THE ROLE OF CLUSTERS IN THE NEW INDUSTRIAL REVOLUTION SOME THOUGHTS ON BUSINESS TRANSFORMATION AND JOB RE-GENERATION

Alberto Pezzi Head of Competitive StrategyACC10 / Directorate General for IndustryGovernment of CataloniaPast President and member of the Board of Directors TCI Network

San Sebastian, 19th October 2012

Index

• Another industrial revolution: why now and what does it mean?

• How clusters matter in the new industrial revolution• New agendas for companies, clusters and policy

makers• Conclusions and open questions

ANOTHER INDUSTRIAL REVOLUTION: WHY NOW AND WHAT DOES IT MEAN?

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The Economist, February 2009

The Economist, August 2010The Economist, August 2006

The Economist, September 2011

The Economist, April 2012

The Economist, October 2003

ANOTHER INDUSTRIAL REVOLUTION: WHY NOW AND WHAT DOES IT MEAN?

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ANOTHER INDUSTRIAL REVOLUTION: WHY NOW AND WHAT DOES IT MEAN?Firsts and second industrial revolutions

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Source: The Economist, Dec. 23rd, 1999 from A. Maddison, IMF.

ANOTHER INDUSTRIAL REVOLUTION: WHY NOW AND WHAT DOES IT MEANS? Clusters in the first industrial revolution

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Sheffieldcutlery

Lancashirecotton textiles

North Staffordshirepottery

Yorkshirewoollen textiles

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Source: Joint Venture Silicon Valley Network, Internet Cluster Analysis 2000

ANOTHER INDUSTRIAL REVOLUTION: WHY NOW AND WHAT DOES IT MEAN? Clusters in the internet revolution

HOW CLUSTERS MATTER IN THE NEW INDUSTRIAL REVOLUTIONThe new industrial revolution: main features

• Green revolution • End of the oil era -> electromobility

• Mobile technology • Use of new technologies and materials -> manufacturing in going digital

• Fragmentation and globalization of value chains -> the “new industry”

• Factory re-shape and localization

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HOW CLUSTERS MATTER IN THE NEW INDUSTRIAL REVOLUTION

Source: BSG, 2011

AT A GLANCE

•China wages increase at 15-20% per year•China labor cost advantage Vs USA to pass from 55% in 2011 to 39% in 2015•Progressive reduction of manufacturing expenditures on overall product costs

Reassess offshoring strategy

HOW CLUSTERS MATTER IN THE NEW INDUSTRIAL REVOLUTIONThe new industrial revolution: main features

• Green revolution • End of the oil era -> electromobility

• Mobile technology • Use of new technologies and materials -> manufacturing in going digital

• Fragmentation and globalization of value chains -> the “new industry”

• Factory re-shape and localization• Dramatic changes in skills and jobs -> jobless growth

• Growing importance of tacit knowledge and immaterial assets (creativity, entrepreneurship, design, etc.)

• …• Clusters will still play a key role in the economy

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HOW CLUSTERS MATTER IN THE NEW INDUSTRIAL REVOLUTION

Source: The Economist, April, 21st, 2012

Source: Peterson, 2010

Source: BSG, 2011

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Clusters generate endogenous competitiveness advantages by

- improving companies’ operational efficiency

- fostering innovation and tacit knowledge diffusion

- stimulating creation of new companies especially through spin-offs

- accelerating social capital formation

Source: adapted from M.E: Porter, 1998

HOW CLUSTERS MATTER IN THE NEW INDUSTRIAL REVOLUTIONClusters key features

Implications for companies and clusters•Re-think products and way of producing -> from mass production to mass-customization•Changes in the geography of supply chain and in manufacturing location •Identify Key Competitive Advantages and cluster core specialization•Put strategy at the center of the company and the cluster

NEW AGENDAS FOR COMPANIES, CLUSTERS AND POLICY MAKERS

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NEW AGENDAS FOR COMPANIES, CLUSTERS AND POLICY MAKERS

Implications for companies and clusters•Re-think products and way of producing -> from mass production to mass-customization•Changes in the geography of supply chain and in manufacturing location •Identify Key Competitive Advantages and cluster core specialization•Put strategy at the center of the company and the cluster

Some new items on policy makers’ agendas•Focus on growing and sustainable industries•Focus on clusters’ strategic and endogenous assets (tacit knowledge, specific skills, etc.) -> place-based competition•Re-think the “perimeter” of cluster development initiatives•Use clusters to understand and adapt to business model changes•Articulate regional smart specialization strategy around smart defined clusters

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HOW CLUSTERS MATTER IN THE NEW INDUSTRIAL REVOLUTION

Source: The Economist, April, 14th, 2012

“Yet Germany’s cutting edge has anancient blade. The country’s Mittelstand clusters offirms, which often specialise in nicheareas of manufacturing, developed inthe late 19th century”.

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The Economist, April, 21st, 2012

Where China scores

Li & Fung, a Hong Kong firm that helps companies find suppliers in Asia, says in a recent researchreport that clusters like Shenzhen are “an integralPart of China’s international competence inmanufacturing”. It counts more than 100 industrialclusters in China—including one, in Zhuji inZhejiang province, that just makes socks. It consists of more than 3,000 small and medium-sizedenterprises in the production chain for socks.

As long as China’s clusters maintain their edge,these jobs, whether producing iPads or socks,will not go back to America or Europe.

HOW CLUSTERS MATTER IN THE NEW INDUSTRIAL REVOLUTION

Source: Update on Industrial Clusters in cina (2010)Li & Fung research centre

CONCLUSIONS AND OPEN QUESTIONS

A couple of simple conclusions:•Cluster will still play a key role in the new industrial transformation•Strategy is more and more the key ingredient for global competition in the XXI century

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CONCLUSIONS AND OPEN QUESTIONS

CONCLUSIONS AND OPEN QUESTIONS

CONCLUSIONS AND OPEN QUESTIONS

A couple of simple conclusions:•Cluster will still play a key role in the new industrial transformation•Strategy is more and more the key ingredient for global competition in the XXI century

.. and a lot of open questions:•What role should Government and policy makers play in this scenario?•How does the clusters of the future look likes?•How to conciliate the paradox of localization?•How to solve the question for job?•….

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For more information and request for slides:

Apezzi@gencat.catApezzi@tci-network.org

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