The Role of Cluster in Creating Shared Values: Comparing Washington State’s Aerospace (USA) and Aviation Valley Clusters (Poland)Zbigniew Bochniarz

Academic 1: The Role of Clusters in Creating Shared Value

11 November 2014

The Role of Cluster in Creating Shared Values: Comparing Washington State’s Aerospace (USA)

and Aviation Valley Clusters (Poland)

Zbigniew Bochniarz & Katherine FaoroEvans School of Public Affairs, University of Washington, USA

Barbara Sienko-Kulakowska & Grzegorz PisarczykRzeszow School of Business, Poland

Agenda

1. The research project – Effective Clusters (EC)

2. The concept of Shared Value (SV) as an indicator of cluster effectiveness and contribution to sustainability

3. The Washington State Aerospace in US & the Aviation Valley in Poland – research fields.

4. Verification hypotheses on the role of SV in contributing to sustainable regional development

The main goals of research project: Effective Cluster – the Base for Innovation and Source of Regional Sustainable Development:

• Developing an universal methodology for cluster evaluation based on definition of EFFECTIVE CLUSTER

• Elaborating a guidebook of best practices

Funding Sources

Project co-financed by the Polish Government & the European Union -the European Regional Development Fund through the Regional Operational Program for the Podkarpackie Region -2007-2013

Defining Effective Cluster

• Rich of Social Capital that enables all participants to efficiently cooperate with one another

• Generates maximum positive externalities from…

Co-location (Marshallian externalities)

Synergy (Porterian externalities)

Openness to cooperate with other clusters (Jacobsian externalities)

• Leads to knowledge spillovers and innovation

Defining Social Capital (SC)

SC is a special type of capital resulting frominvestments in building relations, institutions andnetworks that produce collaborative attitudes,shared norms and values, mutual understandingand trust – critical factors for cooperation withother types of capital and thus contributing tosustainable development.

Classifying Social Capital

There is positive and negative SC [Rosenfeld 2007]:

•Positive SC create economic advantages that are major forces for clustering

• Negative SC could start developing when there are efforts to limit membership in clusters and cultivate insularity or lock-in (2007, 20).

Measuring Social Capital

The economic value of SC depends on time invested in developing institutions, networks, relations, attitudes and trust within the a certain group of people (from family, through firms, cluster, region, nation to global community) Bochniarz (2010)

Similar approach proposed C. Roman (2011) with a set of complex indicators assessing its value mainly through surveys

Four groups of indicators measuring SC

1. Indicators measuring associations.

2. Indicators measuring trust.

3. Indicators measuring existing

institutions.

4. Indicators measuring results.

Microeconomics Roots of Shared Value: Two Types of Competitive Advantage

(M. Porter, 1985

M. Porter & M. Kramer- Strategy & Society – HBR 2008

M. Porter & M. Kramer- The Big Idea:

Creating Shared Value – HBR 2011

Defining the Shared Value(Porter & Kramer, 2011)

The concept of shared value can be defined as policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress.

Clusters can create shared value in

the following three ways:

• Redesigning products, services and processes,

and improving connections with customers

• Redefining productivity in the value chain

• Enabling local cluster development

Washington Aerospace Cluster (WAC)

& Aviation Valley Cluster (AVC):

Selected Research Hypotheses

•Hypothesis 1: The process of cluster development

from its functional stage to the stage of the effective

cluster is strongly influenced by increases in social

capital.

•Hypothesis 2: The integration process of a cluster

fueled by social capital has a positive effect on its

economic performance and shared value creation.

WAC: Geographic Location

Statewide Statistics

Area: 184,827 sq. km.

Population: 6.971 million

Urban population: 76.4%

Largest cities: Seattle,

Spokane, Tacoma

Cluster industries:

Aerospace, Healthcare,

Information Technology,

Nonprofit/Philanthropy

WAC: Business Establishment Map

WAC: Location of Cluster

Management Organizations (CMOs)

Initial Verification of Hypothesis 1 in

WAC•Geographic proximity to firms and institutions has a moderate to high impact on the level of collaboration between firms.

•The number of CMOs has increased from 1 in 2005 to 5 in 2013.

