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Examining the Seedbed Potential Characteristics ofCertain Manufacturing Industries: A Case Study of

the Houseboat Manufacturing Firms in the LakeCumberland Region of Kentucky

Steven Brent Lackey

July 1998Staff Paper 98-7

About the Authors

Steven Brent Lackey is a graduate student at the University of Kentucky. Hewill graduate in December 1998 with a M.S. in Agricultural Economics

Staff papers are distributed by TVA Rural Studies as part of its effort toimprove the information available to rural decision makers. Each staff paper

reflects the research and opinions of the authors. Research papers are publishedwithout going through a formal review process and TVA Rural Studies neither

endorses nor disavows any opinions in these papers.

TVA Rural Studies Program / Staff Paper 98-7 1 Steven Brent Lackey, July 1998

Examining the Seedbed Potential Characteristics of CertainManufacturing Industries: A Case Study of the Houseboat

Manufacturing Firms in the Lake Cumberland Region of Kentucky

Executive Summary

The promotion of indigenousentrepreneurship is generally thought to be asuperior development strategy to industrialrecruitment. However, there is little knowledgeon how to actually increase the number ofentrepreneurs in a region, which is one reasonwhy most development officials pursue anindustrial recruitment policy instead. Mostdevelopment officials and scholars agree thatpast employment experience serves as animportant road to entrepreneurship, and manythink that certain types of employmentexperience are more conducive to the promotionof entrepreneurship. These beliefs serve as thefoundation for the notion of seedbed industries.

Seedbed industries promote indigenousentrepreneurship, and they have the ability tostimulate a spinning-off process. Employeesbreak off to start a new firm within the sameindustry or in a related sector during a seedbedprocess. Perceived market opportunitiesstimulate them to start a new business, andthese opportunities can range from unexploredmarket niches to the supplying of inputscheaper or more efficiently. A seedbed processcan often result in the agglomeration of firmswithin an industry in the local economy.

For an industry to have seedbed potential,the firm and the community must containcertain characteristics. The firm needs to bestructured so employees are able to acquiremultiple skills and to gain knowledge of thebusiness operations, and the community must beconsidered an “entrepreneurial friendly”environment. To determine what characteristicsof the firm and community provide seedbedpotential, a comprehensive literature review isperformed. Because the notion of seedbeds

encompasses many topics, the literature reviewexamines relevant papers and studies of thesubjects firm formation, entrepreneurship,flexible specialization as an organization ofproduction, and the economics ofagglomeration.

An example of a seedbed process and a list ofcritical characteristics are the results of thecomprehensive literature review. Haug’s (1991)study of the software industry in Washingtonstate reveals that most of the new software firmsin the state are spin-offs. A majority of theowners of the new establishments had previouswork experience in the software industry.Microsoft played a major role in theagglomeration of software firms in this regionsince it has spawned many individual softwarecompanies by former employees breaking off(Haug, 869-94). The characteristics of the firmand community that provide seedbed potentialare also identified. It is not necessary for thefirm and area to have all of the characteristics,but they must contain enough of them to allowthe employees to acquire multiple skills andknowledge of the business and to be exposed toan “entrepreneurial friendly” environment. Thesefactors are summarized in the following list:

Firm and Community Dominated by Small

Firms: Small firms are more likely topromote entrepreneurship becauseemployees have a chance to work closelywith the owners and to learn how thebusiness operates. Employees have a betterprobability to perceive market opportunities.

Relatively Skilled Labor Force: Skilled laboris more likely to have a better understanding


Examining the Seedbed Potential Characteristics of Certain Manufacturing Industries: A Case Study of the Houseboat ManufacturingFirms in the Lake Cumberland Region of Kentucky

of how the business operates and to havethe “know-how” to start a new business.

Relatively Large Proportion of Management

and Professional Occupations: Employees inmanagement are more exposed to themarket and more likely to perceiveopportunities. Managers also generally havea comprehensive knowledge of theproduction process.

Flexible Specialization as an Organization of

Production: Flexible specialization promotesthe cumulative acquisition of skill, which isbelieved to be vital in entrepreneurialdevelopment.

Low Barriers to Entry: Extensive capitalrequirements and high initial operatingcosts are huge obstacles for potentialentrepreneurs to overcome, and oftenprevent them from attempting to start anew enterprise.

Pool of Trained Labor: For a seedbed effectto occur there must be sufficient labor tostaff the new firms.

Existence of Business Networks or Associations:

Networks and associations can be veryhelpful in providing the entrepreneur withinformation on the market and theproductive process, and they are very usefulin creating an “entrepreneurial friendly”environment.

Supportive Environment: It is vital thatpeople in the community not look down onbusiness failures. If business failures are seenin a negative context, then potentialentrepreneurs will be reluctant to start anew business.

Entrepreneurial Culture: The presence ofentrepreneurs in the community provides

role models to potential entrepreneurs, andwithout role models and exposure to newbusiness start-ups, it is unlikely that aperson will engage in entrepreneurialactivity.

Accessibility to Markets, Suppliers, and

Transportation: The potential entrepreneurmust have relatively easy access to themarket. Barriers like distributors or dealerswill make it difficult for new firms to getstarted. Easy access to suppliers andtransportation are very important forminimizing costs.

Significant Proportion of Purchased Inputs are

Intermediate Goods: If a company purchasesa significant amount of intermediate goods,an employee might perceive an opportunityto establish a firm that could supply theoriginal firm with an input at a lower cost.

Market Growth Potential: A spinning-offprocess cannot sustain itself if there is noroom for growth and if an increase in thenumber of firms only leads to a saturation ofthe market.

A case study of the houseboat manufacturingindustry in the Lake Cumberland region isperformed to see if it has experienced a seedbedeffect and to gain empirical insight of seedbedindustries. This is a plausible example of aseedbed because of the agglomeration ofhouseboat manufacturing firms in the regionand because it is considered a craft industry. Thestudy reveals that the industry and the areacontain many of the essential characteristics,such as skilled labor force, relative small size,flexible specialization, and an entrepreneurialculture. However, it concludes that thehouseboat industry in this area has notexperienced a seedbed effect for a couple ofreasons. First, it is missing a few of the keyingredients. Most of the production is done

completely in-house, and the firms onlypurchase few supplies or intermediate goodslocally. Plus, the necessity of having manycontacts in the business to attain contracts inthe infant stage of the firm and the high initialoperating costs serve as huge barriers to entryfor potential entrepreneurs. Secondly, formerpartners who divorced on very bad termsestablished a majority of the new firms. Due tothe missing factors and the circumstances thatled to the founding of many of the houseboatmanufacturing firms, it is concluded that thehouseboat industry in this region did notexperience a seedbed process.

The case study was able to shed more insighton the notion of seedbed industries. The studyreveals that a manager and worker probablyneed to break off together for employees to besuccessful in starting a new manufacturing firm.In starting a new establishment it is importantfor the entrepreneur(s) to understand thebusiness operations and the production process,which is why both are needed. This alsosuggests that workers and managers need towork closely for the firm to have seedbedpotential so a manager and a worker feelcomfortable working together and have a chanceto talk about starting a new firm. This studyalso implies that personal funding could serve asa barrier to employees establishing a new firm.Most of the funding used by houseboat ownerscame from personal accounts, and banks willonly lend a certain percentage of the requiredfunds to establish a new firm. Since mostmanufacturing employees do not earn asignificant income, it is highly possible thatpersonal funding could be a major barrier tothem. Finally, the unfriendly relations amongthe owners of the houseboat manufacturingfirms demonstrates the importance of

competition and conflict as a driving point ofnew firm formation.

