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High tech industry in Montana.

High Tech Industry in Montana

For regions seeking economic development, high tech industries can look very desirable. Historically, high tech firms have been associated with rapid growth and well-paid, highly-trained workforces. Yet for many rural communities especially, attracting such firms seems a long shot indeed.

What exactly is a high technology industry? What are its attributes? How extensive is the distribution of high tech firms in the rural West, and Montana in particular? Can Montanans realistically expect growth and development in this sector? On what factors might such growth depend?

Popular Notions of

High Tech

In popular nomenclature, the term "high technology" has come to mean "industries involved with computers, telecommunications, electronics, biotechnology, and other emerging and rapidly evolving technologies." [1] The term also may elicit visions of modern facilities filled with robots, lasers, vast banks of computers, and elaborate laboratories.

While high technology firms may not always take on this outward appearance, several characteristics are commonly associated with them. They tend to be heavily dependent upon research and development (R&D) activity and they employ relatively high percentages of scientists and engineers in their workforces. Also, they tend to be relatively fastgrowing industries.

Location figures into popular notions too. High technology firms are thought to be heavily concentrated in a few select metropolitan areas, such as Northern California's Silicon Valley, Route 128 near Boston, and North Carolina's Research Triangle Park. The realities of location -- and definition -- are more complex, however.

What is a High Tech


Popular notions fall short if you want to more accurately examine the composition of this economic sector. "[E]very formal research study of high-technology development has had to struggle to arrive at an operational definition of 'high technology' firms or industries." [2] Generally, though, two indicators are used: 1) an industry's reliance upon research and development, as measured by the ratio of R&D expenditures to sales, and 2) the percentage of an industry's workforce which is composed of scientists and engineers.

The National Science Foundation (NSF) has compiled data on public and private R&D activity in the U.S. for many years. During the 1970s, U.S. R&D spending increased by over 17 percent in constant dollars (see figure 2). Through the first eight years of the 1980s, R&D spending has accelerated, increasing by well over 40 percent. While the federal government and private industry share about equally in funding R&D in 1988 over 70 percent of this research was performed by industry, much of it directed at new product development.

Overall, the number of scientists and engineers employed in R&D activities by industry, government, and academia has been growing stedily. It rose from 544,000 in 1970 to 651,000 in 1980 (a 20 percent increase) and to 806,000 in 1987 (a 24 percent increase since 1980). [3]

The Bureau of Labor Statistics (BLS) uses these same criteria -- R&D expenditures and employment of scientists and engineers -- to define several categories of high tech industry. Depending on which category is examined, jobs in this sector represented anywhere from 3 to 13 percent of the total U.S. work force in 1982. [1] High tech industries increased their employment by 25 to 40 percent in the 1970s while overall employment grew by 20 percent.

A frequently used, middle-range definition and listing of high tech industries was developed in a 1983 study by the Brookings Institution. [4] In this system, industries are considered high tech if more than 8 percent of their workers are in scientific, engineering, and technical occupations, with at least 5 percent in a more narrow class of scientists and engineers. Industries not meeting this criterion may still qualify as high tech under the Brookings system, if their direct and indirect R&D expenditures in relation to sales are relatively high.

The resulting list of "manufacturing and business services sectors contain most of the industries passing the high-technology criteria." [1] This list of industries adapted to 1987 SIC code revisions is shown in table 1.

Industry Distribution

A 1982 study of high tech industry by the U.S. Bureau of Labor Statistics concluded that about six of every ten high tech jobs were located in the ten most populous states. Anywhere from 70 to 90 percent of these jobs were concentrated in these states' largest metropolitan areas. [5] Popular notions about the regional distribution of high tech jobs, then, at first glance seem confirmed.

However, several more recent studies suggest that "production in the high technology sector is decentralizing to rural areas and that the employment growth in this sector greatly exceeds that of the less technical, traditional rural manufacturers." [6] Some suggest this trend offers promise to struggling nonmetropolitan regions heavily dependent upon declining traditional industries--the promise of new, cutting edge industry providing jobs for well-educated, highly-paid workforces.

But while high tech industry may be spreading regionally, some research indicates this mainly involves branch facilities of larger, multi-state firms. And these branch operations have different characteristics from their high tech parent facilities. Their workforces more closely resemble traditional manufacturing plants, with heavy reliance on less-trained, lower-paid workers who conduct relatively routine assembly and material processing tasks.

