A changed world needs a changed approach
In little over twenty-four months, the world has changed massively and in particular for business, changes came in the way it is structured, how it operates, where it’s based and where its core market(s) is.
And as the global economy is taking its first steps out of a worldwide pandemic, which has shown up the vulnerabilities of our globally connected business systems; our once robust global trade routes have collapsed, and powerful industries like oil and gas experienced a crippling decrease in profits.
The pandemic was just one of several significant shocks to the world economy in recent years. A hard Brexit has affected more than just trade in Great Britain and Northern Ireland, and in 2021 the Suez Canal obstruction affected global retail. Additionally, an alarming shortage of semiconductor chips continues to affect everything from tech gadgets, healthcare, motoring and everything in between. Add to that the Russian invasion of Ukraine and seismic international economic sanctions against the Russian economy, and energy and cost of living crisis. Resulting in global business under increasing pressure from all directions.
So, it’s against that backdrop of uncertainty that competition clusters and cluster internationalisation is being reassessed.
Competition clusters aren’t a new theory…
Indeed, economic development programs have been built around clusters for several decades, especially in Europe.
In our hyper-connected, competitive world, companies can no longer remain in just their home country if they want long-term success. Tapping into new markets will open new opportunities, specifically across innovation and R&D; and at their core of the most successful clusters is global partnerships and strategic international cooperation. This strategic partnership takes the form of two specific components; the independence of how those companies work and their informal links and relationships.
Clusters have come under the spotlight again in 2022 thanks to changes in how we organise business, especially with a dramatic move towards digital commerce. A well-known example of this is London’s financial, known as ‘The City of London’. The small 2.9 km² area is home to the London Stock Exchange and the UK’s largest financial companies. And like all successful clusters, a wide variety of businesses have sprung up to compliment the current companies, such as places to eat and B2B companies.
Recently, we’ve worked with the Cleveland Water Alliance (CWA), a prime example of a hugely successful cluster in the US and a vital facilitator of an interconnected freshwater economy. The thriving cluster comprises industry-leading companies, research institutions, utilities, maritime interests, and federal, state, and local government agencies. Already one of the most digitally connected freshwater bodies globally, CWA is strategically located on the shores of the most biodiverse of the Great Lakes. CWA’s success in leveraging one of the highest concentrations of water industry and policy expertise in North America has helped the cluster. As a result, the water cluster has secured the top spot worldwide as a water innovation hub in the IoT (Internet-of-Things). In addition, it is now globally respected as the number one location for freshwater-focused market opportunities.
However, water issues are never far away from the news in the US. This month, scientists described the American west as amidst the “most extreme megadrought in at least 1,200 years” and the CWA initiative is already responding to significant challenges the American water infrastructure faces through climate change and industrial stress. And water issues aren’t only a problem in America; innovators must work together to develop needed solutions that ensure vital water systems globally.
Unfortunately, global trade barriers exist that impact collaboration and innovation between the world’s two biggest water markets, the EU and US. However, in partnership with OCO Global, the CWA is now actively integrating and attracting EU innovators to their test bed environment. Ultimately, by enabling ecosystem partners to develop and raise market awareness of technologies that will be crucial for the condition of complex water systems, any successes will be positively felt for economic development on a global scale.
CWA helps organisations accelerate innovation-to-market through world-class Water Accelerator Testbeds for IoT technologies, market-driven Open Innovation challenges such as lead pipe and point-of-use contaminant detection, and synergistic programs and resources that support the innovation lifecycle, including research and funding opportunities. Located between New York City, Chicago, and Toronto, CWA facilitates U.S. market entry and expansion for water industry organisations seeking market access to a globally recognised logistics infrastructure. Impressively, that infrastructure reaches more than half of North America, with almost 50% of the US population within 805 km of CWA headquarters.
In addition to the region’s skilled workforce, corporate-friendly tax structure, low cost of doing business, and exceptional quality of life, CWA offers water industry innovators and solutions-providers connection to manufacturing resources and ancillary services and collaborative opportunities.
And sector-wide, the internationalisation of clusters is needed now more than ever
Because in the modern era, it’s rare for a company to operate solely in its home country, thanks to the internet, smartphone technology, eCommerce and an ever-evolving, globally connected world. As a result, cluster internationalisation is becoming an even more attractive proposition to create links between different regions and countries. Those links will ultimately stimulate a constant state of renewal and open up access to new markets and knowledge while also promoting innovation and partnerships. Clusters have given companies a wide range of benefits, starting with a talented workforce. Take Silicon Valley, for example. Since most companies based there are technology businesses, there is a constant supply of talented, fully qualified tech employees available locally.
Secondly, another obvious benefit for clusters is that the infrastructure has been created for that specific industry. For example, a financial services company that sets up in London will immediately enjoy operating in an area that has been designed explicitly with that niche in mind.