The notion of seedbed industries has manyimportant policy implications for developmentofficials. By following a strategy that capturespossible seedbed effects, development officialsare able to combine the strategies of industrialrecruitment and indigenous entrepreneurialdevelopment. Regions with the conditions thatare conducive to entrepreneurial activity cantarget and recruit industries with characteristicsthat provide seedbed potential. Economies thathave industries with seedbed factors but havenot experienced seedbed processes canconcentrate on developing the conditions withinthe community that promote entrepreneurship.For example, the Lake Cumberland region maywant to develop a job-training program thatpromotes a more collaborative environmentamong the business owners, which is found tobe one of the missing ingredients in the casestudy.

Implementing a seedbed strategy hasadvantages that are inherent in both industrialrecruitment and indigenous entrepreneurialdevelopment. Like a recruitment policy, aseedbed policy can have significant impacts onthe employment level in the local economy, andbecause of the inherent characteristics ofseedbed industries it can increase the number of“good jobs” in the economy. Seedbed industriesare not very likely to be “footloose” for a coupleof reasons. A seedbed effect generally results inan agglomeration of firms within an industry,and due to the advantages that agglomerationsoffer it is unlikely that a firm or an industry willuproot and leave. Also, a seedbed strategypromotes local ownership of businesses, whichprovides many benefits to the local economy.



Introduction

An important issue in rural economicdevelopment is providing adequate employmentopportunities that supply not just jobs to thelocal economy, but jobs that are considered“good” jobs. Industrial recruitment andindigenous entrepreneurship are considered theprimary paths for achieving these goals. Whichpath to follow is generally considered an“either/or” question, and most states implementa strategy of industrial recruitment. However, anenhanced level of entrepreneurship is widelyconsidered a better strategy for the followingreasons: 1) its emphasis on locally ownedbusinesses, 2) greater probability that thebusiness will not uproot and leave, 3) smallercapital needs, 4) better chance of local economicdiversity, and 5) potential for backward andforward linkages. But there is limited knowledgeon how to actually increase the number ofentrepreneurs in a region, and most literature onentrepreneurship indicates that not all regionsare suitable for an entrepreneurial developmentpolicy.

Many believe that one of the most commonpathways to entrepreneurship is pastemployment experience, and it is felt that sometypes of employment experience are conduciveto promoting entrepreneurial development. It isthese beliefs that serve as the foundation for thenotion that certain industries have seedbedpotential, which means that they promoteindigenous entrepreneurship and can create aspinning-off process. Within this spinning-offprocess employees break off to start a new firmin the same industry or in a related sector. Inthis process employees break off to pursueperceived market opportunities. Theseopportunities can range from unexplored marketareas to the provision of inputs cheaper andmore efficiently. A seedbed effect, the spinning-off process, can often result in an agglomerationof firms within an industry in the community orregion, which can bring the local economy manyof the benefits of specialization. If somemanufacturing industries are, in fact, seedbeds

then it would be possible for local developmentofficials to implement employment strategiesthat combine industrial recruitment andindigenous entrepreneurial development.

Although the possibility of somemanufacturing industries having seedbedpotential has many implications for ruraldevelopment, it must be noted that seedbedpotential does not exist for all industries and forevery local community. In this paper thecharacteristics of a potential seedbed aredetermined. These seedbed conditions areidentified through a comprehensive literaturereview. Then a case study of the houseboatindustry in the Lake Cumberland region isperformed to illustrate a possible example of aseedbed effect. The purpose of the case study isto investigate the inherent seedbedcharacteristics in the houseboat industry andwhether or not a seedbed effect has taken place.In the conclusion, a summary of the findings isgiven, and policy implications of seedbeds arediscussed.

Development of the NecessaryFactors for Seedbed Potential

For a seedbed effect to happen, or even havepotential to occur, a number of factors must bepresent in the manufacturing firm and in thecommunity. The firm and the community musthave characteristics that allow the acquisition ofmultiple skills and knowledge of how thebusiness operates and that provide an“entrepreneurial friendly” environment. Manycharacteristics of the firm that are thought to bethe most important are a small number ofemployees, a relatively high-skilled labor force,and an organization of production that allowsfor cumulative acquisition of skill.Characteristics of the community are widelybelieved to be very important for theentrepreneurial development process to takeplace, and these favorable conditions include thepresence of entrepreneurs in the community andfavorable government policies. This section ofthe paper examines literature on the topics of



firm formation, entrepreneurship, economics ofagglomeration, and the flexible specializationorganization of production. The purpose of theliterature review is to identify the criticalconditions of firms and communities that arebelieved to be inherent in seedbeds. Theliterature review encompasses multiple topicsbecause of the nature of a seedbed process andthe fact that it is a relatively new topic.

Firm Formation

What factors significantly impact new firmformation rates is an important question toanswer in determining the importantcharacteristics of a potential seedbed. Therehave been numerous papers on what factors leadto greater firm formation rates, and this sectiondiscusses the findings and theories of thesestudies. Markley and McNamara (1995) discusshow many rural communities can sustaineconomic opportunity. They talk about howowners of new business start-ups face theproblems of limited management experienceand capital, high initial operating costs, and lackof familiarity with sources of assistance. Theybelieve that the extent of indigenous businessgrowth depends upon the linkages betweenfirms assisted by business developmentprograms and those in other sectors of theregion. Markley thinks that incubators providefirms easy access to business counseling andencourage networking among firms (Markley,1259-64).

M. Hart and G. Gudgin (1994) attempt toexplain the spatial variation of new firmformation in the Republic of Ireland. Accordingto them the vast majority of new manufacturingfirms employ fewer than eleven persons, but themost important source of new jobs is firms witheleven to forty nine employees. However, theresults of their multivariate analysis of thedeterminants of new firm formation at theregional level show that small firms have apositive but non-significant influence on newfirm formation. Hart and Gudgin’s study findsthat the most important positive influence onnew firm formation is the proportion ofprofessional and managerial occupations in the

county and the growth of manufacturingemployment. The negative influences, accordingto their study, are small county population, theproportion of the county population gainingaccess to higher education, and measures of netmigration. This study implies that relatively fewpeople with higher education qualificationsproceed to start new manufacturing firms (Hart,367-80).

P. Haug (1991) studies the agglomeration ofthe software industry in Washington state, andreveals that most company formations have beengenerated by local entrepreneurs. Haug’sfindings are based on a survey of 152 softwarefirms in Washington. He finds that theoverwhelming reason for choosing Washingtonas the location of the firm is that the founder orCEO lived in Washington and wanted to staythere. The other location determinant isproximity to major customers, as well ascloseness to other high-technology firms andavailability of qualified labor. The study showsthat a majority of the software companyfounders worked in the industry beforeestablishing the firm and that spin-offscontributed to the development of the high-techagglomerations. Microsoft played a major rolein this agglomeration since it spawned manyindividual software companies with manyformer employees breaking off to start their ownbusiness. Haug finds that the major reason, forindividuals starting their own business, centerson finding an opportunity or need for the goodsor services they plan to offer in the market.Also, he finds that the resources necessary forstarting software firms are not very substantial,which gives more individuals a chance tobecome entrepreneurs. The overall finding ofthe Haug paper is that most new software firmswere established by individuals leaving existingsoftware firms to exploit unfilled productdemands (Haug, 869-84).

Tim Wojan (1997) discusses theagglomeration of the software developmentfirms in Fairfield, Iowa. According to Wojan, itwas exposure to the way in which business isconducted and valid channels of businessengagement that enabled the start-ups by the



in-migration of entrepreneurs to positionthemselves to secure contracts. He finds that thecritical input in the early stages ofagglomeration is a diverse set of highly educatedindividuals. Wojan also shows that the creationof a new firm results from the hesitation of anowner to recognize the potential of a newmarket niche, which opens the door foremployees to break off and exploit this marketarea. He discusses the importance of theperception of business failure in the community,and he believes that the agglomeration processis very sustainable in Fairfield because peopleare willing to try second and third businessesafter failing initially (Wojan, 6-8).

