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The Competitiveness Institute, a network of cluster practitioners

2^nd Annual Conference in Varese, Italy, from 10-12 November 1999.

Rod Brown

Australian Project Developments Pty Ltd, PO Box 1145, Canberra ACT
Phone/fax 02 6231 7261 apd@orac.net.au

November 1999

© Australian Project Developments Pty Ltd, January 2000

Much of the Institute's work involves the practical application of Michael Porter's seminal work - 'The Competitive Advantage of Nations'.

This report concludes that Porter theory is pret a porter - ready to wear, as the French would say.

1. Introduction

Although industry clustering concepts are well understood in some countries, they are relatively new to the Australian industry policy landscape.

The state of play in Australia can be summarised as:

• Reasonably high interest in the subject,
• Little knowledge of where and how to start,
• Problems related to engaging the players and sustaining the process.

As a result, the 30-40 cluster agendas unfolding in Australia (with more in the pipeline) will either fail or seriously under-perform. There is a real risk that clustering agendas will be wound down and/or discarded, to the detriment of the people and organisations concerned, and cluster practitioners generally.

A consortium of interests is currently being formed to determine how clustering concepts can be 'bedded down' in the Australian/New Zealand economies. It is also intended that the consortium, currently comprising 17 organisations, would become the Asia Pacific chapter of TCI.

As a foundation member of the consortium, I attended the Varese conference to make initial contact with cluster practitioners and identify the main clustering models being used.

This report summarises my findings. I have tried not to 'talk too much shop' - rather to highlight the main issues surrounding the implementation of clustering agendas.

A secondary aim of this report is to remove some of the confusion about industry clustering. Part of the confusion stems from the fact that 'clustering' is often used in two contexts, viz.

• the phenomenon whereby companies (and people) tend to congregate in particular locations because of the quality of infrastructure and the economies of location. (This was identified many years ago, but popularised by Michael Porter)
• the cluster engagement process - known as a clustering agenda or process - which is a technique for developing industrial capability. It is a superior means of engaging key players in collaborative pursuits.

I welcome your interest in his fascinating subject. Please feel free to contact me.

Rod Brown

January 2000

2. The Competitiveness Institute (TCI)

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"

The first TCI conference was held in Barcelona in 1998. Barcelona is now the home of the TCI Secretariat. The third conference is to be held in Glasgow in the second week of October 2000.

The Institute has a budget based on member subscriptions and government grants. It has a website, www.competitiveness.org that provides general information on its objectives and operations. Membership of the TCI provides a password to enable the accessing of details of other members' interests and outputs.

Attendance at the Varese conference was 102, comprising:

• 10+ participants: from each of Italy, Spain, UK
• 5+ participants: from each of Guatemala, Brazil, Belgium, France
• 1-3 participants: Mexico, US, Chile, Australia, South Africa, China, NZ, Japan, Portugal, Austria, Jordan, Germany, India, Morocco, Ukraine, Finland, Argentina, Netherlands, Georgia.

About Varese

Varese is about 50 km north of Milan, and 20km west of Lake Como.

It has a long tradition of prosperity, with an established reputation since 1700 in paper-making - a printing industry established there as a consequence. The city also specialises in leatherwork, whitegoods, plastics and motor cycles - it is the home of Ducati.

The city and its surrounds have a strong historical and cultural heritage, with numerous churches, castles and villas. The city proper has a population of around 40,000.

3. International Perspectives

Italy

As explained later, the Italian clusters/industrial precincts are very tight. There is emphasis on vertical/horizontal integration. Design and marketing are embedded in them. Regional banks are important, and infrastructure coordination is one of the outcomes. National legislation underpins them.

United Kingdom

Some progressive agendas are in train. Newcastle on Tyne sees clustering as a means of tying down 200 footloose MNEs. There is some interest in linking clusters across countries.

Scottish Enterprise uses clusters as a tool for building the 'knowledge economy', and achieving long-term structural change and industrial competitiveness. Their cluster initiatives have parliamentary endorsement. Pilot clusters are in biotech, food & drink, oil & gas, semi-conductors. 'New Wave' clusters are being developed in opto-electronics, creative industries, tourism, forest products.

