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Saving rural Arkansas.

20 Percent Of Arkansans Work For Manufacturers: Do They Have A Future?

It's a dreary Tuesday afternoon following a cloudy Memorial Day weekend.

The people filing into the Silver Knight room in downtown Little Rock's Camelot Hotel complain that it feels more like a Monday morning.

The topic -- the state's small manufacturing companies -- doesn't necessarily inspire excitement. But it's clear that the members of this group are dedicated to a cause.

They're trying to save rural Arkansas.

There are about 75 representatives from Arkansas colleges, economic development organizations and private companies. Most of them are older white males, although there is a handful of blacks, females and younger conference participants.

They've gathered for a presentation titled "Keeping Arkansas' Small Manufacturers Competitive."

The two-day conference is the first major activity for the Arkansas Rural Enterprise Center, which Director Sandra Miller describes as a "program" within the Winrock International Institute for Agricultural Development.

Winrock's advisory council, made up of community leaders from across the state, decided more than a year ago that such a program was needed to spur economic development in rural Arkansas.

Officially, there are about 2,600 manufacturing firms in Arkansas. Economic development officials say a more realistic figure is 3,600. They joke that the rest of the manufacturers are too busy to be listed.

At least 1,000 of those 3,600 companies employ four or fewer people. If you exclude the poultry and food processing industry, one of four industrial workers is employed in a firm with less than 100 people. In the lumber and wood products industry, half of the workers are employed by firms with less than 100 employees.

Almost 25 percent of the state's gross income is generated from manufacturing. The manufacturing sector accounts for 20 percent of Arkansas' work force and 30 percent of total earnings.

Those concerned with rural development point out that a much higher proportion of rural workers are in manufacturing than urban workers -- about 30 percent compared with 19 percent. And rural manufacturers tend to be smaller than urban manufacturers.

No longer can Arkansas be called a farm state. Just 3.8 percent of workers were employed in farming in 1989, down from 7.9 percent in 1970.

As agricultural employment declines, it is up to small manufacturers to provide the jobs that are critical to the stability of rural communities.

The problem is that 20 rural counties in Arkansas had a net loss of jobs in the 1980s.

Small manufacturers are important to the state, and big businesses know it.

The Arkansas Rural Enterprise Center is being funded with grants from such business behemoths as Arkansas Power & Light Co.; AP&L's parent company, the Entergy Corp.; Southwestern Bell Telephone Co.; Arkansas Electric Cooperative Corp. and Ernst & Young.

This year's operating budget is between $200,000 and $250,000.

It might not be enough to save rural Arkansas, but it's a start.

The center has three initial goals.

First, Miller says, it is necessary to build stability in rural communities from within rather than simply trying to recruit industries from other regions of the country as was so often the case in the 1950s and 1960s. The center is designed to help business and government leaders understand the importance of existing small manufacturers to rural Arkansas.

Second, the center has made a specific commitment to working with the secondary wood products industry. Miller says other industries will be targeted in years to come, but the secondary wood products sector seemed a logical starting point.

Finally, the center wants to learn how existing resources can be used more effectively by small manufacturers.

"How do you get more with the money you've invested?" was the question Miller wanted answered.

It took two long days of discussions, but the participants seemed to reach some conclusions last week.

From The Ground Up

Before a reasonable discussion regarding small manufacturing in Arkansas can take place, a more global definition of modern manufacturing must be understood.

Robert Howard, a senior editor at the Harvard Business Review, was brought to Arkansas to explain what he calls "from the ground up" entrepreneurship.

Howard says that in the past 15 to 20 years, increased global competition and technological developments have drastically changed the American economy.

In 1954, Fortune 500 companies (the largest U.S. manufacturers) employed 8 million people. Those companies were responsible for 37 percent of the gross national product.

By 1969, employment had jumped to 15 million and the output was up to 46 percent of GNP.

By 1979, however, the number of people Fortune 500 companies employed had risen only to 16.2 million.

By 1989, the employment total had fallen to 12.5 million.

Today, almost two-thirds of manufacturing companies have 20 or fewer employees. Smaller companies can adapt to change faster than huge corporations.

Yet the United States lags behind other industrialized countries in the development of small manufacturing firms, according to Howard. The Japanese government gives 20 times more assistance to small manufacturers than the U.S. government does, he claims.

Small manufacturers in countries such as Japan, Germany and Denmark have struck a delicate balance of cooperation and competition.

"It sounds great for the Japanese, but it's never going to work here," is the response Howard often hears.

But he says cooperation among small manufacturers has worked in California's Silicon Valley, where semiconductor companies sometimes share costs for research and to get products to market faster.

That's where the Arkansas Rural Enterprise Center comes in. It will work to form networks of manufacturers.

Acie Johnson, president of Emerging Technologies Inc. at Little Rock, says small manufacturers have a narrow focus. Johnson, whose company deals in laser applications, says too many small manufacturers make the mistake of thinking what they need is money.

What they really need is a business plan.

Entrepreneurs often are innovators, not business experts.

Brian Bosworth, an economic development consultant from Rhode Island, says these narrowly focused firms lack the sensing mechanisms that are inherent in established companies. The smaller firms' focus often prevents them from expanding to other niches.

"Manufacturing has to be an engine that powers economic growth in this state," Bosworth says.

How do you keep that engine running smoothly?

A small manufacturer in, say, McGehee is probably more interested in meeting the next payroll than in figuring out how to further development in the state.

