resilient in the face of adversity. In fact, Rochester ranks fairly high on BRR’s Resilience Capacity index, which measures how resilient a region is to these kinds of shocks. Among the 362 metro areas in the index, Rochester ranks 62 on overall resilience capacity. Its economic diversification, highly educated and economically secure population, and metro stability are propelling that higher ranking. Therefore, when faced with a slow hemorrhaging of jobs and livelihoods, Rochester looked outward to its inherent skills and strengths and is gradually refashioning an economy built in many respects on a “cluster” model.

A recent report by the U.S. Department of Commerce speaks to the importance of “clusters” of expertise and talent like those in Rochester in spurring innovation and development. The report, “U.S. Competitiveness and Innovative Capacity,” [pdf], outlines several strategies to make the United States more competitive in a global economy. Chapter 7 calls for the development of more regional clusters–or “innovation ecosystems” as they put it, to spur innovation.

These innovation ecosystems are made up of “communities of people with different types of expertise and skill sets. Scientists, administrators, business leaders, engineers, writers, educators, health care professionals and other individuals all play a role.” The business that these groups create are interconnected, concentrated in a geographic region, with a web of suppliers, service providers, and R&D facilities all nearby and all contributing expertise and talent to the cluster. These firms develop close relationships and access to ideas and information. Firms in clusters can more easily find workers and suppliers with the right kinds of skills and products. In other words, clusters create efficiencies and creativity, and spark wider development.

Indeed, as the report notes, studies have found that a doubling in employment concentration in a particular industry–which clusters promote–is associated with a 2% increase in local wages. Another study found that wages in industry clusters were 6% higher than for workers in the same industry but beyond a cluster. Productivity also increases–up to 12% one report found. And like in Rochester, clusters are more likely to spin off businesses.

One factor that the articles only allude to is the regional nature of this approach. The related businesses often do not all sit in the same industrial park. They are located in a broad area, sometimes crossing state borders (as in the Great Lakes region) and certainly often spilling over metro borders.  To truly harness the potential of these regional clusters, local governments and municipalities must learn to work together to spark continued innovation –or at the least to not impede it.

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