CTGE Sessions 5 & 6 Clusters

TERRITORIAL DEVELOPMENT & CLUSTERS

James R. Wilson

Competitive Territories in the Global EconomySessions 5 & 6

Email: [email protected]: jamierwilson

Web: jamierwilson.wordpress.comSlideshare: slideshare.net/jamierwilson

WHERE ARE WE?

TOPIC 1. Regional competitiveness and development in the international context.

TOPIC 2. Territorial development based on clusters and local production systems: concepts, drivers and indicators.

TOPIC 3. Typologies and trajectories of clusters and districts.TOPIC 4. Social capital in local and global economies.TOPIC 5. Clusters in global value chains and global production

networks.TOPIC 6. The relationship between clusters and innovation systems.TOPIC 7. The nature of innovation systems: concepts, actors and

typologies.TOPIC 8. The efficiency and effectiveness of innovation systems.TOPIC 9. Enterprise innovation modes.TOPIC 10. Cluster and innovation policies in an open context.

SUMMARY: TOPIC 1• Regional competitiveness & development in the

international context– The origins of a global economy– Globalisation as a complex and contested concept– Implications of globalisation for firms and territories– The ‘Washington consensus’ framework for development– The evolution and power of transnational firms in this system– What does development mean?– What does competitiveness mean?– How can we measure things such as development,

competitiveness and the progress of societies?

• TOPIC 2: Territorial development based on clusters & local production systems: concepts, drivers, indicators

CONCEPTS

Have you heard of the terms ‘cluster’ or ‘local production

system’?

What do you understand by these terms?

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CLUSTER CONCEPT

• The analysis of ‘clusters’ is today extremely popular & widespread:– Roots in analysis of industrial districts of the type identified by Alfred

Marshall (1907, 1910)– Growing interest in the concept over last 20 years motivated by apparent

success of agglomeration dynamics in various parts of the world• In particular the third Italy and silicon valley bring different experiences

– ‘Clusters’ of one form or another are associated with impressive productivity growth and employment generation in a range of cases

• But with popularity also comes scepticism:– Accused of being seen as a panacea for all of our development problems – ‘Conceptual, theoretical and empirical’ questions around the concept and

‘chaotic’ use of the term (Martin and Sunley, 2003)– Insufficient evidence around what actually happens in clusters and what

their impacts are

TIPOS DE ECONOMIAS EXTERNAS

• Economías externas que juegan por la oferta:– El desarrollo de mano de obra, proveedores e infraestructuras especializadas– El derrame y desarrollo de innovaciones y aprendizaje (por más fácil

imitación, por mayor cooperación con proveedores y clientes, por mayor movilidad laboral y relaciones informales...)

– Para Krugman las primeras son más importantes que las segundas; para Porter, es lo contrario

• Economías externas que juegan por la demanda:– Una demanda local más fuerte y exigente

• Deseconomías externas: – Mayores costes de input (suelo, mano de obra...) por congestión y menores

márgenes por mayor competencia

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• Distinction between pure agglomeration effects and cluster dynamics

• This distinction is related to two different types of external economies: – Incidental (or unplanned): working on both demand and supply sides– Derived from joint actions (or planned): working on both demand and supply

sides– Both of these can also generate external diseconomies

• It can be argued that a ‘cluster’ with external economies based only on the first type (i.e. without an element of cooperation) is an agglomeration not a cluster

• In this sense ‘clusters’ favour cooperation as an intermediate solution to the organisation of economic activity that lies between ‘markets’ and hierarchy’ – Theory of the firm based on transactions costs (Coase, 1937; Williamson, 1975,

1996)

AGGLOMERATION OR CLUSTER?

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• Clusters share similar conceptual foundations with innovation systems but are more focused in terms of their specific productive activities

• There are also similarities with the more general concept of network, which is typically more formal and less geographically-bound (e.g. www.tci-network.org)

UNIVERSITIESFIRMS

Cluster Relationships

SYSTEMIC RELATIONSHIPS

Highly simplified example of the relationship between an innovation system and a cluster

CLUSTERS, INNOVATION SYSTEMS & NETWORKS

TECHNOLOGY CENTRES

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CLUSTERS: WHO IS INCLUDED?

