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Who’s Who in the Clustering Zoo

Rod Brown

Australian Project Developments Pty Ltd, Canberra
& member of the Australia-NZ Alliance on Clustering (ANZAC)
Phone/fax 02 – 62317261, email apd@orac.net.au

SEGRA Conference, Ballarat

21 November 2000

©Australian Project Developments Pty Ltd

1. Who is ANZAC?

The Australia New Zealand Alliance on Clustering (ANZAC) has been operating on an informal basis for two years. It has twenty core members. As the name suggests, its primary interest is in developing and sharing knowledge about clusters, and in collaborating with others with similar aims. We are the Asia Pacific chapter of TCI.

ANZAC is currently a 'virtual' operation - it has no physical home, but could in the longer-term aim become the Australia-NZ version of the Aspen Institute in Washington DC. We are in discussions with various agencies about the development of a hub and spoke arrangement.

While our work delves into many public policy issues, and goes well beyond the individual interests of members, we have operated without any government support or external sponsorship. However given that our activities are now in expansion mode, we are actively seeking financial support.

ANZAC circulates a free monthly newsletter to 180 organisations across the world. You are most welcome to receive this newsletter. If you have an interest in our work, why not join ANZAC too - see Attachment 1 for more background.

ANZAC membership is currently:

Development Organisations (representing companies)

1. Business Vision 2010 (linked to SA Department of Industry & Trade)
2. Cairns Region Economic Development Corporation
3. Central Murray Area Consultative Committee
4. Industry Development Corporation, Newcastle
5. Gippsland Development Ltd
6. Southern Province Projects Group, Albany

Academic/Research groups

1. Ballarat University (School of Business)
2. CSIRO Division of Building, Construction & Engineering, Sydney
3. University of Technology (School of Management), Sydney
4. University of New England (Rural Development Centre), Armidale

Local councils

1. Bega Valley Shire Council
2. Bland Shire Council (West Wyalong)
3. Playford City Council
4. Hepburn Shire Council

Associated Agencies

1. Australian Project Developments Pty Ltd, Canberra
2. Cluster Navigators Ltd (Wellington NZ)
3. Business and Economic Research Ltd. (Wellington NZ)
4. Regional Innovation Pty Ltd, Warrnambool
5. OECD (Territorial Development Service), Paris

Our mission

To improve the competitiveness of localities and industries within Australia and New Zealand by enhancing cluster-based development initiatives.

Our Key Roles

• Facilitate increased awareness and uptake of industry clustering techniques, as means of building economic capacity at the local level. (AWARENESS)
• Provide a reference point for parties with a commitment to concepts associated with competitive advantage, sustainable development and collaborative pursuits. (REFERENCE POINT)
• Facilitate training and accreditation of practitioners. (TRAINING)

Influence policymaking at all levels of industry and government about the importance of 1-3 above. (INFLUENCE)

Prepare submissions, provide consultancy expertise, and undertake lobbying on behalf of ANZAC members to secure funds for projects to build economic capacity at the local level. (FUNDING)

Key Activities

• monthly newsletter
• preparation of articles for newspapers, business journals
• conduct of Workshops by accredited practitioners
• Speaking engagements at conferences
• Development of submissions
• Identification of appropriate program funding and sponsorship
• Identification of individuals and organisations supportive of ANZAC objectives
• Provision of consultancy services
• Lobbying of key industry and government players

Provision of regular ANZAC networking opportunities including seminars in conjunction with key companies.

2. TCI and the Scottish experience

TCI is a gathering of industry/regional development practitioners with a common interest in clustering concepts.

It grew out of a World Bank-sponsored conference in Chihuahua (1997) where it was agreed to establish a body with the following mission statement:

"To improve the living standards
and local competitiveness of regions
across the world, by enhancing
cluster-based development initiatives"

There have been three conferences since Chihuahua:

• Barcelona in 1998 (Barcelona is the home of the TCI Secretariat)
• Varese, north of Milan, in 1999 Glasgow, October 2000.¹

The Glasgow conference was organised by Scottish Enterprise. Attendance was around 140, and comprised experts from 33 countries. The strength of TCI conferences is the high-level attendees and the mix of expertise - trade and investment officials, industry association executives, academics, telecommunications executives, consultants and a range of other businesses.

