Clusters, Innovation, and Competitiveness:

New Findings and Implications for Policy

Professor Michael E. Porter

Institute for Strategy and Competitiveness
Harvard Business School

Stockholm, Sweden
22 January 2008
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free
Press, 1990), “The Microeconomic Foundations of Economic Development,” (with C Ketels, M Delgado) in The Global Competitiveness Report
2006, (World Economic Forum, 2005), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard
Business School Press, 1998), and the Cluster Initiative Greenbook (Ivory Tower, 2004) by C Ketels, O Solvell, and G Lindqvist. No part of this
publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying,
recording, or otherwise - without the permission of the author.
Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu
 The Changing Nature of International Competition

• Falling restraints to trade and investment

• Globalization of markets

• Globalization of value chains

• Shift from vertical integration to relying on outside suppliers, partners,
and institutions
• Increasing knowledge and skill intensity of competition

• Nations and regions compete on becoming the most productive

locations for business

European Cluster Policy 01-22-08 CK 2 Copyright 2008 © Michael E. Porter

 Outline

• The role of clusters in overall competitiveness

• How clusters work

• The impact of clusters on regional prosperity and innovation

• Cluster policy

• Some implications for Europe

European Cluster Policy 01-22-08 CK 3 Copyright 2008 © Michael E. Porter

 Clusters and Competitiveness

Macroeconomic,
Macroeconomic, Political,
Political, Legal,
Legal, and
and Social
Social Context
Context

Microeconomic
MicroeconomicCompetitiveness
Competitiveness
Sophistication
Quality of the
of Company
Business
Operations and
Environment
Strategy

State of Cluster
Development

European Cluster Policy 01-22-08 CK 4 Copyright 2008 © Michael E. Porter

 Clusters and Innovation
Determinants of Innovative Capacity

Innovative
InnovativeCapacity
Capacity

Company Innovation Common Innovation

Orientation Infrastructure

Quality of Linkages

Cluster-Specific
Conditions

European Cluster Policy 01-22-08 CK 5 Copyright 2008 © Michael E. Porter

 What is a Cluster?

A geographically proximate group of interconnected companies

and associated institutions in a particular field, linked by
commonalities and complementarities (external economies)

European Cluster Policy 01-22-08 CK 6 Copyright 2008 © Michael E. Porter

 Enhancing Cluster Development
Tourism Cluster in Cairns, Australia
Public
Public Relations
Relations &
& Local
Local retail,
retail,
Market
Market Research
Research Travel health
health care,
care, and
and
Travel agents
agents Tour
Tour operators
operators
Services
Services other
other services
services

Food
Food Local
Local
Suppliers
Suppliers Attractions
Attractions and
and Transportation
Transportation
Restaurants Activities
Activities
Restaurants e.g.,
e.g., theme
theme parks,
parks,
casinos,
casinos, sports
sports
Property
Property Souvenirs,
Souvenirs,
Services
Services Duty
Duty Free
Free

Airlines,
Airlines,
Hotels
Hotels Banks,
Banks,
Maintenance
Maintenance Cruise
Cruise Ships
Ships
Foreign
Foreign
Services
Services Exchange
Exchange

Government
Government agencies
agencies Educational
Educational Institutions
Institutions Industry
Industry Groups
Groups
e.g.
e.g. Australian
Australian Tourism
Tourism Commission,
Commission, e.g.
e.g. James
James Cook
Cook University,
University, e.g.
e.g. Queensland
Queensland Tourism
Tourism
Great Barrier Reef Authority
Great Barrier Reef Authority Cairns
Cairns College of TAFE
College of TAFE Industry Council
Industry Council

Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
European Cluster Policy 01-22-08 CK 7 Copyright 2008 © Michael E. Porter
 The Boston Life Sciences Cluster

Cluster
Cluster Organizations
Organizations
Health
Healthand
and Beauty
Beauty MassMedic,
MassMedic, MassBio,
MassBio, others
others
Products
Products Teaching
Teaching and
and Specialized
Specialized Hospitals
Hospitals

