University of Minnesota Driven to Discover
U of MNUniversity of Minnesota
Center for Transportation Studies

ITS and Industry Clusters

Presentation by Lee Munnich, Humphrey Institute of Public Affairs

September 23, 2003

The use of intelligent transportation systems technology is growing and becoming more important at all business levels for several rural industries—a development that could make those industries more efficient and competitive, among other benefits.

At the September 23 seminar, Lee Munnich, senior fellow with the Hubert H. Humphrey Institute of Public Affairs, presented findings of a recent study in which he examined the importance of transportation and information networks to specific industry clusters and assessed the potential for ITS applications to improve them.

"Telecommuting, distance learning, traveler information, real-time inventory ... are all contributing to conditions that might make an industry more competitive in a region," Munnich said.

In this research, Munnich, along with research assistants Chandler Duncan and James Lenhoff, applied an "industry cluster" approach to analyze ITS use in rural industry clusters, which included assessing how ITS is currently being used, evaluating its effects, and exploring future roles.

The industry cluster approach, Munnich explained, is based on the work of Harvard professor Michael Porter, whose book, The Competitiveness of Nations, describes a set of factors or conditions that influence the success of industries. According to Porter, four primary conditions—the "Diamond of Advantage"—drive the growth of a particular industry in a region.

These include existing factor conditions (e.g., infrastructure, natural resources, labor force), local demand for the product, the presence of related and supporting firms such as suppliers, and a firm's strategy, structure, and rivalry with other firms in the area. Munnich noted that industries tend to be most innovative when they are located close to their customers, and that competition among firms in an area can be beneficial in that it often involves collaboration and sharing of information.

The researchers focused on two industry clusters in sparsely populated northwestern Minnesota, which is located about six hours from the Twin Cities and lacks access to an interstate highway. Despite this, the area enjoys a per capita income higher than that of other non-metro areas of the state.

The two clusters chosen for analysis were the recreational transportation equipment cluster, which primarily involves the manufacture of snowmobiles and all-terrain vehicles, and the wood products cluster. Polaris and Arctic Cat are the major players in recreational transportation equipment; Marvin Windows is one highly successful firm in the wood products industry.

Munnich's team conducted interviews and focus groups with industry representatives to learn about the role of technology and transportation in industry clusters, along with the relationships among regional firms, with much of the work focusing on supplier relationships.

The recreational equipment firms, Munnich discovered, are experiencing a rising demand for their products locally, nationally, and internationally. Many are already using information technologies to their advantage, such as through product, inventory, and/or supply tracking and supply chain management, and to help make their transportation more cost-effective. Because of its location, this industry relies on having good information about the physical condition of roads. The firms have established ties to the region, and although Munnich's said his team found no indication that they were planning to relocate, "the infrastructure that's available is always an important issue."

The wood products cluster differed from the recreational equipment cluster in that it primarily serves local and regional markets, due to strong competition outside the region. Supply, product, and inventory management systems are not widely implemented. In addition, firms have smaller supply chains and are not as concerned with using ITS technologies for connectivity between firms.

The recreational transportation equipment cluster seemed to have the greatest potential for using ITS applications to its benefit, Munnich said. For example, the technology could be used to integrate supply chains, aid information distribution, build stronger relationships, and ultimately help hold the regional economy together. It could also help keep smaller firms, such as the suppliers for Polaris and Arctic Cat, more competitive with outside firms.

The wood products cluster could benefit from ITS use as well, though perhaps to a lesser extent. Although the industry faces a threat from imports, has not readily adopted new technologies, and possesses only a marginal regional advantage, it could benefit from regional cooperation and ITS applications that stress development of smaller supply chains, for example.

Overall, Munnich found the cluster approach to have been a good framework for analysis. One of the advantages of this approach was that it allowed the needs of the entire cluster to be considered rather than just individual firms, he said. The researchers also found that ITS technologies could be used to enhance rural agglomeration economies in various industry clusters. Adoption of ITS technologies could foster growth of related and supporting firms, thus strengthening the relationships among firms in a rural industry cluster, Munnich said.

Several areas remain to be explored. Munnich would like to identify the industries at the regional level for which industrial ITS technology is a key success factor, identify the conditions for making ITS solutions available to these industries, and determine the roles of the ITS industry, the ITS "user industries," government, and other intermediaries in ITS implementation in a rural economy, he said.

The next step for the research involves taking a broader look at the state in terms of what ITS is doing or could be doing for industry in Minnesota. The researchers plan to develop tools for identifying key industries for which industrial ITS can enhance economic vitality, as well as those industries that are vulnerable and those industries for which ITS-enabled strategies (such as just-in-time inventory, cross-docking, and other channel-based strategies) are a key success factor. As a result, they hope to determine what technologies are needed and identify market barriers to using them.

According to Munnich, the study revealed that the existing transportation network and ITS technologies "are necessary but not sufficient." "The threat is there that we could lose one of these companies or miss an opportunity for the next company," he said. And that, he added, is why understanding these industries and what they need is so important.