Engel, J. S. (Ed.). (2014). Global clusters of innovation: Entrepreneurial engines of economic growth around the world. Cheltenham, England: Edward Elgar. ISBN 978-1-78347-083-9.
Reviewed by: Gordon F. Mulligan, The University of Arizona, USA DOI: 10.1177/0891242415625166
Economic Development Quarterly, 2016, Vol. 30(2) 185–187.
During the 1980s, Michael Porter helped fashion a new paradigm for understanding industrial behavior. After noting that successful firms can differ in scope and conduct, he went on to summarize the winning strategies of national champions around the world (Porter, 1990). As a rule these successful firms nurtured better workers, innovated more aggressively, and developed stronger ties both to government and private capital. Porter also observed that many successful firms were located close to their competitors, suppliers, and related business associations, so he next developed deeper insights into industry clustering (Porter, 1998). In the conversation that followed, a consensus was reached that clustering is a strategy that enhances both the productivity and the innovation of firms, and stimulates the creation of entirely new business types and product lines. These thoughts about the competitive advantages of clustering arrived just as the public interest had turned to contentious issues such as globalization, free trade, and outsourcing. As a result, many governments asked whether business clusters might enhance the success of place-based policies (e.g., industrial targeting) or, even more optimistically, whether designated clusters might assist the state in developing a more dynamic economy.
Jerome Engel’s edited volume, composed of 15 chapters written by 20 authors, focuses on what he calls clusters of innovation (COIs). These are areas, nodes, or regions where cutting-edge technologies rapidly germinate, where new companies are sometimes “born global,” and where human talent fosters not only new industries but entirely new ways to do business. Moreover, these COIs are believed “to crossfertilize with other such clusters, [thereby] accelerating the pace of value creation in each” (p. 5). The book provides case studies of 11 such regions: one in the United States, four in Europe, one in the Middle East, three in Asia, and two in Latin America. Two other chapters deal with the innovations of private and public actors, and Engel also provides an overview and a conclusion for the diverse material of the volume.
Engel, a faculty member in the Business School at the University of California-Berkeley, outlines the main features of these COIs in chapter 1. His research seems motivated by the observation that the traditional clustering literature fails to adequately explain why certain nodes or regions are able to create entirely new industries beyond their original activity domains. He also contends that, in words that can echo Walter Rostow, business clusters should not be “defined primarily by industry specialization but by the stage of development and innovation of the cluster’s constituents” (p. 9).
Engel sees COIs as dynamic ecosystems having eight major interacting parts: entrepreneurs, mature corporations, universities, research centers, venture capitalists, service providers, management specialists, and government. The most prominent attitudes of these actors, whether they are individuals or entire firms, include optimism, openness, flexibility, and risk tolerance. At the same time these actors are both resilient and innovative, they favor rapid value creation and they understand that advantages are bestowed by learning externalities.
Entrepreneurs are not interested in moderate rewards but in seeking opportunities that exhibit big potential upsides; mature corporations are typically only a decade or so ahead of entrepreneurs and they often collaborate with the young start-ups so that each can achieve its different growth goals.
A venture capital community evolves that learns to be very savvy about investing at the earliest stages of innovation when potential returns are that much greater, and some venture capitalists even go on to assume leadership roles in new start-ups. Surprisingly, though, crowdfunding is not mentioned as an alternative means to raise risk capital, although this reviewer is skeptical that fintech ventures will be able to access all of the information needed to make startup investments. The specialty firms that arise in law, accountancy, and management understand that their payments might not be prompt, and anyways they often prefer to receive their compensation in the form of equity sharing. As a whole, the COI exhibits a lot of exchanges and recycling where actors are willing to take large risks with the potential for large rewards. In fact, people working in COIs tend to adopt career styles where they switch firms every 3 to 5 years “in order to build a portfolio of capital return opportunities” (p. 16). At the same time, many firms build intellectual property rights portfolios that involve a mixture of both offensive and defensive strategies. Surprisingly, given the similarities, Engel does not mention the triple helix model for knowledge-based economies, although that development model is mentioned in several of the case studies found later in the book (Etzkowitz & Leydesdorff, 2000).
