Insights

In-depth review into Sydney’s innovative clusters unveils important insights for policymakers

Posted June 26, 2019

SGS Economics and Planning Laura Schmahmann

The New South Wales Government recently announced several innovation and employment precincts for Sydney and the Central Coast. But research into how knowledge is shared between workers and businesses in industry or innovation precincts in Sydney is lacking. This missing information can have serious implications for how future precincts are planned, including workers’ accessibility and movement within and between precincts.

Understanding the how, not just the what

To help policymakers and planners fully understand how industry precincts evolve and function, SGS Associate Laura Schmahmann conducted an in-depth investigation into how knowledge is transferred between workers and businesses in industry clusters in Sydney, the spatial implications of knowledge spillovers, and their influence on industry clusters. Laura used Australian Technology Park (ATP) and Surry Hills as case studies – both of which will be part of the Sydney Innovation and Technology Precinct.

Surry Hills grew organically, with creative people and businesses attracted to the area, transforming it from a former clothing manufacturing cluster to a vibrant centre for creative industries. On the other hand, the Australian Technology Park was established by a government-led master plan to facilitate start-up companies within high-tech industries.

SGS Economics and Planning Surry Hills
Surry Hills, Sydney

I wanted to compare two different approaches to planning for employment in Sydney to understand the extent to which localised knowledge spillovers drive local industry clustering – the evidence was pretty scant in this regard, said Laura.

Laura analysed the extensive research into knowledge spillovers – an almost indefinable transfer of knowledge between people and businesses, often facilitated by non-market interactions. The research is silent on the mechanisms of these spillovers – understanding the how rather than the what is essential as we see several levels of government invest in and promote these innovative and creative industry clusters.

Laura researched four key channels that influence knowledge spillovers: the movement of employees from one business to another; spin-off businesses; relationships between customers and suppliers; and personal networks.

I spoke to businesses in each precinct to understand why they chose to locate there, and how knowledge might be developed and shared in each cluster. I found that the influence of truly localised knowledge spillovers – as we read about empirically - is overstated at this smaller scale. How and why businesses choose to be in an area varies depending on the geographical scale, said Laura.

Laura's research found that the spillovers of knowledge between co-located businesses just wasn’t evident at ATP and Surry Hills. Property market dynamics, for example, are a significant influence on why businesses choose to locate in these precincts.

It's important to think deeply about the potential impact of planning interventions

How do we explain that even when we plan to co-locate education, health and/or research institutions, the synergies between these institutions, related private enterprise and the workers that they collectively accommodate aren’t easily realised?

Laura concluded that, in Sydney, knowledge spillovers via the four identified channels are more likely to occur at much broader geography, rather than within local precincts; We can discount the idea that Surry Hills and ATP are, of themselves, industry clusters; rather they are part of a broader and more diverse cluster of jobs.

While the focus of this research was the creative industries, this has implications for planning successful innovation precincts; success will come when broader factors such as transport and accessibility are addressed which facilitate the movement of workers within and between precincts.

We also need to be mindful of the impact that planning interventions can have on employment uses, particularly the creative industries which may be more at risk of being pushed out by higher-value uses, said Laura.

Public policymakers should be mindful that government intervention could kill the creative energy which drives the success of places such as Surry Hills which have evolved organically. A deeper understanding of effective mechanisms to promote the creative industries (such as providing affordable office accommodation by protecting rents) is required.

Successful precincts are more about ‘friction-less’ movement than collaborating businesses

Precincts are often referred to as industry clusters. However, this research suggests that the benefits of clustering, including knowledge spillovers, occur at a much broader geographic scale, beyond the precinct level. These precincts are more reflective of co-located firms rather than clusters of connected firms where collaboration occurs.

The property market is the major driver of business location at the local level. Amenity and character are important at this scale.

Successful industry clusters are more about transport and accessibility and the ‘friction-less’ movement of workers. Planning for employment precincts (including innovation precincts) should not occur in isolation. The regional context is important as this is the scale at which the benefits of clustering are likely to be observed.

SGS Ecionomics and Planning Innovation Report

Note: Since this research was completed, the ATP has been sold to the private sector and rebranded as South Eveleigh. The precinct continues to evolve and change.

SGS Economics Planning Laura Schmahmann
For further information contact:

Laura Schmahmann

Associate

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