Tech Clusters 101: What a region needs for success
By Roger Grace
Technology clusters - geographic concentrations of companies, suppliers and institutions specializing in a particular field - first became prominent in the Route 128 area of Boston in the early 1940s to support U.S. military involvement in World War II. Silicon Valley, in turn, saw its first technology cluster develop to support the meteoric growth of the semiconductor industry in the early 1960s.
They are two notable examples of cluster development. Clusters have provided their constituent organizations with competitive advantages, including cost efficiencies and faster time-to-market. They have also created jobs and wealth for employees and the host localities and regions. A look at successful clusters reveals a pattern - a set of components that evolve on their own, and are also encouraged and promoted by public and private institutions and individuals.
Most high tech clusters originally form around centers of intellectual property creation, either through government-funded laboratories or research-based universities. People who have worked for these institutions, who are gifted with great ideas and an entrepreneurial spirit, venture off on their own to found companies.
These people can form the seeds of a tech cluster. They often wish not to move themselves and their families to other communities and they want to take advantage of the business and social infrastructure within which they have developed. They tend to create organizations in close proximity to their former employer.
Access to capital
However, those nascent entrepreneurs can’t go it alone. Although the world of capital formation has no physical boundaries, investment firms tend to have offices in close proximity to cluster areas in which they have invested. In the case of Boston’s Route 128, initial investments were made in the 1950s and 1960s out of offices in New York City, the U.S. financial capital. But those New York investment firms soon set up offices in the Boston area, and Boston-based financial institutions created venture arms.
In the case of Silicon Valley, early investors came from outside the area, including from Los Angeles, the West Coast financial capital at the time, as well as from Boston and New York, before a significant financial infrastructure was set up locally in northern California. Funding sources need not be physically located with a cluster, but it certainly enhances effectiveness if they are.
Today, groups interested in encouraging tech cluster development try to recruit venture capitalists and other financial organizations to visit their areas and, if appropriate, co-locate satellite offices there to facilitate investment activity.
Although Boston’s Route 128 corridor and Silicon Valley received no direct federal funds - other than military contracts from the Department of Defense - most micro and nanosystems clusters also received direct investments in research funding, facilities or favorable tax considerations from their local and regional governments.
Achieving competitive advantage requires an infrastructure with human resources, plants, equipment and services. The availability of these resources can reduce time-to-market and product development costs. The local availability of well-trained legal, financial and business professionals in addition to technicians, machine operators, designers and a broad spectrum of consultants is also critical.
In the case of capital-intensive industries such as the semiconductor and micro and nanosystems industries, research and development facilities and prototyping facilities are important, as are access to raw materials. In some cases, a region will have a well-trained workforce that simply needs to embrace a new industry leader. Regions developing new clusters are building the workforce from the bottom up, starting with industry-oriented college training programs and facilities.
Finally, clusters must get the word out. Many tools exist, including - the most effective - the creation and hosting of technical conferences and seminars within the region. Many economic development agencies sponsor commercial conferences and host events where the region’s organizations can showcase their technologies to a broad audience. In addition, traditional vehicles, including media and public relations campaigns have been used very effectively by various clusters.
The first microsystems-specific cluster was established in Dortmund, Germany, in 1986. Since then, more than 1,500 high-skill and high-paying jobs have been created by local companies in the region. On a global scale, microsystems clusters have created more than 100 firms worldwide and thousands more jobs. While the organic evolution of such clusters is always welcome, the explicit cultivation, funding and support of them is the most telling sign of their success.
Roger Grace is president of consultancy Roger Grace Associates in Naples, Fla. (www.rgrace.com). He is the past-president and co-founder of MANCEF. Mahendra Ramsinghani and the Michigan Economic Development Authority assisted in the research for this article.