Engel then goes on to discuss global networks of clusters of innovation (NCOIs). Here he distinguishes between three types of interactions that commonly take place between the actors or entities of these geographically separate COIs: weak ties, durable bonds, and covalent bonds. Just as they sound, weak ties are more casual or ephemeral connections between people but durable bonds involve recurring relationships and fixed commitments. Durable bonds are seen to provide avenues for the rapid diffusion of new ideas and technologies between different regions of the world. Covalent bonds are a subset of these durable bonds where shared projects grow up between the separated entities of NCOIs. Firms, or even individuals, can perform important functions in, and act as information conduits between, entirely different industry clusters. Finally, the outwardlooking and risk-tasking attitudes of cluster actors are fully replicated at this other scale, where entire COIs are open, outward looking, and continually seeking to create or reinforce connections with other COIs.
Chapter 2, which focuses on the century-long evolution of Silicon Valley, is the most interesting in the book. As some 60 technology regions around the world now pay homage (e.g., Ireland’s Silicon Bog, India’s Silicon Plateau) to the Santa Clara Valley, a detailed discussion of how the archetypal COI invented and reinvented itself seems appropriate. Engel and Florian Forster claim that Silicon Valley was actually “preconditioned” for success by decisions and factors going back to the very founding of the state of California. The nurturing roles of Stanford University and the University of California-Berkeley are highlighted as each university has been pivotal in providing both new people and new ideas to the region. The early days saw the commercialization of a radio telephone system (1909) and the perfection of the vacuum tube (1912) in the area. The overarching influence of Fred Terman, whose students founded Hewlett-Packard, is next taken up, and his roles as professor, mentor, and entrepreneur are discussed in some detail. The importance of backing by the federal government is also clarified, both during World War II and later in 1980, when a shift in policy (Baye-Dole Act) allowed private investors to fund the commercialization of government-sponsored research. This led, in turn, to a new era of venture capitalism where people like Arthur Rock (who funded both Intel and Apple during their earliest stages) rose to prominence. The IPO of Apple in 1980 is noted as a watershed because this brought in the major institutional players, like retirement investors, who could see the potential upside of investing in venture funds to support entirely new businesses or products. Engel and Forster then go on to discuss the diversification of Silicon Valley where Jim Clark and John Hanke are targeted as key contributors. Clark, a leader in creating 3D graphics, returned to Stanford after various appointments and endowed millions to a new biomedical center in appreciation of the academicindustrial collaboration he had earlier enjoyed. Hanke, with a background in foreign affairs, saw the value of using satellite imagery to create a new type of geomapping experience. His start-up, called Keyhole, was eventually purchased by Google, and the final product became the very popular Google Earth. The chapter concludes with a short discussion of the biotech industry, whose core competencies and technologies are different from those traditionally associated with Silicon Valley. Here the rise of Genentech during the 1980s is instructive because it shows how an entire ecosystem of companies, service providers, and investors can arise if the incentives are considerable, the individuals are resilient, the institutions are supportive, and local conditions are favorable.
The remainder of the book is largely devoted to a series of COI case studies drawn from around the world. Some of these are highly informative, but perhaps the most revealing are those that identify specific ecosystem deficiencies. Helmut Schönenberger, commenting on the Munich cluster, and Wim de Waele and Sven de Cleyn, commenting on the Flanders cluster in Belgium, both highlight the lack of risk capital in their areas. In contrast, Shigeo Kagami cites the lack of entrepreneurship in Japanese clusters and argues that universities must do a better job of providing “creativity education.” Itxaso del-Palacio and David Chapman laud the Conservative government in the United Kingdom for initiating key policy changes, like entrepreneur visas and reform in intellectual property rights, to assist cluster growth in East London. Alternatively, Orna Berry and Daniel Wasserteil summarize the very different situation in Israel and ask for more government involvement in education to complement that nation’s highly innovative and entrepreneurial business culture.
