 |
 |
| |
|
Cluster-based economic development has been a popular tool for regional and
state economic development programs for the past decade. Stemming from Michael
Porter's work on competitive advantage, cluster-based economic development holds
out the promise of generating growth in communities primarily by enhancing the
existing economic base using a limited number of policy tools. This article
addresses the concept of clusters, policy implications, and general approaches
that economic development organizations have used to implement cluster-based initiatives.
The Concept of Industry Clusters in Economic Development
Michael Porter's 1990 book, The Competitive Advantage of Nations, offered readers a place-based
theory of corporate competition. Porter argued that competitive advantage comes from the ability
of industry to innovate and upgrade, not minimize costs or achieve economies of scale. The ability
to innovate stems from the advantages of particular locations and varies by industry. In a world
where companies can locate anywhere, then, the role of location becomes more important in building
competitive advantage.
Porter used a diamond graphic
to show the four location-based
elements that allow companies
to innovate and compete globally.
These are:
- Factor Conditions - such
as skilled labor and infrastructure
- Demand Conditions - such
as sophisticated domestic
customers
- Related and Supporting Industries
- such as internationally
competitive suppliers
- Firm Strategy, Structure
and Rivalry - such as industry
management and organization,
strong local competition,
and an environment that encourages
investment
While the concept of clusters
was a supporting theme in The
Competitive Advantage of Nations,
it has since taken center stage.
In 1998, Porter wrote much more
extensively about clusters themselves,
defining them as follows:
- Clusters are geographic
concentrations of interconnected
companies, specialized suppliers,
service providers, firms in
related industries, and associated
institutions (for example,
universities, standards agencies,
and trade associations) in
particular fields that compete
but also cooperate.
- Clusters affect competitiveness
by enhancing productivity,
innovation, and new business
formation. The table below
summarizes how clusters affect
each element. Porter wrote
that clusters generate these
benefits through personal
relationships, face to face
communication, and networks.
| Productivity | Innovation | New Business Formation |
| Access to specialized inputs and employees | Some of same benefits as for productivity | Better information about opportunities |
| Access to information | Ability to assess buyer trends and new technologies better | Lower barriers to entry with support infrastructure in place |
| Access to specialized institutions and public goods | Can respond faster and be more flexible | Strong local market |
| Incentives and performance measurement based on competitive and peer pressure | Respond to competitive and peer pressure | Lower barriers to exit |
Policy Implications
Given the importance of clusters
to productivity, they are a good
way to organize economic development
initiatives. Porter suggests that
clusters are better than traditional
industry groupings because they
better capture the linkages among
firms that drive competitive advantage
and highlight areas for improvement.
This understanding suggests a
set of appropriate government
policies for developing and upgrading
clusters. Porter offered several
examples of useful economic development
activities:
- Create specialized education
and training programs, establish
local university research
efforts in cluster-related
technologies, support cluster-specific
information gathering and
compilation, and enhance specialized
transportation, communications
and other infrastructure;
- Create streamlined, pro-innovation
regulatory standards affecting
the cluster, sponsor independent
testing, product certification,
and rating services for cluster
products and services, and
act as a sophisticated buyer
for cluster products and services;
- Sponsor forums to bring
together cluster participants,
encourage cluster-specific
efforts to attract suppliers
and service providers from
other locations, and establish
cluster-oriented free trade
zones, industrial parks, or
supplier parks; and
- Eliminate barriers to local
competition, organize relevant
government departments around
clusters, and focus export
promotion around clusters.
Policy Implementation
The first step policy makers must take is to identify their location's clusters. Cluster
identification generally begins with some type of quantitative or data-driven analysis
using existing sources of industry-based information, such as County Business Patterns
or the Economic Census. Most efforts stress identifying concentrations of firms, measured
by numbers, size, employment, growth patterns, and other measures. Less frequently, studies
will consider input-output tables or value chain analysis to determine trading patterns. The
best studies depict the various elements of the cluster and their relation to each other,
but many simply present lists of industry sectors comprising the various clusters. In some
cases, analysts will supplement their data with case studies, corporate interviews, working
groups, and expert panels to understand more fully the linkages that exist within the cluster
and how they can be leveraged.
The second step is to devise policies to develop and upgrade the clusters. As described above,
Porter offers several specific activities designed to enhance competitive advantage. For example,
Porter recommends offering specialized training programs for cluster businesses, streamlining
regulatory standards related to cluster businesses, sponsoring cluster forums and networks, and
organizing economic development services around clusters.
However, few economic development organizations have truly implemented effective, long-lasting
cluster-based policies. A 2002 study on state based cluster initiatives by the National Governors
Association found that most state economic development efforts continue to be organized around
traditional business retention and incentive-based industry recruitment programs, rather than clusters.
While the study repeats Porter's warning that these traditional economic development programs are
important but no longer sufficient, cluster-based economic development programs still are not the norm.
Conclusions
Economic development organizations across the United States have enthusiastically adopted cluster-based economic
development in the expectation of enhancing growth and development in their communities. However, most economic
development organizations have limited their cluster initiatives to cluster identification. Economic development
organizations continue to be organized around traditional business retention and attraction programs and have
not developed (or sustained) cluster-based policies and initiatives. Until such policies become institutionalized,
it will be difficult to obtain the promised benefits of cluster-based economic development.
Sources
Porter, Michael E. 1998. The Competitive Advantage of Nations. In On Competition. Boston, MA: Harvard Business School Publishing.
___. 1998. Clusters and Competition. In On Competition. Boston, MA: Harvard Business School Publishing.
___. 2000. Location, Competition, and Economic Development: Local Clusters in a Global Economy. Economic Development Quarterly 14, no. 1: 15-34.
|
|
|
|
