Clusters, Innovation, and Competitiveness: New Findings and Implications for Policy
Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Stockholm, Sweden 22 January 2008 This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” (with C Ketels, M Delgado) in The Global Competitiveness Report 2006, (World Economic Forum, 2005), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and the Cluster Initiative Greenbook (Ivory Tower, 2004) by C Ketels, O Solvell, and G Lindqvist. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of the author. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu
The Changing Nature of International Competition
• Falling restraints to trade and investment • Globalization of markets • Globalization of value chains • Shift from vertical integration to relying on outside suppliers, partners, and institutions • Increasing knowledge and skill intensity of competition
• Nations and regions compete on becoming the most productive locations for business
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Outline
• The role of clusters in overall competitiveness • How clusters work • The impact of clusters on regional prosperity and innovation • Cluster policy • Some implications for Europe
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Clusters and Competitiveness
Macroeconomic, Macroeconomic, Political, Political, Legal, Legal, and and Social Social Context Context
Microeconomic MicroeconomicCompetitiveness Competitiveness Sophistication of Company Operations and Strategy
Quality of the Business Environment
State of Cluster Development
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Clusters and Innovation Determinants of Innovative Capacity
Innovative InnovativeCapacity Capacity
Common Innovation Infrastructure
Company Innovation Orientation
Quality of Linkages
Cluster-Specific Conditions
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What is a Cluster? A geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (external economies)
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Enhancing Cluster Development Tourism Cluster in Cairns, Australia Public Public Relations Relations & & Market Market Research Research Services Services
Travel Travel agents agents
Tour Tour operators operators
Restaurants Restaurants
Attractions Attractions and and Activities Activities
Food Food Suppliers Suppliers
e.g., e.g., theme theme parks, parks, casinos, casinos, sports sports
Property Property Services Services
Maintenance Maintenance Services Services
Airlines, Airlines, Cruise Cruise Ships Ships
Hotels Hotels
Local Local retail, retail, health health care, care, and and other other services services Local Local Transportation Transportation
Souvenirs, Souvenirs, Duty Duty Free Free Banks, Banks, Foreign Foreign Exchange Exchange
Government Government agencies agencies
Educational Educational Institutions Institutions
Industry Industry Groups Groups
e.g. e.g. Australian Australian Tourism Tourism Commission, Commission, Great Barrier Reef Authority Great Barrier Reef Authority
e.g. e.g. James James Cook Cook University, University, Cairns College of Cairns College of TAFE TAFE
e.g. e.g. Queensland Queensland Tourism Tourism Industry Council Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden European Cluster Policy 01-22-08 CK
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The Boston Life Sciences Cluster Health Healthand and Beauty Beauty Products Products
Cluster Cluster Organizations Organizations MassMedic, MassMedic, MassBio, MassBio, others others
Teaching Teaching and and Specialized Specialized Hospitals Hospitals
Surgical Surgical Instruments Instruments and Suppliers and Suppliers
Specialized Specialized Business Business Services Services
Medical Medical Equipment Equipment
Dental Dental Instruments Instruments and and Suppliers Suppliers
Biopharma Biopharmaceutical ceutical Products Products
Biological Biological Products Products
Banking, Banking, Accounting, Accounting, Legal Legal
Specialized Specialized Risk Risk Capital Capital Ophthalmic Ophthalmic Goods Goods
VC VC Firms, Firms, Angel Angel Networks Networks
Diagnostic Diagnostic Substances Substances
Specialized Specialized Research Research Service Service Providers Providers
Containers Containers
Analytical Analytical Instruments Instruments
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Research Research Organizations Organizations
Laboratory, Laboratory, Clinical Clinical Testing Testing
Educational Educational Institutions Institutions Harvard Harvard University, University, MIT, MIT, Tufts Tufts University, University, Boston University, UMass Boston University, UMass 8
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Clusters and Competitiveness • Clusters Increase Productivity / Efficiency – Efficient access to specialized inputs, services, employees, information, institutions, training programs, and other “public goods” (local outsourcing) – Ease of coordination and transactions across firms – Rapid diffusion of best practices – Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals – Proximity of rivals encourages strategic differentiation
