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Clusters and their Future Role
Dr. Christian H. M. Ketels Institute for Strategy and Competitiveness, Harvard Business School
President, The TCI Network
Innovation Camp 2016, Cluster Excellence Denmark
Aalborg, Denmark
25. August 2016
2 Copyright 2013 © Christian Ketels
• How will clusters change?
• How will cluster-based based economic
development change?
• How will the demands on cluster initiatives
change?
3 Copyright 2013 © Christian Ketels
Clusters: An Old Concept….
4 Copyright 2013 © Christian Ketels
…with a Stable Set of Core Building Blocks …
Collaboration
& Rivalry
Related Variety
Critical
Mass
Proximity
5 Copyright 2013 © Christian Ketels
… in a Changing Economic Environment
Rising
Knowledge-Intensity
Globalization of Production Sites
Falling Transportation/
Communication Costs
Accelerated
Technological Change
Agglomeration Dispersion
Globalization of Markets
New
Business
Models
Restructuring of
Industries
Lower Trade Barriers
Convergence of
Technologies
Clusters are a stable
feature of economies
Clusters are
constantly changing
Growing Firm
Heterogeneity
Alignment of Business
Environments
6 Copyright 2013 © Christian Ketels
Strong global pipelines
through research networks,
global value chains, and
companies present in multiple
locations
Strong local buzz through
breadth of activities, quality of
firms, research institutions, and
business environment
conditions, and rich local
linkages
Successful Clusters: Positioning in Global Markets
7 Copyright 2015 © Christian Ketels
The Role of Clusters in the Economy
EMPLOYMENT
INCOME
PATENTS
36% 64%
51% 49%
91% 9%
Local Industries
• Present everywhere at
similar levels
• Serve exclusively the local
market
• Little exposure to cross-
regional competition
• Important for jobs, but
lower wages; growth
potential limited by size of
the local market
Traded Industries
• ‘Spiky’ across space; 2/3s of all
traded industry employment is in
strong clusters
• Serve national and global markets
• Exposed to competition from other
regions and nations
• Critical for prosperity through
higher wages, productivity, and
innovation; growth potential set by
the global market
Traded vs. Local Share of the U.S. Economy
Clusters’ role over time
• Falling share of overall employment
• Growing productivity advantage vs rest of the
economy
• Growing dominance of limited number of
service-oriented cluster categories in total
cluster employment
• No signs that the dominance of strong clusters
in clusters’ geographic footprint is falling
8 Copyright 2015 © Christian Ketels
The Impact of Clusters on Firms and Regions
Strategies Performance Structural Change
• Opportunities and
pressure to develop
unique value
propositions
• Nature of
competitive
advantages
• Wages
• Productivity
• Job growth
• Resilience
• Patenting
• Entrepreneurship
• Path of structural
change (emergence
of new clusters)
Presence of Strong Clusters
9
The Evolution of Clusters
Factors that trigger
cluster emergence:
• Natural resources,
location
• Unique (combination of)
business environment
conditions
• Anchor firms
• Existing (related)
clusters
Critical Mass-effects:
Long periods before
dynamics set in…
Evolutionary Forces:
Growth/Investments by Firms
Local Rivalry, Spill-Overs
Market Dynamics
Technological Trends
Constructive Forces:
Joint actions to improve the
business environment
Government policies to
strengthen the cluster
Decline vs. Re-birth
Challenges of Lock-In and
Congestion, Opportunities of
Capabilities and Social Capital
Time
Cluster
Strength
Stagnation and Demise:
Failure to Generate
Sustainable Competitive
Advantages
10
Metal-
working
BCR ≥ 95th pctile
& RI ≥ 20%
BCR 90th-94th
pctile & RI ≥ 20%
Next closest
clusters
Food
Processing
Lighting
Medical
Devices
IT &
Analytical
Instruments
Comm-
unications
Equip. &
Services
Down-
stream
Chemicals Biopharma
Leather
Apparel
Printing
Services
Financial
Services
Insurance
Environ-
mental
Services
Business
Services
Education &
Knowledge
Creation
Marketing
Services
Music &
Sound
Recording
Performing
Arts
Video
Production
Hospitality
& Tourism
Metal
Mining
Coal
Mining
Upstream
Metals
Wood
Products
Furniture
Tobacco
Aerospace
Upstream
Chemicals
Trailers &
Appliances
Textiles
Footwear
Forestry
Agriculture
Plastics Plastics
Distribution
& eComm.
Livestock
Processing
Fishing &
Fishing
Products
Water
Transport
Transport
&Logistics
Vulcanized
Materials
Construction
Nonmetal
Mining
Oil & Gas
Electricity
Down-
stream
Metals
Production
Metal-
working Automotive
Paper &
Packaging
Recreation
& Electric
Goods
Jewelry &
Precious
Metals
Clusters New to a Region
11 Copyright 2015 © Christian Ketels
Clusters New to the World
New technologies, new business models
• What industries will exit in the future?
