The Cluster Concept: Relevant, Outdated or Confusing?

DIMETIC PhD course 8 October 2007 (1), Maastricht Bent Dalum DRUID/IKE, Dep. of Business Studies, CTIF Aalborg University DIMETIC, Maastricht 8/10-07_BD 1

Systems of innovation The entire menu

• • National: Freeman, Lundvall, Nelson, etc.

Regional: Economic Geography, such as Storper, Maskell, Asheim, Gertler, Cooke, etc.

• Sectoral: Malerba/ESSY • Technological: Bo Carlsson & Jacobsson -- • Porter’s cluster approach DIMETIC, Maastricht 8/10-07_BD 2

Back to Marshall’s external economies

”Something is in the air” – i.e. benefits that are not represented as costs for the single firms: – Labour market pooling – Networks of supplier and auxiliary firms – Localised knowledge spillovers DIMETIC, Maastricht 8/10-07_BD 3

Tacit knowledge – the key to understand spatial concentration

(Asheim & Gertler, 2005) • Tacit knowledge is difficult to exchange over long distances • A growing importance of socially organized learning processes behind innovation DIMETIC, Maastricht 8/10-07_BD 4

Two paradoxical characteristics

(Asheim & Gertler, 2005) • The more knowledge-intensive an activity is, the more geographically clustered it tends to be.

• The trend towards spatial concentration of knowledge-intensive activities has become more marked over time.

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Propensity to cluster

(Audretsch and Feldman, 1996) • Greatest in industries with high dependence on new economic knowledge (R&D) and skilled labour (AER, 1996) • Generation of new economics knowledge tend to result in greater propensity for innovative activity to cluster during the early stages of the industry life cycle (RIO, 1996) DIMETIC, Maastricht 8/10-07_BD 6

A regional innovation system

(Asheim & Gertler, 2005, p. 299-300) • ”…can be thought of as the institutional infrastructure supporting innovation within the production structure of a region.” • ”Further reinforcing the systemic character of the RIS is the prevalence of a set of attitudes, values, norms, routines, and expectations – described by some as a distinctive ”regional culture” - …” DIMETIC, Maastricht 8/10-07_BD 7

Regional innovation systems – five key concepts

1. Region

2. Innovation 3. Network 4. Learning 5. Interaction DIMETIC, Maastricht 8/10-07_BD 8

RIS and clusters - Cooke

1. “A RIS usually usually exists administratively at the meso-level between central or federal, and local government” (Cooke, 2005 p. 81).

2. “But what about clusters? A well-blessed RIS will not be dependent on a mono industrial base. As well as multiple industry sectors, a region may have some clusters; naturally not all industry is organized in clusters” (Cooke, 2005 p. 82).

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Regional innovation systems – empirical results

(Cooke, 2005 p. 91-92) • • • • • 11 regions tested in Europe: Baden-Württemberg + Wales + Basque Country + Styria + 5)….11) DIMETIC, Maastricht 8/10-07_BD 10

The Classic Regional Innovation System

(Cooke, 2006) Regional socioeconomic and cultural setting customers contractors firms collaborators Competitors Knowledge application & exploitation subsystem Knoweldge, resources and human capital flows and interactions Technology mediating organisations workforce mediating organisations Public Research organisations Educational organisations Knowledge generation & diffusion subsystem

Fig 1. The Regional Innovation System: A schematic illustration

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Inside the ‘Black Box’: RIS in the Creative RIS Region

(

Cooke, 2006)

The Creative Region

Regional knowledge culture

Regional Innovation System

Regional Social capital Globalising Network Relations Regional Institutions Policy

Cluster Variety Biotech Cluster Creative Cluster ICT Cluster Knowledge Transfer and R&D Outsourcing Knowledge Transfer R&D Outsourcing Knowledge Community

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Knowledge Economy Problem Tendencies: Co-ordinated markets to Liberal-markets ( Cooke, 2006) _________________________________________________________________ Institutional RIS (IRIS) Entrepreneurial RIS (ERIS) ___________________________________________________________________ Research & Development Driven User-Producer Relations Technology-Focused Incremental Innovation Bank Borrowing Venture Capital Driven Serial Start-ups Market-Focused Incremental & Disruptive Initial Public Offerings External Supply-Chain Networks Science Park Internal EcoNets* Incubators ___________________________________________________________________ DIMETIC, Maastricht 8/10-07_BD 13

Three types of RIS

(Asheim & Gertler, 2005, p. 300-03) • Territorially embedded (Cooke: ’grassroot RISs’ – the Italian district) • Regionally networked (Germany, Austria and Nordic countries: a regional cluster of firms surrounded by a regional ’supporting’ institutional infrastructure • Regionalized NSI (Cooke: ’dirigiste’ RIS – Sophia Antipolis) DIMETIC, Maastricht 8/10-07_BD 14

A regional innovation system

(Asheim & Gertler, 2005, p. 299-300) • ”…can be thought of as the institutional infrastructure supporting innovation within the production structure of a region.” • ”Further reinforcing the systemic character of the RIS is the prevalence of a set of attitudes, values, norms, routines, and expectations – described by some as a distinctive ”regional culture” - …” DIMETIC, Maastricht 8/10-07_BD 15

Systems of innovation The entire menu

• National: Freeman, Lundvall, Nelson, etc.

