The impact of Google on the Eemshaven cluster

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By:

Jannet van Werven

s1911672

j.f.van.werven@student.rug.nl

University of Groningen

Faculty of Economics and Business

Msc Interna onal Business

May 2015

Supervisor:

Dr. Prof. L. Karsten

The impact of

Google on the

Eemshaven cluster

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Abstract

This paper explores the rela onship between clusters, investments and innova on. We want to explore whether an investment made by one company would s mulate the other companies to also invest, and foster innova veness in a cluster. This was explored through a case study on the investment of Google on the companies in the Eemshaven cluster. Results suggested that the investment did not s mulate innova veness through increasing R&D expenditures of the companies in the cluster. Conversely, the investment of Google was argued to be a pull factor for the region, a rac ng companies by signaling trust in the region. Consequently s mula ng innova veness though the increase in companies residing in the Eemshaven. This research contributes to the research on clusters, by exploring the mechanisms on how companies in clusters are aﬀected by each other. Moreover, besides theore cal implica ons, this paper also has some prac cal implica on, as it touched the delicate issue of unemployment in the Northern-region.

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Chapter 1 - Introduc on

In September 2014, Google Inc. announced that it is planning to invest in building a large data center in the Eemshaven, part of the biggest sea-cluster in the North of the Netherlands. This center will be an investment of €600 million, will cover 50 ha, and will be ﬁnished in 2016. The datacenter will host over 10.000 servers and will provide around 150 permanent jobs (RTVNoord, 23-09-2015). According to minister Kamp, the Dutch minister of Economics, the beneﬁts of this investment are considerable. Not only will this signal that the North is an a rac ve place to invest in, he also argues that this data center will provide a substan al impact on the region through the boost of regional employment (Rijksoverheid, 15-10-2014). Employment is a delicate issue in the North. In the last two years the rate of unemployment has grown by 3.6%, which makes the regional total 14.3%, a new record (CBS, 2015). The investment of Google is seen as a driver for the Eemshaven. But what can we expect?

Several studies and reports have been devoted to demonstrate the economic impact of data centers. One of these is a study by the city of Hillsboro (2013), on the impact of Google datacenter in Hillsboro, Oregon (USA). This study found that the building of a data center in that region had many substan al short- and long-term economic impact on the economy. It increased the demand for employment in both construc on as well as in the technological (IT) sector. Moreover, they argue that these expenditures are perceived throughout the whole region, and created a ripple effect that posi vely influenced many other sectors in the region. Similar results were found in a study on the impact of the crea on of Facebook’s data center in Northern Sweden by the Boston Consul ng Group (BCG) (2014). They found that the datacenter had a significant economic impact (direct, indirect and induced) na onwide. In 2012 alone, Facebook was responsible for 1.5 percent of the local region’s total economy. According to the study by the BCG, the impact was the biggest on employment. Due to the datacenter, not only 1.456 jobs were created in construc on, 838 jobs in contractors and another 1.298 jobs for the middle class were generated.

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Belgian unions conﬁrmed this fact, and men on that the few Belgian who work at the center, work as security (de Stentor, 05-01-2015).

In the above examples, the impact of a datacenter is only analyzed by considering the direct effect on economy and the indirect effect on employment. To explore the effect of the datacenter in the Eemshaven, another factor has to be included. As briefly men oned above, the Eemshaven is argued to be a regional cluster. A cluster is defined as a popula on of geographically concentrated and mutually related business units, associa ons and public (-private) organiza ons centered around a dis nc ve economic specializa on (Porter, 1990). Through the close proximity of these concentrated firms, they are considered to create more value together than separate. Clusters can be seen as a low cost way to foster new business development, job crea on and innova on (Delgado, et al., 2012). Something similar was also suggested by Arjen Edzes and Viktor Venhorst, spa al economists at the University of Groningen. In an interview with the local newspaper ‘Dagblad van het Noorden’ (DVHN, 24-09-2014), they argue that ‘this kind of companies’ benefit from clustering, especially in a rac ng personnel. These statements suggest that the impact of such a datacenter might be different when located in a cluster.

Since none of the research on datacenters is taking into account the possible eﬀects of clusters, I would like to inves gate that in this paper. Will it, as minister Kamp argued, signal a certain trust in the future and facilitate a rac ng personnel? Will such an investment trigger other companies in the cluster to also increase investment? Or will it a ract new companies because of the an cipated spill-over eﬀects this investment will bring about? To explore this subject, the following research ques on was developed:

What is the eﬀect of the investment of Google on the companies in the Eemsdelta cluster?

Exploring this topic will not only contribute to the literature on clusters by exploring its versa le func ons. It will also examine the possible impact on the region Groningen, and especially the Eemshaven. Will this investment really be the trigger it is argued to be?

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summarized in the analysis part. We will discuss these results in the discussion sec on. Finally a conclusion will be drawn, in which we will answer the research ques on.

Chapter 2 - Theore cal framework

In this chapter the literature background of the paper will be presented. First the subject of cluster theory will be discussed, thereby reviewing the strengths and weaknesses of clusters. The focus of this paper will be laid on the role innova on and R&D play in clusters. Subsequently we will discuss the modera ng eﬀect of governmental regula ons. Derived from the theore cal discussion the conceptual model will be drawn.

Cluster Theory

The Eemshaven is considered to be a regional cluster (Woldring, 2006). The deﬁni on of a cluster we will adopt in this paper is the one by Michael Porter (1990): “.. a popula on of geographically

concentrated and mutually related business units, associa ons and public (-private) organiza ons centered around a dis nc ve economic specializa on”. This deﬁni on can be subdivided in four

characteris cs:

· a popula on of business units, associa ons or organiza ons · geographical concentra on

· centered around a dis nc ve specializa on · mutually related

Based on several case studies, Wolding (2006) found that the Eemshaven was a regional cluster. He found that there was strong evidence the Eemshaven met the four criteria above. The companies located in the Eemshaven were found to collaborate more than the na onal average. Moreover, he argues that the collabora on of the companies in the Eemshaven where of collabora ve as well as compe ve nature.

