‘Clusters are ecosystems’ – TCI Conference wrap-up

Elisabeth Waelbroek-Rocha from Belgium provided the wrap-up at the TCI cluster conference in Gotenborg, Sweden in September 2003 She is very clued-up on clusters, and her take on the key points have a long shelf life:

§          Many clusters start off as a network, sharing know-how and access to information.
§          Boundaries of the cluster need to be defined by the members themselves.
§          Need an organisation to sustain it, and a cluster leader who will ensure the ecosystem evolves.
§          Need to continuously challenge the cluster’s organisation and structure.
§          Clusters that fail to undertake brand building are more likely to fail.
§          Clusters are ecosystems, living organisms relying on interest-based cooperation, and are spawned over time. They are different to hard and soft networks.
§          Among the new themes emerging at Gotenborg – greater attention to innovation as a factor of competitiveness, increasing reference to HR development and skill training, renewed focus on ‘local’ cluster issues (as opposed to virtual clusters), short term focus of companies v. long term focus of government.
§          Successful clusters have a life cycle of their own – need to create the set-up conditions to attract second generation firms – they have different motives than 1^st generation firms. Need to identify and then take advantage of cluster externalities.     

Congratulations to Vinnova et al for an excellent conference.  

‘Good guy’ companies targeted in UK

Peter Morris of Telesis Consulting, Perth WA, has forwarded a fascinating item dealing with bridging the financial-social divide: 

The East of England Development Agency is backing an innovative scheme where companies and individuals can support their local communities.

It is the brainchild of East of England Community Capital (EECC) that looks for individuals/corporations to help with neighbourhood regeneration. It is a regionally-defined fund and aims to be self-sustaining rather than profit-making. It is part of ICOF Community Capital (industrial and provident society) EECC attracts investments from people and organisations with a social conscience – in the £250 – £20,000 range.  

Spokesman Andrew Hibbert says “Any investments should be seen as sponsoring an ethical cause, with a priority for people…money raised is lent to obtain social and environmental benefit as well as a modest return for the investor. A recent similar share issue involving EECC exceeded expectations and was supported by Secretary of State for Trade and Industry, Patricia Hewitt.

Backers will see, in the companies in which they invest, real gratitude and appreciation…by participating in a share issue, investors see first hand how their contribution can benefit their neighbourhood.”  “Businesses considered to be fundamental to combating social exclusion, with EECC investment, can thrive…one local company that has already benefited is Daily Bread Cooperative, in Cambridge and Northampton.

Director Mark Osbourn says “The ICOF loan we received provided much-needed working capital to enable us to get off the ground. We were then able to utilise disadvantaged people in a range of roles – office administration, selling in the shops, packing food, operating forklift trucks. Their efforts have helped us to pay off the loan some years ago. We have some private investors in Daily Bread Cooperative and we want to encourage more to invest in us…we now have plans potentially to buy a freehold property as we expand and as our lease runs out.” 

See Andrew.hibbert@icof.co.uk or www.businessweekly.co.uk/directory/profile.asp?company_id=386

Supply chains in Mumbai

Mumbai office workers like home-prepared food for lunch, but many do not have the time to get home for it.

Neither is it convenient for them to carry it with them, as this is not a “sandwich, apple and a bag of crisps” kind of place. It is customary for their families to send them their ‘tiffin’ (lunch), usually a curry, some rice, bread and a range of pickles, in a tiffin box.

Some 200,000 tiffin boxes are delivered to workers in the city of Mumbai every day, and the box is then returned to their family. They are delivered by around 5000 ‘dabbawallas’ (tiffin carriers) who operate a well-oiled relay network that ensures every worker gets the correct box. No documentation is involved – the lids of boxes are simply coded with their origin and destination, and pass through many pairs of hands via train, rickshaw, hand-wagons, cycles and dabbawallas’ heads before they reach their hungry recipient.  

