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Clusters and Cluster Development

Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field that are present in a nation or region. Clusters arise because they increase the productivity with which companies can compete. The development and upgrading of clusters is an important agenda for governments, companies, and other institutions. Cluster development initiatives are an important new direction in economic policy, building on earlier efforts in macroeconomic stabilization, privatization, market opening, and reducing the costs of doing business.

Two cluster-related projects are currently underway at the Institute: the Cluster Mapping Project and the International Cluster Competitiveness Project. The Cluster Mapping Project has assembled a detailed picture of the location and performance of industries in the United States, with a special focus on the linkages or externalities across industries that give rise to clusters. Extensive data from the project is now available. The International Cluster Competitiveness Project extends this approach internationally, examining the patterns of international trade through the lens of clusters.

Framework Publications
 

 

Clusters, Convergence, and Economic Performance
     Mercedes Delgado, Michael E. Porter, Scott Stern
     Submitted for publication
     March 11, 2011
This paper evaluates the role of regional cluster composition in the economic performance of industries, clusters and regions. On the one hand, diminishing returns to specialization in a location can result in a convergence effect: the growth rate of an industry within a region may be declining in the level of activity of that industry. At the same time, positive spillovers across complementary economic activities provide an impetus for agglomeration: the growth rate of an industry within a region may be increasing in the size and “strength” (i.e., relative presence) of related economic sectors. Building on Porter (1998, 2003), we develop a systematic empirical framework to identify the role of regional clusters – groups of closely related and complementary industries operating within a particular region – in regional economic performance. We exploit newly available data from the US Cluster Mapping Project to disentangle the impact of convergence at the region-industry level from agglomeration within clusters. We find that, after controlling for the impact of convergence at the narrowest unit of analysis, there is significant evidence for cluster-driven agglomeration. Industries participating in a strong cluster register higher employment growth as well as higher growth of wages, number of establishments, and patenting. Industry and cluster level growth also increases with the strength of related clusters in the region and with the strength of similar clusters in adjacent regions. Importantly, we find evidence that new industries emerge where there is a strong cluster environment. Our analysis also suggests that the presence of strong clusters in a region enhances growth opportunities in other industries and clusters. Overall, these findings highlight the important role of cluster-based agglomeration in regional economic performance.

 

Clusters and entrepreneurship
     Mercedes Delgado, Michael E. Porter, Scott Stern
     Journal of Economic Geography
     May 2010
US Census Bureau Center for Economic Studies Paper No. CES-WP-10-31

This article examines the role of regional clusters in regional entrepreneurship. We focus on the distinct influences of convergence and agglomeration on growth in the number of start-up firms as well as in employment in these new firms in a given region-industry. While reversion to the mean and diminishing returns to entrepreneurship at the region-industry level can result in a convergence effect, the presence of complementary economic activity creates externalities that enhance incentives and reduce barriers for new business creation. Clusters are a particularly important way through which location-based complementarities are realized. The empirical analysis uses a novel panel dataset from the Longitudinal Business Database of the Census Bureau and the US Cluster Mapping Project. Using this dataset, there is significant evidence of the positive impact of clusters on entrepreneurship. After controlling for convergence in start-up activity at the region-industry level, industries located in regions with strong clusters (i.e. a large presence of other related industries) experience higher growth in new business formation and start-up employment. Strong clusters are also associated with the formation of new establishments of existing firms, thus influencing the location decision of multi-establishment firms. Finally, strong clusters contribute to start-up firm survival.

 

The Economic Performance of Regions
     Michael E. Porter
     Regional Studies
    
Volume 37, Numbers 6-7 / August-October 2003
This paper examines the basic facts about the regional economic performance, the composition of regional economies and the role of clusters in the US economy over period of 1990 to 2000. The performance of regional economies varies markedly in terms of wage, wage growth,
employment growth and patenting rate. Based on the distribution of economic activity across geography, we classify US industries into traded, local and resource-dependent. Traded industries account for only about one-third of employment but register much higher wages, far higher rates of innovation and influence local wages. We delineate clusters of traded industries using co-location patterns across US regions. The mix of clusters differs markedly across regions. The performance of regional economies is strongly influenced by the strength of local clusters and the vitality and plurality of innovation. Regional wage differences are dominated by the relative performance of the region in the clusters in which it has positions, with the particular mix of clusters secondary. A series of regional policy implications emerge from the findings.

