I don’t always have time to cook. When I do put together a meal, I follow a few simple rules.
Those are the bones of building a good home cooked meal.
And in many ways, the steps are similar for localities looking to create an industry cluster.
Industry cluster initiatives are an approach to economic development that fosters the growth of a specific industry in your city or region that already has a strong presence in the area.
Like the ingredients in a gourmet meal, you want firms that will complement one another. Maybe the firms are competitors, but they share suppliers in common. And since they’re in the same industry, they’ll draw from the same labor pool.
Ideally these firms will also use the same infrastructure or natural resources. The companies in your cluster might share the need for rail freight shipping. Or there’s a scarce mineral in the area that they all use in their manufacturing process.
Your local colleges and universities can help provide the cookbooks. Investments in specialized education and research are more easily justified when you have a whole region’s economy built around that industry.
Because they’re easy to understand, industry cluster initiatives are one of the most widely used approaches to economic development but they’re not without their challenges.
Everybody’s heard of Silicon Valley, Motor City and Wall Street.
The success of tech in the Bay Area, automakers in Detroit and the financial sector in New York make industry clusters seem like a no-brainer.
But policymakers trying to spur economic development shouldn’t just jump right in when considering a cluster initiative.
Before setting up a talent pipeline in your local education system, investing in infrastructure or chasing down investors for the firms you want to attract or retain, consider these five common pitfalls.
Growing an industry cluster is a means to an end.
Maybe you’ve selected your industry. You might even have some ideas up your sleeve about how to build a talent pipeline. And you’ve got the perfect location to create a physical anchor for the network of firms and suppliers you’re ready to attract to your region.
Now start over, because cluster initiatives aren’t about what YOU want.
They’re about identifying what groups of firms want and need and crafting policy around that in service of larger goals. Growing jobs. Building capacity for innovation. Creating a more inclusive economy.
You need a goal. And if you don’t have a specific economic development goal in mind, you’ve been going about it backwards.
The goal of an industry cluster initiative depends on the economic development needs of the region. Let’s say you have a goal around equity. You want job growth to be inclusive. The way you grow your cluster to support that goal might involve looking for similarities across occupations to create opportunities for workforce development.
That’s a very different cluster from one based on growing an emerging industry with high salaries that may be less accessible to your existing workforce. These differing goals mean different industries and different interventions to grow a cluster.
If you don’t have a clear goal, you might as well not even have an industry cluster initiative.
You’ve got a spreadsheet open. You’re looking over a report. You’re pouring over the numbers. And the numbers tell you what your industry cluster should be. Right?
Not exactly. Industry clusters are complex. A firm has many relationships and many different partners, playing different roles. Data usually can’t tell the whole story.
One kind of data many economic development professionals rely on are North American Industry Classification System (NAICS) codes. NAICS codes can be useful in some contexts but they are simplistic and rigid. If you look at the industries in your region through this lens, you might overestimate the size of a cluster based on a large proportion of jobs or firms falling into related codes.
But those firms may not have any relationship to each other in reality, so your policy interventions won’t do the trick.
Or you might underestimate the size of an industry that is ripe for a cluster initiative. The NAICS codes show only a modest concentration of firms. But in actuality, these firms have a massive network of suppliers, work closely with one another and have great growth potential that an industry cluster initiative can unlock.
There are other measures that regions try to use to identify their cluster. These can have their place in your decision-making process, but it is important to remember not to be overly reliant on data when identifying an industry cluster for your initiative.
You’re cooking an entire meal, not just baking a cake.
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You’re ready to cook your meal. You need to pick your ingredients. It’s decision time.
You want a balanced diet. But maybe there’s also something in the fridge that needs to get used soon. And didn’t the kids want some fries with that?
Take that kind of “kitchen sink” approach, and the meal is likely to be more “unfocused mess” than “high-end fusion.”
Industry clusters are similar: they need direction.
Too often a locality or region will try to grow multiple industry clusters. And the results become a smorgasbord of mediocrity.
Industry cluster initiatives pay off by making a big bet on a single industry. The key is to choose a specific and unique industry (ie Offshore Wind) over something too broad (Renewable Energy).
This involves a tough decision. You might hear from employers in other industries who say they constitute a cluster and the attention and resources should be flowing to them. Or you’ll get political pressure to steer interventions toward a trendy or exciting sector like “advanced manufacturing” or “biotech.”
Harder still is that industry cluster initiatives fly in the face of a common piece of advice: don’t put all your eggs in one basket. The key to making an industry cluster initiative work is to pick one big basket and fill it up.
In North Carolina, some may say that "going all in" didn't pan out for industries like tobacco and furniture, which have taken hits from overseas competition. But prioritizing and "picking a winner" is essential when it comes to creating a local cluster.
If you choose to target multiple sectors, there’s a good chance that most or all of them are NOT actual industry clusters. That means the policy tools that can leverage the assets of an industry cluster (shared resources, matching labor forces and a knowledge-rich environment) to spur economic development won’t work.
Instead, resources will get spread across multiple target sectors. Without time and money concentrated on one industry, policy interventions will be too weak and watered down or backed by too little understanding to move the needle.
Let’s say you’re really hungry.
Does it make sense to grab a recipe that will take about nine to twelve hours to prepare? A recipe that calls for exotic ingredients that you don’t have and requires an expensive, imported piece of kitchen equipment just to get started?
That makes no sense at all.
But that’s what building an industry cluster from scratch looks like.
Clusters need to be the organic result of entrepreneurial activity that builds on a historical advantage enjoyed by your region.
When hydropower became a thriving industry in Niagara Falls in the late 19th century, that cluster wasn’t built from scratch.
Innovators, like Nikola Tesla, capitalized on the natural advantage the region had to offer. Specifically, the hundreds of thousands of gallons of water from the Niagara River plunging over a precipice each second.
Where obvious natural advantages to a region don’t exist, industry clusters can take a commitment of years to build. And they still can’t come from the top down.
Not everybody can cook. Sometimes it’s a better idea to cut your losses and just order some takeout instead.
The simple truth? There might not be any industry cluster in your region.
If you’re looking for an industry cluster, any number of firms sharing a sector or any definition of what a sector is might be sufficient to say BINGO. But just because industry clusters are a well-known concept doesn’t mean examples of them are everywhere.
Policymakers need to be realistic about the existence of an industry cluster in their region. You may have a collection of firms that share some characteristics, but building a comprehensive economic development strategy around that fact might be a huge mistake.
If a thorough assessment of your region’s economic assets reveals there’s no cluster, don’t despair. There are plenty of other economic development approaches that can be taken.
If you have the right ingredients, cookware and know-how, industry clusters can be a great economic development strategy.
Cluster initiatives are driven by industry, fueled by universities and supported by government funding. They rely on the shared resources, infrastructure, labor pool, supply chain and knowledge base that a set of firms can hold in common.
With a clear goal, an eye to the street (and not just the numbers) and a laser focus, existing industry clusters can be leveraged to serve the broader economic development mission for your region.