By Brian Dunn

The term business cluster, also known as an industry cluster or competitive cluster, was introduced and popularized by Michael Porter, a professor at Harvard Business School. Cluster development has since become a focus for many government programs globally. Mr. Porter claims that clusters have the potential to affect competition in three ways: By increasing the productivity of the companies in a cluster, by driving innovation, and by stimulating new businesses formation. In 2009, he was awarded an honorary degree from McGill University for his work on clusters.

According to Porter, in the modern global economy, comparative advantages like how certain locations have special endowments such as a port or low-cost labour to overcome heavy input cost are less relevant. Now, competitive advantages or how companies make productive and innovative use of inputs is more important. Business clusters are geographical concentrations of business types where resources and competencies exceed a critical threshold, giving them a key position in a given branch of economic activity, with a decisive sustainable competitive advantage over other places in a particular field. Good examples are financial clusters in New York and London, IT, gaming and other software clusters in Silicon Valley, automotive clusters in Japan and Germany and media clusters in Hollywood.

The cluster experience is different between Europe and North America, according to Christian Ketels, Principal Associate, Institute for Strategy and Competitiveness, Harvard Business School, who led Mr. Porter’s research team at Harvard. “In Europe, clusters are a way for governments to engage with the business sector, whereas in the U.S., clusters are more private sector driven to lobby governments to create the right infrastructure for clusters to survive. The experience in Canada is more closely tied to the European model.”

“European clusters tend to start with government money, because there are a group of companies that have a need. But unfortunately, in Europe, there’s too much government interference, which creates a bad dynamic”

In the marine sector, the original trend in Europe had to do with shipbuilding and repair in the face of increased competition from Asia. Today, it’s more geared towards offshore service hubs, according to Mr. Ketels. He cites the example of, the national knowledge centre and innovation network for the Danish offshore industry. It represents over 270 members focused on the support of offshore resource development such as oil and gas extraction, offshore wind towers and development of wave energy.

“There’s a lot of interest in the revival of maritime clusters which are being categorized as Blue Growth as opposed to Green Growth,” said Mr. Ketels. “Several cities try to position themselves as logistic hubs like Hamburg where I was born. There are a lot of logistic hubs, mostly inland, but some are connected to ports.”

Some countries have even created a regional cluster such as the North Atlantic Ocean Cluster Alliance (NAOCA) which includes Norway, Iceland, Greenland, the Faroe Islands, Denmark and Newfoundland and Labrador. Created last November in Copenhagen, the objective of the alliance is to support growth and development in ocean related fields by increasing international cooperation. The alliance will also serve as a platform for distributing knowledge and identifying new business opportunities.

The NAOCA representative in Canada is Leslie O’Reilly, Executive Director of OceansAdvance, St. John’s. OceansAdvance fosters and promotes the development and expansion of the industrial ocean technology cluster in Newfoundland and Labrador. There are 50 companies in the ocean technology industry in the province with annual sales revenues of $509 million, a 31 per cent increase since 2006. Exports increased by 300 per cent during that period. OceansAdvance has established a target of achieving $1 billion in annual revenues by 2015.

The cluster covers aquaculture, defence and security, education and training, fisheries, marine transportation, ocean observation and science and offshore energy. Marine transportation includes merchant shipping and ferries, as well as associated port and waterway facilities. Technological innovation in the sector is primarily aimed at improving cost efficiency and satisfying regulatory requirements resulting form international conventions pertaining to operational safety, security and protection of the environment.

The future opening of the Arctic as a result of climate change will prompt a major shift in global shipping patterns and will present new challenges in terms of environmental protection, safety, surveillance and security, said Mr. O’Reilly. “Our cluster did a significant amount of work which caught the eye of some European countries and as a result, the Europeans developed and focused on a technology cluster. And someone in Iceland was doing a study on ocean clusters and identified Newfoundland and Labrador as having the best focus and being the best organized in this area,” added Mr. O’Reilly in explaining how the province became part of NAOCA. “We bring strength to the group with our Arctic type focus.” In terms of international cooperation, the cluster is looking at a number of ideas such as linking international relations to fishing resources management and identifying opportunities with Iceland in the oil and gas sector.

While there are currently no members in the cluster from the marine transportation sector, some members provide technical support to the sector, Mr. Reilly pointed out. “For example Oceanex operates ships, but some of the technology on those ships is provided by our members. We also provide technology for buoy systems, including instruments sitting in the water with sensors, other navigational aids, meteorology aids and oil and gas technology.”

But not all clusters are successful, according to Mr. Ketels.“ Governments think clusters are a good idea and throw money at them. If there is a strong initiative but no industry support, it doesn’t always work. People realize you need some kind of platform.” He cites the positive example of the medical device manufacturing industry in the Boston area. There were over 200 manufacturers with highly-skilled employees with government funding, but they didn’t work together. However, a “bottoms-up” initiative resulted in the creation of MassMEDIC (Massachusetts Medical Device Industry Council) which has grown to become the largest regional medical device association in the United States, with over 350 members representing manufacturers, product developers, suppliers, research institutions and academic health centres.