Topic: Cluster Development

Introduction

The cluster concept has rapidly attracted attention from governments, consultants, and academics since it was first proposed in 1990 by Michael Porter. In recent years, “cluster strategies” have become a popular economic development approach among state and local policymakers and economic development practitioners.

At first cluster development was primarily associated with advanced economies, with cluster based development projects becoming popular in advanced economies as early as the mid-1990s. Cluster development was not adopted in developing and transition economies on a larger scale until after 2000 and since then several hundred cluster projects have been implemented in these economies as well. Also, international donor organizations have to a large extent become involved in cluster development, resulting in numerous donor-initiated projects. 

Definition

A cluster is a geographic concentration of interconnected companies, specialized suppliers, service providers, and associated institutions that are located near one another and that draw productive advantage such as labour market pooling, supplier specialization and knowledge spill-overs from their mutual proximity and connections. Industries/businesses within a cluster are economically linked: they both collaborate and compete, and are, to some degree, dependent upon each other.

One of the most innovative and dynamic is the high-tech cluster Silicon Valley, located in California, US (see photo below). It is home to many of the world's largest technology corporations as well as thousands of small start-ups. Stanford University has played a significant role in initiating and promoting the development of Silicon Valley.

Example Cooperation vs. Competition

Cooperation can help firms achieve economies of scale and overcome common constraints to pursue opportunities, while competition encourages innovation and drives firms to upgrade. The most successful horizontal linkages between economic players maintain a balance between these two contrasting but critical and complementary, concepts. Horizontal linkages that do not work well—e.g., a situation where buyers collude on pricing or producers must operate through government-mandated or NGO-promoted associations that are involuntary, poorly managed, or not driven by a commercial purpose—can undermine cooperation and make producers less competitive.

The purpose of cluster development is to promote economic development within a cluster by improving the competitiveness of one or several specific business sectors. It is an approach that concentrates on encouraging and supporting inter-firm collaboration, institutional development and targeted industrial sectors. More specifically, cluster initiatives are organisations or projects that are organised as collaborations between a diverse number of public and private sector actors, such as firms, government agencies, and academic institutions. The sectors targeted are those that offer the most potential for local economic development.

A South African example of a cluster initiative is the Cape Clothing and Textile Cluster (CCTC, see link below). The CCTC is an industry driven initiative, drawing on the leadership and expertise of individuals from a broad range of member firms and using it to identify and address a wide variety of challenges confronting the industry. One of the more successful companies in Cape Town is the adventure clothing company K-way (photo).

Key Issues

The 2006 World Bank Publication: Local Economic Development: ‘A Primer Developing and Implementing Local Economic Development Strategies and Action Plans’ (see list of publications below) puts forward the following possible projects:

Developing broker and network agencies

Special attention is paid to encouraging local people engaged in the same cluster to meet together to enable business development opportunities. These could include encouraging local fishermen and fish processors to meet and exchange ideas on improving facilities and adding more value to their products so they would all benefit. Another example could be to start a craft network. The network could jointly market their goods and then start inter-trading with each other, building synergies.

Supporting joint research

Institutions of higher learning can undertake research that benefit all in the cluster. One example of this would be to undertake research into minimizing losses from post-harvest losses of agricultural products.

Developing cluster-focused public procurement and local purchasing agreements

The public sector is often the largest buyer in a city and as such there are opportunities to enable local businesses to access tender processes more easily. It is often difficult for small businesses, in a cluster or not, to bid for large government contracts. A cluster initiative here could include developing a food supplier network to supply government catering needs. A logical cluster development initiative could be to encourage suppliers of basic food products to enter into some form of food processing. Cluster development activities could then move on to transportation, storage and packaging of food products. From there it is likely businesses could start retailing and producing processed foods for the private sector.

Providing cluster specific information

One of the most effective ways of developing a cluster is to gather information about businesses and institutional support systems in the cluster and then produce it so that it can be shared. Thereafter, with a small amount of effort, supplier linkages can be developed. These do not need to be sophisticated.

