What is an Innovation Cluster?
An innovation cluster, or often called industry cluster can be understood in two ways. The traditional view is that it is a collection of companies situated within some level of proximity, allowing for more collaboration, interaction, development of stronger ties and a natural growth of a collaborative strengths within the cluster.
Often called clustering effect or agglomeration economics, in this first perspective the cluster is a naturally emergent phenomenon, without any centralized strategy, structure or management organization. Agglomeration economics has been a widely understood concept since British economist Alfred Marshall first wrote about the concept in the 1920’s, and later popularized by academic like Michael Porter, Paul Krugman and Torger Reve.
The Italian wine cluster, New York’s financial district and Boston’s life science cluster are well-known examples of this first category.
The more modern view is that clusters (or cluster organizations) can be purposefully built and developed. In this view, the role of governments matter, either indirectly through taxation and industrial polices or directly through national cluster programs and direct funding schemes.
In this view pre-existing clustering of member companies matter, but there is also a positive belief that clusters can grow and develop over time, often developing from small, emerging clusters into globally oriented Innovation Superclusters.
Norway’s GCE Ocean Technology Cluster, Netherland’s Health Valley and Canada’s AI Scale Cluster are three such examples, all are actively built out over time and supported by bold government programs.
Ten-item Cluster Checklist
- A collection of organizations with a shared intent to collaborate
- Built around a specific theme or industry domain
- Member-based networks built around future growth industries
- Trust-based collaboration platforms
- Engines of economic growth, by connecting 100’s of members and partners
- Solving Industry level challenges & creating new market opportunities
- Private-public Partnerships,developed by design
- Magnets that attract talent, venture capital, researchers and companies
- Project developer of large-scale, collaborative projects
- Key player in the quest for national economic growth
Local or global mindset?
A key defining aspect with clusters is the local vs. global mindset. With a local mindset, the cluster is mostly focused on connecting local companies, hosting local events and building out a series of local development programs with local partners. Often, these clusters will tend to scope their work within a county or state border. For many, this can be a natural starting point, but a local cluster will have natural barriers to growth and will struggle to develop interesting partnerships and market opportunities over time.
Clusters with a global mindset are different. Here, the conversations are naturally focused on global market opportunities, global industry development and global trends and outlook. These clusters will often have pre-existing networks and relationships that allow them to naturally connect and collaborate with relevant markets, project and partners globally.
Questions like “how can we connect and work with global supply chains?”, “In which areas can we compete and win with the best companies and sectors – globally?”, “how can we attract the globally leading firms and investors to our cluster” are naturally discussed during strategy sessions.
With or without a public cluster program?
Crucial to anyone building an innovation cluster is whether a national or regional cluster program exists. Such a cluster policy, financing, development and support program can provide a robust national infrastructure to support the development and scaling of new innovation clusters.
Spain, Norway, Canada, Mexico and China all have strong cluster programs, either at the state or federal levels. Countries like Ireland, Finland, Costa Rica have historically not had such public government programs in place, leading to a structural lack of common cluster practices.
Interestingly, the US has long had a federal cluster initiative, the RIC or Regional Innovation Clusters initiative. Operated by the SBA, or U.S. Small Business Administration, the RIC program has long supported clusters like Defense Alliance, Montana Bioscience Alliances, Montec and UAMMI. While, at the same time, the US is also seeing a number of state-wide cluster programs emerge, like Utah’s Cluster Acceleration Partnership (UCAP).
Today, most national or regional cluster programs run highly competitive application processes; In Canada five out of 50 Supercluster applications were accepted into the five-year program. Beyond the application process and financing, many programs offer strategy development, market development programs, dedicated project financing, cluster leadership training, cluster board development programs and a wide variety of cluster competence development.
Research has often highlighted the need for cluster management expertise and leadership skills in successfully developing new cluster initiatives.
Who starts new innovation clusters?
In our work with clusters around the world, we have identified eight profiles to answer the question, “who starts it”? These personas can be found in diverse location and countries around the world. They all share a passion for economic development and growth, but view the starting point and roadmap quite differently.
The Market Builder
“If we collaborate better, create a joint value chain, and build out the gaps we face; from growth financing, market access, regulatory policies, need for new technologies and better export support; I believe we can develop new markets at home and capture huge markets abroad”.
The Market Builder will be driven by and focused on developing the cluster to go out and capture emerging market opportunities globally. In these clusters, go-to-market programs, market analysis reports and export activities are natural early initiatives.
“Our industry has major structural challenges. We lack young people coming in, we lack good educational programs, we lack advanced R&D projects and we lack a good regulatory framework. These are challenges no one single company can fix. We need to connect and collaborate to solve these problems together!”
The Problem-Solver has deep experience in the industry and recognized the potential that can be unlocked if these problems are solved, and the industry grows.
“I believe Norway can become a global leader in life sciences – but we have to build out the industry at home and win markets abroad. Let’s get organized and capture the future opportunities!”
The visionary sees early opportunities years, or even decades, before others. He then manages to pull together a diverse set of actors to make this vision come to life.
The Government Lead
“In our region, we have great companies, but they are not always organized to capture new economic opportunities. In my role as a government or economic development lead, it is partially my job to get the key people around the table to develop early roadmaps to capture new industrial opportunities”
The Government Lead will often have a network, both locally and internationally, to spot early opportunities. These opportunities can both come from market demands or from new national programs opening up. The key is that he is able to connect the next group of people to move the early initiative forward.
