Clustering could lead to increased productivity

US-style industry clusters could be the answer to the UK’s productivity gap with the rest of the world, according to a report by the Institute for Manufacturing. Companies in related industries can benefit from clustering – locating near each other – in a number of ways. They can access a pool of skilled labour and […]

US-style industry clusters could be the answer to the UK’s productivity gap with the rest of the world, according to a report by the Institute for Manufacturing.

Companies in related industries can benefit from clustering – locating near each other – in a number of ways. They can access a pool of skilled labour and stimulate innovation by communicating ideas quickly. And they can act as `incubators’ for future entrepreneurs in the same sector.

But Michael Kitson, IFM economic adviser, said the UK is doing poorly in encouraging clusters. `There are a few good examples, but difficult macroeconomic circumstances and instability have prevented the long- term development of successful clusters,’ he said.

Among the UK’s most successful clusters is the concentration of IT business around Cambridge and the motorsport industry north of Oxford. According to Kitson, other manufacturing sectors could also benefit from being closer together. `Engineering firms where innovation is important are likely to benefit from collaborating with nearby companies,’ he said.

Manufacturing companies which do so tend to grow more quickly and be better at innovating, the report found. Despite this, just 30% of companies had participated in any collaboration over the past 3 years.

Critical factors in the creation of clusters include an entrepreneurial culture and institutions, such as universities, which can work with local firms.

There may also be a role for the Regional Development Agencies in the English regions, all eight of which launched their economic strategies last week. The agency for the south west intends to make the region a centre of excellence in advanced engineering, concentrating on aerospace, medical devices and the automotive sector.

The IFM called for further research to identify existing and potential clusters in the UK, but pointed out the difference in scale of the US and UK: `In the US, clusters tend to be thought of as locations that can be visited in a single business day – by this definition the UK is a single cluster.’