Recovery Zones Sweeten Coalitions

August 5, 2005
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At least in West Michigan, the collaborative tool-and-die business model has become commonplace.

"We've all agreed to treat each other fairly and all realize that our competitors aren't down the street, they're on the other side of the water," said Pat Quinlan, president of Precise Engineering.

"Six years ago, you didn't let anyone in your shop because they'd end up hiring your employees," Accu-Mold President Dave Martin said. "Now, we invite each other in and show what we're doing to keep the industry here.

"When you go to war, that's when everyone comes together, and we are at business war."

It was that mentality that prompted a trio of bills last year in support of tool and die. The most notable of those, Senate Bill 825, allowed the Michigan Strategic Fund Board to designate up to 20 Tool and Die Recovery Zones providing the same benefits as a Renaissance Zone.

Companies located in a Recovery Zone are excused from the Single Business Tax (SBT), 6-mill state education tax, local personal property tax, local real property tax and local income tax for a period of up to 15 years.

A Recovery Zone is awarded on a coalition basis; up to 20 firms can be submitted on a single application. The minimum is four.

To qualify, firms must participate in a formal coalition that collaborates sales and marketing; develops standardized processes, tooling standards and project management methods; and improves the ability of small shops to compete with larger programs.

They also must perform 80 percent of operations on the abated property, be approved by local government and have less than 50 employees.

The first eight zones were assigned last year, consisting of 33 companies and doling out $1.6 million in abatements.

Precise and Accu-Mold are both part of the 17-member United Tooling Coalition (UTC), the model for the Recovery Zone program. Less than half of the UTC, eight firms, was granted Recovery Zone status last year. Most of the UTC did not qualify for the program.

Quinlan said those members receiving it have spread the savings among the group, but one of the larger UTC members, Paragon Die & Engineering, still takes a cynical view of the zones.

"It's helping some but not the industry," said Dave Muir, Paragon's process and IT manager. "It's a great incentive, but how is that incentive coming across?"

Another large firm, mold maker HS Die & Engineering, is supportive of the zones. Although not a member of any coalitions, HS does work collaboratively with other stampers and mold makers.

"It would be nice if it was offered to us, but as a bigger shop there are advantages that we have and they don't," said Kent Hanson, director of engineering. "We have a volume buying position they don't have, and now they have something that helps them."

There is a possibility that the zones could unravel the collaborative culture created by coalitions like UTC.

"The reality is that one of our competitors, which is a 50-man shop now, can get a 15-year zone," Muir said. "Right now, we don't directly compete with them; we're a 150-man shop."

But if that shop were to grow to 200 employees, the zone would remain.

"If the government allows you to do it, you should take every advantage," Muir said. "But theoretically, it could be picking who survives and who doesn't."

John Czarnecki, vice president of community relations for the Michigan Economic Development Corp., was on site evaluating the four-firm Coopersville Tooling Coalition last month.

"They are doing what they said they would do," he said. "They had a list of projects they're working on together which would not have come without collaborative effort."

Czarnecki expects intense competition for the second round of zones.

Martin is facilitating the formation of the Southwest Michigan Global Tooling & Technology Collaborative, a 16-firm coalition in the Kalamazoo area. The group registered as an LLC on April 12 and has since individually sought approval from local municipalities.

"They are doing an outstanding job of learning, adapting and forming the collaborative business model," Martin said. "They see the value."

Phil Allen, president of West Michigan Precision Machining, has practiced the collaborative model since his firm's inception in 2003.

"If I want to keep my customers happy, I need to get the jobs done for him," he said. "I've joined coalitions so I can take on those projects I know I can't get done, because I have to keep these relationship going."

Allen subcontracts out the work for cost as a value-added service to customers. Managing these contracts has become a full-time job in itself, he said. He had not previously been part of a formal coalition, but is now as part of a Recovery Zone application.

Applications for the remaining 12 zones are due Sept. 12.    

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