1. Innovation: the main driver of ICT Cluster Development
and Renewal
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Innovation: the main driver of ICT Cluster
Development and Renewal
Innovation on Cluster Economy Seminar
30 June 2010 Brasilia
Emilio Bugli Innocenti

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Table of contents
Introduction............................................................................................................................... 3
What is a cluster........................................................................................................................ 3
One step back - Industrial districts............................................................................................ 4
Success Factors in Developing ICT Clusters............................................................................ 5
Public Policies supporting Cluster Development ..................................................................... 6
The importance of Innovation in ICT Cluster Development.................................................... 6
IT Services and Software Clusters in Europe ........................................................................... 8
Cambridge Cluster ................................................................................................................ 8
IT Services and Software Clusters in Italy ........................................................................... 8
Arno Valley ICT Cluster (on going process).................................................................... 8
Torino wireless ICT Cluster (on going process)............................................................... 9
Summarising ........................................................................................................................... 10

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Introduction
Almost in any country around the globe there are initiatives, just considering or initiating or
consolidating successful ICT clusters. A lot has been written on this subject (my google
search on “ICT cluster” gave some impressive 2 million entries) and initiatives are taken as
well in the developing world (profiting of job shifting) funded by global development actors
such as WB, UNDP and as in the EU North America.
As a consequence, there is plenty of literature (interestingly enough, literature also includes
booklet on how to develop a cluster in your region or “cluster a la carte”).
However, most of effort has been spent so far on mapping clusters (e.g., as far as the
European Union is concerned http://www.clusterobservatory.eu/), less effort has been spent
in identifying the success factors and highlight the crucial role of innovation inside a cluster.
The purpose of this document is to elicit discussion on the relationship between ICT clusters
and Innovation, comparing experience done in different countries and continents.
As such, it has no ambition to provide definitive answers but at least to help focus the
discussion on the right questions.
What is a cluster
According to Harvard Professor Michael Porter (1998) clusters are “geographic
concentrations of interconnected companies, specialised suppliers, service providers, firms in
related industries, and associated institutions (for example universities, standards agencies,
and trade associations) in particular fields that compete but also co-operate.”
Again, according to Porter, "a cluster consists of industries linked through vertical
(buyer/supplier) or horizontal (common customers, technology, channels) relationships."
Typically, clusters provide better access to human capital and providers, access to specialised
information and research.
The typical example of ICT clusters is Silicon Valley and its regional network based system
which provides proximity of all skills needed for hi-tech based business, encouragement for
risk-taking, innovation, and tolerance for failure, presence of re-known educational
institutions, technology parks and incubators and availability of venture capital

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This “system” is also helped by government at federal, state and local level facilitating the
speed for Investment and quick problem-solving.
One step back - Industrial districts
Why and how these geographic concentrations of interconnected companies and institutions
dominate their industries has long been a topic of interest to economists and geographers.
The phenomenon was first observed by the Cambridge Professor Alfred Marshall. He noted a
tendency for specialised companies to cluster together in a way that produces geographic
concentrations of expertise and economic activity, which he called “industrial districts.” In
his 1890 book, Principles of Economics, Marshall observes how “…great are the advantages
which people following the same skilled trade get from near neighboring to one another…”.
However, well in advance of being discovered by Economists, industrial districts happened
naturally in Italy since middle-ages (and they are still there!).
Typical example of “old” industrial district is Prato, which is still the biggest concentration
of textile firms all over Europe.
The district can be dated around XII century most of the its current features (production
decomposed on small productive phases among small companies, being export-led, the
crucial role played by the commercial entrepreneurs still known with their medieval name
“impannatori” and the support of public policies) were present from the beginning.
Production is very flexible, being based on a breakdown of operations among 6000 SMEs
and at any stage of the entire textile cycle (spinning, dyeing, twisting, reeling, weaving,
finishing, knitting..) there are hundreds of small-medium companies resulting in a large
concentration of know how, human skills, market and fashion experience within a
competition and cooperation environment.
The district went through a number of cycles, made of expansion phases (typically the one on
1950-60, based on the production of poor quality woollen fabric), crisis (the awful one in the
‘80s) suffering competition from Asia, etc., but the important fact to consider is that it is still
there after a number of centuries, to the extent its overall production is now estimated on
Beuro 5.5 (60% exported) it gives job to 38000 people working on 6000 SMEs.
Production has moved from cheap woollen fabrics (made from reprocessed fibres) to high
quality wool, cashmere, linen and silk and includes woven and knitted fabrics for apparel

