Clusters and Competitiveness The Chamber of Facon of Albania
Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 2
The Economic Development Challenge for US States Sluggish Job Market Weak Public Finances What CAN States do? What SHOULD States do? 3
What role do clusters play in regional economic competitiveness and job creation? Do clusters work as a driver of economic development? What policies and approaches can state governments use to facilitate cluster-led innovation-oriented economic growth and job creation? 9
Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 10
The Foundations of Competitiveness Microeconomic Competitiveness Quality of the National Business Environment State of Cluster Development Sophistication of Company Ops and Strategy Macroeconomic Competitiveness Social Infrastructure and Political Institutions Macroeconomic Policies Natural Endowments 11
What is a Cluster? A geographic concentration of related companies and associated institutions in a particular field, linked by commonalities and complementarities - An end product industry or industries - Downstream or channel industries - Specialized suppliers - Providers of specialized services - Related industries (those with important shared activities, labor, technologies, channels, customer relationships) - Supporting Institutions: standard setting, education and training, research, trade associations 12
Innovation-Oriented Industrial Clusters Climate for Innovation- Based Local Rivalry Factor (Input) Conditions A local context that encourages investment in innovation-related activity Open and vigorous local competition Demand Conditions High quality human Sophisticated and resources, especially demanding local customers scientific, technical, and managerial personnel Clusters of Customer needs that Strong basic research Related and anticipate those elsewhere infrastructure Supporting An ample supply of risk Industries capital A critical mass of capable local suppliers High quality information Clusters of related and supporting industries infrastructure and institutions to harness linkages Economic development is a process of successive upgrading, in which the business environment evolves to support and encourage increasingly sophisticated and productive ways of competing
Clusters are particularly powerful drivers of economic performance when they leverage regional innovative and entrepreneurial capacity These three elements combined are the foundations for regional innovation-based entrepreneurship. Regional Cluster Strength They are enhanced by the strength and number of connections among them. Regional Innovation Capacity Regional Entrepreneurship Capacity 14
The Australian Wine Cluster Locations Western Australia Northern Territory Queensland South Australia New South Wales Victoria Note: Colored areas indicate wine growing regions Source: Australian Wine & Brandy Corporation 15 Tasmania
The Emergence of the Australian Wine Industry is Rooted in the Evolution of Australian Competitive Advantage Mining and Natural Resources Gold Iron / Aluminum Bauxite Travel and Tourism Logistics / Trade Abundant Productive Land Produce Grains Wool BeefWine Information Technology Ag Research Centers Education and Knowledge Creation Medical Devices Bioscience Research Centers Biotech / Pharmaceuticals 1980 1990 2002 + 16
The Australian Wine Cluster Recently founded Institutions for Collaboration Winemakers Federation of Australia Established in 1990 Focus: Public policy representation of companies in the wine cluster Funding: Member companies Cooperative Centre for Viticulture Established in 1991 Focus: Coordination of research and education policy in viticulture Funding: other cluster organizations Australian Wine Export Council Established in 1992 Focus: Wine export promotion through international offices in London and San Francisco Funding: Government; cluster organizations Grape and Wine R&D Corporation Established in 1991 as statutory body Focus: Funding of research and development activities Funding: Government; statutory levy Wine Industry Information Service Established in 1998 Focus: Information collection, organization, and dissemination Funding: Cluster organizations Wine Industry National Education and Training Council Established in 1995 Focus: Coordination, integration, and standard maintenance for vocational training and education Funding: Government; other cluster organizations Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster - Supplement, Harvard Business School Case Study, 2002 17
