Networks, Clusters, Industrial
Districts:
Key Issues in Analysis and Promotion
Jörg Meyer-Stamer
www.mesopartner.com
Structure of the presentation
 Cluster definitions and typologies
 Obstacles to cluster initiatives
 -- and how to overcome them
Why cluster promotion?
 generally: to enhance the competitiveness of
companies, particularly SMEs
 specifically:
– collaboration between companies
• to create economies of scale
• to stimulate innovation
• to create market power
– more effective government support
• alignment and coordination among government
agencies
• closing gaps in support structure
Cluster definitions and typologies
What is a cluster?
• A geographical agglomeration of firms in the same or
closely related sectors
Passive cluster advantages:
 Skilled workers
 Suppliers of inputs and
capital goods
 Customers
 Low barriers to entry
Active cluster advantages:
 Strong, competent business
associations
 Specialized, high-quality
skills development effort.
A highly dynamic cluster:
Ceramic tiles, Castellón, Spain
AUTONOMOUS
GOVERNMENT
SUPPORT
CERAMIC
TECHNOLOGY
Villafamés
INSTITUTE
La Pobla Tornesa
Lucena
del Cid
Alcora
Figueroles
San Juan de Moro
LOCAL
GOVERNMENTS
SUPPORT
Borriol
Ribesables
VERY ACTIVE
BUSINESS
ASSOCIATION
Castellón de la Plana
Villarreal
NEW
INFRASTRUCTURES
INVESTMENT
Betxi
Onda
Almazora
CERAMIC PROMOTION
INSTITUTE
Vall d’Uixó Nules
SPECIALIZED COURSES
AT HIGH SCHOOLS
UNIVERSITY WITH
SPECIALIZED
COURSES
CERAMIC DESIGN
INSTITUTE
Inside the Castellón cluster
a tile factory
inside a tile factory
clustered factory
a glaze manufacturer
Ceramic Industry
Association
Institute for
Ceramics
Technology
Why does a cluster emerge?
 Due to historical
coincidence
 Due to the
availability of key
inputs (e.g. clay)
 Due to
government
interventions
(often
inadvertently)
An example of historical coincidence:
 Somebody starts a textile company
 As it grows, some employees quit and start
their own textile company
 Sons of the owner fight over the inheritance
and split the company
 As more companies are there, suppliers
come in with local production
 As more skilled workers become available,
new entrepreneurs come in to start their own
textile or supply company.
An emerging cluster:
Lingerie production in
Frecheirinhas, Ceará, Brazil
 Origin of the cluster:
Innovative idea of one
entrepreneur
– getting ideas for fashion
lingerie from European
fashion journals (1992)
 Copied by other local
entrepreneurs
 Late 2002:
– 12 formal companies
– 15 informals
– about 500 employees
– 250,000 pieces / month
An emerging cluster:
Lingerie production in
Frecheirinhas, Ceará, Brazil
 Mostly producing for the
regional market
(neighbouring provinces)
 LED in Frecheirinhas:
– impossible until late 2002
-- political rivalry
– early 2003: mayor on trip
to successful cluster in
Minas Gerais
– result: local government
• facilitates skills
development
• develops business
estate
Can a cluster be created?
No!
 Clusters emerge
due to the invisible
hand of the market
 It is hard to
conceive how a
complex cluster
structure might be
created from
scratch
But:
 Private sector actors or government may
transform undercomplex agglomerations
into clusters, and clusters into industrial
districts
 There are examples of clusters which are
due to government intervention
– Aerospace in São Paulo province
– Salmon in Chile
– Hsinchu high technology cluster in
Taiwan
– Software in Bangalore / India (originally
based on government defense and
computer companies).
Cluster typologies
 Life-cycle typologies
– Michael Enright
– Jörg Meyer-Stamer
 Functional typologies
– Ann Markusen
– Altenburg/Meyer-Stamer
Michael Enright’s typology of
clusters
Working cluster
Latent cluster
Potential cluster
Policy-driven
cluster
Wishful-thinking
cluster
 strong specialization and dense interaction between
companies
 competitiveness based on interdependence
 critical mass of companies, but little interaction
 low degree of specialization
 agglomeration with little scope in activities
 little interaction and specialization
 chosen by government for support
 often recent industries, start-up companies
 policy-driven clusters without any critical mass.
