clustering – The OM Blog by Heizer, Render, & Munson

OM in the News: Orlando’s Theme Park Cluster

When organizations make location decisions (see Chapter 8), being near competitors (“clustering”) is often seen as a plus. Here in Orlando, the capital of theme parks, we take our cluster very seriously. After all, the parks are the main economic drivers and top employers. Disney’s 5 parks employ some 77,000 “cast members.” Universal Studios parks another 28,000, and SeaWorld has 22,100. Then there is Legoland, Gator Land, and others.

Riders on the Expedition Everest roller coaster at Walt Disney World’s Animal Kingdom park.

When the Universal Epic Universe theme park opens next year, it will add 750 acres populated by Harry Potter, Donkey Kong and dragons to the company’s Central Florida resort, which now includes 3 theme parks: Universal Studios, Islands of Adventure, and Volcano Bay Water Park.

Less than 10 miles down the road is Walt Disney World, the biggest part of Disney’s most important profit engine, and the stuff of dreams for tens of millions of visitors a year. Its 5 parks include: Magic Kingdom, Animal Kingdom, Epcot, Hollywood Studios, and Typhoon Lagoon Water Park.

The competition is intense, writes The Wall Street Journal (April 13-14, 2024). To understand the stakes for both companies, consider this: A common vacation itinerary includes 3-4 days at Disney World and 1-2 days at Universal. If Universal can now persuade families to spend one more day at its parks instead of at Disney, it could nab hundreds of millions of dollars in annual revenue. A family of four visiting Disney World for a 5-day, 4-night stay with Park Hopper tickets, a quick-service dining plan and a room in a moderate-tier hotel would spend upward of $5,000, not counting the cost of souvenirs or add-ons such as the Genie+ line-skipping service. Shortening the Disney leg by even a day would trim hundreds of dollars from their spending at the company’s parks and resorts.

When Walt Disney World opened in 1971, about 5 years after the death of the company’s namesake founder, adult admission cost $3.50. Visitors could roam Magic Kingdom—the only theme park on the property at the time—and take in dozens of free attractions and performances.

Attendance has since snowballed. Universal’s first theme park first opened in 1990. Islands of Adventure now attracts more than 11 million visitors a year, while Universal Studios has about 10.8 million guests. Disney’s Magic Kingdom, which has more than 17 million annual visitors, has long been the world’s most-visited theme park.

Classroom discussion questions:

Why is clustering important in theme parks?
Describe a different cluster, one close to your college or home.

OM in the News: Mexico’s Industrial Hubs and Nearshoring

An industrial park under construction in Monterrey, Mexico

Companies from around the world, writes The Wall Street Journal (Feb, 3. 2023), are moving production and equipment to Mexico as they seek a manufacturing hub closer to the U.S., part of a broader shift in global trade. Some companies are relocating from Asia, while others are investing millions of dollars to raise output of goods that are exported tariff-free to the U.S. (In Table 8.3, we point out that Northern Mexico has become a cluster of electronics firms such as Sony, IBM, HP, Hitachi, and Panasonic).

Now, supply-chain disruptions, prolonged Covid-related shutdowns in China, soaring shipping rates and geopolitical uncertainty caused by Russia’s invasion of Ukraine are fueling the nearshoring trend.

In Tijuana, home to one of the world’s largest export manufacturing hubs for TVs and electronics, industrial parks are almost at full capacity. And in Ciudad Juárez, across the border from El Paso, Texas, recruiters are hiring workers for companies arriving or expanding operations at job fairs. Mexico’s manufacturing-based economy, free-trade pacts including the U.S. Mexico Canada Agreement (see Chapter 2) and proximity to the U.S. are among its attractions for investors. Labor shortages in the U.S. also are playing a role.

Mattel, for example, the maker of Barbie dolls and Mega Bloks, expanded its Monterrey plant into its largest manufacturing facility worldwide with an investment of $47 million between 2020 and 2022. The toy maker more than doubled its workforce to 3,500 at the plant as part of a global supply-chain restructuring to boost output and productivity, with immediate access to the U.S., the world’s largest toy market.