The Scottish Experience

Scotland is a small economy and the commercialisation of R&D is one of its biggest problems, together with the weak level of firm creation

The rules of competitiveness are being rewritten almost daily. In this context, the New Parliament has recently announced a parliamentary enquiry into the New Economy.

The public sector represents approximately 40% of GDP in Scotland, which is considered far too high. Scottish Enterprise sees clustering as a means of increasing private sector dynamics to increase its share of GDP. Clustering also helps the players to understand the bigger picture.

There had been a clear disconnect between the Scottish cluster work and outcomes in the field – this is now being addressed. The Scots stressed that the important thing is for agencies to not get distracted when implementing cluster agendas – ‘stick with them’. The problem with development agencies is hat they spread their resources too thinly. Cluster agendas also differ – they do not all operate the same. They also mentioned the risk of failure.

Professor Michael Porter was commissioned in 1993 to advise on where and how cluster strategies might be introduced in Scotland. However his report had sat on a shelf until 1997 when it was decide to introduce cluster-based action in respect of semi-conductors, food and drink, biotechnology and oil and gas. The main criterion used to determine which industries would be the first cabs off the rank was their ability to compete globally.

In 1999, a new wave began, with criteria that focussed more on identifying where future competitive might lie – the industries selected from this process were creative industries, forestry, opto-electronics and tourism. Currently, chemicals and financial services are being added.

Lessons learned

1. There is a need to sustain and build economic systems – ‘successful firms don’t just happen - some do, but the majority do not’
2. Networks – both national and international – are very important to Scottish industry. It considers that network development is the biggest thing that Scottish Enterprise can do on its behalf.
3. Clustering analysis is an important adjunct to the traditional methods of understanding and interpreting industry development.
4. It is a better tool than other techniques for the New Economy. It allows you to get around misleading labels like high tech, low tech etc.
5. It is about public sector value adding – where the key aspects are systemic thinking, economic renewal and strategic confidence.

Funding issues

Scottish Enterprise (SE) is one of 13 development agencies across the UK – others include the Welsh Development Agency, Tynewear Development, Bristol etc. They are formally within the portfolio of the UK Department of Trade and Industry (DTI).

Each agency sets its own priorities and selects its own Board (members mostly from the private sector). Their budgets are a mix of concurrent funding, supplemented by one-off grants from the EC and UK avenues.

Scottish Enterprise spends around 5 million pounds per year (this is being checked) on various cluster analyses. They are currently undertaking an in-house evaluation based on snapshots of successes. This will enable the private sector to sell the importance of their cluster work to the politicians.

The Food and Drink Cluster

One of the key drivers for the establishment of this cluster agenda was fact that three quarters of the worldwide food and drink industry is controlled by 200 firms, and none of these are Scottish. Some of the identified trends that will affect the food market in the developed world are:

• The wealth of consumers
• Changing eating habits and patterns
• Concern about food generally e.g. is it healthy?
• Need for reduced food preparation times
• Increasing concentration and consolidation among suppliers
• Increasing market power of retail giants
• Arrival of home shopping

The vision is that, within 10 years, Scotland will have:

• an unrivalled reputation in the world food and drink industry,
• organisations that have changed, with greater sophistication, better connections and linkages into national and international markets.
• a culture of quality and innovation
• a sense of puling in the one direction.

The targets that have been developed for the 2000-2010 period include:

• a rise in turnover from 4.2 to 7.4 million pounds (excludes whisky)
• a rise in employment from 48,000 to 54,000
• a rise in value added from 24% to 34%

The Biotechnology cluster

This cluster followed 18 months of discussions with the Scottish biotechnology community. The cluster is made up of the following:

• A central group of research-based companies
• A related group of companies forming partnerships on a worldwide basis
• Support and supply companies e.g. Specialist manufacturing equipment
• Support organisations in respect of the development of new ideas and technological improvements
• Specialist legal, financial and technical experts

Scottish Enterprise has committed 38 million pounds ($A95m) to double the size of the cluster over the next four years. This figure has been used as a carrot in the consultation and engagement process with industry, academia and government. This has taken 18 months, and has involved 200 organisations. ‘Getting people on board’ has been the key activity. The fact that the European biotechnology industry is growing at 15% per year has been an important factor.

