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Cluster and innovation

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  • 1. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 1Innovation: the main driver of ICT ClusterDevelopment and RenewalInnovation on Cluster Economy Seminar30 June 2010 BrasiliaEmilio Bugli Innocenti
  • 2. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 2Table of contentsIntroduction............................................................................................................................... 3What is a cluster........................................................................................................................ 3One step back - Industrial districts............................................................................................ 4Success Factors in Developing ICT Clusters............................................................................ 5Public Policies supporting Cluster Development ..................................................................... 6The importance of Innovation in ICT Cluster Development.................................................... 6IT Services and Software Clusters in Europe ........................................................................... 8Cambridge Cluster ................................................................................................................ 8IT Services and Software Clusters in Italy ........................................................................... 8Arno Valley ICT Cluster (on going process).................................................................... 8Torino wireless ICT Cluster (on going process)............................................................... 9Summarising ........................................................................................................................... 10
  • 3. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 3IntroductionAlmost in any country around the globe there are initiatives, just considering or initiating orconsolidating successful ICT clusters. A lot has been written on this subject (my googlesearch on “ICT cluster” gave some impressive 2 million entries) and initiatives are taken aswell in the developing world (profiting of job shifting) funded by global development actorssuch as WB, UNDP and as in the EU North America.As a consequence, there is plenty of literature (interestingly enough, literature also includesbooklet on how to develop a cluster in your region or “cluster a la carte”).However, most of effort has been spent so far on mapping clusters (e.g., as far as theEuropean Union is concerned http://www.clusterobservatory.eu/), less effort has been spentin identifying the success factors and highlight the crucial role of innovation inside a cluster.The purpose of this document is to elicit discussion on the relationship between ICT clustersand Innovation, comparing experience done in different countries and continents.As such, it has no ambition to provide definitive answers but at least to help focus thediscussion on the right questions.What is a clusterAccording to Harvard Professor Michael Porter (1998) clusters are “geographicconcentrations of interconnected companies, specialised suppliers, service providers, firms inrelated industries, and associated institutions (for example universities, standards agencies,and trade associations) in particular fields that compete but also co-operate.”Again, according to Porter, "a cluster consists of industries linked through vertical(buyer/supplier) or horizontal (common customers, technology, channels) relationships."Typically, clusters provide better access to human capital and providers, access to specialisedinformation and research.The typical example of ICT clusters is Silicon Valley and its regional network based systemwhich provides proximity of all skills needed for hi-tech based business, encouragement forrisk-taking, innovation, and tolerance for failure, presence of re-known educationalinstitutions, technology parks and incubators and availability of venture capital
  • 4. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 4This “system” is also helped by government at federal, state and local level facilitating thespeed for Investment and quick problem-solving.One step back - Industrial districtsWhy and how these geographic concentrations of interconnected companies and institutionsdominate their industries has long been a topic of interest to economists and geographers.The phenomenon was first observed by the Cambridge Professor Alfred Marshall. He noted atendency for specialised companies to cluster together in a way that produces geographicconcentrations of expertise and economic activity, which he called “industrial districts.” Inhis 1890 book, Principles of Economics, Marshall observes how “…great are the advantageswhich people following the same skilled trade get from near neighboring to one another…”.However, well in advance of being discovered by Economists, industrial districts happenednaturally in Italy since middle-ages (and they are still there!).Typical example of “old” industrial district is Prato, which is still the biggest concentrationof textile firms all over Europe.The district can be dated around XII century most of the its current features (productiondecomposed on small productive phases among small companies, being export-led, thecrucial role played by the commercial entrepreneurs still known with their medieval name“impannatori” and the support of public policies) were present from the beginning.Production is very flexible, being based on a breakdown of operations among 6000 SMEsand at any stage of the entire textile cycle (spinning, dyeing, twisting, reeling, weaving,finishing, knitting..) there are hundreds of small-medium companies resulting in a largeconcentration of know how, human skills, market and fashion experience within acompetition and cooperation environment.The district went through a number of cycles, made of expansion phases (typically the one on1950-60, based on the production of poor quality woollen fabric), crisis (the awful one in the‘80s) suffering competition from Asia, etc., but the important fact to consider is that it is stillthere after a number of centuries, to the extent its overall production is now estimated onBeuro 5.5 (60% exported) it gives job to 38000 people working on 6000 SMEs.Production has moved from cheap woollen fabrics (made from reprocessed fibres) to highquality wool, cashmere, linen and silk and includes woven and knitted fabrics for apparel