The Mexican government says more than 400 companies currently have shown interest in moving production from Asia to Mexico. But Mexico also has problems of government corruption, rule of law, and public insecurity. These are all a drag on decisions to switch investments to the country. In addition, as demand for industrial space picks up, insufficient electricity infrastructure is limiting the speed at which manufacturers can move into Mexico.

Classroom discussion questions:

Why are companies nearshoring? Why not reshoring?
Why Mexico?

OM in the News: The New Electric Vehicle Hubs

More automakers are bringing EV battery production in-house to secure a stable supply of batteries as demand for vehicles outpaces the manufacturing of them, reports Supply Chain Dive (Oct.18, 2022)

LG Energy Solution created a joint venture with Stellantis to construct a large-scale battery plant in Ontario, Canada — the country’s largest automotive cluster. The companies said they expect the plant will spur a “strong battery supply chain in the region.”

Honda will invest billions of dollars to manufacturer EV batteries in Ohio and retool the Marysville plant for EV production.

Now, Honda is following a similar script in Ohio. In addition to the joint venture with LG Energy Solution, the automaker announced it will invest $700 million to retool three Ohio plants.

“These Honda facilities, along with the new EV battery plant, will serve as a new EV hub in Ohio,” the company said. “Honda’s EV hub will leverage the company’s longstanding production, product development and purchasing operations located in Central Ohio.”

The actions come as the automaker aims to begin EV production and sales in North America by 2026, and make battery-electric and fuel cell EVs represent 100% of its vehicle sales in North America by 2040. EV batteries manufactured at the joint venture plant will be combined with battery cases produced at Honda’s Anna Engine Plant and installed in EVs built at two other Ohio plants, after they are revamped for EV production.

Ford has begun construction on an EV “mega campus,” bringing suppliers, a battery plant and assembly line to one location to exert greater control over its supply chain. General Motors has taken a similar approach, with two of its joint venture battery plants located in Ohio and Michigan near neighboring facilities. Automakers’ U.S. investments come on the heels of federal incentives encouraging domestic production of electric vehicles.

Classroom discussion questions:

What are clusters and hubs and why are they important? Provide examples from other industries.
What drives the battery production?

OM in the News: What Texas Wants for Christmas

The answer: More California companies to relocate to what Texas claims is the more business-friendly state. Oracle and HP are the latest big corporations to announce moves to the Lone Star State. Elon Musk, the CEO of Tesla, is also moving to Texas, and the electric car company is expanding there.

The announcements have highlighted the vastly different tax and regulatory systems in the country’s two most populous states, writes The Wall Street Journal (Dec. 17, 2020). California relies more on taxing personal income, particularly of high-income households, and operates a growing regulatory structure. Texas leans on more regressive property and sales taxes and boasts a more laissez-faire environment. The biggest difference: High-paid executives who move can see their state income-tax bills go from 13.3% to nothing.

Austin houses the powerful attraction of the U. of Texas

Moves by high-profile companies to Texas from California are not only likely to improve the personal finances of executives, but also offer employees more affordable housing and lighten regulatory burdens. For companies, much of the difference between California and Texas boils down to ease and cost of hiring—not just now but down the road. Companies have grown frustrated with the cost of attracting and keeping employees, as living expenses soar in California, and as regulatory mandates expand. “The compounding effects of California’s economic and political environment is making it more difficult to run a business effectively,” said one industry expert.

The Tax Foundation puts Texas 11th in its ranking of state business-tax climates, with California 49th. The biggest factor—outweighing any change in business taxes—is likely to be the lower cost of employing workers in the state. For most employees, that calculation is about housing costs.

Classroom discussion questions:
1. What other factors mentioned in Ch.8 (Location Strategies) affect location decisions?

