Clusters and Cluster Initiatives: Recent Learnings, Current Challenges

1.Clusters and Cluster Initiatives:Recent Learnings, Current ChallengesProf. Christian H. M. KetelsInstitute for Strategy and CompetitivenessHarvard Business SchoolVINNOVA Brown Bag SeminarStockholm21 November 20112. 2 Copyright 2011 © Christian KetelsThe Changing Face of Cluster PolicyEarly 1990s:Pioneercountriesand regionsMid-1990s tomid 2000s:Cluster policyentrepreneursMid 2000sonwards:Cluster policymoving into themainstreamConcerns aboutdistortionsConcerns aboutimpact3. 3 Copyright 2011 © Christian KetelsCluster Research: Current Status• Traded versus local industries– Different market dynamics– Different roles in regional prosperity• Cluster specialization and economic performance– Prosperity– Productivity and job creation– Entrepreneurship• Cluster initiatives and economic performance• The relationship between clusters, cluster initiatives, and regionalbusiness environments4. 4 Copyright 2011 © Christian KetelsSource: European Cluster Observatory (2009)ForestProductsFurnitureFishingAerospaceOil & GasTelecomFurnitureApparelForestProductsAutomotiveTextilesFishingFishingFishingOil & GasOil & GasFurnitureAerospaceMedial DevicesTransportationTransportationBiopharmaTransportationFishingBiopharmaPowerTransportationTelecomFishingStatistical Clusters Across the Baltic Sea RegionITITFoodState of the Region-Report 2009Note:Fully colored boxes indicateclusters strong in size andspecialization; other boxesare clusters strong in onlyone of these dimensions. Nocomparable Russian datawas available.IT5. 5 Copyright 2011 © Christian KetelsClusters, Urbanization, and Regional Economic PerformanceSwedish Regional Clusters, 2006Highlights StockholmSource: Ketels (2009)6. 6 Copyright 2011 © Christian KetelsFurnitureBuildingFixtures,Equipment &ServicesFishing &FishingProductsHospitality& TourismAgriculturalProductsTransportation& LogisticsCluster Overlap Matrix: StockholmPlasticsOil &GasChemicalProductsBiopharma-ceuticalsPowerGenerationAerospaceVehicles &DefenseLightning &ElectricalEquipmentFinancialServices Publishing& PrintingEntertain-mentInformationTech.Communi-cationsEquipmentBusinessServicesDistributionServicesForestProductsHeavyConstructionServicesCon-structionMaterialsPre-fabricatedEnclosuresApparelLeather &RelatedProductsJewelry &PreciousMetalsTextilesFootwearProcessedFoodTobaccoMedicalDevicesAnalyticalInstrumentsEducation &KnowledgeCreationMarineEquipmentAerospaceEnginesHeavyMachinerySporting& RecreationGoodsAutomotiveProductionTechnologyMotorDrivenProductsMetalManufacturingSource: Ketels (2009). Cluster Overlap Matrix developed by Michael Porter, Mercedes DelgadoNote: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.Red shading indicates clusters with LQ > 1, dark red with LQ > 27. 7 Copyright 2011 © Christian KetelsDrivers of ProsperityRevisiting the Role of LocationBusiness EnvironmentQualityUrbanization(Density)Clusters(Specialization, Mix,Collaboration)Prosperity8. 8 Copyright 2011 © Christian KetelsThe Case for Cluster PolicyPathdependencyInformationasymmetriesCoordinationfailuresLocalExternalities9. 9 Copyright 2011 © Christian KetelsTwo Opposing Approaches to Cluster PolicyMORE (Agglomeration)BETTER (Competitiveness)FINISH10. 10 Copyright 2011 © Christian KetelsThe Case for Cluster PolicyLeversPathdependencyInformationasymmetriesCoordinationfailuresLocalExternalitiesTarget PublicPolicy at ClustersCreate Platformsfor Joint Action11. 11 Copyright 2011 © Christian KetelsTarget Public Policy at ClustersClustersSpecialized PhysicalInfrastructureNatural Resource ProtectionEnvironmental StewardshipScience and TechnologyInfrastructure(e.g., centers, universitydepartments, technologytransfer)Education and Workforce TrainingBusiness AttractionExport Promotion• Clusters provide a framework for organizing the implementation of publicpolicy and public investments towards economic developmentSetting standardsMarket Informationand Disclosure12. 