2000 Harvard C I T Cluster Study

41
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 1998 , (World Economic Forum, 1998), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998) and ongoing statistical study of clusters, and “What is Strategy?” (Harvard Business Review, Nov/Dec 1996). No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter. The Microeconomic Foundations of Competitiveness and the Role of Clusters Professor Michael E. Porter Harvard Business School Mississippi May, 2000

description

 

Transcript of 2000 Harvard C I T Cluster Study

Page 1: 2000  Harvard  C I T  Cluster  Study

This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 1998, (World Economic Forum, 1998), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998) and ongoing statistical study of clusters, and “What is Strategy?” (Harvard Business Review, Nov/Dec 1996). No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter.

The Microeconomic Foundations of Competitiveness and the Role of Clusters

Professor Michael E. PorterHarvard Business School

MississippiMay, 2000

Page 2: 2000  Harvard  C I T  Cluster  Study

2Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Shifting Economic Policy Agenda

• Macro

• Current Productivity

• Economy Wide

• National

• Economic

• Micro

• Innovation

• Clusters

• Cross-national

• Regional / local

• Economic integrated with social

Page 3: 2000  Harvard  C I T  Cluster  Study

3Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Sources of Rising Prosperity

• A nation or region’s standard of living (wealth) is determined by the productivitywith which it uses its human, capital, and natural resources. The appropriate definition of competitiveness is productivity.

– Productivity depends both on the value of products and services (e.g. uniqueness, quality) as well as the efficiency with which they are produced. Productivity should be measured in terms of the value (revenue) produced per unit of labor or capital, not just the volume.

– It is not what industries a nation or region competes in that matters for prosperity, but how firms compete in those industries

– Productivity in a nation or region is a reflection of what both domestic and foreign firms choose to do in that location. The location of ownership is secondary for national prosperity.

– The productivity of “local” industries is of fundamental importance to competitiveness, not just that of traded industries

• Nations and regions compete in offering the most productive environment for business

Page 4: 2000  Harvard  C I T  Cluster  Study

4Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Shifting Sources of Prosperity

Comparative Advantage

Competitive Advantage

Wealth is set by endowments

Wealth is created by a nation or region’s

choices

Page 5: 2000  Harvard  C I T  Cluster  Study

5Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Determinants of Productivity and Productivity Growth

Sophistication of Company Operations

and Strategy

Quality of the Microeconomic Business

Environment

Macroeconomic, Political, and Legal ContextMacroeconomic, Political, and Legal Context

Microeconomic Foundations

Internal External

Page 6: 2000  Harvard  C I T  Cluster  Study

6Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

India

France

Costa Rica

Indonesia

The Relationship Between MicroeconomicFoundations and GDP Per Capita

-2 -1 0 1 2$0

$10,000

$20,000

$30,000

$40,000

United States

Finland

Netherlands

Sweden

Switzerland

Germany

DenmarkCanada

United Kingdom

Austria

Singapore

AustraliaJapan

Belgium

New Zealand

Ireland

Norway

Taiwan

Israel

Hong KongIceland

Spain

Chile

Italy

South Africa

Malaysia

Korea

Portugal

Mauritius

Turkey

Jordan

HungaryMexico

Brazil

Greece

PolandThailand

ArgentinaCzech Republic

EgyptPhilippinesZimbabwe

Peru

El Salvador

Slovakia

China

Vietnam

Venezuela

Colombia

BulgariaRussia

Ukraine

Ecuador

Bolivia

Microeconomic Competitiveness Factor (MICI)Source: M. Porter, “Microeconomic Competitiveness: Findings from the 1999 Executive Survey ,” Global Competitiveness Report, Geneva: World Economic Forum, 1999. Refer also to 1998 report.