Gioacchino Garofoli (1994) studies theregional differentiation in new firm formation inItaly. Garofoli shows that there was a significantdecline in the new firm formation rate between1986-1990, and he gives the following reasons:increasing technological sophistication, highercapital requirements, and increasing complexityof firm management. He believes that localenvironment factors, such as productivespecialization (percentage of employees inmanufacturing sector compared to totalemployment in manufacturing industry),interdependence of firms and sectors, andpresence of self-employment, have an impact onnew firm formation. Garofoli thinks that smallfirms provide an excellent training ground forpotential entrepreneurs. The results of hisregression analysis demonstrate a positiverelationship between rates of firm formation andthe degree of productive specialization and theproportion of self-employed workers. Also, hefinds a positive relationship between firmformation and areas dominated by small firms.The results also show a negative relationshipbetween new firm formation and the proportionof manual workers and changes inunemployment. The regression analysisdemonstrates that local demand and new firmformation are unrelated (Garofoli, 381-93).

P. Davidsson, L. Lindmark, and C. Olofsson(1994) report the findings from a study of therole of small, new firms in the Swedisheconomy. According to Davidsson, over ninety

percent of new establishments are singleestablishment firms with autonomousownership. They report two patterns of firmformation across the regions of Sweden. Thefirst one is that the regions with the largestpopulations have the highest rates of firmformation. The second is that regions with thelowest birth rates are those dominated by one ora few large manufacturing firms. Theyhypothesize that four factors determine theformation rate, and these factors are availabilityof motivated and capable individuals, regionalmarket conditions, access to capital, andsupportive environment such as livingconditions and entrepreneurial culture. Withinthe category of availability of motivated andcapable individuals they include socio-demographic factors, role models, and relevantexperience. Their regression analysis shows thatthe unemployment rate is the only socio-demographic factor that influences formationrates which happen to be positive. Workexperience in small firms and availability of rolemodels stand out as the most importantdeterminant of regional variation. The studyfinds that the percentage employed in technicalprofessions has a positive effect on manufacturerbirths, and it shows that within themanufacturing sector small scale tradition is themost important determinant of manufacturingbirth rate variations across the regions. Itdiscovers that business support expenditureshave a positive effect on manufacturing birthrate and that population size and density do notsignificantly affect manufacturing birth rates(Davidsson, 395-410).

D. Anderson and S. Johnston (1992) discussthe importance of linkages in industrial location.They stress how important it is for area plannersto understand the existing structure of theeconomic base and the germane interindustryrelationships. A very important factor ofindustry location is access to markets andsuppliers. Anderson says that one reason for thisis that proximity to distribution centers reducesthe costs faced by firms, and according toAnderson and Johnston transportation costs arethe most common example of a visible



agglomeration factor, especially with thedevelopment of Just-in-Time delivery. They alsomaintain that proximity facilitates collaborativerelationships between firms (Anderson, 321-323).

D. Audretsch and M. Fritsch (1994) look atthe linkages between increasing returns toproduction within a spatial unit and the numberof new firms. They discuss how a region canobtain increasing returns that arise fromspillovers from pooled labor markets, pecuniaryexternalities, and information or technologyspillovers. Technology spillovers are the mostbeneficial to small firms, and new businesses aremore likely to locate in areas where they exist.Regression analysis over 75 regions in Germanyshows that the change in unemployment ratehas a positive influence on firm formation.Analysis also discovers that new firms have ahigher propensity to locate in regions withhigher skilled labor. The study also finds thatthe propensity to start a business is greater forpersons with work experience in small firms(Audretsch, 359-364).

A. Nucci and L. Long (1996) believe thatrural locations have new competitive advantagesin the 1990s vis-à-vis older metro areas. Theseadvantages are lower taxes, low wages, lowutility costs, less unionized workforce, and apro-business attitude (Nucci, 3).

T. Wojan, D. Freshwater, and A. Maung(1996) test the effects of skilled employmentand number of small firms in a region on thefirm formation rates. The authors propose twohypotheses that are tested in the paper. The firstone is that the presence of an industrycharacterized by higher proportion of smallestablishments in a given manufacturing sectorhas a positive effect on the rate of firmformation within that sector. Wojan tests thishypothesis with three different sectors(Furniture and Fixtures, Fabricated MetalProducts, and Industrial Machinery). Theanalysis finds some significant evidence thatindustries dominated by small establishmentshave a positive effect on the rate of firmformation, but the results were not verysignificant. The second hypothesis tested is that

the presence of more highly skilled industries ina manufacturing sector has a positive influenceon rate of firm births, and this was tested with aregression analysis using the Lumber and WoodProducts sector in the Appalachian region. Afterthe model was refined to take out backwardlinkages, they find significant evidencesupporting the notion that higher proportion ofskilled workers has positive impact on new firmbirths (Wojan, 3-10).

Entrepreneurship

The notion of the seedbed is built around thepremise that certain types of employmentexperience are more conducive to promotingentrepreneurship. Therefore, the factors involvedin entrepreneurial development are very criticalin providing seedbed potential. This sectionreviews the literature on entrepreneurship todetermine the characteristics of a communityand a firm that promote entrepreneurialdevelopment. R. Shaffer (1989) discusses theparticular skills required for entrepreneurshipand the elements involved in companyformations. He identifies four skills needed forentrepreneurship. The first skill is an accurateperception of market opportunities and devisingeffective strategies for exploiting them. Thesecond is the capacity to identify and meetresource needs, and the third is the ability tomanage political relationships. The fourth skillis the ability to manage interpersonalrelationships. He also discusses the elementsinvolved in new firm formations, which aredisplacement, disposition to act—which impliesa self-reliant attitude, credibility to act, and theavailability of resources (Shaffer, 39-42).

S. Rasheed and D. Luke (1995) discuss thegeneral constraints of entrepreneurship inAfrica. The primary barriers identified byRasheed are political instability, the lack ofbusiness confidence, deteriorating infrastructure,uncoordinated policies on business, andinsufficient knowledge in the government.Many rural areas in the United States face thesesame constraints. They outline severalconditions for entrepreneurial development,specifically for Africa, that are also applicable to



rural America. The first is competent economicmanagement, efficient civil service, and a soundinfrastructure. The second condition is crediblelending institutions, and reliable information onmicroeconomic behavior is also necessary. Thefinal one is the development of marketnetworks. These networks can overcomelimitations of market size and other constraintsthrough links with other businesses, and theycan be effective for the transfer of “know-how”and assistance (Rasheed, 149-172).

A. Shapero and L. Sokol (1982) draw uponthe social dimensions of entrepreneurship todevelop a paradigm of entrepreneurial eventformation. According to Shapero, nopsychological framework suggests that there is aparticular need or drive for company formation,even though it can be linked to generalizedneeds for achievement. They say that itgenerally takes a powerful force in a newdirection or the accumulation of manydetracting forces before an individual is pushedto opt for a major change in his/her life. Aperson is more likely to take action uponnegative forces such as job displacement ordissatisfaction. Shapero thinks that thefeasibility of a project often influences theperson’s notion of desirability. Shapero andSokol also assert that a social system that placesa high value on innovation, risk-taking, andindependence is more likely to produceentrepreneurial events. Shapero also believesthat the larger the number and variety ofentrepreneurs in a particular community, thegreater the chance an individual in that area willstart his/her own company. Shapero and Sokolalso think that small firms provide a closer viewof the owner for the employee, and in essenceprovide a role model for him/her. According toShapero, studies show that a majority of all newestablishments use capital from personal savingsand borrowings (Shapero, 77-87).

