Sabel’s brilliant views on clusters

THIS IS ONE OF COCKATOO’S TOP 10 ARTICLES OF THE CENTURY. HIS VIEWS STAND THE TEST OF TIME.

Professor Charles Sabel is an American academic and professor of Law and Social Science at the Columbia Law School. His research centers on public innovations, European Union governance, labor standards, economic development, and ultra-robust networks. (source: Wikipedia)

Sabel was a keynote speaker at the TCI conference in Glasgow a few years back. He is revered by many in academic circles, and we had the opportunity to discuss economic development issues with him at that conference. We’ve also tracked some of his work since then.

Those with an interest in the field MUST consider his advice – as follows.

• Clustering is a useful intellectual concept which also has integrity – but there are limitations.
• The attraction of a cluster is the flexibility it provides to firms in certain circumstances. Individual units with craft skills can adjust because they are within earshot – they can easily re-combine and are inherently more flexible than vertically-integrated, bureaucratic organisations or the isolated firm.
• In these circumstances, clusters can also assist firms to shift from a price to quality focus. Clusters of this sort are quasi-natural entities – they do not have internal governance problems. Firms are actually complementary – if they do compete, they do so in narrow circumstances. There is a natural solidarity and alignment. The only thing missing is that companies may not fully understand that they are a cluster, and therefore do not optimise their potential.
• However there are aspects of cluster theory that do not fit the current real world. The first relates to the increasing formalisation of knowledge. The world has become more complex, with standards being commonplace (e.g. ISO 9000 standards). These standards apply to firms and industries, and cross regional and international boundaries. This can lead to coordination problems, and the organisation of firms and governance can become an explosive issue. 
• The second aspect relates to poverty and social exclusion, where cluster-based development strategies may not be that effective. The EU has a large program ‘Integrated Regions’ which is targeted to regions with serious economic and social dislocation – cluster-based strategies tend to focus on wealth creation rather than income redistribution. 
• The third aspect is the changing nature of government. The orthodox line is that government should operate above the level of the firm, and not become key players in the development of clusters. However the governments we are getting today (e.g. the Scottish Government) are a different entity in that they are relatively more involved. 
• In terms of do’s and don’ts…
•  Don’t try to build trust – get people to solve a problem (trust is an outcome of problem solving).
•  Don’t look to build networks for their own sake.
• Worry about governance – some governance structures work, but some don’t.
•  Worry about the role of government.
• Worry about social justice.
• Don’t fool yourself – once you have moved to a point where people are being given the opportunity to transform their operations and relationships, you cannot avoid disturbing things and people. They will want to know whether it is an extension of democracy – or its antithesis! 
• There is a lot of economic growth at present – this is a fact. If clustering is so good, may be it doesn’t matter if there is not a massive amount of analysis – clusters force people to ask questions which induces action.  
• Lastly, what seems to be missing with cluster practitioners is self-criticism – some cluster benchmarking is needed.

Scottish view on telecoms clusters

Back in 2000, there was a gathering of economic development professionals in Glasgow. For three days they debated investment, innovation and the role that industry clusters can play. From our archives, we have found a speaker whose views on telecoms and clusters have now become even more relevant eight years later. Eerily prescient!

 

His name is Bob Downes, and he was then Director of Economic Development, British Telecom Scotland. Bob’s main points were as follows:  

• Regional development and telecommunications are intertwined, and telecommunications is a major driver of change. ‘Part of my job is to see how communities of interest via clusters can benefit BT’. 
• Networks are an endemic part of clusters, and are greatly assisted by the Internet. The number of Internet users in Asia will exceed that in the US by 2003. Also, as bandwidth increases, there will be a huge demand for all kinds of information. Mobiles and satellites also allow countries and regions to better connect.
• In terms of E commerce, mobile technology is expected to overtake PCs as the main vehicle in the near future. E commerce currently accounts for 5% of the GDP in USA, by virtue of the major inroads it has made in financial brokerage, computer hardware sales, books etc. 
• Supply chains are moving on-line. The computer and electronics industries are strengthening their supply chains via on-line technology. Industries to follow are utilities, shipping and pharmaceuticals. ‘It’s the job of clusters to move these industries into e-commerce’.  
• Business in a networked economy is characterised by traditional processes being automated first; value chains then being redefined; new intermediaries entering the game; industry convergence.
• BT considers that the links between the players are critical. BT wants to better understand how to build economies and help regional players to connect via clustering techniques and online/electronic networks. Although BT is becoming increasingly global, it needs to extract revenues from local markets, and this can be done via cluster-led regional development.

Florida goes to Sunshine Coast!

In a coup for the Sunshine Coast’s creative economy, world renowned intellectual Richard Florida is currently undertaking a reported 12 month sojourn there to address business leaders and creative thinkers. 

The Stockwell property group is understood to be underwriting the costs, with a top-up by Noosa Council. Mark Stockwell says ‘the creative and knowledge industries are a natural fit for Noosa with their high value economic return but low in impact on the environment…Florida’s creative class is not an elitist group but workers such as scientists, engineers, research analysts, artist, architect, academics and many more. These are the people that generate ideas and innovation and transform the cities that attract them by building community spirit, attracting new investment and transforming the local economy’. 