This reviewer found the book to be engaging even though many of Engel’s own thoughts were already available elsewhere in journals like Business Horizons and the California Management Review. However, Engel sometimes became so enthusiastic that he gave the impression of promoting rather than advocating clusters as a development strategy. As many readers know, business clusters have been oversold (in both senses) in recent times and a fair amount of skepticism of the cluster concept has been expressed by academics, practitioners, and the media. One major criticism concerns the causal ambiguity inherent to the entire concept. Also, the advocates of clusters have been reluctant to share the bad news with the good, although a few case studies (e.g., Brazil’s Iniciativa pedo Nordeste) in this book do mention disappointing results. There is also other evidence that clustering does not always enhance the knowledge flows between local firms in COIs (Bagwell, 2008). Nevertheless there is consensus that the interactive behavior of risk-taking actors—and not the new infrastructure and shiny physical plant—is the key to serial innovation and sustained growth in business clusters around the world (Fitjar & Rodriguez-Pose, 2011). On this singularly important count Engel is correct.
It was disappointing that a few other significant issues were not addressed by the various contributors. First, the uneasy relationship that now exists between entrepreneurs and the law (which itself varies geographically) was overlooked. This tension seems to arise either because start-ups are infringing on highly regulated portions of the service economy (Uber, Lyft) or because start-ups must go to markets so quickly to gain huge profits (YouTube). Entrepreneurs often portray their critics as advocates of vested interests, and sometimes they can even mobilize sufficient resources to sway public opinion or get the rules of the game changed (The Economist, 2015). Another neglected issue concerns the relationship between clusters and (potential) international trade deals that involve multiple partners. Engel stresses the value of both durable and covalent bonds between NCOIs, but this reviewer wonders what will happen to patents and intellectual property rights—let alone labor and environmental standards—once trade restrictions are eased further by agreements like the Trans-Pacific Partnership. This issue seems especially challenging when the trade partners are highly asymmetric in both their size and economic development. Finally, there is little recognition of how the fundamentals of innovation have shifted in recent times (Cooke & Eriksson, 2011). Earlier inventions clearly led to entirely new technologies, but post–World War II inventions have tended more to recombine existing technologies (Youn, Strumsky, Bettencourt, & Lobo, 2015). This reviewer wonders what the implications will be for industry clusters if a stream of new patent classes suddenly appears in the emerging field of biotechnology.
References
Bagwell, S. (2008). Creative clusters and city growth. Creative Industries Journal, 1, 31-46.
Cooke, P., & Eriksson, A. (2011). White spaces innovation in Sweden (Report VR 2011:10). Stockholm, Sweden: Vinnova.
The Economist. (2015, May 2). Shredding the rules. Retrieved from http://www.economist.com/news/business/21650142-strikingnumber- innovative-companies-have-business-models-floutlaw- shredding
Etzkowitz, H., & Leydesdorff, L. (2000). The dynamics of innovation: From national systems and “mode 2” to a triple helix of university-industry-government relations. Research Policy, 29, 109-123.
Fitjar, R., & Rodriguez-Pose, A. (2011). When local interaction does not suffice: Sources of firm innovation in urban Norway. Environment and Planning A, 43, 1248-1267.
Porter, M. (1990). The competitive advantage of nations. New York, NY: Free Press.
Porter, M. (1998). Clusters and the new economics of competition. Harvard Business Review, 76, 77-90.
Youn, H., Strumsky, D., Bettencourt, L., & Lobo, J. (2015). Invention as a combinatorial process: Evidence from US patents. Journal of the Royal Society Interface. doi:0.1098/ rsif.2015.0272.
Author Biography
Gordon F. Mulligan is professor emeritus in the School of Geography and Development at the University of Arizona. His research interests include regional science, economic geography, quality of life, labor markets, and urbanization.