• Regional: Phil Cooke/Economic Geography • Sectoral: Malerba/ESSY • Technological: Bo Carlsson & Jacobsson • ---

Porter’s cluster approach

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Porter’s cluster definition

• Clusters are geographic concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated organisations (such as universities, standard agencies, trade associations) in a particular field linked by commonalities and complementarities. There is competition as well as cooperation.

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Cluster definition - Giuliani and Marshall

• Cluster…” refer to a geographical agglomeration of firms operating in the same industry” (Guiliani 2005, p. 272). • Industrial district…a concentration of “large numbers of small businesses

of a similar kind

of the same locality” (Marshall 1920).

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Martin and Sunley’s critique (2003) of Porter’s cluster definition

• “First, a concept so elastic as the cluster can not provide a universal and deterministic model on how agglomeration is related to regional and local economic growth” (p. 28). • “Second,….just because there is an association between some high-growth industries and various forms of geographical concentration does not mean that this concentration is the main cause of their economic growth or relative success” (p. 29). DIMETIC, Maastricht 8/10-07_BD 19

Porter’s

‘cluster brand’

– Martin and Sunley (2003 p. 29) • “…the cluster brand at its core is based on an image of a high-productivity, knowledge rich, decentralized, entrepreneurial and socially progressive economy within the reach of local policy-makers (a regional version of the American Dream, perhaps?)” DIMETIC, Maastricht 8/10-07_BD 20

The location paradox (1)

(Porter, 2000) • Global sourcing mitigates disadvantages, but does

not

create advantages in itself – a defensive manoeuvre • Distant sourcing is normally a second-best solution compared to accessing a local competitive cluster • Paradoxically, the most enduring competitive advantages in a global economy seem to be local DIMETIC, Maastricht 8/10-07_BD 21

The location paradox (2)

(Porter, 2000) • Widely recognised that changes in technology and competition have diminished many of the

traditional

roles of location • But new influences of clusters on competition have taken a growing importance in an increasingly complex,

knowledge-based

and dynamic economy DIMETIC, Maastricht 8/10-07_BD 22

The location paradox – solved? (1)

(Porter, 2000) • The existence of clusters suggests that a good deal of competitive advantage lies

outside

companies and even outside their industries, residing instead in the locations at which their business units are based • Companies have a stake in the business environments where they are located in ways that go far beyond taxes, wages rates, etc.

• The health of the cluster is important to the health of the company DIMETIC, Maastricht 8/10-07_BD 23

The location paradox – solved? (2)

(Porter, 2000) • In more advanced economies and increasingly elsewhere, the more decisive aspects of the business environment for competitiveness are often cluster specific, such as the presence of particular types of suppliers, skills or university departments DIMETIC, Maastricht 8/10-07_BD 24

Factor (Input) Conditions

Porter’s ’diamond’

Firm Strategy and Rivalry Demand Conditions Related and Supporting Industries DIMETIC, Maastricht 8/10-07_BD 25

Regional clustering dimensions •Geography •Size •Breadth •Depth •University research and education •Ownership structure •Etc.

(Source: Michael Enright, 2001) DIMETIC, Maastricht 8/10-07_BD 26

Clusters affect competition through (Porter interpretation, 2000)

1. Increasing the current (static) productivity 2. Increasing the capacity for innovation and productivity growth 3. Stimulating new business formation DIMETIC, Maastricht 8/10-07_BD 27

Ad. 2. Location in a cluster increases the capacity for innovation (Porter interpretation, 2000) • New buyer needs perceived more rapidly • New technological, operating or delivery possibilities perceived more rapidly • Pressure to innovate higher DIMETIC, Maastricht 8/10-07_BD 28

Ad. 3. Stimulating new business formation (Porter interpretation, 2000) • Inducement to entry higher with a cluster because of better information • Barriers to entry lower than elsewhere • Companies located elsewhere may relocate to the cluster • Foreign MNEs may establish subsidiaries in the cluster – to ’plug-in’ DIMETIC, Maastricht 8/10-07_BD 29

Typology of industrial districts

(Markusen 1996) • Classical Marshallian industrial districts and their Italianate variant, NID (socalled New Industrial District) • Hub-and-spoke district • State-anchored district • Satellite platform district DIMETIC, Maastricht 8/10-07_BD 30

Typology of industrial clusters

(Iammarino & Cann 2006) • Pure agglomeration • Industrial complex • Social network - New SN • Social network – Old SN DIMETIC, Maastricht 8/10-07_BD 31

Typology of industrial clusters in terms of absorptive capacity

(Giuliani, 2005) • Static cluster • Dynamic cluster • Leading cluster DIMETIC, Maastricht 8/10-07_BD 32