September 25, 2017
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The hidden businesses that power the Bangor region’s economy

By Erin Rhoda, BDN Staff

Editor’s note: We set out to understand how the Bangor region could grow its economy, and we’d like your help as we publish stories on the subject. Please visit the end of this page to answer a few questions to inform our reporting. Thank you.

The year 2009 was not the best to purchase a company that builds kilns that dry lumber. But despite a lagging, post-recession economy and depressed housing market, Ton Mathissen and a group of investors saw what Nyle Corp. in Brewer could become.

Many employees had worked for the company for decades and held the knowledge essential for manufacturing the only lumber-drying systems in North America that use an energy-saving, dehumidification technology. And Mathissen, now president of what became Nyle Systems LLC, saw that the technology could be used for more than drying hardwood, which meant the company could grow.

With the help of other investors and the state-backed Maine Venture Fund, Mathissen purchased Nyle Corp.’s assets in 2009 and 2010 when the company had about 12 employees. Today the reconstituted company has about 40 employees, Mathissen said. Its revenue has grown, on average, 25 percent each year; the number of employees has grown 18 percent each year; and the company has needed to expand its physical space each year by 10 percent.

Nyle Systems grew by adapting its drying technology to do more than dry wood, which meant it could expand its customer base. Today, the company’s products also include systems that dehydrate food and heat pumps for industrial water heaters. Because it had workers capable of building new products, and leaders to steer the company toward growth areas, it was able to do something often discussed but less often witnessed: innovate.

In a Bangor metropolitan area with a labor force of about 70,000, Nyle Systems’ 40 employees is a small number. But the company fulfills a role that’s fundamental to the health of any regional economy: It sells products beyond the region, bringing outside money back to people here. It’s illustrating how expansion is possible through adaptation. And it happens to belong to a small but important business subsector — metal products manufacturing — that gives the region a competitive edge over other places.

There’s no clear direction for how, exactly, to increase the number of Bangor-area companies like Nyle Systems that export goods to out-of-state customers and belong to industries that have already displayed promise. Much of a company’s operations depend on its internal ability to seize new markets, its leaders’ savviness, its history and reputation, its propensity toward innovation and, often, a bit of luck.

But business and economic development experts tend to agree that strong clusters of complementary firms, suppliers, and research or training institutions — that can all support one another through their proximity and connections — are foundational to a hardy regional economy. Industries within these clusters of related networks tend to see greater employment and patenting growth, which can have a ripple effect on other clusters — sometimes even launching new regional industries.

It is particularly beneficial to have groupings of companies that sell products and services beyond their region. These so-called traded companies create demand for local industries, such as health care, education and retail, that employ greater numbers of people, according to research by Harvard economist Michael Porter.

No state or metropolitan area can reasonably expect to expand its economy by developing a higher than average concentration of grocery stores,” wrote Joseph Cortright, an expert in regional economic analysis and development, who formerly worked with the Brookings Institution.

On a state level, Maine has strong groupings of traded companies in boat building and biopharmaceuticals, according to Harvard Business School’s U.S. Cluster Mapping Project. Both areas saw employment growth between 1998 and 2015.

Having a concentration of similar, export-focused businesses in a particular area can attract workers with distinctive skillsets, who find an advantage to being in a place with multiple options for employment. It can allow suppliers to grow and specialize, and facilitate the spread of knowledge.

But it is extremely difficult for a place to create clusters where there were none before. So growth must come from “building on, extending, and combining existing cluster strengths,” Cortright wrote. A group of technology-related businesses might require help with research or attracting capital, for example, while a metals-industry cluster might require help with job training or testing new technologies.

In addition to Nyle Systems, there are other metal-products companies in the Bangor region that hypothetically should benefit one another by their proximity. Mathissen said he would like to see this regional cluster grow, so his company might better find the skilled labor it needs.

Westmor Industries in Brewer, which was named Trans-Tech Industries before its sale to Minnesota-based Superior Industries in 2011, is another example of a local, export-focused metal products company that has grown: It has 66 employees today helping to manufacture aluminum truck tanks that transport fuel, up from 55 employees in 2011, said Sue Astran, in human resources. It sells more than 90 percent of its tanks to customers outside of Maine, said former president Ken Peters, who helped found Trans-Tech in 1985.

