The start of a New Year provides an opportunity to reflect on the most effective approaches in upgrading competitiveness through cluster development.

Sweden’s national innovation agency, VINNOVA, has now accumulated a decade of knowledge on the practicalities of cluster based economic development, more than most similar agencies globally.

Starting in 2003, VINNOVA made a 10-year financial commitment to the winning clusters that came through from their very successful national competitions, with ongoing funding being subject to international reviews every third year.

Last year E4 was a member of international teams that reviewed two groups of clusters supported through VINNOVA’s VINNVÄXT programme. Five of the clustering initiatives had been supported since 2004, including ‘Triple Steelix’ and ‘GöteborgBIO’. The second group of four clusters was chosen in 2008 as early stage, more embryonic initiatives and included ‘Smart Textiles’ and ‘BioRefinery’. Following the review, support to one of the initiatives has been terminated.

The framework developed for these reviews had two dimensions:

1. The innovation stretch of the initiative:

• Knowledge base: academia
• Knowledge base: firms, absorptive capacity
• Commercialisation & Entrepreneurship
• Equity finance: venture capital, angel funding
• Cluster scale: potential regional impact

2. The quality of the clustering intervention:

• Governance
• Strategic focus, including internationalisation
• Process leadership
• Connecting & catalysing; Leveraging the regional innovation actors
• Raising the cluster’s profile

The full reports are now available through VINNOVA’s website:

Report VR 2011:16 http://www.vinnova.se/en/Publications/Products/Innovative-Growth-through-Systems-Integration-and-Glocalisation/

Report VR 2011:17 http://www.vinnova.se/en/Publications/Products/Ready-for-an-early-Take-Off/

Happy reading, go well into 2012, Best,  E4

I am often asked where to go for information on cluster development, and for identifying clusters.    These are some of my starting points:

The Competitiveness Institute   www.tci-network.org <http://www.tci-network.org>
European Cluster Observatory   www.clusterobservatory.eu <http://www.clusterobservatory.eu>
Reg X, The Danish Cluster Academy www.regx.dk <http://www.regx.dk>
ProInno Europe   www.proinno-europe.eu <http://www.proinno-europe.eu>
European Cluster Alliance www.proinno-europe.eu/eca <http://www.proinno-europe.eu/eca>
European Cluster Excellence www.cluster-excellence.eu <http://www.cluster-excellence.eu>
Cluster Collaboration   www.clustercollaboration.eu <http://www.clustercollaboration.eu>

Harvard University, Institute for Strategy & Competitiveness   www.isc.hbs.edu <http://www.isc.hbs.edu>
UNIDO www.unido.org/index.php?id=o4297 <http://www.unido.org/index.php?id=o4297>
India’s Foundation for MSME Clusters  www.msmefoundation.org <http://www.msmefoundation.org>

Are there other key sites that you use?

A cluster’s soft infrastructure includes a wide range of organisations: national agencies with a role in economic development; R&D providers and technology transfer agencies; secondary and tertiary educational institutions; private sector organisations including industry associations; trade unions; and regional/local economic development agencies. Each can play a key role in upgrading a cluster’s competitiveness.

This fourth installment contrasts the quality of the soft infrastructure in weak and in strong clusters.

Weak, dysfunctional, static clusters

• A clutter of public agencies each with their own short-term development agendas…economic development, rural development, education, R&D/technology, export development, FDI attraction, etc…
• Little coordination, alignment.
• Cumbersome red tape, an inefficient public services (such as slow customs clearance), gridlock and inertia.
• Development priorities, especially from national agencies, continually under review.
• Universities & schools disinterested & remote.
• Technical training remote from firm needs, slow to respond.
• Politicians chasing expensive white elephants, little effective dialogue with the private sector.
• Politicians seeking to establish clusters from a weak base. The most popular ‘wantobe’ clusters globally: ICT, nanotech, biotech and creative clusters.
• Development focus on financial support to individual firms, and to sectors, not clusters.
• Business support to firms mainly coming from broadly based and reactive Chambers of Commerce, business associations.
• Industry associations, when present, with an external lobby focus.