1998

GD

P p

er C

apit

a (C

urr

ent

Do

llars

Ad

just

ed f

or

Pu

rch

asin

g P

ow

er P

arit

y)

Page 7: 2000  Harvard  C I T  Cluster  Study

7Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Sources of Superior Performance

• Creating a unique and sustainable competitive position

• Assimilating, attaining, and extending best practice

OperationalEffectiveness

StrategicPositioningStrategic

Positioning

Page 8: 2000  Harvard  C I T  Cluster  Study

8Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Context for Firm

Strategy and Rivalry

Context for Firm

Strategy and Rivalry

Related and Supporting Industries

Related and Supporting Industries

Factor(Input)

Conditions

Factor(Input)

Conditions

• Sophisticated anddemanding local customer(s)

• Unusual local demand in specialized segments that can be served globally

• Customer needs that anticipate those elsewhere

• Presence of capable, locally-based suppliers and firms inrelated fields

• Presence of clusters instead of isolated industries

• A local context that encourages investmentand sustained upgrading

• Vigorous competition among locally-basedrivals

Demand ConditionsDemand

Conditions

• Factor (input) quantity and cost

• Factor quality• Factor specialization

Productivity and the Microeconomic Business Environment

Page 9: 2000  Harvard  C I T  Cluster  Study

9Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The California Wine Cluster

Educational, Research, & Trade Organizations (e.g. Wine Institute,

UC Davis, Culinary Institutes)

Educational, Research, & Trade Organizations (e.g. Wine Institute,

UC Davis, Culinary Institutes)

Growers/VineyardsGrowers/Vineyards

Sources: California Wine Institute, Internet search, California State Legislature. Based on research by MBA 1997 students R. Alexander, R. Arney , N. Black, E. Frost, and A. Shivananda.

Wineries/ProcessingFacilities

Wineries/ProcessingFacilities

GrapestockGrapestock

Fertilizer, Pesticides, Herbicides

Fertilizer, Pesticides, Herbicides

Grape Harvesting Equipment

Grape Harvesting Equipment

Irrigation TechnologyIrrigation Technology

Winemaking EquipmentWinemaking Equipment

BarrelsBarrels

LabelsLabels

BottlesBottles

Caps and CorksCaps and Corks

Public Relations and Advertising

Public Relations and Advertising

Specialized Publications (e.g., Wine Spectator, Trade

Journal)

Specialized Publications (e.g., Wine Spectator, Trade

Journal)

Food ClusterFood Cluster

Tourism ClusterTourism ClusterCalifornia Agricultural Cluster

California Agricultural Cluster

State Government Agencies(e.g., Select Committee on Wine

Production and Economy)

Page 10: 2000  Harvard  C I T  Cluster  Study

10Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

• End-product or service companies

• Suppliers of specialized inputs, components, machinery, financing, and services

• Firms in related and downstream industries (i.e., channels or customers)

• Producers of complementary products

• Specialized infrastructure providers

• Government and other institutions providing specialized training, education, information, research, and technical support (e.g. universities, think tanks, vocational training providers)

• Standards-setting and influential government agencies

• Trade associations and other collective private sector bodies

Clusters go beyond a single industry

What is a Cluster?A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities

Page 11: 2000  Harvard  C I T  Cluster  Study

11Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Norwegian Maritime Cluster

• Norway has 0.1% of the world’s population, represents 1.0% of the world’s economy, yet accounts for 10% of world seaborne transportation

MaritimeEquipmentSuppliers

MaritimeEquipmentSuppliers

ShippingShippingMaritimeServicesMaritimeServices

OffshoreExploration

and OilProduction

OffshoreExploration

and OilProduction

ShipyardsShipyards

Boat buildersBoat builders

Ship equipmentShip equipment

Fixed platformsFixed platforms PipelinesPipelines Processingequipment

Processingequipment

Fisheries and

FishingEquipment

Fisheries and

FishingEquipment

Ship brokers and agents

Ship brokers and agents

Banking andFinance

Banking andFinance

MaritimeeducationMaritimeeducation

Underwriters and maritime insurance

Underwriters and maritime insurance

Maritime lawyersMaritime lawyers

Classificationsocieties

Classificationsocieties

MaritimeR&D

MaritimeR&D

MaritimeconsultantsMaritime

consultants

Ship ownersShip owners

MaritimeauthoritiesMaritime

authorities

Source: Sven Ullring, presented to M.I.T.

