1 eu conference, brussels june 12-13, 2006 workshop 1b: nurturing local and regional clusters: the...

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EU Conference, Brussels June 12-13, 2006

Workshop 1B:Nurturing local and regional clusters: the role of public authorities

Applying cluster concept to improve effectiveness of regional policy

Dr. Zbigniew Bochniarz

Center for Nations in Transition

Hubert H. Humphrey Institute of Public Affairs

University of Minnesota

REGIONS FOR ECONOMIC CHANGEINNOVATING THROUGH EU REGIONAL POLICY

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Regions Regions ffor Economic Changeor Economic Change. . Innovating through EInnovating through EUU Regional Policy Regional Policy

The Challenges

The critical mid-term review of the implementation of the Lisbon Strategy

Weakening rather than strengthening competitive position of EU and its major regions versus the USA and fast growing economies of China and India

Large spending of €226 billion on regional policy (2000-2006) and even higher planned for 2007-2013 – €336 billion – require more effective policy design and mechanisms for delivery and appraisal

How to increase returns from this investment and improve the competitive position of the EU while also improving living conditions in the poorer regions.

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Are there any good models of development in EU?

EU represents large diversity of country experiences with successful and unsuccessful models of economic development, social cohesion and environmental gains

Nordic countries successfully combining world top ranking in global competition indicators with effective social model and environmental concern

Irish model of entrepreneurship helped the country to catch the leading pack of global competitors

German model lead the manufacturing global exports for many years

New Central and East European EU members states are sustaining productivity growth as the way to improve their competitiveness and increase wealth

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What was a common feature of the successful development models?

All of the above advanced developed EU countries were highly

ranked in Global Competitiveness Report for domestic

competition and cluster development [2005-2006].

They successfully utilized the cluster concept for cutting-edge

industries (e.g. ICT), as well as for traditional industries (e.g.

glassmaking, forest products processing).

They also effectively applied the knowledge cluster approach to

revitalize economically depressed (e.g. mining) and/or rural areas.

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What are the clusters?

Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions that can cooperate and compete in particular fields. [Porter, 1998, p 197]

Clusters embrace much more than a traditional supply chain or an industry; they also includes academic institutions providing training, research and consulting services.

There are also governmental agencies influencing cluster activities (e.g. standard agencies) and non-governmental organizations (e.g. industry associations) providing important services (e.g. lobbying and networking)

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Clusters and Competition

Clusters’ activities contribute to improvement of the competitive position of a region by:

Increasing productivity of participating firms and/or industries;

Enhancing their capacity for innovation and this way sustaining productivity growth;

Mobilizing new business formation, innovation and cluster expansion [Porter 1998, p.213].

The cluster’s influence on competition depends on the maturity of the economy -- the more advanced the economy, the larger role of clusters in shaping competitive advantage and the larger number of clusters.

For the all above reasons, clusters are particularly important for the EU less advanced countries and regions to catch up with the leaders.

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How cluster can improve productivity?

Improved productivity within clusters is taking place in the following ways:

• by providing high quality, reliable and low-cost inputs (“local” versus “distance” outsourcing)

• by easy, trustful and relatively cheap access to information (proximity, face-to-face communication)

• by facilitating complementarities between activities of cluster members (e.g. driving up the quality standards, sharing educational, R & D, marketing and PR capacities)

• by providing access to public or quasi public goods (below the full costs, e.g. trained labor)

• by providing stronger incentives and better performance measures than vertically integrated firms by reducing operational and transaction costs (local rivalry, peer pressure, accumulated knowledge in local financial institutions)

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How cluster can contribute to innovation growth?

Clusters can contribute to innovation growth in the following ways:• by getting more frequent and clearer information on the buyers needs

• by identifying new technological, operating and delivery opportunities

• by direct observation of other firms

• by easier and faster access to new components and processes needed for innovation

• by proceeding faster with innovations due to the proximity of potential suppliers and even their involvement in the innovation process

• by the availability of new professionals needed for introducing innovations

• by utilizing complementarities of local innovation partners

• by reducing operational and transaction costs of innovations

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How clusters contribute to new business formation?

Finally, clusters contribute significantly to new business formation:

• by providing encouraging information about new business opportunities

• by offering lower than in anywhere barriers to entry (and exit) with needed assets, skills and inputs in the cluster location

• by providing environments rich in social capital that lower transaction costs and risk premiums on capital

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What is the role of government in facilitating cluster development?

The following five governmental functions seems to be vital for any economy [Porter, 1998, pp. 245-6]:

1. Securing macroeconomic and political stability (stable and sound policies, effective and transparent institutions);

2. Improving microeconomic capacities for development (education, infrastructure)

3. Establishing sustainable rules and incentives for competition (competition and tax policies, fair and effective legal system)

4. Facilitating cluster development and upgrading all clusters.

5. Developing and implementing a long-term action program to mobilize all cluster participants to systematically upgrade their capacities, thereby influencing the competitive position of their clusters.

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Why human capital is the most critical for cluster development?

Human capital embodied in modern knowledge, practical skills and positive attitude is the most valuable and creative component of innovation process

Right proportions between these three elements of human capital are critical to make it able to adjust to continuing changes in the global environment

Europe has the world oldest and high quality academia that produces modern knowledge but does not pay enough attention to develop practical skills and positive attitude -- comparing with North American academia -- the skills necessary for cluster development and effective competition

Particularly weak are the soft skills such as communication, leadership, and entrepreneurship and conflict management that are critical for building cluster synergy

European academia should more often listen to the business and local communities and respond faster to their needs by providing appropriate human capital and research.

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Recommendations at the EU Commission level

Clusters are the chance for EU to catch up with the objectives of the Lisbon strategy by encouraging competitiveness, innovations and sustainable development in the regions.

Effective coordination is needed at the EU Commission all programs and funds (Cohesion and Structural Funds, Competitiveness and Innovation Programmes, the Seventh Framework Programme) to produce necessary synergy for cluster development.

Introducing new EU transparent and participatory procedures of allocations of funds is needed where representatives of non-governmental organizations (e.g. business associations) will be involved and a right proportions between competitiveness of particular projects and partnership in securing funding will be established.

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Recommendations at the EU Commission level (cont.)

Participatory procedures should encourage further building of social capital, which is critical for both cluster development and for strengthening civic societies that are still weak in the new EU member states.

The new procedures should also encourage entrepreneurship and competency development at the governmental agencies, strengthening professional staff of civil service and reducing politization of both staffing and project selection process and potential corruption or political favoritism.

The cluster approach require a massive and cross-sectoral training in all EU (government, business and NGO representatives) about its basic features and opportunities for capitalizing on cluster advantages.

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Recommendations at the national and regional government levels

Encouraging good participation in a massive and cross-sectoral training on cluster approach, its microeconomics and relations with competition and innovations as opposed to traditional industrial policy

Mapping existing and identifying emerging cluster at the national and regional levels, assessing appropriate assistance and coordinating support from different funding sources

Facilitating partnership dialogue among all cluster participants, networking and providing transparent and participatory procedures for assistance

Encouraging of private-public ventures, partnership in matching resources for the common projects, mobilizing different venture capital sources

Offering high quality entrepreneurial training and encourage participation not only from SME sector but also from public and non-governmental sectors.

1 eu conference, brussels june 12-13, 2006 workshop 1b: nurturing local and regional clusters: the...

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