Institute for Competitiveness Tuesday, November 20, 2018 11:55AM IST (6:25AM GMT)   Clusters: The Drivers of Competitiveness Submitted to Economic Advisory Council to the Prime Minister (EAC-PM)   New Delhi, Delhi, India

Gujarat, Karnataka, Maharashtra, Tamil Nadu and Uttar Pradesh are the states with strong cluster portfolios. Report, analytical tool and cluster portfolios are available on https://clustermapping.in/ 

Highlights:

  • The report is submitted to Economic Advisory Council to the Prime Minister (EAC-PM).
  • Regions vary significantly in terms of average wages and employment levels. The average wage of the highest earning state (Jharkhand) is nine times that of the poorest one (Tripura).
  • Average wages in industrial states like Tamil Nadu (Rs.1,73,000) and Andhra Pradesh (Rs.1,48,181) fall below the national average wage (Rs.1,76,677). The employment and wage scenario in these states reveals that even though they are known for some high-paying sectors (Automobiles in Tamil Nadu and Pharmaceuticals in Andhra Pradesh), most of the workers are employed in low-paying sectors like Food Processing, Textile Manufacturing, etc.
  • Southern states have a stronger cluster profile than the rest of the country.
  • States with strong cluster portfolios perform better on innovation backing the theory that clusters provide an environment conducive to innovation and knowledge creation. These states are also ranked high on competitiveness.
  • High-tech clusters don’t have a strong impact on the regional economy. The proportion of high-tech employment explains 6 percent of the variation in average wages and 7.6 percent of the variation in average wages of local clusters. It is also observed that there does not exist a significant relationship between the high-tech clusters and employment growth. This helps us in concluding that for enhancing productivity states should focus on upgrading the clusters that are already present in the region.

Globalization, escalated by advances in technology, was seen as a liberating force, ushering in a ‘borderless world’ as manufacturing was being relocated beyond borders and information was instantaneously beamed across the world. Many scholars announced that the role of geography in shaping economic activity is diminishing. But despite these twin processes of globalization and digitalization, the world, whether developed or developing, is home to several clusters, loosely defined as the geographic concentrations of interconnected companies. And the presence of these clusters makes the “death of geography” argument look far-fetched. The importance of location can be seen in the famed growth stories of IT hubs like Silicon Valley and Bangalore.
 
The report titled “Clusters: The Drivers of Competitiveness”, released by The Institute for Competitiveness, an international think tank aims to identify and analyze the clusters that are present; evaluate the linkages that exist between clusters, innovation, and economic development; empirically examine the role played by clusters in enhancing competitiveness. It can be downloaded from https://clustermapping.in/2018/08/clusters-the-drivers-of-competitiveness/.
 
The project, inspired by US Cluster Mapping Project that is based on Prof Michael E. Porter’s work, is aimed at providing leaders, businesses, and changemakers in the country with open records on industry clusters and regional business environment to advance competitiveness. It was conceived on the understanding that there has been no systematic statistical cluster analysis at pan India level despite the realization that focus on clusters holds the key to competitive advantage.
 
Methodology
A multistage process was followed to reach the final framework for assessing clusters.
 
The first stage involved interaction with the Institute for Strategy and Competitiveness team, that included Christian Ketels and Rich Bryden, to gain an understanding of the cluster mapping project, its evolution, principles, and methodology.
 
The second stage involved defining clusters for the Indian economy and analysing their performance. This analysis is conducted for the period 1999-2014 using Annual Survey of Industries data on the organised manufacturing sector. According to the cluster definitions, based on the clustering algorithm generated by Delgado, Porter & Stern, there are 51 traded and 16 local clusters categories.
 
The third stage involved engagement with key experts and stakeholders to solicit feedback and validation. The report was submitted to the Economic Advisory Council to the Prime Minister (EAC-PM). Among those who provided valuable feedback was the team of experts at EAC-PM including Dr. Bibek Debroy (Chairman, EAC-PM), Shri Ratan P. Watal (Member Secretary, EAC-PM), and Shri K Rajeswara Rao (Advisor, EAC-PM).
 
