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A Governor's Guide to Cluster-Based Economic Development



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Founded in 1908, the National Governors Association (NGA) is the collective voice of the nation’s governors and one
of Washington, D.C.’s most respected public policy organizations. Its members are the governors of the 50 states, three
territories and two commonwealths. NGA provides governors and their senior staff members with services that range from
representing states on Capitol Hill and before the Administration on key federal issues to developing and implementing
innovative solutions to public policy challenges through the NGA Center for Best Practices. For more information, visit
The Council on Competitiveness is a nonpartisan, nongovernmental action think tank located in Washington D.C.
The mission of the Council is to set an action agenda to drive U.S. competitiveness, productivity and leadership in world
markets to raise the standard of living for all Americans. The Council is the only group of corporate CEOs, university
presidents and labor leaders committed to the future prosperity of all Americans and enhanced U.S. competitiveness in the
global economy through the creation of high-value economic activity in the United States. For more information, visit
Cluster-Based Strategies for Growing State Economies
The National Governors Association’s Innovation America initiative focuses on strengthening our competitive position in
the global economy by improving our capacity to innovate. The goal is to give governors the tools they need to encour-
age entrepreneurship, improve math and science education, better align post-secondary education systems with local eco-
nomic growth, and develop regional innovation strategies.
To guide the Innovation America initiative, we have assembled a bipartisan task force of governors and members of the
academic and business communities. Working with the NGA Center for Best Practices, the task force is developing innova-
tion-based education and economic strategies.Through a variety of forums and publications we will collect and share best
practice information to ensure every state — and the nation — is equipped to excel in the global economy.
Governor Janet Napolitano, Arizona Governor Tim Pawlenty, Minnesota
Co-Chair, Innovation America Task Force Co-Chair, Innovation America Task Force
Innovation America Task Force
Gov. Janet Napolitano, Arizona — Co-Chair
Gov.T im Pawlenty, Minnesota Co-Chair
Gov. Kathleen Sebelius, Kansas
Gov. Matt Blunt, Missouri
Gov. Edward G. Rendell, Pennsylvania
Gov. Jon Huntsman, Jr., Utah
Business and Academic Leaders:
Dr. Craig R. Barrett, Chairman of the Board, Intel Corporation
Dr. G. Wayne Clough, President, Georgia Institute of Technology
Dr. Michael M. Crow, President, Arizona State University
Jamie Dimon, CEO, JPMorganChase
Charles O. Holliday, Jr., Chairman and CEO, DuPont
Dr. Shirley Ann Jackson, President, Rensselaer Polytechnic Institute
Dr. Judith A. Ramaley, President,Winona State University
Dr. Mary Spangler, Chancellor, Oakland Community College
John Thompson, Chairman of the Board and CEO, Symantec
Kevin Turner, COO, Microsoft
Margaret C. Whitman, President and CEO, eBay
Cluster-Based Strategies for Growing State Economies
The author of this guide is Dr. Stuart Rosenfeld, the president of Regional Technology Strategies, Inc., a 501 (c) 3 non-profit corporation in
Carrboro, North Carolina. The co-editors are Stephen Crawford, director of the Social, Economic and Workforce Programs Division at the
NGA Center for Best Practices, and Randall Kempner, vice president, Regional Innovation, at the Council on Competitiveness. The follow-
ing individuals read one or more drafts and provided valuable advice: Dr. Robert Atkinson (President, Information Technology and
Innovation Foundation), Chris Hayter, Director, Economic Development Program, NGA Center for Best Practices, Dr. Maryann Feldman
(Professor, University of Georgia), Kurt Dassel (Monitor Group), Douglas Henton (President, Collaborative Economics), Jim Samuels
(President, Capitol Integrity Group), Dr. Mary Jo Waits (Director, Pew Center on the States), and John Thomasian (Director, NGA Center
for Best Practices). Angelyn Shapiro of the NGA Office of Communications assisted in the editing, design and layout of the guide.
This guide is co-published by the NGA Center for Best Practices and the Council on Competitiveness. It is one of a series of publications
being produced under the 2006–2006 NGA Chair’s Initiative, Innovation America. The NGA Center wishes to thank the Ewing Marion
Kauffman Foundation for the generous grant that made possible the research, editing and production of the guide.
Cluster-Based Strategies for Growing State Economies
The Council on Competitiveness and the National Governors Association (NGA) collaborated on a cluster-based economic develop-
ment initiative in 2002. Since then,the world has grown flatter, creative talent has become more mobile, and global outsourcing
has become more common. As a result, firms in emerging nations today can quickly enter markets by integrating themselves in
global value chains — combining investments from around the world with their own low-cost and increasingly high-skilled labor
The United States cannot compete with such high skill — low wage economies on the basis of costs.It must compete on the basis
of innovation — the development and application of new ideas that create value. It is innovation that will enable the U.S. economy
to continue growing and American families to enjoy a rising standard of living.
Recognizing the critical role innovation will play in driving America’s future prosperity, Arizona Governor and NGA Chair Janet
Napolitano has focused her Chair’s Initiative on innovation and reached out to the Council on Competitiveness to once again work
with the NGA .The Council welcomes this partnership and the vital role that governors play in addressing the country’s innovation
and competitiveness challenges.
The Council on Competitiveness has long championed regional and cluster strategies for economic development.Yet the nature of
clusters must evolve in response to the changing and challenging global economy.This new publication offers a fresh examination
of what cluster strategies work best in this new context as well as builds on the lessons of recent experience. We are pleased to join
with NGA in publishing it.
Deborah Wince-Smith
President, Council on Competitiveness
Cluster-Based Strategies for Growing State Economies
Table of Contents
Executive Summary........................................................................................................................................................................1
Chapter 1 — Introduction...........................................................................................................................................................2
A. Clusters: A Confluence of Private Decisions and Public Policies .......................................................................................2
B. Clusters and Competitiveness in the Global Economy........................................................................................................2
C. Why Clusters Are Important to Governors ............................................................................................................................3
D. Policy Tools for Cluster Development....................................................................................................................................3
Chapter 2 Understanding Clusters and How They Form ........................................................................................5
A. Defining Clusters ......................................................................................................................................................................5
B. Common Characteristics ..........................................................................................................................................................5
C. Forming Clusters: Serendipity and Strategy.........................................................................................................................6
Chapter 3 — Identifying a State’s Clusters..........................................................................................................................7
A. Clusters by the Numbers .........................................................................................................................................................7
B. Clusters by Searching and Scanning ......................................................................................................................................8
C. Under the Radar ........................................................................................................................................................................9
Chapter 4 — Initiatives to Grow and Sustain Clusters ................................................................................................11
A. Establish a Solid Foundation ................................................................................................................................................11
B. Build Relationships .................................................................................................................................................................11
Initiative: Convene Cluster Leadership Council ....................................................................................................................12
Initiative: Support Cluster Organizations ..............................................................................................................................12
Initiative: Provide Opportunities for Collaboration ...............................................................................................................14
C. Deepen Skills and Talent........................................................................................................................................................14
Initiative: Establish a Cluster-Based Workplace Learning System ..........................................................................................15
Initiative: Create Cluster Hubs at Community Colleges........................................................................................................16
Initiative: Encourage Training Consortia ...............................................................................................................................17
Initiative: Engage with Community-Based Organizations .....................................................................................................17
Initiative: Find and Recruit Talent .........................................................................................................................................18
Initiative: Promote Cluster Career Advancement Paths..........................................................................................................18
D. Align Innovation Investments...............................................................................................................................................18
Initiative: Invest in Cluster-Based Innovation Centers...........................................................................................................20
Initiative: Direct R&D Funds to Clusters..............................................................................................................................20
Initiative: Encourage Collaborative and Multidisciplinary R&D...........................................................................................21
Initiative: Support Incremental Innovations ..........................................................................................................................21
Initiative: Segment Expertise in Manufacturing Extension Services.......................................................................................21
Initiative: Increase Prominence of Design as an Innovation Strategy .....................................................................................21
Initiative: Mobilize Investment Capital for High-Tech Startups.............................................................................................22
E. Accelerate Entrepreneurship.................................................................................................................................................22
Initiative: Support Entrepreneurial Networks ........................................................................................................................23
Initiative: Create Specialized Incubator Space........................................................................................................................23
Initiative: Organize Cluster Expertise Across Small Business Centers.....................................................................................24
Initiative: Educate for Entrepreneurship ................................................................................................................................24
Cluster-Based Strategies for Growing State Economies
F. Open Global Priorities ............................................................................................................................................................24
Initiative: Support International Participation in Events and Study Tours .............................................................................25
Initiative: Support and Assist Export and Export Networks...................................................................................................25
Initiative: Establish Cluster-Based International Learning Exchanges for Students ................................................................25
Chapter 5—Value Found and Lessons Learned..............................................................................................................27
A. Case Studies Continue to Suggest Advantages of Clusters..............................................................................................27
B. Final Thoughts.........................................................................................................................................................................27
Glossary of Terms ..........................................................................................................................................................................28
Selected Policy-Relevant Resources.....................................................................................................................................29
Cluster-Based Strategies for Growing State Economies
Executive Summary
Cluster strategies have the potential to accelerate regional econom-
ic growth, but only if they are properly understood and applied.
This Governor’s Guide examines the changing economic environ-
ment in which clusters function, summarizes the lessons learned
from recent experience, and offers practical recommendations for
cluster initiatives that governors can take to strengthen their states’
A cluster is a group of firms, related economic actors, and institu-
tions that are located near one another and that draw productive
advantage from their mutual proximity and connections. They
may be connected by functional relationship (e.g., suppliers and
purchasers, producers and distributors) or by competition for simi-
lar markets. The most successful clusters are typically found in
multi-county regions where participants can easily interact and
leverage the same pool of labor and training assets. Firms that are
part of robust clusters are in a stronger position to compete suc-
cessfully in the global economy and thus to contribute to regional
prosperity. Consequently, governors are keenly interested in strate-
gies for promoting the emergence and growth of clusters, especially
in high-wage, high-growth industries. The challenge is to develop
effective strategies — ones that reflect an understanding of the
complexities of cluster dynamics in a changing world.
Clusters are defined by relationships, not memberships, and spatial
boundaries are variable and porous. Clusters are often interdepend-
ent and overlapping, with some companies being part of more
than one. Their formation is usually serendipitous rather than
engineered by government. Still, clusters are more likely to develop
in regions that offer the needed human, intellectual, financial, and
social capital and that nourish their growth through supportive
public policies and programs.
Determining the regional location of the state’s clusters is the start-
ing point of any cluster-based strategy. Identifying clusters is still as
much art as science, but a useful picture of clusters can be drawn
by combining analyses of business sectors, employment, and wage
data with regional observation and interviewing key business lead-
ers. In doing so, however, it is important to avoid creating defini-
tions and boundaries that are too narrow, that cannot adjust to
constant change, or that discourage collaboration among clusters.
Once clusters are identified, there are at least five kinds of initia-
tives that policymakers can take to support their growth:
Establish a solid foundation: Every cluster has some funda-
mental needs that are not cluster specific but that affect the
ability of clusters to succeed. These include the region’s educa-
tional assets, physical infrastructure, attractiveness to creative
talent, and capacity for aligning the efforts of regional educa-
tional, workforce, and economic institutions. Governors are
already doing much to promote improvements in these areas,
but cluster-strategy development offers additional opportuni-
ties to focus the attention of key constituencies on the impor-
tance of these building blocks.
Build relationships: Inter-firm collaboration facilitates learn-
ing and the aggregation of intangible assets, especially the tacit
knowledge that resides within company employees and prac-
tices. State leaders can help by convening a cluster leadership
council and supporting cluster associations.
Deepen skills and talent: By nature, clusters attract and
enhance talent, but government can reinforce this tendency by
creating cluster hubs at community colleges, fostering cluster-
focused professional science masters programs at nearby uni-
versities, encouraging cluster-training consortia, and encourag-
ing cluster-based career advancement paths.
Align innovation investments: States can realize higher
returns on their investments in research and development
(R&D), centers of excellence, and business innovation by
focusing on clusters. In the process, they should keep in mind
that innovation is about more than breakthroughs in science
and technology; it also is about incremental improvements in
products, services, and the processes for producing and mar-
keting them — improvements that are often the result of new
product designs and business models.
Accelerate entrepreneurship: Talent and research are necessary,
but it takes entrepreneurship to translate good ideas into success-
ful products and services. Governors can promote entrepreneur-
ship by supporting entrepreneurial networks, creating cluster-
focused incubators, organizing small business centers around
cluster expertise, and encouraging entrepreneurship education
programs at high schools and postsecondary institutions.
Open global priorities: Successful clusters extend their net-
works to distant competitors, vendors, and institutions.
Government can help by supporting participation in interna-
tional conferences, trade shows, and study tours; by providing
export assistance; and by establishing cluster-based learning
Cluster strategies are not silver bullets, but properly designed and
applied, they offer a promising way to promote innovation, entre-
preneurship, and economic growth.
Cluster-Based Strategies for Growing State Economies
Chapter 1 — Introduction
The concept of industry clusters has dominated economic develop-
ment policy over the past two decades. Even before the term “clus-
ter” entered the public policy vernacular, states targeted resources
and investments to fortify their strongest sectors or to develop
potentially competitive sectors. States directed funds to research
centers, education and training programs, incubators, and industri-
al parks that focused on specific sets of industries.
In the late 1980s, however, states began to notice the competitive
advantages and economic value added by “clustering” and “net-
working” among companies, and they began to support and
encourage these interdependencies. A series of reports in 1989–90
for Florida by SRI International may have been the first official
application of cluster analysis and use of the term “cluster” by a
state.1The publication of Michael Porter’s path-breaking book on
competitive advantage in 1990 provided a model that tied the vari-
ous pieces together in a neat system. By the end of 1992, both
Arizona and Oregon had formal cluster strategies in place. Before
long, specialization rather than diversification became the sine qua
non of regional economic prosperity, and clusters became the new
organizing framework for economic development.2
This guide reviews what has been learned about clusters and clus-
ter initiatives to date, suggests ways that governors can influence
cluster growth and sustainability, highlights some of the changes
associated with globalization, and describes some proven or prom-
ising cluster initiatives. It begins with a brief discussion of why
firms have clusters and how changing global conditions affect the
structure of and reasons for clustering. Then it turns to why clus-
ters are important economic units for governors to target and
describes the tools with which they can affect their shape and
A. Clusters: A Confluence of Private
Decisions and Public Policies
An industry cluster is a group of firms, related economic actors,
and institutions that are located near one another and that draw
productive advantage from their mutual proximity and connec-
tions. It is the key to understanding the performance of regional
economies and the competitiveness of individual firms.3
One reason clusters are receiving so much attention is that they are
based on observations of business behavior. Businesses have clus-
tered for decades, indeed for centuries. Metal-working companies
serving the Springfield Armory clustered along the Connecticut
River valley as early as the 18th century, and by the end of the
19th century, manufacturers clustered in large cities networked
and learned from one another — apparel in Philadelphia; plastics
in Massachusetts; furniture in Grand Rapids, Michigan; jewelry in
Providence, Rhode Island; and industrial machinery in Cincinnati,
Ohio. By the first half of the 20th century, the film industry had
concentrated in the Los Angeles area, finance in New York, insur-
ance in Hartford, and automotive in Detroit. More recently,
Silicon Valley has epitomized an environment that supports con-
verging and overlapping clusters of high-technology companies.
Today, globalization is changing the geography of markets, compe-
tition, and cooperation. Yet companies continue to cluster and
remain remarkably place based.
B. Clusters and Competitiveness in the
Global Economy
Cluster strategies take on new significance in today’s global econo-
my. Trade agreements and major advances in communications and
transportation have reduced trade barriers and created an extreme-
ly competitive global economy. Although competition in this glob-
al economy is sometimes viewed as between nations, it really is
between high-performing economic regions. Exporting firms in
Phoenix are as apt to be competing with firms in Bangalore, India;
Guang Zhou, China; or Dublin, Ireland as with firms around
Boston, Austin, or northern Virginia. These innovation hot spots
with fast- growing, high-wage companies and strong regional assets
— such as quality educational institutions and a robust R&D
environment — are the catalysts for growth in the world economy.
