cluster basics: what are clusters and why are they important?

TCI Annual Conference – Delhi – 2010 2

Clusters 101Advanced learning workshop on clusters

What is a cluster ?Why are clusters important ?

Élisabeth Waelbroeck-RochaPartner, BIPEMember of the Board of Directors of TCI

Delhi, November 29, 2010


THE COMPETITIVENESS INSTITUTE is a non-profit,global network of cluster practitioners created in 1998, dedicated to facilitating the

spread and success of cluster-based and innovation competitiveness initiatives through networking, research and training activities

What is The Competitiveness Institute?

Inauguration of TCI facilities on Nov. 5th, 1998


OBJECTIVES

Promote cluster-based competitiveness and development strategies

Improve the methodologies for enhancing the competitiveness of clusters

Raise the professional level of cluster development practitioners

“THE COMPETITIVENESS INSTITUTE’s mission is to improve living standards and local competitiveness of regions across

the world by enhancing cluster-based development initiatives”

Mission and Objectives


TCI Network: A community of 1.700 practitioners in 98 countries


TCI Organizational MembersNon-profit organizations, government agencies and multilateral organizations dedicated to fostering economicdevelopment participating as economic supporters of TCI Network.


Annual Global Conferences

Regional Conferences

Networking

Research and knowledge dissemination

Cluster-related knowledge management services

Main Activities of TCI


Our Values

Excellence TCI was founded to improve the quality and standards of excellence in competitiveness, cluster

development and regional and national economic development and is committed to preserving and continually raising the standards of excellence of its members and of the organization.

Transparency TCI conducts its affairs with professionalism, openness and transparency so that all members and the

outside world can clearly see its objectives, activities, events and working methods.

Participation TCI encourages member participation by fostering opportunities for learning and for presenting and sharing

their experience in TCI events.

Inclusiveness TCI actively reaches out and involves people of all continents (and islands), nationalities, cultures and

genders so that members can be enriched by global perspectives.

Respect With no diminishing of TCI’s commitment to quality and excellence, TCI has a high level of openness to

different strategies, techniques and non-traditional approaches and therefore accommodates a variety of schools of thought with an attitude of respect.

The Value of Networking TCI believes that networking--fostering linkages among people and facilitating the free exchange of ideas

among regions--is a both a powerful means and an end in itself in the new relationships formed and new initiatives undertaken.

Social Purpose and Impact Apart from immediate benefits to members, TCI has a higher social purpose of making a major impact on

theory and practice of economic growth contributing directly to improved human development and better standards of living—and to extending this impact to regions where this understanding is most needed.


What is a cluster ?????

Clusters are geographic concentrations of inter-connected companies, specialised suppliers, service providers and associated institutions operating in a particular field

Michael Porter


What is a cluster ?????

Clusters are geographic concentrations of inter-connected companies, specialised suppliers, service providers and associated institutions operating in a particular field

Clusters are groups of independent companies and associated institutions that are:Collaborating and competing (coo-petition)Geographically concentrated in one or several regions, even though the

cluster may have global extensionsSpecialized in a particular field, linked through common technologies

and skillsEither science based or traditionnalClusters can either be institutionalized –(there is a cluster management

structure, or « cluster initiative »), or non-institutionalized (informal)

Michael Porter

EU Expert Group


The cluster pyramid

Export oriented industries/service

providers

Equipment, services and materials providers

Related and supporting industries & services

Economic infrastructure


The cluster pyramid

Export oriented industries/service

providers

Equipment, services and materials providers

Related and supporting industries and services

Economic infrastructure

Education systemPublic research Regulatory

frameworkTransport Financial

system

Housing, communication, etc.


Agglomeration

Emerging cluster

Developing cluster

Mature cluster

Transformation

Clusters are eco-systems: they naturally evolve and transformThe cluster life cycle


Key points on clusters

Why do companies’ cluster ?What does clustering bring them ?

Why are regions / countries interested in clusters ?