• Clusters Stimulate and Enable Innovations – Greater likelihood of perceiving innovation opportunities (e.g., unmet needs, sophisticated customers, combinations of services or technologies) – Presence of multiple suppliers and institutions to assist in knowledge creation – Ease of experimentation given locally available resources
• Clusters Facilitate Commercialization and New Business Formation – Opportunities for new companies and new lines of established business are more apparent – Spinoffs and startups are encouraged by the presence of other companies , commercial relationships, and concentrated demand – Commercializing new products and starting new companies is easier because of available skills, suppliers, etc. • Clusters reflect the fundamental influence of linkages and spill-overs across firms and associated institutions in competition 9
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Institutions for Collaboration Selected Massachusetts Organizations, Life Sciences Life Life Sciences Sciences Industry Industry Associations Associations
University University Initiatives Initiatives Harvard Harvard Biomedical Biomedical Community Community zz MIT MIT Enterprise Enterprise Forum Forum zz Biotech Biotech Club Club at at Harvard Harvard Medical Medical School School zz Technology Technology Transfer Transfer offices offices
Massachusetts Massachusetts Biotechnology Biotechnology Council Council zz Massachusetts Massachusetts Medical Medical Device Device Industry Industry Council Council zz Massachusetts Massachusetts Hospital Hospital Association Association
zz
zz
General General Industry Industry Associations Associations
Informal Informal networks networks
Associated Associated Industries Industries of of Massachusetts Massachusetts zz Greater Greater Boston Boston Chamber Chamber of of Commerce Commerce zz High High Tech Tech Council Council of of Massachusetts Massachusetts
Company Company alumni alumni groups groups zz Venture Venture capital capital community community zz University University alumni alumni groups groups
zz
zz
Economic Economic Development Development Initiatives Initiatives
Joint Joint Research Research Initiatives Initiatives
Massachusetts Massachusetts Technology Technology Collaborative Collaborative zz Mass Mass Biomedical Biomedical Initiatives Initiatives zz Mass Mass Development Development zz Massachusetts Massachusetts Alliance Alliance for for Economic Economic Development Development
New New England England Healthcare Healthcare Institute Institute zz Whitehead Whitehead Institute Institute For For Biomedical Biomedical Research Research zz Center Center for for Integration Integration of of Medicine Medicine and and Innovative Technology (CIMIT) Innovative Technology (CIMIT)
zz
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Cluster Specialization Selected Footwear Clusters Romania • Production subsidiaries of Italian companies • Focus on lower to medium price range
Portugal • Production • Focus on shortproduction runs in the medium price range
United States • Design and marketing • Focus on specific market segments like sport and recreational shoes and boots • Manufacturing only in selected lines such as hand-sewn casual shoes and boots
Italy • Design, marketing, and production of premium shoes • Export widely to the world market
Brazil • Low to medium quality finished shoes, inputs, leather tanning • Shift toward higher quality products in response to Chinese price competition
China • OEM Production • Focus on low cost segment mainly for the US market
Vietnam/Indonesia • OEM Production • Focus on the low cost segment mainly for the European market
Source: Research by HBS student teams in 2002 – Van Thi Huynh, Evan Lee, Kevin Newman, Nils Ole Oermann European Cluster Policy 01-22-08 CK
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The Australian Wine Cluster Milestones 1930
1965
First oenology course at Roseworthy Agricultural 1955 College
Australian Wine Bureau established
New organizations created for education, research, market information, and export Winemaker’s promotions Federation of Australia established
Australian Wine and Brandy Corporation established 1990
1970
Australian Wine Research Institute founded
1991 to 1998
1980
Winemaking school at Charles Sturt University founded
1950s
1960s
1970s
1980s
1990s
Import of European winery technology
Recruiting of experienced foreign investors, e.g. Wolf Bass
Continued inflow of foreign capital and management
Creation of large number of new wineries
Surge in exports and international acquisitions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002 European Cluster Policy 01-22-08 CK
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The Composition of Regional Economies United States, 2004
Traded Traded
