State of Innovation: Pennsylvania's Advanced Manufacturing Sector

June 1, 2009
Manufacturers have continued to redefine their core businesses, adopt new technologies, identify new markets and adapt production processes to increase efficiency.

Manufacturing makes up $64 billion annually of the Gross State Product, employing nearly 600,000 Pennsylvanians. So, how has the state weathered the storms that have adversely impacted other states with a significant manufacturing base? Industry innovation and diversity, that's how.

The industry continues to thrive because of nationally recognized programs and initiatives that support manufacturers, from financing and technical assistance, to access to education, a skilled workforce, training and international markets. The overall business climate in Pennsylvania has also improved dramatically, with a $1.7 billion reduction in business taxes as well as offering no sales tax on manufacturing equipment and one of the lowest personal income taxes in the country.

Manufacturing has a rich history in Pennsylvania with well known global brands and industry giants like U.S. Steel and H.J. Heinz. The state's geographic location has always made it a logical place to do business, with six of 10 major U.S. markets within a 500-mile radius of the state's capitol and geographic center of the state in Harrisburg, which reduces transportation costs. The state's robust infrastructure -- 120,000-mile road system, 134 airports, 3 major ports, more than 5,100 miles of railways and 69 railroads -- has consistently provided easy access to markets across the country and overseas.

Innovation in the industry has come in many forms, but it has consistently come as a response by manufacturers that know they need to adapt and respond to global competition and current market conditions. Those manufacturers have continued to redefine their core businesses, adopt new technologies, identify new markets and adapt production processes to increase efficiency. And through that innovation, Pennsylvania's manufacturing industry has been strengthened.

The diversity of the industry has also helped strengthen it, particularly through tough economic times. The state is not dependent on one particularly industry. On the contrary, over 50% of Pennsylvania's manufacturing output is attributed to industries as diverse as plastics, paper, machinery, fabricated metals, primary metals, food, and pharmaceuticals and medicine. The large and diverse base is also an attractive competitive edge for firms to develop strong supply chains from a deep, broad base of manufacturing facilities. Emerging sectors like wind turbine manufacturing have benefited in cost, delivery time and quality by taking advantage of Pennsylvania suppliers.

Still, innovation and diversity must be encouraged and supported. And Pennsylvania Governor Rendell recognized the need to strengthen the industry further by creating a number of innovative and nationally recognized programs and initiatives. I'll highlight a few.

Governor Rendell's World Trade PA initiative and the state's Regional Export Network have helped position Pennsylvania as the fastest growing state in international business development. The state has seen a 77% increase in exports from 2002-2007, with almost 60% coming from chemicals, machinery, primary metals and transportation goods. And Pennsylvania-based companies like Westinghouse Electric Company and Xodus Medical have benefited.

Pennsylvania's Keystone Opportunity Zones (KOZ) offer nationally recognized features, like the ability for a company to pay virtually no taxes for up to 10 years when locating in a KOZs or zone property.

Pennsylvania's R&D consistently ranks in the top 10 in the United States. Through Governor Rendell's $2.8 billion stimulus package -- recognized as one of the most comprehensive and flexible package of financing programs in the country -- the commonwealth has improved the research climate by providing incentives to increase investment in R&D, like doubling the tax credit available to $30 million in 2004, and increasing it again in 2006 to $40 million. As a result, Pennsylvania-based manufacturers like Ashland Technologies and Smith Provision Company are thriving. Pennsylvania is also home to nine of the world's largest bio-pharmaceutical companies, as well as a critical mass of world class-academic research institutions that garner substantial funding from National Institutes of Health and National Science Foundation and are producing new ideas, technology and talent.

Site Selection magazine recently ranked Pennsylvania in the top 5 overall for new and expanded corporate facilities and reported dramatic increases for Pennsylvania in key industries, like advanced manufacturing and materials. This is the highest ranking Pennsylvania has received since 1980, and the first time since 2005 it has appeared in the top 10. Specifically, Pennsylvania's advanced manufacturing industry ranked 2nd in capital investment, 4th in total projects and 5th in jobs created.

A wealth of financial resources are also available through the state's internationally recognized Ben Franklin Technology Partners (BFTP), which invests risk capital in emerging technology-based enterprises and established businesses, especially manufacturers.

Technical assistance also comes in the form of the state's network of Industrial Resource Centers (IRC), the go-to place for small and medium-sized companies to find expert consulting and innovative ways to increase productivity, profitability, competitiveness and locate qualified suppliers. Say Plastics, Inc. turned to its local IRC, MANTEC, Inc. and found new ways to diversify its custom designed and manufactured parts business. West Pharmaceuticals tapped into the Industrial Modernization Center to help it develop a highly skilled workforce.

State of Innovation isn't an advertising slogan. It isn't a mission or a vision statement. It quite simply describes the spirit of the state's advanced manufacturing industry. And I expect Pennsylvania's manufacturers to continue to respond to economic and global challenges with the same strength and determination found throughout the state's history and manufacturing legacy.

Tom Palisin is Pennsylvania's Manufacturing Ombudsman. He advocates for the industry by providing information and referrals to manufacturers requesting services in areas such as financing, education and training, technical assistance and regulatory issues.

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