Identifying and developing industry clusters in a global economy

1
Identifying and developing industry clusters in a
global economy

• Copenhagen
• March 2, 2006

2
Common clusters concerns

• Why do firms cluster and what comprises a
  cluster?
• How is globalization affecting both?
• Is geography still important?
• Can specialization and diversification coexist?
• How do clusters form--and can they be created?
• What forms of cluster strategies seem to be most
  effective?

3
Whats changed?

• Ubiquitification
• Digitalization
• Functionalization
• InnovationMaskell and Malmberg

4
New sources of competitive advantage

• 1960s 1970s Making things cheaper
  Advantage from Cost Division of labor, MTS,
  mass production
• 1980s 1990s Making things better
  Advantages from Quality and Speed Lean, JIT,
  flexible specialization, automation
• 2000s Making better things
  Advantages from Aesthetics and
  AuthenticityDesign, innovation, uniqueness

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Why do firms cluster?

• Proximity to suppliers
• Presence of demanding customers
• Availability of specialized services
• Access to information and research
• Opportunities to network and acquire knowledge
  know how
• Access to more experienced and/or talented labor
  force

Answer externalities
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Different ways to acquire externalities networks
or clusters?

• O O
• O
• O O
• O

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OOO O OO OO OOOO OO OOO O
OO OO O O O
O O
OO O O O O OOO OO O OOO OOO OO O
OOOO OO O O O
Hard Network (contracts)
Cluster (geography)
Soft Network (membership)
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The autostrada to clusters was signposted with
networks

• Sabel Piore noted cooperation and division of
  labor
• Porter discovered rivalry and specialization
• Putnam identified social capital

8
Structures
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Opportunities to associate set geographies of
clusters

• Boundaries are porous, set by distances people
  will travel to work, associate, and
  network--because proximity and ability to
  schmooze is important.

Culture and terrain affect propensity to travel.
10
Elements of Denmarks Network Program

• Broker (facilitators)
• Multiplier (scouts)
• Financial incentives (phased)
• Information campaign (exhaustive)

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Survey of Objectives of Cluster Initiatives

• 96 Establish networks among firms
• 96 Foster networks among people
• 94 Expand existing firms
• 91 Increase innovativeness
• 86 Attract new firms
• 84 Promote exports
• 83 Brand region
• 76 Provide technical mgmt training

Cluster Initiative Greenbook, The Competitiveness
Institute, 2003
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What and where are your clusters?
Identifying/measuring/mapping
More an art than a science Not everything that
can be counted counts, and not everything that
counts can be counted.
Albert Einstein
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Two Approaches
Joe Cortright, Making Sense of Clusters,
Brookings Institution, 2006
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Top down, by the numbers

• group sectors into clusters
• choose boundaries
• measures of scale concentration (employment,
  establishments, LQs)
• employment growth
• input output tables
• local intelligence
• map relationships

15
Mississippis Clusters, 2000(Clusters with at
least 25 firms and LQ gt 1.0)
Tourism Recreation
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Alabamas Auto Cluster
Social capital Networking
AL Automotive Mfgers Assoc.
AL Technology Network
Core
AL Port Authority Internl Trade
Center Consulates Language schools
Suppliers
Support functions
Assemblers - Mercedes - Honda - Hyundai
Global
1st tier
Parts
2nd tier

• University of Alabama
• AL Productivity Center
• Ctr for Adv. Vehicle
• Auburn University
• Other colleges

• Engines
• Toyota
• Intl Diesel

3rd tier
Supply chain - Mercedes (35) - Honda (28) -
Hyundai (34)

• -Workforce
• -Retraining
• Interns
• Apprentices

Community Colleges Vocational schools Bevill
Tech Centers
AL Industrial Dev. Training (AIDT)
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Problem 1 Businesses associate for many reasons
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Problem 2 Knowing what and where to count

• Counting by the numbers misses many
  inconspicuous clusters due to- wrong basis
  (more than product)- industry classifications
  (mistaken identity)- spanned boundaries (depends
  on circumstances)- inclusion criteria (too
  narrow or general)

