MARCH 2004
SPECIAL ADVERTISING SECTION
Competitive Clusters:
When Collaboration Creates Value
When Collaboration Creates Value
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ore communities, regions and states are turning to the concept of Cluster Development. The advantages of close relationships between key industries and their suppliers, complementary industries, economic development and support institutions have been proven in many regions around the world.
But how do corporate real estate executives, site location consultants and other key corporate investors assess the value of clusters to their decision-making process? Which regions are truly facilitating collaboration that creates value, and how many are merely touting "clusters" as a buzzword or fad of the week? How can executives and investment decision-makers identify and quantify metrics to make comparisons between locations in these attributes?
First, it is important to identify what clusters are and are not. There are many examples of industry concentrations that have left entire regions barren for many years. One has only to think of the steel industry and the Great Lakes regions around Pittsburgh and Cleveland to know that concentrations can produce great problems if the industry is decimated by global competition or technological changes. But that's exactly the point.
The primary difference between industry concentrations and clusters is the degree of interaction by and between industries. These connections are very strong and active in true clusters, and weak or non-existent in mere concentrations. Clusters are, in fact, active partnerships between companies in a regional concentration of an industry, the companies that supply and/or support them, the communities in the region, economic development organizations, educational institutions and other regional stakeholders.
These entities all work together with one goal: to make the companies, and their industries, more competitive, more profitable, and to encourage other companies to locate that will both help the region and the resident companies within it.
Competitive clusters are not immune to global market or technological changes, but the companies within them have proven to be more resilient, faster to innovate, and able to adapt more quickly and create new markets. Examples include:
1. The Southwest Pennsylvania Biotechnology Cluster. This emerging cluster in the Pittsburgh region has a strong concentration in medical instrumentation and has produced an action plan concentrating on skill development, technology transfer and exporting.
2. The Greater New Orleans Inc. cluster-based initiative. This effort produced an active cluster in the coffee industry. The partnership led to identification of the need for, and active recruitment of, a decaffeination facility. Such a facility is in negotiations and may invest $20 million, create 100 jobs and help the cluster compete.
3. The Cairns, Australia Super-Yacht cluster. A group of ship repair facilities banded together with the Cairns Regional Economic Development Corporation, built their own capacity, branded themselves and are expected to gross $100 million for the year 2003 from almost nothing seven years ago.
4. The North Mississippi Cluster Consortium. Led by the North Mississippi Industrial Development Association, this collaboration of communities, agencies and the Mississippi Manufacturers' Association has dedicated itself to assisting traditional industries in the region in order to create an environment of collaboration that permeates all types of industries and institutions throughout the entire region.
5. The Tucson Optics Cluster. Beginning with a handful of enthusiastic firms, this cluster has grown dramatically, formed its own regional association, launched a successful export initiative and helped raise funding for endowed chairs at Tucson's University of Arizona Center for Optical Sciences.
So how do these efforts translate to the corporate real estate/site selection process? A primary advantage is speed. Familiarity with the industry reduces or eliminates the "learning curve" in setting up operations. From permitting/site prep, to professional services, to supplier networks, to industry-specific incentives, active clusters can reduce costs and speed ramp-up.
Locations with these collaborative partnerships can immediately tie companies into industry/supplier networks dedicated to solving problems and increasing margins. This has particular relevance as the issue of continued profitability is becoming critical to corporate real estate and location executives, who are increasingly led to consider both immediate cost and longer-term strategic objectives.
How do executives obtain an objective assessment of a region in these competitive factors? Comparative models have been developed, including the Cluster Scorecard, which measures 10 critical attributes (five supply-related and five demand-related) and provides individual and overall ratings based on a weighted system. The system can quickly provide a quantitative comparison of regions and provide a clear measure of cluster activity in any industry.
Many regions talk about "clusters." Some tout them, some want to recruit them, some claim to see them "right on the horizon." But beware the "pseudo cluster." Clusters are often a result more of luck than concerted effort.
For competitive clusters, the only question that matters is: Where are the connections? The most important difference support entities can make is in creating, nurturing and strengthening them. The results can be both immediate and long-lasting.
Clusters will not make or break a facility location decision. They can, however, make those decisions easier and more successful for years to come. Competitive clusters are more than a fad – they are a response to global challenges, they tap into the best traits of both competition and cooperation, and they can be a region's best hope for economic victory.
