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2001 Conference - Rotorua
Clusters and Regional Development
Hon Pete Hodgson
Minister of Energy, Minister of Fisheries, Minister of Forestry,
Minister of Research, Science and Technology, Minister for Crown
Research Institutes, Minister for Small Business
Wednesday, 28 November 2001, 2:00pm
We're here to explore the ideas that will drive the next wave of
regional development in this country.
The key idea I want to talk about is clustering. It is an idea
that ties regional development, innovation and national economic
transformation together.
Clustering is not a new idea to New Zealand. Michael Porter was
talking about it here in 1991. Most of you will probably be familiar
with it.
Some of you will have given short speeches on it, as I am about
to do.
Clustering is easy to talk about. It's harder to make it work.
But when clusters start to kick in, they become very powerful
economic drivers.
South Australia recently evaluated its cluster programme and
found it generated net new exports of $30 for every dollar invested.
Wellington City Council evaluated its cluster programme after a
year and found that the businesses involved were able to enter
international markets to a greater extent, and that its clustered
industries were driving growth in the region.
An econometric study in the United States identified 32 key
exporting clusters and found they had outperformed the US economy as
a whole over 21 years.
If you want to focus your thinking on the development of your
region, clustering will give you that focus. Clusters can grow
anywhere, not just in the main centres. And while they cannot be
deliberately created, they can be deliberately nurtured.
Civic entrepreneurs have an enormously important role. They are
the people or groups who make themselves intermediaries for cluster
development.
Economic development agencies are perhaps the most important
civic entrepreneur agencies we have.
Civic entrepreneurs recognise clusters as they emerge, then help
them develop further.
Civic entrepreneurs don't own cluster businesses or run
polytechnics. But they take responsibility for facilitating the
growth of clusters - most importantly by taking responsibility for
building the trust that's necessary for a cluster to work.
Trust is the key. Because clusters grow from collaboration
between competitors.
For many business people, collaboration with competitors is
oxymoronic. But that is because New Zealand has a recent history of
defining competitiveness in a Darwinian, dog-eat-dog way.
Fortunately that is changing. People are coming around to the
more fertile idea of rivalry.
Indeed competition has had many meanings through history - and
for much of its life it meant striving together ? more of an All
Blacks' meaning than a corporate raider's.
The competitors within a cluster have to be persuaded to trust
one another, to believe in the value of the cluster, to commit
themselves to the vision every successful cluster needs.
To deliver substantial growth, that vision must be international.
A cluster of real power is one that claims a place in the global
market.
A strong cluster will also have a negotiated agenda, rather than
one dominated by a single party. Experience argues for co-chairs
rather than a single leader, to make sure the agenda is genuinely
shared.
A strategic process is essential, with the commitment of time,
cash and belief from cluster members.
Above all, cluster companies must be prepared to take the risk of
specialisation.
That is how clusters work.
Related businesses, typically small to medium sized, create
collective market power by combining individual strengths.
Those strengths are inevitably specialised. If they are not out
of the ordinary, there is no competitive edge.
A general engineering workshop, for example, becomes a
specialised one. A general diagnostic lab becomes an expert one. A
specialist manufacturer moves even further up the quality scale.
Specialisation happens around the cluster as well.
A local law practice becomes the expert law shop for the
cluster's business. The regional airport develops special cargo
handling facilities. The local polytechnic builds its strength as a
training provider.
Each cluster member will have its niche, but the cluster as a
whole will also be specialised. Its niche, if it is successful, will
be a global one.
For the firms involved, clustering delivers a market reach they
cannot achieve on their own. In other words, clusters are powerful
enough to enable a region of a nation to compete globally - like the
chair makers of northern Italy, or the carpet makers around Dalton
in the United States. Specialisation increases the value that
clusters create, improving their return on capital.
Typically it increases their R&D activity, and their capacity
to commercialise the innovation that R&D provides.
Typically, good research, good development and good design
underpin the cluster and propel it through the many changes in
market conditions that the passage of decades brings.
Specialisation demands higher skills within a business, raising
both the financial and motivational rewards of working there.
And specialisation brings interdependence between the businesses
in a cluster. Interdependence requires trust - and builds it.
For a region, clustering lets those concerned with economic
development focus resources on local strengths, rather than
spreading effort too widely.
For those of us concerned with the transformation of the national
economy, clustering brings the added value, innovation and
technology uptake New Zealand needs to lift its game
internationally.
Clusters increase economic resilience. That's why some of them
are centuries old.
If we look at the greatest of them, Silicon Valley, it has the
strength of an organism or ecosystem: parts of it may suffer or fail
without threatening the survival of the whole.
Examples of mature clusters that have died are relatively rare.
Those that have expired, such as British shipbuilding, have
typically been left behind by a major technology shift. But even
that can be outlived. Swiss watchmaking lost the mass market to
digital, but hung on to a niche at the top end.
Today I particularly want to stress the importance of civic and
community recognition for successful cluster development.
The quality of the businesses concerned will ultimately determine
the strength of a cluster. But community leaders can create the
political and economic space for a cluster to grow.
Local knowledge is essential. That is why economic development
agencies are so important. Industry New Zealand is the Government's
contribution. It is a hugely valuable source of knowledge,
experience and advice.
We are presently looking at how we could help further. That is
why I chose this topic for my contribution to this conference.
But central government should not - and will not - try to
identify and develop regional clusters itself.
Clusters can readily be found and nurtured outside the main
centres. And it is regional civic entrepreneurs who will do that.
We already have examples.
The forestry cluster in Hawke's Bay is focused on value-added
timber manufacturing, following significant investment locally to
move from wet-sawn timber production to kiln drying.
Forestry, wood processing and furniture companies are all
involved. There is a furniture business incubator in the former
meatworks and the cluster is working with the polytechnic to develop
skills training.
In Taranaki, a specialised heavy engineering cluster has grown
out of the region's petroleum industry and is reaching into the
international market for methanol plant construction.
I'm told that one of those firms was able to agree over the phone
to a project being brought forward two months, because they knew the
other members of the cluster would deliver. That's trust.
The local economic development agencies have been key players in
building both these clusters. The vision and commitment were there
in each case, and the results are coming through.
And they are only two examples. Industry New Zealand has
identified 50 cluster initiatives under way nationwide, in various
stages of development.
Because I come from Dunedin you're going to hear about Dunedin
clusters, briefly.
All of them are embryonic.
One involves three toolmaking companies that are marketing
themselves offshore together.
One has a multimedia theme about it, but not yet - in my view -
enough substance.
A third - and I think the most promising - is bioSouth. It has a
lot of its ducks in a row, but is only a year old. Its focus is
biotechnology.
The region's biotech companies are members, though there are too
few of them in existence yet. The university is in, boots and all.
The incubator opens in a few months. The investors are there, or
thereabouts. There are venture catalysts in town. The IP lawyers are
turning up to the meetings.
The Dunedin City Council's role is pivotal.
bioSouth is one to watch.
Clustering is becoming a driving economic force in the regions,
and regional economic performance decisively affects the strength of
the national economy.
It is also at the regional level that the connections between
economic, environmental and social conditions are most clearly seen
and experienced.
That is why we are all here. It is why regional development
matters. And it is why I hope you will leave with renewed
determination to make it happen.
Graeme Speden, press secretary, 04-471 9707 / 021-270 9055
graeme.speden@parliament.govt.nz
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