The Welsh Development Agency has similar aims.

Brazil

The Brazilian authorities appear to be using clusters as part of industry policy framework. They are particularly interested in further strengthening their capabilities and spinning off new activities in the automotive sector (Sao Paulo etc.), as well as some of the high tech industries. Mr. Luis Tironi of the Instituto de Pesquisa Economica Aplicada is a key person.

Guatemala

They are using clusters for national planning/strategic purposes. They took an active interest in the TCI Conference - I was advised that Porter's work has been closely studied in Latin America. Juan Carlos Mendez gave a very good paper on their experience.

France

France has of course been fostering clusters for many years, under different guises or names. A senior adviser to the PM announced, in his keynote address to the conference, a program to facilitate the development of clusters. The sum is around $A5 million.

USA

There is a variety of agendas in the US:

• It is possible that Porter is branching out into broader fields, although I am ready to be contradicted on this.
• Professor Mike Enright (now of Hong Kong University) did his Ph. D. under Porter, including a good deal of the analysis underpinning the 'Competitive Advantage of Nations' - this information is from a third source. He is doing some work for one of the big 4 Australian banks.
• Doug Henton (Collaborative Economics, Palo Alto, Ca) and Stuart Rosenfeld (Aspen Institute, Wash. DC) are also well-known to some of the TCI fraternity - their models are slightly different again.
• A more recent player, referred to in Doug Henton's recent book, is Bob Breault who attended the conference. He is worth dwelling on. He is an ex-Korea fighter pilot who saw the post-war commercial potential of optical instruments. He is friendly and spins a good yarn. He is now a millionaire Arizona businessman, has a vision for the optical instruments industry, and also has Adelaide/Sydney connections. He is happy to come to Australia to talk to groups about the benefits of clustering - his only request is that 'someone feeds me'. I said I would pass the word around, but added that we should pay a fee.
• David Dodd from Louisiana is another specialising in cluster agendas. Although not at the conference, he was in Australia recently (Adelaide, Ballarat, Canberra, Brisbane) and has particular angles which fit into the Australian context.
• The Nebraska, and related community-based models that spring from the 'mid-west farm reinvention agenda', are also of relevance.
• There is a brace of other initiatives - Boston, Seattle, San Diego etc.

India, Morocco, Jordan, Ukraine, Georgia

From informal discussions it appears that their interest is in using clusters to identify and build on competitive advantage. The Jordanians advised me that one of their key industries is potash and related chemical manufacture, and that the establishment of a cluster is a possibility. The Ukraine (World Bank) and Georgia delegates conscientiously video-taped much of the conference and industry visits.

Netherlands

I did not get the opportunity to hold discussions with the Dutch, but they are closely involved in the OECD working group. They of course have the celebrated cut flower industry - no land, no sun, but the world leader.

Their interest is summed up as follows:

"We believe that clusters are not a passing phenomenon. The emerging network economy leads towards more tightly coupled, more intensive, more persistent and more intimate relations among firms, and between firms and governmental organisations.

The cluster concept…helps us to understand it in a coherent and systematic way"

(Dutch Ministry of Economic Affairs)

New Zealand

Ifor Ffowcs Williams and Paul Frater are the lynch-pins of the NZ agenda. Both were at Varese. Information on their work can be made available. Both have an active interest in working with Australian groups, and have a good deal to offer.

OECD

The OECD is very committed to cluster agendas, and has recently established a working group (headed by Mr. Pim den Hertog) and various other machinery to facilitate consultation and exchange of information. It is involved in facilitating joint industry-research centres of excellence - an example is the Lumatel facility in Lumezzane.

United Nations Industrial Development Organisation

Mr. Frederic Richard, the deputy President of the TCI is also a senior official in UNIDO. One of his interests lies in using cluster agendas to focus economic development efforts in developing countries. (See Section 7 'Other Issues')

European Union

The EU Commission is increasingly applying clustering concepts to EU policies on several fronts - regional, enterprise, innovation, R&D and training.

