Economic clusters improve productivity while leading to higher levels of innovation

The province of Ontario is bringing new focus to the way it works with stakeholders to enhance and grow economic clusters, which have proven to yield competitive advantages while fostering greater levels of innovation. For those who are not familiar with clusters, here are answers to five frequently asked questions that help to define and illustrate the importance of business cluster development.

  1. What is an economic cluster?

    An economic cluster is a geographic concentration of interrelated businesses and other organizations, like universities, industry associations and research centres. Examples of clusters date back decades, including Italy's leather cluster, Germany's home appliance cluster and, of course, Silicon Valley. Ontario has more than 20 clusters, which include North America's second largest IT cluster, Sarnia-Lambton's chemical cluster, Hamilton and Toronto's life sciences cluster and the automotive cluster of Southwestern Ontario.
  2. Are clusters a threat to my business?

    Managers are at times wary of growing clusters due to their tendency to attract competition, drive up costs and increase the likelihood of losing valued employees to rivals or spin-offs. However, as Harvard Business School Professor Michael E. Porter explains, "As their understanding of the cluster concept grows, they realize that many participants in the cluster do not compete directly and that the offsetting benefits, such as a greater supply of better trained people, for example, can outweigh any increase in competition."
  3. Do new industries and subsectors benefit from clusters?

    "Cluster development is often particularly vibrant at the intersection of clusters, where insights, skills, and technologies from various fields merge, sparking innovation and new businesses," says Porter. For examples, one needs to look no further than Toronto's up-and-coming wearable technology and financial technology (fintech) sectors. To expound upon the latter case in point, the existence of North America's second largest IT cluster within North America's second largest financial centre has led to the development of one of the world's most renowned fintech clusters. Another example is the emergence of Southwestern Ontario as a connected-car R&D hub.
  4. With technology evolving rapidly, what sort of lifespan can clusters expect to have?

    In a paper published by the OECD, David Wolfe of the University of Toronto and his colleagues describe four distinct lifecycle stages for economic clusters: latent, developing, established and transformational. Latent clusters begin to form when actors realize that cooperating to identify and seize opportunity offers mutual benefit. The development of clusters takes place when new actors are attracted to the region and the strengthening linkages between organizations warrant the need to establish a formal cluster. Clusters are said to be 'established' when start-ups, joint ventures and spin-off companies create a self-sustaining dynamic. Finally, transformation happens when, in order to survive, the firms and organizations within the cluster re-orientate to avoid stagnation and decline.
  5. What is the Ontario government doing to support economic cluster development?

    In partnership with the Ontario Chamber of Commerce, the provincial government has launched a new fund to help develop globally competitive industry clusters. The Cluster Development Seed Fund offers grants of up to $100,000 to support networking activities or research and feasibility studies that will lead to the growth of more competitive clusters.

Learn how to develop an economic cluster plan

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January 21, 2016

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