2. How is “clustering” an advantage to both of these states?

OM in the News: The Growing Cluster of High-Tech Talent

Seattle is one of 5 metro areas that have attracted the lion’s share of the nation’s tech talent

The forces that are driving the nation’s top technology talent to just a handful of cities have intensified in recent years, leaving much of the nation behind as the U.S. becomes a more digital economy, reports The Wall Street Journal (Dec. 13, 2019). Just five metropolitan areas—Boston; San Diego; San Francisco; Seattle; and San Jose—accounted for 90% of all U.S. high-tech job growth between 2005 to 2017.

The nation’s 377 other metro areas accounted for 10% of the 256,063 jobs created during that period in 13 high-tech industries such as software publishing, pharmaceutical manufacturing and semiconductor production. Among the smaller cities that gained tech jobs were Madison, Wis.; Albany, N.Y.; Provo, Utah; and Pittsburgh. The result is increased concentration of high-tech resources in just a few places and a strengthening of economic forces that are dividing the nation.

Tech industries find they are most productive when they have resources clustered in few places, a topic discussed in Chapter 8 of your Heizer/Render/Munson OM text. Such clustering allows for the fast spread of new ideas and a concentrated talent pool from which businesses recruit. But the concept runs counter to the idea that technology might allow people to work from anywhere, even in remote places.

The trend is creating problems for the cities that have these concentrations of workers and for those places that don’t. San Francisco and Boston are becoming increasingly unaffordable as home prices soar, while cities outside of these high-tech hubs are missing out on the dynamism that technology creates. “The superstar places are becoming extremely expensive, choked with traffic and struggling with big social costs like inequality gone wild and homelessness,” said a researcher studying the issue.

Some big cities were left behind. Combined, the Washington, D.C. area; Dallas; Philadelphia; Chicago; and L.A. lost more than 45,000 high-tech jobs between 2005 and 2017. Many small cities across the heartland also lost tech jobs.

Classroom discussion questions:

What are some other clusters besides tech talent?
What does it take to create a tech cluster?

OM in the News: China’s Underwear Cluster

In the Chinese town of Gurao, known as the “Town of Underwear,” there are thousands of factories, which churn out 350 million bras and 430 million pairs of underwear a year for sale in China and abroad. Underwear accounts for 80% of Gurao’s industrial output. During the past 30 years of rapid economic growth, one-industry towns like Gurao sprang up along China’s seaboard, often in what were once paddyfields. With investment from abroad, and a huge influx of migrant labor from China’s interior, they fueled the country’s export boom. There are now more than 500 such towns, making products such as buttons, ties, plastic shoes, car tires, toys, Christmas decorations and toilets (see map).

“The clustering of similar firms in the same place creates a critical mass of good suppliers and workers with relevant skills,” reports The Economist (April 16, 2016). Niche towns in China produce 63% of the world’s shoes, 70% of its eye glasses and 90% of its lamps.

China’s consumer goods grabbed a huge share of global markets thanks to their low prices. But that advantage is fading. Since 2001 wages have risen by 12% a year. Thailand and Vietnam, where labor is cheaper and taxes lower, now make lingerie for global brands such as Victoria’s Secret and La Senza. China’s biggest underwear firm, Regina Miracle, will open 2 factories in Vietnam this year, its first outside China, and 2 more there by 2018. Cambodia and Myanmar are also joining the underwear fray.

Gurao still has advantages, such as excellent supply chains. Factories there make components for underwear: elastic waistbands, dyed textiles, lace and the foam used to upholster bras are all produced locally.

Classroom discussion questions:

What are the advantages of clustering?
Name several industry clusters in the U.S.

OM in the News: How 3-D Printing is Saving the Italian Artisan

A worker in Italy polishes a lampshade created by a 3D printer.

Northeast Italy’s industrial heartland stretches roughly from Milan to Venice. In the 1960s, farmers in the region began setting up small family-owned businesses, each specializing in just one small part of a finished product. Within a generation, many of these companies became world leaders in their respective fields, and small Italian cities thrived as manufacturing hubs. The town of Montebelluna once produced 3/4 of the world’s ski boots. About 70% of Europe’s chairs were designed and manufactured by 1,200 small outfits near Manzano.