It considers that the role of intangible factors such as networks are critically important in addressing SME innovation needs.

4. The Italian Experience - two examples

The conference agenda provided for visits to two clusters in northern Italy, prior to the formal conference proceedings. Much has been written about the industrial districts of Italy, and I do not intend to duplicate the work of others. However, they provide an excellent reference point for those interested in industry development. Some insights are provided below.

The Lumezzane industrial district

The town of Lumezzane is a two-hour bus drive north-east of Milan - halfway to Venice.

The striking thing is its location - on the floor of a narrow valley high up in the Italian Alps. Lumezzane is within the Province of Brescia. Its population of 24,000 lies within an area of 30 square km. There are 1,700 firms - 1 for every 13 people. The factories are interspersed with residential buildings - while the streets are mostly narrow, the standard of the public infrastructure is quite high.

The specialty products are made of steel, although diecast non-ferrous products are also important. The breakdown is bathroom/toilet fittings 40%, houseware 38%, diecastings 10%, and moulds 8%.

Success Factors

According to the locals, the key factors underpinning their success have been:

• entrepreneurship and the will of the businesspeople
• integrated vertical production, which minimises costs and promotes new businesses
• external economies of scale - via suppliers and users
• constant technical innovation
• high specialisation at the product level
• competition between companies at the product level
• cooperation between firms and public agencies to achieve external economies

However it transpired that there are other underlying factors at play, not all of them favourable. In fact, our hosts were remarkably open and keen to share their experiences. Some of the issues they are dealing with are:

• The region was a major centre in the war years for the production of munitions, guns etc. for the Italian and German armies. The post-war industry expansion continued along specialised lines, resulting in major barriers for firms or individuals wishing to exit the industry and/or region.
• The workers have learned their skills locally, and by interaction with other locals - they have often been trained in one job only.
• An associated problem is hereditary succession ie. the children succeed their parents in the business. This leads to difficulties in keeping abreast of best practice in finance, marketing, technology etc. Switching into growth markets is made more difficult as a result.
• The innovation tends to be incremental, rather than radical - this leaves them open to being leapfrogged by their competitors.
• Promotion and marketing needs to be stronger - their small scale means that companies operating alone have no international market presence.
• Turnover per enterprise is slowing as product life cycles mature.

As a result of the above factors, the future development agenda is expected to revolve around:

• Emphasis on strategies to diversify products and markets.
• Continuous improvement of process technologies, innovation, delivery times, marketing. This is a key function for an organisation such as Lumatel (See below).
• Reinforcing external economies, through collaborative effort.

Other Impressions

Inspection of some of the manufacturing plants revealed a mix of new and ageing machine tools and associated plant. In the two factories visited, the standard of plant layout, materials handling and OH&S practices were below that of the average Australian metal fabricator. The costs of trucking feedstock (eg. steel, packaging) to the town would also be relatively high. The average wage for a factory employee is around $A400 per week, which is a little below Australian levels.

The outstanding impression, however, was the emphasis on design, quality control and marketing. This conceivably offsets much of their cost disadvantage. The design staff appears to have a well-entrenched place in the scheme of things. Innovation and flair are encouraged. An example is a gift given to us as we left the MEPRA/Ercolino plant - it required a discussion on the bus the next day to determine that it was a salt shaker. The plant manager also explained that one of the orders being made that day was for 500,000 pieces of cutlery for first class patrons on South African Airways. The quality control - by manual means - was quite impressive.

Lumatel - the key development agency

The key industrial development agency for the region is Lumatel, established in 1997 as a service agency to 'undertake industrial policy intervention (sic) at a local level to support local enterprises and their competitive capacity'. It has 200 members, each paying an average of $A500 in subscriptions.

It has the support of a regional bank, the Banca Popolare di Brescia, the Lumezzane local council and Italtel Telesis (a telco). It claims to have a close relationship with the European Union, the Lombardy regional councils, the National Council for Nuclear and Alternative Energies, the National Council for Scientific Research, as well as links to the OECD and UNIDO (possibly the reason why we were visiting it). It has around 15 staff, and a business incubator/training establishment is adjacent.

