Journal of Competitiveness

January 2011, Volume 1, Issue 1

A Comparative Analysis of the Competitiveness of the Readymade Garment Industry Clusters in Delhi, Dhaka and Colombo
Choe, KyeongAe; Nazem, Nurul Islam; Roberts, Brian H.; Samarappuli, Nihal; Singh, Rajveer

Determinants of Competitiveness: A Study of the Indian Auto-component Industry
Joshi, Deepikaa; Rathore, Ajay Pal Singh; Sharma, Dipti

Multidimensional Networks: The Changing Character and Framework of Inter-firm Collaboration
Ploder, Michael; Steiner, Michael

When Policy Goes Cluster: Reflecting the European way(s)
Rehfeld, Dieter

From Industrial Clusters to Global Knowledge Hubs
Reve, Torger

Also featuring Articles from the IFC India City Competitiveness Report 2010 Papers and ideas presented at the 13th TCI Global Competitiveness Conference 2010

Editorial Board
Arturo, Condo Professor of Competitiveness and Strategy INCAE, Costa Rica Dharwadkar, Ravi Professor of Management Martin J. Whitman School of Management, USA Doyle, Eleanor Senior Lecturer in Economics University College Cork, Ireland Duffill, David Deputy Dean Robert Kennedy College, Switzerland Elazar, Berkovitch Dean Arison School of Business, Israel Hergnyan, Manuk Professor, Strategic Management Yerevan State University, Armenia Kapoor, Amit Professor of Strategy and Industrial Economics Management Development Institute, India Kini, Ramesh Professor of Automation and Computer Science Department Kazakh British Technical University, Kazakhstan Lall, Ashish Associate Professor Lee Kuan Yew School of Public Policy, Singapore Mishra, Abhishek Professor of Business Policy and Strategy Indian Institute of ManagementAhmedabad, India Prasad, Ajit Professor of Strategy International Management Institute, India Rolfe, Robert Professor of International Business Moore School of Business, USA Steinbock, Dan Research Director of International Research India, China & America Institute, USA Unger, Michael Associate professor of management and international business Sellinger School of Business and Management

Advisory Board, Institute for Competitiveness
Balaji, G. Senior Director, Fidelity Business Services India Batra, Anurag MD and Editor-in-Chief, Exchange4Media Group Doyle, Christopher MD, Dynamic Results India Former Country Manager, India, Economist Intelligence Unit Ffowcs-Williams, Ifor CEO, Cluster Navigators Jakhu, Ram S. Associate Professor, Institute of Air and Space Law, McGill University Kapoor, Amit Honorary Chairman, Institute for Competitiveness Professor of Strategy and Industrial Economics, MDI Ketels, Christian Principal Associate, Institute for Strategy and Competitiveness, Harvard Business School Muneer, M. Leading management consultant and author Verma, Sanjay Executive Managing Director, South Asia, Cushman & Wakefield

enhancing prosperity

Journal of Competitiveness

January 2011

Journal of Competitiveness


2 Journal of Competitiveness January 2011 .

Excerpts from the papers and ideas presented at the 13th TCI Global Competitiveness Conference 2010 are also included. Outside of the lecture halls and academic journals and perhaps select boardrooms. This issue gives you the best of the 13th TCI Global Competitiveness Conference 2010. presenting five papers in their entirety. the papers look at developing knowledge hubs. The papers. Competitiveness is a very important word. To submit your papers for double-blind review. email submissions@competitiveness. policy makers and senior executives. January 2011 Journal of Competitiveness 3 . from both academic and non-academic perspectives. which is being released by the Institute for Competitiveness during this conference. transportation. from researchers and cluster experts across the world. The journal also includes articles from the India City Competitiveness Report 2010. But the truth is that it’s not a very well-known word. and lessons for shaping policies for clusters. as well as policy makers. focus on the scenario in South Asia and the priorities for India’s clusters—particularly in the readymade garment and automobile industry. These articles look at various aspects of how cities in India could improve their competitiveness in areas like governance. especially for countries like India that are transforming rapidly and have the immense opportunity to prioritize productivity and inclusiveness in their growth strategy. the framework of inter-firm collaboration. It is our sincere hope that the ideas presented in the Journal of Competitiveness reach a wide and relevant audience of decision makers in corporations.Editor’s notE Dear Readers. branding and attracting investment. The Journal of Competitiveness brought out by the Institute for Competitiveness is an attempt to address various aspects of the subject. it’s an alien term for—not just the ‘lay’ person—but even entrepreneurs.

4 Journal of Competitiveness January 2011 .

India. KyeongAe2 Nazem. Keywords: Readymade garment industry. The paper. South Asia Department Asian Development Bank. This paper describes new methodology techniques for analyzing the competitiveness of clusters. Brian H. Part of the research involved an analysis of readymade garment industry clusters in Delhi. which is a part of the CCED research project. Industry clusters. Dhaka.4 Samarappuli. which examined the competitiveness of cities and industry clusters in Bangladesh. Rajveer6 ABSTRACT The Asian Development Bank has recently completed a project on City Cluster Economic Development (CCED) in South Asia. Competitiveness. India Journal of Competitiveness January 2011 5 . Bangladesh University of Canberra. has involved one of the most in-depth analyses conducted in the competitiveness industry clusters in South Asia. Dhaka and Colombo. Colombo Apex Clusters.A CompArAtivE AnAlysis of thE CompEtitivEnEss of thE rEAdymAdE GArmEnt industry ClustErs in dElhi. The study measures 39 attributes of competitiveness affecting the performance and development of three RMG industry clusters. Australia Board of Investment of Sri Lanka. dhAkA And Colombo1 Choe. Sri Lanka 1 2 3 4 5 6 The views expressed in this paper are those of the authors and do not reflect a position or are binding on the ADB and AusAID that supported the CCED project in South Asia Urban Development Division. using a modification of the Porter Diamond Model. Delhi. The analytical methodology proved to be useful for strategizing identified strategic opportunities for interventions by the government and cluster stakeholders to enhance the competitiveness of the readymade garment industries in the three countries. India and Sri Lanka. Bangladesh. Nihal5 Singh. Manila Centre for Urban Studies. Nurul Islam3 Roberts.

such as water and transport facilities. China. which are seen as a way to enhance the Competitiveness of local economies and increase production. so that firms engaged in manufacturing and retail of clothing and apparel products are constantly seeking ways to keep costs down to maintain a competitive business edge. Much of Michael Porter’s work since the Competitiveness of Nations (Porter. The Asian Development Bank has recently completed a project on City Cluster Economic Development (CCED) in South Asia (Roberts and Choe. However. Indonesia and Sri Lanka. Most do this by focusing on achieving greater efficiencies within internal production and distribution systems—especially along internal supply 6 chains. innovate and develop new business opportunities and markets that support the development of new business and investment in local economies and the growth of exports. It is a highly competitive industry. driven by keeping labor. The recent global financial crisis has had a significant impact on the RMG industry. Clusters developed by rival firms and suppliers collocating and collaborating on ways to reduce external transaction costs. The new focus on clusters involves rival firms and suppliers and governments cooperating and collaborating on ways to reduce external rather than internal transaction costs. The growing pressure on firms and small businesses in the RMG industry to enhance their Competitiveness to maintain market share is leading many countries to explore ways that governments and business can work more closely together to reduce transaction costs. over time. and to develop plans for investment in projects and programs to develop Journal of Competitiveness January 2011 . causing cut backs in production and the loss of a large number of jobs in many countries. The high dependence countries like Bangladesh and Sri Lanka have on textile and RMG exports makes them especially vulnerable to changes in exchange rates. The industry is a major source of export income for countries like Bangladesh. technology improvements and buyer markets. This has led to a growing interest by governments and business on ways to foster the development of industry clusters. who work in large factories or micro enterprises for very low wages. is looking constantly for ways to reduce transactions costs. firms are less able to reduce external transaction costs of commonly-shared facilities and services. there has been a significant shift from the initial focus on competitive advantage (which focused on improving organizational efficiencies) to collaborative advantage (Tapscott and Williams. CCED involves a seven step process that is used to evaluate the competitiveness of cities and industry clusters. Most of the labor force is women. This development of industry clusters as a way to enhance the competitiveness of local economies lead to an interest and new ideas on how to use clustering as a means of reducing external transaction costs to business and government. 1990) was published has focused on ways to enhance the competitiveness of business in cities and regions (Porter. materials and utility costs low. There is growing concern by western consumers also about the environmental impacts and labor conditions in footwear. India. 2006). transportation. Industry margins at the factory floor production level are low. However. For more than two decades governments and business have been focused on ways to improve competitive advantage in cities and regions. Asian countries dominate the production of textiles and RMGs. raw material costs. Global production of garments in 2009 exceeded 17 million tons. 2000). These factors are putting pressure on manufacturers of garments and textiles to change the way RMG products are produced to tailor for the changing demands of export markets in the future. (forthcoming 2010)). in particular. with exports worth more than US$ 300 billion. Business. clothing and textile factories in developing countries. innovate. The initial focus on the development of clusters sought to examine ways firms can pursue and create competitive advantage. The RMG industry is labor-intensive and a very large generator of employment globally. and develop new business opportunities and markets.introduCtion The readymade garment (RMG) industry is one of the world’s largest industries.

business dynamics and enabling environments. The model has the following four broad drivers that shape the environment in which firms and regions compete for business: n factor conditions. Delhi and Dhaka is presented. innovation and investment attraction in local economies and clusters. suppliers and industry competitors. These take different forms including networks. technology. which include the skills. 1929).a plan to build-up strategic architecture (Hamel and Prahalad. civic entrepreneurs. An explanation is given for some of these differences. bars and shops that serviced hotel customers. This includes the financial mechanisms and organizational governance arrangements to deliver on these. 7 . An important element of strategic architecture is the creation of catalysts. One of the earliest studies on clusters was of the New York hotel industry in the 1890s. and infrastructure necessary to create competition in a given industry or cluster. and provides some insights on the policy implications this has had on the development of clusters. which demonstrated the benefits and spin-offs of competitive businesses co-locating (Baum and Haveman. resources. Catalysts are responsible for driving business effort. Some of the insights gained from the comparison study are presented in the conclusion to the paper. This led to further research on the competitiveness of global industries (Porter 1985) and of nations (Porter 1990). environment dealt exclusively with the economic and business environment given his realization that the study of firms and industries was insufficient to explain competitive advantage. Porter’s Competitive Advantage of Nations (1990) introduces his diamond model of competitiveness. and using the information derived from his research on strategies firms use to achieve a competitive advantage. This resulted in the concept of internal and external environmental analysis. there is need to establish a cluster development pathway and mechanisms to build critical elements of strategic architecture. Dhaka and Colombo. 1920) and Weber (1929) studied spatial agglomeration of economic activities in national economies during the early 20th century. Part of the CCED research project involved an analysis of the RMG industry clusters in Delhi. Roberts and Stimson. Strategic architecture includes endowed resources. Weber. The research has involved one of the most in-depth analyses ever undertaken to compare the competitiveness of three RMG industry clusters in South Asia. The synergy created by the mix of land-use activities enhanced competition between suppliers. The competitiveness of these things is important to the development of local economies and clusters. restaurants. Co-location of hotels led to the local development of smaller service businesses. Once projects and programs needed to develop strategic architecture to support clusters have been identified. Marshall (1929. human capital. 1994. The paper commences with a brief description of the methodology used for cluster analysis developed by the CCED project. The findings have enabled the identification of strategic opportunities for interventions by government and cluster stakeholders to improve the competitiveness and performance of the readymade garment industries in each country. buyers. and expanded the range and choice of accommodation services. This research revealed four forces driving industrial competitiveness— potential entrants. A comparative analysis of 13 key Competitiveness indicators derived from a measure of the 39 competitiveness attributes in the RMG industry clusters in Colombo. which is used to support the development and more efficient operation of local economies. 1997. 1998). Porter Model of Cluster Analysis Michael Porter (1980) began to explore techniques to map and analyze industrial structures and competitors. The results show significant differences between the competitive attributes for each cluster. facilities and incentives. In Porter’s model. January 2011 Journal of Competitiveness mEthodoloGy usEd to EvAluAtE thE CompEtitivEnEss of rGm ClustErs Many techniques have been developed to study and analyze the structure of clusters.

the study of industry clusters has become a discipline in itself. It inJournal of Competitiveness January 2011 . Core industries might include several food processing factories which form the core of a food cluster or a steel mill for a metals cluster. greater than 5. film (Assmo. Other researchers have used Porter’s model to analyze the competitive advantage of regions for manufacturing (O’malley and Egeraa. Once analysts have mapped a cluster. Cluster Structure and Supply Chain Mapping Cluster mapping. that is. organized. 2001). 1996). or within a metropolitan region where a cluster is poly-centered. While his early work was extensively concerned with the competitiveness of nations. financial and related transactions that occur between businesses and support industries in the same locality. many of the case studies provide an insight into the competitiveness of regions. A good example of this technique was used by Feser and Bergman’s (2000) to study clusters in the North Carolina economy. Porter identifies the importance of clustering competitive industries to create rivalry and stimulate innovation. n firm strategy. food (Neven and Dröge. and education (Curran. Porter (1990) has had an important influence on strategic thinking for business and economic development. this could indicate a relatively mature and large cluster. not confined to one area of the city. The mapping provides important information for more detailed analysis of how the cluster functions. LQs for these industries are likely to be high. 1996. The intent of cluster mapping is to identify significant spatial concentrations of employment and business activities. Other firms locate close to and service the cluster’s core firms. which relate to conditions in a nation governing how companies are created. The process begins by assessing the spatial concentration of industries by SIC category input-output (I/O) analysis. which include the nature of local and overseas demand for industry products and services. Where LQs for non-core industries are relatively high. 1998). Governments can have significant role in aiding competitive advantage. n related and supporting industries.n demand conditions. 2001). structure. the next step is to analyze the competitiveness of pertinent cluster elements. These cluster maps can be very complex. Cluster maps also provide useful spatial planning information about the scale and the magnitude of agglomeration occurring in a cluster. and the competitiveness of the different factors that support its operation and development. Still other researchers have developed new qualitative and quantitative methods for exploring and evaluating the competitiveness of clusters in cities and regions (Enright et al. and managed and the nature of domestic rivalry. where the presence or absence of suppliers and distributors in support of industry sectors or clusters will determine competitiveness. these are the suppliers or related supporting industries. I/O tables help define the transaction relationships between different types of industries in a cluster supply chain. 2005). especially through public policies which are favorable to investment and profit performance. Cluster mapping also uses location quotient (LQ) analysis to identify the level of concentration or intensity of business activities in a location. In Porter’s (1990) model. Cluster Attribute Competitive Analysis Porter’s (1990) Diamond Model is one of the most widely used techniques for cluster analysis. Indeed. Spatial plans can be designed to encourage the co-location of supporting industries and improve logistics facilities needed to transport goods and services and other products to and from the cluster. and rivalry. trade services (Daly and Roberts. Certain types of firms make up the core of a cluster. Brown. Chance relates to events or occurrences that have little to do with a country’s circumstances. 2000). seeks to translate statistical data and information gained from the above types of analysis into a map the structure and supply chains 8 of a cluster. but can be influenced by individuals. Porter identified two other important factors that affect competitive advantage of firms: chance and the role of government. such as the decision by Bill gates to locate Microsoft’s in Seattle.

75 Resources 3 2 Social Environment 2 2. and the role of government.00 suggests a relatively strong. related and supporting industries. Delhi and Dhaka. scores may be adjusted until a final January 2011 Journal of Competitiveness agreed score for the Competitiveness attribute is agreed upon. Using an ordinal ranking semi-qualitative scoring method based on numeral scale of 0–5 (see Table 1) it is possible to measure the relative competitiveness of each attribute. These are an aggregation of the 39 indicators undertaken for simplicity of presentation in the paper. Where there are significant differences or gaps. that is. and rivalry. Cluster Competitiveness Deficiency (Gap) Analysis The second part of the competitiveness analysis is to assess competitiveness gaps of attributes. 1984) where an industry focus group comprising 10-15 business leaders and other knowledgeable experts (all together known as a cluster working group) score the current and estimated future level of competitiveness needed for each of the 39 attributes to make a cluster competitive. structure.5 Value Adding 2 3. A score of 2 or less suggests that the cluster is relatively weak and only competing for business in local markets or is a newly emerging cluster. firm strategy. The model can be used to identify and analyze the interaction of factors that underlie local competitiveness and to formulate strategy for regional economic and industry cluster development based on identified elements of competitive advantage.8 Government Enabling Environment 5 3. Following discussion by the group members. sub-national strength cluster.9 Source: Roberts And Choe.1 Infrastructure 4 3. but it has provided a useful framework for strategic thinking about local economic development and has been widely applied in many countries to analyze clusters. The chance factor is removed as it is not easy to measure as a factor of competitiveness.3 Firm Strategy Structure And Rivalry Structure 2 4 Collaboration 5 4. while a score between 2. emerging. nationally competitive cluster. The scoring of attributes is done using a modified Delhi technique (Bordecki.75 Demand Conditions Markets 2 3. for Table 1: Attributes Of Competitiveness Related To Five Factors In The Porter Diamond Model Competitiveness Elements Of Cluster Indicators Competitiveness Score 0-5 Factor Conditions Labor 4 3. The Diamond Model has its weaknesses in that it does not provide a spatial dimension to cluster analysis. seeks to measure 39 attributes of competitiveness that are grouped under the five driving factors in the Porter model: factor conditions.1 Technology Orientation 1 4 Related Supporting Industries Supply Chains 3 3.5 indicates a small.volves analysts working with industry focus groups to score the relative strengths of the attributes of competitiveness within a cluster. the difference between the current and future level of competitiveness attributes necessary to develop the elements of strategic architecture supporting the development of the cluster competitive. The scores recorded for each attribute by the industry cluster focus group assessors are summed and averaged. (Forthcoming 2010) 9 . Table 1 shows 13 primary attributes of cluster competitiveness related to the five driver factors measured as part of the research.2 New Products 2 3.75 suggests combined attributes supporting the cluster are very strong.8 Business Environment 4 2. demand conditions. The 39 attributes of competitiveness are associated with six elements of strategic architecture explained earlier that support the development of regional economies and clusters. An average attribute competitiveness score greater than 3. a score around 3. well-developed and internationally competitive. The scores for all the attributes are averaged to arrive at an overall Competitiveness score for the cluster. The CCED methodology used to conduct the cluster analysis of the RMG industry in Colombo.

or 9%. as well as potential threats and opportunities facing the development of a cluster. The cluster provides direct employment for more than 300. Actions to strengthen weak competitiveness attributes would need to be identified. this suggests there may be need for strong intervention by government and industry stakeholders to lift the level of the selected attributes of competitiveness to raise the overall competitiveness and economic performance of the cluster. Colombo RMG Clusters RMG and textiles is Sri Lanka’s largest export sector generating US$3. Most RMG are exported to Europe and the United States. Possible actions for enhancing the competitiveness of marketing and new products attributes are shown in the final column of the table. but it would need to lift its overall index score to 3. The analysis may also include references to other sources of information that may be relevant to the analysis.75 on overall current competitiveness.000 people (33% of manufacturing sector employment) and indirect employment for a 1 million people. Direct foreign investment in the RMG industry at the end of 2007 exceeded US$ 700 million. For example. of which the CMR accounted for US$ 280 million.25.75 2 3. Delhi and Dhaka. dElhi And dhAkA Using the above techniques.75 4 -1 -2 Sufficient Market Intelligence Collaborative Marketing 2 2 4 3 -2 -1 New Technologies Change Anagement . equivalent to 46% of the country’s total export earnings. (Forthcoming 2010) 10 Journal of Competitiveness January 2011 Current Status Future Competitiveness Requirements Gap Actions 2.75 internationally. The value of the analysis is that it enables a cluster working group responsible for preparing a plan to develop a clus- ter to identify possible projects and programs that should be considered in a cluster development business plan and action plan.example a factor of 2. to become a successful national cluster. a growing cluster seeking to expand into national or international markets might score 2. the CCED investigation teams in each country began a detailed analysis of nine industry clusters in Colombo. Table 2 Sample of Competitive Attributes of Clusters Using Porter’s Diamond Model Demand Conditions Markets Expanding Domestic And Local Markets Expanding Export Markets New Products Demand Expansion Capacity For New Products Responsiveness To Change And Innovativeness Source: Roberts And Choe. The competitiveness deficiency-gap analysis provides a qualitative measure of the strengths and weaknesses of attributes of strategic architecture. Table 2 shows an example of how two primary competitive attributes of the cluster might be assessed. The cluster’s competitiveness index would need to improve by 0. The RMG industry was a common cluster investigated in each country. AnAlysis of rmG industriEs in Colombo. The Colombo Metropolitan Region (CMR) is the centre of the RMG industry in Sri Lanka and is a world-class RMG manufacturing cluster.2 billion in exports in 2009. and 1 or 36% to be internationally competitive. The following presents a summary of the competitiveness analysis conducted for the three RMG clusters.00 to succeed nationally and 3.

Much of the equipment necessary for producing garments is imported mostly from Germany and Italy. Sri Lanka has few designers and retailers. 2010) Figure 2 shows the analysis of the competitiveness factors in the apparel industry cluster using the Porter Diamond Model and scaling systems described above. made up of representatives from key stakeholders in the industry. The core of the cluster has more than 500 apparel manufacturers. elastic. Universities and vocational schools with design and production curricula support the cluster. This is difficult because of the global structure of the RMG industry IT = information technology. The challenge is to shift into high value-added activities such as design. Mapping the RMG supply chain was undertaken and provide an important understanding of the clusters production systems.Current Conditions The RMG cluster in the CMR has a significant presence of manufacturing units engaged in core industries. the cluster has not been able to gain access to international media. including equipment suppliers. designers and retailers. CMR map constructed by the RMG industry focus group for the CCED project. promotion and advertising. the highest value-added components. but many of the activities associated with the cluster are low valueadded activities such as cut-andmake garments. including fashion shows. These factors were identified by a cluster focus group for the five driving factors (See Figure 3). including high-end products. the value-adding elements associated with this and the linkages to other supporting industries and services. The textile and apparel industry’s supply chain shows that the industry cluster has extensive backward linkages that have a strong multiplier effect on employment and production. Thus. The demand for this equipment is not sufficient to encourage manufacturing of machinery under license to replace the need for imports of machinery. but as foreign retailers design most products. However. marketing and sales. The cluster is positioned in the right market. the cluster effectively participates in only 10% of the value chain process. The emerging IT cluster in the CMR has improved the supply chain management and local financial institutional capacity supporting the cluster. The cluster is supported by a small number of exporting and logistics companies along with relatively good supporting infrastructure such as transportation and utility firms. the Joint Apparel Association Forum. are largely absent. Figure 2 presents the apparel cluster Fig 1 Apparel Industry Cluster Map. labels and packaging materials. This has a significant negative impact on the cluster’s ability to move toward higher value-added activities. Figure 1 presents the apparel cluster map constructed by the RMG industry focus group for the CCED project. The cluster is backed by a proactive industry association. 11 January 2011 Journal of Competitiveness . The CMR RMG cluster has well established forward and horizontal supplier firms producing textiles and garment accessories such as buttons. As a result. The CMR also has a good network of transportation infrastructure supported by export and logistics companies. and more than 85% of output is exported. Competitiveness Analysis of the Apparel Cluster in Colombo Industry A i ti Source: (ADB.

and not high-priced garments. The other major production center in NCR is in Gurgaon. 2010 12 Journal of Competitiveness January 2011 . education and training facilities. The industrial area is responsible for 40% of RMG manufactured Fig 2 Apparel Industry Cluster Analyses Highly competent workforce Good quality telecommunication services Good Quality of raw materials Good workplace conditions High cost of Electricity Poor quality of infrastructure logistics Poor education/training facilities Poor quality of living conditions for workforce 350 + existing firms competing without Government protection Presence of reputed international firms Presence of strong business associations (JAAF) Proactive at National / International level Involvement in CSR activities Low level of knowledge sharing Low level of Technology application in firms International repute as a reliable supplier of quality products High level of business ethics (‘Garments without Guilt’) Emphasis on change Small domestic market Narrow Export base Undue competition due to lack of preferential market access Slow responsiveness and innovativeness to change Lack of demand expansion capacity for new products Lack of readiness to face risks Less emphasis/success on product branding (brand management) Usage of automated design / software Emerging accessories cluster Lack of business development services Low response time and low quality of local support services Firms inability to exploit value adding potential Government – Policy & Support Lack of long-term plans for apparel industry development Lack of government support for industry development (eg. which is below 3.000 people are employed in the Delhi garment and textile industries. With the presence of international brands. it appears to be losing market share to its competitors especially from China and other SE Asian countries. government support is weak. goods in the NCR. and export procedures.000 factories are located in this industrial area.where these activities tend to be dominated by design houses and global corporation. The NCR produces 40% of India’s readymade garment exports and is the leading RMG cluster in the country. More than 4. The New Delhi National Capital Region (NCR) has one of the largest concentrations of RMG industry employment in India. in the southeast part of New Delhi. R&D) Lack of enforcement of business regulations (VAT refunds) Relatively rigid labour regulations Not enough marketing of the industry R&D = research and development.68. and (iii) firms tend to use traditional. Delhi RMG Cluster More than 600. government issues. Source: ADB. Exports are mainly focused on clothing and discount chain markets.25 considered necessary to remain competitive in international markets. Canada and the United States. in the southwest. outdated practices and have low social capital and a lack of expertise that could help units solve production-related problems. which is one of the largest in the country. There are about 50 large export houses situated in Okhla that are responsible for most of the clusters exports. Figure 3 shows the assessment of the five drivers of competitiveness in the Colombo RMG cluster. Most of the garment firms in the NCR are located in the Okhla Industrial Area. While the RMG industry is growing. Current Conditions The RMG cluster is very dependent on export orders for its development. as is firm strategy and rivalry and related supporting industries. The overall competitiveness of the cluster is 2. exports go primarily to the European Union countries. however. The cluster accounts for 16% of total apparel exports from India. Factor and demand conditions are relatively strong. and product improvement services and in building brands. (ii) stakeholders have low levels of awareness of policy matters. The key features of the cluster include the following: (i) firms face difficulties in accessing supplier services.

Source: ADB. This has had a positive spin-off to the region. including an international container at the Okhla industrial area. and packing materials suppliers. but moving the whole cluster in this direction will require higher levels of coordination between education institutions. This represents significant sunk costs to businesses for the provision of services that are used when supply of water or electricity is disrupted or not available. The NCR January 2011 Journal of Competitiveness has a number of established education and ICT institutions that act as a catalyst for enriching the cluster’s human capital base. Weaknesses include the low levels of branding and marketing. Suppliers in the cluster are close to their markets and the SMEs in the cluster have easy and costeffective access to a wide range of services. but further improvement is needed to ensure an uninterrupted 24-hour power supply to firms in the cluster. Colombo An assessment of the competitiveness of the cluster was undertaken by an industry focus group using the CCED techniques described earlier. This has a disruptive impact on production costs and efficiencies. The conditions prevailing in this cluster are poor and their competitiveness scores range from 1.66. machinery tools suppliers. Critical to the growth and development of the cluster has been the availability of cheap labor due to the migrant population from Bihar and Uttar Pradesh. Of the 39 competitiveness attributes. solid waste management and electricity supply is poor. Internal public transport facilities are not available. the condition of infrastructure and reliability of utility services is poor. 72% have an average score of less than 2. Demand Conditions The RMG cluster is solely dependent on orders for manufacturing. The following briefly describes the analysis of the drivers of competitiveness using the Porter model. fabric processors. factories are duplicating public services in order to maintain production. To compete at the international level. The cluster firms have access to railways. The results of the analysis are shown in figure 4. however. but the impact on the RMG industry has been less than other sectors of the economy. Significant entrepreneurial activity is apparent in this small but rapidly growing sector. roads and airports. These workers gain entry to the trade by working in factories with little formal training. good supporting clusters and preferential access to the European Union market. but the latter has improved somewhat. In many cases.25 to 3. The condition of water supply.75 to make the cluster more competitive. The cluster accounts for 16% of to13 . firms and the government.5 (scores of 3 are necessary for a driver or attribute to be considered nationally competitive). The following describes briefly the analysis of the drivers of Competitiveness using the Porter model.Competitiveness Analysis of the Delhi RMG Cluster Fig 3: Analysis of the Competitiveness of the RMG Cluster. The strengths of the cluster include a trained workforce. which makes it difficult for workers to get to and from places of work. 2010 Factor Conditions Production resources for the RMG industry include raw materials suppliers. the conditions in RMG cluster needs to be improved to at least 3.

The key features of the cluster that emerged from the evaluation included the following: (i) firms face difficulties in accessing supplier services. The supply chain structure is well developed. lower transportation and other business transaction costs. and product improvement services and in building brands. and (iii) firms tend to use traditional. indicating a quality assurance problem within the supply chain network. thread. and machinery suppliers. However.and commercially-qualified employees for production.4 million people. 8% in Narayanganj and 17% in Gajipur (BGMEA 2008). and fittings. purchaser. easy and cost effective access to a wide range of services. quality controller and finance controller. There is need for a wide range of support programs involving education and training. outdated practices and have low social capital and a lack of expertise that could help units solve production-related problems. with a very large number of micro enterprises. In 2007 there were almost 4. (ii) stakeholders have low levels of awareness of policy matters. 2010 and training facilities. with the owner and other family members taking on the roles of manager. opportunities to expand the domestic market and capacity to expand into new products. marketer. negotiator. inventory control and design work. Canada and the United States. fabricators. education Source: NIUA.Fig 4: Analysis of the Competitiveness of the RMG Cluster. Dhaka RMG Industry The RMG industry in Dhaka has been the leading export sector industry in Bangladesh for more than 15 years. traders. As a result. few professionally-qualified people are recruited to those roles with the exception of a few people with diplomas holders in merchandising. buying houses.2 million people are employed in the industry in Dhaka. processing units. Okhla. large firms and export houses do recruit technically. The garments industry in Bangladesh is mostly exportoriented. This sector has gained comparative advantage due to Journal of Competitiveness January 2011 Firm Strategy and Rivalry Most garment manufacturing units in the cluster are small and family-owned. The cluster’s strength lies in production flexibility. entry barrier requirements. The geographical concentration of factories in these districts gave them advantages in terms of access to skilled labor. exports go primarily to the European Union countries. Delhi tal apparel exports from India. Related and Supporting Industries Supplementary industries and activities that support the RMG cluster include: merchants. machine embroiderers. 14 . manufacturers of fabric. More than 60% of factories were located in Dhaka. Exports are mainly focused on clothing and discount chain markets. The industry experiences a problem of high rejection rates. abundant availability of raw materials and easy availability of cheap labor need to be harnessed in the right manner to open up markets at all levels. and not high-priced garments. buttons. employing about 2. Low investment.500 registered (and many unregistered) garment factories in Bangladesh. The current situation in the RMG cluster is that few of the competitiveness attributes are good or excellent. More than 1. and give a fair share of reward to all the stakeholders. government issues and export procedures. There are about 50 large export houses situated in Okhla. exporters. With the presence of international brands. which are responsible for most of the clusters exports.

Current Conditions The development of the RMG industry in Bangladesh is encouraged and supported by the government since the mid-1980s. The backward linkage supply industries grew rapidly in response to a demand for material and fabricated products. Despite these disadvantages. partly because of the availability of skilled workforce that continues to reside in this area. woolen Fig 5: Forward-Backward Linkage Map Showing the Structure of the Dhaka RMG Cluster Source: (CUS. the supply chain distribution structure became widely dispersed. Many of this lower order supply chain industries became scattered around the region because suppliers could not afford rents on properties close to the main producers and the very low profit margins in micro or family-run enterprises. As a result. and continue to maintain premises in the inner city. knitwear. and this resulted in inefficiencies and high local transaction costs in the industry sector. 2010) January 2011 Journal of Competitiveness 15 . It is for this reason that many factories that have undergone expansion have relocated to areas where there is more land for expansion and vertical (same level) integration into production systems. Cluster Structure Map Figure 5 is a map showing the structure of the RMG industry cluster in DCR.the large pool of low cost labor and low transportation costs due to co-location of industrial establishments and some supporting government policies. the intensity of development in these areas has added to the traffic congestion problem and over taxed many of the utility services. Many of the factory buildings in the city centre are multi-storey and not well designed to accommodate expansion or ensure efficient production. The government of Bangladesh has identified this sector as one of the ‘thrust sectors’ of growth of the economy and has provided significant support to its development. many have well-established family businesses that have expanded operations elsewhere in the region. The five core industries that make up the cluster are textiles. Many of the supporting industries are located close to the main production houses. however.