BOTTOM LINE – Florida’s mantra is that the full creative potential of all people must be tapped via a blend of the 4T’s of economic development – Talent, Tolerance, Technology and Territorial Assets. Florida will be in Noosa in April for the Creative Communities Leadership Program.

Investment hubs in NSW

We’ve been featuring those cities that should be positioned as networked hubs for external investment.

Last month in Local Government focus, we looked at NSW regional cities, but kept a few back in central west and southern NSW. They are important at a national level – to take pressure off the coastal fringe, to capture a lot more value add from the agricultural resource, and to get better alignment of infrastructure within Melbourne-Canberra-Sydney corridor. 

Dubbo should have a higher level of national recognition – 40,000 population, excellent civic infrastructure, upside as a transport hub and a service centre to western NSW. Hub angles are food processing, agricultural equipment & services, environmental management, light engineering, transport and logistics.

Bathust-Orange is also a key node, with potential as a real alternative to Sydney for industrial investments. Two airports.  Hub angles are similar to Dubbo, but with a stronger focus on meat processing.

Goulburn is a solid city of 27,000 citizens. Its hub angles are warehousing and logistics, via its road-rail intersections and location between Sydney and Canberra. The infamous Goulburn Jail is a major employer, and federal/state support for its water problems has lifted its regional profile.  

Queanbeyan – population of 36,000, and a raffish charm as it sheds its struggle town image. Closer to Canberra’s CBD than many of Canberra’s suburbs – easier planning approvals and cheaper industrial land than its big brother. A $300 million Defence Headquarters Joint Operations Command is nearing completion at Bungendore. Hub angles are defence, logistics and associated spin-offs.  

Wagga – a strong and confident city (60,000 population) and the heart of the Riverina food bowl. Airport and RAAF base, plus RAAF college underway. Excellent civic infrastructure. Hub angles are defence, engineering, transport & logistics, food value-adding.

Albury-Wodonga – combined population of 100,000, and now has a state agreement to leverage its cross-border status. Good airport (4^th busiest in NSW) – successful example of decentralisation. Hub angles – water/environment, metal fabs, defence equipment & services, transport & logistics, food, paper products.  

BOTTOM-LINE: These cities could be packaged as a system of hubs with a faint level of federal/state blessing. Interestingly, Defence is on record as identifying the key determinants of its regional investments – fuel distribution facilities; ICT services; access to ports-harbours-roads-railways; health care facilities; access to water/electricity; and food supplies. These six cities fit most of the bill. 

Infrastructure – time for local muscle in Australia

Infrastructure Australia, a statutory advisory council, will be established under federal legislation this month.

You can be more than an observer. Let us explain. The Howard Government left a huge hole in the infrastructure field. But the root cause was not the politicians – it was the Treasury. Its relentless advice to Costello to build budget surpluses not only slowed expenditure on infrastructure (e.g. the infamous Pacific Highway), but shunned any policy development on infrastructure.  So there is a lot of catch-up.

However Infrastructure Australia’s mandate is rather narrow – to conduct audits on nationally significant infrastructure, draw up a priority list, and advise on regulatory reform. The issues go beyond these e.g.

§          Who pays? Super funds are an obvious source, but required by law to secure adequate returns.

§          What’s the best way to share public/private financing? Examples of the private sector shortchanging the public (e.g. most airport sales) and the reverse (e.g. Sydney’s cross-city tunnel).

§          What about the regions? The new IA apparatus cannot avoid cherry picking, and many regional infrastructure projects will not be addressed.

§          How can we ensure competitive construction costs? Would select tenders reduce tendering costs, and also encourage investor interest in smaller projects? 

BOTTOM LINE – Cockatoo members could muscle their way into policy formulation on the above agenda via regional infrastructure audits; pooling infrastructure projects to improve their economics; attracting business investment into a region to improve the revenue flows of infrastructure projects.

Globalization winners in EU

A new OECD research paper examines how various EU countries are equipped to cope with globalization via flexible labor market policies, effective innovation frameworks, and high quality education and workforce systems.

It says Western Europe, especially Scandinavia, is well-situated to prosper but not Italy because its export mix competes with China and other developing economies.

Southern and Eastern European countries will be similarly challenged as they compete for low-wage assembly jobs in global supply chains.

Intra-EU trade might fall, as more established EU economies opt to trade with the developing world. France and Italy are poorly equipped for globalization shocks due to weaknesses in labor and product markets.

Go to “Globalization and the European Union: Which Countries are Best Placed to Cope?”

Collaborator profile – Jim Fountain

Who and where are you? Jim Fountain, Gold Coast City Council, Australia  

 What’s your job? To promote the region as a business location by establishing and maintaining contacts in the business community and assisting industry to establish and/or expand their operations in the region. Major focus on the marine industry and export development. Grew up in Melbourne and an early starter in snow skiing. Competed in still water and surf swimming events, winning a number of Victorian championships and an Australian interstate championship. Represented Victoria six times before winning a sports scholarship to an American university. Spent over four years in various parts of the USA. Worked with the AFL Bears, Griffith University. 