• Type of agent– Only firms or also other types of organisations and institutions?– Distinction between institutions (values, norms …) and organisations

(sector associations, development agencies?

• Type of activity– Value chain? (vertical o value chain driven cluster)?– Firms from the same sector? (simple horizontal cluster)? – Firms with some similarities in activities? (competence based cluster)?

• Practical problems in delimiting clusters– Where is the limit of a cluster’s activity, so that we can say clearly

whether a firm or organisation is inside or outside the cluster?

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GEOGRAPHICAL SCOPE OF CLUSTERS?

Where is the wine cluster?

... The Basque Country?

... The municipalities of Rioja Alavesa?

… The municipalities that correspond to the ‘denomination of origin’ of Rioja?

… The Spanish industry incorporating various ‘denominations of origin’

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CLUSTER CONCEPT

A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities. Porter (1998)

• Various practical problems with this concept:– Agglomeration or cluster?– Relation to similar concepts?

• Industrial Districts• Innovative Milieu• New Industrial Spaces• Innovation systems• Networks• Etc.

– Types of agents included?– Geographical scope? – Blurring ‘activity’ boundaries?

‘Chaotic’ concept, but commonly understood broad basis for policy:

1. Geographic proximity of agents in related industries

2. Hypothesised benefits from co-operative relationships among these agents, alongside competition

CLUSTER OR CLUSTER INITIATIVE?

• Clusters have become such a popular focus for policy that often the underlying concept is confused with the wide range of initiatives that are designed to support clusters– Cluster policies, cluster associations, etc.– E.g. Debate in the Basque Country

• Conceptually a cluster can exist without there being any public or private initiative supporting it, but in practice many clusters (particularly in Europe) are associated with initiatives– We should therefore be aware of this important distinction

between the ‘economic phenomena’ and the ‘policy support’

METHOD FOR TOPIC 2

• Small groups to select a ‘cluster’ that you are familiar with• This will serve as a live case study for this topic:

– How can the cluster be defined?– Who are the stakeholders?– What are the boundaries of the cluster? – Why is it a cluster? – What type of cluster is it?– How is it related to global production networks? – What is the policy context of the cluster?– What are the advantages of belonging to this cluster?– Is the cluster related to other clusters in the territory?

• Thursday and Tuesday we will work in groups in class, and you will need to prepare short presentations for next Thursday – These presentations will be assessed as part of the 40% groupwork

• Please form your groups (5 per group) now and ensure that at least one of the group brings a laptop to Thursday’s session

ASSESSED PRESENTATION GUIDELINES

1. Maximum of 5 powerpoint slides (including title slide)2. Maximum of 7 minutes for your presentation

Suggestions for content:• Define the cluster

– Geographical context, economic activities, type of cluster (vertical, horizontal, competence based?)

• Basic data on the cluster– Employment, specialisation index, types of agents, etc.?

• Is there an associated cluster initiative/association? What role does it play?

• What sort of cooperation activities does the cluster engage in? How do they boost competitiveness?

SELECTING YOUR CASE

Which clusters do you know best?

Which is the most interesting to you to study and why?

What type of cluster is it?

1. There is no agreed method in the literature for identifying clusters– For the same country or region, different analyses can identify

different clusters

2. Quantitative studies for mapping clusters tend to be based on indices of specialisation (employment, exports)

3. Other studies take a more informal character and use qualitative techniques such as interviews with key agents

IDENTIFYING CLUSTERS

SOME BACKGROUND ANALYSIS …

With your ideas on which clusters you might want to

study it is time to explore the data

The European Cluster Observatory or US Cluster Mapping Project are good

starting points

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RECAP

A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities. Porter (1998)

• Various practical problems with this concept:– Agglomeration or cluster?– Relation to similar concepts?