Local Local
Natural Natural Resource-Driven Resource-Driven
29.3% 29.3% 0.7% 0.7%
70.0% 70.0% 2.4% 2.4%
0.7% 0.7% -1.2% -1.2%
$49,367 $49,367 137.2% 137.2% 4.2% 4.2%
$30,416 $30,416 84.5 84.5 3.4% 3.4%
$35,815 $35,815 99.5 99.5 2.1% 2.1%
144.1 144.1
79.3 79.3
140.1 140.1
Patents per 10,000 Employees
23.0 23.0
0.4 0.4
3.3 3.3
Number of SIC Industries
590 590
241 241
48 48
Share of Employment Employment Growth Rate, 1990 to 2004 Average Wage Relative Wage Wage Growth
Relative Productivity
Note: 2004 data, except relative productivity which uses 1997 data. Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School European Cluster Policy 01-22-08 CK
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Broad Composition of Regional Economies Traded versus Local Wages
Local Wages, 2003 40,000
New YorkNewarkBridgeport, NY-NJ-CT-PA Anchorage, AK
35,000
San JoseSan FranciscoOakland, CA
Reno, NV 30,000
y = 0.3205x + 13038 2 R = 0.6493 p-value < 0.001
Las Vegas, NV
25,000
Raleigh-Durham-Cary, NC
20,000
15,000 15,000
25,000
35,000
45,000
55,000
65,000
75,000
Traded Wages, 2003 European Cluster Policy 01-22-08 CK
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Specialization of Regional Economies Selected U.S. Geographic Areas
Seattle-BellevueSeattle-BellevueEverett, Everett,WA WA Aerospace AerospaceVehicles Vehicles and andDefense Defense Fishing Fishingand andFishing Fishing Products Products Analytical AnalyticalInstruments Instruments
Denver, Denver,CO CO Leather Leatherand andSporting SportingGoods Goods Oil Oiland andGas Gas Aerospace AerospaceVehicles Vehiclesand andDefense Defense
Chicago Chicago Communications CommunicationsEquipment Equipment Processed ProcessedFood Food Heavy HeavyMachinery Machinery
Wichita, Wichita,KS KS Aerospace AerospaceVehicles Vehiclesand and Defense Defense Heavy HeavyMachinery Machinery Oil Oiland andGas Gas
Pittsburgh, Pittsburgh,PA PA Construction ConstructionMaterials Materials Metal MetalManufacturing Manufacturing Education Educationand andKnowledge Knowledge Creation Creation
San San FranciscoFranciscoOakland-San Oakland-San Jose Jose Bay Bay Area Area Communications Communications Equipment Equipment Agricultural Agricultural Products Products Information Information Technology Technology
Los Los Angeles Angeles Area Area Apparel Apparel Building Building Fixtures, Fixtures, Equipment Equipment and and Services Services Entertainment Entertainment
Boston Boston Analytical AnalyticalInstruments Instruments Education Educationand andKnowledge KnowledgeCreation Creation Communications CommunicationsEquipment Equipment
Raleigh-Durham, Raleigh-Durham,NC NC Communications CommunicationsEquipment Equipment Information InformationTechnology Technology Education Educationand and Knowledge KnowledgeCreation Creation
San SanDiego Diego Leather and Leather andSporting SportingGoods Goods Power PowerGeneration Generation Education Educationand andKnowledge Knowledge Creation Creation
Houston Houston Oil Oiland andGas GasProducts Productsand andServices Services Chemical ChemicalProducts Products Heavy HeavyConstruction ConstructionServices Services
Atlanta, Atlanta,GA GA Construction ConstructionMaterials Materials Transportation Transportationand andLogistics Logistics Business BusinessServices Services
Note: Clusters listed are the three highest ranking clusters in terms of share of national employment. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006. European Cluster Policy 01-22-08 CK
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Innovation Performance of Regions Patenting Intensity, U.S. Economic Areas Patents per 100,000 Inhabitants, 2001
300
250
200
150
100
50
0 Economic Areas Source: U.S. Patent and Trademark Office; CHI Research; Michael E. Porter, The Economic Performance of Regions”, Regional Studies, Vol. 37, 2003 European Cluster Policy 01-22-08 CK
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Innovation Performance of Regions Patenting Intensity, European NUTS 2 Regions Patents per 100,000 Inhabitants, 2003
NUTS 2 Regions Source: Eurostat (2008) European Cluster Policy 01-22-08 CK
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Automotive Cluster Narrow Cluster Definition SUBCLUSTERS (16) Motor Vehicles Automotive Parts
Automotive Components Forgings and Stampings Flat Glass Production Equipment Small Vehicles and Trailers Marine, Tank & Stationary Engines
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SIC
LABEL
3711 2396 3230 3592 3714 3824 3052 3061 3322 3465 3210 3544 3549 3799 3519
Motor vehicles and car bodies Automotive and apparel trimmings Products of purchased glass Carburetors, pistons, rings, valves Motor vehicle parts and accessories Fluid meters and counting devices Rubber and plastics hose and belting Mechanical rubber goods Malleable iron foundries Automotive stampings Flat glass Special dies, tools, jigs and fixtures Metalworking machinery, n.e.c. Transportation equipment, n.e.c. Internal combustion engines, n.e.c.
