Cortright Cwg


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Cortright Cwg

  1. 1. Industry Clusters: Theory, Practice and Definitions Joe Cortright October 2005
  2. 2. I. Cluster History & Definitions What are they? Who defines them?
  3. 3. What Kind of Economy? <ul><li>While most jobs and businesses in every state area are the same </li></ul><ul><li>Restaurants, grocery stores, hospitals, beauty salons </li></ul><ul><li>About a third differs: Traded sector </li></ul>
  4. 4. Traded Sector Drives Growth Traded/Export Sector Suppliers Local Sales to the rest of the world Most jobs are here: schools, hospitals, grocery stores, restaurants But firms in this sector drive the economy
  5. 5. Porter: Clusters <ul><li>Starts from the business strategy standpoint </li></ul><ul><li>Rediscovers A. Marshall ca. 1890 </li></ul><ul><li>Popularizes clusters </li></ul>
  6. 6. Schools of Thought <ul><li>Neoclassical economics </li></ul><ul><li>Regional Science </li></ul><ul><li>Urbanism </li></ul><ul><li>Industrial Organization </li></ul><ul><li>Business Strategy </li></ul><ul><li>Geography and Urban & Regional Planning </li></ul><ul><li>New Economic Geography </li></ul><ul><li>Urban Economics </li></ul><ul><li>Economic Development Practitioners </li></ul>
  7. 7. Clustering is Critical <ul><li>Economic success isn’t random </li></ul><ul><li>Similar and related businesses draw advantages from proximity </li></ul><ul><li>Clustering holds for most “traded” goods: autos, carpets, RVs, others </li></ul>
  8. 8. Definition <ul><li>Cluster: A geographically bounded group of similar or related firms--connected by common markets, technologies or knowledge--their suppliers, their skilled workers and supporting institutions </li></ul>
  9. 9. High Tech Centers Seattle Portland Silicon Valley San Diego Austin Salt Lake City Sacramento Minneapolis Boston Research Triangle Park Denver Atlanta Phoenix
  10. 10. High Tech is Specialized Seattle - Software Portland - Semiconductors - SME/EDA - Display - Computers Silicon Valley everything! San Diego - Communications Austin - Semiconductors - Computers - SME Salt Lake City - Software - Medical Devices - Storage Technology Sacramento - Computers Minneapolis - Computers - Medical Devices Boston - Computers Research Triangle Park - Software Denver - Telecommunications - Satellite - Storage Atlanta - Database - Telecommunications Phoenix - Semiconductors
  11. 11. Typologies of Clusters <ul><li>Buyer-Supplier and Value Chain </li></ul><ul><li>Inter-Firm Relationships </li></ul><ul><li>Geographic Extent </li></ul><ul><li>Cluster Life Cycle </li></ul><ul><li>Other Issues (Awareness) </li></ul>
  12. 12. Stages of Clustering <ul><li>Concentrations of firms and workers </li></ul><ul><li>Awareness, Conscious Action & Communication </li></ul><ul><li>Formal Organization </li></ul> Concentrated Connected Organized A Cluster Continuum
  13. 13. Cluster Life Cycle <ul><li>Potential </li></ul><ul><li>Emerging </li></ul><ul><li>Mature </li></ul>
  14. 14. Types of Cluster Organizations <ul><li>Targeted industry of OECDD, PDC, etc. (display, food processors, etc.) </li></ul><ul><li>Self-identifying- (Salem artisan cheesemakers, PADA art galleries) </li></ul><ul><li>Trade associations (SAO) </li></ul><ul><li>American Electronics Association v. Display? </li></ul><ul><li>Are they all clusters? </li></ul>
  15. 15. II. Why Cluster? How do they work?
  16. 16. Micro-foundations of Clusters <ul><li>Labor Market Pooling </li></ul><ul><li>Supplier Specialization </li></ul><ul><li>Knowledge Spillovers </li></ul><ul><li>Entrepreneurship </li></ul><ul><li>Path Dependence and Lock-In </li></ul><ul><li>Culture </li></ul><ul><li>Local Demand </li></ul>
  17. 17. What makes Clusters Tick? Source: Michael Porter, Harvard Business School Rivalry & Cooperation Customers Suppliers Inputs
  18. 18. Oregon’s Microbrew Cluster Rivalry Suppliers Customers Inputs Competition & Brewer’s Guild Savvy Beer Drinkers, Homebrewers Small Restaurants Equipment Makers, Creative Services Hops, Water, Brewmasters
  19. 19. Context for Firm Strategy and Rivalry Related and supporting industries Factor (Input) Conditions Demand Conditions <ul><li>A local context that encourages appropriate forms of investment and sustained upgrading </li></ul><ul><li>Vigorous competition among locally based rivals </li></ul><ul><li>Factor (input) quantity and cost </li></ul><ul><li>Natural resources </li></ul><ul><li>Human resources </li></ul><ul><li>Capital resources </li></ul><ul><li>Physical infrastructure </li></ul><ul><li>Administrative infrastructure </li></ul><ul><li>Information infrastructure </li></ul><ul><li>Scientific and technological infrastructure </li></ul><ul><li>Factor quality </li></ul><ul><li>Factor specialization </li></ul><ul><li>Presence of capable, locally based suppliers </li></ul><ul><li>Presence of competitive related industries </li></ul><ul><li>Sophisticated and demanding local customer(s) </li></ul><ul><li>Customers’ needs that anticipate those elsewhere </li></ul><ul><li>Unusual local demand in specialized segments that can be served globally </li></ul>Source: Porter (2000) Porter’s Diamond of Competitive Advantage
  20. 20. Data available vs. cluster needs Let’s hear from the clusters.