“We have the potential to really build something exciting around Smart City, but we need to get the right companies to lead and the right people to join. Our small industry network can use our access into corporates, public and venture capital sources to pull the first outline of a Smart City Tech Cluster together”
The Industry Network is a loose network, often connected through personal relations more than any formal network. Across the network, there is a common aspiration to build out a more formal innovation cluster, knowing there will be significant challenges around early participantion and funding.
“We are competing on a daily basis; but there are some areas where it makes more sense to collaborate than compete. Let us talk about how we can solve common challenges and grow this industry 5X in the coming two decades. What would that take?”
The Executive Network is often the CEOs of the top four to five companies in an industry. Together, they recognize that industry level challenges like access to common data standards, sharing of industry data, access to venture financing and new MBA programs would be better solved if we worked together. The Executive Network will often see an instant business case and be wiling to fund the cluster’s early operations.
Economic Development Team
“Companies here are not innovating and growing fast enough. We need to develop more aggressive and innovative policies and programs to kick start new growth in the solar energy sector. Let’s develop a state-wide cluster program to drive new economic growth and create more jobs!”
The Economic Development Team has the best of intensions and often access to significant funding sources, but sometimes the team may struggle with getting industry interest and buy-in. Co-developing the cluster with genuine industry leadership is key to a successful outcome.
National Government Team
“Our country needs to accelerate our economic transformation. This requires government and industry to collaborate closely to rapidly build out the industries of the future. We have no time to lose as the global competition is intensifying and we need to compete faster to become the world’s leading semiconductor powerhouse”
In rare cases, the National Government team will lead the development of very focused innovation clusters. These are often linked to the key national industries, where the government is trying to improve the competitive position of its existing firms, while also supporting the transformation into the new technology s-wave. From oil and gas to clean energy and memory chips to system chips are two examples of this.
Two Cluster Journeys
While who starts it may be quite different, the motivation for and the early journey a cluster may take can also vary greatly. Based on our work over the past decade, we have developed the Cluster Journey Map to illustrate how different paths cluster may take, from the starting point to the end outcome. Often, this is a journey that should be measured in decades, not months or years.
Clusters can emerge from anywhere, sometimes coming from industry networks and leadership, sometimes from bold national policies. The following two mini cases illustrate how different clusters emerge and develop over time.
Western Norway, unable to pivot the cluster’s business model
One of Norway’s leading tourism clusters, based on the country’s west coast, got started in 2008, on the shared interest in growing the country’s tourism industry. Fully recognizing the upside in better collaborating and building out the professionalism of the industry, the cluster was shaped by an early industry network. Over time, the cluster developed a formal organization, funding model and strategy. After a decade in operation, the cluster faced the final stages of the national financing program. Unable the find a new business model, the cluster chose to close down its management and cluster operation.
South Korea Commits $450 Billion to Dominate Semiconductor Market
“Governments are deploying ‘wartime-like’ efforts to win the global semiconductor race”, read the May 17th headline on CNBC. With more than 150 companies involved, the government was pushing for a ‘transformational’ strategy to secure Korea’ future position in the industry.
Already a leading memory chip manufacturer, South Korea unveiled a bold national plan to build the world’s biggest semiconductor cluster by 2030. With a goal of attracting $450 billion investment from the private semiconductor chip sector including Samsung Electronics and SK Hynix, mainly driven by generous tax incentives and relaxed regulations, the government is pushing for global dominance with Taiwan, US and China, in the future chip market.
“Major global competitors are pressing ahead with massive investment to be the first to take the future market,” President Moon said in a speech. “Our companies have been taking risks and innovating as well and have completed preparations for tumultuous times.”
Known as the K-Semiconductor Belt strategy, the cluster will cover areas like advanced manufacturing facilities, new chip foundries, up to 50% R&D tax discounts, new support for ‘strategic technologies’, a new industry investment fund, new funding into university research and the training of 36.000 new high-tech workers in the chip industry. Ultimately, the initiative is expected to secure Korea’s global position in the chip race, double exports and create more than 100.000 new jobs by 2030.
A bold initiative like the K-Belt cluster would not have been possible with the leadership of a national government team. Aligning industry, academia, government around this strategy is required to be able to develop a response to the intensifying rivalry for dominance in the industry.
How are you building your innovation cluster?
From Sydney to Saudi Arabia, Lapland to Spokane leaders are finding new and better ways to develop future-oriented clusters of innovation. Some clusters may emerge over a decade, others are able to come together in a few months due to external pressures or specific funding opportunities.
Whether your cluster is being launched by a Market Builder, Industry Network or a National Government Team, all clusters are embarking on a lengthy journey, potentially a multi-decade journey of innovation, transformation and economic growth.
Research documents the economic impact of successful clusters. From early-stage entrepreneurship to late-stage scale ups, clusters can play pivotal roles in funding and scaling new high-growth companies. Modern government policies are showing more and more countries are leaning into national cluster programs.
The time to build better innovation clusters are upon us, to better compete and collaborate in the global innovation race.
Strategy & transformation advisor to companies, innovation clusters, ecosystems and governments around the world.