19
Sudburys invisible mining cluster

• Only city with 14 mines and 2 smelters in city
• 270 specialized mining supply service firms
• Administrative services
• Only mining community with research university
• Specialized accounting firms, consultants, etc.
• Why missed????
• No champions, local associations, or awareness
• Multiple industry codes
• Few linkages among firms
• Not listed among citys top five clustersWolfe
  and Lucas, Global Networks and Local Linkages,
  2005

20
Oregons disappearing sports apparel cluster

• Sports apparel and shoes (Adidas, Nike, Columbia,
  Pendleton)
• Production moved off shore, remaining jobs in
  administration, research, design, logistics,
  marketing, etc,
• Under shift from SIC to NAICs, establishments
  dropped by 2/3 and employment by 1/3 due to new
  classification scheme.

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e.g., Clusters dominated by micro-enterprises and
entrepreneurs are virtually always undervalued

• Large part of creative economy is -
  suppressed - self-employed - non- or
  under-reported - misreported - second source
• major part is embedded in other industries

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Self-employment in selected sectors in North
Carolina
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Bottom up, using local knowledge

• Micro (houseboats in KY, windsurfing in OR)
• Cross-border (metals in MN/SD/ND)
• Loosely coupled (composites in MN)
• Technology based (optics/imaging in Rochester)
• Customer-based (new media in NYC)
• Amenity-based (holistic health in western NC)
• Niche (prisons in Belle Glade, upstate NY)
• Function based (sports apparel in OR)
• Micro-clusters (snowmobiles in No. MN)
• Artisan-based (MA Berkshires, NCs Toe River)

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Are clusters launched or nurtured?

• Clusters are a natural result of economic
  activity, and only occasionally a result of a
  planned intervention.

Clusters, however, can be enhanced by public
policy, and activities can be launched.
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Origins of a few clusters
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Turning RD into a real bio cluster

• North Carolina at mid-century was among poorest,
  most rural states, low levels of education,
  mostly tobacco and traditional industry
• 1958 state created Research Triangle Park
• 1968 First major bio tenant--National Institute
  of Environmental Health Sciences offered land for
  lab
• 1970s Burroughs Wellcome, Glaxo locate in RTP
• 1981 State established NC Biotechnology Center,
  becomes private non-profit in 1984
• BASF, Bayer, Wyeth, Biogen, Novo Nordisk follow

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Alabamas Auto Cluster
1997 Mercedes-Benz 4,500 team members 1.2 B
invested 372 M incentives
2005 Hyundai 2,000 associates 1.1 B
invested 252 M incentives
2002 Intl Diesel 300 associates 400 M
invested - incentives
2001 Honda 4,300 associates 1.1 B invested 248
M incentives
2003 Toyota engines 800 associates 490 M
invested 33 M

• Why Alabama (D-B)?
• WF Training
• Infrastructure
• University presence
• Supplier base
• Business climate
• Quality of life and

-AL Auto Mfgers Assoc. -AL Tech. Network -Econ
Dev Partnership
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Distinguishing between clusters and cluster
strategies
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Common cluster initiatives

• Organizing businesses
• Delivering services
• Aligning education and training
• Targeting investments innovation
• Branding and marketing region

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Most clusters use multiple actions North
Carolinas Bio

• NC Biotech Center
• 8m seed capital
• Recruited 46 faculty
• 450 res. projects

• 150 Pharma cos
• 18,500 employees
• GlaxoSmithKline
• BASF
• Bayer
• Wyeth
• Biogen
• Novo Nordisk

• University
• Research
• Duke
• U. Of NC
• NC State U
• NC Central
• Wake Forest

Venture Capital 766M, 95-02
Golden Leaf Foundation 65 M in 2004
75 CROs 16,000 employees
Council for Entrepreneurial Development (4,000
members)
North Carolina Genomics Bioinformatics
Consortium
North Carolina Community Colleges BioNet
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1 priority cluster organizations in order to

• Facilitate networking
• Provide cluster with collective voice
• Identify common needs
• Share knowledge
• Aggregate demand
• Scan, plan for future
• Provide services at lower costs

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In U.S. soft networks talked and walked like
cluster associations

• Berkshire Plastics Network (MA)
• Metalworking Connection (AR)
• Tri-State Mfgers Assoc. (MN/ND/SD)
• Northeast Okla. Manufacturers Council (OK)
• Technology Coast Mfg. Eng. Network (FL)
• Appalachian by Design (WV)
• Garment Industry Development Corp. (NY)

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But clusters are not organizations they do not
require membership dues

• Firms to not have to join anything or trust
  anyone to be part of a cluster. Even where there
  are strong associations, free riders are
  inevitable.

