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What are industrial clusters? And how do they promote innovation and value creation? One of the world’s foremost experts explains.
In academia there are few who know as much about industrial clusters as Professor Torger Reve.
Reve is Professor Chair of the Department of Strategy and Entrepreneurship at BI Norwegian Business School in Oslo, where he also served as President from 1997–2005. In the course of a productive academic career, he has become one of the world’s foremost experts in industry collaboration, competitiveness and clusters. The author of 14 books and several award-winning scientific papers, Professor Reve has also been a guest lecturer and established educational programmes at prestigious universities from Stanford to Shanghai.
An industrial cluster refers to a geographical concentration of interconnected companies and institutions in a particular field. Gathering so much expertise – and competition – in one place has many positive ripple effects.
“Clusters represent a concentration of knowledge that enables companies to learn from one another, become more innovative and boost value creation,” says Professor Reve.
Research shows that there are benefits to be reaped by being part of a cluster.
“What we know empirically about clusters is that they are more innovative and have higher value creation and productivity – that is, value creation per employee – compared with similar companies,” says the professor.
Industrial clusters can be formal, i.e. part of a formal collaboration programme with other companies. Or they can be informal, i.e. expertise and innovation flow organically via informal networks. In both cases a milieu with extensive knowledge has emerged.
“Sometimes you can trace a cluster back to an individual person or an individual company. For example, the offshore milieu in Southern Norway – a world leader in drilling technology – can be traced back to the entrepreneur Bjarne Skeie, who had begun developing technology for oil drilling rigs,” says Professor Reve.
“Culture has a decisive role to play in the emergence of clusters. You must be able to cooperate and must have trust. Clusters develop quickly when there is little hierarchy and a lot of tolerance,” he explains.
Making the most of its 2 500-km-long coastline, Norway has excelled in the ocean industries. Norwegians have been fishing and building ships since the Viking Age. When petroleum resources were discovered in Norwegian waters, the country was quick to develop a new ocean-based industry, becoming a leading offshore nation in record time.
Now there are world-leading marine and maritime clusters dotting the entire coastline, with expertise in shipping and ship’s equipment, aquaculture, and oil and gas recovery. These are places where knowledge and know-how yield innovation and value creation – but they are not always located in areas that are hospitable to industry.
“Clusters can be found in unexpected places, where they developed almost against all odds. My favourite example is Austevoll, a few islets outside Bergen where the wind blows so hard that you can barely raise sheep there. Yet, this is where the fisheries and aquaculture industries have made their base,” says Professor Reve.
“You find many similar small places along the coastline. Bryne, Ulsteinvik and Fosnavåg are other examples of places where clusters have emerged, driven forward by incredibly enterprising people who both work to make each other better and are keen competitors.”
The point is that the core of a cluster is knowledge and expertise, not natural competitive advantages. And although by definition clusters are a geographical concentration of companies, these do not need to be located where it is easiest to engage in value creation, such as in the big cities.
“I often use Houston as an example of an industrial cluster with a tremendous capacity for restructuring. Houston is still one of the world’s petroleum capitals, even though there is no longer much oil production in Texas or the Gulf of Mexico. But extensive oil and gas knowledge remains located in Houston.”
Professor Reve emphasises that Norwegian value creation and exports involve more than recovering ocean resources. Knowledge about every aspect of the ocean industries is just as important.
“It is not necessarily the means of production that is most important for Norway, but rather it is the knowledge about production that is Norway’s advantage. Take seafood, for instance. We have evolved from a country of fishermen fishing from rocks on the foreshore into experts who know how to build an entire ecosystem around farming of salmon and other species,” he says.
According to Professor Reve, it is these specialist circles – these large, informal clusters – that make Norway one of the world’s leading ocean nations.
“The technology and services behind the ocean industries are particularly important. Businesses that serve the ocean industries include law firms, brokerage firms, consultancy firms, finance companies, etc. When you are going to insure a ship or a drilling rig, you use a Norwegian company. When you are going to install sensors or develop an IT system for an offshore platform or sea pen, it is best to use Norwegian suppliers. And when you are going to court for a maritime dispute, it is Norwegian solicitors you turn to,” elaborates Professor Reve.
The Norwegian clusters have tremendous knowledge about all aspects of ocean resources, giving them good restructuring and innovation capacity.
“When I grew up, they built super tankers at Stord. Then production came to a complete halt. However, not many years passed before they began producing rigs and huge production platforms for the North Sea,” says Professor Reve.
Now there is another big restructuring task to tackle. If we are to achieve the UN Sustainable Development Goals and produce enough energy and food to meet the world’s needs, it is absolutely critical that ocean resources are harvested with the lowest possible emissions and greatest care for marine ecosystems.
This means that Norwegian companies will have to turn their expertise, knowledge and technology away from oil and gas and towards new, renewable industries. When oil prices fell dramatically in 2014, Norwegian clusters learned very quickly what this challenge entailed – and they have been handling it well.
“When I was collaborating closely with MIT, an American professor colleague said to me that the plummet in oil price was the best thing that could happen to Norway. It was then that Norwegian companies understood that they had to go beyond delivering technology and services to the oil and gas sector, and they began to use their know-how in other areas. Renewable marine energy is one of these.”
Norwegian ocean clusters are now investing more and more of their know-how in renewable industries. There are, for example, clusters focusing on crossover technology and others focusing on new blue industries.
This is essential both for Norwegian value creation and for the environment. According to Professor Reve, clusters are especially well-equipped to move the green transition forward.
“In order to develop sustainable solutions, you must have two prerequisites in place. You must have good technological solutions and you must have superior commercial solutions – that is, a business model that will make the technological solution profitable. There’s not much business in a technological solution alone. All you end up with is an interesting prototype,” he says.
And that is why clusters are a good thing.
“Clusters are skilled at taking ideas and finding out how to earn money on them,” the professor concludes.