Like Mathissen at Nyle Systems, Peters stressed the importance of finding new markets. During his tenure he helped expand sales farther west and south, adapting the tanks to haul different, and often multiple types, of petroleum products according to each state’s fuel needs and road weight restrictions. His workers were essential to the company’s growth: “Having great people work for you is the key to any business,” Peters said.

No common blueprint

Beyond having some level of coordination between the people who work in a business cluster and related areas, there’s no common blueprint for regions to follow to accelerate their growth.

“There are no good academic studies” on what it takes for regions to grow the number of jobs in export-oriented businesses, summed up Karen Mills, a senior fellow at the Harvard Business School, former administrator of the U.S. Small Business Administration, and former chairwoman of Maine’s Council on Competitiveness and the Economy.

More broadly, however, it is clear that local strategies should aim to boost firms’ capacity for innovation.

“What we know now about economies and growth are really connected to knowledge creation and innovation — innovation defined very broadly, whether that’s innovation in products, processes, organizational models, business models. That’s what we know drives economic growth,” said Elisabeth Reynolds, executive director of the Massachusetts Institute of Technology’s Industrial Performance Center.

The University of Maine and other institutions connect different industries and players when they see a possibility for collaboration, but “it can be done more systematically or strategically. I don’t think we’ve figured out how to do that yet,” said Renee Kelly, assistant vice president for innovation and economic development at the university.

There are roles for higher education, trade associations and government in cluster development, but, she said, “ultimately, clusters are developed around business relationships. So there has to be a level of organic buy-in to it as well.”

Eastern Maine Development Corporation, which serves Penobscot, Piscataquis, Hancock and Waldo counties, is focusing on a wide range of economic areas: forestry and wood products, composites and boatbuilding, tourism and hospitality, bioscience and health care, construction and skilled trades, agriculture and food production, and emerging technology sectors.

“Folks do get together to discuss common issues such as cost of energy, need for logistics improvement, workforce supply,” said Michael Aube, the organization’s president and CEO. “They have not yet really moved into more joint action-oriented efforts with the exception of some public policy issues.”

Bangor region’s economic strengths

In 2014, the Bangor Region Development Alliance, which has since ceased operations, wanted to know where the region had economic strengths, and therefore where growth might come from or be fostered.

So at the organization’s request, Evan Richert, former director of the State Planning Office, began examining industry employment data from the Maine Department of Labor and the U.S. Census Bureau.

He dug into business subsectors — defined through the internationally developed North American Industry Classification System — in the Bangor metropolitan area with markets beyond the region and state. Choosing those with more than 50 employees, he examined whether they employed a greater proportion of the region’s workforce than the state and nation in 2013, in addition to whether they grew their number of workers between 2005 and 2013.

But, because he measured employment during the recession, he married the data with more up-to-date information gleaned from talking to dozens of local business executives during roundtables held by the Bangor Region Development Alliance and Eastern Maine Development Corporation.

Overall, the data show that the Bangor region doesn’t have many export-focused areas with a competitive advantage that are seeing employment growth. There is one clear bright spot (forestry support), a smaller bright spot (metal products) and some even smaller glimmers.

The area of forestry support services appears strong in the region based on its employment growth and concentration of employment compared with the state and nation. It’s made up of companies that help timber and logging operators estimate the value of their wood supply, protect it, conduct research, and provide forest pest control and reforestation services.

In related fields, the region specializes in logging when compared with the nation but not the state, and in biomass electricity production when compared with both the state and nation. But both have seen employment declines.

Still, the region has a real specialization in forestry overall, finds the U.S. Cluster Mapping Project, which ranked the Bangor metropolitan area’s share of employment in the industry seventh out of the 917 metropolitan areas in the country in 2015. It was 18th in 1998.

The area of architectural and structural metals manufacturing appears to have an edge over the state but not the nation. Various subsectors, however, such as plate work manufacturing, prefabricated metal buildings manufacturing, and the fabricating of structural metal components, all hold a competitive advantage over the nation. Though employment dipped in some areas between 2005 and 2013, overall the sector has seen long-term employment growth.