Thirdly, operating in a cluster has strengthened competitiveness between companies. Based on close proximity to other competing and non-competing companies, companies have an intimate knowledge of the industry and are driven to outperform rivals.
Fourthly, operating in clusters has helped companies create new partnerships with non-competing organisations.
For example, until this year, Apple relied on Intel for the semiconductor chips for its devices, which was a mutually beneficial relationship for both Silicon Valley companies. And, of course, the fact that both companies are based in Silicon Valley made their close business relationship lucrative and seamless over the last two decades. Finally, clusters help entrepreneurs to keep inventing products and services, thanks to their intimate knowledge of the cluster’s industry and what’s lacking in it. That has been especially true in the likes of Silicon Valley, where employees, immersed in a start-up culture, have left a Silicon Valley company to start their own company.
But, as with everything, there are risks for clusters
Moving out of your own country presents several risks.
- Another country’s political system might be beneficial or a hindrance to your cluster plans.
- The economic strength of the country you choose to move to for a cluster might negatively impact your company.
- Settling into a new country requires time, patience, and some insider knowledge to make a move as seamless as possible.
- What you save by joining a cluster, such as recruitment, you might end up paying for in something else, such as taxes.
But the benefits outweigh the risks
As we touched on earlier, the last twenty-four months have seen a perfect storm of events that have massively impacted global business. Covid-19, Brexit, the Suez Canal obstruction, a global chip shortage, the war in Ukraine, and the resultant energy and cost of living crisis have all converged in a short time period. Those economic shocks have put unprecedented pressure on international business. As a result, companies are reassessing how they do business and, just as important, where they do business. Thanks to the internet, companies can connect with specified knowledge hubs worldwide that drive fundamental innovations (digital disruption). In addition, governments are also now more interested in securing and stabilising their economies.
Increasingly, those forward-thinking governments are promoting a start-up support network, connecting entrepreneurship and innovation with trade and investment agendas in economic development. Furthermore, trade and investment cluster corridors are replacing bilateral or multilateral relationships because of geopolitical challenges. Finally, both governments and companies appreciate that clusters bring added value to companies within the ecosystem.
How to maximise the impact of clusters.
Like all good plans, preparation is vital. And to maximise the impact of clusters, there are some general, tried-and-tested rules to follow. According to the European Union’s TACTICs handbook, ‘Cluster internationalisation’, there are ten steps in the cluster internationalisation journey.
The ten steps of the cluster internationalisation journey
- Assess readiness
- Identify opportunities
- Create a strategy and action plan
- Implement training
- Identify partners
- Develop trust and projects
- Implement projects
- Measure success
- Sustain the networks and utilise funding
There’s help available…
The good news is many countries offer support, grants and other financial incentives such as tax breaks to attract foreign direct investment. The European Clusters Alliance, for example, is made up of over 800 cluster organisations, 150,000 businesses and 11,000 universities, research centres and public institutions. As a result, companies considering getting involved in a European cluster have access to a wide range of support, knowledge and partnership opportunities. Another excellent example of cluster internationalisation done right is the funding measure, “Internationalisation of Leading-Edge Clusters, Future Projects and Comparable Networks”. A joint venture between the Federal Republic of Germany and the Federal Ministry of Education and Research (BMF), it has supported international cooperation among clusters with over 80 million euros since 2014. The level of support and expertise available depends, of course, on the country and how involved key institutions are, such as the government, educational institutions etc.
Business clusters might not set the pulse racing, but the theory has risen in prominence after a tough twenty-four months for global business. In 2022, businesses are more connected than ever, with companies worldwide cooperating and utilising instant communication methods. Of course, any business cooperates with another to improve profits, gain knowledge, improve infrastructure, and maximise efficiency. All of these – and many more benefits – can be achieved through cluster internationalisation.
Cluster internationalisation exposes participating businesses to new ways of thinking, improved flows of talent, and a whole host of other significant advantages. However, it would be best if you resisted the urge to jump straight into cluster internationalisation without a solid strategy. After all, despite many evident advantages, there’s also inherent risk involved in moving a company outside its national borders of home. Boom and bust economies, deteriorating political institutions, wars, famine, and unexpected events like pandemics can derail even the best plans. As a result, methodical planning, forging international partnerships beforehand, and training are all vital steps to take.
Ultimately, cluster internationalisation should be seen as an excellent opportunity for companies to move from single-country entities to multi-country companies. After all, globalisation shows no signs of abating, so it looks likely that the companies who prioritise clusters will be the ones who will remain competitive in our hyper-connected world.
Currently, we’re promoting a Water Cluster CWA in Europe and globally promoting the St. Louis Geospatial Cluster.
Get in touch today to find out more about how we can help you.