Innovation Systems Research Network The Dynamics of Cluster Development Meric S. Gertler and David A. Wolfe Co-Directors Program on Globalization and Regional Innovation Systems Centre for International Studies, University of Toronto Presentation to the MEDT/ONRIS Workshop on Cluster Development Queen’s Park, Toronto October 16, 2003

Innovation Systems Research Network Clusters and Regional Innovation Systems Innovation has become an increasingly social process (involving interaction between firms and other firms, organizations) Spatial proximity facilitates the sharing of knowledge and the capacity for localized learning by firms, leading to innovation Firms clustered in a region share a common regional culture and institutional framework that facilitates this learning

Innovation Systems Research Network Cluster Characteristics Defined as: –“a geographically proximate group of interconnected companies and associated institutions in a particular field linked by commonalities and complementarities” (Porter) Critical Factors for Cluster Emergence –Strong, diverse and tech-savvy talent pool Florida’s three ‘T’s –Presence of established pillar companies with global reach –Strong knowledge infrastructure research university, government labs etc. –Risk tolerant venture capital and angel investors Sustained development strategies by civic entrepreneurs and local governments (social capital)

Innovation Systems Research Network Emerging Themes in Cluster Analysis Path Dependence –How do clusters originate? –Can they be seeded? –Intended versus unintended consequences Knowledge and learning in clusters –International knowledge flows versus local learning dynamics –Institutional learning → civic capital Levels of analysis –Implications of spatial for cluster analysis –‘nested scales’ –moves in multiple dimensions across scales

Innovation Systems Research Network Path Dependence How are clusters seeded and how do they develop? Cluster growth is firm-based –Role of anchor firms –Strategic research infrastructure Public laboratories Post-secondary educational institutions –Policy inadvertence Key role of civic associations and local entrepreneurs

Innovation Systems Research Network Knowledge and Learning in Clusters International knowledge flows –Access global networks –Niche clusters – ‘clustering of clusters’ –Global networks – suppliers and strategic partners Local learning dynamics –Knowledge spillovers, mentoring, demonstration effects –Labour mobility – recombine assets Challenge is to structure knowledge in social ways –By institutions engaged in critical /reflexive self-monitoring ‘learning by learning’ –Depends on discussion – ‘talk’ to align interests and common understandings of problems and possibilities –Create/strengthen codes and conventions through shared understanding Changing role of the state –Provision of infrastructure and knowledge assets –Associative governance –Key role is coordinating and consensus building

Innovation Systems Research Network Spatial (nested) Scales National Innovation System –Industry structure - Corporate organization and governance –Legal/regulatory framework –Fiscal (taxation) and macroeconomic environment –Framework of industrial relations and labour training –Financial system –Science, innovation and other industrial policy (including national labs) Regional Innovation System –Regional areas of specialization –Knowledge infrastructure – universities, colleges, government labs –University, college and K-12 education systems –Networks of training and tech-transfer organizations –Industrial/innovation policies (support, retention, attraction, upgrading) Cluster –Focused on regional areas of specialization –Specialized training and tech-transfer organizations –Physical infrastructure – transportation and communications –Civic governance, associative action –Lifestyle assets

Innovation Systems Research Network ISRN: Core Research Questions To what extent — and in what ways — do local, extra–firm relationships and interaction enable firms to become more innovative and successful? What is the relative importance of local, national and global relationships and knowledge flows in spurring the development of regional clusters over time?

Innovation Systems Research Network Cluster Case Studies Size and composition of the cluster History of the cluster’s evolution, including key events (intentional and accidental) Relationships between firms Relationships between firms, research infrastructure, other institutions/organizations Geographical structure of these relationships Role of finance capital (especially angel investors and venture capitalists) Role of local social capital and ‘civic entrepreneurs’

Innovation Systems Research Network ISRN: Works in Progress ( ) Biotech/Biomed: (Montreal, Toronto, Vancouver, Ottawa, London, Saskatoon, Halifax) ICT/Photonics/Wireless/e-Commerce: (Vancouver, Calgary, Waterloo, Ottawa, Quebec City, New Brunswick, Cape Breton) Mechanical Engineering: Aerospace (Montreal); Steel, Auto Parts (S. Ontario) Multimedia: (Montreal, Toronto, Vancouver) Food and Wine: Specialty Foods (S. Ontario); Wine (Niagara, Okanagan) Resource Industries: Wood Products (BC); Mining Supply/Services (Sudbury)