• Industrial Districts• Innovative Milieu• New Industrial Spaces• Innovation systems• Networks• Etc.

– Types of agents included?– Geographical scope?

‘Chaotic’ concept, but commonly understood broad basis for policy:

1. Geographic proximity of agents in related industries

2. Hypothesised benefits from co-operative relationships among these agents, alongside competition

REASONS FOR SME’S TO COOPERATE

• Among the reasons that European SMEs give for wanting to cooperate are:

1. Access to new and larger markets: 35%

2. Provision of a wider range of products: 31%

3. Access to know-how & technology: 28%

4. Capacity for additional production: 24%

5. Cost reduction: 23%

6. Access to labour: 18%

7. Access to capital: 7%

Source: Havnes et. al. (2003), Observatory of European SMEs, SMEs and cooperation, European Commission, Enterprise Publications, nº 5.

These results can be grouped in three blocks. Factors related with market (the two main areas), factors related to the efficiency and productive capacity (the next three areas) and a third block related to access to the factors of production (the last two).

BARRIERS TO SME COOPERATION

• The following barriers to cooperation are highlighted by SMEs:

1. Desire to maintain their independence (39%)

2. Lack of information around possible partners for collaboration (16%)

3. Fear to divulge sensitive information (15%)

4. Implicit risk involved in collaborating with other firms (12%)

5. Fiscal aspects and legal restrictions (12%)

6. Cultural and language barriers (3%)

These barriers can be classified into those related to fear of consequences and institutional barriers

Source: Havnes et. al. (2003), Observatory of European SMEs, SMEs and cooperation, European Commission, Enterprise Publications, nº 5.

PRACTITIONER EXPERIENCES FROM AROUND THE WORLD DEMONSTRATE ...

… that participating in a cluster can help firms to:

– Achieve objectives that they couldn’t reach individually– Exchange and share good practices– Accelerate innovation– Increase levels of trust – Share resources to generate, protect or improve profits– Reduce or eliminate certain costs– Increase sales– Control or reduce risks, including those of external competition– …

Academic evidence of these benefits is less clear-cut: it is very difficult to isolate and distinguish between the effects of clusters, agglomeration and other issues ...

COOPERATION IN CLUSTERS

In the cluster that you have identified, what sort of issues

do firms cooperate around, and what do they not cooperate

around?

NEW REGIONALISM AND GOVERNANCE

• Once we start to consider clusters and networks we need to be aware that there are various different possibilities

• In particular governance has become an increasingly important consideration in the context of the new regionalism– Authors such as Ohmae (1995), Storper (1997), Cooke and Morgan (1998) and

Scott (1998) have been influential in emphasising regions as important economic and policy units in an increasingly globalised world

– Global and Local interaction not seen as a dualistic or as a dichotomy …– … but as a chain of multiple scales (local, regional, national, international,

global) that continually combine in all sorts of ways– Complexity of decision-making at multiples scales

• Governance considerations:– ‘relational control’, process oriented governance based on dialogue or polilogue

(Johannisson, 2008)– ‘Networks of direction’ or ‘networks of mutual dependence (Sacchetti and

Sugden, 2003)

NETWORKS OF DIRECTION

• Characterised by:– Asymmetry– Authority– Command and control– Core participants exert power by pursuing strategies despite

resistance

• Example: Pyramidal subcontracting in the car industry

Core

Small Sweatshops

1st-tier suppliers

High Power

No Power

Collaboration; Voice; Wide scope of tasks

Stability of relations; L/M size; High Tech; Strong market position

Passive pliability; Exit; Narrow scope of tasks

Arms length relations; S size; Low Tech; Strong competition

NETWORKS OF MUTUAL DEPENDENCE

• Characterised by: – Mutual framing of decisions– Symmetrical shaping of strategic direction based upon shared

responsibilities

• Example: Some experiences in ‘industrial districts’

CLUSTER GOVERNANCE

How is your cluster goverened?

NEXT SESSION

• Your presentations!