The relative competitiveness of a nation’s innovative regions that
trade international goods and services will determine the relative
wealth of that nation over time.
Because the United States is a high-wage nation, its ability to com-
pete through low-cost production of internationally traded mer-
chandise is limited. Scores of regions around the world now are
able to acquire and use advanced equipment and have a workforce
skilled to use it. Overnight deliveries combined with the Internet
have elongated and extended supply chains. Information is accessi-
ble and shared on the Web in milliseconds, and virtual Web-based
social networks crisscross countries and cultures. Technology and
capital are highly mobile. Even some of the research and develop-
ment that the United States once thought was its core strength is
being outsourced.
The result is a shift of certain traditional advantages to new clus-
ters in emerging Asian and Eastern European economies that are
capturing increasing shares of U.S. markets. In China each year,
Datang produces 9 billion pairs of socks, Chaozhou makes 510
Cluster-Based Strategies for Growing State Economies
million wedding and evening gowns, and Shengzhou manufactures
300 million neckties.4Even high-tech development and produc-
tion, once thought to be safely ensconced in the United States,
where most of the engineers and scientists were working, is being
outsourced. Taiwan designs and assembles 65 percent of the
world’s notebook PCs.5A recent survey of 186 of the world’s
largest corporations found that 77 percent will build new R&D
centers over the next 3 years in India or China.6
Place still matters to companies, but the reasons have changed.
Supply chains now often span the globe, particularly in situations
where little face-to-face interaction with suppliers is needed and
where the tasks involved can be codified and the work product
digitalized.7Intangible factors, such as access to tacit knowledge,
experienced workers, sources of design and innovation, and oppor-
tunities to network and collaborate, have become a more impor-
tant reason for clustering than the tangible factors associated with
the proximity of suppliers and customers. Innovation still contin-
ues to thrive best in the hot-house environment of clusters and is
more important than ever.
C. Why Clusters Are Important to
Clusters are of interest to governors because they can help power a
regional economy by boosting innovation, wages, employment
opportunities, entrepreneurship, and business diversification.
Clusters boost innovation. The increased competition and coop-
eration among firms in clusters drives innovation. The presence of
local competitors keeps leading firms from becoming complacent.
The existence of local suppliers, research institutions, and related
firms allows firms to innovative more effectively. A Council on
Competitiveness survey found that three-fourths of companies col-
laborate with their suppliers and customers to innovate, three in
eight collaborate with similar companies and industries, and
almost a third collaborate with university faculty.8
Clusters lead to higher wages and productivity. A 1997 study
conducted at the United States Department of Agriculture
(USDA) Economic Research Service found that average earnings
in rural counties that have high shares of particular industry classi-
fications, defined as clusters, were higher than in rural counties
without clusters.9A 2006 study across Canada found that between
1998 and 2005, both employment and average income in clus-
tered industries in “city-regions” grew more than twice as fast as in
non-clustered industries.10
Clusters improve employment opportunities. Where firms are
clustered, employers tend to attract and compete for similar talent.
As a result, pipelines for employment often develop between local
schools and businesses, and community- and school-based
grapevines” quickly circulate information about job openings,
career opportunities, and workplace conditions.
Clusters stimulate regional entrepreneurship. Joe Cortright
notes in a 2006 study that “more than 80 percent of the scientists
in California research institutions that went on to start their own
biotechnology firms did so in California.”11 Pharmaceutical firms
have been found to benefit twice as much from research produced
locally as they do from research produced elsewhere. Opportunities
are more transparent, role models more visible, and opportunities
— to supply, compete, or complement — more available in clus-
tered economies.
Clusters aid diversification and improve regional sustainability.
Clusters often lead to new industry development, driven by people
who shift their knowledge, skills, technologies, and/or talents to
different products or services or new markets. New York City’s
fashion apparel cluster generated an industrial and graphic design
cluster, and the polishing skills needed for central Minnesota’s
granite industry cluster led to the development of an emerging
prescription lens cluster.
D.Policy Tools for Cluster Development
It is important to recognize that states rarely, if ever, have the abili-
ty to create clusters out of whole cloth. However, governors and
state policies can play a significant role in facilitating the develop-
ment of clusters and aiding their sustainability. In particular, gov-
ernors can do much to aid clusters by exercising their role as con-
vener and using the bully pulpit. Governors also can drive clusters
through tax policy, education and training, research investments,
regulatory streamlining, and encouraging access to seed and ven-
ture capital.
Convening. A major element of cluster growth is bringing private
sector leaders together with public leaders, including elected offi-
cials, education leaders, and even nongovernmental entities. The
governor’s office is the most effective entity to ensure that all the
key organizations are brought to the table, and it can be instru-
mental in brokering partnerships and networks. Governors also
can appoint special liaisons to work with clusters, thus building
the capacity to understand their needs and challenges.
Using the bully pulpit. By talking up clusters in public forums
locally and when conducting trade and business development
Cluster-Based Strategies for Growing State Economies
visits, governors can play a major role in convincing businesses,
investors, and skilled workers that their states are serious about
supporting their strategic growth industries. Governors who are
knowledgeable about their clusters show investors they care about
nurturing these emerging and growing sectors and can help bring
capital and talent to the regions. Using the bully pulpit also means
aggregating economic information in a way that captures clusters
so that the state can track and report on cluster performance.
Implementing tax policy. Tax policy can be used to encourage
and support cluster activities. For example, R&D tax credits can
reward clusters that are R&D intensive. Likewise, tax incentives
that reward businesses for providing industry-specific worker train-
ing or for creating high-wage jobs also can be effective. Designing
tax policy around clusters is important because many clusters may
not be able to take advantage of tax incentives that focus only on
capital purchases (many clusters involve service industries, require
highly skilled talent, and are not capital intensive).
Funding education and workforce training. Education and
training are among the largest of state expenditures and are per-
haps the most powerful tools at the disposal of a governor for
shaping industrial policy. The quality of K–12 education is one of
the most important factors that people and companies evaluate in
their location decisions, and the type and quality of higher educa-
tion is critical in producing and attracting the skilled talent that
high-tech businesses need in the region. Moreover, a flexible and
responsive community college system is key to providing the type
of workforce training needed for fast-growing clusters.
Encouraging research investments. Governors can support clus-
ters by investing in related research in state universities and in the
private sector through direct state investments or challenge grants.
Governors also can provide matching dollars to federal research
grants in areas considered important to the states’ clusters.
Moreover, to demonstrate a long-term commitment to cluster
development, many states have created large, multiyear “innova-
tion” funds directed at supporting research in targeted areas funda-
mental to a region’s clusters.
Streamlining regulations. To support clusters, states can employ a
streamlined regulatory policy that is tailored, flexible, and respon-
sive. The use of technology such as on-line filing can simplify the
administrative burden of regulations; such streamlining can be par-
ticularly helpful to small and start-up firms. Occasionally, regulato-
ry choices can directly spur industry creation. In Delaware, the
deregulation of interest rates charged by lenders led to the growth
of the financial services (and particularly credit card) sector in
Wilmington. In California, strict environmental regulations and
incentives have helped catalyze a significant concentration of envi-
ronmental technology firms.
Improving access to seed and venture capital. Most private seed
and venture capital is concentrated in just a few areas of the coun-
try. To counter this, many states have improved access to such
loans by starting their own funds or investing state dollars in a
larger fund that serves the area. Although most state programs do
not target clusters, venture capital funds can be specialized. For
example, 40 percent of all investments in 2005 went to biotech-
nology or software companies, and two-thirds went to just six
high-tech industries.
Purchasing local goods and services. The state can choose to
support clusters in its role as purchaser. The state typically is the
largest purchaser of certain goods and services, and choosing to
buy from regional clusters, such as office supplies, alternative ener-
gy, and processed foods, rather than from outside the region cre-
ates a market and sends a message to others to buy locally where
possible. Kentucky and Montana, for example, purchase furnish-
ings from their wood products cluster for their state park systems.
Cluster-Based Strategies for Growing State Economies
Chapter 2 — Understanding
Clusters and How They Form
Although clusters are now fully integrated into the conventional
economic development vernacular, there is still no general agree-
ment on what constitutes a cluster. Nevertheless, sufficient guid-
ance exists to allow most states and regions to recognize and
understand their clusters so that they can design strategies to nur-
ture and sustain them.
A. Defining Clusters
A cluster can be defined as a group of interdependent companies,
organizations, and institutions in a geographic region with com-
mon or complementary interests that have reached sufficient scale
to develop specialized expertise, services, resources, suppliers, and
Rural areas often worry that they can not support legitimate clus-
ters because of their lack of industrial density. The scale necessary
to be considered a cluster, however, depends on size of place and
degree of specialization. In less populated areas, smaller numbers
of similar companies constitute a significant local cluster, such as
the 11 houseboat builders around Lake Cumberland, Kentucky,
that dominate the high-end boat market.
B. Common Characteristics
Clusters also demonstrate the following characteristics:
1. Clusters are often connected by common resource needs,
technologies, or interests as well as by products. Companies
may cluster around many types of needs and interests. The
glue could be a critical core technology or process that defines
a set of products, such as optics and imaging or composites.
None is easily identified through existing industry classifica-
tions. Companies also could be connected by a common
dominant production process. Many plastics clusters include
large members that are primary users of plastics technologies
but that also are classified under consumer electronics (e.g.,
BIC) or toys (e.g., Lego). Some of the biggest Web-design
firms are listed as advertising companies (e.g., DoubleClick),
not information technology. Clusters also form around com-
mon functions, such as logistics and warehousing, transporta-
tion, design, R&D, or administrative headquarters. In north-
west Arkansas, for example, Wal-Mart, Tyson’s, J.B. Hunt,
and Arkansas Best anchor a prolific supply-chain logistics
cluster that includes the offices of more than 1,000 suppliers.
2. Clusters may be interdependent and overlapping.
Companies can be in more than one cluster, depending on
whether the relationships are similarities, commonalities, or
complementarities. The ongoing convergence of technologies
is making it even more difficult to pigeonhole a particular
company. An advertising company could be considered part
of design, multimedia, and information technology (IT) clus-
ters (only about 10 percent of the IT companies in most IT
clusters have IT industry classifications). A winery could be
included in food processing, tourism, or biotech clusters.
Overlapping memberships add to the synergy but also the
complexity of clusters.
3. Spatial boundaries of clusters are variable and porous.
Cluster geography, in the loosest sense, is defined by the dis-
tance and time that people are willing to travel for employ-
ment and that employees and owners of companies consider
reasonable for meeting and networking. Geography is influ-
enced by factors such as travel conditions, cultural identity,
and personal preferences. For example, officers of metals com-
panies in western Minnesota and eastern North and South
Dakota drive up to 100 miles to attend meetings of the Tri-
State Manufacturing Association. In places where rugged
mountains or forests divide towns, making travel times
longer, as is the case in many parts of Appalachia, people may
only be willing to regularly travel 15 or 20 miles. In densely
populated neighborhoods with strong cultural identities and
invisible boundaries, distances may be measured in city
blocks. Silicon Alley is concentrated in Manhattan, mainly
south of 41st Street. Whatever their boundaries, virtually all
clusters include more distant companies that have special rela-
tionships with, and are treated by, members as insiders.
Texas’s Clusters
Governor Perry of Texas defined an industry cluster in
SB275, Government Code, Section 481.001 (6) as “a con-
centration of businesses and industries in a geographic region
that are interconnected by the markets they serve, the prod-
ucts they produce, their suppliers, the trade associations to
which their employees belong, and the educational institu-
tions from which their employees or prospective employees
receive training.” The same code directs his office to cooper-
ate on developing strategies that strengthen all clusters and to
specifically target six types: semiconductors, ICT, microelec-
tronics, energy, nanotechnology, and biotechnology.
Cluster-Based Strategies for Growing State Economies
4. Clusters depend on talent. Three-fourths of human resources
managers recently surveyed said that “attracting and retaining”
talent was their number one priority.12 In today’s global econo-
my, companies depend more than ever before on highly educat-
ed and/or creative employees who are problem solvers and idea
generators, sometimes called the “creative class. Talented people,
be they scientists, managers, artists, or designers, tend to choose
to be near others with common interests and lifestyles and
where cultural and recreational amenities are plentiful. Although
researchers and the press focus on the creative classes in large
cities, some small cities and towns have been able to attract tal-
ented workers, especially those starting families. Places with cul-
tural and recreational caches without the high costs of living
associated with cities, such as Kalispell, Montana; Asheville,
North Carolina; Northampton, Massachusetts; and Brattleboro,
Vermont, are becoming meccas for entrepreneurs and innovators.
C. Forming Clusters: Serendipity and
Clusters don’t happen overnight. It takes considerable time, usually
decades, for clusters to develop and evolve. Case studies of clusters
show that their origins generally have been serendipitous events
rather than consciously designed policies. However, their forma-
tion often is aided by their business environment, which can
include supportive public policies, attractive local resources, a tal-
ented and creative labor pool, strong educational assets, and first-
class research and development institutions.
Stanford University’s research and entrepreneurial culture was
important to the development of a semiconductor cluster and
Silicon Valley, North Carolina’s Research Triangle Park to the
development of its biotechnology cluster, Minnesota’s health care
system to the development of its medical devices cluster, Santa Fe’s
landscape to the development of its arts cluster, Alabama’s steel and
metals industries and training programs to the development of its
automotive cluster, and Chicago’s multimodal transportation system
for agriculture to the development of its food-processing cluster.
The prime movers of cluster growth are entrepreneurs. As clusters
form, entrepreneurial firms provide information about new oppor-
tunities, become role models for yet more start-ups, and generate
spillover knowledge about technologies, markets, and customers,
all of which help reduce the risks of starting a new business.13
Employees — often from a small number of founding firms —
may see and seize opportunities to convert the skills they’ve honed
on the job into new businesses that fill gaps in the cluster’s value
chain, create new and innovative applications, manufacture com-
plementary or even competitive products, or simply find and com-
pete in niche markets. After enough companies form, a support
structure begins to take shape, and a local buzz develops that
attracts companies and services from other places. The cluster
embarks on a trajectory in which future growth comes from an
accumulation of experiences, competencies, and innovations — a
type of “path dependency.”14
Once a core cluster activity begins to generate economies of scale
and demonstrate growth potential, public policies become even
more important, priming the pump and easing the nascent cluster
along. Rates and trajectories of growth can be influenced by public
policies. In almost every cluster success story, public policy played a
key role by filling gaps or overcoming weaknesses in critical factors,
recruiting new members, and providing incentives for innovation.
California’s investment in biotechnology research and its commu-
nity college-based training programs for biotechnology technicians
have been critical to the growth of that cluster. Alabama’s cus-
tomized training, technology centers, and sizable tax incentives
were primary catalysts for the growth of an automotive cluster.
New York’s ceramics cluster got a boost from the state’s investment
in the Center for Advanced Ceramic Technology, its Ceramics
Corridor Innovation Centers, and the Appalachian Regional
Commission’s entrepreneurship programs. Business decisions gen-
erate clusters, but the public sector can seed, encourage, and sup-
port their growth.
Mississippi’s Furniture Cluster
The furniture cluster in northeastern Mississippi was founded
in the late 1940s when Morris Futorian, an immigrant artisan
in Chicago, was looking for a place where he could apply
Fordist mass production principles to the manufacture of fur-
niture. He found Mississippi more welcoming than places
where furnituremaking was still very much a craft and also
found an endowment of raw materials and surplus labor. A
cadre of entrepreneurial employees — who referred to them-
selves as graduates of “Futorian University” — did the rest.
The cluster got a boost, however, from a supportive and inno-
vative community development foundation, an advanced tech-
nology upholstery center at Itawamba Community College,
and business assistance from Mississippi State University.
