© BIPE 2010

December 2, 2010

Challenges from the environment and their effect on clusters

Élisabeth Waelbroeck-RochaPartner & Vice President, BIPE

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Four main drivers will impact the futureof clusters

Demography

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Four main drivers will impact the futureof clusters

Demography Economy

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Four main drivers will impact the futureof clusters

Demography

Technology

Economy

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Four main drivers will impact the futureof clusters

Demography

Environment Technology

Economy

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These four drivers are interdependent

Demography

Environment Technology

Economy

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1. Demography, not only the economy, will change the way businesses operate

Demographic growth is highly variable across regions

Continued urbanisation

Reduced household size

Ageing

Demography

Environment Technology

Economy

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Change in population size, in millions

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By 2050, North America and Europe will merely represent 12,5% of the world’s population (down from 17% in 2000)

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Urbanisation will continue: this causes specific problems that have to be dealt with

By 2020, 60 cities will have more than 5 million inhabitants, and13 will have more than 10 million

Source : ONU – World Urbanization Prospects

Cities with more than 10 million inhabitants

Cities with more than 5 million inhabitants

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Other consequences of these demographic developments include:

Ageing in Europe, and a reduction in the population of working age, unless migration flows break from past trends

Strong rise in demand for food products, concentrated in certain regions that do not all have a high agricultural growth potential – or whose potential will be curtailed by climate change

Strong rise in energy consumption For heating and cooking For lighting For transportation

Ever increasing demand for clean water

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2. On the economic front, the recent crisis will have long lasting effects on the world economy

Volatility is there to stay

Diversification strategies of companies

Emphasis on flexibility

Reduced role of government

Demography

Environment Technology

Economy

Risks of bubbles

Risk aversion / difficult access to financing for SMEs

Continued strong competition

Business cycles will be deeper, creating market disruptions

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Why volatility ?

A result of: The massive externalisation strategies

Production / delivery volumes can be adjusted at short notice

Zero stock policies The strategies of dominant players on resources markets

Dual markets will emerge, characterized by different prices depending on the client …

Reduced government’ capacity to offset turnarounds in business cycles

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2. On the economic front, the recent crisis will have long lasting effects on the world economy

Volatility is there to stay

Diversification strategies of companies

Emphasis on flexibility

Reduced role of government

Demography

Environment Technology

Economy

Risks of bubbles

Risk aversion / difficult access to financing for SMEs

Continued strong competition

Business cycles will be deeper, creating market disruptions

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Demographic developments will impact the economy

Demography

Environment Technology

Economy

Development of complex markets

Growth in services sectors

In addition to the above changes, there will be growing opposition between mature / growing markets

In addition to the above changes, there will be growing opposition between mature / growing markets

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3. On the technology front, several breakthrough innovations could change the way we work, produce and consume

New promising fields:

Biotechnologies

Nanotechnologies

Vehicle propulsion

Laser and optics

Etc …

Demography

Environment Technology

Economy

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The speed of change is evolving. Product innovation cycles are shorter and deeper

We are in a process innovation phase, with low product innovation

Product cycles

2010 ?

Demography

Environment Technology

Economy

Process cycles

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Demographic changes and the economy also impact the future of technology – and vice versa

Demography

Environment Technology

Economy

Innovation =new players

new processes

Functionality

of products

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4. Environmental changes are underway

New scarce resources:

Raw materials, energy

Food

Space

Time

Silence / quietness

Darkness in urban areas

(clean) Water

Privacy

Comfort

Demography

Environment Technology

Economy

People will accept to pay higher prices to have access to the scarce resources

This will change the relative price of goods / services

People will accept to pay higher prices to have access to the scarce resources

This will change the relative price of goods / services

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Demographic changes are speeding up changes in the environment

Demography

Environment Technology

Economy

Anthropic pressures on environment

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Between 2010 and 2030, world primary energy demand will grow by more than 40%

Source: IEA Energy Outlook 2010

Source: IEA Energy Outlook 2010

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Given the oil peak, coal fired electricity generation will have to grow – with major consequences on the environment – not on prices

Source: IEA Energy Outlook 2010

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Greenhouse gas emissions accelerate climate change and will have a major impact on agriculture

Source: European Commission, PESETA model results

Changes in average mean precipitation and temperature between 2011-2040, from the 1961-1990 period

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Again, economic factors and changes in the environment are linked

Demography

Environment Technology

Economy

Anthropic pressures on environment Internalis

ation

of costs

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The same holds for technology

