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What Is Clusters? Why Policy Makers Are so Keen to Promote Them?

In: Business and Management

Submitted By uzarins
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What are clusters?
Why are policy makers so keen to promote them?

Innovation recently has become very hot topic to general public or at least it is a bit trendy to talk about it between politicians. You can’t blame where it is very arguable that we innovate more now than ever before, we definitely talk about it more. Therefore also innovation clusters have been one of the hot topics within academics, politicians and just people who are just a bit interested into innovation. But what is innovation clusters have been defining generally and what are grounds of successes, what is innovation cluster impact on innovation and economic growth is argued a lot in academic literature. “The notion of a cluster was first put forward by Alfred Marshall (1890). He used the term “industrial district to describe agglomerations of small specialised firms found in particular localities. He cited as examples the cotton industry in Lancashire and the cutlery trade in Sheffield. He explained the success of these industrial agglomerations in terms of external economies of scale, where the close proximity of large numbers of small firms generated a market for increasingly specialised services. According to Marshall (1890), agglomeration economies around three sources of collective efficiency, namely: a local pool of specialised labour, firms specialising in the intermediate stages of production and knowledge spill-overs. “(David Smith, 2010, Exploring Innovation, P 267-268). However Marshal is talking called what we know now clusters as industrial districts where “the biggest factor behind the return of industrial districts to the fore front of policy agenda and particular interest in and promotion of clusters has come from quite another source, namely the work of two economist, Michael Porter (1990) and Paul Krugman (1991). They did much to re-ignite interest in industrial agglomerations, now rebranded as clusters.” “(David Smith, 2010, Exploring Innovation, P 269). As it comes clear there are no clear cut definitions on what is exactly innovation clusters, but one of the best ways to understand and describe this is to talk about th Silicon Valley as this is usually used to explain the “ideal” innovation cluster and this is what normally companies, business people, entrepreneurs and even governments are trying to “reproduce” all over the world. “Silicon Valley, or to give it its real name, Santa Carla County, on the Southern flank of San Francisco Bay in California, is synonymous with innovation and high-technology. It comprises the densest concentration of high-technology firms in the world. Once a sparsely populated agricultural area, today more than 8000 firms, most of them employing les than 50, provide employment for more than quarter of a million people. Since 1970s Silicon Valley has exhibited extraordinarily high rate of new-firm formation.” “(David Smith, 2010, Exploring Innovation, P 265). This is just one of the best if not the best example of innovation cluster. Having this great example in front of everybody’s eyes it is no wonder that this has become very important for academics to research and for policy makers to promote. Silicon Valley is not only example, there are many more very successful examples around, actually so many that innovation clusters have been classified by type, but most “traditional” clusters have “number of features that are particularly conducive to innovation. These features are networking, specialisation, ease of entry and exit and resource mobility.” (David Smith, 2010, Exploring Innovation, P 275).

