High-tech activities cluster and clustering spurs competitiveness.  That is the message of a rapidly growing body of research showing that the geographic co-location of businesses, universities, colleges and labs often yields powerful clusters of technology-related activity that continue to expand through initial market leadership and economies of scale.  Well-known examples are information technology and biotechnology California's Silicon Valley and Boston's Route 128, software and aircraft in Seattle, and electronics and pharmaceuticals in North Carolina's Research Triangle.  Such clusters have contributed to substantial increases in their regions' prosperity while also supplying the innovations that drive national economic growth.

This study constitutes a systematic location analysis of the technology assets of Appalachia.  Specifically, the report identifies and documents sub-regional concentrations of technology-related employment, R&D, and applied innovation within and immediately adjacent to the 406-county service area of the Appalachian Regional Commission.  By assembling and analyzing an extensive set of data at high levels of functional and spatial detail, the study reveals localized technology strengths that might be nurtured through focused economic development policy.

The study found 100 technology clusters–joint spatial concentrations of high-tech employment and innovative activity–within and adjacent to the ARC region.  The clusters vary significantly in size, depth, and overall competitive strength.  They span eight general technology areas: chemicals and plastics; motor vehicles and related; industrial machinery; information technology and instruments; aerospace; communications services and software; and pharmaceuticals and medical technologies.  Chemicals and plastics, industrial machinery, and motor vehicles and related account for a majority of the technology clusters.  Some of the detailed findings in the report include:

