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Industry Clusters:Industry Clusters:
Theory, Practice and DefinitionsTheory, Practice and Definitions
Joe CortrightJoe Cortright
October 2005
I. Cluster History & DefinitionsI. Cluster History & Definitions
What are they? Who defines them?
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What Kind of Economy?What Kind of Economy?
While most jobs and businesses in every state area are the same
Restaurants, grocery stores, hospitals, beauty salons
About a third differs: Traded sector
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Traded Sector Drives GrowthTraded Sector Drives Growth
Traded/Export Sector
Suppliers
Local
Sales to the rest of the world
Most jobs are here: schools, hospitals, grocery stores, restaurants
But firms in this sector drive the economy
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Porter: ClustersPorter: Clusters
Starts from the business strategy standpoint
Rediscovers A. Marshall ca. 1890
Popularizes clusters
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Schools of ThoughtSchools of Thought
Neoclassical economics Regional Science Urbanism Industrial Organization Business Strategy Geography and Urban & Regional Planning New Economic Geography Urban Economics Economic Development Practitioners
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Clustering is CriticalClustering is Critical
Economic success isn’t random
Similar and related businesses draw advantages from proximity
Clustering holds for most “traded” goods: autos, carpets, RVs, others
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DefinitionDefinition
Cluster: A geographically bounded group of similar or related firms--connected by common markets, technologies or knowledge--their suppliers, their skilled workers and supporting institutions
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High Tech CentersHigh Tech Centers
Seattle
Portland
Silicon Valley
San Diego
Austin
Salt Lake CitySacramento
Minneapolis
Boston
Research Triangle Park
Denver
AtlantaPhoenix
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High Tech is SpecializedHigh Tech is Specialized
Seattle- SoftwarePortland
- Semiconductors- SME/EDA- Display- Computers
Silicon Valleyeverything!
San Diego- Communications
Austin- Semiconductors- Computers- SME
Salt Lake City- Software- Medical Devices- Storage Technology
Sacramento- Computers
Minneapolis- Computers- Medical Devices
Boston- Computers
Research Triangle Park- Software
Denver- Telecommunications- Satellite- Storage
Atlanta- Database- Telecommunications
Phoenix- Semiconductors
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Typologies of ClustersTypologies of Clusters
Buyer-Supplier and Value ChainInter-Firm RelationshipsGeographic ExtentCluster Life CycleOther Issues (Awareness)
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Stages of ClusteringStages of Clustering
Concentrations of firms and workersAwareness, Conscious Action &
CommunicationFormal Organization
Concentrated Connected Organized
A Cluster Continuum
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Cluster Life CycleCluster Life Cycle
PotentialEmergingMature
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Types of Cluster OrganizationsTypes of Cluster Organizations
Targeted industry of OECDD, PDC, etc. (display, food processors, etc.)
Self-identifying- (Salem artisan cheesemakers, PADA art galleries)
Trade associations (SAO)American Electronics Association v.
Display?Are they all clusters?
II. Why Cluster?II. Why Cluster?
How do they work?
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Micro-foundations of ClustersMicro-foundations of Clusters
Labor Market PoolingSupplier SpecializationKnowledge SpilloversEntrepreneurshipPath Dependence and Lock-InCultureLocal Demand
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What makes Clusters Tick?What makes Clusters Tick?
Rivalry & Cooperation
Customers
Suppliers
Inputs
Source: Michael Porter, Harvard Business School
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Oregon’s Microbrew ClusterOregon’s Microbrew Cluster
Competition & Brewer’s Guild
Savvy Beer Drinkers,HomebrewersSmall Restaurants
Equipment Makers,Creative Services
Hops, Water,Brewmasters
RivalryRivalry
SuppliersSuppliers
CustomersCustomersInputsInputs
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Context for Firm Strategy and Rivalry
Related and supporting industries
Factor (Input)
Conditions
Demand Conditions
• A local context that encourages appropriate forms of investment and sustained upgrading•Vigorous competition among locally based rivals
Factor (input) quantity and cost
Natural resourcesHuman resourcesCapital resourcesPhysical infrastructureAdministrative infrastructureInformation infrastructureScientific and technological infrastructure
•Factor quality•Factor specialization
• Presence of capable, locally based suppliers•Presence of competitive related industries
• Sophisticated and demanding local customer(s)•Customers’ needs that anticipate those elsewhere•Unusual local demand in specialized segments that can be served globally
Source: Porter (2000)
Porter’s Diamondof CompetitiveAdvantage
Data available vs. cluster needs Data available vs. cluster needs
Let’s hear from the clusters.
