Clusters: Pathways to Prosperity

Neil Reid University of ToledoDept. of Geography & PlanningUrban Affairs Center

Michael C. CarrollBowling Green State UniversityDepartment of EconomicsCenter for Policy Analysis & Public Service

Presentation Outline

• Cluster Basics

• Industrial Foundations of NW Ohio

• Keys to Successful Cluster Building

Cluster Basics

Clusters Defined

• Clusters are geographic concentrations of interconnected companies and institutions in a particular field. Clusters encompass an array of linked industries and other entities important to competition. They include, for example, suppliers of specialized inputs such as components, machinery, and services, and providers of specialized infrastructure. (Porter

1998).

Clusters Defined

• Clusters also often extend downstream to customers and laterally to manufacturers of complementary products and to companies in industries related by skills, technologies, or common inputs. Finally, many clusters include governmental and other institutions - such as universities, think tanks, vocational training providers, and trade associations - that provide specialized training, education, information, research, and technical support (Porter 1998).

Clusters Defined

• Geographically concentrated networks and value chains of suppliers and/or knowledge institutes with the aim of developing innovations. (Hospers and Beugelsdikj, 2002)

Cluster Diagram

Nucleus

Cluster Diagram

Nucleus

S3

S2

S1

S4

S5

Cluster Diagram

Nucleus

C3

S2

S1

S4

S5

S3

C1

C2

C4

C5

Cluster Diagram

Nucleus

C3

S2

S1

S4

S5

S3

C1

C2

C4

C5

G1

U1

Cluster Diagram

Nucleus

C3

S2

S1

S4

S5

S3

C1

C2

C4

C5

G1

U1

Advantages of Clusters

• Participation in a cluster allows firms to operate more productively. They have better access to means needed for carrying out their activities, such as technology, information, inputs, customers, and channels, than they would have when operating in isolation.

Advantages of Clusters

• Easier access will not only enhance the participants’ productivity, but also their ability to innovate.

Advantages of Clusters

• An existing cluster may provide a sound base for new business formation, as its relationships and institutions will confront entrepreneurs with lower barriers of entry than they will meet elsewhere.

Collective Efficiency

• The mere co-location of companies, suppliers, and institutions creates the potential for economic value; it does not necessarily ensure its realization (Porter 1998)

Collective Efficiency

• Collective Efficiency = the competitive advantage derived from external economies and joint action

• External economies of scale – passive (are incidental and fall into the producer’s lap)

• Joint Action – active (is consciously pursued and requires joint efforts)

• Joint action is necessary for clustered producers to cope with new competitive pressures. (Schmitz and Nadvi, 1999)

Every Region is Unique

• Every region’s economic structure is unique and . . . . public authorities should pay attention to this uniqueness (Hospers and Beugelsdjik, 2003).

• Successful clusters cannot be created from scratch. There needs to exist a critical mass of enterprises and skills . . . that outside assistance can “hook into” (Schmitz and Nadvi, 1999).

Every Policy is Unique

• Each regional innovation policy and each regional cluster policy is unique. They are the specific responses of each region to the needs of companies and contextual conditions. Moreover, these policies include institutional building as a key factor in ongoing adaptation, innovation and development.

• These policies, therefore, are firmly rooted in their social and cultural context, embedded within their socio-economic and institutional environment. (Diez, 2001).

Every Policy is Unique

• Cluster policy should spring from and evolve within their own regional situation.

• They should identify the needs of companies and the region, the political and institutional context within which regional policy takes shape, with the aim of achieving a single design.

• The distribution of roles between different institutions, the channels and mechanisms of interaction are specific to their context and cultural environment” (Diez, 2001).

