1. Cluster Policy Worldwide: Current Efforts, Recent Learnings, and Implications for Russia VIII. Samara Interregional Economic Forum Dr Christian H. M. Ketels Institute for Strategy and Competitiveness, Harvard Business School President, TCI Network rafmozart@terra.com.br

2. 2 Copyright 2014 © Christian Ketels What others do: examples of current cluster efforts What we have learned: critical success factors for cluster efforts What it means for Russia: mobilizing regions, managing expectations

3. 3 Copyright 2014 © Christian Ketels

4. 4 Cluster Policy in the United States National Network for Manufacturing Innovation (NNMI) DATA FUNDING CONNECTING INSTITUTIONS 4

5. 5 Copyright 2014 © Christian Ketels A Closer Look: Clustermapping.US Clusters Regions Organizations Project Background - Methodology - Data Sources - Partners Research - Policy Examples - Case Studies - News

6. 6 Copyright 2014 © Christian Ketels Cluster Policy in the European Union OBSERVATORY INTERNATIONALIZATION EXCELLENCE EMERGING, CROSS-SECTORIAL DOMAINS

7. 7 Copyright 2014 © Christian Ketels Cluster Policy in Emerging Economies: Korea Dedicated infrastructure and incentives Technology transfer and linkages Cluster engagement and support 50 years of KICOX 10 years of KICOX Cluster Program

8. 8 Copyright 2014 © Christian Ketels Cluster Policy in Emerging Economies: Mexico TechnologyExportsSkills Shared Value: Social & Economic Benefits

9. 9 Copyright 2014 © Christian Ketels What others do: examples of current cluster efforts What we have learned: critical success factors for cluster efforts What it means for Russia: mobilizing regions, managing expectations

10. 10 Copyright 2014 © Christian Ketels How Important are Clusters? Between 40%-50% of employment are in economic sectors that ‘cluster’ Roughly 25% of total employment is in strong clusters; i.e. regional clusters with significant critical mass There is significant variation in terms of cluster presence and cluster portfolio composition across regions

11. 11 Cluster Presence and Economic Outcomes Prosperity EntrepreneurshipStructural Change Positive correlation between share of regional employment in strong clusters (breadth of clusters; related cluster strength) and: Wages Productivity Job growth/resilience Patenting Positive correlation between share of regional employment in strong clusters (strength of related cluster) and: New business formation in new/existing industries Survival of new firms Job growth in new firms Path of structural change (emergence of new clusters) in regional economies is driven by legacy of composition (portfolio of existing clusters) e.g. Porter (2003), Greenstone (2008). Delgado/Porter/Stern (2012), Ketels/Protsiv (2013), Aharonson et al (2013) e.g., Delgado/Porter/Stern (2011), Lindqvist/ Wennerberg (2008) e.g., Neffke et al (2009); Boschma et al. (2013)

12. 12 Copyright 2013 © Christian Ketels Clusters and Business Environment Quality WEAK Business Environment STRONG Business Environment Specialization measured by employment LQ Impact of higher employment LQ on wages Source: Ketels/Protsiv, 2013 1 1 3 3 2 2

13. 13 Copyright 2013 © Christian Ketels How Important are Cluster Initiatives? The European Cluster Observatory lists more than 2000 cluster initiatives and related organizations; a similar list in the US has a growing number as well The highest number of cluster initiatives (absolute, per employee) is in information technology and biotech Most OECD countries and many regions have cluster-related policy programs Spending on cluster-related programs is meaningful but only a modest percentage of total spending per policy area

14. 14 Copyright 2013 © Christian Ketels Clusters, Cluster Initiatives, and Performance CLUSTER PRESENCE CLUSTER EFFORT ECONOMIC PERFORMANCE +=+= +=

15. 15 Copyright 2014 © Christian Ketels What Drives the Success of Cluster Efforts? Setting Cluster with critical mass of existing economic activities Broader policy environment focused on competitiveness upgrading Organization Activities Capabilities of the Cluster Initiative Manager Private sector logic needs to drive the organization, public sector critical to create the right environment Strategic action agenda grounded in understanding of the relevant market Operational effectiveness in individual activities External Internal

16. 16 Copyright 2014 © Christian Ketels Want to know more? www.tci-network.org www.clusterobservatory.eu www.clustermapping.us www.isc.hbs.edu

17. 17 Copyright 2014 © Christian Ketels What others do: examples of current cluster efforts What we have learned: critical success factors for cluster efforts What it means for Russia: mobilizing regions, managing expectations

18. 18 Copyright 2012 © Christian Ketels The Challenging Context for Cluster Efforts in Russia Economic Geography Overspecialization of regions Specialization in narrow industries, not clusters of related industries Activities integrated in large companies, not clusters of specialized firms Political Economy Legacy of highly centralized policy making Policy making exposed to interest group-pressure Competitiveness Strong legacy assets of scientific expertise (individuals, research institutions, firms) General level of technological sophistication in companies low; few compete on innovation Overall competitiveness remains low, despite some recent progress

19. Russia’s Competitiveness Profile 2013 Macro (88) Rule of Law (109) Political Institutions (107) Human Development (66) Context for Strategy and Rivalry (112) Related and Supporting Industries (99) Demand Conditions (83) Factor Input Conditions (60) Micro (86) Comm. (37) Innov (52) Capital (94) Logistic. (69) Skills (60) GDP pc (51) GCI (88) Social Infra- structure and Pol. Institutions (96) Macroeconomic Policy (73) National Business Environment (89) Company Operations and Strategy (82) Source: Unpublished data from the Global Competitiveness Report (2013), author’s analysis. Significant advantage Moderate advantage Neutral Moderate disadvantage Significant disadvantage Admin (79) CLUSTER

20. 20 Copyright 2012 © Christian Ketels …and what it means for cluster efforts Limit the short-term benefits of cluster efforts Largely beyond the influence of cluster-level action BUT they don’t make Russian cluster efforts obsolete Set appropriate goals Identify appropriate actions And don’t let cluster efforts become an excuse for the failure to engage aggressively in the structural reforms Russia needs

21. 21 Copyright 2012 © Christian Ketels An Agenda for Russian Cluster Initiatives Focus on medium-term actions to upgrade competitiveness Enable collaborative action to build local trust between firms, firms and universities, and firms and the regional government Be a channel for firms to communicate regional business environment weaknesses to government agencies, and try solutions to address them Provide assistance to companies in upgrading their operations and strategic positioning Work with academia and government agencies to make their efforts more relevant to companies

22. 22 Copyright 2012 © Christian Ketels A Russian Cluster Policy to Support Them Key Pillars Provide knowledge, not just funding –Cluster portal to provide comparable data about cluster presence and competitiveness across Russian regions –Cluster association to share learning, develop better operational practices, and inform national policy makers –Cluster manager training Develop funding mechanisms that are robust against interest group lobbying –Moderate amounts of overall funding –Competitive selection with outside evaluation panels –Make follow-on funding contingent on market success Align cluster policies with the realities of different types of clusters –SME versus large firm-dominated clusters –Established versus emerging cluster

23. 23 Copyright 2014 © Christian Ketels The Russian economy has a difficult period ahead, with low growth rates the most likely scenario –Institutional reforms remain insufficient or absent –One-time effects supporting growth after the global crisis have gone –The political tensions with the Ukraine and the West hurt Russia –Global oil & gas markets unlikely to come to the rescue Cluster efforts are part of some positive changes in the Russian economy, that need more time to have a meaningful impact –Some improvements in business environment conditions –Some regions showing innovative approaches to private-public collaborations