1) The document discusses recent developments in cluster research and policy, including a shift towards mainstreaming cluster initiatives and concerns about properly evaluating their impact. 2) It provides examples of cluster mapping and analyses of regional clusters in Sweden and other European countries. Specific industries and overlapping cluster networks in the Stockholm region are highlighted. 3) The key role of clusters in competitiveness and economic performance is examined, along with considerations for effective cluster policy and management. Targeting public policy and investments towards clusters is advocated to enhance regional specialization and collaboration.

1. Clusters and Cluster Initiatives:
Recent Learnings, Current Challenges
Prof. Christian H. M. Ketels
Institute for Strategy and Competitiveness
Harvard Business School
VINNOVA Brown Bag Seminar
Stockholm
21 November 2011

2. 2 Copyright 2011 © Christian Ketels
The Changing Face of Cluster Policy
Early 1990s:
Pioneer
countries
and regions
Mid-1990s to
mid 2000s:
Cluster policy
entrepreneurs
Mid 2000s
onwards:
Cluster policy
moving into the
mainstream
Concerns about
distortions
Concerns about
impact

3. 3 Copyright 2011 © Christian Ketels
Cluster Research: Current Status
• Traded versus local industries
– Different market dynamics
– Different roles in regional prosperity
• Cluster specialization and economic performance
– Prosperity
– Productivity and job creation
– Entrepreneurship
• Cluster initiatives and economic performance
• The relationship between clusters, cluster initiatives, and regional
business environments

4. 4 Copyright 2011 © Christian Ketels
Source: European Cluster Observatory (2009)
Forest
Products
Furniture
Fishing
Aerospace
Oil & Gas
Telecom
Furniture
Apparel
Forest
Products
Automotive
Textiles
Fishing
Fishing
Fishing
Oil & Gas
Oil & Gas
Furniture
Aerospace
Medial Devices
Transportation
Transportation
Biopharma
Transportation
Fishing
Biopharma
Power
Transportation
Telecom
Fishing
Statistical Clusters Across the Baltic Sea Region
IT
IT
Food
State of the Region-Report 2009
Note:
Fully colored boxes indicate
clusters strong in size and
specialization; other boxes
are clusters strong in only
one of these dimensions. No
comparable Russian data
was available.
IT

5. 5 Copyright 2011 © Christian Ketels
Clusters, Urbanization, and Regional Economic Performance
Swedish Regional Clusters, 2006
Highlights Stockholm
Source: Ketels (2009)

6. 6 Copyright 2011 © Christian Ketels
Furniture
Building
Fixtures,
Equipment &
Services
Fishing &
Fishing
Products
Hospitality
& Tourism
Agricultural
Products
Transportation
& Logistics
Cluster Overlap Matrix: Stockholm
Plastics
Oil &
Gas
Chemical
Products
Biopharma-
ceuticals
Power
Generation
Aerospace
Vehicles &
Defense
Lightning &
Electrical
Equipment
Financial
Services Publishing
& Printing
Entertain-
ment
Information
Tech.
Communi-
cations
Equipment
Business
Services
Distribution
Services
Forest
Products
Heavy
Construction
Services
Con-
struction
Materials
Pre-
fabricated
Enclosures
Apparel
Leather &
Related
Products
Jewelry &
Precious
Metals
Textiles
Footwear
Processed
Food
Tobacco
Medical
Devices
Analytical
InstrumentsEducation &
Knowledge
Creation
Marine
Equipment
Aerospace
Engines
Heavy
Machinery
Sporting
& Recreation
Goods
Automotive
Production
Technology
Motor
Driven
Products
Metal
Manufacturing
Source: Ketels (2009). Cluster Overlap Matrix developed by Michael Porter, Mercedes Delgado
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
Red shading indicates clusters with LQ > 1, dark red with LQ > 2

7. 7 Copyright 2011 © Christian Ketels
Drivers of Prosperity
Revisiting the Role of Location
Business Environment
Quality
Urbanization
(Density)
Clusters
(Specialization, Mix,
Collaboration)
Prosperity

8. 8 Copyright 2011 © Christian Ketels
The Case for Cluster Policy
Path
dependency
Information
asymmetries
Coordination
failures
Local
Externalities

9. 9 Copyright 2011 © Christian Ketels
Two Opposing Approaches to Cluster Policy
MORE (Agglomeration)
BETTER (Competitiveness)
FINISH