Surgical
Surgical Instruments
Instruments
and Suppliers
and Suppliers

Medical
Medical Equipment
Equipment Specialized
Specialized Business
Business
Services
Services
Biopharma
Biopharma- - Banking,
Biological
Biological Banking, Accounting,
Accounting, Legal
Legal
Dental
Dental Instruments
Instruments ceutical
ceutical
Products
Products
and
and Suppliers
Suppliers Products
Products
Specialized
Specialized Risk
Risk Capital
Capital
Ophthalmic
Ophthalmic Goods
Goods VC
VC Firms,
Firms, Angel
Angel Networks
Networks

Diagnostic
Diagnostic Substances
Substances Specialized
Specialized Research
Research
Service
Service Providers
Providers
Research
Research Organizations
Organizations Laboratory,
Containers Laboratory, Clinical
Clinical Testing
Testing
Containers

Educational
Educational Institutions
Institutions
Analytical
Analytical Instruments
Instruments Harvard
Harvard University,
University, MIT,
MIT, Tufts
Tufts University,
University,
Boston University, UMass
Boston University, UMass

European Cluster Policy 01-22-08 CK 8 Copyright 2008 © Michael E. Porter

 Clusters and Competitiveness
• Clusters Increase Productivity / Efficiency
– Efficient access to specialized inputs, services, employees, information, institutions, training
programs, and other “public goods” (local outsourcing)
– Ease of coordination and transactions across firms
– Rapid diffusion of best practices
– Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals
– Proximity of rivals encourages strategic differentiation

• Clusters Stimulate and Enable Innovations

– Greater likelihood of perceiving innovation opportunities (e.g., unmet needs, sophisticated
customers, combinations of services or technologies)
– Presence of multiple suppliers and institutions to assist in knowledge creation
– Ease of experimentation given locally available resources
• Clusters Facilitate Commercialization and New Business Formation
– Opportunities for new companies and new lines of established business are more
apparent
– Spinoffs and startups are encouraged by the presence of other companies , commercial
relationships, and concentrated demand
– Commercializing new products and starting new companies is easier because of available
skills, suppliers, etc.

• Clusters reflect the fundamental influence of linkages and spill-overs

across firms and associated institutions in competition
9
European Cluster Policy 01-22-08 CK Copyright 2008 © Michael E. Porter
 Institutions for Collaboration
Selected Massachusetts Organizations, Life Sciences

Life
Life Sciences
Sciences Industry
Industry Associations
Associations University
University Initiatives
Initiatives

zz Massachusetts
Massachusetts Biotechnology
Biotechnology Council
Council zz Harvard
Harvard Biomedical
Biomedical Community
Community
zz Massachusetts zz MIT
MIT Enterprise
Enterprise Forum
Massachusetts Medical
Medical Device
Device Industry
Industry Forum
Council
Council zz Biotech
Biotech Club
Club at
at Harvard
Harvard Medical
Medical School
School
zz Massachusetts
Massachusetts Hospital
Hospital Association zz Technology
Association Technology Transfer
Transfer offices
offices

General
General Industry
Industry Associations
Associations Informal
Informal networks
networks

zz Associated
Associated Industries
Industries of
of Massachusetts
Massachusetts zz Company
Company alumni
alumni groups
groups
zz Greater
Greater Boston
Boston Chamber
Chamber of of Commerce
Commerce zz Venture
Venture capital
capital community
community
zz High
High Tech
Tech Council
Council of
of Massachusetts
Massachusetts zz University
University alumni
alumni groups
groups

Economic
Economic Development
Development Initiatives
Initiatives Joint
Joint Research
Research Initiatives
Initiatives

zz Massachusetts
Massachusetts Technology
Technology Collaborative
Collaborative zz New
New England
England Healthcare
Healthcare Institute
Institute
zz Mass
Mass Biomedical
Biomedical Initiatives zz Whitehead
Initiatives Whitehead Institute
Institute For
For Biomedical
Biomedical
zz Mass
Mass Development
Development Research
Research
zz Massachusetts zz Center
Center for
for Integration
Integration of
of Medicine
Medicine and
Massachusetts Alliance
Alliance for for Economic
Economic and
Development
Development Innovative Technology (CIMIT)
Innovative Technology (CIMIT)

