Cluster basics: What clusters should we pick
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Cluster basics: What clusters should we pick

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By Christian Ketels at the 7th TCI Annual Conference, Ottawa 2004

By Christian Ketels at the 7th TCI Annual Conference, Ottawa 2004

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Cluster basics: What clusters should we pick Cluster basics: What clusters should we pick Presentation Transcript

  • What Clusters Should We Pick:Getting right answers for the wrong questionChristian H. M. Ketels, PhDInstitute for Strategy and CompetitivenessHarvard Business SchoolTCI ConferenceOttawa, Canada29 September 2004This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The FreePress, 1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 2003, (World EconomicForum, 2003), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press,1998), and the “Cluster Initiative Greenbook” by C Ketels, O Solvell, and G Lindqvist. No part of this publication may be reproduced, stored in aretrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without thepermission of the author.Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu
  • 2 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKWhat clusters should we pickas the key drivers of our future economic growth?• This is a typical and legitimate question at the outset of many regionalor national competitiveness efforts• However, the question is dangerously close to a deeply flawed view ofthe role clusters have in competitiveness• Why is this the wrong question?• What question should we ask to address nations’ and regions’underlying needs?
  • 3 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKDifferent Approaches to Economic DevelopmentIndustrial PolicyIndustrial Policy• Targets areas of perceived marketdemand• Intervenes in free competition(subsidies, protection, etc.)• Requires sustained financialcommitment by the public sector• Has a high failure rate; short termimpact with low sustainability• Targets areas of perceived marketdemand• Intervenes in free competition(subsidies, protection, etc.)• Requires sustained financialcommitment by the public sector• Has a high failure rate; short termimpact with low sustainabilityCluster PolicyCluster Policy• Leverages existing assets,history, and geographic location• Enables competition to be moresophisticated• Requires sustained participationby all actors• Has increasing impact over time;quick returns are possible• Leverages existing assets,history, and geographic location• Enables competition to be moresophisticated• Requires sustained participationby all actors• Has increasing impact over time;quick returns are possible• There are economic, political, and economic policy reasons why clusterselection can hurt even well intended cluster efforts
  • 4 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKDownside of Picking ClustersThe Economic Argument• The economic impact of focusing all efforts on a few selected clustersare likely to be small• Knowing the exact sources of future growth is impossible; futuregrowth will come from both current and new fields a-priori unknown• The benefits will almost always take time to materialize; clusterdevelopment is no quick fix• Even the best cluster effort is destined to disappoint when theexpectation is to quickly grow an entire regional economy based on afew selected clusters alone
  • 5 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKDownside of Picking ClustersThe Political Argument• Selecting a few clusters will politically alienate the 90%+ of theeconomy (and employees) not among the chosen few• The selection process will tend to focus the attention on governmentas the only institution with the legitimacy to choose among clusters• For cluster efforts to be sustainable over time, especially in terms ofgovernment involvement, political support needs to go beyond themembers of the cluster
  • 6 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKDownside of Picking ClustersThe Economic Policy Argument• Favoring a few clusters can bias the choice of policy tools towardslimiting rather than enhancing competition even for a given cluster• Focusing on selection as the first visible stage of a cluster effort easilymobilizes support from the wrong groups while alienating natural allies• The more diligently you work to find clusters with the highest economicpotential, the shorter the road to industrial policy intervention• Picking clusters can lead on a slippery slope towards the wrongeconomic policy, even when no “picking the winners” is intended
  • 7 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKWhatWhatHowHowEconomic Development StrategyKey Elements• Set the right goal for economicdevelopment• Be explicit about the enablingconditions for productivitygrowth• Integrate individual policies in anoverall strategy consistent withyour goals and economicrealities• Set the right goal for economicdevelopment• Be explicit about the enablingconditions for productivitygrowth• Integrate individual policies in anoverall strategy consistent withyour goals and economicrealities• Productivity improvementsthroughout the economy toenable sustained prosperitygrowth, not clusters per se• Quality of the microeconomicfoundations, including intenselocal rivalry, not strategicintervention• Improvements in the mostbinding constraints toproductivity growth present inthe microeconomic context• Productivity improvementsthroughout the economy toenable sustained prosperitygrowth, not clusters per se• Quality of the microeconomicfoundations, including intenselocal rivalry, not strategicintervention• Improvements in the mostbinding constraints toproductivity growth present inthe microeconomic context
  • 8 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKUpgrading the Microeconomic FoundationsA Two-Pronged Approach• Enables targetedupgrading of thebusiness environmentand roots reforms inthe private sector• Spreads thebenefits of clustersand increases theireffectivenessGeneral BusinessEnvironmentUpgradingClusterMobilization
  • 9 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKRole of Clusters in Economic Development• Clusters are a forum to identify fundamental challenges in thenational or regional business environment• Clusters provide new roles for government, companies, and otherinstitutions in economic development• Clusters are critical engines in the economic structure of nationaland regional economies• Clusters need to be a core element of any competitiveness effortbut they should not stand alone
  • 10 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKCluster Selection: From the Pivotal to the Pragmatic• The selection of clusters is a practical necessity, not a matter ofprincipal– Limitations in terms of resources and leadership capacity• Clusters should be selected based on criteria that reflect their roles ineconomic development– Identify cross-cutting challenges: Size, heterogeneity– Enable new roles: Willingness to act– Economic potential: Critical mass, business environment conditions• The selection process should be a recurring activity, not a one-offdecision– Successful cluster initiatives get a “life of their own”– Government can start new waves of cluster initiatives
  • 11 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKPrioritizing Cluster EffortsExisting ClustersNascent ClustersEntirely New Clusters•Assess the extent of existing economic activity•Assess the cluster’s willingness to act•Evaluate the economic potential of the effort•Assess current positions of related clusters•Assess the quality of the cluster-specificbusiness environment•Identify potential private sector anchors•Not part of traditional cluster efforts; odds ofdeveloping driven by- General business environment quality- Consistency with a location’s overallpositioning
  • 12 Copyright 2004 © Professor Michael E. Porter, Christian H. M. KetelsTCI conference Ottawa 09-30-04 CKWhat are the priorities to enable higher productivityand how do we act upon them?• The question is rooted in the prosperity goal of economic policy andconsistent with fundamental economic concepts• The question is a vivid reminder that competitiveness is achieved byknowing not only what to do but how to do it• Clusters and cluster development have a well defined role inaddressing both the what and the how• Selecting the appropriate clusters goes a long way to improving theireffectiveness as a policy tool