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Collaboration and competition help business clusters foster innovation and growth

It's crucial for cities to nurture their industry "clusters" – concentrations of businesses that collaborate, compete and feed off each other – according to a new report this week by the Toronto Board of Trade. On Thursday, the TBOT will convene leaders from a diverse range of industries at an economic summit in Toronto to discuss the need for regional cluster strategies.

One of the key speakers will be Ted Lyman, managing director of IHS Global Insight in the company's Silicon Valley office and a world-renown expert on cluster development. He spoke recently to Globe and Mail reporter Richard Blackwell.

Why are clusters important?

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Economies [need]higher levels of productivity, and higher levels of innovation. Both come from understanding and responding to market signals better and faster, with more insights. The companies are tuned to market opportunities, ways to get an advantage and signs of potential innovations. If clustered together, they have clear and better access to those market signals.

Is it also valuable to be among competitors?

Clearly. That is where excellence comes from. But you can compete on one level and you can collaborate on another. You can put an ear to the ground and get a collective sense of what is happening in marketplaces.

What are some of the most effective clusters in North America?

Silicon Valley would come to mind as the best example. That is a region of 3 million people that has 10,000 technology companies. The whole business culture of Silicon Valley is one of collaboration. It happens in many different ways, through all kinds of different organizations.

Hollywood is also a heavily clustered economy, in entertainment. Detroit is a clustered economy that lost its way.

Are there example of clusters created from nothing?

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Austin, Texas is a unique example. In the mid-1980s, the business leaders of Austin said to themselves that they had a pretty darn good research university, a big IBM plant, a big Motorola plant, [along with]terrific lifestyle, lots of music and stuff that young folks like. They put in place other building blocks for a clustered information technology economy.

By 1990 Austin was cooking on all burners. They built the first technology incubator. They built a research and industrial park. And they launched the first venture capital firm in Texas.

It is unusual to create a cluster out of whole cloth though, isn't it?

It was very unusual then, because it was assumed that in free markets you can't do things like bringing competitors together. More recently, though, we see regions making a more clustered economy out of what they have.

How import are issues like lifestyle or housing prices?

They are [important]quality-of-life factors. They attract and they retain young people. [They]provide the right stuff for start-ups to prosper.

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What about a place like Calgary, which has a strong energy cluster. Should they diversify, or expand within energy?

Energy might not be the place you'd put all of your marbles, but [that sector]is diversifying itself so rapidly that you can build around a diversified energy industry, including unconventional [energy]and renewables.

What about smaller cities. Can they have successful clusters?

There are plenty of smaller places that have established their tourism attractions in a clustered way, where there is a lot of communication and connectivity between the tourism operators.

In Juneau, Ala., a town of 30,000 people, they have a very serious cluster initiative off the ground. You need people who are willing to go about things differently than they have in the past, and basically roll up their sleeves as an industry and go to work together.

Is it essential that municipal governments get involved?

I think so. It is a complicated world out there. We need public and private engagement, and academic engagement. That brings all of the stakeholders into the mix. [All levels of government]can prime the pump.

How important is having strong educational institutions turning out the right kind of graduate?

That is very important. There are flagship universities that produce the PhDs and the applied research. But the other universities, and community colleges, where the journeyman engineers and technicians come from, are all key to this.

A lot of clusters actually sponsor training [programs]at community colleges. They pay to put in place a curriculum [and]everybody wins. The community college has their bills paid, the companies have people trained exactly for what they need and the people looking for employment have jobs delivered on a platter.

This interview has been edited and condensed.

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About the Author
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

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