The Cluster-Specific Environment for Innovation
While the common innovation infrastructure sets the basic conditions for innovation, it is ultimately companies that introduce and commercialize innovations. Innovation and the commercialization of new technologies take place disproportionately in clusters —geographic concentrations of interconnected companies and institutions in a particular field. The cluster-specific innovation environment is captured in the “diamond” framework introduced in 1990.3 Four attributes of a location’s microeconomic environment affect overall competitiveness as well as innovation — the presence of high-quality and specialized inputs; a context that encourages investment together with intense local rivalry; pressure and insight gleaned from sophisticated local demand; and the local presence of related and supporting industries. (See “What Drives Innovation in an Industrial Cluster?”)
WHAT DRIVES INNOVATION IN AN INDUSTRIAL CLUSTER?
What Drives Innovation In An Industrial Cluster?View Exhibit
Clusters offer potential advantages in perceiving both the need and the opportunity for innovation. Equally important, however, is the flexibility and capacity clusters can provide to act rapidly to turn new ideas into reality. A company within a cluster can often more rapidly source the new components, services, machinery and other elements necessary to implement innovations. Local suppliers and partners can and do get involved in the innovation process; the complementary relationships involved in innovating are more easily achieved among participants that are nearby. Reinforcing these advantages for innovation is the sheer pressure — competitive pressure, peer pressure, customer pressure and constant comparison — that is inherent within a cluster. We focus on clusters (e.g., information technology) rather than individual industries (e.g., printers), then, because of powerful spillovers and externalities across discrete industries that are vital to the rate of innovation.
The competitiveness of a cluster and its innovativeness depend on the quality of the diamond in a country. For example, the Finnish pulp-and-paper cluster benefits from the twin advantages of pressures from demanding domestic consumers and intense local rivalry, and Finnish process-equipment manufacturers are world leaders, with companies such as Kamyr and Sunds leading the world in the commercialization of innovative bleaching equipment. And this is only one example. A strong innovation environment within national clusters is the foundation for global competitive advantage in many fields, from pharmaceuticals in the United States to semiconductor fabrication in Taiwan.