But the region has fallen on hard times. Italy’s craftsmen have been undermined by competition from China–and the industrial sector has shed about 135,000 jobs—17% of its total workforce. A few years ago, in an effort to diversify offerings, one firm teamed up with an artist to create manufacture-to-order lamp shades and jewelry on 3D printers. The pieces take shape slowly, each layer fused from powdered nylon by a high-power laser. The project was a surprising success, building products that no one had earlier envisioned.

Techniques such as the 3D printing have helped turn northeastern Italy into an unlikely hothouse of innovation, writes BusinessWeek (May 5, 2015). Last year growth in the region was positive for the first time since 2007. A trade school in Trento for 14-18 year olds, specializing in fashion design and tailoring, recently added a class in which students incorporate 3D printing, laser cutting, and microcontroller chips into their designs. “You have to offer the jobs of the future,” says the administrator.

The use of 3D printing and other similar technologies is expected to boost revenue at Italy’s small-scale manufacturers by 15% and allow companies to compete with multinationals, like YouTube videos hold their own against traditional video production. The advent of rapid prototyping and other innovations means “you can compensate for your disadvantages with variety, customization, and a rapid response to what the market is demanding,” says an Italian business professor. “If something doesn’t work, you simply stop producing. You haven’t filled a warehouse.”

Classroom discussion questions:

1. Name several other clusters and their products.

2. What are the advantages of 3-D printing in this Italian industry?

OM in the News: Move Over, Silicon Valley

In Chapter 8, Location Analysis, we discuss the interesting topic of clustering (see Table 8.3). Clustering is basically locating near competitors so as to take advantage of major resources found in that area. The perfect example is how software and high-tech firms head to Silicon Valley, Boston’s Route 123, and Bangalore (India). Our colleague, David Greenberg, just emailed from India that Tel Aviv belongs near the top of the list and sent the adjacent graphic. He adds: “Aside from Israel as No 2, what I found interesting is that Waterloo, Ontario is on the list. There’s an implication here that a single successful startup (Blackberry, Microsoft) is enough to build a cluster (Waterloo, Seattle)”.

Like the U.S., Israel puts entrepreneurs, successful or not, on pedestals, which allows them to attract the best minds to work with. Some Israeli high-tech innovations: voice mail (1984), multislice CD scanners and cardiac stents (1992), ICQ instant messaging and VoIP “voice over internet” (1995), USB flash drives and computer vision software for road navigation (1999), the pillcam (2001), and Intel mobile technology (2003). More than 90 Israeli firms are listed on NASDAQ–2nd only to the U.S.

Classroom discussion questions:
1. What ecosystem is needed for success in high-tech?

2. Name several other clusters that are not high-tech.

OM in the News: Clustering Technology and the Danish Pig

hogs Every weekday 20,000 pigs are delivered to the Danish Crown company’s slaughterhouse in central Denmark, writes The Economist (Jan.4, 2014). They trot into the stunning room, guided by workers armed with giant fly swats. They are hung upside down, divided in two, shaved of their bristles and scalded clean. A machine cuts them into pieces, which are then cooled, boned and packed.

The slaughterhouse is enormous, ten football fields long with 7 miles of conveyor belts. Its managers attend to the tiniest detail. The fly-swatting workers wear green rather than white because this puts the pigs in a better mood. The cutting machine photographs a carcass before adjusting its blades to its exact contours. The company calibrates not only how to carve the flesh, but also where the various parts will fetch the highest prices.

Denmark is a tiny country, with 5.6 million people and wallet-draining labor costs. But it is an agricultural giant, home to 30 million pigs and numerous global brands. In 2011, farm products made up 20% of its goods exports. The value of food exports grew from $5.5 billion in 2001 to $22 billion in 2011. The government expects it to rise by a further $9 billion by 2020.

Why, in a post-industrial economy, is the food industry still thriving? Much of the answer lies in a cluster in the central region of the country. The cluster includes several big companies, which act as its leading investors: Danish Crown, Arla, Rose Poultry and DuPont Danisco. Plenty of smaller firms are also sprouting, which act as indicators of nascent trends and incubators of new ideas. Interestingly, among the Danish public, distaste for “factory farming” is increasing. Borgen, a popular television political drama, devoted an entire episode to criticizing pig farming.

