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The Role for Clusters in Irish Economic Development Policy


Abstract and Figures

Irish policymakers interest in the concept of industrial clusters dates back to the Culliton Report, which recommended the promotion of industrial clusters focused on niches of national competitive advantage. This view of agglomeration economies based on industrial clusters derives largely from the work of Michael Porter. Given the widespread use in the term 'cluster', Doyle and Fanning review the evolution of this concept, and outline the international and Irish evidence regarding the existence of Porterian clusters. The authors conclude that while there is little evidence that such clusters have had a significant effect on productivity growth in Ireland, the research to date has been inadequate, and has been hampered by a lack of appropriate data.
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Irish policymakers interest in the concept of industrial clusters dates back to the Culliton
Report, which recommended the promotion of industrial clusters focused on niches of national
competitive advantage. This view of agglomeration economies based on industrial clusters
derives largely from the work of Michael Porter. Given the widespread use in the term ‘cluster’,
Doyle and Fanning review the evolution of this concept, and outline the international and Irish
evidence regarding the existence of Porterian clusters. The authors conclude that while there is
little evidence that such clusters have had a significant effect on productivity growth in Ireland,
the research to date has been inadequate, and has been hampered by a lack of appropriate
16.1 Introduction
This chapter focuses on the concept of ‘clusters’ as a tool for economic analysis and guiding
development policy. It has been widely used in many policy reports, for example in the Culliton
Report, and referred to in many Irish business support programmes as desirable or necessary
to improve productivity. This line of thought has been heavily influenced by Michael Porter,
especially by his Competitive Advantage of Nations (1990). Yet the notion of the cluster is often
used with different connotations to that meant when the term was used and defined by Michael
Porter. Indeed from the nine inclusions of ‘cluster’ in the Enterprise Strategy Group Report
(2004) it is not at all obvious that either the meaning or implications of the cluster concept, in
Porter’s terms, were intended. In research circles, the concept has also proved problematic and
generated a substantial literature debating its merits and shortcomings.1
The context in which the cluster is founded and from which it takes its meaning must be
understood to appreciate its purpose and its usefulness as a tool of analysis. We explain the
concept as grounded in the work of Michael Porter, from its introduction in 1990 through to
its current and ongoing progression. The setting of the cluster within a theory for economic
development that is being developed by Porter is also provided.
International and Irish evidence from the array of research generated by cluster-based analyses
is summarised. The mainly negative findings on clusters evident in Irish studies is re-examined
in the light of our discussion of the relevance and purpose of using clusters as a lens through
which to view economic and business development. Some implications for development in
policymaking in Ireland are outlined.
16.2 Porter’s Clusters – Definition and
Irish policymakers interest in the cluster concept dates back to 1992 with the publication of
the Culliton Report, which recommended the promotion of industrial clusters focused on niches
of national competitive advantage. Culliton’s views were based on Michael Porter’s 1990 book,
The Competitive Advantage of Nations, where the cluster was introduced in the context of
national competitiveness.
Porter’s focus was on why a nation becomes “the home base for successful international
competitors in an industry?” (1990: 1). In answering the question, Porter obser ved that:
A nation’s successful industries are usually linked through vertical (buyer/supplier)
or horizontal (common customers, technology, channels, etc.) relationships…The
phenomenon of industry clustering is so pervasive that it appears to be a central feature of
advanced national economies (Porter 1990: 149).
For the purposes of this chapter, the definition of clusters used follows Porter, as cited above
and in later work, where he outlines two specific elements constituting a cluster:
Critical masses - in one place - of unusual competitive success in particular fields…Clusters
are geographic concentrations of interconnected companies and institutions in a particular
field. Clusters encompass an array of linked industries and other entities important to
competition (1998: 78).
Porter observed that competitive success of companies in particular ‘fields’ coincided
with strong clusters. Porter is unequivocal in defining success in terms of productivity and
productivity growth relative to rivals. The above definitions correspond to the question Porter
wished to answer regarding the location of successful international competitors. Although
Porter set out to identify the causes of national competitive advantage, it is not the only context
in which the cluster has relevance. Clustering is appropriate for considering related but distinct
issues of industry and regional development that include business and/or industry origins,
evolution and decline.
The nature of interconnection can vary across cluster members, which makes a simple
definition challenging, but the impact of interaction is seen in the contribution made to cluster
members’ individual and overall competitiveness. A cluster may include producers of goods
or services, their specialised suppliers, ser vice providers and any associated institutions, from
industry or trade associations to universities and standard-setting agencies, normally within the
boundaries of a country or across a region. Cluster members may compete with other members
in their field or support the competitiveness of other cluster members by resource-sharing.
A key feature of Porter’s cluster concept is that co-operation as well as competition underlies
cluster activities allowing member firms to have higher productivity than would other wise be
The essence of the cluster concept has its roots in work on what Marshall, as far back as 1890,
called ‘externalities of specialised industrial locations’ (Marshall, 1920). Somewhat paradoxically
in the current context of increasingly globalised markets, firm location and interdependence
are significant explanations of their competitive performance according to cluster theory.
Location is one of the few sources of differentiation that competitors outside a cluster are
unable to imitate. Porter’s cluster concept includes elements of location, competition, co-
operation and strong relative performance in a manner that was not otherwise conceptualised,
but recognising that: “most past theories address particular aspects of clusters or clusters of a
particular type” (1998: 208).