A life-cycle typology of clusters
(Jörg Meyer-Stamer)
Emerging cluster
Growing cluster
Mature cluster
Declining cluster












Based on historical coincidence
Start-up companies
New entries in main products
New entries in supplies and services
Increasing specialization
Increasing collaboration + strong rivalry
Few entries, consolidation / takeovers
Decreasing collaboration
Outsourcing of non-core activities
Decreasing number of companies
Decreasing number of employees
Fierce rivalry, little collaboration.
A cluster-typology according to
Ann Markusen
Italianate
Industrial
District
HubandSpoke
Satellite
StateStateAnchored
anchored
District
district
Italianate Industrial District









Sectoral specialization
Dominance of small- and medium-sized firms
Strong division of labor
A high degree of specialization among firms
Strong competition, especially via innovation
Information network
Highly qualified workers
Socio-cultural basis for trust
Active role of the state.
Hub-and-spoke clusters
 Presence of large, medium and small-sized firms
 Leadership role of large firms
– technology and innovation
– decision-making in collective action
 Many hierarchical relationships inside the cluster
 Strong tendency in the recent evolution of many
Italian industrial districts.
Satellite clusters
 Reliant on firms elsewhere (contractors, customers,
headquarters)
 Often result of cost-reduction strategies of firms in
leading clusters
 Further strong tendency in the recent evolution of
many Italian industrial districts
 Potential for emancipation (see Taiwan, Korea).
State-anchored district
 Occurs in government-dominated industries, such as
armaments
The Altenburg/Meyer-Stamer
typology: Clusters in Latin
America
 Survival clusters
 Fordist clusters
 Transnational clusters
Key Features of “Survival
Clusters”: “passive” advantages
of clustering
 information spillovers concerning sourcing,
marketing, and product design of competitors
 the availability of a semi-skilled labor force
 easy access to raw materials and machinery
 lower search costs for customers.
Survival clusters: The features of
world-class clusters are absent
 low degree of specialization
 little inter-firm cooperation
 limited socioeconomic ties.
Survival clusters:
Why is there little specialization?
 too limited skills to enter forward / backward stages
 little capital.
Survival clusters:
Why is there little cooperation (1)
First, there is little trust:
 copying is major business strategy
 predatory behavior often pays off (business as
survival activity, short time horizon)
 little social control in shantytowns with high turnover
of inhabitants.
Survival clusters:
Why is there little cooperation (2)
Second, there are further reasons:
 no legal mechanisms to enforce informal contracts
 little available advanced factors / complementary
assets
 low barriers to entry, thus excess supply and
underutilization of capacities, ruinous competition.
The Vicious Cycle of Survival
Clusters
Entry
Selection process does not
work because exit is no option
= negative incentive for firms
with potential to survive
Some success
Competition based on price-cutting
More entrants
Promotion measures for survival
clusters
 Creating dynamism in the formal sector to stem the
inflow into survival clusters
 Training measures for businesses
 Food/money-for-education programs.
Key features of Fordist clusters




Strong growth in import-substitution era
Hub-and-spoke structure
Deep adjustment crisis after opening of the market
High turbulence (exits and entries).
Promotion measures for Fordist
clusters
 Creating active advantages
– Training
– Technology
– Export information
– Finance
 Strengthening business associations
 Overcoming un-cooperative behavior.
Key features of Transnational
Clusters
 Multinational firms produce final products
 First- and second-tier suppliers are also
multinationals
 Little demand for inputs from local producers
– insufficient quality / quality variance
– inability to meet scale and flexibility requirements.
Promotion measures for
Transnational Clusters
 Attract more, complementary multinationals
 Upgrading of local suppliers, starting with simple
inputs.
Six types of obstacles to cluster
initiatives
What is the purpose of a cluster
initiative?
