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No place like home: Looking to expand, electronic parts giant DigiKey scouts the Midwest — but stays put in Minnesota

Rick Trontvet, DigiKey’s vice president of administration.
MinnPost photo by Gregg Aamot
Rick Trontvet, DigiKey’s vice president of administration.

A few years ago, when executives at DigiKey Electronics began to plan an expansion project, they looked at several possible locations in the Midwest. That wasn’t surprising, considering the Thief River Falls electronic parts distributor expected that it would need to hire another 1,000 workers but was, at the same time, located in one of the more lightly populated regions of Minnesota – one with a tight labor market to boot.

Ultimately, DigiKey decided to build its new distribution center right at home in Pennington County, in far northwestern Minnesota, where the company got its start in 1972 – decades before it became the mega-business that generated $3.1 billion in revenue last year.

The decision heartened the town of 8,600, whose identity has become increasingly tied to the fortunes of DigiKey.

Executives won’t reveal where else they looked, or say too much about why they chose to expand at home, but financial incentives certainly tell part of the story. DigiKey received $44 million in state tax breaks for its distribution center – a mammoth building that covers as much ground as the old Metrodome in Minneapolis and will have 2.2 million square feet of usable space. Moreover, the company also got some help from local government in the form of tax increment financing, a break on building permits and funds for new infrastructure.

DigiKey argued that the expansion would generate millions of dollars in tax revenue for the state in the long run, and on a recent trip to Thief River Falls, I heard few complaints about the public help. The shell of the new warehouse is largely completed and the company hired 330 more workers last year, bringing its workforce at its Thief River Falls campus to about 3,500. (The company, which has a smaller distribution center in Fargo and call centers in several countries, employs about 4,000 people in all).

“Their decision to grow their business here is really remarkable when you look at the size of the community and the population,” said Michelle Landsverk, a consultant recently hired to work for Advance Thief River, a local economic development group. “Their decision says a lot about their commitment to our community.”

DigiKey is located in an industrial park on the southwestern edge of town, right next to another iconic northern Minnesota company: the snowmobile and all-terrain vehicle maker Arctic Cat. “It is pretty phenomenal to have a company like ours and Arctic Cat right here,” Rick Trontvet, DigiKey’s vice president of administration, told me during an interview in his office. “It’s quite the company town.”

Ronald Stordahl founded DigiKey in 1972.
MinnPost photo by Gregg Aamot
Ronald Stordahl founded DigiKey in 1972.
Subsidies aside, DigiKey officials first had to determine whether they could attract the workers they would need for their expansion. They agreed they could, despite statistics that show workers are hard to come by in Greater Minnesota. About half of the company’s workers are from Thief River Falls; the other half either drive several miles from the small towns and hamlets scattered throughout the region or ride on company sponsored buses from Grand Forks, North Dakota; and Crookston.

“We always worry about our workforce,” Trontvet acknowledged, “but we’re pretty confident that we can pull it off.”

Nearly 2 million parts

On a Friday morning in March, accountants and IT specialists worked in tight cubicles on the second-floor of DigiKey’s administrative wing. Against one wall, a digital screen displayed a running tally of the orders that were being processed on that particular day – a number that would climb to 19,715. (More than 17,000 of those orders would be shipped that day).

In an existing warehouse, workers stocked shelves (the company keeps about 1.9 million electronics parts on hand), connected various parts to complete special orders and maintained the equipment. Parts plucked from the shelves traveled through the center on conveyor belts, on their way to packaging and shipping areas.

Orders come from customers of all stripes – from basement tinkerers to, as Trontvet put it, “engineers at Apple who need semiconductors.”

Trucks loaded with packaged parts leave DigiKey all day long, some of them headed for Thief River Falls Regional Airport a few miles to the south, where about 10 planes leave each day for UPS and FedEx hubs in Louisville, Kentucky, and Memphis, Tennessee. (About 20 percent of DigiKey’s packages are shipped through the airport).

With a starting salary of $16.50 per hour and a salary-and-benefits package that can total about $60,500 annually, applications for DigiKey are steady. And no wonder: The median household income in the region is about $55,000, according to the state Department of Employment and Economic Development.