Furthermore, by grounding the concept in productivity, a link appears across Porter’s
separate research streams at the level of firms2, industries3 and locations4 in a comprehensive
and integrated framework.
16.3 Identifying Clusters
The cluster can be considered from the business-based perspective on social structure offered
by Herbert Simon.5
A mythical visitor from Mars approaches the Earth from space, equipped with a telescope
that reveals social structures. The firms reveal themselves, say, as solid green areas with
faint interior contours marking out divisions and departments. Market transactions show
as red lines connecting firms, forming a network in the spaces between them. Within firms
(and perhaps even between them) the approaching visitor also sees pale blue lines, the
lines of authority connecting bosses with various levels of workers…No matter whether our
visitor approached the United States or the Soviet Union, urban China, or the European
Community, the greater part of the space below it would be within the green areas, for
almost all of the inhabitants would be employees, hence inside the firm boundaries.
Organizations would be dominant feature of the landscape. A message sent back home,
describing the scene, would speak of ‘large green areas interconnected by red lines’.
Extending this thought experiment, ‘the large green areas’ delineating firms would be
further connected by market, technology or resource relationships - not necessarily market
transactions - that not only allow but stimulate and facilitate firms to improve productivity,
innovation and enhance the business environment.
Artefacts of clusters may be found in countries, states, regions, counties, or cities. Clusters
may occur in small local industries or large international industries. They characterise small or
large economies and tend to be most developed in advanced economies. In practice, precisely
how and how well clusters function varies across regions as well as across industries within
The identification of cluster boundaries goes beyond standard industrial reporting or
classification systems commonly used to delineate industries from each other (e.g. Standard
Industrial Classification (SIC)). This point is central to analysing any economic region using
the cluster concept because the general purpose of classification systems is to provide a
framework for the collection, tabulation, presentation and analysis of data. Their purpose is
not to describe the structure of economic activity, or economic interactions in a location, or
to assist in identification of the determinants of successful business or industries. For example,
two businesses producing the same product may be classified into separate industries because
the product may be both the principal product of one business and the secondary product
of another or because industries may be defined in terms of the production process used
(Nijhowne, 1997). Businesses using a vertically integrated production process may produce
the same product as others in their industr y that purchases the unfinished product and further
process it. Some of the tension between classification systems of economic activity and how
economies actually function based on businesses’ operations, activities and relationships are
addressed in the cluster concept.
Since such standard classifications do not identify the value-adding cross-industry transactions
or linkages that characterise the activities of many firms, moving from the cluster concept to
its measurement is difficult. This is reflected in how Porter’s methods for cluster identification
and measurement have developed and progressed over time (consider Porter, 1990 and Porter,
2003). Researchers grappling with using the cluster concept are invariably faced with the
challenge of dealing with the information and data available to them, usually provided in the
format of ‘standard’ industry classifications, and attempt to interpret it or reorganise it in a
manner appropriate to the cluster concept and identifying a cluster in particular locations.
16.4 Cluster Origins in the Economic
The identification of locations with a distinctive business environment that influences
how individual businesses choose to compete is a novel feature in Porter’s work. The cluster
emerges from Porter’s analysis of the quality of the economic environment of a location for
business and an appreciation of the concept requires that it be placed in this broader context.
The factors that Porter included in his ‘Diamond’ framework for competitive advantage (the
microeconomic business environment of firms and clusters) presented in Figure 16.1, facilitate
or hinder the development of successful firms and clusters.
Both ‘chance’ (i.e. contingency), and ‘Government’ lie outside the ‘Diamond’ but impact on
the business environment in determining business performance “in important ways” (Porter
1990: 73) and are also included here. Each Diamond’ element may influence the other
elements to generate an environment conducive, or not, to successful business performance.
The cluster emerges ‘naturally’ as the result of interactions of ‘Diamond’ factors in a location
and “the nature and depth of clusters varies with the state of development of the economy”
(Porter 2005: 47). The cluster is intrinsically linked to and defined by the system of features
described by the ‘Diamond’.
Figure 16.1: Porter’s ‘Diamond’ Framework: Microeconomic Business Environment
Source: Adapted from Figure 3.1: The Determinants of National Advantage, Porter, (1990: 72).
Porter (1998: 13) states that his “core set of ideas about competition … contains a consistent
perspective”. This is echoed in the emphasis of his contributions to the Global Competitiveness
Programme of the World Economic Forum on location where he views the sophistication
of companies operations and strategies and ‘Diamond’ conditions as the core features or
determinants of competitiveness (Porter, 2004). So while average industry profitability is
determined by the international structure of an industr y (as in a ‘Five-Forces’ type analysis),
local business conditions and operational and strategic decisions determine the relative
productivity/profitability of resident businesses vis-à-vis competitors. Clusters fit into this
perspective as their main benefits generate higher productivity for constituent firms, a better
environment for innovation and productivity growth and stimulation of new business formation
that serve to embed successful firms in their locations.6
Those interested in local and regional economic development are aware of the abundance
of cluster studies in which the word ‘cluster’ often has a meaning or definition other than that
employed by Porter. Spatial definitions (agglomeration, urbanisation and localisation) lack the
integration of competition, cooperative and strategic elements that are encompassed in the
‘Diamond’ perspective. Such studies emphasise our central point - a localised concentration
of economic activity or employment in one or more classification codes (e.g. NACE 21211:
Manufacture of corrugated paper and paperboard and corrugated board containers) is not the
same as an industry cluster.