Overall Competitiveness Figure 7 shows the overall completeness of the five driving factors affecting the competitiveness of the cluster. education establishments.Cotton 2. provided there were facilities to do so. inefficient or missing. Zip and other accessories Export Ready mad e Garments Local Market Fiber Man Made Fibers K nitting Ginning Weaving Sy nthetic Fibers Spinning Y arn Dyeing Cloth 1 . There are over nine stages in the supply chain for some products produced by firms in the cluster. Many components of the clusters are poorly developed. The textile and apparel industry’s supply chain has extensive backward linkages that have a strong multiplier effect on employment and raw material supply. Quality assurance on many projects is weak. industry association and interest groups. Dhaka Natural Fibers: 1 . as most of the products are low-priced exports destined for discount or lower-priced stores in developed economies. The weakest position is government support. The backward and forward linkages supporting the industry cluster are government on policy and strategy matters. There are many problems associated with the operations of the RMG industry cluster.Jute Fibers Lining.Wool 2. Each stage offers opportunity to add value to products. the value-adding elements of the cluster and the linkages to supporting supply industries and services. national market and international R&D/ design linkages. steam supply and ETP) to overcome continuous disruptions to public agency provision of services. jute textiles and handlooms. Button. water supply. thereby adding to the transaction costs of business.textiles. Overall. Demand conditions are most favorable in the cluster. Mapping the RMG supply chain was important in aiding industry understanding of the production systems operating within the cluster. While telecommunication have improved. Supply Chain Mapping Figure 6 shows the nature of the vertical supply chain for the textile and RMG Industry in DCR. labor unions. Factor condi- Fig 6: Nine Stages of Supply Chain for Textile and Readymade Garments Industry. There is a heavy reliance upon foreign skilled man power to do tasks that could easily be done by trained Bangladeshis. the cluster is not functioning efficiently and this will continue to undermine its competitiveness in the face of competition from other Asian RMG centers especially China. leading to high rejection rates on export products. Much of this has to do with the need for industry reforms and removal of many unnecessary restrictions on the operations of the industry. As a result. transport services. especially by horizontal integration of design and marketing services.Sil k Source: Authors (forthcoming 2010) 16 Journal of Competitiveness January 2011 . Most large firms have purchased backup utility systems (power generation. congestion and logistics management are becoming worse. The large labor force and mid-level technical/management staff are often not sufficiently skilled to take on greater responsibilities or are technologically literate. as well as utility services. and in the provision of essential infrastructure and services. the competitiveness of the cluster is weak and in need of improvement.

Utility services supporting the RMG industry were identified as being poor and unreliable. However. Some educational institutions offer degree courses for fashion technology. dangerous.. There is the realization by many companies that international markets are going to become more difficult to access and that expansion into the domestic markets will be important if the industry is to grow. making the sector less vulnerable to international business risk associ17 . This is a significant factor affecting the poor floor quality of finished goods and high rejection rates in the RMG industry in DCR. the capacity of the domestic market to expand is constrained. especially in areas where the concentration of industrial units is high. Industry focus group participants also identified problems with proximity and access to raw materials. high rents and overcrowded housing. demand elasticity for cheap cloth is low. firm strategy and rivalry and supporting industries are not internationally competitive. These factors impact on workplace productivity and stoppages due to accidents. supply chain management. Dhaka Source: Authors (forthcoming 2010) tions. along with poor access to basic health and social services. but the domestic market is very weak. due to low wages.Fig 7: Analysis of the Competitiveness Drivers of the RMG Cluster. The DCR LGUs also need to improve the delivery and quality of utility services. thus. Conditions for employees working in RMG factories are generally poor. etc. merchandising. Work place safety and health conditions in factories are poor and. Many of these costs are considered externalities and not the responsibility of business. This indicates the need for government and industry to January 2011 Journal of Competitiveness work together to make a greater effort to improve the quantity and quality of raw materials supply and delivery systems to support the bottom-end of the supply chain. However. Demand Conditions Market conditions for the RMG industry are highly competitive for exporting firms. however. but the greatest need is for education and training facilities to upgrade technical skills and quality enhancement programs. Factor Conditions Participants in the initial industry stakeholder meeting for the RMG industry cluster identified a number of labor problems that were affecting the effectiveness and efficiency of the sector. The only specialized education institution serving the sector is the College of Textile Engineering and Technology. as most of the population has little excess disposable income to spend on clothing. There is lack of adequate education and training facilities and insufficient skilled manpower to improve the competitiveness and performance of the RMG sector. they have a significant impact on the overall productivity of the sector. in some cases.

Finally. as a whole. Firm Strategy and Rivalry The RMG industry is dominated by local firms. has not realized that collaboration is necessary to take advantage of economies of scale. Despite the current global recession. and likely put a downward pressure on wages. The industry. Initiatives to encourage the practice of knowledge sharing will be an important step in enhancing a more collaborative approach to competition and production in the sector. but the government will need to take steps to reform foreign investment policy and tariffs if it wants to attract foreign investment and modernize productions systems in the sector. The RMG sector in Bangladesh seems capable of dealing with international business risks. thus. So is the level of technological diffusion along supply chains. Many firms don’t realize that forcing down labor costs often leads to lower productivity. There is need also to improve the flexibility and integration of production systems. The dynamics of the business environment is relatively strong and quality and reliability of product is high. Foreign firm interests tend to Taiwanese and Korean. Bangladesh has an abundance of unskilled labor. The ability to develop new products and change production line processes will be important if the cluster is to maintain and develop its export market share and develop domestic market opportunities. Modern industries are increasingly dependent on high quality information. The capacity of the sector to develop new products is relatively weak. up-skilling of workers and the introduction of more modern technologies lead to increased productivity and higher returns on capital. and to overcome the treats from more capital-intensive production systems that are driving down production costs in other parts of Asia. The practice of knowledge sharing and collaboration within the firms is new for most businesses operating in the RMG industry sector in Bangladesh. which suggests they are experienced enough to deal with the problems this has created globally for the industry. There are few joint ventures or foreign firms engaged in the in the Dhaka RGM cluster. The slow uptake in new technology is a significant constraint on the development and competitiveness of the sector.ated with raw material prices. The application of new technologies has been frustrated by labor laws and practices that prevent the adoption of new technologies. as it will significantly affect costs. While many firms are entrepreneurial. to adopt more modern management practices and to use the purchasing power of foreign firms to gain access to new and expanded markets. Entrepreneurs in this sector are generally across the need for post sales and product support. the uptake of modern technology in the RMG sector is not high. regulation. the RMG sector in Bangladesh shows a moderate level of growth. especially government services that are very slow and prone to rent seeking. Related and Supporting Industries The research found many firms were not satisfied with the performance of supporting services. Demand elasticity for cheap cloth is low. These support services are weak or Journal of Competitiveness January 2011 . A significant demand factor that will affect the industry in future will be the pressure place upon the industries to be more carbon neutral. financial and legal services to maintain competitiveness. and many firms are prepared to force down labor costs in order to remain competitive. but still needs to improve the level of business ethics and risk management. as this is important for quality assurance and product reputation in dealing with foreign buyers. Higher salaries. making the cluster less vulnerable to international business risk associated with rapid fluctuations in raw material prices. Firms could share the experience of knowledge on market condition or new technology. as is the capacity to respond to change and innovate. there is rigidity to change and most do 18 not have the capital to invest in new technologies or way to respond to rapidly changing market demands. There is need for the industry to expand its engagement with foreign firms to speed up the rate of technology transfer. because firms have to compete in international markets. The market will have to be developed for budget and a few niche product lines of clothes and dress wear. This will be a major challenge for the RMG industry. Investment in the textile and clothing sector could generate more wealth for the country.

compared to other Asian countries. Private sector investment in R&D is negligible. research and development. Firms in Dhaka. inefficiencies in the production chain process of the cluster mean that profit margins and the potential to add value and expand demand in the domestic market have not been attractive. Value adding. especially. there is the need for long-term business development policy. However. infrastructure and supply chains is much stronger than in the other clusters.are lacking in the cluster. Delhi and Dhaka. To develop. The government must also take a leading role in the development of strategic public infrastructure. The market focus of all the clusters is exports. and they do get some tax benefit support from the government. This is partly because industrialization in Bangladesh began under socialist policies that tended to protect and support firms from competition. and land banking to ensure the industry can grow and develop sustainably. tax breaks for R&D and venture capital formation and low interest loans that are necessary to enhance the performance of the sector. the cluster has a number of weaknesses that need support if it is to enhance its competitive position and develop. it will have to identify how to add value along the supply chains. and it is one of the most significant constraints on its development. The RMG industry is the ‘thrust sector’ for the economy. although this might be because the firms in the clusters is having to pitch themselves. collaboration. Colombo And dElhi An analysis of the attributes and drivers of competitiveness for the three RMG clusters was undertaken to identify differences between the industries in the three countries. sticking to traditional production systems and practices that are rapidly becoming outdated. There are significant differences between the competitiveness of attributes in the three clusters. Education programs to encourage innovation and risk management of product development are necessary. Social capital in the cluster is strong be19 Government Firms in the clothing & textile sector expect a lot of support from the government. access to resources and access to skilled labor are common factors undermining the competitiveness of the cluster. While leading firms in the clusters are aware of the potential of developing domestic markets. January 2011 Journal of Competitiveness . There is no coherent policy for supporting the development of the RMG cluster at this time. such industrial estate and infrastructure development. CompArison of thE CompEtitivEnEss of rmG ClustErs in dhAkA. The condition in Colombo in the social and business environments. Most firms do not know how to value add. The comparative analysis suggests that the Colombo cluster overall is the most competitive of the three clusters. The results of the data collected are shown in table 3 and analysis of the results summarized in the following discussion. The Colombo cluster appears to have a much stronger willingness of firms to collaborate. institutional reforms. Competitive Analysis of RMG Clusters Table 3 shows the scores for 39 current and future attributes of competitiveness for the RMG industry clusters in Colombo. but opportunities to expand and develop supply chain industries are undermined by poor knowledge. however. The value adding potential in the sector is high. technology orientation. Several weak competitiveness attributes are common to all the clusters studied. are reluctant to share information and knowledge to improve cross-industry learning that could support innovation. primarily to generate foreign exchange earnings. development of markets. This is because it is more specialized and targets the higher value end of the global consumer market. Overall support from government is weak. lack of government policy and support for innovation. All three clusters are facing strong competition from Southeast Asian producers and will not be in a position to strengthen their competitive position by relying on advantage through economies of scale in the future. Figure 8 shows the 39 competitive attributes for the five drivers aggregated to 13 key or primary attributes.

As a result. especially strengthening the delivery and quality of local business support services. especially for synthetic garments. which weakens the competitiveness of the resource attribute. undermining clusters’ capacity to raise productivity and production along supply chain systems. and incentives to upgrade technologies that will enhance business performance and lead to more sustainable industry development.Fig 8: Comparison of the 13 Primary Competitive Attributes for the Three RMG Clusters RELATED SUPPORTING INDUSTRIES Government Labour 4.50 0. Most clusters enjoy some strategic advantage by being located close to sources of raw materials that are reliable in terms of supply and of reasonably good quality. The second significant set of attributes requiring support relates to government services. Governments are also reluctant to address the serious environmental problems associated with many of these clusters. Enhancing the competitiveness of these attributes associated with factor conditions will require formal and informal dissemination of knowledge though the development of training facilities. and sharing this knowledge with other businesses in the cluster.00 3. cluster firms find securing international contracts difficult. which deters investors and new entrants into the cluster.00 2. Government support for clusters is limited in all three countries.00 1. production sustainability and business ethics. Government support for cluster development in all three countries is generally weak.50 1. Business and environmental regulations are complex and not enforced.50 2. especially the unwillingness of governments to streamline business approval processes. 20 Two sets of competitive attributes require the most support. Government support for R&D is limited. The first set is related to supporting industries. however. opportunities for the clusters to support endogenous growth is being hampered. Without such improvements. Journal of Competitiveness January 2011 .00 Social Environment Technology Orientation Markets DEMAND CONDITIONS Collaboration FACTOR CONDITIONS Structure Business Environment New Products Apparel Cluster Colombo Okhla & Noida Readymade Garments Delhi RMG Industry Dhaka Source: Authors (forthcoming 2010) cause of the long history and associations between local producers and suppliers in areas with a strong physical concentration of similar types of businesses.50 3.00 Infrastructure FIRM STRATEGY STRUCTURE AND RIVALRY Value Adding Resources Supply Chains 0. Governments’ failure to address environmental problems affects public health and employees’ productivity. Approval systems for business development are bureaucratic. identifying opportunities to add value to supply chains. Competition in global markets has raised awareness of the need for improved quality assurance. there is still a high import component. increase resources for education and training. networks and partnerships and industry associations.

10 1.30 1.00 2.60 0.10 3.37 4.22 3.80 1.43 2.00 2.93 2.50 4.40 3.00 2.71 4.42 2.88 1.32 1.20 3.20 1.00 1.43 2.00 1.51 4.80 2.84 2.21 2.31 4.80 3.10 2.70 2.75 4.40 4.77 2.80 1.00 4.90 4.00 5.20 3.10 1.40 3.20 4.50 1.15 January 2011 Journal of Competitiveness 21 .00 3.00 3.40 1.20 3.00 3.20 1.20 2.59 1.90 2.00 2.55 2.80 3.20 2.80 3.22 2.60 1.50 2.83 2.67 FACTOR CONDITIONS Labour Availability of Skilled Labour Management Skills Efficiency and Productivity of Labour Education and Training facilities Infrastructure Quality of Infrastructure Services (logistics) Quality of Infrastructure Services (utilities) Cost of Services Quality of Telecommunication Services Resources Proximity to raw material Cost of local raw materials vis imports Quality of raw materials Social Environment Quality of living environment for workforce Workplace conditions DEMAND CONDITIONS Markets Expanding domestic and local markets Expanding export markets New Products demand expansion capacity for new products Responsiveness and innovativeness to change Business Environment Quality & reliability of product or service Product sustainably awareness and support Strong business ethics Readiness to face risk FIRM STRATEGY STRUCTURE AND RIVALRY Structure Extent of foreign and joint venture firm presence Flexibility of production systems Collaboration Strong industry firm collaboration Shared industry knowledge capital development Strong social capital and business networks National or international leadership Civic entrepreneurship and community engagement Technology Orientation High level of technology application in firms RELATED SUPPORTING INDUSTRIES Supply Chains Strength of local business support services Responsiveness of local support services Quality of local support services Value Adding Potential to add value to supply chains Business awareness of value adding potential GOVERNMENT Government support for cluster development Streamlined business approval systems Support for sustainable industry development Enforcement of business regulations Support for R&D Average 3.40 2.25 2.40 0.40 2.90 2.70 2.40 2.66 4.00 1.40 0.50 4.00 5.00 1.66 3.12 4.34 1.22 2.60 3.61 4.00 1.37 2.00 2.10 3.80 3.80 2.22 2.60 1.00 2.68 2.38 4.90 1.40 4.80 1.90 1.40 3.90 3.30 1.00 1.00 3.40 3.12 2.00 4.90 1.66 4.40 1.50 4.20 1.78 2.90 1.20 1.94 2.60 1.43 4.33 4.00 2.80 4.20 1.40 1.00 1.62 4.70 1.62 4.80 5.92 4.40 1.45 2.80 1.20 2.20 2.69 1.60 3.20 1.60 3.30 2.80 4.44 4.40 3.63 4.17 2.80 5.50 3.37 4.14 2.11 2.40 1.72 4.80 3.00 4.10 2.Table 3 Competitiveness Attributes for RMG Industry Clusters in Colombo.80 2.61 2.31 1.80 4.80 3.50 4.00 2.40 3.38 5.00 5.38 2.80 1.60 2.80 2.33 2.10 4.98 1.00 3.30 3.42 4.60 2.60 4.00 1.40 3.12 4.20 2.90 2.81 1.40 1.40 1.66 4.90 4.00 5.80 2.80 3.14 1.92 4.60 1.18 4.77 2.75 4.00 5.13 2.80 2.00 5.72 2.80 3.20 4.82 2.20 2.20 2.30 3.80 1.00 1.38 2.64 2.27 4.83 1.40 4.60 1.80 2.80 2.80 3.20 3.30 2.36 3.50 2.40 2.00 5.40 3.65 2.29 2.40 4.40 4.20 2.82 4.50 1.00 4.88 4.20 2.80 4.60 1.71 1.50 4.16 2.38 2.00 2.80 1.48 1.60 1.80 1.00 1.55 2.10 3.31 1.72 1.80 2.71 2.20 1.00 2.60 3.41 2.10 2.12 2.22 1.20 2.37 2.22 4.61 4.20 1.57 1.20 5.90 2.60 4.00 1.70 3.00 4.28 1.55 2.21 2.00 3.80 2.40 2.77 4.12 1.60 3.26 2.20 2.46 3.00 2.55 2.50 3.11 2.40 3.00 4.50 1.70 4.20 3.98 3.60 4.11 2.30 3.50 2.28 1.00 3.70 1.40 2.80 2.10 1.60 2.11 2.56 4.40 2.83 2.80 2.40 1.44 0.50 2.00 4.31 4.37 2.20 2.66 2.40 2.12 2.50 1.05 4.22 2.77 4.80 4.25 2.40 2.40 2.80 2.26 3.29 3.27 3.80 4.68 2.80 2.41 2.11 2.53 3.57 4.05 2.44 2.00 5.30 1.20 2.20 3.20 2.80 2.80 4.77 4.00 1.75 1.20 3.62 2.80 1.50 4.40 1.10 1.50 2. Delhi and Dhaka Current Competitive Position Apparel Cluster Colombo Okhla & Noida Readymade Garments Delhi RMG Industry Dhaka Necessary Competitive Position Appareal Cluster Colombo Okhla & Noida Readymade Garments Delhi RMG Industry Dhaka Gap Analysis Apparel Cluster Colombo Okhla & Noida Readymade Garments Delhi RMG Industry Dhaka 1.80 2.80 4.00 2.62 4.06 1.81 3.80 5.33 4.00 4.28 2.80 3.80 2.20 2.60 4.02 3.61 2.65 1.48 3.20 0.52 4.80 2.00 3.60 2.44 4.80 1.20 3.60 3.20 5.94 2.28 2.40 3.66 1.40 3.80 4.50 2.30 0.00 1.50 1.00 1.10 1.80 5.30 2.56 1.66 4.

00 1.00 Supply Chains 0. which are essential to improve overall productivity and performance. but all were experiencing a high level of skills loss through migra22 The lack of government support and infrastructure is a problem for the development of all the industry clusters studied. Fig 9 Competitive Gap Analysis 13 Primary Competitive Attributes in the Three Clusters RELATED SUPPORTING INDUSTRIES Government Value Adding Labour 3. electricity and telecommunications. The clusters have an abundant supply of unskilled labor.50 0. Skill shortages are undermining firms’ ability to build strong. Foreign enterprises in some clusters are recruiting international staff because of the shortage of local skills. Education and training facilities to meet the ongoing and expanding demand for professional and technical skills and competencies needed to support the nine clusters are in short supply.00 2. are high because of system losses and theft that affect production costs. Nineteen attributes had scores between 2 and 1.50 1. Currently. of many firms.5 for the desired level of competitiveness improvement. Poor telecommunications services combined with low Journal of Competitiveness January 2011 . The gaps in the competitive attributes for factor conditions occur mainly in the area of human resource development.50 2. For the three clusters. competitive management and production capabilities. 18 attributes have an average competi- tion.Competitiveness Gap Analysis in the Three Clusters Figures 9 show the competitive gap for conditions for the 13 primary attributes of competitiveness in the three clusters using aggregated data derived from table 3. There are significant differences between the competitiveness gaps for the 13 primary attributes in each cluster. especially water. The costs of services. the clusters do not have enough capacity to meet the demand for skilled labor and management.50 3. and infrastructure and utility services are generally better in these locations than in inner city areas. although the situation is not as bad as for the prior issues. The deficiency gap analysis is a useful means of identifying priorities for strengthening the competitiveness attributes supporting the development of a cluster. as a significant proportion of leading firms in the clusters are located in planned industrial areas and districts. The gap analysis measures the difference between the perceived actual and necessary level of competitiveness considered necessary to a level or national or international competitiveness. and hence the competitiveness.00 Apparel Cluster Colombo Technology Orientation Markets Okhla & Noida Readymade Garments Delhi RMG Industry Dhaka Social Environment Resources Infrastructure FIRM STRATEGY STRUCTURE AND RIVALRY Collaboration Structure FACTOR CONDITIONS New Products Business Environment DEMAND CONDITIONS Source: Authors (forthcoming 2010) tive deficiency score gap of 2 or more considered necessary to support the desired level of competitiveness.

facilities and capacity-building programs entail high initial risks. electricity. For many projects the economic returns to the community and business are high.levels of computer literacy often mean that contracts are lost. affecting just-in-time and perishable food businesses in particular. The clusters tend to suffer from inertia. Priority areas to support the development of RMG clusters in the three countries include: n improving knowledge management and international marketing intelligence n applying ICT technologies to improve efficiencies in the clusters n providing training facilities and programs to enhance the knowledge and skills of cluster workforces n improving the delivery of utilities. provided it is profitable and expedient for them to do so. These are matters best undertaken by governments. prioritiEs for fostErinG ClustEr dEvElopmEnt in rmG industriEs The goal of the CCED approach seeks to identify bankable projects that are attractive to investors and prioritize investment areas to maximize the economic impact of development in cities in Asia. which reduces the overall dynamics of business in the cluster. In many cases. but poor logistics are causing delivery delays and damage. because many projects involving major infrastructure. and reforming business regulations. The proximity to materials used in production is a competitive advantage for the clusters studied. Government support is important for the development of clusters. the capacity of logistics support systems. Demand condition deficiencies were the lack of capacity to expand export markets and develop domestic markets. Many projects involve public sector investment. many to clusters in Southeast Asian countries where these services are much more reliable. and lack of innovation to respond to demand for new products. as engaging businesses in investment projects helps to improve municipal infrastructure and services. education and training. which private investors find unacceptable. governments have failed to provide for workers’ housing needs. firms’ slow responsiveness to changes in market demand. It is also important to ensure healthy and productive workforces. particularly to foster innovation and the development of new products and services n streamlining approval and permitting processes by providing one-stop shop facilities and e-governance systems n developing business networks and associations to foster the dissemination of knowledge and formal and informal (tacit) learning 23 . Governments have a key role to play in sharing risks or guaranteeing cash flow during the initial stages January 2011 Journal of Competitiveness of a project intended to support the development of a cluster. but stakeholders’ interests must be considered when addressing these issues. Many larger firms in the RMG clusters realize that appropriate residential accommodation is essential to attract and maintain skilled workers. Most priority projects selected are needed to reduce the external transaction costs associated with the operations of firms involved in the cluster. especially water supply. where governments need to take a leading role in supporting cluster development projects to overcome risks before private sector partner(s) become engaged. but the financial returns to investors are not acceptable. CCED analysis can provide better information of “where to invest first” to have clusters develop more efficiently and to generate job opportunities for the local residents. R&D. When planning and developing special enterprise zones and industrial estates. This is common for public–private partnership projects. business can offer solutions and be engaged in the delivery of public services. In such cases. and telecommunications services n enhancing support for R&D. Many of the investments in the action plans for clusters developed for the three clusters are targeted at enhancing government support and industry services. as these were shown to be particularly weak in all three countries. waste management.

which employs millions of mainly low-skilled and low-paid female workers. regional garment centers in Dhaka. Greater support for clustering by local and national government could help to overcome some the problems in infrastructure and skills shortages through a range of partnerships with the private sectors and the fostering of strong industry cluster organizations. especially government support. and how industry and government can work collaboratively to develop pathways that can lead to the achievement of more sustainable development outcomes for these clusters in the future. which provides few opportunities for RMG clusters to significantly climb up the supply chain and add value to local production systems. The investigation into the RMG clusters has led to important discoveries that could help policy decision making by governments. along with experimentation not commonly associated with this type of research undertaken by development banks. In most cases the indus24 tries are only engaged in the primary production stage of manufacturing and export. In Asia it is a labor-intensive industry. To do this they must create much more competitive strategic architecture. With the expansion of domestic markets. there is significant potential of the RMG industry clusters to expand both the horizontal and vertical supply chains in the industry. CCED analytical methodology uses many techniques well -established in regional economics research and practices to analyze and prepare strategies for local economic development. There is growing interest in Bangladesh. By fostering a more collaborative approach to cluster development to overcome some of these problems. The enabling environments to support cluster development in all three cities need to be substantially improved. and national garment institutes in Delhi and Dhaka ConClusion The CCED analysis of the RMG industries in Colombo. Delhi and Dhaka is holding back the development of the industry and undermining its competitiveness. and investors to facilitate opportunities to support the development of clusters. CCED analysis has enhanced well-established research techniques by enabling a more detailed exploration into the competitiveness of cities and industry clusters than has been possible before. The unnecessary high levels of bureaucracy in governance and regulations systems. but it took much longer than anticipated to achieve results. it should be possible to reduce transactions cost to business and make these cities more attractive places for investors in the future. the data collection proved problematic. Finally. The RMG industry is a highly competitive industry. Delhi and Dhaka has added a new dimension to analyzing the competitiveness of clusters in Asian cities. The process has provided insights into improved project design of development bank projects. The CCED is one of the first kinds of research in competitiveness and cluster areas where it combines spatial agglomeration for practical urban development perspectives. businesses. Journal of Competitiveness January 2011 . The development and testing of CCED analytical methodology in the three countries has involved a significant learning process. The process has demonstrated that when combined with limited qualitative data. and the facilitating of industry focus groups to share information and collaborating in the qualitative research involved a great deal of trust building and education before good cooperation between industry stakeholders and the government was achieved. Factor conditions of competitiveness in all three RMG clusters are relatively weak. India and Sri Lanka on the role clusters could play in supporting local economic development and attracting foreign investment.n Developing special initiatives such as an ap- parel city in Colombo. qualitative techniques can generate information and insights that provide valuable understanding insights into what shapes the development of local economies and identifies the competitive strengths as well as weaknesses in existing strategic architecture. the CCED study of the RMG clusters has led to a better understanding of the nature and economic importance of the three RMG clusters in the three cities in which the studies were conducted. rent seeking and the lack of government support and know-how to develop the RMG industries in Colombo.

42. M. 55-79. 10 Feser. 1-25. A. University. (1998) MultiSectoral Qualitative Analysis: A Tool For Assessing The Competitiveness Of Regions And DevelopIng Strategies For Economic Development. 20 Roberts. Education: Applying Porter’s Diamond Model To Geography Departments. J. University Of Chicago Press. 12 Marshall.Ideas And . 17 Porter. & West. 22 Tapscott.251. 34. H. New York. Free Press. Asian Development Bank. 14. 16 Porter. T. Johansson. V. (1994) Competing For The Future: Breakthrough Strategies For Seizing Control Of Your Industry And Creating The Markets Of Tomorrow. & Williams. M. 1-19. E. M. Scott. Institute For Urban Affairs. Harvard University Press. Mcmillian. 15 O’malley. G. E.) Industrial Clusters And Inter-Firm Networks. M. In Karlsson. 5 Brown. M. And Economic Development: Local Clusters In A Global Economy Economic Development Quarterly. D. M. 13 Neven. New York. D. A. Macmillian Inc. Hong Kong. E. J. & Roberts. Realities For Cluster Growth: The Example Of Film In Vast In The Region Of Vastra. Western Regional Science Association: Thirty-Seventh Annual Meeting. 9 Enright. R. Agps. Asain Development Bank. Gotaland. (Eds. M. 32. 19 Porter. 6 Curran. & Stimson. Chicago. E.-A.. 26. (1996) Hong Kong’s Competitiveness. Cheltenham. Studies In Higher Education. 3 Baum. B. (1920) Industry And Trade. Manila. Manila. & Prahalad. (1998) Application Of Porter’s Diamond Model To Evaluate The Competitiveness Of Tradeable Services In A Regional Economy: A Case Study Of Tropical North Queensland. 11 Hamel. R. Canberra. Australia. Sweden. New York. 18 Porter. & Egeraa. C.) ((Forthcoming 2010)) City Economic Economic Development In South Asia. P J. H. 8 Daly. (2000) Location. G. 15-34. 7 Cus (2010) City Cluster Economic Development: Bangladesh Case Study. The Economic And Social Review. New York. H. E. E. Asian Development Bank. (1996) Industry Clusters: A New Approach To Economic Development In Regional Australia. & Choe. B.. Free Press. Michigan State University. 14 Niua (2010) City Cluster Economic Development: Innovative Interventions South Asia New Delhi. D. & Haveman. The Annals Of Regional Science. (1980) Competitive Strategy: Techniques For Analyzing Industries And Competitors. C. & Dröge. J. (2000) Industry Clusters And Irish Indigenous Manufacturing: Limits Of The Porter View. Oxford University Press. B. (1985) Competitive Advantage: Creating And Sustaining Superior Performance. Regional Studies. (1997) Love Thy Neighbor? Differentiation And Agglomeration In The Manhattan Hotel IndUstry: 18981990.Y. R. & Stough. 4 Bordecki. E. New York. Administrative Science Quarterly. B. C. (2001) A Diamond For The Poor? Assessing Porter’s Diamond Model For The Analysis Of Agro-Food Clusters In The Developing Countries. & Bergman. Portfolio. 31. Competition. (Eds. California. London. Manila. (1990) The Competitive Advantage Of Nations. M. E. 2 Assmo. F. J. New York. (1929) Theory Of The Location Of Industries.References 1 ADB (2010) City Cluster Economic Development: Sri Lanka Case Study. (2006) Wikinomics: How Mass Collaboration Changes Everything. A. Monterey. (2000) National Industry Cluster Templates: A Framework For Applied RegionaL Clusters. C. A. January 2011 Journal of Competitiveness 25 . C. Il. H. J. N. K. (1984) A Delphi Approach. A. P (2005) Creative Clusters . L. (2001) Competition In Uk Higher . 21 Roberts. Edward Elgar Publishing Ltd. 23 Weber. M. 223 .

Malaviya National Institute of Technology Jaipur. India Journal of Competitiveness January 2011 . Ajay Pal Singh2 Sharma. Further. Auto-component industry 1 2 3 26 Department of Management Studies. India Department of Humanities & Social Science. Industries are competing in their respective domains to establish the global benchmarking standards. integrate and analyze the factors responsible for its competitiveness. In the context of the Indian auto-component industry. India Department of Mechanical Engineering. Keywords: Competitiveness. Malaviya National Institute of Technology Jaipur. competitiveness is the key word to success. this paper is an attempt to identify.dEtErminAnts of CompEtitivEnEss: A study of thE indiAn Auto-ComponEnt industry Joshi. Here determining the critical success factors is an important task. Dipti3 ABSTRACT In the present era of global competition. Malaviya National Institute of Technology Jaipur. Deepikaa1 Rathore. this evaluation will assist in recognizing the critical factors of success to win a place in the global auto-component industry. Determinants of competitiveness. Automotive industry.

For scholars with a resource-based viewpoint. Momaya and A. firms of an industry struggle to build up industrial competitiveness that ultimately augments national competitiveness. The diamond approach to international competitiveness [27] has identified four factors for national competitiveness: (a) factor conditions.e. Ambastha [4] [22] have discussed different aspects of industry level competitiveness: (a) assets. Today. This 27 . The study of various models and frameworks related with ascertaining competitiveness has unveiled the important fact that competitiveness is a collection of discrete variables that are often identified as determinants of competitiveness or indicators of competitiveness. Thus. However. for scholars having a knowledgebased viewpoint. and (d) firms’ strategy. productivity comes from capability. it is resources and capabilities that are difficult to imitate [17]. competence is creation of organizational knowledge that is proprietary to firm (Nonaka and Spender. The wide-ranging concept of competitiveness is built across three different levels of competitiveness i. K. More precisely. it is distinctive competence available in any given organization [5] [6] [11] [14] [16] January 2011 Journal of Competitiveness [19] [31] [33]. industry and nation. leapfrogging of the Indian automotive industry has made it a part of the global supply chain activity. Momaya [22] it is a useful indicator of the long-term socio-economic health of a country. Essentially. In this scenario. Over a period of time. These factors directly or indirectly affect the performance of a firm or an industry. competitiveness is a multidimensional concept [24]. For this reason. “be competitive and win”. The Indian auto-component sector that initially started with the development of small and medium scale enterprises is now gaining recognition as a ‘global quality player’. The Indian automotive industry is one such sector having tremendous potential for future growth. it merits extraordinary attention of practitioners and researchers. it is not the nations that directly compete in the global marketplace. competition actually arises at the industry and firm level [22] [28]. firms or industries need to find and act upon critical factors to success. (c) related and supporting industries. Thus. structure and rivalry. which in turn comes from resources and knowledge. rEviEW of litErAturE In the present era of globalization and industrialization.e. the focus is shifted to those sectors of economy that promise accelerated growth. (b) processes and (c) performance. (b) demand conditions. Presently. but also builds up national competitiveness. for K. This has made competitiveness synonymous with success. (d) dynamic disturbances and (e) regulation. national competitiveness is often considered as the macro factor while the individual competitiveness of various industries and firms is counted as microfactors. This not only helps in mitigating local competition. (b) organizational factors. Various researchers have expressed it in different ways. the determinants of competitiveness at all three different levels are not exclusively separated. domestic firms have already realized the market opportunities and are trying hard to excel within their domains. firm. it identifies the critical success factors for profitable development of the Indian auto-component sector. competitiveness is achieving a positive appreciation. Thus. The present study is primarily focused on analyzing the competitiveness of the Indian automotive industry. competitiveness is synonymous to productivity of the nation [15] [21] [27] thus augmenting its trade and export performance [30] to achieve high and rising standard of living [20] [34]. competitiveness is the universally-accepted formula for growth [29]. The global attractiveness and success of this sector depends on some significant factors. Secondly.introduCtion Unparalleled intensification of the worldwide market has created a fierce competition amongst various sectors and nations across the globe. Caves [9] has identified five factors responsible for inter-industry differences: (a) competitive conditions. To become competitive. At the national level. However. and for scholars with a competence-based viewpoint. 1992). when most of the nations are facing turbulent growth rates. (c) structural heterogeneity. it has become the name of game i.