The founda on of cluster theory dates back to 1890, where the economist Alfred Marshall was the ﬁrst describing and analyzing the phenomenon of industrial districts. But Michael Porter really le a mark on cluster theory with his book, the Compe ve Advantage of Na ons (1990). He analyzes the

importance of clusters for regional compe veness, but also developed the most common used deﬁni on for clusters; “the geographic concentra on of interconnected ﬁrms and suppor ng or

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members of a cluster also include suppliers, manufacturers, governmental ins tu ons and downstream channels (Rosenfeld, 2011).

Even though cluster theory dates back to 1890, it is not outdated. Clusters have become a major subject of research, mainly because of their prac cal impact for the economy. Strong clusters beneﬁt regions, ﬁrms and workers (Delgado, et al., 2012; Porter, 2000). They foster sources of compe ve, technological and strategic advantages (Kerste, et al., 2001).

To illustrate this; the Harvard Business School (HBS), in coopera on with Michael Porter, ini ated a project mapping clusters in America1_{. Penny Pritzker, U.S. secretary of Commerce, argues that the}

database this project supplies is used by a wide variety of ins tu ons. It enables them to become more aware of the compe ve landscape of industries, make be er strategic investments and lay ground for new industries (Cluster Mapping Project, July 2014). This project also facilitates comparison between diﬀerent clusters, review pa erns of employment and in- and output.

The HBS project dis nguishes two types of clusters; traded and local clusters. They refer to a traded cluster as ‘the engine of regional economy’. A traded cluster is a set of related industries, which compete in cross-regional markets and are concentrated in regions that provide speciﬁc compe ve advantages. A local cluster is pointed out to be the founda on of local economies. They are located in every region, and sell their products primarily for the local market (Harvard Business School, 2014; Porter, 2000). Clusters can be seen as a low cost way to foster new business development, job crea on and innova on. They build on already exis ng assets and enhance them through the interac ons between the various players located in the cluster (Delgado, et al., 2012; Muro & Katz, 2011).

These interac ons have been considered to be the strength of clusters. This can be explained by introducing the Triple Helix model. The concept of this model is developed by Etzkowitz and Leydesdorﬀ (2000). It is based on the combina on of three ins tu onal spheres in society; government, business, academia. Academia provides the cluster with skilled workers, and promotes innova on through research and development projects. Business provides the knowledge infrastructure, and government set the rules of the game (Wilson, 2012; Etzkowitz & Leydesdorﬀ, 2000). The main requirement for a successful cluster is the development of a strong coopera ve network between these three players (Lundequist & Power, 2002; Porter, 2000, Gebreehesus & Mohnen, 2012).

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A large amount of literature is dedicated to analyzing and defining the benefits of clusters, since there are many. Kerste, et al., (2001) men on that the development of clusters fosters sources of compe ve, technological and strategic advantages. Porter (1998) integrated the benefits of clusters into three main categories. First, the simula on of produc vity through specializa on, synergies and increased access to specific knowledge. Secondly, driving the direc on and pace of innova on, through coopera on and compe on. And finally fostering the forma on of new businesses by filling niches and expanding the boundaries of the cluster. The main focus of this paper is placed on the func on of clusters to s mulate and drive innova on.

Innova on in cluster

Innova on is deﬁned as the genera on, acceptance and implementa on of new ideas, processes, products or services (Thompson, 1965). Innova on is a necessity for ﬁrms, since it facilitates the ability to respond to changing customer demand and capitalize on opportuni es created by the changing marketplaces and dynamics. Moreover, it is considered to play a key role in the crea on and sustaining of value and compe ve advantages (Baregheh, et al., 2009).

Research by Bell (2005) found that loca ng in clusters enhances a firm’s innova veness (its ability to innovate). This is due to the characteris cs of a cluster. Due to the inter-connectedness of the par es, firms have a higher degree of flexibility and able to respond faster to new opportuni es. Clusters enable frequent and repeated knowledge sharing and development, which, in turn benefits the innova ve capacity of a cluster (McEvily & Zaheer, 1999). Moreover, the clustered firms have be er access to informa on as they obtain a vast amount of resources from one another [ CITATION Bia91 \l 1043 ]. Addi onally, the compe ve pressure within clusters itself will s mulates companies to innovate (Porter, 1990).

Research and Development

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two types of R&D were derived from the Organiza on for Economic Co-opera on and Development (OECD). They define formal R&D as “…the crea ve work undertaken on a systema c basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applica ons (OECD, 2002). TA was defined as the sum technological change (investments in hardware or equipment) and the acquisi on of external technology (purchase of trademarks, patents and such) (OECD, 2005; Freeman, 1982). Conte and Vivarelli (2013), found that formal R&D expenditures enhanced product innova on, whereas TA increased a firms tendency to engage in process innova on.

Fritsch and Franke (2004) found that R&D expenditures by one firm significantly impact resources spend by other firms in the same industry. These expenditures were found to be a sources of knowledge crea on. This might be because R&D also contributes in the process of developing abili es relevant to absorb the innova ons generated outside the firm (Cohen & Levinthal, 1989). Parisi, et al. (2005), found that formal R&D permits firms to absorb innova ons generated outside the firm, and facilitated innova on within the firm. Therefore, R&D is a tool that increases learning at the organiza onal level and enhances interac ons with other firms, especially in clusters (Molina-Morales, et al., 2012; Parisi, et al., 2005).

Therefore, to Drawn on the ﬁndings by Parisi, et al. (2005) and Fritsch and Franke (2004) the following hypothesis was developed:

H1: The investment in R&D by Google will s mulate the innova veness in the cluster by increasing the R&D expenditures of other ﬁrms

Employment

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development and foster the compe ve posi on of the firm[ CITATION RSM14 \l 1043 ]. Even though they adopt a different defini on, both make a similar dis nc on in types of innova on.

