By Christian Ketels, presented at the 18th TCI Global Conference, Daegu, 2015.

1. Clusters for Competitiveness:
Mobilizing the Power of
Modern Cluster Policy
Christian Ketels
Opening Session: New Direction of Cluster Policy in a Creative Economy

2. 2015 TCI Conference
Clusters for Competitiveness:
Mobilizing the Power of Modern Cluster Policy
Dr Christian H. M. Ketels
Institute for Strategy and Competitiveness, Harvard Business School
President, TCI Network
rafmozart@terra.com.br

3. 3 Copyright 2015 © Christian Ketels
A Universal Ambition
PROSPERITY
INNOVATION
CREATIVITY
ENTREPRENEURSHIP
PRODUCTIVITY

4. 4 Copyright 2015 © Christian Ketels
…But Different Pathways
The “Western” Model
• Market-driven
• Focus on framework
conditions
The “Asian” Model
• Government-led
• Focus on targeting
specific industries
But in reality
much more shades of gray...

5. 5 Copyright 2015 © Christian Ketels
How is this Reflected in Cluster Policies?
A First Hypothesis
• Surprisingly little, because cluster programs are almost universally
focused on enabling collaboration within a cluster
– Key issue is whether an integrative cluster initiative exists
• Differences are more driven by a country’s stage of economic
development
– In more advanced economies cluster programs are the ‘lubricant’ for
existing assets and policies to work better
– In emerging economies cluster programs help set priorities for necessary
investments in assets and infrastructure
• Differences in the role of government in the economy then effect how
these programs are implemented, less so what they do
– In western economies larger role of independent entities receiving public
funding
– In Asia larger role of government agencies directly

6. 6 Copyright 2015 © Christian Ketels
Back to the Common Principles: What are Clusters?
Collaboration
Related Variety
Critical
Mass
Proximity

7. 7 Copyright 2015 © Christian Ketels
Clusters in a New Economic Context
Rising
Knowledge-Intensity
Lower Trade Barriers
Globalization of production sites
Falling Transportation/
Communication Costs
Accelerated
Technological Change
Clusters are a critical facet
of modern economies
Clusters are becoming more
specialized
Clusters are becoming more
connected
Agglomeration Dispersion
Globalization of markets

8. 8 Copyright 2015 © Christian Ketels
Research About Clusters
Case Studies
Cross-sectoral
quantitative Studies
• Show nature of clusters
• Establish types of linkages that
exist within clusters
• Identify patterns of cluster
dynamics and their drivers
• Develop hypotheses on the impact
of clusters on firms and regions
• Systematic comparison of clusters
across sectors and locations
• Measurement of the overall
importance of clusters
• Tracking of cluster evolution
• Empirical tests of the impact of
cluster presence on regional and
firm-level economic performance
“Cluster Mapping”

9. 9 Copyright 2015 © Christian Ketels
Research Findings:
Clusters and the Nature of Competition
EMPLOYMENT
INCOME
PATENTS
36% 64%
51% 49%
91% 9%
Local Industries
• Present everywhere at
similar levels
• Serve exclusively the local
market
• Little exposure to cross-
regional competition
• Important for jobs, but
lower wages; growth
potential limited by size of
the local market
Traded Industries
• ‘Spiky’ across space; 2/3s of all
traded industry employment is in
strong clusters
• Serve national and global markets
• Exposed to competition from other
regions and nations
• Critical for prosperity through
higher wages, productivity, and
innovation; growth potential set by
the global market
Traded vs. Local Share of the U.S. Economy

10. 10 Copyright 2015 © Christian Ketels
Research Findings:
Clusters and Economic Performance
Prosperity Entrepreneurship Structural Change
• Wages
• Productivity
• Job growth
• Resilience
• Patenting
• New business
formation
• Survival of new firms
• Job growth in new
firms
• Path of structural
change(emergence
of new clusters)
Presence of Strong Clusters

11. 11 Copyright 2015 © Christian Ketels
Putting Clusters into Context
(Creative)
Skills
Complexity
Social Capital
Innovation
Systems
Entrepreneurial
Ecosystems
Framework
Conditions
Clusters
Urbanization

12. 12
• Clusters emerge naturally • Clusters emerge and develop in a
context deeply affected by policy
choices
• Collaboration within clusters
provides benefits but requires
purposeful collective action
• Policies for upgrading business
environment conditions can be
more effective if they are cluster-
specific but require information
sharing and collective action
• Cluster-based policies enable
informed decision making and
collective action
What role for policy?

