Cluster Life Cycles – Dimensions and Rationales of Cluster Development *Fraunhofer Institute Systems and Innovation Research Dirk Fornahl* Max-Peter Menzel** *Institute for Economic Policy Research (IWW) Section System Dynamics and Innovation Fraunhofer ISI Institute Systems and Innovation Research **Institute of Geography University of Bern

2/18 ISI 1. December 2006 Motivation Industry DynamicsMotivationConclusionsCLCRegional DynamicsCluster Stages Empirical observation  Singular case studies describe regional clusters in peculiar stages  Some studies analyze the development of a cluster through some distinctive stages  Clusters emerge, grow and decline  stages Aim  Develop an analytical framework to define and examine cluster stages  Identify processes resulting in the development through the stages

3/18 ISI 1. December 2006 Industry Dynamics MotivationConclusionsCLCCluster Stages Cluster development has characteristics like the ones of the according industry  Quantitative development Emergence DeclineSustainingGrowth time # firms / employees Regional Dynamics

4/18 ISI 1. December 2006 Industry DynamicsMotivationConclusionsCLCCluster Stages Industry Dynamics  Qualitative development (innovation, knowledge, etc.) Impact of qualitative dynamics on quantitative ones Dominant design Number of innovations time Product innovations Process innovations Regional Dynamics

5/18 ISI 1. December 2006 Industry DynamicsMotivationConclusionsCLCCluster Stages Regional Dynamics Firms in clusters (but the same industry) show different patterns than non-clustered firms Firms in cluster Firms outside cluster Growth time  E.g. Pouder & St. John 1996, Audretsch & Feldman 1996 Regional Dynamics

6/18 ISI 1. December 2006 Industry DynamicsMotivationConclusionsCLCCluster Stages Regional Dynamics Clusters not the mere localization of industries  Necessary to elaborate joint effects of industrial and spatial dynamics on the firms in the cluster Firms in the same industry Regional cluster  Cluster dynamics more than the sum of industrial and regional dynamics  Question: What leads to the peculiar cluster development? Firms in the same region Regional Dynamics

7/18 ISI 1. December 2006 Regional Dynamics Industry DynamicsMotivationConclusionsCLCCluster Stages Distinctiveness of regional development  Regional “entrepreneurial spirit” and spin-offs  Marshallian externalitites (specialization)  Jacobsian externalities (diversification)  Additional effects by proximities (e.g. cognitive proximity) Selected effects  Cognition and knowledge: Perception of diverse actors and higher absorptive capacity to bridge cognitive distance (Maskell 2001)  Modification of industrial dynamics (enforcing, reducing) Regional Dynamics

8/18 ISI 1. December 2006 Cluster Life Cycle (CLC) Industry DynamicsMotivationConclusionsCLCCluster Stages QuantitativeQualitative Direct, “firm focused” Number of firms and organizations Number of employees Variety and diversity of competencies and organizational forms Heterogeneity vs. focusing Systemic Perception of cluster Capabilities for collective action Exploitation of synergies Networks of value chains Regional Dynamics

9/18 ISI 1. December 2006 Cluster Life Cycle & Dynamics Industry DynamicsMotivationConclusionsCLCCluster Stages Functioning of systemic effects in a regional context  Faster creation of synergies between firms in a regional cluster through Facilitated co-ordination by quantitative systemic effects Cognition of diverse actors Both effects result in facilitated learning and bridging of technological distances Regional Dynamics

10/18 ISI 1. December 2006 Application to Cluster Stages Industry DynamicsMotivationConclusionsCLCCluster Stages Firm (size) Absorptive capacity Regional Dynamics

11/18 ISI 1. December 2006 Emerging Cluster Industry DynamicsMotivationConclusionsCLCCluster Stages Few firms and employees Scarce possibilities for networks Cluster hardly perceivable Quite heterogeneous Regional Dynamics

12/18 ISI 1. December 2006 Growing Cluster: Quantitative Industry DynamicsMotivationConclusionsCLCCluster Stages Growing number of firms and employees Growing perception Growth of absolute diversity Decrease of heterogeneity Open and flexible networks Exploitation of diversity Synergies Learning effects increase absorptive capacity Firms move towards each other Regional Dynamics

13/18 ISI 1. December 2006 Sustaining Cluster Industry DynamicsMotivationConclusionsCLCCluster Stages Stagnating number of firms and employees Cluster shapes the region („regional identity“) Homogeneous or focussed competencies Strong bias of the regional economy towards the cluster Utilization of synergies and external knowledge by open networks Technological distances are maintained and created Regional Dynamics

14/18 ISI 1. December 2006 Declining Cluster Industry DynamicsMotivationConclusionsCLCCluster Stages Declining number of firms and employees Negative sentiments with respect to the cluster Low diversity Strong focus on a narrow technological trajectory Insufficient adaptability of the cluster caused by closed networks Regional Dynamics

15/18 ISI 1. December 2006 Industry DynamicsMotivationConclusionsCLCCluster Stages Summary Qualitative and quantitative development (stylized) Qualitative development (Heterogeneity) Quantitative development Emergence DeclineSustainingGrowth time # firms / employees heteroneity Regional Dynamics

16/18 ISI 1. December 2006 Conclusions and Outlook Industry DynamicsMotivationConclusionsCLCCluster Stages Summary  Cluster develop through peculiar „stages“ E.g. cluster conditions are not favorable in all stages  Quantitative and qualitative dimension of cluster development  Cluster dynamics result from industrial and regional dynamics, but are different from the isolated impacts  Endogenous explanation for changes / movement through the stages based on qualitative dimension (incl. renewal)  Generation of empirically testable hypotheses Entries, exits and survival over the CLC Technological diversity over the CLC Regional Dynamics

17/18 ISI 1. December 2006 Conclusions and Outlook Industry DynamicsMotivationConclusionsCLCCluster Stages Outlook  Conceptual framework that can be extended, e.g. by In-depth discussion of the endogenous changes Product and process innovation Marshallian and Jacobsian externalities over time Market types  Beginning (in addition to spin-offs) and end of cluster  Incorporation of different kinds of clusters  Role of entries on development of competencies and type of entries over CLC  Empirical test of quantitative and qualitative dimensions over the CLC Regional Dynamics

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