This is relevant, since the ECIM 2013 - 2014 report found that there was a strong correla on between both types of innova on and the increase in employment. They found that companies that invested in both types of innova ons, had in increase in employers of 8.3%. Therefore, the second hypothesis drawn is the following:

H2: The increase in the clusters’ innova veness will lead to an increase in employment

The modera ng role of governmental regula ons

As men oned before, the strength of a cluster is through the interac ons of the various players located in the cluster. Wilson (2012) argues that the government plays a significant role in the development of an innova ve cluster. They are responsible for providing the cluster with essen al infrastructure investments, such as transporta on and the acquisi on of land. Moreover, they provide rules regarding investments, tax benefits and regula ons. Even though cluster policies intend to improve the compe veness of clusters, studies regarding this topic show a large degree of heterogeneity [ CITATION Ket13 \l 1043 ]. Even though there is a strong support for these policies among academics (Lundequist & Power, 2002) and government agencies (European Commission, 2001), recent research by Ketels (2013) does not support the argument that these policies are helpful by the development of clusters. This failure can be found in the specificity of the rules and regula on. The Brookings-Rockefeller project points out that states o en tend to emphasize the wrong issues (Muro & Fikri, 2011). They focus too narrowly on only placing the right inputs together, and not on the alignment and combina on of these inputs. Something similar was also suggested by Ketels (2013). Only when the policies are specifically tailored to the cluster, and properly aligned, synergy effects will occur. Therefore, the third hypotheses drawn is:

H3: Governmental rela ons will posi vely s mulate the innova ve capacity of the cluster.

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Chapter 3 - Case descrip on

Before we con nue with the methodology of the paper, ﬁrst the case will be introduced. In this chapter a rich picture of the Eemshaven will be presented, as its history, current posi on, management and policies are discussed.

Eemshaven

The North of the Netherlands, the biggest sea-port is located; the Eemshaven (Eemsport). It is a region of approximately 2600 hectares, with industrial sites and ports. The establishment of the site was with the building of a deep sea port in 1968, which is simultaneously one of the core developments (Groningen Seaports, 2015). This port was ini ally built to facilitate the oil reﬁnery, and foster economic growth in the Netherlands during the 1950s and 60s. However, due to the oil crisis of 1973 the whole project collapsed. In the 90s several a empts were undertaken to s mulate the development of the Eemshaven. Even though some of them failed, the Eemshaven succeeded in becoming a central container port and important player in the energy sector (NPO Geschiedenis, 2014). Currently, the most substan al sectors present in the Eemshaven are industry, bulk storage, oﬀshore wind and energy (Groningen Seaports, 2015). For a map and the complete list of companies located in the Eemshaven, see appendix A.

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government. They men on that in this way, “the organiza on can operate more commercially and

eﬀec vely” (Groningen Seaports, 2015). The transfer to a PLC was made due to the increase in scale

and complexity of their opera onal management. They have one sole shareholder, which is the common ports alliance (Gemeenschappelijke Regeling Havenschap). Besides the Eemshaven, Groningen Seaport also manages the port of Delfzijl and the adjacent industrial areas.

In their annual report 2012, Groningen Seaports formulates their mission as “s mula ng

employment in the ports, adjacent industry sites and other logis c nodes through responsible and sustainable economic ac vi es”.

This mission was translated into four long-term goals: · Growth of ac vi es and growth within ac vi es · Coopera on on central ac vi es

· Pursuing sustainable ports · Management in control

Datacenters

The announcement of Google to invest in the Eemshaven might not come as a surprise. Since 2007 one of the biggest datacenters of Europe is located in the Eemshaven, the Telehouse. The datacenter, owned by TCN, a big player in European real estate, hosts 100.000 servers and is rented solely by Google Inc.

The Eemshaven is considered to be a suitable loca on for the building of a datacenter (Trouw, 06-02-2007). In the report ‘Green Dataport Eemshaven’, Groningen Seaports iden ﬁed several factors in the Eemshaven, making it an a rac ve loca on for datacenters. These pull factors can be found in ﬁgure 2.

In this report they elaborate on the poten al beneﬁts and risks of the Eemshaven. They also provide a list of related companies in the data

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The Eemsdelta

The Eemshaven is located in the Eemsdelta area. This area is part of four communi es; Delfzijl, Eemsmond, Appingedam and Loppersum, the so called DEAL-communi es. These DEAL-communi es maintain a close rela onship in policy making and development. In 2013, they devised the ‘Ontwikkelingsvisie Eemsdelta’, a development policy for the Eemsdelta. Not only did the DEAL-communi es corporate in dra ing this development policy, also the province of Groningen, Bureau EZ, the regional water authori es, Milieufedera e Groningen (environment federa on Groningen) and Groningen Seaports par cipated. The development vision was based on the ‘havenvisie 2030’, the port vision of Groningen Seaports and the Economic and Ecologic vision developed by the province of Groningen[ CITATION Pro13 \l 1043 ]. The development policy was dra ed around two focal points; s mula ng development and func ons in the Eemsdelta area, and driving and the ordering of these. These two points were subdivided into four themes.

· Economy and Ecology in balance · Energy port

· A ainability · Climate adjustment

In the development policy, they discuss the main dilemmas regarding these themes, the desired end state and the ac on plan to address these issues. Since the development policy was dra ed with assistance of the main stakeholders of the Eemsdelta area, and based on their development policies, they a empt to ensure the achievability and a ainability of these goals.

The Eemshaven cluster

Based on several case studies, Wolding (2006) found that Eemshaven is considered to be a regional cluster. He found that there was strong evidence the Eemshaven met the deﬁni on of a cluster developed by Porter (1990) The companies located in the Eemshaven were found to collaborate more than the na onal average. Moreover, he argues that the collabora on of the companies in the Eemshaven where of collabora ve as well as compe ve nature. However, this research was done in 2006. Since then, two of the par cipants studied went bankrupt and made a second start, and one seized to exist. Therefore, we might ques on the reliability of this study.