Many of them are illiterate, but these dabbawallas make so few mistakes that they have drawn the attention of management gurus, and being invited to lecture to MBA courses on their own incarnation of Supply Chain Management and the Just In Time principle.

With an average of just one meal every two months failing to reach its intended stomach (= one error per 16 million deliveries counting the return journey), small wonder that the London School of Economics is studying the tiffin supply chain as a best-practice business model. 

Source: Catherine Sleep www.just-food.com 

Clusters are concentrators, synergisers, accelerators

 Dear Rod,  

I always admire the different insights that other cluster practitioners have around the world.

My own view is that clusters, whether traditional economy or new economy or mixed hybrids, whether small or large, whatever language or culture, have three essential properties – they are concentrators, synergisers, and accelerators.

This covers the variety of hard and soft input factors, the dynamics of interaction between these factors, and the diverse layered outputs as growth measures. This gives a different appearance and set of characteristics to every cluster.  

And the great fun of it all is observing, commenting, exchanging insights, looking at unique factors and best practices, learning lessons from actual efforts, and witnessing differing degrees of success.

Beyond the great fun is the great human interaction and support that we all give to one another globally, individuals, firms, economic sectors, business associations, economic development agencies, government policy groups, international policy and development agencies, etc. I would like to see a one semester course taught at business schools around the globe on the characteristics and benefits of business clusters, with some great examples.  Best regards, Philippe Roy, Ottawa, Canada.

Victoria goes cluster route

In 2003, the Department of Industry, Innovation & Regional Development (Victoria, Australia) released a very good discussion paper ‘Clusters – Victorian businesses working together in a global economy’ (40 pages).

It proposed a strategic policy framework to select, fund and evaluate clusters in Victoria. We were invited to comment on the document prior to policy decisions by the Victorian Government.

The DIIRD document usefully explains that clusters do not engage in anti-competitive behaviour – they are seen as open systems which encourage competition. Their purpose is not to fix prices, misuse market power by limiting competition, or engage in anti-competitive practices.

Cooperation via information sharing, R&D or export promotion – for the purpose of improving the firms’ competitiveness, not limiting competition.

Other interesting points follow.

Clusters commence and grow in different ways. No model applies to all circumstances.

Clusters may begin by exploiting a natural strategic location, specialised skills, exceptional research institutes, good infrastructure or as a result of the activities of a successful company.

Michael Porter notes that many clusters in Massachusetts owe their birth to the research conducted at the MIT and Harvard University. The Dutch transportation cluster grew out of the waterways of Rotterdam, its central European location and the city’s long acquired maritime skills.

Israel’s irrigation clusters began in response to adversity: desert land was irrigated and turned into agricultural land in order to feed the population.

Finland’s environment cluster emerged in response to pollution problems.

The golf equipment cluster of San Diego grew out of the technology developed by the aerospace cluster. The Omaha telemarketing cluster owes its existence to its central time location, easy to understand accent and a demanding customer in the US air force.

Clusters develop organically over time. However, Singapore (E-commerce) and Ireland (digital hub) are building clusters by attracting FDI with government support. Singapore is building an e-commerce hub around Hewlett Packard, mainly by encouraging the formations of new SMEs.

Regional Economic Development – a DIY process!

 The Australian Department of Transport & Regional Services commissioned a literature review by Spiller, Gibbins & Swan – worth a read, wherever you are. Excerpts below (our comments are in italics). 

