Clusters 101 delhi: Advanced learning workshop on Clusters

1. TCI Annual Conference – Delhi – 2010 1
Clusters 101
Advanced learning workshop on clusters
What is a cluster ?
Why are clusters important ?
Élisabeth Waelbroeck-Rocha
Partner, BIPE
Member of the Board of Directors of TCI
Delhi, November 29, 2010

2. TCI Annual Conference – Delhi – 2010 2
THE COMPETITIVENESS INSTITUTE is a non-profit,global network of cluster practitioners
created in 1998, dedicated to facilitating the spread and success of cluster-based and
innovation competitiveness initiatives through networking, research and training
activities
What is The Competitiveness Institute?
Inauguration of TCI facilities on Nov. 5th, 1998

3. TCI Annual Conference – Delhi – 2010 3
OBJECTIVES
— Promote cluster-based competitiveness and
development strategies
— Improve the methodologies for enhancing the
competitiveness of clusters
— Raise the professional level of cluster
development practitioners
“THE COMPETITIVENESS INSTITUTE’s mission is to improve living
standards and local competitiveness of regions across the world by enhancing
cluster-based development initiatives”
Mission and Objectives

4. TCI Annual Conference – Delhi – 2010 4
TCI Network: A community of 1.700 practitioners in 98 countries

5. TCI Annual Conference – Delhi – 2010 5
TCI Organizational Members
Non-profit organizations, government agencies and multilateral organizations dedicated to fostering economic
development participating as economic supporters of TCI Network.

6. TCI Annual Conference – Delhi – 2010 6
— Annual Global Conferences
— Regional Conferences
— Networking
— Research and knowledge dissemination
— Cluster-related knowledge management services
Main Activities of TCI

7. TCI Annual Conference – Delhi – 2010 7
Our Values
— Excellence
— TCI was founded to improve the quality and standards of excellence in competitiveness, cluster
development and regional and national economic development and is committed to preserving and
continually 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 the
outside 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 sharing
their experience in TCI events.
— Inclusiveness
— TCI actively reaches out and involves people of all continents (and islands), nationalities, cultures and
genders 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 to
different strategies, techniques and non-traditional approaches and therefore accommodates a variety of
schools 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 ideas
among regions--is a both a powerful means and an end in itself in the new relationships formed and new
initiatives undertaken.
— Social Purpose and Impact
— Apart from immediate benefits to members, TCI has a higher social purpose of making a major impact on
theory and practice of economic growth contributing directly to improved human development and better
standards of living—and to extending this impact to regions where this understanding is most needed.

8. TCI Annual Conference – Delhi – 2010 8
What is a cluster ?????
— Clusters are geographic concentrations of inter-connected
companies, specialised suppliers, service providers and
associated institutions operating in a particular field
Michael Porter

9. TCI Annual Conference – Delhi – 2010 9
What is a cluster ?????
— Clusters are geographic concentrations of inter-connected
companies, specialised suppliers, service providers and associated
institutions operating in a particular field
— Clusters are groups of independent companies and associated
institutions that are:
— Collaborating and competing (coo-petition)
— Geographically concentrated in one or several regions, even though the
cluster may have global extensions
— Specialized in a particular field, linked through common technologies
and skills
— Either science based or traditionnal
— Clusters can either be institutionalized –(there is a cluster management
structure, or « cluster initiative »), or non-institutionalized (informal)
Michael Porter
EU Expert Group

10. TCI Annual Conference – Delhi – 2010 10
The cluster pyramid
Export oriented
industries/service
providers
Equipment, services and
materials providers
Related and supporting industries
& services
Economic
infrastructure

11. TCI Annual Conference – Delhi – 2010 11
The cluster pyramid
Export oriented
industries/service
providers
Equipment, services and
materials providers
Related and supporting industries
and services
Economic
infrastructure
Education system
Public research Regulatory
framework
Transport Financial
system
Housing,
communication,
etc.

