Sectoral Competitiveness
& Industrial Clustering
Adrian Said
24th May 2011
1
What is National Competitiveness?
Raising productivity— meaning making better use of
available factors and resources— is the driving force
behind the rates of return on investment which, in
turn, determine the aggregate growth rates of an
economy
Thus a more competitive economy will be one which
will likely grow faster in a medium to long-term
perspective
The Global Competitiveness Index
It is important to note that none of these factors alone
can ensure competitiveness
Example: The value of increased spending in
education will be undermined if rigidities in the labor
market and other institutional weaknesses make it
difficult for new graduates to gain access to suitable
employment opportunities
Global Competitiveness Index
1) Top 3: Switzerland, USA,
Denmark
3) EU Countries dominate
Top 20
Despite the financial crises
the US still tops the list
due to a number of
competitive strengths
Switzerland ranks - 1
Competitiveness
=
Productivity
Why Clustering?
“Clustering” is the tendency of vertically
and/ or horizontally integrated firms in
related lines of business to concentrate
geographically to maximise productivity
What are industrial clusters?
Industrial clusters are regional or urban concentrations of
firms including manufacturers, suppliers and service
providers, in one or more industrial sectors
These firms are supported by an infrastructure made up of
universities, research institutes, financing institutions,
incubators,
business
services
and
advanced
telecommunications systems.
The concept of industrial clustering fits the notion of
systems of innovation since both deal with capabilities and
relationships
What are the advantages of
Clusters?
Increase of employment
Spread of innovation
Upgrading of skills
Upgrading of quality of products
Increase of productivity of companies involved
in clusters
Increase of export volume
Efficient use of resources (R&D, marketing,
access to finance)
Cluster Characteristics
Strong linkages among firms and the supporting
technological and business infrastructure in a region
stimulate the innovation process and the growth of the
cluster;
Geographic proximity of firms, educational and research
institutions, financial and other business institutions
enhances the effectiveness of the innovation process;
The larger the cluster (e.g. large number of firms and
workers) the higher the level of self-sufficiency; i.e. less need
to get key functions (e.g. supplies, financing) supplied from
outside; that is there is less “leakage” outside the cluster.
Examples - 4 motors of Europe
Lombardy
Lombardy, whose capital city is Milan, is the economic engine of Italy. This
state, with its population of 9 million, is responsible for about 21% of Italy’s
GDP. Its per capita income is 30% above the Italian average. Lombardy is a
major trading centre and accounts for some 30% of Italy’s exports.
The region accounts for one-third of the active corporations in Italy. While
there are many large conglomerates, such as Montedison, most of the
200,000 industrial firms, which represent about 45% of industrial employment
in Italy, are small and medium-sized enterprises (SMEs). It has major
concentrations in the telecommunications informatics and chemical sectors as
well in services such as engineering consulting.
Lombardy accounts for 32% of Italy’s government R&D and 40% of its private
sector R&D expenditures. Milan itself has four universities, one of which, the
Polytechnico is said to be the MIT of Italy. Lombardy is more R&D intensive
than any other region in Italy.
Examples - 4 motors of Europe
Baden-Wuerttemberg
The capital is Stuttgart, has a population of 9.4 million and produces about
17% of Germany’s exports. Many of these exports are “high-end” automotive
products since Mercedes-Benz, Porsche and Bosch are located in this state.
Zeiss also adds to the high value-added exports of the state.
Overall, there are some 12,000 manufacturing firms in the state, 95% of which
are SMEs. Baden-Wuerttemberg accounts for about one-quarter of
Germany’s automotive and electronics/electrical production.
Given its industrial mix, Baden-Wuerttemberg has highly developed expertise
in electronics and electrical goods, machinery, automotive engineering and
precision engineering. The state has the highest concentration of research
institutes in Europe and accounts for 30% of Germany’s R&D capability.
There are nine universities, 23 polytechnics, 11 Max Planck Institutes and 14
Fraunhofer institutes and research centres.
Examples - 4 motors of Europe
Baden-Wuerttemberg
A key element of Baden-Wuerttemberg’s technical infrastructure is the
Steinbeis Foundation for Economic Promotion, a not-for-profit corporation,
whose mandate is to support the development of industry in the state,
especially SMEs, through the provision of R&D, technical advice and financial
support.
The Foundation, has 114 technology centres spread throughout the state.
More than 70% of its revenue comes from consulting and R&D services.
The Chairman of Board is also the Baden-Wuerttemberg Government
Commissioner for Technology Transfer which gives an indication of the
importance that the state attaches to technology development.
Examples - 4 motors of Europe
Catalonia
The capital is Barcelona, is Spain’s industrial centre. It has a population of 6
million and generates nearly 20% of Spain’s GDP and accounts for 27% of
Spain’s industrial output. Some 40% of its industrial activity is in
manufacturing. Catalonia attracts industry because it can offer a skilled labour
force at relatively lower wage rates than the rest industrialized Europe.
