The Clustering Alliance - Number 18

Rod Brown

June 2001

This newsletter is for members/friends of Clusters Asia Pacific Inc.
– the largest cluster network in the southern hemisphere.

Our Mission - To improve the competitiveness of industries and localities in Australia, New Zealand and elsewhere - by enhancing cluster-based development initiatives.

We join LEED Partners Club

The Local Economic and Employment Development (LEED) program is run by the Territorial Development Service – this is the division of the OECD that addresses spatial issues, urban & regional development, and headed by M. Bernard Hugonnier, who gave the keynote address at the Regional Summit in Canberra in late 1999.

LEED was established in 1982 at the initiative of France and Italy. It identifies, analyses and disseminates information and ideas in the areas of job creation, local development and the social economy – it has been a stimulator of thinking on the role of entrepreneurship and SMEs in job creation, women entrepreneurs, indigenous development, the social role of firms, self employment, the economic, social and environmental role of cities etc. It has also invested considerable resources in analysing the clustering of firms and entrepreneurs. LEED was the first OECD body to speak of the ‘third sector’ which operates between the public and private sector, and of the role of voluntary and non-profit organisations at the local level.

The OECD has joined CAP Inc. as a foundation member, and we have reciprocated by joining the LEED Partners Club. The particular relevance of this is:

• It provides CAP Inc. members with a direct line into the world’s leading authority on industry and regional development.

• It opens up huge scope for CAP members to make international comparisons, exchange information and undertake concrete collaboration and find partners.

• It will provide the OECD with the opportunity to reach a wide cross-section of stakeholders in Australia and NZ, as well as other countries covered by our membership.

Our membership will entail significant time and travel, but we are committed to strong and effective representation at its annual meeting, and its three Forums on Entrepreneurship, Social Innovations and Cities and Regions. LEED Program addresses the problem of key material disappearing onto government files – so we thank them. Further details are being forwarded to CAP Inc. members.

South Australia’s clusters keep strengthening

This half-day conference, convened by Business Vision 2010 in Adelaide was an outstanding success – in many ways it was testimony to much hard work since November 1994 when Mick O’Neill, then working in DIT, volunteered to host discussions with two visiting Californians, Doug Henton and Kim Walesh (Collaborative Economics, Palo Alto) – Mick said they immediately clicked and they were ‘only separated by our common language’ (!). The rest is history, and Mick can be justifiably proud of his major role in the success now being achieved in SA, and the work by Hugh Forde, Ian Harrison et al in driving the agenda forward. (Adelaide, with Newcastle and Cairns are the three cluster hot spots in Australia – Ed.)

Some of the key points raised by the three key speakers were as follows.

Dr. Robin Batterham, Australia’s Chief Scientist

• Being a fast follower doesn’t get you far in a globalised world – have to be a first mover who takes calculated risks and looks for niche opportunities
• Innovation requires excellence, connectivity and education
• IP generated in Cooperative Research Centres etc. need to be spun off into companies – whether existing or new SMEs and clusters. If Australia can grow and extend companies of the likes of Cochlear, Memtec etc. to performance levels being achieved in the US, Scotland etc. we can totally change the economy.
• Core partners in clusters are critical, as is using people networks to aid and abet.

Prof. Richard Blandy (UniSA) (has just completed a review of the cluster program in SA)

• Defence Teaming Centre has been a success – 56 firms, incl. some from interstate – has generated $100m worth of contracts.
• The other two strong clusters are in water and spatial information.
• Multimedia cluster (commenced in 19950 had doubtful outcomes (reverted back to a training agenda). International tourism cluster also did not fly, because the cluster group could not figure out what extra outcomes it could deliver over and above the SATC.
• Mining & Geoscience cluster is beginning to take off (possible link to Brazil and Canada? – Ed.)
• Upper Spencer Gulf – this is the first non-metropolitan cluster, and is progressing very well - $50m worth of contracts (500 jobs) generated. Commercial sport & recreation cluster is also progressing.
• In all cases, greater trust and understanding have been built, which has reduced transactions costs and extended the duration of joint activities leading to improved investment prospects.
• The key need is to now strengthen the foundations of each cluster and to more intensely engage the universities, R&D bodies, venture capitalists etc, and to transform them into regional innovation systems along the lines of the European Union. But this requires a dramatic increase in funding. Using Scotland as a yardstick, SA should be spending $25 million p.a. (but the lack of priority accorded the program by DIT is a problem).