  • 5. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 5industry, special fabrics (fur, bonded, technical, pile….) for apparel, upholstery and footwearindustries, carpets and nonwoven fabrics, etc.It must be enlightened that innovation plays an essential role in Industrial Districtsdevelopment as well as in overcoming their decline. In turn, the mix of cooperation andcompetition among SMEs make innovation to be adopted faster.Innovation is typically made by entrepreneurs and /or worker/specialised SMEs and canconsist of new production (eg, Prato is nowadays the European leader in nowollen), newsectors and/or market.Many economists consider this a sort of incremental innovation not suitable to high-techdistricts were there is a need of breakthrough innovation carried out by a community ofentrepreneurs, universities, research centres, large firms, technology parks, incubators, etc.who are fast incorporating new knowledge into new products.Developing a Cluster – Society BenefitsApart from the generation of wealth and jobs, the development of a cluster results in theformation of a better human capital so that companies can have better access to needed skills.Moreover they can benefit of complementary skills (including, financial, legal andprofessional) so as to better compete.Furthermore, scale economies can be carried out and the cooperation with other can betterlead to the creation of new ideas and new businesses.Success Factors in Developing ICT ClustersMany economists consider hard and soft success factors.The hard ones include: strong innovation base, including R&D presence of large firms physical infrastructure access to markets and venture capital
  • 6. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 6More intangible, softer success factors include: entrepreneurial culture networking & partnerships human Capital presence of leadershipAs a matter of fact, given the current competition on developing ICT company clustersaround the globe, I would not suggest considering softer or intangible success factors assecond class elements.Public Policies supporting Cluster DevelopmentThey usually consist of: set up of technology parks, software centres, traffic infrastructure technologies, datahighways, etc.. set up of technology transfer centres (in partnership with universities, etc.). set up of incubators to support of business start-ups. establish new business associations’ aimed at young entrepreneurs. funding mechanisms to support SMEs technology developments or joint researchprojects.The importance of Innovation in ICT Cluster DevelopmentEvidence shows that product development and well-developed research structures, togetherwith other forms of innovation, are vital for a dynamic cluster.Innovation maintains the cluster at the forefront of the market whilst a strong R&D base canprovide the ideas and products for future development. The promotion of innovation andR&D are two separate activities, although inter-related. Innovation generally refers toproduct or process development whilst R&D refers to the development of new knowledge. Inthe best cases successful innovation is the outcome of the R&D process.
  • 7. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 7Innovation can be incremental, as existing products and processes are gradually built upon,or may be more radical, with the introduction of a wholly new product or approach.Successful clusters are inherently innovative and the innovation process can be supportedthrough encouraging networking and the sharing of ideas. Where networks extend outside ofthe cluster this can also be beneficial as often innovative ideas are ones that work well in onesetting and are being applied for the first time to another area. The benefits of informationand (technical, marketing, financial, production, sales) intelligence services are crucial forthe Software and IT Services.Catalysts for research and innovation research institutes including universities, non-profitfoundations and for-profit R&D can play an important role as catalysts for research andinnovation. They can be the base for developing new ideas and applications but can also playa critical role in eliciting high technology entrepreneurialism. In this respect public andprivate research facilities can be key drivers within the cluster.Support for R&D can take many forms, including the use of R&D tax credits (rarely clusterspecific), funding for basic or applied research, technology transfer schemes, thedevelopment of specialised research facilities or simply supporting the development ofresearch networks, linking firms, research institutes and other interested parties together. It isimportant that the role of R&D activity is viewed in the context of the cluster as a whole andthat an integrated strategy that includes this element is developed around the cluster.Of course sometimes it is not sufficient to simply establish a science or technology park. Topromote research and innovation there must exist strong linkages between researchers andlocal firms. Many organisations now provide an integrated support service for firms that wishto make use of it and many networks and intervention systems are designed to encouragetechnology transfer.New ideas need to permeate throughout the lifecycle. For instance reinvention and innovationpolicy is a critical part of many declining clusters. Support for product and processimprovements would appear to be important for established and mature clusters as well assupporting SMEs to prepare for new markets.
