As the first step in the generation of cluster definitions, Professor Porter and his team looked at the geographic distribution of employment. This analysis enabled them to identify three types of industries with very different geographic profiles:
- Local industries are present at roughly the same density in all regions of the US, indicating that they serve local markets and are not exposed to direct competition across regions. Such industries, examples are local retail and other local services, account for about two thirds of all employment but have lower wages, productivity, and rates of innovation than the economy on average. In Europe local industries account for a bit less than 57% of total employment.
- Traded cluster-industries are concentrated geographically; industries in this category have a choice as to where to locate and serve markets across regions. Such industries, examples include financial services and automotive, account for close to 37% of European employment, but register above average wages, productivity, and innovation.
- Natural resource-based industries are concentrated geographically as well, but have to locate where the deposits of natural resources happen to be. They serve global markets but don’t have much locational choice. In Europe, they account for around 5% of employment.
While our analysis focuses on industries that geographically concentrate, i.e. are parts of clusters, we also document the relative employment shares of local and natural-resource based industries across the regional economies of the ten new EU member countries.
The translation of the US-based cluster definitions was done in three broad steps: First, we translated the US industrial classification systems SIC into the European NACE classification. Unfortunately there is no simple translation key between the American SIC system and the European NACE, and as a consequence the translation had to go through the UN based ISIC system. The translation between NACE and ISIC is simple. However, between ISIC and SIC there exists a many-to-many relationship, meaning that one ISIC category can be assigned to many SIC categories, and one SIC category can be assigned to many ISIC codes. The translation from SIC to NACE requires some adjustments and simplifications of the cluster definitions.² With a few exceptions described below, European Cluster Observatory follows their translation of SIC to NACE. It should be noted that this translation is not perfect. However, the level of details of the various classification systems differs to such an extent that any translation always will cause problems of adjustments. There is an ongoing project to harmonize the American and the European classification systems, which will eventually enable more simple and accurate comparisons between Europe and the US industry data.
The translation from SIC to NACE necessitates some changes in the cluster definitions. First, the SIC system includes industry categories for “Aerospace engines” and “Aerospace, vehicles and defence” respectively. To obtain a better fit with the NACE system these two clusters have been consolidated to one. Second, the clusters “Prefabricated enclosures” and “Motor-driven products” are affected by the translation in a way that their relevance can be questioned. The industries that make up these clusters are accordingly allocated to other clusters. Overall, we use 38 cluster categories in this report, compared to the original 41 used in the US cluster mapping. The number of industries by cluster varies between 37 and 1.
Second, we needed to define an appropriate definition of geographic regions. Regions in Europe are divided according to the NUTS system, a nomenclature of territorial units for statistics. As a hierarchical classification, the NUTS system subdivides each EU member country into NUTS 1 regions, each of which is in turn subdivided into NUTS 2 regions. The EU has been divided into a total of 254 NUTS 2 regions. The different criteria used for subdividing national territory into regions are normally split by normative and analytical criteria. Normative regions are the expression of a political will: their limits are fixed according to the tasks allocated to the territorial communities, according to the sizes of population necessary to carry out these tasks efficiently and economically, and according to historical, cultural and other factors. Analytical (or functional) regions are defined according to analytical requirements; they group together zones using geographical criteria (e.g., altitude or type of soil) or using socio-economic criteria (e.g., homogeneity, complementarity or polarity of regional economies).
Third, we aimed to obtain employment data at the highest available level of industry granularity. Fortunately, most of the countries collected the data on NACE 4-digit level, however some exceptions exist.
The table below shows the 38 cluster categories that have been used throughout the project.
| Cluster category | Examples of industries | Cluster category | Examples of industries | |
| Aerospace | Aerospace industry, aerospace engines | Heavy Construction Services | Construction businesses, rental of construction machineries | |
| Analytical Instruments | Measurement instruments, process control | Hospitality & Tourism | Hotels, taxies, amusement parks | |
| Apparel | Clothes | Information Technology | Electronic components, computer manufacturing | |
| Automotive | Motor vehicles, components | Jewellery & Precious Metals | Jewellery, cutleries | |
| Building Fixtures, Equipment & Services | Kitchen furnishing, plaster | Leather Products | Bags, furs | |
| Business Services | Management consultancy, rental of office machinery | Lighting & Electrical Equipment | Lamps, electricity distribution's equipment | |
| Chemical Products | Chemicals, nuclear fuels, industrial gases | Construction Materials | Scrap, ceramic sanity fixtures | |
| Communications Equipment | TVs, Cable, telephony equipment | Medical Devices | Medical equipment, wheelchairs | |
| Processed Food | Beer, dairies, glass packages/wrapping | Metal Manufacturing | Rolling mills, casting, tools, screws | |
| Agricultural Products | Sugar, agricultural services, alcoholic drinks | Oil & Gas Products and Services | Refineries | |
| Distribution Services | Mail order, wholesale trading | Biopharmaceuticals | Pharmaceuticals | |
| Education & Knowledge Creation | Universities, libraries | Plastics | Plastics, colours | |
| Entertainment | Video- and music recording, sport events | Power Generation and Transmission | Generators, isolators | |
| Heavy Machinery | Forest machinery, tractors, locomotives | Production Technology | Bearings, tanks, machine tools | |
| Financial Services | Banks, insurance companies | Publishing & Printing | Publishing services, printing | |
| Fishing & Fishing Products | Fishing, hunting | Sporting, Recreational & Children's Goods | Bicycles, toys | |
| Footwear | Shoes | Textiles | Fabrics | |
| Forest Products | Paper machines, pulp | Tobacco | Cigarettes, snuff | |
| Furniture | Furniture, laminated boards | Transportation & Logistics | Inventories, air transports |
The cluster definitions are now undergoing a major review, therefore complete concordance tables will be published on the website once this task is completed.
¹ See www.isc.hbs.edu and Michael Porter, The Economic Performance of Regions, Regional Studies, Volume 37, Numbers 6-7 / August-October 2003.
² This work was conducted by Lindqvist, Malmberg and Sölvell (2002)