• Which industries will be related through strong linkages in the future?
• Which linkages will benefit materially from geographic proximity?
12 Copyright 2015 © Christian Ketels
Clusters New to the World: A ‘Weak Linkages’-Approach
Digital Industries
Computer consultancy activities
Computer programming activities
Other
information
technology and
computer ser vice
activities
Manufacture of
communication
equipment
Other telecommunications activities
Satellite telecomm unications activities
Wireless
telecommunications
activities
Wholesale of computers,
computer peripheral
equipment and softwar e
Wholesale of electrical
household appliances
Wholesale of
electronic and
telecommunications
equipment and
partsWholesale of other
machinery and equipment
Wholesale of
other office
machinery and
equipment
Manufacture of
computers and
peripheral
equipmentManufacture
of consumer
electronics
Manufacture of
electronic
components
Manufacture of
instruments and
appliances for
measuring, testing
and navigation
Manufacture of
loaded electronic
boards
Manufacture of
optical instruments
and photographic
equipment
Other software
publishing
Publishing of
computer games
Manufacture of
electricity
distribution and
control apparatus
Manufacture of
other electrical
equipment
Book publishing
Market research
and public
opinion polling
Public
relations and
communication
activities
Manufacture of medical
and dental instruments
and supplies
Manufacture of tools
Treatment and
coating of metals
Manufacture of other
plastic products
Manufacture of other
general−purpose
machinery n.e .c.
Manufacture of other
special−purpose
machinery n.e .c.
Business Services
Com m unications
Equipm ent and Services
Distribution and Electronic Commerce
Inform ation Technology and
Analytical Instrum ents
Lighting and Electrical Equipm ent
Marketing, Design,
and PublishingMedical Devices
Metalworking TechnologyPlasticsProduction Technology
and Heavy Machinery
Digital Industries
Source: European Cluster Panorama, 2014
13 Copyright 2014 © Christian Ketels
Economic Geography and New Clusters
Number of
locations
Heterogeneity
of locations
1
New ideas come from many
places; ‘nursery’ cities
best to translate them into
successful companies;
competition of approaches
2
Agglomeration forces
(path dependency +
locational advantages) lead
to emergence of strong,
dominant clusters
3
Maturation allows de-bundeling
of activities; churn among
clusters as new value chains of
connected & specialized
clusters emerge to reduce costs
14 Copyright 2015 © Christian Ketels
An Example: The Internet of Things – a new Cluster?
Limited uniqueness in
skills required
Low level of local
externalities
High level of industry-
specificity in use
High uniqueness in
skills required
High level of local
externalities
Low level of industry-
specificity in use
Concentrated
Dispersed
IoT as a
technology
IoT as
an industry
15 Copyright 2015 © Christian Ketels
Where Will the Clusters of the Future Be?
• Strong legacy effects
• Business environment qualities relevant in the future
• Openness, rivalry, collaboration, and flexibility
16 Copyright 2015 © Christian Ketels
Europe’s Hotspots of
Emerging Clusters
17 Copyright 2016 © Christian Ketels
Cluster-Based Economic Development
• The current situation
• Addressing existing weaknesses
• Moving towards new tasks and ambitions
18 Copyright 2016 © Christian Ketels
Economic Development: Prevailing Approaches
Entrepr.
Eco-
systems
Clusters
Mixed
Economic
Gardening
Big Game
Hunting
The Next Big
Thing
Picking
Winners
Firm/Sector
Focused
New
Existing
Framework
Conditions
Build it and
They Will
Come
Place
Making
Open for
Business
Business Environment
Focused
Narrow
Broad
19 Copyright 2016 © Christian Ketels
Economic Development: Prevailing Approaches
Framework
Conditions
Economic
Gardening
Big Game
Hunting
Build it and
They Will
Come
The Next Big
Thing
Picking
Winners
Place
Making
Open for
Business
Firm/Sector
Focused
Business Environment
Focused
Entrepr.
Eco-
systems
Clusters
Mixed
New
Existing
Narrow
Broad
High Risk
Lack of
competitive advantages
Interest group capture
Limited potential
Limited potential
Often not creating specific
competitive advantages
High Risk
How to
get it right?