Page 12: 2000  Harvard  C I T  Cluster  Study

12Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Equipment Suppliers

(e.g. Oil Field Chemicals,

Drilling Rigs, Drill Tools)

Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations)

SpecializedTechnology

Services

(e.g. Drilling Consultants,

Reservoir Services, Laboratory Analysis)

Subcontractors

(e.g. Surveying,Mud Logging,Maintenance

Services)

BusinessServices

(e.g. MIS Services,Technology Licenses,

Risk Management)

The Houston Oil and Gas Cluster

OilTrans-

portation

OilTrading

OilRefining

Oil Retail

Marketing

OilWholesaleMarketing

OilDistribution

GasGathering

GasProcessing

GasTrading

GasTransmis-

sion

GasDistribution

GasMarketing

Oil & Natural GasExploration & Development

Oil & Natural Gas Completion &

Production

Upstream Downstream

Oilfield Services/Engineering & Contracting Firms

Page 13: 2000  Harvard  C I T  Cluster  Study

13Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Clusters and Competitive Advantage

Productivity• Efficient access to information, specialized inputs and employees,

institutions, and “public goods”• Achieving complementarities across businesses• Better incentives and performance measurement

Innovation

• Ability to perceive and respond to innovation opportunities• Rapid diffusion of improvements

New Business Formation

• Perceiving opportunities for new businesses• Lowering barriers to entry (including perceived risk)

• Competition is fundamentally affected by externalities / linkages across firms, industries, and associated institutions

Page 14: 2000  Harvard  C I T  Cluster  Study

14Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Influence of Clusters on the Nature of Local Competition

• Clusters foster strategiccompetition instead of imitation and price cutting

– OE differences within clusters are hard to sustain

– Proximity discourages imitation vs. the pursuit of different strategies

– Clusters can provide a better environment in which to perceive new needs and segments

– The presence of local suppliers, related firms, and supporting institutions enables strategic differences

• Clusters facilitate rapid operational improvement and extending the productivity frontier

– Rapid dissemination of best practices

– Opportunities for experimentation with new activity configurations and approaches

OperationalEffectiveness

OperationalEffectiveness

StrategicPositioning

StrategicPositioning

ClustersClusters

Page 15: 2000  Harvard  C I T  Cluster  Study

15Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Why Innovation Matters

• Advanced nations cannot support high wages and profits through producing standard products or services made with standard methods– High wages can only be justified by productivity differences– Developing economies have far lower wages and improving skills and

infrastructure– Developing nations can access existing technology via outsourcing

and technology acquisition– A broader array of nations are building innovative capability– Multinational companies can choose to locate activities anywhere,

including innovation-related activities

• The prosperity of advanced nations depends on innovation

• A faster rate of innovation is also fundamental to coping with slow workforce growth and to expanding the world economic pie

• Innovation holds the key to solving many of the world’s most pressing socialchallenges (e.g., health care and the environment)

Page 16: 2000  Harvard  C I T  Cluster  Study

16Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Innovation and the Standard of Living

Competitiveness(Productivity)