Developing cluster related marketing efforts

Once a cluster has been identified and it starts developing, there are opportunities to promote it and attract supporting investment as well as promoting business opportunities externally for cluster members.

Developing demand-led skills and education training programs

A significant benefit to developing a cluster initiative is that a key outcome of business networking will be an appreciation of skills needs in the sector. When a number of businesses express a skills need, it is more likely that training or education will be provided. A lone voice is not likely to be taken as seriously.

Critical Success Factors

Build on the unique strengths of your region/locality rather than try to be like other localities/regions. Different localities/regions have different sets of economic development opportunities. Not every place can or should become another Silicon Valley.

Go beyond analysis and engage in dialogue with cluster members. Many policymakers and practitioners treat research on and analysis of clusters as the only elements of a cluster strategy. In fact, they are only a starting point for a cluster strategy. Identifying a cluster’s competitive strengths and needs requires an on-going dialogue with the firms and other economic actors in the cluster. Although the public sector cannot be the exclusive driver of cluster policy, it can play a central role in convening cluster members and working with private-sector cluster organizations.

Develop different strategies for different clusters. Clusters vary from industry to industry and from place to place and operate in many different dimensions. Different clusters have different needs. There is no one set of policies that will make all clusters successful. For example, a technology cluster may require help with research or capital, while a metals industry cluster may require assistance with job training or technology deployment.

Foster an environment that helps new clusters emerge rather than creating a specific cluster from scratch. It is difficult for public policy to create new clusters deliberately. Instead, policymakers and practitioners should promote and maintain the economic conditions that enable new clusters to emerge. Such an environment might, for example, support knowledge creation, entrepreneurship, new firm formation, and the availability of capital. Cluster policy is not about “picking winners” or excluding industries.

Much of the research on clusters has been preoccupied with debating the precise definition of a cluster, applying a single methodology, or examining whether clusters are good or bad for various measures of regional economic success. If research is to be more relevant to policy and practice, it should move beyond these concerns. Researchers should accept that clusters are an umbrella concept, not a precisely defined term, and that clusters vary from place to place and across industries. They should work toward a more widely shared, multidimensional approach for characterising different types of clusters. They should combine quantitative and qualitative methods. Ultimately, cluster research should evolve to become a creative and informative mixture of art and science that helps academics, policymakers, and citizens better understand the varied workings of their economies.

Adapted from: Joseph Cortright (2006): Making Sense of Clusters: Regional Competitiveness and Economic Development, see list of publications below.

Practical Knowledge

Title & Detailssort descending User Ranking Popularity
A Practical Guide to Cluster Development - A Report to the Department of Trade and Industry and the English RDAs
Author(s): Ecotech Research & Consulting
Format: Guidelines
3.10811
Average: 3.1 (74 votes)
17,758
Creating Smart Systems - A guide to cluster strategies in less favoured regions
Author(s): Stuart A. Rosenfeld
Year: 2002
Format: Guidelines
2
Average: 2 (4 votes)
1,236
Knowledge, Technology and Cluster-based Growth in Africa
Author(s): Douglas Zhihua Zeng
Year: 2006
Format: Case Study
0
No votes yet
1,110

Theoretical Knowledge

Title & Detailssort descending User Ranking Popularity
A Methodology for Identifying the Drivers of Industrial Clusters - The Foundation of Regional Competitive Advantage
Author(s): Edward W. Hill, John F. Brennan
Year: 2000
Format: Study
1
Average: 1 (4 votes)
7,257
Cluster quo vadis? The future of the cluster concept
Author(s): Knut Koschatzky
Year: 2012
Format: Article
0
No votes yet
1,105
Collaborate: Leading Regional Innovation Clusters
Author(s): The council on competitiveness
Year: 2010
Format: Report
0
No votes yet
14