11 Types of Innovation Networks Clusters. Introduction. Keywords Clusters, networks, regional economy

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1 11 Types of Innovation Networks Keywords Clusters, networks, regional economy After reading this component you will have learnt the importance of clustering nowadays. Although the component has an economic approach it has much to do with innovation because the presence of clusters in a region can be an indicator of how innovative it is. You will learn what a cluster is, the different stages involved in its development, why clusters are created, the characterisation of European clusters and an example of a Spanish cluster. It will take you about minutes to go through this module. Introduction Since the 1960s interest in small enterprise promotion has grown as a way of generating economic growth and employment. Small producers tend to use technology developed or available in their regions and they operate on a scale more appropriate to the size of their local markets and institutional capabilities. Besides, expansion of the SMEs sector has long-term benefits in terms of developing entrepreneurial and management capacities; and increasing opportunities for training and human resource development at a lower cost than otherwise available through formal institutions or large firms 1. In theory, SMEs might enjoy some advantages over large competitors such as, greater flexibility in a changing environment, or the ability to serve small and specialised markets. Nevertheless, much of the research carried out in the past thirty years suggests that in general SMEs are either marginalised by large-scale business or subordinated in ways which excludes them from appropriating the profits of technical changes. Unable to accumulate, they were squeezed into tightening economic spaces where competition weakens any option for developing their human or technological resources 2. Under these conditions, it is not surprising that huge interest was raised when examples of internationally competitive industries composed predominantly of SMEs began to be 1 Albu, Michael. Technological learning and Innovation in Industrial Clusters in the South. Electronic Working Paper Series. Paper No 7. 2 Ibid. InnoSuTra 1/

2 brought to light in the 1980s. The examples were linked to localisation of production; that is to say with sectorial agglomerations or clusters of firms What is a cluster? 4 Defining a cluster is a complex task. The name is used for different business structures such as national-regional-cross-border clusters, clusters of competence, industrial or production systems and innovation systems. It is also used for different reasons: to increase the competitiveness of SMEs, support collective research, change a whole industry, implement environment management system... Even though there are a huge number of definitions most of them share the idea of proximity, networking and specialisation. One of the most used definitions of a cluster is the one of Michael Porter 5 : Clusters are geographically close groups of interconnected companies and associated institutions in a particular field, linked by common technologies and skills. They normally exist within a geographic area where ease of communication, logistics and personal interaction is possible. Clusters are normally concentrated in regions and sometimes in a single town 6. Some experts on clusters and networks add some components to the definition: Clusters are groups of individual companies and linked institutions that are 7 : Working together and/or competing Geographically assembled in one or several regions, even though the cluster may have a cross border extension Focused on a particular field, linked by common technologies and skills Either science-based or traditional Clusters can be either institutionalised (they have a proper cluster manager) or noninstitutionalised. 3 Ibid. 4 This chapter has been written on the basis of Design of Cluster Initiatives 5 Michael Porter is recognised as the father of the modern strategy field. He is a leading authority on competitive strategy, the competitiveness and economic development of nations, states and regions Ibid. InnoSuTra 2/

3 Stages in the evolution of clusters There are different stages involved in the emergence and evolution of clusters. These stages are (see also Fig. 1) 8 : 1. PRECLUSTER. The birth of a cluster can often be linked to historical situations, such as: Availability of raw materials Specific knowledge in R&D or traditional know-how Specific needs of a group of (geographically concentrated) customers or firms Location of companies or entrepreneurs carrying out some new technological innovations that motivate the expansion of many others. The first stage of a cluster often involves co-operation between subcontractors or a geographical concentration of companies at the same stage of production. 2. EMERGING CLUSTER. When this concentration of firms is established it begins a snowballing process in which more external economies are created. The first external economies often include the creation of specialised providers and service organisations, frequently originated from vertical dissolution of other firms, and the creation of a skilled labour market. The main aim of these new organisations (e.g. knowledge organisations, business associations, etc) is to help several firms in the growing cluster. 3. EXPANDING CLUSTER. The growth of external economies and the emergence of new local organisations enlarge the visibility, reputation, and attractiveness of a cluster. This may result in more firms and skilled employees joining it, therefore boosting the attractiveness even more, as well as resulting in a seed for the development of new local companies. 4. TRANSFORMING CLUSTER. Although a cluster can reinvent its success for decades or become part of a new cluster, many regional clusters sooner or later enter a period of decay. Cluster decay is often seen as a situation of 8 Information about the stages in the evolution of clusters has been adapted from InnoSuTra 3/