Hon. Nick Minchin, federal Minister for Industry, Science & Resources

(The Minister launched the Environmental Management cluster and wished it every success).

• The power of linkages and networks often depends on qualitative relationships.
• The need is to collaborate nationally to compete globally.
• Very proud that SA has shown that it can do collaboration well – and that clusters have been a key part of this. The South Australian environment cluster has already produced results which could lead to new jobs and export opportunities......some valuable lessons in this experience which could be useful in other parts of Australia
• The cluster development process has helped bring together a range of companies to jointly bid for major integrated waste management projects in Indonesia. It has also helped the developer of an innovative new technology for converting plastic waste to win new supply contracts, and the firm is now expanding its export activities to India.
• Pleased to see SA environment companies and research institutions working together. Cooperation between the different sectors of the industry will enable all companies, no matter what their size, to tackle major national and international markets.
• The development of the environment industry cluster stemmed from a study funded by ISR in partnership with DIT, SA Business Vision 2010 and the EPA.

Contact: hugh.forde@sabv2010.com.au

Addressing global challenges....a view from the U.S.

Professor Oded Shenkar is the Ford Foundation Professor of Global Business Strategy at Ohio State University. He recently gave a series of talks in Australia as part of the Smartlink project run by the National Institute for Manufacturing Management at the University of South Australia. He has a longstanding expertise re engagement with China, globalisation, multinationals, SME development, innovation and auto industry adjustment. His views offered at the Canberra ABL breakfast included:

• Globalisation is on everyone’s mind – and the Conference Board (the key think tank in the US) has identified globalisation and alliances as the two critical issues.
• His impression via the Smartlink dialogue is that Australia feels threatened by takeovers and, while MNEs might provide jobs, they may not be a ‘thinking’ workforce.
• In Australia, there will not be four auto manufacturers within five years (i.e. currently Ford, GM, Mitsubishi, Toyota). The future of Mitsubishi will hinge on how well Chrysler does in the US – where it is losing $US500m per quarter at present - people in SA should be praying for Chrysler)
• Virtually all nations want foreign investment, and there is tremendous competition. But 85% of FDI is via mergers and acquisitions, and global M&A is now greater than domestic M&A. MNEs are trying to consolidate and not replicate – countries looking to maximise the contributions of MNEs should concentrate on knowledge-based activities – not capital for its own sake – go for back-office activities, education and training, design and tooling etc. that can build value chains. The need is to leverage off MNEs’ requirements.
• One-third of global trade is internal transfer between the affiliates of the one company – and 60% of MNEs do not pay a cent in corporate tax.
• SMEs are flourishing despite the growth of globalisation – they drive innovation. MNEs need them to capture innovation – this is why Cisco has bought 70 companies in the last two years. The share of US exports represented by SMEs has grown from 20 to 30% in recent years.
• How should SMEs respond? – take opportunities as they arise, piggy-back off MNEs, push on exports because ‘if you don’t venture out, someone else will come and eat your lunch’ (i.e. off-shore competitors will encroach in your domestic market).
• Re US investor perceptions of Australia – while at pains to emphasise this was his first trip, Prof. Shenkar indicated that from his perspective, Australia is not on the screen – the leisure image works against Australia, and Hawaii suffers the same problem. Australia is seen as downunder and far away – Americans do not realise that Sydney is closer than Hong Kong in flying time. Australia really doesn’t have identifiable brands or specialisation like Sweden – furniture, Germany – cars). Interestingly, Subaru uses Paul Hogan and kangaroos in its 4WD ads in the US, and a fair proportion of Americans probably think the vehicles are made in Australia (and not Thailand etc.)
• Alliances could help Australia overcome is lack of scale – bilateral alliances are one possibility whereby different aspects of a supply chain could be coordinated – but it requires a different perception of things and a creative government on both sides – need to see it as a value chain.
• Sometimes we need to be physically close – it is important, and part of human nature. Governments need to recognise this.

The next speaker in the series is Dr. Jill MacBryde (Department of Design, Manufacture & Engineering Management at Univ. of Strathclyde, Glasgow) re performance measurement systems at a team level.