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industry, special fabrics (fur, bonded, technical, pile….) for apparel, upholstery and footwear
industries, carpets and nonwoven fabrics, etc.
It must be enlightened that innovation plays an essential role in Industrial Districts
development as well as in overcoming their decline. In turn, the mix of cooperation and
competition among SMEs make innovation to be adopted faster.
Innovation is typically made by entrepreneurs and /or worker/specialised SMEs and can
consist of new production (eg, Prato is nowadays the European leader in nowollen), new
sectors and/or market.
Many economists consider this a sort of incremental innovation not suitable to high-tech
districts were there is a need of breakthrough innovation carried out by a community of
entrepreneurs, universities, research centres, large firms, technology parks, incubators, etc.
who are fast incorporating new knowledge into new products.
Developing a Cluster – Society Benefits
Apart from the generation of wealth and jobs, the development of a cluster results in the
formation of a better human capital so that companies can have better access to needed skills.
Moreover they can benefit of complementary skills (including, financial, legal and
professional) so as to better compete.
Furthermore, scale economies can be carried out and the cooperation with other can better
lead to the creation of new ideas and new businesses.
Success Factors in Developing ICT Clusters
Many economists consider hard and soft success factors.
The hard ones include:
 strong innovation base, including R&D
 presence of large firms
 physical infrastructure
 access to markets and venture capital

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More intangible, softer success factors include:
 entrepreneurial culture
 networking & partnerships
 human Capital
 presence of leadership
As a matter of fact, given the current competition on developing ICT company clusters
around the globe, I would not suggest considering softer or intangible success factors as
second class elements.
Public Policies supporting Cluster Development
They usually consist of:
 set up of technology parks, software centres, traffic infrastructure technologies, data
highways, etc..
 set up of technology transfer centres (in partnership with universities, etc.).
 set up of incubators to support of business start-ups.
 establish new business associations’ aimed at young entrepreneurs.
 funding mechanisms to support SMEs technology developments or joint research
projects.
The importance of Innovation in ICT Cluster Development
Evidence shows that product development and well-developed research structures, together
with other forms of innovation, are vital for a dynamic cluster.
Innovation maintains the cluster at the forefront of the market whilst a strong R&D base can
provide the ideas and products for future development. The promotion of innovation and
R&D are two separate activities, although inter-related. Innovation generally refers to
product or process development whilst R&D refers to the development of new knowledge. In
the best cases successful innovation is the outcome of the R&D process.

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Innovation can be incremental, as existing products and processes are gradually built upon,
or may be more radical, with the introduction of a wholly new product or approach.
Successful clusters are inherently innovative and the innovation process can be supported
through encouraging networking and the sharing of ideas. Where networks extend outside of
the cluster this can also be beneficial as often innovative ideas are ones that work well in one
setting and are being applied for the first time to another area. The benefits of information
and (technical, marketing, financial, production, sales) intelligence services are crucial for
the Software and IT Services.
Catalysts for research and innovation research institutes including universities, non-profit
foundations and for-profit R&D can play an important role as catalysts for research and
innovation. They can be the base for developing new ideas and applications but can also play
a critical role in eliciting high technology entrepreneurialism. In this respect public and
private research facilities can be key drivers within the cluster.
Support for R&D can take many forms, including the use of R&D tax credits (rarely cluster
specific), funding for basic or applied research, technology transfer schemes, the
development of specialised research facilities or simply supporting the development of
research networks, linking firms, research institutes and other interested parties together. It is
important that the role of R&D activity is viewed in the context of the cluster as a whole and
that an integrated strategy that includes this element is developed around the cluster.
Of course sometimes it is not sufficient to simply establish a science or technology park. To
promote research and innovation there must exist strong linkages between researchers and
local firms. Many organisations now provide an integrated support service for firms that wish
to make use of it and many networks and intervention systems are designed to encourage
technology transfer.
New ideas need to permeate throughout the lifecycle. For instance reinvention and innovation
policy is a critical part of many declining clusters. Support for product and process
improvements would appear to be important for established and mature clusters as well as
supporting SMEs to prepare for new markets.

