Clusters in Mature Industries

Paul Sommers

Picking clusters

If your region is more specialized in a particular industry cluster than is the US, your region may have a competitive advantage in that cluster; the trends in that cluster may strongly influence the overall trends in your region

Location Coefficients > 1 indicate regional specialization and competitive advantage

Size and export performance often included as selection criteria Research and education institutions are often necessary ingredients

(not always though - microbrew e.g. in Portland) Willingness to partner is critical -- if you don’t have sponsors and

champions inside the cluster, an initiative is unlikely to succeed

– Service providers can be important partners

Regional Competitive Advantages

TourismHealth Care

Electronics & Computers

Wood Products Aerospace Aluminum

Concrete, Cement & Brick

Food Processing Software Biotech

King 0.900 0.607 0.757 0.794 12.159 0.623 0.648 1.258 3.983 3.041NorthPuget Sound 0.834 0.634 1.744 1.696 29.500 0.417 0.604 0.827 0.588 1.347SouthPugetSound 0.825 0.815 0.426 2.213 1.551 1.609 0.580 0.724 0.458 0.729OlympicPeninsula 1.107 0.783 0.131 6.200 0.823 2.347 1.077 1.227 0.312 0.579Northwest 0.942 0.773 0.471 2.818 0.166 11.015 1.528 1.540 0.469 0.612Central 0.834 0.689 0.186 2.310 0.703 10.027 1.008 2.232 0.132 0.521Southeast 0.818 0.786 0.465 0.962 0.658 0.589 0.532 5.288 0.580 1.470Northeast 0.850 1.070 1.119 2.097 1.781 5.452 1.788 1.745 0.505 0.557Southwest 0.932 0.792 1.560 3.224 0.197 10.375 0.943 0.835 0.585 0.793

Experience in working with clusters

NWAF Flexible Network projects Oregon’s Key Industries program Tacoma area secondary wood products

initiatives Northwest Food Processors Association skill

standards SBCTC/WTECB/ESD cluster initiative

NWAF FMN Projects

Early 1990s interest in FMNs stemming from Piore/Sabel 2nd Industrial Divide

Urban experiments--TechNet in MA; Florida defense oriented manufacturers, etc.

NWAF decided to try the concept in rural areas/made 5 grants/retained NPC as trainer/coach/evaluator

NWAF Projects

Five projects in three states(three secondary wood products and two indiverse manufacturing industries); all engaged in some marketing initiatives with some success; some launched training initiatives; two tried to encourage joint production with little success; independent evaluation suggested modest success for training and marketing initiatives, improvements in self image of company owners, 3/4 of survey respondents had developed new products and 3/5 had expanded sales.

Only one of the five projects survived the end of foundation funding, based on a scaled back effort organized and managed by board members -- Tri-State Manufacturing Association -- see http://www.tsma.org/Default.asp

Lessons Learned

Embed the strategy in enduring institutions Don’t mix metaphors or business strategies--either it’s

a business collaboration or an association with a clear purpose

Beware economists bearing large books and big ideas?? (We really new little about implementation issues in those days, and the secret was not contained in 2nd Industrial Divide)

Oregon Key Industries

“Traded sector analysis” led to designation of key industries; small grants were made available in 1992 to groups of at least 3 firms in key industries to explore feasibility of joint projects or to take early implementation steps; 40 projects were funded

Outcomes documented through a survey included $3 million in sales (for a $400K investment in grants), 95 new jobs, and between 100 and 200 retained in rescued a fish processing plant

Interesting projects included a coop of fish vessel owners who bought the failing processing plant, and a microbrewery that teamed up with a marketing firm in a Japanese sister city, a marketer, and a design firm to create and market custom microbrews (Red Fox and Brown Bear beers)

Lessons Learned

Projects did not engage or transform whole sectors, and few the the projects endured

Funding levels too small to have any transformative impact Some firms found the paperwork too onerous (although the agency

thought it had gone out of the way to make it minimalist) Other firms found it too much work to devise and manage projects

jointly with other firms, and dropped out of networks to pursue separate opportunities

The main point is that these were individual networks, and the cluster as a whole didn’t really notice what was going on--bigger scale thinking is needed if you are going to change outcomes for a cluster

Tacoma Secondary Wood Products Projects

Background -- networks in region had folded; state agency had also pulled back from a sectoral initiative and closed a specialized division dealing with secondary wood products

An export oriented industry association hired a new executive director with a background in training; NIST-MEP program placed a dedicated wood industry engineer in the association office; mission of association then had 3 legs: export development, modernization, and workforce development