Porter argues that where strong clusters exist, they enhance productivity. Yet not every firm
operates, or is presumed to operate, within what may be classified as a strong or active cluster.
For a group of interrelated firms to qualify as a cluster four conditions must be met:7
1. Proximity: Firms must be close enough geographically to allow for positive spillovers to be
enjoyed and/or for resources to be shared;
2. Market Relationship: Firms must have a common goal (e.g. meeting the needs of the same
market), or requiring highly skilled specialised labour in a specific field to benefit from
Firm strategy, structure
& rivalry
Relateed & supporting
Demand conditionsFactor conditions
3. Active Interaction: Active relationships must be developed for positive cluster effects to
emerge; and
4. Critical Mass: A sufficient number of participants must engage in active interactions before
any meaningful or significant impact on company performance results. The number
depends on the particular cluster, its location, its target market etc.
16.5 Refinement in Cluster Analysis
Porter (2003) extended his approach to analysing regional performance, according to
the cluster concept, using a specially assembled US dataset. He does not attempt to test any
particular hypotheses in this work but to examine the facts and relationships that have been
contained in many theories such as how employment growth, industry composition, cluster
activity and patenting rates across regions are related to levels and variations in performance,
as measured by wages.
Regions were differentiated according to their structure of local, resource-dependent and
traded industries. Local industries are defined as those that have similar shares of employment
across most regions and represent over two thirds of US private sector employment. Resource-
dependent industries tend to be located where resources are accessible and compete with
other domestic or international locations but represent less than one per cent of employment.
Traded industries’ locations (approximately one third of US employment) are not dependent
on resources but are based on “broader competitive considerations, and employment
concentration varies markedly by region” (Porter 2003: 559).
Porter found traded industries to be more geographically concentrated than local industries.
Acknowledging that knowledge spillovers and other positive externalities that characterise
clusters are difficult if not impossible to measure directly, Porter used the locational correlation
of employment to identify pairs/groups of tightly linked industries, using judgement to
identify clusters across industries and to avoid spurious relationships. Overall 41 traded clusters
were identified averaging 29 industries in each, each with its own geographic employment
Marked differences were found in the mix of clusters in different regions (with regions’
wages strongly affected by their traded clusters that sell products or services across regions
or internationally). Regional wage differences were driven by relative wages in traded
industries while the mix of clusters in a region appeared less important in determining
regional performance than relative wage levels. Only very recently have attempts been made
to use Porter’s latest methods to systematically identify and map clusters in a comparable and
internationally transferable manner.8
16.6 International Evidence on Cluster Initiatives
Internationally and across states and cities, practitioners and policymakers have embraced the
cluster concept with a range of efforts aimed at improving regional growth and competitiveness.
One evaluation of such projects is provided in The Cluster Initiative Greenbook based on a 2003
survey reporting on 250 cluster initiatives.9 The survey addressed issues such as the settings in
which cluster initiatives evolved, the objective(s) pursued, the process as it unfolded, and the
drivers of good performance. The majority of initiatives were quite recent. Of the initiatives
active in 2003, almost three quarters were initiated in 1999 or later.10
Initiatives were largely focused on technology-intensive sectors including IT, medical devices,
production technology, communications equipment, biopharmaceuticals and automotive. The
link with technology-intensive sectors/firms is reasonably logical since innovation processes
can be well understood from a cluster perspective. Modern innovation is characterised as
non-sequential interactions between combinations of companies, research institutions and
universities. This is at variance with the ‘traditional’ approach where innovation was carried out
by corporate research and development departments that turned basic research of universities
into new applied products and processes. Vitally, however, clustering is not limited to such
industries or sectors as it is the type of interactions between members and their effects that
define the cluster, and not the end productive economic activity defined in terms of goods or
services provision.
Survey results from Solvell et al. (2003) indicate that the goals of cluster initiatives were quite
varied (see Table 16.1). Each of these factors targets one of the following six categories: (1)
Research and networking; (2) Cluster expansion; (3) Innovation and technology; (4) Education
and training; (5) Commercial co-operation; and (6) Policy action. Most clusters were observed
to target objectives within at least four of the above six goals. One-third of cluster initiatives
were instigated by government, slightly less (27 per cent) by industry or jointly in 35 per cent
of cases. Financing of the initiatives came mostly from government (54 per cent), jointly from
government and industry (25 per cent) or solely from industry (18 per cent).
Table 16.1: Goals of Cluster Initiatives (1 indicates the goal of greatest importance)
1. To foster networks among people 2. To provide technical training
3. To promote expansion of existing firms 4. To provide management training
5. To establish networks among firms 6. To diffuse technology within the cluster
7. To facilitate higher innovativeness 8. To enhance production processes
9. To promote innovation and new technologies 10. To lobby government for infrastructure
11. To attract new firms and talent to the region 12. To improve FDI incentives
13. To create a brand for the region 14. To improve regulatory policy
15. To promote cluster exports 16. To provide incubator services
17. To provide business assistance 18. To lobby for subsidies
19. To assemble market intelligence 20. To co-ordinate purchasing
21. To analyse technical trends 22. To conduct private infrastructure projects
23. To improve firms’ cluster awareness 24. To establish technical standards
25. To promote formation of spin-offs 26. To reduce competition in the cluster
Source: Figure 2 in Solvell et al. (2003).
