1. 1 Copyright 2008 © Christian Ketels Setting the Stage: Competitiveness, Innovation, and Clusters Christian H. M. Ketels, PhD Institute for Strategy and Competitiveness Harvard Business School TCI Conference Cape Town October 2008 This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” (with C Ketels, M Delgado) in The Global Competitiveness Report 2007, (World Economic Forum, 2007), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and the Cluster Initiative Greenbook (Ivory Tower, 2004) by C Ketels, O Sölvell, and G Lindqvist. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of the author. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.eduwww.isc.hbs.edu

2. 2 Copyright 2008 © Christian Ketels Cluster Development: New Approach to Economic Policies Intervention Laissez Faire Cluster- policy

3. 3 Copyright 2008 © Christian Ketels What Creates Sustainable Prosperity? Productivity Innovative Capacity Competitiveness Prosperity

4. 4 Copyright 2008 © Christian Ketels Access to high quality business inputs –Natural endowments –Human resources –Capital availability –Physical infrastructure –Administrative infrastructure (e.g. registration, permitting) –Information infrastructure (e.g., transparency) –Scientific and technological infrastructure Business Environment Quality: The Diamond Context for Firm Strategy and Rivalry Related and Supporting Industries Factor (Input) Conditions Factor (Input) Conditions Demand Conditions Availability of suppliers and supporting industries Presence of clusters instead of isolated firms Sophistication of local customers and needs –Strict quality, safety, and environmental standards Local rules and incentives that encourage investment and productivity –e.g. salaries, incentives for capital investments, intellectual property protection Vigorous local competition –Openness to foreign and local competition Source: Michael Porter (1990)

5. 5 Copyright 2008 © Christian Ketels Key Dimensions of Clusters Geography IndustriesActors PROXIMITY LINKAGESINTERACTION

6. 6 Copyright 2008 © Christian Ketels Cluster Strength and Regional Prosperity EU-15 Countries GDP per Capita (PPP adjusted), 2004 Share of Employees in Strong Clusters*, 2005 Note: Strong clusters defined by LQ>2; NUTS Regions excluding Portugal and Greece. Source: European Cluster Observatory. ISC/CSC cluster codes 1.0, dataset 20070510

7. 7 Copyright 2008 © Christian Ketels Cluster Initiatives Upgrading of company operations and strategies across a group of companies Strengthening of networks to enhance spill-overs and other economic benefits of clusters Upgrading of cluster- specific business environment conditions Cluster initiatives are collaborative activities by a group of companies, public sector entities, and other related institutions with the objective to improve the competitiveness of a group of interlinked economic activities in a specific geographic region

8. 8 Copyright 2008 © Christian Ketels The Process of Economic Development Shifting Roles and Responsibilities Old Model Government drives economic development through policy decisions and incentives New Model Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration Competitiveness must become a bottom-up process in which many individuals, companies, and institutions take responsibility Every community and cluster can take steps to enhance competitiveness

9. 9 Copyright 2008 © Christian Ketels What is New about the Cluster Approach? Own StrengthRegionBottom-UpCo-operation