Cluster basics: What are Clusters and Why are they Important?
TCI Annual Conference – Delhi – 2010 2Clusters 101Advanced learning workshop on clustersWhat is a cluster ?Why are clusters important ?Élisabeth Waelbroeck-RochaPartner, BIPEMember of the Board of Directors of TCIDelhi, November 29, 2010
TCI Annual Conference – Delhi – 2010 3THE COMPETITIVENESS INSTITUTE is a non-profit,global network of cluster practitionerscreated in 1998, dedicated to facilitating the spread and success of cluster-based andinnovation competitiveness initiatives through networking, research and trainingactivitiesWhat is The Competitiveness Institute?Inauguration of TCI facilities on Nov. 5th, 1998
TCI Annual Conference – Delhi – 2010 4OBJECTIVES Promote cluster-based competitiveness anddevelopment strategies Improve the methodologies for enhancing thecompetitiveness of clusters Raise the professional level of clusterdevelopment practitioners“THE COMPETITIVENESS INSTITUTE’s mission is to improve livingstandards and local competitiveness of regions across the world by enhancingcluster-based development initiatives”Mission and Objectives
TCI Annual Conference – Delhi – 2010 5TCI Network: A community of 1.700 practitioners in 98 countries
TCI Annual Conference – Delhi – 2010 6TCI Organizational MembersNon-profit organizations, government agencies and multilateral organizations dedicated to fostering economicdevelopment participating as economic supporters of TCI Network.
TCI Annual Conference – Delhi – 2010 7 Annual Global Conferences Regional Conferences Networking Research and knowledge dissemination Cluster-related knowledge management servicesMain Activities of TCI
TCI Annual Conference – Delhi – 2010 8Our Values Excellence TCI was founded to improve the quality and standards of excellence in competitiveness, clusterdevelopment and regional and national economic development and is committed to preserving andcontinually raising the standards of excellence of its members and of the organization. Transparency TCI conducts its affairs with professionalism, openness and transparency so that all members and theoutside world can clearly see its objectives, activities, events and working methods. Participation TCI encourages member participation by fostering opportunities for learning and for presenting and sharingtheir experience in TCI events. Inclusiveness TCI actively reaches out and involves people of all continents (and islands), nationalities, cultures andgenders so that members can be enriched by global perspectives. Respect With no diminishing of TCI’s commitment to quality and excellence, TCI has a high level of openness todifferent strategies, techniques and non-traditional approaches and therefore accommodates a variety ofschools of thought with an attitude of respect. The Value of Networking TCI believes that networking--fostering linkages among people and facilitating the free exchange of ideasamong regions--is a both a powerful means and an end in itself in the new relationships formed and newinitiatives undertaken. Social Purpose and Impact Apart from immediate benefits to members, TCI has a higher social purpose of making a major impact ontheory and practice of economic growth contributing directly to improved human development and betterstandards of living—and to extending this impact to regions where this understanding is most needed.
TCI Annual Conference – Delhi – 2010 9What is a cluster ????? Clusters are geographic concentrations of inter-connectedcompanies, specialised suppliers, service providers andassociated institutions operating in a particular fieldMichael Porter
TCI Annual Conference – Delhi – 2010 10What is a cluster ????? Clusters are geographic concentrations of inter-connectedcompanies, specialised suppliers, service providers and associatedinstitutions operating in a particular field Clusters are groups of independent companies and associatedinstitutions that are: Collaborating and competing (coo-petition) Geographically concentrated in one or several regions, even though thecluster may have global extensions Specialized in a particular field, linked through common technologiesand skills Either science based or traditionnal Clusters can either be institutionalized –(there is a cluster managementstructure, or « cluster initiative »), or non-institutionalized (informal)Michael PorterEU Expert Group
TCI Annual Conference – Delhi – 2010 13Agglomeration EmergingclusterDevelopingclusterMatureclusterTransformationClusters are eco-systems: they naturally evolve and transformThe cluster life cycle
TCI Annual Conference – Delhi – 2010 14Key points on clusters Why do companies’ cluster ? What does clustering bring them ? Why are regions / countries interested in clusters ? What do you do with clusters ? If the process occurs naturally, why should one getinvolved? Can clusters be « created » ? How can one help them grow ?