European Cluster Policy 01-22-08 CK 10 Copyright 2008 © Michael E. Porter

 Cluster Specialization
Selected Footwear Clusters
Romania
Portugal
• Production subsidiaries
• Production
of Italian companies
• Focus on short-
• Focus on lower to
production runs in the
medium price range
medium price range

China
• OEM Production
Italy • Focus on low cost
• Design, marketing, segment mainly for the
and production of US market
United States premium shoes
• Design and marketing • Export widely to the
• Focus on specific market world market
segments like sport and Vietnam/Indonesia
recreational shoes and • OEM Production
boots Brazil
• Focus on the low cost
• Manufacturing only in • Low to medium quality finished
segment mainly for the
selected lines such as shoes, inputs, leather tanning
European market
hand-sewn casual shoes • Shift toward higher quality
and boots products in response to Chinese
price competition

Source: Research by HBS student teams in 2002 – Van Thi Huynh, Evan Lee, Kevin Newman, Nils Ole Oermann
European Cluster Policy 01-22-08 CK 11 Copyright 2008 © Michael E. Porter
 The Australian Wine Cluster
Milestones
1930 1965 1980 1991 to 1998

First oenology Australian Wine Australian Wine New organizations

course at Bureau and Brandy created for
Roseworthy established Corporation education, research,
Agricultural established 1990 market information,
College 1955 1970 and export
Winemaker’s promotions
Australian Wine Winemaking Federation of
Research school at Australia
Institute Charles Sturt established
founded University
founded

1950s 1960s 1970s 1980s 1990s

Import of Recruiting of Continued Creation of Surge in exports
European experienced inflow of large number and international
winery foreign foreign capital of new acquisitions
technology investors, e.g. and wineries
Wolf Bass management
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
European Cluster Policy 01-22-08 CK 12 Copyright 2008 © Michael E. Porter
 The Composition of Regional Economies
United States, 2004

Natural
Natural
Traded
Traded Local
Local Resource-Driven
Resource-Driven

Share of Employment 29.3%

29.3% 70.0%
70.0% 0.7%
0.7%
Employment Growth Rate, 0.7%
0.7% 2.4%
2.4% -1.2%
-1.2%
1990 to 2004

Average Wage $49,367

$49,367 $30,416
$30,416 $35,815
$35,815
Relative Wage 137.2%
137.2% 84.5
84.5 99.5
99.5
Wage Growth 4.2%
4.2% 3.4%
3.4% 2.1%
2.1%

Relative Productivity 144.1

144.1 79.3
79.3 140.1
140.1

Patents per 10,000 23.0

23.0 0.4
0.4 3.3
3.3
Employees

Number of SIC Industries 590

590 241
241 48
48

Note: 2004 data, except relative productivity which uses 1997 data.
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
European Cluster Policy 01-22-08 CK 13 Copyright 2008 © Michael E. Porter
 Broad Composition of Regional Economies
Local Wages, 2003
Traded versus Local Wages
40,000
New York-
Newark-
Bridgeport,
NY-NJ-CT-PA

