Current and Future Winning Places in Europe

by Jörgen Eriksson on June 11, 2012

The Greek drama

Ancient greek dramaThis month Europe´s Greek tragedy seems to have entered its final act, with potentially fateful consequences for the global economy.

There seems to be only two options left. Either a Greek exit from the Eurozone, which otherwise remains intact, or a Greek exit that triggers a complete collapse of the European Monetary Union. The impact of either alternative is staggering. Clearly, Greece is not set to be a “winning place” in the near future.

It is somewhat ironic that the Greek tragedy for the past two and a half years have played out in slow-motion, just like a classical Greek tragedy play would on a theatre stage. As those of us with classical education knows, a Greek stage tragedy is a form of drama based on a story of human suffering that involves its audience in an accompanying catharsis.

Last week I attended the annual European Family Office & Private Wealth Management Forum in Geneva and in a panel debate about the State and outlook of Global Credit Markets, the panelists tried to see opportunities in the impending potential disaster. This inspired me to write this blog.

New opportunities for CEOs and Place Managers

In all the negative news reporting, it is important that we keep in mind that we are looking at crises at the national government levels, as I wrote about in a blog last year.

Even though national governments are deep in debt and currencies may collapse, the fundamental economic strength of many places, regions and companies in the European Union remains strong and can be further strengthened.

Naturally a collapse of the euro may pull companies and places down, but individual CEOs and place managers have a number of tools they can use to minimize the impact of such an event.

One of the key principles of Place Management is focusing. By focusing on strengthening companies in a regional innovation cluster around a place, it is possible to strengthen the local economy and make it more resistant to external chocks.

Regional Innovation Clusters

What is a regional innovation cluster?  A cluster is a geographic concentration of interconnected firms and supporting or coordinating organizations and associated institutions, such as  universities. Clusters are geographic industry concentrations of companies, suppliers, service providers, and educational institutions.

The Competitive Advantage of NationsThe idea of “clusters” as a tool for economic development was introduced by Michael Porter, the famed Harvard Business School professor that wrote about clusters in his book The Competitive Advantage of Nations in the early 1990s.

Most reporting on the competitive success of nations look at aggregate, economy-wide measurements like the balance of trade, the currency rate and the national debt. In his book, Porter chose a different starting point, beginning with how individual industries and competitors build up to the economy as a whole.

Nations do not compete in the marketplace—business firms do, and the performance of individual companies in particular industries is where competitive advantage is either won or lost. The home nation influences the ability of its firms to succeed in particular industries, with the success or failure of thousands of struggles in many industries determining the state of a nation’s economy and its ability to progress.

In the book, Porter introduced how four determinants interact to form a company’s strategy, structure, and rivalry, as is illustrated in the figure below.

clusters and the firm

According to Porter, there is no single set of national conditions favorable to all industries, a conclusion from the detailed industry and country studies which constitute the bulk of the book.

The good news

The good news for CEO´s and Place Managers is that they can work pro-actively with development of both their companies and of clusters. Clusters will in the long run make both companies and the places where they are located more resistant to macro economic national trends.

Also according to The Competitive Advantage of Nations. The competitive advantage a cluster offers are in the areas of:

strategy/structure/rivalry – direct competition encourages innovation and a drive for productivity improvement
customer/consumer demand – stimulates a focus on quality delivery
related supporting industries – having upstream and downstream players in close proximity stimulates an exchange of ideas and innovation
factor conditions – specialized capabilities created by the unique profile of the cluster creates difficult to duplicate capabilities and cost structures

clustersThe keys to effective cluster analysis are the concepts of geographic concentration and interdependence. Each company’s success must depend on one, some or all of the members of the defined business cluster.

To apply Porter’s Cluster analysis to evaluate your economy and potentially implement a new cluster, the best bet is to hire a consulting firm with a proven track record of successful application of the model. The process requires experience to execute correctly and interpret the statistical results.

Place development of clusters

Conceptually, industry clusters have become the core strategy of economic development policy in many parts of the world. It is now a universally accepted fact that successful regional economies are, to varying degrees, specialized.

Even the most diversified regions are home to industries that, because of historical accident, targeted recruitment, or geographic peculiarities, are found in higher concentrations than in other places. Competitive advantage of a place can be best understood in terms of the comparative advantages of specific industries within that place’s borders.

No nation, and certainly no region, can be outstanding at producing everything. Therefore successful place managers develop strengths and focus innovative capacities on certain types of industries, or clusters.

Clustering provides firms with access to more suppliers and specialized support services, experienced and skilled labor pools and the inevitable knowledge leakage that occurs where people meet and talk about business. The advantages of place draw not only similar but also complementary enterprises and, as a result, clusters become a breeding ground for new clusters.

Positive place management results are often found in places where a clear priority has prevailed for some years, like Tuttlingen which my colleague Michael Deutsch wrote a blog about recently, or Grythyttan, which Christer Asplund wrote about.

It is a common mistake to make the cluster development strategy too diverse. We have seen many places ending up in frustration and missed opportunities because they pursued too many simultaneous leads and projects.

In order to focus one needs to rely on recognized and authorized strategic place branding and development plans. Via such a plan a place manager can exclude certain areas of concern and instead concentrate on a few priority issues.

A map of successful place clusters in Europe

Numerous existing European places have grown because of a consistent focus on a specific competence or a business cluster. In these best cases the place managers have managed to stick to a focus where the private and public sectors can coordinate their efforts. In the figure below we highlight some of them.

Winning places - 120413 beskuren

All focused places rely on a tight place management interaction between private and public stakeholders, and this can be achieved using the Quad Helix model.

Focused places have concentrated their efforts on business areas where they can foresee an increased demand for products or services. Without professional place management support and focus on the various attractions, the place brands would quickly deteriorate and end up in the big store of anonymous and forgotten places.

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