Innovative Capacity

Prosperity

Page 17: 2000  Harvard  C I T  Cluster  Study

17Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Massachusetts Clusters

KnowledgeCreation

• Advanced Education• Innovation Services

KnowledgeCreation

• Advanced Education• Innovation Services

HealthcareHealthcare FinancialServices

FinancialServices

InformationTechnologyInformationTechnology

MarineEquipment& Services

MarineEquipment& Services

PolymersPolymersPhotonicsPhotonics

MetalFabrication /Processing

MetalFabrication /Processing

DefenseDefense EnvironmentalProducts &

Services

EnvironmentalProducts &

Services

Tourism &Leisure

Tourism &Leisure

BiotechnologyBiotechnology

Textiles, Apparel &Footwear

Textiles, Apparel &Footwear

SpecialtyPaper

SpecialtyPaper

• Services• Hardware

Page 18: 2000  Harvard  C I T  Cluster  Study

18Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

OmahaTelemarketingHotel ReservationsCredit Card Processing

Wisconsin / Iowa / IllinoisAgricultural Equipment

DetroitAuto Equipmentand Parts

RochesterImaging Equipment

Western MassachusettsPolymers

BostonMutual FundsBiotechnologySoftware and

NetworkingVenture Capital

HartfordInsuranceProvidenceJewelryMarine Equipment

New York CityFinancial ServicesAdvertisingPublishingMultimedia

Pennsylvania / New JerseyPharmaceuticals

North CarolinaHousehold FurnitureSynthetic FibersHosiery

Dalton, GeorgiaCarpets

South FloridaHealth Technology Computers

Nashville / LouisvilleHospital Management

Baton Rouge / New OrleansSpecialty Foods

Southeast Texas / LouisianaChemicals

DallasReal Estate Development

WichitaLight AircraftFarm Equipment

Los Angeles AreaDefense AerospaceEntertainment

Silicon ValleyMicroelectronicsBiotechnologyVenture Capital

Cleveland / LouisvillePaints & Coatings

PittsburghAdvanced MaterialsEnergy

West MichiganOffice and Institutional Furniture

MichiganClocks

CarlsbadGolf Equipment

MinneapolisCardio-vascularEquipmentand Services

Warsaw, IndianaOrthopedic Devices

ColoradoComputer Integrated Systems / ProgrammingEngineering ServicesMining / Oil and Gas Exploration

PhoenixHelicoptersSemiconductorsElectronic Testing LabsOptics

Las VegasAmusement / CasinosSmall Airlines

OregonElectrical Measuring EquipmentWoodworking EquipmentLogging / Lumber Supplies

SeattleAircraft Equipment and DesignBoat and Ship BuildingMetal Fabrication

BoiseSawmillsFarm Machinery

Selected Regional Clusters of Competitive U.S. Industries

Page 19: 2000  Harvard  C I T  Cluster  Study

19Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

50 “Traded” Clusters (35.7% of Total Employment)50 “Traded” Clusters (35.7% of Total Employment)

The Composition of Regional Economies

Natural Resource

Driven Industries

Natural Resource

Driven Industries

19 Local Clusters (64.2% of Total Employment)

e.g. • Aerospace Engines

• Aerospace Vehicles and Defense

• Analytical Instruments

• Apparel...

e.g. • Local Agriculture

• Local Commercial Services

• Local Community and Civic Organizations

• Local Construction Services...

Page 20: 2000  Harvard  C I T  Cluster  Study

20Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Information Technology ClusterServices Hardware

Components

Instruments

Computer programming services

Prepackaged software

Computer integrated systems design

Information Retrieval Services

Data processing and preparat ion

Computer faci l i t ies management

Computer rental and leasing

Computer maintenance and repair

Computer related services N.E.C.

Electronic Computers Computer storage devices

Computer terminals

Computer peripheral equipment

Telephone and telegraph aparatus

Radio and TV communicat ions equipment

Communicat ions equipment N.E.C.

Electron tubes

Semiconductors and related

Magnetic and optical recording media

Optical instruments and lenses

Electronic connectors

Electronic Components N.E.C.

Plating and polishing

Electrical industrial apparatus N.E.C.

Printed circuit boards

Electronic resistors

Electronic coi ls and transformers

Instruments to measure electricity

Analytical instruments

Measuring and controll ing devices

Commercia l physica l research

Noncommercial research organizat ions

Software and Programmer Services

Computer and Information Services

Computers Peripherals Telecommunications Equipment

Semiconductors Optical Devices Electrical components, parts and processes

Research Organizations

Page 21: 2000  Harvard  C I T  Cluster  Study

21Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Information Technology Cluster

Note: **Locational correlation of employment with the core industry across U.S. states. Correlations are statistically significant at the 95% level.

Source: Professor Michael E. Porter, Cluster Mapping Project, 1999.

Data Processing

and Preparation

0.579**

Instruments to Measure Electricity

0.645**

Calculating / Accounting Machines

0.328**

Electronic Resistors

0.416**

Commercial Physical Research

0.667**

Computer Peripherals

0.498**

Measuring and

Controlling Devices

0.669**

Storage Devices

0.595**

Electronic Connectors

0.752**

Analytical Instruments

0.684**

Computer Terminals

0.642**

Electronic Components

0.860**

Computer Related

Services nec

0.610**

Computer Facilities

Management

0.681**

Electron Tubes

0.342**

Communi-cations

Equipmentnec

0.536**

Electronic Coils &

Transformers

0.353**

Computer Maintenance and Repair

0.699**

Semicon-ductors and

Related Devices

0.765**

Telephone & Telegraph Apparatus

0.773**

Prepackaged Software

0.725**

Computer Programming

Services

0.613**

Computer Integrated Systems Design

0..505**

Electrical Industrial Apparatus

nec

0.573**

Plating and Polishing

0.569**Printed Circuit Boards

0.695**

Electronic Computers

1.000

Radio and TVCommuni-

cation Equip.nec

0.534**

Information Retrieval Services

0.554**

Noncom-mercial

Research Orgs.

