Cluster Development Rural Planning Seminar KSU – September 2000 J. W Keller With acknowledgment to Professors Michael Porter & Michael Enright

Cluster Development Industry clusters have become a popular strategy for rural economic development, yet their benefits to the local areas have not been fully examined. Labor is expected to be more productive within clusters, which should translate into higher wages. Our analysis confirms this, showing that workers’ earnings in rural industry clusters are about 13 percent higher than those of comparable workers outside clusters. The wage boost is similar for workers regardless of age or education level.

Globalization and Localization Competition across a wide range of industries is globalizing … … but at the same time, competitive advantage is localizing The challenge is to be among the winners in the process

Globalizing Forces and Features International finance and financial markets Improved communication and transportation Rapid spread of knowledge and technology Blurring of national identities of firms Emergence of global oligopolies Reductions of barriers to trade and investment Supranational organizations Electronic communities Entry of nations into the world economy Expansion strategies of multinational firms Decoupling and decentralization within firms

Globalisation Decoupling and decentralisation within firms Auto design for Asian companies  California, UK Midlands European biotech companies  California, New England Financial services  New York, London, Tokyo increasing Local clusters increasing their drawing power

Localization of Economic Development Initiatives Globalization of competition Localization of competitive advantage Failure of national development policies Realization that one size does not fit all Success of particular locations Devolution for greater responsiveness

What are Clusters? Clusters imply a mix of industries linked together both geographically and functionally. An important subset of clusters, though, is identified primarily as a cluster of similar establishments that draw upon common suppliers. Sometimes called sectoral clusters because they consist mostly of one industrial sector, these groups are probably much more common in rural areas than the broader, more complex type of cluster. Several clusters of this type have become well-known in the rural development literature, including the carpet industry in northwest Georgia, furniture manufacturing in the Piedmont region of North Carolina and Tupelo, Mississippi, and manufactured housing in Indiana.

US: Local, World Class Clusters Minneapolis - supercomputers Wichita - small aircraft San Francisco - biotechnology Silicon Valley - semi conductors, electronics Los Angeles - motion pictures, military aerospace Gulf Coast - chemicals Grand Rapids - office furniture Detroit - autos Boston - medical services, medical devices, software, biotechnology Hartford - insurance New York - finance, advertising Carolinas - textiles, apparel Dalton - carpets

U.S. Counties - Clusters

Cluster Sectors Transportation equipment T obacco Textiles and apparel Lumber and wood Furniture Paper Printing/publishing Chemicals Petroleum refining Rubber and plastics Leather products Stone, clay, and glass Primary metals Food Processing Professional equipment Primary metals Fabricated metal Machinery and computing equipment Electronic equipment

Italy - Local, World Class Clusters Udine - furniture Biella - wool textiles Milan - finance, machine tools Turin - autos Parma - food industries Carrara - stonework Prato - wool textiles Montebelluna - ski boots Carpi - knitwear Sassuolo - ceramic tiles Modena - sports cars Bologna- food machinery & packaging machinery Castel Goffredo - hosiery

“Non-cluster” Clusters Telemarketing Credit Card processing Back office processing Software services Information processing Data Entry Light aircraft Omaha South Dakota Dublin Bangalore Sydney Manila Wichita

High Performance Clusters Multiple linkages trust Rivalry and cooperation Specialized ecosystem Strategic leadership team, participative, consultative, common vision, tight alignment

Clusters……. …. do not conform to: –political boundaries –standard industrial classifications …. involve high-tech and traditional …. vary in size, breadth and state of development …. can be examined at various levels –e.g. Trailer manufacturing in Kansas

Clustering Among Firms Overcoming lack of scale Overcoming distance Identifying and creating joint gains Linking with public sector Leading the process 1+1=3

Are Rural Firms... sufficiently knowledgeable about foreign customers? sufficiently knowledgeable about foreign competitors? sufficiently knowledgeable about best practice in their industry? capable of making the investments necessary to fill the gaps? able to identify and use local advantages?

Accelerating Local Clusters Analyse Local Economy Initial Cluster Review Develop Cluster Vision Develop Cluster Vision Identify Stepping Stones Identify Stepping Stones Immediate Action Agenda Immediate Action Agenda Empower Leadership Team Upgrading Strategic Agenda Upgrading Strategic Agenda Seven Stage Cluster Process

1. Analyse Local Economy Identify the local drivers Identify community priorities for early focus. Short listed clusters should: Already generate ‘export’ income Already have a range of firms with some interfirm connectivity

Do Clusters Help Rural Wages