Having engaged in cluster initiatives, 85 per cent of respondents agreed that the competitiveness
of the cluster was enhanced and 89 per cent agreed that they helped the cluster to grow. In
the case of 81 per cent of initiatives, the goals set at their outset were met. In four per cent of
instances respondents were disappointed with reports of insignificant change.
Although cluster initiatives appear to offer potential for economic improvement, three key
challenges were identified;
1. Setting objectives and monitoring performance;
2. Organising the clusters initiative process over time; and
3. Integrating the cluster initiative in a broader microeconomic policy agenda.
The tendency for cluster initiatives to achieve their stated goals is related to the extent to
which these three issues are addressed.
16.7 Irish Clusters: Evidence and Implications
Several cluster-based studies have been carried out for Ireland, particularly in the last decade
as international interest in cluster policy has mushroomed. The main studies include those
summarised in Table 16.2.
The conclusions provide no convincing argument to support the existence of strong clusters
in Ireland. In further support for this view, Ireland’s ranking in terms of cluster development
was 27th of 110 countries in 2005, based on survey responses regarding supplier quantity,
supplier quality, the local availability of process machinery and research services.11 This was
somewhat lower than the Irish ranking of 21st for the Global Competitiveness Index, which
indicated relative growth prospects over the next five to eight years.12
Two issues are raised by the cluster research conducted to date. First, two of the three cases
addressed in Irish research (popular music and Irish dairy processing) cannot be regarded as
competitive, as acknowledged by the authors.13 The failure to meet one potential requirement
in applying a cluster approach, the ‘market test’ of competitive success, is a potential difficulty
in studies that set out to apply a Porterian analysis to Irish clusters. The selection of non-
competitive sectors in several studies implies the odds were stacked against finding clusters
from the outset. It is also worth noting that the most unambiguously competitive industry
(Software) was also found to be the most clustered. Second, in using data provided in standard
classification formats, efforts to apply the cluster concept were absent from the studies. Properly
grounded cluster analysis goes beyond the identification of backward or forward linkages or
identifying where geographical concentrations of activities exist.
Table 16.2: Irish Cluster Studies and Findings14
Authors Focus Findings
Donnellan (1994) Examination of extent of
clustering in Irish manufacturing
and link to performance.
Evidence of clustering in food and wood
& printing only. Little association to
O’Connell, Van
Egaraat, and Enright
‘Diamond’ analysis of Irish dairy
processing industry to investigate
presence or extent of cluster
“An Irish dairy cluster supported by an
Irish ‘Diamond’ functioning as a system
leading to innovation and sustained
growth has not developed” (p.79).
Clancy and Twomey
‘Diamond’ analysis of Irish
popular music industry to
investigate presence or extent of
cluster activity.
Absence of a clear competitive advantage.
O’Gorman, O’Malley
and Mooney (1997)
‘Diamond’ analysis of Irish
indigenous software industry to
investigate presence or extent of
cluster activity.
Industry is relatively successful and
internationally competitive (p.52).
“good reasons for concluding that the
… industry can be regarded as part of a
clustering phenomenon (p.50).
“not quite a fully developed “cluster” in
Porter’s strict sense of the term” (p.54).
Clancy, O’Malley,
O’Connell, and Van
Egaraat (2001)
Examines importance of clusters
and relevance of Porter’s
‘Diamond’ in Ireland using three
case studies.
Summary of three studies above.
O’Malley and Van
Egaraat (2000)
Assessment of clustering activity
in Irish indigenous industries
(broader analysis than above).
Limited evidence of clusters.
Gallagher, Doyle and
O’Leary (2002)
A ‘Diamond’ analysis of business
or micro- foundations of Irish
Cluster emerging in software, electronics
and telecoms equip. industries. Weak
cluster in indigenous meat & dairy
A conclusion common to many studies is that Irish industrial policy should not be focused
on the development of clusters and that the search for an alternative model for Irish industrial
development should proceed, as relative success has been experienced by the Irish economy
without the presence of established clusters.15 However, in the context of research to date,
and the lack of availability of Irish cluster-based data, research of the Porter type has yet to be
conducted for Ireland. Without such analyses, it must be premature to conclude that a cluster-
based approach to development is not relevant for policymaking purposes.
The scale of multinational contribution to Irish economic activity has been identified as
problematic in applying the cluster concept since Porter largely excluded such plants and
sectors in identifying clusters, although observing their potential to contribute to determining
the competitive advantage(s) of a location. In his more recent work he emphasises that:
“Productivity is the goal, not whether firms operating in the country are domestic or foreign-
owned” (Porter, Ketels and Delgado, 2006: 52).
However, it is a matter for debate whether relevant commentary on related issues from 1990
may still have relevance.
A development strategy based solely on foreign multinationals may doom a nation to
remaining a factor-driven economy. If reliance on foreign multinationals is too complete,
the nation will not be the home base for any industry…The result of not developing
more advanced forms of competitive advantage is a cap on economic development: rapid
progress can be made, but it only goes so far…In Singapore and Ireland, my view is that the
shift has been too little and too late. Neither nation has truly committed to the slow process
of developing a broader base of indigenous firms (Porter, 1990: 679).
A further obstacle to applying Porter’s theory has been identified as the potential requirement
to include relevant other countries – including, for example, the sources of productive factors,
market destinations, home-base countries of multinational subsidiaries located in Ireland
- in a super ‘Diamond’ given Ireland’s small open economy nature.16 Notwithstanding the
profuse academic literature generated by such views, a review of Porter (1990) reveals that
Denmark and Singapore, both small economies and the latter one of the most open in the
world, were included in his analyses and subjected to analyses based on ‘Diamond’ and cluster
16.8 The Value and Challenges of Cluster-Based
The three issues at the heart of cluster-based analyses - competitiveness, productivity and
innovation - can usefully be considered by perceiving the economy as organised around clusters.
