Clusters Garner More Attention from NGA, Researchers

The National Governors Association (NGA) Center for Best Practices has selected seven states to participate in a year-long policy academy named State Strategies for Promoting Innovative Clusters and Regional Economies. Teams from the seven states – Georgia, Illinois, Iowa, Kentucky, Maryland, Oregon and West Virginia – will collaborate with staff from the NGA to create action plans for improving each state’s competitiveness and economy through cluster development. Additionally, during the next year, the selected states will learn about research on clusters and best practices for cluster improvement, perform an analysis to gain insight on their existing state clusters, and plan strategies to orient state investments, workforce development, and education initiatives around potential clusters.

 

But what are the main factors that influence the growth of successful clusters within regions? Andreas Eisingerlich and Leslie Boehm peer into this question in a recent article in Business Insight, a series produced this year by the Wall Street Journal in cooperation with M.I.T. Sloan Management Review. After looking at different clusters on three continents, the authors identified four key factors determining the growth potential and competitiveness of a cluster. They found the most successful clusters:

• Are anchored by an academic entity or research institution and supported by private or government-sponsored agencies;
• Contain research centers and companies that value innovation and venture into new markets;
• Have a network of service providers that perform non-core activities, which allows firms to concentrate on more essential tasks; and,
• Encourage collaboration and competition, at both global and local levels.

However, successful clusters do not just appear overnight. Practitioners who want to establish clusters in their states and regions may need to understand the varied dynamics of cluster development as they attempt to create technology-based clusters.

 

The continually changing aspect of clusters is the subject of some recent research by Anne L. J. ter Wal and Ron Boschman. In their paper, Co-Evolution of Firms, Industries, and Networks in Space, the authors contend existing cluster literature suffers from a handful of shortcomings. Their first assertion is that most cluster studies do not incorporate the large diversity of firms’ actions, capabilities and strategies within a cluster. Each firm is different and performs differently in the economy. Treating all firms similarly within a cluster located in a certain region ignores the specific features of individual firms that may account for their performance.

 

Wal and Boschman identify a second shortcoming in that most studies overestimate the importance of geographical proximity and underestimate the importance of networks. The performance of firms may be strongly related to the networks to which they belong, and these networks may not have a spatial component. Finally, they feel the active development of clusters does not receive much attention in the literature. The authors claim the origins and evolution of cluster development deserves more attention.

 

With these shortcomings in mind, the authors present a theoretical framework designed to enrich the literature by combining existing cluster research with other concepts from the fields of network dynamics and evolutionary economics. Their analysis connects the evolution of clusters with the evolution of individual firms, their industry, and their networks of interaction. For example, as new technologies are introduced, there are a low number of firms in an industry based on this technology, and there are a large variety of firms. At this introductory stage, the network is unstable and clustering does not really exist. As the technology progresses, the number of firms and the diversity of firms increase and clusters begin to form. By time the technology reaches maturity, the clusters are firmly established and the variety of firms decreases. With maturation, a number of firms begin to compete on terms of price and cost reduction, instead of product innovation.

 

What can this research tell us? That without continuing innovation and new technologies, even clustered industries will begin to decline. Clusters have life cycles, as do technologies and industries. Besides attempting to co-locate similar firms to a state or region by growth or attraction, practitioners might attempt to ensure that individual firms within a cluster are flourishing if they want to have a vibrant local cluster that drives innovation.

 

Co-Evolution of Firms, Industries, and Networks in Space by Anne L. J. ter Wal and Ron Boschman can be downloaded at http://ideas.repec.org/p/egu/wpaper/0707.html

 

Eisingerlich and Boehm’s article in Business Insight can be accessed here: http://online.wsj.com/public/article/SB118841858437012520.html