13. 13 Copyright 2015 © Christian Ketels
Two Opposing Approaches to Cluster Policy
MORE (Agglomeration)
BETTER (Competitiveness)
FINISH
• High risk
• Traditional
‘industrial policy’
• Long-term impact
• New model of public-
private collaboration

14. 14 Copyright 2015 © Christian Ketels
The Case for Cluster Policy
Levers
Path
dependency
Information
asymmetries
Coordination
failures
Local
Externalities
Create Platforms
for Joint Action
within Clusters
Organize Public
Policy around
Clusters

15. 15 Copyright 2015 © Christian Ketels
Current Status of Cluster Policies and Programs
• Many countries and regions, especially within the OECD, have cluster-related
policy programs
• Spending on cluster-related programs is meaningful, but only a modest
percentage of total spending per policy area
• Funding is biased towards existing strengths, but many efforts exist without
established critical mass
• Cluster programs are often run by a range of ministries or agencies; there is
limited coordination between programs
• Funding for strengthening collaboration is always a part; other elements
differ significantly
• Design principles differ widely across many dimensions

16. 16 Copyright 2015 © Christian Ketels
Cluster Initiatives: The Track Record So Far
• Large number of initiatives, many
have shown sustainability over time
• Visible strengthening of networks
and local capacity for collective
action
• Significant engagement of
companies, including private sector
investment
• Positive impact on firm performance
for participants in collaborative
projects initiatited through cluster
iniatives
• Significant heterogeneity of impact
• Benefits for broader regional
economic performance hard to
quantify
• Government remains dominant
funder of the majority of cluster
initiatives
• Tendency to strengthen existing
structures; less successful in
enabling structural change

17. 17 Copyright 2015 © Christian Ketels
Critical Success Factors of Cluster Efforts
Setting
• Cluster with critical mass of existing
economic activities
• Broader policy environment focused on
competitiveness upgrading
Organization
Activities
• Capabilities of the Cluster Initiative Manager
and her/his staff
• Robust funding model
• Governance structure that supports a private
sector logic driving the organization
• Strategic action agenda grounded in fact-driven
analysis of the relevant market and the cluster’s
competitive position
• Operational effectiveness in individual activities
External
Internal

18. 18 Copyright 2015 © Christian Ketels
Broadening Tasks for Cluster Programs
Encouraging
Collaboration
Strengthening
Local Buzz
Strengthening
Strengths
Building
Global Pipelines
Supporting
Related Diversification
Upgrading
Competitiveness

19. 19 Copyright 2015 © Christian Ketels
Implications for Cluster Program Authorities
• Leveraging cluster programs as an ‘organizational infrastructure’ to
deliver a range of functional programs
– Policy integration
– Larger role for creating sufficient capacity in cluster initiatives!
• Differentiation of programs between existing vs emerging/potential
strengths
– Selection
– Support
– Exit
• Changing relationship between cluster initiatives and government
agencies
– ‘Two-way’ knowledge flows
– From Principal-Agent to Stakeholder

20. 20 Copyright 2015 © Christian Ketels
Implications for Cluster Initiatives
A broader set of responsibilities
• Trend and partner scouting
• Strategy vs execution
• Partner vs project manager
A broader set of partnerships
• Other fields
• Other locations/countries
• Different government, academia, private sector
A broader set of capabilities
• Process
• Technologies, markets
• Policy

21. 21 Copyright 2015 © Christian Ketels
Back to “Western” vs. “Asia”:
Revisiting the Hypothesis
• Cluster-based economic development is about the way to organize
collaboration
• Collaboration is a social process, not an administrative or technical
one
• The most effective way to structure such a social process depends on
a location’s context; it is unlikely to be the same everywhere
• Western and Asian approaches are more likely to differ in the way
cluster efforts are implemented and structured than in their
ambitions and fundamental economic logic