In contrast:

Strong, innovative, high performance clusters

• Well-coordinated and aligned public support, centered on the needs of firms.
• Private sector able to clearly articulate priority needs and drive public agency agendas.
• Close interaction between academic institutions and businesses; porous boundaries with ideas and people circulating.
• Universities undertaking pre-competitive, needs driven, basic research; designing courses in collaboration with firms; able to support the commercialisation of promising innovations; seed funding for new ventures.
• High schools offering specialised courses.
• Technical training agendas developed through partnerships with firms.
• A self-help cluster association in place with a focus on upgrading competitiveness, ‘strategic doing’.
• A proactive, professional, cluster facilitation team in place underpinned with long-term funding.s

Moving from weak towards strong clusters

E4’s four initial strategies for the soft infrastructure:

1. Involving all soft infrastructure organisations in the cluster’s strategy workshops; ensure transparency and active participation.
2. Firms clearly articulating to support organisations their priorities, enabling more targeted support…quality is the key, not quantity.
3. Identifying individuals within tertiary and secondary educational institutions with a passion to engage with local firms.
4. Facilitating technology diffusion through seminars, workshops.

Should a region’s economic development strategy be centered on specialisation or diversification? The arguments continue between economic development practitioners and amongst academics, on the merits of focussing on existing industry concentrations, or alternatively developing a broader base of economic activities within a region.

Certainly over-dominance on a single economic activity can be increasingly risky in today’s global environment. Over-specialisation presents the danger of a new competitor suddenly emerging, or a lock-in with isolation from changing markets and technologies. It can also limit the opportunities for the absorption of new knowledge from other activities within a community. On the other hand, an economy that is still a ‘little bit of everything’ is most unlikely to be internationally competitive with many of its offerings.

Political leaders may well be seeking an economy composed of a series of specialised (and linked) high growth clusters. Succeeding with such a broad   ambition is in part dependent on the size of the local economy.

In reality, a region has few opportunities to change its economic structure and the limited public resources that are available to support economic development need to be focussed. One practical option in applying these resources is to build on the region’s strengths, its clusters.

A second option is broader: fostering an entrepreneurial environment that supports new business start-ups and growth. Entrepreneurs will be seeking high growth opportunities and these are more likely to come from servicing a wider market than the region itself. Such opportunities will tend to be found within the region’s clusters. Innovative clusters, with an array of supporting firms and a specialised soft infrastructure, provide a fertile environment for business growth.

Successful entrepreneurs will be pushing out the boundaries of those clusters, developing new products and services and exploring new markets. By developing these opportunities at the periphery of their clusters, they will be broadening out and diversifying their region’s wealth creating base.

Sustainable diversification particularly comes from building and extending a region’s strengths, the clusters. It is unlikely to come from a random scattering of activities.

Specialisation comes first; then comes diversification. And this diversification may well lead to the emergence of a new cluster.

This is the final installment on exploring differences between weak and strong clusters, focusing on the organisation of the clustering intervention.

Well over 2,000 clustering initiatives are underway around the world, many are going well but some are struggling.

A small clique has captured some of these clustering initiatives; others are dominated by their funder; some are ill served by reactive, desk-bound cluster managers; others have boundaries so broad that they only appease politicians.

Weak, dysfunctional, static clusters

• Strategic drift, no clear route to upgrading the cluster’s competitiveness.
• At the extreme, no organisation in place, no cluster secretariat, no resources being applied to drive the cluster forward.
• At times, a Governance Board that is remote from the private sector; locked-in to history; comfortable with paralysis-by-analysis; viewing cluster analysis as ‘forward action’.
• A series of short-term, unrelated, ad-hoc projects, driven by a clutter of isolated public agencies each with their own agenda and perspective.
• Top-down projects, with the public funder deciding on the priorities.
• Change makers = problem creators.
• Very broadly defined clusters, e.g. ‘Light Manufacturing’, ‘Food & Beverages’ with the result that common agendas are at a very low and unspecific level.