  • 8. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 8IT Services and Software Clusters in EuropeCambridge ClusterThe first 40 years of the Cambridge Cluster has seen the city and wider sub-region becomerecognised as a world class knowledge based economy, characterised by particular strengthsin healthcare and life sciences, IT services and communications.Key success factors has been: very strong research and innovation greatest percentage of higher level skills of any UK city it is a growing cityCambridge phenomenon continued to grow, despite a recession in the early 1990s and thedot.com bubble in 2000s. As from 2003-4 the cluster is facing a net employment loss of 8percent, increase of firm exits decrease in start-up creations, etc.IT Services and Software Clusters in ItalyArno Valley ICT Cluster (on going process)Positive Factors about 3000 companies active in the ICT sector, some of them listed in the Stockexchange strong presence of first class universities and research centres skilled human resources number of incubators, tech parks, and technology transfer centres nice environment able to attract and retaining the best resources embryonic regional policies to provide supportDrawbacks lacks specialisation (company dealing with different ICT not reaching a cluster criticalmass) cluster of SMEs on open source software not adequately supported by public policies
  • 9. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 9Torino wireless ICT Cluster (on going process)Positive Factors world class universities and research centres; highly skilled human resources; over 2,000 researchers in ICT (almost 20% of the Italian total), 700 of whom are inthe wireless area; large leading firms (Fiat, Telecom Italia) and their research centres; more than 8,000 small and medium enterprises (SMEs) active in the same field; clear focus on wireless and infomobility; the availability of public and private funding to support both research activities andthe creation of new entrepreneurial initiatives (Piemonte invests 2.5% of its GDP ininnovation and attracts a quarter of all Italian private investments in research anddevelopment); support by the local governmentDrawbacks Inadequate level of cooperation with Large Firms Not invented here syndromeIn Europe, despite quite a number of success stories we can tell, there is shared opinion thatEU clusters do not perform like US ones (even dimensionally) and are not exploiting fullytheir potential.Historically, Europe has difficulties in converting much of its research into commercialapplications. In Europe, there has been nothing to compare with the entrepreneurial fortressof Silicon Valley, where technological innovations are rapidly converted into businessapplications. For example, some ideas were originated in Europe (Semantic Web, Linux) butthe main actors are US based.Clusters are considered main drivers of Europe’s competitiveness and innovation and quite anumber of EC communications have been issued on this topic.
  • 10. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 10Summarising1) Cluster SpecialisationEveryone wants to have its Silicon Valley. If everyone goes into the same direction, we’dbetter have some clear differentiators. One of the main cluster features is specialisation. It isa feature of all successful industrial districts and it is an important feature of ICT clustersespecially in consideration of the fact that anybody in the world is building ICT clusters!!2) Cluster CoopetitionThe mix of cooperation and competition is essential to produce more innovative ideas.Knowledge sharing can be also promoted by specific initiatives.3) Need of a broader definition of InnovationInnovation is absolutely crucial but we must move from just the romantic breakthroughresearch idea. Innovation can be incremental, can involve changing sector/market, achievedthrough system integration or by changing business models. How many innovations in the ITServices & Software arena are really breakthrough?4) Shift in innovation paradigmOpen innovation appears to be an interesting paradigm for a cluster, especially for those notwilling to heavily invest in lawyers/patents like in the US.5) Everyone in the cluster can innovateCreativity belongs to all humanity (it is indeed an essential feature of Homo sapiens sapienswith respect to other homo species such as Neanderthal or Homo sapiens). Thereforeeveryone must be enabled to perform innovation within the cluster (entrepreneurs, workers,researchers, professors, etc).
  • 11. Innovation: the main driver of ICT Cluster Developmentand Renewal___________________________________________________________________________Page 116) Role of Long-Term Public PolicyThere is plenty of short tem or long-term policies.They can help a lot the cluster growing and develop through the creation of a number ofservices, joint research projects, etc. However we must be aware that the same policies areavailable in any corner of the globe.Therefore, the most important policies seem to be the ones which will play a role in buildinga cluster culture about innovation, entrepreneurship, etc.In particular, creating a culture of initiative taking, entrepreneurship and others’ idea respectat any level (large firms, SMEs, universities) is crucial. Everyone has to be encouraged tohave their saying. Positive consideration of entrepreneurship including those who failed orwent bankruptIndeed, such policies will produce results only on a long term but they will be valuable andpossibly helping cluster resiliency (EU founder Mr. De Gasperi once said “Politicians look atthe next elections. Statesmen look at the next generation).

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