For small manufacturers to look at the big picture, there must be assistance available. That assistance might be technical in nature.

Traditionally, Southern firms don't have equipment as advanced as that used by their counterparts in other parts of the country. Arkansas manufacturers are much less likely to use computer-controlled machinery than competitors on the East Coast and West Coast.

Meanwhile, marketing is an area that the majority of manufacturers lump together with sales. Bosworth says it is time, though, that Arkansas' small manufacturers become serious about marketing.

Before this emphasis on technology development and marketing can occur in rural Arkansas, a network must be established.

Bosworth helped Oklahoma manufacturers create just such a system. He says it is run by the manufacturers themselves, using existing organizations and resources.

And there are resources in Arkansas that can be utilized.

Bob Nash, president of the Arkansas Development Finance Authority, admits to some lending difficulties. Overall, though, he's optimistic about the future for manufacturing in the state.

Nash says Arkansas banks traditionally don't make loans for small manufacturers "without a guarantee from Fort Knox." Still, he says, a number of funding sources are available. So are sources of technical assistance. The state, for example, offers assistance through the Arkansas Industrial Development Commission and the Arkansas Science and Technology Authority.

"It's a new world, and it's going to change more rapidly than we can imagine," Bob Fisher of Henderson State University at Arkadelphia says of manufacturing. "We can lose or we can change.

"Toto, we're not in Kansas anymore."

Waking Up

Midway through the first day of the conference, a quick glance around the dimly lit banquet room found participants closing their eyes or doodling on papers.

The partitioned walls seemed to be closing in on the long rows of tables. Even getting up for a cup of coffee had lost its appeal.

But when Floyd Fenix, the wood products consultant at Winrock, began listing the problems facing small manufacturers in Arkansas, audience members perked up. They could relate to what Fenix was saying.

A recent survey of Arkansas wood products manufacturers found that 66 percent had difficulties with insurance. They were concerned about workers' compensation and product liability issues.

Of the respondents, 37 percent had problems finding qualified workers.

Government regulations were troubling for 33 percent.

Conference participants said they've often tried to help small manufacturers in these areas. And the manufacturers haven't always been receptive.

Fenix says manufacturers tend to be content if they're stable. They don't think ahead.

All resource center officials seem to have a story about times they've attempted to offer services and received no reply from rural manufacturers.

Manufacturers may be realizing -- albeit slowly -- that the market is changing and they aren't keeping up. Half of the survey respondents said they're worse off than they were five years ago.

One mistake longtime Arkansas manufacturers make is to try harder without changing their methods of approach. In the 1990s, it's important to work smarter, not just harder. For instance, manufacturers will try to make their products cheaper when they should be creating value-added products.

Rural manufacturers won't recognize the need to change, though, unless more effective ways are found for resource organizations to reach them.

Bosworth says the development of the Oklahoma Alliance For Manufacturing Excellence provided the impetus for change in that state.

"Part of our problem is that a lot of businesses don't realize what they need," says Don Bradley III of the University of Central Arkansas at Conway.

John Ahlen, the ASTA president, says four state agencies are meeting to determine how best to help small manufacturers.

Bradley says interest from both state government and the private sector in the Arkansas Rural Enterprise Center could be a key to revitalizing rural counties.

"It's the ingredient we never had before," Bradley says of Winrock's involvement. "With their clout and expertise and money, I think we may now have a winner."

Winrock's F.E. "Fee" Busby doesn't view the center as a new kid on the block. After all, he points out, the concept of a rural enterprise center can be traced all the way back to Gov. Winthrop Rockefeller's economic development efforts. Those efforts began in the 1950s when Gov. Orval Faubus made the New York millionaire head of the AIDC.

Busby says the Arkansas Rural Enterprise Center is simply carrying on the Rockefeller legacy.

"I like to think we are continuing the tradition he started," Busby says.

The future of rural Arkansas is at stake.

Headquartered In Arkansas

Winrock International Reaches The World From Petit Jean Mountain

In 1975, the trustees of the estate of Gov. Winthrop Rockefeller formed the Winrock International Livestock Research and Training Center to help improve life through animal production.

The former governor had asked that the trustees be "venturesome and innovative" in designing institutions to help people help themselves.

In 1985, the center merged with two other organizations supported by the Rockefeller family -- the Agricultural Development Council and the International Agricultural Development Service -- to form the Winrock International Institute for Agricultural Development.

The mission of the non-profit organization is to alleviate poverty and hunger worldwide through sustainable agriculture and rural development.

Although it has regional offices at Washington and at Manila in the Philippines, Winrock is headquartered on Arkansas' Petit Jean Mountain.

In addition to the Rockefeller endowment, Winrock's work is funded by grants, contracts and contributions from public and private sources.

Winrock's annual reports usually list about 15 pages of projects the institute funds or has found funding for. There were, for example, 104 projects listed in the 1990 annual report. They were financed by more than 200 grants, contracts and donations.

The institute's President's Arkansas Advisory Council is made up of 37 business and community leaders who act as a sounding board and help articulate the needs and interests of Arkansans.

Robert Havener, Winrock's first president, is retiring June 1, 1993.

An international search committee is working to find a replacement to head Winrock's staff of 200 people and carry on work in more than 40 countries.
COPYRIGHT 1992 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Author:Rengers, Carrie
Publication:Arkansas Business
Date:Jun 1, 1992
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