Contact: linda.moscrop@unisa.edu.sa or howard.harris@unisa.edu.sa

Upcoming conferences

Manufacturing Prosperity Conference, Adelaide – 10 July

This annual conference addresses the major issues addressing industry development. Speakers include:

• Hon. Rob Lucas, the SA Treasurer, who will launch a new network of companies resulting form the City of Playford’s food cluster project.
• Hon. Nick Minchin, federal industry Minister who will, inter alia, launch Clusters Asia Pacific Inc.
• Alistair Nolan, OECD Paris, is to provide the OECD perspective on new approaches to innovation, technology and regional development.
• Frank Gelber, a leading Australian forecaster, will speak on the future directions of the SA economy.
• John Cambridge, CEO of the SA Department of Trade & Industry, is speaking on a similar topic as Dr. Gelber (will be interesting to see whether their views align).

This conference is becoming something of a meeting place for those with a professional industry in industry

policy and practice. Contact - rgenoff&playford.sa.gov.au

Deniliquin – 6 and 7 September

Southern NSW will be the focal point in September. Describing itself as an Oasis on the Edge of the

Outback, as well as the ‘ute capital’ of the world, Deniliquin promises to host a really worthwhile

conference. It will provide a mix of workshops and speakers on key topics such as value-adding agriculture

and collaborating for bigger outcomes.

Deputy PM, Hon. John Anderson will speak on ‘Making it Happen in Regional Communities’. Ifor Ffowcs

Williams will convene workshops on ‘Cluster Development in Rural Communities’ and Dr. Jim Cavaye of

DPI in Queensland will also feature. A formal dinner is scheduled for the Thursday evening (6^th

September). More details later.

Contact - Lindsay Short at Deniliquin Council – phone 02 – 5881 2444 or lshort@deni.net.au

Tucson, Arizona – 28 to 31 October

The 4th Annual Conference of The Competitiveness Institute will be held in Tucson (Arizona) from 28 to 31 October 2001. Last year’s conference was held in Glasgow, and was attended by delegates from over 20 countries. The conference will explore the main issues affecting the competitiveness of regions, the New Economy and how clusters might play an important role. Clusters Asia Pacific Inc. is looking forward to progressing the ‘linking clusters’ initiative so we hope to see a good representation of Australians, kiwis, and other nationalities who are currently signing onto our network.

Updated information about the conference (and soon on-line registration) is available on the Institute's web page at www.competitiveness.org.

World Congress on Local Clusters – a view via Mauritius

Mr. Nikhil Treebhoohun, Executive Director of the National Productivity & Competitiveness Council in Mauritius, attended the Congress in Paris on 23-24 January. His summary of the Congress makes interesting reading – edited version follows.

The Congress was organised jointly by OECD and the French government and the assistance was quite impressive both in terms of the number attending (some 1,000) and the quality of the participants. The Congress was opened by the French minister for spatial planning and the environment, who stressed the need to take on board the social dimensions of development. One important element was her commitment to build alliances with countries of the Zone de Solidarité Prioritaire so as to ensure that developing countries are not further left behind by the movement towards globalisation.

The case of local clusters is notable not just because of the economic benefits for the performance of firms but also because it draws our attention to the presence of a different entrepreneurial and local culture. This is based on:

• A higher degree of inter-relation between economic and social ties. The fact that enterprises are located together in the local territory helps to generate trust and a willingness to co-operate, which makes for a qualitative difference between networking locally and networking at a distance.
• Trust relations among enterprises. The case of transition countries shows how vital trust is to any form of co-ordination, which was often destroyed during years of undemocratic rule.
• The notion of partnerships between private and public actors.
• Enhanced visibility of local actors and of the civil society, as much in economic as in social and political terms, as demonstrated for instance by the increased visibility of networks of women entrepreneurs at a local level.
• Stronger representations of collective local interests, via associations and closer links to authorities.
• A new approach - the actor is a group of enterprises, rather than an enterprise as an isolated economic actor.
• A new relationship between territorial proximity and the use of new technology.

