What do Mumbai, Copenhagen, the Spanish town of Castellón de la Plana, and the small US town of Dalton, Georgia, have in common?
Each is at the centre of a concentrated industry cluster.
Mumbai is famous for being the home of Bollywood, producing over 1,000 films a year.
Copenhagen supplies half the world’s hearing aids and has strength in high quality headphones and earbuds.
Castellón is at the heart of ceramic tile production in Spain. In 2007, they were responsible for 38% of EU production and 17% of global production. As countries like China, Brazil and India have grown their production they have fallen back, but it is still a powerful cluster.
Dalton is the world’s carpet capital, producing 85% of carpets sold in the US and 45% of the global market.
What is a cluster?
An industrial or business cluster is a geographic concentration of organisations that focus on a specific industry or sector. Members benefit through innovation, both cooperative and competitive, access to knowledge, pools of skilled workers, and access to partners and suppliers. A cluster often supports an extended ecosystem of supplier companies that makes the whole system more flexible and agile. Specialist legal or logistics companies gain more business by attaching themselves in a cluster that can use their skills, and members have ready access to specialist capabilities.
A successful cluster can drive a local economy, and so there is a lot of interest from local and national government in encouraging them.
Clusters have a long history. Many cities have a Jewellery Quarter where craftsmen and traders have come together for hundreds of years.
When I grew up in the East End of London, there were still groups of small furniture workshops. Each specialising in a specific part of the trade: turning legs, making frames, upholstering and polishing. That gave them the flexibility to respond rapidly to changes in demand and fashion. It was a production line spread out across the streets.
Where do clusters come from?
Clusters start in different ways, but to the frustration of economic planners, they are hard to build from scratch. Governments have made many attempts in many parts of the world to create clusters using public funds. They almost always wither and die after the initial investment runs out. It is much better to strengthen an existing cluster or nurture an emerging one.
Resource clusters start when there is access to key raw materials and ready access to a market. This is the traditional way that clusters begin, and many can trace their origins to fortunate geography. Access to coal, iron ore, clay and water transport made Ironbridge Gorge a centre of the early Industrial Revolution. Less common now in the developed world, they are still important in emerging economies. But they are vulnerable to resource exhaustion, rising costs and market changes.
Pheonix clusters can be the next stage after an old cluster collapses. The industry has gone, but the skills are still there, and not everyone is willing or able to move to a new location. So skills and equipment are re-purposed to address another market. An example is the sub-sea engineering cluster in North-East England. Growing from the wreckage of shipbuilding on the Tyne and Wear rivers, and skills developed servicing the North Sea gas fields, new companies are emerging to supply the sub-sea construction market. The local universities played a key role in adapting skills and knowledge for new uses and have supported the creation of the world’s largest hyperbaric chamber for pressure testing at 4,500m. New products are emerging like the Hi-Traq cable trencher designed to lay cables to offshore wind farms.
Customer clusters form around large companies with complex needs. Jaguar Land Rover has played an essential role in the regeneration and re-purposing of the automotive cluster in the West Midlands. BAE and Airbus had a similar impact in North-East Wales. Sometimes a large company settles in an existing cluster to take advantage of the supply chain and sometimes they chose a site for other reasons and the cluster forms around them.
Knowledge clusters often grow from universities or research institutes where the core technical knowledge can become a commercial reality. Staff and information can flow easily between business and the research base. The Centre for Secure Information Technologies at Queen’s University Belfast has led to the growth one of Europe’s largest cyber security clusters with 18 companies and over 1000 jobs.
What do clusters mean for you?
Clusters support innovation and growth. They start in many ways, but all offer knowledge sharing, partnership, infrastructure, a skills pool and career opportunities.
Here are some important messages about clusters.
For government – you can try to create a greenfield industry cluster, but having a strategy and money is not enough to guarantee success. It’s much better to find an existing cluster with potential to scale and get behind it.
For big business – being present in a relevant cluster is a great way to sense the direction of innovation and to find new partners.
For startups and small companies – if you can become part of a cluster you will enjoy better market understanding, the spur of competition, access to support infrastructure, and a pool of talented people. You will bathe in the knowledge of the community.
For individuals – a cluster is a good place to be if you are interested in what that cluster does. You can not only get your first job but probably your second and third too.