Lumatel is a non-profit organisation - its roles include marketing, financing, QA, innovation, training and IT support. Projects currently in train include joint ventures with Shanghai and a business incubator. Lumatel is looking to place increased emphasis on the virtual enterprise concept, more intensive use of modern communications technologies, and global business integration. Some of the issues that Lumatel are addressing are:

• Reducing the cost of delivering information to companies eg. in respect of company incentives, QA, export initiatives.
• Promoting more heavily the role of SMEs.
• Taking sectoral and specific actions to underpin the competitiveness of the SMEs, such as the strengthening of an innovative new local supplier network - with a distinction being made between primary and secondary suppliers.

An interesting observation made by the Lumatel management was the importance of the initial leadership and support provided by local government and the local bank. At first, 'no one knew what it was about'. Lumatel therefore had to establish its reputation. Pioneering actions and the involvement of charismatic personalities were important in this regard. The rise of globalism means that there will be a reduction in the number of companies, and they understand that the protection of the local market is not an option.

In my experience, the Lumatel-type operation is an advanced form of anything available in Australia:

• It has a reasonably tight focus in terms of its clientele, by virtue of the industry specialisation within the town
• It has a local flavour - which industry associations generally lack in Australia.
• It appears to have high standing in the region, and serves as the main delivery point for government programs. The relative decentralisation of authority in Italy favours this.

The Biella industrial district

The Biella district is about one hour's drive north west of Milan. Its population is 190,000, and it is a world centre for the manufacture of woollen textiles. The district is home 1,300 companies engaged in wool/textiles, with another 200 companies involved in textile machinery. Employment in the industry within this district alone is 28,000. Unemployment is around 5% compared with the national average of 12%, while income/head is 30% higher that the national average.

The centrepiece of the district is the Citta Degli Studi, which provides for the co-location of:

• Training - Textilia SPA.
• Education - The Polytechnic of Turin offers a degree in chemical engineering with a textile and environmental emphasis.
• Applied research - by virtue of an outpost of the National Centre of Research.
• Technology transfer - the State Technical Industrial Institute.
• Marketing - the Italian seat of the International Wool Secretariat is located on-site.
• Standards - via the public institute for the official certification of the weight of conditioned wool.
• Environment - the Association for the Environmental Protection of the Biella District, plus the Institute for Cooperation on Water Purification and Water Usage.

The spinning mills, textile machinery manufacturers and clothing companies include the Who's Who of the world industry. Brand names such as Zegna and Fila are commonplace, and the area is the major source of material for the fashion houses of Milan and Paris etc.

Annual output of textile product from the Biella district is around $8 billion. Australia supplies 40% of the wool to the mills. We inspected the combing and weaving of cashmere wool - where Australia is not a major supplier. A good deal of the finished product are cashmere coats retailing at around $1,500.

Linking Clusters

One highlight was the response I received to an innocent question to a panel of five local experts. My question was whether the Biella cluster could somehow be linked to some in Australia (eg. Geelong, Goulburn), given Biella's high dependence on Australian wool and the fact that Australia needs to get into higher value segments of the market.

Some 30 seconds of glances and caucussing between the panel ensued. Eventually one of the panel explained that Australia was too far away from the market to be a significant player, since close contact with the customer is required in order to ensure that innovation is market driven and that commercial opportunities can be maximised. He did explain however that regular contact was kept with the CSIRO.

It occurred to me later that their response probably reflected a mix of

(i) a belief that their cluster was very important in maintaining their competitive advantage, and that any alliance with Australian interests could not be in their long-term interests, and

(ii) a lack of knowledge of what an alliance with Australian interests might deliver.

One of the TCI hierachy explained to me privately that part of the Biella defensiveness was because the textile mills are being squeezed by (i) the purchasing power of the large boutiques and clothing houses in Paris, Milan etc. and (ii) weakening prices for their output due to competition from Asia and eastern Europe.

