Business cluster Innovation Clusters Objectives Types The Silicon Valley case Generalization Clusters - Well known examples are: Recife, Brazil: a high-tech center? More links

 

 

 

 

Business cluster

 

A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally.

 

This concept, also known as a competitive cluster, industry cluster by Paul Krugman in Geography and Trade and Cluster development has since become a focus for many government programs.

 

Following development of the concept of interorganizational networks in Germany and practical development of Clusters in the UK; many perceive there to be four methods by which a Cluster can be identified:

 

1 - The Geographical Cluster - As stated

2 - Sectoral Clusters (a Cluster of businesses operating together from within the same commercial sector e.g. marine (SE England; Cowes and now Solent) and photonics (Aston, Birmingham))

3 - Horizontal Cluster (interconnections between businesses at a sharing of resources level e.g. knowledge management)

4 - Vertical Cluster (i.e. a supply chain cluster)

 

It is also expected - particularly in the German model of organizational networks - that interconnected businesses must interact and have firm actions within at least two separate levels of the organizations concerned.

 

 

Innovation Clusters

innovation clusters

 

clean-tech clusters

 

 

 

Objectives

Michael Porter claims that clusters have the potential to affect competition in three ways:

 

by increasing the productivity of the companies in the cluster,

by driving innovation in the field

by stimulating new businesses in the field

 

Types

Generally two types of business clusters, based on different kinds of knowledge, are recognized:

 

Techno clusters - These clusters are high technology-oriented, well adapted to the knowledge economy, and typically have as a core renowned universities and research centers like the Silicon Valley.

Historic knowhow-based clusters - These are based on more traditional activities that maintain their advantage in know-how over the years, and for some of them, over the centuries. They are often industry specific.

A business cluster is a geographical location where:

 

enough resources and competences amass and reach a critical threshold,

giving it a key position in a given economic branch of activity,

with a decisive sustainable competitive advantage over others places, or even a world supremacy in that field.

 

 Process

The process of identifying, defining, and describing a cluster is not standardized. Individual economic consultants and researchers develop their own methodologies. All cluster analysis relies on evaluation of local and regional employment patterns, based on SIC codes.

 

An alternative to clusters, reflecting the distributed nature of business operations in the wake of globalization is Hubs and Nodes.

 

 

The Silicon Valley case

For example in the mid- to late 1990s, several successful computer technology related companies emerged in Silicon Valley in California. This led anyone who wished to create a startup company to do so in Silicon Valley. The surge in the number of Silicon Valley startups led to a number of venture capital firms relocating to or expanding their Valley offices. This in turn encouraged more entrepreneurs to locate their startups there.

 

In other words, venture capitalists (sellers of finance) and dot-com startups (buyers of finance) "clustered" in and around a geographical area.

 

The cluster effect in the capital market also led to a cluster effect in the labor market. As an increasing number of companies started up in Silicon Valley, programmers, engineers etc realized that they would find greater job opportunities by moving to Silicon Valley. This concentration of technically skilled people in the valley meant that startups around the country knew that their chances of finding job candidates with the proper skill-sets were higher in the valley, hence giving them added incentive to move there. This in turn led to more high-tech workers moving there.

 

 

Generalization

The cluster effect can be more easily perceived in any urban agglomeration, as most kind of commercial establishments will tend to spontaneously group themselves by category. Shoe shops (or Cloth shops), for instance, are never isolated from their competition. Instead, it's much more common to find whole streets of them, even though there is hardly a reason for the grouping in that specific region.

 

The cluster effect is similar to (but not the same as) the network effect. It is similar in the sense that the price-independent preferences of both the market and its participants are based on each ones perception of the other rather than the market simply being the sum of all its participants actions as is usually the case. Thus, by being an effect greater than the sum of its causes, and as it occurs spontaneously, the cluster effect is a usually cited example of emergence.

 

Governments and companies often try to use the cluster effect to promote a particular place as good for a certain type of business. For example, the city of Bangalore, India has utilized the cluster effect in order to convince a number of high-tech companies to setup shop there. Similarly, the city of Las Vegas has benefited through the cluster effect of the gambling industry.

 

The cluster effect does not continue forever though. Its relative influence is also dictated by other market factors such as expected revenue, strength of demand, taxes, competition and politics. In the case of Silicon Valley as stated above for example, increased crowding in the valley led to severe shortage of office and residential space which in turn forced many companies to move to alternative locations such as Austin, Texas and Raleigh-Durham, North Carolina even though they would have liked to stay in the valley.

 

 

 

Clusters - Well known examples are:

 

 http://en.wikipedia.org/wiki/Industry_cluster

 

• The Silicon valley, in California in the field of computer technology
• Hsinchu Science Park
• The Napa Valley wine-producing region in California
• Bangalore, in India, for software outsourcing
• Saudi Arabia, in the field of Energy in Dhahran Techno-Valley.
• Israel, in the field of wireless telecom companies in the Silicon Wadi region
• Grenoble, in France, for Micro-Nano Technologies with Minatec
• Paris, in France, for Haute couture
• Peterborough, in the UK, for Environmental Goods and Services.
• Toulouse, in France, for aerospace
• Oeiras, Portugal, for its Information Technology corporations, located mainly in Taguspark.
• Casablanca (Morocco) Technopark and Casa near shore parks.
• Kista Science City, outside Stockholm, known as The Mobile Valley, home of the telecom giant Ericsson was in year 2000 rated as the world’s second best location for IT and the new economy, by Wired (magazine).
• The Silicon Fen in Cambridge, UK, for biotechnology and computer technology
• Antwerp, the diamond center
• Rotterdam, the main container port
• Albany Tech Valley, in New York State, in nano technology
• The Finnish Maritime Cluster
• The Northwest Photonics Association
• The New Jersey Life Sciences Cluster
• U.S. movie production in Hollywood
• The UK post-production industry in London's Soho district
• The US automobile production plants concentration in Detroit
• The Wessex Media group Cluster WMG a British Regional Cluster of Sectoral specialists operating in the production industry for film and TV
• Farnborough Aerospace Consortium assisted by its collaboration work with Kingston University
• London's financial sector, known as 'The City' in the East of London
• Surgical instrument manufacturing in Tuttlingen, Germany.
• Technologiepark in Heidelberg, Germany.
• EduCluster Finland, the education business network in Finland