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Traded Clusters By Employment U.S., 2004
Service-oriented High-Tech Other
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Automotive Clusters by Economic Areas, 1997 Detroit-Warren-Flint, MI (LQ=7.43, SHARE=19.36%)
Adjacent EAs tend to specialize in the same Regions with high share of US automotive employment ( in top 10% of all regions; share>1.5%) & high cluster specialization (LQ>1.7) Regions with high cluster specialization (LQ>1.7 ; LQc,r >LQc 80-th Percentile) Weak clusters with large employment size in high population areas European Cluster Policy 01-22-08 CK
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Financial Services Clusters by Economic Areas, 1997 Minneapolis-St Paul-St-Cloud, MN-WI Chicago-Naperville-Michigan City, IL-IN-WI
Hartford, CT (LQ=3.40, SHARE=3%)
New York-Newark-Bridgeport (LQ=2.24, SHARE=18.2%)
Denver-Aurora-Boulder, CO
Regions with high share of US financial services employment ( in top 10% of all regions; share>2.5%) & high cluster specialization (LQ>1.01) Regions with high cluster specialization (LQ>1.03 ; LQc,r >LQc 80-th Percentile) Weak clusters with large employment size in high population areas European Cluster Policy 01-22-08 CK
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Cluster Employment Strength and Wages U.S. Economic Areas 50,000
San Jose-San Francisco-Oakland, CA New York-Newark-Bridgeport, NY-NJ-CT-PA 45,000
Economic Area Average Wage, 2003
Seattle-Tacoma-Olympia, WA
Washington-BaltimoreNorthern Virginia, DC-MD-VA-WV
Chicago-Naperville-Michigan City, IL-IN-WI Anchorage, AK Detroit, MI
40,000
San Diego, CA Austin, TX
35,000
Colorado Springs, CO 30,000
25,000
y = 6077.8x + 25158 2 R = 0.3371 p-value 2; NUTS Regions excluding Portugal and Greece. Source: European Cluster Observatory. ISC/CSC cluster codes 1.0, dataset 20070510 European Cluster Policy 01-22-08 CK
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Implications for Europe • Specialization in a set of clusters what drives competitiveness and innovation, not homogenization • Limited regional specialization is an important determinant of Europe’s lagging competitiveness • Further integration of European markets is essential to enable a more efficient economic geography and stronger clusters • Government can be an important actor in European cluster policy but government must play the right role – Government must act as facilitator, not the driver – Government responsibilities for cluster development should be allocated across geographic levels, with a focus on the regional level – European support for cluster development must be based on competitive principles European Cluster Policy 01-22-08 CK
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Back-Up
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Cluster Employment Strength and Wages U.S. Economic Areas 50,000
San Jose-San Francisco-Oakland, CA New York-Newark-Bridgeport, NY-NJ-CT-PA
Economic Area Average Wage, 2003
45,000
Boston-Worcester-Manchester, MANH 40,000
35,000
30,000
25,000
y = 7662.6x + 25257 2 R = 0.1766 p-value < 0.001
20,000 0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
Economic Area Cluster Employment Strength, 2003 Note: Cluster strength is measured as share of regional traded employment in strong clusters (weighting by the overlap among the strong clusters.) See Delgado, Porter Stern 2007. European Cluster Policy 01-22-08 CK
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