Creating Cyber Places

Designing Telecommunications Infrastructure to Revitalize Regional Economies:
A presentation before the State of New York Task Force on Telecommunications

by June Holley
October 16, 2002

The Appalachian Center for Economic Networks (ACEnet) is an innovative economic development organization located in southeastern Ohio. Currently, ACEnet is implementing several projects designed to revitalize the regional economy, all involving flexible manufacturing networks (FMNs). FMNs bring together groups of small firms to collaboratively manufacture items for custom or niche markets that they couldn't produce by themselves.

The European Model

The design of a telecommunications infrastructure that will support and link small manufacturers is a key strategy for economic revitalization. Such an effort needs to begin with an understanding of the dynamic changes occurring in the world economy. This paper describes communities where small manufacturers have flourished by responding creatively to these changes, and then outlines a strategy in which telecommunications is used to help firms in the U.S. replicate those successes.

In parts of Europe and Japan, certain regional economies Æ characterized by a strong small manufacturing firm presence Æ have generated thousands of new jobs and businesses and have substantially increased the standard of living through the formation of FMNs. For example, in the city of Modena in northern Italy, the number of firms increased from 4,000 in 1950 to 24,000 in 1985. The region of Emilia-Romagna, in which Modena is located, moved from 17th to 2nd in per capita income in Italy between the years of 1970 to 1985, and now has one of the highest standards of living in Europe.

This dramatic revitalization is linked to a whole range of innovative relationships which small manufacturing firms have created within their organizations, with other firms, with other institutions and with government. In virtually all of these regions, small firms gain significant degrees of flexibility and are able to respond to high-value niche markets through their ability to quickly form networks, alliances or partnerships. In addition, other community groups and the government are also drawn into the network.

For example, in northern Italy trade associations and regional governments have worked together to create and administer a number of specialized service centers that support particular sectors or meet FMN needs. North Jutland Amt, the county on the northern tip of Denmark, implemented a broad spectrum of initiatives in order to see what would be most effective. This program was jointly designed by the county industrial council, municipal and other development officers, technology information centers, trade unions and associations, vocational schools and the local university.

Some government programs make collaboration a condition for eligibility. In February of 1989, the Danish Minister of Industry and Trade allocated $25 million in grant funds to support network based activities among small and medium sized firms. Less than eighteen months later, more than 3,000 of Denmark's 7,300 industrial firms were participating in manufacturing networks.

. Unfortunately, the blossoming of highly productive forms of networking among small manufacturing firms in Europe and Japan is not occurring with equal intensity in the United States. As Robert Howard points out in the Harvard Business Review:

The relative lack in the United States of small-business networks and the infrastructure to support them goes a long way toward explaining why, with a few exceptions, the small-manufacturing sector in the United States lags behind that of other major industrial nations. Ironically, while many in the United States have been celebrating small business, other countries Æ in particular, Japan and West Germany Æ have been using public policy to make small manufacturing a powerful asset of international competition.

Transforming U.S. Economies:
Change in Five Dimensions

Why have these changes not taken place in the U.S.? Robert Reich lists inadequate communications infrastructure and technological transfer as two of four barriers impeding the transformation of U.S. industry to a more flexible, market-responsive system based on small batch production for market niches. The use of telecommunications and supportive telecommunications policy development can play a key leveraging role in transforming small manufacturers. However, it is essential to understand that a supportive telecommunication policy will not simply add the latest telecommunications technologies to individual firms. To gain the dramatic economic benefits that are seen in Europe, telecommunications policy will have to be part of a fundamental transformation of the nature of small-scale manufacturing.

This transformation takes place in at least five dimensions. The relationships

* between firms and the market,
* inside firms, s among firms,
* with the wider economic community, and
* with local, state and the federal government all need to change.

First, firms must change their relationship with the market. Firms need to learn how to benefit from the opportunities presented by emerging markets before they can adequately assess their telecommunications needs or use the technology well. As mass markets continue to divide and subdivide into increasingly specialized niches, firms need to look for emerging areas of human need and produce products which meet those needs. For example, in our project, eight firms work together to produce motorized, adjustable kitchen cabinets for people with disabilities and elders. Access to online services which provide market trend information and to computer services that facilitate ongoing online dialogues between sets of small firms in a community and final markets around the world are two examples of how telecommunications can enable firms to identify and meet emerging needs quickly and profitably.

