The business cluster effect

I was recently invited by Centre for Cities to participate in a panel discussion about the formation of business clusters. The event was held as part of the launch of McKinsey & Co’s new report: “Industrial Revolutions? – The Shape of Clusters Across the UK”.

As a group, we tried to address a number of issues, e.g.:

• What can different places learn from successful clusters both in the UK and abroad?
• What role has national policy played in shaping that success?
• How can cities and LEPs work with universities in their regions to encourage high-growth business and industry specialists?
• How can policy, both local and national, ensure clusters across the country are supported to grow?

The whole concept of business clustering has become prominent in recent years, as cities seek comparative advantages. Essentially, clusters are supposed to do what it sounds like they do: attract a range of mutually beneficial industries. These specialized hubs in turn attract more talent and innovation, which in turn catalyzes the local urban economy and create long-term resilience. In the UK, 30 economically significant clusters contain 8% of the country’s businesses, but generate 20 percent of the economic output (GVA).

There are some globally noteworthy clusters in the UK.  London integrates some of the largest ones (specializing in creative and digital industries, property, tourism, business and financial services).  The “Golden Triangle” between London, Oxford, and Cambridge contains world-beating research centers. “Motorsports Valley” in the midlands builds on a legacy dating back to the industrial revolution from the 19^th century, and legacy metal and automotive production; it now concentrates premier research and engineering firms.

But we’ve also come to realize that clusters can rarely be created by design (all the efforts in the Middle East and China notwithstanding). Most of their origins are largely accidental. As Lord David Sainsbury (another participant on the panel) noted, clusters often evolve to fill market niches that are difficult for governments to anticipate. Ironically, governments’ increasing interest in the formation (and ultimately regulation) of clusters may well diminish what makes the clusters work in the first place.  It seems that in the last decade, every second-tier city has tried to create a nano-technologies cluster, and virtually all have disappeared.

I suspect that trying to pick apart what makes clusters successful may be like trying to gather together smoke. The most successful clusters will continue to form in cities which are themselves hubs – places that have strong identities to begin with, places that are large, dense, mixed use, and well supported by hard infrastructure. Urban size and agglomeration matters more in the globalizing and urbanizing 21^st century, and clusters are just another way of looking at cities.

Chris Choa (christopher.choa@aecom.com) is a Masterplanning + Urban Design principal in AECOM’s London office.