Cluster-Based Strategies for Growing State Economies
Chapter 3 — Identifying a States
The starting point in any cluster-based strategy is determining
what and where a state’s clusters are. Identifying clusters is still as
much art as science. It requires decisions based on imperfect data,
local knowledge, informed but subjective choices, and political
considerations. In Europe, no data analysis is needed to identify
industrial districts; evidence of the cluster’s presence pervades the
community and tourist literature. In Udine, Italy, a province that
produces half the chairs sold in Europe, a giant chair graces the
front of the provincial exhibition hall. The streets of Sassuolo are
lined with tile designers, tile showrooms, and displays.15
In contrast, in America as well as in many other developed nations
pursuing cluster strategies, clusters are more dispersed and con-
cealed within larger, more diversified economies. Further, in
America, companies and workers are more foot loose than their
European counterparts, and clusters develop around less easily
identifiable assets, such as core technologies, similar production
processes, critical natural resources, or cultural factors.
As a result, there exist two general processes for identifying clus-
ters. The first is the algorithmic approach, based on the economic
data that are available by place and type of business. It uses avail-
able data to measure the scale, concentration, and changes in pre-
selected combinations of sectors. The second is a heuristic
approach, a discovery method that relies on case studies, self-iden-
tification by businesses and associations, the news media, business
directories, and local knowledge to identify regional areas of eco-
nomic specialization and interdependencies. The former works
well for traditional, product-based clusters, but the latter is
required to find most of the clusters that are beginning to develop.
Comprehensive cluster identification efforts will employ both
A. Clusters by the Numbers
Most analyses of clusters begin with an analysis of the numbers
and relative (to state or national) concentrations of establishments
and employees for specified sets of industries within designated
geographic boundaries. The primary source of this information is
generally the federal employment and wage data required for
unemployment compensation (ES-202), which is sorted by estab-
lishments, counties, and the North American Industrial
Classification System (NAICS)
The most important, and most subjective, step in all algorithmic
methods is to determine which sectors are similar or interdepend-
ent enough to collectively represent and, for policy purposes
define, a “cluster.” Just how similar or interdependent sectors must
be to be grouped into a cluster and the size of the geographic
region are critical decisions that affect size and concentration. A
recent book on the new media clusters had eight definitions for a
new media cluster.16 Once those decisions are made, establishment
and/or employment data are aggregated and compared with other
places in terms of totals, concentrations, and growth.
Most analyses set threshold levels of size and concentration to be
considered a “cluster,” and they favor “traded clusters,” which
export products or services out of their region — although con-
sumption-based clusters that divert expenditures from other places
to local purchases also add value.17 Including many sectors in a
cluster, which is a common tendency, increases the scale of the
cluster and strengthens political support but weakens relationships
among members who have less in common and reduces advantages
of specialization. Companies in clusters such as business services,
advanced manufacturing, or knowledge industries have less in
common than companies in biotech, furniture, or multimedia
clusters but exist in larger numbers. When the criteria are more
restrictive, clusters become less common and more specialized.
Once standard sectors are aggregated into clusters, it opens the
door to a variety of other quantitative measures of cluster strength
and impact. One common extension of the core cluster firms is the
number of regional companies in its value chains, the companies
downstream that supply them, and the companies upstream that
add further value. These numbers are generally based on the
national input-output tables that estimate the value of inputs from
contributing sectors to products and the contribution of the prod-
uct to other sectors of the economy. The presence of companies
that match the value chains in a region is a valuable approximation
of the total scale of a cluster because clusters include value chains.
It should be used as a wish list rather than an indication of actual
supplier relationships; local firms with supply chain NAICS codes
may not have the right qualifications or competencies.
Another important measure is the scale of and trends in exports.
Clusters with large export markets have greater impact on the
wealth of a regional economy. Other measures used to estimate the
potential and value of a cluster are rates of innovation — generally
by using patents as a rough proxy, wages, and productivity.
The power of the use of algorithms lies in the ease of use and
replication over time and across regions. One drawback to relying
on databases is that each company is assigned a single industry
classification when many firms actually have more than one.
Cluster-Based Strategies for Growing State Economies
Table 1:Examples of Quantitative Sources of Information
B. Clusters by Searching and Scanning
Albert Einstein had a sign hanging in his Princeton office that
read, “Not everything that can be counted counts, and not every-
thing that counts can be counted.”
An alternative — and frequent supplement — to the quantitative
approach is the heuristic approach. It relies on observation, case
studies, and local experience to identify clusters that may be too
small, may bridge political boundaries, or may be based on unrec-
ognized businesses or unrecorded interdependencies to fit data-
driven methods. It also allows groups of companies with common
interests that have developed a collective identity to demonstrate
that they have the attributes of a “cluster.” The technology-based
optics and imaging cluster in and near Rochester, New York, for
example, covers a wide range of industry codes and is held together
by professional relationships, the historical presence of Kodak and
Xerox, and university research.
A heuristic approach layered on data analysis can be used to make
modifications — often large enough to alter the significance of a
cluster. For example, many companies do not have industry classi-
fications that match their relationships to a cluster. DoubleClick in
New York City is classified as “media representative” although its
specialization in digital advertising places it in the information
technology cluster. In Connecticut, Lego,
which produces plastics parts and has been a
key member of the state’s plastics cluster, is
classified as a toy manufacturer. In western
Massachusetts, Yankee Candle, the largest
employer in the regions creative enterprise clus-
ter, is classified as “all other miscellaneous man-
ufacturing.” Leading employers in Oregon’s
strong sports apparel cluster that manufacture
overseas, such as Nike and Adidas, are classified
under distribution, not production industry
codes. (See Chart 1 for an example of a cluster
map that incorporates qualitative and quantita-
tive data.)
Source Data
ES 202 database Establishments, employment, wages
by county
County Business
Establishments by size, employment,
wages by county
Dunn & Bradstreet Establishments, employment
Bureau of Labor
Wages by occupation, location quo-
tients for counties
State manufacturing
Products, location, number of
employees, industry codes
Bureau of Economic
Demographics, employment by
industry, incomes
Chart 1: Example Cluster Chart: Atlanta Regional
Information Technology Cluster
• Rely on local knowledge to identify economic strengths
and assets
• Interview companies
• Review recent regional plans
• Consider secondary industry classifications
• Identify sources of greatest demands for workers and training
• Look for business networks, interest groups
Table 2: Heuristic Methods
Cluster-Based Strategies for Growing State Economies
Table 3: Examples of Emerging Clusters that Lack
Descriptive NAICS Codes
The heuristic approach is almost essential to finding micro-clus-
ters. Rural clusters often depend more on a sense of how local
businesses relate to one another than on comparative concentra-
tions or scale. In rural areas, clusters may need larger areas, more
diverse membership, and more active cooperation to be called a
cluster. Some groups of companies in more densely populated rural
areas may function as satellites of stronger clusters in nearby met-
ropolitan centers. Heavy lift helicopters in southern Oregon; wind
sports in Hood River, Oregon; renewable energy in southwestern
Minnesota; and houseboats on Lake Cumberland in Kentucky are
distinctive and dominant micro-clusters that would not easily be
found by analyzing data. Gathering this knowledge requires going
directly into communities.18
C. Under the Radar
Even careful heuristic approaches miss many important but per-
haps unorthodox clusters — especially if they represent newly
emerging industries that lack classifications or are dominated by
self-employed workers, freelancers, misclassified workers, or part-
time companies. The large and growing alternative and comple-
mentary health cluster around Asheville, North Carolina; maple
syrup in Vermont, and alternative energy in southwestern
Minnesota are significant local clusters that lack industry classifica-
tions and defy easy measurement.
Perhaps the most common oversight in cluster analysis is the grow-
ing numbers of micro-enterprises and entrepreneurial businesses
that represent large proportions of some key clusters. Some num-
bers are available in national self-employment databases but are
either not included in cluster analysis or are not available at a suffi-
ciently specific level of industry classification. Florida’s information
technology industry cluster, for example, lists on its cluster Web
site 62,680 employees in its software and computer systems subto-
tal — but misses more than 18,000 who are self-employed, which
would boost the number by almost 30 percent. Nationally, 53 per-
cent of multimedia artists, 60 percent of photographers, 32 per-
cent of designers, and 22 percent of architects are self-employed.
Further, self-employment numbers may be quite conservative. A
recent national survey estimated that a “business without employ-
ees actually has, on average, more than 1.7 employees (e.g., family
members, helpers, apprentices).”19
The creative cluster includes companies that take their principal
competitive advantage from a distinctive appearance, form, con-
tent, or sound embedded or embodied in their products or servic-
es. It includes artists and artisans; digital, media, and graphic arts;
architectural, landscape, and graphic design; advertising; interior
decorating; fashion apparel; and fine furniture as well as all the sec-
tors that supply, support, reproduce, distribute, and market their
Montanas creative enterprise clusters in 2004 employed about 5
percent of the work force — nearly as much as manufacturing.
New York City has 11,671 businesses in the creative core, account-
ing for more than 8 percent of employment and 5.7 percent of all
employers.20 Some have called the creative cluster a “keystone
species” because its impact on a region is disproportionate to its
size; it influences overall quality of life, residential desirability, and
creative and innovative milieu.
Table 4:Comparison of Data-Driven and Knowledge-
Driven Methods
• Alternative energy
• Composites
• Complementary and alternative health
• Motorsports
• Design enterprises
• Mining services
• Fine furniture
Heuristic Approach
Strengths Standardized and
Compatible with
national value chains
Depth of understanding
Uncovers unconven-
tional clusters
Identifies rural
Weaknesses Inflexible
Limited to NAICS
codes, political
Ill-suited to creative
Difficult to aggregate
Labor intensive
Cluster-Based Strategies for Growing State Economies
Because clusters are regional systems, not aggregations of firms,
they include an array of supporting institutions, associations, and
organizations, and clusters can only be understood by including
those members not classified by industry codes and by mapping
the connections among the elements. The specialized institutions
and services that support the clusters are generally found through a
mapping process using focus groups of and interviews with people
from leading companies and other organizations that know and
understand the cluster. The inventory of members and forms of
relationships are generally refined and expanded in the first stages
of cluster mobilization.
The focus groups and interviews also should reveal the leading
innovators and exporters in the cluster, strengths and weaknesses in
the support structure, and external linkages. A short survey can
provide basic information about supply chains and relationships
among firms and institutions to estimate the relative mix among
regional, state, national, and international linkages.
One product of such an analysis is giving a subjective value to key
factors, such as the analysis used in Montana, which was created
by a contracting firm but was based on regional input and subject
to cluster review (Table 5).
Table 5: Montana Wood Products Competitiveness Factors
Factor Rating Comments
Skills and labor 7 Labor in short supply, few educational programs target sector. Most learning informal or
through private trainers.
Relationships and social
5 Strong associations and some informal networking, but companies still view each other
mainly as competitors.
Suppliers and services 7 Even though reductions in lumber supply and mills cause consolidation, cluster has strong
supply chains.
Marketing and
2 Very high cost, difficult to transport logs out of forests and to customers.
Technology and innovation 8 Adoption of new technologies by firms, strong support from Montana manufacturing
extension and cooperative extension.
Entrepreneurship 4 Becoming more costly with mechanization, and support from banking industry more com-
mon at high value-added end of market.
Equity and opportunities 7 Lack of formal education not a limitation and good paying jobs available to anyone willing
to do the work.
Arkansas’s Creative Northwest
The northwestern corner of Arkansas, from Fayetteville north
to the Missouri state border, has been for decades a poor, iso-
lated rural region heavily dependent on agriculture and tradi-
tional manufacturing. It also was known for its rich endow-
ment of arts and culture, but this was not viewed as an
amenity and was not an economic driver. Eureka Springs in
Carroll County has been its hidden gem, a draw for artists,
writers, and artisans and an attraction for tourists; it was rec-
ognized as one of the “100 Best Arts Towns in North
America.” Today, the rapid growth of the region energized by
the logistics needs of Wal-Mart, Tyson, J.B. Hunt, and
Arkansas Best is creating a concomitant growth of the creative
economy to support the cultural base that attracts talent. The
region has about 5,500 employed or self-employed full time
in its creative sectors. The growth centers of the region’s
economy in addition to Eureka Springs are Fayetteville,
through the efforts of the Fayetteville Downtown Partners to
transform the downtown into a cultural arts district, and of
the Walton family to build the world-class Crystal Bridges
Museum of American Art, which, when it opens in 2009, will
herald a new arts era in the region.
Cluster-Based Strategies for Growing State Economies
Chapter 4 — Initiatives to Grow and
Sustain Clusters
Once clusters have been identified, mapped, and named, the real
challenge begins. What can governors do with this knowledge that
advances the growth, competitiveness, and sustainability of their
states’ clusters? How can deeper understanding be converted into
effective actions and successful outcomes? The rubber meets the
road in formulating and launching “cluster initiatives,” the name
given to projects, resources, and investments that benefit a specific
set of industries and region.
The sections that follow explain a variety of promising cluster ini-
tiatives that have been used in various forms. Each is either a cur-
rent or recent cluster initiative in some region, an initiative not
intended as cluster-specific but typically implemented by clusters,
or a general initiative that could be more effective if targeted to
A. Establish a Solid Foundation
Every cluster has some fundamental needs that are not cluster spe-
cific but affect its ability to compete with other regions and other
nations. The nation’s earliest cluster strategies, which were
designed by SRI International in the late 1980s, listed seven eco-
nomic foundations: a competitive tax and regulatory environment,
skilled human resources, accessible technology, capital availability,
physical infrastructure, quality of life, and economic development
programs. As the understanding of clusters has improved, it has
become clear that some of those foundations are of more value
when they are more specialized. Some aspects of skills, technolo-
gies, tax and regulatory environments, and economic development
programs, for example, are specific to certain clusters. Three areas
that continue to undergird — and undermine, where deficient —
most if not all clusters are the creative milieu, which is an element
of quality of life; basic education; and physical infrastructure. For
more on these, especially education, see the companion documents
being simultaneously published under the NGA Innovation
America initiative: The 2007 State New Economy Index and
Building a Science, Technology, Engineering, and Math Agenda.
B. Build Relationships
The real strength of clusters lies in their intangible assets, particu-
larly the tacit knowledge that resides within the employees and
routines of companies in the cluster and the mechanisms for shar-
ing it across companies and institutions. A century ago, Alfred
Marshall described clusters as places where “ideas moved easily
from firm to firm as if knowledge was ‘in the air.’”22 Even in the
21st century, wired America, with clusters and people more dis-
persed within regions, local buzz keeps ideas flowing and compa-
nies innovating. In more diversified modern economies, the
knowledge that was once simply something in the air still is more
likely to be confined to cafes, coffee shops, and conference hall-
ways. Thus, clusters depend much more on formal organizational
frameworks to facilitate the sharing of knowledge as well as for
working together toward common goals and solidifying their col-
lective presence.
Therefore, almost every cluster program begins with a mobilization
strategy. Clusters have become virtually synonymous with mem-
bership organizations designated to represent them, variously
called councils, associations, partnerships, or networks. These
organizations have become powerful voices for their members,
mechanisms for engaging industry and aggregating needs and
demands, pipelines for getting information to members and to
government, platforms for networking and learning, and, in some
cases, pathways of obtaining public monies into the cluster. As
such, they have become important to the success of some clusters.
Florida’s Technology Coast
Manufacturing and Engineering
In 1991, a group of defense contractors in Florida’s panhandle
was invited to a conference about Italy’s industrial districts
and the value of collaboration held at Okaloosa-Walton
Community College. Based on what they learned about net-
works in Italy’s industrial districts, about 30 companies
formed the Technology Coast Manufacturing and
Engineering Network (TeCMEN). With initial support from
the state and foundations, members of the network hired a
director, solidified their relationships with regular meetings
and events, collaborated on training, jointly bid on contracts,
and visited federal labs together to find research that could be
commercialized. Networks formed, and members made deals
following meetings or over coffee. Now managed by the
Economic Development Council of Okaloosa at the college,
TeCMEN’s current official mission statement is “to promote
the economic and technological growth within Okaloosa’s
defense community through the association, collaboration,
and contract-teaming of its manufacturing and engineering-
based companies.”