Other Pros and Cons

The Italian model is undoubtedly effective in terms of delivering industrial performance. Apart from the inter-firm competition and collaboration it delivers, it provides the benefits of scale economies and a vehicle for developing strong brand identity in export markets. In many respects, the dynamism of these industrial hot spots is a blessing for the national economy and the national government. To the latter's credit, it recognises that, by nurturing these industrial precincts also removes the pressure of having to embrace an intervention or strategic approach to industry policy.

The decentralised nature of decision-making in Italy, and the seeming indifference to national government (the tax system is a prime example), means that industrial districts sit well within the socio-political setting. It is also instructive that industrial districts are now enshrined in national law - this was apparently to provide local players with more authority and certainty. One of the by-products of this is a better vehicle for delivering national government expenditure.

The industrial districts have a downside - the product specialisation and the preponderance of family units makes industry restructuring into new growth areas more difficult. However the authorities are aware of this. I would venture the view that the underlying Italian thinking is that if the innovation effort and marketing channels can be maintained, then there should be sufficient scope for industry to adjust into more profitable areas.

Australia's situation is obviously different - we do not have the same level of specialisation in value-added areas, nor the significant market presence enjoyed by the Italians in many key industries.

Can the Italian cluster model deliver these benefits to Australia? The usual line is that the economic, social and political differences prevent an easy transplant of the Italian model, and I would agree with this. However their best features must be understood and appreciated - it certainly provides a powerful perspective of integrated and innovative production systems.

5. Cluster Identification & Selection

The Conference did not formally dwell on this issue, although certain of the papers touched on it. The best debate was had over a coffee.

There appear to be five main approaches:

1. Porter (1990) argues that competitive high points in the national economy are identified using two measures - namely world market shares, and flows of outward direct investment. To my mind, this approach is not entirely applicable in the Australian context. The scale of Porter's thinking - mostly in terms of city states - is very large. Furthermore, the ABS cannot yet provide a regional breakdown of investment. However the few high points would probably be motor vehicles in Melbourne and Adelaide, wine in the Barossa and the Hunter Valleys, oil/gas in the Pilbara, medical equipment in Melbourne, and possibly fast ferries in Perth etc.
2. A second technique is to use export data at a 2 or 3 digit level, but once again comprehensive trade data is usually lacking. As Peters (1999) argues, policymakers are beginning to 'run out of road' at this stage, which results in the tendency for development agencies to pursue cluster strategies based around a few broad sectors eg. food, IT.
3. A third approach is to develop industry concentration ratios, whereby ratios greater than the State or national average are a proxy for competitive advantage. This has merit in that it provides a first-cut identification and it has a quantitative foundation. However, as with the first two techniques, it has a strong historical dimension - unless used in conjunction with other indicators, it is weak at identifying emerging industries and/or locations.
4. A fourth approach is to 'suck it and see'. It involves entering into a process to explore the prospects of someone's idea or vision being delivered via a cluster process. It should be accompanied by an industry audit process - using external economic/financial advisers to provide some early reality checks. I would guess that success rates of say only 20% may be possible - but it shouldn't be ruled out since energy and unintended spin-offs can be generated along the way.
5. The fifth (and my suggested) option is to develop a set of criteria against which prospective or potential clusters can be assessed. Professor Mike Enright calls them 'cluster characterisations'. This provides a means of capturing potential or latent clusters.

"Cluster Characterisations"

Professor Enright is at the forefront of this work. He appears to be extending and refining Porter's work. He has identified nine characterisations to help understand the relative strengths and weaknesses of localised business activity. I have culled these down to the following seven:

• Good long-term growth prospects
• Highly localized
• Densely populated
• Activity-rich
• Governance structures and mechanisms to support a cluster agenda
• A threat (as a means of energising people)
• Local champions

In a separate paper made available at the Conference, Enright makes a distinction between "organic" and "transplant" cluster programs, together with hybrids of the two. To my mind, it is a valid and thought-provoking distinction.

Organic cluster strategies aim to expand and deepen the indigenous industrial base, by identifying clusters and then promoting development by improving information flows, increasing interaction among local firms, removing infrastructure bottlenecks, fostering inter-firm collaboration etc. They are predicated on the presence of a solid economic base to build on.

