Nearly 20 years ago, researchers found that when small businesses from related industries locate in close proximity to one another they can increase their productivity and drive innovation.
In some ways, this seems like an obvious notion: interconnected businesses mutually benefit from a skilled workforce and advances in technology, which spurs local economic growth. Still, not every metropolitan area has integrated their small business development strategies with a focus on specific industry clusters in their communities.
A new study suggests that the nation’s 10 largest cities should consider aligning their cluster development plans with small business development strategies.
In fact, nearly half of high performing clusters in the nation’s 10 largest metro areas grew roughly three times faster than the metro area economies between 2003 and 2011, according to a new study from the Initiative for a Competitive Inner City (ICIC), which was commissioned by JPMorgan Chase. In Philadelphia and San Diego they grew more than six times faster; and about five times faster in Chicago and Los Angeles.
America’s largest cities need to develop consistent growth strategies that emphasize the role cluster-based small business development can play in local and regional economic development. Fortunately, each of the 10 cities in the ICIC report included clusters in their planning, but their strategies to support cluster growth varied greatly.
Here are three reasons why America’s cities should consider integrating small business cluster strategies into their long-term economic development plans.First, small businesses, especially early in their life cycle, uniquely benefit from the way clustering initiatives, such as small business incubators, provide low-cost or free access to research, development and new markets. Take for example an organization in Los Angeles called Los Angeles Cleantech Incubator (LACI), a nonprofit that stimulates and houses some of LA’s innovative clean technology small business start-ups. To help advance LACl’s efforts, the city’s economic development plan leverages the area’s existing research and development facilities for LACl and other incubators to hold networking and education events and collaborate on research and technology. Additionally, LACI connects the clean tech businesses to world markets through an annual conference of entrepreneurs, investors and customers from more than 20 countries. This approach gives promising companies enormous support during the difficult early stages, providing everything from office space to IT support to investors in order to help them grow.
Second, part of the intrinsic value of clustering strategies is that they allow for the sharing of ideas and access to relevant business education. LACI co-locates dozens of creative thinkers under one roof. In New York City, similar initiatives provide fashion designer and apparel cluster businesses access to a free mini-MBA program, a fund to finance purchase orders and a mentoring program with industry experts. Both are recipes for breakthrough innovation.
Finally, data suggests that cluster-based small business growth tends to deliver outsized job growth, which is one of the key rationales for pro-cluster policies. In fact, according to the ICIC study, many clusters outperformed overall employment growth in their areas. For example, the Education and Knowledge Creation cluster in Los Angeles, which LACl is part of, increased employment by 31 percent compared to a six percent decrease in employment in the city overall during that eight year period. And Houston’s Oil and Gas Production and Transportation cluster increased employment by 47 percent during that same time frame compared to a nine percent increase in the city during that period.
Fostering more small business oriented clusters requires collaboration. The ICIC study suggests the value of integrating cluster-oriented public policies into general small business support programs within cities. Nonprofits and universities are also key players, as they can serve to convene and support the growth of clusters, providing crucial intellectual capital.
The business community has a role to play, too. JPMorgan Chase is dedicating $30 million over the next five years to foster small business cluster strategies in a number of markets across the country. Our hope is that these efforts will boost small business growth and create jobs.
Clusters can be catalysts for economic growth in America’s cities. By investing in cluster-based small business initiatives, we may be able to spark a new wave of business growth that creates jobs in cities nationwide and bolsters the innovation that has always been America’s greatest competitive advantage.