Anchorage, AK
35,000
San Jose-
San Francisco-
Oakland, CA

Reno, NV
30,000 y = 0.3205x + 13038
Las Vegas, NV 2
R = 0.6493
p-value < 0.001

25,000 Raleigh-Durham-Cary, NC

20,000

15,000
15,000 25,000 35,000 45,000 55,000 65,000 75,000
Traded Wages, 2003
European Cluster Policy 01-22-08 CK 14 Copyright 2008 © Michael E. Porter
 Specialization of Regional Economies
Selected U.S. Geographic Areas
Denver,
Denver,CO
CO Chicago
Chicago
Leather
Leatherand
andSporting
SportingGoods
Goods Communications
CommunicationsEquipment
Equipment
Oil Boston
Boston
Oiland
andGas
Gas Processed
ProcessedFood
Food
Aerospace Analytical
AnalyticalInstruments
Instruments
Seattle-Bellevue-
Seattle-Bellevue- AerospaceVehicles
Vehiclesand
andDefense
Defense Heavy
HeavyMachinery
Machinery Education
Educationand
andKnowledge
KnowledgeCreation
Creation
Everett,
Everett,WA
WA Communications
CommunicationsEquipment
Equipment
Aerospace
AerospaceVehicles Wichita, Pittsburgh,
Pittsburgh,PA
Vehicles Wichita,KSKS PA
and
andDefense Aerospace Construction
ConstructionMaterials
Defense AerospaceVehicles
Vehiclesand
and Materials
Fishing
FishingandandFishing
Fishing Defense Metal
MetalManufacturing
Manufacturing
Defense
Products Heavy Education
Educationand
andKnowledge
Products HeavyMachinery
Machinery Knowledge
Analytical
AnalyticalInstruments Oil Creation
Instruments Oiland
andGas
Gas Creation

San
San Francisco-
Francisco-
Oakland-San
Oakland-San Jose
Jose
Bay
Bay Area
Area
Communications
Communications
Equipment
Equipment
Agricultural
Agricultural Raleigh-Durham,
Raleigh-Durham,NC
NC
Products
Products Communications
CommunicationsEquipment
Equipment
Information
Information Information
InformationTechnology
Technology
Technology
Technology Education
Educationand
and
Knowledge
KnowledgeCreation
Creation

Los
Los Angeles
Angeles Area
Area
Apparel
Apparel Atlanta,
San Atlanta,GA
GA
Building
Building Fixtures,
Fixtures, SanDiego
Diego Construction
ConstructionMaterials
Materials
Equipment
Equipment and
and Leather
Leather andSporting
and SportingGoods
Goods Transportation
Power Transportationand
andLogistics
Logistics
Services
Services PowerGeneration
Generation Houston
Houston Business
BusinessServices
Services
Entertainment
Entertainment Education
Educationand
andKnowledge
Knowledge Oil
Oiland
andGas
GasProducts
Productsand
andServices
Services
Creation
Creation Chemical
ChemicalProducts
Products
Heavy
HeavyConstruction
ConstructionServices
Services

Note: Clusters listed are the three highest ranking clusters in terms of share of national employment.
Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006.
European Cluster Policy 01-22-08 CK 15 Copyright 2008 © Michael E. Porter
 Innovation Performance of Regions
Patenting Intensity, U.S. Economic Areas
Patents per 100,000
Inhabitants, 2001
300

250

200

150

100

50

Economic Areas

Source: U.S. Patent and Trademark Office; CHI Research; Michael E. Porter, The Economic Performance of Regions”, Regional Studies, Vol. 37, 2003
European Cluster Policy 01-22-08 CK 16 Copyright 2008 © Michael E. Porter
 Innovation Performance of Regions
Patenting Intensity, European NUTS 2 Regions
Patents per 100,000
Inhabitants, 2003

NUTS 2 Regions

Source: Eurostat (2008)

European Cluster Policy 01-22-08 CK 17 Copyright 2008 © Michael E. Porter
 Automotive Cluster
Narrow Cluster Definition
SUBCLUSTERS (16) SIC LABEL
Motor Vehicles 3711 Motor vehicles and car bodies
Automotive Parts 2396 Automotive and apparel trimmings
3230 Products of purchased glass
3592 Carburetors, pistons, rings, valves
3714 Motor vehicle parts and accessories
3824 Fluid meters and counting devices
Automotive Components 3052 Rubber and plastics hose and belting
3061 Mechanical rubber goods
Forgings and Stampings 3322 Malleable iron foundries
3465 Automotive stampings
Flat Glass 3210 Flat glass
Production Equipment 3544 Special dies, tools, jigs and fixtures
3549 Metalworking machinery, n.e.c.
Small Vehicles and Trailers 3799 Transportation equipment, n.e.c.
Marine, Tank & Stationary Engines 3519 Internal combustion engines, n.e.c.

