1. 1 Copyright 2008 © Christian Ketels Cluster Development as a Building Block of Modern Economic Policy Christian H. M. Ketels, PhD Institute for Strategy and Competitiveness Harvard Business School TCI Conference Cape Town October 2008 This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” (with C Ketels, M Delgado) in The Global Competitiveness Report 2007, (World Economic Forum, 2007), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and the Cluster Initiative Greenbook (Ivory Tower, 2004) by C Ketels, O Sölvell, and G Lindqvist. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of the author. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.eduwww.isc.hbs.edu

2. 2 Copyright 2008 © Christian Ketels The Changing Face of Cluster Policy Early 1990s: Pioneer countries and regions Mid-1990s to mid 2000s: Cluster policy entrepreneurs Mid 2000s onwards: Cluster policy moving into the mainstream Concerns about distortions Concerns about effectiveness

3. 3 Copyright 2008 © Christian Ketels Two Perspectives on Cluster Development MORE (Agglomeration) BETTER (Competitiveness) FINISH

4. 4 Copyright 2008 © Christian Ketels Agglomeration Approach Economic geography roughly in line with fundamentals Moving a company from one location to the other has little impact on productivity of others If you do it, hit “hard and early” Weak case for cluster policies “California dreaming” meets “Big Push”

5. 5 Copyright 2008 © Christian Ketels Competitiveness Approach Agglomeration largely driven by business environment conditions and ‘automatic’ cluster effects Exploitation of localized spill-overs not automatic Exploration of opportunities for joint action not automatic If you do it, be patient and develop existing agglomerations and qualities Solid case for cluster policies “Smart government” meets “coopetition”

6. 6 Copyright 2008 © Christian Ketels Broadening the Scope of Cluster Development Cluster in isolation Internal linkages Cluster initiative Cluster portfolios Cluster networks Internal and external linkages Cluster program Feed back Strategy Compe- titive- ness policy

7. 7 Copyright 2008 © Christian Ketels Stockholm Cluster Portfolio Change of share in national cluster employment, 1998 - 2003 Stockholm Share of National Cluster Employment, 2003: 22.9% Change in Stockholm’s overall share of National Cluster Employment: -0.5% Note: Bubble size is proportional to employment levels Source: Statistics Sweden (2005), author’s calculations Biopharmaceuticals Financial Services Communication Equipment Information Technology Distribution Services Education & Knowledge Creation Heavy Construction Services Tourism Publishing & Printing Analytical Instruments Transportation & Logistics Share of national cluster employment, 2003 Medical Devices Business Services Cluster Program

8. 8 Copyright 2008 © Christian Ketels Existing clusters –Already meeting the market test with significant economic activity Emerging clusters –Becoming visible around individual companies and at borders of existing clusters New clusters –Start-ups and chance events create the seeds of emerging clusters Cross-cutting competitiveness efforts Cluster initiatives Cluster Portfolio Approach Instrument Cluster Program

9. 9 Copyright 2008 © Christian Ketels Plastics Oil and Gas Chemical Products Pharma- ceuticals Power Generation Aerospace Vehicles & Defense Lightning & Electrical Equipment Financial Services Publishing and Printing Entertainment Hospitality and Tourism Transportation and Logistics Information Technology Communi- cations Equipment Medical Devices Analytical Instruments Education and Knowledge Creation Apparel Leather and Sporting Goods Agricultural Products Processe d Food Furniture Building Fixtures, Equipmen t and Services Stockholm Cluster Linkages Sporting, Recreation and Children’s Goods Business Services Distribution Services Fishing & Fishing Products Footwear Forest Products Heavy Construction Services Jewelry & Precious Metals Construction Materials Prefabricated Enclosures Textiles Tobacco Heavy Machinery Aerospace Engines Automotive Production Technology Motor Driven Products Metal Manufacturing Cluster Program

10. 10 Copyright 2008 © Christian Ketels Towards a National Growth Path The Role of Clusters Grow exports in related clusters Grow exports in new industries within existing clusters Upgrade the quality of exports in existing clusters Grow exports related to current niche positions Cluster Program

11. 11 Copyright 2008 © Christian Ketels Internal Strengths and External Linkages „Global pipeline... and regional buzz“ Cluster Regional strategies Regional innovation systems Export strategies International partnerships Foreign investors Cluster Program

12. 12 Copyright 2008 © Christian Ketels Positioning Identifies, communicates, and strengthens the specific value proposition of the location From Clusters to an Economic Strategy Business Environment Cluster Portfolio Leverages existing strengths Provides information and structures for general upgrading Improves the economic platform for all clusters and companies Benefits from strengthening clusters FEED- BACK Competitiveness Policy