In 1893, J.R.N. Tata, the founder of Indian multinational company Tata, and the maharaja of Mysore met by chance on a ship sailing from Japan to Chicago. They agreed that science would be the path to successful modernization of India. During the following years, Tata donated money and the maharaja donated 370 acres of land in order to build a “science city” near a town then called Bengalaru, which had recently been struck by a devastating plague. The result was the Indian Institute of Science (IISc), which soon became one of the world’s great centers of science and technology education (and remains so today). In the ensuing decades, graduates established other science-related enterprises nearby. After World War II, the government of India located its nuclear science program in the area, and an Indian space program followed.
By the 1980s, new businesses began emerging there, including Infosys (today the second-largest exporter of IT services in India). Bangalore, as the growing city was now called, became a center of commercial activity. It filled with ambitious entrepreneurs and engineers, who used new, technologically sophisticated business models to serve global clients. Yet for all its accomplishments, the city lagged behind Silicon Valley in the United States.
Bangalore seemed to have the right ingredients: It had many companies and banks, both established and startup; a relatively efficient local government with ties to the private sector; a large network of nonprofit organizations and cultural institutions, and a group of renowned schools and institutes, of which IISc was just one. Yet even with all these conditions in place, one more development was needed before Bangalore could bloom. This was the dramatic shift by the national government in 1990 away from the all-encompassing “license raj” regulatory regime that had stunted Indian growth rates for decades. Once these punishing levels of government controls on business were swept away, and relationships between national government officials and new business leaders became less antagonistic, entrepreneurship reached a critical mass. Bangalore businesses accelerated their climb up the value chain toward product and service innovation.
The Bangalore story is not unique. The same scenario is found in California’s Silicon Valley, Shanghai’s new high-tech centers, Boston’s Route 128, Seoul’s Digital Media City, the biotech corridors around Washington, D.C., and the pharma region near Basel, Switzerland. Other regions, seeking to emulate the prolonged success and influence of Silicon Valley in particular, have been less successful; their investments have not paid off. Most of them pursue a formula that was codified by strategy writer Michael Porter in his book The Competitive Advantage of Nations (Free Press, 1990). They set out to create an “innovation cluster,” as it’s called: a network of interrelated organizations intended to jump-start competitive industries at a regional scale.
But many efforts to generate clusters never reach their goals. Innovation researcher and Washington Post columnist Vivek Wadhwa pointed this out in a July 14, 2011, column. He cited a Norwegian–British study of more than 1,600 companies in the five largest Norwegian cities, all of which have cluster-like qualities. Most of the companies failed. This, says Wadhwa, makes “industry clusters” the “modern-day snake oil.”
For the last 15 years, I have studied innovation clusters in more than a dozen countries. My own research findings echo Wadhwa’s conclusion. Clusters can be vitally important to a country’s innovation and prosperity, but when they are misunderstood, they do not realize their potential. Most efforts to create clusters focus on one or two elements: the heroic innovators who champion their creation, the co-location of companies that lets engineers switch jobs by crossing the street, the business school spawning grounds with professors sympathetic to their students’ entrepreneurial ambitions, the startups with foosball tables in the conference rooms, or the provision of cash from an earnest government funder seeking to bypass bureaucratic roadblocks.