A. Bruno and T. Tyebjee (1982) discuss theenvironmental factors conducive forentrepreneurship. They develop a list of elevenessential factors for promoting entrepreneurialdevelopment by combining the results of severalstudies. The following lists the necessary

environmental factors for entrepreneurship: 1)venture capital availability, 2) presence ofexperienced entrepreneurs-successful companiesattract new entrepreneurs, and persons are morelikely to leave secured positions if risksassociated with new enterprise are controlledand easily assessed, 3) technically skilled laborforce, 4) accessibility of suppliers and tocustomers, 5) favorable government policies, 6)proximity to universities, 7) availability of landor facilities-many recommend shell-typebuildings and availability of water, power,sewage, roads, or zoning to help potentialentrepreneurs get started, 8) accessibility totransportation, 9) receptive population-societalattitudes towards entrepreneurship and start-upsand failures have powerful influence overindividual decisions to start a new enterprise,10) supporting services like lawyers andaccountants, and 11) attractive living conditions(Shapero, 277-287).

B. Kirchhoff (1994) in talking about therelevance of dynamic capitalism in the currenteconomy discusses the possible barriers toentrepreneurs and the importance of resourcemobility to entrepreneurship. He explains howmany barriers are created by existing firms tocreate competitive advantages and prevent newfirms from entering the market and stealingtheir market share. Many firms requiredistributors to sign agreements that prohibit thedistribution of the competitor’s products, andthis prevents an entrepreneur from starting anenterprise for s/he has no way to get in themarket. Another barrier is created whenindustrial policy promotes the meetings ofmanagers of competing firms. Due to thesemeetings, collusion occurs and barriers are built.Kirchhoff also talks about the role of labormobility in helping or hinderingentrepreneurship. He says that workers must beable and willing to move from job to job inorder to facilitate the formation and growth ofnew firms. Financial security remains a highpriority for many who perceive mobility as athreat to employment security. Capital mobilityalso plays a part in constraining many newfirms. Many small firms do not have access to



the public markets for capital that serve manylarge companies, and Kirchhoff says that manyregulations prohibit the establishment ofinformation systems that could facilitate smallfirms’ search for capital (Kirchhoff, 197-205).

Wojan, Freshwater, and Maung (1996)discuss many of the factors that promoteentrepreneurial development. They think thatthe probability of someone becoming anentrepreneur is higher when employment ischaracterized by the cumulative acquisition ofskill. According to Wojan, the most evidentbarrier to cumulative skill formation is jobtenure and when employees perceive noopportunity for advancement then they have noincentive to maintain long term workingrelationships. Wojan gives the following factorsthat could affect the promotion of indigenousentrepreneurship: commitment to workerinvolvement, incidence and use of temporaryworkers, migration rates of local population, andopportunity for internal development of skillswithin the firm (Wojan, 1-20).

Flexible Specialization and Economicsof Agglomeration

Employment experiences that allow for theacquisition of multiple skills are believed to bemore conducive to entrepreneurial development,and this belief serves as a foundation for thenotion of a seedbed. Since flexible specializationas a type of organization of production allowsfor multiple acquisition of skills, it is thought tobe a critical condition of potential seedbeds, andthis is why a review of the relevant literature onflexible specialization is performed in thissection. Seedbed effects also result in theagglomeration of a certain types of firms in anarea, and because of this the literature on theeconomics of agglomeration is reviewed toidentify what factors are the most prevalent inthe agglomeration of manufacturing firms.

A. Scott and M. Storper (1986) discuss thegeography of high technology industries in theUnited States. They believe that the dynamicsof the spinning-off process are captured in

terms of the industrial organizational processand the social division of labor. Scott describesthree circumstances that lead to verticaldisintegration, which include: 1) where laborprocesses resist integration into unified machinesystem, 2) when output markets are unstable,producers may disintegrate to avoid uncertainty,and 3) where inputs may be produced moreefficiently by outside firms. The evolution ofvertical disintegration has resulted in anelaborate structure of inter-plant transactionalrelationships which promote face-to-facecontacts and the exchange of strategicinformation. This results in a geographic-dependent cost structure. Scott concludes bysaying that the geographic tendencies of high-tech firms are represented by agglomerationbased on flexible forms of production(Scott, 3-15).

D. Barkley and M. Henry (1997) define anindustrial cluster as a loose, geographic boundedcollection of similar and/or related firms thattogether create competitive advantages formember firms and the host economy. Theydivide clusters into three types which areMarshallian, Hub and Spoke, and Satellite.Barkley describes Marshallian clusters ascomposed of locally owned small and medium-sized businesses which are concentrated in craft-based, design intensive industries. According tothem Marshallians are disproportionatelylocated in metropolitan areas because smallerfirms place significant importance on proximityto skilled labor. Barkley claims that theadvantages of clusters are that they stimulatenetworking and provide potential cost saving.Rural areas are unpromising seedbeds forMarshallian clusters because of their legacies oflarge corporate firms, low education levels, andreliance on government subsidies. Barkley feelsthat a supportive environment that discouragesantagonistic competition and engenders trust,cooperation, and coordination is necessary forclusters (Barkley, 308-25).

R. Kaplinsky (1994) talks about the shiftfrom mass production to flexible specialization



as a new paradigm of production. The centralfeature of flexible specialization is that thelayout is altered from a functional configurationto a cellular pattern in which different familiesof products are manufactured in small mini-factories. With this paradigm work is organizedin groups rather than individual detail, andanother difference with the cellular layout is thatemployees are required to perform three or fourtasks instead of a single, repetitive task. It hasbeen observed that workers enjoy this systembecause they actually feel noticed and importantto the overall production process (Kaplinsky,337-353).

P. McCann (1995) addresses observedproblems in agglomeration economies. Hedescribes two paradoxical phenomena in thespatial clustering of firms. In many clusters, alarge proportion of firms have few or no tradinglinks with local firms in the same industry. Thesecond paradoxical situation is that a largeproportion of firms have few or no trading linksto firms or consumers in the same geographicarea. He identifies four types of locational costsfaced by firms, and according to him,agglomeration will only always occur if they facetwo of these costs. He calls the twoagglomeration costs heirachy-coordination costsand hierarchy-coincidence opportunity costs,and both of these are always dependent on theexisting number of other firms/households atthe location. McCann says that heirachy-coordination costs occur when the nature of thegood produced is continuously changing. Inthese situations the costs of not being in face-to-face contact outweigh the benefits of lowerfactor costs, and the firm will locate next tofirms performing similar activities. Withhierarchy-coincidence opportunity costs firmsattempt to minimize the opportunity costs of alack of hierarchy-coincidental costs. Firmschoose the location where the maximumnumber of final links in potential consumptionhierarchies are likely to be coincidental(McCann, 563-577).

Characteristics of a Seedbed

For a manufacturing industry to haveseedbed potential the local community and thefirm must contain a certain number ofimportant factors. The firm must be structuredso that the employees can acquire multiple skillsand be exposed to the operation of the business.The local area also must have manycharacteristics that are believed to be conduciveto entrepreneurship. Based on the literaturereview, the topics of firm formation,entrepreneurship, economics of agglomeration,and the flexible specialization organization ofproduction, the characteristics of a seedbed areidentified in this section. A rural manufacturingfirm and its local environment do not have tocontain all of these identified characteristics tohave seedbed potential and for a seedbed effectto occur, as long as employees are given a chanceto acquire multiple skills and knowledge ofbusiness operations and an “entrepreneurialfriendly” environment. The following list givesand describes the hypothesized conditions thatprovide seedbed potential.

Firm and Community Dominated bySmall Firms

Studies have shown that small firms have apositive impact on the rate of firm formation inthe region. Small firms are more likely topromote entrepreneurial development, becausethey give the employees a chance to workclosely with the owner and learn how thebusiness operates. Employees also are given abetter perception of the current marketconditions and the possible niche marketopportunities by working in a small firm. Smallfirms are defined as those with under 100employees.