Enright indicates that most of the US, Italian and NZ cluster agendas have been of this sort. I would see Australia fitting on this list.

Transplant cluster strategies aim to attract external companies and/or their facilities suppliers. They resemble the strategies that fell into disrepute in the 1970s and 1980s, albeit with refinements. Transplant strategies focus on particular targets that might fit in well with the local economic environment. They aim to embrace regional headquarters, R&D and related high value-added activities rather than manufacturing alone.

Enright indicates that Ireland, Scotland, Wales, Northern England, Malaysia and Singapore have used this type of strategy.

This distinction between industry clustering initiatives raises, in my mind at least, some topical issues.

First, the interest currently being shown by politicians in the Irish experience will hopefully lead to a dawning realisation that governments have a critically important role in developing and maintaining certain hard and soft infrastructure in order to attract investment to regions. The steady stream of EU funds to the Irish (and the Scots etc.) has not been properly understood by many.

Secondly, the Irish obviously never believed McKinsey's reference to 70% of investment in regions coming from firms within the region. They have consciously gone out and done deals to attract foreign investors.

Thirdly, in Australia there are two initiatives - the Regional Headquarters Program (DISR) and the Call Centres program (DOCITA) - that are crying out for cluster-based thinking.

Related work by Ewen Peters is very timely. He circulated, on a restricted basis, an excellent paper entitled "Implementing the Cluster Approach: some lessons from the Scottish Experience" (jointly with Neil Hood).

Peters draws on Enright's work in a thought-provoking way, and teases out other aspects of cluster characterisations.. The Scottish Enterprise group - Ewen Peters, Scott Skinner and Robert Pollock - indicated interest in working with Australian agencies. I foresee a situation where overseas experts with knowledge in certain industries or subject areas can be slotted into specific Australian agendas, and perhaps vice versa.

We propose to develop some Australasian cluster characterisations, and to apply weightings to them. The intention is to provide clients with a more rigorous and dynamic method of identifying cluster activity and potential. Our work will also entail a classification of clusters using Enright's valuable work as a base, viz.

• 'wishful thinking' clusters
• potential/latent
• working clusters

This aspect is important, and it came into focus during the course of the conference. The reason is that while each country/region is looking to clusters to better integrate macro and macro policies, and to provide an engagement mechanism, each cluster has different requirements. Clusters can also be classified according to the major source of investment. viz. multinational enterprises, SMEs, government.

6. The Cluster Process - problems being encountered

Ifor Ffowcs Williams chaired a workshop at the Conference on this specific issue. I found it most illuminating because it highlighted that most of the difficulties being encountered are common across countries, despite marked differences in their state of development eg. Brazil, UK, Italy, Guatemala, Chile, NZ and Australia.

The major difficulties, related issues and possible responses suggested by cluster practitioners across the various countries are outlined below.

Note: On a couple of points, I have included some corroborating views by Australians, offered at the Workshop sponsored by the Newcastle IDC (Canberra - November 1999). These local views are in italics and sourced to the individual.

A. Unrealistic expectations

Issues

• the building up of expectations that cannot be reasonably fulfilled in the short-term.
• tendency to develop a wish-list for others to deliver on.
• magnification of the problem when the 'others' have not been party to the cluster agenda, and insufficient reality checks have been undertaken.

Responses

• facilitators need to talk down expectations in the early stages of the process.
• some small early successes need to be established.

B. Lengthy period before trust is established

Issues

• the players usually lack experience in cooperation
• it takes time to build confidence and an open dialogue at a strategic level
• there may be deep-seated animosities between stakeholders (known only to them)
• stakeholders have different agendas and perspectives, move at different speeds, and react differently
• ego clashes between stakeholders
• major companies, especially MNEs, may feel threatened
• difficulty in including informal firms (ie. from the black/grey economy) in the process.

