Cluster-Based Economic Development · Cluster-Based Economic Development Dr. Christian Ketels...

Cluster-Based Economic Development

Dr. Christian KetelsInstitute for Strategy and Competitiveness, Harvard Business School

President, The TCI Network

INTER-COMP-INNO Conference

Riga, Latvia

18 November 2017

[email protected]

2 Copyright 2017 © Christian Ketels

ClustersCluster-Based

Policies

Cluster-Based

Policies

for Competitiveness


An Established Concept….


…with a Stable Set of Core Building Blocks …

Collaboration

& Rivalry

Related Variety

Critical

Mass

Proximity


… in a Changing Economic Environment

Rising

Knowledge-Intensity

Globalization of

Production Sites

Falling Transportation/

Communication Costs

Accelerated

Technological Change

Agglomeration Dispersion

Globalization of

Markets

New

Business

Models

Restructuring of

Industries

Lower Trade Barriers

Convergence of

Technologies

Clusters are a stable

feature of economies

Clusters are

constantly changing

Growing Firm

Heterogeneity

Alignment of Business

Environments

Globalization of

Knowledge Networks


Strong global pipelines

through research networks,

global value chains, and

companies present in multiple

locations

Strong local buzz through

breadth of activities, quality of

firms, research institutions, and

business environment

conditions, and rich local

linkages

Local Buzz, Global Pipelines: Growing Focus


Research About Clusters

Case StudiesCross-sectoral

quantitative Studies

• Show nature of clusters

• Establish types of linkages that

exist within clusters

• Identify patterns of cluster

dynamics and their drivers

• Develop hypotheses on the impact

of clusters on firms and regions

• Systematic comparison of clusters

across sectors and locations

• Measurement of the overall

importance of clusters

• Tracking of cluster evolution

• Empirical tests of the impact of

cluster presence on regional and

firm-level economic performance

“Cluster Mapping”


Wood Products Clusters in EuropeRelative Employment Specialization

• Who are our peers and

rivals?

• How does our

performance stack up?

• What is our specific

cluster profile?

• What competitive

advantages do we offer

as a location?

Source: European Cluster Portal


3000 Strong Clusters Across Europe

1 Star

2 Stars

3 Stars

4 Stars

NUMBER OF STRONG CLUSTERS BY PERFORMANCE STARS

46% of traded

industry jobs…

50% of traded

industry payroll…

Stars for

• Specialization

• Size

• Wage/productivity

• Growth/Entrepreneurship

1600 with more than 7500 employees, accounting for 90% of jobs

Source: European Cluster Panorama, 2016

…in the 20% leading regions

by cluster category


Clusters and Economic Performance

Prosperity Entrepreneurship Structural Change

• Wages

• Productivity

• Job growth

• Resilience

• Patenting

• New business

formation

• Survival of new firms

• Job growth in new

firms

• Path of structural

change (emergence

of new clusters)

Presence of Strong Clusters

• Cluster are everywhere

• Close to 40% of advanced economy employment are in industries that ‘cluster’

• Within these, strong clusters account for more than 45% of employment and 50% of

wages

11

Labor/

HR-intensive

Capital/

HR-intensive

Services

Logistics

Med.

Devices

Logistics:

Docks,

Bunkering

Electronics

Petro-

chemicals

Financial

Services

Pharma

Business

Services

Aerospace

& Defense

Tourism

Media &

Design

IT

Logistics:

Air Travel

Logistics:

Trans-

shipment

Water

Technology

Higher

Education

1900-1960 1970s 1980s 1990s 2000s

Regional

HQs

Biotech

Clusters and the Evolution of Regional EconomiesSingapore

COSTS PRODUCTIVITY INNOVATION


Putting Clusters into Context

(Creative)

Skills

Complexity

Social Capital

Innovation

Systems

Entrepreneurial

Ecosystems

Framework

Conditions

Clusters

Urbanization


What Drives Prosperity?An Integrated Perspective

What you

have inherited

What you

have created

How

prosperous

you are

How well

you do it

What

you do

14

• Clusters emerge naturally • Clusters emerge and develop in a

context deeply affected by policy

choices

• Collaboration within clusters

provides benefits but requires

purposeful collective action

• Policies for upgrading business

environment conditions can be

more effective if they are cluster-

specific but require information

sharing and collective action

• Cluster-based policies enable

informed decision making and

collective action

What role for policy?


