Business and Management Research News

Industry Clusters: Start-Up Catalyst?

Do industry clusters have a positive effect on the emergence of new start-ups in Austria? Our Dr. Nada Mumdziev investigates.

A business cluster is a regional concentration of interrelated businesses, suppliers, and associated institutions in a particular field, and they can be socio-economic engines of competitiveness and growth. Clusters are known to have positive effects on businesses’ competitiveness and performance because they can promote knowledge spill-overs, information-sharing, access to customers and partners, a favorable business environment, and stronger competition.

However, one important question emerges: Can clusters affect the emergence of new start-ups and contribute to their survival and success?

A research project conducted by Dr. Nada Mumdziev at Webster Vienna in cooperation with Prof. Dr. Pablo Collazzo (WU Vienna) addressed this important question. The empirical data was collected in Austria through extensive interviews with 23 representatives of Austrian clusters and regional incubators.

Takeaways from the Research

Dr. Mumdziev and Dr. Collazzo’s research on local clusters found that clusters have a different purpose in each phase of a start-up. The phases below are based upon the Global Entrepreneurship Monitor framework.

Start-up Conception Phase: Clusters can be a valuable source of insider information about market needs, can open up niches of specialization, and even present new market opportunities; however, clusters play only a minor role in this phase. Our empirical evidence indicates that clusters rarely see start-up firms emerging within their structures. This is primarily because cluster programs and activities focus on supporting established businesses, and they tend to lack infrastructure and resources to work with entrepreneurs during the conceptual phase.

New Firm Phase: In this young phase, from a company’s foundation until about the third year, clusters can bring tremendous value. Networking opportunities, access to customers and partners, as well as contacts to established market players are just some of the benefits pointed out by the interviewees. Clusters can, and should, play an important role in this phase and help young companies survive.

Established Firm Phase: The core function of clusters is to support established businesses’ growth and competitiveness. Access to customers and partners; fostering of a competitive climate, and coordination of innovation projects are just some of the activities. It seems that the effect of clusters is the strongest when start-ups reach this stage. However, experts point to group-think, lack of the “outside-of-the-cluster” perspective and lack of agility, as some of the pitfalls. This can reflect negatively on competitiveness and innovativeness of businesses.

Conclusion

So, how could a cluster’s potential be best harnessed to help start-ups emerge?

A straightforward solution would be to build up resources and capabilities of cluster organizations very similar to incubators, which are companies which help new startups to develop. This would be an unnecessary duplication of efforts, though. Cluster organizations could, however, develop much closer collaborations with existing incubators. As suggested by the collected data, a way of fostering new start-up creation could be virtual clusters, which stretch beyond boundaries of a single cluster and connect firms across different clusters, as well as incubators and universities within a network’s joint projects. In this way, incubators, often the initial physical location for many start-ups, would retain their important role, but would get access to information and opportunities inherent within clusters. The agility of a start-up paired with a larger company could potentially add value, so together it would be a win-win situation.