In theory, geographic location should not be a major factor in a company’s competitive advantage in today’s era of rapid globalization. Transportation is faster and cheaper, and communication is instantaneous. However, reality has shown that the external business environment surrounding a company is hugely important.
“Clusters are geographic concentrations of interconnected companies and institutions in a particular field.”
– Michael Porter, Clusters and the New Economics of Competition
Clusters (also known as business, economic, or industry clusters) encompass a variety of linked industries and institutions. Examples of linked entities include suppliers of specialized services, machinery, and infrastructure, which form a supply chain. Clusters also extend to manufacturers of complementary products as well as to industries with related skills and technologies. By placing themselves in close proximity to industry allies, companies benefit from each others’ unique expertise and skilled workers. Clusters have been shown to increase the productivity of participating companies, drive innovation in the field, and facilitate the commercialization innovation by increasing communication, logistical support, and overall interaction between cluster entities.
In a thriving cluster, businesses can receive specialized materials in less than a day, consult an expert with specialized skills, and share ideas and information—all helping to increase productivity.
The geographic proximity to and repeated exchanges between various companies and institutions fosters an environment of coordination and cooperation. Collaborative interactions also facilitate the creation of new ideas, products, and services.
Government agencies and institutions of higher education provide information, research, and education, which are essential to the formation of successful industry clusters. Close relationships between suppliers and research institutions further encourages engagement in research and development.
Enrico Moretti writes in The New Geography of Jobs that the sheer number of college-educated workers is a significant factor in a region’s economic success. While college graduates on average are a very mobile demographic, the presence of universities in an area is shown to draw in skilled workers.
Successful clusters such as North Carolina’s Research Triangle Cleantech Cluster demonstrate clusters emerge around centers of innovation, such as large research universities. The Cleantech Cluster is built around three major research universities: University of North Carolina, Duke, and NC State.
While proximity to a research university stimulates new ideas and technologies within a region, other factors help turn innovative ideas into market-ready products. Commercialization of new technologies is enabled by ease of access to necessary ingredients for success, like licensing support, access to capital, and supportive policy. When companies expand and demand for their product increases, a skilled workforce within the cluster will manufacture or install the item. Legal and professional services to support the manufacturing supply chain are critical as well.
“Universities are most effective at shaping a local economy when they are part of a larger ecosystem of innovative activity, one that includes a thick market for specialized labor and specialized intermediate services.”
– Enrico Moretti, The New Geography of Jobs
The Cleantech Cluster includes upwards of 500 companies and other support organizations, all within close proximity to the universities. Together these businesses, organizations and educational institutions create a regional hub that aims to advance economic and technological growth in clean energy and energy efficiency. Participating industries can piggyback on the steady flow of cutting-edge innovation. Often a large or growing business serves as the anchor of the cluster, and a mass of businesses create the supply chain for a specified technology.
The American Jobs Project’s research identifies emerging or developing clusters and seeks to create policies that create or expand the industries’ innovation ecosystems, access to capital, and workforce development.