In contrast:

Strong, innovative, high performance clusters

• Secure financing from a number of sources in place for 5+ years to support the clustering initiative.
• Active triple helix engagement on the Governance Board: Business + Academia + Government, with business in the lead.
• Strong, relationship building, cluster management that earns the respect of the cluster’s stakeholders.
• A common understanding of the cluster’s competitive dynamics. A clear strategic focus, a broad-based strategy in place to take the cluster towards a preferred future.
• Strategy developed through a bottom-up collaborative process that generates a commitment to action; learning-by-doing; continually exploring options at the cluster’s periphery.
• Tight coordination amongst different political jurisdictions and different agencies, aligned around the needs of the cluster.
• ‘Hot spots’ within the cluster clearly identified and targeted for more focussed support.
• Proactively linking the cluster within the region, nationally and internationally. No cluster is a self-contained system.

Moving from weak towards strong clusters

E4’s four initial strategies for the clustering initiative:

1. Identify and engage the cluster’s talent in support of the clustering initiative. Go with the positive deviants who are exploring new products, new markets, new technologies.
2. Move quickly into action, learn by doing, avoid paralysis-by-analysis.
3. Promote the existing Board to an Advisory Board, and bring in the next generation of fresh blood.
4. Bring in a new cluster manager who is a natural connector, a relationship builder, an empowerer of the cluster’s talent.

1. And finally…what would you add?

The nature of a cluster’s hard, physical infrastructure will depend on the cluster’s activity and maturity, but can include industrial land, parks and incubators; road/rail/airport facilities and inter modal logistic hubs; fresh water; waste handling; bandwidth and power.

A cluster’s hard infrastructure needs to at least match that of its competitors.

Weak, dysfunctional, static clusters

• Cramped land space, little room for firm growth.
• Poor alignment of the physical infrastructure with needs of core & support firms.
• Duplication with neighbouring regions of underutilised facilities.
• Multi-sector industrial parks, managed as a real estate development.
• Failed attempts to centre a clustering initiative on an industrial park.
• General purpose business incubators, open to all SMEs, offering subsidised rents to a lucky few firms.

In contrast:

Strong, innovative, high performance clusters

• Availability of serviced land.
• Decentralised administration, local decision making on e.g. land use,
• Local municipalities able to collaborate.
• Specialised, dedicated physical infrastructure in place.
• Science parks with a sector/cluster focus.
• Incubators co-located with specialised knowledge centers, such as a university.

Moving from weak towards strong clusters

E4’s four initial strategies for the hard infrastructure:

1. Within a general industrial park, developing a localised hub with a specialist, a cluster, focus.
2. Attracting a knowledge facility, such as a testing laboratory or a training provider, to the hub within the industry park.
3. Establishing a specialist business incubator that is attached to the hub or to a local university.
4. Developing a one-stop service centre for the cluster, a cluster hub (or club), offering training, technical and market advice, testing facilities and, importantly, providing a meeting place.

1. What  in addition might be on your check list?

One key to the competitiveness of a cluster is the quality and breadth of local support firms. This third installment contrasts the nature of support firms in weak and in strong clusters, drawing on E4’s experiences with cluster development across 45 countries.

Support firms are directly or indirectly supporting the businesses at the core of the cluster. Depending on the cluster’s activity, the support businesses may well include:

• Raw material suppliers
• Specialised suppliers of machinery
• Component suppliers, and
• Packaging supplies

Support businesses also include a wide range of service suppliers, often very specialised. These can include:

• Banks and other providers of debt and equity finance, including seed funders, venture capital and investment banks specialising in IPOs;
• Accountancy practices familiar with the particular needs of the cluster’s firms; Payroll management services;
• Technical service firms, testing, prototyping;
• Transport, logistic and storage services; air services;
• Law firms with specialist capabilities handling IP issues;
• PR and marketing specialists;
• Executive search firms, recruitment agencies;
• Management, marketing and technology consultants.

Weak, dysfunctional, static clusters

• Limited interaction, limited tacit information flows between support firms and core firms. Ad hoc transactions rather than long-term relationships.
• Little trust, little interaction amongst the support firms.
• Little specialisation amongst the support firms around the needs of the core firms, especially amongst service firms. Inadequate transport logistics, airline connections, financial intermediaries.
• Capability gaps amongst the local support firms that hinder the competitiveness of core firms.
• Support firms largely uncompetitive beyond the cluster’s functional region.