Classroom discussion questions:

1. Why is clustering so important (see Chapter 8)?

2. How is technology impacting the food processing industry?

OM in the News: When Detroit Was a Cluster

VW's plant in Chattanooga TN — VW’s plant in Chattanooga TN

Clustering is an interesting topic when you are covering location decisions in Chapter 8. Indeed, here in Orlando, over 70,000 people are employed in the theme park cluster that includes Disney, Universal, Legoland, Sea World, Gatorland, and more. This week, Universal Studios announced record profits after sinking a quarter billion dollars into the Harry Potter exhibit–and is adding yet another 1,800 room hotel to its site. The Wall Street Journal (July 31, 2013) adds to the discussion with an article titled “Detroit Was a Cluster”.

“Clusters,” writes The Journal, “offer powerful advantages such as labor market pooling. But these potent synergies can be lost when special technological competence becomes outmoded.” With lean manufacturing, clustering has become more important in the auto industry, with suppliers required to be between one hour and one day’s drive of factories. A new cluster has formed, known as the “auto corridor” between I-75 and I-65, which still includes the upper Midwest but has pulled the industry’s center of gravity steadily south.

The reason is well known: The Japanese, Germans and Koreans located their plants in the South to avoid the United Auto Workers. Honda was the bellwether when in 1980 it picked Marysville, Ohio for its first plant. Honda was expected to be required to employ the UAW, but picked a site in rural Ohio with little union presence. The firm soon concluded that its production system would be impossible with union workers, and that a UAW workforce could be avoided without undue political consequence.

Even a decade ago, more than half of all auto production jobs were still in Ohio, Indiana and Michigan. Now it’s below 44%. Kentucky alone today claims 440 auto manufacturing-related businesses! The transplants made little secret of their motivation in passing up the substantial benefits of the then-cluster around Detroit. Every Toyota factory in the U.S. is non-union and all but one is in the South. Ditto Nissan, Mercedes, Hyundai, BMW and Kia.

Discussion questions:

1. What is a “right-to-work” state?

2. Why are so many auto suppliers and plants clustering in Kentucky?

OM in the News: China’s New Magacities and Industry Clustering

The subject of industry “clustering,” discussed in Chapter 8, Location Analysis, comes up in Businessweek’s article (Sept. 30-Oct. 6, 2012) about China’s new megacities and the specialties driving their economies. For example, almost unknown outside China, Changsha (population 3.1 million) is one of the second-tier cities emerging as engines of China’s next wave of growth. McKinsey projects that by 2025, 13 of the world’s 25 fastest-growing cities will be in mainland China, and that by 2025, that country’s top 225 cities will be responsible for 30% of global economic growth.

Last year, Changsha’s economy grew nearly twice the national rate and will continue the pace in coming years. Changsha has boosted its economy in part by turning itself into a TV filming center. Its Hunan TV is responsible for launching the wildly popular American Idol-like audition shows Chao Ji Nu Sheng (Super Girl) and Kuai Le Nan Sheng (Super Boy). Changsha is not just an entertainment center cluster, it’s also home to major construction-equipment makers like Zoomlion and Sany, which have benefited from the national building boom and are selling their excavators and truck cranes to India, Brazil, and Africa.

Just as Changsha has become an entertainment hub, many other second-tier cities are also thriving because they specialize. Chengdu is a high-tech manufacturing center: Intel recently moved its assembly and testing facility there from Shanghai, while Dell and Texas Instruments also have operations in the city. Wuxi, home of Suntech, is a leader of Chinese solar panel manufacturing; Xi’an, historically a base of the military-industrial complex, is a main center in the country’s efforts to develop an aerospace industry. The northeastern city of Shenyang has become an industrial center thanks to assembly plants operated by BMW, Boeing and other foreign investors.