--- --- --- --- ---
Post By Urban Planning Journals
Reviewed by: Gordon F. Mulligan, The University of Arizona, USA DOI: 10.1177/0891242415625166
Economic Development Quarterly, 2016, Vol. 30(2) 185–187.
During the 1980s, Michael Porter helped fashion a new paradigm for understanding industrial behavior. After noting that successful firms can differ in scope and conduct, he went on to summarize the winning strategies of national champions around the world (Porter, 1990). As a rule these successful firms nurtured better workers, innovated more aggressively, and developed stronger ties both to government and private capital. Porter also observed that many successful firms were located close to their competitors, suppliers, and related business associations, so he next developed deeper insights into industry clustering (Porter, 1998). In the conversation that followed, a consensus was reached that clustering is a strategy that enhances both the productivity and the innovation of firms, and stimulates the creation of entirely new business types and product lines. These thoughts about the competitive advantages of clustering arrived just as the public interest had turned to contentious issues such as globalization, free trade, and outsourcing. As a result, many governments asked whether business clusters might enhance the success of place-based policies (e.g., industrial targeting) or, even more optimistically, whether designated clusters might assist the state in developing a more dynamic economy.
Jerome Engel’s edited volume, composed of 15 chapters written by 20 authors, focuses on what he calls clusters of innovation (COIs). These are areas, nodes, or regions where cutting-edge technologies rapidly germinate, where new companies are sometimes “born global,” and where human talent fosters not only new industries but entirely new ways to do business. Moreover, these COIs are believed “to crossfertilize with other such clusters, [thereby] accelerating the pace of value creation in each” (p. 5). The book provides case studies of 11 such regions: one in the United States, four in Europe, one in the Middle East, three in Asia, and two in Latin America. Two other chapters deal with the innovations of private and public actors, and Engel also provides an overview and a conclusion for the diverse material of the volume.
Engel, a faculty member in the Business School at the University of California-Berkeley, outlines the main features of these COIs in chapter 1. His research seems motivated by the observation that the traditional clustering literature fails to adequately explain why certain nodes or regions are able to create entirely new industries beyond their original activity domains. He also contends that, in words that can echo Walter Rostow, business clusters should not be “defined primarily by industry specialization but by the stage of development and innovation of the cluster’s constituents” (p. 9).
Engel sees COIs as dynamic ecosystems having eight major interacting parts: entrepreneurs, mature corporations, universities, research centers, venture capitalists, service providers, management specialists, and government. The most prominent attitudes of these actors, whether they are individuals or entire firms, include optimism, openness, flexibility, and risk tolerance. At the same time these actors are both resilient and innovative, they favor rapid value creation and they understand that advantages are bestowed by learning externalities.
Entrepreneurs are not interested in moderate rewards but in seeking opportunities that exhibit big potential upsides; mature corporations are typically only a decade or so ahead of entrepreneurs and they often collaborate with the young start-ups so that each can achieve its different growth goals.
A venture capital community evolves that learns to be very savvy about investing at the earliest stages of innovation when potential returns are that much greater, and some venture capitalists even go on to assume leadership roles in new start-ups. Surprisingly, though, crowdfunding is not mentioned as an alternative means to raise risk capital, although this reviewer is skeptical that fintech ventures will be able to access all of the information needed to make startup investments. The specialty firms that arise in law, accountancy, and management understand that their payments might not be prompt, and anyways they often prefer to receive their compensation in the form of equity sharing. As a whole, the COI exhibits a lot of exchanges and recycling where actors are willing to take large risks with the potential for large rewards. In fact, people working in COIs tend to adopt career styles where they switch firms every 3 to 5 years “in order to build a portfolio of capital return opportunities” (p. 16). At the same time, many firms build intellectual property rights portfolios that involve a mixture of both offensive and defensive strategies. Surprisingly, given the similarities, Engel does not mention the triple helix model for knowledge-based economies, although that development model is mentioned in several of the case studies found later in the book (Etzkowitz & Leydesdorff, 2000).