  

"Clusters and the New Economics of Competition"
     
Michael E. Porter
     Harvard Business Review
     November-December 1998
This article explains how clusters foster high levels of productivity and innovation and lays out the implications for competitive strategy and economic policy. Economic geography in an era of global competition poses a paradox. In theory, location should no longer be a source of competitive advantage. Open global markets, rapid transportation, and high-speed communications should allow any company to source any thing from any place at any time. But in practice, location remains central to competition. Today’s economic map of the world is characterized by what Porter calls clusters: critical masses in one place of linked industries and institutions--from suppliers to universities to government agencies--that enjoy unusual competitive success in a particular field. The most famous examples are found in Silicon Valley and Hollywood, but clusters dot the world’s landscape. Porter explains how clusters affect competition in three broad ways: first, by increasing the productivity of companies based in the area; second, by driving the direction and pace of innovation; and third, by stimulating the formation of new businesses within the cluster. Geographic, cultural, and institutional proximity provides companies with special access, closer relationships, better information, powerful incentives, and other advantages that are difficult to tap from a distance. The more complex, knowledge-based, and dynamic the world economy becomes, the more this is true. Competitive advantage lies increasingly in local things--knowledge, relationships, and motivation--that distant rivals cannot replicate. 
Order article at Harvard Business Online

 

“Location, Clusters, and Company Strategy”
     Michael E. Porter
     Oxford Handbook of Economic Geography
     G. Clark, M. Gertler, and M. Feldman, eds
     Oxford: Oxford University Press
     2000

 

“Location, Competition and Economic Development: Local Clusters in a Global Economy”
     Michael E. Porter
     Economic Development Quarterly 14, no. 1,
     February 2000: 15-34.
Economic geography during an era of global competition involves a paradox. It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location. Yet clusters, or geographic concentrations of interconnected companies, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations. The prevalence of clusters reveals important insights about the microeconomics of competition and the role of location in competitive advantage. Even as old reasons for clustering have diminished in importance with globalization, new influences of clusters on competition have taken on growing importance in an increasingly complex, knowledge-based, and dynamic economy. Clusters represent a new way of thinking about national, state, and local economies, and they necessitate new roles for companies, government, and other institutions in enhancing competitiveness.

 

 
       
Other Publications and Presentations
 

 


Michael Porter at the TCI Conference 2012
(via video link)
October 18, 2012

The Cluster Observatory Classroom

    Örjan Sölvell, Göran Lindqvist, Christian Ketels
March 2010

The European Cluster Observatory offers a free educational video series: ON CLUSTERS. The series covers three programs:
 

1.Cluster Dynamics

2.Cluster Policy

3.Cluster Management

 

The Cluster Initiative Greenbook
Örjan Sölvell, Göran Lindqvist, Christian Ketels September 2003

This Greenbook on cluster initiatives is the first of its kind, presenting data from over 250 CIs around the world, based on the Global Cluster Initiative Survey 2003 and a series of case studies. The book describes and analyses CIs in great detail: In what settings do they evolve? What objectives do they pursue? What does the CI process look like? And what are the drivers of good performance?

 

Cluster Initiatives in Developing and Transition Economies
Christian Ketels, Göran Lindqvist, Örjan Sölvell
May 2006

Benchmarks current practices for the operation and organizational structure of cluster initiatives.  This report is based on a survey of 1,400 cluster initiatives, including comprehensive data from 450 CIs that completed the Global Cluster Initiative Survey (GCIS) 2005. An earlier study based on GCIS 2003 was reported in “The Cluster Initiative Greenbook.”

 

From clusters to cluster-based economic development
Christian Ketels, Olga Memedovic
International Journal of Technological Learning, Innovation and Development
Volume 1 - Issue 3 - 2008

The paper addresses how clusters can be leveraged for economic policy and what the role of different stakeholders in this process is. This paper summarises the cluster concept, focusing on the main theoretical framework and on recent empirical findings, and discusses key pillars of a cluster-based economic policy approach. The paper concludes with an application of the concept to resource-rich, oil-dependent economies.