Discussion questions:

1. Like China, Italy has many industry cluster cities. Name some of them and their specialities.

2. What are the OM advantages to clustering?

Good OM Reading: The Power of Logistics Clusters

Everyone understands the concept of industrial clusters that have developed around the world: Silicon Valley (for information technology), Hollywood (for entertainment), and Boston (for life sciences). Strong clusters are ecosystems of venture capital resources, universities, research centers, employers, highly skilled workers and institutions for collaborations.

The MIT Sloan Management Review (Fall, 2012), however, introduces the concept of logistics clusters— local networks of businesses that provide a wide array of logistics services, including transportation carriers, warehousing companies, freight forwarders and third-party logistics service providers. They also include the distribution operations of retailers, manufacturers and distributors. These clusters attract companies for whom logistics is a critical element of their service offering or a large part of their overall costs.

Logistics clusters are located strategically to enable efficient transportation and delivery services to large populations. They are positioned in mode-changing locations such as busy seaports (Rotterdam, Shanghai, Los Angeles), airport hubs (Hong Kong, Seoul, Memphis) and major intermodal yards where freight shipments transfer from railcars to trucks (such as Chicago, Dallas and Kansas City). Some of the world’s largest logistics hubs, including Singapore, São Paulo and Memphis, bring together multiple elements at once. The economics of transportation means that cargo has to travel long distances in bulk, while demand from retailers and JIT manufacturers means that final distribution must be handled locally in small quantities in response to the ups and downs of customer demand.

The Sloan article notes 3 major advantages of logistics clusters:

1. Value additions. For example, UPS repairs Toshiba laptops at its facility in Louisville, next to the UPS Worldport air hub, reducing service turnaround times from 2 weeks to 4 days.

2. Facilitating returns. Miami’s Neptune Lines specializes in refurbishing secondhand pieces of heavy equipment for Caterpillar and Komatsu. It handles about 5,000 pieces of equipment per year.

3. Attracting other industries and jobs. Indianapolis has some 1,500 logistics and related services companies, including distribution centers for Amazon.com, Hewlett-Packard, and CVS Caremark.

This is a nice article to ask your students to read before you discuss the topic of logistics in Chapter 11.

OM in the News: The High-Tech Clusters– Silicon Valley, Boston, Bangalore, and Israel

In our discussion of how companies select a site in which to locate (in Chapter 8), we bring up clustering, which is basically locating near competitors so as to take advantage of major resources found in that area. The perfect example is how software and high-tech firms head to Silicon Valley, Boston’s Route 123, and Bangalore (India). Here the talents of bright graduates in scientific and technical areas and plenty of venture capital are keys to success. Today’s Wall Street Journal (Sept.10, 2012, pp. C5-C8) compellingly adds Israel to this list. Israel’s Minister of Finance ascribes much of its success to “government support of the robust venture capital industry, which is the accelerating spirit behind many start-up companies.”

Indeed the World Economic Forum’s Global Competitive Index just ranked Israel’s “availability of venture capital” 2nd in the world, “world-class capacity for innovation” 6th, and “high number of patents” 4th in world rank. The IMD World Competitiveness Yearbook lists Israel 1st for R&D expenditure (as % of GDP), 2nd for qualified engineers, 2nd for IT skills, 2nd for scientific research, 2nd for entrepreneurship, and 2nd for innovative capacity. The society, like the U.S., “puts entrepreneurs, successful or not, on pedestals, which allows them to attract the best minds to work with,” says one professor in Jerusalem. Included among the active sectors for innovators have been cleantech, agrotech, life sciences, communications technology, and security.

Here is the list of just some Israeli innovations: drip irrigation (1965), the Rummikub game (1977), voice mail (1984), multislice CD scanners and cardiac stents (1992), ICQ instant messaging, voice over internet VoIP), and the MS drug copaxone (all in 1995), USB flash drives and computer vision software for road navigation (1999), the pillcam (2001), and Intel mobile technology (2003). It follows that more than 50 Israeli firms are listed on NASDAQ–2nd only to the U.S.