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development vision Eemsdelta and the Economic Vision Eemsdelta 2030 (2013) Groningen Seaports appears to maintain a similar deﬁni on of clusters as Porter (1990). Even though this was not explicitly men oned, through the focal points of a en on and development policy designed for the Eemshaven, the deﬁni on could be derived.

Porter’s defini on can be divided into four spheres; a popula on of business units, a geographical concentra on, centered around a dis nc ve specializa on, and mutually related. In the port vision, Groningen Seaports men on that a large part of the Eemshaven was declared to accommodate the development of the energy industry and associated companies. In addi on to this, they also intent to create such an area for the data industry. Moreover, they argue that the datacenter benefit from the close proximity to energy sources. We can also argue that the Eemshaven is a traded cluster. A set of related industries, which compete in cross-regional markets and are concentrated in regions that provide specific compe ve advantages (Porter, 2000).

In addi on to this, the development policy men ons they intent to enhance clustering within and between diﬀerent sectors in the Eemshaven. They concentrate on strengthening the posi on of the economic top sectors, as they iden fy the Eemshaven as one of the most important sites for growth. This process will include the development of chains, the reduc on of emissions and ‘greening’ the produc on processes. Moreover, they men oned that Groningen Seaports and Bureau EZ will be key in the process of acquiring new businesses.

Bureau EZ

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Progress

Being aware of the fact that development policies o en describe the preferred picture, but reality some mes diﬀers, this sec on will discuss some of the recent developments in the Eemshaven.

First of all, in the development policy of the Eemsdelta was men oned the focus would be on going green in the Eemshaven and the Eemsdelta. As a result, collabora ng with environmental organiza ons, government and industry, Eemsdelta Green was developed. This pla orm is for the development of new green projects or assis ng current projects in the Eemsdelta. Currently they have 80 projects running [ CITATION Eem13 \l 1043 ].

Harry Hoek, head of Bureau EZ, wrote a column in the Eemsdelta Kringen of April 2015. The Eemsdelta Kringen is an Industrial Management Magazine repor ng on the most signiﬁcant developments in the Eemshaven. He men oned that even though employment has decreased in the years 2012-2014, he strongly believes in 2015 employment will increase. This due to investments made by mul ple companies. In addi on to the prospects on employment, he also elaborates on the role of the government. He argues that even though the economy languished, the government did not. Investments were made in the redoubling of the N33 and the realiza on of broadband internet in the whole region. He also men ons the crea on of Regional Support Groningen. A project in which the State and the region Groningen both provide €20 million over a period of 4 years to support new companies and entrepreneurs in the Eemsdelta-region (Rijksoverheid, 15-10-2014).

Investments were also made with respect to the access of green energy. Together, Groningen Seaports, ESD-SIC and Aldel took the ini a ve in the realiza on of the cobra cable from Denmark to the Eemshaven. In this way sustainable energy from Denmark will be integrated into the Dutch electricity system. This investment will be of almost 700 million, for which the European commission will provide a subsidy of 86,5 for its account [ CITATION Eem141 \l 1043 ].

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Addi onally, they men on that they expect to contract an addi onal datacenter, as one recently has shown interest in the Eemshaven area.

Figure 2 Development employment Eemsdelta, Source; Eemsdelta\EZ, 02-04-15

Company Investment Structural

employment

Google inc. € 600 million 150

Oﬀshore wind Gemini Park € 2,5 milliard 70 Centrum Veilig Wonen Fivelpoort 200

Herstart Klesch Aluminium 200

Inves ng Chemie op stroom € 100 50 Bouwsector Aardbevingen € 1 milliard 100

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Chapter 4 - Methodology

This chapter will elaborate on the way research is conducted and in what approach is taken to answer the research ques on of this paper; what the eﬀect of the investment by Google will be on the companies in the Eemshaven cluster.

Research design

This research has the goal to study the on the eﬀects of the investment of Google on other companies in the Eemshaven cluster. The study will be of exploratory nature. Exploratory research is research that is most suitable for studying a problem that has not been clearly deﬁned (Shields & Rangarjan, 2013). One method of exploratory research is a case study. A case study is a way to analyze a concept in an in-debt way, in a real-life context. Data is drawn from mul ple sources of evidence, because the context of the phenomenon is of high importance (Barton, 1990). Case studies emphasize the rich, real-world context in which the phenomena occur, and present a more holis c view of the phenomena [ CITATION Eis07 \l 1043 ]. Through the combina on of mul ple sources of data, new and crea ve insights can be developed [ CITATION Kar09 \l 1043 ].

In this paper we will examine a single case. A single case study has one unit of analysis and can richly describe the existence of a phenomenon (Siggelkow, 2007). Bebensat (1987) argues that case research is an adequate way to explore concepts where the variables are s ll unknown and the phenomenon not clearly understood. Singles case study are an appropriate method for the tes ng a causal rela onship[ CITATION Noc07 \l 1043 ]. The issue with single case studies is only that they are limited in generalizability (Eisenhardt, 1989). Since merely one unit is analyzed, it is diﬃcult to generalize ﬁndings and provide a strong base for theory building (Ghauri & Grønhaug, 2010; Yin, 1994). Moreover, some mes single case studies can present/give issues of construct validity and replicability [ CITATION Eis07 \l 1043 ].

Data collec on

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The benefits of collec ng primary data is that it enables collec ng specific data. As men oned, this will be done through interviews. One drawback with data derived from interviews is to ensure that it is not biased. This can be overcome by incorpora ng answers given by a previous respondent, in the subsequent interviews, to test its validity. The benefit of secondary is that it is collected by other organiza ons, and is less me consuming to obtain. A drawback of secondary data is that it is collected for a different purpose, and might not be completely suitable for the research (Ghauri & Grønhaug, 2010).

