Targeting countries with the right clusters

If you’re going to grow a business in a foreign location, it helps to do it in fertile soil. In many cases, that means locating in a business cluster that has the ecosystem to support your expansion.

Silicon Valley | Photo: Robert A Isaacs

Business clusters are geographically concentrated hubs of companies in related, complementary and often co-dependent fields. In the United States, the obvious examples are Silicon Valley for technology companies or Hollywood for the entertainment industry.  But there are hundreds of other business clusters scattered across the world.

The right business cluster could provide a business with the specialised parts and machinery to supply its factory; with regional staffing agencies to help hire its labor; with product marketers and distributors to sell its products; and with lawyers, accountants and financial institutions to help it with local regulations, tax codes and payment issues.

A business cluster might also serve as a source of new customers. An ambitious food exporter, for example, might look for a tourist cluster that included a dense strip of hotels, restaurants, tour operators, transportation services and theme parks.

Even in an era of instant communication, location remains important. From the Bay Area to Bangalore, new ventures are often brought to life by the physical presence of other companies, concentrated demand and a critical mass of skilled labor within an immediate area. The geographical closeness can encourage face-to-face interaction and help businesses build informal networks of relationships.

The right cluster may help your company reduce the business risks of setting up shop in a new country. But finding the right cluster is not easy. A fast-growing industrial area may not have the particular constellation of businesses and institutions a company needs. In some countries, moreover, foreign businesses will be spurned by existing companies eager to protect their turf.

The Harvard Institute for Strategy and Competitiveness has compiled a database of global business clusters,with more than 800 industry clusters in over 50 countries. The database is available free to the public and can be accessed from www.isc.hbs.edu. Harvard’s objective, according to Richard Bryden, director of information products at the institute, is to provide a detailed picture of the performance and location of industries in the U.S. and abroad, and examine patterns of international trade between countries and other regions.

Enter the international cluster database, and you’ll see the total export values of goods by country and industry, as well as the total export values by country and destination. This macroeconomic data will give you a broad sense of national competitiveness in traded goods and services. You’ll also find a country’s competitive position for each cluster type by reviewing its share of world exports within a given industry.

The real value of the database becomes clear when you look at industrial activity by area of specialization. Even the most obscure nations are covered.. For example, a diligent researcher will find that the small Central Asian republic of Tajikistan has a production technology cluster consisting of manufacturers of process equipment components, compressors and spraying devices, roller bearings, bottling machinery and hoists.

Unlike its U.S. database, Harvard’s international database does not provide the precise location within a given country of clusters as yet, but the granular information it does provide on industrial activity by country is a good starting point.

The database also offers information on subdivisions of clusters to provide a sense of the degree to which groups of companies tend to co-locate with each other. For instance, through simple pull-down menus, you can navigate to Brazil’s lighting and electrical-equipment clusters, and find export volumes of switchgear, batteries, electrical parts, lighting fixtures and glass manufacturers. This will tell you not only the kinds of associated businesses within Brazil’s clusters in this industry, but also their share of exports and relative size.

Harvard supplements all this data with key links to sources providing information on the national economic performance, business environment, political backdrop and social context of foreign countries. This helps shed light on the health, productivity and innovation levels of the regional economies that host industry clusters and helps point you to answers to some key questions: What are the rates of employment and job growth in a destination your company may consider for expansion? What are wage levels, and how are they trending? What is the volume of patent registrations?

Using cluster data and analysis may help you determine whether a country has the right set of clusters to support your business – and develop a regional business strategy for drawing on complementary enterprises in order to grow and thrive.