12 Copyright 2011 © Christian KetelsPaper Province, Wärmland RegionImpact of Cluster EffortsINVESTMENT RETURNSpending over 10 yearsLocal government: € 1.3mEU funds € 1.4mCompany funds € 1.3mTOTAL € 4.0m€ 270,000 public money per yearImpact according to survey of clusterparticipants• 81% report new products/servicesdue to the project activities• 42 innovation projects(Framtidsfabrkien)• 40% have increased sales• 60% report better access to humanresources• Much more networking13. 13 Copyright 2011 © Christian KetelsWhat are Cluster Initiatives?• Upgrading ofcompany operationsand strategies acrossa group ofcompanies• Strengthening ofnetworks to enhancespill-overs and othereconomic benefits ofclusters• Upgrading of cluster-specific businessenvironmentconditionsCluster initiatives are collaborative activities by a group of companies, public sectorentities, and other related institutions with the objective to improve the competitiveness of agroup of interlinked economic activities in a specific geographic region14. 14 Copyright 2011 © Christian KetelsThe Role of Government in Cluster Initiatives• Initiate/Convene• Co-Finance• Support all existingand emergingclusters• Participate• Enable datacollection anddissemination atthe cluster level• Be ready toimplementrecommendations• Pick favoredclusters• Pick favoredcompanies• Subsidize ordistortcompetition• Define clusteractionprioritiesGovernmentshouldGovernmentmayGovernmentshould not15. 15 Copyright 2011 © Christian KetelsThe Emergence of Cluster Policy in EuropeTimelineInitial EU Efforts2000 - 20062002:SME ObservatoryReport on Clusters2000Latvian IT Cluster(SHARE program)2006“EU-10Cluster Mapping”• Reaction to experience at thelevel of member countriesand regions• Seen within the context ofSME policy• Narrow experimentationBasque CountryCataloniaScotland…16. 16 Copyright 2011 © Christian KetelsThe Evolution of Cluster-Driven Economic PolicyBasque Country, SpainInstitutions(1980s)Efficiency(1990s)Innovation(2000s-)Machine ToolsAFM, 1992AppliancesACEDE, 1992AutomotiveACICAE, 1993Port LogisticsUNIPORTBILBAO, 1994EnvironmentalServicesACLIMA, 1995Electronics,Computing andTelecomGAIA, 1996EnergyCLUSTERENERGIA, 1996AeronauticsHEGAN, 1997MaritimeIndustry OROMARÍTIMOVASCO, 1997Paper CLUSTERPAPEL1998AudiovisualEIKEN, 2004Transport andLogisticsCLUSTERTIL,2005BioBasque,200217. 17 Copyright 2011 © Christian KetelsThe Evolution of National Cluster PoliciesGermanySource: VDI (2010)• Reorganization of innovation and SME policies• Reorganization of the role of regional government• Wide use of competitions18. 18 Copyright 2011 © Christian KetelsThe Evolution ofNational ClusterProgramsFrance• Launched in 2004• 67 cluster efforts,including 17 globallycompetitive, identifiedin 2005• 1.6bn Euro public co-funding over the firstthree years (90% forR&D)• Major review in 2008;13 efforts put onnotice for funding to beterminated19. 19 Copyright 2011 © Christian KetelsCluster Policy in Europe: EU ActivitiesTimelineInitial EU Efforts2000 - 20062002:SME ObservatoryReport on Clusters2000Latvian IT Cluster(SHARE program)2006“EU-10Cluster Mapping”1. Phase2007 - 20092008“European ClusterMemorandum”High LevelAdvisory Groupon Clusters2008“CommissionCommunication onClusters ”European ClusterObservatoryInno-NetsInno-Actions• Introduce a consistentidea of cluster efforts• Provide data on thepresence and role ofclusters• Create support for use ofcluster efforts• Broad experimentationwith support for manynetworks20. 