12. TCI Annual Conference – Delhi – 2010 12
Agglomerati
on
Clusters are eco-systems: they naturally evolve and transform
The cluster life cycle

13. TCI Annual Conference – Delhi – 2010 13
Agglomerati
on
Emerging
cluster
Clusters are eco-systems: they naturally evolve and transform
The cluster life cycle

14. TCI Annual Conference – Delhi – 2010 14
Agglomerati
on
Emerging
cluster
Developing
cluster
Clusters are eco-systems: they naturally evolve and transform
The cluster life cycle

15. TCI Annual Conference – Delhi – 2010 15
Agglomerati
on
Emerging
cluster
Developing
cluster
Mature
cluster
Clusters are eco-systems: they naturally evolve and transform
The cluster life cycle

16. TCI Annual Conference – Delhi – 2010 16
Agglomerati
on
Emerging
cluster
Developing
cluster
Mature
cluster
Transformation
Clusters are eco-systems: they naturally evolve and transform
The cluster life cycle

17. TCI Annual Conference – Delhi – 2010 17
Key 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 get
involved?
— Can clusters be « created » ?
— How can one help them grow ?

18. TCI Annual Conference – Delhi – 2010 18
1. Why do companies « cluster » ?
The theoretical benefits of clustering
Companies’ objectives
Profits,
Growth
Improved
quality/price ratio
Increased market
volume
Risk reduction
and risk control
Cost reductions

19. TCI Annual Conference – Delhi – 2010 19
Why do companies « cluster » ?
The theoretical benefits of clustering
Companies’ objectives
Profits,
Growth
Improved
quality/price ratio
Increased market
volume
Risk reduction
and risk control
Cost reductions
Increase competitiveness

20. TCI Annual Conference – Delhi – 2010 20
Why do companies « cluster » ?
The theoretical benefits of clustering
Economies of scale
Economies of scope
Vertical integration
Move up the learning curve
Differentiation / specialisation effect
Creation of barriers to entry
New markets
New products
Increased market share
Increased third party trust
Risk associated to competition
Clusters can bring :Companies’ objectives
Profits,
Growth
Improved
quality/price ratio
Increased market
volume
Risk reduction
and risk control
Cost reductions

21. TCI Annual Conference – Delhi – 2010 21
Indirect 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 increased
attractiveness of region, increased sales through spill-over effects
on 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), increased
environmental degradation, rising housing prices, congestion, loss
of control of certain functions which have become mutualised…

22. TCI Annual Conference – Delhi – 2010 22
Practical experiences / feedback from companies
— Experience shows that participating to a cluster enables
companies to:
— Attain objectives that they would not have met individually, in
terms 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

23. TCI Annual Conference – Delhi – 2010 23
Different types of « clusters »
Types of clusters
— Industrial
— Services
— Urban
— Rural
— High technology
— Traditionnal
— Etc…

24. TCI Annual Conference – Delhi – 2010 24
Different 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 / new
products

25. TCI Annual Conference – Delhi – 2010 25
2. Why are governments’ interested in clusters ?
— Although clustering is mostly about companies, regions
and governments worldwide are increasingly fostering
clusters
è cluster policies as a natural evolution from traditional
industrial policies ?

26. TCI Annual Conference – Delhi – 2010 26
What 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 è little revenue generationè poor quality
infrastructure è capital outflows, brain drain è loss in
competitiveness è low growth
— Reinforcement of competitiveness è faster frowth è revenue
generation è economic infrastructure development è FDI, HR
development è improved competitiveness
— Potential side-benefits : reduce vulnerability to downturns ?

27. TCI Annual Conference – Delhi – 2010 27
2001199719921980
Selected regions
and countries
with
cluster-based
development
initiatives +
-
Emilia-Romagna
Toscana
(industrial-districts
based policies) ....
Euskadi
Scotland
Chihuahua
Arizona
Catalunya
Massachussets
Morocco
New Zealand
Costa Rica
California
....
Sweden
Turkey
Lithuania
Austria
Jordan
México
South Africa
....
France
Estonia
Denmark
Slovenia
UK
Minas Gerais (BR)
...
1990 2003 2006
Pakistan
Kazakhstan
Poland
….
(*) Data from “The Cluster Initiatives Greenbook – II edition”, 2006
(**) European Cluster Observatory, 2009
Cluster reinforcement initiatives worldwide
Paraguay
Rio Negro (AR)
….
2009
ILLUSTRATIVE
NOT EXHAUSTIVE
Approx. more than 1.400
initiatives from countries
and regions all over the
world (*)
Over 1.100
cluster
organizations
only in Europe
(**)

28. TCI Annual Conference – Delhi – 2010 28
Companies and regions do not necessarily share the
same objectives
Regions
— Develop the region’s « image »,
its identity
— Enhance the region’s
attractiveness
— Create jobs
— Solve (existing or perceived)
problems
— Allocate resources effectively
Companies
— Grow their business
— Generate profits
— Control/manage risks, reduce
uncertainty
Managing a cluster means navigating in turbulent waters, with currents
pulling the boat in different directions
This is what this conference is all about ….

