Cluster Mapping: Pattern in Irish National and Regional Economic Activity

Seán O’Connor, University College Cork, Ireland

Parallel Session 3.1: Cluster dynamic research. Implications on Cluster Performance and Business Competitiveness

Structure

• Ireland – A National and regional perspective • Irish Cluster studies – An overview• Irish Cluster Mapping Analysis- Approach (and limitations)• Some Findings and Implications

Ireland – A national and regional perspective

• Population – 4.6 million.• Rank 14th in GDP per capita but 34th in GNI per capita• Significant level of MNC at play in Irish economy.

• Exports as % of GDP (2012) – 105.6%. • IDA Ireland estimate foreign firms contribute over 75% of exports.

• Island can be split into 8 NUTS3 regions.• Dublin & South-West highest levels of productivity per worker

• 2012: Dublin (€121,248) & South-West (€109,251) – Constant 2014€• Midlands least (€50,452) – down by 0.3% since 2000.

• Highly centralised government system.• Local government plays little to no role. • Regional policy is generally top down

Source: Central Statistics Office, IDA Ireland, World Bank and OECD.

Economic Composition

• Structural – Ownership: Irish and Foreign-owned Enterprise• Industry• Services

• Technological – high-tech Vs low-tech• Scale – SME and Larger Business• Regional – Geography: Distribution of economic activity

• Dublin & Rest of country• Cities ……… Rural

• NUTS 2 Regions• Border/Midlands/West: Areas 1,2 & 3• South and East: 4,5,6,7,8

• Cluster - Cross categorical concept• Productivity and performance: convergence effects, cluster effects

Cluster Research & Measurement:The case of Ireland

Irish Cluster Studies

• Irish interest in clusters dates back to the ‘Culliton Report’ (1992)• Highlighted the importance of a competitive business environment to

the development of enterprise and recommended the promotion of clusters focused on niches in national competitive advantage.

• Much of the literature on clusters in Ireland focuses on the development of clusters in particular sectors• e.g. O’Connell, Van Egaraat, and Enright (1997), Clancy and Twomey

(1997) and O’Gorman, O’Malley and Mooney (1997)

• Findings generally negative to existence of Porterian clusters.• Doyle and Fanning (2006) note much of the work to date has been

inadequate given that clusters aren’t confined to one set industrial code.

Challenge: Clusterizing Irish Data

• International advances (Delgado et al. 2015; Ketels & Protsiv, 2014) in measuring clusters: empirics first presented 2003, building on idea of 1990.• US Cluster Mapping Project 2014 launch: benchmark cluster

definitions (algorithm)• EU Cluster Observatory (missing data/lack of regional scope)

IRELAND• Empirical work hampered by lack of appropriate &

comparable data• Beyond standard industrial reporting classifications• Different classifications used for output, employment, exports …• No data on occupations in plants/establishments

• Data on Industry Vs Services (Census & Survey)• Census of Industrial Production (Regionally representative) • Annual Services Inquiry (Not representative past NUTS2)• Business Demography (Regionally representative)

• Only provides employment data

Economic Composition:Traded & Local Clusters

35% of Employment

62% of Wages

85% of Output

65% of Employment

38% of Wages

15% of Output

Source: CSO (2015)

Traded Cluster • Serve markets in other regions/countries • Free to choose location • Exposed to competition from other regions/nations

'Cluster' determined by relatedness in terms ofi. Input-outputii. Use of occupationsiii. Co-location pattern of employment

and plants/establishments

51 separate clusters'Cluster' if regional specialisation relative to nation

Local Cluster• Serve local market primarily• Not exposed to cross-

regional competition for employment

Ireland, 2012

Irish Local and Traded ClustersNUTS3 Share of employment (%) -

2012

Employment growth –

2008 -2012 (CAGR) (%)

Region Traded

Industries

Local

Industries

Traded

Industries

Local

Industries

Border (1) 36.6 63.4 -4.40 -6.55

Dublin (5) 36.9 63.1 -2.41 -3.26

Mid-East (4) 39.0 61.0 -4.76 -6.43

Midland (3) 13.8 86.2 -8.28 -3.23

South-East

(6)

37.0 62.0 -4.40 -7.76

South-West

(7)

35.9 64.1 -4.48 -5.90

Mid-West

(8)

38.8 61.2 -3.69 -7.03

West (2) 32.8 67.2 -4.49 -6.04

Sources: Central Statistics Office (2015) – Business Demography

• Large level of variation between traded and local at regional level.• Wexford (6): 7.9% • Waterford County

(6): 54.1%

Ireland’s traded clusters

• Business Services, Hospitality & Tourism, and Distribution and Electronic Commerce three largest clusters in regards to employment.• Video Production & Employment fastest growth

employment 8.67%.• Upstream Chemical Products, and Biopharmaceuticals

highest average wages.• €60,915 & €60,422.

• UCP also has the highest wage growth during the period 2008-2012.