Responses

• generate early results for the cluster
• bring together small groups for dinners
• use the media as a communications tool
• use a neutral player, such as a facilitator
• develop a shared understanding of the current situation, and preferred future, for the cluster
• "instil a sense of liberation…..and create learning opportunities" (Hugh Forde, SA Dept. Of Industry & Trade)

C. Lack of process tools

Issues

• there is no widely accepted methodology
• too much focus has been placed on cluster analysis

Responses

• TCI needs to develop a common methodology and international best practices
• TCI or others to summarise the different models
• "Need to do more - there is no adequate system of maintaining a cluster" (Ian Coombes, Canberra)
• "We lack a theoretical framework' (Prof. Julian Lowe, Ballarat)
• " Don't confuse them with the Porter diamond" (Ifor Ffowcs Williams)

D. Finding the initial trigger or key issue to galvanise action

Issues

• agreeing on a plan of action is made difficult by the different agendas/perspectives
• the trigger may not be known
• the stakeholders will not be on-side until the key issue/trigger is understood
• even when the trigger is found, it may seem daunting and out of reach
• convincing the people holding the trigger

Responses

• instill confidence among stakeholders - role for champions
• progressively win the confidence of those holding the trigger
• "use the cluster to make linkages" (Murray, Canberra)

E. Lack of a crisis or shock

Issues

• a crisis helps galvanise action
• must avoid creating artificial crises, but they may be on the horizon
• stakeholders do not recognise the crisis, or feel powerless to prevent it
• politicians (on the government side) do not like admitting any crises

Responses

• provide comparative data eg. benchmarking
• if there is no crisis, say so.
• provide examples of successful cluster agendas elsewhere - preferably in the same industry
• "show energy and imagination" (participant at Canberra workshop)

F. Moving too fast

Issues

• can lose perspective and chase shadows
• some stakeholders drop off

Responses

• utilise champions to gauge the right speed
• need to avoid going too slow

G. Negative reaction to the word cluster

Issues

• 'cluster' is too Californian
• seen as just another form of network

Responses

• "don't tell them they're a cluster….. and be outrageous" (Jenny Roberts, Newcastle City Council, in the context of the film and TV cluster 'Hollywood in the Hunter')
• examine alternatives such as capacity building
• explain that it's an advanced form of network, with infrastructure elements as well.

H. Dominance by academics

Issues

• private sector cannot see the relevance, or quickly loses interest
• becomes a talk shop, with minimal outcomes

Responses

• use academics to sustain arguments - not at the front line
• "be pragmatic" (Hugh Forde, SA Dept. of Industry & Trade)
• "Link practitioners to academia' (Ian Coombes, Canberra)

I. Trying to start too many agendas

Issues

• capacity is over-stretched
• lack of follow-up

Responses

• prioritise clustering initiatives, starting at the easy end with the 'cluster ready' ones
• need public commitment, and to keep the players informed of progress.

J. Consultancy dependency

Issues

• The consultant is seen as the expert and the driver

Responses

• Explain that the consultant is only one of several agents.
• Ensure that the consultant passes on the skills and knowledge to others.

7. Other Issues

UNIDO

The UN Industrial Development Organisation has played an important part in the establishment of the Competitiveness Institute, and Mr. Frederic Richard, an AS/FAS equivalent within UNIDO, is a member of TCI Board.

I have maintained a general interest in this organisation since I was the UNIDO desk officer (within the now DISR) several moons ago. I therefore paid Mr. Richard a visit at the Vienna HQ en route to Varese. While the UNIDO building is a landmark on the Vienna skyline, the interior of the building is very down at heel. Apparently the savage cutback in US funding a few years back means that UNIDO has few discretionary program funds, although it has around 800 professional staff. It has links to UNCTAD which allows it to access their better-resourced programs.

Australia withdrew all funding for UNIDO about three years ago as part of the general Budget cuts. When UNIDO membership is next reviewed, serious consideration should be given to rejoining on the basis of the following argument:

• UNIDO's role is to support the industrial development of developing countries, and of economies in transition - in the latter case, it is assisting the former Soviet bloc.
• Its Business Plan indicates that strengthening industrial capacities through promotion of investment and institutional capacity building is a key goal - hence UNIDO's interest in clustering concepts. (The other goal is cleaner and sustainable industrial development)
• UNIDO has traditionally been a side issue for Australia. When we were a member, we took no direct interest. We didn't know how to maximise our membership.
• If UNIDO is lifting its game, Australia could join forces with them to introduce cluster-based principles into the capacity-building work in the aid field.

