The Great Northwest

The Great Northwest

Northwestern Minnesota has low unemployment and booming companies hungry for workers. What is its secret?

Digi-Key wants you. It needs you. The Thief River Falls electronics parts distributor has about 2,600 employees. It could hire about 200 today. And in northwestern Minnesota, the company’s corner of the world, it’s not the only one looking for workers.

Right next door to Digi-Key’s facility is powersports manufacturer Arctic Cat. Not far away is Polaris’ main plant in Roseau, and Marvin Windows and Doors in Warroad. About 30 miles north of Thief River Falls is the town of Karlstad, where Mattracks manufactures track-wheel systems for ATVs, tractors, and other vehicles that need to get through mud and other sloppy terrain. Another company that’s growing in the same neck of the woods is Central Boiler in Greenbush, which makes outdoor wood furnaces for home heating. In nearby Red Lake Falls, there’s Woodmaster, another outdoor furnace maker, and Homark, a homebuilder. Most of the companies are hiring, too.

In short, there is no dearth of job opportunities up here, particularly highly prized positions in manufacturing. Indeed, according to Mike Moore, Thief River Falls’ interim economic development director, “We have more manufacturing businesses in the seven northwest counties of Minnesota than in the entire state of North Dakota.”

It’s a remarkable statement. And Digi-Key, the region’s biggest employer, has a remarkable story. Founded in the late 1960s, it started as a very small seller of components for ham radio operators. Founder Ronald Stordahl, an electrical engineer and Thief River Falls native, developed the Digi-Key, a digital electronic keyer kit for sending radiotelegraph code. (A keyer is a device that turns an electronic circuit off or on.) In the 1970s, Stordahl began selling parts to electronics enthusiasts; in 1982, his company was shipping to the commercial electronics industry, which is almost exclusively Digi-Key’s market these days.

Digi-Key doesn’t sell its own products; it distributes parts produced by more than 650 suppliers from around the world. It does sell to big companies, primarily for low-volume, short-run specialty projects. Higher-volume projects tap high-volume suppliers. But if you’re a design engineer building a prototype of, say, a smartphone or an automated home security system, you might need at most a handful of a certain item. Of the company’s roughly 500,000 customers, most are design engineers. The number representing production-run purchases represents a much smaller percentage, but the revenue generated by the production-business purchaser represents more than 50 percent of its sales revenue in North America.

North America, however, is just part of the story. Thanks in large part to its early adoption of the Internet, Digi-Key now sends about a third of its products outside of North America; it’s now the sixth-largest electronics parts distributor in the world. Digi-Key’s global capability means, among other things, that you can have the curious phenomenon of a Korean engineer ordering Korean-made parts from a distributor in Minnesota. Why wouldn’t that engineer buy local? Because the local supplier would require her to buy, say, a minimum of 100. Digi-Key is quite happy to sell that designer a single sensor, or a small quantity of perforated tape used in various electronics, instead of an entire reel.

The basis for that flexibility is that Digi-Key ships nearly everything from its Thief River Falls facility. “Most of our competitors have a warehouse in America, a warehouse in the UK, one or two in Europe, one in Japan, maybe one in China, possibly one in Singapore,” company President Mark Larson says. “So they’re not really able to look at a world market. They’re international companies managed regionally. And the inventory they stock in, say, Japan is justified by the usage in Japan. The inventory we offer to our Japanese customers is based on justification based on worldwide usage of our customers.”

Digi-Key can deliver a product in about 30 hours at the most, and all orders received before 8 p.m. are shipped the same day. That lead time, Larson says, is considered “very acceptable” among the company’s customers.

In addition, both FedEx and UPS have delivery personnel focused on Digi-Key—once they’ve assembled the packages, they take them to the Thief River Falls airport, whose runways have been configured to accommodate the services’ planes. Each evening, UPS and FedEx planes take Digi-Key packages to their hubs—St. Louis and Memphis, respectively. (FedEx makes a stop in Grand Forks to pick up another, noncompany load.) Another shipper, DHL, also serves Digi-Key, but its bigger planes use the Grand Forks airport, about 50 miles to the west.

Not all of Digi-Key’s employees live and work in northeastern Minnesota. About half of its IT staff is based in the company’s office in Bloomington, where it’s much easier to recruit techies. The company contracts out with a firm in Munich that markets Digi-Key in Europe, works with a call center in the Netherlands, and is opening a small wholly owned subsidiary in Shanghai. But all of the parts, regardless of the supplier, are stored, picked, and packed in Thief River Falls.

Larson predicts that the firm will have $1.6 billion in sales this year, and will double that in five years. “We haven’t even scratched the surface in terms of international,” he says.

Given Digi-Key’s success, as well as that of other area manufacturers, you have to ask: What is it about northwestern Minnesota? What’s in the water? You hear that familiar praise of the Minnesota work ethic. You also hear about a very close-knit community, settled mostly by hardy, self-reliant Norwegian immigrants. Thief River Falls City Administrator Larry Kruse believes that “the entrepreneurial spirit coming off of the farm has made a difference here.”

The area’s pretty, and there are plenty of places for outdoor fun. Thief River Falls itself is an attractive city of tree-lined streets. There are several hotels, including a new one opening this fall, to accommodate the numerous out-of-towners coming in to do business.

In its efforts to lure workers, Digi-Key sponsors job fairs and places help-wanted ads all over the state, among other strategies. Rick Trontvet, the company’s vice president of human resources, says that Digi-Key has had almost no luck hiring people outside of northwestern Minnesota, except for those who already have a family or other connection to the region.

Trontvet says that the strategy is to “plant a seed with those who have an emotional connection to the area.”

Thief River Falls is trying to attract even more companies. That may seem counterintuitive, but Morse says that “we’re not necessarily recruiting smokestacks to come in to compete with [existing] companies for employees.” What would be a win for Morse would be, for example, a manufacturer from elsewhere in the state that makes parts for Digi-Key or Arctic Cat.

Last year, Digi-Key opened an additional storage facility in Fargo to support its main distribution center.

It owns plenty of additional real estate, so it could enlarge its Thief River Falls facility, if necessary. But, Larson notes, “we’re competing with companies that have taken advantage of a more favorable business climate.” For example, the effect of the recently passed warehouse tax in Minnesota is hard to gauge right. “I think the probability is that we will continue as much as possible to strengthen what we have here,” Larson says, but in the longer term, “I think you’ll find more of our operation will be out of the state.”

It’s a long-term worry for Digi-Key and perhaps others in the booming northwestern region. But for now, Digi-Key and other area employees have a more pressing concern—more applicants.

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