Demography

Environment Technology

Economy

Anthropic pressures on environment Internalis

ation

of costs

Efficiency

search

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Impact on clusters

Urbanisation

Development of scarcity

Emergence of complex markets

Reduced role of government

Increased competition, low price

Urbanisation

Development of scarcity

Emergence of complex markets

Reduced role of government

Increased competition, low price

Localized pressures on resourcesCost increasesInternalization of external costsChange in values

New value chains, defined by market rather than by product

Increased delegation, development of PPP

New business models, new price setting mechanismsChange in the firms’ scope of

activity, development of multiproduct companies

Localized pressures on resourcesCost increasesInternalization of external costsChange in values

New value chains, defined by market rather than by product

Increased delegation, development of PPP

New business models, new price setting mechanismsChange in the firms’ scope of

activity, development of multiproduct companies

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Impact on clusters

Urbanisation

Development of scarcity

Emergence of complex markets

Reduced role of government

Increased competition, low price

Urbanisation

Development of scarcity

Emergence of complex markets

Reduced role of government

Increased competition, low price

Localized pressures on resources

Cost increasesInternalization of external

costsChange in values

New business models, new pricing schemes

New value chains, defined by market rather than by product

Increased delegation, development of PPP

New business models, new price setting mechanisms Change in the firms’

scope of activity, development of multiproduct companies

Localized pressures on resources

Cost increasesInternalization of external

costsChange in values

New business models, new pricing schemes

New value chains, defined by market rather than by product

Increased delegation, development of PPP

New business models, new price setting mechanisms Change in the firms’

scope of activity, development of multiproduct companies

Location of clusters

Ressouce efficiency of clusters

Scarcity niches develop before scarcity spreads throughout the economy

New borders of clusters

New stakeholders in cluster

Relocation closer to end client

Location of clusters

Ressouce efficiency of clusters

Scarcity niches develop before scarcity spreads throughout the economy

New borders of clusters

New stakeholders in cluster

Relocation closer to end client

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Impact on clusters

Production starts after orders have been confirmed / paid

Increasingly customized products

Co-conception, value chains built from the end-market upwards, starting from the recycling stage

Increasingly difficult financing of SMEs

Production starts after orders have been confirmed / paid

Increasingly customized products

Co-conception, value chains built from the end-market upwards, starting from the recycling stage

Increasingly difficult financing of SMEs

Zero stocks

Need to reduce delivery time

Involvement of the final consumer in the value chain

Innovation in financial engineering

New stakeholders in cluster, new cluster frontiers

Zero stocks

Need to reduce delivery time

Involvement of the final consumer in the value chain

Innovation in financial engineering

New stakeholders in cluster, new cluster frontiers

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Impact on clusters

Zero stocks

Need to reduce delivery time

Involvement of the final consumer in the value chain

Innovation in financial engineering

Internalization of external costs

Change in valuesNew business

models, new pricing schemes

Zero stocks

Need to reduce delivery time

Involvement of the final consumer in the value chain

Innovation in financial engineering

Internalization of external costs

Change in valuesNew business

models, new pricing schemes

Process optimisation

Relocation

Cluster = living lab Innovation zones

New stakeholders in cluster

New frontiers for clusters

Process optimisation

Relocation

Cluster = living lab Innovation zones

New stakeholders in cluster

New frontiers for clusters

Production starts after orders have been confirmed / paid

Increasingly customized products

Co-conception, value chains built from the end-market upwards, starting from the recycling stage

Increasingly difficult financing of SMEs

Production starts after orders have been confirmed / paid

Increasingly customized products

Co-conception, value chains built from the end-market upwards, starting from the recycling stage

Increasingly difficult financing of SMEs

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Consequences for cluster initiatives and cluster managers

Need to internalize environmental issues: Take into account local conditions (assets and weaknesses) Pay attention to the location of activities / relocate ? Adapt the cluster and companies’ organisation Choice of process Choice of market

(Continuously) Review the cluster’s frontiers Broaden the scope ? Prepare the « transformation » stage in the cluster life cycle Focus on services ?

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Consequences for cluster initiatives

Review the clusters’ stakeholders Open to new players of tomorrow (insurance, etc.) Review the roles and responsibilities of stakeholders in clusters

Means of governments / regions will shrink find new leaders for the initiatives

Interact with individual consumers Reach outside the cluster to the final consumer – wherever

he/she is – in order to adapt to permanently evolving customer needs

Use local residents to create living labs

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