European Cluster Policy 01-22-08 CK 18 Copyright 2008 © Michael E. Porter

 Traded Clusters By Employment
U.S., 2004

Service-oriented
High-Tech
Other

European Cluster Policy 01-22-08 CK 19 Copyright 2008 © Michael E. Porter

 Automotive Clusters by Economic Areas, 1997

Detroit-Warren-Flint, MI
(LQ=7.43, SHARE=19.36%)

Adjacent EAs
tend to specialize in
the same

Regions with high share of US automotive employment ( in top 10% of all regions; share>1.5%) & high
cluster specialization (LQ>1.7)
Regions with high cluster specialization (LQ>1.7 ; LQc,r >LQc 80-th Percentile)

Weak clusters with large employment size in high population areas

European Cluster Policy 01-22-08 CK 20 Copyright 2008 © Michael E. Porter
 Financial Services Clusters by Economic Areas, 1997

Minneapolis-St Paul-St-Cloud, MN-WI

Chicago-Naperville-Michigan City, IL-IN-WI

Hartford, CT
(LQ=3.40, SHARE=3%)

New York-Newark-Bridgeport
(LQ=2.24, SHARE=18.2%)

Denver-Aurora-Boulder, CO

Regions with high share of US financial services employment ( in top 10% of all regions; share>2.5%) &
high cluster specialization (LQ>1.01)
Regions with high cluster specialization (LQ>1.03 ; LQc,r >LQc 80-th Percentile)

Weak clusters with large employment size in high population areas

European Cluster Policy 01-22-08 CK 21 Copyright 2008 © Michael E. Porter
 Cluster Employment Strength and Wages
U.S. Economic Areas
50,000
San Jose-San Francisco-Oakland, CA

New York-Newark-Bridgeport, NY-NJ-CT-PA

45,000
Washington-Baltimore-
Seattle-Tacoma-Olympia, WA Northern Virginia, DC-MD-VA-WV
Chicago-Naperville-Michigan City, IL-IN-WI
Economic Area Average Wage, 2003

40,000 Anchorage, AK
Detroit, MI San Diego, CA
Austin, TX
35,000

Colorado Springs, CO

30,000

25,000
y = 6077.8x + 25158
2
R = 0.3371
p-value <0.001

20,000
0 0.5 1 1.5 2 2.5
Economic Area Cluster Employment Strength, 2003
Note: Cluster strength is measured as share of regional traded employment in strong clusters (weighting by the overlap among the strong clusters.)
See Delgado, Porter Stern 2007.
European Cluster Policy 01-22-08 CK 22 Copyright 2008 © Michael E. Porter
 Automotive Cluster
Broad Cluster Definition
SUBCLUSTERS (16) SIC LABEL
Motor Vehicles 3711 Motor vehicles and car bodies
Automotive Parts 2396 Automotive and apparel trimmings
3230 Products of purchased glass
NARROW CLUSTER

