‘It’s not rocket science’ – the economic potential of innovation clusters
Regional clusters have huge potential to boost economic activity and grow exports, but they need adequate funding to accelerate their development.
Contributor
Peter Griffin
Ifor Ffowcs-Williams was in the depths of northern Sweden on an assignment to review the progress of a far-flung IT innovation cluster funded by the Swedish government.
“It was arctic Sweden, a bit miserable for a Kiwi, there’s snow on the ground seven months of the year,” says Ffowcs-Williams, the chief executive of Nelson-based consultancy Cluster Navigators. He’s also a globally in-demand expert on establishing clusters – groups of firms in related sectors who band together to share resources, suppliers and skills. “I thought with a smile, this won’t take long,” he remembers.
How wrong he was. It turns out northern Sweden is home to a world-leading IT cluster for remote and automated mining technology.
“I met a Brazilian PhD student there and asked him, ‘why the hell have you come here?’ He said, ‘this place is numero uno when it comes to remote mining’.”
With a long mining history, Swedish minerals and engineering companies have banded together to develop mining IT and hardware that can operate autonomously and remotely, improving safety and efficiency. It’s just one of many clusters Ffowcs-Williams has visited across the world.
Europe is cluster central
According to the European Union, there are around 1,500 industry clusters across the union’s 27 member nations and they account for around 25 percent of total EU employment.
“Small places can have a global reach,” says Ffowcs-Williams.
“But there are two conditions that need to be met: they need to be specialised in some sense, and there needs to be teamwork. You are unlikely to succeed as a series of silos.”
New Zealand has numerous examples of like-minded startups and other businesses in close proximity. One of the newest development initiatives among them is Moananui, a ‘blue economy’ cluster based in Nelson with funding backed by the Ministry for Primary Industries’ (MPI’s) Sustainable Food and Fibre Futures fund to the tune of $500,000.
An additional $400,000 has been contributed towards getting the cluster off the ground by Cawthron Institute, Sealord, Pharmalink Extracts, Port Nelson, Plant & Food Research, Kernohan Engineering, the Nelson Regional Development Agency, Wakatū Incorporation, and MacLab.
With the Nelson-Tasman area an established centre of fisheries, aquaculture, and marine manufacturing and research and development employing 3,700 in the region’s blue economy, it ticks the boxes as a logical place for a cluster development initiative. The government is funding a new Southland Engineering and Manufacturing Cluster, which officially starts this month.
But too often, says Ffowcs-Williams, we’ve failed to resource these developments properly – and taken too much of a top-down approach when central government funding is involved.
“Wellington usually controls the purse strings,” he says.
“We are the most capital-centric of any OECD country. That’s fine for a commodity producer, but if we are serious about producing differentiated high-value goods and services, Wellington can’t micro-manage it.”
The best cluster development initiatives, he says, are public-private partnerships with multi-year funding and regional participants taking the lead in designing and running them. He points to Canada’s C$750 million Global Innovation Cluster programme, which has funded clusters across Canada with a focus on protein industries, advanced manufacturing, digital technologies, artificial intelligence and an ocean cluster, similarly focused on the blue economy.
In the US, the Biden administration last year ran a competition to award US$1 billion in funding as part of its Build Back Better Regional Challenge. Much of the funding went towards new initiatives, including $44 million for a biofabrication cluster in New Hampshire, $50.8 million for a semiconductor cluster in Florida, and $25 million for a robotics cluster in Nebraska.
Clusters are seen around the world as a way to stimulate regional economic development, particularly in the wake of the Covid pandemic. But our own recent effort to inject funding into the regions, the Provincial Growth Fund, was focused on “concrete-ready” projects, rather than “knowledge-ready” initiatives, says Ffowcs-Williams.
Go global – from the regions
He estimates that an injection of public funding to the tune of $25 million a year over five years could be leveraged to support 20–25 regional clusters and give critical mass to boost the naturally occurring clusters we already have in areas like agritech, healthtech and video gaming.
“Around any strong cluster, you see startups that are developing technology for a regional solution, but then realise, we can go global with that,” he says.
“They will stay in the region if the ecosystem is conducive to them thriving, if the specialist skills are at hand along with components suppliers, lawyers, IP specialists,” says Ffowcs-Williams.
A Welshman by birth, Ffowcs-Williams did an 11-year stint at New Zealand Trade & Enterprise in the 1980s and 1990s.
He was also instrumental in developing the Porter Project, which brought Harvard economist Michael Porter to New Zealand to create the influential report Upgrading New Zealand’s Competitive Advantage. It was that experience that led Ffowcs-Williams to develop an interest in regional development, and clusters in particular. He’s since become an expert in how to set up successful clusters.
In Scandinavia, which Ffowcs-Williams regularly visits, cluster organisations provide infrastructure, with sometimes two or three people, but occasionally 20 to 30 people offering specialist skills to the companies involved.
During a visit to Jyväskylä, a city in central Finland with a population of 148,000, he found out there were 165 people working on economic development in various agencies.
“That’s one reason per capita income in Finland is a lot higher than here. They are organised around their regional strengths,” he says.
Politicians love precincts
Our own regional economic development agencies are cash-strapped, adds Ffowcs-Williams, and prioritise tourism. He admits his “frustration” at the state of play in New Zealand when it comes to cluster development, which often has a strong digitalisation focus, whether the cluster industry is mining, the blue economy or gourmet food.
“It's not rocket science. Kiwifruit grow in the Bay of Plenty. Where was the first robotic kiwifruit picker developed? Tauranga. The first robotic vineyard pruning technology was developed in Marlborough,” he says.
The question now is whether the next Government sees the potential in clusters and is willing to invest in them in regional New Zealand.
“Politicians love precincts; they like opening buildings,” he points out.
“More complicated, but more important is developing the social connections alongside the physical connections, and building the knowledge infrastructure.”
This is the first in a regular series by Caffeine looking at New Zealand’s efforts to build startup and industry clusters. Get in touch if you are involved in a cluster and would like to share your experience.
Contributor
Peter Griffin is a Wellington-based technology and science writer, media trainer, and content specialist working with a wide range of media outlets and tech companies. He co-hosts The Business of Tech podcast for BusinessDesk and is the New Zealand Listener's tech columnist. He has a particular interest in cybersecurity, Web3, biotech, climate tech, and innovation. He founded the Science Media Centre and the Sciblogs platform in 2008.
Lorem ipsum dolor sit amet, consectetur adipiscing elit. Suspendisse varius enim in eros elementum tristique. Duis cursus, mi quis viverra ornare, eros dolor interdum nulla, ut commodo diam libero vitae erat. Aenean faucibus nibh et justo cursus id rutrum lorem imperdiet. Nunc ut sem vitae risus tristique posuere.