Second, firms must change internally. There needs to be a radical transformation of the way workers work with each other, interact with employers, and engage with machines and other technologies. These internal changes will make it possible for the firms to respond quickly to new markets and other opportunities. Telecommunications systems paired with groupware can make it possible for employee work groups to make better decisions faster, and to share the results of that decision making with distant partners.

Third, the relationships among firms must change as they begin to collaborate in order to compete. In the ACEnet flexible manufacturing network project a woodworking firm, a machine shop, an electronics company, an assembly firm and an installer collaborate to manufacture the adjustable kitchen cabinets. Some of these firms are geographically remote from one another.

Telecommunications applications can assist collaborating firms to coordinate their production and to carry out other joint projects such as joint marketing or scheduling shared facilities.

Fourth, the transformation within the firms needs to be a co-evolutionary process, transforming the economic development community as well. The connection between the small manufacturing firms and other community institutions (including telecommunications providers, other utilities, the educational system, bankers, economic development organizations, community groups, and business service providers) must be reformulated by their participation in joint projects to meet the needs of the firms. For example, ACEnet is organizing a project where groups of firms, a technical school, and local telephone companies are working together to establish the infrastructure so that the firms can easily coordinate joint production through a virtual LAN. Telecommunications can be a powerful tool to accelerate the rate of learning that occurs through these joint action projects.

When a problem or need of groups of small manufacturers is identified, key economic development organizations are brought together with firms to design a new program or service targeted directly to meet that need. The result is the rapid modernization of small firms engaged in a continual improvement process. The stakeholders not only design and implement new programs and services, but also evaluate, reflect upon, and revise their efforts to accommodate their own learning and rapid change. In this paradigm, the term continuous improvement is not simply applicable to production processes or customer satisfaction, but can describe the learning processes of entire firms, industries, organizations, governments and the telecommunications industry. Using computerized forums for area-wide discussions, this learning can spread rapidly among all those involved.

Fifth, as all of these relationships are in the process of transformation, the relationship between the firms, the economic development community, and government must also change. As the firms and their institutional partners learn and change, government needs to be ready to support their efforts by learning and changing itself. Programs of the state and federal government need to be ready to incorporate the learning occurring at the local level in their own program planning. The key to this entire process of design is that programs are set up with change and improvement in mind. Furthermore, state governments can play a proactive role in the whole process, modeled on the European system of flexible government support for networked firms and their community collaborators.

Transforming U.S. Economies:
A Policy Recommendation

We recommend that state governments interested in creating economically healthy communities begin by developing a transformative telecommunications infrastructure . The first step in this process is to initiate several sub-state experiments to explore how telecommunications can support a set of small manufacturing firms, and then use these experiments to create a broader telecommunications policy for the state. These experiments will not be ñstand aloneî telecommunications initiatives, but comprehensive economic development strategies with telecommunications systems development as a major component.

Governments interested in jump-starting such a process of change should select a small number of sub-state regions (cities, clusters of neighborhoods or counties) to begin the process of design, experimentation, learning and continual improvement. Here the most innovative small firms from a variety of industries and the economic development community, including both large and small telecommunications service providers, will work jointly to revitalize manufacturing in the area.

Because this is a complex ongoing process, the second key step is to determine who will facilitate the process over time. Each successful substate region needs a facilitating intermediary, most often a non-profit involved in economic development activities, who guides the stakeholders through the simultaneously occurring process of experimentation and learning. The combination of a tight focus on just a few projects and the presence of a facilitating intermediary will insure the degree of success for natural dissemination throughout the state and the region.

We now work with two other facilitating organizations located in West Virginia and Kentucky. The three projects focus on very different market niches (products for people with disabilities, furniture for European export, and ñgreenî clothing), and are at different levels of development, yet we are working together on regional telecommunications issues affecting the coordination of joint production.

Government's ultimate role is to carry the success stories, the less-than-success stories, and the lessons learned to other communities. Through this strategy, the problem of technology diffusion in the area of telecommunications will solve itself as new forms of business give rise to new technologies and ever expanding markets across the state.

June Holley is co-director of the Appalachian Center for Economic Networks (ACEnet), 94 North Columbus Road, Athens, OH 45701; telephone (614) 592-3854, fax (614) 593-5451; email: jholley@tmn.com