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IT Services and Software Clusters in Europe
Cambridge Cluster
The first 40 years of the Cambridge Cluster has seen the city and wider sub-region become
recognised as a world class knowledge based economy, characterised by particular strengths
in healthcare and life sciences, IT services and communications.
Key success factors has been:
 very strong research and innovation
 greatest percentage of higher level skills of any UK city
 it is a growing city
Cambridge phenomenon continued to grow, despite a recession in the early 1990s and the
dot.com bubble in 2000s. As from 2003-4 the cluster is facing a net employment loss of 8
percent, increase of firm exits decrease in start-up creations, etc.
IT Services and Software Clusters in Italy
Arno Valley ICT Cluster (on going process)
Positive Factors
 about 3000 companies active in the ICT sector, some of them listed in the Stock
exchange
 strong presence of first class universities and research centres
 skilled human resources
 number of incubators, tech parks, and technology transfer centres
 nice environment able to attract and retaining the best resources
 embryonic regional policies to provide support
Drawbacks
 lacks specialisation (company dealing with different ICT not reaching a cluster critical
mass)
 cluster of SMEs on open source software not adequately supported by public policies

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Torino wireless ICT Cluster (on going process)
Positive Factors
 world class universities and research centres;
 highly skilled human resources;
 over 2,000 researchers in ICT (almost 20% of the Italian total), 700 of whom are in
the wireless area;
 large leading firms (Fiat, Telecom Italia) and their research centres;
 more than 8,000 small and medium enterprises (SMEs) active in the same field;
 clear focus on wireless and infomobility;
 the availability of public and private funding to support both research activities and
the creation of new entrepreneurial initiatives (Piemonte invests 2.5% of its GDP in
innovation and attracts a quarter of all Italian private investments in research and
development);
 support by the local government
Drawbacks
 Inadequate level of cooperation with Large Firms
 Not invented here syndrome
In Europe, despite quite a number of success stories we can tell, there is shared opinion that
EU clusters do not perform like US ones (even dimensionally) and are not exploiting fully
their potential.
Historically, Europe has difficulties in converting much of its research into commercial
applications. In Europe, there has been nothing to compare with the entrepreneurial fortress
of Silicon Valley, where technological innovations are rapidly converted into business
applications. For example, some ideas were originated in Europe (Semantic Web, Linux) but
the main actors are US based.
Clusters are considered main drivers of Europe’s competitiveness and innovation and quite a
number of EC communications have been issued on this topic.

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Summarising
1) Cluster Specialisation
Everyone wants to have its Silicon Valley. If everyone goes into the same direction, we’d
better have some clear differentiators. One of the main cluster features is specialisation. It is
a feature of all successful industrial districts and it is an important feature of ICT clusters
especially in consideration of the fact that anybody in the world is building ICT clusters!!
2) Cluster Coopetition
The mix of cooperation and competition is essential to produce more innovative ideas.
Knowledge sharing can be also promoted by specific initiatives.
3) Need of a broader definition of Innovation
Innovation is absolutely crucial but we must move from just the romantic breakthrough
research idea. Innovation can be incremental, can involve changing sector/market, achieved
through system integration or by changing business models. How many innovations in the IT
Services & Software arena are really breakthrough?
4) Shift in innovation paradigm
Open innovation appears to be an interesting paradigm for a cluster, especially for those not
willing to heavily invest in lawyers/patents like in the US.
5) Everyone in the cluster can innovate
Creativity belongs to all humanity (it is indeed an essential feature of Homo sapiens sapiens
with respect to other homo species such as Neanderthal or Homo sapiens). Therefore
everyone must be enabled to perform innovation within the cluster (entrepreneurs, workers,
researchers, professors, etc).

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6) Role of Long-Term Public Policy
There is plenty of short tem or long-term policies.
They can help a lot the cluster growing and develop through the creation of a number of
services, joint research projects, etc. However we must be aware that the same policies are
available in any corner of the globe.
Therefore, the most important policies seem to be the ones which will play a role in building
a cluster culture about innovation, entrepreneurship, etc.
In particular, creating a culture of initiative taking, entrepreneurship and others’ idea respect
at any level (large firms, SMEs, universities) is crucial. Everyone has to be encouraged to
have their saying. Positive consideration of entrepreneurship including those who failed or
went bankrupt
Indeed, such policies will produce results only on a long term but they will be valuable and
possibly helping cluster resiliency (EU founder Mr. De Gasperi once said “Politicians look at
the next elections. Statesmen look at the next generation).