Two Opposing Visions on Cluster Policy

MORE (Agglomeration)

BETTER (Competitiveness)

FINISH

CREATING CLUSTERS

LEVERAGING CLUSTERS

• Long-term, systemic impact

• Low risk

• Short-term, narrow impact

• High risk


Organize Public Policy around Clusters

Clusters

Specialized Physical

Infrastructure

Natural Resource Protection

Environmental Stewardship

Science and Technology

Infrastructure

(e.g., centers, university

departments, technology

transfer)

Education and Workforce TrainingBusiness Attraction

Export Promotion

• Clusters provide a framework for organizing the implementation of public

policy and public investments towards economic development

Setting standardsMarket Information

and Disclosure


Current Status of Cluster Policies and Programs

• Many countries and regions, especially within the OECD, have cluster-related

policy programs

• Spending on cluster-related programs is meaningful, but only a modest

percentage of total spending per policy area

• Funding is tilted towards existing strengths, but many efforts exist without

established critical mass

• Cluster programs are often run by a range of ministries or agencies; there is

limited coordination between programs

• Funding for strengthening collaboration is always a part; other elements

differ significantly

• Design principles differ widely across many dimensions


What are Cluster Initiatives?

• Upgrading of

company operations

and strategies across

a group of

companies

• Strengthening of

networks to enhance

spill-overs and other

economic benefits of

clusters

• Upgrading of cluster-

specific business

environment

conditions

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


Resources &

Capabilities

• Quality of staff

• Budget and tools

• Governance

Narrow model

• Focus on networking

• Limited resources

• Limited impact

Systemic model

• Cluster initiatives as

key channel for

delivering policy action

• Moderate operational

resources, strong

influence on other

investment streams

• High impact possible

Heterogeneity of Design PrinciplesCritical Success Factors for Cluster Initiatives

Context

Activities

• Cluster strength

• Business

environment

conditions

• Firm sophistication

• Collaboration

culture, trust

IMPACT

• Activities aligned with the needs of firms

• Activities aligned with actions of partners

• Effectiveness of implementation


Core Latvian Support Programs, 2014-2020

Competence Centers

New Products

Technology Transfer

Training

ClustersDemola

BUDGET ALLOCATION BY INSTRUMENT

Copyright 2017 © Christian Ketels21

Modes of Cluster Policy

Fund operation of

cluster initiatives/

sectoral plans

Create/task backbone

organizations to

mobilize clusters

Deploy policy funds

through cluster

initiatives/networks

Use cluster

initiatives/networks as

organizational infrastructure

for policy action

Policy for Clusters Cluster-based Policy

Basque

Germany

France

Sweden

US

Catalonia

Korea

Austria

Mexico

Colombia

Sporadic:

Create

stronger linkages

Tactical:

Deliver programs

more effectively

Strategic:

Choose & design

better policies


Cluster-Based Delivery of Economic PolicyBasque Country, Spain

Institutions

(1980s)

Efficiency(1990s)

Innovation(2000s-)

Machine Tools

AFM, 1992

Appliances

ACEDE, 1992

Automotive

ACICAE, 1993

Port Logistics

UNIPORT

BILBAO, 1994

Environmental

Services

ACLIMA, 1995

Electronics,

Computing and

Telecom

GAIA, 1996

Energy

CLUSTER

ENERGIA, 1996

Aeronautics

HEGAN, 1997

Maritime

Industry ORO

MARÍTIMO

VASCO, 1997

Paper CLUSTER

PAPEL1998

Audiovisual

EIKEN, 2004

Transport and

Logistics

CLUSTERTIL,

2005

BioBasque,

2002


The Traditional View: Policies for Clusters

• Select clusters

• Focus policy action on them

• Economic impact

• Political zero-sum competition across

sectors

• Not leveraging cross-cluster

opportunities

• Limited size of even the strongest

clusters limits impact

• Cross-cutting policy areas easily ‘off-

the-table’

• Cluster efforts as new policy silo


The Traditional View: Policies for Clusters Challenges

• Select clusters

• Focus policy action on them

• Economic impact

• Political zero-sum competition across sectors

• Cross-cluster opportunities remain

unexploited

• Cluster efforts as a new policy silo

• Cross-cutting policy areas easily ‘off-the-

table’

• Limited size of even the strongest clusters

limits impact

• Ultimately strong clusters need a strong

region


Economic Development Through ClustersKey Leverage Points

• From policy for clusters to policy by clusters

• From clusters to cluster portfolios

• From the selection of clusters to the integration of policy instruments

• From strengthening of individual clusters to enhancing the

competitiveness of the region

ClustersCluster

Organizations

• Dimension of competitiveness

diagnostics

• Element of a regional strategy

• Platform for public-private

dialogue

• Channel to deliver policy action


Developing a Regional Economic Strategy

Diagnostics

• What is the profile of

our performance?

• What business

environment

conditions do we

offer?

• What clusters do we

have? How are they

positioned?

Choice

• What business

environment

conditions do we

want to offer?

• Which type of

companies and

skills do we aim to

attract with these

qualities? In what

clusters?