Cluster-Based Strategies for Growing State Economies
Although Arizona and Oregon were the first states to support clus-
ter associations, in other regions, associations were forming sponta-
neously. In some places, the catalyst was isolation from sources of
innovation and markets; in others, it was real or perceived external
threats to an industry. A small group of metalworking companies
in western Minnesota formed the Tri-State Manufacturers
Association to discuss common concerns and soon attracted more
than 100 member companies, reaching into eastern North and
South Dakota to companies that had similar needs. The
Technology Coast Manufacturing and Engineering Network
formed in 1991 with support from the Florida legislature, partly in
anticipation of reductions in defense spending, after learning about
the Italian artisan associations and networks at a local conference.
In recent years, a new generation of cluster associations is emerging
that focuses more on industry leadership than on extensive broad-
based membership. These leadership or innovation councils, which
are limited in size, are charged with setting priorities and generat-
ing resources for the cluster and often are held accountable for a
cluster’s activities. Cluster leadership councils have roles to play
but are not the same as the more inclusive associations that create
the conditions necessary for networking, learning, and innovation
throughout the cluster.
Cluster associations, in contrast to leadership groups, are intended
to build trust among members to work collectively toward com-
mon goals, share nonproprietary knowledge, and network. A
membership roster, however, does not define a cluster.
Nonmembers miss out on the access to services provided by and
relationships developed within the associations, but they can still
benefit as “free riders” from specialized public and private services,
labor pools, and local knowledge. In some places, the strength of
social foundations precludes the need for an organization.
Northeast Mississippi’s furniture cluster is a case in point; its high
concentration and strong community connections obviate the need
for an industry organization.
The experiences of cluster organizations over almost two decades
have produced useful lessons for what to do and not to do in
building cluster organizations (Table 6). Many cluster organiza-
tions face the same obstacles that networks did a decade earlier:
inability to show early returns to time invested; lack of company
leadership; and formation in response to incentives or exhortation
rather than need. The early stages of organizational development
often get press coverage and bring a sense of excitement. But after
meetings become routine, only the associations that meet immedi-
ate needs or provide real services survive. Having a designated
facilitator or cluster manager often helps provide continuity and
supports sustainability.
Initiative: Convene a Cluster Leadership
States should look first to the business leaders from within the
cluster to help better understand the cluster’s assets, needs, and
challenges and to lend their support, often the first step in a mobi-
lization process. Governors can play a critical role in getting the
right leaders to the table. Leadership councils generally represent
the sub-sectors in the cluster: executives of leading large and small
companies; associations and nonprofits serving the cluster; major
providers of services, capital, education, and training; and, in the
case of interdependent clusters that have already formed, other
cluster leadership groups. The councils, staffed by people intimate-
ly familiar with the industry, can either have an indefinite life span
or be organized with a finite life span, turning over responsibilities
to whichever organization steps up to represent the cluster.
The leadership council typically begins with some sort of diagnos-
tics, such as identifying the most pressing needs — including
social issues that affect the cluster’s region, work force, and quality
of life — and recommending strategies and setting priorities. It
helps to involve public sector officials at levels roughly equivalent
with the business executives and to maintain a high level of visibil-
ity within the business community. The kinds of activities of clus-
ter-oriented leadership organizations, such as those formed for San
Diego and Silicon Valley in California, in Connecticut, and in
South Carolina have been neatly defined by the California
Regional Economies Project down to levels of detail as minute as
how to arrange meeting rooms.23
Initiative: Support Cluster Organizations
A cluster organization, unlike a leadership council, is not appoint-
ed. It is membership driven, service oriented, and open. The most
successful organizations are associations that provide a menu of key
services, useful information, and frequent networking venues.
Cluster organizations are easy to start, generate considerable excite-
ment in their early stages, and brand the cluster. Cluster organiza-
tions have proven difficult to sustain, especially if they are the
result of external stimuli and have short-term funding support.
Failure rates of cluster organizations may be as high as success rates.
Causes include organizations that do not represent the cluster, over-
reliance on dues without commensurate services and value, lack of
leadership, and competition with existing trade associations.
Cluster-Based Strategies for Growing State Economies
Table 6:Examples of Effective Cluster Organization
Cluster organizations are most successful in emerging sectors that
depend heavily on new contacts, networking, and knowledge and
in mature sectors that are under threat or seeking solutions to
common problems. The most successful cluster associations have
been those that build on existing relationships, extend the services
and competencies of existing business associations, or offer imme-
diate cost savings. If organizations form that speak for a group of
companies, the needs expressed have to be taken seriously, which
means there must be resources available to meet the most com-
pelling and well-documented needs.
Table 7:Do’s and Don’ts of Successful Cluster
Name State Reason for
Web Site
Arizona Optics
AZ Leadership,
Life Sciences Alley MN Common needs
MN Overcome
Association of
OR Collective
& Info Tech)
MS Recognition,
New York
Software Industry
NY Networking
Elements of successful
Elements of unsuccessful
Strong industry leadership Club-like exclusivity
Staff to organize and manage
Compete with existing
industry associations
Provide needed services Measure success in terms of
Support for collective projects Dominance by public sector
Facilitate networking Too broad a set of industries
Minneapolis’s Device Cluster
Minnesota’s Twin Cities are known as the leader of the medical
device industry. Initially labeled “Medical Alley,” the area has all
the elements of a successful cluster — industry leaders, young
growing companies and entrepreneurs, education and training
at the university and community college, established medical
centers that are early adopters, venture capitalists that know the
industry, and a strong association. The cluster employs only
about 1 percent of Minnesota’s work force, but its jobs are high
wage and market growing. The association has played a key role
in providing services such as education and training, network-
ing, and early stage capital as well as in building the image of
the cluster. In 2006, the association merged with the bio-
sciences cluster, which has similar markets, and changed its
name from Medical Alley to Life Sciences Alley. The advantage
is more members (about 500), giving it more clout and
Cluster-Based Strategies for Growing State Economies
Initiative: Provide Opportunities for
Government initiatives in the early 1990s to encourage interfirm
collaboration were ostensibly replaced by cluster initiatives. But
what goes around comes around, and networks are now seen as an
essential outcome of clusters and source of synergy. The social
structure of clusters enables small companies to more easily find
the partners they need to expand their capabilities into more com-
plex products, reach new markets, share expensive equipment, or
find solutions to problems. The process happens where social capi-
tal is strong, levels of trust are high, and opportunities are trans-
The ability of firms to form networks is hampered by time and
resource constraints on small firms and lack of a coordinator or
broker. The lessons from the government network programs that
took place in the 1990s have shown what works and why. Past
efforts highlighted the importance of a cluster infrastructure, the
intangible outcomes that companies valued, and sufficient dura-
tion of support. Networks remain the heart and soul of clusters.
They also have been shown to be particularly effective in less pop-
ulated and poor areas, allowing microenterprises to achieve scale
economies and reach new markets.
Table 8: Policies to Catalyze Networks Used by States*
* For example, Arkansas, Connecticut, Kentucky, Oregon,
Massachusetts, Washington
C. Deepen Skills and Talent
Of all the factors that motivate and grow clusters, none is more
universally important than human resources. In almost any clus-
ter’s plan, the availability of pools of experienced and skilled labor
and the customized and specialized education and training that
produce, upgrade, and deepen the skills and knowledge are two of
its highest priorities. Companies need talented managers and
researchers; mid-level technical, clerical, and support staff; and
entry-level workers. The most highly educated and specialized are
recruited globally as well as drawn from local universities.
The biggest bang for the human resource buck of a regional cluster
comes from access to the pool of employees who comprise the
middle of the work force. These workers tend to be regionally
bound and less importable or exportable than almost any other
production factor. There is no easy substitute for a skilled local
labor force and the know-how it possesses.
Companies depend on an uninterrupted flow of workers with the
necessary skills and knowledge of the industry and the ability to
apply them to both routine and unanticipated situations.
Emerging clusters need a pipeline of employees to support antici-
pated growth; mature clusters need replacements for retirees and
new skills as technologies change; and transforming clusters need
retraining for transferability. All clusters require continual upgrad-
ing of skills as technologies and processes change — an area in
which U.S. companies have lagged behind their international com-
petitors. U.S. employers invest less per employee in training than
any of the six other major industrialized countries and less than
two-fifths of what China invests.
The community colleges have assumed the primary responsibilities
for preparing and retraining the mid-level workforce. Over the past
20 years, they have done an impressive job of responding quickly
to the needs of new and expanding companies with customized
and contract training, of small and mid-sized enterprises (SMEs)
with their advanced technology centers and occupational pro-
grams; and of entrepreneurs with business centers and incubators.
At the same time, they serve their communities by providing access
to higher education for all, including new immigrants, students
with families and/or with full-time jobs, and those with little
preparation or few resources. Community colleges have demon-
strated they can successfully juggle a variety of missions, serve all
populations, and meet their goals.
Many four-year colleges and second-tier universities also serve local
labor markets and add value as a source of interns and summer
employees, as a means for students and companies to explore
future employment, and as a career path for the advancement of
incumbent workers and baccalaureate education of community
college students. Most clusters appreciate both the individual and
complementary strengths of the two-year and four-year institutions.
Until recently, states did little to align education with their clus-
ters. They paid scant attention to the value of developing special
expertise — and even less to international experiences. Special
cluster centers and programs were developed sporadically as a
• Legal advice
• Consultants
• Network facilitation training
• Incentives to plan networks
• Matching funds to implement
• Matching funds for multifirm activity
Cluster-Based Strategies for Growing State Economies
result of scale of demand, influential employers, entrepreneurial
college presidents or deans, or funding opportunities. To address
the unmet needs, the National Science Foundation through its
Advanced Technological Education Centers, for example, has
invested in 32 industry- and technology-dedicated centers as of
2006. Many are multi-institutional centers with locations in the
hearts of closely related industry clusters. The new Workforce
Innovation in Regional Economic Development (WIRED) pro-
gram launched by the U.S. Department of Labor is also targeting
improved integration of education and workforce programs with
regional clusters.
One positive development has been the establishment of profes-
sional science master’s (PSM) degree programs to meet growing
industry needs for applied scientists and mathematicians. Created
in 1997 with the support of the Alfred P. Sloan Foundation, the
PSM degree is designed to be a better, faster, and cheaper alterna-
tive to traditional graduate degrees in science. PSM programs typi-
cally require two years of study and feature cross-training in more
than one academic discipline. Many of the programs include
internships and training in business, technology transfer, regulato-
ry affairs, information technology, and communications. Today
there are more than 100 PSM programs at 51 universities in 20
states, but there could be many more and they could be more clus-
ter-focused. Although governors do not institute degree programs
in higher education, there are several ways that they can encourage
the formation of PSM degree programs. For details, see the NGA
Center issue brief on this subject.24
As more is learned about clusters, clustering, and globalization,
more states are planning and developing specialized programs,
expertise, and services that align their college systems with cluster-
based economic development strategies, as in Alabama,
Connecticut, North Carolina, South Carolina, Washington, and
Wisconsin. Only by making hard choices and practicing institu-
tional and system-wide cooperation can colleges develop specific
expertise while at the same time addressing the breadth of regional
needs and individual interests.
Initiative: Establish a Cluster-Based
Workplace Learning System
The contributions of work experience to learning are well docu-
mented; in many European nations, apprenticeships are the core of
their educational programs and are supplemented by classroom
instruction — both supported by public dollars The United States,
however, has had only limited success in creating widespread work-
based programs in institutions of secondary or higher education.
Few U.S. employers are willing to devote the time and resources to
mentoring students or have shown much interest in creating sys-
tems that could provide real learning opportunities for students,
whether as part of a semester course offered at an educational insti-
tution, as after-school jobs, or as summer programs.
Cluster associations represent a structure for collectively creating a
comprehensive workplace learning system, reducing individual
costs, and improving the pipeline of qualified students into the
cluster, particularly if the costs are shared between the private and
public sector. Employers gain from contributions made by student
employees and have the opportunity to evaluate future employees.
Employees gain by receiving real life work experience and by mak-
ing valuable career connections, both to employers and to future
Faculty also gain from workplace learning programs by upgrading
their own skills as they teach the programs needed by employers
and by making their instruction more current and relevant. For
example, Mission College, a community college in a Silicon Valley
area, had summer internships with National Semiconductor and
Intel for all faculty members, even those not teaching in technical
Table 9: Establishing Workplace Learning Models
• Develop framework for program with schools through the
cluster association
• Design course requirements, wage rates, and business
• Identify company sponsors/student employers
• Conduct training workshop for participating businesses
and mentors
• Select students and prepare them for cluster workplace
• Establish cluster-based learning network for students to
share experiences
• Find resources for incentives to share costs with participat-
ing businesses, as reimbursements or tax credits
• Monitor and assess outcomes
Cluster-Based Strategies for Growing State Economies
Initiative: Create Cluster Hubs at
Community Colleges
The cluster hub is a new breed of industry-driven technology cen-
ter that concentrates on the distinctive nature of work in a set of
related industries (Table 10).25 It is a resource that industry can rely
upon to understand its particular needs and interests, solve prob-
lems, assure a continuing flow of qualified entrants, and serve as a
source of skill upgrading for the incumbent work force.
Specialization allows community colleges to achieve true excel-
lence, be relevant to their regional economy, and use their
resources more cost efficiently. It allows students access to better
and deeper programs (“know what”), better employment informa-
tion and more rungs on career ladders (“know who”), deeper
understanding of industry context (know why), and more informal
learning opportunities (“know how”). Cluster hubs give businesses
access to a more specialized labor pool, a greater array of programs
and courses, and more opportunities for training networks.
The following characteristics distinguish effective state-wide cluster
hub programs.
1. Recognize the importance of context in education and training
and the value of skills and knowledge that can be directly
applied to a particular business environment. Industrial mainte-
nance, for instance, has generic skill requirements, but different
knowledge is necessary to maintain equipment in a biotech
company, a defense contractor, an auto supplier, and a food
2. Depend on broad collaboration within a state community col-
lege system. The college within a state given the responsibility
and resources to develop cluster expertise must ensure that its
expertise and resources are accessible and available to companies
across the state through other educational institutions as well.
3. Establish partnerships and articulation agreements with second-
ary systems to encourage new enrollments and with universities
to design career pathways and collaborate on research and
4. Seek ideas from other institutions specializing in the same clus-
ter to enhance its programs and expertise. Some cluster hubs
have formed international learning networks to broaden their
exposure, such as CraftNet, Automobile Manufacturing
Technical Education Collaborative, EntreNet, Media Arts
Alliance, and the Medical Device Industry Education
Table 10: Examples of Community College Cluster Hubs
Source: Industry Cluster Hubs at Community Colleges, Data base
developed by RTS with support from the Alfred P. Sloan
Cluster Location Focus
Hosiery Hickory, NC Technology,
testing, and
College of
Fine Furniture Eureka, CA Design, quali-
ty, business
Technical and
staging, sound,
business skills
Indian Hills
Bioagriculture Ottumba, IA Fermentation,
pilot facility
Walla Walla
Wine Walla Walla,
culinary arts,
Institute of
Chemical Beaumont,
Cluster-Based Strategies for Growing State Economies
Initiative: Encourage Training Consortia
Training networks are one of the most widely used cluster-specific
resources. Offering company training through consortia (also
called skills alliances) rather than to one company at a time makes
programs more affordable to smaller firms and encourages them to
invest in training. For training that is both expensive and essential,
companies have been quick to network, especially to provide train-
ing in lean manufacturing, ISO 900, CAD, and English as a sec-
ond language. Training consortia follow three basic formats: train-
ing networks, skills alliances, and sector strategies.