§          Regional economic development is a ‘do-it-yourself’ process (you can say that again!).
§          Economic development occurs most prominently in cities, as cities provide a means for local interaction, supplier support and critical mass. Cities also house individuals who have ‘talent’ and ‘knowledge’, which are key drivers of regional competitiveness in the global economy. 
§          Trade, technology exchange & information sharing with other regions is also important. Trade forces competition/efficiency and supports the local learning/ innovation process. (Yes, and not forgetting that the bottom line is investment and quality firms).
§          Businesses must choose a ‘positioning strategy’. Regions are similar – ’strategic architecture’ enables firms to be responsive and capture or create business opportunities. This architecture is unique combinations of physical infrastructure, technologies, core competencies and human capital that can be mobilised at short notice to take advantage of a business or trade opportunity.
§          Non-metropolitan regions can be supported by policies that lift business aspirations, develop strategic architecture, encourage import replacement and trade with leading cities, develop strong links to the large talent pools in cities. Also need to support a diversity of lifestyle and recreational opportunities, which capture the consumption spending trapped in metropolitan areas. (Noosa Qld. and south of France are good examples. A competitive advantage for places like Mauritius?).
§          A ‘top down’ strategic framework is necessary. It must address the long-term directions for Australian industry and regions, the roles and responsibilities of government & other economic agents. (Problematical where national and state governments are of different hues).
§          Within this ‘top down’ framework, regions must develop their own visions and strategic architecture, using a ‘bottom up’ approach and building on the region’s inherited assets – key businesses, universities, leaders, geography, climate, etc. (Often forgotten).
§          The need to match ‘top down’ and ‘bottom up’ agendas requires a coordinated delivery of regional business assistance between all levels of government. (Fantasy land – virtually impossible)
§          Regional development programs should address ‘market failures’, build on regions’ strengths and opportunities, and offer benefits to multiple parties.
§          Often need to conceptualise the economic drivers of a region using an industry cluster approach – tracing the supplier-buyer linkages (or value chains) within a region, often from the major regional exporters/ employers and working backwards. (We could not have said it better!)  

Source: http://www.rbda.gov.au/literature_review/exec_summ.htm 

Tech transfer & life sciences – Arizona

Ron Peterson (Three Arrows Capital Corp in Bethesda, MD, USA) collaborates regularly with us. He is well down the track of compiling an excellent dossier of who is doing what in technology transfer worldwide. If you think your organisation should be featured, contact him. Extract follows. 

Ohio-based Battelle Memorial Institute, and the Morrison Institute for Public Policy at Arizona State University in Phoenix AZ, both concluded in separate reports that the generation of high-paying jobs in the state will require universities to focus on high-tech strengths.

The reports were delivered to the Governor’s Council on Innovation and Technology and complement Arizona’s investment in biotechnology through the Translational Genomics Institute and related organizations.

In particular, the Battelle report suggested that one of the key areas is “Bioengineering. This field taps nearly all the core competencies, plus Arizona’s strength in biosciences, and could develop the use of optics in medicine, implantable devices and neural engineering.

” Battelle noted the state would have to beef up its TT as well as business development and marketing. The president of ASU, Michael Crow, is dedicated to TT and suggested that “evolve or die” is the choice facing universities today.

Nearby, the University of New Mexico created the Science and Technology Corp. as a non-profit to patent and license technology coming out of university-funded programs, although they know it takes some years to get a real program started and have to deans and faculty members feel comfortable with this direction (http://stc.unm.edu).  

Contact Ron at tarrows@comcast.net or www.ThreeArrowsCapital.com.   

Canterbury-Nelson Nutraceuticals

The Canterbury and Nelson Nutraceuticals Cluster in NZ was formed July 2002 and now has 110 member companies.

Nutraceuticals are natural, bioactive extracts that are used in health promoting and disease preventing products. The Cluster offers an exceptional variety of natural products and services. These range from bulk raw materials, private label contract manufacturing, extraction services and branded dietary supplements to internationally recognised R&D and clinical trial facilities. The website profiles 69 cluster companies.  The cluster aims to support and promote members both nationally and internationally. This is done through knowledge sharing and membership collaboration, leading to enhanced production capabilities, increased sales and healthy bottom lines. Main activities include networking, workshops, overseas trade facilitation and a newsletter for information sharing.  A survey undertaken in 2002 identified domestic revenues of NZ$23 million and export revenues of NZ$41 million. This was expected to increase to NZ$33 million and NZ$55 million respectively in 2003.  The cluster facilitator, Jennie Cope, says they are very interested in exchanging ideas and information with similar clusters overseas. She adds ‘NZ does have some advantages in this industry due to its clean, green image and there is potential for joint ventures seeing most of the companies in the cluster have less than 10 staff’.  Contact: Jennie Cope Ph: (03) 378 0094 Email: jennie.cope@cdc.org.nz Website www.cdc.org.nz
 