Tacoma--the broader mission

Modernization -- industry survey plus a set of in-depth interviews led to a few modernization projects around the theme of lean manufacturing -- this activity continues at slow pace, but is not very visible

Workforce -- key need identified in surveys; partnership formed with Bates Technical College and state funding secured for skill standards development

– NIST funded a school to work project--attempt to get the state or schools to pick this up went no where

– Workfirst program funded a short term training project to get displaced workers into wood products jobs--after 2 years, state support ended as budgets had to be cut--a couple hundred people got decent jobs before it all wound down

– Skill standards completed but there is no agreement on how to market them -- the CD is available

Tacoma -- the final blow

Evergreen Building Products Association saw exports declining as “Asian flu” hit; fired the president and killed the broader mission, retrenched and focused narrowly on export development

The ex-president can now be found at World Wide Wood, attempting to build a New Economy supply management system for the wood industry; new president at the technical college is re-focusing programs there; the industry struggles along

Lessons Learned

There wasn’t sufficient political leadership buy-in on the strategy of focusing multiple initiatives on a single industry cluster--hence several promising initiatives were not sustainable

Blending social objectives (welfare to work) with an industry initiative is always awkward -- but that program worked -- people got jobs and seemed to retain them

Technical education and school to work programs in general are a neglected backwater of secondary education -- this needs to be changed to sustain industry

There was no way of integrating the separate initiatives (modernization, export development, and workforce development) once Evergreen retrenched--this was a key shortcoming that a successful cluster initiative must overcome

Get the New Economy into the Old Economy--Could Be a Cluster Project

Precision farming -- GPS, instruments to gather soil and crop data, analysis result in precise cultivation treatments on small plots within a larger farm

Modern tractors have the equivalent of 15 Pentium computers; Walla Walla Community College has established a partnership with John Deere to train maintenance techs who can deal with the complexities of these machines in a multi-million dollar facility

French fry plants in Othello, a tiny town in Central WA -- PLC controllers on every machine, Automatic Defect Removal (scanners linked to routing and cutting), networks linking the machines to a control room

Broadband connectivity essential to aerospace parts manufacturing and product development companies in Wenatchee, a small central WA city

A software development company in Bellingham (NW WA near the Canadian border) is developing agricultural applications

Not clear how widespread these practices are, or whether the applications are really state of the art--I think there is a huge opportunity out there to integrate the new and old economies

The next two initiatives

Statewide and high visibility, clear political support but focused on regional clusters Three education and training agencies collaborating through joint RFPs requiring colleges and

other training providers to collaborate with significant regional clusters to gain funding for vocational programs; support program to provide data on regional clusters, occupational needs of clusters, models of best practice in cluster initiatives in other places, TA in implementing projects; goal is complete transformation of funding mechanisms based on much more in-depth relationships between industry and education/training organizations

University-based R&D agency building program to support rapid deployment of new technologies into new and older industries statewide, with public and private support, based on serial cluster initiatives beginning with a clean energy and energy management technologies initiative; the goal is a complete transformation of economic development processes; innovative cluster analysis technology will aide in re-thinking cluster definitions and assist in linking state of the art technology with existing and emerging industry clusters

Both initiatives will address multiple clusters -- we’re trying to change the way people think about economic and workforce development -- growth and development based on deep public-private partnerships and transformation, natural groupings of industry partners not based on SIC or NAICS but on where the real inter-industry relationships are (or could be)

Cluster theory -- Lessons from the Old World

Philip Raines, University of Strathclyde– Pick clusters based on criteria such as

complementarity of sectors, ability to secure private sector participation, widespread political support, ability of policy to influence a cluster, and budget limits

– Cluster policy development: 1. economic audit, 2. policy audit, 3. policy design and decision to implement, 4. implementation of policy, and 5. monitoring and evaluation

Cluster theory -- Lessons from the Old and New World

Handouts from:– Boekholt & Thuriaux– Lagenddijk and Charles– Porter

Porter “clusters of innovation” see:– www.isc.hbs.edu

Final thoughts

Think big -- engage the whole cluster in your state -- but act local -- make sure whatever you do works in local areas and has strong local support from relevant industry groups, research and education institutions, and political leadership who may be called on for resources

Do your homework -- make sure you understand the cluster -- composition, markets, technology, important constraints

Build enduring partnerships to tackle key problems, and go after major opportunities

The new economy’s market is in the old economy -- integrate the best of new technology in mature sectors

Workforce strategies and economic development fit together naturally in a cluster approach