How Economic Clusters Drive
Globalization
Historical research by Valeria
Giacomin shows that industrial clusters, often cited in explaining local
economic growth, have had a much wider impact, especially in developing
countries.
hoto source: iStock)
Economic cluster theory has been used to
describe the growth of many industries, including the automotive business
around Detroit, high tech in Silicon Valley, and digital media in Seoul. These
regions benefit by a concentration of complementary resources that might
include leading research universities, low cost or highly trained labor, and
geographic bounty. Understanding how clusters work can help governments develop
effective policies for creating them, as well as direct entrepreneurs to the
best locations to build their businesses.
Now, a new research paper suggests that
economic clusters—usually used to explain development in local economies—have
had a much wider impact on world economics than generally recognized.
Harvard-Newcomen Fellow Valeria Giacomin calls clusters “the building blocks of
the global economy.”
Giacomin notes that clusters have been around
long before they had a name, showing up in the development of colonial-era
industries and earlier. In her working paper A Historical Approach to Clustering in
Emerging Economies, Giacomin takes advantage of this fact,
proposing a longer, broader view of clusters and the role they play in
developing economies and globalization at large.
“The cluster concept is often used to
consider local factors,” Giacomin says, “but there’s a growing awareness that
many clusters are also driven by external forces, such as foreign direct
investment and multinational corporations, which results in a connection that
occurs through knowledge exchange on the local level or across wider cluster
networks.”
In that sense, she says, clusters become
platforms for development, which has present-day implications for corporations,
governments, and individual actors, especially in emerging economies.
Analyzing palm oil and ecotourism
Giacomin draws on two very different cases to
analyze that phenomenon, first examining the evolution of the rubber and palm
oil plantation clusters in Southeast Asia from 1900 to 1970 and then reviewing
recent research on the rise of Costa Rica’s ecotourism cluster from 1940 to
2000.
As an exploitative plantation industry, the
rubber and palm oil industries in Indonesia and Malaysia couldn’t be considered
a civilizing force, at least initially, Giacomin says. Yet, after rubber
clusters based on foreign-invested estates had developed in the region,
entrepreneurial smallholder farmers capitalized on existing infrastructure to
farm rubber around the edges of established groves, creating a rubber supply
parallel to that produced by the foreign direct-invested estates. This increase
in supply drove down prices on the international markets, eventually leading
multinationals to move into palm oil—a much more capital intensive crop to
process, with higher barriers to entry for small farmers.
Geopolitical forces also played a part in the
palm oil industry’s development, Giacomin says. After World War II, Indonesia’s
Communist-backed government cracked down on colonial business interests, while
Malaysia’s government took a softer approach, allowing companies to continue
operations in exchange for training and development programs that helped
smallholder farmers switch from rubber—which, with the introduction of
synthetics, was no longer as profitable and secure an investment as it once
was—to palm oil. Unilever, the largest private holder and buyer of palm oil (an
ingredient used in its famous “Sunlight Soap” and other products), diversified
its holdings from the crop’s native West Africa to the Malaysian cluster. In
the 1950s and 1960s, Giacomin writes, the two locations shared knowledge of
palm oil production even as they competed for market share—a contest that
Malaysia eventually won thanks to its more stable political climate and higher
quality of institutions.
“Because the Malaysian government was good at
creating policies that fostered the transition from the rubber to the palm oil
industry, the local population was able to take advantage of a situation that
initially wasn’t so positive,” says Giacomin.
With that said, she acknowledges, it can be
argued that the palm oil industry today is a major source of deforestation in
Southeast Asia, and not always at the forefront of sustainability practices.
“It can take a while to improve these processes, and I think the industry is
moving in that direction. But, during the 1960s and 70s, the palm oil cluster
was a huge engine of growth and infrastructure for rural areas. There are ways
to change an industry that starts as extractive to producing externalities that
foster development.”
In the case of Costa Rica’s ecotourism
industry, Giacomin reviews earlier analysis by HBS history Professor Geoffrey
Jones and research associate Andrew Spadafora. Their research details how
educational institutions gathered and disseminated knowledge about the
country’s biodiversity, an effort that, with government support, led to the
creation of national reserves and parks.
As with Malaysia, Costa Rica’s relative
political stability, compared to neighboring Guatemala and Nicaragua, created
competitive business conditions. Foreign tourists from Europe and North
America, drawn by the promise of a pristine environment, relocated to Costa
Rica and launched startups offering lodging and guided tours in protected
areas, an effort that was so successful it created a detrimental snowball
effect.
“This movement built a reputation for Costa
Rica as a natural paradise and conservation hub,” Giacomin observes. “At the
same time, local actors took advantage of this brand identity to build
mainstream tourist facilities that weren’t in line with conservation and sustainability
efforts. Some of those businesses diluted the concept of sustainability that
created the cluster in the first place.
Considering the historical perspective
“The historical perspective is important,
because you rarely have a linear story,” Giacomin continues, citing the
involvement of universities, government actors, and entrepreneurs. “It’s never
a one stakeholder story.”
Taking this longer view, she says, makes it
easier to see beyond clusters as self-contained and localized to their more
nuanced role as interactive spaces that foster communication and collaboration
between foreign and local organizations and individuals and enable the
integration of developing countries into the global economy.
It’s an understanding that can be useful in
the here and now, too.
“This could be a good way for multinational
corporations and business practitioners to consider the relative merits of
competing cluster locations,” Giacomin says. “If I’m an organic wine producer
with available resources and people, where is the best place to set up
production? Where will the political risk be lowest in terms of regulations for
that specific enterprise and industry? Which locations will allow more
possibilities to introduce innovative practices or foster sustainability?”
Giacomin sees a number of other research
opportunities for studying clusters. Most of the world’s lithium—now in high
demand because it’s used in so many electronic products and electric car
batteries—is mined in Bolivia and Chile, for example.
“That’s a concentration not available
anywhere else,” she says. And those particular conditions—of government,
industry, corporations, and the local populations—will no doubt yield new
perspectives on the very old reality of clusters.
“Clusters have been there forever, right?”
Giacomin says. “This is just a way of thinking ‘glocally’ about a concept
that’s everywhere.”
by Julia Hanna
https://hbswk.hbs.edu/item/how-economic-clusters-drive-globalization?cid=spmailing-17263016-Working%20Knowledge%20Newsletter%2010-18-2017%20(1)%20B-October%2018,%202017
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