What’s exciting you at present? Market research and planning, overseas trade, industry clustering, industry strategy formulation, Yatala Enterprise Area and Gold Coast Marine Precinct. Enjoy teaching others – providing the experience from my years of varied work. I have enjoyed successful collaboration – organising trade missions to Middle Eastern countries and China; Marine Industry Skills Audit; Marine Supply Chain survey; implementing the technology incubator at Griffith University; boat show displays at  Dubai, Fort Lauderdale, Phuket, IBEX , Miami, Shanghai.

What collaborative projects do you have to interest Cockatoo readers – Ausindustry has been a close collaborator, as have Gold Coast universities. Industry clustering is a focus – we are thus interested in sharing ideas with other cluster groups, and to facilitate international JVs in education, marine, health/medical, creative industries, food manufacturing, environmental industries, tourism, sport and ICT. Open to any suggestions. Cockatoo’s Thinker-in-Residence proposal could be VERY relevant to you! A working holiday in Australia’s top leisure region!

Web www.businessgc.com.au Email:  jfountain@goldcoast.qld.gov.au Phone:  +61 7 5581 7547

GM technology – the Big 6

Biotech companies are using genetically modified (GM) technology to mould climate change into a market opportunity. The aim is to grow plants with stronger, longer roots, develop plants that better conserve water, change the way the plant develops so water can be directed more to grain development etc.   

Monsanto, the biggest of the Big 6 in GM technology, gets much of the attention and flak. It has turnover of around $US9 billion. It is doing field trials in dry areas (Kansas, Nebraska, South Dakota). It spends 10% of sales on R&D ($US2 million/day), and sees drought-tolerance as a key area. Monsanto aims to have its first transgenic drought-tolerant corn seed on the market in 2012 (the development phase generally takes 6-8 years) It is also testing drought-tolerant corn. Monsanto equities were trading at a P/E ratio of 42 prior to Wall Street slide, which is an indication of investor confidence in GM technology!  

Bayer, the German multinational is No. 2 – turnover of $US8.4 billion.

The 3^rd player is Switzerland’s Syngenta, which has a significant global reach and turnover of around $8 billion. Syngenta is pursuing “water optimised” corn technology.

The 4^th player is BASF, also German ($5 billion turnover in agricultural products) recently announced a $US1.5 billion deal with Monsanto to develop high-yielding, drought-tolerant crops. 

The 5th player is Dupont. It has recently done a deal with Israel’s Evogene Ltd, giving DuPont’s Pioneer unit exclusive rights to genes associated with drought-tolerance in corn, soybeans.

The sixth player is Dow AgroSciences.

 Corn is the focus for virtually all six companies – the raw material for a multitude of processed foods, a major animal feed and used in ethanol production. The downside is that some farmers have mixed feelings about a drought-tolerant corn. Currently, US farmers pay about $US245 for a bag of Monsanto’s “triple-stacked” biotech corn seed, which protects against pests and is immune to weedkiller. A bag of conventional corn seed sells for around $US100.  

Source: SMH and in-house research.  

Infrastructure for US Biotech Industry

The US National Institute of Standards and Technology examines the US biopharmaceutical industry’s technological infrastructure – equipment, tools, data, and methods needed to develop new technologies and drive innovation.   

The National Dialogue on Entrepreneurship (USA) has referred us to a very timely report on this issue. We figure it is timely because ‘traditional’ manufacturing in the majority of OECD countries is facing huge structural adjustment pressures. The consequence of this is that the biotechnology industries and the Information, Communication and Telecommunications (ICT) and are critical for developed economies.

The main reasons are that:

- the technology-intensity of biotech and ICT creates a competitive advantage for nations further up the development scale (notwithstanding the scientific credentials of China and India)

- These two industries comprise many, many platform technologies – that can spawn new industrial activities.

Indeed, the USA has longstanding credentials in biotechnology – just dwell on the strength of the cluster in Boston.

Anway, getting back to the report, it notes that the US biotech industry spends $1.2 billion p.a. on its technology infrastructure – $884 million for drug-related R&D, $335 million for commercial manufacturing – 10-40% savings due to major improvements in gene expression analysis, biomonitors, bioinformatics etc.

Go to Economic Analysis of the Technological Infrastructure Needs of the U.S. Biopharmaceutical Industry,  

Big investment subsidies for Yorkshire

The strength and reach of EC support for regions is highlighted by the recent announcement of £380m for Yorkshire-Humberside by 2013.

The EC’s European Regional Development Fund is justified as part of its cohesion policy. The focus is on promoting innovation and R&D, stimulating and supporting successful enterprises, developing sustainable communities and economic infrastructure. Yorkshire Forward will manage the program.

For those looking to understand regional development in the UK, we suggest that Yorkshire Forward is a good place to start. It is one of around 13-14 Regional Development Authorities (RDAs). Each has a fair degree of autonomy from national and EC agencies, and a number of their oficials are members of the Cockatoo network.

For further information visit www.yorkshire-forward.com