The Australian Wine Cluster Trade Performance Australian Wine Exports in million US Dollars Australian Wine World Export Market Share $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 1995 1996 1997 1998 1999 2000 8% 7% 6% 5% 4% 3% 2% 1% 0% Value Market Share Source: UN Trade Statistics 18
Wine Industry Healty Rivalry Based on Quality and Execution Natural Resources & Deployment of Best Global Technology Increasingly Sophist. Local Market Emerging Intl. Leaderhip 19
Health and Beauty Products Clusters and Innovation Massachusetts, Life Sciences Teaching and Specialized Hospitals Cluster Organizations MassMedic, MassBio, others Surgical Instruments and Suppliers Medical Equipment Dental Instruments and Suppliers Biological Products Biopharmaceutical Products Specialized Business Services Banking, Accounting, Legal Ophthalmic Goods Specialized Risk Capital VC Firms, Angel Networks Diagnostic Substances Containers Research Organizations Specialized Research Service Providers Laboratory, Clinical Testing Analytical Instruments Educational Institutions Harvard University, MIT, Tufts University, Boston University, UMass 20110125 Saudi Arabina GCF 2011 Version 115 Sun 1-23-2011 20 Copyright 2011 Professor Michael E. Porter
Cluster Research, Publications and Projects Recent History - Cluster and Economic Policy White Paper - Competitiveness - European - Clusters and in Rural Regions Cluster Entrepreneurship Memorandum - The Economic - EU-10 -Access to Census - Clusters, Performance of Cluster Mapping Center for Convergence and Regions Economic Studies Economic Performance -2001-2003 -2004-2005 -2006-2007 -2008-2009 -2010 -International Clusters of Cluster -European Innovation Initiative Competitiveness Profiles Cluster Policy Group -U.S. Cluster Mapping Project -Canadian Cluster Data -European Cluster Observatory -European Cluster Observatory v2.0 -Launch of the EDA-sponsored National Cluster Mapping Project 22
Cluster Categories Jewelry & Precious Metals Footwear Processed Food Business Services Financial Services Apparel Leather & Related Products Fishing & Fishing Products Agricultural Produ Distribution Services Publishing & Printing Oil Ga Transportation & Logistics Education & Knowledge Creation Chemical Products Hospitality & Tourism Information Tech. Medica Device Biopharmaceuticals Plastics Entertainment Aerospace Vehicles & Defense Analytical Instruments Tobacco Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. 2 Communications Equipment Lightning & Electrical Equipment Prefabricated Enclosures Building Fixtures, Equipment & rvices ower Generation Motor Driven Products Furniture Heavy Construction Services Aerospace Engines Heavy Machinery Textiles Construction Materials Forest Products Production Technology Mining & Metal Manufacturing Sporting & Recreation Goods Automotive
Clusters and Jobs Industries within stronger clusters are associated with higher levels of job growth from the early 1990s to the mid-2000s Focused on growth in start-up employment, and aggregates up to a relationship between the presence of stronger clusters and higher overall job growth INDUSTRY SPECIALIZATION Low High CLUSTER SPECIALIZATIONir 1990 Relative Strength of Regional Clusters (presence of related industries) Low High +13% 0% +20% 2% Note: Region (EA) and Industry (4-digit SIC). Cluster specialization variable is measured by Location Quotient. High means above the median of the variables for each industry-year 28
Clusters and New Business Formation CLUSTER The stronger the cluster, the higher the survial rate of new businesses Survial Rates of New Businesses (+) New Industries (+) New Business Formation (+) The stronger the cluster, the more dynamic is the process of new business formation -The stronger the cluster, the more likely new industries within the cluster are to emerge The stronger the cluster, the higher the job growth in new businesses Job Growth In New Businesses (+) -Source: Porter, The Economic Performance of Regions, Regional Studies, 2003; Delgado/Porter/Stern, Clusters and Entrepreneurship, Journal of Economic Geography, 2010; Delgado/bPorter/Stern, Clusters, Convergence, and Economic Performance, mimeo., 2010.
Clusters and Regional Prosperity: The New Evidence Cluster Strength is a Driver of Regional Job Growth, Wages, Patenting, New Business Formation, and Success of Startups Specialization in strong clusters Breadth of position within each cluster Positions in related clusters Presence of a region s clusters in neighboring regions Not significant Positions in high-tech versus other clusters Source: Porter, The Economic Performance of Regions, Regional Studies, 2003; Delgado/Porter/Stern, Clusters and Entrepreneurship, Journal of Economic Geography, 2010; Delgado/Porter/Stern, Clusters, Convergence, and Economic Performance, mimeo., 2010.