10. 10 Copyright 2011 © Christian Ketels
The Case for Cluster Policy
Levers
Path
dependency
Information
asymmetries
Coordination
failures
Local
Externalities
Target Public
Policy at Clusters
Create Platforms
for Joint Action

11. 11 Copyright 2011 © Christian Ketels
Target Public Policy at Clusters
Clusters
Specialized Physical
Infrastructure
Natural Resource Protection
Environmental Stewardship
Science and Technology
Infrastructure
(e.g., centers, university
departments, technology
transfer)
Education and Workforce TrainingBusiness Attraction
Export Promotion
• Clusters provide a framework for organizing the implementation of public
policy and public investments towards economic development
Setting standardsMarket Information
and Disclosure

12. 12 Copyright 2011 © Christian Ketels
Paper Province, Wärmland Region
Impact of Cluster Efforts
INVESTMENT RETURN
Spending over 10 years
Local government: € 1.3m
EU funds € 1.4m
Company funds € 1.3m
TOTAL € 4.0m
€ 270,000 public money per year
Impact according to survey of cluster
participants
• 81% report new products/services
due to the project activities
• 42 innovation projects
(Framtidsfabrkien)
• 40% have increased sales
• 60% report better access to human
resources
• Much more networking

13. 13 Copyright 2011 © Christian Ketels
What are Cluster Initiatives?
• Upgrading of
company operations
and strategies across
a group of
companies
• Strengthening of
networks to enhance
spill-overs and other
economic benefits of
clusters
• Upgrading of cluster-
specific business
environment
conditions
Cluster initiatives are collaborative activities by a group of companies, public sector
entities, and other related institutions with the objective to improve the competitiveness of a
group of interlinked economic activities in a specific geographic region

14. 14 Copyright 2011 © Christian Ketels
The Role of Government in Cluster Initiatives
• Initiate/
Convene
• Co-Finance
• Support all existing
and emerging
clusters
• Participate
• Enable data
collection and
dissemination at
the cluster level
• Be ready to
implement
recommendations
• Pick favored
clusters
• Pick favored
companies
• Subsidize or
distort
competition
• Define cluster
action
priorities
Government
should
Government
may
Government
should not

15. 15 Copyright 2011 © Christian Ketels
The Emergence of Cluster Policy in Europe
Timeline
Initial EU Efforts
2000 - 2006
2002:
SME Observatory
Report on Clusters
2000
Latvian IT Cluster
(SHARE program)
2006
“EU-10
Cluster Mapping”
• Reaction to experience at the
level of member countries
and regions
• Seen within the context of
SME policy
• Narrow experimentation
Basque Country
Catalonia
Scotland
…

16. 16 Copyright 2011 © Christian Ketels
The Evolution of Cluster-Driven Economic Policy
Basque Country, Spain
Institutions
(1980s)
Efficiency
(1990s)
Innovation
(2000s-)
Machine Tools
AFM, 1992
Appliances
ACEDE, 1992
Automotive
ACICAE, 1993
Port Logistics
UNIPORT
BILBAO, 1994
Environmental
Services
ACLIMA, 1995
Electronics,
Computing and
Telecom
GAIA, 1996
Energy
CLUSTER
ENERGIA, 1996
Aeronautics
HEGAN, 1997
Maritime
Industry ORO
MARÍTIMO
VASCO, 1997
Paper CLUSTER
PAPEL1998
Audiovisual
EIKEN, 2004
Transport and
Logistics
CLUSTERTIL,
2005
BioBasque,
2002

17. 17 Copyright 2011 © Christian Ketels
The Evolution of National Cluster Policies
Germany
Source: VDI (2010)
• Reorganization of innovation and SME policies
• Reorganization of the role of regional government
• Wide use of competitions

18. 18 Copyright 2011 © Christian Ketels
The Evolution of
National Cluster
Programs
France
• Launched in 2004
• 67 cluster efforts,
including 17 globally
competitive, identified
in 2005
• 1.6bn Euro public co-
funding over the first
three years (90% for
R&D)
• Major review in 2008;
13 efforts put on
notice for funding to be
terminated

19. 19 Copyright 2011 © Christian Ketels
Cluster Policy in Europe: EU Activities
Timeline
Initial EU Efforts
2000 - 2006
2002:
SME Observatory
Report on Clusters
2000
Latvian IT Cluster
(SHARE program)
2006
“EU-10
Cluster Mapping”
1. Phase
2007 - 2009
2008
“European Cluster
Memorandum”
High Level
Advisory Group
on Clusters
2008
“Commission
Communication on
Clusters ”
European Cluster
Observatory
Inno-Nets
Inno-Actions
• Introduce a consistent
idea of cluster efforts
• Provide data on the
presence and role of
clusters
• Create support for use of
cluster efforts
• Broad experimentation
with support for many
networks