What do you do with clusters ?If the process occurs naturally, why should one get

involved?Can clusters be « created » ?How can one help them grow ?


Why do companies « cluster » ?The theoretical benefits of clustering

Companies’ objectivesCompanies’ objectives

Profits, GrowthProfits, Growth

Improved quality/price ratio


Increased market volume


Risk reduction and risk controlRisk reduction

and risk control

Cost reductionsCost reductions

Increase competitiveness


Why do companies « cluster » ?The theoretical benefits of clustering

Economies of scaleEconomies of scale

Economies of scopeEconomies of scope

Vertical integrationVertical integration

Move up the learning curveMove up the learning curve

Differentiation / specialisation effectDifferentiation / specialisation effect

Creation of barriers to entryCreation of barriers to entry

New marketsNew markets

New productsNew products

Increased market shareIncreased market share

Increased third party trust Increased third party trust

Risk associated to competitionRisk associated to competition

Clusters can bring :Clusters can bring :Companies’ objectivesCompanies’ objectives

Profits, GrowthProfits, Growth





Risk reduction and risk controlRisk reduction

and risk control

Cost reductionsCost reductions


Indirect benefits can also be generated

One needs to distinguish :Direct effects

Rise in sales, better financing conditions, mutualised costs, … Indirect (spill-over) effects

Easier access to specialised / trained staff thanks to increased attractiveness of region, increased sales through spill-over effects on clients / end-users, less strain on resources, …

Externalities Positive: entrepreneurial climate, informal knowledge exchanges,

image, resource creation, increased choice thanks to scale effects Negative: strain on resources (including HR), increased

environmental degradation, rising housing prices, congestion, loss of control of certain functions which have become mutualised…


Practical experiences / feedback from companies

Experience shows that participating to a cluster enables companies to:Attain objectives that they would not have met individually, in

terms of profitability or growthExchange, share good practices Accelerate innovationIncrease self-confidenceDevelop trustShare resources / means to create, protect or improve rent

(profits)Reduce or eliminate certain costsImprove the price / quality ratioIncrease salesControl / reduce risk, including the risk from competition


Different types of « clusters »

Types of clusters

IndustrialServicesUrbanRuralHigh technologyTraditionnalEtc…

Main objectives of clusters

Increase sales (exports)

Create jobs

Foster innovationDevelop new markets / new

products


2. Why are governments’ interested in clusters ?

Although clustering is mostly about companies, regions and governments worldwide are increasingly fostering clusters

cluster policies as a natural evolution from traditional industrial policies ?


What clustering brings to regions

Clustering processes are viewed as having the potential to :Restore / enhance competitivenessReinforce the innovation capabilityIncrease attractiveness to investorsTransform a vicious cycle into a virtuous cycle

Low growth little revenue generation poor quality infrastructure capital outflows, brain drain loss in competitiveness low growth

Reinforcement of competitiveness faster frowth revenue generation economic infrastructure development FDI, HR development improved competitiveness

Potential side-benefits : reduce vulnerability to downturns ?


2001199719921980

Selected regions and countries withcluster-based development initiatives +

-

Emilia-RomagnaToscana(industrial-districts based policies) ....

EuskadiScotlandChihuahuaArizonaCatalunyaMassachussets

MoroccoNew ZealandCosta RicaCalifornia....

SwedenTurkeyLithuania

AustriaJordanMéxicoSouth Africa....

FranceEstoniaDenmarkSloveniaUKMinas Gerais (BR)...

1990 2003 2006

PakistanKazakhstanPoland….

(*) Data from “The Cluster Initiatives Greenbook – II edition”, 2006 (**) European Cluster Observatory, 2009

Cluster reinforcement initiatives worldwide

ParaguayRio Negro (AR)….