3592 Carburetors, pistons, rings, valves

3714 Motor vehicle parts and accessories
DEFINITION

3824 Fluid meters and counting devices

Automotive Components 3052 Rubber and plastics hose and belting
3061 Mechanical rubber goods
Forgings and Stampings 3322 Malleable iron foundries
3465 Automotive stampings
Flat Glass 3210 Flat glass
Production Equipment 3544 Special dies, tools, jigs and fixtures
3549 Metalworking machinery, n.e.c.
Small Vehicles and Trailers 3799 Transportation equipment, n.e.c.
Marine, Tank & Stationary Engines 3519 Internal combustion engines, n.e.c.
Related Parts 3364 Nonferrous die-casting, except aluminum
3452 Bolts, nuts, rivets, and washers
3493 Steel springs, except wire
3495 Wire springs
3562 Ball and roller bearings
3566 Speed changers, drives, and gears
3641 Electric lamps
Motors and Generators 3621 Motors and generators
Related Vehicles 3795 Tanks and tank components
Metal Processing 3316 Cold finishing of steel shapes
3398 Metal heat treating
Machine Tools 3541 Machine tools, metal cutting types
3542 Machine tools, metal forming types
3545 Machine tool accessories
Related Process Machinery 3543 Industrial patterns
3548 Welding apparatus
Industrial Trucks and Tractors 3537 Industrial trucks and tractors
Die-castings 3363 Aluminum die-castings

European Cluster Policy 01-22-08 CK 23 Copyright 2008 © Michael E. Porter

 Linkages Across Clusters

Fishing & Textiles

Fishing Entertainment
Prefabricated
Products Hospitality
Enclosures
& Tourism
Agricultural
Products
Transportation Furniture
Distribution & Logistics Building
Services Aerospace Fixtures, Construction
Vehicles & Equipment & Materials
Jewelry & Information Defense Services
Precious Tech.
Heavy Processed
Metals Lightning &
Business Construction Food
Services Analytical Electrical
Services
Education & Instruments Equipment
Knowledge Medical Power Forest
Financial Creation Generation Products
Services Devices Communi-
Publishing cations
& Printing Equipment
Biopharma- Heavy
ceuticals Machinery
Motor Driven Production
Apparel Chemical Products Technology
Products Tobacco
Leather Oil &
& Gas Automotive
Metal
Related
Products Plastics Aerospace Manufacturing
Engines
Footwear
Sporting
& Recreation
Goods
Note: Clusters with overlapping borders or identical shading have at
least 20% overlap (by number of industries) in both directions.
European Cluster Policy 01-22-08 CK 24 Copyright 2008 © Michael E. Porter
 The Evolution of Regional Economies
San Diego

Hospitality and Tourism

Climate
Climate
and
and Sporting Goods
Transportation
Geography
Geography and Logistics

Power Generation
Aerospace Vehicles Communications
and Defense Equipment
U.S.
U.S.
Information Technology
Military
Military Analytical Instruments

Education and
Knowledge Creation
Medical Devices

Bioscience
Bioscience Biotech / Pharmaceuticals
Research
Research
Centers
Centers

1910 1930 1950 1970 1990

European Cluster Policy 01-22-08 CK 25 Copyright 2008 © Michael E. Porter
 Clusters and Regional Prosperity
Recent Findings

Higher Regional Job Growth, Wages, and Patenting

• Specialization in strong clusters

• Breadth of positions within clusters

• Positions in related clusters

• Region‘s clusters also present in neighboring regions

Not significant
• Positions in High-Tech versus other clusters

Source: Porter/Stern/Delgado (2007), Porter, (2003)

European Cluster Policy 01-22-08 CK 26 Copyright 2008 © Michael E. Porter
 The Process of Economic Development
Shifting Roles and Responsibilities

Old
Old Model
Model New
New Model
Model

•• Government
Government drives
drives economic
economic •• Economic
Economic development
development is is aa
development
development through
through policy
policy collaborative
collaborative process
process involving
involving
decisions
decisions and
and incentives
incentives government
government at at multiple
multiple levels,
levels,
companies,
companies, teaching
teaching and
and
research
research institutions,
institutions, and
and
institutions
institutions for
for collaboration
collaboration

• Competitiveness must be a bottoms-up process in which many individuals,

companies, and institutions take responsibility
• Clusters provide a platform to address the specific barriers companies face
in a given market, not just general challenges all companies are exposed to
European Cluster Policy 01-22-08 CK 27 Copyright 2008 © Michael E. Porter
 Clusters and Economic Policy
Dimensions

European Cluster Policy 01-22-08 CK 28 Copyright 2008 © Michael E. Porter

 Clusters and the Implementation of Economic Policy

Business Attraction Education and Workforce Training

Science and Technology

Infrastructure
Export Promotion (e.g., centers, university
departments, technology
transfer)
Clusters
Market Information Setting standards
and Disclosure