Clusters, Regional Competitiveness and Innovative Capacity
The comparable Indian cluster definitions help us by facilitating comparisons across regions and clusters over various aspects such as employment, wages, job creation, etc. Cluster performance is analysed on four measures: size, productivity, specialization and dynamism and by combining these a single measure of cluster strength is generated.
 
The report also attempts to understand the ways by which clusters affect competition and regional competitiveness by empirically testing the relationship between clusters, innovative capacity, competitiveness and economic performance. It is observed that regions with strong cluster portfolios perform better on innovation. The correlation between cluster strength and innovation at the state level is 0.52. It is backed by the theory that clusters provide an environment conducive to innovation and knowledge creation. It is also observed that regions that have strong business environment, better infrastructure facilities, strong legal and decision-making institutions have a strong presence of clusters.
 
Recommendations
The report is beneficial to distinct stakeholder groups namely corporates, state governments as well as individual policy researchers/analysts for looking at how competitiveness landscape is shaping up at the state level India and how clusters are can drive competitiveness. For national leaders and policymakers, the study suggests some policy measures for impacting cluster strength, which have a bearing on the overall competitiveness of a state.
 
The broad level strategies include that all states should have a distinctive strategy for growth and development as Indian states display widespread contrasts in terms of their average wages, wage growth, and employment growth; the focus of the government should be on upgrading the already established and emerging clusters rather than seeding new clusters; policymakers should identify the strengths of every region and then focus on providing the right environment that will enhance the productivity. If the national level policymakers want to work on some specific clusters then the analysis helps by providing the details such as the regional presence of the cluster, how has the cluster performed overtime across regions, etc. The analysis for each cluster is available at https://clustermapping.in/data-by-cluster/. For regional policymakers, this analysis is beneficial as it helps them in understanding the clusters that are present in the region, analyse their performance and identify emerging clusters. The regional cluster portfolios can be downloaded from https://clustermapping.in/regional-cluster-portfolios/.
 
Commenting on the project, Dr. Amit Kapoor, Honorary Chairman, Institute for Competitiveness said, “Clusters provide a new way of looking at economic development, thereby setting new roles for government, businesses and other changemakers in enhancing competitiveness and prosperity. Therefore, it is crucial for every economy to identify and analyze the clusters that are present; evaluate the linkages that exist between clusters, innovation, and economic development. This report is a step in the same direction. It traces the evolution of clusters and portrays how their role has changed over the years and then moves on to tests the relationship between clusters, innovative capacity, competitiveness and economic performance. The interactive tool that provides data on presence and performance of clusters as well as regional business environment will help policymakers to benchmark regional performance and enhance the potential of regional clusters. It will also help businesses to make strategic investments by identifying the regions with favorable business environment.”

The Way Forward
The Institute plans on taking this project forward by updating the cluster analysis on regular basis as new ASI data is made available. The next update with data from ASI 2014-15 and 2015-16 will be made available in next 3 months. The analysis will be strengthened by utilising the employment statistics by the National Sample Survey Organisation (NSSO). In addition, the Institute is working on developing cluster reports that will help in understanding cluster specific challenges and state reports that will examine the cluster presence, performance and business environment.
About the Institute for Competitiveness
 
Institute for Competitiveness, India is an independent, international initiative centered in India, dedicated to enlarging and disseminating the body of research and knowledge on competition and strategy, pioneered over the last 25 years by Professor M.E. Porter of the Institute for Strategy and Competitiveness, Harvard Business School (ISC, HBS), USA. Institute for Competitiveness, India works in affiliation with ISC, HBS, USA to offer academic & executive courses, conduct indigenous research and provide advisory services to corporate and Government within the country. The institute studies competition and its implications for company strategy; the competitiveness of nations, regions & cities; suggests and provides solutions for social problems. Institute for Competitiveness, India brings out India City Competitiveness Report, India State Competitiveness Report, and funds academic research in the area of strategy & competitiveness.  For more information, visit http://www.competitiveness.in
 
Notes to Editors
 
For more information on the India Cluster Mapping, please visit https://clustermapping.in/  or http://www.competitiveness.in

  Media Contact Details

Neera Vohra,
Institute for Competitiveness, ,+91-9810473213
, neera.vohra@competitiveness.in