Clusters and Regional Competitiveness: What and Why KDI & World Knowledge Forum October 2003

1. Clusters and Regional Competitiveness: What and WhyKDI & World Knowledge ForumOctober 2003

2. Clusters and Regional CompetitivenessWhat and Why • Introduction: The path to prosperity • Why do regions matter? • What is a cluster? • What’s so good about clusters? • What are some potential difficulties with clusters?

3. The (New) Path to Prosperity Prosperity Competitiveness(Productivity) Innovation • The most important sources of prosperity are created not inherited • Productivity does not depend on what industries a region competes in, but onhowit competes • Technology is a meansto an end, not an end in itself.

4. Why Regions Matter for Economic Development? Why is Regional (not State or National) the Primary Focus? • Seoul is not Daegu is not Busan… • National policies and state policies create the basic environment for competition and develop some shared assets for firms • intellectual property laws • trade policy • physical and environmental security • business/financial standards and regulations • educational policies and funding • But its at the regional level that firms and support institutions interact most closely and at which conditions exist (or can be created) that significantly differentiate your competitive environment from other regions.

5. Enabling Innovation: The Regional Competitive Environment Context for Firm Strategy and Rivalry GOVT • A local context that encourages investment and sustained upgrading • Open and vigorous competition among locally based rivals Factor (Input) Conditions Demand Conditions • High quality, specialized inputs available to firms: • human resources • capital resources • physical infrastructure • administrative infrastructure • information infrastructure • scientific and technological infrastructure • natural resources • A core of sophisticated and demandinglocal customer(s) • Unusual local demand in specialized segments that can be served nationally and globally • Customer needs that anticipate those elsewhere Related and Supporting Industries • Availability of capable, locally based suppliersand firms inrelated fields • Presence ofCLUSTERSinstead of isolated industries Source: Professor Michael E. Porter, Harvard Business School,

6. Context for Firm Strategy and Rivalry Factor (Input) Conditions Demand Conditions Related and Supporting Industries Enabling Innovation: The Regional Competitive Environment Networks, Linking Institutions Attitudes/Norms Formal and informal networks that generate key relationships and foster innovation: Associations, Chambers, Tech Transfer Offices Attitudes that support innovation: willingness to partner, risk-taking, tolerance of diverse people and perspectives, openness to new ideas Source: Professor Michael E. Porter, Harvard Business School, Council on Competitiveness

7. What is a Cluster? A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field Source: Professor Michael E. Porter, Harvard Business School

8. Where Are Clusters? Everywhere... Boise Information Tech Farm Machinery Boston Mutual Funds Medical Devices Mgmt. Consulting Biotechnology Software and Networking Venture Capital Wisconsin / Iowa / Illinois Agricultural Equipment Minneapolis Cardio-vascular Equipment and Services West Michigan Office and Institutional Furniture Western Massachusetts Polymers Omaha Telemarketing Hotel Reservations Credit Card Processing Seattle Aircraft Equipment and Design Software Coffee Retailers Rochester Imaging Equipment Michigan Clocks Warsaw, Indiana Orthopedic Devices Detroit Auto Equipmentand Parts Hartford Insurance Oregon Electrical Measuring Equipment Woodworking Equipment Logging / Lumber Supplies Providence Jewelry Marine Equipment New York City Financial Services Advertising Publishing Multimedia Silicon Valley Microelectronics Biotechnology Venture Capital Pennsylvania / New Jersey Pharmaceuticals Las Vegas Amusement / Casinos Small Airlines Pittsburgh Advanced Materials Energy North Carolina Household Furniture Synthetic Fibers Hosiery Los Angeles Area Defense Aerospace Entertainment Wichita Light Aircraft Farm Equipment Cleveland / Louisville Paints & Coatings San Diego Golf Equipment Biotech/Pharma Baton Rouge / New Orleans Specialty Foods Dalton, Georgia Carpets Dallas Real Estate Development Southeast Texas / Louisiana Chemicals Nashville / Louisville Hospital Management Colorado Computer Integrated Systems / Programming Engineering Services Mining / Oil and Gas Exploration South Florida Health Technology Computers Source: Adapted from Professor Michael E. Porter, Harvard Business School

9. San Diego Pharmaceuticals / Biotech Cluster Other Products Equipment Laboratory Instruments and Process Equipment Consumer Goods Medical Devices Research Pharmaceuticals and Related Products Inputs UCSD Labs and Hospitals Specialty Chemicals Pharmaceutical Products (Manufacturing) Salk Containers Scripps Burnham Kimmel Packaging Private Firms Human Capital Providers Cluster/University/Government Relationship Providers Specialized Risk Capital Specialized Support Services BIOCOM Venture Capital Firms Community Colleges Banks Angel Networks UCSD UCSD CONNECT Legal Services SDSU Science and Technology Council Accounting Firms Source: Harvard Institute on Strategy & Competitiveness, Cluster Mapping Project , U. S. County Business Pattern Data; ontheFRONTIER interviews National Leader Nationally Competitive Less Developed

10. What’s So Good About Clusters? • Increase Efficiency • Efficient access to information, specialized inputs and employees, institutions, and “public goods” • Easier to achieve complementarities across businesses • Spur Innovation • Improved ability to perceive and respond to innovation opportunities • More rapid diffusion of improvements • Facilitate New Business Formation • Easier to identify opportunities for new businesses • Lowers barriers to entry (including perceived risk) A good way to organize firms for increased productivity A good way to organize economic development policy efforts Source: Professor Michael E. Porter, Harvard Business School

11. What Are Some Potential Difficulties with Clusters? • As Analytical Tools • Many different ways to measure clusters • Need national benchmarks AND local measures to reflect regional conditions • Sometimes regions get stuck in analysis paralysis • As Organizational Method for Economic Development Policy Initiatives • What if you aren’t in a chosen cluster? • Need to convince local businesses that traded clusters will benefit all • May lead to lack of focus on fundamentals (education, quality of life) As Indicators of Economic Growth Areas • Much innovation takes place at the intersection of clusters • You might miss it • Bioinformatics, Agribusiness

12. Example COC-CRI Initiative:Wilmington Competitiveness InitiativeObjectives • Complement and build upon on-going regional economic development initiatives • Assist region with an inventory and evaluation of their innovation assets and economic strengths and weaknesses • Build consensus among regional leaders on priorities, policies and practices for strengthening the regional innovation platform CATALYZE ACTION

13. Example COC-CRI Initiative:Wilmington Competitiveness InitiativeProcess Analytical Phase Review of Previous Reports Comparative Data Analysis Business Survey Interviews/Focus Groups Identification of 3 Key Regional Issues Regional Summit • Regional Stakeholders • Council Experts • Regional Working Groups • Ongoing efforts Action Plans 13

14. Mission: to set an action agenda that drives economic growth and raises the standard of living for all Americans • Membership: corporate CEOs, university presidents and labor leaders • Focus: benchmarking U.S. competitiveness, supporting national and regional innovation, maintaining competitiveness and security, and succeeding in the global marketplace Council Center for Regional Innovation • A resource and advocate for regional economic development efforts throughout the country • Educate national and regional policymakers • Conduct leading edge research & development • Catalyze implementation of innovation-based ED strategies

15. Contact information Chad Evans Council on Competitiveness cevans@compete.org 202-969-3380