Engel then goes on to discuss global networks of clusters of innovation (NCOIs). Here he distinguishes between three types of interactions that commonly take place between the actors or entities of these geographically separate COIs: weak ties, durable bonds, and covalent bonds. Just as they sound, weak ties are more casual or ephemeral connections between people but durable bonds involve recurring relationships and fixed commitments. Durable bonds are seen to provide avenues for the rapid diffusion of new ideas and technologies between different regions of the world. Covalent bonds are a subset of these durable bonds where shared projects grow up between the separated entities of NCOIs. Firms, or even individuals, can perform important functions in, and act as information conduits between, entirely different industry clusters. Finally, the outwardlooking and risk-tasking attitudes of cluster actors are fully replicated at this other scale, where entire COIs are open, outward looking, and continually seeking to create or reinforce connections with other COIs.
Chapter 2, which focuses on the century-long evolution of Silicon Valley, is the most interesting in the book. As some 60 technology regions around the world now pay homage (e.g., Ireland’s Silicon Bog, India’s Silicon Plateau) to the Santa Clara Valley, a detailed discussion of how the archetypal COI invented and reinvented itself seems appropriate. Engel and Florian Forster claim that Silicon Valley was actually “preconditioned” for success by decisions and factors going back to the very founding of the state of California. The nurturing roles of Stanford University and the University of California-Berkeley are highlighted as each university has been pivotal in providing both new people and new ideas to the region. The early days saw the commercialization of a radio telephone system (1909) and the perfection of the vacuum tube (1912) in the area. The overarching influence of Fred Terman, whose students founded Hewlett-Packard, is next taken up, and his roles as professor, mentor, and entrepreneur are discussed in some detail. The importance of backing by the federal government is also clarified, both during World War II and later in 1980, when a shift in policy (Baye-Dole Act) allowed private investors to fund the commercialization of government-sponsored research. This led, in turn, to a new era of venture capitalism where people like Arthur Rock (who funded both Intel and Apple during their earliest stages) rose to prominence. The IPO of Apple in 1980 is noted as a watershed because this brought in the major institutional players, like retirement investors, who could see the potential upside of investing in venture funds to support entirely new businesses or products. Engel and Forster then go on to discuss the diversification of Silicon Valley where Jim Clark and John Hanke are targeted as key contributors. Clark, a leader in creating 3D graphics, returned to Stanford after various appointments and endowed millions to a new biomedical center in appreciation of the academicindustrial collaboration he had earlier enjoyed. Hanke, with a background in foreign affairs, saw the value of using satellite imagery to create a new type of geomapping experience. His start-up, called Keyhole, was eventually purchased by Google, and the final product became the very popular Google Earth. The chapter concludes with a short discussion of the biotech industry, whose core competencies and technologies are different from those traditionally associated with Silicon Valley. Here the rise of Genentech during the 1980s is instructive because it shows how an entire ecosystem of companies, service providers, and investors can arise if the incentives are considerable, the individuals are resilient, the institutions are supportive, and local conditions are favorable.
The remainder of the book is largely devoted to a series of COI case studies drawn from around the world. Some of these are highly informative, but perhaps the most revealing are those that identify specific ecosystem deficiencies. Helmut Schönenberger, commenting on the Munich cluster, and Wim de Waele and Sven de Cleyn, commenting on the Flanders cluster in Belgium, both highlight the lack of risk capital in their areas. In contrast, Shigeo Kagami cites the lack of entrepreneurship in Japanese clusters and argues that universities must do a better job of providing “creativity education.” Itxaso del-Palacio and David Chapman laud the Conservative government in the United Kingdom for initiating key policy changes, like entrepreneur visas and reform in intellectual property rights, to assist cluster growth in East London. Alternatively, Orna Berry and Daniel Wasserteil summarize the very different situation in Israel and ask for more government involvement in education to complement that nation’s highly innovative and entrepreneurial business culture.