“The starting wage is very good,” Landsverk said. “That’s why they’ve been able to attract people living an hour away. It’s nice (for Thief River Falls), too, that you might have one person coming to DigiKey who has a spouse who may come for another job or another opportunity in the community.”

Rows of cars filled the employee parking lots the day I visited. The DigiKey campus covers so much ground that some workers ride shuttle buses between buildings on cold winter days. The company has a cafeteria, a convention hall and an on-site clinic. Groups tour the facility almost daily.

A steady workforce

Workers have long been in demand in many pockets of greater Minnesota, as chronicled in this MinnPost piece from 2017. The labor force in this region (seven counties that cover the northwestern corner of the state) has declined by more than 1,500 workers in the past decade, according to an economic report released by DEED analysts.

DigiKey does advertise some of its rank-and-file job openings, though word-of-mouth is probably its most effective recruiting tool, Trontvet said. Most of its engineers and executives, meanwhile, come from this region – people who grew up in Minnesota or eastern North Dakota and graduated from regional schools like North Dakota State, the University of North Dakota and the University of Minnesota-Duluth.

DigiKey’s new 2.2 million square-foot distribution center, which is expected to open in 2021.
MinnPost photo by Gregg Aamot
DigiKey’s new distribution center, which is expected to open in 2021.
Said Trontvet: “We love our home state and the people who work here. That was really the determining factor (to expand in Thief River Falls) and what made the decision an easy one for us.”

Cameron Macht, the regional analysis and outreach manager for DEED, said it was difficult to put his finger on the reason DigiKey has been so successful in attracting employees here.

“In economic development, we often talk about what comes first – the chicken or egg,” he said. “Do you create the business and then the jobs will come or do you have to have the workers first?” One thing the region has going for it, said Macht, is a high-quality labor force (which he defined as consisting of “people who are willing to work, can do the work and will show up to do the work”).

While the percentage of people 25 years old and older who hold college degrees in this region is lower than the percentage for the rest of the state, DEED statistics also reveal an interesting tidbit: a slightly higher percentage of adults living here who have two-year associate’s degrees compared with the statewide percentage. (While many DigiKey positions require only a high-school diploma, others require two- or four-year degrees).

“It could be that there’s just a good match” between what DigiKey needs and what the local labor pool has to offer, Macht said.

Along an aisle on the warehouse floor, longtime employee Mary Walsh sat at a desk assembling cables for orders. Walsh went to work for DigiKey 26 years ago to help support her family – which included seven children. She has been here ever since, commuting from her home in Red Lake Falls, a town of 1,400 people about 20 miles to the south. “The people are very friendly here,” she said. “It’s good pay – and the insurance! It’s very good insurance coverage. And, for the most part, most of the work I like.”

‘Engineer on steroids’

DigiKey founder Ronald Stordahl was a student at the University of Minnesota, where he would earn a Ph.D. in electrical engineering, when he invented a digital key that improved the transmission of Morse code. He called it the Digi-Key “keyer” and sold it to amateur radio operators.

Stordahl also realized around that time that it was difficult to buy individual electronics parts since most dealers only sold in bulk. His big idea was to sell parts in any quantity – even one. Stordahl founded DigiKey in Thief River Falls, his hometown, in 1972, selling parts to electronic hobbyists.

(Stordahl avoids interviews and, I was told, would not talk to me for this story. Trontvet, responding to my questions about what might have motivated Stordahl in those early years, described him as “kind of an engineer on steroids” who was looking for an entrepreneurial outlet).

In 1982, the company began selling parts to the commercial market. DigiKey moved into its current location in 1984 when it bought a building from Arctic Cat. Today, its customers can order integrated circuits, capacitors, fans, switches, transformers – and just about anything else they can think of, it seems – from the company’s website.

Last year was a particularly good one for the company, with sales increasing by about $800 million. It now ranks as the fifth-largest distributor of electronics parts in the world, according to the company.

Good time for development

As I approached Thief River Falls from the south, the snow-covered fields of Pennington County disappeared in all directions into a gray sky. Only scattered groves of trees interrupted miles of flat, white fields.

