Aerospace Clusters: Local or Global Knowledge Spillovers?

Industry and Innovation, Mar 2005 by Niosi, Jorge, Zhegu, Majlinda

ABSTRACT The literature about regional innovation systems, clusters and industrial districts insists on the importance of local knowledge spillovers. Nevertheless, more recently a few authors have put in question the importance of local knowledge spillovers. This paper provides an analysis of some of the most dynamic aerospace clusters in the world, located in Montreal, Seattle, Toulouse and Toronto. We start by discussing theories of clustering, then provide research questions as well as empirical evidence on the international nature of knowledge spillovers. Local knowledge spillovers are less significant, of a different nature, and they may make a scanty contribution to explain the geographical agglomeration of firms. Conversely, international spillovers help to explain the relative dispersion of industry across nations. Resilient geographical clustering is related to the anchor tenant effects as creators of labour pools and owners of very large manufacturing plants creating regional inertia. We thus reject the local knowledge spillover explanation of aerospace clusters in favour of another one based on anchor firms and their effects on the local labour pool.

KEY WORDS: Aerospace, aircraft, industrial clusters, industrial districts, internationalization, regional innovation systems

The aerospace industry is one of the largest high-technology employers in advanced countries. By 2000, there were 1,220,000 aerospace employees in the world, of whom 49 per cent were in the USA, 35 per cent in the European Union, 7.5 per cent in Canada, 2.7 per cent in Japan and 5.7 per cent in the rest of the world (Table 1). Within this industry, the civil aviation manufacturing sector is the most important: in 2000, 66 per cent of European aviation manufacturing employees were in civil production and 33 per cent in the military sector. The figures in the USA were 59 and 41 per cent, respectively.

In the last 10 years, civil aircraft original equipment manufacturers (OEMs) have been competing for orders from airline companies, whose revenues have been declining. The four major civil aircraft prime contractors are Airbus and Boeing (for planes over 100 seats) and Bombardier and Embraer for regional jets. To reduce costs, aerospace OEMs have increased their outsourcing to suppliers of subassemblies (such as engines, structures, landing gear and avionics) and concentrating on their core competencies of design, assembling and marketing aircraft. At the same time, they have made efforts to reduce, reorganize and rationalize their supply base. Thus, knowledge management in the supply chain has become critical (Bozdogan et al., 1998; Gostic, 1998). Also, due to the increasing use of just-in-time and other supply chain methods, production has tended to concentrate in a few cities, or regional aircraft clusters, which include Montreal, Seattle, Toronto and Toulouse. However, international outsourcing has produced international spillovers1 and created new poles of growth, mainly in South East Asia.

This paper is about the dynamics of the clusters and the nature of knowledge spillovers that occur within and among aerospace clusters. Section 1 recalls theories and presents the research questions. Section 2 recalls the characteristics of the aerospace industry and section 3 presents data on clusters. Section 4 goes back to the theoretical discussion about regional and international knowledge spillovers. A conclusion puts the new data in a more general perspective.

1. Theory

Clustering and dispersion of industry are submitted to opposing forces. Centripetal forces tend to concentrate industry in a few geographical regions. Centrifugal forces push in the opposite direction and tend to disperse industry across regions and nations. This section will review some of these forces, with an emphasis on the role of local versus international knowledge spillovers. We oppose the tenants of the dominance of centripetal forces, most prominent among them being local knowledge spillovers, and the followers of a more recent tradition suggesting that international externalities have become more conspicuous. This paper intends to examine how well these opposing theories explain geographical clustering in aerospace.

1.1. Centripetal Factors

Regional agglomerations of high-technology firms were analysed using different frameworks and different concepts. These concepts include industrial districts (the Marshall tradition), regional poles (the Perroux model), clusters and regional systems of innovation, to name just a few.

The industrial district tradition, based on Alfred Marshall's seminal studies in the late 1800s and early 1900s, is about agglomeration of small and medium-sized companies in the same or related industries (Meardon, 2001). Universities, government policies and public laboratories play a very small role in these districts. These are self-organized agglomerations of private firms competing in similar markets, together with specialized suppliers of equipment and services. This tradition has captured the imagination of Italian social scientists, who have produced a very rich set of studies using this framework. Marshallian externalities have been summarized as either economies of specialization, labour market economies (based on the local human capital pool) and/or knowledge spillovers.