This reviewer found the book to be engaging even though many of Engel’s own thoughts were already available elsewhere in journals like Business Horizons and the California Management Review. However, Engel sometimes became so enthusiastic that he gave the impression of promoting rather than advocating clusters as a development strategy. As many readers know, business clusters have been oversold (in both senses) in recent times and a fair amount of skepticism of the cluster concept has been expressed by academics, practitioners, and the media. One major criticism concerns the causal ambiguity inherent to the entire concept. Also, the advocates of clusters have been reluctant to share the bad news with the good, although a few case studies (e.g., Brazil’s Iniciativa pedo Nordeste) in this book do mention disappointing results. There is also other evidence that clustering does not always enhance the knowledge flows between local firms in COIs (Bagwell, 2008). Nevertheless there is consensus that the interactive behavior of risk-taking actors—and not the new infrastructure and shiny physical plant—is the key to serial innovation and sustained growth in business clusters around the world (Fitjar & Rodriguez-Pose, 2011). On this singularly important count Engel is correct.
It was disappointing that a few other significant issues were not addressed by the various contributors. First, the uneasy relationship that now exists between entrepreneurs and the law (which itself varies geographically) was overlooked. This tension seems to arise either because start-ups are infringing on highly regulated portions of the service economy (Uber, Lyft) or because start-ups must go to markets so quickly to gain huge profits (YouTube). Entrepreneurs often portray their critics as advocates of vested interests, and sometimes they can even mobilize sufficient resources to sway public opinion or get the rules of the game changed (The Economist, 2015). Another neglected issue concerns the relationship between clusters and (potential) international trade deals that involve multiple partners. Engel stresses the value of both durable and covalent bonds between NCOIs, but this reviewer wonders what will happen to patents and intellectual property rights—let alone labor and environmental standards—once trade restrictions are eased further by agreements like the Trans-Pacific Partnership. This issue seems especially challenging when the trade partners are highly asymmetric in both their size and economic development. Finally, there is little recognition of how the fundamentals of innovation have shifted in recent times (Cooke & Eriksson, 2011). Earlier inventions clearly led to entirely new technologies, but post–World War II inventions have tended more to recombine existing technologies (Youn, Strumsky, Bettencourt, & Lobo, 2015). This reviewer wonders what the implications will be for industry clusters if a stream of new patent classes suddenly appears in the emerging field of biotechnology.
Bagwell, S. (2008). Creative clusters and city growth. Creative Industries Journal, 1, 31-46.
Cooke, P., & Eriksson, A. (2011). White spaces innovation in Sweden (Report VR 2011:10). Stockholm, Sweden: Vinnova.
The Economist. (2015, May 2). Shredding the rules. Retrieved from http://www.economist.com/news/business/21650142-strikingnumber- innovative-companies-have-business-models-floutlaw- shredding
Etzkowitz, H., & Leydesdorff, L. (2000). The dynamics of innovation: From national systems and “mode 2” to a triple helix of university-industry-government relations. Research Policy, 29, 109-123.
Fitjar, R., & Rodriguez-Pose, A. (2011). When local interaction does not suffice: Sources of firm innovation in urban Norway. Environment and Planning A, 43, 1248-1267.
Porter, M. (1990). The competitive advantage of nations. New York, NY: Free Press.
Porter, M. (1998). Clusters and the new economics of competition. Harvard Business Review, 76, 77-90.
Youn, H., Strumsky, D., Bettencourt, L., & Lobo, J. (2015). Invention as a combinatorial process: Evidence from US patents. Journal of the Royal Society Interface. doi:0.1098/ rsif.2015.0272.
Author Biography
Gordon F. Mulligan is professor emeritus in the School of Geography and Development at the University of Arizona. His research interests include regional science, economic geography, quality of life, labor markets, and urbanization.
--- --- --- --- ---
Post By Urban Planning Journals
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