20 Copyright 2011 © Christian KetelsCluster Policy in Europe: EU ActivitiesTimelinePrecedents2000 - 20062002:SME ObservatoryReport on Clusters2000Latvian IT Cluster(SHARE program)2006“EU-10Cluster Mapping”Innovation UnionIndustrial Policy forthe Globalization Era2. Phase2010 -2010“ECPGRecommendations”1. Phase2007 - 20092008“European ClusterMemorandum”High LevelAdvisory Groupon Clusters2008“CommissionCommunication onClusters ”European ClusterObservatoryInno-NetsInno-Actions• Focus on increasing theeffectiveness of clusterprograms and efforts• Consolidate EU effortsaround smaller number ofefforts• Introduce clusters intobroader EU policies21. 21 Copyright 2011 © Christian KetelsCluster Programs Among Sweden’s NeighborsDanishCompetenceand InnovationNetworksFinnishSHOKsBSR StarsLithuanianValley’sEstonianclusterprogramNorwegianCentres ofExcellence(NCEs)ARENAPolish clusterprogram22. 22 Copyright 2011 © Christian KetelsKey Issues for Cluster MobilizationStrategy Practice• Scaling the impact of clusterefforts to the regional level• From harnessing to developingregional strengths: Smartspecialization• Internationalization throughclusters• Management of clusters23. 23 Copyright 2011 © Christian KetelsCluster Policy: Breaking the Glass CeilingFrom a few successfulcluster islands……to a morecompetitive economy• Systematic use of clusters as adelivery channel for microeconomicpolicies• Active management of regionalcluster portfolios that engage manyclusters and harness cross-clusterlinkages• Design of feed-back mechanismsfrom cluster efforts to generalbusiness environment upgradingLocations will only be able to harness the full potential of cluster efforts, if they match abottom-up operational approach with a clear top-down concept for the integration ofcluster efforts in a broader competitiveness strateg24. 24 Copyright 2011 © Christian KetelsClusters and Regional Policy: Smart SpecializationThe Challenge:• How to support structural change towards highervalue-added activities?The New (Smart Specialization) Answer:• Identify your assets, including yourexisting cluster base• Actively pursue opportunities in areasadjacent to current strengths andleading towards higher value added• Longer-term development ofsustainable competitive advantagesThe Old Answer:• Identify growing markets and try toenter them (bio, nano, eco, …)• Failure to succeed in intenselycompetitive markets without uniqueassets25. 25 Copyright 2011 © Christian KetelsClusters and Internationalization“local buzz and global pipelines”• Cluster organizations can build bridges to foreign markets that areespecially for SMEs to costly and risky to build on their own• Crucial for the success of a cluster-driven internationalization strategyis a clear strategy– What are we looking for in our foreign partners (access to markets, accessto technologies, etc.)?– What are the unique competitive advantages we can offer our foreignpartners?• Internationalization activities can be one of the key initial motivatorsfor companies to join cluster efforts• Public support for internationalization can be channeled throughcluster organizations26. 26 Copyright 2011 © Christian KetelsIssues in Cluster Management• Leadership• Network management• Controlling, Impact assessment• IP management• Branding• Financing• Governance27. 27 Copyright 2011 © Christian KetelsThe Swedish Policy MixWhat Role for Clusters?Sustainsolid fiscal andmonetarypoliciesIncreaselabor marketparticipation andflexibilityUpgrademicroeconomiccompetitiveness Clusters should be an importantelement of an overall Swedishcompetitiveness strategy- Focus on specific fields- Use as delivery mechanism- Integrate programs across policy areas28. 28 Copyright 2011 © Christian KetelsWhat is Different about Cluster-Based Policy?Cluster vs.NarrowIndustriesRegionalPerspectiveBuild onRegionalStrengthsDemand-drivenPolicyPrioritiesPublic-PrivateCollaborationProductivityFocus