On Friday 13 June 2008, Dr. Shahid Yusuf provided an informative presentation at the Institute of Southeast Asian Studies (ISEAS) on innovation and industrial clusters. In his most recent World Bank publication, Growing Industrial Clusters in Asia: Serendipity and Science (2008, co-edited with Kaoru Nabeshima and Soichi Yamashita), Dr. Yusuf demonstrates his level of expertise on the subject of industrial clusters and their implications. Serving as the Economic Adviser and Manager of the East Asia Prospects Study, Dr. Yusuf takes much pleasure in sharing his knowledge of the topic to students and business persons alike, hoping to acquire additional opinions on the subject matter. Dr. Yusuf makes note that in an ever-changing global environment, new issues are constantly surfacing (such as scarcity of energy and water), causing for necessary tweaks in theories put forward. Hence, Dr. Yusuf hopes to gain further expertise through his various presentations and discussions from his peers to “freshen” his proposed casebooks.

During his presentation, Dr. Yusuf reiterated on numerous occasions the importance of innovation with respect to industrial clusters. According to Yusuf, innovation is the underlying key ingredient to the successful formation of an industrial cluster. Innovation can exist in an urban environment in numerous forms, such as in the following examples. First, a dynamic and diversified base of industry and services may exist due to the generation and absorption of ideas from the rest of the world to produce new and innovative products, processes, and services of commercial value. Second, it is often reported that innovation is correlated to the size of cities and employment rate; therefore it can be interpreted that innovation is in higher concentration in large cities with a high employment rate (few exceptions do exist such as Turku in Finland). Lastly, innovation is collectivized when an environment has a strong base of primary, secondary, and tertiary education institutions. All in all, Dr. Yusuf believes the underlying factor to the establishment of an industrial cluster is the level of innovation present, thereby labeling such environments as “innovative cities”.

It is important to realize, however, that not all “innovative cities” can be deemed industrial clusters. Yes, a certain environment may contain a strong base for innovation, but it may have yet to be labeled an industrial cluster. According to Dr. Yusuf, this environment, stuck in an idle state, needs a catalytic event to occur in order to succeed in becoming an industrial cluster. For instance, Dr. Yusuf makes note of when International Business Machines (IBM) closed its doors in 2005, leaving over 700 people jobless. This catalytic event inspired the 700 previously IBM-employed individuals to collectively pool their expertise together and use it effectively to start-up their own company. Hence, this triggered an environment in possession of a high level of innovation to surpass an unknown barrier to become an industrial cluster.

To further elaborate on the topic, Dr. Yusuf proposes the idea that 3 interrelated components must link together for an industrial cluster to emerge. These 3 mechanisms include the university component, intermediary component, and firm component. The university component is a necessary ingredient in producing the ideas and knowledge needed for increased innovation. Next, the intermediary component must prevail in order to get the ideas and knowledge seen and heard in the market place. The firm component serves at the forefront of the industrial cluster and is a function of the two previous components. The firm whom is R&D intensive (note not all firms invest heavily in R&D, such as tourism industry), seeks open access to universities in order for more fruitful innovation. In addition, firms headed by those with tertiary education, are likely to hire skilled and technical workers, ultimately encouraging innovation. In relation to intermediaries, they provide the business environment, tax incentives, and attractiveness of amenities for knowledge workers, attracting them to a specific environment to perform work in. Thus, both intermediaries and universities act as mechanisms that draw-in knowledge workers for the firm’s utilization.
In conclusion, Dr. Yusuf notes that this topic is in its infant stage, allowing for much more needed research for observation and collection to accurately predict what leads to innovative clusters. He continues by stating, “Realistic assessment and expectations are the basis for identifying and realizing potential”. For additional information on Dr. Yusuf’s presentation at ISEAS, please view his presentation (PPT, 362kb).