Building Entrepreneurial Regional Clusters:
an overview
Jay Mitra
University of Essex, Southend, UK
‘SME Development through creating Regional ICT Clusters’
International Seminar on ICT Policy Reform and Rural Communication Infrastructure
Japan
August 23-September 1, 2004
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So what are ‘clusters’?
Way we live, play & work
?
Communication,
conversations
& socialisation
Subject of academic
curiosity?
What businesses
Management challenges
in the new economy
do anyway?
Having close geographical proximity
(regional clusters)

Geographic concentration
of interconnected
businesses and institutions
in a particular field (Porter,
1998)

Related by buyer-supplier
relationships/common
technologies/distribution
channels (industrial
clusters)

Concentrations of firms engaged in
interdependent production processes
(industrial districts)

Bad mistake?
Having a learning environment
(innovative milieu)

(Source: Enright, Capello, Beccatini, Poire &
Sabel,Mitra)
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What are the critical dimensions of
a regional cluster?

Geographic scope - territory of suppliers, customers, support
services, institutions? Span – global/national/regional/local?

Density – nos. & economic weight? Breadth – horizontally related
industries? Depth – vertically related industries

Activity – no. & nature of value-added chain activities? Stage of
development – embryonic, emerging, developing, mature?
Innovative Milieu – learning & innovative environment

Competitive strength – leadership? Technologies – generator,
adapter, user? Innovative Capacity – high or low?

Ownership Structure – local/foreign; integrated/
divisional/networks?
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Why is the development of regional clusters
so important for policy makers?

Complexity- New economy of specialisation, flexibility, diversification,
closer connectivity, clusters, internationalisation

Attraction - Clusters = large employment generators (54% from 18
industrial clusters in USA; 42% of manufacturing jobs from 200 Ids in
Italy)

Speed of Growth - Fastest growing clusters in service industries

The importance of small firms – concentrations allow for innovation &
growth

Key Growth Regions – Cambridge & Gotenberg (NTBFs) Munich
(largest stock of all German regions), Helsinki
(increased stock of firms/turnover), etc, etc.
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Is there a historical pattern to cluster development?
Water power, Steam,
textiles,iron
Rail,Steel
2nd
Wave
1st Wave
1785
60yrs
Electricity
Chemicals
Internal
combustion
engine
1845
1900
55yrs
Petro
chemicals
Electronics
Aviation
3rd Wave
50 yrs
Digital
networks
Software
New media
4th
wave
5th
wav
1990 2020
1950
40yrs 30yrs
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How does government policy support
regional cluster development?
Scope
Types
Firm-oriented
Finance for projects; advice & consulting
***
Attraction
Inward investment
Support Service Infrastructure
Physical & ‘knowledge’ infrastructure; specific service or
technology centres;
***
Information
On technology, market, export, business development
Training & Research
Education, training & research progs.
***
Support collaboration
Networking & collaboration programmes; (***)
fostering social interaction (X)
Source: ENSR Cluster Survey, Spring 2001;
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What are the features and success factors
of the Italian model?



Structural – SMEs (1-50 = 64%);
Agglomeration, within a local
area, of specialised firms
integrated by dense network of
relationships (Onida, 1992).
Productive – temporally &
spatially separable; specialisation
in traditional manufacturing; 200
IDs, 2,200,000, employees, 43%
of manufacturing; >20% of GDP;
43% of exports
Relational – inter-firm & social
relationships

Flexible specialisation –
adaptability of system, efficiency
of firm

Industrial atmosphere – highly
specialised, professional, speedy
sharing of ideas, information &
tacit knowledge , evolutionary

Widespread innovation &
learning– learning by doing,
using, collective
An Example
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Organic Evolution and Coevolution of the
Packaging Machinery Industry in Bologna
PERFORMANCE
Early
1900s
powder to add
effervescence to
drinking water
( Idrolitina )
female
laborers
Tangible
After
WWII
Early
1920s
automatic
machine
autocatalytic
creation of
niches
RESOURCES
1980s1990s
enhanced
diversity of
niches
complete
package
of services
packaging
for mass
consumption
Intangible
What are some of the characteristics of an American model?
PHASES
EVENTS
OUTCOMES
1EMERGENCE
1970s: Downsizing in fed. Emp./Civil Service
Reform Act, 1978 /Increase in fed. Procurement
1980s Tech. Transfer & publicly funded IP/
Stevenson-Wydler Tech. I Act/ Bah-Doyle
Universities & Small Business Patent Act/Small
Business Innov. Dev. Act
•Less
2. SELF
Low level investment in commercial projects/
start-ups with personal funds/institutional
building/ social capital & networks/university
involvement/ legislative progs. For new industry
•govt.
ORGANISATION
secure fed. Employment
•Outsourcing prodn of goods &
services
•Increase in procurement by
114.3%
•Lowering of threshold for
entrepreneurial risk taking
contracts –e.g.medical test kits
& computer systems integration
•Opps. For asset sharing & subcontracting
•3 angel networks in last 5 yrs.
• Public organisation spin-offs
•University progs. Near/ in clusters
•12legislative
acts for tech. Based
eco dev.
3. MATURATION
Strong individual networks/thickness of labour markets
Similar outcome to S.Valley but
different genesis
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What role can institutional support structures play?
An example: the Emiglia-Romagna Model
Operational
CERMET
Centre for quality upgrading
ERVET = RDA
RESFOR
SVEX
ASTER
SUBCONTRACTING
Export promotion
Technology development
Sectoral
QUASCO
CESMA
CERCAL
CITER
Building
Farm Machinery
Shoes
Knitwear
Source: Bellini et al, 1990
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What helps ICT clusters to start and grow?
Issues
Irish Growth
Model
Nordic Capital
Growth Model
International
Service City
Model
Peripheral
Specialisation
Model
Stages
1 - FDI Growth
2 – Upgrading &
diversification
1 -Telecom lead
2 – Diversifn &
Internationalisn
1 – Local demand
2 –Strong Growth
1 – R& D Specialisn
2 – Strong Growth
Conditions
US Diaspora; EU & US
markets; low wages;
English speaking
High costs; qualified
labour; industry
champion; international
access; liberalised
telecom market
Inn & cultural image;
Strong local demand;
diversified economy;
internet node;
international character
Strong local identity;
engineering; small
home market;
liberalised telecom mkt
Policies
Tax; Education,
Innovation
Deregulation,
Innovation
None explicit at
regional level or for ICT
sector
Deregulation; Regional
development; national
innovation; ICT focused
technology str.
Developments
Rising wages; talent
influx, growing labour
pool; knowledge
diffusion ICT image
As in Irish model +
evolving innovation
networks; ICT image
Talent influx; rising
costs/wages, strong
ICT image
University-industry
interaction; strong ICT
image; talent influx
Outcomes
Growth of FDI; new firm
creation
New firm creation;
Growth of champion,
FDI influx
Growth of FDI;
Expansion of local
firms; Start-ups
Start-ups; Expansion of
local firms; growth of
foreign R&D
Source: Vander Meer, et al 2004
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How does clustering help rural development?