The Semiconductors Cluster

Scotland accounts for 7% of the EC’s semiconductor capacity (47% of UK capacity). Several of the top 20 worldwide semiconductor companies have fabrication plants in Scotland. Scotland also manufactures 40% of the UK’s personal computers. This is of concern to some concern i.e. they think Scotland is too weighted in this area.

In terms of key companies, NEC is active – its focus is on integrated circuits and it has made particular efforts to build its skills base. Motorola is also present, as is Kymata which is the fastest growing Scottish company – it specialises in optical semi-conductors. National Semiconductor was facing closure, but is now consolidating with an emphasis on design and product development.

The R&D community is currently being mapped. There are approx. 380 researchers spread across this industry e.g. Glasgow (80), Heriot-Watt (75), Edinburgh (70), Strathclyde (55) etc. The university-based research and design is focused on silicon devices, MEMS, sensors, MMICs, opto-electronics, novel materials/processes and analysis/spectroscopy.

Scottish Enterprise is building the cluster community through a variety of means – breakfast briefings, an annual conference, and “making sure there enough occasions to give people the opportunity to mingle”. See www.microelectronics.org.uk

The Industry Plan goes for 5 years, and there is a budget of 46 million pounds ($A115m) available over this period – it is a notional budget in the sense that bids need to made each year. (I take this to mean that if progress is not sufficient, funding is reduced.)

Summing Up

Scotland’s experience with clusters is quite new – in fact two years behind the cluster agendas in place in Adelaide. However the Scottish model appears to have considerably more political push and funding. The particularly noteworthy aspects of the Scottish clusters are:

1. A very specific commitment to use clustering concepts to build industrial capacity and strong supply chains. The CEO of Scottish Enterprise summed it up – ‘successful firms don’t just happen - some do, but the majority do not’
2. An emphasis within the clusters to use networks, both national and international, to:

• drive the development agenda,
• secure ongoing ownership,
• build confidence among the players.

1. The commitment to the time-consuming task of engaging the players - ‘getting people on board’.
2. The interesting (and very true) description of clustering as a mix of science and art

• the ‘science’ aspects involve market trends, competitiveness, customer demand, investment in R&D, benchmarking and productivity;
• the ‘arts’ aspects involve actions, relationships, communities and facilitation.

1. Acknowledgement that there is no universal model
2. A strong commitment to fund the cluster agendas
3. The commitment to use some of this funding to attract multinationals to establish in Scotland.
4. The big issue is the relationship between the foreign multinationals and the SMEs. Scottish Enterprise considers that if companies are anchored via R&D, there is a better chance of keeping them.
5. The commitment by Scottish Enterprise to build nodes in key locations, and the opportunity this provides to build links between these and nodes outside Scotland. Can the Scottish biotechnology cluster be linked with the Bio21 biotechnology precinct in Melbourne, where $400m. has recently been committed.
6. The opportunity for Australian/NZ clusters to benchmarking themselves with the Scottish clusters.

3. The latest international thinking

Re Role of Government

‘The absolute no-no is for government to intervene in competition, by subsidising’ (Prof. Michael Porter, Harvard)

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….. Worry about the role of government (Prof. Charles Sabel, Univ. of Columbia)

We are concerned that clusters are being understood differently by governments. (Michael Porter)

Governments don’t give much attention to clusters in the context of labour markets, but they should because the development of clusters addresses all aspects of an industry (Stuart Rosenfeld, USA)

Re competitive advantage at the local level

The most common advantage in locational decisions is access to intelligence – companies can source inputs from anywhere, but they need intelligence. (Stuart Rosenfeld)

Large businesses create their own economies of scale, scope and location. SMEs are different – their benefits revolve more around regional clusters. (Dr. Steve Brady, British Telecom)

Re getting started & basic lessons

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. (Charles Sabel)

