Cluster Stage Critical To Policy, Paper Shows

Policy measures aimed at the development of clusters must take into account which development stage the cluster is currently in.

SSTI Weekly Digest ssti.org

One of the central processes involved in cluster development is that of firm foundings, states Co-Development of Firm Foundings and Regional Clusters, a working paper written by Dirk Fornahl and Max-Peter Menzel.

Firm foundings and regional clusters generally have received much attention, but little work has been done to analyze the relationship between these two processes until now. Fornahl and Menzel’s paper focuses on the growth of firm foundings and the development of clusters simultaneously within the different stages and the impact they have on regional development.

Four stages in the cluster development progression are outlined by Fornahl and Menzel. Each of these stages reveals a different relationship between cluster development and firm foundings. The first stage is that of emerging clusters, which may have few effects on firm foundings because the necessary infrastructure may not yet be in place. However, the firm foundings can have a significant impact on the development of a cluster, the authors state.

The second phase is growing clusters. During this stage, a tremendous growth of existing firms, as well as an increase in the number of spin-offs and attraction of external firm foundings, may take place. Firm foundings within the cluster simply increase the number of firms in the cluster, which creates more awareness of the cluster and augments the cluster’s ability to participate in collective action on its behalf.

Sustaining clusters is the third phase of development, a level that ensures the cluster’s ability to continually renew necessary institutions. Firm foundings during this stage help to maintain the cluster to a level necessary for collective action on its behalf. They also help to maintain the adaptability of the cluster rather than contributing to its growth.

The final phase is a stagnating cluster. In this stage, fewer firms are founded and the cluster has become very focused with a specialized knowledge base that tends to restrict market entry.

Fornahl and Menzel argue that policy must consider what stage a cluster is presently in. For instance, when moving between emerging and growing clusters, foundings must be focused around a few technological opportunities. Policy can be influential through the creation of focused incubators or supporting the formation of necessary infrastructure. The authors suggest it is very difficult to change the course of a declining cluster, even through policy intervention. Instead of supporting the declining cluster, policymakers should focus on the formation of a new one that could build upon the assets of the old. Additional policy recommendations at other stages of cluster development are uncovered as well.

Co-Development of Firm Foundings and Regional Clusters can be downloaded at:
http://www.wiwi.uni-hannover.de/fbwiwi/forschung/diskussionspapiere/dp-284.pdf