The document discusses the concept of industry clusters, highlighting their benefits such as increased efficiency, innovation, and employment growth through co-location of interconnected businesses. It outlines New Jersey's position in various clusters, including life sciences and financial services, while suggesting policies to enhance cluster development and address challenges like over-specialization and competition for talent. The document advocates for targeted incentives and urban development strategies to strengthen these clusters and promote regional economic growth.

1. Clusters: Defining our terms
• Industry Cluster: a geographic concentration
of interconnected
businesses, suppliers, service providers, and
associated institutions in a particular field.
• Traded clusters: concentrated in a
location, but selling products and services
across regions, states, countries….. This is
what every one wants.
3/15/2012 1

2. How Clusters Work
• Organically evolving co-location of industries that
access and produce similar inputs and economic
activities.
• Employers access shared inputs:
– concentrated pools of relevant labor
– common or complimentary technology,
– common or over-lapping suppliers, vendors and
“experts” with specialized knowledge
– educational and other institutions, with many points
of mutual interest
– concentrations of industry-targeted capital.
– Cluster-driven density of labor, suppliers, and related
industries drives growth within the cluster.
3/15/2012 2

3. How Clusters Work (continued)
• Employees access:
– deep pool of job opportunities,
– professionally-reinforcing formal and informal information
exchanges.
• Industries are complementary within a
cluster, feeding each other, adapting
products, skills, technologies throughout the value
chain.
• Strong clusters have high specialization across a
multiple related industries.
3/15/2012 3

4. Clusters Deliver Better Outcomes
• Benefits of strong clusters:
– Efficiency and profitability benefits accrue and
multiply within an industry
– Cluster benefits extend to related industries within
the broader cluster.
• (e.g., IT, marketing, legal/regulatory and related
disciplines supporting Life Sciences in NJ)
– Greater innovation through knowledge spillover
– Higher rate of new business formation
– Higher employment growth
– Higher wage growth
3/15/2012 4

5. Pros and Cons
• Some potential pitfalls to clustering:
– Over-specialization in a given industry = diminishing
returns
– Competition for labor, especially within a highly
concentrated industry, can lead to greater turnover
– Intellectual property can be at risk with employee
turnover and close proximity to competitors
• The Pros outweigh the Cons
– Multi-dimensional mutual benefits through paradox
of “coopertition.”
– Making neighbors of thy competitors benefits all.
3/15/2012 5

6. NJ Clusters: Multiple sectors
NJ blessed with multiple sectors with cluster-quality
depth and range:
• Life sciences
– Actually a regional NJ/PA super-cluster (not NJ’s alone)
– A truly organic legacy asset
– Evolved to be less than it was (primarily HQ; less
manufacturing, R&D)
– Showing signs of revival
– Health care related but more ties-in needed
• Financial Services
– In orbit around NYC-based super-cluster
– Prototype for urban cluster model
3/15/2012 6

7. NJ Clusters (continued)
• Ports/Logistics/Distribution
– Natural location/infrastructure assets
– Intermodal
• Telecommunications
– Lost legacy of Bell Labs
– Back to the future: Verizon returns
– Residual IP and talent assets serving as foundation for
rebuilding of telecom and IT R&D
• Others ….
3/15/2012 7

8. How Does NJ Rank?
• According to 2011 Porter assessment., NJ ranks highly on nationwide
basis, but through 2009 had been trending in wrong direction:
– 2nd quintile for “Innovation” but trending downward to lowest 20% in nation
– Ranked in 20% for “Cluster Strength” but trending down toward the 4th
quintile
– NJ’s relative position is influenced by both industry trends and the state’s
competitive position relative all location decision variables –
costs, talent, taxes , regulatory climate, etc – which are improving.
• NJ’s overall employment in traded clusters ranks 8th in the country.
• Harnessing the power of these clusters to grow sub-sector industries
within them is key to NJ’s continued growth and competitiveness.
• These clusters are the focus of the Governors new economic development
agenda (which also calls for increasing investments in smart growth and
sustainable communities)
3/15/2012 8

9. Policies to promote clusters: NJ Models
Multi-disciplinary approach:
• Bricks and More: NJ Tech Center investments among most
innovative and multi-faceted in the nation
– Commercialization Center for Innovative Technology incubator
– Access to university labs and data bases
– Land for additional expansion for “graduates”
• Innovation Zone: New Brunswick to Princeton
– Modest preference in targeting incentives
– More of a branding strategy…. Einstein’s Alley
• Efforts to better coordinate higher education with industry needs
for talent and innovation… a long-term work in progress
• However, extremely powerful incentives in “urban transit hubs”
and other incentives with premium value for “targeted industries”
3/15/2012 9

10. Benefits of Density
• High density clusters work the same way, only more so….
• Ways increased density can intensify the synergistic effects
of clusters:
– Higher-frequency interactions among knowledge workers:
• more robust idea exchange and collaboration
• socio-professional reinforcement that makes clusters rewarding places
to work, live and play.
– Even readier access to deeper pools of specialized talent and
convenience of access to industry-focused business services –
marketing, legal, regulatory – a short walk, subway or elevator
walk away.
– The other advantages of density as well, including deeper and
more diverse choices of:
• housing styles
• entertainment and other amenities
• regional, national and global transportation access
• sustainability goals
3/15/2012 10

11. Potential next steps for NJ policy
• No need to re-invent the wheel. Focus on strengths. Cluster-focused policy
should target:
– Existing clusters and their regional geographies
– Promote related and support industries serving strong cluster anchors (helps
minimize risks of over-specialization in a single industry)
– Incubators for new businesses in related industries
– Resources and institutions to support and strengthen cluster networks
• UTHTC = Smart Growth. Should there be a UTHTC Release 2.0, promoting
Smarter Growth? Ideas for consideration….
– Continue to focus on urban development incentives, but target premium
incentives on strong clusters and related industries.
– Transcend municipal boundaries to embrace organic cluster delineations.
– Make urban areas the engine of the State Plan’s focus on Regional Innovation
Clusters.
• Define which urban centers are located within which strong clusters.
• Make urban areas more attractive to the industries within these strong clusters.
• Make urban areas more attractive to the labor, especially knowledge workers, who
will feed innovation, new business creation, and productivity.
3/15/2012 11