29. TCI Annual Conference – Delhi – 2010 29
Measures of success are not the same for regions and
for companies
Regions
— Increased competitiveness
(reduced prices/margins
compared to competition)
— Increased share of world market
(irrespective of how many
companies make-up this share)
— Employment creation
— Income generation (taxes)
— New company creation
— Future income creation
— Maintenance or establishment of
a healthy competitive climate
— More fluid/flexible labour market
Companies
— 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, skill
depletion)

30. TCI Annual Conference – Delhi – 2010 30
Source: Etzkowitz (2002)
The key stakeholders in a cluster initiative
The triple helix …

31. TCI Annual Conference – Delhi – 2010 31
… or the quadruple helix
Finance

32. TCI Annual Conference – Delhi – 2010 32
Everywhere,
the objective of cluster policies is to
increase competitiveness

33. TCI Annual Conference – Delhi – 2010 33
Increasingly, innovation is recognized as the key to
competitiveness
— Informal exchanges through clustering are tremendous
facilitators of innovation
— In mature economies, cluster policies have increasingly
become « innovation » policies

34. TCI Annual Conference – Delhi – 2010 34
The importance of place and networks for inventions and
innovation
Why is innovation important?
Ø Because it is key to increases in productivity
Ø Higher productivity levels are the basis to real wages growth,
hence to a higher level of prosperity for a territory, a region or a
nation
Ø Because innovation and inventions make it possible to grow
existing markets and create new ones

35. TCI Annual Conference – Delhi – 2010 35
The key to innovation (1)
Ø Innovation is a “team sport” and a long term run
Ø Innovation is a social process
Ø Social context and entrepreneurial oriented culture are key for
the development of innovation
Ø Inventions and innovation rarely occurs in isolation
Ø Innovation is place-based

36. TCI Annual Conference – Delhi – 2010 36
Ø “It is not the ingredients, but the recipe” (P. Romer, A. Saxenian, ..)
Ø … but the same recipe does not perform the same in
different places, so it is important to work locally and to
build local distinctive advantages
Ø Tacit-knowledge interchange and face-to-face
interaction are key to incremental innovation
Ø Clusters are the place in which this happens easier; they
are an ideal unit of work for policy makers
The key to innovation (2)

37. TCI Annual Conference – Delhi – 2010 37
Ø 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.

38. TCI Annual Conference – Delhi – 2010 38
Some 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 these
clustering ideas!! (even if measurement and assesment
are hard points)

39. TCI Annual Conference – Delhi – 2010 39
Some lessons and key points from previous conferences
(II)
— Clusters are about people, competition, cooperation,
competitiveness, making money, surviving in the long
term, emulating the big companies, trust, talent, heart,
courage, …
— è Never underestimate the “human factor”!
— Companies involvement is a key factor for success, as it
is…
— A good facilitator

40. TCI Annual Conference – Delhi – 2010 40
Some lessons and key points from previous conferences
(III)
— Governments play an important role in the
implementation
— Shared vision, without it is very difficult even to know the
objectives to be reached
— It’s better open than close, trust than distrust, sharing
than being islands
— Money is important, but it is not the main factor for the
success (think about trust, coherence, …)

41. TCI Annual Conference – Delhi – 2010 41
Some lessons and key points from previous conferences
(IV)
— Failures come from a lack of consensus, weak shared
frameworks, and bad facilitators.
— It is important to maintain a strong sense of reality. Every
starting point is different, every way is different.
— It is a real long term job, that needs patiente and cannot
be rushed (and what about political cycles??)
— Strategy is the key!! Clusters are for what really matters.

42. TCI Annual Conference – Delhi – 2010 42
Contact us
for more information about TCI and our activities along the year
Patricia Valdenebro
pvaldenebro@competitiveness.org
Imagina Building
177 Diagonal Av., 1st Floor
08018 Barcelona - SPAIN
www.tci-network.org
info@tci-network.org
tel. +34 93 309 48 34
fax. +34 93 550 44 69