‘ Rural’ =

“undesirable, expendable, nonmainstream, disconnected,
..inconsequential” (S.Cisler 04)

Poverty and disempowerment

Poor levels of networking and
institutional involvement

Information deficit

Urban salvation

Knowledge pool and path
dependency

Community social capital

Clusters =

Connectivity at different levels
(markets, knowledge, people)

Networking and linkages

Capacity building and critical mass
development

Sharing of information and
knowledge spillovers

Valorising proximity
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How does clustering and ICT help rural
development?
Rural
Clustering
ICT
“undesirable, non-mainstream…
disconnected, inconsequential”
(Cisler, 04)
Desirable form of structure for
small businesses
ICT platforms enable creation of
desirable, connected &
significant rural community
Poverty and disempowerment;
poor governance
Empowerment through
networks and agglomeration of
people & businesses
Empowerment through
connectivity & information
exchange
information and communication
deficit, poor levels of
connectivity
Information and knowledge
spillovers
Addresses information deficit
directly through technology & its
use by people
Limited levels of networking &
links with other territories
Networking allowing for critical
mass development
Allows for networking across
different interests
Communities of social capital
Based on valorisation of social
capital of community
Supports social capital
formation
Knowledge pool & path
dependency
Success dependent on positive
factors of path dependency &
local knowledge pool
Realises & makes available
knowledge pool
Small businesses with limited
capacity
Harnessing collective capacity
of small businesses
Provides new tools for small
businesses
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Source:Biliki (www.peoplefirst.net.sb)
www.hinduonnet.com/the hindu/2003/8/16
Unido (2001)
Are there good practice examples of rural clustering including the use of ICT?
Measures/indicator India - PURA
s of good practice
Solomon Islands – Nicaragua – Boaco
PF NET
& Chontales Clustr.
Focus of project
Urban amenities in rural
areas
Linking 100s of
remote communities,
poor governance; high
costs
Developing social
capital through grass
roots access
Education & training
institutes for farmers
People first; equitable Institutionalisation of
& sustainable rural
co-operative efforts bet
dev. Affordable access milk & cheese sectors;
share tasks & activities
Different forms of
connectivity
Road, telecom –
infrastructure
Knowledge –education
& training institutes
Market -best prices for
farmers
Financial –rural credit
+ solar power +
communications
Farmer’s networking
Disaster management
Establishment of
technical norms with
Ministries of
Environment, Health,
Agriculture, Industry;
subcontracting with
multinational; alliance
among co-ops, testing
lab for quality assur.
5,000 rural clusters in
India over 5 years
E-learning centres in
schools, , 20 USP
students, national
steering council
Creation of Nicaraguan
Chamber of Milk
Sector with Milk Fed.
Of Central America &
Caribbean
Empowerment
through learning
Replication & critical
mass
Capacity building
among milk & milk
production clusters
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What are the problems and challenges
facing clusters?
Problems
Challenges


Globalisation of cluster-based
activity
Global sourcing of technologies &
know-how

Organisation of globalised
production

Growing specialisation in regions

Improvements in transportation &
communication

Defining a cluster

Physical congestion

Agglomeration diseconomies

‘Lock-in’

Declining infrastructure

Urban emphasis

Evolutionary policy development
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What key lessons for policy development can we
learn from our overview of cluster development?

Evolutionary in character; stages of development and critical mass outcome

Spatial agglomeration of businesses and related organisations; physical
concentration of firms and their relationships;

Different models for different environments – routes to innovation

Different forms of connectivity – relational, market, knowledge, physical,
convergence of technologies and ideas – ICT leverage, innovation.

Learning, path dependency, externalities, paradox of localisation and
internationalisation, innovation
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