Innovation Systems Research Network Key Cluster Indicators How would we know a ‘successful’ cluster when we see one? (A cluster is more than a group of firms in the same/related industries) Flows, dynamics Knowledge, learning 4 categories: Inflows Outflows Local social dynamics History/path dynamics

Innovation Systems Research Network Inflows Key Cluster Indicators: Inflows Capital (investors in pursuit of unique local assets, capabilities – tangible, intangible) VC FDI (interregional, international) M&A People (highly educated workers seeking career opportunities, cutting edge, buzz, QoL) Stars, post-docs Talent (other highly skilled labour) Knowledge (connections to global pipelines) IP (licensing; other codified forms) Alliances and research funding

Innovation Systems Research Network Outflows Key Cluster Indicators: Outflows Products (outputs in demand) goods, services to world markets Knowledge (ideas, know-how in demand) IP licensing patent citations

Innovation Systems Research Network Local Social Dynamics Key Cluster Indicators: Local Social Dynamics Co-operation, networks Competition Circulation of People (workers, entrepreneurs) Knowledge Community-level associative governance, interaction

Innovation Systems Research Network History and Path Dynamics Key Cluster Indicators: History and Path Dynamics Discontinuities, shocks Resilience, robustness (Vancouver, Toronto, Montreal Multimedia vs. Ottawa ICT) Adaptation, evolution Learning from success (spinoffs, demonstration effects) Learning from failure (release of surplus assets: key to next wave of prosperity)

Innovation Systems Research Network Emerging Findings: 5 Ls Learning Old and new industries In-house and inter-firm Local and non-local Local memory, experience key – esp. amongst VC, angels, managers, specialized professionals

Innovation Systems Research Network Emerging Findings Labour The single most important input Many places can produce ‘talent’ But their ability to retain and attract talent depends on: Thickness, opportunities, depth of local labour market Quality of place: creativity, diversity, tolerance

Innovation Systems Research Network

Emerging Findings Location Dynamic, innovative concentrations of firms rely equally on strong local and global linkages (Biotech, S Ont Steel, Montreal Aerospace, NB e- commerce)

Innovation Systems Research Network Emerging Findings 2 scales Firm: managerial talent, entrepreneurial ability differentiates one firm from another (e.g. Montreal Aerospace, S Ont Steel) Established large firms with global reach act as visible, symbolic role models to encourage new entrants Community: ‘Civic entrepreneurs’ play a key role in creating the conditions conducive to cluster formation and growth + Waterloo, Ottawa, Montreal – Toronto?

Innovation Systems Research Network Emerging Findings Legislation/Labs: Public sector role Institutions, regulations shape ‘rules of the game’ e.g. IP rights, barriers to entry/exit, time horizons, labour market stability/mobility, immigration May be set by nation, province or individual organization Role of local universities/research institutions is not consistent across all cases some clusters are clearly university-led in other cases, universities are followers, not leaders, but are still important…

Innovation Systems Research Network Policy Implications Importance of social factors and institution building Linkages between elements of the system –Especially research infrastructure and clusters –Not just a ‘supply-push’ phenomenon Importance of demand side of innovation system –Absorptive capacity – at both firm and regional level –Knowledge is not a ‘free good’ National policies impact at the local level –Interact with the other spatial scales Growing role of networks and clusters –Talent as a key attractor – ‘Competing on Creativity’ –Combination of educational resources and quality of life factors

Innovation Systems Research Network Policy Implications II Requires broad mix of policies –Support for upgrading innovative capacity of firms –Infrastructure to promote rapid diffusion of technologies –Support growth of SME’s through networking and interaction –Creation and retention of ‘talent’ is critical –Stimulate both supply of and demand for new knowledge –Role of financial system Critical role of strategic planning and regional foresight at the local and community level –Coordinate government agencies at local level