Creating Economic Clusters in the Muslim World
In the 1980s and 1990s, Silicon Valley propelled the world into the computer and internet age and, in the process, captivated the world’s imagination as a model region for organizing economic and innovative activity. Since then, leaders around the world have tried to create economic clusters—their own versions of Silicon Valleys—around the world in an attempt to replicate “Silicon Valley Phenomenon” in their own backyards.
Economic Clusters: An Age-old Phenomenon Revitalized
To be sure, the phenomenon on economic and technology clusters is not new. Economic clusters date back at least to the great Hellenistic and Islamic centers of excellence such as Alexandria, Cordoba and Baghdad, and more recently, the industrial agglomerations in the early modern United Kingdom and the Atlantic coast of the United States. What has happened as a result of the spectacular success of Silicon Valley—and later Cambridge, UK and Bangalore, India—is the renewed interest in creating these as an instrument of economic and technology policy.
A formative influence on this movement has been that of Dr. Michael E. Porter, a Harvard Business School Professor, whose “The Competitive Advantage of Nations” in 1990 that became an influential text for policymakers and political leaders around the world. Porter defined an [economic] cluster as:
“[comprising a] geographically proximate group[s] of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities”
Simply speaking, economic or technology clusters are concentrations of economic activity—as represented by firms, their suppliers, and other required organizational paraphernalia such as universities, venture capital firms, law firms, accounting firms, executive search firms etc.—that derives its strength from both competition and cooperation with each other.
Benefits To Firms Located in Clusters
In an idealized setting, these concentrations of economic activity can become a source of self-perpetuating competitive advantage that not only is good for the region as a whole but also brings innumerable benefits for individual firms within the region.
Michael Porter describes three basic mechanisms through which economic clusters improve the competitiveness of its firms. First, it increases the productivity of firms based within a cluster by providing them access to shared best practices, labor and management pool, and training resources within a cluster. Second, it drives the direction and pace of innovation within the cluster which in turn leads to productivity enhancement in firms. Third, it speeds up the entrepreneurial process and new firm formation within clusters thus providing a positive feedback loop that feeds onto itself.
More generally, firms within a particular cluster benefit from shared resources, mobilization and concentration of specialized labor, and the creation of supporting and ancillary industry within a cluster. For example, since Silicon Valley is known as a cluster of information and biotechnology firms, it also attracts a disproportionate amount of federal research dollars to its universities; trained workforce from all across the United States and the rest of the world; and law-firms, accounting firms, executive search firms specializing in information and biotechnology industries.
The result is reduced overall cost of doing business for these firms in Silicon Valley, enhanced access to cutting-edge research and innovation from the region’s universities and other firms, and better access to shared infrastructure and a talent pool from across the world. No wonder then that despite high costs of labor and real-estate, firms continue to locate in the Silicon Valley to benefit from these advantages that seem to far outweigh the associated costs.
Economic Clusters as Instruments of Economic Policy
Subsequently, many governments and regions around the world have embarked on attempts to create economic (and technology clusters). A 2003 study of cluster initiatives around the world literally identified hundreds of cluster initiatives of varying sizes and scope have been identified including among others, 112 in Northern Europe, 82 in Australia and New Zealand, 107 in Western Europe, and 92 in North America. Another major study to document economic clusters from all across the world has identified 838 clusters thus far.
Many countries in the developing world have also embarked on cluster initiatives of their own. Panama’s Knowledge City, Malaysia’s Cyberjaya, Doha’s Education City, and Oman’s Knowledge Oasis are examples, to name only a few.
While clusters come in various shapes and sizes, so do cluster policies. Governments around the world have tried to use a number of policy instruments to jumpstart economic clustering including, but not limited to, development of cluster strategies and a cluster identity in regions, liberal taxation policies, creation of science, technology, and research parks, investment in university-based research programs, investment in human resources development, creating programs to market the region’s competitiveness, steps to improve the entrepreneurial environment, creation of public and private venture capital programs, and creation of institutions of collaboration.
Not each of these policy instruments is equally effective in encouraging cluster formation and the appropriate choice may be determined by the unique characteristics and the initial conditions of the region in question.
Prominent Clusters in the Muslim World
Clearly, governments in the Islamic world are not oblivious to this trend. Besides the obvious cluster initiatives identified above, a number of natural—often unnamed—economic clusters exist in various parts of the Islamic world and many more are being planned as we speak.
Last month, for example, Prof. Michael Porter met the leaders in Libya to deliver a cluster-based competitiveness strategy for the North African state that is designed to enhance Libya’s economic competitiveness after years of isolation from international community.
Several clusters in the area of surgical instruments, defense technology, textiles, and marble products exist in Pakistan where a major summit on regional competitiveness took place on May 15, 2006 under the auspices of USAID and The Competitiveness Institute (TCI). The purpose of the conference was to not only share the best practices among regional economies but also to position Pakistan as new entrant in the cluster game.