•The majority of aerospace firms invest on average 1 hour per month on CMO activity.

•Total SC created by 5 CMOs was about $2,795,000 in 2013

Conclusion: The significant investment in SC by 5 CMOs influenced the cluster integration process but it should be further advanced.

Initial Verification of Hypothesis 2 in WAC

• In 2012, the aerospace industry reached $51.2 billion, with another $8.7

billion generated by firms in related sectors - the most successful year

on record.

• Total aerospace and supporting industry revenues grew by $15.9 billion,

representing 35% growth between 2010 and 2012

• Total jobs in 2012 were up by 15,000 since 2007, representing a 12.8%

increase (CAI Report, 2014).

• Wages in aerospace occupations were 16% higher than average in all

industries in WAS in 2013(Employment Security Department, 2014).

• TBC offered more energy efficient and environmental friendly planes,

stabilized GHG emission at 2012 level, moved toward renewable energy

and significantly reduced water and wastes in their facilities

Conclusions: Cluster integration was one of the

contributors to good economic performance and set the

base to create shared value

WAC: Role of CMOs in Shared Value

Creation (1)

CMOs effectively contributed to legislative efforts to bring new

investments that generated (direct, indirect & induced) over

250,000 jobs and over $20 billion income to Washington state

economy in 2012 (CAI, 2014).

• Washington Aerospace Training & Research Center in Paine

• The Joint Center for Aerospace Technology Innovation

• Several aerospace training centers, internships and new curricula

• Modified state tax system - more favorable business for small

commuter air carriers and private airplane modification

• In 2013, Boeing employees, retirees & charitable trust invested

$176 million in building better communities worldwide

WAC: Role of CMOs in Shared Value

Creation (2)

As identified by an online industry survey, CMOs contribute to

building Shared Value of the cluster in the following ways:

• Positive networking and network expansion

• Important professional information provision

• Bolster regional recognition of the cluster

• Supporting and organizing social & political activities

• Providing market updates

• General support for SME

• Generating mutual trust

Aviation

Valley Cluster

is located in

South-Eastern

part of

Poland

PODKARPACKIE REGION: Statistics

•Area: 17 846 km2 (113 persons/km2

•Population: over 2 million (urban: 41,5%)

•Largest city: Rzeszów (183,000)

• Population under age of 25: 36%

•Over 150,000 enterprises (SME 99%)

Aviation Valley Cluster (AVC)

basic information 2013:

•Established as an association in 2003,

• Represents 120 members,

• Offers jobs for 20,000 employees,

• Produces over $2 billion revenues.

Verification of Hypothesis 1

•Top leaders invested min. 7% of their time for cluster activities => $200,000 in 2013 (some contributed over 12%).

•The number of cluster members has increased from 18 in 2003 to 120 in 2014.

•The total value of SC created in 2013 was min. $430,000 and was 7 times higher than in 2004

•Based on the interviews with the top AVC leaders the value of SC reached $1 million in 2013.

Conclusion: Investing in SC supports integration of the cluster and increases its synergies and positive externalities

Verification of Hypothesis 2

•The cluster has been growing drastically, with sales

quadrupling during the period of 2003–2008 (PAIZ, 2012).

•This unprecedented dynamic is closely tied to FDI, since

the majority of sales came out of companies that were

privatized by large multinational corporations.

Conclusion: Progressing integration of the cluster

improves its economic performance and leads to

shared value creation.

Cases of Shared Value Creation in

AVC (1)•Foresight Material technologies development for the Aviation Valley Cluster

•The INNOLOT: a national sectoral R&D program for aviation with a value of 151 mln USD for 10 years

•Integrated Regional Development Program „Our sky” for the AVC integration

•AVC supports other cluster initiatives in the region through knowledge and know-how sharing

Cases of Shared Value Creation in

AVC (2)

AVC (2)• AERONET Consortium- impact on the educational offer of universities & research

• A comprehensive education support system

• Operators Training Centre CEKSO - Technical secondary schools

• Flying physics - secondary schools

• Children's University - primary schools

• Training for teachers

• Close cooperation with local authorities for support of education

• Foundation for the Support of Education

Questions? Discussion?

Remember: #tci2014