Finally it can increase the price of products or services [10] [22]. Nevertheless. According to the supply chain research community. For labor-intensive industries. in the next section a secondary method of data collection is used for collecting the required information. shortens lead time as well as cycle time [32] and finally 28 results in the realization of profits. Factors that decide the competitiveness of the manufacturing sector are also put forth. Any uncertainty at the first stage of forecasting the demand and supply situation can distort the subsequent processes [10]. the factors (variables) governing competitiveness at the industry level are highly sector-specific. However. rEsEArCh ApproACh mEthodoloGy/ The review of literature presented in the previous section is aimed at highlighting the importance of competitiveness. Thereby it brings in subsidies. satisfying the customer is the ultimate aim of any business activity. For sectors that are involved in mass production like the auto-component industry. These processes are interlinked with each other. Journal of Competitiveness January 2011 . Here information always plays a very important role [10]. the world’s best economies are competing on unit labor cost [3] [12]. Society of Indian Automobile Manufacturers (SIAM). it can always be measured with reference to the competitiveness of the nation’s industries [7] [8] [22]. Statistical data from various organizations of national repute like CRISIL. This increases exports from a country thereby allowing increased inflow of foreign currency. Proper scheduling techniques and reducing the frequency of machine breakdowns leads to perfect delivery [10]. competitiveness for the trade sector depends on open trade or no protection or subsidies [8] and international trade agreements [7] [22]. It is also supported by the concept of quality. Moreover. This however requires a developed infrastructure in the form of industrial clusters [7] [28]. For heavy-technology-oriented businesses like manufacturing. Failure to attain labor productivity renders production a costly affair. Further. investment in R&D activities is the major source of positive cash flows. design knowledge and skills [10] [23]. the never-ending R&D activities are central to technological innovations [7] [13] [22]. Moreover. any given firm is a set of management processes. incentives and SEZs by government and industryspecific agencies. Assessing national competitiveness is a complex task. Various public policies adopted by the government are aimed at restructuring the present position of industry sectors [22]. it can be a good source of competitiveness for the industry as a whole. labor productivity is the key indicator of efficiency [7]. Following these standards usually indicates the firm-specific degree of product quality [7] [10] [22] [23]. the ability of firms and industries is often translated into the position that a nation’s economy holds on a global platform. These activities affects new product development. On the other hand. The factors affecting national competitiveness are also considered as determinants of the performance of industries and firms. If shared properly and wholly among suppliers. Government-protected policies specify the level of FDI and FII received by the industry as a whole [7]. and vary from sector to sector. Thus. though it can also be achieved by in-house automation. This initiates open border practices and creates a single platform for exchange of goods and services. These pillars and indicators are basically variables or units used for measuring competitiveness. The dimensions of any given sector’s/nation’s performance often depend upon a large number of variables and sub-variables attached to it. Even the most authenticated reports like Global Competitiveness Report and World Competitiveness Yearbook have ranked the countries on the basis of various pillars and indicators. revenue growth. Simultaneously it requires effectiveness too. But quality standards and accreditations are universal performance indicators. which is highly subjective in nature. buyers and the ultimate consumers. In business-to-business (B2B) markets it often depends upon satisfying the other’s business needs. and market capitalization. This may increase the overall cost of doing business.can be attributed to the mutual impact they have on each other.

3 100.687 990. it has succeeded in maintaining its position in the global market place.0 70.0 13.0 2005-06 Amount (Perce ntage of total) 3.459.308. the Indian automobile sector is growing at a very high pace.0 4.991 Data source: CRISIL Research for data from 2002-2003 to 2007-2008.788 296. Analysis shows that passenger vehicle exports have grown five times and two-wheeler exports have more than doubled in 2008-09 compared to 200203. However.0 2007-08 Amount (Perce ntage of total) 4.186 555.0 40.080 1.385.9 4.887 352.913 10.008.436.8 4.8 100.5 3.000 8.0 2008-09 Amount (Percen tage of total) 3.1 3.0 50.729 190. the Indian automotive sector is growing at the CAGR of 9.421.850 11.660 520. 2009 2002-03 to 2008-09.9 16. The Auto Policy 2002 and Auto Mission Plan 2006-2016 are used to validate the identified factors of competitiveness.835 1.852 5.950 340. Insights from various firms have helped in determining the factors responsible for the success of the Indian auto component industry.6 2.000 Tractors 400.000 1.75 8 545.631.6 13.375 391.9 3. India enjoys the ninth position in automobile manufacturing worldwide.202 6.0 10.000 0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Years Passenge Vehicles Data source: CRISIL Research and SIAM(Refer Table 1) Table 1: Trends in Automobile Production in India (2002-03 to 2008-09) (nos) 2002-03 Amount (Percent age of total) 3.220 6.624.200.1 100.078 7.1 13.454. with continuous improvements in the production system and the escalating demand conditions.601.5 100.3 2.208 245.6 73.0 2006-07 Amount (Perce ntage of total) 4. Figure 2 shows the trend in Indian automobile exports from 2002-03 to 200809.0 20.539 417.9 71.000 Cars and multiutility vehicles 200.683 275.9 76.0 Commercial vehicles 1.109. International Organization of Motor Vehicle Manufacturers.496 350. and India Brand Equity Foundation (IBEF) is used for the current study.032 7.000. SIAM for data of 2008-2009 January 2011 Journal of Competitiveness 29 .1 74.0 100.0 2003-04 Amount (Percent age of total) 3.748 11.098 5.654 8.272 8.08% since 2003-04.104 8. This unveiled the current status of the Indian automotive industry and its future prospects.3 2.832 335.209.6 73. It’s no wonder that presently India is among the most favored destination for foreign automobile manufacturers.889 721. Nevertheless.8 4.8 4.000 Three-wheelers 600.183.592 345.6 11. but due to the competence associated with the country’s automotive sector.000 P e rc e n ta g e o f T o ta l P ro d u c tio n Automobile Industry The Indian automotive industry emerged in the 1940s. Presently. it would be the fifth largest economy.546 1.409.0 4.804 500.239 270. Information so obtained is analyzed properly and comparison made among the data of the past five to seven years.801 410.1 4.024. Fig 1: Trends in Indian Automobile Production 80.0 60.867 11. This has strengthened the country’s exports portfolio as well. Figure 1 depicts the recent trend in automobile production from N u m b e r o f V e h ic le s Two-wheelers 800.765 371.7 75.011 1. Presently.767.172 1.1 100 Commercia l vehicles Twowheelers Threewheelers Tractors Cars and multi-utility vehicles TOTAL 202.470.128 496.825.1 79.1 100.1 15. indiAn AutomotivE industry: A hiGh potEntiAl for GroWth If auto manufacturing were a country.0 30. After independence in 1945. the recent global downturn has trimmed down automobile manufacturing in India. this sector has struggled very hard to become the core sector of the economy.2 2.8 14.544.Automotive Component Manufacturers Association of India (ACMA).0 2004-05 Amount (Percent age of total) 4.483 166.

0 car manufacturer’s right from the ‘people’s car’ segment to ‘most luxurious car’ manufacturers.0 growth status. it also brings in the growth of 2004-05related and supporting indus2002-03 2003-04 its 2005-06 2006-07 2007-08 2008-09 Years tries [27]. Journal of Competitiveness January 2011 .. it will generate additional em50. Cars and multi20.881 513.000 1. The high growth rate of the automobile sector and supportive public and private 0 Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Vehicle Category Data source: SIAM.452 49.169 806.000 2008-09 ‘When an industry grows in a country.644 1. Figure 4 shows the individual contribution of small scale industries (SSIs) and the organized sector.225 819.919 2004-05 166.255 43. electronics. this sector has a huge potential for growth.The consistent increase in automobile manufacturing and its export has created opportunities for both80. Because of its upstream and downstream linkages with various other sectors like machine tool.308 2003-04 129.660 investment in India have highly favored the growth of the Indian auto-component industry. steel. etc. Total auto component produced in country is the contribution of both organized and unorganized units.572 40.401 58. The Indian auto-component industry reported a size of $19 billion for the financial year 2008-09 and growing at CAGR of 23 per cent over the last five years (IBEF).011.682 307.200. 40.896 619.222 2006-07 198.144 265.0 P e rc e n ta g e o f T o ta l P ro d u c tio n utility vehicles 10.407 629.600 76.366 179.333 2008-09 335739 42673 148074 1004174 1. forgings.000.000 2002-03 800.530. This Commercial vehicles will 60.529 2007-08 218. Study indicates that the contribution of the organized sector has been far more than that of SSIs. So is the case with the Indian auto-component industry. Moreover. Presently country has approximately 500 organized and 10.0 billion by 2016 from the present $35 billion.940 66. Figure 3 shows the trend of auto 30 ancillary and parts produced in India.0 Auto-component Industry Fig 2: Trends in Indian Automobile Exports 1.795 366.0 domestic as well as international firms.0 ployment for 25 million people and is expected to Three-wheelers contribute 10% to the country’s GDP Owing to its .052 479.000 2006-07 2007-08 200.537 143. (Refer Table 2 Table 2: Trends in Automobile Exports in India (2002-03 To 2008-09) (Number of Vehicles) Category Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers Grand Total Data source: SIAM 2002-03 72.000 400.0 increase the export revenues to $35 billion by Two-wheelers 2016.432 68.005 12. intermediate products.291 17.994 141. today the country has the world’s best Tractors 30.402 29.544 2005-06 175.713 1. The industry is expected to increase its turnover to $145 70.238. aluminum. 000 unorganized units involved in component manufacturing.000 N u m b e r o f V e h ic le s 2003-04 2004-05 2005-06 600.

000. the Indian component sector exported $3.400 2007-08 18.1 3.750 2005-06 12. (Refer Table 4) However.80 7. the combined efforts of SSIs and the organized sector have improved the position of clusters involved in component manufacturing.469 2.000. Compiled by Indiastat January 2011 Journal of Competitiveness 31 .000.0 2.902 3.0 3.0 practices in these regions. Today.0 important among them being the decision of In300.000.0 wheeler manufacturers.0 in the global economy. one of the most 400.700 Fig 3: Month-wise Industrial Production of Auto Ancillary and Parts in India 18000 17000 16000 15000 Rs.0 There are certainly a large number of factors responsible for this growing trend. Million) Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Apr 10075 9275 9944 11637 12381 14808 May 9216 8772 10264 11797 12627 15366 Jun 10282 9423 9939 11903 12550 15363 Jul 10018 9851 10398 12122 12433 15720 Aug 10108 9453 10362 11536 12706 16770 Sep 9054 9472 10668 12377 12652 17107 Oct 8920 9627 11094 11955 13288 13929 Nov 9038 9618 10473 12343 12818 12812 Dec 9648 10055 11136 12721 13538 10775 Jan 9325 9763 10899 12581 14365 10047 Feb 9157 10710 10797 12602 14337 11172 Mar 9752 10168 11101 13356 16042 13328 Data Source: Data as per Central Statistical Organization.82 billion in 2008-09 (IMaCS).0 auto-components produced in the country.200 2008-09 19. 200. the major portion is utilized by cars.615 5. Of the total 800. In spite of a huge turmoil 600.700 1.100 2004-05 8.482 4.220 7.000.0 2. 58-60% of Indian 2002-03 exports go towards 2007-08 auto component2003-04 2004-05 2005-06 2006-07 the US and Years Europe.000.400 2006-07 15. two-wheeler and three700.600 5. Analysis given in Table 3 clearly shows that investment in the component industry R s. the Indian auto-component sector is considered as Total organised sector SSI sector the fastest-growing sector among Asian countries.000.730 1.428 3.692 1.274 1. Million 14000 13000 12000 11000 10000 9000 8000 Jul Nov May Aug Months 2003-04 2006-07 2004-05 2007-08 2005-06 2008-09 Mar Dec Sep Apr Feb Jun Oct Jan Data Source: Data as per Central Statistical Organization Compiled by Indiastat.0 dian manufacturers to diversify their business portfolios and to tap newer regions for exports. 500. M illio n Table 4: Month-wise Industrial Production of Auto Ancillary and Parts in India (2003-04 To 2008-09) (Rs.873 3.000.Table 3: Analysis of Auto-Component Industry Value in US $ Billion Turnover Export Import Investment 2003-04 6.800 6.0 In spite of having the world’s best manufacturing 100.

637.185.927. The degree of effectiveness and efficiency of these factors truly determines the performance of the Indian automotive industry as a whole. Mar Feb Jan drivErs of CompEtitivEnEss 06 09 Data Source: CRISIL Research. Ford. Daewoo. the directly-involved variables are the firms’ strategies on which an organization Journal of Competitiveness January 2011 .044.5 387. These factors are the entities and variables involved throughout the business process.400.5 678.000. whereas imports have shown a growth of 31%.425. This has supported the increase in production and exports of components in India.0 300. i.054. Today.0 2005-06 409.000. the growth in the auto-component sector has reached such a position that various multinational companies like Mercedes. Honda and Volkswagen have already set up their international purchasing offices (IPOs) in India to source for their global operations.5 156. 32 from procurement of raw materials to delivery of finished goods.105.860.8 122.0 200.5 89. production and exports have shown a growth of nearly 6% in 2009. Moreover.000.353.0 2006-07 522.0 600.000. The elements of competitiveness actually form a paradigm.2 166.240.6 2003-04 235. This has further complemented the growth rate of the Indian auto-component industry.000.000.2 531.150. For the ease of study.0 700.0 70. right Table 5: Individual Contribution Of Small Scale Industries (Ssis) And Organized Sector (Rs. Automotive Component Manufacturers Association (ACMA) has increased more than two times in the past five years.Fig 4: Individual Contribution of Small Scale Industries (SSIs) & Organized Sector 800. It is a matter of concern for the locally-producing firms as they are losing domestic opportunities to foreign-based manufacturers and hence increasing the outflow of Indian currency to the global market.472. Both.750.0 306.0 100.142. Million) Type Total organized sector SSI sector Total 2002-03 196.9 58.0 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Years Total organised sector SSI sector As of today.0 400. the Indian auto-component industry has become a part of the global supply chain activity and hence requires special attention of practitioners and researchers for its further development.928.0 2004-05 298.112.e. This is an indicator of the huge requirement of auto-components for India-based manufacturers. they are classified as direct and indirect factors.717.0 2007-08 558.0 R s. General Motors.000.000. The directly-involved entities are a member of the auto-component supply chain activity and the indirectly-involved entities carry out supportive functions.8 255.8 724. M illio n 500. ACMA (Refer Table 5) The accelerated growth of the Indian automotive sector is determined by some critical success factors.0 Data Source: CRISIL Research.

Mercedes. Undoubtedly. The combined effect of these factors actually determines competitiveness. Here. For the auto-component industry. which has mass production and supply. resources. A graphical depiction of the interrelationship among these factors is presented in figure 5. large numbers of companies are building their product consortia and competitiveness because of easy mode to technology transfer. Firms like Sundram Fasteners have well equipped CAD/CAM labs for testing and designing of auto components. The developed Indian software industry is a great source of help to the industry’s R&D activities. Scorpio from Mahindra and Mahindra. the status of technology as a factor is now that of an order qualifier instead of an order winner. Though India is still on its learning curve as far as technology and R&D are concerned. Today. In this context. cost competitiveness and perfect delivery are the major criteria for success. and that of Steering Systems and Sona Koyo of Japan are of utmost significance. Nissan and many more are starting their component production in India.Fig 5: Entities and Variables Involved in Auto-component Business Activity Competitive Rivalry Agencies 1 2 Tier 1 Tier 2 1 2 Third Party Logistics Cost OEMs Automobile Assemblers 1 2 Customer Delivery Research Firms Demand pattern Financial Institutions Directly-involved entities Indirectly-involved entities Directly-involved variables Indirectly-involved variables Tier 1& Tier 2 suppliers. human skills. Customers drive competition in the industry by creating demand. As the cost of component designing in India is onetwelfth of that in the US and UK. Today. demand pattern ki of Japan. quality Competitive rivalry. However. OEMs. ultimate customers Banks and financial institutions. Bharat Forge Limited from India has a leading position in steel and aluminum forging across the world. government and non-government agencies Technology. success stories of Maruti Udyod Limited and SuzuJanuary 2011 Journal of Competitiveness . auto assemblers. stamping and casting. the manufacturers like Volkswagen. Today. etc. 1 and 2 represent the directly-involved variables. with the growing trend of alliances and ventures. Indirectly-involved variables are mainly industry-specific factors. Indian firms are designing after receiving orders from manufacturers. which in turn comes from these entities and variables. but simultaneously it has forced firms to design 33 has direct control to achieve competence. Indica and Indigo from Tata Motors and Pulsar from Bajaj Auto’s are all indigenously-designed vehicles. Indian manufacturers are fully capable enough of producing hi-tech components like electronic fuel injectors and metal intensive components used in forging. flexibility. For example. Both these ventures were made for technology acquisition for continuous production improvement. it has helped developing in-house R&D and design and development (D&D) facilities. research firms. Stipulated demand for robust and reliable auto parts by automobile manufacturers has forced OEMs to compete considering technology as a success factor. third-party logistics. intensification of the global automotive industry has created competitive rivalry.

In order to push advancement in the auto sector. These linkages. the department has undertaken several measures. Moreover. educating managers and shop floor workers has made Indian component manufacturing a quality-oriented industry. TPM. quality awareness has increased since the last decade.5% from the earlier 10%. ISO 9000 and OHSAS 18001. emission and performance standards. like the Auto Policy in 2002. To attain high operational efficiency. Even after comparatively lower productivity. The auto-component sector is a mass production industry. lean manufacturing. cost competence is amplifying the potential gains of the Indian autocomponent manufacturing industry. The defects have been reduced to 100 parts per million (ppm) in 2009 from 500 ppm in 2007.3% of the total cost of component production in India. These agencies act as a catalyst and interact with international experts for the development of the sector. However. Hosur (South) Indore (Central India) and Jamshedpur (East). Aurangabad (West). Bangalore. the adoption of world-class manufacturing practices. Indian suppliers are embracing modern shop floor practices like Six-Sigma.” Thus. Apart from setting up SEZs. Government initiatives and policies always act as facilitators for industrial development. The growth of rubber. This accounts for 9. Driven by the need of export markets. Eleven Indian auto-component manufacturers have won the prestigious Deming Award and fifteen have won the Total Productive Maintenance (TPM) Awards in 2009.6 in Brazil. a components manufacturer enjoys a cost advantage of 2-30%. setting up the National Manufacturing Competitiveness Council and Investment Commission for enhancing the manufacturing competitiveness. etc. Carlos Ghosn of Nissan said that “If I have to fight the battle on low cost. Currently. NITs and IIMs Journal of Competitiveness January 2011 . The advantageous position of the country with regards to low cost skilled workforce with multilingual capability is promoting exports of labor-intensive work. Nashik. Major clusters of in the country are present in Delhi. the government has allowed 100% foreign equity investment and reduced the duties and taxes on raw material purchase to 5-7. Faridabad.globally competitive business strategies to leverage market opportunities. time-bound implementation of the Auto Mission Plan 2006-16. The Department of Heavy Industry is the main agency for promoting the growth and development of the automotive sector. Chennai. the decreasing cost of raw materials is one of the key factors responsible for development of the component and ancillary industry.5 between central and state governments to aid world-class automotive safety. aluminum and steel production as well as development of the power sector and business infrastructure facilities within the country has also strengthened the ancillary and component production. Kaizen. Raw material accounts for 57% of the total cost of auto-component production compared to 61% in 2007 (IMaCS). The huge popularity of cost advantage has made India a global auto-component manufacturing hub. Indian firms have improved product quality by imbibing world-class quality standards like TS 16949. ACMA represents 479 component manufacturers and SIAM represents 39 leading vehicle and vehicular manufacturers in India. Gurgaon. Manesar (North). if developed properly with IITs. whereby manufacturers located in proximity to OEMs synergize each others profit. The formation of nodal associations like ACMA and SIAM has structured the industry for its long-term profitable development. It has also facilitated the flexible production system thereby making the perfect delivery system for firms. Moreover. This has also given an opportunity to multinationals to start their production units in India. GS 9000. I am going to do it (with a base) in India. TQM. Moreover. Pune. Indian firms 34 are incurring just $6 per day as compared to 33. and the National Automotive Testing and R&D Infrastructure Project (NATRiP) at a total cost of $388. For example. the government is fostering cluster formation at the regional level. This allows easy sharing of commonalities and complementariness. German automaker Volkswagen is initiating component sourcing from India for its Russian and European plants. In India. the linkage between universities and manufacturers is still missing. Mumbai.

the country’s developing autocomponent industry plays a vital role. new technology (which is lowering cost of ownership). government policies. J.B. escalating demand condition. D&D capabilities. References 1 ‘Automotive Mission Plan (Amp) 2006-2016’ (2006). The study also discovered one fact that cost and delivery are the core competence of the auto component and ancillary industry. Kumar. The above cited success factors are required to be tested and validated in auto component firms for generalizing the research studies. low car penetration in the country and easily-available financing options.Competitiveness. nodal agencies. J. Besides. Document I/8 8 Blunck Franziska (2006) What Is Competitiveness? Available Online At: Http://Www.B.Org/Article/Aticleview/774/1/32 9 Caves. R&D capabilities. And Models’. Abdul Azeez. Findings revealed that technology. Massachusetts 10 Chandra Pankaj. Various initiatives at the national and industry level have made this sector a rising sector in the Indian economy. the strategic handling of competitive pressure has also helped national and multinational firms to overcome local as well as global challenges. Building industry competitiveness ultimately paves the way towards development of nation as a whole. (1991) ‘Firm Resources And Sustained Competitive Advantage’. Pp 45-61 5 Barney. Ministry Of Heavy Industries And Public Enterprises. 2 Auto Policy 2002. (1992) Industrial Efficiency In Six Nations. there are some factors critical to the success of developing the Indian auto-component industry. Working Paper No. Pp 656-665 6 Barney. Academy Of Management Review. rising duel income families. ‘New Challenges In Measurement Of Competitiveness In Economic Globalization’. MOmaya (2004) ‘Competitiveness Of Firms: Review Of Theory. Harper Business. Erumban. Sastry Trilochan (2002) ‘Competitiveness Of Indian Manufacturing’. Detailed review of literature is done to identify these factors and named them determinants of competitiveness. Singapore Management Review. Vol 17. Pp 99-120 7 Biggeri Luigi. Cambridge. Bart Van. 11 (July).E. Herein. Journal Of Management.. This is surging the demand of components and ancillaries too. (1986b) ‘Organization Culture: Can It Be A Source Of Sustained Competitive Advantage’. Various socio-economic factors that contribute towards high growth in the Indian automobile sector are rising per capita income. No 1. P . This leaves scope for further research too. low cost advantage associated with the country. The current research paper is entirely limited to secondary data obtained from various publications of authorized sources. However. Frameworks. Chen. 3 Ark.F.. intensifying competitive rivalry and large number of choices available to the ultimate customer derive the industry competition as a whole. Utsav. falling age of firstcar users. Any improvement in the effectiveness of the aforesaid factors will have a strong multiplier effect on the auto-parts sector. Government Of India. New York 35 ConClusion Indian is one among the fastest-growing economies of the world. Vol. 26. developing status of allied industries.can help in technical as well as business planning activities for the enhancement of the auto-component sector as a whole. Government Of India. Indian Council For Research On International Economic Relations. (2008) ‘The Cost Competitiveness Of Manufacturing In China And India: An Industry And Regional Perspective’. following global quality norms and developing the socio-economic status of the country’s population are some of the critical success factors to the Indian auto-component industry. 228 4 Ambastha Ajitabh And K. national strategies will advocate the growth of individual auto-component manufacturers and finally the country as a whole. Ministry Of Heavy Industries And Public Enterprises. Mit Press. R. (1993) Post Capitalist Society. Nevertheless. Moreover. shorter replacement cycles. Vivian. Findings Of The 2001 National Manufacturing Survey 11 Drucker. the well-implemented January 2011 Journal of Competitiveness .

No. The Review Of Economics And Statistics. Fall. R. (2004) ‘South Africa’s InternatiOnal Cost Competitiveness And Exports In Manufacturing’.A . Golub Stephen S.Com/ 36 http://Www. R.. No 2. Step Rapport/Report.E. Pp 171-180 34 World Economic Forum (2002)..D. Vol. Harvard Business Review.Ibef.E. Pp 417-456 20 Institute For Management Development (2002).. M. Vikalp.. No.10. Rapiti. And Practice Of Competence-Based Competition’. Bourne Michael.G. 32. (2000) ‘Innovatives Capabilities Of A Firm And The Use Of Technical Alliances’. (2002) Leading The Revolution. Erik R.R. 8. No.. (2000) ‘Organizational Learning And Knowledge Assets. L. Ieee Transactions On Engineering Management Vol 47. Academy Of Marketing Science Review.4. And Stonehouse. No. D.Org 38 http://Www.. 24 Narayana. Pp 39-46 23 Mills John. Pp 73-91 28 Porter. New York 19 Hoskisson.Net (Production Statistics) 36 Journal of Competitiveness January 2011 . Long Range Planning. Perani. 2nd Ed. Platts Ken. Research Policy 26. (1994) ‘Competitiveness: A Dangerous Obsession’. (1998) Competitive AdvantaGe: Creating And Sustaining Superior Performance. Pp 310-322 31 Schoemaker. Pp 521-536 14 Fay John.83. Richards Huw (2002) Competing Through Competence. D.” 16 Ghemawat.500.. 5. 8.Acmainfo. Pp 67-81 32 Sen.. (1990) ‘The Competitive Advantage Of Nations’. Pp 184-194 27 Porter. Foreign Affairs 22 Momaya K (1998) ‘Evaluating International Competitiveness At The Industry Level’.. World Competitiveness Yearbook 21 Krugman. Vol 30. Cambridge University Press. Harvard Business Review. (1992) ‘How To Link Strategic Vision To Core Capabilities’. F. Pp 53-58 17 Gorman. Vol 25. No. I. F.1339 13 Evangelista. Archibugi. (1994) Competitiveness And Its Predecessors . 23. Journal Of Management. Pp 615-620 18 Hamel. M. 30 Sakakibara M. Vol 7. The Global Competitiveness Report 2002-03 35 http://Www. 64 (September-October).. Plume. P Thomas. Pp 174-183 33 Wernerfelt. (1984) ‘A Resource-Based View Of The Firm’. W.Year Cross National Perspective. (2004) ‘Determinants Of Com- petitiveness Of Small Scale Industries In IndiA’.. G. Paul.12 Edwards. Vol. Pp 93-142 25 Nonaka. (1997) ‘The Theory . “The Competitiveness Of NaTions In A Global Knowledge-Based Economy.Siamindia. Vol.. Smithee Alan. Vol 69.K. (1999) ‘Strategic Marketing And The Resource Based View Of The Firm’. Strategic Management Journal. Wan.. (1997) ‘Nature And Impact Of Innovation In Manufacturing: Some Evidence From The Italian Innovation Survey’. New York. 4. Sloan Management Review.An Essential Partnership’..Com/ 37 http://Www.E. G. U. H. Ny 29 Reinert. No. The Learning Organizational: An International Journal. Harvard Business Review. . B. No. No 3. Paul J. And Porter M. (2001) ‘Competing At Home To Win Abroad: Evidence From Japanese Industry’. 34. W. Pp 1323.. Pp1-21 15 Garelli Stephane.E.2. Pp 96 26 Pamberton..K.. 2. Free Press.Oica.P Yui. The Journal Of Business In Developing Nations. M.H. Egelhoff.. Vol. Hitt. G. (1991) ‘The Knowledge Creating Company’. M. Vol. (1999) ‘Theory Of Research In Strategic Management: Swings Of Pendulum’. Pankaj (1986) ‘Sustainable Advantage’. 1999.A.. World Development. J. 6. Vol.

and thus different forms of learning. Some “stylized facts” in support of this perspective are derived from an analysis of a regional network. direct links to the prevailing science base appear more significant as binding factors than long-term supplier networks.multidimEnsionAl nEtWorks: thE ChAnGinG ChArACtEr And frAmEWork of intEr-firm CollAborAtion Ploder. Social Networks. but intersections based on cooperative R&D and R&D infrastructure. Despite evident sectoral concentrations. Michael2 ABSTRACT The paper explores the form and content of economic interaction of firms based on various concepts of agglomeration and social networks. their durability and above all their direction of knowledge dependency. qualification and informal exchanges are clearly evident. Michael1 Steiner. Keywords: Agglomeration. Knowledge Transfer. Evolutionary Economics 1 2 Joanneum Research University Of Graz Journal of Competitiveness January 2011 37 . the industrial-complex model and the social-network model—the paper argues that given geographical agglomerations allow different types of networks and different patterns of behavior. This network comprises more-or-less individualistic open systems consisting of several areas of overlap. and seem to dominate from a regional perspective. It uses a case study of the machinery sector in the region of Styria as empirical background. Physical linkages between these networks are rather weak. These relationships are interpreted in terms of their need for proximity. knowledge sharing and knowledge creation. Starting with types of clustering—the model of pure agglomeration.

networks and agglomerations. transfer and use of experiences is influenced by interaction between individuals and between organizations (Cohen/Levinthal 1989. many authors have dealt with the phenomenon of geographical agglomeration. The basic idea of geographical agglomeration was brought up by Marshall (1890/1920) and the three sources of economies of agglomeration he mentions—input sharing. Grant 1996. They. By means of network analysis we then develop some “stylized facts” for the various dimensions of interaction within a given network of medium-tech firms in Styria. Recent debate has begun to focus more on how far.introduCtion While we are well aware that it is probably impossible to provide one single theory of clusters and their networks. firms are able to adapt to a rapidly-changing marketplace and stay one step ahead of competitors. The most successful regions are perceived to be those where firms display innovative capacity. and discuss to what extent this approach has specific regional or spatial dimensions. while the interpretation. Growth of the knowledge base depends on intended and unintended individual processing of experiences.e. Hartmann 2006). and have pointed to the need for connectivity between different agents concerning knowledge creation and diffusion. In this paper. GEoGrAphiCAl AGGlomErAtion And loCAl nEtWorks Since Marshall (1890/1920). i. and particularly in those relating to industrial districts and agglomerations.e. This has then led to further questions concerning the degree to which clusters are to be regarded 38 as non-market devices by which firms may seek to coordinate their activities with other firms and knowledge-generating institutions. Foss 1999. Andersen 1995. at least in that form in which it has been discussed since the early nineties in industrial countries. The emphasis of cluster interpretation has changed from an analysis of forces of agglomeration to the various forms and contents of organizational learning and knowledge exchange—the original concentration on clusters as mere geographic concentrations of sectors and firms has been transformed into a search for institutions for knowledge management and organizational learning emphasizing the organic-evolutionary dimension. one of the nine provinces (regions) of Austria. thus. Nonaka et al 2000). inter-firm alliances and networks are widely recognized as an important organization form of innovative activity (Gay/Dousset 2005). labor market pooling and knowledge spillovers—correspond with the coreelements of the current cluster-concept. These insights have shifted the emphasis from material links to the immaterial knowledge flows within clusters. we again emphasize the ideas of agglomeration and knowledge exchange. while focusing on the necessity and forms of proximity. and has emphasized the organic-evolutionary dimension of cluster-based industrial agglomerations. and in which ways. The final section is used to interpret the findings. offer a certain unity of approach in identifying the important elements that are needed for explaining the changing character of the innovation process. Knowledge has been recognized as a major source of competitive advantage in an increasingly integrated world economy (Dosi and Malerba 1996. As the necessary knowledge may lie outside a firm’s traditional core competence. Weber (1929) and Hoover (1948). there are certain common traits. clusters foster knowledge creation and organizational learning. A more recent attempt to distinguish various cluster forms has been made by Belussi (2006) by contrasting Journal of Competitiveness January 2011 . there is nevertheless a certain consensus that several elements of specific theories may help us understand their forms and functions. ‘learning’. In the discussions of clusters. Ongoing learning processes between firms and within clusters stress the importance of institutional arrangements for the generation of knowledge and learning networks that are not available in markets (Maskell/ Malmberg 1999). i. and frequently terms are only weakly differentiated. especially with respect to knowledge exchange.