• Overall, Appalachia's technology sector is comparatively small but expanding.  There were roughly 1.07 million workers employed in the region's high-tech industries in 1998, up from 959,000 in 1989, an increase of 11.2 percent.  The rate of net technology employment growth between 1989 and 1998 was about two-thirds of the overall private sector growth rate.  Most of the high tech gains occurred in sectors classified as "moderately technology-intensive," such as chemicals, electronic components, transportation equipment, instruments, and hospitals and health-related labs.
• In terms of a diversity of high-tech industry employment, there are five leading metropolitan areas in Appalachia: Binghamton, Greenville-Spartanburg, Huntsville, Johnson City, and Pittsburgh.  We found evidence of high-tech concentrations in four or more high-tech sectors in at least parts of each of those cities (seven and six in the cases of Huntsville and Greenville-Spartanburg, respectively).  A second group of cities that are also home to multiple sectoral concentrations include Asheville, Decatur, Erie, Knoxville, and State College, PA.
• Spatial employment concentrations in industrial machinery, chemicals/plastics, and motor vehicles tend to be larger in geographic extent (comprised of larger multi-county areas) than the other technology areas.  That is, their presence (or sometimes extension into) rural counties is more extensive than sectors such as information technology, communication services, and software.
• Within the ARC region proper, there is clearly an orientation of high-tech activity to the northern and southern thirds of the region, with activity in the central region very sparse in several key technology areas.  Chemicals and plastics industries exhibit the strongest presence in the central third of the ARC area, whether measured by value chain employment or occupational employment.
• Appalachian metro areas have a significantly lower complement of scientists, engineers, and related technicians than the U.S. as a whole.  Scientists and engineers are somewhat better represented in the MSA's that line the region's borders.  Washington, DC accounts for a significant share of the total scientists and engineers employed in the 62 metro areas included in the study.  Excluding the Washington, DC MSA finds the southern third of the extended region the most "science and engineering-intensive" based on occupational employment indicators.
• Based on national ratings of faculty quality, there are six major nodes of highest competitive research strength in the universities in Appalachia (either within or adjacent to the ARC region):  Cornell (Ithaca, NY), Carnegie-Mellon (Pittsburgh, PA), Georgia Tech and Emory University (Atlanta, GA), Penn State (State College, PA), and Virginia Tech (Blacksburg, VA).
• While faculty quality rankings indicate that the greatest competitive strengths among Appalachian research universities as a group are oriented toward the physical sciences and engineering rather than the biological and medical sciences, national R&D funding rankings suggests some Appalachian universities are actually very strong in the life sciences disciplines.
• A number of Appalachian universities boast research programs that are rising steadily in the national rankings (based on R&D funding and graduate student enrollments).  The majority of such "emergent programs" are at Carnegie-Mellon, Georgia Tech, Ohio, Penn State, the University of Kentucky, Virginia Tech, West Virginia University, and Mississippi State.
• Small Business Innovation Research (SBIR), Small Business Technology Transfer (STTR), and Advanced Technology Program (ATP) award winners tend to be concentrated in a relatively small number of places, namely Huntsville, Blacksburg, Pittsburgh, State College, and Ithaca, with smaller concentrations in Birmingham and Knoxville/Oak Ridge.  The nature of the SBIR/STTR/ATP programs tends to favor locations nearby universities or labs.
• Industrial machinery is easily the most common technology focus among the some 220 SBIR/STTR/ATP awards in fiscal year 2000.  That may simply reflect the dominance of the region's traditional industry sectors (textiles, apparel, furniture, and metals).
• There are a great many state-funded technology assistance, transfer, and modernization programs and agencies in the ARC region.  Comparatively few, however, are focused on technology areas that are projected to drive significant growth in the next decade: information technology and biotechnology.
• Somewhat surprisingly given the region's industry mix, Appalachian four-year universities and colleges grant proportionately fewer degrees in industrial engineering and related sciences than their counterparts elsewhere in the U.S.  Indeed, based on degree completions in 1997/98, Appalachian universities and colleges grant proportionately more degrees in basic medical science, environmental engineering and controls, mathematics, materials engineering and science, and biochemistry and biomedical engineering than national averages would predict.
• The share of annual degrees awarded in the computer and communications sciences by two-year colleges and institutes in Appalachia is substantially below the national average.  That may reflect the comparatively limited job opportunities in IT-related industries in the region (a problem of labor demand) or an inadequate training network for an emerging industry (a problem of labor supply).
• Two- and four-year higher education institutions with an emphasis in technology-related areas are comparatively few in central Appalachia (namely Tennessee, Kentucky, and much of West Virginia).
• The spatial distribution of the 100 technology clusters in Appalachia is highly uneven.  Nearly half (45 in total) are located in the northern third of the region (New York, Pennsylvania, and northern Ohio).  Only nineteen clusters were identified for central Appalachia (an area that includes southern Ohio, West Virginia, Virginia, and Kentucky), with Cincinnati and Washington, DC accounting for nine of those nineteen.  In the southern third of the region, Atlanta, Greenville-Spartanburg, and Huntsville account for sixteen of 29 clusters identified.
• The uneven geography of the clusters in the region varies substantially by technology area.  The chemicals/plastics and information technology/instruments clusters are relatively evenly distributed amongst the northern, central, and southern thirds of the region.  Industrial machinery, on the other hand, is nearly exclusively a northern and southern strength.
• Just over half of the technology clusters in the region are located on the periphery and are anchored in core metropolitan centers outside the region (such as Cincinnati, Atlanta, and Washington, DC).  That means that the ARC region's current high-tech prospects are heavily dependent on spillover (or "spread") effects from neighboring cities and metropolitan areas.  Unfortunately, those spillover effects are neither certain nor necessarily positive.

The analysis and findings in this report have three major implications for state and local officials concerned with economic development in Appalachia.  First, the technology clusters are potential targets for focused entrepreneurship and recruitment strategies.  Each sub-regional technology cluster highlighted in this report can be subjected to further detailed analysis to identify linked end-market or supplier sectors that represent attractive growth prospects, or related industries that offer higher wages.  Those prospects can then become the focus of comprehensive development strategies designed to nurture their growth.

Second, the report findings can be used to guide state investments in "centers of excellence" in the research universities, expanded specialized education and training programs in the region's teaching universities and community colleges, and in technology transfer and industrial extension programs.  Some of the 100 technology clusters are characterized by a very strong base of science, innovation, and training; most are not, especially within the ARC region proper.  While innovation and R&D strengths are in evidence in the case of all technology clusters by definition, the clusters vary greatly in the depth and diversity of that strength.  Moreover, some clusters are better served than others by the region's university and community college education and training system.

Third, a common step in many states' efforts to develop and expand technology clusters is the establishment of an industry association or other private sector entity charged with documenting and championing specific clusters' interests in the policy arena.  Such organizations also often provide a venue for collaboration and joint problem-solving among cluster firms, thereby increasing opportunities for productivity-enhancing spillovers that are a critical part of firms' competitiveness.  States and regions should view the clusters identified in this report as potential candidates for such "cluster organizing" efforts.