Cluster Development

In the course of the 1990s, clusters became a target for local and regional initiatives to promote competitiveness and job-creation. What played an important role in putting clusters onto the policy agenda was a 1990 book by management guru Michael Porter, The Competitive Advantage of Nations, which in fact was much more about subnational regions than nations. Porter's argument underlined what other authors had argued before, namely that firms which are operating with close proximity to a set of related firms and supporting institutions are often more competitive than firms which operate in an isolated manner. This is due to both competition and co-operation. Competition at the local level is usually much less abstract, and often involves personified rivalries, thus creating a stronger pressure than the anonymous mechanism of the invisible hand. Co-operation does not necessarily mean formal alliances, even though even competitors have shown an increasing tendency to enter into arrangements such as strategic technology alliances. Co-operation at the local level often involves activities like informal communication between firms along the value chain, or information about innovation being exchanged over a beer or through employees which move from one firm to another.

Such constellations had in particular been observed in Italy, where clusters, often mainly consisting of small and medium-sised firms, had proved much more dynamic than large-scale, private or government-run industries, often establishing a strong presence on world markets. Italy's industrial districts became something of a mythical reference point of the discussion. In fact, it was a distorted discussion in several respects. Italian industrial districts are not a static constellation but rather undergoing a dramatic evolution. In the 1990s, it has been found that inside many of them concentration processes occurred, and that some others began to de-verticalize, i.e. to relocate certain activities to other locations.

Another important reference point was, of course, Silicon Valley, which was also described as a cluster, or rather an agglomeration consisting of several interrelated clusters. Such phenomena have been conceptualised under various headings: regional systems of innovation, innovative milieus, the region as a nexus of untraded interdependencies. Each of these approaches put a emphasis on certain aspects, but with respect the policy recommendations the differences were negligible. The impressive dynamism of such places motivated actors in other, less dynamic regions to formulate cluster initiatives in order to stimulate growth and job-creation.

In the past years I had the opportunity to observe a number of cluster initiatives both in industrialised countries (Germany, Spain) and in newly industrializing countries (mainly Brazil). One common observation emerged: It is quite complicated to formulate and successfully implement cluster-based initiatives for competitiveness in places where there is little tradition of co-operation. There are many places which match with the cluster definition of the academic literature, but many (if not most) of them do not display the co-operative culture described in the early literature on Italy. It often occurs that co-operation inside a cluster – between firms, between firms and institutions, and between the private and the public sector – is weak, in particular when it comes to activities that go beyond common business transactions, in particular collective action to enhance the competitiveness of the cluster as a whole. In a survey of 160 clusters, the researcher Michael Enright found that on a scale from 0 to 5, the importance of organisations in clusters ranges mostly between 1 (very unimportant) and 2 (unimportant). In a cluster with little tradition in collective action and not very effective organisations, local actors will perceive concepts such as "collective efficiency", i.e. competitiveness based on intense networking between firms, as a strange suggestion since it does not at all meet with their experience of local rivalry.

But there may be innovation in the way this type of cluster operates. Innovation in this case does not refer to process- and product-innovation inside firms, i.e. innovation as the source of competitiveness of firms. In this respect, clusters have often shown to be innovation-stimulating environments. Localised rivalry is one important driving factor, but other factors – informal communication between firms, competent training institutes, technology extension – also play an important role. This is what the literature about innovation in clusters mostly is about.

But cluster promotion is rather about social innovation. This applies to the cluster's paradigm, i.e. the way the actors in the cluster define key issues. One such issue is the local industrial organisation paradigm, i.e. the prevailing thinking about the most adequate way of solving the make-or-buy decision, or to put it differently, the issue of vertical integration within firms and vertical and horizontal division of labour between firms. Another issue is the way the actors in the cluster define themselves, and the characteristics of relations between themselves. With respect to any of these issues the innovative capacity of the cluster is important for its evolution and essential for its survival.

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