ECONOMIC DEVELOPMENT QUARTERLY
CLUSTERING
FOR INNOVATION
BY KEENAN JACKSON
‘Innovation’ has been a catch cry of multiple
governments over the past couple of decades
as they seek to spruik Australia as more than
just an open pit mine, and also to counteract
declining labour productivity growth. Going
hand-in-hand with innovation is the utilisation
of spatial concepts such as clusters or
innovation precincts.
A LITTLE ON CLUSTERS
The concept of industry clusters came to
prominence in the early 1990s, largely on the
back of work by Michael Porter, one of the most
influential proponents of the competitive advantage
gained by similar firms or sub-industries locating in
close proximity to each other. He argued that inter-
firm cooperation and competition breeds innovation
and productivity improvements.
Porter’s work essentially built on ideas from nearly
a hundred years earlier of industrial localisation,
and the advantages generated by skilled people in
similar trades co-locating.
Such advantages include the development and
uptake of new ideas, the shared use of specialised
expensive machinery, and greater efficiency
in supply and demand of skilled labour. These
benefits are now commonly associated with the
concept of economies of agglomeration.
Today the rise of knowledge-based industries has
re-established the exploration and encouragement
of clusters. Interaction between firms and
institutions is said to be the basis of innovations
in clusters and the benefits of ‘knowledge
spillovers’ is thought to be a large driver of
industry concentration. However, despite many
governments’ best efforts to grow innovative
clusters overnight, most existing strong clusters
have evolved over time based on locational
advantages, economic trends and the strengths of
key assets.
However, concentration alone does not make
a cluster. True industry clusters contain
specialisations and are built around what can be
described as related diversity. This simply means
that there is a concentration of different types of
enterprises that are linked by related supply chain
activities.
For an example, let’s consider the City of Monash,
Greater Melbourne’s second largest economy by
Jobs and Gross Regional Product (GRP). There
is no doubt that it has a large concentration of
businesses, institutions and employees, including
world-class facilities; Monash University, Monash
Medical Centre, the CSIRO, the Australian
Synchrotron, and the Australian Regenerative
Medicine Institute (ARMI).
So, does Monash (in Melbourne’s inner-South-
East) contain a strong cluster? And, does
this support innovation and new business
development?
Over time, Monash has developed key
specialisations in a number of linked sub-
industries. For example, scientific research
services are over-represented when compared
to the rest of Greater Melbourne, but so are
scientific testing services, scientific equipment
manufacturing, and scientific goods wholesaling.
There is no doubt that these industries also
rely on a steady stream of science graduates
and associated scientific research training at
Monash University. Businesses have established
relationships and partnerships over time that have
probably facilitated new product development and
more efficient processes.
The area could actually be defined as having
multiple thematic based clusters as there are
other areas of related diversity. Some of the key
linked industries where the City of Monash has a
specialisation in are presented below.[1]
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