Economies of agglomeration and dimensions of interaction could be selective in respect of the actors. from an economic point of view. of tacitness and complexity of knowledge—to engage in the management of a portfolio of ties. Networks and clusters are possible means of overcoming constraints of exchange within and between geographical agglomerations. a geographical agglomeration may also exist in the absence of a cluster or network. 13). as already pointed out by Marshall. with respect to exchange of January 2011 Journal of Competitiveness physical goods versus R&D.e. what is still an open question is the microperspective. growing networks and clusters can also cause the emergence of a geographical agglomeration. 1995. we stress here a dimension of externalities beyond the tangible dimension of direct co-operation. On the other hand. One additional question which needs to be addressed in this context concerns the legitimacy of a pure micro-level. In addition to direct physical exchange.g. 1975). or labor market pools for blue collar workers or engineers. Organizations are therefore likely to engage in inter-organizational relations that show a variety of types of ties: They can have quite different dimensions and can be defined according to the character of social relations between actors. the social structure of relations). reinforce the relationship between individual environment and the development of embedded social networks (Granovetter 1994). While the existence of a pure geographical agglomeration (e. Amin and Thrift (1995) use the term “institutional thickness” to address the existence of a supporting environment beyond firms (institutionalized co-operations and networks). and also of course in terms of the nature of the information exchange itself (Mariotti/ Delbridge 2001. the regulation of the relationship. and also facilitate the definition and defense of rules of exclusion. as was the case perhaps in Silicon Valley in California. Individuals and firms alone are. It is also important to distinguish between both content (i. frequency of use. systematic knowledge exchange and knowledge spillovers have gained considerably importance as an argument for geographical concentrations of activities. Firms establish a variety of types of interactions and relationships. as has been outlined by Powell/SmithDoerr (1994). Transaction costs such as transportation costs and spatial communication costs in particular. additional local linkages and relations strengthen tendencies of concentration and agglomeration. A frequently used argument is that the collaborative nature of innovation processes has reinforced tendencies toward geographical clustering because of the advantages of locating in close proximity to other firms in specialized and related industries (Storper. individual firm approach in analysing the incentives for clustering.geographical agglomeration and active clustering (as policy. In other words. Mariotti and Delbridge (2001) speak of the necessity for firms—in the face of knowledge ambiguity. Geographic agglomeration (and concentrated versus dispersed location patterns) set a framework for economic interaction and (material and immaterial) linkages between economic actors. The existence of a cluster doesn’t necessarily imply the coexistence of all defining characteristics of a geographical agglomeration. since they regulate the extent to which the latter are able to participate or gain from externalities: e. each of them having different impacts on the knowledge generation and diffusion process.e. input sharing and common labor market pools.g. we see that externalities are widely enforced by informal and non-economic dimensions.or firm-driven strategy). We are 39 . not capable of delivering sufficient amounts and varieties of knowledge. 1972 and Dixon and Thirlwall. While implicitly focusing on geographical agglomeration and economies of agglomeration. length and duration of the relationship. Myrdal’s (1957) idea of cumulative causation corresponds with a dynamic view of a coevolutionary development of economies of agglomeration and growing clusters (without yet formalizing interdependency as was done by Kaldor. of knowledge-related barriers. 1997). On extending the basic idea of economies of agglomeration. the type of relation) and the form (i. Yet. a city) favors the development of clusters.

Following Marshall (1890/1920). and on technological spillovers may contribute to an “evolving localized environment of learning” (Gordon/McCann 2000. is attributed more or less exclusively to the traditional idea of Marshallian industrial districts. The question of whether the individual or social collectives (firms. regions …) have explanatory primacy is of course part of an old debate in economics. p. and Smith’s idea of division of labor. The significance of geographical agglomeration and networking is strongly determined by the particular sector (industry) and the leading technology. and a local pool of skilled labor. The cross-sectoral dimension of knowledge spillovers is also a source of contention in the literature. on the other hand. 1) – the question of the adequate level and unit of analysis. networks. 2003) and also Gordon/ McCann (2000. An attempt is also made to combine. the industrial-complex model and the social-network model. which in the tradition of Marshall is based on a local pool of specialized labor. The following argumentation takes up two approaches to differentiating typologies and focuses on the different dimensions of agglomeration and clustering viewed as helpful guidelines in the discussion of the network observed in Styria and in answering the key-questions of the empirical analysis. such externalities occur more or less unheard and unseen. Jacobs (1969). and differentiate. Further potential for conceptual differentiation relates to the forms. n The phenomenon of economies of agglomeration as an intrinsic motive for clustering. Following in the footsteps of Thünen in the field of location economics. knowledge and information spillovers. The most important point seems to be that the approach is not bound to the idea of direct supply-relationships among the bulk of actors involved. The Marshallian approach was quickly developed and extended by Hoover (1948) by distinguishing between localization economies and urbanization economies. Popper 1957. sociology and the philosophy of science and is often now dealt with under the heading of “methodological individualism” versus “methodological collectivism” (Hayek 1945. but constitutive elements of socioeconomic transformation” (Colletis-Wahl et al 2008. huge inter-sectoral differences in spatial agglomeration outcomes can be identified. the structure of the interaction influences the extent of knowledge diffusion (Gay/Dousset 2005). Coleman 1964. Following Marshall (1890) and Arrow (1962). There seems to be a clear agreement in the recent literature about cross-sectional differences in agglomeration forces: As has been emphasized by Botazzi et al (2001. Knowledge spillovers may therefore arise between firms within the same industry. From the perspective of knowledge flows and learning processes favored by agglomeration. positive externalities of agglomerations are defined by regional non-traded inputs.confronted here with one of “the most troublesome issues in the social sciences …” (Felin/Foss 2006. As this exchange occurs through interaction. the model of pure agglomeration. Following the traditional idea of MarshalJournal of Competitiveness January 2011 . mentioned the significant fact that knowledge may spill over between complementary rather than similar industries. Douglas 1986). Knowledge exchange and learning occurs unconsciously via transfer of human or material resources. in the sense of spatial concentration of economic activity. channels and mechanisms of knowledge exchange. knowledge is predominantly industry-specific.hinting at the forms of hierarchical agglomeration discussed above . Conversely. on the increased local provision of non-traded input specific to an industry. This coincides within the view that “spatialities and temporalities are not neutral frames. the “agglomeration” approach with the additional insights mentioned above. Following Gordon/ McCann (2000) agglomeration economies appear particularly relevant in “scale-intensive sectors” . 2005). Gordon and McCann (2000: 15) define and discuss three theoretical approaches for industrial clustering that reflect different (more or less idealized) perspectives on agglomeration—the model of pure agglomeration. they appear the least relevant in “science-based” sectors.22).and in “supplier-dominated sectors”. 517). The importance of agglomeration depends 40 closely on the prevailing sectoral and technological pattern.

Attention nevertheless shifted to innovation as an interactive process involving the sharing and the exchange of different forms of knowledge between actors (Lawson and Lorenz 1999)—knowledge and competence as developed interactively and within subgroups of a regional economy (Freeman 1979. much of the discussion in the literature is based on ideal types. habits formed by culture. and of course. 41 . From another perspective. They form social capital that favors the explicit and implicit sharing of knowledge. The links between actors are then stronger the more they are based on elements of social embeddedness: norms. The critique here has been concerned with the question of whether this interaction is an outcome of (neoclassical) rational behavior or the result of a more ‘associative-relational’ mode of organization. New physical technologies and innovations do not just happen. 1998). they need social technologies as pathways to coordinate human action. but not necessarily. clusters may mutate from one typology to another. 2008. primarily transportation costs). spatial proximity. Lundvall 2002). non-transferable experience. and social and political lobbying. Although the implicit concealment of (unplanned) economies of agglomeration didn’t mean that they were not relevant. consortia and other institutional schemes of partnership (Cooke 1998. However. typology and significance of geographical agglomerations and embedded networks change. While in the traditional approach the network seems to be based on geographical proximity rooted in historical experience. whereas in reality all spatial clusters and industrial agglomerations will contain more or fewer of the above characteristics. The industrial complex model is associated with cumulative learning from sources inside the industry.2). or what has been termed ‘associative governance’. furthermore. the new approach of social networks seems to be based on relational and organizational proximity. p. forums. seems to be clearly reflected in the case of the machinery sector in the region of Styria. As Iammarino and McCann (2005) mention. sets of common assumptions. n A second group of approaches pooled by Gordon/McCann (2000: 517) under the term of industrial complex models systematically tried to justify spatial concentration by the quantification and minimization of spatial transaction costs (reflecting the origins of the approach. p. McCann 2005). Following Iammarino and McCann (2005). the role of leading firms and power asymmetries (Iammarino. traditional and recent approaches of January 2011 Journal of Competitiveness social networks may be differentiated. history. There are elements of knowledge sharing in the sense that adopting the perspective of specific clusters represents a quasi-monopoly for the internalization of the benefits of innovation created within the (more or less) “closed club”. The traditional approach corresponds to the ‘Marshallstimulated’ industrial districts where knowledge is mainly codified and oriented to process innovation transferred by personal contacts. The following section is dedicated to interpreting the case network investigated in the light of the approaches discussed above. interaction is primarily led by the needs of industrial production. leading to the creation of clubs. this is also outlined by Rychen/Zimmermann (2008. The suppositions that context. such exchange is here based on strong interpersonal relationships that transcend firm boundaries and allow for diverse forms of knowledge sharing.” It is therefore important to incorporate the dimension of collaboration—the basic conception of firms is a “network-driven economic strategy built on collaboration among the participants” (Reid et. Cooke and Morgan. n The social-network model as the third type— relying on trust and social embeddedness as the dominant link between the cluster firms (and therefore not on deliberate economic decisions based on the minimization of different transaction costs)—also favors the exchange of knowledge. 768): the concept of cluster “usually considered as a spatial concentration of industrial and technological activities” has to be enriched and “it is more important to understand how and why firms build links and how the structure of links will give sense (or not) to the co-location of industrial districts.

i. and alliance or R&D networks (Gay/Dousset 2005). the method has also been applied to the analysis of production clusters (Krätke 2002). Scott 2000). tion-strategies. More exact knowledge of present population and relevant relationships is obviously necessary. and technological innovation in a competitive and a pre-competitive context. Indicators of Interaction Qualitative indicators revealing individual strategies of innovation are helpful discussing individual strategies and their aggregation at the network level. Such relations are phenomena that cannot be reduced to the properties of individual actors or firms themselves and thus need to be interpreted as properties of systems than of individual actors. R&D. the sample was developed. (DELIV): The firms were questioned concerning direct delivery relations (goods or services) to clients. Social network analysis is a helpful tool for discussing the structure of networks as it allows the mapping and measuring of the relationships (communication and transaction) between different actors. component suppliers and tollmanufacturers). The selected indicators of the relations cultivated by the organizations cover three dimensions of interaction: direct delivery relations. suppliers or partners (in the case of synergetic product bundles). Starting with the initial firm. However. This corresponds with the relational approach and is developed by means of the references to actors as revealed by previous respondents (Frank 1979. context and portfolio of relations between actors in a regional network. Interaction in the observed network Network analysis is a well established method in the social sciences. 1 Our starting point was a large system supplier in the automobile sector located in the region of Styria/Austria. Following a citation path of regional suppliers (production or commercialization of goods and services) and of regional partners in the field of research and development (cooperative R&D and related activities and exchange. Journal of Competitiveness January 2011 42 . Recently.e. co-operative R&D institutions) are included. (PRE-COMP): The dimension of interaction in the context of pre-competitive R&D was also analyzed.. Additionally nine R&D institutions (universities. the database for the subsequent network analysis was extended to 23 firms. The information and data collected are based on extensive qualitative interviews and supported by a quantitative survey concerning specific data. It is a method for revealing relations between different actors. of which 18 are producers (with different positions in the supply-chain such as system-suppliers. innovative activity and knowledge exchange (Giuliani 2005).2 The direct delivery of goods and services is not reduced to the material dimension as it also covers questions of innovation in information management or capacity-extending investments. as well as introduce new processes and alternative materi- The Empirical Database The present network analysis is based on an empirical sample of firms identified by a snowballing method of sampling in cluster and network investigation. Pre-competitive research and development aims to extend the product spectrum.thE EmpiriCAl AnAlysis: A QuAlitAtivE ApproACh bAsEd on soCiAl nEtWork AnAlysis The empirical analysis starts with an analysis of relevant regional data and expert interviews and then continues with a case study analysis of the relations of engineering firms in Styria. results from an earlier investigation support the accuracy of the present sample technique. the existence. The remaining five are technical business services. The snowball method produced firms belonging to different sub-sectors of the manufacturing sector and related supply-chain and innova- 1 The assumption is that the segment of the network that forms the sample is representative of the whole network. They are selectively used here to find—via network analysis—the structural features of the network of 32 actors.

automation and growth. Regional clients in other areas of the machinery sector and their limited lot or customized orders place constraints on medium. which is an activity designed to broaden scientific and technical knowledge not necessarily linked to industrial or commercial objectives. even more so with a network density of 0. research aimed at developing or improving new or existing products. This is again based on the relations revealed by the actors. special cases as middle or high volumes of products. While density focuses on the properties and general structure of the network as a whole. The potential centrality of an actor is determined by a broad range of industry or sector-specific factors (Cohen et al 2000).g. They are. offer or an existing business relation. are produced by specified routines. are partially similar in density to direct deliv- 2 Density 0. Given the importance of the systems subcontracted by assemblers. We dichotomized the relations in that we only differentiated between existence and non-existence of a relation between two actors [0. however. 1]. Network density yields information on the general structure of the network as a whole. the density of the network of direct delivery relations is lower than the density of knowledge-intensive and innovation-related interaction.and long-term planning. This approach was not used that extensively in the machinery sector. Direct delivery relations have the weakest density. While competitive R&D and innovation processes. which is in contrast to pre-competitive R&D that is long-term oriented.223.074 The dimension of supply-chain networks is a function of vertical integration and division of labor in an industry. Even in the case of a network of 32 actors with a relatively low density the number of cross-cutting relations is relatively confusing. with a relatively high number of individual parts. e. the analysis below focuses on regional interaction.als. and therefore disregarded the intensity of the relations (in our case the frequency of interaction) surveyed. as well as industrial research. Regional input-output relations were reduced in order to focus attention more on international markets. centrality tries to capture the position of individual actors or groups of actors within the network. Using the concept of centrality (in different forms) we gain insights into the specific features of the interaction of the actors in the network and their specific position and/or emTable 1 Density of Observed Dimensions of Networking Relational Dimensions (Deliv) (Pre-Comp) Direct Delivery Relations Interaction In The Context Of Pre-Competitive R&D Interaction In The Context Of Competitive R&D And Journal of Competitiveness beddedness in the network.068 0.e. especially in the case of domestic system suppliers. where the relations are valued ordinarily in terms of frequency of interaction. Keeping in mind that interregional and international relations exist and may be of major priority. This enabled us to avoid the problems typically associated with the measurement of the intensity of evaluated graphs (Scott 2000). Structure of Network and Network Density Following the socio-centric approach. i. Table 1 presents the density measure for the three dimensions of relations between the actors. a clear strategic goal of these firms is working with a smaller number of large suppliers. Although the datasets have been dichotomized and therefore relations with a very low frequency of interaction have been “up-graded”. One of the core features of an actor identified in network analysis is its centrality..143 3 (Comp) 0. by capacity and individual motivation (Bayona et al 2001. processes or services in so far as it is also not directly connected with a client tender. the density of a network is given by the ratio of relations realized to the total number of potentially maximum possible relations. 43 January 2011 .and medium-term oriented and mostly associated with direct expectations of return or with a direct tender or offer etc. It includes fundamental research. Theter 2002). A high centrality is positively associated with multiple possibilities for receiving and generating knowledge. The automobile and aerospace industries are favorites in supply chain networks and relations. direct delivery relations. (COMP): Competitive research and development and innovation processes are short.

A k-core is a sub-graph in which each actor is adjacent to at least k other actors in the sub-graph. and are a very helpful mean of interpretation and discussion. large system suppliers and toll manufacturers (surface-treatment. heating etc. This success is based on the direct application and transfer of scientific knowledge gained in the measurement of physical or chemical phenomena. and combines the three dimensions discussed above. the network is based to a considerable degree on relations with cooperative R&D institutions. K-core analysis complements the measurement of density. A further interesting dimension of network analysis is ‘coreness’. follows the approach of Kamada-Kawai (1989) spring embedding algorithm. since the latter is not able to reflect structural features of the network. The k-core is an area of relatively high cohesion. In the “core” of the network. This is a highly specialized manufacturer of measuring equipment for science and industry. The relational data can be used to provide a graphical representation of the transaction network for the organizations observed. The firm is highly vertically integrated and is embedded in smaller networks following niche strategies. The partners of the firm in direct delivery (component and toll-manufacturers) and its partJournal of Competitiveness January 2011 Source: Present Authors systems supplier component supplier toll manufacturer technical business services R&D. we find R&D institutions. Fig 1: Network of Firms and Knowledge Generating Institutions Figure 1 gives an overview of all relations recorded. It also takes into account the valuation of the relations in terms of frequency of interaction. While R&D institutions are of negligible significance in respect of direct delivery relations. Scott 2000). The diagram reveals the high density of the realized relations calculated in the previous paragraphs. The size of the nodes corresponds with the size of the organization. and the length of lines corresponds with the distance between the actors observed. we find a group of institutions that seem to interact multilaterally.institutions 44 . This is now employed below. While network diagrams offer a traditional and basic methodology for formalizing network analysis.). but weak relations.3 A quite useful method of graphical representation. ss 20 in the total network. In the k-core of the diagram. clarity suffers greatly as the number of actors observed increases.ery relations. we can differentiate between those actors in the core of the network (colored black) and those actors more or less on the periphery of the network (colored white). which is implemented in most software packages. with a broad range of regional clients. The shape of actors (nodes) corresponds with the different types of organizations. Here we use the concept of the k-core (Seidman 1983. which maintain multiple. for all nodes in the sub-graph minimum the number of the actors’ direct relations within the sub-graph is k (in our case eight). As can be seen at first glance. Spotting a Leading Firm in the Network Here we now focus on a specific firm. which follows the idea of core and periphery. That is. the regional density of the network in pre-competitive R&D is much higher.

In the late 1960s and 1970s.g. This division of labor has changed since the 1980s. The Historical Background and Changing Role of Geographic Agglomeration in the MediumTechnology Sector in Styria The majority of the observed firms have been in the region for more than ten years. R&D and marketing/distribution functions. producer and specialist in marketing. On the delivery side. As far as social networks still existed (e. plastics processing. The findings for this typical firm serve to strengthen the thesis that firms acting in market niches. needed to learn to collaborate and develop their potential for innovation as a strategic resource. Originally. Clearly. the observed firm interacts with component suppliers in the field of die casting. the firm was a pure converter. in the machinery and the automobile sector). beginning in the 1990s. especially in sectors related to steel production. i. with respect to deliveries. R&D and production and marketing of new products are concentrated within the region. While supply-side linkages to the region still existed.ners in competitive and pre-competitive research and development (key clients. universities) are not identical. The firm enjoys a relatively high in-degree centrality in respect of direct deliveries. in precision engineering and electronics. Against the background of a history of outward dependence and nationalized standardized mass production. tend towards long-term cooperation. but in the interface with other sectors such as manufacturing of plastic products or measurement techniques.e. As the firm is not located in the core of vehicle manufacturing. the networks in the medium-technology sector were dominated by large state-owned firms that were highly vertically integrated and had lost their headquarter functions to Vienna. A massive structural change took place. it has a relatively high value for betweenness centrality. they became a fruitful base for the restructuring of the 1990s. While radical innovations and market novelties mostly emanate from R&D or client-partners. The core competences of the firm are based on combining and applying findings from basic research. According to Iammarino and McCann (2005). Many large firms were re-privatized and down-sized at the end of the 1980s. sheet metal forming. highly specialized business services. In most cases. had been lost. transmitted essentially by way of personal contacts. agglomeration took a very limited traditional form. is considerably low bowing to the high export intensity. incremental improvements are promoted by internal R&D. and long overdue. and there is extensive social and political lobbying. The out-degree centrality of the firm in the region. electronics. and manufacturing of high performance glasses. A well-established cooperative base allows access to university partners and to an independent research laboratory that provides exclusive. spray casting. social networks exhibit the following characteristics—knowledge is largely codified and mature and mainly oriented to process innovation. The current situaJanuary 2011 Journal of Competitiveness tion and recent developments cannot therefore be adequately analyzed without considering the historical background and structural change of regional industry over the last few decades. the traditional indicators used to measure the strength of social networks had become very weak. planning. observable lock-in effects had led to agglomeration becoming a mere by-product of path-dependence with none of the advantages of agglomeration mentioned by Botazzi et al (2001). The degree centralities in respect of R&D (precompetitive and competitive) are higher than for the average of the leading firms in the network. such as mechanical and automotive engineering. High degrees of diversification 45 . thus. backward and forward linkages. This entailed abrupt. change from a Fordist to a more flexible mode of production. Firms. A high share of the turnover is reinvested in R&D activities. the typology of agglomeration and the role of networks have changed considerably. 10% for intramural R&D and an additional 10% of the turnover for external R&D. science-driven R&D. During the developments of the last few decades. those functions responsible for the monitoring of markets and technology. demanding highly specialized cooperation.

binding traditions and a low mobility of employees. This is true for both lower. while higher lot sizes enabled higher cross-functional integration and raised flexibility by leaving scope for automation. The broad range of material input-output linkages is directed outward and direct material linkages on the regional level (corresponding to the industrial complex model mentioned by Gordon/McCann) are considerably weak. Small. or by the need to solve very specific problems in the machinery well as high-skilled workers. there are deep differences between original equipment manufacturers (OEMs) or system-suppliers with R&D units on the one hand. in the sense of the model of pure agglomeration mentioned by Gordon and McCann (2005). Nearly half of the investigated firms (mostly SMEs) do not employ permanent R&D staff. This may result in the formation of “Clubs” 5 The Competence Centre Program was introduced in 1998. These have been formed around the elite R&D-intensive and export-oriented large firms. The R&D capacities of the observed firms were highly varied. and competences and the regionally integrative potential of their personnel. and basic technology providers. sometimes over generations. hierarchical. elements of agglomeration phenomena based on knowledge complementarities were observed (following Botazzi et al 2001). A considerable part of co-operation involves third parties (preferably SMEs). This was accompanied by extending of their responsibilities for tool making and sourcing capabilities. a more or less common labor market pool—was not observed. the opposite seems to be true. The leading firms have intensified R&D activities and formal co-operation with knowledgegenerating institutions since the mid-1990s. Yet. For the investigated component supplier firms (here in more-or-less rural and isolated areas) it is still the case that they operate with reference to very local labor markets. Discriminative Capabilities and Heterogeneous Strategies in the Case of R&D and Innovation As already mentioned. Competence centers are co-financed by the regional government. Concerning the qualification structure. Because of the immobility of the local labor force and the restricted capacity of the regional labor market. and also by shifting the responsibility for quality and price from clients to suppliers. agglomeration phenomena based on knowledge complementarities (Botazzi et al 2001) seem to be clearly evident. The large R&D intensive firms observed here constantly seek forms of regional pre-competitive R&D cooperation. tooling and processing techniques. Especially in the case of pre-competitive R&D. Technological upgrading (including the introduction of quality and measuring standards) also opened doors to a new clientele. These were also in line with the exclusivity characteristics suggested by the industrial complex model (Gordon and McCann 2005). by the same token. Also due to official restrictions. and also following Botazzi et al (2001)—namely. on the supply side. where employee turnover is normally a more-or-less accepted instrument of knowledge transfer and networking among firms. In the case of large firms. Innovations in these sectors were influenced by applications of specialized knowledge in the field of materials.and broad unspecified clienteles were replaced by a focus on market niches and technological specialization. In respect of knowledge-driven activities. cooperative publicly-supported projects or participation in cooperative R&D institutions has gained an increasing role as a policy measure during the last decade. most of these firms were able to retain the key-personnel 46 . the national government and the active partners. Journal of Competitiveness January 2011 Human Resources and the Regional Labor Market A typical characteristic of agglomerations. extended workbenches or third-party subcontractors on the other. predominately from Germany). In fact.and medium-sized supplier firms exhibit family-based traditional structures. leading firms do not play a dominant role on the demand side. spatially localized relations were developed. labor inflow from the new EU member countries remains limited. this implies only little mobility of qualified personnel coming from Europe (for language reasons.

it was found that firms with low R&D and innovation potential (mainly component suppliers. smaller low. In agreement with the concept of absorptive capacity. two interesting long-term partnerships between small knowledge-intensive technical business services and large systems and component suppliers were observed. however. and are outward oriented. the geographic dimension is relevant as long as the actors are able to utilize knowledge potential. in terms of innovation. proved to be unable to maintain continuous relationships with knowledge-generating institutions. and supply-chain relations are dominated by extra regional linkages.and medium-tech SMEs gain from knowledge-sharing in respect of quality management. The qualitative interviews strengthened the notion that firms attempt to generate a portfolio of cooperative partners. as far as existent. Low spillovers and a higher market orientation favor more restrained. While cooperative R&D and knowledge generation of regional SMEs are relatively seldom. Here. partially taking place beyond formal networks. the R&D-oriented sphere is concentrated on the local context and to a large extent supported by intensive direct and indirect social interaction (informal exchange. They also tried to gain from possible spillovers from per appropriate events or informal inquiries. contacts in the local technical community). partially utilize opportunities to establish long-term contacts with individual public or semi-public R&D institutions (dealing with basic technologies mostly material sciences). In terms of knowledge generation and exchange. Smaller firms are confronted with a self-reinforcing combination of low R&D capability on the one hand. partner behavior in direct delivery and in competitive and pre-competitive research and development. networks and geographical agglomeration are subject to considerable co-evolution. The main spheres of economies of agglomeration have shifted considerably during the last few decades. where innovation is predominately directed by investment) found it difficult to build up and retain adequate relations with knowledge-generating organizations. setting up and managing relevant projects. also corresponds with the idea of a new type of social network mentioned by Iammarino and McCann (2005). During the past few years. which consciously combines specialization and flexibility. and/or smaller firms. in the case of material sciences). As long as natural spillovers are high and competitive conflicts are manageable (e. in the network analyzed here. The roles of clusters. This form of agglomeration. They were not capable of defining. and limited market demand on the other. is not identical. The medium-tech component suppliers observed here. Cooke 2000) of closer interaction especially in respect of R&D. firms already active in R&D have undergone a shift from being demand-pull-driven (responding to market demands) to technologypush-driven (firms have become proactive in their search for new technologies and USPs). and are willing to integrate them into their activities. sometimes exclusive. This corresponds with the findings in the literature for partner selection in R&D cooperations (Atallah 2005). on the one hand.(Gordon and McCann 2005. low. information management and promotion of the location by formal cluster organizations. behavior from the stronger side.g. Dif47 . larger firms accept weaker partners.or medium-tech firms stick to the region and to their regional partners. While larger firms with noticeable R&D capacities are able to utilize January 2011 Journal of Competitiveness international contacts in research and development activities. While material input-output linkages are spreading widely. or in some cases cooperative R&D institutions. Firms engaging in cooperative pre-competitive R&D and knowledge generation appeared to seek suitable equal partners. In addition. and networks and clusters on the other have to be interpreted as interdependent phenomena. ConClusion Geographic agglomerations. The newly identified research ‘Clubs’ in publicly-supported R&D projects are able to utilize economies of agglomeration primarily concentrated in the field of R&D and science. These low and medium-tech firms did. and were based on long-term trust and informal exchange. This has increased the motivation to be integrated in the regional (technical) science community.

Managing Cities: The New Urban Context.R. S. large firms concentrated pre-competitive research in the region in order to gain from economies of agglomeration in the field of science and R&D. References 1 Amin A. The diffusion of knowledge within clusters is highly selective and strongly depends on the position of firms within networks and their absorptive capacity. 4 Atallah G. and networking-dimensions of knowledge sharing. Madani-Pour (Eds. supply-oriented transactions. and depends on the existence of specific kinds of knowledge-generating institutions. There is no automatic parallelism of interactions. These agglomeration effects still seem to be concentrated around certain insider ‘clubs’. S. 155-173. spatial extension. S. Knowledge-oriented relations within the network are regionally concentrated to a large degree. A considerable number of firms investigated are not able to participate and gain from economies of agglomeration. And Thrift N. The qualitative evidence gathered by numerous indepth interviews reveals that the highest number of interactions was reached in pre-competitive R&D knowledge exchange and that immaterial dimensions dominate the material ones. thus indicating the necessity of a well-developed internal knowledge base. 3 Arrow K. ham Y A. The portfolio of interactions and the meaning of agglomeration for the observed firms cannot be reduced to specific dimensions taken as given or not.and medium-sized firms partially gain from economies of agglomeration in the field of basic technologies such as material sciences or tool making.). New York Et Al. Davoudi. Firms with a relatively high R&D capacity also take up such a role. To this extent that they are determined by firm capabilities and firm behavior. In the Styrian case. The dominating role 48 of the newly-founded cooperative R&D institutions (competence centers) can be taken as an indication that this kind of network relation is rather new and that the pattern of interaction has a temporary character. dominated by knowledge-intensive relations. Proximity per se is not sufficient to generate knowledge between firms.e. Review Of Economic Studies. Gra. This does not necessarily exclude automatic spillover of knowledge connected with supplier relations. (2005) Partner Selection In R&D Cooperation Cirano – Centre Interuniversitaire Journal of Competitiveness January 2011 . not all dimensions of agglomeration. are accessible for all agents. While small. in its regional dimension. different dimensions of interaction can be observed. (1995) Globalisation. The spheres of physical interaction (subcontracting relations) differ considerably from the spheres of knowledge-intensive and R&D-driven interactions. 29. The (industrial) firms do have extensive supplier relations. especially in pre-competitive research. They are different in respect of actors involved. (1962) The Economic Implications Of Learning-By-Doing. The observed network is. The first belongs to the process of division of labor dealing with the exchange of goods and services. and thus economies of agglomeration. The main differences reside in the form of interaction and in the impact of interaction. and thus significance of geographic agglomeration. While there is a long tradition of pro-active cluster and network promotion in Styria. the second with knowledge. John Wiley&Sons Ltd 2 Anderson J. There are networking-dimensions of material. In the case study analysis. An Integrated Approach. sectoral diversity (i. but only to a very limited extent within the region and within the network. Cameron. as indicated by the revealed forms of interaction are actively chosen and not a mere by-product. but it does emphasize that higher intensities of knowledge exchange. (1995) Learning And Memory. a low critical mass of actors) and relatively low absorption capacity serve to hamper the potential gains from economies of agglomeration for a considerable share of SMEs. channels and mechanisms of knowledge exchange offer different conclusions with respect to the significance of geographical agglomeration in knowledge exchange. Local universities and cooperative R&D institutions have a dominating role and assume gate keeper functions. In: P Healey. the main dimensions of economies of agglomeration have changed considerably during the last few decades.ferent approaches concerning forms. Institutional ‘Thickness’ And The Local Economy.