4 technological, institutional, social and/or cultural lock-in business behaviour. It must adapt to the new situation. The following figure shows the stages of evolution of clusters: Precluster Emerging Cluster Expanding Cluster Transforming Cluster Fig. 1. Stages in the evolution of clusters Why are clusters important? In the last decade, clustering has come to light as a new concept for economic development. A large number of countries and regions are inspired by cluster theories and use elements of it to promote progress 10. Even if clustering, as an economic development strategy is still a new phenomenon there are European cluster success stories that show the important positive effects which can be obtained when cluster concepts are implemented correctly. In particular, many industries of Northern Italy are recognised as models for clusters, these include furniture and shoe making in the Veneto region and ceramics in Emilia-Romagna. A second cluster stronghold is Austria. In the regions of Styria and Upper Austria regional economic development is completely cluster-based. A particularly strong cluster in both 9 Based on the presentation Introduction to clusters by The Competitiveness Institute, Ottawa, 28th September InnoSuTra 4/

5 regions is the automobile sector 11. This component presents the case study of the textile and Clothing Cluster in Catalonia (Spain) as an example. The success stories show that clusters, by increasing the competitiveness of single firms, provide macroeconomic benefits, some of which are: Raising attractiveness of regions clusters will help to stimulate competence development in the region as well as motivate people not to migrate. This will also have a positive effect on inner investments in the region as it creates a positive job effect and can inspire other companies to move into the region. Increasing need-orientation of business supporting services clusters work well in the field of RDT (Research, Development and Transfer of Innovation) and as a result involve research institutes and universities. Therefore, they contribute to further develop the regional competence and research infrastructure. Protecting employment and promoting entrepreneurship the production sector in Europe is a large provider of jobs and contributor to the GDP; much of this comes from SMEs supplying the large end producers. 12 Clusters are generally built up by the local business actors, who want to take advantage from the synergy of several factors existing in the region: the presence of customers and providers, the access to skilled human resources and know-how, the availability of specific raw materials and infrastructure, low transaction and communication costs due to geographical proximity, the proximity of universities, training centres and research institutes, and the presence of financial institutions and other private and public organisations. 13 The physical proximity of the factors mentioned above encourages the creation of formal and informal relationships among companies, higher education and research institutions, financial organisations, public actors and other local organisations, where information can easily flow and disseminate 14. Easier contacts are established with public administrations, allowing them to adapt the infrastructure of the cluster to the business and/or market requirements. All these contribute to encourage the innovation process Ibid Ibid. InnoSuTra 5/

6 To ensure their survival in these competitive environments, cluster firms are obliged to develop innovative strategies and to build in the necessary capacities to implement them. Innovation is not just the only preserve of universities or research centres; it is mainly the result of a series of businesses initiatives and experimentation. In a cluster, enterprises voluntarily or involuntarily learn from each other and copy each other. At a higher level, clusters have proved to be attractive to the regions hosting them. They contribute to their economic growth and social wealth. As Porter stated, prosperity depends upon the productivity with which a region allocates its resources (manpower, natural resources, infrastructure, etc) to produce goods and services and productivity rises because of innovation. As it has been said before, clusters can form the perfect environment to enhance competitiveness and productivity by allowing firms to take advantage of: specialised suppliers local know-how information skills education The proximity of customers, competitors, suppliers, universities and research institutions provided impetus the creation and exchange of information and increases opportunities for innovation. These in turn favour the growth, the high employment, and the attractiveness of the regions. 15 Please stop and think: after reading almost all of the component which areas do you think clusters can have a positive effect? What is the situation regarding clusters in your region? Do they exist? 15 InnoSuTra 6/

7 Characterisation of European clusters 16 Most of the clusters are rather young; they were created after 1970 and are still growing. Many of them have increased the number of employees as well as the number of firms involved over the last ten years. The majority of firms involved are SME s and over the last ten years this has been increasingly the case. Numerous activities generally take place inside the geographic borders of the clusters. Most often applied R&D and supporting services are performed inside the clusters. The following table shows the number of clusters per country in the EU. There were difficulties in getting complete and accurate figures mainly due to the fact that many countries have not completed a cluster mapping exercise. 16 Information adapted from InnoSuTra 7/