Copyright 2015 © Christian Ketels 20
Types of Government Interventions in Clusters
• Direct intervention at the
firm level
– Attraction of firms
– Subsidies, directed credit
High short-term impact/High distortion/low productivity impact Long-term impact/Low distortion/high productivity impact
• Intervention into the
market
– Provision of monopoly
rights; Entry/trade barriers
– Demand subsidies
• Investments in the cluster-
specific business environment
– Specific to the cluster
– Benefiting the cluster but part of a
general upgrading strategy
• Enable collaboration with
and within the cluster
– Support for cluster initiatives
– Active engagement with the
cluster in setting and
implementing policies
21 Copyright 2013 © Christian Ketels
Organize Public Policy around Clusters
Clusters
Specialized Physical
Infrastructure
Environmental Stewardship
Setting standards
Science and Technology
Infrastructure
(e.g., centers, university
departments, technology
transfer)
Education and Workforce Training Business Attraction
Export Promotion
• Clusters provide a framework for organizing the implementation of public
policy and public investments towards economic development
Entrepreneurship Market Information
and Disclosure
22 Copyright 2016 © Christian Ketels
Resources &
Capabilities
• Quality of staff
• Budget and tools
• Governance
Narrow model
• Focus on networking
• Limited resources
• Limited impact
Systemic model
• Cluster initiatives as
key channel for
delivering policy action
• Moderate operational
resources, strong
influence on other
investment streams
• High impact possible
What Drives the Success of Cluster Initiatives?
Context
Activities
• Cluster strength
• Business
environment
conditions
• Firm sophistication
• Collaboration
culture, trust
IMPACT
• Activities aligned with the needs of firms
• Activities aligned with actions of partners
• Effectiveness of implementation
23 Copyright 2015 © Christian Ketels
Current Status of Cluster Policies and Programs
• Many countries and regions, especially within the OECD, have cluster-related
policy programs
• Spending on cluster-related programs is meaningful, but only a modest
percentage of total spending per policy area
• Funding is tilted towards existing strengths, but many efforts exist without
established critical mass
• Cluster programs are often run by a range of ministries or agencies; there is
limited coordination between programs
• Funding for strengthening collaboration is always a part; other elements
differ significantly
• Design principles differ widely across many dimensions
Copyright 2015 © Christian Ketels 24
Modes of Cluster Policy
Fund operation of
cluster initiatives/
sectoral plans
Create/task backbone
organizations to
mobilize clusters
Deploy policy funds
through cluster
initiatives/networks
Use cluster
initiatives/networks as
organizational infrastructure
for policy action
Policy for Clusters Cluster-based Policy
• Impact • Mission • Selection • Dialogue
Basque
Germany
France
Sweden
US
Catalonia
Korea
Austria
Mexico
Colombia
Sporadic:
Create
stronger linkages
Tactical:
Deliver programs
more effectively
Strategic:
Choose & design
better policies
Denmark
25
What will (should) Cluster-Based Economic Policy
Look Like in the Future?
CURRENT CHALLENGES A NEW APPROACH
Active management of a portfolio
of existing & emerging clusters
Target regional
impact Balance servicing &
challenging firms
Support
competitiveness Local buzz &
global pipeline
Strategy-driven selection
& integration of activities
Support
collaboration
Inward focus of
activities Policy-driven
activity selection
Isolated support for
individual clusters
Focus on ‘Wishful
Thinking’-Clusters
Focus on ‘Usual
Suspect’-Clusters
Support of existing firms,
competitive approaches
Target individual
firms’ performance
Cluster programs a
new policy silo
Fund &
control Clusters as an overarching
policy approach, integrating
many tools
Public-private dialogue
and collaboration
WHO
WHAT
HOW
26 Copyright 2015 © Christian Ketels
New Roles for Cluster Organizations:
Addressing Societal Challenges
• Yes, because many of the necessary changes require
‘systemic’ responses beyond a single new technology,
product, or service
Does it make
sense?
What is needed to
make it a success?
• Achieving more requires doing more
– Additional resources and new capabilities for cluster
initiatives charged with playing a more pro-active role in
addressing societal challenges
• Be careful about the potential impact on the relationship to firms
– Integration into a multi-pronged strategy needed; cluster
initiatives can not do this alone
Is it new?
• Many cluster initiatives do this already to some degree –
usually because societal challenges have translated into
market opportunities
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Clusterinitiatives with Social/Environmental Missions
28 Copyright 2015 © Christian Ketels
Market-Based Mechanisms to Address Societal Challenges
Firms:
Shared Value
Approaches
Clusters:
Organizing
Systemic Changes
Governments:
Markets and
Public Goods
29 Copyright 2015 © Christian Ketels
(Some) Implications for Cluster Organizations
• Change detector, enabler, and driver
• More than a bridge builder: Listen to and challenge firms, government
• Cluster initiatives have a stake in good cluster policy
• The need for a political antenna
Changing Clusters Changing Policies
30 Copyright 2015 © Christian Ketels
Knowledge Sharing Session
31 Copyright 2015 © Christian Ketels
• How will clusters change?
• How will cluster-based based economic
development change?
• How will the demands on cluster initiatives
change?
32
Working in Cluster Initiatives
• What core demands do you
experience today; from firms, from
funders, from others
• What is changing?
• What is needed for you to be able
to meet the (current) changing
demands?
Working with Cluster Initiatives
• What are your core demands
towards cluster initiatives today
• What will become more important;
what less?
• In what respects are cluster
initiatives meeting you demands, in
what respects do they not?