High Tech Industry in the

"Nonmetro West"

Recent research on manufacturers located in nonmetropolitan counties of eleven western states (including Montana) sheds additional light on the rural economic development potential of high tech industry. A 1989 study of these nonmetropolitan facilities and plants concluded: "High tech manufacturers are locating in rural areas and the potential for future growth in this sector in good." [7]

Regarding the composition of these companies' workforces, the study found that compared on a percentage basis with low tech manufacturers, high tech manufacturers have three times more employees in highly skilled categories and half again fewer employees in the lowest skilled categories.

The study found that high tech firms in general rely much more on highly-educated, better-paid workers. But it also found that significant differences in workforces do exist among different types of high tech firms. The highly skilled workers among high tech manufacturers are heavily concentrated in "single unit" or independently owned and operated operations. Among branch plants or subsidiary operations, workforces are indeed "concentrated in the less skilled production occupations . . characteristic of the established, routine production processes." [7]

Branch plants primarily exist to "produce an already-developed

product," not to develop new products. And their workforce composition reflects it. Significantly, though, of 565 high tech manufacturing establishments identified in the nonmetro West, three-fourths were single-unit facilities, not branch plants as other studies had implied.

A subset of these 565 firms was then examined in a subsequent study. [6] The subset included only those firms which were largely locally-operated, single-unit operations. Of these, only businesses founded after 1976 ("recent startups") which hadn't previously operated at another location and were therefore largely "locally-generated" as well were studied.

The study identified a total of 82 high tech manufacturers meeting these criteria. These firms fell into three general categories: health-related product manufacturers; manufacturers of products used by natural resource industries (such as ming and agriculture); and manufacturers of assorted electronics, control devices, and instruments.

In surveying these firms, the study found that most of the entrepreneurs starting these businesses were very well-educated. Nearly 60 percent had undergraduate or graduate college degrees. Many entrepeneurs had moved from outside the state before starting their businesses. Their firms tended to start small, "averaging only five employees in their first year of operation." At the time of the study, the firms averaged eighteen employees and were continuing to grow.

The firms were "strongly export-oriented with respect to both the county and the state, creating local jobs and income from nonlocal earnings." Moreover, anywhere from 30 to 50 percent of the company's inputs were purchased locally, depending upon the type of high tech firm involved.

Interestingly, what the study called "distinct geographical patterns" were revealed in the locations of these high tech manufacturers (see figure 1). "Thirty-six of the eighty-two new starts were located in counties near regional high tech centers... Of the remaining forty-six firms, twenty-five were located in or near the university towns and recreation-oriented areas of Idaho and western Montana, and eleven manufacturers were in the mining and oil-based communities on the western slopes of the Rocky Mountains. Thus, relatively few of the new firms started in communities that lacked obvious locational advantages or desirable amenities." [6]

For some nonmetropolitan communities, then, "the goal of attracting high tech industry .. is realistic."

Extent of High Tech

Industry in Montana

High tech activity in Montana is somewhat difficult to analyze because, for some sectors, the data excludes self-employment income. And among high tech businesses, self-employment may represent a significant portion of total labor income. However, reasonable estimates of total labor income for all high tech sectors can be derived.

For this study, data on wage and salary payments and employment for workers covered by the state's unemployment insurance program was compiled for a list of high tech industries. Self-employment income was derived using the following ratios. In 1989, wage and salary payments were 80 percent of total labor income among all Montana's manufacturing sectors, suggesting that 20 percent came from self-employment. However, in the services sector as a whole, wage and salary payments represented only 57 percent of total labor income, which suggests a much higher ratio of self-employment. These ratios were applied to the high tech manufacturing and service sectors, respectively.

In order to gauge recent growth in Montana's high tech industries, data was compiled for two years (1979 and 1989). (See table 1.) Briefly, in 1989 there were 204 private, high tech establishments operating in Montana, up from 110 ten years earlier.

Petroleum refining (SIC 291) is by far the largest sector, and one whose performance significantly affects Montana's overall high tech employment picture. SIC 291 accounted for 43 percent of the state's high tech employment in 1979 but dropped to 29 percent in 1989. Wage and salary payments received by workers were $28.8 million in 1989, or 70 percent of total labor income. (Precise figures are available for the petroleum refining sector's total income.)

Among other types of high-technology manufacturers, the number of establishments increased considerably. Wage and salary employment, however, only grew slightly -- from 1,008 workers in 1979 to 1,097 in 1989. Wage and salary payments for these workers reached $27 million. Using the manufacturing industries ratio described earlier, total labor income for the non-petroleum high tech sector is estimated at $33.8 million.

The greatest high tech industry growth occured among service sectors. The state's total number of establishments engaged in computer programming, software development, and data processing increased from forty-three to fifty-nine. Employment among these firms increased from 266 to 394 workers. Wage and salary payments rose from $5.3 million to $7.7 million.

