Description of how industry clusters work, their advantages and disadvantages, where New Jersey ranks in industry clustering and what the state can do to promote clustering in the future

1. Clusters: Defining our terms
• Industry Cluster: a geographic concentration
of interconnected
businesses, suppliers, service providers, and
associated institutions in a particular field.
• Traded clusters: concentrated in a
location, but selling products and services
across regions, states, countries….. This is
what every one wants.
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2. How Clusters Work
• Organically evolving co-location of industries that
access and produce similar inputs and economic
activities.
• Employers access shared inputs:
– concentrated pools of relevant labor
– common or complimentary technology,
– common or over-lapping suppliers, vendors and
“experts” with specialized knowledge
– educational and other institutions, with many points
of mutual interest
– concentrations of industry-targeted capital.
– Cluster-driven density of labor, suppliers, and related
industries drives growth within the cluster.
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3. How Clusters Work (continued)
• Employees access:
– deep pool of job opportunities,
– professionally-reinforcing formal and informal information
exchanges.
• Industries are complementary within a
cluster, feeding each other, adapting
products, skills, technologies throughout the value
chain.
• Strong clusters have high specialization across a
multiple related industries.
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4. Clusters Deliver Better Outcomes
• Benefits of strong clusters:
– Efficiency and profitability benefits accrue and
multiply within an industry
– Cluster benefits extend to related industries within
the broader cluster.
• (e.g., IT, marketing, legal/regulatory and related
disciplines supporting Life Sciences in NJ)
– Greater innovation through knowledge spillover
– Higher rate of new business formation
– Higher employment growth
– Higher wage growth
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5. Pros and Cons
• Some potential pitfalls to clustering:
– Over-specialization in a given industry = diminishing
returns
– Competition for labor, especially within a highly
concentrated industry, can lead to greater turnover
– Intellectual property can be at risk with employee
turnover and close proximity to competitors
• The Pros outweigh the Cons
– Multi-dimensional mutual benefits through paradox
of “coopertition.”
– Making neighbors of thy competitors benefits all.
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6. NJ Clusters: Multiple sectors
NJ blessed with multiple sectors with cluster-quality
depth and range:
• Life sciences
– Actually a regional NJ/PA super-cluster (not NJ’s alone)
– A truly organic legacy asset
– Evolved to be less than it was (primarily HQ; less
manufacturing, R&D)
– Showing signs of revival
– Health care related but more ties-in needed
• Financial Services
– In orbit around NYC-based super-cluster
– Prototype for urban cluster model
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7. NJ Clusters (continued)
• Ports/Logistics/Distribution
– Natural location/infrastructure assets
– Intermodal
• Telecommunications
– Lost legacy of Bell Labs
– Back to the future: Verizon returns
– Residual IP and talent assets serving as foundation for
rebuilding of telecom and IT R&D
• Others ….
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8. How Does NJ Rank?
• According to 2011 Porter assessment., NJ ranks highly on nationwide
basis, but through 2009 had been trending in wrong direction:
– 2nd quintile for “Innovation” but trending downward to lowest 20% in nation
– Ranked in 20% for “Cluster Strength” but trending down toward the 4th
quintile
– NJ’s relative position is influenced by both industry trends and the state’s
competitive position relative all location decision variables –
costs, talent, taxes , regulatory climate, etc – which are improving.
• NJ’s overall employment in traded clusters ranks 8th in the country.
• Harnessing the power of these clusters to grow sub-sector industries
within them is key to NJ’s continued growth and competitiveness.
• These clusters are the focus of the Governors new economic development
agenda (which also calls for increasing investments in smart growth and
sustainable communities)
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9. Policies to promote clusters: NJ Models
Multi-disciplinary approach:
• Bricks and More: NJ Tech Center investments among most
innovative and multi-faceted in the nation
– Commercialization Center for Innovative Technology incubator
– Access to university labs and data bases
– Land for additional expansion for “graduates”
• Innovation Zone: New Brunswick to Princeton
– Modest preference in targeting incentives
– More of a branding strategy…. Einstein’s Alley
• Efforts to better coordinate higher education with industry needs
for talent and innovation… a long-term work in progress
• However, extremely powerful incentives in “urban transit hubs”
and other incentives with premium value for “targeted industries”
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10. Benefits of Density
• High density clusters work the same way, only more so….
• Ways increased density can intensify the synergistic effects
of clusters:
– Higher-frequency interactions among knowledge workers:
• more robust idea exchange and collaboration
• socio-professional reinforcement that makes clusters rewarding places
to work, live and play.
– Even readier access to deeper pools of specialized talent and
convenience of access to industry-focused business services –
marketing, legal, regulatory – a short walk, subway or elevator
walk away.
– The other advantages of density as well, including deeper and
more diverse choices of:
• housing styles
• entertainment and other amenities
• regional, national and global transportation access
• sustainability goals
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11. Potential next steps for NJ policy
• No need to re-invent the wheel. Focus on strengths. Cluster-focused policy
should target:
– Existing clusters and their regional geographies
– Promote related and support industries serving strong cluster anchors (helps
minimize risks of over-specialization in a single industry)
– Incubators for new businesses in related industries
– Resources and institutions to support and strengthen cluster networks
• UTHTC = Smart Growth. Should there be a UTHTC Release 2.0, promoting
Smarter Growth? Ideas for consideration….
– Continue to focus on urban development incentives, but target premium
incentives on strong clusters and related industries.
– Transcend municipal boundaries to embrace organic cluster delineations.
– Make urban areas the engine of the State Plan’s focus on Regional Innovation
Clusters.
• Define which urban centers are located within which strong clusters.
• Make urban areas more attractive to the industries within these strong clusters.
• Make urban areas more attractive to the labor, especially knowledge workers, who
will feed innovation, new business creation, and productivity.
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