Industry Clusters
An
Internet Resource for Economic Developers
This page provides a brief overview of industry clusters and industry
cluster policies.
For more detailed information, please see the attached literature review.
 Where did the
Concept Originate? The concept of industry clusters was popularized by Michael Porter, in Competitive Advantages of Nations (1990). Porter developed what he called the “Diamond of Advantages” in which he identified four key determinants of industry competitiveness: factor conditions, home demand conditions, related and supporting industries, and industry strategy, structure, and competitiveness. Porter claimed that the competitiveness of a region is based on the competitiveness of the industries, which is enhanced if an industry is embedded in a deep network. Many have used this “diamond” as a framework for assessing the competitiveness of regional industries and identifying local industry clusters. According to Doeringer and Terkla, there is no single correct definition of an industry cluster. The basic definition of an industry cluster is a geographical concentration of industries that gain performance advantages through co-location. There are two basic types of industry clusters: Vertically-integrated cluster: made up of industries that are linked through buyer-seller relationships. Horizontally-integrated cluster: includes industries which might share a common market for the end products, use a common technology or labor force skills, or require similar natural resources. Industry clusters are a dynamic phenomenon, and interaction between industries within the cluster is critical. Incorporating the emphasis on the dynamic nature of clusters, the basic definition can be expanded. According to Rosenfeld, an industry cluster is: a geographically bounded concentration of similar, related or complementary businesses, with active channels for business transactions, communications and dialogue, that share specialized infrastructure, labor markets and services, and that are faced with common opportunities and threats. (1997 pg.10)
Industry clusters are generally identified through the use of quantitative analysis
techniques, such as location quotients and input-output analyses. Location quotients
track the relative concentrations of industries within a region, and input-output analyses
show the buyer-seller linkages among industries. While quantitative analyses will
indicate the presence of a cluster, they do not address whether there is really a
functional or dynamic relationship between the industries in the cluster. It is
necessary to supplement quantitative analyses with qualitative techniques, such as
interviews, surveys, and focus groups with key industry representatives. The
qualitative analysis will help determine what type of relationships exist between the
industries in the cluster, and will help identify industry clusters that may be overlooked
by conventional data analysis. Most industry cluster research to date has been based
on quantitative analyses. Industry clusters are currently used to assist in identifying regional economic activity, but few cluster policies have been implemented. The majority of interest in industry clusters in the United States has occurred in academic research. In Europe however, cluster policy is a critical component of industrial policy for many regions. In the United States, cluster policy represents a significant shift from traditional economic development strategies, which focused resources on individual firms. Cluster policies, on the hand, deal with a system of industries, and emphasize the importance of relationships among industries in different sectors for promoting economic development. Cluster policies provide a framework within which to direct economic development resources. The main benefits of cluster policies include:
The main role for economic developers and government agencies using the cluster concept is to help industries recognize the benefits of relationships with other industries, as well as to identify and develop the infrastructure and other related needs of industries within the cluster.
There are only a few examples of cluster strategies that have been implemented by states and regions. In Arizona, Oregon, and Minnesota, key industry clusters have been identified, and cluster strategies have been employed as recruiting tools, as well as for providing a framework for economic development efforts. A cluster strategy has also been implemented in California to assist with the defense cutbacks and base closures in the State. Clusters in California have been used for both targeting industries for the reuse of bases, as well as to assist with securing additional federal funding for base closure projects. The following links provide detailed information about the cluster strategies in these states: |
This page was created by: Jessica LeVeen PLAN 261: Urban and Regional Economic Development University of North Carolina at Chapel Hill Department of City and Regional Planning email: leveen@email.unc.edu Created: April 15, 1998