Training networks were initiated in earnest under the many state
programs to encourage business networking during the 1990s.
States offered grants to networks of three or more companies. In
1998, Pennsylvania’s department of community and economic
development enacted industry consortia training for networks,
naming five clusters as the targets of the training. Connecticut
introduced a full-blown business training program in 1999 that by
2002 had funded 11 cluster-based networks, including a metal-
working training network in Bridgeport that became the core of
the state’s metals cluster. Oregon is currently using its governor’s
Workforce Investment Act set-aside funds for training consortia
and is training its economic and workforce developers in network-
ing techniques linked to its clusters. For more information on
regional skills alliances and sector strategies, see the NGA Center
Issue Brief: State Sector Strategies: Regional Solutions to Worker
and Employer Needs, 2006.
Table 11: Examples of Connecticut’s Training Networks
Initiative: Engage with Community-Based
Clusters depend on a supply of educated, reliable, entry-level
employees but face shortages of these types of workers. In some
places, those shortages are caused by large numbers of unemployed
and underemployed people who are disconnected from conven-
tional hiring processes. One effective way to reach those popula-
tions is to work through intermediary community-based organiza-
tions. Some of the most effective cluster programs operate under
the rubric of “sectoral skills strategies,” many of which operate
similarly to cluster strategies.
North Carolina’s BioNetwork
North Carolina uses a cluster hub model to support its large
and growing biotechnology cluster. Started in 2003 with a grant
of $7.1 million from the GoldenLeaf Foundation, BioNetwork
funds link its colleges together and with North Carolina State
and North Carolina Central Universities through a central
office headquartered at the state’s community college system
office. Most BioNetwork activity occurs at centers at five com-
munity colleges specializing in different aspects of biotech: bio-
processing, pharma, bio-ag, noncredit programs, and business
support services. BioNetwork staff at colleges do not teach class-
es on their own campus, freeing their time to develop curricula
and services and train instructors at their own colleges and else-
where. BioNetwork also operates a mobile lab to take training
to companies and colleges, to create new curricula, and to spon-
sor seminars and job fairs. All colleges are eligible for grants
from an innovation fund and an equipment and facilities
• Metal Manufacturers Training and Education Alliance
• Housatonic Education for Advanced Technology (HEAT)
• Automotive Training Collaborative
• Fairfield County Information Technology Consortium
• Connecticut Association of Metal Finishers
Oregon’s Wind Energy Training
A partnership of wind energy businesses, the Workforce
Response Team, Columbia Gorge Community College, and
Mid-Columbia Council of Governments, is working with a
consortium of wind energy companies to train technicians. No
training program for wind turbine maintenance technicians cur-
rently exists on the west coast. Focusing first on the wind
industry, the consortia also will identify skill sets common to
technicians in other renewable fields such as hydro, biofuel, and
solar. Columbia Gorge Community College will develop curric-
ula; identify alternative training delivery systems including on-
line offerings, evening classes, shortened schedules, and sequen-
tial modules versus academic schedules; and create strategic
partnerships with other community colleges, universities, and
other training entities. Region 9 Workforce Investment Board,
with input from business and economic development, will serve
as advisor for the project.
Cluster-Based Strategies for Growing State Economies
Most foundation-supported community-based intermediaries that
work with underemployed, unemployed, hard-to-employ, and
immigrant populations lack meaningful employer engagement.
The intermediaries have stronger ties to the people who need help
or to the educational institutions than to businesses. Assessments
of successful intermediaries have shown that typical factors include
acting like a business, employing staff with sufficient industry
experience to speak the language of the cluster, and developing real
relationships with the cluster’s leaders. Adding employees with
cluster experience to intermediaries and bringing the intermedi-
aries to the table with cluster members to discuss needs and to
design strategies would benefit both employers and potential
employees. The Jane Addams Resource Corporation in Chicago,
staffed by former metal workers, has been effectively working with
companies to identify and train low-income Chicagoans for the
industry since 1985.
Initiative: Find and Recruit Talent
If clusters want to attract talent — especially young talent — they
have to understand what influences young people’s decisions.
Because creative young people seem to avoid suburbs and prefer
central cities, clusters need city neighborhoods where they can
afford to live. Therefore, the quality and real estate costs of down-
town neighborhoods are important considerations. Some — in fact
many — cities and towns are looking to their creative sectors to be
the magnets for young talent and are establishing cultural quarters,
an idea originating in Europe, and arts districts to ensure their
growth. These are urban neighborhoods with low rent living and
working space for artists and designers along with galleries, music
and theatre venues, coffee shops, and boutiques. Carytown in
Richmond, Virginia; Culver City in Los Angeles; and the Pearl
District in Portland, Oregon, are examples of arts districts. Small
and mid-sized cities also are competing for young talent by recreat-
ing themselves as creative and entrepreneurial places.27
Talent also is recruited from other states and from sources outside
the United States. Today, three of every eight residents of Silicon
Valley are foreign born,28 and in 2000, half the engineers and sci-
entists in Silicon Valley clusters were foreign born. Without this
population, Silicon Valley would not be as competitive. Clusters
need to be proactive in making sure their environments are wel-
coming and supportive of immigrant talent, for example, by pro-
viding educational and cultural programs for employees and their
families and offering social networks. Some states are offering spe-
cial incentives for engineers, teachers and medical professionals to
take jobs in their states.
It is important to recognize that educational credentials are not the
only measure of creativity — and in some cases, it is not the best.
Many regions are home to people whose talents are not identified
by either degrees or test scores. These talents, if nurtured, could fit
many of the emerging clusters that thrive on unconventional ideas,
such as media arts, design, and entertainment.
Initiative: Promote Cluster Career
Advancement Paths
Career pathways are a way to connect education and training pro-
grams with support services to help people — especially those who
are most disconnected and disadvantaged — gain employment
and/or advance within an occupational or industry sector.29
Cluster-based career paths pay more attention to industry know-
how acquired along the way and to informal grapevines among
students to identify opportunities. Paths move vertically within
clusters and horizontally across clusters with similar work environ-
ments and contextual requirements. Career paths depend upon
information about the cluster, connections between education and
training programs and employers, curricula that are defined by job
competencies, and articulation of community colleges’ programs
with higher education requirements to ensure continuity along the
D. Align Innovation Investments
Behind every strong cluster is a set of innovative companies that
are never satisfied with the status quo, companies that are continu-
ally looking for improved products or practices or searching for the
next new big breakthrough.30 The importance of innovation can-
not be overstressed. It is how new value in a business and economy
is created, regardless of source. In a 2005 survey by the Council on
Competitiveness, executives attributed 42 percent of their produc-
tivity gains to innovation, three times more than any other single
factor.31 Clusters need creative and innovative people as well as
implementers and users to create commercial value, and they need
imitators to keep innovations flowing.32
There are three major sources of innovation: research and develop-
ment that is commercialized; functional improvements in prod-
ucts, services, and production processes that come from inside or
outside a firm; and design improvements that enhance a product’s
aesthetic appeal and make it distinctive.
Universities are vital sources of R&D-based innovation and assets
to research-intensive clusters. The importance of MIT’s research to
Boston’s high-tech clusters, Stanford’s research to Silicon Valley’s,
Cluster-Based Strategies for Growing State Economies
or the Research Triangle’s three flagship universities to the biotech
cluster is undeniable. The patents they produce are only the tip of
the iceberg in terms of value to their related clusters. Research that
is not commercialized can influence corporate research and prac-
tice, and faculty consultants and graduate students can affect cor-
porate strategy. Federal research dollars also are important catalysts
for cluster development — in the case of Silicon Valley and
Boston, one of the two most important factors in both the devel-
opment and growth of their technology clusters.33
Innovation, however, is difficult to quantify. Common measures
such as investments in R&D, concentrations of high-tech compa-
nies, IPOs, and numbers of patents per capita, however, miss most
of what occurs in companies without internal R&D departments
or dedicated expenditures — a group of companies that are almost
all SMEs. Further, few patents are actually commercialized; for
example, a study of the biotech industry in 2002 found that of an
average of 5,500 biotechnology patents that had been filed each
year, about 400 were in development and only 100 had reached
the market in the past 30 years.34
Other innovations are unpublicized improvements or inventions
that occur on the job when, for instance, an employee creatively
retrofits a machine to a new use, finds a way to reduce waste, or
suggests a better office management system. Innovations also fre-
quently come from outside of the conventional innovation infra-
structure. As the Alliance for Regional Stewardship stated last year,
“In the old economy, hierarchy ruled and R&D departments were
responsible for generating a predictable flow of new improvements.
In today’s innovation economy, anyone with a good idea can
potentially become innovation leaders.”35 In a survey of executives
in 2005 conducted by the Council on Competitiveness, the high-
est response for frequency of collaboration in the innovation
process was suppliers/customers, followed by innovations flowing
from internal experts, external experts, other companies, university
faculty, and, at the very bottom, labs and research institutions.
The most overlooked source of effective innovation involves prod-
uct design changes that influence consumption choices — the cre-
ative content or appeal of goods and services that distinguishes
them from competitors and causes customers to pay a premium.
According to Business Week magazine, “when people talked about
innovation in the ‘90s they invariably meant technology. When
people speak about innovation today, it is more likely they mean
design. Consumers, who are choking on choice, look at design as
the new differentiator.”36 A survey of chief executive officers con-
ducted in 2006 found that 72.7 percent believed that “design is a
key competitive weapon against low-cost imports” and 86.6 per-
cent thought it could provide a lasting advantage.37 This type of
innovation requires the right brain thinking associated with the
arts as much or more than the left brain thinking associated with
science and technology.
Table 12: Innovation Sources
Arizona Biosciences
Arizona, after carefully assessing its assets, saw niche opportuni-
ties to convert its institutional and industry strengths in health
care and medical research into a biotechnology cluster. In 1997,
the Arizona bioindustry cluster was formed. Three years later,
voters approved a sales tax increase, part of which was used to
build the bioindustry research centers at Arizona State
University, Northern Arizona University, and the University of
Arizona, followed a year later by a large investment in the bio-
sciences by the Flinn Foundation to create and implement the
Arizona’s Biosciences Roadmap. The governor appointed the
Arizona BioInitiative Task Force to attract additional key bio
organizations, and a few months later, the BioIndustry
Organization of Southern Arizona was formed. After a series of
key investments in biosciences research, education, institutes,
and companies under the leadership of Governors Hull and
Napolitano — including attracting the International Genomics
Consortium and founding the Translational Genomics Research
Institute — a 35-percent tax credit for investors in bioscience
companies, a collaborative evaluation agreement among eight
pharmaceutical firms, the emerging cluster is well positioned for
further growth.
Form of Innovation Examples of Institutional
Research and development University research
Private and federal research
Product and process improve-
Community colleges
University extension services
Small business centers
Design and differentiation Colleges of arts and design
Private design companies
Cluster-Based Strategies for Growing State Economies
Initiative: Invest in Cluster-Based
Innovation Centers
States and federal agencies have been investing in science and tech-
nology innovation centers since the early 1980s. Oklahoma’s
Center for Science and Technology, Texas’s Regional Centers for
Innovation and Commercialization, Ohio’s Edison Centers, and
New York’s Centers for Advanced Technology are but a few exam-
ples. Most have been established to do applied scientific research
and development with an emphasis on technology transfer, com-
mercialization, and regional economic impact but also to attract
funding from federal agencies and corporate partners or customers.
A cluster-based innovation center, in contrast, is a bottom-up insti-
tution driven more by members’ interests, including assistance in
applying for small business innovation research (SBIR) grants,
finding research partners or capital, and dealing with intellectual
property issues. The North Carolina Biotechnology Center is a
preeminent model, bringing together researchers, businesses, seed
capital, and entrepreneurial support in one place. Research and
development centers at the University of Alabama, University of
Michigan, and Clemson University are all linked to their respective
regional automotive clusters. The Center for Electronic Imaging
Systems at the University of Rochester supports the area’s optics and
imaging cluster. Each center has close ties to the industry, sending a
stream of students to intern and graduates to work. Although the
final producers tend to keep their research in-house, centers con-
duct research and development for suppliers and customers.
Initiative: Direct R&D Funds to Clusters
The tendency at universities is to conduct basic research that
reflects the interests and expertise of faculty members and/or agen-
cies providing funds. If that research happens to match local needs,
then so much the better. But local demand is not typically the
driving force; universities serve larger regions and global customers.
There are, of course, many exceptions, and a certain proportion of
the research has local relevance because farsighted leaders have
invested wisely. Much of the research focuses on the best-known
high-tech regions in the United States — Boston, Research
Triangle Park, and Silicon Valley — but many smaller clusters have
made effective use of R&D. Many states have strengthened their
clusters considerably by investing in research, even if the clusters
never reach the scale of the global leaders. Oregon State University,
Penn State University, and Mississippi State University all conduct
research on wood products, and all three states have high concen-
trations of wood products companies. The Ceramics Corridor
Innovation Centers in Alfred, New York, combine research and
development for the ceramics, glass, and materials science tech-
nologies as well as provide incubator space and technical assistance.
Table 13: Suggestions for Allocating R&D Funds
South Carolina’s International Center
for Automotive Research (ICAR)
Clemson University established ICAR in 2002 for its automo-
tive cluster, hoping to make it the world’s premier automotive
and motorsports research and educational facility. It is anchored
by BMW but includes about 120 suppliers in the Greenville-
Spartanburg area as well as a growing number of jobs associated
with motorsports. ICAR was based on market research revealing
a need for research on system integration, testing, assembly, and
supplier management and on BMW’s commitment to invest in
its first R&D center outside of Munich. BMW, Michelin, and
Timkin have endowed faculty chairs, and the state committed
$209 million over three years. Still a work in process, one goal
is to create an interactive environment, with a mix of uses and
activities that fosters collaborative partnerships that appeal to
the creative class of technology researchers.
• Use cluster information as a criterion in awarding R&D
• Require applicants to project expected benefits to cluster and
regional economy
• Assist cluster members in identifying and applying for federal
• Set aside funds for applications involving three or more
• Create a simplified format for mini-grants to small businesses
Cluster-Based Strategies for Growing State Economies
Initiative: Encourage Collaborative and
Multidisciplinary R&D
It is now generally accepted that innovation is a consequence of
iterative and interactive processes across disciplines and is rarely
the fruit of a solitary inventor in the proverbial garage. The need
for cooperation, of course, must be balanced by the need for confi-
dentiality, because partners may be competing for financial
rewards. If the research is to develop a new product, there may be
only one winner; if the research is a process or core technologies
that many can use, there can be multiple winners.
About 20 hosiery companies in North Carolina invested in devel-
oping an automated boarding machine that would make the entire
cluster more competitive against low-cost competitors. Large cor-
porations are able to build research networks within their organiza-
tional structure, and they have the international connections to
readily find partners to complement their in-house competencies.
Small and mid-sized firms are more isolated and need assistance in
finding partner companies, nearby and abroad. One strategy
would be to promote collaborative proposals to SBIR grants.
Initiative: Support Incremental
Although many programs support university and corporate R&D,
there are few programs for incremental innovations and little sup-
port for small firms or groups of small firms to solve problems and
improve processes. The continuous improvement user groups
funded by the state of Michigan in the 1990s proved to be an
effective way for networks of small companies to collectively learn
from each other and innovate. Most SBIR grants support R&D
that is expected to be commercialized, and most of the grantees are
high-tech companies. Fewer grants are made to small firms in tra-
ditional sectors for ideas to increase their competitiveness. Very
small grants might be enough to set free creative instincts and
leverage significant improvements.