Some of the ideas/lessons that came up include:

• The SPL (systèmes productifs locaux) is a concept being promoted by the French as their own variant of the Anglophone clusters and the Italians industrial district.
• The main difference between the cluster and SPL is that the French see SPL as encompassing social issues - i.e. the SPL are clusters aimed primarily at community development as a means to combat unemployment.
• There was total consensus among all participants that there is no blueprint for cluster development.
• Whereas at Glasgow the general agreed feeling was that a cluster could not be built from scratch, at least one dissenting voice was heard in Paris which mentioned how, starting from an idea to develop sport fishing, Chile ended with an aquaculture cluster employing 30000.
• France is going to help LDCs set up clusters.
• Clusters are built on trust -managerial and knowledge resources are needed - clusters need to be embedded in the social and community model - clustering is a means for empowering local entrepreneurs - must move from firm to industry thinking - need for a local delivery mechanism and an anchor institution - information flows must be freely available and accessible e.g. US government has no copyright on information it produces

Welcome to one of the newer members of Clusters Asia Pacific. Nikhil presented a paper in Paris on their experience in export-oriented industrialisation - see natpro@intnet.mu

Cairns update

The Cairns Region Economic Development Corporation in association with the Cairns Region Convention Bureau, has lodged a formal bid with The Competitiveness Institute to hold their 2002 annual conference. Given CREDC's significant successes over recent years in the formation of industry clusters, they are well placed to host such an event. The region has emerged as a world leader in the provision of telecommunications and internet solutions to rural and remote communities via their Networking the Nation project. CAP Inc. has been asked to co-host this prestigious event.

Clusters as Learning Systems - Rosenfeld

Stu Rosenfeld of Regional Technology Strategies, Inc. presented a paper ‘Backing into clusters – retrofitting public policy’ at the John F. Kennedy School Symposium (Harvard University, 29-30 March). A very topical extract follows:

“The fourth inter-related area of interest in clusters in the U.S. comes from those who believe that economic growth depends on technology diffusion and knowledge spillover. Research shows that clusters facilitate the transmission of knowledge—particularly tacit knowledge, which is embedded in the minds of individuals and the routines of organizations and therefore cannot move as freely or easily from place to place as codified knowledge (Cortright, 2000). Ideas about the importance of creating structures that support and accelerate learning have been translated in the context of the new economy in the form of strategies to create “learning cities” and “learning regions” (OECD, 2001).

Within clustered economies, there invariably is more inter-firm mobility and thus more active transfer of information and knowledge among firms and workers. In the U.S., learning is gaining more acceptance as a factor in economic development—but most often as a marketing device for regional recruitment strategies, not with any clear ideas about how to stimulate or accelerate learning. Those policies that do promote learning tend to focus on codified knowledge that rely on educational institutions, not tacit knowledge and informal means.

Application of policy

To apply clusters to policy, one must believe that they are the rule rather than the exception. The highly specialized industrial districts that Marshall studied, and that still exist in some parts of Europe and in many less developed countries, are not very common in the United States or in northern Europe. Therefore, the boundaries of clusters have to be expanded to meet the realities of more diversified economies. Diversified regions, however, often still have degrees of specialization. These are home to industries that, because of historical accident or geographic peculiarities, are much more concentrated than others, and thus the region has a greater stake in their competitive health.

Two of the first states to officially embrace clusters were Arizona and Oregon.....The early reports from Arizona named key areas for actions, which included industrial synergies and entrepreneurial wellsprings.........A decade later, the councils for the nine clusters initially selected, less mining but plus software and senior living, are still organized. In many respects, the clusters operate as networks, with membership requirements and objectives that match the objectives of network programs: co-learn, co-market, co-purchase, co-produce, and co-build economic foundations.”

Vikings ahoy!

We were delighted to hear from the Danish Agency for Trade & Industry, which has been working with the concept of clusters for the last ten years. Søren Hellener, Head of Division, reports that ‘we are operating with 12 mega clusters and 29 small scale clusters in our policy development. We have been doing some explorative work on how to develop our policy in response to globalisation including the concept of global cluster alliances.’

Clusters Asia Pacific Inc. is thus following up on this opportunity to build a dialogue between its members and Danish players. Denmark is very interesting given its track record in cluster development and we have been informed via other sources that Denmark has committed itself to 100% organic food production. This has created considerable interest in regions like Gippsland and western Victoria – this is a definite opportunity to underpin some alliances.

New Horizons – south coast NSW & east Gippsland

The New Horizons’ Strategic Plan covering the south-east corner of Australia (Bega Valley, Bombala, East Gippsland and Eurobodalla shires) is in preparation. Funded mainly by the Commonwealth Government, it involves the development of Action Agendas across the key sectors - dairy, forestry/farm forestry, beef, fishing/aquaculture, horticulture, wool, farm tourism, exotic animals and water.

