The Principles of Smart Specialisation and Space Cluster Development

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Professor Raquel Ortega-Argiles outlines the principles of Smart Specialisation and Cluster Development and how it can work within the context of developing a West Midlands Space Cluster.

This blog has been produced to provide insight into a City-REDI / WMREDI project looking at the development of a Space Cluster in the West Midlands. The project is led by Dr Chloe Billing and colleagues: 

View more work from the Local Space Cluster Development Support Programme

Smart Specialisation strategies and cluster policies are significant policy instruments of regional policy, designed to guide regions and cities in their efforts to spur and nurture regional entrepreneurial and innovation activities, bring talent together and attract investments in key regional activities. It should be seen as a process to create real local value – added by increasing regional competitiveness on the domains where regions can compete globally, which seems to be the adequate framework for designing and developing a West Midlands Space Cluster.

Principles of Smart Specialisation

Smart Specialisation is an approach to economic development through a more strategic and targeted public investment that leverages private and public initiatives and investments at the forefront of regional growth agendas and pathways. It is a good yardstick for identifying local growth priorities. These strategies set out the agendas for integrated, place-based economic transformation to guide local innovation-related investment and industrial transformation. They:

  • focus policy support and investment on key national or local priorities, challenges and needs for knowledge-based and industrial development;
  • build on each region’s strengths, competitive advantages and potential for excellence;
  • support technological as well as practice-based innovation and aim to stimulate the private sector investment;
  • get stakeholders fully involved and encourage all forms of innovation and experimentation; and
  • are evidence-based and include sound monitoring and evaluation systems.

These strategies focus on experimentation aiming to generate new specialisations to drive the wider process of regional structural economic transformation. They act as an opportunity for regions to set up a coherent framework for stimulating structural change in the regional economy according to the investment’s geographical and thematic context and industrial opportunities.

The process should aim at upgrading innovation capabilities; increasing private R&D; increasing the number of innovative companies in a region; increasing revenue from new products and services; providing better, more tailor-made support services for SMEs; improving international exposure and commercial track-record of clusters; improving access to finance for SME innovation; better positioning regional industries in international value chains and transforming the regional industrial landscape towards future-proof emerging industries. Truly smart specialisation strategies should involve all stakeholders within a culture of cooperation and partnership that develop joint roadmaps and multi-level approaches to stimulate complementary investments to enable local clusters with global potential to develop into world-class clusters.

Smart Specialisation, in general, can be understood as a place-based policy prioritisation process based on increasing innovation capabilities, entrepreneurial opportunity and excellence in research and innovation, moving towards a sustainable and innovation-oriented growth strategy. This policy prioritisation choices should be based on regional competences and capabilities via processes of entrepreneurial discovery, related technological diversification, embeddedness and connectivity.

In practice, these strategies are based on supporting regions in finding ways of diversifying their innovation potential, avoiding fragmentation and duplication/imitation. It should be based on the accumulation of critical mass (i.e. modern clusters creation) by involving actors as anchors in the innovative regional cycle.

Policies must be tailored to the local context, acknowledging that there are different pathways for regional innovation and development. By:

  1. a) rejuvenating traditional sectors through higher value-added activities and new market niches (mining in Silesia, shipbuilding in Skane);
  2. b) modernising by adopting and disseminating new general-purpose technologies (logistics in Flanders);
  3. c) diversifying technologically from existing specialisations (technical, scientific, skills) into related fields (aeronautics in Toulouse to GPS technologies);
  4. d) developing new economic activities through radical technological change and breakthrough innovations (tourism in the Balearic Islands); and
  5. e) exploiting new forms of innovation such as open and user-led innovation, social innovation and service innovation (historical heritage in Italy).

The role of clusters

Modern clusters in the context of smart Specialisation focus on productivity and innovation as key drivers of competitiveness. They aim at fostering regional embeddedness with a view to capitalise on the advantages of proximity and critical mass in related industries. Specifically, they focus on sectors with clear growth potential for innovation, aiming to exploit emerging linkages between economic activities that can cut across traditional cluster boundaries. Traditional clusters can come close to “smart specialisation domains” if they stimulate new types of knowledge spillovers with a high leverage effect on the regional economy’s growth pathways.