0.416**

Magnetic and Optical

Recording Media

0.777**Optical

Instruments and Lenses

0.651**

Computer Rental and

Leasing

0.310**

Page 22: 2000  Harvard  C I T  Cluster  Study

22Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Information Technology Cluster

2to3

1to2

0to1

San Diego, CA

BoiseCity.ID-OR

SF-OaklandBayArea-Silicon Valley, CA

Albuquerque, NM-AZ

Austin, TX

Denver-Boulder, CO

Huntsville, AL

Raleigh-Durham, NC

Boston, MA

Knoxville, TN

*Measure of a cluster’s concentration in a region relative to a cluster’s concentration in the nation

Source: Cluster Mapping Project

Location Quotient*

Page 23: 2000  Harvard  C I T  Cluster  Study

23Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Information Technology ClusterSoftware and Programmer Services

*Measure of a cluster’s concentration in a region relative to a cluster’s concentration in the nation

Source: Cluster Mapping Project

Seattle, WA

SF-Oakland Bay AreaSilicon Valley, CA

San Diego, CA

Salt Lake City, UT

Denver-Boulder, CO

Austin, TX

Huntsville-Atlanta, AL-GA

Boston, MAPortland, ORMinneapolis-St. Paul, MN

Washington-Baltimore, DC-MD

Raleigh-Durham-NC

Tucson, AZ1.51 to 3.51 to 1.50

0 to 1

Location Quotient*

Page 24: 2000  Harvard  C I T  Cluster  Study

24Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Automotive Cluster

2to4

1to2

0to 1

Grand Forks, ND

Fort Smith, AR-OK

Jonesboro, AR

Greenville-Spartanburg, NC-SC

Buffalo Falls,NY

Detroit-AnnArbor-Cleveland-Akron-Traverse City-Columbus, MI-OH

Tupelo, MSWesternTennesee*Measure of a cluster’s concentration in a region relative

to a cluster’s concentration in the nation

Source: Cluster Mapping Project

Location Quotient*

Page 25: 2000  Harvard  C I T  Cluster  Study

25Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Level of Aggregation and Competitiveness

Company Industry Cluster Sector Economy

e.g., services, manufacturing,“high-tech”

Page 26: 2000  Harvard  C I T  Cluster  Study

26Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

1. Establish a stable and predictable macroeconomic and political environment

2. Improve the availability, quality, and efficiency of general purpose inputs, infrastructure and institutions

3. Establish overall rules and incentives governing competition that encourage productivity growth

4. Facilitate cluster development and upgrading

5. Develop and implement a positive and long-term process for economic upgrading which mobilizes national government, local government, business, institutions, and citizens

Appropriate Roles of Government in Economic Development

Page 27: 2000  Harvard  C I T  Cluster  Study

27Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Cluster Policy versus Industrial Policy

Industrial Policy

Cluster-basedPolicy

• Target desirable industries / sectors

• Focus on domestic companies

• Intervene in competition (e.g., protection, industry promotion, subsidies)

• Centralizes decisions at the national level

• All clusters can contribute to prosperity

• Domestic and foreign companies both enhance productivity

• Relax impediments and constraints to productivity

• Emphasize cross-industry linkages / complementarities

• Encourages initiative at the state and local level

Distort competition Enhance competition

Page 28: 2000  Harvard  C I T  Cluster  Study

28Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Illustrative Government Influences on Cluster Upgrading

l Sponsor forums to bring together cluster participantsl Cluster-specific efforts to attract suppliers and service

providers from other locationsl Establish cluster-oriented free trade zones, industrial

parks, or supplier parks

Related and Supporting Industries

Related and Supporting Industries

Factor (Input)

Conditions

Factor (Input)

Conditions

Demand ConditionsDemand

Conditions

l Eliminate barriers to local competition

l Focus efforts to attract foreign investment around clusters

l Focus export promotion around clusters

l Organize relevant government departmentsaround clusters

Context for Firm

Strategy and Rivalry

Context for Firm

Strategy and Rivalry

l Create streamlined, pro-innovation regulatory standards affecting the cluster to

l reduce regulatory uncertaintyl stimulate early adoptionl encourage innovation or new

products and processesl Sponsor independent

testing, product certification, and rating services for cluster products/services

l Act as sophisticated buyerof the cluster’s products / services

l Create specialized education and training programs

l Establish local university research efforts in cluster-related technologies

l Support cluster-specific information gathering and compilation

l Improve specialized transportation, communications, and other infrastructure required by cluster