Relatively Skilled Labor Force

Skilled labor is more likely to have a betterunderstanding of how the business operates andthe firm’s organization of production. Skilledlabor is also more likely to have the “know-how”



of starting a business and have the initiative tostart a new enterprise. Members of a skilledlabor force are more likely to notice marketopportunities.

Relative Large Proportion ofManagement and ProfessionalOccupations

Persons who work in management are moreexposed to the market and have a betterperception of the market opportunities.Managers generally have a more comprehensiveknowledge of how the production process worksthan a “blue-collar” employee. They also aremore likely to become entrepreneurs becausethey have experience managing interpersonalrelationships.

Flexible Specialization Organization ofProduction

An employment experience that promotesthe cumulative acquisition of skill is thought tobe very important in the development ofentrepreneurship. Flexible specializationpromotes this cumulative acquisition of skillbecause with this method of productionemployees learn three or four skills whileworking in small groups. Also with this methodemployees gain a better understanding of howthe entire system works than with massproduction systems. Working in groups alsodevelops the ability to work in interpersonalrelationships.

Low Barriers to Entry

Extensive capital requirements and highinitial operating costs are large obstacles formost potential entrepreneurs to overcome. It isdifficult for most entrepreneurs to overcomehuge barriers, and their existence often preventspotential entrepreneurs from even attempting tostart a new enterprise. For a manufacturingindustry to be a potential seedbed it must nothave substantial capital requirements and initialoperating costs.

Pool of Trained Labor

There has to be the existence of a pool oflabor for the entrepreneur to pull from. For aseedbed effect to occur there must be sufficientlabor to staff the new establishments.

Existence of Business Networks orAssociations

Networks and associations can be veryhelpful in providing the entrepreneur withinformation on the market and the productiveprocess. They can also be helpful in transferringtechnology information and with the co-training of labor. They are also useful in creating“friendly” relationships between local firms sothat the firms do not consider other local firmsrivals. The “friendly” environment and thetransfer of information can be very helpful topotential entrepreneurs.

Supportive Environment

It is very important for the local populationto be very supportive of entrepreneurs andbusiness activity. It is vital that people in thecommunity not look down on business failures.If business failures are seen in a very negativecontext, potential entrepreneurs will be reluctantto start a new business. A supportiveenvironment also includes the existence of manysupporting services such as accountants, lawyers,etc.

Entrepreneurial Culture

The presence of entrepreneurs in the localcommunity provides role models to the potentialentrepreneurs. It is very important for apotential entrepreneur to have someone tomodel in starting a new business. Without rolemodels and exposure to new business start-ups,it is unlikely that a person will engage inentrepreneurial activity.



Accessibility to markets, suppliers, andtransportation

The potential entrepreneur must haverelatively easy access to the market. If there arebarriers like distributors or dealers, it will bedifficult for the new enterprise to get started.Easy access to suppliers and transportation arevery important to minimize costs.

Significant Proportion of PurchasedInputs are Intermediate Goods

If a company purchases a significant amountof intermediate goods then an employee mightperceive of an opportunity to establish a firm

that could supply the original firm with anintermediate good for a lower cost.

Market Growth Potential

A spinning-off process cannot sustain itself ifthere is no room for growth and if an increase inthe number of firms only leads to a saturation ofthe market. Generally, growth potential isassociated with export-oriented goods because itis highly unlikely that there is enough localdemand to maintain a spinning-off process.Plus, studies have shown that there is not asignificant relationship between local demandand regional firm formation.



Case Study: The HouseboatIndustry in the LakeCumberland Region ofKentucky

In this section a case study of the houseboatmanufacturing industry in the LakeCumberland region is analyzed to see if aseedbed effect has taken place. Since there areseveral houseboat firms in the area, it appearsthat an agglomeration effect has taken place.Since boat building is considered a craftindustry, the employees are presumed to be veryskilled. For these reasons, the houseboatindustry in Lake Cumberland area appears to bea plausible example of an industry that hasexperienced a seedbed effect. This studyinvestigates the possibility that a seedbed effecthas taken place and the presence of thehypothesized seedbed characteristics in thehouseboat industry located in the LakeCumberland region. Interviews with houseboatmanufacturer owners and databases such asCounty Business Patterns and the NationalIndustry-Occupations Matrix are the primarytools used to conduct this study.

The first issue that needs to be addressed iswhether or not the agglomeration of houseboatfirms in the Lake Cumberland area is anabnormality for this industry. If the only sign ofagglomeration in the houseboat industry is inthis region then this agglomeration might justbe considered a fluke. By looking at the list ofhouseboat manufacturers in North America (seeTable 1) and Figures 1-3 in the appendix, thereis some evidence of other examples ofagglomeration in this industry, but they areobviously not of the same level as the onearound Lake Cumberland. Figures 1 and 2 showthat in both Middle Tennessee and NorthernIndiana there are three houseboat firms locatedin the same area. There is another examplefound by examining Table 1. There are fourfirms located in British Columbia, three ofwhich are in the city of Sicamous. Granted, itcan be noticed that many houseboat firms arelocated by themselves, but there is evidence of

agglomeration effects in this industry outsidethe Lake Cumberland region.

It is often presumed that workers inhouseboat manufacturing firms are highlyskilled, but the relative skill level of theemployees in the houseboat firms needs to bedetermined. The skill level of houseboatmanufacturing employees is compared to theskill level of the employees in the primaryindustries in this region by examining the wagelevels of the principal occupations for theseindustries. From County Business Patterns itwas determined that the main industries in thisregion are Textile and Apparel Products andLumber and Wood Products. Industrial andCommercial Machinery also appears to be arelatively important industry (see Table 2), andthe Kentucky Cabinet for EconomicDevelopment has declared it a targeted industryfor this region. Interviews with houseboatowners and The National Industry-Occupational Matrix were used to determinethe principal occupations, and the wage levelswere found from the 1995 KentuckyOccupational Wage Data : The LakeCumberland Region (see Tables 3,4, 5, and 6).The skill level of houseboat employees asmeasured by wage level is of at least the samelevel or, in most cases, greater than the skill levelof the workers in the two main industries(Textile and Apparel and Lumber and WoodProducts). The skill level of the higher skilledhouseboat employees (Welders, Machinists,Metal Fabricators) is of the same level as thosein the Industrial, Commercial, and ConstructionMachinery and Equipment. The wage level maynot be the best evaluation tool for the skill levelof the occupations inherent in houseboatbuilding because many of these occupationsrequire a great deal of skill, even though they donot pay a relatively high wage—carpenters,plumbers, and mechanics serve as examples. So,there is evidence supporting the notion that theemployees of houseboat manufacturing firms arerelatively high skilled.

The signs of agglomeration in houseboatmanufacturing firms outside the LakeCumberland area combined with their



employees being relatively high skilled warrantfurther investigation of the houseboat industryin this region to see if a seedbed effect has takenplace. The rest of this section provides asummary of the findings from interviews withhouseboat owners, the Houseboat Associationof America, and local development andChamber of Commerce officials. Also, given inthis section are general characteristics of theLake Cumberland economy. This summary ofhow the houseboat manufacturing industryoperates and general details of the localeconomy determines how many of the seedbedcharacteristics are present and whether or not aseedbed effect has taken place.