Having discussed what is innovation clusters I would like turn my attention towards why policy makers are so keen to promote innovation clusters, is it because it is a “new” and “rediscovered” theme and because there have been fresh academic focus on it over last couple of decades or is there really some reasonable benefits for society and researchers to be more passionate and detailed about them. I will be looking into Markusen (1996) work in the area dividing innovation clusters into four areas: neo-Marshallian industrial district (ID) cluster, hub and spoke cluster, satellite platform cluster and state-anchored cluster. (David Smith, 2010, Exploring Innovation, P 270). Neo-Marshallian industrial district (ID) cluster types are the most traditional types, would fit “definitions” mentioned above. When this is looked trough policy makers eyes, they are keen to promote them because these ones arguably are bringing the biggest returns in terms of employment figures and economical growth for particular regions of country or even whole country. But these type of clusters most of the time are not reflection or outcomes of direct governments, universities or private sector policies, but it is more historically “born” paradox, but in the mean time we can not deny that there are steps in place to continuously support now these cluster regions as they have proved their returns. The best examples are above mentioned Silicon Valley in US, small and specialized firm concentration in north of Ital and Motor sport valley in Oxfordshire, which “comprises a world-leading agglomeration of small and medium sized firms in a 50-mile radios around Oxford and within this area are more than 600 firms engaged in the design, development and manufacture of racing cars and components. (David Smith, 2010, Exploring Innovation, P 271) Politicians and policy makers are very keen to reproduce these types of clusters trough direct actions. Another type of Markusen’s classified types of innovation clusters is the “hub and spoke” cluster. While small firms predominate in neo-Marshallian IDs, hub-and-spoke clusters are more characterized by big and even rather huge, very often global companies. All action are not necessary concentrated in one region, it can be that just the main business or end product is concentrated in one area. The cluster would be more vertically integrated. For instance again in US in Seattle is Boeing which fits in this kind of cluster and is very important to local economy, which depends a lot from it, but the cluster is spread all over the world with its connections and part productions being contracted out to other smaller companies. (David Smith, 2010, Exploring Innovation, P 272). Again from politicians and policy makers point of view this is very appealing as there are real benefits and connections and communications between counterparts ensures successful innovation and very important there is finance available for innovations. Where can be seen governments influence is if we look at the satellite platform clusters. This type of cluster falls in the gap which matches the closest if we can say “artificially” made clusters. I would say so because the politicians in this case ensure that there are motivational benefits around like: tax incentives, generic support services or infrastructure. This is where my argument comes from, because even if there is a bit of stimulation and benefits in the are and some of the projects have been pretty successful most of the time “commitments to local suppliers are likely to be for most part “conspicuously absent”. Linkages where they exist will be to the parent corporation or other branch plants of the same concern located in other regions. Because the plants located within satellite platform clusters tend to be owned by absent multinational corporations. “(David Smith, 2010, Exploring Innovation, P 273) But even though that satellite platform type of clusters have not been so successful as Silicon Valley some of them for instance in India it has brought the are to life, but it is down to local very particular circumstances as most of the companies are from west with a need of exploring Asia’s market needs. Where in Europe the most famous government founded cluster in 1969 near Nice University. It was not successful first four years as there was no big company, by the time many big companies moved in some left but new joined in the mean time it took good 20 for the Sophia Antipolis showing some signs of the “proper” cluster: “In the mid 1990s the soil of the park started to become fertile enough to grow its own companies, it is now not only driven by the expansion of established companies, rather than by newcomers, but it is starting to see its first successful start-ups. An example is the e-commerce search engine Certimate.” ( The last types of clusters, state-anchored are definitely the ones under the biggest influence of government who are major policy makers. This is the kind of clusters where government really can make impact, but it required detailed planning in order to maximize effect. In us they are naturally better positioned when compared with Europe, purely because of size and the history. In US people are more ready to move long distances (from one state to the other). For instance, they would be ready to move to Denver if they liked to work within government establishment. Where in Europe in turn, the amount and size we of countries as well as cultural differences makes it much harder to organize unite strategy, because everybody is pulling their string. Also mentality of people are different, they prefer to work within the area of the university they graduated and are unwilling to move to different city or even worse country. It is very important that if state-anchored types of clusters will play significant role not only in countries level but globally, the planning from local governments and European Union will need to be thought through. The key of successful cluster is not only the concentration of various small companies but the “freshness” coming in is priceless. If countries in Europe can be organized better and they would work closer together in planning, organizing and acting returns would be quicker and “bigger”. Great local in terms of Europe achievements are achieved all over the Europe like in Oxfordshire in UK with its Laboratories, universities and hospitals with great networks within and around them. If this would be linked closer with the rest of Europe’s leading hubs outcome would be “instantly” global. (European Planning Studies Vol.14, No.4, May 2006)

“For successful clusters are something everyone would like to achieve. Politicians would get re-elected, academics would win Nobel prizes, people would get employment. But unfortunately no one has every deliberately created a successful cluster, argues Professor of International Business Regulation, University of Reading. Universities, spin-outs, legal services, venture capital, and so on, are key building blocks of clusters. But how do these all work together? “It is important to get a handle on this because while all policies try to stimulate the building blocks, as yet there are few policies to encourage them to network together,” said Tom Elfring and Professor of Strategy and Entrepreneurship, VU Amsterdam.” ( Also “however the biggest factor behindthe return of industrial districts to the forefront of the policy agenda and in particular intrest in promotion of clusters has come from quite another source, namely the work of two economists, Michael Porter (1990) and Paul Krugman (1991) . They did much to reignite interest in industrial agglomerations, now rebranded as clusters. Porter’s work on clusters, coming a decade after his earlier work had drawn attention to the importance of competitiveness, proved particularly influential. Policy makers of the world over seized on Porter’s notion of business clusters as at tool for promoting both national and regional competitiveness as well as growth and innovation.” Hoverer over last years academics argue that the cluster’s popularity between policy makers has become its destructor as the theories has become stretched a bit too far. (David Smith, 2010, Exploring Innovation, P 269). Ultimately Silicon Valley at San Francisco has set incredible standards and examples of a good cluster and whilst there are many of clusters all over the world, none of the clusters are so successful, but also history has shown that most of the time “natural” clusters seemed to be most successful especially when policy makers are aware of benefits and keep supporting the by encouraging their growth, because when they are highly successful returns to individuals, scientists, academics and policy makers are invaluable.

Bibliography 1. David Smith, 2010, Exploring Innovation, Second edition. 2. European Planning Studies Vol.14, No.4, May 2006
Web References: 1.…...

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