Growing the Information Technology Sector in Rural Areas

A Publication Featuring The Information Services Technology of Maine State Government

Information technology companies are some of the fastest growing businesses in Maine and will likely play a leading role in job growth in the years ahead.

While currently a relatively small sector in Maine, growth in the IT sector is important to economic development. IT-intensive jobs typically pay considerably higher wages than those that are not IT-intensive (see Chart 1[1]). By growing and attracting IT and IT related businesses, rural areas can directly benefit through increased income levels.

Recently the Northern Maine Development Commission, NMDC, supported a study of the potential for industry cluster development in Aroostook County. Five industry sectors were examined including agriculture, forest products, tourism, precision manufacturing, and information technology. This article presents an overview of factors used to assess the growth potential of the county’s IT sector. It is designed to be useful for state and local business and economic development professionals interested in strategies to grow this increasingly important sector in rural areas.

IT Infrastructure Maine business use of the Internet has dramatically increased since 1995, when only 17 percent of Maine businesses reported using the Internet[2] (see Chart 2). By 2001, 86% of businesses used the Internet. However, for today’s businesses, simply having Internet connectivity is not enough. Two additional IT infrastructure factors are essential for supporting the IT industry. They are “high-speed” or broadband access and service redundancy. Businesses are increasingly in need of high-speed Internet connections to support core business functions and E-commerce strategies. Additionally, several industries and businesses provide the kinds of products and services which require little to no connectivity “downtime” over the course of the year. For these industries and businesses, it is important that the IT infrastructure connecting rural areas to the rest of the world contain sufficient redundancy, or alternative broadband pathways, should a key digital cable or IT infrastructure component be disrupted. Rural areas typically lag non-rural areas in the deployment of IT infrastructure. The Aroostook study revealed that investments in IT infrastructure has positioned that rural area well for future IT growth.

Ability to Attract and Retain Skilled & Educated Workforce Attracting and retaining skilled and educated employees in rural areas is particularly challenging to the IT sector. Rural areas, lack “thick” local labor markets from which to attract employees. As a result, companies in rural areas must often rely on recruitment of talent from other labor market areas. Experienced IT workers are often reluctant to relocate to rural areas fearing that if their position doesn’t pan out they will again have to relocate, as additional local job options may be limited. Attracting talent to rural regions requires the ability to sell the small-town, rural lifestyle. For some professionals this lifestyle is desirable, for others it is not. Institutes of higher education are important resources for creating greater access to a skilled and educated workforce.

Research and Development Research and development, R&D, activity can spur innovation for the development of new products or processes leading to industry growth. Information technology companies are often engaged in research and development to create new products and services to compete in highly competitive national and international markets. Often this R&D is done in-house and built over-time on a project basis. Therefore, worldwide in this industry, a great deal of R&D occurs at the street level within the businesses offering products and services, as opposed to occurring within research institutions. Part of the reason for this is the demand to get new products developed and to market as quickly as possible in a rapidly changing market. Although the IT sector performs much of its R&D “in-house”, access to research institutions within the rural regions can provide significant competitive advantage for local firms.

Industry Networks and Trade Associations Areas experiencing industry growth are characterized by strong networking among businesses and professionals to share resources, discuss industry trends and issues, problem solve, and to represent the industry outside the sector to business and government leaders. These functions are typically performed by industry or professional associations. Two such resources for Maine’s IT industry are MESDA, Maine’s association for the software and information technology industry and The Target Technology Center in Orono. MESDA provides the IT industry with professional networking, training, user groups, technical assistance and access to market databases and Web resources. The Target Technology Center is an IT business incubator that is supported by the State and the University of Maine. In addition to providing office space for start-up companies, the Target Center provides business assistance and training services to IT business throughout the State. In rural areas, routine networking is challenging due to distances between businesses and professionals. Statewide and regional industry support entities are critical for fostering the linkages that spur industry-wide learning and professionalism.

Leadership Organizations Industry sector growth and development is often spurred by leadership organization(s). Examples of how leadership companies can perform this function include the creation of spin-offs, or new companies, which drive investment in new infrastructure that benefits not only the leadership company, but other companies in the sector, and fostering partnerships with education institutions to increase offerings.

Market Potential - Local and Export Demand Because of the relatively small number of businesses within rural areas, local demand for IT services is often not strong enough to generate sufficient activity for significant industry growth. Therefore to grow, firms must compete in other geographic areas. IT firms can develop regional and national niches based on experience gained in the local markets. For example, several of the firms interviewed for the Aroostook study have developed expertise in providing IT services to the forestry and agriculture sectors, which have traditionally been important within Aroostook County. This has helped the companies compete for business outside of the US. Partnering with companies outside of the region is also an effective means for increasing market share outside of the region.

By examining a region’s capacity and performance for each of the above factors, leaders within rural areas can begin to develop strategies to support further growth and development of the IT sector. Eventually such strategies will lead to increased job opportunities and incomes.

Jim Damicis is an independent consultant from Scarborough, Maine providing research and analysis in the areas of economic and community development and public policy. Jim can be reached at jdamicis@maine.rr.com.

[1] Source: 2001 Maine Occupational Wages, Maine Department of Labor, Division of Labor Market Information Services, March 2003.

[2] Maine Development Foundation, 1995-2001 Survey of Maine Businesses, Maine Development Foundation.