Previous employment experience of theowners/founders is very important indetermining whether or not a seedbed effect hastaken place. Owners in six out of the nine firmsin the area have past experience in thehouseboat industry, which looks very promisingfor a seedbed process until one learns about theprevious experience of the owners. The story ofhow many of these firms developed is veryinteresting and must be briefly told to explainthe situation. Around 1986, SomersetHouseboats suffered a very bad fire and wentout of business for a brief time period. After thefire the former sales manager of SomersetHouseboats and four other partners withdifferent backgrounds established StardustHouseboats. The different partners playedvarious roles in the business; some of them wereinvolved in sales and marketing, while otherswere in charge of delivery and production. In1993, differences on what direction Stardustshould take in the future led to the divorcing ofall the partners. The former sales manager ofSomerset Houseboats is the only originalpartner left at Stardust. Since 1994, three of theformer partners have started their ownhouseboat manufacturing firms which areSunstar, Horizon Yachts, and Lakeview Yachts.The other owners with past experience are theowners of Sharpe and Thoroughbred Cruisers.The owner of Sharpe is the son of the formerpresident of Somerset Houseboats, and heworked for Somerset Houseboats for a few

years. The founders of Thoroughbred Cruisershad previously worked in the industryrefurbishing houseboats.

According to the owners, acquiring thenecessary funding and a skilled labor force werehuge barriers to overcome in establishing thehouseboat manufacturing firms. The initialcapital requirements are extensive because of thehigh initial operating costs. Buying thenecessary amount of aluminum, fiberglass,framing lumber, etc., to get started in thehouseboat building business is very substantial.Plant equipment also contributes to thesubstantial capital requirements; fabricationmachinery, press brakes, welders, and hand toolscomprise the majority of plant equipmentnecessary for a houseboat. However, the amountof plant equipment needed is not that extensiverelative to other manufacturing firms. Most ofthe funds used for establishing the firms werefrom personal accounts, but other sourcesinclude local banks and Empowerment Zonelending. Some of the firms are located in anEmpowerment Zone, and because of this theyare eligible for subsidized lending and taxcredits. Many houseboat firm owners believethat the biggest constraints for mostentrepreneurs to overcome are knowledge ofhow houseboats are built and having thenecessary contacts to establish contracts withconsumers while the firm is still in its infantstage. Some of the firm owners were able to getstarted because of contracts with rentalcompanies before they ever built a boat.

Most of the houseboat manufacturingfirms are small in terms of employment levels,and these levels vary greatly among firms. Sevenout of the nine employ fewer than 100employees, while Sunstar and Somerset employaround 175. The number employed varies from10 (Thoroughbred) to around 175; most firmsfall in the range of 45-80 employees. Most ofthese employees are “blue-collar” workers, andthere are very few managers, administrators, ormanagement support staff members (see Table6). They train most of their workers in-house. Afew of them occasionally use the local vocationalschool, but according to the owners the local



centers are either outdated or do not provide thenecessary training for houseboat workers.Because employees have to be trained in-house,the poaching of labor has become a seriousproblem. However, since it is becoming such aprominent industry in the area, a pool of trainedlabor is emerging because many people view thisas viable job opportunity.

The houseboat manufacturing firms do nothave a trade association, and none of the firmsare members of a network of firms. Due to thefact that many of the owners are former partnerswho broke off on bad terms and this can lead tothe problem of labor poaching, the owners ofthe houseboat firms do not like each other.Because of this there is very little cooperationamong these firms, and there is little or nosharing of information on new technologies,labor practices, or anything.

The organization of production can becharacterized as a flexible specialization method.The different types of employees (welders,plumbers, etc.) work in groups performing taskswithin their specialization. The employees aregrouped by their occupation; the plumbers workwith plumbers. With this organization ofproduction workers are not necessarily able toacquire skills outside their occupation, but theyare able to observe how the entire process ofproduction is performed. They are able to makethese observations because they work next toother teams of workers with differentoccupational skills and because of the small sizeof the firms.

The majority of the production process isdone in-house. A few items are done outside,such the cabinets, heat pump, and engine, butmost of the houseboat is produced within thefactory. The firms purchase a majority of theirinputs nationally, especially the “big ticket”items like aluminum, fiberglass, framing lumber,appliances, and engines. They generallypurchase these inputs from more than onevendor, and they base their purchasing decisionson price and service. The houseboat firms dopurchase some items locally, such as glass, doors,and “small ticket items” like parts. Cabinetmaking, drapery, and canvas work are about the

only examples of the production process that arenot done in-house and are actually done locally.

Depending on the size of employment,houseboat firms produce anywhere from six toeighty houseboats a year. The houseboats aresold directly to the customer, and they arecustom made; they do not start making oneuntil it is already sold. Currently, there is a two-to three-year waiting list at most houseboatmanufacturing firms, which implies thatdemand for houseboats is very strong. Mostfirms sell a large percentage of their boats foruse either on Lake Cumberland or on DaleHollow Lake in Tennessee, which is very closeto this region. However, they do sell boats allover the country. The other large markets areLake Powell in Arizona, Lake Lanier inGeorgia, Cedar Hill Lake in Nashville, andLake Quachatia in Arkansas. Most of thehouseboat firms sell boats to rental companies,and for these firms around twenty-five to thirtypercent of their boats are sold to thesecompanies.

Once the firm is established, advertising itsproduct is not as important an aspect of thehouseboat manufacturing industry as it is inother industries. All of the firms advertise inhouseboat magazines, but their primary methodof marketing their good is by word-of-mouthand customer satisfaction. Stardust andSomerset also each take a boat to at least oneboat show a year, and some of the other firmsset up a booth at these shows. The main reasonthat most firms do not put a boat in one ofthese shows is the huge expense associated withthis. One owner noted that advertising is not anecessity in this business because mostcustomers come to them because of LakeCumberland region’s reputation as being the“Houseboat Capital of the World.”

The houseboat manufacturing industrycontains many characteristics of a seedbed,including small firm size, relatively skilled laborforce, and the flexible specializationorganization of production. The houseboatindustry in Lake Cumberland is relatively closeto a majority of its potential market because ofthe lake and the fact that firms are close to a



majority of their competition. So far the marketfor houseboats has been strong enough tomaintain the growing number of houseboatmanufacturing firms entering the market, butthe sustainability of this growth is questionable.It seems likely that an economic downturncould drastically reduce the demand and thewaiting list for houseboats since they can beregarded as a luxury good. Another importantissue is what happens once the market forhouseboats becomes saturated, and it appearsthe market is approaching the point ofsaturation due to the dramatic increase in thenew firms in the last few years. Once the marketbecomes saturated it is doubtful that the marketcan support all of the existing firms, much lessany new firms.

Although it is not vital that the houseboatindustry contains all of the important factors,many of the essential ingredients for a seedbedare missing from this industry. The houseboatfirms have a very low percentage of managers,administrators, and support staff, and it isgenerally believed that persons in managerialoccupations have a better understanding of howthe entire business operates, not just theproduction or the marketing of the good. Thesepeople are also more likely to perceive anopening in the market for a new business. Aspreviously discussed, most houseboat firmowners think that the major constraint to apotential entrepreneur in this industry is bothunderstanding the production process andhaving the necessary contacts and knowledge ofthe business. Another missing ingredient is lowbarriers to entry. Although the plant equipmentrequired is not substantial, both the high initialoperating costs and having the necessarycontacts to acquire the necessary consumers andcontracts in the infant stage of the businessserve as major barriers for an entrepreneur toovercome. The lack of networking or businessassociation is another missing characteristic.Without this condition, there is no support orhelp for a potential entrepreneur to call upon.Most of the production of houseboats beingdone in-house creates another important

missing factor in this industry. In-houseproduction reduces the number of marketopportunities that a potential entrepreneur canperceive.

As mentioned earlier in the paper, it is alsovery important for the community to havecertain characteristics for a rural manufacturingfirm to have seedbed potential. Anentrepreneurial culture and a supportiveenvironment are two important factors of apotential seedbed. Since the creation of LakeCumberland, there has been an enormousoutbreak of entrepreneurial activities in thisregion for such a rural area. The number ofhouseboat manufacturers is just one of manyexamples, although most of the new enterpriseshave been in service oriented businesses. It ispresumed that there exists a supportiveenvironment of entrepreneurship because somany entrepreneurial activities have occurred inthis region, and this presumption is supportedby the many examples of people starting two orthree businesses.

