The Power of Industry Clusters

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The Power of Industry Clusters

• Minnesota Hydrogen Initiative Forum
• March 7, 2002
• Lee W. Munnich, Jr.
• Senior Fellow and Director
• State and Local Policy Program
• Humphrey Institute of Public Affairs
• University of Minnesota

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The Theory of Industry Clusters

• Alfred Marshall
• Industries tend to cluster in distinct geographic
  districts, with individual cities specializinng
  in production of narrowly related set of goods
• Joseph Schumpeter
• Entrepreneur plays a disruptive role in creating
  products. Creative destruction, the successive
  replacement of one technology by newer
  technologies is the key to continuing economic
  development

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The Theory of Industry Clusters

• Paul Romer
• Increasing returns associated with knowledge, not
  the accumulation of capital and labor, are the
  key forces driving growth
• Michael Porter
• Clusters, or critical masses of unusual
  competitive success in particular business areas,
  are a striking feature of virtually every
  national, regional, state, and even metropolitan
  economy, especially in more advanced nations.

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What are Industry Clusters? (Porter)

• Geographic concentrations of competing,
  complementary, or interdependent firms
• Common needs for talent, technology, and
  infrastructure
• Dynamic, changing as the industries themselves or
  external conditions change
• Centered on firms that sell outside the local,
  state, national market
• Driving forces in a national, regional, state or
  metropolitan economy

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Michael PortersDiamond of Advantage
Chance


Government
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Michael PortersDiamond of Advantage

• Factor conditions
• specialized labor pool, specialized
  infrastructure, selected disadvantages that drive
  innovation
• Home demand
• local customers push companies to innovate,
  especially if their tastes anticipate global
  demand
• Related and supporting industries
• internationally competitive supplier industries,
  creating a high quality, supportive business
  infrastructure, and spurring innovation and
  spin-off industries

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Michael PortersDiamond of Advantage

• Firm, strategy, structure and rivalry
• intense local rivalry among local industries that
  is more motivating than foreign competition
• a local culture which influences individual
  industries attitudes toward innovation and
  competition
• Chance
• Government

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Successful Cluster Initiatives (Porter)

• Shared understanding of competitiveness and role
  of clusters in competitive advantage
• Focus on removing obstacles and easing
  constraints to cluster upgrading
• Structure embraces all clusters in a nation or
  state
• Appropriate cluster boundaries
• Wide participation of cluster participants and
  associated institutions
• Private sector leadership
• Close attention to personal relationships
• Bias toward action
• Institutionalization

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Arizonas Model of Cluster-based Economic
Development

• Analytical tool
• to better understand the economy and deploy
  resources strategically
• Organizational tool
• to engage industry leaders in a regional strategy
  and to foster communication, networking and
  improvement among the companies within clusters
  and across clusters
• Service delivery tool
• to organize the states workforce development
  efforts
• to better provide international trade development
  services

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SLPP Industry Cluster Studies

• Purpose Strengthen economic competitiveness and
  increase economic opportunities
• Identify successful industry clusters
• Examine the competitive advantage of these
  industries using Michael Porters framework
• Bring communities, businesses and economic
  development professionals together to discuss
  these clusters and the regional economy
• Develop recommendations for action based on the
  industry cluster analysis.

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SLPP Industry Cluster StudiesAnalysis and
Selection

• Analysis
• Location Quotients
• Shift-Share
• Selection Criteria
• Is the industry competitive?
• Is there evidence of clustering?
• Are the jobs good jobs (wages, etc)?
• Is the industry sustainable in long-term?
• If an emerging cluster, are there growth
  prospects?

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SLPP Industry Cluster Studies in Minnesota

• 1995 Twin Cities
• 1996 Southeast Minnesota
• 1998 Southwest Minnesota
• 1998 Northwest Minnesota
• 2001 Northeast Minnesota

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Twin Cities Industry Clusters

• Medical Devices
• Printing and Publishing
• Information Technology
• Metals and Metalworking
• Financial Services
• Professional Services
• Arts/Leisure
• Source Metro Council/Humphrey Institute, Twin
  Cities Industry Cluster Study (1995)

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Twin Cities Competitive Advantages

• Major corporations 3M, Medtronic, General
  Mills/Pillsbury, Target, Best Buy, Northwest
  Airlines, West Publishing, Wells Fargo, etc.
• Balanced mix of competitive industry clusters
• Competitive network of suppliers driven by
  demanding corporate customers
• University of Minnesota
• Entrepreneurial environment
• High skilled workforce
• Attractive quality of life

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Why are clusters important?

• Common understanding of the dynamic competitive
  forces affecting your local economy
• Organizational tool for economic development,
  education, workforce development and community
  development strategies in a knowledge economy
• Continuous improvement of programs and services
  based on an industry cluster approach
• Effective linkages among private, public and
  non-profit stakeholders for long-term sustainable
  development

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For further information contact Lee W.
Munnich, Jr. Senior Fellow and Director,
State and Local Policy Program Humphrey
Institute of Public Affairs University of
Minnesota

• Lmunnich_at_hhh.umn.edu
• http//www.hhh.umn.edu/centers/slp/
• [phone]