Initiative: Segment Expertise in
Manufacturing Extension
The design of the U.S. national program to accelerate technology
transfer and diffusion to small and mid-sized businesses initially
assumed a cluster focus. A study for the Cleveland Advanced
Manufacturing Program in 1991 recommended targeting 12
regional clusters.38 When the centers and parallel state programs
merged into the current Manufacturing Extension Partnership
(MEP), specialized support was replaced by generic services. In
many states, there is an informal compartmentalization of expertise
depending on the industry experience of the extension engineers
and the locations to which they are assigned that may address clus-
ter needs. The extension engineer assigned to the Hickory, North
Carolina, area has special knowledge of the hosiery cluster. Cluster-
based staffing is not systematic, however. Where it happens, it is a
response to well-organized and persistent demand or internal
expertise selected for a particular assignment. Clusters could be
better served by access to specific people who are familiar with
their operations. As major co-investors in the country’s 59 MEP
centers, state governments are in a strong position to influence
MEP practices in their states.
Initiative: Increase Attention to Design as
an Innovation Strategy
A lead article in Business Week in March 2005 called “‘Design
thinking . . . the key to earnings growth and an edge that out-
sourcing can’t beat.” Neither state nor federal economic develop-
ment or innovation programs have paid sufficient attention to the
aspect of design that adds new value to products and induces cus-
tomers to pay for appearance or style, the kind more likely to
come from artists than engineers. In departments of commerce,
design is defined in terms of functionality and manufacturability.
Yet markets for specialty goods are growing, and states have an
opportunity to strengthen design capabilities in their educational
systems, design sectors, and companies. Designers themselves clus-
ter and represent a growth industry, but most are in large cities —
New York, Boston, Seattle, and Portland in the United States;
Milan, London, and Copenhagen, and Singapore abroad. Four
examples of initiatives states can take to support design are listed
in Table 14.
Cluster-Based Strategies for Growing State Economies
Table 14: Actions for Improving Design and Creativity
Initiative: Mobilize Investment Capital
for High-Tech Startups
Venture capital in the United States has not recovered to its highs
of the late 1990s, and what does exist is highly concentrated in a
few places. In Silicon Valley, venture capitalists are very aware of a
potential investment’s physical distance from them. Venture capi-
talists prefer their investment companies to be close so that they
can better support and monitor their investment’s operations. The
high concentration and tough requirements leave many strong
candidates in less populated or less wealthy areas unable to get
good ideas off the ground.
The inaccessibility of venture capital to so many businesses has led
some states to use tax revenues or pension funds to fill gaps and
other states to act as brokers, attracting capital, making loans, and
providing information about capital sources to applicants. The
New Mexico Investment Council, Michigan Strategic Fund,
Mississippi’s Magnolia Fund, and Finance Authority of Maine are
just a few state initiatives. Although few of these programs have
been cluster-based, a cluster focus would increase effectiveness and
lower risks because program managers would be more knowledge-
able and experienced in a particular industry, it could attract ven-
ture capital companies that specialized in certain industries, and it
would produce greater synergy among the startups. States also
could do more to target the growing number of angel investment
programs and tax credits to specific clusters.
Table 15: State Support that Could Be Targeted
E. Accelerate Entrepreneurship
Clusters are carefully woven into a complex tapestry by cadres of
enterprising entrepreneurs and innovators who see and seize
opportunities to add value to an existing set of regional competen-
cies. The addition might be a new element of an existing value
chain, a way to be more competitive in existing markets or supply
chains, a new compatible niche product, or a new application of
some cluster technology. Many of the entrepreneurs are already
employed within clusters, fewer come directly through the educa-
tional system, and some are attracted from other places.
States and federal agencies have been supporting entrepreneurship
at least since 1979 when the publication of David Birchs book
The Job Generation Process surprised the nation by showing the
extent to which small businesses accounted for economic growth.39
Many regions have pinned their hopes for growth and targeted
their venture capital on the “gazelles,” the high-tech companies
considered capable of rapid growth. But focusing only on gazelles
misses many emerging creative clusters dominated by the self-
employed and microenterprises. Between 1997 and 2004, U.S.
• Form a state-wide design extension service: Small firms that
produce for end markets would benefit from assistance in
using art and design more effectively to differentiate and add
value to their products, packaging, and company brand.
• Support design networks: The smallest companies can’t afford
to employ full-time designers but might be able to share ideas
and design artistry if networked. The network also would give
small firms opportunities to explore new ways of adding value
through design.
• Establish a design internship or artists’ residency program:
Some of the most successful corporations rely on art to stimu-
late creative thinking and new products. Kohler Corporation
has had a successful artists’ residency program for years.
Artists working inside companies and with cluster organiza-
tions could result in better solutions to problems, new prod-
ucts, and new markets. Some leading business schools are
using integrative thinking to spark creativity by getting man-
agers and researchers to use “abductive” reasoning as well as
inductive and deductive reasoning, asking “what could be.”
• Support interdisciplinary research: In the United States, some
of the top business schools are beginning to promote integra-
tive thinking, taught by teams of business people, scientists,
and artists. The European Union is in the forefront of public
support, funding programs at universities and research centers
across Europe that require teams of artists, scientists, and
engineers. The United Kingdom has made 700 awards from
national lottery funds for such research
• Pre-seed or seed capital
• Investments in privately managed funds
• Tax credit incentives
• Bridge funding for SBIR grants
• Matchmaking services
Cluster-Based Strategies for Growing State Economies
employment grew about 7 percent while self-employment numbers
grew 26 percent.
How do clusters influence entrepreneurship? Most entrepreneurial
skills programs focus on such aspects of the entrepreneurial process
as doing market research, writing a business plan, raising capital,
and creating an organization. They assume these are generic
processes, but the truth is that the cluster into which they fit
shapes the skills that are needed. Although many skills apply to
any types of business, there are skills that are specific to a certain
kind of industry. Starting a new bed and breakfast, a metal-form-
ing business, or a parts distributor require knowledge of different
kinds of businesses. Knowledge of cluster-specific skills, relation-
ships, and language can make the difference between success and
failure. State policies that adapt initiatives to specific clusters have
the potential be more effective.40
Initiative: Support Entrepreneurial
Entrepreneurs thrive on networking. They may have a great idea
but have only some of the knowledge necessary to convert it into a
business. Networks give entrepreneurs opportunities to meet other
entrepreneurs with complementary knowledge, different connec-
tions, and common concerns. If the entrepreneurs are in somewhat
similar or complementary businesses, the knowledge and contacts
that develop are bound to be more relevant. The National
Commission on Entrepreneurship mapped out a process for build-
ing networks that highlighted the importance of ensuring leader-
ship, allowing for failure, networking the networks into strategic
alliances, and letting go after they achieve their purposes.41 Of spe-
cial interest to innovative entrepreneurs are networks that link
them to leading researchers at universities. One model for doing
this electronically is the iBridge Network, a program of the
Kauffman Innovation Network, Inc., and its Web site:
Initiative: Create Specialized Incubator
Business incubators, according to the National Business Incubator
Association, are “a business support process that accelerates the
successful development of start-up and fledgling companies by
providing entrepreneurs with an array of targeted resources and
services . . . usually developed or orchestrated by incubator man-
agement.” The public sector has invested heavily in incubators over
the past two decades to spur R&D commercialization at universi-
ties and to create opportunity in poor rural communities.
Many incubators have a particular focus, generally on areas such as
high tech or manufacturing, and most look for businesses that
bring new wealth into the community. According to the National
Business Incubation Association, about 47 percent of all incuba-
tors are for mixed use, and 37 percent limit tenants to technology
companies. Incubators that target companies in specific clusters,
however, have the added advantage of being able to offer even
more highly specialized services and expertise and create more
opportunities for networking and learning. Some of the most suc-
cessful cluster-based incubators target biotechnology or food pro-
cessing, which require special equipment that can be shared, and
software or the arts, both of which thrive on creative environ-
ments. A few are described below.
• The New York Software Association manages an incubator in
New York City with support from the Empire State
Development Corporation.
• The North Carolina Central Carolina Community College’s
Small Business Center created an arts incubator in 11 historic
buildings in Siler City, revitalizing a depressed downtown.
• Appalachian Center for Economic Networks in Appalachian
Ohio created a kitchen incubator for the local high-end food
processing cluster that assists clients with label design, market-
ing, distribution, processing, and capital.
• The Environmental Business Cluster in San Jose, California, is
a 12-year old clean energy and environmental technology
commercialization center that provides business assistance pro-
grams to resident and nonresident companies and helps form
technology partnerships and networks.
Ohio’s ACEnet
Appalachian Ohio has been a persistently depressed rural area
that successfully used a food cluster-based entrepreneurial strat-
egy combined with creative marketing and branding to add
wealth and create jobs. The Appalachian Center for Economic
Networks (ACEnet) worked with farmers selling commodities
to move up the value chain. With foundation and Appalachian
Regional Commission (ARC) support, ACEnet established the
food ventures center, a shared-use fully equipped food manufac-
turing facility with a retail store; taught entrepreneurial skills;
and found artists to write stories about the products and create
innovative labels and packaging. ACEnet networks producers
and assists with marketing, distribution, processing, and capital.
“Networking occurs in the quick deals, crucial tips, market
information and resource-sharing moments that happen hun-
dreds of times a day across ‘the network.’”42
Cluster-Based Strategies for Growing State Economies
Initiative: Organize Cluster Expertise
Across Small Business Centers
Small business centers are available in most regions of states to
assist small enterprises in getting started, raising capital, expand-
ing, marketing, or improving specific business competencies. Each
office is expected to have a broad set of business skills to serve a
wide variety of customers but not necessarily any deep understand-
ing of a particular type of business, and they provide generic types
of support. Most customers are in or are looking to start local serv-
ice or retail operations. Small businesses and entrepreneurs could
be better served by centers that have deeper knowledge of their
customers. Because most centers have tight budgets, in-house
expertise is only possible in a few areas. If a state system is organ-
ized so that each cluster has an advisor or set of advisors some-
where in the state, people could receive more useful advice and
more directly applicable answers to questions.
Initiative: Educate for Entrepreneurship
Entrepreneurial education has been an educational goal for decades
that, with recent support from various foundations and the ARC,
is becoming a reality. Much of the nation’s entrepreneurial educa-
tion has been designed with two assumptions: (1) that entrepre-
neurship is an alternative career track and curriculum for those
seeking employment, and (2) that entrepreneurial skills are generic
and one can major or graduate in “entrepreneurship.” In reality,
most entrepreneurs learn their skills on the job, and different types
of business require different sets of skills. Starting a technology-
based company with products and a clearly defined market is dif-
ferent from starting a film company that is project-oriented and
dependent on networks and personal reputation.
Linking entrepreneurial education to clusters suggests the follow-
ing three possible cluster-specific approaches:
• Recognize enterprise distinctiveness and include skills that are
specific to the particular cluster
• Integrate entrepreneurial competencies into existing workforce
curricula by, for example, posing problems that require an
understanding of the cluster and by framing discussions in
business cluster contexts
• Establish real or fictitious cluster enterprises operated by stu-
dent teams as a context for learning technical and business
Some of the cluster hubs have been successful in producing entre-
preneurs. Graduates of the relatively new Center for Enology and
Viticulture at Walla Walla Community College in Washington
have established four new wineries.
State governments could do more to support entrepreneurship
education in general as well as in cluster-specific forms. At present,
most universities, if they offer entrepreneurship courses at all, offer
them only to students in the business or engineering school. They
could follow the example of the Ewing Marion Kauffman
Foundation, the National Science Foundation, and other such
organizations in assisting universities, community colleges and
even high schools to teach entrepreneurship skills to students in all
disciplines and facilitating student experience through such pro-
grams as L-SITES, Learning through Simulated Information
Technology Enterprises. States can also support such non-school
entrepreneurship training programs as FastTrac.
F. Open Global Priorities
Isolation is the biggest barrier to cluster growth. To be competitive
and innovative, clusters have to be globally aware and globally
engaged. Despite globalization, many parts of America are still
geographically and linguistically challenged. Globalization too
often means immigrants, imports, exchange students, and exotic
foods in grocery chains, not economic opportunities that lie out-
side U.S. borders.
Clusters need global pipelines to knowledge and innovation as
much as they need local buzz,43 and they need access to global
markets for goods and labor as much as to local markets.
Intellectual property contributions of immigrant non-citizens, for
example, reached almost 25 percent in 2006, up from only 7 per-
cent in 1998.44
Exposure to different operating environments and different cul-
tures is a powerful stimulant for innovation. After a dozen owners
of North Carolina hosiery companies traveled with public sector
officials from the nearby state and community college to compara-
ble hosiery and knitwear clusters in Italy, the experience led to the
revamping of services and organization of the community college-
technology center, refocusing on marketing networks, dyeing,
design, and cluster-quality standards. Even the increased outsourc-
ing of R&D has a silver lining for those willing and able to think
and act globally — access to talent and innovation from other
Successful clusters establish linkages to suppliers and customers.
They closely monitor trends in other parts of the world to gain
different perspectives. They extend their networks to distant com-
petitors, vendors, and institutions through international profes-
Cluster-Based Strategies for Growing State Economies
sional associations, trade shows, and research partnerships. Clusters
that are cut off from external sources of knowledge eventually risk
losing their competitive position, creating the kind of intellectual
lock-in that kept Detroit producing large cars and the Northeast
producing frame computers for too long.45
Dynamic clusters export. Economic growth in underdeveloped
nations is creating new markets for U.S. products and, increasing-
ly, cultural goods and services. For example, there is a growing
market among youth outside the United States for American cul-
ture expressed in music, movies, clothing, and accessories. The
international market for the entertainment and media industries
where information technology and entertainment clusters are
quickly converging, that is, on-line rentals and digital streaming,
licensed digital downloads, on-line video games, electronic books
and news, and on-line casino gaming, is experiencing rapid growth
— 6.6 percent per year — and is expected to reach $1.8 trillion
in 2010.
Initiative: Support International
Participation in Events and
Study Tours
Participation in international conferences, trade shows, and study
tours is a vital source of innovation and inspiration for U.S. clus-
ters. Despite the accumulated evidence of the added value of expo-
sure to new people and places, programs that support travel for the
express purposes of marketing, observing, learning, and network-
ing are few and far between. Maintaining connections with coun-
terpart clusters in other parts of the world, including networks,
and exchanges of faculty or employees can prevent clusters from
being too locked in to their internal strengths. It also can generate
innovations and lead to new market opportunities. A state travel
fund, with a required match and restricted to groups of three or
more firms in clusters, that supports participation in trade shows,
professional events, or study tours would help overcome cluster
Initiative: Support and Assist Export and
Export Networks
A study of the role of exports among firms in seven industry clus-
ters in Appalachia found that more than half rated it as very
important to their business, yet they listed many barriers that
inhibited exporting, including costs, information, working capital,
trade barriers, foreign regulations, and just getting paid. Many of
the approaches to simplifying exporting for small and mid-sized
firms have been developed by network initiatives, and some of the
most successful networks were groups of similar companies target-
ing export markets. When the North Carolina Department of
Commerce awarded grants to clusters in the late 1990s to develop
strategic plans, the hosiery cluster’s plan included two export net-
works, which eventually formed following a benchmarking trip to
northern Italy. A rapidly expanding middle class with new pur-
chasing power in China, India, and other developing nations and a
taste for American culture creates new markets for U.S. niche
goods, whether they are designer jeans, designer genes, or disco
music. Reinforcing the argument for support for exporting, sur-
veys reported in the 2003 Cluster Initiative Greenbook found
exports to be the most common form of commercial cooperation.
Public export support has proven to be effective when targeted to
consortia of small companies that are interested in similar global
Initiative: Establish Cluster-Based
International Learning
Exchanges for Students
U.S. students and workers are poorly prepared for the global econ-
omy. School semesters spent abroad and international exchanges
for students are rare. Most employees have little opportunity to
learn from those working in different cultures and work environ-
ments. The Trans-Atlantic Technology and Training Alliance, an
international alliance of community colleges, facilitates cluster-
based exchanges of faculty and students, such as the EUC-Syd in
Sønderborg and Bellingham Technical College in Washington for
culinary arts; Siemens Professional School in Berlin and Kentucky
Community and College System for automotive industries; and
Howard Community College in Maryland and Niels Brock
College in Copenhagen for information technologies. Because the
majority of community college students and many higher educa-
tion students are already in the work force, a cluster association
could become the focal point for exchanges or students in their
work force. Short-term exchanges of students for credit, or of
employees with branch plants, suppliers, or customers overseas
could spur the transfer of ideas and increase the value to each.