 To increase the competitiveness of companies, and
thus create income and jobs, by producing
– the same products more efficiently
– higher-value products
 Increased competitiveness can be based on
– increased specialization and interaction between
companies
– attraction of specialized suppliers
– collective action
• visits to international fairs, joint stands
• skills development and joint learning
• technology development
Obstacles to cluster initiatives
Between firms
• Prisoners’ dilemma
Firms x
meso institutions
Private sector x
public sector
Understanding relationships
between competing firms:
Prisoner’s dilemma
Conventional prisoner’s dilemma:
 One crime, two prisoners in
separate rooms
 No clear evidence
 No punishment if confession
 Result 1: None confesses, no /
little punishment = Cooperation
 Result 2: Both confess, both
get punished = Defection
 Repeated prisoner’s dilemma:
Co-operation emerges
Prisoner‘s dilemma involving
competing firms:
 No ex-ante co-operation
(joint crime)
 Long history of rivalry
 Established culture of
defection
 Path-dependence: Attempt
to co-operate fails =
reinforces non-cooperative
disposition.
Obstacles to cluster initiatives
Between firms
• Prisoners’ dilemma
• loss of secrets
• costs of cooperation:
transaction cost,
opportunity cost,
investment cost
• anti-trust risks
Firms x
meso institutions
Private sector x
public sector
If we talk about cooperation ...
... we (consultants, researchers, SME promoters) think
of
 collective efficiency
 learning-by-interacting
 joint upgrading efforts
 collective action to create
locational advantages
... businesspeople think of
 joint purchasing
 joint sales
= eliminating competition!
= creating market power!
 attacking established power
structures
 challenging powerful actors
in the market
 powerful actors respond
 and kill the cooperation
effort.
Obstacles to cluster initiatives
Between firms
• Prisoners’ dilemma
• loss of secrets
• costs of cooperation:
transaction cost,
opportunity cost,
investment cost
• anti-trust risks
Firms x
meso institutions
Private sector x
public sector
• Chambers hate cluster
initiatives because they
come under fire from
non-cluster firms
Local governance:
• lack of credibility of
cluster concept
• mistrust between private
and public sector
• political rivalry
Supporting institutions:
the usual problems, i.e.
• different rationales
• different goals
• different cultures
• different time horizons
• fuzzy evaluation criteria
Global governance:
• strong position of
foreign buyers
• little commitment of
local branch plants
How can the obstacles be
overcome?
Conventional approaches
Participatory
approach
Cluster definition
Policy problem
Policy problem
Analysis
Cluster definition
Participatory analysis
of local system
Findings
Analysis
Definition of tasks and
responsibilities
Policy implications
Findings
Policy design
Policy design
Implementation
Implementation
Implementation:
Cluster plus
Participatory
evaluation
Key questions at the beginning of
a cluster initiative
 What type of cluster is it?
– cluster initiatives are difficult in mature or declining
clusters, and in satellite clusters
 Are there obvious gains to be expected from more
collaboration among companies?
 Are there obvious gains to be expected from improved
coordination between support agencies?
 What is the risk/benefit-ratio as perceived by
companies?
 Are there powerful actors who might be interested, or
decidedly disinterested, in a cluster initiative?
Possible sequence in a cluster
initiative
...
Increased trust
Joint R+D
project
Increased trust
Joint stand at
foreign fair
Increased trust
Joint training
initiative
Criteria for initial activities to
overcome a non-cooperative
culture
 they address immediate
problems of firms
 they offer the potential of
savings through economies
of scale
 they do not touch what firms
perceive as their core
activities
 they open little or no latitude
for predatory behavior
 cost and benefit
 cost and benefit
 trust
 trust
Cluster promotion in the view of
systemic competitiveness
Meta-level
Macro-level
Meso-level
Micro-level
 understand the logic of non-cooperation
 identify the existence of social capital
 identify and remedy unfavorable macro-economic
conditions which hinder the cluster
 restructure and re-orient existing institutions
 create new support institutions
 attract complementary firms
 initiate co-operation initiatives
– which address immediate necessities
– which have a quick, visible impact
– which give little opportunity for opportunistic
behavior
– which contribute to creating social capital
Practical examples
Again: what are the objectives
cluster promotion?