8 Country Belgium Number of clusters identified Flanders: 14 Wallonia: 9 Denmark 41 France emerging clusters Spain >100 Italy 199 The Netherlands 12 Portugal 33 Austria 45 Finland 10 United Kingdom 154 Estonia 1 Hungary 19 Latvia 4 Poland Slovenia 9 12 needing more time and support Norway 68 Table 1. Number of clusters per country in Europe (2002) Table adapted from InnoSuTra 8/

9 Case study The textile and Clothing Cluster in Catalonia (Spain) 18 The Catalan textile industry powered by the steam revolution started developing in the region in The textile sector, once the foundation of the local economy, has given way to more modern industries but is still significant. It accounts for 7% of Catalan industrial output (38% of Spain s total production) it employs approximately people (2,8% of total employment) in the region. The cluster encompasses a wide range of industrial activities that include: suppliers of chemical products, manufacturers of textile machinery, narrow fabrics, fiber suppliers, spinners and weavers, dyers and finishers, other suppliers and clothing manufacturers. All of which are classified based on the raw materials and technology used: cotton, knittedfabrics sector, dyes and finishes, wool, silk, etc. In the early 90 s, like many other sectors, the textile and clothing industry was greatly affected by the phenomenon of globalisation. The Catalan textile cluster started facing fierce competition from developing countries that had become very competitive in textiles and clothing, as they combined low wages costs with high-quality equipment and knowhow imported from more industrialised countries. 19 The cluster is made up of companies, most of which are SMEs and 85% are concentrated in 8 counties, each being specialized in specific processes. These are surrounding by numerous agents that act as clients, suppliers, subcontractors and service providers, such as logistic providers, marketing agencies, specialized printing companies, etc. The cluster includes major companies that integrate production and distribution. In fact, the success of the cluster is strongly related to the integration of distribution with the production system. The Catalan textile cluster is characterized by various local producers associations and guilds from different counties, each of them are responsible for supporting and promoting their local industry, serve as a lobbying platform, and establish partnerships between companies. 18 Information based on Case_Textile_Catalonia.pdf 19 For further information you can go to and InnoSuTra 9/

10 Each action line proposed inside the cluster would be financed through a public-private contribution. The proposed cluster actions were: Integrating production with distribution through the creation of chain stores The creation of a Centre for Textile Innovation to offer permanent support on technologies innovation to the textile companies Reinforcement of the informal collaboration with the traditional national, regional and local associations Promote needs-based innovation projects linking providers and innovative clients Encouraging innovation and product design through human resources training Setting a B2B online marketplace Implementing the ISO 9001 as a means to certify the quality of the cluster s products Pointing out to different funding instruments available for acquiring technological equipment and facilitating the process for obtaining it Summary of key points Clusters are groups of independent companies and associates institutions that are: collaborating and/or competing; geographically concentrated in neighbour regions; and specialised in a particular field, linked by common technologies and skills. In clusters evolutions four stages can be found; precluster or the birth of a cluster, emergence, expansion and transformation. Clusters have a positive effect on innovation and competitiveness, skill formation, information and growth and long-term business dynamics. After reading the component you will be aware of the importance of clustering nowadays. Although the component has a marked economic approach it has much to do with innovation as it has mentioned in throughout the component. You will have learned what a cluster is, the different stages involved in its development, why clusters are created and the characterisation of European clusters. The component will have given you some clues to identify clusters in your region and about the way clusters are created and what are the best socio-economic situations to do so Bibliography Albu, Michael. Technological learning and Innovation in Industrial Clusters in the South. Electronic Working Paper Series. Paper No 7. Design of cluster Initiatives. An overview of policies and praxis in Europe, InnoSuTra 10/

11 regions.org/download/design_of_cluster_initiatives.pdf?cfid= &cftoken= , Last viewed 4 th July European Commission: Final report of the expert group on enterprise clusters and networks, sters_en.pdf, Last viewed 4 th July Regional clusters in Europe (2002). Observatory of European SMEs, 2002 /No Last viewed 4 th July Competitiveness. The Catalan Clothing Industry (2008), Case_Textile_Catalonia.pdf, Last viewed 3 rd September Further Reading Websites General information about cluster in Europe. Last viewed 3 rd September Report on the status of clusters in EU10. Last viewed 3 rd September Glossary Clusters Geographically close groups of interconnected companies and associated institutions in a particular field, linked by common technologies and skills. They normally exist within a geographic area where ease of communication, logistics and personal interaction is possible. Clusters are normally concentrated in regions and sometimes in a single town. (Source: InnoSuTra 11/

12 GDP (Gross Domestic Product) The total market value of all final goods and services produced within a country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is given a money value. (Source: InnoSuTra 12/