However, the Lake Cumberland region doesnot contain all of the important conditions thatprovide seedbed potential, and it might not beconsidered the most advantageous location. It isdifficult to characterize the work force in thisregion as skilled. Textile and Apparel productsand Lumber and Wood products, as previouslyshown in this paper, are the primary industriesin this area, and these industries require veryfew skilled workers. Most of the employees inthese industries are semi-skilled labor (seeTables 3 & 5). Although, as mentioned earlier, apool of trained labor for the houseboatmanufacturers is developing because of theperceived job opportunity. This region is close toI-75, but it is not the most accessible place totransportation. It is a couple of hours from thenearest airport. According to most houseboatfirm owners there are few advantages forlocating in this area. They only gave two reasonsfor locating in this region. The major reason wasthat the owners are from this area, and thesecond reason was the established reputation ofthe houseboat industry in the area.



Conclusion and PolicyImplications

The notion of a seedbed is that certainmanufacturing industries have the capability tocreate a spinning-off process. The logic behindthis idea is that different manufacturingindustries have different employmentexperiences, and industries in which theemployees have the opportunity to accumulatemany skills and to form an understanding ofhow the business operates promoteentrepreneurial development. A seedbed processtakes place if an employee breaks off from acompany to start his/her own business in thesame industry or in a related sector because of aperceived opportunity in the market. For a ruralmanufacturing industry to have seedbedpotential, the industry and the communitywhere it is located must have a set of importantcharacteristics. These conditions include: smallfirm size, relatively skilled labor force,significant proportion of management andadministrative occupations, flexiblespecialization as the organization of production,low barriers to entry, intermediate goodcomprising a significant proportion ofpurchased inputs, pool of trained labor,supportive environment, entrepreneurial culture,accessibility to the market, supplies andtransportation, the existence of businessnetworks or associations, and market growthpotential. It is not necessary for the firm and theregion to have all the characteristics, but enoughof the conditions must exist so potentialentrepreneurs are given a chance to acquiremultiple skills and are exposed to an“entrepreneurial friendly” environment.

The houseboat industry in the LakeCumberland region appears to be a possibleexample of seedbed because it is considered acraft industry and because of the agglomerationof houseboat manufacturing firms in the area.The houseboat industry and Lake Cumberlandarea contain many of the essential

characteristics, such as skilled labor, small firmsize, flexible specialization production process,and entrepreneurial culture. However, after closeinspection of the houseboat manufacturingindustry in the Lake Cumberland region, it isvery difficult to conclude a seedbed effect hastaken place. First of all, it is missing a few keyingredients. A very low percentage of theemployees are in management or administrativeoccupations, and huge barriers to entry exist dueto the extensive initial operating costs and theimportance of having the necessary contacts toattain contracts with consumers while the firmis in the infant stage of production. With mostof the production being done in-house, very fewof the inputs being intermediate goods, and justa few local suppliers, the seedbed potential islimited. These are indicators of linkages backinto the community that can stimulate newentrepreneurs, which makes it very doubtful thata seedbed process took place. It is also hard tosay a seedbed effect occurred due to thecircumstances that led to the founding of manyof the houseboat firms.

Even though it has been concluded that aseedbed effect did not occur in the houseboatindustry in the Lake Cumberland region, it ispossible to draw more insight about seedbedsfrom this case study. The unfriendly relationsamong the owners of the houseboatmanufacturing firms highlight the importanceof competition and conflict as a driving point ofnew firm formation. The case study alsosuggests that a manager and a factory or “blue-collar” worker need to break off together inmany rural manufacturing industries to besuccessful in establishing a new firm in thatindustry or a related one. This implies thatworkers and managers need to work in closerelations for a manufacturing industry to haveseedbed potential so they can have theopportunity to work together and discuss thepossibility to start a new firm. This case studyalso implies that personal funds could serve as abarrier to entry for most manufacturing



employees. Most of the funding used byhouseboat firm owners came from personalaccounts, and banks will only lend a certainpercentage of the required funds in establishinga new business. Since most rural manufacturingemployees do not earn a high income, it is verylikely that most will not have the necessaryfunding to establish a manufacturing firm.Therefore, personal funding can serve as a hugebarrier to entry for many manufacturingemployees.

The notion of seedbed industries has manyimportant policy implications for ruralcommunities including the Lake Cumberlandregion. The notion of seedbeds allows localdevelopment officials to combine the strategiesof industrial recruitment and indigenousentrepreneurial development. Communities withconditions that are supportive ofentrepreneurship can concentrate their effortson recruiting industries that have thecharacteristics of a seedbed instead of targetingand recruiting “footloose” industries that do notbring as many benefits to the community. Someregions may have industries with the essentialseedbed factors, but they may not beexperiencing a seedbed effect because they lackan “entrepreneurial friendly” environment. Inthis case the local officials can concentrate ondeveloping the necessary conditions forentreprenuership in the local economy. With the

case of the Lake Cumberland region, thedevelopment of a job-training program serves asone way that local officials in this area couldhelp promote entrepreneurial development. Ifthe program is run with the cooperation of thelocal firms and provides the appropriate trainingfor the local industries, it can serve to createfriendlier conditions among the firm owners.This can promote a more collaborativeenvironment, which is an essential condition fora seedbed.

A seedbed strategy brings with it manyadvantages that are inherent in both industrialrecruitment and entrepreneurial development. Itcan have a significant impact on theemployment levels, and because of thecharacteristics of a seedbed it can increase thenumber of “good” jobs in the economy. Seedbedindustries are less likely to uproot and leave thelocal area for two reasons. First, if a seedbedeffect takes place then an agglomeration of theseindustries will occur in the area. Because of theadvantages that an agglomeration offers to afirm and an industry, it is unlikely that a firm oran industry will leave. Secondly, a seedbedstrategy, like an entrepreneurial developmentpolicy, promotes the local ownership of thebusinesses, which provides many benefits to thelocal economy including a lower probability thatthe firm will be “footloose”.



Appendix 1

TABLE 1

LIST OF HOUSEBOAT MANUFACTURERS

Name Location

Aqua Chalet New Tazwell, Tennessee

Boatel Houseboats Page, Arizona

Catamaran Cruisers Columbia, Indiana

Cee Craft Elkhart, Indiana

Desert Shore Houseboats Centerville, Utah

Dream Cruiser Elkhart, Indiana

Fantasy Custom Yachts Monticello, Kentucky

Fun Country Marine Muncie, Indiana

Gibson Performance Goodlettsville, Tennesse

Golden Eagle Yachts Malakwa, British Columbia

Harbor Master Gallatin, Tennessee

Hill Hollow Technical Bayfield, Colorado

Horizontal Yachts Monticello, Kentucky

JRW Manufacturing Palmetto, Florida

Lakeview Yachts Monticello, Kentucky

Liberty Bell Independence, Wisconsin

Medaris Marine Russell Springs, Kentucky

Myacht Goshen, Indiana

Patio Cruisers Chico, California

Playcraft Richmond, Missouri

Sharpe Houseboats Somerset, Kentucky

Skipperliner La Crosse, Wisconsin

Stardust Monticello, Kentucky

Somerset Houseboats Somerset, Kentucky

Sun Tracker Springfield, Missouri

Sunstar Houseboats, Inc. Monticello, Kentucky

Thoroughbred Cruisers Albany, Kentucky

Three Bouys Houseboats Sicamous, British Columbia

Twin Cruisers Sicamous, British Columbia

Waterway Cruisers Sicamous, British Columbia

Wave Length Portland, Tennessee

Source: “List of Houseboat Manufacturers.” Houseboat Association of America. www.houseboat.net and 1996Kentucky Directory of Manufacturers (1996). Frankfort: Cabinet for Economic Development.