 generally: to enhance the competitiveness of
companies, particularly SMEs
 specifically:
– collaboration between companies
• to create economies of scale
• to stimulate innovation
• to create market power
– more effective government support
• alignment and coordination among government
agencies
• closing gaps in support structure
Create economies of scale
Ceramic tile cluster in Santa Catarina, Brazil:
 jointly maintained technical school
 lobbying for higher education course in ceramics
technology at local university
 creation of a technology center to provide inputs and
materials testing services to all cluster companies
Ceramic tile cluster in Sassuolo, Italy:
 joint transport operation within the cluster
Stimulate innovation through recombination: The textile industry
cluster initiative in NRW, Germany
Globalisation
Information Technology
Suppliers
Industry/Commerce/
Imports
Raw materials
Services
Chemical Industry
Capital goods industry
• Man-made fibres
• Process chemicals
Textiles industry NRW
Garments
Home textiles
Technical textiles
330 Companies
39.000 Employees
Initial and ongoing training
Garments
R&D / Innovation
Aerospace
Furniture / interior design
Construction
Environment
Medical
Customers
Industry/Commerce/
Exports
Automotive
SCOTLAND’S CREATIVE MEDIA INDUSTRIES CLUSTER
ENABLING TECHNOLOGIES
Film, TV, Radio &
Music Studios
Content Originators
Telecomms
Computing
IPR Commercialisers
Electronic, Digital
& Optical Media
Print Media
Distribution Channels
Internet & Online
Systems
Markets
Education
Multimedia Producers
Multimedia Distributors
Schools
Games Producers
Game Distributors
Retail Shops
Authors
Book Publishers
Film/TV/Radio Producers
TV/Radio Channels
Film Producers
Film Distributors
Journalists
Newspapers/Magazines
Musicians
Record Labels
Internet
Business
Designers
Advertising Agencies
Advertising Media
Visitor Attractions
Professional
Services
Consumer Electronics
Readers
Libraries
TV/Radio Audiences
TV/Radio Broadcasts
Music Buyers
Filmgoers
Utilities/Public Sector
Cinemas
Edutainment
Promotion &
Review
Patent Agents
Marketing
IPR Lawyers
Media
Accountants
Critics
Talent Agents
SAC
Universities Art & Music
Schools Industrial
& Colleges
R&D
UPGRADING & INNOVATIVE BODIES
Key to shading:
Relative strength
Industry
Bodies
Banks &
Financiers
Libraries & E-commerce
Museums
users
Education
Smart
Authorities
Cities
Government
(SO,DCMS)
OTHER CLUSTER PARTNERS
Broadly on par
Relative Weakness
Scottish Enterprise: Creative Media Group
Create market power
 Ceramic tiles, Santa Catarina, Brazil:
– joint lobbying for access to natural gas pipeline
 Ceramic tiles, Castellón, Spain:
– joint purchasing of telecom service, energy, transport
services
 IT cluster initiative, Scotland:
– joint purchasing of broadband capacity
 Food+drink cluster initiative, Scotland:
– joint acquisition of otherwise prohibitively costly
market research reports
A leading-edge example:
Cluster promotion in Scotland
Key features




linking cluster & value chain promotion
limited public support
private sector-driven
cluster development = community building
The Scottish Cluster Approach
Focusing on
Priorities
Engaging
Stakeholders*
Learning and leadership
Scoping
Initiating
Picturing
the Cluster
Assemble
Resources
Collaboratin
g with
Stakeholders
Gathering Data
- benchmarking
- global trends
- scenarios
Developing
Strategy
Action
Planning Implementing
Recognising
Best Placed
Leaders
Securing
Resources
Supporting Dialogue & Networking
Assessing
Results
*Stakeholders include partners in industry, academia, education, research,
government and other appropriate institutions
Scottish Enterprise
Scotland’s Food &
Drink Cluster
