Transcript What are the clusters?

REGIONS FOR ECONOMIC CHANGE
INNOVATING THROUGH EU REGIONAL POLICY
EU Conference, Brussels June 12-13, 2006
Workshop 1B:
Nurturing local and regional clusters: the role of public authorities
Applying cluster concept to improve effectiveness
of regional policy
Dr. Zbigniew Bochniarz
Center for Nations in Transition
Hubert H. Humphrey Institute of Public Affairs
University of Minnesota
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The Challenges
 The critical mid-term review of the implementation of the Lisbon
Strategy
 Weakening rather than strengthening competitive position of EU
and its major regions versus the USA and fast growing economies
of China and India
 Large spending of €226 billion on regional policy (2000-2006) and
even higher planned for 2007-2013 – €336 billion – require more
effective policy design and mechanisms for delivery and appraisal
 How to increase returns from this investment and improve the
competitive position of the EU while also improving living
conditions in the poorer regions.
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Are there any good models
of development in EU?
 EU represents large diversity of country experiences with
successful and unsuccessful models of economic development,
social cohesion and environmental gains
 Nordic countries successfully combining world top ranking in
global competition indicators with effective social model and
environmental concern
 Irish model of entrepreneurship helped the country to catch the
leading pack of global competitors
 German model lead the manufacturing global exports for many
years
 New Central and East European EU members states are
sustaining productivity growth as the way to improve their
competitiveness and increase wealth
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What was a common feature
of the successful development models?
 All of the above advanced developed EU countries were highly
ranked in Global Competitiveness Report for domestic
competition and cluster development [2005-2006].
 They successfully utilized the cluster concept for cutting-edge
industries (e.g. ICT), as well as for traditional industries (e.g.
glassmaking, forest products processing).
 They also effectively applied the knowledge cluster approach to
revitalize economically depressed (e.g. mining) and/or rural areas.
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What are the clusters?
 Clusters are geographic concentrations of interconnected
companies, specialized suppliers, service providers, firms in
related industries, and associated institutions that can cooperate
and compete in particular fields. [Porter, 1998, p 197]
 Clusters embrace much more than a traditional supply chain or an
industry; they also includes academic institutions providing
training, research and consulting services.
 There are also governmental agencies influencing cluster
activities (e.g. standard agencies) and non-governmental
organizations (e.g. industry associations) providing important
services (e.g. lobbying and networking)
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Clusters and Competition
Clusters’ activities contribute to improvement of the competitive
position of a region by:
 Increasing productivity of participating firms and/or industries;
 Enhancing their capacity for innovation and this way sustaining
productivity growth;
 Mobilizing new business formation, innovation and cluster
expansion [Porter 1998, p.213].
The cluster’s influence on competition depends on the maturity of
the economy -- the more advanced the economy, the larger role of
clusters in shaping competitive advantage and the larger number of
clusters.
For the all above reasons, clusters are particularly important for the
EU less advanced countries and regions to catch up with the leaders.
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How cluster can improve
productivity?
Improved productivity within clusters is taking place in the following
ways:
• by providing high quality, reliable and low-cost inputs (“local” versus
“distance” outsourcing)
• by easy, trustful and relatively cheap access to information (proximity,
face-to-face communication)
• by facilitating complementarities between activities of cluster members
(e.g. driving up the quality standards, sharing educational, R & D,
marketing and PR capacities)
• by providing access to public or quasi public goods (below the full costs,
e.g. trained labor)
• by providing stronger incentives and better performance measures than
vertically integrated firms by reducing operational and transaction costs
(local rivalry, peer pressure, accumulated knowledge in local financial
institutions)
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How cluster can contribute
to innovation growth?
Clusters can contribute to innovation growth in the following ways:
• by getting more frequent and clearer information on the buyers needs
• by identifying new technological, operating and delivery opportunities
• by direct observation of other firms
• by easier and faster access to new components and processes needed
for innovation
• by proceeding faster with innovations due to the proximity of potential
suppliers and even their involvement in the innovation process
• by the availability of new professionals needed for introducing
innovations
• by utilizing complementarities of local innovation partners
• by reducing operational and transaction costs of innovations
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How clusters contribute to new
business formation?
Finally, clusters contribute significantly to new business formation:
• by providing encouraging information about new business
opportunities
• by offering lower than in anywhere barriers to entry (and exit)
with needed assets, skills and inputs in the cluster location
• by providing environments rich in social capital that lower
transaction costs and risk premiums on capital
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What is the role of government in
facilitating cluster development?
The following five governmental functions seems to be vital for
any economy [Porter, 1998, pp. 245-6]:
1. Securing macroeconomic and political stability (stable and sound
policies, effective and transparent institutions);
2. Improving microeconomic capacities for development (education,
infrastructure)
3. Establishing sustainable rules and incentives for competition
(competition and tax policies, fair and effective legal system)
4. Facilitating cluster development and upgrading all clusters.
5. Developing and implementing a long-term action program to mobilize all
cluster participants to systematically upgrade their capacities, thereby
influencing the competitive position of their clusters.
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Why human capital is the most
critical for cluster development?
 Human capital embodied in modern knowledge, practical skills and positive
attitude is the most valuable and creative component of innovation process
 Right proportions between these three elements of human capital are critical
to make it able to adjust to continuing changes in the global environment
 Europe has the world oldest and high quality academia that produces
modern knowledge but does not pay enough attention to develop practical
skills and positive attitude -- comparing with North American academia -- the
skills necessary for cluster development and effective competition
 Particularly weak are the soft skills such as communication, leadership, and
entrepreneurship and conflict management that are critical for building
cluster synergy
 European academia should more often listen to the business and local
communities and respond faster to their needs by providing appropriate
human capital and research.
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Recommendations at the EU
Commission level
 Clusters are the chance for EU to catch up with the objectives of
the Lisbon strategy by encouraging competitiveness, innovations
and sustainable development in the regions.
 Effective coordination is needed at the EU Commission all
programs and funds (Cohesion and Structural Funds,
Competitiveness and Innovation Programmes, the Seventh
Framework Programme) to produce necessary synergy for cluster
development.
 Introducing new EU transparent and participatory procedures of
allocations of funds is needed where representatives of nongovernmental organizations (e.g. business associations) will be
involved and a right proportions between competitiveness of
particular projects and partnership in securing funding will be
established.
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Recommendations at the EU
Commission level (cont.)
 Participatory procedures should encourage further building of
social capital, which is critical for both cluster development and
for strengthening civic societies that are still weak in the new EU
member states.
 The new procedures should also encourage entrepreneurship
and competency development at the governmental agencies,
strengthening professional staff of civil service and reducing
politization of both staffing and project selection process and
potential corruption or political favoritism.
 The cluster approach require a massive and cross-sectoral
training in all EU (government, business and NGO
representatives) about its basic features and opportunities for
capitalizing on cluster advantages.
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Recommendations at the national
and regional government levels
 Encouraging good participation in a massive and cross-sectoral training
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on cluster approach, its microeconomics and relations with competition
and innovations as opposed to traditional industrial policy
Mapping existing and identifying emerging cluster at the national and
regional levels, assessing appropriate assistance and coordinating
support from different funding sources
Facilitating partnership dialogue among all cluster participants,
networking and providing transparent and participatory procedures for
assistance
Encouraging of private-public ventures, partnership in matching
resources for the common projects, mobilizing different venture capital
sources
Offering high quality entrepreneurial training and encourage participation
not only from SME sector but also from public and non-governmental
sectors.
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