Specialized Physical Environmental Stewardship

Infrastructure
Natural Resource Protection

• Clusters provide a framework for formulating and implementing effective public policies
and making public investments to foster economic development
European Cluster Policy 01-22-08 CK 29 Copyright 2008 © Michael E. Porter
 Principles of Cluster Policy

• Neutral across clusters

• Enhancing productivity of multiple firms/institutions

• Facilitating/capturing linkages and externalities

• Facilitating the flow of information/knowledge across actors

• Engaging the private sector, not just government

• Preserving and enhancing market competition, not retarding it

European Cluster Policy 01-22-08 CK 30 Copyright 2008 © Michael E. Porter

 Improving the Cluster-Specific Business Environment
Context
Contextforfor
Firm
Firm
Strategy
Strategy
and
andRivalry
Rivalry

z I.e., Improving the investment

climate
– Depreciation rules
Factor
Factor
(Input)
Demand
Demand
(Input) Conditions
Conditions
Conditions Conditions

z I.e., Investments in specialized z I.e., Improving the sophistication

– Physical infrastructure of local demand
– Research facilities – Public procurement
Related
Relatedand
and
– Workforce development programs
Supporting
Supporting
programs Industries – Environmental, health,
Industries
quality, or consumer
protection standards
z I.e., Attracting supporting
industries

• Policies need to have an impact on productivity and innovation, not just transfer money
• Policies need to change the environment for many companies in the cluster, not just a few
European Cluster Policy 01-22-08 CK 31 Copyright 2008 © Michael E. Porter
 Cluster Strength in Europe versus the United States

Share of Employment in
Strong Clusters

35%

30%

25%

20% Europe
15% United States

10%

5%

0%
Median Region Median Cluster
Source: European Clusterobservatory
European Cluster Policy 01-22-08 CK 32 Copyright 2008 © Michael E. Porter
 Clusters and European Regional Prosperity
Cluster Strength and Prosperity, EU-15 NUTS 2 Regions
GDP per Capita (PPP adjusted), 2004

Share of Traded Employees in Strong Clusters*, 2005

Note: Strong clusters defined by LQ>2; NUTS Regions excluding Portugal and Greece.
Source: European Cluster Observatory. ISC/CSC cluster codes 1.0, dataset 20070510
European Cluster Policy 01-22-08 CK 33 Copyright 2008 © Michael E. Porter
 Implications for Europe

• Specialization in a set of clusters what drives competitiveness and

innovation, not homogenization

• Limited regional specialization is an important determinant of Europe’s

lagging competitiveness

• Further integration of European markets is essential to enable a more

efficient economic geography and stronger clusters

• Government can be an important actor in European cluster policy but

government must play the right role
– Government must act as facilitator, not the driver
– Government responsibilities for cluster development should be allocated
across geographic levels, with a focus on the regional level
– European support for cluster development must be based on competitive
principles

European Cluster Policy 01-22-08 CK 34 Copyright 2008 © Michael E. Porter

 Back-Up

European Cluster Policy 01-22-08 CK 35 Copyright 2008 © Michael E. Porter

 Cluster Employment Strength and Wages
U.S. Economic Areas
50,000
San Jose-San Francisco-Oakland, CA
New York-Newark-Bridgeport, NY-NJ-CT-PA

45,000

Boston-Worcester-Manchester, MA-
Economic Area Average Wage, 2003

NH
40,000

35,000

30,000

25,000
y = 7662.6x + 25257
2
R = 0.1766
p-value < 0.001

20,000
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6
Economic Area Cluster Employment Strength, 2003
Note: Cluster strength is measured as share of regional traded employment in strong clusters (weighting by the overlap among the strong clusters.)
See Delgado, Porter Stern 2007.
European Cluster Policy 01-22-08 CK 36 Copyright 2008 © Michael E. Porter