  21. 21. Measuring Clusters: Data & Methods Joe Cortright October 2005
  22. 22. Sectors versus Clusters <ul><li>SECTORS </li></ul><ul><li>Most quantitative analysis relies on data organized according to the SIC or NAICS classification schemes to define industries </li></ul><ul><li>CLUSTERS </li></ul><ul><li>Qualitative analyses define clusters according to local relationships. Cluster theory maintains that clusters cut across sector lines; many clusters are highly specialized </li></ul>
  23. 23. Criteria for Identifying Clusters <ul><li>More Concentrated </li></ul><ul><ul><li>Location Quotient </li></ul></ul><ul><li>Faster Growing </li></ul><ul><ul><li>Outperformed Same Industry Nationally </li></ul></ul><ul><li>Higher Paid </li></ul><ul><ul><li>Exceeds US average for same industry </li></ul></ul>Groups of Industries in which Oregon is:
  24. 24. Oregon Cluster Groupings Industry Cluster Jobs High Technology/Software 66,850 Forest/Wood/Paper Products 62,412 Food Processing 48,208 Apparel/Sporting Goods 18,413 Transportation Equipment 14,972 Creative Services 16,345 Recreation 11,907 Metals 9,215 Nursery Products 10,247 Professional Services 4,417 Biomedical 3,404
  25. 25. Define region Identify Key Partners Quantitative Analysis Qualitative Analysis Competitiveness Analysis Identify Economic Development Policies & Actions Industry cluster groups Oregon Employment Department Industry & Trade Associations Researchers at universities Local economic developers Others Use CEW data & identify clusters using 3 criteria: LQ > 1.25 Average wages = 10 % above US average Growth rate > national growth rate Conduct interviews or focus groups with industry representatives. Collect data about the industry sector in general, cluster connections and relationships cluster drivers, support factors, and challenges. Collect additional information about particular cluster such as Patents, key products, major geographic concentrations, top 10 leading firms, entrepreneurial activity, competitor regions for specific cluster. Conduct Shift-Share analysis. Define geographic area for which cluster analysis is done. I.e. Portland-Vancouver, OR-WA PMSA Policies and actions should be identified in collaboration with key partners. Should address state, regional, and local scale. Products Identification of Data Sources Identification of Candidate Clusters Differentiation of - Existing Clusters - Emerging Clusters - Target Industries Cluster-based Economic Development Strategy Identify metrics and performance indicators. Strategy development and assessment is ongoing. Industry Firm Ongoing Cluster Methodology
  26. 26. Cluster Analysis Define Cluster Convene Firms Gather Data
  27. 27. How Good Are You? <ul><li>High Tech </li></ul><ul><ul><li>Produce 10% of all US semiconductors </li></ul></ul><ul><ul><li>High Location Quotients in Employment & R&D </li></ul></ul><ul><ul><li>Relatively Higher Wages </li></ul></ul><ul><ul><li>Outperformed US industry </li></ul></ul><ul><li>Biotech </li></ul><ul><ul><li>Rank in 30s in size of industry/ research </li></ul></ul><ul><ul><li>Very Low Location Quotient </li></ul></ul><ul><ul><li>Wages below US average </li></ul></ul><ul><ul><li>No significant growth </li></ul></ul>
  28. 28. High Tech Metrics Region Electronics Software San Jose 13.1 11.3 Austin 4.9 2.8 Raleigh-Durham 3.7 1.4 Portland 2.6 2.7 Boston 2.2 4.8 Seattle 1.9 3.5 Minneapolis 1.8 1.1 Chicago 1.3 1.4 Washington D.C. 0.6 1.8 Denver 0.6 1.3 Location Quotients, 1997
  29. 29. Biotech Metrics Average Levels of Activity in Metro Areas Top 9 Bottom Portland Metric Centers 42 NIH$ 812 104 126 Patents 2,641 263 164 Venture Capital 957 27 4 R&D Alliances 1,089 11 0 New Firms 35 2.3 7 Large Firms 24 1.5 0 Number of Top: Med Schools (18) 16 2 0 Biotech VC (51) 47 4 0
  30. 30. Clusters as a Framework for Policy <ul><li>An organizing principle for engaging a region in a discussion of its economic strengths and weaknesses </li></ul><ul><li>A flexible tool at the intersection of analysis and policy-making </li></ul><ul><li>Best efforts integrate quantitative and qualitative methods </li></ul>