These issues are also central to policy concerns, as evident in Europe’s goal of becoming
the world’s most competitive and dynamic knowledge-based economy in the world by 2010
(as stated in the Lisbon goals). There appears to be a broad consensus that sound macroeconomic
performance is necessary but insufficient to achieve productivity improvements across the EU
and microeconomic issues are increasingly centre stage in policy discussion on competitiveness
improvements. The sources or explanations of performance, and its absence, may be found
from the examination of clusters and the characteristics of location, competition and co-
operation that define them which are grounded in the microeconomic features of an economy,
as organised in the ‘Diamond’ framework of locational characteristics.
The analysis of economies as systems of clusters, based on ‘Diamond’ conditions, affords
policymakers an explicit framework on which to organise focussed policies and launch initiatives
across main cluster players, from companies, to state agencies, universities, labour unions
or industry associations, based squarely on how businesses conduct their competitive and
co-operative activities. Cluster analysis focuses on important inter-firm linkages,
complementarities, and spillovers in terms of technology, skills, information, marketing (among
others) that describe the ongoing dynamic process of how firms compete.17 Such linkages and
the actual and potential external benefits clusters can generate point to a scope for joint actions
by companies, industry groups and/or government to support cluster development.
Despite the research conducted to date, it is our view that a comprehensive cluster analysis,
following Porter, of the Irish economy has yet to be carried out. The limited information and
evidence available indicates that Porterian clustering is not a widely experienced phenomenon
in Ireland. Indeed, we could go so far as to say that a relatively small number of indigenous
Irish firms are successful in the international economy. At the same time, it is clear that a
considerable share of economic activity based in Ireland leverages competitive advantages
effectively on national and international markets but the extent to which these advantages are
grounded in elements of location, competition and co-operation remains to be examined.
This might lead to support for the conclusion that clustering is not a relevant policy direction
for Ireland. Alternatively, it may be the case that temporary favourable factors, other than
strong clustering, more than made up for its absence in the Irish experience. Improvements in
economic management and rapid expansion in labour supply for which demand developed,
largely due to production by multinational enterprises, are once-off sources of growth associated
with the Celtic Tiger. It should be remembered, however, that despite these important recent
contributions to growth, Irish productivity per worker averaged 3.5 per cent per annum between
1995 and 2004, similar to the figure over the period from 1947 to 2000.18 To explore how such
rates can be at least maintained, in tandem with full employment, in an economy that has
exhausted its catch-up potential, clustering may well prove to be a fruitful strategy.
16.9 Conclusions
A cluster-centred view of economic development poses particular challenges for policymakers.
It makes redundant the notion that any specific industry or sector should be targeted by
industrial policy since all clusters have the potential to contribute to prosperity and emphasises
that business support programmes should best be structured to enhance the competitiveness
of groups of related firms rather than individual businesses. Cluster-based thinking accords
contributory roles to domestic and foreign companies which are both important in securing
productivity improvements. The role of the policymaker in cluster-based economic development
is to relax any identified impediments or constraints to productivity and to emphasise and
enhance the cross-company linkages and complementarities that facilitate and generate
business competitive advantage. This almost certainly implies a role for more cluster initiatives
at sub-national and local levels and the development of trust not only by leaders and members
of such initiatives in the policy sphere but also in the businesses that populate clusters since they
are conduits for information and inputs on the barriers they face to developing their cluster.
For cluster-based economic growth, it is not the role of policymakers to impose cluster
development on un-cooperative businesses. Should businesses themselves view clustering as
a feasible and beneficial activity that could increase their probability of achieving competitive
success, then facilitation could be provided through state and business representative agencies
with requisite responsibilities for supporting business development.
To examine the potential of cluster-based economic development, there is a need to identify
existing, emerging and potential clusters, which cannot be done using available data and
probably not through desk-research alone, pointing to the need for researchers to engage
hands on with businesses and with policymakers in the cluster debate.
1 For example see Martin and Sunley (2003).
2 See Porter (1985).
3 See Porter (1980).
4 See Porter (1990).
5 See Simon (1991: 27).
6 See Porter, Ketels and Delgado (2006: 54).
7 Ketels (2004).
8 For examples see the Cluster Mapping Project for the US developed by Michael Porter at
the Harvard Business School and the Cluster Mapping Report for Sweden commissioned
by the Swedish Programme for the Development of Innovation Systems and Clusters. The
Cluster study of the UK commissioned by the Department for Trade and Industry (2001)
is based on the methods outlined in Porter (1990).
9 Solvell et al. (2003).
10 One (anonymous) Irish cluster initiative is included in the survey. For more details on the
survey see Solvell et al. (2003: 32-33).
11 From the annual Executive Opinion Sur vey for the Global Competitiveness Report of the World
Economic Forum.
12 It is also considerably lower than the Irish ranking of 19th on the Business Competitiveness
Index, which is constructed to reflect the sustainability of current productivity levels.
13 For example see (Clancy, 2000: 12).
14 Only studies considering Porter-type clusters are included.
15 O’Connell, Van Egaraat and Enright, 1997; Clancy and Twomey, 1997; O’Gorman, O’Malley
and Mooney, 1997; Clancy, O’Malley, O’Connell and Van Egaraat, 2001.