Action Plan

• What are the

priorities for action?

• Who is going to do

what?

• How do we deploy

our resources?

• What channels

and platforms can

we use?


Elements of a Regional Economic Strategy

Positioning

• The specific value the location provides as a place to do

business in the national and global economy

Business

Environment

Cluster

Portfolio

• Activities focused on existing and

emerging clusters that draw most

benefits from and emphasize the

location’s value proposition

• Activities to upgrade cross-cutting

business environment conditions

that are most critical for the

location’s value proposition

Outcome Ambitions

Implementation Architecture• Responsibilities, resources, capabilities, and coordination


Regional Competitiveness Through Clusters –

and Vice Versa


Playing A Role Beyond your Cluster

Regional

ClusterRegional strategy

Regional cluster portfolio

National policies

affecting the cluster

Related clusters

across the country

Peer clusters

in other locations


Clusters, Regions, and Structural Change

The Challenge:

• How to achieve structural change towards higher

value-added activities?

The New Answer:

• Identify your assets, including your

existing cluster base

• Actively pursue opportunities in areas

adjacent to current strengths and

leading towards higher value added

• Longer-term development of

sustainable competitive advantages

The Old Answer:

• Identify growing markets and try to

enter them (bio, nano, eco, …)

• Failure to succeed in intensely

competitive markets without unique

assets


Cluster-Based Structural Transformation:

Identification

Context for Firm

Strategy and Rivalry

Related and Supporting Industries

Factor(Input)

Conditions

Demand Conditions

• Sophisticated and demanding

local customers and needs– e.g., Strict quality, safety, and

environmental standards

– Consumer protection laws

• Local rules and incentives that

encourage investment and

productivity– e.g. incentives for capital

investments, IP protection, corporate

governance standards

• Open and vigorous local

competition− Openness to foreign competition

− Strict competition laws• Access to high quality

business inputs– Human resources

– Capital availability

– Physical infrastructure

– Administrative

infrastructure (e.g., business

registration, permitting,

transparency)

– Scientific and technological

infrastructure

• Availability and depth of suppliers

and supporting industries

• Presence of Institutions for

Collaboration (IFCs) that support

productive coordination and

collaboration among actors

Plastic

s

Oil and

Gas

Chemi

cal

Produc

tsPharm

a-

ceutica

ls

Power

Generation

Aerospace

Vehicles &

Defense

Lightning &

Electrical

Equipment

Financial

Services

Publishing

and Printing

Entertainment

Hospitality

and Tourism

Transportation

and Logistics

Information

Technology

Communi-

cations

Equipment

Medica

l

Device

s

Analytical

Instruments

Education

and

Knowledge

Creation

Appare

l

Leather

and

Sportin

g

Goods

Agricultural

Products

Proces

sed

Food

Furnitur

e

Buildin

g

Fixture

s,

Equipm

ent and

Service

s

Sporting,

Recreation

and Children’s

Goods

Busine

ss

Service

s

Distribution

Services

Fishing

&

Fishing

Produc

ts

Footwe

ar

Forest

Produc

ts

Heavy

Construction

Services

Jewelr

y &

Precio

us

Metals

Construction

Materials

Prefabricated

Enclosures

Textile

s

Tobacc

o

Heavy

Machinery

Aerospace

EnginesAutomotive

Production

Technology

Motor Driven

Products

Metal

Manufacturing

Business Environment Strengths Existing Cluster Portfolio

• Existing capabilities

• External intelligence (technology, market needs) is critical

Assessment criteria

• Existing bridgeheads, market opportunity, leadership


Elements of a Regional Economic StrategyLevers to Drive Structural Transformation

Encourage exploration of related clusters

with high productivity potential

Upgrade

existing clusters

Encourage

entrepreneurship

economy-wide

Develop capacity in

specific knowledge

domains


An Example: Catalonia’s Smart Specialization Strategy

Leading Clusters

Emerging Clusters

Key Technologies

Entrepreneurship

Four

Pillars

• Existing cluster organizations and

support mechanisms put into a

broader context• Integration of national

and regional policy

instruments


Regional Strategy (RIS3) and Clusters:

The Opportunity

What RIS3 can offer:

• From individual cluster efforts

to a regional agenda

• From strengthening strengths

to enabling change

What cluster efforts can offer:

• From what to do to how to do

it and by whom

• From government driven to

public private collaboration

An effective regional strategy


New Partnerships to Drive Economic Development

Old Model

• Government drives economic

development through policy

decisions and incentives

New Model

• Economic development is a

collaborative process involving

government at multiple levels,

companies, teaching and

research institutions, and private

sector organizations

• Cluster organizations are

effective tools to organize

public-private dialogue

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