Measuring Clusters:Measuring Clusters:
Data & MethodsData & Methods
Joe CortrightJoe Cortright
October 2005
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Sectors versus ClustersSectors versus Clusters
SECTORS
Most quantitative analysis relies on data organized according to the SIC or NAICS classification schemes to define industries
CLUSTERS
Qualitative analyses define clusters according to local relationships. Cluster theory maintains that clusters cut across sector lines; many clusters are highly specialized
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Criteria for Identifying ClustersCriteria for Identifying Clusters
More Concentrated– Location Quotient
Faster Growing– Outperformed Same Industry Nationally
Higher Paid– Exceeds US average for same industry
Groups of Industries in which Oregon is:
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Oregon Cluster GroupingsOregon Cluster Groupings
Industry Cluster JobsHigh Technology/Software 66,850 Forest/Wood/Paper Products 62,412 Food Processing 48,208 Apparel/Sporting Goods 18,413 Transportation Equipment 14,972Creative Services 16,345Recreation 11,907Metals 9,215Nursery Products 10,247Professional Services 4,417Biomedical 3,404
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Define regionDefine region
Identify Key PartnersIdentify Key Partners
Quantitative AnalysisQuantitative Analysis
Qualitative AnalysisQualitative Analysis Competitiveness AnalysisCompetitiveness Analysis
Identify Economic Development Policies & ActionsIdentify Economic Development Policies & Actions
Industry cluster groupsOregon Employment DepartmentIndustry & Trade Associations
Researchers at universities
Local economic developersOthersUse CEW data & identify clusters
using 3 criteria:LQ > 1.25Average wages = 10 % above US averageGrowth rate > national growth rate
Conduct interviews or focus groups with industry representatives. Collect data about the industry sectorin general, cluster connections and relationshipscluster drivers, support factors, and challenges.
Collect additional information about particular cluster such as Patents, key products, major geographic concentrations, top 10 leading firms, entrepreneurial activity, competitor regions for specific cluster. Conduct Shift-Share analysis.
Define geographic area for whichcluster analysis is done.I.e. Portland-Vancouver, OR-WA PMSA
Policies and actions should be identifiedin collaboration with key partners. Should address state, regional, and local scale.
ProductsProducts
Identificationof DataSources
Identificationof CandidateClusters
Differentiation of- Existing Clusters- Emerging Clusters- Target Industries
Cluster-basedEconomicDevelopmentStrategy
Identify metrics and performance indicators.
Strategy development and assessment is ongoing.
IndustryIndustry
FirmFirm
OngoingOngoing
Cluster Methodology
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Cluster AnalysisCluster Analysis
Define Cluster
Convene Firms
Gather Data
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How Good Are You?How Good Are You?
High Tech– Produce 10% of all
US semiconductors– High Location
Quotients in Employment & R&D
– Relatively Higher Wages
– Outperformed US industry
Biotech– Rank in 30s in size
of industry/research
– Very Low Location Quotient
– Wages below US average
– No significant growth
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High Tech MetricsHigh Tech Metrics
Region Electronics SoftwareSan Jose 13.1 11.3Austin 4.9 2.8Raleigh-Durham 3.7 1.4Portland 2.6 2.7Boston 2.2 4.8Seattle 1.9 3.5Minneapolis 1.8 1.1Chicago 1.3 1.4Washington D.C. 0.6 1.8Denver 0.6 1.3
Location Quotients, 1997
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Clusters as a Framework for PolicyClusters as a Framework for Policy
An organizing principle for engaging a region in a discussion of its economic strengths and weaknesses
A flexible tool at the intersection of analysis and policy-making
Best efforts integrate quantitative and qualitative methods
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