There is a strong metal products subcluster in the region, confirms the U.S. Cluster Mapping Project, which ranked the Bangor metropolitan area’s share of employment in metal products 255th out of 917 metropolitan areas in the country in 2015. The region ranked 379th in 1998. It also found a strong subcluster in the manufacturing of certain types of machinery.

The region does specialize in the production of miscellaneous wood products, compared with both the state and nation. This subsector — which represents the creation of cabinets, wooden oars and millwork — saw employment growth between 2005 and 2013. But the subsector belongs to a larger industry, wood products manufacturing, that has been losing workers.

There are additional industries where the data suggest the region has a competitive advantage, but they have seen stagnant or declining employment over the last two decades, as is the case with general freight trucking. Or they are currently made up of just one or two companies, as is the case with asphalt paving and the production of frozen pastries.

In other cases there are clear strengths here, but some firms are located slightly outside the official boundaries of the metropolitan area and aren’t fully reflected in the data, as is the case with boat building.

Or they belong to emerging sectors and haven’t grown big enough yet to register in the data collection, as is the case with sensor technology companies that make environmental monitoring systems. Forest bioproducts, composites, renewable energy and breweries are other fields that don’t register well in the data but may offer openings for future growth, Richert said.

All of this shows that the Bangor region has a few key, mature subsectors, especially forest support services and metal products, that could provide future economic growth, Richert said. At the same time, emerging fields are unpredictable and could end up being the actual growth areas.

A region can be prepared for both options. “Whether legacy or emerging, they all can find opportunities to increase productivity and innovation capacity,” Reynolds said.

Growing an export-oriented company

Nyle Systems has grown because it’s continued to adapt its products and find new markets throughout the United States, Canada and overseas, not because the company belongs to a cluster of similar firms in the area that build things out of metal. But if its cluster were bigger or more connected to other fields, perhaps, it would accelerate the expansion of Nyle Systems and other companies.

One of the biggest restrictions the company faces is finding the right workers, especially refrigeration technicians, Mathissen said. A greater mix of companies needing those skills could stimulate a larger labor pool to draw from.

“It’s hard to attract qualified people from outside the state to Maine. That’s hard or nearly impossible. Therefore, it’s really important to build that local workforce,” Mathissen said. “It would be nice if there would be more companies like that, so that the university had a reason to invest more in upgrading those skills.”

What Nyle Systems needs to continue to grow — it has five current job openings listed on Indeed.com — is also what has helped it get to this point. With roots in the vast and volatile lumber industry, it has stayed in Brewer because one of its most valuable resources — workers with the right know-how — are here.

These are people like Dave Sukeforth, who runs the company’s sheet metal department and started working with the founder, Don Lewis, in 1969 before the original company formed; Brent Treadwell, a 31-year employee who runs the refrigeration department; Craig Delano, the service manager who’s worked there 33 years; Nathan Cyr, the operations manager who’s worked there 17 years; Stan Krahn, a 15-year employee who works in service and sales; and Jeremy Howard, who started as a software engineer 13 years ago and is now vice president of sales.

“Without the people there’s really nothing there. It’s not the production equipment. It’s not anything else. It’s what the people know and are able to do, and their relationships with the existing customer base,” Mathissen said.

After the purchase, the company adapted its dryers to dehydrate food, opening it up to the health food market. It adapted its systems to manufacture heat pumps that heat up the water in industrial water heaters used by hotels, apartment buildings and other places that require a lot of hot water.

And earlier this year the company patented a mechanical design for a new type of dehumidifier that dries materials at higher temperatures, meaning it will be able to increase its footprint in the softwood lumber market and in the food and petfood markets.

Once Nyle Systems perfects its high-temperature dryers, it could significantly grow the size of the company with just a couple orders from the softwood lumber market, Howard said, adding, “I think this company may have one of the largest potentials in the state.”

As for building up the strength of the region’s metal products cluster, Mathissen wasn’t sure what it would take beyond what he’s been doing on a company scale: “Get started, create something good and hope other people will join in.”

Maine Focus is a journalism and community engagement initiative at the Bangor Daily News. Questions? Write to mainefocus@bangordailynews.com.

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