TABLE 2PRINCIPAL MANUFACTURING INDUSTRIES IN THE LAKE CUMBERLAND REGION

Industry Employment Levels Number of Establishments

Textile and Apparel

Men’s and Boys’ Shirts 100-249 1

Women’s, Misses’, and Children’s Underwear 20-99 1

Girls’ and Children’s Dresses And Shirts 100-249 1

Girls’ and Children’s Outerwear 500-999 1

Knit Outerwear Mills 2500-4999 1

Men’s and Boys’ Suits And Overcoats 500-999 1

Men’s and Boys’ Separate Trousers and Slacks 100-249 1

Women’s, Misses’, and Juniors’ Blouses and Shirts 250-499 2

Lumber, Wood, & Furniture Products

Sawmills and Planing Mills 500-999 25

Wood Household Furniture 20-99 2

Hardwood Dimensions and Flooring Mills 550-800 7

Wood Containers 217 6

Machinery and Equipment

Industrial and Commercial Machinery 0-19 2

Electronic and Other Electronic Equipment 271 5

Equipment

Air-Conditioning and Warm Air Equipment and 500-999 1

Industrial Refrigeration Equipment

Motor Vehicle Parts & Accessories 250-499 2

Houseboats 600-750 9

Source: 1995 County Business Patterns, Bureau of the Census, Washington, D.C.



TABLE 3OCCUPATIONS AND WAGE LEVELS IN THE LUMBER AND WOOD PRODUCTS INDUSTRY IN

THE LAKE CUMBERLAND REGION

Principal Occupations %Total Employment Mean Wage($)

Executive, Administrative, and Managerial 6-7% 17.10

Managerial Support Occupations 1-2% 14.00

Marketing and Sales 1-3% 10.20

Precision Production, Craft and Repair 22-29%

Mechanics, Repairers and Installers 4-6% 6.90

Cabinetmakers and Carpenters 4-6% 7.40

Machine Setters, Set-Up Operators 16-21%

Woodworking Machine Setters 9-15% 8.10

Head Sawyers and Sawing Machine Operators 6-9% 9.10

Hand Workers, Assemblers and Fabricators 4-12% 7.30

Transportation Operators 8-15% 6.00-9.30

Helpers, laborers and hand manual workers 16-20% 5.50-7.00

Sources: 1995 County Business Patterns, Bureau of the Census, Washington, D.C., The National Industry-

Occupational Matrix, Occupational Employment Statistics, Bureau of the Census, Washington, D.C., and 1995

Kentucky Occupational Wage Data for the Manufacturing Sector: Lake Cumberland Area (1997). Frankfort: KentuckyWorkforce Development Cabinet.



TABLE 4OCCUPATIONS AND WAGE LEVELS IN THE INDUSTRIAL, COMMERCIAL, AND

CONSTRUCTION MACHINERY AND EQUIPMENT INDUSTRIES IN THE LAKE CUMBERLANDREGION


Executive, Administrative, and Managerial 7-10% 17.10

Managerial Support 2-3% 14.00

Engineers 4-5% 9.80-21.90

Technical and Related Support 3-6% 8.30

Marketing and Sales 2-3% 10.20

Precision Production, Craft and Repair 20-30%

Inspectors and Testers 2-5% 6.90

Machinists 3-12% 8.10

Tool and Die Makers 3-10% 13.90

Other Precision Metal Workers 2-3% 9.50

Machine Setters 16-20%

Numerical Control Tool Operators 2-3% n.a.

Machine Tool-Cut and FormSetting 9-13% 9.00-10.50

Punching Metal Setters 2-3% 9.50


Transportation Operators 2-3% 6.00-9.30






TABLE 5OCCUPATIONS AND MEAN WAGE LEVELS IN THE TEXTILE AND APPAREL INDUSTRIES IN

LAKE CUMBERLAND REGION


Executive, Administrative, and Managerial 5% 17.10

Marketing and Sales 3% 10.20

Precision Production, Craft and Repair 12%

Mechanics and Installers 4-7% 6.90

Inspectors, Testers 3-5% 8.70

Machine setters, set-up operators 48-52%

Textile and related setters 36-48% 8.10

Sewing Machine Operators 7-47% 6.40

Textile Bleaching and Dyeing Machine Operator 2-4% 8.30

Textile Draw-Out and Winding Machine Operator 5-25% 8.10


Motor Vehicle Operators 3% 6.00-9.30

Helpers and Material Movers 6-7% 5.50-7.00






TABLE 6OCCUPATIONS AND WAGES IN THE HOUSEBOAT MANUFACTURING INDUSTRY

Occupation Wage ($)

Executive and Managers 17.10

Administrative Support Occupations 8.30

Transportation Workers 9.30

Carpenters 7.20

Plumbers 5.80

Painters 6.00

Mechanics 6.90

Hand Workers, Assemblers and Fabricators 7.30

Machinists 10.50

Welders 10.50

Tile Setters 10.00

Electricians 8.80

Metal Fabricators 12.00

Source: Interviews with houseboat manufacturing owners, 1995 Kentucky Occupational Wage Data for Lake

Cumberland Region, and The National Industry-Occupational Matrix, Occupational Employment Statistics, Bureauof the Census, Washington, D.C.





Figure 1Houseboat Manufacturing Firms in Northern Indiana



Figure 2Houseboat Manufacturing Firms in Middle Tennessee



Figure 3Houseboat Manufacturing Firms in the Lake Cumberland Region of Kentucky

Appendix 2

GENERAL SURVEY USED FOR INTERVIEW OF HOUSEBOAT FIRM OWNERS

History and Formation of the Firm

What was the previous experience of the owner/founder? Previous knowledge of houseboat industry?

What circumstances led to the formation of the firm? Is the firm locally owned? When established?

Has the development of the firm and the community been related?

Capital Requirements and Technology

What constraints were faced with the establishment of this firm? Were there extensive initial capitalrequirements?

How did you obtain the necessary capital to start the firm?

Amount of plant equipment necessary for production?

How rapidly is production technology advancing in the industry? Central source of technology andinnovation?

Have you invested in flexible manufacturing technology?

Product Market

How are houseboats sold? (retailer or directly to customer) Are they custom made? Are therestandard models? How many houseboats are produced in a year?

Do you deliver the houseboat?

What percentage of boats is sold locally? Do you export?

Do you sell to rental companies?

How do you market your good? The role of boat shows?

Production and Labor

How many are employed? What are the skill requirements for the different workers? Are theserequirements changing?

What are the biggest challenges to the firm in the labor arena? How has the location helped or hurt?How would you classify the market for skilled labor in the area? Ever been problem of poaching oflabor?

How would you classify your organization of production? Perform more than one task? Work ingroups?



Are houseboats the only good produced? How many produced in a year? Compare to competition?

What is produced in house?

Inputs

What production inputs are purchased? Where do most of them come from? How many arepurchased locally? How has this supplier relationship changed in recent years? Are you dependent onlocal suppliers?

Have any local suppliers started up because of the houseboat industry? Do any local suppliers haveprior houseboat employment experience which led to firm formation?

Do you purchase your inputs based on price, quality, and timeliness of delivery?

Do any of the inputs have to be custom made?

Cooperation

Is there a local trade association? Any networking between firms? Share any information with localfirms?

Competition

Where is most of your competition located? Nature of competition locally in industry? Are majorcompetitors in this area?

How do you compete? (price, product differentiation, innovation)

Has competition changed in recent years? Are there many new entrants?

Misc.

What are the current constraints facing current employees from breaking off?

What state policy has helped/hindered in the development of the houseboat industry? What policieswould help? (training, financing, innovation)

Have any officials from other states attempted to recruit you?

Are there any advantages of the local market?



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