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it attempts to work out what happens when an economic success story becomes the focus of political pro-grams. Gelsenkirchen Journal of Competitiveness January 2011 51 . Regional and national governments fol-lowed their own way depending on the specific cultural and political paths and the economic base. In simple words. this paper is about cluster policy from a political science point of view.WhEn poliCy GoEs ClustEr: rEflECtinG thE EuropEAn WAy(s)1 Rehfeld. Despite those differences. It starts with a brief outline of the context of cluster development. there are different ways of implementing the cluster approach in policy in Europe. between how clusters develop and work in a successful way on the one hand. No wonder the cluster approach became more and more “fuzzy” (Marcusen 1999) in the course of success. cluster development means the autonomous and evolutionary economic processes that are driven by the benefits of spatial density and re- 1 2 In times of network and knowledge society. In Europe. while Ameri-can activities are first of all business-driven. Firstly. Despite success stories about cluster initiatives. Institute for Work and Technology/University of Applied Science. Meanwhile. a cluster policy takes place in the context of multi-level policy and this means that different political levels influence each other. Secondly. To avoid misunderstandings it is best to start with some key definitions. Nevertheless. In this paper cluster resp. and then it discusses why the cluster approach became so dominant in all fields of economic policy. In so far. some conclusions are presented about the challenges needed to improve cluster policy. management studies as well as research in economics and economic geography did contribute to a deeper understanding of the structures and processes of cluster development (Asheim/ Cooke/Martin 2006). there are some key problems that result from different logics in policy and economy. The key argument in this context is that the differences within cluster policy in Europe can be explained by the specific national or sub-national strategic traditions and cultures in eco-nomic policy. cluster policies have innovative impacts on political strategies for two reasons. Finally. but never solved by cluster policy. European activities are often policy-driven (Ketels 2003). though. and can be studied as dilemmas that can be rebalanced. all research is embedded in collective structures. In order to fill this gap. Thanks to Saskia Dankwart and Anita Pöltl for all support from additional research to language washing. Dieter2 introduCtion It is obvious that cluster activities are different around the world. The second question requires deeper understanding of political processes because it is well-known that policy follows rules and conventions that are different from economic ones. a cluster policy implies new modes of governance or at least a recombination of given modes of governance. There is a difference. and how to initiate or influence an evolutionary proc-ess (Boschma/ Frenken 2005) like this by political strategies and instruments on the other. Going on. the European Union and structural funds have become few of the driving forces in early cluster-related initiatives. Cluster policy followed with best practice in cluster initia-tives could be studied. cluster policy has an experimental dimension. Thanks to Judith Testriep for a lot of discussion and ideas.

and did not start in clusters. and a related absorption capacity of companies’ organization. the local environment lost strategic importance in business strategies and in academic studies as well. the clusters that can be studied today had been established in the 1930s (Rehfeld 1999). In brief. Cluster policy refers to strategic approaches of central state activities that promote and support the implementation of cluster initiatives by a broad range of instruments that start with supporting self-organization and end with more-or-less top-down planning instruments. it was Porter’s research on the competitive advantage of nations (1990) that gave the decisive 52 Rise of the network economy "Entgrenzung" Cluster Approach Search of new policy strategies Global shifts: New role of regions in a global spatial division of labor n Companies became more embedded in value chains than years before (this means. Nevertheless. When the end of standardized mass production became inevitable. but they all have in common a specific focus on the regional level. In com-parison to former decades. the spatially differentiated patterns of spatial division of labor came back on the global maps. n Rising integration of technology. For instance. This is not the place to tell the story of cluster studies in the last decades. There are good reasons to assume that clus-ters have been an important aspect in the spatial division of labor in the course of the 20th cen-tury. there are four trends that are important in order to understand the new interest in clus-ters. they are overlapping. and are strongly related to the cluster approach (see figure 1). Firstly. Silicon Valley and Baden-Württemberg). Piore/Sabel (1984) worked out the importance of regional networking for the rise of more flexible production systems and in regional studies (cf. but spatial inequalities and regional concentration had been broadly discussed in economic studies in this century (Scheuplin 2006). internationalization and global diffusion of pro-duction technology. n Globalization requires a deep understanding of the specific impacts of different markets and the interaction of different cultures. n They faced rising insecurity caused by changes in innovation speed and complexity (net-works are helpful in reducing several of these insecurities). thE ContEXt of ClustEr dEvElopmEnt impulse to pay more attention to cluster development in policy as well. Cluster initiative refers to bottom-up. in most cases locally-driven. the automotive industry has been clustered at a very early stage of the development of this value chain. in the course of the last two or three decades. production and service function requires more internal and external cooperation. Castells 1996) driven by different factors: Fig 1: The Context of the Rise of the Cluster Approach Decentralization Regionalization Clusters are not really new in economy. too. we can assume that in the course of mass production.gional concentration. The studies of Alfred Marshal in the late 19th century are a point of reference in most cluster studies. this change raised companies’ Journal of Competitiveness January 2011 . In Germany. This change went from a more-or-less lonesome rider culture to a network culture that influ-enced and partially changed the whole companies’ culture. there was a fundamental change in company culture (Boltanski/Chiapello 2003. standardization of the value chain. activities of self-organization of private (and often pub-lic) actors that aim at fostering or strengthening the local clusters. These trends are societal. the retrospective view in Cooke 2009) successful regional innovation sys-tems (the “holy trinity” of regional studies refers to Third Italy. there is a new balance between market relations and network relations). In the end.

successful cluster initiatives had been established bottom-up. cluster policy became a strategic key issue in the context of the Lisbon Strategy. especially to public-privatepartnerships. Nearly all European countries started a reorganization of the political institutions that was driven by the idea of decentralization—more than a new division of responsibilities between the different political and administrative levels. The cluster approach gave the ideas to fill both gaps: to reinvent 53 . the cluster approach filled a gap in economic policy. France and the German federal state Baden-Württemberg hesitated for a long time. We can suggest that fourthly they work as the missing link that gives policy the chance to reorganize institutional and strategic terms. Rhone-Alpes in January 2011 Journal of Competitiveness France and Tampere in Finland functioned as early birds. there is a strong focus on the reasons and impacts of spatial con-centration on business activities. In the European Union. The World Bank conference in Mexico in 1997. the spatial division of labor is changing. Program lines like PAXIS. Wolfsburg and Dortmund in Germany and Catalonia in Spain were some of the most prominent followers. Secondly. and Turkey is just starting. The European Cluster Organization Directory (2010) lists 1205 cluster organizations in 216 regions. There are four reasons why the cluster approach became so prominent in policy. Lower Austria. cluster. in Europe the last decades became the high-time of regionalization and decentralization (Hooghe/Marks/Schakel 2010). The key impulse for cluster policy came from two sides. became outdated with the crisis of the new economy around the turn of the century. Austria and Finland are pioneers. international activities contributed to the dissemination of the cluster approach. the new spatial division of labor and the rise of the network economy go hand in hand and related decentralization and regionalization in the political-administrative system gave space for new activities that corresponded with this economic change. the Cluster White Book (2003) and the Cluster Green Book (2004) are some of the milestones in international cluster discussion. The idea of a support driven macro-economic policy that became the leading idea in the 1980s and 1990s. In strategic terms. Summing up. and face the economic change in a more successful way.awareness of the region and encouraged companies’ embeddedness in clusters. ProInno. Innova or KIS aimed at organizing and disseminating: good praxis. regions became more important than the national environment. Thirdly. On one hand. the insti-tutionalization of The Competitiveness Institute (TCI). Rehfeld 2009). The dynamics of former activities were such that the central or federal state became involved in the process. The next section will discuss why the cluster approach not only became an economic success story. Even if this is studied by different concepts (agglomeration. though there are differences. hand-in-hand with the rise of the network economy. Grenoble resp. nobody really knows how many cluster initiatives are active in Europe. On the other. supporting networks between European clusters in order to organize shared learning and to improve capacity building in emerging clusters and EC-policy moves towards strengthening world-class clusters (EC 2008). Clusters are of importance in all three aspects. Broadly speaking. The balance between national. in combina-tion with the hope of rising service industries that compensate the rising weakness in productive industries. It refers to the search of new modes of governance. the Middle and Eastern European countries are somewhere in-between. state and local or regional areas is rebalancing (Sassen 2008. Today. but a self-enforcing process in policy as well. West-Midlands in the UK. From a business point of view. but there are lots of initiatives—like the privately-funded initiatives not listed in public documents—that are missing in this list. to activating instruments and to learning processes (Benz et al 2010). or world cities). national states and federal states have been the last actors in the field of cluster activities. met-ropolitan areas. thE risE of ClustEr poliCy Cluster policy is a late comer on the cluster agenda.

n The different fields of economic policy (labor market policy. an aspect that will be discussed in more detail in the following section. The expected synergetic effects especially promise a new dynamic in competence and innovation. You find versions of cluster policy that are based on hard incentive and planning on one end and versions that try to activate private actors on the other. Bottom-up cluster initiatives showed that it is possible to overcome those institutional limits and cluster policy hopes to renew the institutional setting for economic policy. Nevertheless. In institutional terms. Regional activities had been focused on a small local level with strong administrative borders. In instrumental terms. and to renew the interest in productive industries in a future-oriented way. infrastructure policy) have to be coordinated. The embedding in national philosophies on how to drive economic policy especially explains the variations of cluster policy in Europe. n The potential of clusters is high and can be mobilized. technology and innovation policy. 2): n There is a need for deciding what clusters (where and who) promise good results when they get political support. This is not the place to discuss the reliability of those assump-tions because they are handled as quasi- realities in cluster policy and in so far they are a social fact (Durkheim 1961): n Clusters are more the innovative spatial and functional core in a knowledge-based global economy. Cluster policy needs Cluster to select and focus on the strong actors (“strengthen the strength”). there are three basic assumptions in all vari-ations of cluster policy (see fig. the fuzzy character of the cluster approach makes this approach fit in different philosophies in economic policy. n If this process works. From a political point of view. this approach is Fig 2: Key Ideas of the Intervention Model of Cluster Policy near to the task to square Koordination Clustereffekte the circle and can be studied by the dilemma FP1 FP2 FP3 approach (Prud’homme/ ClusterDankbaar 2007): politik n Policy. n The implementation needs strong cluster initiatives that are based on a commitment from the companies. it helps to improve the development of the cluster in a synergetic way that brings out spill-over effects that work as innovative drivers in the national econ-omy. regional policy. n The different fields of externe Rahmenbedingungen economic policy are em© 2007 IAT – own illustration Journal of Competitiveness January 2011 54 . n Policy has the knowledge and the strategic capacity to make the potentials work in a dynamic and self-enforcing way. Following these key ideas the basic model of intervention entails the following aspects (fig.meso-economic policy combin-ing regional and sector issues. cluster policy is a challenge for the traditional institutional setting in Europe. 2). especially in t1 European welfare states Clusterti o n ova management has strong legitimating nn I Spill-over-Effekte from equality and co-herInnovation t0 ence. Departments of different ministries had been complementary with industrial associations that often represented a sector and not a value chain.

which means the question of who and what. the case of the German biotechnology cluster is of interest.bedded in very specific institutional con-texts and networks. clusters base on concentration. Further. and with innovation in measurement and analytic meth-ods and equipment. The most cited reason for take-off is the success of the bio-regio-competitive call that was initi-ated and organized by the German Ministry of Research and Technology in the second half of the 1990s. evaluation failed when they tried to isolate the impact of economic policy and evaluation has always been based on plausibility and indi-rect indicators. hAndlinG dilEmmAs in ClustEr poliCy: tAsks And illustrAtions Map 1: Biotech Regions in Germany BMBF 2005 January 2011 Journal of Competitiveness This chapter aims to discuss the way policy handles the dilemmas that have been discussed in chapter three. the more dense the interaction (internal as well as external) and higher the chance of dynamic cluster effects. and there is a lot of doubt about the chances of coordination. The consequence is not that cluster policy has no chance. It had to do with the rising presence of international venture capital companies in Germany. Discussing this aspect we have to keep in mind that clusters are selective by definition in at least two ways. cluster policy in ideal terms has to focus on a small group of promising clusters. The idea was great. but that we have to be careful when we discuss the expected results. Therefore. qualification and so on). The first dilemma is to select promising clusters. First. This competitive call is of special interest in our context because it aimed 55 . building of an business association (biotechnology had been em-bedded in the chemical companies association before) and so on. different fairs. Germany was a late-comer in biotechnology. but there is no guarantee that the interest of those activities matches the top-down interest of cluster policy. n Cluster initiatives. To illustrate this dilemma. in regional terms. It was lagging behind in the 1970s and 1980s. are only one aspect in a broad range of factors that influence cluster development. all activities of sector formation speed up: professions in education by new curricula. So far. The higher the concentration of related variety (Boschma/Frenken 2005) of economic activities (including research. n Implementation needs bottom-up activities. but in the late 1990ies the situation got better. even well-running ones. education. There are different reasons for the rising dynamic.

Maybe the approach in Brandenburg is more oriented towards productive industries. Up to twenty regions were involved in the com-petitive call and most of them had the feeling that they did a good job. Due to the aims of the competitive call. Unfortunately. but the local actors became so strong in lobbying for public funding that at the end. one key result of Porter’s (1990) study is that no country has the resources to establish globally successful clusters in a broad range of sectors. the three leading bio-technology regions (Rhineland. and because Germany is a strong federal political system. public resources became more disperse and were not concentrated on the most promising re-gions. soon it became obFig 3: Fields of Cluster Policy in Three German Federal States Brandenburg Biotechnology Aerospace Media/IT ITC Media Creative industries Automotive Energy economy Oil/Bio energy Geo Science Wood industry Plastics Logistics Optic Paper industry Railway Food industries Tourism Environmental Technologies Environmental Technologies Health Care Medical Research Mechanical engineering Chemistry Mechatronic/Robotic/ Production Systems Chemistry Financial services 56 North-RhineWestphalia Biotechnology Bavaria Biotechnology Aerospace ITC Automotive Energy economy Energy research Automotive Plastics Logistics Nano-Micro Logistics Nano Railway Food Industries Food Industries Environmental Technologies Medical Technologies vious that the losers did not accept the result. in functional or sector terms. public approvals. The problem is that there is high insecurity about industrial sectors that will be the driving forces in the future. We can see that despite some differences in wording and local spe-cializations. university-company ties or specialized infrastructure. but the dif-ferences are not really strong. Figure 3 summarizes the cluster activities of three German federal states—Bavaria. Regions had been asked to work out cooperative development strategies including crucial issues like venture capital. Mittlerer Neckar. A lot of these regions are missing local venture capital funds and some of them have no laboratory infrastructure. there are around 30 bioregions in Germany that claim to be or to become biotech clusters (see map 1). has high potential. the NorthRhine-Westphalian and the Bavarian one have a stronger focus on new technologies. Policy makers in charge Journal of Competitiveness January 2011 . the story looked good if we think about cluster building. In this case again. the German example illustrates that the practice is more driven by the fear to miss an interesting chance than by selective decision. and Munich) were pointed out as winners and one East-German Region (Jena) was put in as a support region be-cause of its special competence in biotech equipment. The dilemma is that the process was highly successful in activating local actors. They tried to find new ways to get funded. the fields of cluster policy are very similar. NorthRhine-Westphalia and Brandenburg. most of them applied for funding by their federal state govern-ment. Germany has nearly 600 biotech companies and each biotech region counts for 20 companies on an average. The federal states programs. Concentration or focusing is strength-ening the most innovative and best organized biotech-regions. At the end of the day. Thus far. additional programs by the German Ministry of Research and Technology and several ways of European funding were available and helped nearly all regions to stay in the game. and they build up a shared vision. Secondly.

of cluster policy are aware of this problem without any doubt. The consequence was that clusters got funding in regions that were lagging behind in average eco-nomic performance or January 2011 Journal of Competitiveness and innovation policy. but whatever the result is the dilemma remains—in all sectors cluster policy intends to acti-vate self organization and when you have done this it is very hard for poli- in regions that faced heavy sector restructuring. In contrast. the roots of cluster policy are in the field of regional policy. there is a shift to strategy centers that are driven by the most important Finnish industrial value chains. in Finland. there is a broad consensus that 15 or 18 clusters are too much. 57 . As pointed out. cluster initiatives are bottom-up driven in most cases and central policy is in its emerging phase. for this chapter Muth/Rehfeld 2007. and without any coordination. It is too early to discuss the results because the evaluations are in a very emerging state. In all three countries. Terstriep (2006)). cluster policy had a strong start in the context of Finnish technology Fig 4: Cluster Policy and Cluster Initiatives Compared Top-down Brandenburg France Czech Rep. the framework changed and today cluster policy becomes linked with technology policy. In France. but because it is difficult to select without knowing the future the key strategy is to wait for evaluation. In Switzerland. in ongoing decentralization strategies and in a strong technology driven focus. we find a combination of traditional planning approaches rooted in the 1950s. Rehfeld/Terstiep 2007. the central state focused strongly on technology-driven clusters. At the same time. In most German federal states. In the Czech Republic. network projects on the other) started in different contexts and now they have the problem of coordination. cluster policy was part of the regional policy but the instruments (incentives on the one hand. This means that those regions had weak potentials in clustering. Today. NRW Strategy Austria Finland Switzerland Bottom-up Bavaria Bottom-up dezentral Funding Top-down zentral ticians to stop the fund-ing even when the results are not the expected ones. The problem is that cluster policy on a central level is often embedded in traditional philosophies and contexts. With the shift in European structural policy towards Lisbon strategy. In the German federal state Brandenburg. there is need of coordination of different fields of policy (this part bases on (cf. There is a long hope that regionalization will bring out more solutions and coordinated processes.

The problem comes to life when new activities in cluster policy meets long-standing bottomup initiatives. i. It is no longer the lonesome rider company that is requested but the socially responsible and economically net-worked entrepreneur. cluster policy would not be necessary). so responsibilities are not always clearly attributed n No actor is able to achieve the desired goal on his own. it is not solely about the activation of potentials that have been latent so far. if the state has the possibility to fall back to other authoritative instruments if self-organization does not work. this is precisely what is not possible with cluster policy. Elements of such an adaptive process can in fact be seen. The dilemma is that if policy wants to initiate self-organization. However. but most strategies in cluster policy have a strong top-down impact and they aim at activating self-organization. in other words. since it is assumed that multilevel policy only works if the “shadow of hierarchy” is given in the back-ground. These are only few examples. It shows that it is far from coordinating dif-ferent fields of economic policy.. Third. as without the active (and increasingly also financial) participation of the addressees. federal states along the top-down bottom-up axis “funding” and “strategy”. but also about a change in corporate behavior. in certain French regions and in some parts of the Czech find the combination of central. but that such a collective adjustment of corporate action opposes diametrically competition law. Benz et al. (ed. Figure 4 shows the position of cluster policy in selected countries resp. if it proves to be adaptive with regard to its strategies and instruments. If we follow the political science discussion about new patterns of governance. In order to become aware of the demands made on cluster policy. actors are interdependent n Aim and implementation are acted out in an in58 terplay between public and private actors.) 2007): n Complex institutional and actor patterns n Boarders between the levels and the actors are not clearly defined. cluster policy aims towards the provision of col-lective goods that have not been provided by private actors so far (if this was not the case. there seems to be reasons for doubt about the success of cluster policy. it has to risk that the priorities of the societal actors are different from the central state priorities. there is a dilemma between bottom-up and top-down approaches. At the same time. which acts on the assumption of isolated actors only mediated through the market and puts di-rect communication under the suspicion of not permissible agreements. Consequently. Such a multilevel policy is characterized by the following features (cf. especially in the European Union. The dilemmas cluster policy has to balance are diverse. cluster policy can only be successful. and labor market policy has very few links with cluster policy (maybe Sweden is a case where this coordination with labor market policy works). ClustEr poliCy As multilEvEl poliCy: fiElds for EXpErimEnts And lEArninG Cluster policy is a multilevel policy. It should be noted that this is a development within a specific policy field. such a policy is not realistic.e. More cluster funding and strategy are bottom-up driven and cluster policy is only supporting. and this has links with the arguments above. Therefore. it is useful to keep in mind the key task. This is the case in most German federal states.) 2007. Cluster policy wants to encourage self-organization. and are mainly about self-regulation and not about classical state intervention n Which is why steering techniques that do (and can) not fall back on authoritative instruments can be found. contributions in Tömmel (ed. There seems to be a division of labor within the Euro-pean multilevel system. between cluster policy and cluster initiatives.and statedriven planning strategies and market-driven instruments. Journal of Competitiveness January 2011 . usually through an initial funding with digressive public participation. They illustrate that cluster policy is often embedded in national traditions and the related fields of economic policy.

and this is often disregarded. The multiplicators are consultancies integrated into the activities. there are all sorts of hybrid forms—initial financing aimed at a societal selforganization that later will be self-supporting or the promotion of extraordinary cluster projects won through promotional competition—still closely linked to markets and networks. such different models will always be found. In the mentioned program areas (PAXIS. In between. depending on the economic starting position. not to interconnect too closely but to stay open to the outside and therefore to new impulses. unions and companies are linked closer to public interests. The bundling or formation of national resources through an intensive technological co-operation or a cooperation comparable to classical corporatism between state. 5). the readiness of social actors to participate in the provision of collective goods or na-tional political-administrative steering philosophies and regulation systems. in Eastern and Central European states or Brandenburg) or of states with a strong planning tradition like France are influenced the most by classical steering. It is precisely these activities that stand to face the challenge. certain standards with regard to profes-sionalism have been accepted that cannot be ignored in the long run. last but not least. Regardless of the starting point. KIS). there are activities of regional self-organization of companies that do not depend on public funding. n At first. Here. The proceedings of states (respectively federal states) with extreme restructuring prob-lems (e. The most promising way at the moment seems to be to form cluster policy in accor-dance with the promotion of venture capital.g. hierarchy and networks) as a point of reference. cluster policy will have to solve the distribution problems mentioned before in a different way because clear forecasts of future economic developments are not possible. it is reasonable to promote broadly. At the other end. n Next. the challenge is to line the central January 2011 Journal of Competitiveness state impulses with the initiation of societal selforganization. 59 . also keeping in mind that not all promoted pro-jects will be successful. institutions of advanced training and big international conferences. Even if the landscape of clus-ter management in Europe is still very heterogeneous. standards for the professionali-zation of cluster management are elaborated and. respectively of federal states in federalist states. the information basis for a comparability and evaluation of cluster development is built. all these different approaches have in something in common—starting from a certain point in time they all rely on the active participation of those addressees. the field for experiments can be found. In a certain way. Cluster policy of central states. If we take key categories of the governance discussion (steering through market. new tools and instruments Fig 5: Modes of Governance in Cluster Policy Hierarchy central planningl implementation formation corporatism bundling „venture capital“ „ award activation self-organization Market Network © 2007 IAT – own illustration are tested. INNOVA and PRO INNO. This is especially true for the participation of companies. experiences from established cluster management activities are concentrated. However.On the European level. it is important to connect the promotion to clearly defined (financial as well as material) goals and to organize a form of support in order to achieve those goals. almost all possible fields are covered in this triangle (fig. still has to find its own place. networks of cluster managers. often don’t even want to because they want to achieve their goals independent from political requirements and public attention.

and in best case the level work in complementary way. The danger is that the cluster approach becomes diffused and that cluster policy becomes more vague and. Second. Nevertheless. A cluster is one way to strengthen the innovative performance of re-gions. as pointed out. especially in those value chains with a long standing spatial division of labor? Is there a realistic chance to overcome the traditional boundaries of administrative insti-tutions? What is needed to avoid a destructive clash between bottom-up and top-down activities? The key idea behind this paper is that the cluster approach has a high potential to strengthen economic performance in regions as well as in Europe. This cannot solve all the dilemmas mentioned in the chapters above. cluster policy can be studied regarding the way it balances dilemmas. strEnGths And WEAknEssEs of ClustEr poliCy in EuropE The European Union bases on the idea to combine regional diversity and coherence in a fruitful and dynamic way. Is it realistic to expect that cluster policy in strong regions is so successful that all regions benefit by spill-over effects in the long run? Do weak regions have a realistic chance to strengthen their economic performance when they focus on cluster. by no means. the potential of the cluster approach becomes wasted. as this offers the opportunity to share experiences and to learn from each other. and on the other. If this reference to self-organization is missing. the di-lemma allows regional distinctive ways of cluster development and cluster initiatives. So far. In the worst case.n Finally. it is urgent to discuss four challenges. in structural as well as cultural terms. Focusing on cluster policy. if public resources are distributed widely as the above discussed example of German biotechnology shows. the bottom-up developed cluster management activities and central state activities will conflict. This includes the question in which way these regions can make good use of key ideas of the cluster approach. n Cluster policy is very different on the local or regional level and cluster managers need to act on an international level (otherwise they risk to cause lock-in effects). cluster policy is highly ex-perimental and needs strong learning processes. we need further strategic concepts for those regions that have no promising starting points to develop clusters. there is the chance to reflect promising ways and to adapt policy. the cluster approach becomes more fuzzy and runs the risk of losing the potential of cluster development. in consequence. like networking. This is. Without this balance. Due to regional diversity. but the autonomous processes of cluster development are also thwarted. clusters and cluster initiatives are very distinct from region to region. at a certain point in time it is to be decided where projects can now run by themselves and have the desired societal use. we need a deeper understanding of how cluster policy is positioned in the trends of global Journal of Competitiveness January 2011 . cluster policy always runs the risk of becoming embedded in traditional paths of single fields of economic policy. linking local-global chains. self-evident because. Facing this situation. where further support is needed because the achievement of the desired goals take longer than foreseen and where public activities have to be termi-nated. organizing collective learn process and so on. improving competence. First of all. The problem is that cluster policy needs new concepts and strategies and that there is a high inse-curity about the results that can be expected in a realistic way. there is a good chance of policy innovation for three reasons: 60 n Cluster policy needs to combine different modes of governance and in the course of im-plementation. First. not only public resources are wasted because of a lack of effectiveness. but we need different ways to work out “innovative spaces” (Rehfeld 2006). if it is true that clusters are selective and that it makes no sense to try to develop clusters in each region. n Cluster policy is a multi level policy. from value chain to value chain. the dilemma makes it possible to work out general quality standards and success criteria. on one hand. The cluster approach offers a strong strategic frame to bring this idea to life.

Stockholm.(2006): Der Neue Geist Des Kapitalismus. 14 Marcusen. (2003): The Development Of The Cluster Concept – Present Experiences And Further De-Velopments. and when it does so successfully. in order to evaluate cluster policy. (2005): Why Is Economic Geography Not An Evolutionary Science? Towards An Evolutionary Geography. Brussels./ Chiapello. Policy Distance: The Case For Rigour And Policy Relevance In Critical Regional Studies. Brussels (Innova). P (2009): Regional Innovation Sys. R. 2 Benz. Et. is crucial for the future of all regions again. 17 Piore. (1961): Regeln Der Sozilogischen Methode.. (2010): The Rise Of Regional Authority. 38). A lot of future trends are highly decentralized. tems: A Brief History. No region is autonomous in a global world and access to global knowledge./Frenken.01 (Utrecht UniveRsity) 6 Castells. Papers In Evolutionary Economic Geographie 05./Cooke. Konstanz (Edition Discours./Rehfeld. (2004): Strukturpolitik In Ausgewählten Europäischen Regionen – ErgebNisse Einer Vergleichenden Untersuchung. Clusters are nods in all trends or they have the potential to work as nods like this and cluster policy has to avoid to fix on a given geographical level. when it succeeds in combing private activities and public re-sources or when it helps to make institutions more flexible. 15 Hooghe. So far. Implementing The Broad-Based Innovation Strategy. (1996): The Rise Of The Network Society. R. H. G. but.. financial flows transfer geographically-fixed regions. L. Sec (2008) 2637. J. (Hg./Marks. London (Forthcoming). and the competence to make good use of it. B. New York 61 . Scanty Evidence. as well as. Lon-Don/ New York. it has to stand for more than the economic evolutionary way. Clusters develop in an evolutionary way and cluster policy has to do the same thing. we need evaluation concepts that are aware of the complex aspects of cluster policy. 5 Boschma. Good practice always is good practice in a specific context of space and time. In certain terms it will be very successful when cluster policy contributes to reorganize the institu-tional setting of economic policy. Stockholm. U.A. P .) (2006): Clusters And Regional Development. 13 Ketels. January 2011 Journal of Competitiveness 3 Benz.change. hard ones as well as weak ones (see the examples on the homepage of Scottish Enterprise). 8 Cluster Greenbook (2003): The Cluster Initiative Greenbook. 7 Cooke. doing this we cannot expect perfect solutions. (1984): The Second Industrial Divide. Al. A. 10 Durkheim. L. Forthcoming In Regional Studies./Sabel. there is a chance for a fruitful co-evaluation between public and private interests. Global migration brings out more geographical fluid or borderless spaces and innovative. Malmö. Fourth. 4 Boltanski. C. (Ed. 16 Muth./Schakel A. M. È.A. December. K. Gelsenkirchen. 33: 869 – 884. Darmstadt/Neuwied.. Wiesbaden. A. M. Third. D. Malden Mass. E. Cluster policy in this way. we need an understanding of the underlying intervention concept and the related strategy. (1999): Fuzzy Concepts. It has to focus on public goods and benefits. C.) (2007): Handbuch Governance. (2000): Regionalisation. In: Regional Studies Vol./Martin. A. 12 European Cluster Organization Directory (2010). References 1 Asheim. but different ways to balance dilemmas. International Conference „Clustermanagement In Struktural Policy“ In Duisburg. has to keep in mind that it is public policy and therefore. 11 Ec (2008): Commission Of The European Community: Towards World-Class Clusters In The Euro-Pean Union. evaluation concepts are focus-ing on indicators. 9 Cluster Whitebook (2004): The Cluster Policy Whitebook. A Comparative Study Of 42 Democracies (1950 – 2006). Sustainable strategies or new health concepts are basic challenges to improve quality of life in all regions and it is not helpful to dis-cuss these challenges from a cluster point of view.

18 Porter, M.E. (1990): The Competitive Advantage Of Nations. New York: Free Press Edition. 19 Prud’homme, P ./Dankwaart, B. (2007): Corporate Culture, Regional Culture And Change From The Cross-Cultural Management Discipline. Paper Prepared For The Cure-Workshop Vienna, Sept. 2007. Nijmegen. 20 Rehfeld, D. (1999): Produktionscluster. München Und Mering. 21 Rehfeld, D. (2006): Innovative Räume – Überlegungen Zu Den Schwierigkeiten Mit Grenzüberschreitun-Gen. In: Brödner,P Helmstädter,E./ ./ Widmaier,B. (Ed.): Wissensteilung. Zur Dynamik Von Inno-Vation Und Kollektivem Lernen. München/Mering: 57 – 82.

22 Rehfeld, D./Terstriep, J. (2007): Realistische Erwartungen An Clustermanagement. Expertise Für Die Hans-Böckler-Stifttung. Gelsenkirchen. 23 Sassen, S. (2008): Das Paradox Des Nationalen. Frankfurt/Main. 24 Scheuplein, C. (2006): Der Raum Der Produktion. Wirtschaftliche Cluster In Der Volkswirtschaftslehre Des 19. Jahrhunderts. Duncker&Humblot, Berlin. 25 Terstriep, J.(2006): Comparative Cluster Analysis – Europe And Its Regions. Nice-Paper. GelSenkirchen. 26 Tömmel, I.(Ed.) (2007): Die Europäische Union. Governance Und Policy-Making. WiiEsbaden.


Journal of Competitiveness

January 2011

from industriAl ClustErs to GlobAl knoWlEdGE hubs
Reve, Torger1

Knowledge-intensive industries are increasingly located in global knowledge hubs, which are characterized by a high density of interrelated knowledge firms operating globally. Examples include Boston in life sciences, Silicon Valley in information and communication technology, and Houston in oil and gas. Typically, such global knowledge hubs emerge from well-reputed universities and private research labs, but they also include a wide array of commercial actors and a competent venture capital market. Successful global knowledge hubs are able to attract knowledge functions from major multinationals in the industry. Together with universities and their related research labs this creates an advanced, specialized job market attracting talent and knowledge workers on a global scale. Global knowledge hubs emerge from industrial clusters or geographical agglomerations of related firms, thus such knowledge hubs are highly path dependent, not easily lending themselves to industrial development policies. While industrial clusters typically center around large manufacturing or service firms and their network of suppliers, knowledge hubs are more diverse in their composition, placing universities and R&D institutions at the center. As the density and interactions of knowledge organizations increase, the result is vibrant innovation competition and high commercialization of innovation, given the active presence of competent venture capitalists and investors. Some of these knowledge hubs take global leadership positions, such as Boston in life sciences and Silicon Valley in information technology, but they are constantly challenged by other knowledge hubs such as San Francisco and San Diego in biotech, and Bangalore and Hyderabad in software and IT services. Despite the prevalence of modern communication technology, geographical proximity matters even in high-tech industries. In the current paper, the global knowledge hub concept is extended to the global maritime industry, as illustrated by the Norwegian and Singaporean maritime clusters, and policy measures are proposed to transform these maritime clusters to global maritime knowledge hubs or super clusters. The global knowledge hub concept is presented as a new industrial paradigm with important implications for knowledge-based industrial development and industrial policy making. Keywords: Knowledge hub, Maritime clusters, Norway, Singapore, Knowledge-based industries


BI Norwegian School of Management, Norway
Journal of Competitiveness

January 2011



In classical writings of microeconomics and organization theory, the firm is viewed as an autonomous unit facing factor and product markets. Basically, the firm is conceptualized as a production function or an input-output system transforming raw materials and other input factors into finished products and services to be sold to customers in a competitive market. The firm is basically seen as a manufacturing unit, represented by a typical value chain—from inbound logistics through operations, outbound logistics, marketing and sales and aftersales service (Porter 1985). In the writings on industrial marketing, distribution and logistics, the firm is seen to be part of an industrial network, focusing on supplier and distributor relationships, and the field of inter-organizational research came to power (Stern & Reve 1980, Håkansson & Snehota 1995). The same holds true in strategy where research on strategic alliances has been strong for many years (Lunnan & Haugland 2008). Rather than studying inter-organizational relations in terms of buyer-seller dyads (Stern & Reve 1980) or simple industrial networks (Håkansson & Snehota 1995), many researchers in the fields of economic geography (Asheim 2000) and industrial development, most notably Professor Michael Porter (1990) at Harvard Business School, have studied industrial agglomerations at given locations. The main terms used are industrial districts or industrial clusters, which have been defined as “a geographically proximate group of interconnected companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various kinds,” (Porter 2003). Let us take the auto industry as an example and see how it can be studied using various industrial lenses. In the first paradigm, business as manufacturing, the auto industry is studied by analyzing major industrial actors such as GM, VW or Toyota as factories. The roots go back to scientific management and Fordism. The analytical model applied is typically a value chain (Stabell & Fjeldstad 1998), and the goal is to optimize productivity and value creation.

