Looking at the economics around us is important to our success. Geographic trading areas with a series of businesses in related segments are called economic clusters. An example of an economic cluster can be found in the Michigan automotive market. Not only are there the automotive manufacturers themselves, but also a series of related businesses such as metal fabrication, robotic and automation suppliers, transportation, paint dealers and parts suppliers from electronics to seat belts.
A terrific tool to identify clusters of manufacturing is available from www.clustermapping.us, an online resource developed and maintained by the Institute for Strategy and Competitiveness at Harvard Business School. It gives a snapshot of clustering and how to consider related businesses. The website also provides a drillable view of related clusters that you can click through.
Why is this important? You should look at clustering and industry-related businesses and sectors because these clusters bring together technology, information and skills that are already engaged to a large extent with some facet of the cluster. We can use existing relationships, skills, products and market knowledge to set the path for developing additional meaningful and profitable relationships specific to an industry.
As we know, it’s not easy to develop new customers. However, understanding how to leverage existing relationships to build new customer bridges creates a straightforward roadmap to success. Let’s look at the chemical market broken out by the North American Industry Classification System (NAICS) in Figure 1. If I have a couple of great customers manufacturing petrochemicals buying explosion-resistant boxes, motors and controllers, specialty lighting and safety equipment, it makes sense that identifying other companies in this same cluster may offer similar opportunities for products and services.
How do I identify a cluster? It all starts with some thought. Let’s say I have a customer who builds utility trailers. I stock automotive wire, connectors and lights for their OEM application. They also buy some shop supplies, tools and test equipment. My sales representative knows the customer well and speaks their industry language. Thinking through a cluster of similar companies and related industries leads to boat trailers, motorcycle trailers, semi-trailers, livestock trailers, motor homes, campers and specialty trailers. Looking up the NAICS codes is a quick Google search away. The NAICS code is the key to unlocking the names, addresses and phone numbers of these cluster opportunities. Once the NAICS code is identified, lead lists can be purchased from other sources such as Dun & Bradstreet, providing salespeople a path to success with businesses interested in related products and services.
Economic clusters can be either local or traded. Traded clusters are those concentrated in a geographic area that provide products across the nation or globe. Local clusters are related businesses in regional areas that support their communities. Both services and manufacturing can fit into local or traded clusters.
Much work has been done on economic clusters and cluster mapping and definitions. Harvard Business School has done some great work, as has the National Bureau of Economic Research. These are valuable tools that can be used free of charge by you or your marketing team. In their work “Defining Clusters of Related Industries,” Delgado et al. say, “Clusters are geographic concentrations of industries related by knowledge, skills, inputs, demand and/or other linkages. A growing body of empirical literature has shown the positive impact of clusters on regional and industry performance, including job creation, patenting and new business formation. There is an increasing need for cluster-based data to support research, facilitate comparisons of clusters across regions, and support policy makers and practitioners in defining regional strategies” (www.nber.org/papers/w20375).
As an industry, we are part of the lighting and electrical equipment cluster (See Figure 2). This table was developed by Delgado and other researchers at www.clustermapping.us and the Institute for Strategy and Competitiveness at Harvard Business School. It’s a pretty complete look at the electrical manufacturing industry at a high level.
As you plan for 2022, think about clustered industries and how you can leverage them for growth opportunities in your business. Coming off a stellar 2021, the expectations for 2022 are a high bar. We need to use all the tools at our disposal to create and realize opportunity.
Christian Sokoll is president of DISC Corp., Houston, the electrical market’s leading provider of sales forecasts and related market data. He can be reached at [email protected]