Procedure

Data for the ﬁrst hypothesis was collected through interviews, data for the second hypothesis was collected through the combina on of interviews and secondary data. Whereas data for the third hypothesis was derived from secondary data sources only.

A total of five interviews was conducted with people opera ve on different levels in the Eemshaven. For an overview of the par cipants I would like to refer to appendix C. Through this diversity of par cipants present the most holis c view on the investment of Google is presented. This diversity also prevent a biased conclusion. The interviews varied from half an hour to an hour and a half and were conducted via telephone or in real life. The composi on of the interviews was in three parts. First was asked about the impact of the investment of Google in general, secondly about the impact on companies in the cluster, and finally about the impact on employment. The complete interviews can be found in appendix D.

As men oned, in addi on to interviews, secondary data was collected through the analysis of several documents including annual reports of the par es involved in the Eemshaven, governmental reports and ar cles published on the subject. These documents were already incorporated to a large extend in chapter 3, the case descrip on of the Eemshaven. For the overview of documents analyzed I would refer to appendix E. The data derived from these documents were collected to answer the second and third hypothesis.

Scope

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Measurement

As men oned in the theore cal framework, innova on can take place in different forms. The Ro erdam School of Management (RSM) (2014), made a dis nc on between technological and social innova on. Technological innova on entails improvements in ICT and R&D sector. Social innova ons are modifica ons in organiza onal structures, management styles and alliances to improve organiza onal learning, product development and foster the compe ve posi on of the firm[ CITATION RSM14 \l 1043 ]. In the ECIM 2013 - 2014 it is found that there was a strong correla on between both types of innova on and the increase in employment. Companies inves ng in both types of innova on, had in increase in employers of 8.3%. Therefore to measure the output of a clusters’ innova veness, we focus on the increase in employment.

Validity and reliability

Validity is the criteria for how effec ve the research design will measure the research ques ons (Yin, 1994). Internal validity is secured by developing specific and clear defini ons. In this way we eliminate the chance the concepts can be misinterpret. Internal validity is of significant importance, since is the extent to which we can establish a causal rela onship between the concepts studied (Yin, 1994). External validity is the extent to whether the findings of the study can be generalized. As men oned before, conduc ng a single case study limits generalizability in findings. However, the aim of this paper is not to test theory, but rather explore theory. Therefore, based on this research we cannot draw conclusions, we can only enhance theory and provide a case for further research.

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Chapter 5 - Results

In this chapter we will present the data collected to answer the research ques on of this paper, whether the investment of Google has an impact on the innova on capacity of other companies in the Eemshaven cluster. This will be done by answering the three hypotheses drawn from the theore cal discussion in chapter 2;

H1: The investment in R&D by Google will s mulate the innova veness in the cluster by increasing the R&D expenditures of other ﬁrms,

H2: The increase in the clusters’ innova veness will lead to an increase in employment, H3: Governmental rela ons will posi vely s mulate the innova ve capacity of the cluster.

H1 : The investment of Google will s mulate investment in the cluster

In this sec on we will discuss the ﬁrst hypothesis, whether the investment in R&D by Google will s mulate the innova veness in the cluster by increasing the R&D expenditures of other ﬁrms.

As can be seen in table 1, only one of the five respondents had a nega ve a tude towards the investment of Google, arguing ‘Google only acted out of self-interest’ by loca ng in the Eemshaven. The other respondents had a more posi ve a tude regarding the effect of the investment of Google. Almost all respondents men on that Google will posi vely impact the Eemshaven through signaling trust in the region. One respondent men oned that ‘when a company as significant as Google

decided to locate in the North, regardless of the risk of the occasional earthquakes, this signals a high degree of trust in the region’.

Asking about whether the investment of Google would s mulate other companies to increase R&D investment received li le response. The majority of respondents considered the impact of the investment of Google on the companies in the Eemshaven to be limited, as can be seen in table 2, on the next page.

Table 1: impact in general # A tude Keywords 1 Posi ve

2 Posi ve Signalling value, trust 3 Nega ve Self – interest

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Two of the respondents suggested that it would have no eﬀect on other companies because ‘it was

of small scale, and not necessarily intended for knowledge innova on’. He argued that, since Google

only invested in data storage, contrary to knowledge development, there would be no impact on the other companies.

Another respondent shared a somewhat similar opinion, arguing that ‘Google only located in the

Eemshaven for the loca on advantages, and not because of intellectual advantages in the region’.

What was men oned by several respondents, was that the investment might lead to encourage suppor ng companies to locate in the Eemshaven. One of the respondents claimed that the investment by Google gave the Eemshaven an unique selling point. This facilita ng the acquisi on of new companies in the Eemshaven. They claim the amount of companies interested in loca ng in the Eemshaven doubled in the last year. Furthermore, several respondents men on that the effect is limited because the companies in the Eemshaven are not intensely related. One respondent does argue that ‘it might have an effect when collabora on is s mulated’. However, one respondent men oned collabora ng with Google is difficult. ‘Google has a strong posi on and, in order to

collaborate with them, you have to come to them. You have to make an eﬀort’.

H2 : Increase in innova veness will increase employment

The general a tude towards the impact of Google’s investment on employment is mostly nega ve. What is argued by one of the respondents is ‘that this sort of a company beneﬁts from compe on and clustering, by a rac ng similar personnel. However, since there are no similar companies in the Eemshaven, and the investment of Google is not in knowledge innova on, this will not apply’. The

impact the investment of Google will have is considered to be solely in the maintenance sector, and through the increase in suppor ng companies.

Table 2: Impact on the companies in the Eemshaven # A tude Keywords

1 Neutral Unrelated companies

Only eﬀect when collabora on

2 Neutral No direct eﬀect on companies in the Eemshaven Only trigger suppor ng companies to locate No knowledge innova on

No rela on

3 Nega ve Only loca on advantages 4 Posi ve No direct eﬀect

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One respondent argued that since Google was only focused on low cost, they would seek for the cheapest op ons available. This was conﬁrmed by another respondent, who argued that ‘when

Google referred to regional or local companies, they could also refer to companies located in Noord-Holland’.