In the second paradigm, business as industrial clusters, the auto industry is studied as a network of car manufacturers, auto part suppliers, service providers and car dealers, particularly as the industry centers from various key locations such as Detroit, Stuttgart or Osaka. The major manufacturing firms are placed at the core of the industrial cluster, while the other industrial actors are referred to as related and supporting firms. This also included universities and other knowledge providers. The model has been made world famous by Michael Porter (1990), and empirical studies are prevalent. Industrial clusters represent superior locations due to lower transaction costs of operations, and the existence of knowledge externalities and network effects. Knowledge externalities arise from sharing of knowledge and from utilization of a common, specialized infrastructure. Thus, industrial clusters not only require a critical mass of firms at all levels of the value chain, but there also have to be close interactions between the industrial actors within the cluster. The result is accelerated learning and higher rates of innovation and commercialization, and there seems to be clear scale effects (Krugman 1991). Thus, major industrial clusters tend to be growing, while minor industrial clusters tend to be reduced as firms consolidate and co-locate. On a global scale, a hierarchy of industrial clusters in any particular industry can typically be observed. The first tier consists of a few key industrial locations, like what we observe in the automobile industry; with Japan, Germany and United States being the three major auto industry locations. These are often referred to as global clusters. Global clusters have the highest concentration of firms and control the full range of industrial knowledge required within the given industry. This is also where major R&D and new product development takes place. The second tier clusters can be found in runnerup auto manufacturing countries like Korea, China and India. These are new industrial clusters or regional clusters challenging the existing global clusters. Many previously strong regional actors in the auto industry (e.g., Skoda, Saab and Volvo) were
Journal of Competitiveness January 2011

I will study the industrial cluster structure in knowledge-intensive industries.g. the argument in this paper is that studies of knowledge-intensive industries are transferable to many other industries. and the supplier clusters are highly dependent on their global customers. setting up new IT. such as Brazil. If we study the development of Silicon Valley (Saxenian 1994). there are raw material producers that could be anywhere where factor conditions are favorable. VW. Tata taking over Jaguar and Volvo getting new Chinese owners. In transplant clusters. although most industries today are highly knowledge-intensive in some sense or another. This concept has substantial implications for January 2011 Journal of Competitiveness industrial development and suggests more radical knowledge-based industrial policies. thE EmErGEnCE of knoWlEdGE hubs Some of the most famous industrial clusters can be found in knowledge-intensive industries. information and communication technology. as we see in many countries that are strong in natural resource industries. We may refer to these clusters as transplant clusters. it started with the development of the semi-conductor industry and computer manufacturing. had the opportunities to transform their knowledge investments into stocks or cash. Key actors at this stage were companies like Fairchild and Intel in semi-conductors. these producers form commodity clusters. new auto actors from emerging economies are taking over old car manufacturers. and a company such as Infosys has its roots in Silicon Valley. The Bangalore IT cluster in India is a well known example. Sometimes. Finally. Venture capitalists speeded up the selection processes. producing such key players as Cisco in network technology. the dynamics changed into communication technology. Poland and Thailand.. providing competent capital to new entrepreneurs. and Yahoo and Google in internet search technology. Finally. What characterized the Silicon Valley IT cluster was the high amount of entrepreneurship resulting in thousands of startup firms within any possible knowledge niche of the industry. such as the maritime industry. Mexico. The fourth tier of automobile clusters simply consists of standalone auto assembly or auto parts plants located in countries with favorable factor conditions. Over time. Behind the rapid development of the IT industry in Silicon Valley was leading edge research and development. Most of the foreign direct investments in emerging economies are of this kind. e. and transplant clusters tend to be local in nature. Thus. software or service companies in many locations around the world. who were often young university graduates or former employees of some of the major IT firms in the Valley. I will introduce the concept of global knowledge hubs. biotech. and Hewlett Packard and Apple in computers. Recently. such as the auto parts manufacturers of many European and Asian countries. which is my empirical focus in the second part of the article. GM and Ford)..first taken over by the major global players (e. both in terms of killing ventures with low commercial potential and by providing ample funding to ventures with high growth commercial potential.g. in applying these concepts to the maritime industry. The transition of startups into commercial successful firms was fueled by a dynamic venture capital industry. These specialized clusters are built around more specialized industrial knowledge. The vertical inter-organizational relations are governed by strong contractual arrangements tying these clusters to the main actors in the global clusters. Examples of such industries are life sciences. Empirical studies of knowledge-intensive clusters like Silicon Valley reveal dense networks of knowledge linkages and rapid transfer of knowledge workers among the key actors in the cluster 65 . and many became serial entrepreneurs. the third industrial paradigm discussed is industries as global knowledge hubs. most notable at Stanford University and related R&D facilities. Thus. The third tier of automobile clusters has a concentration of more specialized suppliers and service providers to the auto industry. industrial knowledge generation is limited. Entrepreneurs. In this paper.

and is more concentrated in cities like San Francisco. MA way ahead of all other biotech locations in the world. The driving force was innovation competition. and a large wave of biotech startups emerged. not only in information and communication technology. interacting closely with the R&D units of major commercial actors in the industry. An even more amazing story of the rapid growth of a new knowledge-intensive industry is the emergence of the Boston life science industry. Again. The recent empirical study of the development of the Boston and San Francisco life science industries. but in many new knowledge industries. 740 organizations had 1559 observed formal ties. These cities also happen to have the highest concentration of firms in the new knowledge-intensive industries. and the development took place at the three major research universities in Boston: MIT. 96 were public research organizations (which also include universities. 2008). The new life science industry developed from scientific advances in biotechnology. 212 were dedicated biotechnology firms. The important role of public research organizations should be noted (Whittington et al. excellent research data has been presented for the development of the Boston and San Francisco life science industries (Whittington et al. Boston and San Diego. labs and major IT companies that were all located close to each other. 1988-1999 referred to above. and recently. and the rewards for commercial success were substantial.. new knowledge workers. New technology and new commercial concepts came out of close cooperation between universities. while venture capital firms play a similar pivotal role in venture commercialization. these actors not only form a strong industrial cluster. major commercial actors in life science. and 240 were capital venture firms. 1988. Of the 740 organizations. The idea was to be close to the rapid scientific development and to be among the early adaptors of new technologies into commercial products and services. licensing agreements. Berkeley and San Jose) and their associated research labs became major linking pins in the knowledge network. Recently. including life sciences and biotech that we now turn to. while in the more mature stage of cluster development. It all peaked during the dot. followed by the San Francisco Bay area and San Diego. not only demonstrates the importance of critical mass of co-located knowledge companies. What characterizes a global knowledge hub is a strong core of public research organizations (PROs). such as life sciences. they form a global knowledge hub. As these universities were international leaders in life sciences. The major universities (Stanford.(Saxenian 1994. but it shows the importance of close linkages between the same knowledge actors (Whittington et al 2008). we see that most of the global actors in the industry establish Journal of Competitiveness January 2011 . the driver was the venture capital industry. educating the most capable. mainly universities and independent research institutes. many entrepreneurs trained in life sciences saw opportunities for themselves. 2008). Formal ties include research partnerships. The pattern of development in Boston is even clearer than in the Silicon Valley case. Public R&D institutions play a pivotal role in knowledge generation. When a knowledge hub reaches a certain critical mass. Harvard and Boston University with their associated university hospitals. At the same time. set up their labs and test facilities in the Boston area. Stuart 2000). In sum. including major biotech and pharmaceutical companies from around the world. financial investments and manufacturing and marketing contracts. chemical and healthcare companies. Genome Technology (2008) placed Boston/Cambridge. 1999. The waterholes in the Silicon Valley became famous for rapid exchange of new ideas. At the early stage of development of the life science cluster in Boston. 114 organizations had 201 observed formal era. This industry does not 66 have its main hub in New York like the rest of the US financial industry. this means the labs and development units of dedicated biotechnology firms (DBFs) and the many pharmaceutical. university research hospitals and independent research institutes). doctors and scientists. but the Silicon Valley still kept up its reputation as one of the global new venture hubs. In the biotech industry.

Small worlds are characterized by intensive information exchange and shared values. The two overriding values are the drive to succeed scientifically and the drive to succeed commercially. although the membership of small worlds is often culturally diverse.centers of excellence in the same geographical location. 24 different governmental agencies had located there in 1999. This is where large numbers of small and medium-sized firms in the knowledge industry grow up. new ideas are turned into commercial success. brokers and consultants. There is. Mergers and acquisitions are frequent and sometimes major in nature. and of learning by hiring (Song. are very important in knowledge diffusion. The venture capital industry covers all stages of the innovation and entrepreneurship process—from early stage business angles and seed capital firms. intermediaries and service providers January 2011 Journal of Competitiveness that have an active supporting role in the knowledge hub. Within global knowledge hubs. As in regular industrial clusters. high-talent labor market that gives rise to network externalities that benefit all the actors in the hub. in particular. of course. e. Thus. What we find in studying knowledge hubs. The heroes are topnotch scientists and serial entrepreneurs that become rich in the process. Japanese Takeda Pharmaceuticals taking over Cambridge-based Millennium Pharmaceuticals in 2007 for $8. partly in terms of funding various R&D initiatives and also by setting industry standards and new regulatory regimes. Almeida & Wu 2003). Another important feature of global knowledge hubs is that they typically consist of several small worlds that are in intense internal rivalry. the distribution of the main components in Boston biotech inventions. 1976–2002. The global knowledge hub of the biotech industry in Boston is beautifully illustrated by cluster map in colors developed by Whittington (2007) in her doctoral research. extensive takeover activity taking place during the venturing process. Global knowledge hubs are different from research hubs where universities and R&D labs exist in splendid isolation from business and venture capital demands. taking advantage of learning by interaction and diffusion of knowledge (Sorensen & Fleming 2004). reducing communication barriers to almost zero. there are numerous suppliers. In knowledge hubs. The second layer of firms in a global knowledge hub consists of a competent venture capital industry that increases commercialization opportunities by funding ideas that come out of the universities and labs at the same location. try to play dominating roles. and this is where large multinationals.8 billion. to hard core venture capital firms going in at various stages of development before the most successful ventures reach the IPO stage and are quoted on the stock exchange. This again creates a dynamic. there is no time to rest on your laurels. The third layer in global knowledge hubs consists of the large array of technological and commercial actors that turn science and technology into products and services. investors constantly chase ideas and vice versa. like Genentech and Novartis. and innovation competition is fierce. As the knowledge hub also contains major world-class universities offering specialized graduate programs and high quality doctoral programs. young talents from around the world seek the same knowledge hubs.g. where large companies take over promising startups or spinoffs. This is the same network mechanism that is vital in open innovation (Chesbrough 2003)—creating social capital that facilitates innovation and commercialization. there is a small world of scientists and commercial actors (Fleming et al 2007) that are world experts within their areas of specialization. and they were all active members of the knowledge hub. This is done to be an integral part of the advanced learning and innovation milieu. giving entrepreneurs strong economic incentives to continue to innovate. is that governmental agencies may also play an important role. Actually. is illustrated by mapping the 67 . In both cases. such firms. Under such competitive circumstances. key biotech firms tend to belong to either one of the two spheres. Here. and in the biotech case. The scientific rivalry between Harvard and MIT is well known. although the roles may differ across nations. the role of private-public partnerships in innovation milieus seems to be a major driver.. In the Boston biotech hub.

you may well put the four “Research One” universities in Boston in the middle (Harvard. In the Boston biotech case. The knowledge plus orientation of American research universities (Mowery et al. Its geographical center is at Kendall Square. If we look at the innovation output in terms of patents in the biotech cluster in Boston. public research organizations (26%) and cross-sector (16%). faculty involvement on scientific advisory boards. Boston and Tufts). faculty entrepreneurship founding new companies.Fig 1: Boston Biotech Knowledge Hub Linkages Distribution of Scientific Clusters Main Component. I would place the universities and the public research institutions at the core of the hub. Recently. while one-thirds came form biotech companies. and formal contractual partnerships to pursue joint R&D. product or prototype development and clinical tests. It is fair to say that there are seamless relationships between universities and private business. biotech firms (38%). industry gifts supporting university research and student training. while many new commercial ventures come out of universities. two-thirds of the 900 biotech patents registered in Boston between 1976 and 1998 came from a university. 2004) include early movement of university graduates into com68 mercial firms. This forms the core of the global knowledge hubs. MIT . major international pharmaceutical firms like Pfizer and Novartis have located their R&D facilities at Kendall Square. in global knowledge hubs like Boston. In addition. In order to capture the structure of a global knowledge hub like the Boston life science cluster. Cambridge. The result is that much of published academic research now comes out of the R&D units of corporations. is the network of venture capital firms and investors surrounding the universities and public research institutions. This is a substantial economic force Journal of Competitiveness January 2011 . licensing of university technologies. The number of actors and their formal ties is incredibly high. Boston Inventors 1976-2002 Color Legend Reds: University (21%)All other colors: Biotech (38%)Light Grey: PRO (26%)Black: Crosssector (16%) formal inter-organizational ties between universities (21%). along with research hospitals like Massachusetts General and research institutes like Dana Farber Cancer Center and Whitehead Institute of Biomedical Research. there are many informal linkages and networks that are hard to capture in this type of quantitative network research. consulting relationships between faculty and companies. Mass which is also the home of MIT. What makes the core of R&D and innovation so successful.

commercialization and marketing.. The focus is on R&D. At the core of the global knowledge hub are the PROs such as universities and private R&D institutions. Network externalities can also be better realized if effective institutions for collaboration (IFCs) exist. The knowledge dynamics primarily come from R&D and small knowledge based firms rather than from manufacturing and large multinationals. the role of new standards and effective government regulations (REG) is critical in turning emerging industries into growth industries. and offering powerful incentives to those who succeed by taking an invention or innovation into the commercial stages.g. we can note the inversion from having the major manufacturing companies at the core. but also with large multinationals from the pharmaceutical and chemical industries (PHAR). The basic premise is that new business emerges from knowledge and market needs.funding the majority of the commercialization activity in the knowledge hub. These organizations also have a branding role for the global knowledge hub. These interact closely with venture capital and other competent investors that know the industry well. marketing and services that constitute the majority of value creation in most industries. e. thus offering venture capital to startup firms whose earnings are uncertain future prospects. If we compare the knowledge hub concept with traditional industrial cluster maps. working closely not only with PROs. The structure of the global knowledge hub in the biotech industry in Boston can be illustrated as in Figure 2. The role of university research hospitals is critical. The next layer of actors in global knowledge hubs is the whole array of commercial firms. while product development. covering the various stages of development. which in this sector represents both a resource and an important market. except in the funding of basic research and in large defense contracts. Only major corporations are able to do the same. This also changes the role of capital and investors whose role is to match the two. there are numerous suppliers and service providers serving the knowledge firms. Finally. to having the research and innovation at the core. Finally. The development of an efficient biotech knowledge hub also requires well functioning healthcare organizations (HCO). The knowledge-capital core is surrounded by a number of DBFs that breed on the ideas developed at the universities. there is a large fabric of specialized and supporting knowledge services (SSS) serving and developing the knowledge hub. The analytical model is one of value shops or value networks (Stabell & Fjeldstad 1998). The role of government money is limited. Universi69 January 2011 Journal of Competitiveness . This is the layer typically creating most jobs. Finally. testing. by corporate funding of internal ventures. manufacturing. the role of manufacturing is much more limited than in more traditional industries. Venture capital markets discount future earnings into the present. marketing and service represent the substanFig 2: Boston Biotech Global Knowledge Hub Structure PRO VC PRO DBF PHAR VC HCO DBF SSS PHAR IFC REG SSS HCO IFC REG Legend PRO Public Research Organizations VC Venture Capital Legend DBF Public ResearchBiotech Firms Dedicated Organizations PRO VC PHAR Venture Capital Pharmaceutical Industry DBF HCO Dedicated BiotechOrganizations Health Care Firms PHAR Pharmaceutical Industry SSS Health Care Organizations Specialized Supporting HCO Services SSS Specialized Supporting IFC Institutions for Collaboration Services IFC REG Institutions for Collaboration Regulatory Regime REG Regulatory Regime tial part of value creation. In knowledge-intensive industries.

suppliers and consultants. as it applies to the Norwegian maritime cluster. but Greece (shipping). The core of the Norwegian maritime cluster is the shipping companies providing seaborne transportation services worldwide. customers. The North Sea offshore oil industry has developed from much of the same maritime knowledge base. 2004). but also to a large extent what takes place of R&D among the commercial actors in the industry. particularly when it comes to new ship designs.ties and R&D institutes become industrial actors that are sometimes even more important than major business corporations. ranging from risk capitalists. not typically thought of as knowledge-intensive industries. The remaining parts of the maritime cluster are technical and commercial services. Thus. The Norwegian maritime cluster can be illustrated by Figure 3 (cf. Korea (ship building) and Singapore (port) are also strong maritime clusters. 2001:196). but includes a host of private capital and investors. Thus. The Norwegian maritime cluster can be traced back to about a 1000 years back when the Vikings ruled the Northern shores. ship owners from a country with less than 1/1000 of the world population control about 1/10 of world shipping. its knowledge intensity and the Fig 3: The Norwegian Maritime Cluster Offshore oil and gas industry Ship design Maritime education Specialized ship yards Maritim policies Efficient fisheries Human resource services Maritime R&D SHIPPING Advanced ship equipment Shipping finance Maritime IT Shipping brokers Shipping management Effective Ports and terminals Logistics systems Shipping insurance Shipping classification services Environmental standards UPGRADING INTERNATIONALIZATION dense network of interactions within the industry. The most complete maritime clusters can be found in Norway. On the one hand. the maritime industry. maritime IT and new commercial concepts. ship classi70 fication services and maritime law.. floating oil and gas production and subsea technology. Ship building in high-cost countries can only survive if it is able to innovate technologically. Shipping has no other resource base than the people owning and operating the ships. the Norwegian maritime cluster is becoming a knowledge-intensive industry. a large part of the maritime industry runs purely on the knowledge-serving global transportation markets. the Norwegian maritime cluster (cf. Unlike the Boston and Silicon Valley cases. making Norwegian companies world leading in new advanced sectors such as offshore oil drilling. GlobAl mAritimE knoWlEdGE hubs The maritime industry has been extensively studied in industrial cluster terms (Reve et al. advanced ship equipment. the next circle in the knowledge hub model does not mainly consist of venture capital. ship brokers. from the most advanced knowledge services to simple operational support. Jakobsen 2003. This not only includes universities and public research organizations. Japan and China. Interestingly enough. Norway is also home to some of the largest global actors in shipping finance. The Norwegian maritime cluster has been highly innovative. Reve et al. is presented in Figure 4. On the other hand. 1992. represents relative traditional industries. The maritime knowledge hub model. along with several other EU countries. marine insurance. private equity and large commercial investors with a long history of investments Journal of Competitiveness January 2011 . 2001. such as ship building and shipping. Given the large concentration of maritime actors in Norway. Figure 3) can be re-conceptualized as a global knowledge hub. At the core of the knowledge hub is research and innovation. in interactions among the various maritime actors. close knowledge interactions between academia and private business are vital in any knowledge hub. Much of this R&D activity takes place outside the labs. thriving on innovation and with the ability to commercialize maritime activities on a global basis.

The knowledge hub model applied to the Norwegian maritime industry. innovation and education at all levels. Thus.g. and the main challenge is to find out whether they interact closely enough to create network externalities that are so important to dynamic industrial clusters (Orvedal 2002). T EN M O 2 IR O n V • C lutio EN o l SR •P •C S ors NT rat t LE pe en TA w/O gem s re ana D • C • M • Ph 71 . is astounding. These include the global battle for talent and technology (Florida 2005). especially for a country like Norway. how G LO NO T s strong is the research and inCH • IC st ic TE gi y Lo nerg novation core. These four sectors have been described in detail in the maritime cluster studies. The economics have to do with world trade and global transportation markets. the maritime knowledge hub model is a normative model that can guide industrial action and industrial policy toward the maritime cluster. such as shipping. January 2011 Journal of Competitiveness First. in order for Norway to succeed as a leading maritime nation when facing keen competition from aggressive maritime nations in Asia. and maritime innovation milieus.. it Offshore is important to find out how industry closely the maritime industry interacts with PROs. The ability to fund large maritime projects. the Norwegian maritime industry funded 10 new maritime professorships (or research chairs) at Norwegian University of Science and Technology (NTNU) in Trondheim and BI Norwegian School of Management in Oslo. The recent global financial crisis illustrates the point. Environment has more and more to do with climate. e. This means strengthening maritime R&D. which in turn closely depend on upturns and downturns in the world economy. ship industry. and how well academia meets the future knowledge needs of the maritime industry. is also produced by carbon energy usage in the maritime industry. Oil prices play a particularly strong role. has two main purposes.. It also includes plans for creating the largest and most advanced research and testing facilities for ocean technology. maritime education. In particular. which is also a major oil and gas producer. Second. including investing in leading edge maritime knowledge at universities. offshore industry and maritime services. In fact. referred to as the Ocean Space Center. Finally. and the overall forces of economics and environment. the concept of Norway as a global maritime knowledge hub was pioneered by Oslo Maritime Network in an effort to strengthen the attractiveness of Oslo as a location for global shipping operations. and how close • E • do the various maritime actors interact.Fig 4: The Norwegian Maritime Knowledge Hub Shipping Investors Ship industry Research & Innovation S IC e d OM ra t s N al t arke cs O b ti EC Glo al m poli • lob al G lob • •G Venture capital Maritime services in the shipping industry. Initially. in the global oil and gas rig industry. e. In May 2008. the Global Maritime Knowledge Hub Initiative was launched in order to make Norway a global knowledge hub for maritime research. primarily the emission of CO2.g. I have added four external forces that will shape the maritime industry in the years to come. NTNU already had a Center of Excellence in maritime research— Centre for Ships and Ocean Structures (CESCO). it can serve as a descriptive model to guide empirical research of the Y maritime industry. Norway needs to strengthen its strategic core of maritime knowledge generation and dissemination. which of course. In the third circle of the knowledge hub model we find the critical mass of maritime actors that make up the majority of the maritime industry.

but it has relatively little emphasis on the knowledge content required in order to succeed. in cooperation with Nanyang Technological University (NTU) in Singapore. Plans and designs for the Ocean Space Center in Trondheim have materialized. Thus. What characterizes Singapore is its aggressive industrial policy toward attracting international knowledge-based companies. into one single government agency. Singapore also has a competitive offshore industry. there are close to 20 new privately-funded maritime professorships in place at four different universities and maritime colleges in Norway. Singapore derives much of its maritime power from its port. Again.” (The Straits Times. have been put forward by the Norwegian maritime industry. including ownership and operations of its ports. Figure 5. The figure comes out of the work of the 3rd Maritime R&D Advisory Panel of Maritime & Port Authority (MPA) of Singapore. 2007). cf. it is also possible to re-conceptualize the international maritime center of Singapore to a global maritime knowledge hub. Singapore has become a major location for shipping and maritime service companies. Proposals for a large national research program. Singapore wants to move from being a major hub port to becoming an international maritime center with a full suite of services.while BI had developed a Global Executive MBA program for shipping. Singapore has concentrated its maritime policies. sinGAporE CompArEd And norWAy Singapore has much of the same role in the maritime industry in Asia that Norway has in Europe. Thus. particularly in the maritime industry. In addition. 26. Research. there are four major industrial sectors constituting the majority of the corporate content of the mari- A Global Maritime Knowledge Hub shall propel the Singapore Maritime Cluster ks or AL Y B M LO O G ON EC tw Ne GY LO NO CH TE PORT TA LE NT VENTURE CAPITAL SHIPPING RESEARCH INNOVATION EDUCATION MARITIME SERVICES INVESTORS IN CE NT IV ES OFFSHORE & MARINE ENGINEERING s I TY ie RS lic IVE D Po A L ON OB TI GL U L A P PO Journal of Competitiveness January 2011 GLOBAL ENVIRONMENT AL S OBTIC GLOLI P . Maritime & Port Authority (MPA) of Singapore. and a similar number of professorships and maritime research centers are under negotiations. environmental technology and arctic technology. offshore and finance. strategically located on the major sea route between East Asia. ocean technology. “Biotechnology and pharmaceuticals are ‘sexy and glamorous’ industries. called Maritime 21.. with leading shipbuilding companies specializing in drilling rigs and floating production vessels. Minister Mentor Lee Kuan Yew recently put things more in perspective. as well as on new business models for the maritime industry. innovation and education have been placed at the core of the global maritime knowledge hub of Singapore. including many Norwegian Fig 5: The Singaporean Maritime Knowledge Hub companies. surrounded by a network of venture capital and competent investors. Middle East and Europe. focusing on such knowledge-based industries as IT and biotech. although its strategic base is different. Sep. The international maritime center idea corresponds closely to a global maritime cluster. 72 Although Singapore wants to become one of the high-tech players of Asia. focusing on demanding maritime operations. Two years later (in April 2010). where the author was one of the international members. but the maritime sector is basic to Singapore’s development.

while Korea has a strong position in ship building. More and more shipping companies are placing their global or Asian headquarters in Singapore due to favorable tax rates and a good infrastructure. Japan and China are candiJanuary 2011 Journal of Competitiveness dates to become global maritime knowledge hubs. but the two major universities. Both in maritime research and maritime education. In the maritime industry. e. and its global reach. the relative amount spent for R&D (as percent of sales). with Norway. the number of knowledge alliances. shipbuilding and ship equipment) is mainly located on the northwestern coastline of Norway. Greece already has such a position when it comes to shipping. This in turn has lead to an influx of many maritime service companies. What is common is to find more specialized global knowledge hubs. Offshore and marine engineering consists of two major ship builders focusing on offshore structures. The more advanced end of the shipbuilding industry invest in long term technological innovation. while the ship industry (ship design. building international R&D bridges. Japan. working closely with major clients. as well as launching several maritime educational programs. Most ship yards around the world do little or no research and development. Korea and China when it comes to maritime R&D. shipping is concentrated in Oslo and Bergen. its emphasis on innovation and commercialization. The same type of specialization can be observed within countries. becoming a global knowledge hub for a specific industry is more a long term goal than a reality for most regions. Norway. and there are also major oil terminals and a petrochemical industry that are important for the maritime industry. The knowledge intensity can be measured by the knowledge composition of the workforce (percent of workforce with PhD and MSc). The underlying rationale is that industries in regions compete not only in terms of productivity and low cost. The battle is often times over the location of centers of excellence that the multinationals set up in several countries. offshore & marine engineering and maritime services. and the competitive edge is to be the cheapest. while Rotterdam and Hamburg have strong maritime hub positions as ports and maritime services. but more importantly such measures apply to the industrial cluster in a given region. and even the more knowledge-intensive industries have room for more than two or three global knowledge hubs. shipping. competing on innovation is simply a must. It all started with the strategic location at the Malacca Strait. the number of patents obtained. These measures can be calculated for individual companies. expanding into global offshore markets. suppliers and public research organizations. etc. knoWlEdGE-bAsEd industriAl dEvElopmEnt poliCiEs Global knowledge hubs are rare.g. and A*Star (Singapore’s Research Foundation) has initiated R&D programs. MPA has been instrumental in setting up strategic alliances with Norway. For high cost locations like Norway and Singapore in the maritime industry. MPA has established a Maritime R&D Fund of S$ 400 million. Singapore is also a major port for bunkering and repairs.time knowledge hub. They simply build according to spec. Singapore lags behind Norway. 73 . and it is fair to say that the port is still the major driver of the Singapore maritime industry. Boston and San Francisco Bay are examples in the biotech industry. Singapore. London has a global knowledge hub position when it comes to the financial aspects of shipping. In Norway. but also in terms of innovation and knowledge content. initiated by MPA. In Singapore these sectors are port. Nanyang Technological University (NTU) and National University of Singapore (NUS) have started activities in maritime research and development. What distinguished industrial clusters from global knowledge hubs is the reliance on research and development. This can be done by attracting a critical mass of maritime actors that spend substantial amounts of resources on R&D and who interact closely to create knowledge externalities that benefit all the actors in the knowledge hub. Thus.

A key requirement again is the availability of competent risk capital. In both industries. More and more such knowledge hubs are able to attract talent and companies from many countries. as in so many other industries. Florida (2005) refers to this as tolerance and acceptance for diversity and a multi-cultural population. Norway. both in the educational phase and in the industrial practice phase. Based on the premise that knowledge forces are similar across industries. are stronger incentives for R&D and innovation. putting schools. Stability. and new commercial actors emerged from the new knowledge base. but it also has a strong cultural component. Such a thesis asks for new comparative research. labs and test facilities. The catalogue of cluster-based policies needed to stimulate the growth of global knowledge hubs is still not complete.g. and improved venture capital markets. manufacturing and operating globally. Norsk Hydro was established based on a new technology invented by a research scientist. The knowledge hub model. where specialized and basic knowledge meets demanding markets with a drive to commercialize. while Norway and Singapore may well take similar global knowledge hub roles in the maritime industry. Examples include developing world class universities. What governments need to consider. Used Journal of Competitiveness January 2011 . It is not new to reframe industrial policy into innovation policy (e. security. this was also how most other industries were originally created. Yara is the world’s largest fertilizer producer. Boston and San Francisco Bay have such roles in the biotech industry. This is not simply a question of policies and regulations. better knowledge infrastructure. The major common competitor in the maritime industry is China. we find global knowledge hubs that take lead roles in shaping these industries. William Birkeland. creating a highly attractive labor market and large opportunities for entrepreneurship. universities. however. but there are also examples of how new knowledge hubs have been created by clusterbased policies focusing knowledge and network development. along with the hard and soft infrastructure required to attract knowledge-based companies and highly educated staff on a global scale. These industries were created in 74 research labs. but also for more vocational and technical colleges. What we see is that common tax subsidies are replaced by more focused knowledge-based policies. Sam Eyde. easier immigration rules. One of the main theses in this paper is that industrial development mainly comes from innovative industrial environments. The implications of the knowledge hub model for industrial policies have not been fully spelt out yet. educating the specialized workforce needed in a particular industry. Today. have serious problems in meeting the cultural dimensions of knowledge development. R&D. Another thesis in this paper is that the development of knowledge-intensive industries is basically similar to the development of other industries. Universities. now Yara. and more work needs to be done to understand all the mechanisms inherent in knowledge-based industrial development.g.. Take a traditional and mature industry like the fertilizer industry and the establishment of Norsk Hydro. venture capital and competent investors have particularly critical roles in such knowledge hubs. Many totalitarian countries. e. puts the main emphasis on knowledge policies.Such global knowledge hubs also attract the best talents. sometimes even globally.. Often it is a matter of making it simpler to locate companies and easier to do business. On the other hand. Global knowledge hubs are path dependent and culturally bound. the maritime industry has been analyzed in largely the same terms as the biotech industry. innovation and entrepreneurship at the center stage. specialized research institutes. public research organizations. OECD 2008). rather than considering these knowledge functions as support services to corporations. This gives a special role for the research universities. This is very clear when you study new and emerging knowledge industries. a clean environment and good quality of life can also give a region a competitive edge. in the Middle East. who convinced a venture capitalist. such as biotech and nanotech industries. to put money behind the idea of taking nitrogen out of the air by using electricity generated by a water fall at Rjukan. here called global knowledge hubs.

normatively, the global knowledge hub model points to knowledge-based industrial policies that are different from what is typically implemented in industrial development.


This paper argues for a new knowledge-based paradigm for understanding industrial development. Rather than understanding the firm as manufacturing or seeing firms as part of industrial clusters, industries can be analyzed as knowledge hubs. Global knowledge hubs have world class universities and public research organizations at their core, and are in close interaction with venture capitalists and competent investors. From this knowledge core, extensive industrial development can take place, as illustrated by the development of the Boston biotech industry. Based on the premise that most industries are becoming knowledge-based, and that knowledge dynamics are basically the same across industries, the global knowledge hub model was applied to the Norwegian and Singaporean maritime industry. Both countries are in a strategic position to shape the future development of the maritime industry, but this requires substantial knowledge investments and closer interactions between the actors in the industry and between private industry and academia. The global knowledge hub model can be applied both as a descriptive model of industrial development or as a normative model for industrial development policies. Both approaches ask for new comparative empirical research.