Initiatives have been important in driving the process (Chris van der Kuyl, VIS Entertainment)

Cisco develops simple structures and clusters (John Mearns, Cisco)

My final message - 'get out there and do it' (Mr. Nicol Stephen, Deputy Minister for Enterprise, Scotland)

There needs to be some market-based critical mass to start with – some sort of market test must be applied. (Michael Porter)

The business sector wants results – that is the bottom line. (Stefan Salej, Brazil)

Formulate clear goals, use sensible criteria for identifying and prioritising clusters, use analysis to educate and build urgency in the minds of participants, and identify leaders (Mike Enright)

Re the New Economy and globalisation

Clusters will therefore grow in importance in the New Economy, given that it requires the revitalisation of old sectors, knowledge transfer and creativity, collective learning, untraded interdependence (favours), spill-over effects from new business formation, and project-based collaboration (Prof. Philip Cooke, Univ. of Wales)

Globalisation is true, but it has neutralised many things. For example, if capital is available widely, then it is of advantage to nobody. Likewise the Internet has reduced the gap between those with full access to information and those without. This means that other things count – local factors come more important. Michael Porter)

Re commercialising research

The uptake of R&D is increased by access to advice and support services, as well as knowledge sharing. Clusters deliver economies of scale for infrastructure, create Centres of Excellence, facilitate informal transfer, attract/retain high calibre employees and facilitate links to R&D establishments. (Dr. Steve Brady, British Telecom)

There have been specific benefits to universities as well, in terms of…making connections to high tech industry, assisting with technology transfer and spinning off technology more quickly, and building a community of support for innovation. (Brian Catts, Arizona)

Re attracting investment

In BT’s experience, incubators have acted as a magnet to build clusters, to attract SMEs and investors. A public/private partnership is very important – this also encourages investment. (Dr. Steve Brady)

People and investors want to know what places will be most attractive in terms of investment – space matters more than ever….Firms benefit from action to build clusters because it builds more attractive locations – this is a combination of immovable and intangible assets. (Josef Konvitz, OECD)

Re Supply Chains

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, pharmaceuticals. ‘It’s the job of clusters to move these industries into e-commerce’. (Bob Downes, BT)

The biggest shortcoming in developing countries is the lack of cluster synergies along the supply chain – however these improve as the cluster develops (Dr. Ted Egan, ICF Consulting)

Re infrastructure

To talk about clusters properly, one needs to build in ‘localised enterprise support infrastructure’ which helps the organic growth of firms. (Prof. Philip Cooke)

The place also has to be well-connected - not just communications, but airports. (Dr. Andreu Mas-Colell, Minister, Catalonia)

Re broken china, tensions and upsetting people

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. (Charles Sabel).

Re making connections

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. (Bob Downes, BT)

Firms are actually complementary – if they do compete, they do so in narrow circumstances. There is a natural solidarity and alignment. (Charles Sabel)

Clusters help business find a common interest, and thereby organise themselves (Danny O’Brien, NCR)

4. Linking clusters – for R&D and investment

My attendance at TCI in Glasgow conference, apart from reporting back on cluster technology being introduced in other countries, was to raise international awareness of the ANZAC Alliance - and to then use this as a springboard for building a network between Australia-NZ clusters and those in other countries.

Given that TCI and the OECD are the key sources of information of cluster models and techniques, ANZAC has consciously sought to build links with them.

The possibility of linking clusters across countries has been spoken about from time to time. We believe the time has come to progress it. While the reasoning behind the idea is straight forward, some background in terms of the underlying need will assist the reader.

The basic ‘industrial affliction’

• Australia’s ‘industrial affliction’ is very similar to that of Scotland – our small domestic market and weak supply chains into the fast-growing segments of the world economy are impeding:
• the commercialisation of our R&D effort, and
• investments in value added manufacturing/resource processing, and the export thereof.
• These problems are not peculiar to Australia and Scotland. Mr. Stefan Kalej’s address to the conference referred to similar concerns for Brazil, while South Africa, New Zealand, Jordan and most of the East European countries are in the same boat. It might also be flagged that there were quiet concerns expressed at the conference that the least developed countries really had nowhere to go. The consensus seemed to be that the globalisation forces were effectively ‘supercharging’ sections of the world economy – with the result that the powerful, well-connected economies would power on, that the ‘almosts’ would hang on, but that the catch-up for the least developed countries would continue to lose ground.