16 As in Rugman and D’Cruz (1993).
17 For examples of the range of cluster-based studies see Van der Linde (2002).
18 Kennedy (2001) Table 1 presents historical data.
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Ketels, C. (2004), “European Clusters, Structural Change in Europe 3 – Innovative City and
Business Regions”, Hagbarth Publications, 1-4.
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Original published 1890.
Martin, R. and Sunley, P. (2003), “Deconstructing Clusters: Chaotic Concept or Policy Panacea?”
Journal of Economic Geography, 3, 5-35.
Nijhowne, S. (1997), “Alternative Aggregations and the Standard Industrial Classification:
A note.” paper presented at the 12th meeting of the Voorburg Group on Ser vices Statistics,
Copenhagen, September.
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Application of Porter’s Cluster Analysis”, National Economic and Social Council, Research Series
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... Interest in clusters and cluster-based policies in Ireland dates back to the CullitonReport (1992)which highlighted the importance of a competitive business environment to the development of enterprise and recommended the promotion of clusters focused " on niches of national competitive advantage " (Doyle and Fanning, 2007:268). Culliton's policy recommendations were heavily informed by Porter's (1990) definition and measurement of clusters, i.e. " geographic concentrations of interconnected companies and institutions in a particular field " ...
... antecedents on which the NIC framework builds includes research from ideas-driven growth theory outlined in the National Ideas Production Function ofRomer (1990) andJones (1995), on microeconomics-based models of national competitive advantage and industrial clusters, developed byPorter (1990) and on research on National Innovation Systems proposed inNelson (1993). 12 For more on the challenges of applying a cluster approach seeDoyle and Fanning, (2007). ...
... For instance, the Industrial Cluster Initiative of the State of Texas aims to develop strategies to increase the strength of log-term competitiveness of key industrial clusters (primarily technology-based) to increase local employability within and across industries (Office of the Governor of Texas 2004). In a similar way, policymakers in Ireland support the findings of the Culliton Report, which recommends promoting the development of clusters of related industries to increase the national competitive advantage in the view of Porter (Doyle and Fanning 2007).) began to prioritize key industries based on cluster and regional approaches recognizing the importance of geographical specificity of agents' localization and agglomeration externalities as contributors to growth. ...
Differences in agglomeration externalities and industrial regimes between locations generate performance differentials for their localized economic activities. For more than two decades, scholars have debated which externality is dominant for growth and under which regime. This study aims to resolve this debate by analyzing the influence of agglomeration economies on the growth of five-digit manufacturing sectors and firms for Indonesian cities and regencies between 2000 and 2009. This is investigated employing the recent reconceptualization of variety based on sectoral linkages distinguishing related and unrelated varieties, which allow assessing their idiosyncratic economic roles. The findings support that economic relatedness is the dominant source for expansion of sectors and firms within Indonesian locations. Specialized clusters and competition are inversely related to manufacturing growth, although the latter fosters sectoral employment within Indonesian regencies. Population density and human capital show antithetic effects between cities and regencies due to their distinctive urbanization trajectories and industrial compositions.
... Doyle and Fanning (2007) emphasised the difficulty in using data organised according to standard output and trade classifications in analysis of clusters as relatedness and the sources of relatedness are often not evident when data are so organised. ...
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Motivated by the important role of trade in driving and reflecting economic transformation, we focus on the export structure of two small export-oriented economies, Ireland and Finland 2000–2009, from the perspective of the sophistication of both economies’ exports, i.e., the extent to which high-value products characterise each country’s export profile. The Product Space method is used as the basis of our comparison of the economies in terms of their sectors, activities, and structural transformation of the economies. The method focuses attention on the estimated density of the product space as evident in patterns of revealed comparative advantage (RCA) in goods exports. The Information and Communication Technology (ICT) sector, as a significant export sector for both economies, is examined specifically to investigate its further export potential.
... This is a particularly difficult feature to include when estimating an econometric model as there are few national or international statistics pertaining directly to the extent of cluster activity that are available for the period of the analysis conducted here (for more on issues in the challenges of applying a cluster approach see Doyle and Fanning, 2007). Instead a number of proxies are identified and estimated for our purposes in this paper. ...
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This paper offers an empirical examination of the determinants of a nation's ability to produce commercially viable innovations, measured as Patents Granted across a sample of 23 advanced economies. The approach employed is based on estimating National Innovative Capacity that focuses on the long-run ability of economies to produce and/or commercialise innovative technologies, in the spirit of Furman et al. (2002). The time period of our analysis covers 1993 to 2005 and employs panel estimation.Motivated by differences in the rate of innovation between economies with different economic structures we examine the Small Open Economies (SOEs) in our country sample to assess whether there is a significant difference between the determinants of Innovative Capacity in SOEs and the other larger developed economies.We find that advanced SOEs and larger economies do not differ substantially in their determinants of producing innovative technologies and, notwithstanding the limitations of Patents as measures of innovative activity, we conclude that policy choice and variation plays a key role in determining the productivity of R&D, when measured as patenting activity.
... In addition, he highlights the important role that internal agglomeration economies might play for some foreignowned multinational businesses. Doyle and Fanning (2007) conclude that (due primarily to inadequate research and lack of appropriate data) there is little evidence that Porterian clusters have had a significant effect on productivity growth in Ireland. (2000) also identified the lack of Porterian clusters among indigenous Irish industry. ...
