Cluster Development

Rural Planning SeminarKSU – September 2000

J. W Keller

With acknowledgment to

Professors Michael Porter & Michael Enright

Cluster Development

• Industry clusters have become a popular strategy for rural economic development, yet their benefits to the local areas have not been fully examined. Labor is expected to be more productive within clusters, which should translate into higher wages. Our analysis

• confirms this, showing that workers’ earnings in rural industry clusters are about 13 percent higher than those of comparable workers outside clusters. The wage boost is similar for workers regardless of age or education level.

Globalization and Localization

Competition across a wide range of industries is globalizing …

… but at the same time, competitive advantage is localizing

The challenge is to be among the winners in the process

Globalizing Forces and Features

• International finance and financial markets• Improved communication and transportation• Rapid spread of knowledge and technology• Blurring of national identities of firms• Emergence of global oligopolies• Reductions of barriers to trade and investment• Supranational organizations• Electronic communities• Entry of nations into the world economy• Expansion strategies of multinational firms• Decoupling and decentralization within firms

GlobalisationDecoupling and decentralisation within firms

• Auto design for Asian companies

California, UK Midlands• European biotech companies

California, New England• Financial services

New York, London, Tokyo

Local clusters increasingincreasing their drawing power

Localization of Economic Development Initiatives

• Globalization of competition

• Localization of competitive advantage

• Failure of national development policies

• Realization that one size does not fit all

• Success of particular locations

• Devolution for greater responsiveness

What are Clusters?

• Clusters imply a mix of industries linked together both geographically and functionally. An important subset of clusters, though, is identified primarily as a cluster of similar establishments that draw upon common suppliers. Sometimes called sectoral clusters because they consist mostly of one industrial sector, these groups are probably much more common in rural areas than the broader, more complex type of cluster. Several clusters of this type have become well-known in the rural development literature, including the carpet industry in northwest Georgia, furniture manufacturing in the Piedmont region of North Carolina and Tupelo, Mississippi, and manufactured housing in Indiana.

US: Local, World Class Clusters

Minneapolis - supercomputers

Wichita - small aircraft

San Francisco - biotechnology

Silicon Valley - semi conductors, electronics

Los Angeles - motion pictures,military aerospace

Gulf Coast - chemicals

Grand Rapids - office furniture

Detroit - autos

Boston - medical services, medical devices, software, biotechnology

Hartford - insurance

New York - finance, advertising

Carolinas - textiles, apparel

Dalton - carpets

U.S. Counties - Clusters

Cluster SectorsTransportation equipment Tobacco Textiles and apparel

Lumber and wood Furniture Paper Printing/publishing

Chemicals Petroleum refining Rubber and plastics

Leather products Stone, clay, and glass

Primary metals Food Processing

Professional equipment

Primary metals

Fabricated metal

Machinery and computing equipment

Electronic equipment

Italy - Local, World Class Clusters

Udine - furniture

Biella - wool textiles

Milan - finance, machine tools

Turin - autos

Parma - food industries

Carrara - stonework

Prato - wool textiles

Montebelluna - ski boots

Carpi - knitwear

Sassuolo - ceramic tiles

Modena - sports cars

Bologna- food machinery & packaging machinery

Castel Goffredo - hosiery

“Non-cluster” Clusters

• Telemarketing• Credit Card processing• Back office processing• Software services• Information processing• Data Entry

• Light aircraft

Omaha

South Dakota

Dublin

Bangalore

Sydney

Manila

Wichita

High Performance Clusters• Multiple linkages trust• Rivalry and cooperation

• Specialized ecosystem• Strategic leadership team,

participative, consultative, common vision,tight alignment

Clusters…….

• …. do not conform to:– political boundaries– standard industrial classifications

• …. involve high-tech and traditional• …. vary in size, breadth and state of

development• …. can be examined at various levels

– e.g. Trailer manufacturing in Kansas

Clustering Among Firms

• Overcoming lack of scale

• Overcoming distance

• Identifying and creating joint gains

• Linking with public sector

• Leading the process

1+1=3

Are Rural Firms...

• sufficiently knowledgeable about foreign customers?

• sufficiently knowledgeable about foreign competitors?

• sufficiently knowledgeable about best practice in their industry?

• capable of making the investments necessary to fill the gaps?

• able to identify and use local advantages?

Accelerating Local ClustersAnalyse

LocalEconomy

AnalyseLocal

EconomyInitial

ClusterReview

InitialClusterReview

DevelopClusterVision

DevelopClusterVision

IdentifySteppingStones

IdentifySteppingStones

ImmediateAction

Agenda

ImmediateAction

Agenda EmpowerLeadership

Team

EmpowerLeadership

TeamUpgrading Strategic Agenda

Upgrading Strategic Agenda

Seven Stage Cluster Process

1. Analyse Local EconomyIdentify the local drivers • Identify community priorities for early

focus. Short listed clusters should:

• Already generate ‘export’ income

• Already have a range of firms with

some interfirm connectivity

Brand Components

Rational properties

Associated activities

Social image

Brand personality

Icons and symbols

Essence

Emotive properties

© BRIAN R RICHARDS BRAND DEVELOPMENT MARCH 1999

Marlborough’s Image

ProgressiveInteresting, Innovative, New

DerivativeOrdinaryApologeticHesitantPrudish

UniqueSpecialUnashamedProudDelighted

ConservativeParochial, Uninteresting, Reactive, Old

MarlboroughNow

MarlboroughCould Be

© BRIAN R RICHARDS BRAND DEVELOPMENT MARCH 1999

© BRIAN R RICHARDS BRAND DEVELOPMENT MARCH 1999

Do Clusters Help Rural Wages