Kirill Yurovskiy: industrial clusters and economic growth

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It refers to the geographic concentration of interconnected companies, specialized suppliers, service providers, and associated institutions that compete in a particular field. Today, an industrial cluster is increasingly an important feature in the development of regional economic growth and global competitiveness. In fact, clusters are never born out of spontaneity; their origins could be attributed to some of the determinants including conscious and organic resources, knowledge spillovers, and network effects. The route for innovation, productivity rise, and tear in entrepreneurship in industrial clusters for many years ranged from the technological leadership of Silicon Valley to automobile hubs of Germany–places where growth usually has remained high–were normally industrial clusters.

Development, features, and this essay is a venture on the part of our expert here into an investigation. The latter throws light upon certain problems that relate to innovation, labor mobility, financing, and infrastructure. Meanwhile, it puts into perspective the challenges that the future outlook of industrial clusters faces respecting digitization and interlinking of the world.

1. Historical Evolution of Cluster Theories

The theoretical underpinning of the industrial cluster emanates from the historical contribution made by Alfred Marshall back in the late 19th century by describing industrial districts as forms of localized economic activity. Three factors he mentioned in his contribution included, among others, the pooling of a labor market, specialization of suppliers, and knowledge spillover.

It was further developed in the latter half of the 20th century by Michael Porter through a seminal book entitled The Competitive Advantage of Nations, where he identified a diamond model underpinning the four most important determinants: factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry.

2. Defining Industrial Clusters: Key Characteristics

• Geographical Proximity: Firms and institutions are focused on particular regions.
• Specialization: Attention is concentrated on one particular industry or technological domain.
• Interconnectedness: Firms compete, cooperate, and interchange resources.
• Knowledge Sharing: The flow of knowledge may be through the informal and formal way of knowledge sharing.
• Institutional Support: The supportive government policy, universities, and research centers.
• The Innovative and Entrepreneur Spirit: Capacity for a high amount of start-ups and innovation hubs.

3. Innovative Role in the Clustered Economies

Indeed, innovation is the lifeblood of an industrial cluster. Physical proximity encourages frequent interaction across disciplines and thereby quicker adoption of new technologies. Clusters do provide a congenial environment where research and development are to be pursued with aided universities, think tanks, and corporate research laboratories.

For example, Google, Apple, and Facebook were driven by the innovative ecosystem of Silicon Valley, drawing on Stanford University and venture capital in plenty.

4. Success Stories of Technological Clusters

In the US, for example, Silicon Valley was developed around Stanford University, with highly qualified labor and venture capital. It is now part of one pole within global systems of technology and innovation.

Shenzhen, China – “Silicon Valley of Hardware,” is a cluster of electronic and hardware manufacturing firms giants such as Huawei or Tencent have taken a liking to; Bangalore in India-, the “Silicon Valley of India,” thrives by making use of a few certain competencies inside the area of IT services along with software development on the base of well-educated, English-speaking labor force; All the regional clusters witness certain regional specializations down to institution coordination Knowledge Externalities: Labour Mobility

5. Mobility of Labour and Knowledge Spillover

The mobility of labor ensures that the pace of diffusion of best practices across the ecosystem by the knowledgeable worker will be pretty fast. Knowledge and competence, therefore, cross firms through an improvement in innovative capabilities for it.

At the very least, knowledge spillover, the informal type, will surely occur during social activities, conferences, and even manpower mobility. Consider for example the case of Silicon Valley in the United States of America, which has such high knowledge spillover that the growth-inducing cross-pollination of ideas and manpower across companies makes them grow.  

6. An enabling infrastructure for clusters to flourish

Good physical and digital infrastructure acts as an incentive for the cluster to thrive as well. In short, the must-have ingredients are:

• Transportation Networks: Good road, rail, and air connectivity
• Communication Technology: High-speed Internet, state-of-the-art telecommunications
• Research Facilities: Good universities, laboratories, and testing centers.
• Living Conditions: Quality housing, good health, and educational facilities.

7. Cluster funding and venture capital

General ease of financing, and in particular venture capital are other critical enablers to enable the creation of startups and thus innovation. Venture capitalists, just like other businesses and industries also benefit from the agglomeration economies in establishing their operations in industrial clusters; proximity to concentrations of talent, scalable business models, and innovative technology attracts them.

For instance, most of the venture capital giants in Silicon Valley- several of them including Sequoia Capital and Andreessen Horowitz- offer technology start-ups seed capital with mentorship.

8. Public Policy: Incentivising or Stymieing Clusters

Indeed, more often than not, government policy has emerged as the pivotal factor that spurs an agglomeration towards either rise or decay. Interventions propelling success come in many colors:

• Tax Incentives: These go a long way in encouraging investment in R&D.
• Public Grants and Subsidies: Avail opportunities to Start-ups and SMEs.
• Academic Initiatives: Increased STEM education and technical skills

However, over-regulation may stifle cluster growth; further, bureaucratic barriers and corruption.

9. Measuring Cluster Performance: Metrics and Methods

Some critical metrics helpful to a great extent in determining the performance of an industrial cluster shall consist of:

• Employment Growth: More jobs created.
• Competitiveness through Innovation: Innovation Index: Patents and R&D investments
• Economic Development: Revenue Growth: Economic performance of cluster firms.
• Global Competitiveness Index: Global position of the cluster.
• Quantitative and qualitative analyses are thus helpful in understanding cluster performance.

10. Global Competition: Cross-Border Cluster Cooperation

In this globalized world, clusters are also forming cross-border partnerships with an aim to reach global markets, learn from the best practices, and exploit complementarities.

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For instance, Horizon 2020 of the European Union encourages research collaboration in clusters across its member states.

11. Sustainable Development and Environmental Sensitivity

The trend of Green Cluster development when: 

• There exists increasing adoption of clean/Green technologies 
• Energy efficiency enabler 
• Utilization of  circular approaches/Principle 

For Example, Essen, Germany- re-innovating the old industrial coal mines and converting them to hubs of clean new innovations. 

12. Over-dependence on a Single Industry

Over-reliance on one single industry makes the cluster very prone in case of an economic decline because:

• Detroit, USA: It was brought into economic decline with the fall of the automotive industries.
• Silicon Valley: heavily over-dependent on the technological industries may also allow an economic bubble to come up.

The two important reasons that define resiliency in clusters are diversification and adaptability.

13. Cluster Dynamics: The Social and Cultural Aspects

Social and cultural cluster dynamics mean the level of trust, values, and networks. Conferences, events, and all types of social meetings bring the groups together with the purpose of mutual cooperation for knowledge sharing.

14. Virtual and Hybrid Clusters: The Future

That is, the digital revolution creates virtual and hybrid clusters where friction from geography is limited. GitHub and Slack foster collaborations around the world while the reconfigurations caused by AI and IoT in cluster dynamics do their jobs.

Conclusion

There has been considerable discussion in recent years regarding cluster-based economic development strategies. This article will try to give the reader a rapid overview of the theory and provide economic development practitioners with some numbers to ponder and perhaps put into practice as they consider writing and implementing cluster-based economic development strategies.

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