Interrelated industries and institutions drive wealth creation
Clusters are a group of interrelated industries and institutions that drive wealth creation primarily through innovation and the export of goods and services. Clustered industries mutually reinforce and enhance
competitive advantage by acting as each other’s consumers, competitors, partners, suppliers and sources of research and development.
The Ontario Mineral Industry Cluster (OMIC) includes exploration companies, major mine operators, service and equipment suppliers, labour, training and education institutions, associations and other allied entities. Other well-known clusters include Hollywood, California’s Silicon Valley, Ottawa’s Silicon Valley North, the Netherlands’ cut flower industry and Houston’s oil and gas sector.
Over the last decade, clusters have attracted substantial attention from policy makers, legislatures, business leaders, academics, economic development practitioners and development agencies around the world.
Governments with widely differing ideologies in more than 30 countries and in the majority of U.S. states have adopted cluster-based economic development models. The cluster approach is also used by European governments, as well as governments in the Asia-Pacific region.
Why clusters work
Productivity and productive growth are the fundamental drivers of prosperity. Innovation is the key driver of productivity. Clusters drive innovation, economic growth and development.
Research shows that innovation and commercialization of new technologies take place at a greater rate in clusters. Few companies have all the necessary skills to develop and export unique products and services
by themselves and so, the argument follows, that many organizations must cooperate and compete to move an idea or concept to a commercialized product. It is important to note that companies within a cluster
compete with each other and it is the intensified competition that accelerates commercialization. Clusters provide a forum that facilitates this interaction across many organizations.
Clusters promote and cultivate tangible assets such as social capital, synergy, and collaboration. The existence of social capital creates trust. Once trust is established, the relationship is more enduring. Social capital can neither be bought nor imported. It can only be built through a prolonged process of frequent
Working in a cluster provides benefits to all involved. Businesses in a cluster have a stronger voice compared with individual firms when targeting government funding for R&D, infrastructure, and cluster
development, and for influencing policies and legislation. Similarly, government officials have access to all players at the same time, as is the case with the Ontario Mineral Industry Cluster Council (OMICC), which
was launched in late 2003 by Northern Development and Mines Minister Rick Bartolucci.
Businesses in a cluster share hard and soft infrastructure, energy, transportation, R&D, and health and safety standards. There is also greater capacity to attract brainpower and expertise. Major multinationals can transfer a cluster’s benefits of innovation to their foreign subsidiaries. Suppliers understand and anticipate the needs of major mine operators, and can provide equipment and services locally and then
become globally competitive.
Academic and vocational training institutions understand industry needs and develop courses and training programs that meet industry’s current and future workforce requirements. Research institutes gain better
insights of industry needs. In the new economy, speed is critical to establishing an international lead and maintaining a competitive advantage. The creation of value-added products and services promotes sustainable growth and supports higher wages.
Finally, clusters promote “brain gain” rather than “brain drain.” They produce a global brain rearrangement. What this means is that for the first time in history, expatriates are returning to their homelands to start businesses in India’s Bangalore software cluster, for example. This rearrangement also
applies to mature clusters, such as Hollywood, because vibrant clusters attract the best and brightest.
Jocelyn Ghent-Mallet, of Information Technology Association of Canada summed it up as follows:
“Clusters are attractive for many reasons. They catalyze economic transformation. They drive growth and enhance stability. Once they are rooted, they are remarkably self-generating. In the recent downturn
in information technology, the Ottawa community lost 25,000 jobs and then quickly recovered almost all of them. Clusters look like a good bet for economic success. No wonder everyone wants one.”
How do clusters evolve?
The trajectories of clusters around the world are different and have evolved over decades, not only because of different histories and circumstances, but because the challenges are different at different levels of cluster development. In a developing country, the most basic challenge is to achieve macro, political, legal and social
stability and viability. After that, basic infrastructure such as roads, phones and electricity are necessary. The final requirement is an environment where progressive legislation, efficient permitting and forward-looking policy are not too inefficient to do business.
Usually, natural resource-based clusters go through four phases. In the first phase, natural resources are extracted and exported with minimal local processing and machinery and equipment are imported. In the second phase, processing and export activities are initiated and a start is made on import substitution
with local production of some inputs and equipment. In the third phase, a cluster begins to export some of the goods and services that it originally began to produce for import substitution purposes. In the fourth phase, all types of goods and services are produced locally and are exported.
The Finnish, Swedish and U.S. clusters are in the fourth phase. These clusters remain competitive in world resource markets despite geological disadvantages and a relatively long history of depletion because they continuously make improvements and develop and deploy advanced technologies. Companies in these
clusters are internationally established and contribute to the success of a number of clusters in other countries and continents through their branches.
A case in point is Atlas Copco’s contribution to the Ontario Mineral Industry Cluster. Factors underpinning the success of these clusters bear similarities, including investment in R&D and skilled workforce development; domestic demand; a culture of innovation; and the role played by legal, political and social institutions.
Investment in R&D in these jurisdictions has continued to increase and policy makers have adopted a program of diversification away from the resource-based industry into more sophisticated industrial segments and interrelated and supporting industries.
