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Pd0601 Industry Clusters


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This article discusses the concept of industry clusters and offers insight into the factors that make them a successful approach to economic development.

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Pd0601 Industry Clusters

  1. 1. When Are Industry Clusters an Appropriate Economic Development Tool? By Michael Stumpf, January 2006 I ndustry clusters may be defined as groupings Silicon Valley still gets the most attention, but of firms using similar technologies or serving clusters do not need to be high tech or exist in similar markets, together with closely linked such tightly defined geographic areas. This is suppliers, a local talent base, and supporting especially true in rural places. The meat pro- institutions. Economists have noted that these cessing industry, for example, is concentrated in a clusters tend to stimulate continuous upgrading, broad swath of the western plains, from Texas up generate spin-offs from larger firms in the cluster, to Nebraska. This example is particularly good at and encourage innovation and entrepreneurship. demonstrating another fact about clusters. They The regions in which clusters can be found will can migrate. Proximity to places where large also exhibit specialized and advanced production number of cattle are raised, improvements to factors such as talent, capital, and infrastructure. transportation and refrigeration, and high union wages combined to cause many meat processors to Cluster initiatives carried on by economic relocate from places like Iowa, Illinois, and development organizations seek to encourage and Wisconsin. build upon these traits. While this has become a popular approach to economic development, While most cluster initiatives center around many of these initiatives are bound to fail either manufacturing, there are exceptions like "creative because they are not appropriately organized, or in services" in Portland, Oregon or media in Santa reality, no cluster exists on which to build a Fe, New Mexico. Rural places have similar op- program. A cluster initiative is not an attempt to portunities for cluster development. Agricultural create an industry grouping where nothing exists, Industries may come to mind first, but some less but rather, it is a catalyst to improve the obvious choices include wind energy in the competitiveness of the region and spur new Dakotas or meteorology in Oklahoma. Regardless growth. They are most effective when applied to of the industry, the boost provided by an effective emerging and naturally-occurring clusters. cluster initiative can prove to be a catalyst for regional economic prosperity. Place Dynamics Michael Stumpf is a consultant in community planning, economic development, and 1 market analysis, based in New Berlin, Wisconsin.
  2. 2. A new industry cluster is forming around natural 3) innovation and technology; and organic foods in Colorado, where 130 firms 4) education and training; have a combined total of over $2.5 billion in annual sales. The cluster program will work to 5) commercial cooperation; and brand the region as "the center of the natural foods 6) policy action. universe." It seeks to expand markets for state products, encourage new business formation, and These are all issues around which there can reduce production costs by fostering collaboration typically be some consensus, even among among businesses. competitors. Along with manufacturers, the cluster includes Putting theory into practice, the first thing eco- natural foods distributors and retailers, marketing nomic developers need to do is to determine if and legal firms catering to the industry, and there truly is a cluster in their territory. If so, does organic produce growers. As an initiative, it dis- it extend beyond their service limits and should a plays nearly all of the critical elements for regional effort be considered? The analysis should success. identify the primary businesses within the cluster along with clients, suppliers, and service pro- viders. The second critical factor is widespread industry support. If industry is not an active player then the effort is not likely to take root. In reality, most successful cluster initiatives get their leadership from within the industry, rather than from a public agency. Once it has been determined that the elements necessary to pursue an industry cluster initiative are in place, there is a need to develop strategic plan. Again, this must be industry-driven. Economic developers need to take a back seat at this point, and realize that the effort is all about creating a better business environment. It is not about business attraction. So what are the factors that contribute to a sound As an economic development tool, industry cluster strategy? Recent analysis of cluster in- cluster initiatives are long-term programs to itiatives has pointed to a number of shared char- develop regional competitiveness. Where acteristics. To begin with, the initiative is not appropriate, they can have a profound impact on viewed as an economic development plan in the local or regional economy. But they may not itself, but as part of a broader strategy to improve be the right strategy for every place. Communities the business climate. It is a partnership of firms, should be cautious about expending the resources government, and academic and research institu- on cluster approaches if they do not support the tions, usually led by a champion from the right conditions or if they are looking for different business community. Finally, it is based on a true results. O assessment of the current profile and competi- tiveness of the cluster. © 2006 Place Dynamics Cluster initiatives are remarkably consistent in focusing on six areas of concern: 1) research and networking; 2) cluster expansion; Place Dynamics 2