New Momentum in Federal Policy 2009-2010 -White House - Interagency working group on regional innovation clusters -Economic Development Agency -Small Business Administration Regional Innovation Clusters framework and Regional Innovation Clusters program launch of pilot program with DOE ( E-RIC ) Advanced Defense Technology program I6 Challenge with NIH and NSF with DOD -Department of Agriculture -National Science Foundation Rural Innovation Initiative Innovation Ecosystems Many of these initiatives cut-across individual agencies or departments 31
Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 32
The Composition of Regional Economies The Old View: Sectors and Industries The New View: Clusters Manufacturing vs. services High tech vs. low tech Clusters of related industries All clusters are good One path to prosperity Critical is what you do Many paths to prosperity Critical is how you do what you do 33 Copyright 2010 Michael E. Porter
The Economic Case for Cluster Policy Create Platforms for Joint Action Path dependency Organize Public Policy around Clusters Coordination failures Local Externalities Information asymmetries 2008-04-28 - Carlyle Group 34 Copyright 2008 Professor Michael E. Porter
Organize Public Policy around Clusters Business Attraction Education and Workforce Training Export Promotion Market Information and Disclosure Clusters Science and Technology Infrastructure (e.g., centers, university departments, technology transfer) Setting standards Specialized Physical Infrastructure Natural Resource Protection Environmental Stewardship Clusters provide a framework for organizing the implementation of many public policies and public investments directed at economic development 35 Copyright 2010 Michael E. Porter
What are Cluster Initiatives? Cluster initiatives are collaborative activities by a group of companies, public sector entities, and other related institutions with the objective to improve the competitiveness of a group of interlinked economic activities in a specific geographic region Upgrading of company operations and strategies across a group of companies Upgrading of clusterspecific business environment conditions Strengthening of networks to enhance spill-overs and other economic benefits of clusters 36 Copyright 2010 Michael E. Porter
What is Different about Cluster-Based Economic Policy? Cluster vs. Narrow Industries Public-Private Collaboration Focus on upgrading productivity Regional Perspective Demanddriven Policy Priorities Build on Regional Strengths 37 Copyright 2010 Michael E. Porter
Clusters, Innovation and Jobs Our Economic Challenge Clusters and Regional Economic Development Cluster Policy and Economic Development Key Policy Lessons and Moving Forward 38 Copyright 2010 Michael E. Porter
Clusters and Economic Strategy Positioning Identifies, communicates, and strengthens the specific value proposition of the location Business Environment Cluster Portfolio Improves the economic platform for all clusters and companies Accelerates growth in those fields where the country has some strengths New clusters emerge from established clusters 39 Copyright 2010 Michael E. Porter
The Role of Government in Cluster Initiatives Government should Government may Government should not Support all existing and emerging clusters Participate Enable data collection and dissemination at the cluster level Be ready to implement recommendations Initiate/ Convene Co-Finance Pick favored clusters Pick favored companies Subsidize or distort competition Define cluster action priorities 40 Copyright 2010 Michael E. Porter
Applying Cluster Mapping Data Part of the assessment of a regional economy - Composition of the regional economy - Cross-regional benchmarking of strong clusters - Matching of regional clusters with regional business environment strengths - Identifying the nature of comparative advantage of a region or state Identification of potential for new clusters - Emerging clusters - Opportunities at the boundaries/intersections of clusters Part of the regional strategy development - Clusters as signals of the regional value proposition - Clusters as bridges to neighbors and other regions Impact assessment and feed-back to policies 41 Copyright 2010 Michael E. Porter
Clusters and Regional Economic Development Strategy Clusters are a forum to identify fundamental challenges in the regional business environment - Current economic and fiscal challenges have placed pressure on regional strategies from the boom years. Rather than a extra during good times, coherent regional strategy is critical for overcoming current challenges to our fiscal health and economic growth. Clusters provide new roles for government, companies, and other institutions in economic development - Regions must leverage and expand the scope of the innovation system that supports regional competitiveness in advanced economies. - The strategy for long-term growth relies less on bidding wars and high-profile investments than on creating conditions for firm development and cluster formation. Clusters are critical engines in the economic structure of state and regional economies 43