In addi on to data derived from interviews, also a report dra ed by Bureau EZ was analyzed. In this document the recent developments of the labor market in the Eemsdelta were depicted. They start by expressing their concerns regarding the current increase in unemployment in the region in the recent years. According to the report, the closure of Aldel in 2013 resulted in a decline in employment for many companies. Moreover, they stress the importance of the crea on of employment for the quality of life in the region.

In the report, also is men oned that from 2015 a significant increase in demand will occur. These numbers can be found in figure 2, chapter 3. Nonetheless, they argue that this demand cannot be fulfilled due to a shortage of specific labor. In the years 2015-2017 there will be a substan al shortage of engineers and around 2.500 construc on workers. This will coincide with the re rement of a large quan ty of baby boomers. Resul ng in a high demand of labor, which the region cannot supply.

H3 : Governmental rela ons will posi vely s mulate the innova ve capacity of the

cluster.

In table 4, the main highlights derived from the document analysis are displayed. On local level the importance of the accessibility of the region is emphasized, by inves ng in be er roads and internet. Moreover, several documents state they want to grant subsidies to promote startups and business in the region, and make the business climate more a rac ve.

Table 3: impact on employment Interview A tude Keywords

1 Nega ve Unclear boundaries 2 Nega ve No knowlegde innova on

Demand does not meet supply 3 Nega ve No direct eﬀect on employment

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Two types of ﬁnancial support were found. The ﬁrst in the form of a subsidy by both the State and the region Groningen to support new companies and entrepreneurs in the Eemsdelta. The second in the form as a subsidy by the European commission for the construc on of the Cobra cable.

Simultaneously, the construc on of the Cobra cable will give access to sustainable energy from Denmark. This project was an ini a ve from Groningen Seaports, ESD-SIC and Aldel. Furthermore, investments in infrastructure were made. The N33 (the main road to the Eemsdelta) was redoubling of the N33 and broadband internet in the whole region was realized.

The report by Bureau EZ men on the recent developments in the labor market. They picture the recent decline, but also argue that their eﬀorts to acquire new companies and employment has paid. In 2015 they expect an increase in investment by several companies. Addi onally, they men on the acquisi on of an addi onal datacenter in the region.

Table 4: modera ng role government

Document Source Keywords

Green Dataport Eemshaven Groningen Seaports Pull factors Eemshaven

Ontwikkelingsvisie Eemsdelta DEAL-communi es Development themes in the Eemsdelta; Economy and Ecology in balance, energy port, a ainability, climate adjustment Port vision Groningen Seaports Energy and data cluster

Focus on s mula ng cluster ac vity S mulate within and between diﬀerent sectors

Eemshaven poten al for growth Eemsdelta Green Eemsdelta Green Development of new green projects

Assistance of current projects Eemsdelta Kringen, March 2015 Bureau EZ Collec ve eﬀorts to a ract SME’s

Eemsdelta Kringen, April 2015 Bureau EZ Increase in employment due to increased investments

Investments in internet and infrastructure Regional Support Groningen Rijksoverheid Subsidies of €20 million suppor ng

entrepreneurs in the Eemsdelta Report Development labor

market Eemsdelta

Bureau EZ Increase in investments in the Eemsdelta Labor shortage

Addi onal datacenter Eemsdelta Kingen

Column Harry Hoek

Posi ve Investment in infrastructure Investment in broadband internet

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Chapter 6 - Discussion

The results of the interviews and secondary data showed some interes ng findings. In the first place, First of all, whereas we expected that the investment in R&D by Google would s mulate other companies to also increase R&D investments, none of this respondents presumed this to happen. This might be due to the fact that the investment of Google was solely an investment in R&D, and not in knowledge innova on. Therefore, we might suspect other companies not to be influenced by this since this investment might not be perceived as a new opportunity. In addi on to this, several respondents argued the companies located in the Eemshaven not to be affected by this, since they were not directly related to each other. This however, does not have to result in the lacking of an effect. Even though Fritsch and Franke (2004) found that R&D expenditures by one firm significantly impact resources spend by other firms in the same industry, R&D permits firms to absorb innova ons generated outside the firm, apart from the industry in which they are located [ CITATION Par05 \l 1043 ]. Data from Bureau EZ does state that several companies are increasing investment. This however, was not men oned to be a direct effect of the investment made by Google.

What was however suggested by several respondents, was that the investment would s mulate companies outside the cluster to locate in the Eemshaven. Companies in suppor ng industries for example. This because Google is such a signiﬁcant name, and when such a company decided to locate somewhere, there might be a legi mate reason. It would signal a certain trust in the region. Since the announcement of Google, Harrie Hoek argued that the amount of companies willing to establish in the Eemsdelta increased signiﬁcantly. This might be, because these suppor ng companies do see a source of compe ve, technological or strategic advantages cluster are able to produce (Kerste, 2001).

Regarding the effect the increased investment in R&D would result in an increasing in the labor market, the results are difficult to interpret. Even though one of the respondents men ons that this sort of company benefits from clustering through the access of a common labor pool, he also men ons that he considers the Eemshaven to lack related companies.

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demand will occur. They argue that their efforts to acquire new companies and employment had paid. Ironically, in the next paragraph, they argue that this demand cannot be fulfilled due to a shortage in the region of specific labor. In the years 2015-2017 there will be a substan al shortage of engineers and around 2.500 construc on workers. They argue this is likely to affect the construc on of announced investments. Moreover, this coincided with the re rement of a large quan ty of baby boomers, resul ng in increased demand of labor, in which the region cannot supply. These concerns were also expressed in the development policy of the Eemsdelta. Regarding this topic however, no actual results could be found. They men on op mizing the labor market, s ll they predict to have a shortage the coming years.