There are some cultures that promote innovation more than others. The depletion of the natural resources that first created the cluster does not spell its end. Depletion can be a catalyst for innovation. Those nations
that pioneer new technology in one period are likely to do so in the next. Innovations get diffused and technological leadership tends to persist. Similarly, legal, political and social institutions play a crucial role in
Suppliers of mining technology and machinery in Nordic countries and the U.S. are global leaders in their fields. The European market share for mining technology is estimated at around 50 per cent of the global
market. Nordic countries, mainly Sweden and Finland, account for most of the total. A few lessons can be drawn from mature mining clusters. Many regions blessed with abundant resources lack what may be termed the political, social and cultural prerequisites for world-class production clusters. It would be a good thing for both humanitarian and pragmatic reasons if developing regions could acquire these prerequisites.
1. There needs to be a persistent commitment to innovation and the development and use of new technologies likely to remain profitable even if the technologies are copied or used elsewhere. This is because successful research and development has as much to do with the continuing experimentation as they do with specific breakthroughs. Those who are willing to experiment – and who are blessed by experience, temperament and a culture of innovation – may remain industry leaders for longer periods than their resource endowments suggest.
2. The experience of mature mining clusters clearly demonstrates that natural resources such as minerals provide comparative advantage but cannot provide sustainable competitive advantage on their own. There
are many regions and countries that are blessed with rich resource endowments but have not been able to translate them into creating sustained prosperity because they have not made the transition from
reliance on the resources to technologydriven, knowledge-intensive services and technologies.
Innovation is the only sustainable competitive advantage. Other components of competitive advantage such as currency, exchange rates, labour rates and natural resources can fluctuate widely and are beyond one’s sphere of control.
3. How well a society nurtures innovation makes a big difference in how much of it occurs. The U.S., Sweden and Finland offer a much more innovation-friendly environment than many of their competitors.
Competitiveness is not a zero-sum game. According to cluster guru Michael Porter at Harvard University’s Institute for Strategy and Competitiveness, all countries can get more competitive because all countries can
become more productive. There is not a fixed pool of demand in the world that countries are competing to serve. There is an almost unlimited amount of human need for health care, goods and commodities,
services and entertainment. If productivity goes up, more of those needs can be served at the same cost. As productivity goes up, people’s wages go up and then they can afford to buy more goods and services to meet their needs. One must think of competitiveness not as a fixed pie to be fought over, but as a pie that expands. The more economies can become productive, the more the overall world economy can continually grow and prosperity can grow across the board.
If this intriguing insight is applied to mining clusters, one can say that the world demand for minerals and services is escalating. Projected doubling of the population by 2050 will require newly mined materials to support this growth. To meet the growing demand, we have to mine five times more than we currently do
(Jeremy Richards, 2005). This increase will have spin-off benefits requiring services, expertise, knowledge, and technology.
Clusters cannot be leaders in all sectors. There are a number of areas where, rather than duplicating human efforts, energy and time, clusters can come together and collaborate for the betterment of humanity and local communities.
How Ontario’s mineral industry cluster stacks up
The Ontario Mineral Industry Cluster (OMIC) has all it takes to be a dynamic and vibrant cluster capable of creating sustainable growth. It has a rich endowment of mineral resources, world-leading exploration
industries, seasoned production industries, globally-active suppliers, a top-ranked capital market, strong education, training, and knowledge networks, dynamic research and development, committed communities, and a supportive, stable political environment.
Ontario is the world leader in financing mineral exploration; Australia has a leading position in the development of software applied to mining. Finland established a leading role in smelting technology
and machinery and Sweden in hard rock technology. The manufacturing belt in the Northeast U.S. evolved into machinery construction. The strength of all these examples is their ability to find their niche/
uniqueness, to differentiate themselves from competition and acquire first class competencies in specific areas.
Compared to mining jurisdictions in Africa and Latin America, Ontario stands out for its strengths in a number of areas – exploration, mine development and rehabilitation, environmental technology,
engineering and consulting and health and safety. The Ontario Mineral Industry Cluster Council continues to believe that there are opportunities to achieve greater investment and innovation in crucial inputs such as machinery and equipment.
Ontario’s Mineral Development Strategy, released in March 2006, promotes long-term sustainability, global competitiveness and community development through a range of actions that includes promoting economic
diversification, industry-driven research and value-added products and services.
Other positive developments are in the works, or are underway to optimize innovation, competitiveness, private sector engagement and public-private sector partnerships. For example, $10 million in funding announced last spring by the Ontario government for the Centre for Excellence in Mining Innovation will
provide a coordinated approach to research and development; the Commercialization and Export Working Group of the Ontario Mineral Industry Cluster Council will provide competitive intelligence to increase
exports of products and services; the Federated School of Mines will provide the mineral industry with a qualified, trained workforce; OMICC’s Aboriginal Working Group’s efforts on resource revenue sharing models will provide government and industry with information on various models to consider; there is a proposed business-led Commercialization Partnership Board at the federal level, which would advise the federal Minister of Industry regarding commercialization issues; and the Ontario government’s establishment of the Ministry of Innovation and Research and its strong commitment will foster a culture of
Progress in these areas will contribute to the innovative capacity of the Ontario Mineral Industry Cluster.
Indira Singh is the Director of the Executive Projects Office, Ministry of Northern Development and Mines and Executive Director of the Ontario Mineral Industry Cluster Council.