The city emerges out of that flatness – an old lumber-mill town with some still-standing classic buildings, including a restored Soo Line Depot (now City Hall) and a refurbished Carnegie Library. The high school hockey teams play at Ralph Engelstad Arena, a $15 million rink with wide concourses, a large hanging scoreboard and vintage black-and-white photographs that chronicle the region’s hockey past. (Engelstad is the locally raised hotel and casino magnate whose donations also paid for the hockey arena at the University of North Dakota, his alma mater).

Thief River Falls City Hall, a converted Soo Line depot.
MinnPost photo by Gregg Aamot
Thief River Falls City Hall, a converted Soo Line depot.
A boulevard divides one of the main thoroughfares, with quaint and well-kept early and mid-20thcentury homes dotting the neighborhoods on either side. Thief River Falls is home to Northland Community & Technical College. A new hotel is in the works.

Its challenges mirror those of similar-sized towns. The downtown commercial district, for instance, struggles to attract businesses and lost longtime anchor JC Penney last year. More child care options are needed, along with more housing – rental and family owned. And while the population of Thief River Falls itself is steady, the seven-county region lost 3.5 percent of its population between 2010 and 2017 (a loss that would have been even greater but for the arrival of nearly 600 immigrants).

Even so, Landsverk, the consultant, expressed the community’s optimism, calling it “a great time for economic development” in Thief River Falls.

“There’s a lot of development going on and a lot of fast-moving pieces, and a lot of it is related to DigiKey’s expansion,” she said. Some recent business additions include Thrifty White Pharmacy and L&M Fleet Supply.

Long-term presence

As DigiKey has grown, selling parts in more than 170 countries and opening call centers in Asia and Europe, it has attracted some international attention. In the past year, according to the company, reporters from Germany, Israel, the United Kingdom and Spain traveled here to have a look at this multibillion company in the most unusual of places.

As part of its expansion, DigiKey plans to hire another 600 workers. On a recent March day, the company advertised openings for an electronics technician, an associate designer, a temporary global sales representative and other positions on the combined website of the Thief River Falls Times and The Northern Watch, two local newspapers.

The DigiKey campus can be seen in the background.
MinnPost photo by Gregg Aamot
The DigiKey campus can be seen in the background.
The company will continue to watch regional labor trends, especially as more and more baby boomers age out of the workforce.

And with good reason. The economic profile published by DEED warns that a growing scarcity of workers is “now recognized as one of the most significant barriers to future economic growth” in the region. At the same time, the agency points to one sign of hope: an influx of immigrants in recent years. The report says  that a more diverse workforce “will continue to be a vital source of the workers that employers need to succeed.”

DigiKey’s new distribution center, which could cost as much as $300 million when it is completed, is expected to open in 2021. During our tour of the campus, Trontvet stopped to show me a view of the building from a second-floor window. We looked at the structure for several moments, marveling at its size. Finally, he said: “I think we’re going to be here for a while.”

This report was made possible by a grant from the Otto Bremer Trust. MinnPost’s donors, foundation funders, and corporate sponsors support our work in the belief that promoting greater civic engagement and informed discourse is the surest path to a better Minnesota. They play no role in guiding the journalism produced by MinnPost.

Comments (30)

  1. Submitted by joe smith on 04/08/2019 - 09:42 am.

    Fantastic! I’m always happy to hear that a company is expanding here in Minnesota. You give a company some tax breaks and incentives to build here, they will stay. If you do the math over a 10 year period, almost always, 1,000 workers will pay back to the community way more than the tax breaks. Good for them.
    Conversely, you could pull an AOC and chase Amazon away from building in NYC. By doing that you push 10’s of billions of dollars out of your district. Socialism at its finest.

    • Submitted by Dennis Litfin on 04/08/2019 - 11:27 am.

      Fact…..the vast majority of startups which get tax breaks, tax increment financing, etc. etc. FAIL within the first years of operation.
      Factor that into your odd “socialism” dig….whatever that is supposed to prove.

      • Submitted by joe smith on 04/08/2019 - 02:25 pm.

        Local governments decide who gets tax credits. Established companies hiring 100’s of local folks get better deals than startups.

    • Submitted by RB Holbrook on 04/08/2019 - 01:41 pm.

      The amount of free real estate Rep. Ocasio-Cortez occupies in the minds of the American right increases by the minute. Are you that afraid of her?