 

Clusters in the EU-10 new member countries
     Christian Ketels, Örjan Sölvell
     2006

 

  

Clusters, Innovation, and Competitiveness
slides
, video (57 min)
Michael Porter presentation at the
EU Conference on Innovation and Clusters
Stockholm, Sweden
January 22, 2008

related news:  Politiker kan inte skapa kluster, hävdar klustrens egen ”pappa”  (Svenska Dagbladet)

 

 

All together now
Christian Ketels
fDi Magazine
June 2, 2004

Foreign direct investment flows target existing or emerging cluster locations, not avoid them. Companies clearly see the cluster benefits such as the ready access to specialized suppliers and employees as sufficient to outweigh the often-higher costs at cluster locations.
 

European Clusters
Christian Ketels
Structural Change in Europe 3 – Innovative City and Business Regions, Hagbarth Publications
January 2004

Discusses new evidence on clusters in Europe and recent efforts to integrate the cluster perspective into European economic policy thinking. The article concludes with thoughts on how the current efforts can be made more effective in increasing competitiveness.

 

Harvard Student Projects on Cluster Competitiveness
As part of Prof. Michael E. Porter's Microeconomics of Competitiveness course at Harvard, student teams have prepared a series of assessments of the competitiveness of specific clusters in countries or regions.  The full set of projects from the most recent year are available here.


Cluster Profiles
The Cluster Profiles are a set of standardized descriptions and bibliographical references for more than 800 industry clusters in 52 countries.

 

Cluster and Economic Development and Cluster Development - Picking Winners or Energizing the League?
     Christian Ketels, 2004
Two articles discussing the role of cluster initiatives in the economic development process of Kazakhstan.

 

The Development of the cluster concept:
present experiences and further developments

    Christian Ketels
    November 26, 2003

 

 
       
In the News
 

 

Interview with Michael Porter on cluster theory
     Emiliano Duch interviews Michael Porter for 
     The Competitiveness Institute
     2002 Global Conference
     September 23, 2002

Webcast requires free RealPlayer.  38 minutes.

 

Kraft der Vielfalt (in German)
Die Ziet, May 2005
("The Power
of Differences")

 
       
Harvard Business School Cases
 

Available through Harvard Business Online:

The California Wine Cluster
Describes the California wine cluster, or the group of interconnected wineries, grape growers, suppliers, service providers, and wine-related institutions located in California. Also describes the wine cluster in France, Italy, Australia, and Chile, the four other major international competitors. Teaching Purpose: Designed to explore the role of location in competition and the implications for firms and public policy.

Building a Cluster: Electronics and Information Technology in Costa Rica
Describes the actions of President Figueres and his cabinet in attracting an Intel assembly and testing plant into Costa Rica. The effort was part of a government strategy that sought to develop further the Costa Rican electronics and information technology cluster. Teaching Purpose: Describes a relatively successful cluster development strategy.

Overview to Institutions for Collaboration
Provides an overview of the wide variety of organizations other than firms, government ministries and regulatory agencies, and universities that may have significant effects on competitiveness. These intermediary entities, referred to as institutions for collaboration (IFCs), include, for example, chambers of commerce, industry associations, professional associations, trade unions, technology transfer organizations, quality centers, think tanks, university alumni associations, and others. Teaching Purpose: Provides basic background information to support case study analysis of the impact of IFCs on competitiveness through the intermediary functions they perform in local, regional, national, and even international markets. 

  

Asociacion Colombiana de Industrias Plasticas (Acoplasticos)
Acoplasticos was established in 1961 as a lobbying group for Colombia's major plastics manufacturing companies.  In the early 1980s, the organization shifted its focus toward improving the productivity of the Colombian plastics and rubber cluster, which also included certain petrochemical, man-made fiber, paint, and ink industries. Over time, the organization's activities expanded to include cluster technology upgrading, training, trade fair production, joint procurement, and information collection and dissemination. Despite significant improvement in the performance of the Colombian plastics and rubber cluster during the 1990s, however, Executive Director Carlos Garay was concerned about the challenging economic and political environment in 2002. Teaching Purpose: Designed to help students explore the potential roles and impact of an industry association--an "institution for collaboration"--on productivity and competitiveness in a developing country context.