In contrast:

Strong, innovative, high performance clusters

• Deep specialisation amongst the support firms, and with the specialisation, high productivity.
• Close and open interaction with the cluster’s core firms…co-developing, co-producing, innovative.
• Any capability gaps identified and filled by targeted firm and talent attraction.
• Support firms developing the competitiveness to profitably service more distant customers.
• Mentor support and seed funding available for high growth support firms.
• New clusters emerging from the support activities.

Moving from weak towards strong clusters

E4’s four initial strategies for support firms:

1. Bench learning visits to higher performance clusters; support firms seeking business-to-business connections with related clusters.
2. Using targeted FDI and talent attraction to in-fill capability gaps.
3. Ensuring that CEOs from well-respected and well-connected support firms are included in the cluster’s governance structure.
4. Matching support firms seeking equity funding with high net worth individuals.

1. And what might be a 5^th strategy? Comments welcomed.

This instalment describes the characteristics of firms at the core of a cluster…the firms that have the competitiveness to profitably service customers from beyond the cluster’s functional region.

From his hand’s-on experiences with over 1,000 clusters, E4 highlights the following aspects in differentiating weak and strong clusters at two extreme ends of a continuum:

Weak, dysfunctional, static clusters

• Clumps of stand alone, vertically integrated firms.
• Isolated anchor firms.
• Little specialisation between firms.
• Few inter-firm interactions; mainly defensive collusions.
• Limited knowledge of other local firms; little out-sourcing, sub-contracting.
• Footloose multinationals & branch plants, firms that are not embedded in the region, and often attracted by subsidies or low labour costs.
• Firms with imitation strategies, rivalry between firms based on price.
• Sub-contracting out of the region.
• A static pool of firms with few start-ups, spin-offs; little inward migration of talent.
• Firms relocating key activities, and occasionally the whole firm, to more dynamic locations.

In contrast:

Strong, innovative, high performance clusters

• Dense networks of inter-linked, entrepeneurial firms.
• Strong backwards links, and forwards links, often to global value chains.
• Well-differentiated, highly specialised firms focussing on their core competencies.
• Interconnected firms with a multiplicity of informal and formal links between them.
• Strong rivalry between firms centered on differentiation with distinctive strategies; firms pushing out into new activities.
• But also inter firm collaboration, a culture of co-opetition with simultaneous collaboration & competition between firms; firms collaborating to reduce input costs, to add value, and the intensity of collaboration increasing with trust.
• Multinationals embedded in the region, investing in R&D.
• Out-sourcing to local firms of non-core activities.
• A demanding home market continually placing pressure on suppliers.
• Firms well connected to external markets.
• Continual spawning of new firms, entrepeneurial talent attracted to the region.

Moving from weak towards strong clusters

E4’s four initial cluster development strategies with a focus on the core firms:

1. Holding regular events such as ‘First Monday in the month’ meetings to facilitate mixing, mingling and informal conversations amongst the cluster’s stakeholders.
2. Engaging competitors in project task forces, to address immediate common issues, opportunities…forming CATs (Cluster Action Teams).
3. Supply chain development, linking SME’s to local anchor firms.
4. Encouraging commercial collaboration amongst firms where there is trust: co-purchasing, co-marketing, co-specialisation.

And what might be other strategies? Suggestions are welcomed.

In keeping with the worldwide interest in developing strong clusters, this is the start of a series of blogs that explores some of the key differences between weak, underperforming clusters and strong, dynamic ones.

Here is a first installment of two ends of a continuum, based on E4’s exposure to over 1,000 clusters, in a wide range of environments, across 40 countries.

A Cluster’s overall state of health: Two extremes

Weak, dysfunctional, static clusters

Common elements can include:

• A low trust, static, survival mode environment.
• Clumps of self-contained firms, often vertically integrated.
• Rivalry between firms based on price, imitation strategies.
• Firms geographically close, but socially apart.
• Few personal or business connections amongst the cluster’s core firms, support firms and soft infrastructure.
• A clutter of publically funded support organisations and NGOs, each with their own development agendas.
• New firms, typically branch plants, attracted to the region by low costs and/or financial inducements.
• A cluster with strategic drift, no clear direction.
• The cluster’s overall profile, at best static, too often slipping.
• Some agglomeration benefits for firms.