Another subset of the service sector, commercial physical and biological research facilities, and testing laboratories increased from twenty-three establishments in 1979 to sixty-two in 1989. Wage and salary employment among these firms increased from 109 employees to 436 during the same period; wage and salary payrolls grew from $2.3 million to $11.2 million.

Using the services industries ratio described earlier, the total labor income for Montana's high tech services (including self-employment) would approximate $34 million in 1989.

As a whole, then, Montana's high tech industry currently accounts for just over $75 million in wages and salaries. Total labor income for all sectors is probably in the range of $105 to $110 million.

With the exception of petroleum refining, growth within Montana's high tech sectors exceeds that of other sectors. (See figure 3.) From 1979 to 1989, the number of high tech manufacturing establishments (other than refineries) increased by 171 percent. Other manufacturing sectors declined by 4 percent. All other industries in Montana experienced a small increase, 5 percent. Employment among these same high tech manufacturers increased by 9 percent versus an 18 percent decline among other manufacturers.

High tech service establishments increased by 86 percent during the period, out-performing other service sectors which increased by 27 percent. Perhaps the most significant growth in Montana's high tech industries occured in high tech service employment and payrolls. These grew by 121 percent and 149 percent, respectively, during the period.

While some of these growth rates are impressive, the overall industry activity share remains quite small. As shown at the bottom of figure 3, high tech industries as a while accounted for only 1 percent of all wage and salary employment and 1.6 percent of all wage and salary payments in 1989.

This finding isn't too surprising. As indicated in the nationwide assessment of high tech industry by OTA in 1984, "[b]y any definition.., high-technology industries are expected to grow somewhat faster than will overall employment over the next decade. Because of their relatively small employment base, however, these industries will directly account for only a small fraction of total employment growth." [1]

Recent studies indicate the U.S. high technology industry, once concentrated in a few metropolitan areas, is spreading into nonmetropolitan areas. A study of high tech industry development in the western United States reports that small, independent companies in various high tech sectors are taking root in several nonmetropolitan areas in the West. According to the study, one area where this is occurring is western Montana and Idaho.

Entrepreneurs starting these businesses were asked to rate the importance of various community characteristics in choosing their locations (see figure 4). Unlike more traditional industries, proximity to input sources and product markets are of less importance to many high tech businesses than such factors as local amenities, the quality of telecommunications and transport services, availability of quality commercial sites, and proximity to quality universities and colleges. Continued growth in these industries in Montana will depend upon the state's ability to compete in these areas.

One potentially promising high tech area for the state may be biotechnology. The seeds of a biotechnology industry are being planted in Montana. A variety of biotech firms have taken root in the state, complementing other established and growing biotechnology-related research by federal agencies in the region and by area universities. [8]

High tech industry employment will provide jobs to only a fraction of the state's workforce well into the future. But continuing growth in these industries is a welcome addition to a somewhat deteriorating economic base.

Literature Cited

[1] Office of Technology Assessment (OTA), 1984 (Technology, Innovation, and Regional Economic Development, U.S. Congress, Washington, D.C.).

[2] Cosmos Corporation (Yin, Sottile & Bernstein), Attracting High-Technology Firms to Local Areas: Lessons from Nine High-Technology and Industrial Parks, report prepared for the U.S. Department of Commerce, Washington, D.C., December, 1985.

[3] National Science Foundation, National Patterns of R&D Resources: 1989, Surveys of Science Resources Series, Washington, D.C.

[4] The Brookings Institution (Armington, Harris & Odle), Formation and Growth in High-Technology Firms: A Regional Assessment, report prepared for the Office of Technology Assessment, U.S. Congress, Washington, D.C., 1983.

[5] Bureau of Labor Statistics (BLS), "High technology today and tomorrow: a small slice of the employment pie" (by Riche, Heckler & Burgan), Monthly Labor Review, Washington, D.C., November, 1983

[6] Barkley, Smith & Coupal, High Tech Entrepreneurs in the Nonmetro West: Who is Starting What?, Western Rural Development Center, Oregon State University, Corvallis, January, 1990

[7] Smith & Barkley, Local Economic Impacts of High Technology Manufacturing in the Nonmetropolitan West, Western Rural Development Center Oregon State University, Corvallis, March, 1989.

[8] Future issue of the Quarterly will report on Montana's biotech industry.

Larry D. Swanson is director of economic analysis, Bureau of Business and Economic Research, University of Montana, Missoula.
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Title Annotation:High Tech Industry
Author:Swanson, Larry D.
Publication:Montana Business Quarterly
Date:Dec 22, 1990
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