20. 20 Copyright 2011 © Christian Ketels
Cluster Policy in Europe: EU Activities
Timeline
Precedents
2000 - 2006
2002:
SME Observatory
Report on Clusters
2000
Latvian IT Cluster
(SHARE program)
2006
“EU-10
Cluster Mapping”
Innovation Union
Industrial Policy for
the Globalization Era
2. Phase
2010 -
2010
“ECPG
Recommendations”
1. Phase
2007 - 2009
2008
“European Cluster
Memorandum”
High Level
Advisory Group
on Clusters
2008
“Commission
Communication on
Clusters ”
European Cluster
Observatory
Inno-Nets
Inno-Actions
• Focus on increasing the
effectiveness of cluster
programs and efforts
• Consolidate EU efforts
around smaller number of
efforts
• Introduce clusters into
broader EU policies

21. 21 Copyright 2011 © Christian Ketels
Cluster Programs Among Sweden’s Neighbors
Danish
Competence
and Innovation
Networks
Finnish
SHOKs
BSR Stars
Lithuanian
Valley’s
Estonian
cluster
program
Norwegian
Centres of
Excellence
(NCEs)
ARENA
Polish cluster
program

22. 22 Copyright 2011 © Christian Ketels
Key Issues for Cluster Mobilization
Strategy Practice
• Scaling the impact of cluster
efforts to the regional level
• From harnessing to developing
regional strengths: Smart
specialization
• Internationalization through
clusters
• Management of clusters

23. 23 Copyright 2011 © Christian Ketels
Cluster Policy: Breaking the Glass Ceiling
From a few successful
cluster islands…
…to a more
competitive economy
• Systematic use of clusters as a
delivery channel for microeconomic
policies
• Active management of regional
cluster portfolios that engage many
clusters and harness cross-cluster
linkages
• Design of feed-back mechanisms
from cluster efforts to general
business environment upgrading
Locations will only be able to harness the full potential of cluster efforts, if they match a
bottom-up operational approach with a clear top-down concept for the integration of
cluster efforts in a broader competitiveness strateg

24. 24 Copyright 2011 © Christian Ketels
Clusters and Regional Policy: Smart Specialization
The Challenge:
• How to support structural change towards higher
value-added activities?
The New (Smart Specialization) Answer:
• Identify your assets, including your
existing cluster base
• Actively pursue opportunities in areas
adjacent to current strengths and
leading towards higher value added
• Longer-term development of
sustainable competitive advantages
The Old Answer:
• Identify growing markets and try to
enter them (bio, nano, eco, …)
• Failure to succeed in intensely
competitive markets without unique
assets

25. 25 Copyright 2011 © Christian Ketels
Clusters and Internationalization
“local buzz and global pipelines”
• Cluster organizations can build bridges to foreign markets that are
especially for SMEs to costly and risky to build on their own
• Crucial for the success of a cluster-driven internationalization strategy
is a clear strategy
– What are we looking for in our foreign partners (access to markets, access
to technologies, etc.)?
– What are the unique competitive advantages we can offer our foreign
partners?
• Internationalization activities can be one of the key initial motivators
for companies to join cluster efforts
• Public support for internationalization can be channeled through
cluster organizations

26. 26 Copyright 2011 © Christian Ketels
Issues in Cluster Management
• Leadership
• Network management
• Controlling, Impact assessment
• IP management
• Branding
• Financing
• Governance

27. 27 Copyright 2011 © Christian Ketels
The Swedish Policy Mix
What Role for Clusters?
Sustain
solid fiscal and
monetary
policies
Increase
labor market
participation and
flexibility
Upgrade
microeconomic
competitiveness
 Clusters should be an important
element of an overall Swedish
competitiveness strategy
- Focus on specific fields
- Use as delivery mechanism
- Integrate programs across policy areas

28. 28 Copyright 2011 © Christian Ketels
What is Different about Cluster-Based Policy?
Cluster vs.
Narrow
Industries
Regional
Perspective
Build on
Regional
Strengths
Demand-
driven
Policy
Priorities
Public-Private
Collaboration
Productivity
Focus