Montana in Ireland
The Montana World Trade Center organized a visit to Ireland
in 2003 for a group of artists and businesses from Montanas
creative enterprise cluster that included an exhibit of the state’s
art at the Bank of Ireland. In addition to generating ideas,
learning what sells in European markets, and building relation-
ships, the trip resulted in $500,000 in initial sales across the
Atlantic — including hot tubs and fishing gear as well as art.
Cluster-Based Strategies for Growing State Economies
The Media Arts Alliance
The Media Arts Alliance (MAA) is an international network of
community and technical colleges working to improve educa-
tion, training, and economic opportunities in regional digital
media and entertainment clusters. Member colleges in places
such as Seattle, Houston, the Silicon Valley, Maryland, Berlin,
and Durbin (South Africa) may specialize in music and event
production, film production, and digital arts but with consider-
able convergence. In one project, students from different cul-
tures shared music tracks and altered the mixes to reflect their
local talent and culture. The final mix was ultimately returned
to the original creator after its “round the world” trip. The goal
is to expand awareness of global music trends and improve pro-
fessional collaborative skills. MAA also is exploring internation-
al quality standards for entertainment production programs.46
Cluster-Based Strategies for Growing State Economies
Chapter 5—Value Found and
Lessons Learned
Clusters are, a priori, effective settlement patterns for companies.
The proof is their persistent prevalence. Companies would not
choose to locate so close to their competitors without realizing
advantages. Public agencies need to know the measurable results of
cluster-based interventions in terms of such things as jobs, wealth,
and equal opportunity, and whether they are allocating public
money as efficiently and equitably as they might. State leaders
should ask this question: Have public interventions been able to
improve upon natural clustering tendencies by adding additional
advantages or by accelerating their growth?
Evaluating the outcomes of an initiative is easier than measuring
the impacts on the larger entity that the initiative is intended to
affect. Both require enough time for an intervention to have the
intended effects, and both are subject to uncontrollable external
forces that can alter any expectations. Therefore, assessments are
approximations of impacts at best.
Given those caveats, what has been learned from past cluster initia-
tives? Most of the evidence of outcomes is anecdotal, for three rea-
sons: (1) there are multiple variables that must be controlled to
isolate the effects of specific interventions; (2) outcomes are long
term, and most cluster initiatives are relatively recent and short
term; and (3) outcomes require baseline data that may not exist.
A. Case Studies Continue to Suggest
Advantages of Clusters
Much of the evidence of the impacts of clusters or cluster initia-
tives comes from case studies of clusters or network strategies. The
most extensive survey was performed on behalf of the
Competitiveness Institute and published in 2003.47 In that survey,
about 85 percent of respondents agreed that their respective cluster
initiatives improved the competitiveness of their cluster, and 89
percent said that their respective cluster initiatives helped the clus-
ters grow. Four in five responded that their cluster initiative met its
goals, and 77 percent said “it lived up to its expectations,” but 14
percent replied “it’s been mostly talk, not much action.”
A larger set of assessments, both international and in the United
States, exists for network initiatives that began before most cluster
programs, but in many instances, these could be considered cluster
initiatives, and there is other research that measured whether
regions with clustered sets of industries outperform those with less
clustered industries.
• A study conducted at the USDA Economic Research Service
found that average earnings in rural counties with high shares
of particular industry classifications, defined as clusters, were
higher than rural counties without “clusters.”48
A more recent study across Canada found that between 1998
and 2005, both employment and average income in clustered
industries in “city-regions” grew more than twice as fast as in
non-clustered industries.49
• The International Institute for Labour Studies assessed the
impact of Valencia, Spain’s, efforts to imitate the cluster tech-
nology centers in Emila Romagna’s industrial districts and
found limited successes: expanded services to small firms and
increased demand for services. Among the lessons learned were
that the centers required continuing public subsidies to remain
in an industry leadership position, they should be located
within the cluster, and they worked best in collaboration with
other similar institutes.50
• A variety of evaluations of networks and cluster organizations
across the United States, the United Kingdom, and Australia
all found that firms networked primarily to increase employee
professional learning and knowledge.51An assessment of five
cluster strategies supported by the Northwest Area
Foundation, for example, surveyed companies and found that
in each case, learning was the number one reason the compa-
nies cooperated and was the number one value gained, which
affirms the importance of tacit knowledge.52
B. Final Thoughts
Cluster-based strategies have proven effective in improving clusters
ability to compete and, in many instances, have influenced region-
al and local growth patterns.53 In the new global economy, clusters
continue to confer advantages to their member firms and institu-
tions, and promoting them is still good public policy. To maximize
their impact on regional prosperity, however, practitioners and pol-
icymakers need to continually assess how the dynamics of clusters
are changing and tailor policies to support today’s opportunities,
not yesterday’s challenges.
Cluster-Based Strategies for Growing State Economies
Glossary of Terms
Cluster: A geographically limited critical mass (i.e., sufficient to
attract specialized services, resources, and suppliers) of companies
that have some type of relationship to one another — generally a
complementarity or similarity in product, process, or resource.
Clustering: The act of companies with similar interests or needs
in a geographic region establishing new or closer relationships and
Cluster Initiative: An activity that addresses the specialized needs
of a set of companies or the entire cluster designed to enhance the
competitiveness of the cluster.
Cluster Association: A membership-based organization that col-
lectively represents the needs and interests of members, provides
services, and/or serves as a vehicle for members to associate and
Cluster Breadth: The range of industries related by common
products, technologies, distribution channels, and/or end users.
Cluster Depth: The range of vertically integrated industries such
as components, parts, materials, equipment manufacturers, and
support services.
Creative Economy: Companies that take their principal competi-
tive advantage from a distinctive appearance, form, content, or
sound that they embed or embody in their products or services
and employees that work in some aspect of culture, arts, or design.
Externalities or Economies of Scale: Reductions in costs that
result from increases in the scale of demand for valued services or
resources. These economies are often discussed as “localization
economies,” which are the benefits that accrue to firms as a result
of the clustering of similar firms, and “urbanization economies,”
which are benefits that are associated with population density.
Innovation: The transformation of knowledge into new products,
processes, and services; the act of using something new. The inno-
vation process consists of the steps through which something that
is used moves from conceptualization to utilization.
Knowledge Clusters: Specialized networks of innovative interre-
lated firms that derive competitive advantages through accumulat-
ed, embedded, and imported knowledge among local actors about
highly specific technologies, processes, and/or markets.
Location Quotient: The ratio of the relative concentration of
establishments or employees in a cluster to total establishments or
employees in the economy divided by the same relative concentra-
tion in the larger economy (state or nation). A location quotient of
1.0 represents average concentration, a quotient of greater than 1.0
represents a higher concentration, and a quotient of less than 1.0
represents a smaller concentration.
Network (formal): A contractual alliance or membership organi-
zation in which some number of firms agree to share resources,
costs, or information. Some form of cooperation and some level of
trust are required. Networks are often, but not necessarily, embed-
ded in clusters.
Networking (informal): Informal interactions and relationships
among firms and support organizations that are not contractual or
membership based. They imply something more than simple prox-
imity to like or related firms and deliver more than external
Network Broker: A person or organization that facilitates joint
initiatives among groups of companies.
Region: A geographically bounded territory that has a common
hub, labor market, or source of economic growth.
Regional Innovation System: Elements (businesses, agencies,
associations, etc.) and the relationships between the elements that
interact with production, diffusion, and use of new and economi-
cally useful knowledge that is encompassed within specified geo-
graphic boundaries.
Sectoral Programs: Workforce development programs, usually run
by nonprofits, that address the needs of workers and employers in
specific groups of industry sectors.
Social Capital: Stocks of social trust, norms, and networks that
people can draw upon to solve common problems. Networks of
civic engagement, such as business and neighborhood associations
and cooperatives, are an essential form of social capital, and the
denser these networks, the more likely it is that members of a clus-
ter will cooperate for mutual benefit.
Soft Network: A group of companies that has some core compe-
tency, resource, or need in common that choose to form a local or
regional association that enables them to share costs of services and
information, interact, and/or influence policy.
Supply or Value Chains: All of the companies in the production
stream that make the individual systems, parts, and services that
eventually are incorporated into a final product purchased by an
end customer or user.
Temporal Clusters: Spatial clusters that are based on seasonal
Temporary Cluster: International gatherings characterized by
knowledge exchange similar to those found in a permanent cluster,
although short-lived and intensified.
Cluster-Based Strategies for Growing State Economies
Selected Policy-Relevant Resources
The Associational Economy: Firms, Regions, and Innovation. Phil Cooke and Kevin Morgan, Oxford University Press, 1998.
Clusters of Innovation: Regional Foundations of U.S. Competitiveness, Council on Competitiveness, Monitor, Michael Porter, ontheFrontier,
Cluster Building: A Tool Kit, http://www.clusternavigators
Ifor Ffowcs Williams
Cluster Genesis: Technology-Based Industrial Development, edited by Pontus Braunerlijelm and Maryann Feldman, Oxford University Press,
The Competitiveness Institute Web site
Cluster Initiative Greenbook by Solvell, Lindqvist, & Ketels, 2003
Cluster Policies Whitebook by Thomas Andersson, et al, 2004
The Competitive Advantage of Nations, 1990 and On Competition, 1998, Michael E. Porter.
The Council on Competitiveness Web site See especially their Regional Innovation, National Prosperity (2006)
and Measuring Regional Innovation (2005).
Danish Research Unit on Industrial Research Web site,
Large collection of papers on clusters
The Ewing Marion Kauffman Foundation Web site
Innovation Systems Research Series, David Wolfe, J. Adam Holbrook, and Matthew Lucas (Eds.), Montreal: McGill-Queens University Press
Innovation, Institutions, and Territory, 2000
Clusters Old and New, 2002
Knowledge, Clusters, and Regional Innovation, 2002
Clusters in a Cold Climate, 2003
Global Networks and Local Linkages: The Paradox of Cluster Development in an Open Economy, 2005.
Just Clusters: Economic development strategies that reach more people and places
Regional Technology Strategies, 2003.
Making Sense of Clusters: Regional Competitiveness and Economic Development, Joe Cortright, Brookings Institution, 2006
NGA Center for Best Practices Web site
Organization for Economic Cooperation and Development, 2003, Web site
Boosting Innovation: The Cluster Approach, 1999.
Innovation Clusters: Drivers of national Innovation Systems, Conference Proceedings, 2001
Cluster-Based Strategies for Growing State Economies
1SRI International, Cornerstone; Enterprise Florida: Growing the
Future; and Enterprise Florida: Organizing Economic Development
Menlo Park: CA: SRI International, 1989–90.
2Michael E. Porter, The Competitive Advantage of Nations. New
York: Free Press, 1990.
3Paraphrasing from Joe Cortright, Making Sense of Clusters:
Regional Competitiveness and Economic Development, Washington,
DC: Brookings Institution, 2006.
4David Barboza, “In Roaring China, Sweaters are West of Socks
City.” New York Times, December 24, 2004.
5Pete Engardio and Bruce Einhorm, “Outsourcing Innovation,”
Business Week March 21, 2005.
6Pete Engardio, R&D Offshoring: Is it Working? Business Week,
May 10, 2006.
7Richard Baldwin, The Great Unbundling(s), Brussels: European
Union, Prime Minister’s Officer, Economic Council of Finland,
8New Economy Strategies, LLC. 2005 National Innovation Survey.
Washington, DC: Council on Competitiveness, 2005.
9Robert M. Gibbs and G. Andrew Bernat, Jr. “Rural Industry
Clusters Raise Local Earnings,” Rural Development Perspectives 12
10 Greg Spencer and Tara Vinodrai, “Measuring creativity & inno-
vation from clusters to city-regions,” ISRN Annual Meeting,
Toronto, Canada, May 4, 2006.
11 Joe Cortright, Making Sense of Clusters: Regional Competitiveness
and Economic Development, Washington, DC: Brookings
Institution, 2006.
12 Survey of Talent, “The Battle for Brainpower,” The Economist,
October 7, 2006.
13 Hector O. Rocha, “Entrepreneurship and Development: The
Role of Clusters.” Small Business Economics, 23 (2004) 363:400.
14 David A. Wolfe and Meric S. Gertler. “Local Antecedents and
Trigger Events: Policy Implications of Path Dependence for
Cluster Formation,” in Pontus Braunerhjelm and Maryann
Feldman, Cluster Genesis: The Emergence of Technology Clusters,
Oxford University Press, 2006.
15 In Italy industrial districts (a.k.a., clusters) are constituted by
regional laws. in some instances allowing only certain places to
produce authentic products — especially in the food industries.
16 Wardrip-Fruin and Mortford (Eds) 2003. The New Media
Reader. Cambridge: MIT Press, cited in David A. Wolfe and
Matthew Lucas (Eds.) Clusters in a Cold Climate. Montreal:
McGill-Queens University Press.
17 Ann Markusen, “A Consumption Base Theory of Development:
An Application to the Rural Cultural Economy,” To be pub-
lished in Agricultural and Resources Economics Review 36 (No. 1,
18 Ifor Ffowcs-Williams, Cluster Building: A Toolkit. Wellington,
NZ: Cluster Navigators, Ltd. 2001.
19 Robert W. Fairlie and Alicia M. Robb, Families, Human Capital,
and Small Business: Evidence from the Characteristics of Business
Owners Survey, CES 05 07, Washington, DC: Center for
Economic Studies, Bureau of the Census, June 2005.
20 Center for an Urban Future, Creative New York, New York City,, December 2005.
21 Eric Hansen, et al., Enterprise Florida: Growing the Future.
Menlo Park: SRI International, September 1989.
22Joe Cortright, Making Sense of Clusters: Regional Competitiveness
and Economic Development. Washington, DC: Brookings
Institution, 2006.
23 Collaborative Economies, Clusters of Opportunity User Guide,
2005 California Regional Economies Project June 2005.
25 Stuart Rosenfeld, Cynthia Liston, and Jim Jacobs, “Targeting
Clusters, Achieving Excellence,” Community College Journal, 73
(Issue 6) 2003 and Stuart Rosenfeld, and Cynthia Liston,
“Cluster Hubs: Putting Learning into Context,” Community
College Journal, 77 (Issue 3) 2006.
27 Analyzed by Joe Cortright based on 2000 Census data.
28 Joint Venture Silicon Valley Network, Index of Silicon Valley
2006, San Jose: Joint Venture Silicon Valley Network, 2006.
29 Davis Jenkins and Christopher Spence. The Career Pathways
How-To Guide. New York: Workforce Strategy Center, 2006.
30 OECD. Boosting Innovation: The Cluster Approach, Paris:
OECD, 1999.
31 New Economy Strategies, LLC. 2005 National Innovation
Survey. Washington, DC: Council on Competitiveness, 2005.
Cluster-Based Strategies for Growing State Economies
32 OCED. Innovation Clusters: Drivers of National Innovation
Systems, Conference Proceedings, Paris: OECD, 2001.
33 Rolf Sternberg, “High Tech Regions 2.0: Sustainability and
Reinvention,” Paper presented at Stanford University, November
13–14, 2006.
34 Joe Cortright and Heike Mayer, Signs of Life: The Growth of
Biotechnology Centers inn the U.S. Washington, DC: The
Brookings Institution, 2002.
35 Alliance for Regional Stewardship, Building Regional
Competitiveness Through Economic Innovation: The Unique Role
of Regional Stewards, Draft, May 2006.
36 Business Week, July 4, 2005.
37 “Taking the Public Pulse in Design,” Fast Company, June 2006.