      Rep. Ocasio-Cortez (whose district, as I’m sure you know, does not include the site of the proposed Amazon expansion) was not the only politician speaking out against the Amazon deal; in fact, it sometimes seemed as though Governor Cuomo and Mayor DeBlasio were the elected officials in favor of the deal. The City Council was strongly opposed to the deal

      Amazon is a trillion dollar corporation that was looking to receive $1.5 billion in incentives. The jobs that would have been created would have been high-paying executive and technical jobs, not something your average high-school or technical school grad could take on. A flood of very high-paying jobs would do little more for the city than drive up the already high cost of living there, assuming that the new employees were going to stay around and gentrify Long Island City, rather than commute to the suburbs or cooler parts of the city.

    • Submitted by Pat Terry on 04/08/2019 - 03:43 pm.

      It really depends on the breaks given. Deals like the disaster in Wisconsin, which probably cost the governor his job, isn’t even close to being a good investment. While Amazon probably will at least build what they were claiming, it wasn’t worth anywhere near the return.

      The irony of calling someone a socialist because they *oppose* massive government giveaways to private companies is pretty rich.

      • Submitted by Paul Udstrand on 04/09/2019 - 09:48 am.

        Actually the problem with the Amazon deal was there was no guarantee the WOULD build what they promised to build, and there was no mechanism for clawing back subsidies if they didn’t. The fact that they pulled out so quickly reinforces that suspicion. Historically these huge corporations tend to promise big in order to get the big subsidies, but then suddenly realize they have to scale back their plans once the deals go though. Amazon is no exception. There’s nothing magical about Amazon, they’re a big corporation like any other.

        • Submitted by Pat Terry on 04/09/2019 - 11:01 am.

          It was a bad deal for a lot of reasons, and I’m glad they killed it. But the FoxConn deal in Wisconsin will hurt that state for years.

    • Submitted by Frank Phelan on 04/08/2019 - 06:56 pm.

      Joe, I’m surprised you aren’t concerned about what this will do to the recipients’ work ethic and sense of independence.

      This will just create dependency on government, and was probably done to enhance the prospects of politicians.

      It’s really just as bad as the Obama phones, a program Obama started during the G. Bush Administration.

      • Submitted by joe smith on 04/09/2019 - 07:44 am.

        The long term gains from Amazon dwarfed the tax credits given to entice the company to open up a main hub in NYC. There is no one disputing that fact. It is a local government decision. The way it should be.

        • Submitted by RB Holbrook on 04/09/2019 - 10:49 am.

          “The long term gains from Amazon dwarfed the tax credits given to entice the company to open up a main hub in NYC. There is no one disputing that fact.”

          Actually, quite a lot of people–including many who would be affected by the expansion–disputed that fact.

        • Submitted by Pat Terry on 04/09/2019 - 10:59 am.

          A couple minutes on Google would suggest otherwise.

        • Submitted by Frank Phelan on 04/09/2019 - 06:00 pm.

          So some government interference in the free market is good.

          My, conservatism sure has been changing lately. First, they are in favor of tax increases, also know as tariffs. Now, they like it when local government picks winners and losers.

  2. Submitted by David Broden on 04/08/2019 - 11:21 am.

    A well stated and solid discussion of the scope and benefits that Digi-key provides to the technology community throughout the US and internationally. I am the owner of a high tech consulting firm focused on aerospace and primarily defense. As i travel and support companies across the US and i disucss sourcing of component the companies in the US and internationally refer to Digi key and also do not link Digi key with the Minnesota high tech legacy other than the recognized medical device companies. Digi Key has proven benefits to al of MN and perhaps can be catalyst for other innovation and technology companies across the state. Mn stumbled on how we approached the opportunity for the home of the Army Futures Command a “think tank” and innovation center — lets consider lessons learned from Digi key as we look forward.
    Dave Broden

  3. Submitted by David Broden on 04/08/2019 - 01:35 pm.

    It is a bit amazing and disappointing that a article such as Digi key above does not attract more commentary regarding innovation and technology business in Minnesota. Perhaps the lack of comments sends a message to the MN DEED and others about what messages will resonate to the attention of those who seek to build a statewide future of innovation and growth for all of MN. How about additional comment regarding the excellent article and reporting of a significant MN born and expanding company.