Saudi Arabia, Kuwait, Iran and (pre-war) Iraq are clusters of oil and energy industries in their own rights. Bahrain has long been a regional center for finance and banking. What is needed in the Islamic world is a strategy to gradually enhance the competitiveness of these existing clusters as others are being created. The following are some of the more prominent clusters in the Muslim world:
Malaysia’s Multi-Media Super Corridor – Malaysia is one of the most dramatic and comprehensive economic success stories in the Islamic world. Malaysia’s Multimedia Super Corridor represents crown jewel of Malaysia’s economic miracle. Conceptualized in 1996, the Multimedia Super Corridor (MSC) has grown into a thriving hub of over 900 IT companies—including several multinationals—from all across Malaysia and around the world. The corridor includes a 15×50 km stretch of land from Petronas Towers in Kuala Lumpur in the north to KL International Airport in the south and includes Cyberjaya (the information city) and Putrajaya (the new administrative capital of Malaysia). In a three-phased implementation approach, MSC would be extended to include the entire country by 2020 thus making Malaysia a truly regional information powerhouse.
Dubai’s Internet City – Dubai is one of the modern wonders of economic development in the Muslim world. Part of Dubai’s success can be explained by the early-mover advantage that it captured in late 1970s and early 1980s as it moved to become the trading hub between the East and the West and partly because of the vision of its political leadership—the Sultan of the United Arab Emirates and its constituent entities. While Dubai continues to attract tourism, trade, and talent from across the region and the rest of the world, its latest initiatives in Dubai Internet City, Dubai Media City, and Dubai Education City are seen by many with both awe and skepticism. The key challenge for Dubai’s rulers is to transform these very successful real-estate operations in sources of self-perpetuating competitive advantage. Doing so would transform Dubai from a major trading and tourism hub and a regional financial center to the intellectual and knowledge capital of the Islamic world.
Muscat’s Knowledge Oasis – The Sultanate of Oman has recently attempted to embark on an ambitious program of cluster development that includes clusters in information technology (in Muscat’s Knowledge Oasis), Energy and heavy industry (near the port of Sohar), food processing and tourism (all across Oman). The Knowledge Oasis Muscat (KOM) boasts a modern state-of-the-art IT Park for attracting IT companies to Oman and include major upgrades to Sultan Qaboos University—including teaching modern business subjects like entrepreneurship etc.—to create a technologically literate and sophisticated workforce.
Doha’s Education City – Qatar’s Education City at the outskirts of Doha is an attempt to create a cluster of higher-education and research institutions. It is the cornerstone of the Emir’s strategy to transform Qatar into a leader in innovative education and research. It is an exciting experiment—a first of its kind in the Middle East—whereby an attempt has been made to create a unique learning environment by bringing together the best colleges and schools from around the world. The Education City houses campuses from Texas A&M University, Georgetown University, Carnegie Mellon University, and Weill Cornell Medical College. In addition, it houses the Qatar Science and Technology Park, Qatar National Research Fund, and the RAND-Qatar Policy Institute in what is promising to be a breakthrough project in the Islamic World. The Qatar Science and Technology Park (QSTP)—managed by ANGLE Technology Group—has already attracted companies such as Rolce Royce, GE, Microsoft, Exxon Mobil, Shell, and Total that are expected to invest an additional $100 million in research and commercialization in the Park alone.
Pakistan’s Sports and Textiles Clusters – While Pakistan does not have any formally designated “clusters”, it does boast considerable concentration of economic activity, locally, and economic diversity, nationally. Being the second largest producer of cotton in the world, Pakistan has long been an economy based on export of its textiles to the rest of the world. In recent years, there has been considerable investment in modernization of Pakistan’s textile sector. Sports goods and surgical instruments (in Sialkot) industries are some of the other more traditional economic clusters in Pakistan. More recently, however, Pakistan has embarked on an effort to develop an indigenous export focused software industry that is concentrated in three largest cities (Karachi, Lahore, and Islamabad). Also, Pakistan has, over the years, emerged as a regional player in defense and light aviation industry with concentrations in the North. Despite the lack of an obvious policy thrust to bring out and develop a cluster identity, several of these “natural” clusters hold considerable promise for the future.
Challenges in Creating Successful Clusters
Despite their widespread popularity and prevalence, developing successful cluster strategies is still a policy often riddled with a wide cross section of issues and challenges. There is by no means any certain recipe for ensuring the creation and sustained development of a technology cluster to say nothing of a successful technology cluster-led development strategy.
First, despite considerable advances in economic theory and empirical research, we still do not know a lot of what goes on within an economic cluster, why some industries cluster and others do not, and what sort of policies may facilitate clustering?
Second, between creating clusters from scratch and merely improving a region’s existing clusters, there is considerable margin of policy activism and finding the “sweet spot” is often a matter of careful forethought and shrewd policy assessment in each instance.
Finally, developing successful clusters is as much a process of economic policymaking as it is one of political jugglery and expectations management. It requires an adaptive approach that communicates the right expectations, monitors performance continuously, and take corrective actions to address deviations from the desired course.
All of this requires careful planning and attention to not only the vision and strategy but also the implementation of the cluster initiatives.
Many of the clusters in the Islamic world (identified above) are at the preliminary stages of their development and would require considerable hard work before they could deliver on their promised potential. They are, nonetheless, a start and a step in the right direction to diversify the natural resource-dependent Muslim economies in the Middle East and elsewhere. Realizing the promise of these clusters would effectively link these countries with the rest of the world through trading relationships thus ensuring a prosperous and viable economic future for the Islamic world in the 21st century and beyond.