In 1987, the Valles Technological Park (PTV) was established to encourage
the development high-technology development. The PTV is co-located with
the National Microelectronics Centre and the University of Barcelona. The five
areas of interest of the PTV are microelectronics, telecommunications,
advanced automation, biotechnology and new materials.
Catalonia sees itself in a catch-up situation vis-à-vis the other Motors and has
an aggressive policy to attract foreign investment. For example, it receives
about 70% of all Japanese investment in Spain involving firms such as Sony,
Nissan, Toshiba and Sanyo.
Clusters as tools for local and regional
economic development
• Established wisdom: Private sector must lead cluster
development initiatives with public sector playing catalytic role
• Reality in transition economies: Private sector is composed of
atomised actors lacking financial and social resources Government may have to jumpstart the process and provide
financial and organisational support to firms
• Solution: Cluster support policies with shared responsibilities
among actors
Why New Approach to Economic Development
Key messages:
Be more strategic / be a more
intelligent player
Old ways of analyzing the economy
are not enough anymore
Location still matters—but for
different reasons
Traditional economic development programs
are increasingly criticized for...
not focusing on key goals
(increasing the competitiveness of business),
targeting individual firms,
not thinking strategically,
not reaching enough firms to make a difference,
presenting a fragmented and confusing maze of programs
and services,
not being industry driven, and
not being accountable to private sector clients or public
sectors funders.
Place Still Matters —
But for Different Reasons
“The enduring competitive advantages in a global economy
lie increasingly in local things—knowledge, relationships,
motivation—that distant rivals cannot match.”
“This role of location has been long overlooked, despite
striking evidence that innovation and competitive success
in so many fields are geographically concentrated.”
Michael Porter
-
Industry Clusters as
an Analytical Tool
Identifying Industry Clusters
Business Interdependence:
Arizona chose clusters where businesses relate to each other through
the buyer-supplier “food chain,” as competitors, or as partners.
Export Oriented:
Many of the companies in the cluster sell products or services to
companies outside the region.
Concentration:
Employment in the cluster is more concentrated in the region than the
national average, and the cluster is an existing or emerging area of
specialization.
Significant Size or Rapid Growth:
The cluster is of a significant size or, if new, has an above average
growth rate compared to that of the U.S. as a whole.
Industry Clusters as
an Organizational Tool
Charge to Each Cluster
Catalogue the key components of the cluster
Articulate an achievable vision of what the cluster
can become over the next 10-20 years
Identify opportunities for growing the cluster in
the desired direction by expanding existing
companies and attracting outside companies
Identify opportunities for more synergy within the
cluster
Identify needs for specific economic foundations
and proposed strategies
Power of Collaboration:
Optics Cluster Example
Identify critical mass
optical components; optical design software; lasers for medical,
industrial and graphics application; optical telescopes; digital
electronic camera
formed association
state and local recognition: “seat at the table”
national recognition—Business Week: “Optics Valley”
4-year program to build exports
joint ventures among optics firms
joint ventures with other clusters
workforce development: community colleges, school-towork grant
Industry Clusters as
a Service Delivery Tool
Benefits of Cluster Approach to
Economic Development
First time to mix entrepreneurs and traditional
business (banks, utilities) CEOs in process to
develop an economic development strategy
Cluster-based approach provided a more in-depth
understanding of the state economy
Produced an industry-driven strategy
Recognized that industry does not speak with a
single voice
Created a broader constituency for economic
development
Changed the way we define the customer
Conclusion: Why Clusters are Important to
Regions
Clusters generate wealth, exports, jobs, sources of
information
Firms are attracted to clusters because of:
economies of scale
productivity advantages
marketing and other competitive advantages
Globally, clusters are driving regional growth
Conclusion: Clusters offer special
opportunities to better provide assistance by:
reaching and educating all competitive
companies in a sector
accelerating the learning curve and
confidence with opportunities for firms to
learn from firms
offering a format for delivering wellcoordinated services
Conclusion: Distinguishing
Characteristics
Technology is a given
Globalism is here to stay
Knowledge builds wealth
People are the most important raw material
There’s no such thing as a smooth ride
Competition is relentless
Alliances are the way to get things done
Place still matters—but for different reasons
Conclusion: Firms Cluster in One
Place for Bottom Line Reasons
Reduce transaction costs
Specialize
Exploit one another’s specialties
Increase rates of innovation
Pursue joint solutions to common problems
Build a common labor pool, technology, infrastructure:
Learn collectively what it takes to be competitive
Place Still Matters —
But for Different Reasons
“The enduring competitive advantages in a global economy
are often heavily local, arising from concentrations of
highly specialized skills and knowledge, institutions, rivals,
related businesses, and sophisticated customers.”
- Michael Porter
Harvard Business School
Anything that is available to rivals
elsewhere is essentially nullified as a
source of competitive advantage.