1 Asheim, B.T. (2000), Industrial Districts: The Contributions Of Marshall And Beyond”, The Oxford Handbook Of Economic Geography, G.L. Clark, M. Feldman & M. Gertler, Eds. Oxford, Uk: Oxford University Press, Pp. 413-431 2 Chesbrough, Henry W. (2003), Open Innovation: The New Imperative For Creating And Profiting, Boston: Harvard Business School Press
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3 Fleming, L., C. King & A. Juda (2007), “Small Worlds And Regional Innovation”, Organization Science (Forthcoming) 4 Florida, Richard (2005), The Flight Of ThE Creative Class, New York: Harper 5 Genome Technology (2008), “20 Best Places For Biotech”, June 2008, 35-39 6 Håkansson, Håkan & Ivan Snehota (1995), Developing Relationships In Business Networks, London: Routledge 7 Jakobsen, E.W. (2003), Regional Maritime Norway, Research Report, Bi: Center For Value Creation, Sandvika 8 Jakobsen, E.W. (2004), Attracting The Winners: The Competitiveness Of Five European Maritime Industries, Research Report, Bi: Center For Value Creation, Sandvika 9 Krugman, P (1991), “Increasing Returns And . Economic Geography,” Journal Of Political Economy, 63: 483-499 10 Lunnan, R. & S.A. Haugland (2008), “Predicting And Measuring Alliance Performance: A Multi-Dimensional Analysis,” Strategic Management Journal (Forthcoming) 11 Mowery, David C., Richard R. Nelson, Bhaven Sampat & Arvids Ziedonis (2004), Ivory Tower And Industrial Innovation, Stanford, Ca: Stanford University Press 12 Orvedal, L. (2002), “Industrial Clusters, Asymmetric Information And Industrial Policy,” Research ReporT, Snf, Bergen 13 Porter, Michael E. (1985), Competitive Advantage, New York: Free Press 14 Porter, Michael E. (1990), The Competitive Advantage Of Nations, New York: Free Press 15 Porter, Michael E. (2993), “The Economic Performance Of Regions,” Regional Studies, 37: 549-578 16 Reve, T., K. Grønhaug & T. Lensberg (1992), Et Konkurransedyktig Norge, Oslo: Tano 17 Reve, T. & E.W. Jakobsen (2001), Et Verdiskapende Norge, Oslo: Universitetsforlaget 18 Saxenian, A. (1994), Regional Advantage: Culture And CompetItion In Silicon Valley And Route 128, Cambridge, Ma: Harvard University Press

19 Song, J., P Almeida & G. Wu (2003), “Learn. ing-By-Hiring: When Is Mobility More Likely To Facilitate Interfirm Knowledge Transfer?” Management Science, 49: 351-365 20 Sorensen, O. & L. Fleming (2004), “Science And The Diffusion Of Knowledge,” Research Policy, 33: 1615-1634 21 Stabell, C.B. & Ø. Fjeldstad (1998), “Configuring Value For Competitive Advantage: On Chains, Shops And Networks”, Strategic Management Journal, 19: 413-437 22 Stern, L.W. & T. Reve (1980). “Distibution Channels As Political Economies: A Framework For Comparative Analysis,” Journal Of Marketing, 43: 52-64 23 Stuart, T.E. (2000), “Interorganizational Alli-

ances And The Performance Of Firms: A Study Of Growth And Innovation Rates In A HighTechnology Industry,” Strategic Management Journal, 21: 791-811 24 The Straits Times (2007), Article, Sep. 26, 2007, P 3 . 25 Whittington, Kjersten Bunker (2007), “Employment Sectors As Opportunity Structures: The Effects Of Location On Male And Female Dissemination,” Ph.D. Dissertation, Stanford University, Stanford, Ca 26 Whittington, Kjersten Bunker, Jason OwenSmith & Walter W. Powell (2008), “Networks, Propinquity And Innovation In KnowledgeIntensive Industries”, Administrative Science Quarterly, (Forthcoming)


Journal of Competitiveness

January 2011

from thE indiA City CompEtitivEnEss rEport 2010

January 2011

Journal of Competitiveness


With both rural and metropolitan regions providing at least the basic level of competitiveness. The 2010 World Development Report provided significant evidence on how cities and different levels of economic activity across space therefore have to become a more important aspect of the policy dialogue on development. and to then translate them into profitable products and services. Cities turn out to be the places where different types of proximity benefits can reinforce each other—specialization in specific clusters can occur as well as cross-cluster agglomeration of general types of activities. Porter’s Institute for Strategy and Competitiveness and Member of the Advisory Board. In less-developed economies. the policy imperative for cities as well as for rural regions is essentially the same. and many other aspects of competitiveness weakly developed in rural regions. this empirical fact has been more widely acknowledged.CitiEs.and less-developed economies is the need to focus on the specific role that an individual region can play. member of the Harvard Business School faculty at Professor Michael E. What is true in both more. a specialized cluster of related and supporting activities is needed. CompEtitivEnEss. This is why in developing economies the rise of cities is seen as an inevitable part of development. The specifics steps that are needed. From the competitiveness perspective. cities are able to play a radically different role. And EConomiC dEvElopmEnt: untAnGlinG thE linkAGEs Dr. as these huge agglomerations struggle to provide public services to an exploding number of citizens. But to evaluate whether these ideas have any market potential. Ideas are born where different intellectual traditions and approaches meet. It also creates the need for policies that enable citizens in rural regions to develop their own economic opportunities. education. however. The growth of cities is thus more a reflection of the development challenges that exist elsewhere in these economies. cities tend to be the only places where companies and individuals find opportunities for successful economic activity. but also as a policy challenge—it creates the need for policies that enable cities to cope with the massive demands that are placed on them. not so much a sign of true improvements. In advanced economies. This requires for Journal of Competitiveness January 2011 78 . the choice of where to locate specific economic activities becomes an issue of relative productivity and cost levels. Institute for Competitiveness emphasizes the need for Indian cities to have a clear competitive agenda in order for the nation to achieve higher competitiveness. With infrastructure. As the interest in economic geography has increased. Christian Ketels. the growth of cities and the increasing level of urbanization are largely a reflection of the widespread weaknesses that exist in economic conditions. This mixture is especially important for innovation. In fact. differ significantly based on the type of locality and the level of economic sophistication it has reached. This allows cities to attract activities that are usually more skill-intensive and where there are strong local knowledge spill-overs while rural regions attract more capital-intensive or labor-cost sensitive activities in standardized production processes. M ore advanced economies are more urbanized economies. the rise of mega-cities in many developing economies creates many problems of their own. High-skilled people are attracted to places that provide variety and interesting contrasts. independent of the stage of economic development—develop the competitiveness of the local economy in order to achieve higher levels of company productivity and thus support higher levels of prosperity. The challenge is to avoid a political schism between metropolitan and rural regions that would threaten to halt urbanization and thus hurt development.

It is crucial to enable less-advanced manufacturing activities to be placed in rural regions in the vicinity of the cities. This has created increasing pressure on an already struggling transportation system. this approach has failed and made living conditions worse. infrastructure investments. and in fact control many policy tools in land planning. limits the height of buildings. There are no magic solutions. state and local. while creating real economic opportunities outside of the city as well. What is needed is a different policy approach that focuses on better public services and land use inside the city. Mumbai. This division of labor can relief pressure on the city’s infrastructure and create economic opportunities outside of the large agglomerations. it is hard to see how a nation like India can make any sustained progress in its overall quest for higher competitiveness. In the past. there needs to be a competitiveness-oriented policy approach that changes the economic fundamentals of where people live and work.cities and for the rural regions around them to cooperate closely. Without cities that push for competitiveness. But there is an increasing realization that cities are not helpless. and the implementation of general policies set at higher levels of geography. The city can provide the advanced services and management functions. which has reduced space use and forced people to live farther and farther away from the city center. In many cases. January 2011 Journal of Competitiveness 79 . the rural regions the land and lower cost labor. But there is a need to move away from the failed approach of dealing only with the consequences of increasing urbanization. Cities need to have a clear competitiveness agenda. Instead. but the city is less efficient in providing even basic services in terms of housing and infrastructure than it could be. especially in developing economies. Mumbai has continued to grow nevertheless. for example. Rent control has further reduced the incentives for land owners to re-invest in housing stock. cities—also in India—have tried to manage their growth by creating artificial limits. Many of the policy choices that have to be made in order to enable a balanced development of cities and rural regions require the action of all levels of government—national.

the first challenge that the governance faces for industrialization is the formation of clusters. financial institutions and other service providers prop up together linked by complementarities and commonalities. Maharashtra contributes approximately 15% of the national GDP Another striking example of the effect of urbanization is Delhi. the diamond industry in Surat. Easy access to raw material and labor. The Alappuzha coir cluster. the cotton yarn industry in Ahmedabad and numerous other examples indicate the prerequisite presence of a cluster for the industry and the region to prosper.22% of the world export of non-industrial diamonds and iron ore and concentrates contribute 14. Close to 65% of India’s exports stem from clusters. Thus. Amit Kapoor. Institute for Competitiveness explains how clusters can transform and add value to the competitive landscape of a city. Chandigarh as a tech hub failed as they could neither cater to the demand of engineers and the like for the industry nor support the inflow of migrants who filled the job vacancies. Clusters create the impetus for innovations and competitiveness and facilitate commercialization. size and population. Downstream and backstream industries. Location development cannot. With Nashik.20%. rapid diffusion of technological innovations and incentives against rivals enable newer lines of products and opportunities to get readily developed and absorbed in the market stream. Thus far. but there is no such thing as a high-tech industry. an electronic hub due to its proximity to Chennai (Bombay High and Alappuzha near Mumbai and Cochin. The diamond cluster contributes 17. the petroleum cluster in Bombay. Mumbai. Professor of Strategy and Industrial Economics. a lackluster village near Chennai with no history of industrialization is the largest electronic hub in India.GroWinG With ClustErs Dr. These regions had the resources but the means to process them came from their neighbors. the leather cluster in Chennai. despite a small . Location development must 80 Journal of Competitiveness January 2011 C . educational support. The focus of this article is to highlight the importance of clusters and drive location advantages to convert to economic benefits. Companies in the same domain can be seen operating with different quotients of technological prowess. Urban agglomerates possess the factors required for a cluster to develop. Urban centers allow for concentrated economic activity and specialization and hence. India has focused on creating industrialization. however. territorial development and international integration for a country to grow economically. Management Development Institute (MDI) and Honorary Chairman. Pune. Industrialization could never reach pinnacles of international integration without cluster formation and industry specialization. The misconception was that only a high-tech industry would lead to growth. cluster formation comes more naturally. respectively. The World Bank has released a status report “Reshaping Economic Geography” on the world economic regions and emphasized on urbanization. ities and townships are the vantage point for the growth and development of states. Infrastructure and human expertise available due to their proximity to relatively developed cities enabled the regions to specialize and their industry to grow. this city-state contributes about 3% of the GDP Sriperumbudur could develop into . Close to 36% of the population in Maharashtra and 45% in Goa live in urban areas and their annual growth rates are 9 and 10%. be carried out oblivious of the inherent advantages of the location. respectively). Agriculture can be done with sophisticated machinery and give high returns. Clusters perform a function as basic as bringing the worker and the machinery together to manufacture. Nagpur and other centers of economic activity within the state. Sriperumbudur. but its accidental confluence with urbanization and clusters has provided the governance with a tool for enabling industrialization in lieu of creating it.

urbanization remains a challenge for India with more than 70% of its population falling under the rural category. India reels under the burden of income disparities and economic backwardness and urbanization would encourage industrial clusters to create the much-needed income and employment opportunities. Economic policy should reinforce the established and the emerging clusters. however. The Indian economic geography is waiting to be mapped. A cluster-based regime would open the doors for competitive advantage to lead the entourage towards growth and progress and unlock umpteen avenues for states and regions to create an agglomeration of prosperity. but the decrepit state of their infrastructure tells a different tale. in consideration with the local resources. January 2011 Journal of Competitiveness 81 . regulations need to be carefully laid out. Bengaluru and Gurgaon emerged with great promises parallel to that of the Silicon Valley and Singapore. Another major barrier in cluster formations and urbanization is the creation of unsustainable urban agglomerates.

integrity and transparency of government actions. In doing so. The World Bank provides technical assistance and advisory services to assist in public administration reforms and capacity building at the level of local governments. Good governance implies effective political institutions and the responsible use of political power and management of public resources by the state. the international community reached a consensus that good governance is not only an aim in itself. norms. Essentially. It is also necessary to define the tasks to be undertaken at each government level—central government. Particular attention is devoted to the needs of the weaker members of society. Human rights play a particular role in this context. local authorities and regions are not able to solve all of society’s problems. Good governance is guided by human rights and by the principles of the rule of law and democracy. and the development of local and municipal government. especially women’s rights. regional authorities or local administrative units. such as equal political participation for all. it implies the promotion of locally appropriate approaches. skills. It means supporting smart and effective government and administrative reforms. it not only cooperates with government institutions. national. ood urban governance means inclusion and representation of all groups in the urban society. An important criterion for dealing with the question of governmental organization is the 82 Journal of Competitiveness January 2011 G . Capable urban management means the capacity to fulfill public responsibilities with knowledge. It involves the state. the law must regulate which of these the state is required to perform. as well as accountability. but it must also promote and strengthen civil-society actors. Decentralization is crucial to the whole process of creating better. but also the civil society at the local. formally and informally. processes and institutions by which society manages its development and resolves conflict. succinctly describes how improving governance—at the central. the decentralization and regionalization of state power. resources and transparent procedures. the ultimate success is determined by national policies and local leaders’ willingness and ability to carry out their mandates. Effective works in the field of law and justice means fighting corruption and promoting the responsible use of public finances. regional and local levels—is now a critical part of the agenda for urban economic growth and social development worldwide. companies and associations approach the state requesting an enormous diversity of services. but also a key factor in attaining human development and in successful poverty reduction and peace-building. smarter and cleaner urban governance. Good governance. However. thus. Firstly. Decentralized governmental structures work closer to the grassroots and are more cost-efficient and flexible. extends beyond the public sector to include all other actors from the private sector and society. Citizens. we need a good definition to guide our thinking: governance is the science of decision-making. it is about the interaction between democracy. Some of the most important work now underway on good urban governance covers the promotion of democracy and rule of law. social welfare and the rule of law. In the United Nations’ Millennium Declaration. There isn’t a single model that could fit the complex process of local capacity building in all countries across the region.Good urbAn GovErnAnCE: An impErAtivE for EQuitAblE GroWth Gordon Feller. The concept of governance refers to the complex set of values. CEO of Urban Age Institute. regional and global levels.

Cities with good governance have a greater potential to create and support good living conditions. are growing demands on the capacities of municipal institutions.‘subsidiarity’ principle. January 2011 Journal of Competitiveness 83 . public resources must be stretched to meet the needs of the growing numbers of urban dwellers. As national-level public funding dwindles for cities. and how? And who monitors the actors? In order to find technically and needs-appropriate solutions. civil society and the private sector in these decisions on reform. access to infrastructure and services. and participation in political decision-making. a growing number of government actors are focusing on performing the tasks allocated to them—what competencies do the local authorities need in order to promote local development? How can the support measures be organized so as to produce sustainable results? This also means involving representatives from the regions and municipalities. Many governments and parliaments are in the process of defining these tasks. For which services and corresponding infrastructure measures is the state itself responsible? Which tasks can it entrust to others? How does it plan and finance these? Which government levels should perform which tasks? Should responsibility lie with the central government. however. Accompanying these opportunities. These cities have a better chance to offer their inhabitants a more equitable share in economic growth. or a regional or local authority? Who decides on the quality of services. Many countries want to exploit the advantages offered by an expedient allocation of tasks within the government administration. This is one of the central challenges of our time. This requires regulating decision-making responsibilities and earmarking sufficient resources for implementation. This says that tasks should be performed wherever possible at the closest level of competence appropriate to the given situation.

the University of Michigan Transportation Research Institute and TCAUP the Taubman College of Architecture and . Professor of Strategy and Industrial Economics. pollution and climate change. While urbanization traces a new path for the Indian populace to race and prosper. in Ann Arbor) tell us how innovations in information technology can pose some solutions. and the provision of infrastructure to support the influx is insufficient to create conditions for the smooth flow of all forms of traffic. day-care centers. some exciting options are emerging. Hours are wasted managing the traffic situation in place of working productively. The cost of doing business rises as employers need to get their employees to work. PDA or information kiosk (for those who cannot afford a cell phone). that may just meet urgent transportation needs and result in business opportunity and urban competitiveness at the same time. Urban Planning. The dual economy means different modes of transportation are suited to needs differentiated by variance in income. a project of UMTRI. all linked for information and fare payment through a cell phone. not to mention the longer-term threat of climate change. PDAs. The number of cars and private transport are on the rise as towns and urban areas expand. Managing Director of SMART (Sustainable Mobility & Accessibility Research & Transformation. human-oriented. Amit Kapoor. the pace of the Indian economy is slowed down due to its grossly inadequate infrastructure. As such the need-of-the-hour is not just a more fuel-efficient technology (that will actually continue eating up that space). The information is relayed in real time on the arrival. The system works to offer smooth transition between various modes of Journal of Competitiveness January 2011 84 . Fortunately. desktops and cell phones. maps. and safety to be ignored or reasoned only in the wake of congestion on the roads. designs and infrastructure to create an urban portfolio that permits an easy. shops and services. there is no space left and the urban areas are only attracting more people. The problem is not small. I ndia reels under the burden of congestion and traffic. In a nutshell. shops and entertainment. The implications of the rise in urban population on urban transportation and subsequently on business require urgent attention. infrastructure. and the insufficient routes and roads available are the prime reasons for the hours-long traffic congestion that most people in metropolitans have learnt to live with. convenient. What’s more. Management Development Institute (MDI) and Honorary Chairman. Dr. integrated system that connects and optimizes all modes and services in an innovative and cost-effective way. The transportation problem has too farreaching an impact on land use. and future projections indicate we are nowhere near closing those gaps. services. Precious time is wasted waiting in traffic jams and at signals. Much as our present telecommunication network has evolved to include and connect iPods. laptops. SMART’s innovative approach integrates the various IT technologies with a wide range of transportation modes. satellite offices. door-to-door trip. but rather a more multi-faceted. Only a step outside the house would link the traveler to ‘New Mobility Hubs’ or places that connect a whole range of transport modes and amenities. The woefully inadequate public transport system. etc. The current state of transportation leaves vast gaps between demand and supply. in turn creating a bigger mess on the roads if the system is not properly integrated and optimized (which is usually the case). the health and welfare of all urban dwellers are compromised with the rise in pollution. Institute for Competitiveness and Susan Zielinski. and the subsequent consequences cannot be ignored.smArtEr indiA Transportation bottlenecks increase business costs considerably in Indian cities. cafes. departure or availability of transport modes and services including information on restaurants. urban sprawl.

Apart from addressing urban congestion. multi-modal urban transportation stand to tap rapidly emerging (and sizable) ‘New Mobility’ markets. Imagine getting information about the waiting carpool to reach the nearest metro station just in time to leave in the ongoing train. this approach has the potential to provide an ideal opportunity for businesses and entrepreneurs to develop integrated New Mobility systems building on the FordSMART collaboration. A person needs to just pick a waiting car or train or hop on to the next bus cutting delays to the minimum. It also works to offer new “last mile” services that provide on-demand transfer from the hub to the front door. 50% of the world lived in city regions. The exciting co-benefit of addressing the urban transport challenge is that companies and entrepreneurs that work together to respond to the need for sustainable. In the next 20 years that figure will climb to 2/3 of the planet). integrated. and then offering solutions that support the public good and stimulate new business opportunities at the same time. all within a single. Public-private partnerships can make room for public-private innovation where business is involved from the outset in understanding and codefining the problem. business-positive) solution. effortless and non-stop journey. on how companies will envision the India-specific needs and opportunities and uses of New Mobility Hub Networks and how they might create an intricate web of technology and transport to simplify the current complications of the urban agglomeration and offer an almost perfect (and cost-effective. In this spirit. (In 2007. January 2011 Journal of Competitiveness 85 . The question remains however. SMART and Ford have engaged a myriad of industry partners related to the future of transportation (New Mobility) to support a comprehensive entrepreneurial and business base.transport and to use the information on scheduling and options to plan the most appropriate path or journey. efficiency and speed. The initiative promises to change the way cities comprehend urban transport. SMART (Sustainable Mobility and Accessibility Research and Transformation) is an initiative of the University of Michigan that began in collaboration with Ford Motor Company around 2005 to address the transportation challenge in global cities as the world rapidly urbanizes. All the modes of transport are streamlined to form a single network to transport people with smoothness. only to be dropped to the office or may be the airport.

html). Urban habitats in South Asia (a region that gave us the immaculately planned towns of the Indus valley Civilization thousands of years ago). warns of impending disaster unless a realistic needs assessment of the infrastructure needs of Indian cities is made. questions about the sustainability and survival of the city and its population acquire great urgency. with the number of agencies in charge of the capital’s water supply. Let us look at a few telling statistics for solid waste. Per capita waste 86 Journal of Competitiveness January 2011 H .in/divisions/cpoll/delpolln. much less an effort to ameliorate the situation. For the capital city of Delhi alone. Mega cities. umans have used nature’s assets since time immemorial in the belief that these resources had always been around and would be so forever. The finiteness. health services and pollution control. The stark reality facing us and demanding answers is that nature’s assets need to be secured and only then can human security be ensured. in particular. will be the ultimate motivation and test for city governments and managers. Sanitation and waste management strategies are beginning to be talked of only for mega cities. are fast becoming vulnerable to multiple hazards. In the rest. energy. of nature’s life-sustaining treasures like water. as per Prof. Kumon.750 tons per day by 2015 (http://www.envfor.hAbitAts At risk: ChAllEnGEs of urbAn GovErnAnCE in indiA Raj Liberhan. there is no regeneration of sources of supply. and given the absence of a perspective plan for managing our cities. Water availability is an issue and its quality an even greater issue. though our perspective solely from the prism of human security distorts the solutions we seek. are crucibles of hazards. and indeed in much of the developing world. plague every city. fossil fuels and forests has come home in a pointed manner to policymakers and consumers alike. this figure is expected to increase to about 12. According to the 1997 White Paper on Pollution in Delhi. The cumulative impact of the needs of burgeoning urban populations is depleting physical resources. and is pushing us to rapidly find substitutes. Ultimately. Energy concerns. who seek a better quality of life. Smaller cities too are deteriorating at an alarming rate and there is not even a modicum of concern in evidence. water and energy as illustrative examples. sanitation in small and medium towns is virtually non-existent. Director India Habitat Centre. supplements and replacements. pressure from the citizens. The two are closely interlinked. Similarly. There is no doubt that the state is making efforts to provide for capital investments in infrastructure and services at the city level as well as undertaking urban reforms (the Jawaharlal Nehru National Urban Renewal Mission is an important example). disposal of waste generally implies throw-what-you-do-not-need-in-any-vacant-site. If we couple this with the inadequacy of the solution providers one could argue not much time is left before the inadequacies swamp any chance of a solution. sanitation. however. both of availability and access. This anthropogenic focus leads to a lopsided investment of time and money and consequential unsatisfactory outcomes. it could be reasonably assumed that the city enjoys an enviable standard of cleanliness and health. Nothing could be further from the truth. The implicit view was ‘use what you need and do not worry about regeneration or replacement’.nic. About 6000 tons of solid waste was generated daily in Delhi during 2004. up from 1960 tons in 1981. The big question is—will our cities survive? Or is there certain inevitability about the degradation of city infrastructure and civic amenities that no organization or planning process can address as the volumes to be serviced are huge? In this context. big or small. the current state of civic infrastructure is a sorry tale and the challenges are enormous. However.

The Najafgarh drain contributes 60% of total wastewater.teri.delhijalboard. 75% of the samples taken from hand pumps were found unfit for human consumption. the treatment quality was/ is not up to the desired level of secondary treatment. Innovations are required to reduce inputs per unit of output (resource management efficiency). transport. solid waste generated daily per person has increased from about 295 grams in 1947 to 490 grams in 1997 and is expected to further increase to 945 grams by 2047 (http://www. What we need is an analysis of our cities’ strength and deficits on five fundamental parameters that will determine their survival and growth or extinction. The estimated land required for disposing such huge amounts would be humongous. the resultant disaster is going to happen sooner than later. In the process. op. What happens to the rest? Where does it go? For the country as a whole. The gap between demand and supply is partly being met by extraction of groundwater through wells. and the city will be forced to use brackish and saline water. In our view. a substantial quantity of untreated sewage and partially-treated sewage is discharged into the Yamuna every day. htm#waste). and 45% of the total BOD load being discharged from Delhi into the Yamuna. The municipal sector is the main source of water pollution in terms of volume. if no changes take place on demographic and related fronts January 2011 Journal of Competitiveness 87 . Yet our urban centers are growing by the day. At a general level it can be said that India’s economic growth will continue to be hampered because of power supply constraints. these are absolutely critical and unless development in these areas keeps pace with demographic trends. devalt. This includes waste from households. technology supplements and strategies to keep ahead of the volumes that will impact our cities. We need realistic surveys and needs assessment of our cities on a given set of indicators. industries and medical establishments.htm).). With respect to water pollution even though Delhi constitutes only 2% of the catchment of the Yamuna basin. There are 16 drains that discharge treated and untreated waste water/sewage of Delhi into the Yamuna river. make an assessment of current pace of investments and the levels needed. Out of this. In addition. Though the installed capacity for treatment was 1. Thus. These are water. In depending on economic status. energy. tube wells and deep-bore hand pumps. we take a brief look at the energy scenario. With respect to groundwater as well. sanitation and waste management. only 65% gets collected per day by the Municipal Corporation of Delhi and another 10-12% by other agencies (http://www. for example: n Business-as-usual. to assess the visible risks.270 mld. the two thermal power plants burning coal produce 6500 tons of flyash daily. Further. What does this bode for India’s cities? The stories and statistics of shortages can be repeated across the length and breadth of the country. and augmentation of input flows (resource mobilization).in/djbdocs/r_w_harvesting/ harvesting1. restrict consumption of services (efficiency in service delivery). about 1900 mld of wastewater was discharged from the municipal sector (up from 960 mld in 1977) and 320 mld from the industrial sector. we also need to take a hard look at structures of governance and their capacity to address the challenges of the five fundamental factors for city survival and growth. alternative scenarios need to be worked out. cit.generated ranges from 150-600 grams daily. The power situation is grave.nic. Finally. It is clear that placing the management of cities on the roadmap to sustainable development will require interventions on many fronts. It is estimated that water quality and availability problems will become acute in the near future because fresh water sources will decrease. yet the area contributes about 80% of the pollution load (White Paper.htm).in/teriin/camps/delhi. Delhi does not have enough clean water: as against the present demand of 800 MGD only 650 MGD potable water is available (http://www.res.

The ultimate equation of environmental security creating the ambience of individual security will get created as a benchmark and the initiative can be extended to other cities. 88 Journal of Competitiveness January 2011 .n Feasible interventions that control demographic and related parameters n Innovative approaches with respect to city management processes Some questions/issues For initiating this process. irrespective of party affiliation. This will serve as a citizen’s mandate for civic governance that in turn can impact the attitude and agenda of the political executive. traffic management. Some illustrative issues or challenges that need immediate attention are: n What have been the deficiencies in managing the growth of cities? n What local innovations and policies are required to manage the rate of slum formation? n What are the most effective interventions to assist the urban poor—slum upgrading. energy management? n Why has the present set of interventions not worked—bad planning and policies. weak information base on the problems and on people’s aspirations? n there a hope for our choking cities and what should be the roadmap for them to reemerge not only Is as centers of sustainable growth. inefficient management. but as attractive destinations for healthy living? Documentation can be the starting point of a dialogue for the citizens to demand provisioning of allocations in a given time frame and to create benchmarks for every city so that the citizen can demand performance of their city managers and representatives. water management. slum management. slum relocation or other types of interventions? n What are the three most critical tasks to bring back a safe and hygienic city environment—waste management. several critical issues have to be addressed and a demand-driven strategy designed to be implemented over a give time frame.

India needs to think more about the overall scheme. easy to apply on a mass scale and flexible enough to adapt to local conditions. Thirty years later. it must be a paradigm that applies equally to small mofussil towns like Purulia and Jorhat as well as mega-cities like Mumbai and Delhi. it must be simple to understand. Is there a way to combine all this? Need to think systemically Growing awareness about climate change has recently focused a great deal of attention on “green buildings” as the future of urbanism. Los Angeles by the highway network. towards increased sustainability and social inclusion. Within fifteen years. Furthermore. Paris by its avenues and wide side-walks.and socially-sustainable as well. In other words. Manhattan by its street-grid (and its underground rail). A plethora of “green codes” have been initiated including LEED. By 2040-45. This is also true of Indian cities. Finally. This means that our quest for environmentally and socioJanuary 2011 Journal of Competitiveness 89 . energy use drops by over 30% just by moving people from houses to apartments even if we ignored the green codes. This is true for existing cities as well as the many new cities that India will build in the next half century. Is the city dense or sprawled? Do people live in apartments or free-standing houses? Is the city designed for public transport? For instance. This is critical to both their evolution as well as their urban experience. GRIHA and so on. but it is hardly a major strategic intervention. London is defined by its underground rail network. how do we ensure that these cities are environmentally sustainable at a time when climate change is becoming a major global issue. yet radical step. Of course. Once the transportation network has been fixed. Given the scale of the impending shift in population. and so on. environmental sustainability is not the only factor to consider. My discussions with leading architects suggest that these codes typically give us energy savings of around 15% (higher savings are possible but they involve sharply higher costs). Cities have to be economically. we urgently need to think of simple and universal paradigms that can be replicated on a mass scale across the country. Mumbai developed two railway corridors built in the nineteen-century while Delhi is the result of a car-based design (cars had just appeared when Lutyens was designing New Delhi). So we need to think of an urban paradigm that combines ecological concern with inclusive growth. we can expect the country to have an overall urban majority. the proportion is estimated at around 55%! We have every reason to believe that India will experience something similar in the next three decades. states like Tamil Nadu. it had an urbanization rate of barely 18% (roughly equivalent to India in 1950). The problem with so-called green codes is that they exclusively focus on maximizing an individual building whereas the real gains come from overall urban form. Walking: The ultimate form of public transport The history of every city is ultimately defined by the nature of its transportation network. Maharashtra and possibly Gujarat and Punjab will have an urban majority. Indian cities already struggle to serve the existing urban population. Founder & President of the Sustainable Planet Institute advocates urban planners to include walkability into the DNA of Indian cities as a simple. how will they deal with this deluge? In particular. the DNA of the city is very difficult to change. W hen China began to reform its economy in 1978. This is a useful saving.WAlkAbility: thE CritiCAl urbAn pArAdiGm Sanjeev Sanyal. This raises the problem of accommodating another 350-400 million people in our cities.

This adds up to 74% of people who rely on non-motorized transport for at least part of the commute. Paris. “Traffic and Transportation Policies and Strategies in Urban areas in India”. the proportion of people using conventional public transport was high. A 2008 study of 30 Indian cities showed that almost 40% of all trips in urban India involved no motorized vehicles at all—28% walked and 11% cycled. 90 Journal of Competitiveness January 2011 . These may seem comparable but per capita CO2 emissions for Atlanta are ten times that of Barcelona. Atlanta has a metro network of 74km while Barcelona has one of 99km. Note that walkability and public transport must be embedded in the urban DNA as soon as possible because it is very difficult to retrospectively change urban form. Take for instance. Manhattan. it must be some form of public transport—but what? Any discussion of public transport ends up being a debate about buses and trains. the simplest and most widely used form of public transport is walking (and its sister mode. publicspaces and so on. If Atlanta now tried to give its citizens the same accessibility. The difference is mostly explained by Barcelona being compact while its American rival is spread out. Given our concern with environmental impact and social inclusion. in bigger cities. street life. This requires a whole gamut of urban design requirements like density. 8% used cycles and 44% used public transport. A brand new city like Gurgaon does not have any network of sidewalks at all! Note that it is not just a matter of building sidewalks. Moreover. in cities with more than 8 million population: 22% walked all the way. less than 4% of Atlanta’s population lives within a reasonable walking distance of a metro station compared to 60% for Barcelona.economically sustainable urban form must start with the transportation network. For instance. This is why the core of all the world’s great cities is consciously walkable—central London. World Development Report 2009. The proportion was sharply higher in smaller towns as distances were usually small and the roads less congested. enhances social interaction and gives the city a personality. All these parameters are important in their own right. The World Bank. Oddly. mix-use. Wilbur Smith Associates (sponsored by Ministry of Urban Development). very little thought is given to pedestrians in Indian urban planning. Not only is walking a democratic form of transportation. social interaction and street life have enormous economic value as this is what makes cities dynamic and creative. it is clearly ecologically-friendly. As a result. However. pedestrian crossings. tree-shade. and consequently commuters walked the last mile. 2008. Walkability is about making it possible for the average citizen to be able to lead his/her life by relying largely on walking for day-to-day activities. Atlanta and Barcelona. it would have to build 2800 new metro stations and 3400km of new tracks! Despite this overwhelming evidence. healthy. Singapore and so on. cycling). This is why I strongly feel that walkability is the single most important urban design paradigm that must be adopted while thinking of India’s urban future. but walkability is a simple way to encapsulate this philosophy of urban planning.

this is less through physical engineering. many issues that pertain to urban experience fall outside the purview of formal tracks of urban planning and policy. The built character makes the most immediate spatial and visual impact of the city’s “hardware” on the psyche of its residents. Director with Mirabilis Advisory take a look Delhi’s inherent urbanism. Yet. Urban experience “A single exhaustive definition eludes a city’s “urban experience”—which can also be interpreted as a city’s brand. spaces that induce a sense of belonging through their distinct and unique singularity. its urban identity and the behavior of its residents. this often results in eroding the intangible quality of urban experience. Other aspects of healthy urban behavior such as syncretism. a physical sense of “place” may be created within different precincts of the city. Quite often. it could perhaps be described as a woven composite. it adds immeasurable value to the city. Yet. encouraging a sense of belonging amongst residents and widening their engagement with the city and with each other. Even though they may be unremarkable architecturally. but due more to the nurturing of numerous inherent characteristics such as historicity. Through its deliberate control and careful manipulation. and therefore analyze.brAndinG A City from Within Madhav Raman. building controls and urban policy. “place-making” is truly the work of the citizens of a city. tolerance. Partner at Anagram Architects and Anupam Yog. the manner in which they view and engage with their city. Urban identity: However. The urgency for development in emerging cities puts a strong emphasis on global models of infrastructure development and technological advancement. multi-vocal qualities and inclusive nature. In short. Nevertheless. the pace of development frequently allows inadequate time and space for January 2011 Journal of Competitiveness 91 . Interstitial urbanism “As emerging cities hurtle along the path of rapid urbanization. the chord resonates with the citizenry so strongly that a collective identity gets invested in these “places”. it vitalizes a city. contributing immeasurably to their urban identity. Urban behavior: Multi-vocal urban contexts carry unique meaning to each individual. a social conscience and a liberal outlook are intrinsically linked to a vibrant urban experience. Such spaces and contexts within a city have a deeply reciprocal relationship with the urban behavior of the residents.” Built character: The evolution. Certain urban contexts of the city strike a deep chord with its residents. The urban behavior of a city replicates itself in recognizable patterns at multiple scales. their simultaneous inclusiveness allows people to openly engage with them both individually and collectively.” Urban experience evolves over many years of habitation in a settlement and has deep cultural and socio-economic roots. Its very nature makes it impossible to describe. from within. It increases the adoption and utilization of the city’s infrastructure and spaces through culturally congruent means. its urban identity and experience and at the interstitial elements within Delhi that could be used to build a brand for the city. conservation and renewal of the built character of a city is governed by planning norms. It is even possible to create “urban icons”. This helps empower segments of urban society whose means are limited and who seem to have a reduced stake in the city. and with each other. in purely statistical terms. It enhances the livability of the city and increases its ability to attract and absorb human capital. The “places” then move beyond the realm of physical symbolism and become iconic within the minds of the residents. Moreover. mainly defined by its built character. accessibility. which are the traditional instruments of urban planning and urban design.