As men oned in the theore cal background, the government can have a modera ng effect on the development of a cluster. As Muro and Fikri (2011) point out, states o en tend to emphasize the wrong issues, only focusing on placing the right inputs together, instead of aligning and combining them. Derived from the analysis of policies and news ar cles, we are led to believe that the government posi vely s mulates the innova ve capacity of the cluster. This might be due to the collabora on of many different stakeholders in the Eemsdelta. Development policies were not only dra ed by State government, but also local par es contributed. The focal points dra ed in the development policy of the Eemsdelta, match those in other policies. Moreover, in the development policy they state to intent to enhance clustering within and between different sectors in the Eemshaven. This process will include the development of chains, the reduc on of emissions and ‘greening’ the produc on processes. When incorpora ng data from other sources, we can deduce that these policies are put into prac ce. The subsidies provided to s mulate entrepreneurs, or to facilitate access to energy, investments in infrastructure and data access, does suggest the government is ac vely s mula ng businesses ac vity in the Eemshaven. This was also suggested by Ketels (2013), only when policies are specifically tailored to the cluster, synergy effects will occur.

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Chapter 7 - Conclusion

In the local newspaper the investment of Google was portrayed as a driver for the Eemshaven and the region of Groningen, mainly since they are located in a cluster (DVHN, 24-09-2014). Clusters are argued to provide many advantages for regions, mainly through the interac ons between the players in the cluster [ CITATION Del12 \l 1043 ]. In this paper I tried to explore the eﬀect of this investment on the innova ve capacity of the companies in the Eemshaven. This was done by a case study, through interviewing par cipants at diﬀerent levels and analyzing secondary data.

Theory suggests that, in order to capture the most benefits from innova on, other companies have to innovate as well [ CITATION Par05 \l 1043 ]. Others suggested that R&D expenditures by one firm significantly impact resources spend by other firms in the same industry [ CITATION Fri04 \l 1043 ]. We found however, that the investment of Google did not impact innova veness in the Eemshaven cluster through the increase in R&D by other companies. This, because the investment of Google was not an investment in knowledge crea on. It was argued that several companies had planned to increase investment, but not as a result of the investment by Google. Contrary, respondents argued the investment of Google to be a signal of trust in the region. This will a ract and s mulate new businesses in suppor ng and related industries to invest in the region. Nevertheless, this event will also foster innova veness.

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The results of this study contributes to the large amount of cluster literature, by exploring the mechanisms working in clusters. What has to be kept in mind is that the results of this study cannot be generalized. Especially since this is just a single case study, on a specific cluster, where rela ons are unique, we cannot draw a general conclusion. This study might however present a cause for further research. For example, exploring how other clusters adopt different types of investments done by other par es in the cluster. In what way will investment made by a specific company, affect other companies in a cluster, and in what way will they be able to benefit from this? In addi on to this, one might examine different types of investment. Since in this case the investment is merely in estate, what will be the effect when an investment is made in new technology?

As men oned, the results of this study are limited. Limited through the scope, but also limited through the data collec on procedure. In this research, only a small amount of respondents was included. Also, results are based on predic ons and expecta ons of these par cipants. Therefore the results might not be completely accurate. Moreover, since the project is s ll under construc on, the real results are not evident yet. This however, does present opportuni es for future research. Analyzing the situa on from a different angle by exploring the expecta ons of the more large-scaled companies opera ve in the Eemshaven, companies that might be more closely related. Furthermore, when the project is finished, through analyzing real data and numbers the real effects of the investment can be explored.

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Appendices

Appendix A – Eemshaven map & list of companies

Map Eemshaven, Source: h p://www.eemshaven.info

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Appendix B – Map of the Eemsdelta

Map Eemsdelta, Source: [ CITATION Pro13 \l 1043 ]

Appendix C – Par cipants interview

Interviewee Func on

Robert van Tuinen Business manager Engeryport& Dataport, Groningen Seaports

Arjan Edzes and Viktor Venhorst Spa al Economist at the University of Groningen Maurice Bernhard Uitzendbureau VBG

Harrie Hoek and Ton Hoorndijk Hoofd Bureau Economische Zaken Eemsdelta Adviseur Economische Zaken at Bureau Economische Zaken Eemsdelta

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Appendix D - Overview of the interviews

Interview 1 – Robert van Tuinen

Name: Robert van Tuinen

Func on: Business Manager at Energyport and Dataport, Groningen Seaports Date: April 20, 2015,

Impact in general

What the impact of Google in general would be on the Eemshaven he was not certain. He believed that the influence of Google would be posi ve. He referred to the recent data on the effect of Facebook in Finland. There the impact of a datacenter was substan al, as it affected na onal product and boosted economy by 1.5%

Impact on companies in the Eemshaven

He argued that the companies in the Eemshaven where not that related to each other. There was no direct compe on but more a coopera ve atmosphere. Google would have an impact when it will start to make use of products of other companies. For example energy from Eneco.

Impact on employment

The effect Google would have on regional employment would not be significant. Google considers Noord-Holland also as regional. The boundaries are not clear, so the effect on employment might be hard to measure.

Interview 2 – Arjen Edzes and Viktor Venhorst

Name: Arjen Edzes and Viktor Venhorst

Func on: Spa al Economist at the University of Groningen Date: April 23, 2015

As a result of an earlier interview with DVHN (24-09-2014) on the topic of Google and its eﬀects for the region, I contacted Mr. Edzes and Mr. Venhorst. The ar cle can be found in appendix II. This interview will combine the regular composi on of the interviews with cover some ques ons I had concerning the ar cle.

Impact in general

They argue that the investment of Google has a high signaling value. Because Google is such a considerable name, the North of the Netherlands will be charted in a posi ve way for a change. The earthquakes have caused a great amount of reputa onal damage. With Google inves ng in the Eemshaven, it could be seen as a poten al posi ve signal to other (big) companies. It signals a sort of trust in the region. It might also a ract start-ups.