2009

ILLUSTRATIVENOT EXHAUSTIVE

Approx. more than 1.400 initiatives from countries and regions all over the world (*)

Over 1.100 clusterorganizations only in Europe (**)


Companies and regions do not necessarily share the same objectives

RegionsDevelop the region’s « image »,

its identityEnhance the region’s

attractivenessCreate jobsSolve (existing or perceived)

problemsAllocate resources effectively

CompaniesGrow their business

Generate profits

Control/manage risks, reduce uncertainty

Managing a cluster means navigating in turbulent waters, with currents pulling the boat in different directions

This is what this conference is all about ….


Measures of success are not the same for regions and for companies

Regions Increased competitiveness

(reduced prices/margins compared to competition)

Increased share of world market (irrespective of how many companies make-up this share)

Employment creation Income generation (taxes)New company creation

Future income creationMaintenance or establishment of

a healthy competitive climateMore fluid/flexible labour market

Companies Increased profit margins

Cost reductions Lower input costs, low HR costs

Ability to protect selling prices Pass cost increases into prices Reduce competition

Increased sales Improved price/quality ratio Opening of new markets

Geographical, product

Lower risk Operational, strategic HR related (mobility, skill

depletion)


Source: Etzkowitz (2002)

The key stakeholders in a cluster initiativeThe triple helix …


… or the quadruple helix

Finance


Everywhere,the objective of cluster policies is to

increase competitiveness


Increasingly, innovation is recognized as the key to competitiveness

Informal exchanges through clustering are tremendous facilitators of innovation

In mature economies, cluster policies have increasingly become « innovation » policies


The importance of place and networks for inventions and innovation

Why is innovation important?

Because it is key to increases in productivity Higher productivity levels are the basis to real wages growth,

hence to a higher level of prosperity for a territory, a region or a nation

Because innovation and inventions make it possible to grow existing markets and create new ones


The key to innovation (1)

Innovation is a “team sport” and a long term run

Innovation is a social process Social context and entrepreneurial oriented culture are key for

the development of innovation

Inventions and innovation rarely occurs in isolation

Innovation is place-based


“It is not the ingredients, but the recipe” (P. Romer, A. Saxenian, ..)

… but the same recipe does not perform the same in different places, so it is important to work locally and to build local distinctive advantages

Tacit-knowledge interchange and face-to-face interaction are key to incremental innovation

Clusters are the place in which this happens easier; they are an ideal unit of work for policy makers

The key to innovation (2)


The added-value of clusters in innovation process (*):

better perception of new buyers’ need early diffusion of new technologies strong rivalry among competitors quicker knowledge circulation (“cafeteria effect”) stronger support from external agents (government,

universities, etc.)

(*) partly based on M. E. Porter, On Competition, 1998.


Some lessons and key points from previous conferences (I)

Very important to distinguish clearly:ClustersCluster policies Cluster initiativesCluster Associations

Cluster initiatives are growing dramatically:2003: More than 5002008: More than 2.500

It looks like if something good is happening around these clustering ideas!! (even if measurement and assesment are hard points)


Some lessons and key points from previous conferences (II)

Clusters are about people, competition, cooperation, competitiveness, making money, surviving in the long term, emulating the big companies, trust, talent, heart, courage, …

Never underestimate the “human factor”!

Companies involvement is a key factor for success, as it is…

A good facilitator


Some lessons and key points from previous conferences (III)

Governments play an important role in the implementation

Shared vision, without it is very difficult even to know the objectives to be reached

It’s better open than close, trust than distrust, sharing than being islands

Money is important, but it is not the main factor for the success (think about trust, coherence, …)


Some lessons and key points from previous conferences (IV)

Failures come from a lack of consensus, weak shared frameworks, and bad facilitators.

It is important to maintain a strong sense of reality. Every starting point is different, every way is different.

It is a real long term job, that needs patiente and cannot be rushed (and what about political cycles??)

Strategy is the key!! Clusters are for what really matters.


Contact usfor more information about TCI and our activities along the year

Patricia ValdenebroGeneral [email protected]

cluster basics: what are clusters and why are they important?

Technology

tci annual conference

transparency tci

participation tci

tci events

inclusiveness tci

value of networking

values excellence tci

inauguration of tci