TCI Annual Conference – Delhi – 2010 16Why do companies « cluster » ?The theoretical benefits of clusteringEconomies of scaleEconomies of scopeVertical integrationMove up the learning curveDifferentiation / specialisation effectCreation of barriers to entryNew marketsNew productsIncreased market shareIncreased third party trustRisk associated to competitionClusters can bring :Companies’ objectivesProfits,GrowthImprovedquality/price ratioIncreased marketvolumeRisk reductionand risk controlCost reductions
TCI Annual Conference – Delhi – 2010 17Indirect benefits can also be generated One needs to distinguish : Direct effects Rise in sales, better financing conditions, mutualised costs, … Indirect (spill-over) effects Easier access to specialised / trained staff thanks to increasedattractiveness of region, increased sales through spill-over effectson clients / end-users, less strain on resources, … Externalities Positive: entrepreneurial climate, informal knowledge exchanges,image, resource creation, increased choice thanks to scale effects Negative: strain on resources (including HR), increasedenvironmental degradation, rising housing prices, congestion, lossof control of certain functions which have become mutualised…
TCI Annual Conference – Delhi – 2010 18Practical experiences / feedback from companies Experience shows that participating to a cluster enablescompanies to: Attain objectives that they would not have met individually, interms of profitability or growth Exchange, share good practices Accelerate innovation Increase self-confidence Develop trust Share resources / means to create, protect or improve rent(profits) Reduce or eliminate certain costs Improve the price / quality ratio Increase sales Control / reduce risk, including the risk from competition
TCI Annual Conference – Delhi – 2010 19Different types of « clusters »Types of clusters Industrial Services Urban Rural High technology Traditionnal Etc…Main objectives of clusters Increase sales (exports) Create jobs Foster innovation Develop new markets / newproducts
TCI Annual Conference – Delhi – 2010 202. Why are governments’ interested in clusters ? Although clustering is mostly about companies, regionsand governments worldwide are increasingly fosteringclusters cluster policies as a natural evolution from traditionalindustrial policies ?
TCI Annual Conference – Delhi – 2010 21What clustering brings to regions Clustering processes are viewed as having the potential to : Restore / enhance competitiveness Reinforce the innovation capability Increase attractiveness to investors Transform a vicious cycle into a virtuous cycle Low growth little revenue generation poor qualityinfrastructure capital outflows, brain drain loss incompetitiveness low growth Reinforcement of competitiveness faster frowth revenuegeneration economic infrastructure development FDI, HRdevelopment improved competitiveness Potential side-benefits : reduce vulnerability to downturns ?
TCI Annual Conference – Delhi – 2010 222001199719921980Selected regionsand countrieswithcluster-baseddevelopmentinitiatives +-Emilia-RomagnaToscana(industrial-districtsbased policies) ....EuskadiScotlandChihuahuaArizonaCatalunyaMassachussetsMoroccoNew ZealandCosta RicaCalifornia....SwedenTurkeyLithuaniaAustriaJordanMéxicoSouth Africa....FranceEstoniaDenmarkSloveniaUKMinas Gerais (BR)...1990 2003 2006PakistanKazakhstanPoland….(*) Data from “The Cluster Initiatives Greenbook – II edition”, 2006(**) European Cluster Observatory, 2009Cluster reinforcement initiatives worldwideParaguayRio Negro (AR)….2009ILLUSTRATIVENOT EXHAUSTIVEApprox. more than 1.400initiatives from countriesand regions all over theworld (*)Over 1.100clusterorganizationsonly in Europe(**)
TCI Annual Conference – Delhi – 2010 23Companies and regions do not necessarily share thesame objectivesRegions Develop the region’s « image »,its identity Enhance the region’sattractiveness Create jobs Solve (existing or perceived)problems Allocate resources effectivelyCompanies Grow their business Generate profits Control/manage risks, reduceuncertaintyManaging a cluster means navigating in turbulent waters, with currentspulling the boat in different directionsThis is what this conference is all about ….