    Dave Broden

    • Submitted by Paul Udstrand on 04/09/2019 - 10:03 am.

      David, the history and nature of innovation is at odds with your commentary. As a general rule, those who talk the most about innovation and promoting it… deliver the lowest level of innovation.

      Those who do…. do. Those who don’t do, talk about doing.

      If we really wanted to promote innovation in this country we do the following:

      1) Create a nation wide affordable health care system that provide irrevocable health care regardless of employment status. This would give creative people the freedom to explore projects and ideas without losing their health care.

      2) Restore billions of dollars of general science research grants that have been cut over the decades. In the absence of that funding research and development funding has fallen on the private sector which keep it’s findings proprietary and patented rather than shared.

      3) Roll back some of the patent and copyright law changes that keep scientists and researchers from publishing and sharing results. One reason projects like NASA and Xerox Park spun off so many innovations was their public and unclassified nature. The more privatized and classified technology becomes, the more difficult it is for anyone to innovate.

      • Submitted by Gerry Anderson on 04/09/2019 - 03:28 pm.

        Great in theory. Nobody for Universal Health Care ever addresses how to pay for it. Even California figured out it can’t afford it.

        • Submitted by Paul Udstrand on 04/09/2019 - 08:27 pm.

          Gerry, advocates of universal health care have been explaining how to pay for it for decades. Extensive economic analysis have found that it will be more efficient and affordable. You can easily find this information if you look for it.

        • Submitted by Gerald Abrahamson on 04/09/2019 - 09:36 pm.

          The cost of Universal Health Care is less than $2T/yr once it is fully implemented. Current cost is $3.6+T/yr (and rising fast).

        • Submitted by Jim Marshal on 04/10/2019 - 11:13 am.

          I always laugh when I hear universal care detractors say: “How are you gonna pay for that?” considering that most western countries have universal care spend nearly half as much as we do on healthcare.

  4. Submitted by Frank Phelan on 04/08/2019 - 06:45 pm.

    Maybe Don Trump and the conservatives are right to be concerned about this creeping socialism in America.

    Government picking winners and losers like this is wrong. Government can’t do anything right.

    This social engineering should be stopped. And the executives should be drugged tested too.

  5. Submitted by David Broden on 04/09/2019 - 08:40 am.

    There is much to see as positive due to the presence and growth of Digi key and its impact on people,the citiy, the region,and as a key factor in technology growth in the US and internationally. Seeing only the negative of some vision and yes perhaps some incentives that challenge some thinking the positive need to be the focus as we build Minnesota for the future.
    This is definitely not social engineering or government selection of the preferred it is the reality of winning competition by making wise decisions,

    Dave Broden

  6. Submitted by Paul Udstrand on 04/09/2019 - 10:15 am.

    I don’t have anything against digi-key and I note that for $44 million they created 3 – 5 times more jobs than the Vikings did with their billion dollar subsidy (which is by the way, the largest subsidy in the history of MN).

    I have repeat an old an enduring criticism of business reporting however; I don’t know how you write a piece like this without telling us what the actual wages and benefits Digi-Key is paying in exchange for their subsidy? This idea that we just talk about the jobs created without mentioning the wages and benefits has always been daft. How can have any kind of coherent discussion of the difficulty attracting workers without talking about the wages and benefits your offering those workers?

  7. Submitted by Paul Udstrand on 04/11/2019 - 10:24 am.

    It is kind of funny to watch Republicans, who proclaim the evils of entitlements and subsidies when it comes to food, housing, and transportation; rush to the defense of socialism when it redistributes wealth in the direction of wealthy. It’s also a tad ironic that those who condemn socialism in the cities are perfectly fine with socialism for rural communities, despite their claims of self reliance. Whatever.

    Of course the truth is that rational policy does require situational awareness and evaluation. Responsible people should look at local circumstances as part of a normal and functional part of governance. We CAN decide that some subsidies are appropriate, and that one subsidy makes more sense than another. What’s toxic is when Republicans politicize that process and use it to drive wedges between different population and constituents. It’s also fundamentally dishonest to support and advocate socialism for the wealthy while condemning it for everyone else.

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