Locate Near Your competitors

BusinessWeek Viewpoint December 8, 2009, 2:03PM
How to Take Advantage of Business Clusters
Locate your company near its competitors. The benefits are more numerous and attractive than you might think, says entrepreneur-academic Richard Mammone
By Richard Mammone
Small Business

Winemakers know that the best wine starts with grapevines that were planted just close enough together to be forced to compete for nutrients in the soil. Stress causes the plants to put more energy into their reproductive processes, increasing the quantity and quality of the grapes. It turns out that similar businesses located together in what are known as business clusters or industry clusters also demonstrate better results. Numerous studies show that on average, a business located in a cluster has a stronger growth and survival rate than those located outside it.
This is partly because the physical proximity of the companies facilitates exchanges of information and talent among the competing firms. Clusters normally include highly specialized vendors, service providers, investors, analysts, students, university faculty and staff, trade association members, consultants, and other useful specialists. In addition, industry-specific equipment is often more readily available within a cluster.
The benefits aren't just derived from the private sector. Government agencies, both federal and local, tend to offer industry-friendly incentives and regulatory policies to companies that locate in clusters. The government's motivation is not purely altruistic. It has learned that a cluster can help the economic growth of a region by increasing job creation and tax revenues. Indeed, the federal government's 2010 budget supports entrepreneurial ecosystems and regional innovation via direct and indirect investment mechanisms. In addition to these investments, Commerce Secretary Gary Locke on Sept. 24 announced plans to create an Office of Innovation and Entrepreneurship within the Commerce Dept. and launched the National Advisory Council on Innovation and Entrepreneurship. The council will include entrepreneurs, innovators, angel investors, venture capitalists, nonprofit leaders, and others who will identify and recommend solutions to issues critical to the creation and development of ecosystems that will generate new businesses and jobs.
New York State is fostering clusters
The high concentration of knowledge in a single location also encourages entrepreneurs to spin out more new startups than would otherwise be launched. You might say that the fruits produced by the ecosystem are the new startup companies.
You can start your industry cluster search on the Web. For example, the terms "New York City" and "industry cluster" yield a list of the industries common to the New York metropolitan area. Within it, you may be surprised to find such industries as food processing and transportation equipment. Not all clusters are predetermined by legacy industries. You'll also see that New York State is making several attempts to develop new clusters, using economic stimulus funds from the federal government.
That's why I strongly encourage you to investigate your own region to find resources you might not know exist. When I did a similar search for Connecticut, I found that the Connecticut's Economic & Community Development Dept. had a similar resource listing its own incentive programs and business clusters. (Web search isn't perfect; a search of my home state of New Jersey yielded scant results.)
contact universities within clusters
Harvard Business School's Michael Porter and his team have developed a more substantial method of finding clusters in an online database that maps clusters by industry and region. The site offers a useful search option without charge and an increased set of features for a subscription fee. HBS' Institute for Strategy and Competitiveness also offers further cluster-related resources.
If you don't have the means to start or move your business to a cluster, contact a university that is located in the desired cluster. Most universities have entrepreneurship centers or technology transfer offices that will be glad to help you take advantage of some of the local clusters' benefits. They will usually have a deep understanding of your industry and will generally have ideas on how your company can participate in local events and organizations.
Clusters are particularly well-suited for companies that require a workforce with specialized knowledge in areas as diverse as medical devices, food technology, pharmaceuticals, and jewelry manufacturing. The knowledge that your company gains in hiring experienced employees who have participated in successful companies is not the kind of knowledge you can obtain from books or courses. Such deep knowledge helps your company make better decisions and correct faulty ones sooner. This unwritten or tacit knowledge is an asset to your company, albeit an intangible one. It may also add goodwill to your balance sheet in the form of patents and trademarks. So if you would like to benefit from an ecosystem of enlightened self-interest, a cluster might be the best place for your company.
Richard Mammone, Ph.D., is a Rutgers University professor with a joint appointment in the Business School and the School of Engineering, as well as the Rutgers University associate vice-president of corporate liaison and executive director of the BEST Institute.