Cluster or Cloister—who cares? Rejecting the popular concept in
favor of a new model for our times By Rohit K. Shukla, CEO, Larta Institute Clusters, as local or regional units of analysis and organization, are out of whack with the times. It is time for a retooling and a rethinking. Writing in Competitive Advantage of Nations (1990), Michael Porter was characteristically persuasive in advocating on behalf of a concept of “agglomeration” as the underlying strategy of companies and economies. This notion of a “cluster” as a geographic concentration of interconnected companies, suppliers and institutions supportive of a resulting “eco system” has gained a huge following since its popularization in the 1990s. The phenomenon of Silicon Valley was seen as a “model” worthy of replication, and since at least the 1990s, and perhaps for some time preceding it (Sophia Antipolis in France, Bristol in the UK and organizational networks across Germany), clusters have been seen as the answer to a region’s quest for excellence and relevance. The allure and aura of a small area that creates big ideas (and even grander egos, I might add) has been since marked by similar coming‐of‐age stories, in San Diego, Austin and Raleigh‐Durham where aggregations of entrepreneurs, universities, investors and service providers have been seen as more efficient and effective in result and action than the messy, incoherent sprawls of economies like Los Angeles, New York City or Chicago. Many of these eco‐systems, however, have been bolstered by a chance happening: in the case of Silicon Valley, the implosion of Fairchild Semiconductor, in San Diego the acquisition by Eli Lilly of Hybritech. The subsequent dispersion of talent in those areas has resulted, in both cases, in an explosion of entrepreneurial activity. Economic development professionals, meanwhile, have been quick to jump on this bandwagon, and a whole new area of activity – a practice, really – has arisen, purporting to “teach” far‐flung locals the art (and some may even pretend that it is a “science”) of building a “cluster‐based economy.” On the one hand, this collection of “best practices” derived from the opportunistic and idiosyncratic may seem to be perfectly suited to the teaching of lessons learned. If it was sold as that, it would be less threatening to the prospects for success of the locals in Kaohsiung or Kuala Lumpur. But the mushrooming of this practice across the globe seems out of whack with the times. The converts to the cluster cause, and its practitioners, meanwhile, were quick to adapt to these times with a slogan, “Think local, act global” along with other silly appellations like “glocal”. The more likely slogan to resonate in our times is “Be globally aware always, and act globally always.” Local interaction is always going to be important – a locality, a region, is where the entrepreneur resides, and has his or her base, after all. But a dynamic connection to the world outside is what will provide entrepreneurs (and policymakers) access to radical innovation, bringing new sources and types of knowledge, new intelligence that better paints a picture for the firm, and new levels of practice that will form the basis for a truly competitive enterprise – and by extension, regional or local economy. 606 S. Olive Street, Suite 650 | Los Angeles, CA 90014
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This is disruptive and difficult. Despite the change, as the French say, things remain the same. We accept the notion of globalization, but seek to shelter ourselves from its storm by continuing the indulgence of local behavior. The times we live in are more interesting, more diverse, more unpredictable, and more dispersed than any before us. Value, market and growth are driven by a truly global wellspring of talent, resources and expertise. Urbanization, a trend that marches on exponentially, has bolstered this trend. Today, a biotech researcher in Singapore, Auckland, Penang or Palestine, is capable of creating visibility, finding an expert or developing a value proposition regardless of his or her proximity to the sages of Silicon Valley or San Diego. Access to a constantly swirling global knowledge base, expressed through an expansive Internet‐driven (and thus increasingly global) economy, are causing regions and cities to take a closer look at where they fit into a larger value chain whose very basis is evanescent. Large corporations, engaged at different levels in a more open architecture of outsourcing (sometimes referred to as “open innovation”) scour all points across the globe looking for incremental or game‐changing innovations hatched in the mind of entrepreneurs. This has been firmly driven home in a recent paper published by IMDEA in its Working Papers Series, by researchers Rune Dahl Fitjar and Andres Rodriguez‐Pose, covering five urban regions of tiny Norway. Titled “When Local Interaction Does not Suffice: Sources of Firm Innovation in Urban Norway”, the paper states simply that “local and even national interaction seems to be irrelevant for innovation”. In a message that should resonate with local and national policymakers and economic development professionals engaged in seeking to “build” an innovation eco‐system, it makes the case at the level of the firm, based on a series of extensive surveys, interviews, economic data and analysis: “The results indicate that firm innovation in urban Norway is mainly driven by global pipelines, rather than local interaction… More open‐minded managers have a greater diversity of international partners and rely more on global pipelines, whereas those with higher levels of regional trust depend on local and, to a lesser extent, national contacts.” These practical realities have been embraced by us at Larta Institute in the programs we have developed for and in partnership with federal agencies and foreign governments, and in the advice and counsel we provide to our clients and customers. We recognize that the world in which our entrepreneurs compete and our regions can thrive is not an orderly place, and that fuzzy logic teaches us far more (and is far more appropriate) than the ordered principles that clusters tend to prescribe. Committed to a vision of “mass customization”, rooted in a policy that adopts dispersion (not localization), and focused on the realities of the peripatetic entrepreneur, able to move in and out of markets through partnerships, access to globally‐available expertise and guidance that is itself easy to find across the globe, this vision of a networked economy is more chaotic, but a more effective strategy for emerging markets and existing ones. About Larta Institute Larta is a professional services firm that helps turn government‐funded innovations into enterprises. Our clients range from federal agencies in the U.S. to governments and regional authorities across the globe. We increase the market and investor readiness of emerging entrepreneurs supported by these institutions. Larta has over 17 years of experience designing and managing customized mentoring programs to help innovators reach commercial markets. We credit our proven track record of success to our unrivaled expertise and extensive global network of subject‐matter experts, seasoned entrepreneurs, investors, and Fortune 1000 companies. Since 1993, we have assisted hundreds of entrepreneurs to raise over $1.5 billion in capital. 606 S. Olive Street, Suite 650 | Los Angeles, CA 90014
ph 213.694.2826 | fx 213.622.6230 | www.larta.org