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OM in the News: Clustering in Warsaw, Indiana?

May 3, 2014


orthopedicsHere in Orlando, we well understand the concept and power of “clustering,” one of our topics in Chapter 8, Location Strategies. Our cluster of theme parks, including the six Disney facilities, two Universal Studio parks, Lego Land, Sea World, Gator Land, and many smaller tourist destinations, employs over 100, 000 people. But one of the more unusual of all the industry clusters in the world exists in Warsaw, Indiana.

A $13.35 billion deal to combine two medical-device makers was big news on Wall Street,” writes The Wall Street Journal (April 25, 2014)—”and also in this 14,000-person city where both companies are based, which proudly calls itself the Orthopedic Capital of the World.”  The deal positions Zimmer, based in Warsaw since 1927, to become the second largest company in the $45 billion global market for artificial knees, hips and other orthopedic and bone-mending implants.  In addition to Zimmer and Biomet, medical-device maker DePuy Orthopedics is among the 48 medical equipment firms based in Warsaw. The industry got its start in that town in 1895 when DePuy’s founder, a Canadian pharmacist named Revra DePuy, came up with the idea of making flexible splints to replace the wooden barrel staves then used to set broken bones. The company he created eventually spawned others, as people left to start competing firms.

One of the nation’s last company towns, Warsaw is a microcosm of 1950s Detroit, where manufacturing workers with a high-school education are able to live middle-class lifestyles. Some 21% of workers in Warsaw’s county were employed in medical-equipment and supplies manufacturing in 2012. The average annual salary of workers in the industry was $80,300, compared with $44,600 across all industries in the county.

Classroom discussion questions:

1. Why are so many medical device firms located in Warsaw?

2. Why is the takeover so complex for the city?

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