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Furthermore, he men ons that this datacenter is small-scaled, and not intended for ‘knowledge innova on’. This might moderate the eﬀect of this investment.

‘This sort of a company’ beneﬁts from compe on. What is meant by this is that if similar businesses will locate in the same region, they would a ract similar personnel. In that case, they would beneﬁt from a common labor pool. However, in the Eemshaven, there is no abundance of companies in one type of industry. Moreover, the investment of Google in a datacenter is not an investment in knowledge innova on. The personnel they need are in the maintenance sector. If they were to invest in knowledge innova on, they might consider coopera on with the University. Since currently the demand does not meet supply.

Interview 3 – Maurice Bernhard

Name: Maurice Bernhard

Func on: Owner of the employment agency VBG Date: April 24, 2015

Impact in general

Maurice Bernhard has a skep cal view on the impact of Google on the Eemshaven. Google has a powerful posi on and is looking for a loca on with favorable supplements and cheap materials. The Eemshaven is advantageous because of the presence of cheap land, cheap labor, the data cable and diﬀerent sources of energy. The only eﬀect is that Groningen Seaports has enlisted a new tenant for one of the open slots in the Eemshaven

The impact Google will have on the companies in the Eemshaven will be insigniﬁcant. The only goal for Groningen Seaports is to recruit new tenants for the Eemshaven. He argues that most of the companies in the Eemshaven are ‘silent companies’ and no produc on companies. This is similar to Google. It is only located in the Eemshaven for the loca on advantages, not for the intellectual advantages. The investment of Google is in a datacenter where only maintenance is needed.

As local entrepreneur, Maurice Bernhard was one of the ﬁrst informed about the investment of Google. He, as an owner of an employment agency, was willing to recruit personnel suitable for this project. However, similar to earlier projects, he was not able to provide any personnel for the project. This is due to several factors. First, most of the work done in construc on is done by a team experienced in the building of datacenters. Secondly, because of the powerful posi on of Google they can demand the lowest prices, which the local entrepreneurs most o en cannot meet. The supply does not meet the demand.

Interview 4 – Harrie Hoek and Ton Hoorndijk

Name: Harrie Hoek

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Date: April 30, 2015

Impact in general

Harrie Hoek argues that the impact of Google has two main effects; direct effects on employment and psychological effects. The most important one is perhaps the psychological effect. The North has suffered a lot of reputa onal damage because of the earthquakes. When a company as significant as Google decides to locate in the North, this sends implies a high degree of trust. Consequently sending out a posi ve signal.

Direct impact on the companies in the Eemshaven might be limited since Google does not cooperate with, or relates to them. However, the investment of Google did trigger other companies to locate in the Eemsdelta. In table 1 an overview is given of the amount of new companies located in the Eemsdelta. Due to Google the North now has an unique selling point. The companies that are acquired are most o en companies with supplemen ng services. Bureau EZ wants to

s mulate coopera on between businesses. Moreover, they hope that through a rac ng supplemen ng services, they make the Eemsdelta more a rac ve for other big players to locate in.

The impact Google has on direct employment is limited, the data center only required 50 man personnel. However, Harrie Hoek states that Google and Bureau EZ have a deal that personnel will be acquired from within the region.

Interview 5 – Bernard Elzes

Name: Bernard Elzes

Func on: Accountmanager at Collé Rental&Sales Date: April 30, 2015

Impact in general

The investment of Google will probably have an eﬀect on the brand awareness of the Eemshaven.

The impact on other companies in the Eemshaven are limited. It is difficult for a construc on company to be able to be part of the construc on process. Google has a strong posi on, so as a firm to acquire a share, you have approach to them. The effect on other companies he considers to be limited as they are not related.

The impact on employment is limited. It might affect maintenance companies, but it will probably not influence the bigger firms.

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Appendix E – Secondary data sources

Document Source

Green Dataport Eemshaven Groningen Seaports Ontwikkelingsvisie Eemsdelta DEAL-communi es Port vision Groningen Seaports Eemsdelta Green Eemsdelta Green Eemsdelta Kringen, March 2015 Bureau EZ Eemsdelta Kringen, April 2015 Bureau EZ Regional Support Groningen Rijksoverheid Report Development labor

market Eemsdelta

Bureau EZ Eemsdelta Kingen

Column Harry Hoek

The impact of Google on the Eemshaven cluster

By:

Jannet van Werven

s1911672

j.f.van.werven@student.rug.nl

University of Groningen

Faculty of Economics and Business

Msc Interna onal Business

May 2015

Supervisor:

Dr. Prof. L. Karsten

The impact of

Google on the

Eemshaven cluster

Abstract

Table of Contents

Chapter 1 - Introduc on

Chapter 2 - Theore cal framework

Cluster Theory

Innova on in cluster

Research and Development

Employment

The modera ng role of governmental regula ons

Chapter 3 - Case descrip on

Eemshaven

Datacenters

The Eemsdelta

The Eemshaven cluster

Bureau EZ

Progress

Chapter 4 - Methodology

Research design

Data collec on

Procedure

Scope

Measurement

Validity and reliability

Chapter 5 - Results

H1 : The investment of Google will s mulate investment in the cluster

H2 : Increase in innova veness will increase employment

H3 : Governmental rela ons will posi vely s mulate the innova ve capacity of the

cluster.

Chapter 6 - Discussion

Chapter 7 - Conclusion

Biblography

Appendices

Appendix A – Eemshaven map & list of companies

Appendix B – Map of the Eemsdelta

Appendix C – Par cipants interview

Appendix D - Overview of the interviews

Interview 1 – Robert van Tuinen

Interview 2 – Arjen Edzes and Viktor Venhorst

Interview 3 – Maurice Bernhard

Interview 4 – Harrie Hoek and Ton Hoorndijk

Interview 5 – Bernard Elzes

Appendix E – Secondary data sources