1999
Fish
Farming
Upgrading &
Innovative Research Institutes
Institutions
e.g SABRIs
Fishing
Industry
Fish
Markets
Breeding
Co’s
Universities Training Providers
Colleges
Imported Commodities/
Raw Materials
Basic
Processing
Fish
Rendering/
By Products
Value Added
Processing
Customers
Food
Brokers
Multiple
Retailers
Prepared
Meats & Fish
Poultry
Meal
Solutions
Discounters
Gourmet
Foods
Farmers
Auction
Marts
Abattoirs
Red
Meat
Dairy
Feed
Snacks
Bakery &
Confectionary
End Users
UK
Distributors
Vegetables
Critical linkage - strong
Critical linkage - medium
Critical linkage - weak
Equipment
Suppliers
Packaging
Transport and
Distribution
Cereals
Legislation
In Mkt
Agents/
Distrib’s
Overseas
Markets
Value Added
Components
Infrastructure/services
Marketing/
Design
Consumers
Further
Processing
Outwith
Scotland
Beer
Whisky
Independent/
Speciality
Retailers
Food
Service
Non-Alcoholic
Drinks
Specialist
Growers
No presence
Weak
Medium
Strong
Key driver
Market
Intelligence
Industry
Bodies
Specialist
Consultants
QA and
Food Safety
Scotland’s Food &
Drink Cluster
2010
Fish
Farming
Fishing
Industry
Upgrading &
Innovative Research Institutes
Institutions
e.g SABRIs
Imported Commodities/
Raw Materials
Basic
Processing
Fish
Markets
Breeding
Co’s
Fish
Universities Training Providers
Colleges
Rendering/
By Products
Value Added
Processing
Food
Brokers
Ready
Meals
Discounters
Gourmet
Foods
Farmers
Auction
Marts
Abattoirs
Red
Meat
Snacks
Bakery &
Confectionary
Dairy
Feed
End Users
Wholesalers
Distributors
Vegetables
Beer
Whisky
Critical linkage - strong
Critical linkage - medium
Critical linkage - weak
Equipment
Suppliers
Packaging
Cereals
Transport and
Distribution
In Mkt
Agents/
Distrib’s
Value Added
Ingredients
Infrastructure/services
Legislation
Marketing/
Design
Independent/
Speciality
Retailers
Consumers
Food
Service
Non-Alcoholic
Drinks
Specialist
Growers
Customers
Multiple
Retailers
Prepared
Meats & Fish
Poultry
No presence
Weak
Medium
Strong
Key driver
Market
Intelligence
Further
Processing
Outwith
Scotland
Overseas
Markets
Industry
Bodies
Specialist
Consultants
The Actions






Develop & Grow Leading Suppliers & Processors
Exploit Premium Market
Advantage Through Innovation
Build on Quality Standard
Develop Capabilities of People
Linkages & Networks
Scottish Enterprise
Lessons learned
 No universal model
 Widest possible ownership is vital
Scottish Enterprise
Benefits to the Cluster
Community
 Joint development and ownership of strategy with
wide set of partners
 Increased industry confidence & ambition encouraging progression of new ideas & spin-out
companies
 Innovative solutions to commercialisation, skills
shortages & internationalisation
 Improved targeting of inward investment activity
 Higher national & international profiles for the
respective industries
Scottish Enterprise
Benefits for Scottish Enterprise
 Promotion of Network cohesion & a philosophy of
national delivery
 Dealings with the Scottish Executive are taken
forward in a concerted manner
 Enables the Network to target its resources more
effectively at community wide solutions
Scottish Enterprise
Scottish Enterprise’s Balanced
Scorecard to assess cluster
initiatives
Economic/Financial
Knowledge & Know how
•Levels of Investment
•R&D and Innovation
•Company performance
•International awareness/recognition
•Market performance - Global, UK, Home
•Integration of academia & business
• Employment levels/no. of Companies
Skills
Cluster Process
•Appropriate skills levels and structure
•Local connections & networks
•Improved value /per employee
•Appropriate infrastructure
•Continuous learning and development
•International connectedness
•Industry Leadership
The goal