But trust and cooperation make clusters stronger
and create means for engagement.
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2 Priority Specialized skills and talent

• Qualify specialized labor force
• Use clusters as context for learning
• Establish cluster hubs
• Form partnerships between education clusters
• Support regional skills alliances
• Recruit talent

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Technical colleges in U.S. are primary sources
of

• New incoming workers
• Second chances for displaced workers and dropouts
• Training for incumbent work force
• Skills and needs assessments, standards
• Expertise and information
• Initial exposure to new technologies
• Connections to other services
• Convenient convening opportunities

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Typical Cluster Hub Functions

• Deeper curriculum- Programs in specialized
  occupations- Concentrations for support
  occupations- Cluster context- Entrepreneurial
  content
• Industry information, projections, marketing
• New curriculum development
• Needs assessments and skill standards
• Global benchmarking
• Networking, networks, skills alliances
• Articulation downstream and upstream

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Some U.S. state college systems have organized
around clusters

• North Carolina biotech first others to follow
• Washington process mfg power plant operation
  agriculture allowed health materials
  manufacturing technologies others to follow
• Montana design phase beginning with creative
  enterprises wood life sciences and health care
  
• Wisconsin named colleges to support regional
  clusters
• California State Education Code requires
  community colleges to focus on industry clusters
  within a region
• Mississippi state plan for cluster hubs/career
  centers
• South Carolina Clusters of Competencies

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High tech clusters need mid-skilled workers (NC
Bio)
Source NC Biotechnology Center Surveys, 2003
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North Carolinas BioNet
BioNetwork
State Biotechnology Office

• Functional College Centers
• - AgBio
• Pharma
• Bioprocessing

Specialty College Centers -Bioworks -
Bioenterprise
Central Learning Center
NC Biotech Center
Enhancements
Biotech Fund for Facility, and Equipment (2.7 M)
Biotech Fund for Innovation, Improvement, and
Equity (0.6M
Program delivery
Performance outcomes
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Hosiery Technology Center Catawba Valley
Community College (North Carolina)

• Trains entry level workers and technicians
• ESL using hosiery environment as context
• Trains management and customers
• Conducts quality testing for companies
• Demonstrates new equipment
• Web site for jobs, procurement and e-commerce
• Brokers research and production networks
• Lean manufacturing, product development
• Design and finding niche markets

www.legsource.com
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Technology Coast Manufacturing Engineering
Network (Florida)

• Association formed to upgrade skills, develop
  new products, (TeCMEN)
• 31 members in defense electronics
• Catalyst was community college, network employed
  full-time director housed at college
• Support from state, foundations, dues.
• Results inside track with federal labs, multiple
  hard production networks, new businesses.
• Latest accomplishment was convincing state to
  allow college to offer BS in management.

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New challenges for colleges

• Defining role as demand for credentials increases
• Becoming more right brained
• Setting aside time for innovation
• Meeting needs of SMEs and entrepreneurs

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Furniture College at Letterfrack
Galway-MayoInstitute of Technology

• Initiated by Community-Based Rural Development
  Center to introduce Scandinavian design
  principles (and imagination) into the Irish
  furniture industry
• Integrate art/design with production technologies
  
• Certificate degree programs in furniture
  production and management
• Irish Furniture Technology Center
• Supports new enterprise development
• Seminars for industry

http//www.gmit.ie
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Emerging challenges for clusters

• Maintaining cluster organizations
• Finding new measures of success
• Expanding our views of innovation
• Restructuring clusters around sustainable
  components
• Attracting and keeping talent

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www.rtsinc.org

• Regional Technology Strategies, Inc.
• 205 Lloyd St., Suite 210
• Carrboro, NC 27510, USA
• 919 933-6699
• rosenfeld_at_rtsinc.org