Do Clusters Create Knowledge?

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In the knowledge economy, a firm’s competitive advantage lies in its ability to exploit new knowledge faster than its competitors. To induce this, various regions in the Philippines have turned to the theory on clusters. The premise of the theory includes the following:

1. Knowledge is created through inter-organisational collaboration and by lumping players of a certain supply chain in one area, the chances of collaboration increase;
2. Knowledge is created through intensified rivalry and that rivalry between similar firms will be more intense in clusters;
3. Knowledge is created through spill-over effects (through the movement of people). By lumping together similar and related firms in one locality, the mobility of individuals between organisations is increased, thus knowledge “fermentation” accelerates.

The paper by Malmberg and Power published in 2005 (see reference section), however, question these basic assumptions. Through their review of 100 empirical studies around the globe, they found that these assumptions are not as robust as originally thought. Specifically:

• Inter-firm collaboration between firms in clusters do not occur as often as we would like to think. Furthermore, the authors state that intensified collaboration within the cluster is not necessary in order for it to prosper.
• The authors suggest to drop the assumption that “the more localised interaction, the better.”
• Clusters tend to be effective for industries who are still in the early stages of its life cycle. As the industry matures, “innovative activity tends to be more spatially dispersed.”
• There is limited evidence to support the idea that clusters result in intensified rivalry. The authors also state that “there are obvious examples of firms, and clusters of firms, who seem to be able to perform well in terms of knowledge creation and innovation in the total absence of local rivalry of the Porterian type.”
• The authors talk about spill-over effects stating that “there is emerging evidence indicating that labour mobility tends to be higher between firms locally and that this contributes to the success of clusters in terms of knowledge creation.” They also state, however, that the evidence is still not yet conclusive.

Nevertheless, the Malmberg and Power paper does not totally debunk cluster theory. As I understand it, the paper simply states that regions should not expect every knowledge-creating activity to happen locally within a cluster. Just as a firm needs to collaborate with others to succeed, so too must clusters network with other geographic locations to prosper. It’s worth noting that this is also what made Hsinchu Science Park in Taiwan succeed: by forming numerous strong and weak ties with Silicon Valley, they were able to accelerate knowledge creation and diffusion within the region.

References

Chen, S. and C. J. Choi 2004. Creating a Knowledge-based City: the Example of Hsinchu Science Park. Journal of Knowledge Management. 8(5):73-82.

Malmberg, A. and D. Power 2005. (How) Do (Firms in) Clusters Create Knowledge? Industry and Innovation. 12(4):409.

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