The investment/value adding problem, and the seven deadly sins

My own interest in clustering concepts was sparked because of their potential to address market failure in respect of industrial investments. This interest had been honed by my former responsibilities for the Australian Government’s inwards investment program as it related to Japan, the regional infrastructure program, the raw materials processing agenda, and numerous multilateral and bilateral groups with a brief to promote investment and research cooperation.

The fact of the matter is that numerous investment proposals and related initiatives fail not because they are inherently bad, but because of ‘qualitative’ factors. They are the seven deadly sins:

1. Insufficient information for the potential investor

• tendency for councils to rely on ‘good news’ pamphlets, without any supporting material
• lack of knowledge of support agencies available to assist SMEs in sourcing finance
• lack of connection between regional development bodies and federal agencies, with the result that the latter’s clients are mostly in capital cities.

2. Lack of confidence and trust between the parties

• Building of trust can take time – especially for Asian investors
• New parties lack the track record and visibility
• patch protection, jealousy and egos prevent a coordinated approach to the issue.

3. Lack of rigour and doggedness of the proponents

• insufficient reality checks
• insufficient or poor feedback - government officials are reluctant to ‘say it as it is’
• proponents easily demoralised.

4. Weak connection or breakdown between the players

• unfamiliarity of the institutional investor/bank for the project and/or locality (due to
• distance, lack of experience etc)
• lack of contacts in the right places
• insufficient number of champions
• transfer of key personnel (can be particularly critical in small communities)
• work pressures

5. Inadequacy (real or perceived) of supporting infrastructure

• Inability of governments to coordinate hard and soft infrastructure, leading to major gaps and/or time delays
• tendency for local government to overly-focus on roads.

6. Weak marketing, attention-grabbing, and strategic skills

• engineers, lacking in marketing and social skills, occupy key management positions in some industries
• bright people (e.g. academics) do not have 100% credibility with investors – perceived as lacking street-smartness.
• The core people might be inexperienced in running agendas, in harnessing support, and in knowing when to move forward or back off

7. Reluctance of SMEs to joint venture

• partly due to concern about loss of control
• often just a lack of knowledge of potential partners

Most of these problem areas also apply to R&D commercialisation – in fact the R&D and the investment dimensions can be viewed as being at different ends of the same spectrum.

Anyway, the point is that clusters are significant – because they are proving to be effective in dealing with virtually all of the above problem areas, most of which are manifestations of market failure (note Professor Michael Enright’s 4-way encapsulation of market failure - Lack of information, Managerial myopia, Under-provision of public goods, Coordination failure).

It is the ability of cluster agendas, when properly implemented, to build trust and provide a vehicle for improved coordination of the activities of otherwise unconnected players that represents the competitive advantage of clustering.

Enter Cluster Coordination

• .ANZAC provided a paper to TCI Conference in Glasgow that argued that it was pointless to talk about collaboration if TCI members did not practice it themselves. We indicated that our interest in building links between clusters in Australia and overseas was to strengthen trade and technological ties, and to strengthen marketing channels into major international markets.
• We also sought views as to whether benchmarking clusters might be possible, and the types of clusters in Australia-New Zealand that might interest other countries. An indicative list of clusters in the ANZAC area was provided.

The Response

• TCI members provided a range of written and oral feedback, which is still being collated and followed up.

Example 1 – Arizona

• Mr. Bob Breault of Breault Research Organisation Inc. in Tucson, Arizona indicated that cluster to cluster relationships are best, and that this has been shown in respect of Arizona, Scotland, Ottawa, Vancouver, Rochester NY, Florida and elsewhere.
• He suggested that there is scope to link clusters between Arizona and Australia in respect of optics/photonics, software and environmental industries. He considered that the cluster agendas in Newcastle, Parkville, Ballarat, Cairns and Adelaide have potential for collaboration with those in Arizona. He also felt there may be synergies between the proposed Bermagui NSW fishing cluster with one in Vancouver.

