Myths About Growth and Internationalization in the Software Industry: Domain Clusters

 In Business Model Management, Entering Foreign Markets, Industry News

ClusterAssumption: Investing in establishing and promoting industry and/or domain clusters will create synergistic effects to the benefit of the individual cluster participant. It will stimulate activities, increase investments, create jobs and positively impact growth.

Correct? No! It doesn’t apply to the software industry.

Is it a myth? Yes! At least in the software industry.

German research strongly indicates that there is no significant relationship between growth and internationalization and the membership of a certain industry/domain cluster.

If this is true, then why are we wasting a lot of money and intellectual resources trying to define, build and maintain industry/domain clusters?

The global race for growth and wealth

All nations in the world have ambitions of achieving full employment and move up in the global value chain. To support these political objectives each nation, region and major metropolis allocates public funds to support two types of traffic:

  1. Support export activities (grow national wealth by producing more at home and selling it abroad – preferably at higher prices)
  2. Attract foreign investments (grow national wealth by attracting investments from foreign companies)

Decisions to export and decision to make foreign investments are made by individual companies primarily based on return on investment considerations.

Policies affecting these decisions thus have to impact the return on investment calculation of the individual company.

How do you impact the return on investment calculation of the individual company without taking money from taxpayers or giving them to individual companies?

You need general policy frameworks, which have impact on important elements in the P&L.

Academics, government officials and industry representative to justify the allocation of public funds to support national industrial interests have invented the cluster concept.

The global race for growth and wealth

A cluster is group of companies working in the same industry/domain area who then form an ecosystem where they cooperate (sell to/buy from each other or have other joint activities). By providing buildings, land, conferences, trade mission events, accelerator programs, funding etc. the government spending is supposed to stimulate business development in the cluster.

It sounds logical and right, but it apparently doesn’t make a difference. The German research has found no significant relationship between international growth in the German software industry and the relationship with a cluster.

Over the last 2 years academics from Germany have studied why the German software industry does not participate in the global expansion in the software industry.

The conclusions from the German research will come as unpleasant surprises for both government officials and the software industry representatives around the world. The conclusion indicates that our policies are addressing the wrong issues and that our policies may be a complete waste of money and intellectual resources.

Source: Technology Clusters have no relevance in the German software industry


Recommended Posts
Most Recent Projects