 

 

Recife, Brazil: a high-tech center?

 

Recife is the financial hub for the Northeast of the country with many of the regional banks. Recife is also the state capital and the most powerful city in the Northeast. With a metropolitan area of 3.6 million people, and is considered to be the most important cultural, economic, political and science-minded city in this region. There is a major international port which ships most of the Northeast trade with the US and Europe. Also, there is a new and very modern airport.

 

 

 

If we want to attract local tech help in Recife, it is very easy and affordable. Recife is home to one of Brazil's top computer science university programs; the Federal University of Pernambuco (UFPE) which boasts one of the best computer-science departments in all of Latin America. The school began teaching programmers to use Sun Microsystems Inc.'s (SUNW ) Java language in 1996, the year it was introduced. Professors at the school also teamed up to launch Centro de Estudos e Sistemas Avançados do Recife (C.E.S.A.R), a business incubator that has played a vital role in the birth of some 30 companies.

 

Recife has an area of town called “Porto Digital” that is a very important technology center for the entire country. In this area, we find a cluster of advanced technology companies with Foreign Direct Investments (FDI) such as Microsoft, Oracle, Microsoft, Nokia and Siemens.

 

 

 

 

Brazil: A Hot Incubator For Tech Startups

Recife's business park is helping power a $10 billion industry in the country

 

In a darkened room in Recife, Brazil, a half-dozen youths peer at glowing computer screens, battling it out in a multi-user game. This is no cybercafé, but rather the offices of Jynx Playware, a budding Brazilian designer of computer games aiming for sales of $400,000 this year. "The first requirement if you want to work here is you have to be a gamer," says André Araujo, 32, one of Jynx's five founding partners.

 

Think of the global information-technology industry, and your first thought isn't of Brazil. Yet Brazil's IT industry has been growing at a 10% annual clip since 2000, according to São Paulo researcher E-Consulting Corp., and now boasts sales of $10 billion a year. Exports of high-tech goods and services should rise from around $500 million last year to $2 billion by 2007, predicts Trade Minister Luiz Fernando Furlan.

 

Recife's Porto Digital, a business park in the northeastern state of Pernambuco, shows how it can be done. The colonial town's once-crumbling port district is now home to Jynx and 84 other IT startups employing 2,000 people and generating combined revenues of some $100 million. "It has all grown much more quickly than we expected," says Valério Veloso, a former investment banker who in May became president of the public-private sector initiative, launched in 2000, to support new ventures. To get the project off the ground, the state government kicked in $18.3 million, while the city of Recife and the federal government have pitched in with tax incentives and cheap loans.

 

PARENT OF 30 COMPANIES

Porto Digital's startups can count on a ready pool of talent, courtesy of the Federal University of Pernambuco (UFPE), which boasts one of the best computer-science departments in all of Latin America. The school began teaching programmers to use Sun Microsystems Inc.'s (SUNW ) Java language in 1996, the year it was introduced. Professors at the school also teamed up to launch Centro de Estudos e Sistemas Avançados do Recife (C.E.S.A.R), a business incubator that has played a vital role in the birth of some 30 companies.

 

One of C.E.S.A.R'S star progeny is Jynx. The 20-person operation uses artificial intelligence and cutting-edge graphics software developed in-house to produce sophisticated virtual-reality games for use in business training. It has also developed so-called advergames for Coca-Cola Co.'s (KO ) Brazilian Web site and for Brasil Telecom, an operator partly controlled by Telecom Italia. Another C.E.S.A.R offspring is Meantime, a maker of games for mobile handsets whose clients include Motorola Inc. (MOT ) and Verizon (VZ ). "Games are one of the most complex areas of computer programming," says Roberto Soboll, Motorola's director of engineering for Latin America. "In Recife they understood that early on and began teaching games programming at the UFPE. The idea is not to create experts in games but to develop complete software developers."

 

Porto Digital won't turn Brazil into an India overnight. And many in the industry feel the government should be doing more to promote IT development. "If you look at South Korea, they have become the global standard for network games because the government decided to invest in connectivity and training," says Ivair Rodriguez, a São Paulo analyst at global IT consultancy IDC. Still, Rodriguez stresses that Brazil does have world-class talent, especially in Java, open software, and electronic security -- all fields in which the Porto Digital companies are strong. If high-tech startups can flower in one of Brazil's least-developed states, it's a sign Brazil may have a shot at creating a digital economy

 

source: business week magazine online JULY 25, 2005

 

 

More links 

 

• Harvard Business School
• The European Cluster Observatory
• Emerging Economic Clusters of the Muslim World
• Blog about Competitiveness Clusters in France
• French Government Site presenting State accredited Competitive Clusters