Discussion questions:

1. Why do some countries have a much higher percent of scientists and engineers than other nations?

2. How does OM play a role in startup companies?

OM in the News: Clustering Shows That Location Matters

In Chapter 8 we discuss why companies want to locate near competitors and describe 9 industry sectors that do so– from fast food to wine making to software firms (see Table 8.3). The Wall Street Journal (Aug.22,2011) has just run a major article on this very topic, with the opening line: “Location matters”. The Journal points out that as a cluster grows, it brings benefits to all firms, including challenges to each other to innovate. “Specialization in a region increases patents, business formation and higher wages”, says one Harvard prof.

Here are 6 cities, according to the Journal, that are thriving as hubs for specific industries:

1. Indianapolis –Life Sciences. The former rust-belt city is in the center of a statewide life sciences boom, home to 825 medical device companies, drug manufacturers and research labs. Eli Lilly and Well-Point lead the way, with $60 million in seed money to new startups.

2. San Antonio–Cybersecurity. There are over 80 IT and cyber-related businesses, in part because of abundant grads from UTSA’s Institute for Cyber Security.

3. Albany, NY–Nanotechnology. The state capital boasts 4,000 workers in the industry, thanks to funding from IBM and the presence of the U. of Albany’s College of Nanoscale Science.

4. Kansas City–Information Technology. Called the “Silicone Prairie”, the town is home to Sprint Nextel, Cerner, and to 2,900 more tech firms. Part of the lure is Google’s rollout of a high-speed fiber network, 100 times faster than current broadband. iCode’s founder calls the Google initiative “an excellent platform for innovation”.

5. Nashville, Health Care. With more than 250 health care companies in the city, there is a fertile ground for companies that make medical devices and patient care systems. “The entrepreneurial spirit is infectious”, says the IMI Health CEO.

6. Ogden,Utah–Outdoor Sports. The small town, 40 miles north of Salt Lake City, packs a concentrated punch in the outdoor and recreation industry. It offers a perfect spot to test new products and has a nearby airport with direct flights to Europe.

Discussion questions:

1. Why does clustering work?

2. Name some regions that used to be clusters and are no more.

OM in the News: Industry Clustering and the New Economy

We bring up the subject of “clustering” in Ch.8, Location Strategies, and illustrate how various regions/nations have become homes to major resources such as machine tools (Busto Arsizio, Italy), software (Silicon Valley), theme parks (Orlando), or wine making (Napa Valley/Bordeaux area of France). As a nice supplement for class discussion, USA Today (June 7,2011) has 2 articles on the very topic. The paper points out that hubs grouping manufacturers, suppliers, training programs, and researchers in the same region aren’t new. But with the loss of 8.7 million jobs in the recession, governments are now trying to speed the growth of nascent clusters to create new jobs. Emerging industry centers, encouraged by government incentives, include electric car batteries in Michigan, clean energy in Colorado, and robotics in Pittsburgh.

The 1st USA article reports that Ohio has a $2.3 billion program to nurture new tech-based businesses. The story details Cleveland’s biomedical startups and its success in more than doubling the number of biomed firms in the past decade, to 600. The Cleveland Clinic and Case Western U. were among the draws for firms like the Israeli-based Simbionix, which makes computers that simulate surgery for med students.

The 2nd article describes how Portland, Oregon has emerged as the #1 cluster for athletic footwear and outdoor clothing. Nike, of course, is the draw (founded in the 1960’s by Phil Knight). Its managers spun off a slew of new ventures and the cluster now boasts over 300 companies, employing 12,000 workers. The deep talent pool and outdoorsman culture have brought others, such as apparel maker Icebreaker.

Colorado, meanwhile, has a renewable energy cluster of 1,600 companies that employ 20,000. The hub is anchored by the National Renewable Energy Laboratory, which lures scientists and companies like Vestas. Vestas is the wind turbine giant with 4 plants in the state, drawing 10 parts suppliers to follow it to Colorado.

Discussion questions:

1. Why is clustering an important topic in Location Analysis?

2. Ask students to name other clusters and the reasons why they have come into being.