Lobbying…the case of Incat

Mark Wickham recently completed doctoral studies at the University of Tasmania – the topic was the adaptation of Porter’s Industrial Cluster Theory to Australia.

It provides insights into the role of the Tasmanian Government in the facilitation of the Tasmanian light shipbuilding industry (TLSI) that has developed in Hobart since 1977. There are major implications for government agencies and firms involved in regional clusters. Key points:
§          At its peak in 1996, the TLSI cluster generated annual turnover of $400 million (23% of State merchandise exports), and directly and indirectly employed 2,500 people.
§          The cluster boasts the world’s leading manufacturer of high-speed aluminium ferries, Incat – 40% of the world’s passenger ferry market in 1996.
§          During the early stages of the cluster, the firms were operating in a highly protected and internationally uncompetitive industry. They had insufficient lobbying power to demand additional infrastructure, and the Government was moving away from a reliance on industrialisation.
§          However, the success of Incat’s innovative vessels in the domestic market led to a loan guarantee to Incat, justified as an affordable risk by Incat’s employment potential. §          Things got more interesting during the growth stage, when Incat demonstrated that its technology could win contracts in the international fast ferry market. Incat used this potential, and the jobs argument, to aggressively lobby the Government for specialised, advanced infrastructure. Incat’s management threatened to relocate its operations, and developed a bargaining strategy to create a unique relationship with the Government. Interestingly, the Government also used Incat’s relocation threats to justify to the expenditure of public funds.
§          Once the maturity stage was reached, the Government had a deliberate strategy of diluting Incat’s importance and impact by helping establish other innovative shipbuilding firms in the region. The rationale was to protect the cluster from the perils associated with growth being driven by the success of a single firm, especially given the volatility of the world economic environment.
§          Total direct costs to the Tasmanian Government are estimated at $25 million, mainly training and R&D infrastructure, and an undisclosed amount in terms of payroll tax concessions. 

Contact: mark.wickham@utas.edu.au

Ottawa clusters

Since Ottawa is the venue for TCI Conference in September, it’s timely to note the Ottawa 20/20 Economic Strategy (April 2003). It is a punchy 75 page document based around five strategic directions:
§          Invest in people and places.
§          Share knowledge and ideas.
§          Link innovation in the marketplace.
§          Strengthen industry clusters and entrepreneurship. 
§          Promote Ottawa to the world. 

The Strategy identifies various challenges that would have resonance in other regions e.g.

§          Ottawa’s clusters and sectors do not collaborate enough to capture knowledge, innovation and experience.
§          Ottawa’s incomplete broadband infrastructure hampers economic agility and competitiveness.
§          Too often good ideas fall on barren ground – an entrepreneurial mindset is required.
§          Ottawa’s manufacturing capabilities are weak – detrimental to every sector’s ability to compete.
§          Supply chain linkages between the market and rural sectors with clusters are under-developed. 

The Strategy also provides an interesting 4-way classification of its clusters:
§          Expanding clusters – telecoms equipment (2^nd only to San Jose), microelectronics, tourism.
§          Transforming clusters (i.e. slow growth – structural shifts) – software, professional services.
§          Emerging clusters – photonics, life sciences.
§          Seed clusters (i.e. components of a next-generation economy) – creative industries, wireless technology, micro electromechanical systems (MEMS), environmental technologies.