Session 6: Clusters & Economic Development Flashcards
4 Determinants of National Competitive Advantage: Porter’s Diamond
- Demand conditions
- Relating and supporting industries
- Factor endowments
- Firm strategy, structure, and rivalry
What are the implications of Porter’s theory for international business and policy?
→ Some limited government intervention key to support the
development of certain export oriented industries.
→ Specialization to stimulate business internalization and
global competitiveness benefits from geographical concentration in specific locations.
→ Firms trying to integrate in global production and/or becoming MNEs: Hard to do it by yourself; the environment in which you operate matters a lot (peers, competitors, supporting industries…)
Cluster examples
- Boston Biotech cluster
- Italian Leather Fashion cluster
- Wipro in Bangalore IT cluster
- IT cluster Hsunchu Taiwan
- Wineries in Chile
- Salmon farming Chile
- Mendoza cluster
- Lake Victoria cluster
- Dairy cluster in China
Canada’s cluster policy
Canada’s five cluster are accepting members fro industry, academia, Indigenous groups and non-profit organizations. It’s a great opportunity to collaborate on shared projects, solve common challenges and build a better Canada. Each cluster has its own application process. Some have associated fees or different membership levels, including free options.
What’s a cluster?
Refers to a geographic concentration of interconnected companies, suppliers, service providers, and associated institutions within a particular industry. These businesses collaborate and compete, fostering innovation, efficiency, and competitive advantages. Clusters often develop around key industries, benefiting from shared resources, expertise, and infrastructure, leading to increased productivity and economic growth in the region. Examples include Silicon Valley for technology and Hollywood for film production.
About UBISOFT
- The Guillemot family (Yves, current CEO) started it as a computer hardware business in the 1980s
- In 1986 began producing video game software
- In the 1990s, the company went public (1996) and engaged in global expansion.
- Today: €1.814 billion annual revenue (2023); 19,200 employees; over 40 subsidiaries all over the world.
Why should a videogame company care about clusters?
- 1996: Ubisoft has just raised public capital to expand its
market presence (videogame development and distribution). - The company struggle to find the right conditions to develop new competitive products at its Paris Creasy HQs. Expensive labor, lack of creative developers, weak public sector support are among the issues.
What would make a location attractive for Ubisoft?
- 1997: Ubisoft Montreal is established.
- Quebec and Federal government financial support (industrial and trade policy)
→Economic decline of Montreal; need to create new jobs
→Multimedia industry on the rise - French speaking population and ties to France (HQs)
- Close to USA market (largest market at the time)
- Low rents to attract creative individuals (Mile End neighborhood)
- Concentration of Universities and Colleges
It’s 1998. Ubisoft Montreal has just begun its low-profile studio operations. The ambitious, long-term plan is reaching 500
employees by the end of 2002.
- What would you recommend
Ubisoft to do to develop and access local cluster assets?
Nurturing the Creative Cluster
- More than just employing
and sub-contracting: Developing relationships, creating spaces for creative expression and exchange, collaborating with current and potential competitors
Montreal Video Game Cluster: A Successful Strategy
- Today: One of the largest videogame studio in the world,
with over 2,600 employees - Ubisoft Montreal is responsible for developing the most successful games for its mother company, including: Prince of Persia, Far Cry and Asassin’s Creed series; Splinter Cell, Rainbow Six franchise and WatchDogs.
How did Ubisoft’ success impact the Montreal cluster and the industry?
- Over 50 international video game studios established in Montreal since 1997, including Warner Bros Games, Electronic Arts, Gameloft, Epic, and others.
- Montreal became a globally competitive creative cluster with sought after professionals and creative individuals, contributing to job and business creation beyond just videogames
- Ubisoft (and its competitors) replicated the Montreal strategy in other clusters (e.g., Shanghai, Tokyo, Los Angeles)
Defining Clusters
- Physical proximity (geographic proximity)
- Geographic concentration of firms in related sector or industry.
- Agglomeration of enterprises in related industries or sectors
- Critical mass (firms, production, employment)
From a firm perspective, what are the advantages of operating in a clusters?
Part of one firm’s competitive advantage lies outside the company.
Agglomeration effects:
* Access to specialized suppliers
* Labor market pooling
* Knowledge spillovers
* Specialized infrastructure and services
* Specialized inputs
* Access to shared facilities
Affect innovation and entrepreneurship
Takeaways: 3 Key Cluster Advantages
- Enhanced productivity
- Economics of scale
- Business innovation
Enhanced Productivity
Investments made by government or other public institutions - such as public spending for specialized infrastructure or educational programs -can enhance a company’s productivity
Economies of Scale
A cluster allows each member to benefit as if it had greater scale or
as if it had joined with others without sacrificing its flexibility
Business Innovation
At the intersection of clusters, insights and skills from various fields merge, sparking new businesses. It is easier for firms to source what they need (ideas, funding, workforce, etc.) when in a cluster
4 Clusters and International Business Strategy
- Choosing locations
- Engaging locally
- Upgrading the cluster
- Collective work
Choosing Locations
MNEs seek the most vibrant clusters to locate their production and R&D activities. Also, they often try to co-locate interlinked activities (e.g. all activities relevant to a specific product line)
Engaging Locally
MNEs must develop solid relationships with local actors to access valuable cluster-specific assets.
Upgrading the Cluster
For the cluster to continue offering its advantages over time, the MNE must support/collaborate with local actors to develop and grow the cluster.
Collective Work
Cluster strategy effectiveness requires collaborating rather than just competing with other private sector organizations.