Example 2 – Brazil

• Mr. Rodolfo Koeppel of the Federation of Industries in the Menas Gerais (FIEMG), which is a key state in the south east of Brazil, indicated subsequent to the conference that his organisation would be very interested in sharing information and ideas with clusters in Australia. He referred to previously harmonious dealings with Australian firms in the mining industry. FIEMG is also involved in a range of other clusters. (Refer to Chapter 4 for an extract of speech by the President of FIEMG)

Benchmarking Clusters

There was good discussion on this. At a workshop, there a consensus reached that it would be possible. A discussion was held on what types of indicators should form the basis of a benchmarking exercise. It was thought that around 4-5 reasonably straightforward indicators might be best.

Summary

The TCI Conference provided a rich source of ideas about clustering technologies currently being introduced. They go to the heart of industry and regional development policy. A full report on the Conference and related findings will be provided to ISR in December. Copies of the report will be available through the author.

ANZAC has started a process of engaging firms and agencies overseas, to identify the scope to link clusters – firstly by sharing experiences and undertaking some benchmarking. The second step will be to identify the scope for linked clusters (i.e. across countries) to facilitate R&D collaboration and investment flows.

Mr. Rodin Genoff, of Playford City Council (also an ANZAC member), is scheduled to deliver a paper on the topic at the OECD World Congress on Clustering in Paris in January 2001.

Industry clusters in Australia & New Zealand

(extract of main document - indicative only – additions/corrections welcomed - copyright)

New South Wales

Newcastle/Hunter Valley

• Agribusiness
• Education & training
• Sustainable industries
• IT
• Building & construction
• Mining services

Contact: Mr. Trevor Pennifold

trepen@idc-hunter.org.au

Bega

• Agrifood

Contact: Mr. Rob Owen ppr@acr.net.au

Bermagui

• Fishing & related services

Contact: Mr. Rob Owen ppr@acr.net.au

West Wyalong

• Road transport

Contact: Mr. Gary Kerr blandsc@westserv.net.au

Sydney central

• Film (Fox Studios)
• Manufacturing technology & IT/telecoms (Redfern - ATC)

North Sydney/Ryde

• IT & telecoms

Western Sydney

• Light manufacturing

Scone

• Horse breeding

Wollongong

• Steel

Albury Wodonga

• Environmental industries
• Agribusiness
• Manufacturing

Wagga Wagga

• Light manufacturing
• agrifood

Armidale

• Education

Young

• Stone fruit

Mudgee

• Wine

Dubbo

• Agribusiness

Orange/Bathurst

• Agribusiness
• Manufacturing eg. whitegoods

Northern Rivers

• Tourism
• Food
• Small business (various)
• Biotechnology (medicinal plants)

Riverina/Deniliquin

• Viticulture/horticulture
• Sustainability & water conservation

Victoria

Ballarat

• IT
• Education

Contacts:

Prof. Julian Lowe julian.lowe@ballarat.edu.au

Paul Miller p.miller@ballarat.edu.au

Daylesford

• Health

Contact: Ms. Paquita Lamacraft

paquita_ann@hotmail.com

Parkville (Melbourne University)

• Biotechnology

Contact: t.b.a.

Eastern Melbourne

• Consultancy services

Contact: t.b.a.

Warrnambool

• Dairying

Contact: t.b.a.

Geelong

• Wool textiles

Yarra Valley

• Wine/gourmet food

Monash University/Clayton

• Medical
• Education

Goulburn Valley/Sthn NSW

• Horticulture (esp. tomatoes, stone fruits)
• Transport
• Dairy

Mildura/Sunraysia

• Horticulture/wine

Western Melbourne

• Defence, engineering

Latrobe Valley

• Energy

East Gippsland

• timber

Torquay

• Surfwear

Beechworth

• Tourism

Mornington Peninsular

• Wine

North East Victoria

• Wine

¹ For a report on the Varese conference, see ‘Pret a Porter’ (R. F. Brown) available from the author or via TCI website.