These growth strategies demand comprehensive efforts to mobilise resources in order to accelerate innovation and industrial transformation in areas of growth potential. Regions are a driving force in this, as favourable place-based business conditions help incentivise actors in the real economy, notably small and medium-sized enterprises (SMEs). Clusters are a powerful tool for reaching out to specialised SMEs and related innovation actors and increasing their competitiveness.

The full potential of clusters is unlocked when policies and SME support measures are in place that can structure the co-creation process and thus direct public and private investment towards smart Specialisation. This requires linking up the main players in the regional ecosystem and involving a wide range of stakeholders and overcoming potential sectoral, regional and departmental silos. Regions that succeed in achieving this and that can tackle the economic complexity of the process through clusters will usually be those that subsequently benefit from economic resilience and higher employment growth. However, cluster initiatives and programmes in order to be successful should ensure coordination and connection from other traditional policies with similar objectives and the trade-off and the trade-offs between being too narrowly focused (i.e. networking) or too thinly spread (i.e. financial support lacking critical mass).

The role of cooperation

Innovation and entrepreneurship are more likely to occur at the intersection of different disciplines and sectors.

In Smart Specialisation, it is crucial to exploit the cooperation and investment opportunities across regional and international borders by developing common roadmaps and investing in joint pilots and demonstrator projects to enable local clusters to develop their local, regional and global potential. Given the economic and political context, there is growing importance to remain competitive in an increasingly global world. Therefore, when developing and implementing these modern cluster strategies, regions should focus on synergies with other transnational initiatives to maximise the impact of their investments.

Developing Smart Specialisation strategies should be an essential exercise for the regional stakeholders as it is necessary to reconcile the diverse interest of science, academia and the private sector from entrepreneurs, SMEs to multinationals. While innovation tends to emphasise new versus old, high-tech versus low- medium-tech, or start-up over established family businesses, Smart Specialisation is more inclusive and tries to build on the inherent strengths and or comparative advantages that every region possesses.

Cooperation across industries and the interplay between private and public actors, including universities and research organisations, are essential to any regional economic transformation process.

However, it fails for public authorities to be responsible for implementing the conditions for cooperation. They should be keenly aware of the importance of innovation and the new collaborative role they play – mixing established strengths with new strategies and technologies, tapping into entrepreneurial insights and experience, and creating unique environments for new growth opportunities.

Public authorities should put this into practice by:

  • modernising, streamlining and improving their processes and structures;
  • becoming catalysts for action, hubs for collaborative projects involving many diverse actors, and facilitators of the journey of “entrepreneurial discovery”;
  • providing the groundwork and strategic investments for public-private partnerships to succeed; and
  • having an international perspective to:
    • coordinate investment strategies and roadmaps with other regions in the country;
    • cooperate with partners regions to facilitate co-investment and pool resources and efforts;
    • create synergies with relevant international initiatives.
The role of government

In this context, the role of government is that of an enabler that provides incentives and encourages entrepreneurs and other organisations such as universities and research institutes to become involved in identifying regions’ specialisations. Priorities must be set and supported through a targeted investment agenda linked to these emerging specialisations and innovation pathways.

Governments need to facilitate the ‘entrepreneurial discovery process’ that the smart specialisation framework envisages ensuring industrial exploration, experimentation and discovery of new opportunities to become a ‘fast follower’ of the market signals generated by this process. Thus accelerating the industrial transformation in these lead industries by lifting barriers and creating specific qualities of a business environment with a unique and lasting advantage to facilitate the emergence and growth of new clusters.

Besides, an effective monitoring system needs to be put in place to evaluate and assess government support effectiveness to ensure that limited public funds are directed to where they can add the most value in terms of creating jobs and growth and supporting industrial transformation.

This blog was written by Professor Raquel Ortega-Argiles, Professor of Regional Economic Development, City-REDI / WMREDI.

The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.

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