38Michael Fogerty and Jar Chi Lee, “A Manufacturing Industry
Cluster Approach to Technology Deployment,” Center for
Regional economic Issues, Case Western University, December
39 David Birch, The Job Generation Process, 1979.
40 See especially A Governor’s Guide to Strengthening State
Entrepreneurship Policy (National Governors Association Center
for Best Practices, 2004) and related papers from the Ewinig
Marion Kauffman Foundation.
41 National Commission on Entrepreneurship. Building
Entrepreneurial Networks, Washington, DC: December 2001.
42 EntrepreNews & Views, 10 (Issue 2), The Consortium for
Entrepreneurship Education, Ohio State University, Columbus,
43 Harald Bathelt, Anders Malmberg, and Peter Maskell. 2002.
Clusters and Knowledge: Local Buzz, Global Pipelines and the
Process of Knowledge Creation. Aalborg, Denmark: Aalborg
University, DRUID Working Paper No 02-12.
44 Vivek Wadhwa, et al, America’s New Immigrant Entrepreneurs,
Master of Engineering Management Program at Duke University
and School of Information at University of California-Berkeley,
45 David Audretsch, “R&D Spillovers and the Geography of
Innovation and Production, International,” OCED Workshop
on Innovation Clusters and Interregional Competition, Kiel,
Germany, November 2001.
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... Many of the public policies that are most effective at seeding the growth of clusters are frequently designed with some other goal or objective in mind. Public policies that build a strong knowledge base in the regional economy, and contribute to the creation of a well educated workforce, rank among the most effective in establishing the local antecedents that can support However, cluster policies can serve as a highly effective means of focusing the impact of a wide range of other policy instruments to ensure they achieve maximum impact and benefit in promoting the development of networks of local firms (Rosenfeld 2002a;Rosenfeld 2002b). This perspective suggests that local governments can achieve a better understanding of their economies through an analysis of their clusters. ...
... Various strategies can also be adopted by local authorities, frequently with support from regional and national governments, to create greater external awareness of the cluster and its dynamic capabilities. There is no simple or easy way to accomplish these goals and they require frequent refinement to help build the desired degree of cluster interaction (Andersson, Serger, Sorvik, et al. 2004, 96;Rosenfeld 2007;Rosenfeld 2002a). ...
Technical Report
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This report provides a summary of the key findings and insights from the ISRN study of 26 industrial clusters in Canada and key policy implications.
... Sa complexité thématique à pousser de nombreux auteurs à travailler sur ce concept, parmi eux : Rosenfeld (2002) 7 8 ce professeur à l'université de Hong Kong a utilisé le terme de cluster comme il suit : « un cluster sectoriel dont les entreprises bénéficient d'une proximité géographique » on voit qu'il prend le territoire en considération ce qui rends sa définition proche de celle de Becattini. ...
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This article aims to understand the concept of the cluster in the world, as well as its spatio-temporal evolution, currently it represents a seductive term which becomes over the years more and more in vogue. Faced with increasing competition between countries, regions and even territories, these positioning forces them to adapt to a growing, invasive and above all uncertain globalization. Studies on clusters have shown that they cover a heterogeneous reality, both in terms of their constructive elements and the achievement of their objectives. Considered as a key element in the competitiveness of regions, they are becoming widespread as a new mode of public action, in order to bring together companies, research centers and universities in the same network, and to provide them with the necessary infrastructures. Résumé Cet article vise à comprendre le concept du Cluster dans le monde, ainsi que son évolution spatio-temporelle, actuellement il représente un terme séduisant qui devient au fil des années de plus en plus en vogue. Face à une compétition croissante entre les pays, les régions, et voire même les territoires ; ce positionnement oblige ces derniers à s'adapter à une mondialisation croissante, envahissante et surtout porteuse d'opportunités et d'incertitudes. Les études sur les clusters ont démontrés qu'ils recouvrent une réalité hétérogène, que ce soit par rapport à leurs éléments constructifs, ou par rapport à la concrétisation de leurs objectifs. Considéré comme un élément phare de la compétitivité des régions ils se généralisent comme un nouveau mode d'action publique, afin de réunir dans un même réseau des Entreprises, des Centres de Recherche ainsi que des Universités, et mettre les nécessaires infrastructures à leurs services. Introduction: Le développement territorial est devenu ces vingt dernières années un enjeu majeur au niveau stratégique ainsi qu'au niveau politique ; les mutations économiques et technologiques des années quatre-vingt, ont fait prendre conscience aux différentes communautés (politiques, scientifiques, …) que la dimension territoriale joue un rôle primordial dans la diffusion de l'innovation, le développement économique ainsi que la compétitivité régionale. Face à ces constats, plusieurs dispositifs ont été mise en place sous différents appellations : technopoles, SPL (systèmes productifs locaux), PDC (pôles de compétitivité) les derniers nés de la politique gouvernementale française, toutes ces formes citées en amont s'appuient sur des réflexions théoriques développées il y a quelques années sur le rôle, la place et les modes de développement des systèmes territorialisés appelés « Clusters ».
... Porter (1990) Enfim, a inovação é apresentada por diferentes autores como a principal externalidade de estar aglomerado espacialmente. Além dela, outras vantagens são vislumbradas, como: a disponibilidade de mão-de-obra promovendo processos de aprendizado coletivo e atendendo a demanda das firmas; a proximidade com fornecedores, minimizando os custos de transportes e promovendo transferências de tecnologias; a disponibilidade de capital, serviços especializados, redes e alianças; a presença de capital social, de clima empresarial, de líderes de mercado e inovadores (ROSENFELD STUART, 2002;KRUGMAN, 1991). ...
... Ketels (2003) emphasises the cluster's benefits in three areas, (i) firms in the clusters are more efficient because they use specialised inputs and their suppliers are working with shorter reaction times than isolated businesses, (ii) firms and research institutions can achieve higher levels of innovation due to knowledge sharing and close interaction, (iii) thirdly, there is a tendency to cluster enlargement when setting up new businesses becomes easier because vendors and other partners are part of the cluster. Rosenfeld (2002) divides benefits of clustering into hard and soft. The hard benefits result from more efficient business transactions, expert investment, cost reduction, and profits. ...
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Previous research presented in numbers of studies strongly suggests that locating in a cluster generates valuable benefits to clustered firms. These include better access to suppliers and other scarce inputs, superior knowledge and innovation, a better position from which to build a social network as well as proximate to successful competitors. Yet when the positive impact of agglomeration and clustering has been questioned on the strictly financial performance of clustered firms, the results of these studies are not so convincing and question the enthusiasm for cluster theory shown by scholars, practitioners, and policymakers. The aim of our research is to enrich existing knowledge concerning the benefits of clustering, as well as to test if localisation in a natural cluster, and membership in a cluster organisation has a positive impact on financial performance. We propose to measure that by selected financial indicators such as ROA, ROS, labour productivity and Economic Value Added, focussing our research on traditional industrial sectors – plastics and textiles seated in the Czech Republic. The results of analysing firm-level data in the period of 2009–2016 fail to confirm any significant influence of firm localisation in natural cluster or membership in the cluster organisation on financial performance for firms in studied sectors. We achieved the same results by investigation of potential differences for young firms, SMEs or underperforming firms.
The relevance of the tasks of building partnerships between organizations participating in the value chain, on the one hand, is determined by the desire to reduce transaction costs, and on the other hand, by the need to gain competitive advantages in the market of goods and services. The strategic intentions of interacting organizations are coordinated when formingalliances through agreements on mutual obligations. Such forms of association of organizations as meta-organizations, clusters and business ecosystems have their advantages and disadvantages. The purpose of this study is to determine the main content of these forms of association of participants in joint activities, which opens up the possibility of identifying distinctive features for adjusting the definitions of each of the forms. Among the research methods, models for constructing mental maps, the method of paired comparisons and the formation of blocks of characteristics, logical analysis and synthesis of information within the subject area of research were used. This paper defines the main content of these forms of association of organizations, as well as their advantages and disadvantages as initial categories. As a result, new definitions of these categories are given, as well as their interrelations, general and special characteristics.
Purpose – This chapter explores the institutional challenges affecting the handicrafts sector in Egypt as well as the roles of key stakeholders and coordination mechanisms that could support local producers in joining global value chains (GVCs). The chapter then proposes a model for institutionalization of the sector that establishes communication lines between global, national, mid-level, and local levels. Design/methodology/approach – The handicrafts sector includes a variety of stakeholders and actors whose relationships, roles, and mandates are unclear. Therefore, this study uses a qualitative research design whereby informants from public, private, local, and national levels are interviewed. Additionally, a desk research of the most relevant secondary sources is conducted to ensure the validity and reliability of data obtained through the semi-structured interviews with the various stakeholders. Findings – This study reveals the importance of establishing sustainable, effective, and politically feasible communication lines and coordination mechanisms at all levels to build globally sustainable and competitive handicrafts clusters that could upgrade Egyptian handicrafts and prepare them for the global market. Not only could this contribute to clusters reaching their potential, but it could also help handicrafts clusters become collectively efficient and have a more competitive presence internationally, thus contributing to global value chains (GVCs). Originality/value – This study develops an institutional framework that divides the roles and mandates of the different stakeholders, involving stakeholders from the public, private, mid-level, and local levels. The developed model aims to enhance the international competitiveness of handicrafts in Egypt, thus contributing to GVCs.
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The monograph deals with theoretical and conceptual, methodological and practical aspects of innovative development of national economies based on the cluster approach. Based on the generalisation of the world and European experience, the strategic role of cluster structures for economic growth and ensuring the competitiveness of national economies at the global level is proven. The features of cluster policy formation of the EU countries in the conditions of the network and intellectual economy development are considered. The problems and prospects of clusters development in Ukraine are defined. Specific criteria for the formation of Ukrainian cluster associations according to the best EU practices are proposed. A conceptual and methodological model for evaluating the synergetic effects of cluster structures is proposed. The innovative and institutional prerequisites for the formation and development of cluster structures in Ukraine, taking into account the economic policy of the European Union’s clustering, are analysed. Based on the segmental analysis of industry clusters initiatives in Ukraine, a cluster model of structural transformation and competitive development of strategically important industries for the country’s economy is proposed. Based on the study of state and prospects of regional clusters’ development, developed recommendations for the use of the cluster approach in the formation of regional policy, in particular, in the Ukrainian black sea region and the Odesa region. A set of measures developed for the formation and development of transport and logistics clusters, which are related to infrastructure-type clusters and are of primary importance for the development of the national economy. Recommendations for building an effective delivery system based on clustering of the city territory are given. An ecological and innovative model of cluster interaction between transport and industry in the information economy is proposed. This monograph is for scientists, teachers, students of economic specialities, entrepreneurs, state and regional authorities’ representatives and other interested persons
Pengembangan klaster industri merupakan alternatif pendekatan yang dinilai efektif untuk membangun keunggulan daya saing industri khususnya dan bagi pembangunan daerah pada umumnya. Bagi pelaku ekonomi, khususnya Usaha Kecil dan Menengah, pendekatan klaster industri membantu upaya yang lebih fokus bagi terjalinnya kemitraan yang saling menguntungkan dan pengembangan jaringan bisnis yang luas. Sementara itu, bagi pembuat kebijakan dan pihak berkepentingan lainnya, pendekatan ini memungkinkan potensi skala pengaruh dari kebijakan dan program, menuju cakupan yang dampaknya signifikan. Sebagai studi kasus pada buku ini adalah Pengembangan klaster industri Pariwisata dan Pangan di Kabupaten Gunungkidul, Daerah Istimewa Yogyakarta. Potensi hasil laut dan wisata sangat besar dan terbuka untuk dikembangkan. Daya tarik wisata di Kabupaten Gunungkidul merupakan perpaduan harmonis antara kekayaan alam, kebudayaan tradisional dan cara hidup masyarakatnya. Sektor pertanian khususnya pertanian pangan non beras perlu dikembangkan. Namun demikian, pengembangan Pariwisata dan Pangan di Kabupaten Gunungkidul menghadapi tantangan berupa kendala produksi, teknologi, kebijakan, dan infrastruktur khususnya karena kondisi geografinya yang berbatuan. Buku ini diharapkan dapat memberikan masukan yang berharga kepada Perencana baik di daerah maupun pusat dalam memfasilitasi pengembangan Klaster Industri di daerah.
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In this paper, we study the classical and modern approaches to the formation of regional agro-industrial clusters. In the current market conditions, the creation of a cluster based on the existing regional infrastructure is impractical. In most cases, clusters are called holding structures that include the full cycle of production, processing and marketing of agricultural products, for example, “dairy clusters” – there are traditional groups of companies that formally follow the classical cluster principles, but do not give individual participants in the production process sufficient organizational and legal autonomy. The conditions for the development of innovation within the cluster, as well as the mechanism for creating the scientific and innovation component of the cluster as a fully-fledged newly created cluster element are investigated. We show that the cluster should be created on the basis and strict adherence to fundamental organizational and economic principles. In particular, while in holdings the economic result of the activity is aimed at achieving the goals of the parent company, in a cluster the maximum interest in the result and the satisfaction of the economic interests of all participants in equal measure should be laid. Moreover, the classical cluster approach in the current market conditions may be unrealizable and the author’s concept of cluster development is preferable.
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Industry clusters refer to the tight connections that bind certain firms and industries together in various aspects of common behavior, e.g., geographic location, sources of innovation, shared suppliers and factors of production, and so forth. Industry cluster concepts date from the last century, but they have captured the imagination of active policymakers and the serious attention of scholars only in the last decade of this century. Because clustering behavior is such a pervasive aspect of modern economies and global trade, it draws the attention of many different disciplines and benefits from their scholarship. Although a consideration of research on this topic might alone justify book-length treatment, industry cluster concepts are also powerful metaphors that are used routinely to guide industrial and regional development planning throughout the world. Drawing on classic materials and the recent burst of scholarly and policy activity, this monograph examines and demonstrates the use of industry cluster ideas as a means of understanding and shaping regional economies. The highly fluid nature of the rapidly developing body of literature and research on clusters is ideally suited to a web-based presentation, and we attempt to take full advantage of the medium here. Given the limits of a monograph presentation and the highly fluid nature of the literature, however, we focus most attention on areas where the advances have been somewhat more stable, incremental, and generally cumulative. Those concern mainly operational concepts of industry and regional clusters that have benefitted from alternative analytic approaches, and that generate relevant information for regional development policymakers. Each chapter represents our best effort to sort through, clarify and perhaps codify important concepts, definitions, labels, and methods. Occasional self-contained discussions of closely related sub-topics, explanatory sidebars, and short glossaries of terms provide additional elaboration.
This chapter considers the degree of path dependency in cluster origin and development. One issue that continues to bedevil the analysis of clusters is the question of their origins and the relative importance of chance events, or serendipity as opposed to planned policy actions. Much of the literature on path dependency, and a certain stream of analysis in the literature on clusters, suggests that they are frequently seeded by chance events or by policy initiatives that frequently had a different intention than the support and development of a cluster. This chapter presents a more nuanced view where more weight is allocated to the role of policies in generating and developing clusters.
The period of unprecedented expansion of immigrant-led entrepreneurship that characterized the 1980s and 1990s has come to a close. Today, the growth rate of immigrant-founded companies nationwide, at 24.3 percent, has plateaued. In the high-tech hub of Silicon Valley, the proportion of immigrant-founded companies has dropped from 52.4 percent during 1995-2005 to 43.9 percent during 2006-2012.Immigrant founders of engineering and technology companies have employed roughly 560,000 workers and generated an estimated $63 billion dollars in sales during this time. While the rate of growth of immigrant entrepreneurship has stagnated, these numbers nonetheless underscore the continuing importance of high-skilled immigrants to the maintenance and expansion of the national economy. These findings are interestingly complex, since the two major skilled-immigrant groups — Indian and Chinese — are starting companies at higher rates than they did previously. Historically and today, the United States continues to benefit directly from the contributions of such immigrants. Far from expendable, high-skilled immigrants will remain a critical asset for maintaining U.S. competitiveness in the global economy.