Industrial Foundations of NW Ohio

Unemployment Rate

Total Employment

Total Employment

Total Industries

Methodology

• Output Based

• Spatially Driven

• IMPLAN Production Functions

NW OhioIndustrial Clusters

• Automotive

• Containers

• Transportation and Warehousing

• Fabricated Rubber Parts

• Engineering and Architectural Services

• Petroleum Refining

Auto

0

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

Monroe

Lucas

Wood

Fulton

Erie

Hanco

ck

Sandusky

Ottawa

Containers

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

Monro

e

Lucas

Wood

Fulton

Erie

Hanco

ck

Sandusk

y

Ottawa

Fabricated Rubber

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

Monro

e

Lucas

Wood

Fulton

Erie

Hanco

ck

Sandusk

y

Ottawa

Motor Freight

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

Monro

e

Lucas

Wood

Fulton

Erie

Hanco

ck

Sandusk

y

Ottawa

Engineering

0

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

Monroe

LucasW

ood

Fulton

Erie

Hancock

Sandusky

Ottawa

Petroleum

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

Monro

e

Lucas

Wood

Fulton

Erie

Hanco

ck

Sandusk

y

Ottawa

Auto Cluster

Industry Total National

Steel Pipe and Tubes $27,950,014 60%

Blast Furnaces and Steel Mills 26,925,640 8%

Special Dies and Tools & Accessories 24,510,412 62%

Paperboard Containers and Boxes 24,179,072 57%

Legal Services 23,989,134 38%

Keys to Successful Cluster Building

The Philosophy of Cluster Building

• A cluster-based economic development strategy represents a shift away from narrowly focused firm-based strategies to a more holistic approach.

• Requires a new form of economic governance that emphasizes the merging and synthesis of traditionally separate policy fields to form a more systemic and holistic approach to economic development.

• Requires fresh thinking on the part of leaders and the willingness to abandon the traditional categories that drive our thinking about who does what in the economy.

Creation of a Cluster Vision

• Widely anchored vision of the future of the cluster.• Vision should be arrived at through a consensus-

based process.• Vision should be focused, flexible, and capable of

evolving.• Vision should have a regional focus.• Networking, institutional building, and industry

targeting are all outcomes of cluster policy.• Identification of common problems and common

means of resolution can provide a basis of cooperation and networks to emerge.

Organizing the Cluster• Designate authority to a small number of people

to function as cluster drivers • These civic entrepreneurs can come from the

public or private sector• Must have capacity to function as network brokers

between sectors and individual interests.• Broker’s must function as managing unifiers

rather than managing communicators• Active participation of all the regional actors.• Government has an important role to play in

clustering.

Cluster Management

• Clusters often fail to perform to their full potential when there are mismatches between its parts (e.g. a lack of cooperation between firms and universities). One of the objectives of cluster policy is to correct such system failures.

• A fundamental goal of cluster policy is to launch a process of building up collective learning in a bottom-up and interactive fashion. (Landabaso 1995).

Building Clusters With Social Capital

• Must create a framework and forum for interaction between companies, organizations, and public agencies– trust, collaboration, and information and knowledge exchange.

• Social capital – “features of social organization, such as trust, norms, and networks, that can improve the efficiency of society by facilitating coordinated actions” (Putnam et al, 1993)

• Social capital is built through networks and civic engagement. Ease of building depends on initial stock of capital in a society. Is a process that can last centuries.

Building Clusters With Social Capital

• “In our view, the importance of social capital and political institutions in regional clustering cannot be stressed enough. If anything, it is clear that regional success stories cannot be explained by agglomeration economies alone. It will be often the cultural uniqueness of a region, resulting from a specific set of social and political factors, that determines the particular course of regional economic development” (Hospers and Beugelsdjik, 2003).

Social Trust

Inter-Racial Trust

Diversity of Friendships

Cluster Kaizen

• Create resources and capacities that facilitate the transfer of ideas and innovations into new commercial products.

• Joint solutions to joint problems

• Rather than an innovation policy for companies, it is a question of an innovation policy with companies. (Diez, 2001).

Division of Labor

• Different actors identify their core competence areas and use these competencies for cluster development.

• Critical that different actors must see value to own firm if they are to contribute to cluster.

Brand Building

• Brand building is essential to strengthen cluster competitiveness.

• Strengthens attraction of the cluster for investment, venture capital, and skilled workers.

• Helps unite actors in a shared purpose and common identity.

“Strong regions do not develop by chance. As you make your

bed – so you lie on it” (www.telecomcity.org)