Creating smart systems, guide to Cluster strategies in less favoured

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6 | A GUIDE TO CLUSTER STRATEGIES IN LESS FAVOURED REGIONS Each action proposed here is intended to either “level the playing field” and create an infrastructure that allows the region to compete, overcome market failures, or take advantage of untapped opportunities. But to set the stage, we will very briefly summarise (a) a few assumptions about clusters, (b) the drivers of cluster success (opportunities), (c) the barriers to competitiveness (inequities and market failures), and (d) a few persistent questions. II. What Do We Mean by Clusters Every region has some distinctive characteristics and one or more concentrations of interdependent firms that are above national average concentrations, even if they do not meet commonly accepted definitions of “clusters”. We do not intend to settle the question of just what constitutes a cluster”, but we will set out some of the assumptions about them that underlie the subsequent suggested actions. Clusters are based on systemic relationships among firms. The relationships can be built on common or complementary products, production processes, core technologies, natural resource requirements, skill requirements, and/or distribution channels. Clusters are geographically bound, defined largely by distances and times that people are willing to travel for employment and that employees and owners of companies considerable reasonable for meeting and networking. Range is influenced by transportation systems and traffic but also by cultural identity, personal preferences, and family and social demands. Clusters have life cycles, which progress from an: embryonic stage, which can be generated by innovations, inventions, or inward investment, to the growth stage, where markets have developed sufficiently to spin off and attract imitators and competitors and to stimulate entrepreneurship, to maturity, which is when the processes or services have become routine, more imitators enter the market, and costs become a key competitive advantage, to decay, when the products become fully replaceable by lower cost or more effective substitutes. Clusters are not defined by organisational membership, and while an association provides members with many real benefits “free riders” also are parts of the clusters. By virtue of their location and common needs, they may realise the same non-exclusive external economies as members of the cluster associations. Clusters produce externalities, the “hard” externalities that produce a larger pool, greater variety, and lower costs of supplies and components, specialised and customised services, skilled labour, and potential partners, and the soft externalities that produce access to tacit knowledge of technologies, markets, and opportunities to network, and to aggregate interests and needs. Clusters are defined by relationships. Ultimately, they are self-selecting based on how individual employers and institutions in a region define their missions, set their priorities, use their region’s resources, and form relationships.
A GUIDE TO CLUSTER STRATEGIES IN LESS FAVOURED REGIONS | 7 III. What makes Clusters Grow Why is one cluster more successful than another in less advantaged regions Even holding market conditions constant, some clusters, for example, fare better because they are able to innovate and develop new comparative advantages or perhaps because they have the foresight to shift their competencies to new markets. Rosabeth Moss Kantor has attributed economic success to three factors: concepts, connections, and competencies. 1 A. Concepts Innovation, imitation, and entrepreneurship are what propel virtually all competitive clusters. While the success of an individual firm may depend on its ability to protect its own technological advances, new products, or designs, the success of the cluster in which it operates depends on the opposite—widespread diffusion, access to new innovations and information, and spin-offs of new enterprises. The porosity of clusters presses competitors within the cluster to continually improve and innovate in order to maintain their advantages over imitators. Innovation. Innovators generate and commercialise new ideas, find more efficient production processes, or create new markets. Although university and advanced research centre-based R&D attract much of the resources and attention of governments, many of the most valuable innovations are improvements in business and production routines devised by employees, such as in applications of existing technologies, design of production and management systems, marketing of products, and organisation of labour. Customers, suppliers, competitors, and tool builders are important sources of these innovations. The current competitive advantage of Italy’s ceramic tile companies, for example, is largely a result of relationships between equipment manufacturers and users. Imitation and competition. Innovation builds a strong company but imitation and the competition that follows generate the scale for a strong cluster. Imitation is as important to a cluster as innovation because it’s what circulates new concepts and practices among companies and spurs further innovation. It is the reason that companies look for benchmarks among their peers. Many of the imitators become innovators by improving upon the practices they adopt and this cycle of innovation and imitation drives clusters towards excellence. If a cluster has a collective persona and its markets are global, it views imitation as strengthening the cluster. Entrepreneurial energy. Entrepreneurial capacity is the fuel that drives the expansion of the cluster growth. Recruitment may be a vitamin regimen that fortifies it, but it’s the rare location that can recruit a cluster. The genesis of most clusters can be traced to the employees of one or two companies who left to start their own companies. The impetus in some cases was survival when a parent firm downsized, or went out of business, or moved. The hosiery firms in Italy’s Castle Goffredo were established by skilled workers of the German-owned company Noemi who, when the firms declined in the 1950s, bought surplus equipment and became entrepreneurs. But a more common stimulus for entrepreneurs has been to exploit a different niche market, become an independent 1 Rosabeth Moss Kantor, World Class, New York: Simon & Schuster, 1995.
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