The Role of the Cluster

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One thing that is paradoxically important to entrepreneurs is other entrepreneurs; competition. As with most disadvantages, entrepreneurship finds the better side, the advantage. Competition becomes a synonym for a collaboration of sorts. The blank page, financial constraints seem to be secondary concerns for those of us who can perform the conjuring trick of successful innovation. Smaller and smaller resources, smaller computers… Well that’s true of the start-up, the innovative stage. If you own a small chain of newsagents and two more open across the street, then you – the small business owner, the entrepreneur – are of course unhappy. If you’re both in the building stages and comparing construction notes then everyone wins. Agglomeration in the early stages of endeavour can create a ‘cluster’ of innovation and expertise; a mutually beneficial environment where skilled workers congregate. This agglomeration in organic conditions can create a Silicon Valley or a Seattle, rather than the planned and failed Multifunction Polis of Australia.

The Organisation for Economic Co-operation and Development measures more than just Australia’s indexed gas emissions. The organisation also publishes an annual report on entrepreneurship in member nations, Entrepreneurship at a Glance. In the 2014 edition Australian entrepreneurship, in terms of sheer number of entrepreneurial endeavours was eclipsed by: Korea; Mexico and Italy. These countries also employ more people in an enterprise, as of 2011 or the latest available year. What is interesting aside from the many belying statistical relations that can be pulled from the pages of the report, is the ability to compare various reports by the OCED and various government departments. Australia’s entrepreneurial growth can be indexed against global education or investment rates. A complete and holistic view of Australia’s and global entrepreneurship presents itself, along with the after effects of the financial crisis. Before Entrepreneurship at a Glance began in 2006, as the 2014 edition foreword indicates, this wasn’t possible.

The financial crisis’s aftershocks are still being felt within the global entrepreneurial community. According to the 2014 OECD report, in 2013 the global level of venture capital investment was still below 2007 levels. The United States and Israel were the exceptions whilst Australia wasn’t reaching the same 0.5 precent of GDP high of 2005. Interestingly enough, as reported by the Treasury, were Australia an American state during 2006 we would have ranked 18th in terms of venture capital intensity. Of course the reasons for the differences are obvious. What isn’t obvious is why Australia doesn’t have its own clusters of high-end innovation and entrepreneurship just as Seattle and the Silicon Valley have? We are held to be early adaptors of new technology and the economy began its twenty third straight year of growth in January of this year. The joint report Venture capital in Australia (2008) by members of the Macroeconomic Policy and Industry, Environment and Defence divisions of the Treasury, cites the difficulties of achieving such ‘clusters’ of innovation through policy intervention. Government intervention which was seemingly not enough to save the planned Japanese/Australian alliance that was to be Multifunction Polis in South Australia. Entrepreneurs seem to be innovative enough to cater to their own needs though, with the rise of shared working spaces creating something of a ‘cluster’ of innovation less than a kilometre from this Canberran’s home. These planned collaborative processes run against the Treasury’s belief that there is no magic formula. Perhaps the Treasury anticipated such global phenomena or they simply know the Minnesota has seen in certain years, more venture capital activity than Australia.

The 2014 Entrepreneurship at a Glance report details how self-employment rates are still below the pre-financial crisis levels in Australia, Korea, Japan and the United States. In Europe and the United States it is detailed that the majority of venture capital now goes to ‘seeds’ and ‘start-ups’ rather than later stage financing. A recent article by Kyle White for Start Up Smart detailed the opinion of Justin Roberts of Starfish Ventures, who believes “… no venture capitalists in Australia that (sic) will fund a capital raising round of more than $20 million, forcing companies at a later stage to go overseas.” Twenty million dollars may be considered appropriate funding for any stage of the funding process internationally; there is no official global consensus of the definition of venture capital stages. Due in part to the OCED report being the first of its nature some original data has been aggregated to fit OCED definitions.

The immigration of Australia’s entrepreneurs to the greener pastures of overseas ‘clusters’ should not alarm us. As the Treasury points out in the Venture capital in Australia (2008) report “… Australian firms and consumers will ultimately benefit from the commercialisation of the ideas, irrespective of where they are developed”. This may or not be true but at least the rise of co-working spaces can help to slow any ‘brain drain’. A more convincing point is made in “Another possible explanation for Australia’s level of venture capital activity is that the scale and geographical dispersion of economic activity in Australia place a natural constraint on the development of a large venture-capital-financed, high-technology sector.” As well as the fact that Australia’s economy during 2008, the year of publication was one tenth the size of America’s.

Whatever the reason for the absence in Australia of high end innovation ‘clusters’ we could one day realise such hot-spots or a facsimile, if not by political means then by the grass root means of co-working spaces. There could almost be something of a race toward such clusters; the OECD reports the barriers to entrepreneurship have decreased over the last ten years across OECD nations. “Data indicates necessity was a significant driver in the emerging economies of China and India but also in Korea, Estonia, Greece and Spain.” Whatever the outcome for Australia and its entrepreneurs their self-agency emulates the favourable conditions found in overseas clusters.

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