Hillmarè Schulze, Director and Chief Economist at BERL, discusses the benefits of clusters, and how they can be a powerful force for regional economic development. BERL is a sponsor of our Collaborating for Results Excellence Award category.

Regional economic development will play a key role in achieving the target set by the government of doubling our exports in the next ten years. Central to this growth will be the development of regional clusters, as they build a strong brand reputation and attract further investment.

Clusters will be a powerful force to support regional economic development. We know that successful regional economies are not built on one or two companies, but on a network of interconnected companies that fuel their own unique ecosystem. New Zealand is no stranger to successful clusters. There are numerous examples across the country, such as the aerospace cluster in the Canterbury region, the Hawke’s Bay food cluster, the Auckland film cluster, the Central Otago wine cluster, and the Waikato Innovation Park, to name a few.

What are the benefits of clusters?

One of the main benefits of clusters is that they foster innovation and knowledge sharing. Companies within a cluster benefit from a shared pool of talent and expertise. This close proximity facilitates informal interaction and collaboration, such as having a cuppa at the local café or attending the business roundtable, allowing ideas to flow freely and sparking innovation.

This is evident in the Canterbury aerospace cluster. A new aerospace strategy was developed by the government in 2022 to help build a globally competitive sector by 2030. Most of this growth is concentrated in Christchurch, due to the city’s geographical location and thriving aerospace community, which includes companies specialising in aircraft maintenance, parts manufacturing, and engineering services. The proximity of the University of Canterbury's mechanical engineering department is also a positive. Also, Callaghan Innovation provides critical support for research and development in aerospace technologies. Another example of knowledge sharing is the Waikato Innovation Park, which is home to over 70 businesses representing a range of industries, including manufacturing, agritech, information technology, and healthcare.

Another benefit of clusters is that they can lead to higher efficiency and productivity. Businesses within a cluster can specialise in specific tasks or stages of production, which can lead to economies of scale, especially for exporting. This specialisation and streamlined production process lead to greater efficiency and cost savings for all companies within the cluster.

The benefits of increased productivity and economies of scale are clearly demonstrated in the Central Otago wine cluster. This cluster is based on the unique climate and soil conditions for exceptional Pinot Noir grapes. The wineries in this region collaborate, share best practices, and promote the region's distinctive wines. The Central Otago Winegrowers Association plays a vital role in marketing the region and attracting international tourism.

Additionally, clusters lead to a shared pool of skilled labour that allows companies to easily find the talent they need, minimising recruitment costs and time. For example, the concentration of talented actors, directors, producers, special effects studios, and post-production companies in Auckland has led to the creation of a strong film cluster.

Clustering is not all about benefits; clusters can also contribute to the overall identity, attractiveness, and cultural fabric of a region. A strong cluster creates a sense of community and shared identity among businesses. This is clearly demonstrated in the Hawke's Bay food cluster. This cluster is a powerhouse for the food and beverage industry. There is collaboration between orchardists, wineries, craft breweries, food processors, and logistics companies. The industry is also supported by the Hawke's Bay Fruit Growers Association, and additional funding has been provided by the Ministry for Primary Industries for innovation in sustainable agriculture and food production.

How do you create a cluster?

It takes considerable effort and a strong strategic approach from companies, and central and local governments to support the creation of clusters. Starting by identifying a region's existing strengths and potential for specialisation is crucial. Central government and local government strategies and policies should promote collaboration, innovation, and infrastructure development to nurture and support the growth of clusters. Regional and local councils should encourage and enable investment in research and development, talent development programmes, and locating in the region. Ensuring supportive business regulations to strengthen a cluster's competitive edge.

Clusters can be a powerful force for regional economic development. By enabling innovation, efficiency, competitiveness, and talent attraction, clusters can create a rich ground for economic growth and prosperity.