Understanding Business Clusters
A Clean Tech Cluster Strategy uses the approach of business cluster development to encourage the emergence of and/or the strengthening of a Clean Tech business cluster in a city/region.
According to Harvard Professor Michael Porter, one of the leading developers of the concept of business clusters, business clusters are “geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field that are present in a region.” Clusters arise because they:
- Increase the productivity of the companies in the cluster.
- Drive innovation in the field.
- Stimulate new businesses in the field.
The process for defining, describing, and encouraging business clusters is not standardized and different economic development practitioners have developed their own methodologies. However, most cluster analysis uses evaluation of regional employment patterns, usually based on the NAICS North American Industrial Classification System.
Economic development best practice suggests that regions should identify a few clusters and develop a comprehensive approach to encouraging the clusters to thrive in the region. It is important to select clusters in industries that are likely to grow nationally and globally and that already have a base of activities and support in the region.
Silicon Valley in California is the best known example of a business cluster. In the mid 1990s, a number of successful computer-related companies emerged in Silicon Valley, which led entrepreneurs interested in starting up new high-tech companies to do so in Silicon Valley. This led to many venture capital firms relocating to or expanding their offices in Silicon Valley, thereby encouraging more entrepreneurs to locate their start-ups there.
The cluster effect in the business and capital markets also led to a cluster effect in the labor market, because programmers, engineers, and other technologists realized that they would find greater job opportunities by moving to Silicon Valley. At the same time, Stanford University business and technology graduates tended to stay in Silicon Valley, finding work or starting a business, often utilizing the technology transfer of intellectual property developed at Stanford.
High-tech companies and startups around the country knew they could find capital and workforce with the proper skill sets in Silicon Valley, which provided incentives for them to move there, in turn leading to more high-tech workers locating there. At the same time, business (legal, accounting, marketing, PR, etc) and financial services firms have been attracted to Silicon Valley by the markets created by high-tech businesses located there.
The discussion that follows focuses on the Clean Tech Cluster, but the same approach can be used for the green businesses in any business cluster, i.e. any industry sector made up of businesses that have or are prepared to “go green” in their operations, though they may not produce a clean tech product or service.