Centre Suisse d'Electronique et de Microtechnique (CSEM)
Le Centre Suisse d'Electronique et de Microtechnique S.A. (CSEM)--the Swiss Center for Electronics and Microtechnology--was a major nonprofit research institution located in Neuchatel, Switzerland with roots in the Swiss watch industry. CSEM maintained close links to several Swiss universities and, over time, the center's activities expanded to include basic and applied research, contract production, and technology consulting. By the late 1990s, CSEM began spinning off promising commercial ventures and incorporating them as for-profit companies. In 2001, CEO Thomas Hinderling wondered whether any adjustments in CSEM's strategy were necessary or desirable going forward. Teaching Purpose: Designed to help students explore the potential roles and impact of a nonprofit research center--an "institution for collaboration"--on productivity and competitiveness in an advanced economy context.

 
       
Reference Chapters in On Competition
 


"Clusters and Competition: New Agendas for Companies, Governments, and Institutions"
     On Competition, Chapter 7
     Michael E. Porter
Explores one of the most important ideas in Michael Porter's overall competitiveness theory - the concept of clusters.

From the introduction, "This new article pulls together what I have learned about clusters both from research and in practice, in terms of cluster theory, the role of clusters in competition, and their implications for government policy, company and institutional behavior.  Clusters are a prominent feature on the landscape of every advanced economy, and cluster formation is an essential ingredient of economic development.  Clusters offer a new way to think about economies and economic development; new roles for business, government and institutions; and new ways to structure the business-government or business-institution relationship.  Dozens of cluster initiatives have sprung up in many parts of the world, and this article summarizes some of the learning gleaned from both advanced and developing economies."


 

 
       
Recommended Links
 

 

Competition, Competitive Advantage, and Clusters$
Competition, Competitive Advantage, and Clusters: The Ideas of Michael Porter
By Robert Huggins and Hiro Izushi
May 2011
 


European Cluster Policy Group
In 2008 the European Commission established the European Cluster Policy Group  with a mandate to advise the EC and Member States on how to better support the development of more world-class clusters in the EU.


World Bank resources on Cluster Development:
     Sector (and Business Cluster) Development, and

    Industrial Clusters, Papers and Cases


Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies

Written with input from Michael Porter and the Institute for Strategy and Competitiveness.  Also see shorter brief version.


Making Sense of Clusters
Regional Competitiveness and Economic Development
Joseph Cortright

March 2006
This discussion paper reviews the academic literature on industry clusters. It explains what clusters are, why they matter for regional economic development policy, and how to use cluster analysis as a guide to policy and practice.


A Governor’s Guide to Cluster-Based Economic Development
    National Governors Association


Visanu
Swedish national program for development of innovation systems and clusters

 

 

"Towards world-class clusters in the European Union: Implementing the broad-based innovation strategy"
   
 A European Commission Communication
    October 17, 2008
Outlines a policy framework to facilitate the development of more world-class clusters in the EU. The communication is accompanied by a Staff Working Document which provides available evidence for the economic impact that clusters have on competitiveness and innovation, an overview of the different Community initiatives in support of clusters, and a more detailed description of the challenges addressed by the Communication.


Automotive Clustering in Europe - Case Studies on Cluster Management and Development
     The Europe INNOVA networks TCAS and BeLCAR
Includes preface by Christian Ketels.


Bridging Community and Economic Development 
A Study for Using Industry Clusters to Link Neighborhoods to the Regional Economy
     Paul Christensen, Nan McIntyre, Lynn Pikholz
     Shorebank Enterprise Group
     June 2002
The objectives of the project are to view clusters from a practitioner's view, to identify and understand the determinants of cluster competitiveness, and to learn how economic development intermediaries in our selected case studies are adding unique value, particularly to small firms.


The Competitiveness Institute
An association of cluster practitioners.


日本の産業クラスター戦略
Strategy for Cluster Initiatives in Japan (in Japanese only)
     Y. Ishikura, M. Fujita, N. Maeda, K. Kanai, A. Yamasaki
     Yuhikaku Publishing, December 2003
     Foreword by Michael E. Porter


Wettbewerbsfähigkeit von Wirtschaftsstandorten unter besonderer Berücksichtigung industrieller Cluster
Competitiveness of Locations with a Special Focus on Industrial Clusters
(in German only)
      
Horst Gersmeyer
     Peter Lang Publishing, 2004


Intervene to Industrialise
"A holistic approach to enabling business environment, entrepreneurship and cluster value chain development."


French national cluster website


The United Nations Industrial Development Organization

 
       
For information about materials not available online, please email isc@hbs.edu.
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