In contrast, at the other end of the continuum:

Strong, innovative, high performance clusters

• A high trust, innovative environment.
• Rampant specialisation…a geographic concentration with deep knowledge.
• Focused, interconnected firms with a multiplicity of informal and formal links between them.
• Value chain & input-out links.
• Strong rivalry between firms centered on differentiation with distinctive strategies.
• But also collaboration, a culture of co-opetition, with the intensity of collaboration increasing with trust.
• Extensive informal and formal personal communications; frequent face-to-face meetings.
• Well-developed and open communications across the cluster, rapid circulation of tacit knowledge; spillover effects.
• Demanding local customers.
• Successfully attracting premium investment to the region, firms and talent attracted by the availability of specialist suppliers and workforce, technical training, the region’s ‘brand’, & the open environment.
• Labour mobility.
• Strong links (1) within the cluster, (2) with neighbouring clusters and (3) to related clusters internationally.
• A cluster with a clear strategic focus.
• The cluster’s overall profile continuing to be enhanced.
• Strong proximity benefits for firms.

Further blogs will explore differences between weak and strong clusters from five perspectives: that of a cluster’s core firms; the perspective of support firms; the soft (knowledge) infrastructure; the hard (physical) infrastructure, and finally the organisation of the clustering initiative.

Feedback and comments will be welcomed.

Conference details are on: www.tci2011.com

For international visitors planning to attend the conference, Cluster Navigators have some recommendations for holiday activities in and outside of Auckland.

For a localised trip around the upper part of the North Island we would recommend:

Bay of Islands Highlights

The Bay of Islands is a stunningly beautiful length of sand and rock coastline that circles a sea pierced by 150 islands. Wherever you are in the Bay of Islands, it’s impossible to escape the lure of the sea. Catch a ferry or charter boat and immerse yourself in the blue-green world of island and beach. Or paddle a sea kayak in and out of island nooks and crannies.

Swimming with dolphins is another specialty of the Bay of Islands. Many operators in the region offer excellent trips to spectacular Cape Brett and the ‘Hole in the Rock’ on Piercy Island.

The townships of this historical bay are alive with memories of the area’s colourful history.

Visitors can explore the well-preserved relics of the past, both Maori and European, in romantic Russell, Paihia, Waitangi or Kerikeri.

Information courtesy: www.tourism.net.nz.

Distance From Auckland: 240km/149miles – 4 hours 15 minutes by vehicle.

Rotorua Highlights

Whether seeking to experience Maori culture, geothermal earth forces, spa rejuvenation, thrills and adventure, or any of the other natural assets such as 16 lakes, some of the world’s best mountain biking trails, fantastic trout fishing and myriad forest walking tracks – Rotorua delivers it all!

This site also offers details including attractions and activities, tours and daytrips, with a range of accommodation choices.  And showcases art, culture, history, legends, personalities, buildings, population and weather.

This information courtesy of: http://www.rotoruanz.com/

Distance From Auckland: 235 km / 146 miles – 4 hours 10 minutes by vehicle.

For a longer break that would encompass the South Island this is a selection of:

South Island Highlights

Southland

In Southland, the scenery gets under your skin and into your soul. It will be hard to bid farewell to the vast skies, wild coastal forests and extraordinarily green rural landscapes.

This information courtesy: http://www.newzealand.com/travel/destinations/regions/southland/southland-scenic-highlights.cfm

Queenstown

The first people to discover Queenstown’s rare beauty were Maori pounamu (jade) hunters. Then came the gold miners, in search of another kind of treasure.

Today Queenstown is treasured for its magnificent scenery. Queenstown is the adventure capital of New Zealand!.

Lord of the Rings Fans

For anyone who is a fan of the movie trilogy tours available to visit the areas where filming took place and also of course “The Hobbit” movie is currently being filmed in New Zealand!

Visit http://www.trilogytrail.com/ for further information.

If we can be of any assistance please feel free to email jennie@clusternavigators.com.

You will also find a huge amount of advice about what to see and do at:  http://www.tourism.net.nz/ For air travel within New Zealand go to: http://www.airnewzealand.co.nz/