Page 29: 2000  Harvard  C I T  Cluster  Study

29Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Government and Cluster DevelopmentPrinciples

• Cluster policy does not substitute for the need to improve the general business environment

• Clusters offer a different way to view and understand the economy

• Clusters offer a mechanism to bring together government and the private sector

• Cluster policy seeks to upgrade all existing and emerging clusters, not choose amongst them

• Cluster policy is focused on removing impediments and obstacles to cluster development. It is not the same as “industrial policy”

Page 30: 2000  Harvard  C I T  Cluster  Study

30Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Government Roles in Cluster Development

• Convening cluster participants

– Involve institutions and multiple levels of government

• Acting on government induced / influenced weaknesses or obstacles to productivity

• Aligning government organizational structure, and other data collection, with clusters

• Encouraging other institutions to develop cluster-based strategies

–e.g. universities, training providers

Page 31: 2000  Harvard  C I T  Cluster  Study

31Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Public / Private Cooperation in Cluster UpgradingMinnesota’s Medical Device Cluster

Firm Strategy, Structure

and Rivalry

Firm Strategy, Structure

and Rivalry

Related and Supporting Industries

Related and Supporting Industries

Factor Conditions

Factor Conditions

Demand ConditionsDemand

Conditions

l Joint development of vocational-technical college curricula with the medical device industry

l Minnesota Project Outreach exposes businesses to resources available at university and state government agencies

l Active medical technology licensing through University of Minnesota

l State-formed Greater Minnesota Corp. to finance applied research, invest in new products, and assist in technology transfer

l State sanctioned reimbursement policies to enable easier adoption and reimbursement for innovative products

l Aggressive trade associations (Medical Alley Association, High Tech Council)

l Effective global marketing of the cluster and of Minnesota as the “The Great State of Health”

l Full-time “Health Care Industry Specialist” in the department of Trade and Economic Development

Page 32: 2000  Harvard  C I T  Cluster  Study

32Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

First Reaction

• Create more competition

• Lose employees to spin-offs

• Drive up local costs

Company Attitudes Towards Clusters

Upon Reflection

• Increase efficiency

• Expand the availability of inputs

• Increase flexibility

• Increase information

• Facilitate marketing

• Speed innovation

• Most cluster participants are not direct competitors

Page 33: 2000  Harvard  C I T  Cluster  Study

33Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Illustrative Private Sector Influences on Cluster Upgrading

Context for Firm

Strategy and Rivalry

Context for Firm

Strategy and Rivalry

Related and Supporting Industries

Related and Supporting Industries

Factor (Input)

Conditions

Factor (Input)

Conditions

l Work with government to streamline regulations and modify them to encourage innovation

l Establish local testing and standards organizations

l Establish a cluster-based trade association

l Encourage local supplier formation and attract local investments by suppliers based elsewhere through individual and collective efforts

l Market jointly through trade fairs and delegations

l Collaborate with government export promotion efforts

l Create directories of cluster participants

Demand ConditionsDemand

Conditions

l Jointly develop specialized vocational, technical, college and university curricula

l Sponsor specialized university research centers

l Collect cluster information through trade associations

l Maintain close liaison with infrastructure providers to address specialized cluster needs (e.g., data communications, logistics)

l Develop courses for managers on regulatory, quality, and managerial issues

Page 34: 2000  Harvard  C I T  Cluster  Study

34Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Guidelines for Organizing and Implementing a Successful Cluster Initiative

• Shared understanding of competitiveness and the role of clusters

• Private-sector led with active government participation, rather than organized and controlled by government

• Focus on removing obstacles and easing constraints to cluster upgrading rather than seeking subsidies or limiting competition

• Encompass (over time) all clusters in a region or nation

• Appropriate cluster boundaries

• Wide involvement of cluster participants as well as associated institutions

• Attention to personal relationships to facilitate linkages, foster open communications, and build trust