ATSIC relevance

Clustering concepts are relevant to community building for indigenous people. The South African delegates at the Conference explained that clustering initiatives are of interest to them because it helps them to focus on their competitive advantage. It also helps empower people as the nation goes through a rebuilding phase.

The Aboriginal & Torres Strait Islander Commission is facing similar challenges in Australia. The Commercial Development Corporation (within ATSIC) could, in my view, usefully examine the possibility clustering concepts into some of its work.

In my experience, the biggest problem faced in maintaining indigenous enterprises is the lack of an integrated, sustained approach - clustering concepts would assist in addressing this.

8. Concluding Remarks

As this report has indicated, the potential of clustering agendas to drive innovation and industrial performance is attracting worldwide interest. Porter's work, together with the subsequent involvement of the OECD, UNIDO, UNCTAD and the World Bank, is leading to fundamentally new directions in industry policy, where the thrust is to reduce interventions by government, and to empower people and organisations to develop action plans as the basis for collaborative action.

• company is currently assisting with the formation of a consortium of interests, tentatively called the Australia/NZ Alliance on Clustering (ANZAC), to:
• introduce and demonstrate best practice industry clustering models to specific industries in Australia/NZ
• raise awareness among industry associations, financial commentators and government of the effectiveness and broader application of these models
• are doing this because we believe that, when they work properly, clustering concepts are a superior means of engaging otherwise unconnected interests and improving the business environment.
• there are some constraints - insufficient knowledge of how to get the process started, a lack of capable facilitators, a lack of case studies and advice, and confusion as to the difference between clusters, networks and value chains.

We aim to address these problems, and the Varese Conference was a first step.

Some of the initiatives that we are examining include:

• Cluster Demonstration Models
• Awareness Seminars and Conferences
• Training & Accreditation
• ‘Industry Clusters in Australasia - where, why, how’
• Industry Cluster Website
• Infrastructure Planning Mechanism
• Investment Site Analysis
• resources required to implement the ANZAC project are considerable. We will be making considerable cash and in-kind commitments, while looking for external support.

Acknowledgements

The Department of Industry, Science & Resources contributed towards the costs of attending this Conference, on the proviso that the results would be disseminated to interested parties. Its support is gratefully acknowledged.

We also wish to thank the Competitiveness Institute and its various members for their advice and input. We are particularly indebted to Ifor Ffowcs Williams of Cluster Navigators Ltd (New Zealand) who convened the "Process Issues" workshop at Varese, and kindly provided me with his notes when mine disappeared (with my briefcase) in Milan. Ewen Peters of the University of Strathclyde (Glasgow, UK) and Mike Enright (Hong Kong University) also deserve a special mention for their advice on a range of matters.

Disclaimer

The opinions and conclusions within this report are made in good faith, based on information available at the time, and are the responsibility of the author alone.

While every care has been taken in developing these opinions, we accept no responsibility for the accuracy or currency of such opinions, nor interpretations placed upon them.

Membership of ANZAC, as at 15 January 2000

1. Ballarat University (School of Business)
2. Bega Valley Shire Council
3. Business and Economic Research Ltd. (Wellington NZ)
4. Central Murray Area Consultative Committee
5. Cluster Navigators Ltd (Wellington NZ)
6. CSIRO Division of Building, Construction & Engineering, Sydney/Melbourne
7. Gippsland Development Ltd
8. Industry Development Corporation, Newcastle
9. Ipswich City Council
10. Playford City Council
11. SA Department of Industry & Trade
12. Southern Province Projects Group, Albany
13. University of Technology (School of Management), Sydney
14. University of New England (Rural Development Centre), Armidale
15. Warrnambool City Council
16. OECD (Territorial Development Service), Paris
17. Australian Project Developments Pty Ltd, Canberra

Note: Members are inclined to limit membership to 20, to reduce organisational headaches. This limit could be increased if resources allow.