Prominent Irish clusters

Rank Cluster Export Value

2012

(€,000)

CAGR

2008-

2012

Per

Irish

Plant

(€,000)

Per Foreign

Plant

(€,000)

1 Biopharmaceuticals 31,818,151 4.1 5,909 704,838

2 Information Technology and Analytical

Instruments

23,354,219 -6.0 1,987 176,820

3 Business Services 20,141,212 55.4 335 28,197

4 Distribution and Electronic Commerce 15,272,480 21.8 444 16,254

5 Food Processing 14,440,756 3.4 9,334 464,229

Sources: Central Statistics Office (2015) –Annual Services Enquiry and Census of Industrial Production

Note: Constant (2014€)

Prominent Irish clusters: Irish vs. Foreign Plants

Employment Output (€,000)/ plant Wages/worker/

plant

Rank Cluster Irish Foreign Irish Foreign Irish Foreign

1 Biopharmaceuticals 62 295 318,884 671,294 46,081 61,560

2 Information Technology

and

Analytical Instruments

14 113 1,238 59,742 46,990 62,336

3 Business Services 8 57 354 6,335 38,395 50,904

4 Distribution

and Electronic

Commerce

10 27 613 7,036 33,717 65,827

5 Food Processing 51 260 4,469 223,134 36,877 62,197

Sources: Central Statistics Office (2015) –Annual Services Enquiry and Census of Industrial Production

Note: Constant (2014€)

Locating prominent regions

• Utilising Location Quotients to identify where export intensive clusters are located. • LQ measures sectoral regional specialisation relative to national average.

• Common in cluster lit i.e. (Porter, 2003; US Cluster Mapping and European Cluster Mapping).

• Issues with the measurement. • No direct insight into relative size or importance of individual

concentrations. • Don’t account for number of firms in an area.• Spatial unit is usually pre-defined (NUTS3, State, Metro Area, Econ Area

etc.)• ‘Clusters may cross states or even national boundaries’ (Porter, 1998).

• Van Egeraat et al. (2015) ‘A Measure for identifying substantial geographic concentrations’.• Highlights the different results which can be achieved from using

different measurement techniques.

Pharmaceutical Sector

Source: van Egeraat et al. (2015)

LQ of Prominent clusters

ClusterBorder (1)

Dublin (5)

Mid-East (4)

Midland (3)

Mid-West (8)

South-East (6)

South-West (7)

West (2)

Agricultural Inputs and Services 2.5 0.2 1.5 0.5 3.0 2.7 1.3 0.5

Biopharmaceuticals 0.5 0.8 1.2 0.0 0.0 2.2 2.0 1.4Business Services 0.5 1.4 0.8 0.2 0.9 0.6 1.1 0.5

Communications Equipment and Services 0.1 1.8 0.3 0.1 0.4 0.4 0.7 0.2

Distribution and Electronic Commerce 1.0 1.1 0.9 0.4 1.2 0.8 1.1 0.7

Downstream Chemical Products 0.8 0.6 2.4 0.2 3.0 1.3 1.5 0.2

Financial Services 0.2 2.0 0.3 0.0 0.1 0.1 0.4 0.2

Food Processing 2.2 0.6 1.3 0.4 0.9 2.1 1.8 0.3

Information Technology and Analytical Instruments 0.3 0.7 2.8 0.1 2.0 0.5 1.7 0.9

Insurance Services 0.7 1.9 0.2 0.1 0.2 0.7 0.2 0.2

Livestock Processing 1.6 0.1 3.6 1.6 1.0 3.5 0.6 0.9

Medical Devices 2.1 0.1 0.3 0.9 2.0 1.7 1.1 4.0Production Technology and Heavy Machinery 1.5 0.2 0.9 1.0 1.2 1.9 2.3 1.7Transportation and Logistics 0.9 1.3 0.8 0.3 1.2 1.1 0.6 0.5

Sources: Central Statistics Office (2015) – Business Demography

Employment Mix & Wages

• Difference between national wage and regional wage depend on• Mix of clusters in the region - distribution of employment

across clusters: Cluster Mix Effect• Wage levels of clusters in the region – relative to national

average: Wage Level Effect• If level > mix effects: mix of clusters is a less important

influence on wages than higher wages across range of clusters• If mix > level effects: growing share of traded clusters is

relevant policy.• Sectoral Focus – Manufacturing• Without Services data ... • Mix of clusters problematic for x regions – implies ...• X other regions low wages and cluster mix ...

Cluster Mix vs. Cluster Level: 2008 -2012

-8000 -6000 -4000 -2000 0 2000 4000 6000 8000

-8000

-6000

-4000

-2000

0

2000

4000

6000

Mix Effect

Leve

l Eff

ect

Region Mix or Level

1 (Border) Mix2 (West) Mix3 (Midlands) Level4 (Mid-East) Mix5 (Dublin) Level6 (South-East) Level

7 (South-West) Mix

8 (Mid-West) Level

Implications

• Challenge of data to generate evidence based for regional analysis & policy• Partial nature of results here – manufacturing focus

• This quantitative approach seen as being a compliment to qualitative studies.• Wages data particularly relevant

• Link to LS outcomes • Impact at individual level• Indicate quality of work relative nationally, and internationally

• Problematic for Ireland – Services – proportion of output and exports

Conclusions

• Standard duality of Irish economy presented in terms of Irish-owned and foreign-owned businesses.• Here presented in traded/local clusters.

• Different lens• Points to additional levers that matter for living standards.

• More productive clusters including foreign than Irish businesses.

• Disconnect between cluster use in Irish policy documents and implementation. • Clustering assumed to be geographical only• Few aids to support clustering advantages across businesses/sectors

... • Could be due to lack of data ... Hence this research• Before examining clustering and impact on e.g. innovation, new

business formation, need sound results on patterns of clustering in the economy.

Thank you for listening

• Feedback and questions welcome!

• Contact details• Email: sean.oconnor@ucc.ie• Tel: +353 21 490 2826• Twitter: @seanoconnor180