• A bias towards action

• Clusters are institutionalized by the private sector

Page 35: 2000  Harvard  C I T  Cluster  Study

35Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Common Pitfalls in Cluster Initiatives

• Prioritizing or “picking” clusters

• Government-driven

• Overly broad or overly narrow cluster definitions

• Using the cluster concept as a cover for industrial policy

• Orientation toward subsidies or limiting competition

• Ignoring small or emerging clusters

• Attempting to create clusters from “scratch”

• Prioritizing or “picking” clusters

• Government-driven

• Overly broad or overly narrow cluster definitions

• Using the cluster concept as a cover for industrial policy

• Orientation toward subsidies or limiting competition

• Ignoring small or emerging clusters

• Attempting to create clusters from “scratch”

Page 36: 2000  Harvard  C I T  Cluster  Study

36Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Shifting Economic Policy Agenda

• Macro

• Current Productivity

• Economy Wide

• National

• Economic

• Micro

• Innovation

• Clusters

• Cross-national

• Regional / local

• Economic integrated with social

Page 37: 2000  Harvard  C I T  Cluster  Study

37Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

• Economic integrated with social

• Economic integrated with social

• Economic• Economic

The Shifting Economic Policy Agenda• Macro

• Current Productivity

• Economy Wide

• National

• Micro

• Innovation

• Clusters

• Cross-national

• Regional / local

• From market intervention to help the poor to equipping disadvantaged citizens to succeed in the market

• From inequality as a failure of the market to inequality as a failure of government

• From inflicting environmental standards on business to fosteringcorporate environmental innovation

• From cutting health care cost to finding innovative health solutions

Page 38: 2000  Harvard  C I T  Cluster  Study

38Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Integrating Economic and Social Policy

EconomicPolicy

SocialPolicy

• A productive and growing economy requires:– Rising skill levels – Safe working conditions – Healthy workers who live in decent housing in safe neighborhoods– A sense of opportunity– Assimilation of underemployed citizens into the productive workforce – Low levels of pollution (pollution is a sign of unproductive use of

physical resources)

• “Social” policies must be aligned with productivity in the economy and prepare and motivate citizens to succeed in the market system

There is no inherent conflict between capitalism and social needs

Page 39: 2000  Harvard  C I T  Cluster  Study

39Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Economic Development in Inner Cities Premises of the New Model

• Inner-city distress is as much an economic as a social problem

– Without viable jobs, social investments will be insufficient

• Economic development in inner cities must be approached from a business strategy perspective - businesses must be genuinely profitable, and the private sector must play the leading role

• There are existing and potential competitive advantages of inner cities that can support viable businesses and jobs

• The disadvantages of inner cities as business locations must be addressed directly, not offset by subsidies

• The inner city can only prosper if it is integrated into the regional and national economy

• The paradigm must shift from:

– reducing poverty to creating income, jobs, and wealth

– community deficiencies to market opportunities

Widen prosperity to all of our citizens

Page 40: 2000  Harvard  C I T  Cluster  Study

40Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

The Shifting Economic Policy Agenda

• Macro

• Current Productivity

• Economy Wide

• National

• Economic

• Micro

• Innovation

• Clusters

• Cross-national

• Regional / local

• Economic integrated with social

Page 41: 2000  Harvard  C I T  Cluster  Study

41Mississippi - Micro - 05-00.ppt Copyright © 2000 Professor Michael E. Porter

Selected ReferencesMichael E. Porter

• “Microeconomic Competitiveness: Findings from the 1999 Executive Survey” in The Global Competitiveness Report 1999, (World Economic Forum, 1999)

• “The Determinants of National Innovative Capacity”, with Scott Stern and Jeffrey Furman, (Harvard Business School Working Paper, 1999)

• “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 1998, (World Economic Forum, 1998)

• “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition(Harvard Business School Press, 1998)

• “What is Strategy?” (Harvard Business Review, Nov-Dec 1996)

• “The Competitive Advantage of the Inner City,” (Harvard Business Review, May-June 1995)

• "Toward a New Conception of the Environment-Competitiveness Relationship," with Claas vander Linde (The Journal of Economic Perspectives, Fall 1995).

• "Making Competition in Health Care Work,” with Elizabeth O. Teisberg and Gregory B. Brown (Harvard Business Review, July-Aug 1994)

• The Competitive Advantage of Nations (The Free Press, 1990)