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This paper explores whether or not there is evidence of industrial agglomeration in the Irish furniture industry over the period 1973-2006. Although the industry is widely dispersed there are some apparent local concentrations of furniture firms. Whether or not these constitute industrial agglomerations has not previously been formally explored. Using the methodology of standardised location quotients, this paper identifies that furniture firms in County Monaghan constitute a statistically significant spatial concentration of enterprises, suggesting that they may warrant the designation of industrial agglomeration. However, the analysis casts doubts as to whether this grouping of firms might continue to be recognised as an industrial agglomeration in the future as there appears to be less agglomerative tendencies in that location now than in the past.
... In addition, he highlights the important role that internal agglomeration economies might play for some foreign-owned multinational businesses. Doyle and Fanning (2007) conclude that (due primarily to inadequate research and lack of appropriate data) there is little evidence that Porterian clusters have had a significant effect on productivity growth in Ireland. Earlier, O'Malley and van Egeraat (2000) also identified the lack of Porterian clusters among indigenous Irish industry. ...
This report offers a comprehensive picture of the furniture sector in Ireland, providing trends in furniture production and consumption, furniture imports and exports, furniture production prices. Profiles are provided for the major Irish furniture manufacturers. Irish furniture production and consumption are broken down by segment (office furniture, upholstered furniture, kitchen furniture, bedroom dining and living room furniture, other seating, other furniture and parts). Irish furniture imports and exports are broken down by country and segment office furniture, upholstered furniture, kitchen furniture, bedroom furniture, dining and living room furniture, non-upholstered seats, other furniture, furniture parts and seating parts). The wood and forestry sector is also considered: production, imports, exports and consumption data are provided for the main semi-finished wood products (sawnwood; wood-based panels).
Conference Paper
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La transformación productiva desde una producción basada en materias primas a una producción de mayor valor añadido, requiere de muchas actividades intensivas en conocimiento, las cuales constituyen el corazón de la transición desde una economía de ingreso medio a una economía de ingreso alto. Lograr tal objetivo demanda el desarrollo de capacidades nacionales de innovación a fin de generar un crecimiento sostenido de la produc¬tividad. Este crecimiento de la productividad a su vez constituye la característica distintiva entre los países de ingreso medio-alto que han transitado a países de ingreso alto y aquellos que no lo han logrado. De allí, la importancia de entender los determinantes del creci-miento de la productividad, objetivo fundamental del presente documento. Además de una análisis general de lo indicado por la literatura sobre los determinantes de la productividad, se estudian las principales políticas que Estonia, Finlandia e Irlanda, así como la Comunidad Autónoma del País Vasco, en España, implementaron para lograr impulsar su crecimiento económico mediante un aumento sosteni¬do en la productividad, y alcanzar y mantener el estatus de país de ingreso alto.
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Motivated by ongoing research into the cluster concept that considers dynamic features of economic development and the cluster life cycle, differences between traded clusters and local activity across different spatial scales are examined for Ireland. Using recent cluster definitions for Europe, this paper presents clustering patterns within the Irish economy from 2008 to 2012. We report on data requirements when applying the benchmark cluster definitions to Irish data. Integrating small, open economy features with life-cycle concerns, we focus on specific clusters in Ireland, along with their export performance, noting that appropriate cluster boundaries are neither regional nor national. Analyses indicate that while Ireland hosts a number of internationally competitive clusters, foreign-owned firms remain substantially more productive than indigenous enterprises. We identify the geographical location of these prominent clusters at the NUTS-3 regional level and highlight the role of regional features for differences in adaptive cycles of clusters. We identify a substantial portion (60%) of Irish regional wage variation relates to the different cluster mixes across regions.
This book offers a discerning narrative on the spectacular rise and fall of the so-called Celtic Tiger economy. It depicts Ireland as a micro-state with a unique reliance on foreign-assisted businesses, driven in part by a favourable taxation regime. It shows that rent-seeking by trades unions and property developers contributed to the fall since 2002. Although the country's highly centralized government's pre-disposition to lobbying has yielded international successes, it has also resulted in recurring self-inflicted crises since 1970. This volume shows how Ireland's export-led growth is associated more with the attraction of foreign-assisted businesses than with the development of critical masses of internationally competitive indigenous businesses. Although the success of foreign-assisted businesses in the pharmaceutical, ICT and finance sectors has been influenced by tax advantages, many of these businesses have been involved in highly productive activity in Ireland over a number of decades. The problem of rent-seeking is shown to have undermined Irish competitiveness in the internationally traded and sheltered sectors. The Irish policy mind-set is shown to lean towards distribution rather than growth. While this has been advantageous for how 'Ireland Inc.' interacts with other governments and international businesses, it has also resulted in a failure to resist the destructive effects of capture by lobbies. In conclusion, this book considers future opportunities offered by the EU's smart-specialization policy and future threats from increased international tax competition. It argues that unless Irish citizens and policymakers change deep-seated attitudes and mind-sets towards business development, the country's performance for the next number of decades will more likely resemble serial under-achievement than that of a high-performing EU state.