The first stage is the preparation of industry audits, based on interviews with 100+ organisations across the region. The audits cover business capacity and capability, competitive strengths and weaknesses, impediments to investment, and opportunities for collaboration, networking and industrial diversification.

One of the many ideas being developed is interlinking of facilities for research/education, processing, sales/warehousing/freight consolidation of local goods. Precedents are being studied e.g. certain business incubators, artisan networks in timber, facilities such as the Port Lincoln Marine Centre etc. The development of industry and investor links with other regions in Australia and overseas is also being investigated. Do you wish to share ideas? See the website www.newhorizons.org.au

Library

We have commenced the development of a library of key works for members’ information. Where possible, these are emailed. I have kicked off the library with some of my company’s recent work, together with some recent arrivals.

• Report No.1 ‘Pret A Porter’ – report on TCI Conference, Varese, November 1999 - provides an overview of international perspectives on clusters, describes two Italian clusters, and discusses identification, selection and problems being encountered. (APD Pty. Ltd. 16 pages)
• Report No. 2 ‘Turning Green to Gold - the potential to generate industry clusters, investment and jobs in the Capital Region's environment industry'- major report that provides a SWOT analysis, comprehensive data and Action Agendas (Pryor Knowledge (ACT) Pty. Ltd. & APD Pty. Ltd. – 90 pages. $A25 + GST)
• Report No. 3 ‘Bermagui as a world-class fishing precinct - why, what & how' - working paper, includes industry and employment data (APD Pty. Ltd., 17 pages).
• Report No. 4 'Food clusters in South Australia – Action Agendas in respect of Virginia, Adelaide Hills, Barossa Valley and the Riverland’ - series of four reports (APD Pty. Ltd. & Playford City Council, 20-50 pages each. Restricted distribution. Final report to be released 10 July 2001)
• Report No. 5 ‘New Horizons’ – Economic Development Strategy for Bega, Bombala, Eurobodalla and East Gippsland Shires’ - series of 10 reports covering dairy, beef, fishing/aquaculture, forestry, horticulture, farm tourism, exotic animals etc. Each report provides extensive analysis and Action Agendas (APD Pty. Ltd., Mindshop, Nexus Consulting (Aust.), PPR Pty. Ltd. et al.)
• Report No. 6 'New Market models for the Delivery of Telecommunications and Online Services in Regional Australia'– report to DCITA in context of Besley Inquiry into Regional Telecommunications; includes overview of the main models in operation in Australia and overseas (Network Economics Consulting Group Pty. Ltd., APD Pty. Ltd. & Regional Innovation Pty. Ltd.
• Report No. 7 ‘Clusters, Innovation & Investment – building global supply chains in the New Economy’ - tabled at OECD Cluster Congress Jan 2001 - reports on TCI conference, Glasgow Oct. 2000, overview of latest world thinking, outline of ‘Linking Clusters’ agenda (APD Pty. Ltd. 139 pages. $A25 + GST)
• Report No. 8 ‘Backing into clusters – retrofitting public policy’ by Stu Rosenfeld, Regional Technology Strategies Inc. , delivered at John F. Kennedy School Symposium, Harvard Univ., 29-30 March. Restrictions apply.

Membership matters

The CAP Executive has decided that as from July, circulation of this newsletter is to be streamlined, due to the need to cater properly for members – distribution will be to members, plus 80-100 prospective members and/or special contacts, particularly our overseas colleagues.

Application forms are now being forwarded to prospective members. Please contact us if you would like to join. The annual fees are:

q $A500 + 10% GST organisations/companies ($A100 + 10% GST for individuals)

q New Zealand - $NZ500 for organisations/companies ($NZ100 for individuals)

q Other countries - $US300 for organisations/companies ($US60 for individuals)

Copy to a friend

There is no copyright on this newsletter. And our resources are not being spent on glossy newsletters.

So if you see an item of interest.... email it to a colleague, or copy it into your Board briefings!

Regards
Rod Brown
Executive Director

This newsletter is a product of Clusters Asia Pacific Inc.
Australian Project Developments Pty. Ltd. continues to provide the editorial/distribution service.
Phone/fax 02 - 6231 7261 apd@orac.net.au