TCI Annual Conference – Delhi – 2010 24Measures of success are not the same for regions andfor companiesRegions Increased competitiveness(reduced prices/marginscompared to competition) Increased share of world market(irrespective of how manycompanies make-up this share) Employment creation Income generation (taxes) New company creation Future income creation Maintenance or establishment ofa healthy competitive climate More fluid/flexible labour marketCompanies Increased profit margins Cost reductions Lower input costs, low HR costs Ability to protect selling prices Pass cost increases into prices Reduce competition Increased sales Improved price/quality ratio Opening of new markets Geographical, product Lower risk Operational, strategic HR related (mobility, skilldepletion)
TCI Annual Conference – Delhi – 2010 25Source: Etzkowitz (2002)The key stakeholders in a cluster initiativeThe triple helix …
TCI Annual Conference – Delhi – 2010 26… or the quadruple helixFinance
TCI Annual Conference – Delhi – 2010 27Everywhere,the objective of cluster policies is toincrease competitiveness
TCI Annual Conference – Delhi – 2010 28Increasingly, innovation is recognized as the key tocompetitiveness Informal exchanges through clustering are tremendousfacilitators of innovation In mature economies, cluster policies have increasinglybecome « innovation » policies
TCI Annual Conference – Delhi – 2010 29The importance of place and networks for inventions andinnovationWhy is innovation important? Because it is key to increases in productivity Higher productivity levels are the basis to real wages growth,hence to a higher level of prosperity for a territory, a region or anation Because innovation and inventions make it possible to growexisting markets and create new ones
TCI Annual Conference – Delhi – 2010 30The key to innovation (1) Innovation is a “team sport” and a long term run Innovation is a social process Social context and entrepreneurial oriented culture are key forthe development of innovation Inventions and innovation rarely occurs in isolation Innovation is place-based
TCI Annual Conference – Delhi – 2010 31 “It is not the ingredients, but the recipe” (P. Romer, A. Saxenian, ..) … but the same recipe does not perform the same indifferent places, so it is important to work locally and tobuild local distinctive advantages Tacit-knowledge interchange and face-to-faceinteraction are key to incremental innovation Clusters are the place in which this happens easier; theyare an ideal unit of work for policy makersThe key to innovation (2)
TCI Annual Conference – Delhi – 2010 32 The added-value of clusters in innovation process (*): better perception of new buyers’ need early diffusion of new technologies strong rivalry among competitors quicker knowledge circulation (“cafeteria effect”) stronger support from external agents (government,universities, etc.)(*) partly based on M. E. Porter, On Competition, 1998.
TCI Annual Conference – Delhi – 2010 33Some lessons and key points from previous conferences(I) Very important to distinguish clearly: Clusters Cluster policies Cluster initiatives Cluster Associations Cluster initiatives are growing dramatically: 2003: More than 500 2008: More than 2.500 It looks like if something good is happening around theseclustering ideas!! (even if measurement and assesmentare hard points)
TCI Annual Conference – Delhi – 2010 34Some lessons and key points from previous conferences(II) Clusters are about people, competition, cooperation,competitiveness, making money, surviving in the longterm, emulating the big companies, trust, talent, heart,courage, … Never underestimate the “human factor”! Companies involvement is a key factor for success, as itis… A good facilitator
TCI Annual Conference – Delhi – 2010 35Some lessons and key points from previous conferences(III) Governments play an important role in theimplementation Shared vision, without it is very difficult even to know theobjectives to be reached It’s better open than close, trust than distrust, sharingthan being islands Money is important, but it is not the main factor for thesuccess (think about trust, coherence, …)
TCI Annual Conference – Delhi – 2010 36Some lessons and key points from previous conferences(IV) Failures come from a lack of consensus, weak sharedframeworks, and bad facilitators. It is important to maintain a strong sense of reality. Everystarting point is different, every way is different. It is a real long term job, that needs patiente and cannotbe rushed (and what about political cycles??) Strategy is the key!! Clusters are for what really matters.
TCI Annual Conference – Delhi – 2010 37Contact usfor more information about TCI and our activities along the yearPatricia ValdenebroGeneral Managerpvaldenebro@tci-network.org