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This paper examines the importance of industrial clusters, and the relevance of Porter's diamond model, in the context of the small open economy of Ireland. It analyses the experience of three relatively successful Irish indigenous sectors and it considers to what extent have clusters of related or connected industries been important in accounting for the degree of success attained in Ireland. We do not find evidence of well-developed clusters of the type described by Porter, and our study provides support for some previous critiques of Porter's model. It is concluded that Irish industrial policy does not need to be focused strongly on developing the type of industry clusters described in Porter's model. At the same time, different elements of Porter's model do prove to be relevant and we find that companies in Ireland benefit from being part of some form of wider grouping of connected or related companies and industries, although these groupings can differ from Porter's clusters in significant respects.
Industry clusters have become the focus of public debate, economic policy, and academic research. This is a relatively recent phenomenon. A quick search using the Lexis/Nexis news retrieval service shows that just a decade ago, in 1990, when the “Competitive Advantage of Nations”1 which stresses the importance of industry clusters first appeared, the major newspapers in the English-speaking world ran only four articles in which the term “industry cluster” occurred. By 1993, this figure had increased to 27, followed by 105 in 1996, 280 in 1999, and 409 articles in 2001. Some of these articles make only cursory mention of industry clusters while others may contain only anecdotal cluster information. Many others, however, contain detailed information on specific clusters.
With the publication of his best-selling books "Competitive Strategy (1980) and "Competitive Advantage (1985), Michael E. Porter of the Harvard Business School established himself as the world's leading authority on competitive advantage. Now, at a time when economic performance rather than military might will be the index of national strength, Porter builds on the seminal ideas of his earlier works to explore what makes a nation's firms and industries competitive in global markets and propels a whole nation's economy. In so doing, he presents a brilliant new paradigm which, in addition to its practical applications, may well supplant the 200-year-old concept of "comparative advantage" in economic analysis of international competitiveness. To write this important new work, Porter and his associates conducted in-country research in ten leading nations, closely studying the patterns of industry success as well as the company strategies and national policies that achieved it. The nations are Britain, Denmark, Germany, Italy, Japan, Korea, Singapore, Sweden, Switzerland, and the United States. The three leading industrial powers are included, as well as other nations intentionally varied in size, government policy toward industry, social philosophy, and geography. Porter's research identifies the fundamental determinants of national competitive advantage in an industry, and how they work together as a system. He explains the important phenomenon of "clustering," in which related groups of successful firms and industries emerge in one nation to gain leading positions in the world market. Among the over 100 industries examined are the German chemical and printing industries, Swisstextile equipment and pharmaceuticals, Swedish mining equipment and truck manufacturing, Italian fabric and home appliances, and American computer software and movies. Building on his theory of national advantage in industries and clusters, Porter identifies the stages of competitive development through which entire national economies advance and decline. Porter's finding are rich in implications for both firms and governments. He describes how a company can tap and extend its nation's advantages in international competition. He provides a blueprint for government policy to enhance national competitive advantage and also outlines the agendas in the years ahead for the nations studied. This is a work which will become the standard for all further discussions of global competition and the sources of the new wealth of nations.
Industrial clustering is seen by Porter (1990) as a dynamic process of national sectoral linkages and regional proximity that can systematically interact and reinforce each other, and which is central to international competitiveness. This article examines the extent to which • Porter-type industrial clustering is currently present in Irish manufacturing, and its association, if any, with industrial performance. It also comments on the implications for industrial policy. National linkages between manufacturing sectors are not substantial; and spatial concentrations in two urban centres is more an effect of general urban economies than of sectoral linkages. Little association has been found between the clustering that is currently present in Ireland and various aspects of industrial performance. I INTRODUCTION T he Culliton Report (1992) sees sectoral clustering as an important element of industrial structure, and considers that building industrial clusters should be an important objective of industrial policy. In adopting this view, the Industrial Policy Review Group were heavily influenced by Porter (1990). Porter sees industrial clustering as a dynamic process of national sectoral linkages and regional proximity that can systematically interact and reinforce each other, and which is central to international competitiveness. This article examines the extent to which Porter-type industrial clustering is currently present in Irish manufacturing, and its association, if any, with industrial performance. It also comments on the implications for industrial policy.
Now nearing its 60th printing in English and translated into nineteen languages, Michael E. Porter's Competitive Strategy has transformed the theory, practice, and teaching of business strategy throughout the world. Electrifying in its simplicity -- like all great breakthroughs -- Porter's analysis of industries captures the complexity of industry competition in five underlying forces. Porter introduces one of the most powerful competitive tools yet developed: his three generic strategies -- lowest cost, differentiation, and focus -- which bring structure to the task of strategic positioning. He shows how competitive advantage can be defined in terms of relative cost and relative prices, thus linking it directly to profitability, and presents a whole new perspective on how profit is created and divided. In the almost two decades since publication, Porter's framework for predicting competitor behavior has transformed the way in which companies look at their rivals and has given rise to the new discipline of competitor assessment. More than a million managers in both large and small companies, investment analysts, consultants, students, and scholars throughout the world have internalized Porter's ideas and applied them to assess industries, understand competitors,, and choose competitive positions. The ideas in the book address the underlying fundamentals of competition in a way that is independent of the specifics of the ways companies go about competing. Competitive Strategy has filled a void in management thinking. It provides an enduring foundation and grounding point on which all subsequent work can be built. By bringing a disciplined structure to the question of how firms achieve superior profitability, Porter's rich frameworks and deep insights comprise a sophisticated view of competition unsurpassed in the last quarter-century. Book Description Publication Date: June 1, 1998 | ISBN-10: 0684841487 | ISBN-13: 978-0684841489 | Edition: 1 Clique Aqui