But how do corporate real estate executives, site location consultants and other key corporate investors assess the value of clusters to their decision-making process? Which regions are truly facilitating collaboration that creates value, and how many are merely touting "clusters" as a buzzword or fad of the week? How can executives and investment decision-makers identify and quantify metrics to make comparisons between locations in these attributes?
First, it is important to identify what clusters are and are not. There are many examples of industry concentrations that have left entire regions barren for many years. One has only to think of the steel industry and the Great Lakes regions around Pittsburgh and Cleveland to know that concentrations can produce great problems if the industry is decimated by global competition or technological changes. But that's exactly the point.
The primary difference between industry concentrations and clusters is the degree of interaction by and between industries. These connections are very strong and active in true clusters, and weak or non-existent in mere concentrations. Clusters are, in fact, active partnerships between companies in a regional concentration of an industry, the companies that supply and/or support them, the communities in the region, economic development organizations, educational institutions and other regional stakeholders.
These entities all work together with one goal: to make the companies, and their industries, more competitive, more profitable, and to encourage other companies to locate that will both help the region and the resident companies within it.
Competitive clusters are not immune to global market or technological changes, but the companies within them have proven to be more resilient, faster to innovate, and able to adapt more quickly and create new markets. Examples include:
1. The Southwest Pennsylvania Biotechnology Cluster. This emerging cluster in the Pittsburgh region has a strong concentration in medical instrumentation and has produced an action plan concentrating on skill development, technology transfer and exporting.
2. The Greater New Orleans Inc. cluster-based initiative. This effort produced an active cluster in the coffee industry. The partnership led to identification of the need for, and active recruitment of, a decaffeination facility. Such a facility is in negotiations and may invest $20 million, create 100 jobs and help the cluster compete.
3. The Cairns, Australia Super-Yacht cluster. A group of ship repair facilities banded together with the Cairns Regional Economic Development Corporation, built their own capacity, branded themselves and are expected to gross $100 million for the year 2003 from almost nothing seven years ago.
4. The North Mississippi Cluster Consortium. Led by the North Mississippi Industrial Development Association, this collaboration of communities, agencies and the Mississippi Manufacturers' Association has dedicated itself to assisting traditional industries in the region in order to create an environment of collaboration that permeates all types of industries and institutions throughout the entire region.
5. The Tucson Optics Cluster. Beginning with a handful of enthusiastic firms, this cluster has grown dramatically, formed its own regional association, launched a successful export initiative and helped raise funding for endowed chairs at Tucson's University of Arizona Center for Optical Sciences.
So how do these efforts translate to the corporate real estate/site selection process? A primary advantage is speed. Familiarity with the industry reduces or eliminates the "learning curve" in setting up operations. From permitting/site prep, to professional services, to supplier networks, to industry-specific incentives, active clusters can reduce costs and speed ramp-up.
Locations with these collaborative partnerships can immediately tie companies into industry/supplier networks dedicated to solving problems and increasing margins. This has particular relevance as the issue of continued profitability is becoming critical to corporate real estate and location executives, who are increasingly led to consider both immediate cost and longer-term strategic objectives.
How do executives obtain an objective assessment of a region in these competitive factors? Comparative models have been developed, including the Cluster Scorecard, which measures 10 critical attributes (five supply-related and five demand-related) and provides individual and overall ratings based on a weighted system. The system can quickly provide a quantitative comparison of regions and provide a clear measure of cluster activity in any industry.
Many regions talk about "clusters." Some tout them, some want to recruit them, some claim to see them "right on the horizon." But beware the "pseudo cluster." Clusters are often a result more of luck than concerted effort.
For competitive clusters, the only question that matters is: Where are the connections? The most important difference support entities can make is in creating, nurturing and strengthening them. The results can be both immediate and long-lasting.
Clusters will not make or break a facility location decision. They can, however, make those decisions easier and more successful for years to come. Competitive clusters are more than a fad – they are a response to global challenges, they tap into the best traits of both competition and cooperation, and they can be a region's best hope for economic victory.
David Dodd is president of DADCO Consulting Inc. in Shreveport, La. For more information on competitive cluster analysis, contact DADCO at dd@dadco.org.