92 Journal of Competitiveness January 2011 . are significant cultural anchors. traffic islands. but seem to be at odds with development policies. is very deeply linked to the commerce of the street. What are these core assets that hold the key to revealing a city’s identity or character? What is the nature of their potential to add value to the urban living condition? In what manner could these be tapped or reinvented to create more inclusiveness? How can these assets empower residents. often more vibrant assets. Redundancies enroute: Within Delhi’s grade separators. redundant. in the context of India. defunct or underutilized. relevant socio-cultural anchors that are vital for cities experiencing vast change over a relatively short period of time. it is important to look within to build a city brand that finds resonance and has the ability to endure. What form of engagement should this be? Urban villages & historic settlements: Delhi’s many “original” settlements and rural enclaves give a unique flavor to the city. however. there is scant engagement with the city. Can these seedbeds of interstitial urbanism be revived? This is a radically different way of looking at building a contemporary city brand. While they are constantly on view (to commuters for example). “hardware” and edifices are abandoned. pockets of redundant spaces and surfaces such as flyover soffits. Could they be innovatively leveraged? Water conduits: From the natural drainage systems (nullahs) to sewers. While it is imperative that these are protected and allowed to thrive. and perhaps elsewhere too. Many of these have significant urban value due to their age. and result in socioecologically aware lifestyles? Branding Delhi Let us evaluate the possibilities of building Brand Delhi by looking within. How can their value as existing networks be better used by the city? Green reserves: Delhi’s Ridge Forests were a contiguous belt that ensconced the formal city just a few decades ago.the city to adopt new physical infrastructure and spaces. it is equally important for them to be part of Delhi life. interchanges and rotaries. various conduits and channels of water scour Delhi. Eventually. iconic status or location. they remain excluded from the fabric of the city. the rapid introduction of new physical assets to the city renders older. Crucially. Can these spaces do more than merely channelize traffic? Defunct urban hardware: As Delhi acquires new infrastructure and buildings. medians and roundabouts exist. Rapid agglomeration has reduced these to green enclaves of various sizes. Could these settlements potentially enhance the inclusiveness of the city and become vibrant contributors to Delhi’s urban experience? Wholesale markets and street commerce: Delhi’s urban culture. or become superfluous. and infuse them with its inherent urban character. Being outside the ambit of urban controls. some of which have existed for many centuries. Similarly its wholesale markets. Such features are permanent components to our cityscape. like that of most other old cities across India. old structures. water supply pipelines to water tankers. Their reinterpretation and regeneration may help in creating timeless. get under-utilized. This is the essence of Indian city life and Delhi has its own special relationship with what is now termed as the “informal tertiary sector”.

The population began to grow. created landfill sites. on the toolbar at the bottom of the screen. I could lay out the streets as I wished. surrounded (this was the early 1900s) by a small village. call it what you want. The only nod to India in the entire pre-packaged SimCity game is the Taj Mahal. a lighthouse became the Qutub Minar. and because there is a serious side to it—like a beginners’ course in urban planning—I felt able to pretend that I was hard at work. Or he could go back to his previous saved version of SimCity. I had to recreate the terrain of Delhi on an empty greenfield site. The architecture of the building was very Western. carefully sculpting. SimCity has a number of pre-installed cities—real and invented—including London. The avenues of India’s new capital were laid out accordJanuary 2011 Journal of Competitiveness T 93 . which. leaned back. Until my son introduced me to SimCity. so compromises were necessary. His frustrations as Mayor of Delhi in the game mirror the tremendous complexities of real-life urban planning and management. stared at his computer screen. your city grows and shrinks. rioters took to the streets. just like Chandni Chowk. a plague of locusts descended on Delhi’s suburbs. recounts his experience of crafting and then running his beloved Delhi on SimCity from the year 1900 till the present day. at your chosen speed. I hurriedly created Old Delhi first. built hospitals and schools. I carefully placed homes. both disciplines increasingly critical to the growth trajectories of cities across the world and areas where Indian cities like Delhi urgently need expertise and intervention today. Delhi would not be Delhi without the Ridge and the Yamuna. no Delhi. Delhi’s long-standing mayor. Humayun’s Tomb. space junk landed in the city center and the Yamuna turned into a raging whirlpool. Shyam Mitra. I then had to skip the next few millions of years of Delhi history. I thought all computer games were about killing or winning. I became a secret addict. become its mayor and see how successful you are at running it. Los Angeles and an all too plausible Dullsville. medium or high density. there were daily power cuts and water shortages. I laid railway lines. In SimCity you can’t win. perhaps because you haven’t built enough schools or there are too many power cuts. with a central street. and the city went bankrupt. In 1920. I was able to place on the site of its precursor and inspiration. when Delhi was still a flourishing metropolis. commercial and industrial buildings of low. or both. quite appropriately. with people fleeing to the neighboring countryside. and felt he had no option but to resign. But there’s not a single city from the developing world. People (‘Sims’) migrate to your city when it’s an attractive place to live and work in. god-like. It’s unexpectedly realistic. The population halved in the course of the year. the contours of my virtual city. journalist and author of ‘Delhi: Adventures in a Megacity’. As the clock of history ticks by.An ElEvEnth intErmission Sam Miller. factories and shops around Old Delhi in a way that mimicked the real city at the start of the twentieth century. since the game automatically gave me a formal startdate of Jan 1. Air pollution reached record levels. And they leave if they don’t like it. with mouse-and-toolbar. So. For the Red Fort I had to make do with a Disneystyle Cinderella’s castle. and no one ever dies (even during an earthquake). First. he year 1999 was one of the worst in Delhi’s history. Instead. 1900. there were huge fires in the largest industrial area. and I was able. or because it’s too boring. and had a choice between residential. a tornado struck the south of the city. you build your own ‘simulated’ city. as its main east-west axis. to raise and sink the land to create the ancient topography of Delhi on my computer screen. I began building British New Delhi. I felt it was time for me to have a shot at running this city that had become my home.

‘With SimCity. A self-destructive anger. (Ctrl-Alt-Shift-C) and up jumped a little dialogue box. despite the double artificiality of a city that exists only on a computer hard drive and in which construction costs are zero. But it did raise the same issues. Sims leave the city in droves. the SimCity computer model was not working like the real Delhi in a number of telling ways. rather low levels of pollution. poor people would have used handpumps and wells. and I was delighted when my city became an international hub for space travel in 2045. born of impotence. by which time the Metro had spread across all of Delhi. Most computer games have them. on which I can ‘grow’ my city. I didn’t have enough money to buy a new one. I realized that I hadn’t destroyed the city quite as quickly as the British had following the 1857 uprising. and began to run out of money. by Delhi standards. as if I were the child. So the Metro appeared in 2002. I became more and more frustrated. a drop-down list that allowed me to summon up a wide range of catastrophes. If these services can be improved. Another cheat code “nerdz rool’ converted all my old industrial buildings into hi-tech ICT businesses. In two SimCity years. But Delhi just collapsed. and its residents kept moving out if I raised tax rates. and went to get a beer from the fridge. If the roads aren’t kept in perfect condition. Most of the city’s income came from taxes. I soon came upon the ‘disaster’ menu. with a population of just over two million. but I had come pretty close. which puts greater pressure on services. the population had dropped to almost nothing. As mayor of Delhi. I moved on quickly to the concentric circles of Connaught Place. Everything was free. you just need to type in the special code. the rich would have used water tankers and generators. By the late 1990s my city only had a population of just over half a million. Sims are a lot more fussy. which remain at the heart of Delhi’s modern dilemma. and told him my tale of woe. Lots of sporting facilities sprang up across the city in time for the Commonwealth Games of 2010. They just pretended it was a middle-sized city without major infrastructure problems. Sims won’t move into homes without an underground 24-hour water supply. Suddenly Delhi had no power. one of a series of virtual advisers. than the people of Delhi. I could just print money. I was able to replicate the great North Delhi tornado of 1978. And in the end I ran out of to the plans of Lutyens and Baker. spiral. He typed ‘I am weak” and suddenly I had unlimited credit. and buy any solution I wanted. there were still more sports stadia for the 2020 Olympics. I was told by Constance Lee. and all the other electricity plants tripped. the Partition riots of 1947. well. the anti-Muslim riots of 1992 all took place (this time without serious casualties) on the streets of SimDelhi. And he told me a secret. he told me with a slightly patronizing air. recognizing that improved services mean more migrants. with the Arc de Triomphe and the White House proving suitable substitutes for India Gate and the Viceregal (now Presidential) Palace. I was able to ignore reality. or as Mohammad Tughlaq had in 1327. He taught me about cheat codes. and blew up. the anti-Sikh riots of 1984. I did still try to keep the city authentic. and an earthquake shook the city in 2005. My city was black with the carcasses of deserted buildings by the time I returned a few minutes later. I pressed every disaster button. an old electricity generating station became overloaded. I began to create the perfect Delhi. I had chosen population growth as my indicator of success. There are no geographical limits—no 94 Journal of Competitiveness January 2011 . or land squares. Like Delhi’s city planners of the nineteen-sixties and seventies. at the click of a mouse. The city’s population continued to grow slowly. held down four keys at once. I felt pleased with myself. I searched out my son. or there are a few power-cuts. the city’s population would. SimCity has a limited number of pixels. and would not put up with what were. Similarly. a twentieth of the size of the real Delhi. my version of Amir Khusro’s heaven on earth. or spoilt. Delhi was dead. However. As the population continued to grow. And so. They began demanding a Metro as early as the 1920s.’ He reverted to my older stored version of SimDelhi from 1993. In the real Delhi. not even enough to work the water pumping stations—and my lovingly created city had no water either. In early 1999. and everything is free. overtook me. The new parts of the city were too low-density.

creating and maintaining a city turned out to be a tough task. By how much this difficulty compounds in the real world is a matter of debate. continue to grow in every direction. coping with the population growth alongside the growth in the diverse demands of the people is overwhelming even in a virtual world. from the policy makers. like in the game. and can still be rest assured that it will continue to grow. for better or worse. the simulation augurs the need of careful planning for Delhi—and any big city in India for that matter—as we concentrate on making our cities productive. The end result. what is a certainty is that the difficulty does compound. our mayors do not have ‘special codes’. etc. In a strange way. while our mayors fence away to make their respective cities as competitive as possible as business destinations. real Delhi-ites do not think luxurious amenities as being mandatory before choosing a city to live. we have ourselves a situation where the population spirals and Delhi continues to grow until it reaches its boundary. As the author discovers. just as in the video game. SimCity. it is not possible to create everything perfectly like in SimCity. Outside the Console Agreed. they may fare better if they heed this SimCity fable! January 2011 Journal of Competitiveness 95 . to the competitive Indian that is still an insult: it is okay to ignore the rest of the developing world. Unlike Miller. Hence. by not having any Indian cities as an option. especially since it had no cities from the developing world. lands a blow to our ego. One might contend that it is a western game and hence it might have been created to cater to a similar audience. While we are busy ranking our mega cities. Well. However. But this “game” puts forth some serious considerations for all of us. or a point of self-destruction.. it could. this is just a video game. but they must have chosen some Indian cities to represent the emerging world! The policymakers do not have it easy. So we don’t really need to build Delhi to perfection. environmental sustainability. It calls for detailed vision and implementation of decisive regulations pertaining to advancement of infrastructure. Even inside the console. Thus. That is very sound logic. hence everything is not free! That’s the real world for you. population control. competitive and livable. and it may once again become the most populous city in the world. unlike Sims.mountains and no coastline—to the expansion of the real Delhi.

apportioned pro rata over their GDP onto the state’s FDI. Tangible realism needs to be brought forth. COO. Indian cities are far from entering such face-offs with other cities in the world. For Indian cities. usually capping savings at 5-20%. although FDI influences the economy of a vast region per se. done carefully. As Professor Porter illuminates. CitiEs And CompEtitivEnEss Sandeep Mann.fdi. is based in a city. this deficit has to be plugged with foreign investment. All regions have to chase higher and more sustainable planes of prosperity. the regions that are factor-led scores lower than the ones that are efficiency-led. generic. which is highly linked to geographical moorings. but it essentially resides in a city. Indeed. factor advantages are to be created not inherited. Naturally. Levels of affluence have been correlated with quanta of foreign direct investments (FDI) received. nand Mahindra once stated that any region aspiring for a healthy incremental capital output ratio (ICOR) of 4. rather than a faceless. It needs no vociferous proclaiming that there is a compelling urgency for all cities to project themselves as branded destinations for FDI. FDI too is an investment by an investor in a specific industrial sector. why should Ahmedabad 96 Journal of Competitiveness January 2011 A . Data over the past years would indicate that a ranking can be developed for FDI attracted by various cities. or setting up marketing channels or placement of offerings on buying shelves for consumers or industrial buyers. Bengaluru and Hyderabad. sifting realistic assessments from biases and politically-motivated slanting of facts. the enhancement of all such levels would always be fuelled by further investments. no region has savings matching this figure. For instance. as FDI winnings is a global canvas battle. needed reinvestments to the tune of 32%. willy-nilly. The Gandhian thought that work remains so long as there is a tear in any eye is contemporarily matched by initiatives that seek to provide a decent life for workers and citizens be they from Brasilia. with the usual growth rate of 8%. Intense soul-searching and mapping of competitive positioning alone shall enable every city to carve out its unique appeal as an investment destination. An integrated analytic look at the four pillars of Porter’s Diamond Model. falling in line with a Nietzsche kind of directive to emerge as ‘exceptional regions’ with ‘exceptional inhabitants’. which again score lower than the innovation-led regions. competitiveness via FDI still carries a surrealist feel. The administrative function of any commercial enterprise. Though the competitiveness of any region can be measured in different ways. Mumbai. On the value chain. So any city wishing to shoot up its competitiveness has to go gunning for FDI—for regions around it and for its own direct upliftment. However. Consequently. maybe with production facilities situated in the near or distant precincts. monolithic we-are-open-to-all-kind of investments pitch. This shows that the top winners are Delhi. The same goes for quasi-cities that spring up in and around SEZs. it emphatically influences cities therein. as in a parallel sense observed about international trade by Ghemawat’s CAGE model. like any vanilla investment. FDI would find its appearance in industrial activity over a large tract of land. Vladivostok or Hyderabad. Unfortunately. Aping the leading cities by the laggards shall be surely a futile and counter-productive exercise. whether the trigger was selfless service or ‘sacrificing one’s own selfishness via making all prosperous’. Remorphing writes about how cities can leverage their competitive position to attract investment and what a long path Indian cities need to tread to really interest investors. shall duly brighten the path ahead. Indian cities have to discover where it is they have and can pitch for competitive advantages and advantages that can be sustainable.

why doesn’t it move its IT sector onto high-end priced services.ask for FDI in voice-based outsourcings. Again. seeking optimal or maximal returns on investment (RoI). there is no detailed profiling of local entrepreneurs who can thus be brought together! Which city has a dedicated think tank tracking what cycle industries are undergoing in various parts of the world? The investor is nothing other than an organized or loosely-formed think tank. In this world of online connectivity. Instead. conceiving adventure sports for its harsh summers? After all. cities in Arizona are as hot as Jaipur and still enjoy significant tourism. Ironically. we have seen that attracting FDI is shadily managed by Indian cities and governments. when it does not have suitable labor pool (as large as Bengaluru. Pune or Delhi). Is this FDI investor being reached? Some itsy-bitsy foreign tours with ministers and their entourage meeting small pools of the Indian community abroad never do the trick. and how can that be done. inspiring confidence that investments wouldn’t run into hot weather down the line? If these questions make policy-makers squirm. Why can’t Jaipur be an all-season tourist hub. drawing on entrepreneurial and managerial traditions its people are very strong on. acting for a large organization. January 2011 Journal of Competitiveness 97 . the first tentative seedlings towards shaping competitiveness have been sowed. Bengaluru can’t beat Hyderabad on cost of living index. no city has a decent tell-all website. it should walk into showing itself as the best destination for concept arbitrage. Is adequate faith being won over by showing accountability and objectivity in governance. Holland maintains a better FDI India site than does the Indian Union Government! There is no serious activity to associate an FDI investor with a local alliance partner. a knowledge kind of outsourcing.

pApErs And idEAs prEsEntEd At thE 13th tCi GlobAl CompEtitivEnEss ConfErEnCE 2010. indiA 98 Journal of Competitiveness January 2011 .

distributors and university researchers. connecting companies to universities and research institutions. The research will explore the role that cluster organizations and other actors have in facilitating open innovation activities between companies in a cluster. Therefore. social capital) before pursuing open innovation activities internationally? 99 . pools of specialized skills and shared infrastructure.Examining Open Innovation Practices Among International Networks Of Clusters Andersen. and many companies are already stressing the importance of clusters when engaging in open innovations activities with external actors. that policymakers are beginning to ask “What does social capital within and between clusters have to do with open innovation practices? What role. University of Southern Denmark Smith. this spatial analysis failed to adequately explain the success of some industrial groupings and the failure of others. Such connections help in the dissemination of new techniques. growing and successful cluster. The action research will lever the cluster dynamics survey (introduced and discussed at previous TCI conferences) to examine social capital between clusters in an international context. companies that look outside their in-house resources have better access to ideas. Emily. For policymakers. if any. as well as a newly developed interview questionnaire to gain insights on open and user-driven innovation tools used by companies working in international contexts. Lund University. The social capital generated can make the difference between being just a group of companies in the same sector.” January 2011 Journal of Competitiveness Clusters play a key role in helping to build those networks and connections. However. from customers and partners. knowledge-sharing and learning. The research will also examine whether open innovation activities within and between clusters support greater collaboration within and among clusters thereby fostering a stronger international innovation dynamic. Research-driven clusters build on the knowledge strength of a region and through establishing linkages. expertise and technology than those that rely solely on in-house sources. global links and connections are essential. can policy play?” The presentation introduces action research on a network of ICT clusters in the Baltic Sea Region that is scheduled commenced in early October. It is therefore with interest that cluster practitioners and policymakers have viewed the rise of open innovation.. The aim of the presentation is to discuss and gain peer perspectives on the research approach planned for exploration of the following research questions: a) Is it important to have strong internal cluster dynamics (i. to help companies explore open innovation. and being a truly innovative. Social capital plays an essential role in the pursuit of open innovation collaborations.. facilitate the adoption of new practices and the development of new products and customer value. Madeline. It’s not surprising. Clusters can be a valuable means to bring the different knowledge triangle actors in an innovation system together. Open innovation builds on the assumption that valuable ideas and knowledge can emerge from internal as well as external sources and can enter the market from inside or outside the company. benefiting the companies through economies of scale. which acknowledges the requirement for companies to collaborate beyond their organizational boundaries. to competitors. This fundamental shift in behavior from a previously internally-controlled innovation process and mindset to a more open innovation process has led a recent paper from the Economist Intelligence Unit to claim “the future belongs to those who collaborate. joint strategies and collaborations across the Triple Helix. then. help produce a route to exploitation from those ideas. The importance of social capital wasn’t always at the heart of cluster approaches. EKOS Ltd Wise. In a global economy. Initial studies focused on agglomeration. clusters are a great opportunity to support this type of collaborative behavior.with many players. Lise. Sweden Those who work with clusters spend time trying to encourage collaborative behaviors between companies through trust-building. and help overcome barriers that prevent companies engaging in this type of innovation.e.

b) Do open innovation activities between clusters create a stronger international innovation dynamic? c) Do existing policies support open innovation activities within a cluster and between clusters internationally? n What activities are undertaken by regional authorities in this regard? n What role is played by cluster organizations/intermediaries? n What are companies’ perspectives on these policies? A further challenge to be explored is whether encouraging open innovation between clusters at an international scale threatens to undermine the internal dynamics and growth of social capital within a regional cluster. How can the best balance be achieved between building social capital and strong dynamics on a local level with sourcing knowledge and working with open innovation practices internationally? The aim of the research is to gain a better understanding of the interdependence between social capital, open innovation, cluster building and internationalization. The role of social capital in open innovation activities and cluster building will be looked at, and social capital and open innovation processes function in an international context will be explored to gain a better understanding of how open innovation activities between clusters can contribute to a stronger international innovation dynamic. Finally, how policies can support open innovation activities within and between clusters in an international context will be explored.

Comparative Analysis of Marketing Externalities and Process Knowledge Spillovers Among Various Industrial Clusters
Arbi, Khalil A. University of Management and Technology, Lahore Fast-paced globalization has put corporate and SME firms under great pressure to maintain their comparative advantage. Prevailing literature on

cluster development suggests that small and medium firms consider location as key point for their sustainable comparative advantage. From various studies across the globe, businessmen take location of their business as a fundamental source of success. It is claimed that networking and co-location are big sources of business knowledge that are necessary to compete in the international market. The studies done by Brown, P et al (2010) and . Felzensztein et al (2008) cover analysis of marketing externalities across various geographical locations. Studies done by Brown, P cover electronic . clusters of New Zealand in which the authors have given analysis of active and passive marketing externalities. On the other hand, research from Felzensztein et al covers a comparative study of salmon-farming industry cluster across two different geographic locations i.e. Scotland and Chile. Both studies have given a detailed analysis of marketing externalities, but the difference among them is that one is confined to only a single geographic location, while the other takes into account one cluster in two different geographic locations. The results of both studies are somehow same with little differences due to different nature of industrial clusters. This research has been executed to make a comparison of marketing externalities and production process knowledge spillover across various industrial clusters of Pakistan. It is different from the above mentioned studies in many aspects. Here we have taken four different industrial clusters in the Punjab province of Pakistan. Two of these clusters, surgical instrument and sports goods are found in the same geographical location of Sialkot, whereas the other two cutlery and textile clusters are found in Wazirabad and Faisalabad, respectively. The results from these clusters will be multidimensional and provide more in-depth knowledge about the behavior of various firms working at the same as well as in different locations. Interesting findings will come from two different clusters working in the same location. The objective of the research is to provide an analysis about how various firms working in the same cluster differ with firms working in other
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industrial clusters. Obviously there are differences and similarities of their behaviors. We want to catch the nature of benefits from marketing and production process externalities that these firms currently enjoy. The results of this research will expose the underlying characteristics of various clusters situated at the same and at different locations. The research results will show the extent of benefits gained by firms across various locations and various disciplines of business. It has been statistically seen that the selected four industrial clusters have varied performance in the international market. Some of them are highly export-oriented whereas some are performing fairly in the international arena. The results of this research can also be used to evaluate cluster performance at an international level. Along with export performance, we have also tried to catch innovation in the clusters as well. An increased networking and knowledge spillover has a logical consequence of increased innovation. In this research, our intention is also to gauge the level of innovation in each sector as well.

Clusters as Incubators for Innovation
Bode, Alexander Hessenmetall Cluster-Initiative, Germany During recent years clusters have gained much attention from both practitioners as well as researchers. The organization of clusters is regarded as one vital instrument for increasing competitiveness of member companies or even of a whole region. The underlying assumption is that collaboration of companies that compete in different fields, the so-called “competition”, stimulates innovation. Knowledge spillover among companies from a region shall result in a unique combination of resources and a pool of knowledge. As a result of this process, specific cluster companies achieve a competitive advantage. However, one problem many clusters face is that they have trouble in acquiring money for the work they are providing. Many clusters are founded by public funding e.g. in Europe by funds for regional development from the European Union. This sponsorship ensures a sufficient cash flow for a certain period, mostly
January 2011 Journal of Competitiveness

three to five years. However, after the funding period most clusters got into trouble for they could not implement a sustainable business model. The member companies are not willing to pay the total cost of the cluster-coordination because the benefits of the cooperation for the members are not transparent or maybe too low to justify the costs. Most clusters in the EU will disappear after the funding period, if to they cannot deliver measurable results for their members. It is this paper’s aim to introduce a sustainable cluster model that delivers measurable and valuable benefits to its members. Hence, we like to introduce a model of a cluster with network characteristics that is used as a platform for collaborative innovation activities. The central constituent element of clusters, which is agreed upon, is the geographical concentration of its players. As is evident in literature, the (competition) relations between the players are subject of ongoing discussions. Therefore, the relationship between the individual players of clusters can be anything from competitive (respectively non-competitive) to cooperative. Networks are characterized by the relations between the parties, which are mainly of a cooperative nature. The geographical expansion, however, is not a constitutive characteristic of networks. Production networks for example can span globally while innovation networks between suppliers and customers cover a smaller region. Networks may prove to be an essential element of clusters. The presence of a cluster does not necessarily lead to the establishment of a network. These observations lead to two possible parameters for classifying both clusters and networks: (1) geographical expansion—a network can be at any point on the continuum between global and regional, while a cluster is concentrated in a region, and (2) intercompany relations—while a network is initiated for close cooperation, companies within a cluster can cover the total bandwidth between cooperation and competition. The “cluster with network characteristics” is an approach that uses the most promising aspects of both concepts. As a prerequisite for generating

competitive advantage the cluster with network characteristics is established among companies from one industry that have overlapping but complementary assets. The regional component facilitates the control, as people from one region see each other again, and they may easily lose their reputation they will not so easily be attracted by “free-riding”. The collaboration in a cluster with network characteristics is based upon mutual trust. Establishing trust is a work-intensive process that requires commitment from all members. The level of value-generating activities within a cluster is closely linked to an increasing level of trust. As high value generation requires collaboration in fields with core competencies, companies only open up the heart of their company if they have confidence in the other cluster members. Cluster activities in the start-up phase are comprised of activities not crucial to competition in order to slowly establish some level of trust. Starting from exchange of experiences on the market in general or the collaboration for sourcing of indirect materials lasting to sharing knowledge on general topics, for example the effect of the economic crisis. Once a sufficient level of trust is established, the members can tackle more core activities leading to the enlargement of the common knowledge base. This is also the starting point for joint technology and R&D projects together with research institutions. As clusters are a pool of relevant players from one industry with complement resources and competences, this is the ideal pool for starting up intercompany innovation projects. A certain level of trust is mandatory for collaborative innovation projects. In order to establish trust some prerequisites are necessary: n Participating companies need a phase for learning and getting to know potential co-innovation partners n The number of cluster members should not be too high so that it is possible to get to know everybody within a reasonable time frame n Open mindset of participating persons n Continuity in participating employees from one company

n Eternal cluster-management, as an uncommitted coordinator These prerequisites show that huge regional clusters with 50 or more companies, organizing just “get-togethers” are not the ideal platform to establish sufficient trust. Therefore, such kind of clusters can’t be used to initiate intercompany innovation projects. For establishing a platform for technology-driven collaborative R&D projects, companies need a cluster with network characteristics that provides a smooth initiation phase for trust building among a manageable number of companies. The companies can see and measure the benefits of such an approach and are more willing to pay for the beneficial activities of the cluster. All in all one can state that the cluster with network characteristics is a sustainable business model for an innovative cluster that creates benefits for the member companies and for the region.

Analytical Framework towards Competitive Clusters Local Economic Development [CCLED]: Application to Delhi
Choe, KyeongAe, Asian Development Bank Roberts, Brian, SPMS Australia Cities play a significant role in the economic development of Asian countries. The urban GDP per capita in most developing countries in Asia is two-times greater than that in rural areas on an average. Within a decade, more than 50% of the population of Asia will live in cities. By 2030, almost all new jobs and wealth in Asian countries will be created in cities. This means that most of the secondary and tertiary industry sectors are agglomerated in cities and city-regions, as the key forces of the engine of economic growth. In tandem, economic challenges in developing Asian countries have become more complex— urban populations are growing at great cost to the environment; income gaps between countries and urban and rural areas widening; and climate change has increased risks of natural disasters.
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which help to reduce production and transaction costs. It demonstrates which industry sector is the largest contributor to the local economy. The technique in step one details out strengths and deficiency gaps toward enhancing competitiveness of the selected city within a country. in a selected city-region. The Competitive Cluster Local Economic Development (CCLED) approaches to assess not only the strengths but also the deficiency gaps in facilitating competitive industrial clusters. relying on cities’ competitiveness too. Industries tend to locate where businesses can have a competitive advantage. At the end. which industry clusters in which locality should get support under limited resources available? Most of these issues have not been well assessed systematically—until now. Step four: Mapping the selected industry clusters using GIS Once key stakeholders determine which industry is to be invested in to increase competitiveness. and national average is calculated as the benchmarking score. retail trade (25%) and services (16%). government resources are limited to provide supporting infrastructure for rapidly growing urban areas and pose enormous challenges. structured systematic information is hardly available to assist surging industries and micro. and how industry sectors have been growing or declining over time in the city-region. In this case. which will be identified at step five. Yet. Despite these backdrops. small and medium enterprises to achieve competitive clusters in and around city-regions in Asia. This result is useful for geographically locating clus103 . this step explores the profile of the industry. business environment and quality of life. An innovative new analytical framework examining clusters and competitiveness of cities has been initiated and formulated by the Asian Development Bank (ADB). action plans are prepared for enhancing competitiveness of industry clusters and the cities. Governments and entrepreneurs in Asian cities need to find ways to improve their competitiveness. five key factors are used (Ernst and Young. if they are to maintain sustainable development in a world where cities compete for global trade and investment. a group of cities can be ranked for their competitiveness. urban governance. how the percentage distribution of local industrial sectors in the city-region have changed (using location-quotient and shift-share techniques). Step three: Assessing structures and changing patterns of multisector industry in a selected city-region Using the government’s standard industry classification. to boost competitiveness and sustainability? If so. and to required human resources and skills. This presentation will demonstrate the innovative analytical process of CCLED. Cities offer shared access to common infrastructure linking supply chains and networks. a city (or a cityregion) could be selected for its local economic development. Using weighted and aggregated scores from the five key competitiveness factors. January 2011 Journal of Competitiveness Step one: Ranking competitiveness Major competitiveness factors with relevant attributes are prepared. by comparing census data of at least five years interval. infrastructure. those firms and enterprises in the selected industry-sector are geographically mapped out. The top three employment-generating industries in the Delhi-region in 2005 were manufacturing (31% of total employment). applying the 6-step method in the Delhi National Capital Territory in India as a case study. Step two: Evaluating the key drivers of cities’ competitiveness From the result of step one. This result will be matched with the infrastructure needs of the industry clusters.These trends affect the sustainable industry growth and reduce the effectiveness of the local economic development. How can Asian cities and industries become more sustainable and more competitive? What are the attributes that make their urban industries competitive? How can governments or development agencies identify and strategically invest. 2007)—city prosperity.

The CCLED analysis framework provides a strategic foundation that is useful to enhance competitiveness of the selected industry clusters. all five competitiveness factors in the textile industry cluster in Delhi need to be improved above the score of 3.66.5 out of the maximum score at 5. Health Valley is located at the campus of the Radboud University (RU) Nijmegen. The cluster organizations are in place and enjoy support and legitimacy with the regional partners. biomedical). important for Asian cities in the context of a rapidly-changing global economy. imaging.ters in a city-region and for further infrastructure supports by the government. Radboud. Connecting the clusters there are three themes: bio-based economy (combining agrofood and technology). out of the 39 competitiveness attributes. automobile component manufacturing. for fostering local economic development. which is by definition related to variety. Clusters could develop into a state of lock-in. as well as infrastructure needed for the selected industry cluster area. In the Delhi-region. acting as crystallization points of knowledge-intensive entrepreneurial activities and clusters. Stimulating Transsectoral Innovation in ‘Mature’ Clusters Eetgerink. The regional innovation policy was quite successful in the last few years. The clusters are well established with cluster organizations supported by the triple helix partners. tional development agencies. The three main cluster organizations are connected through an innovation policy program Triangle of the provinces Gelderland and Overijssel. Innovation Platform Twente is based close to the Technical University Twente (TU). the food cluster is best recognized. prepare a business plan. and RedMedTech Highway (medical technology. Key stakeholders pursuing further interventions. Food Valley is built on knowledge from Wageningen University and Research (WUR). close to the academic hospital UMC St. 104 . where transactions become suboptimal. Triangle aims at stimulating the synergy between the clusters through the funding of innovation projects. in case of the textile industry-cluster in the Delhi-region. A question to answer could be: how can a region stimulate related variety through transsectoral inJournal of Competitiveness January 2011 Step five: Analyzing competitiveness of selected industry clusters using Porter’s Diamond Model Each selected industry cluster is analyzed for its competitiveness using 39 attributes under the five factors of Porter’s Diamond Model. Pre-feasibility investment proposals can also be included for seeking investments by PPP government or interna. For example. as well as helpful for informed decision-making by the government to decide where and what infrastructure to provide first. Frank East Netherlands Development Agency (Oost NV) The region East Netherlands (two provinces) accommodates three universities. food and health. 72% have an average score of less than 2. Action plans are also prepared laying out priorities and urgencies to foster the competitiveness of industry clusters. which is in a way counterproductive to open innovation and ‘neue Combinationen’. At the national level. general machinery/equipment manufacturing and textiles industry-clusters were identified under the manufacturing industry. The region needs sectoral and economic diversity to balance too much dependency on spearhead sectors or big dominant companies. These themes recently emerged out of the cluster activities. Transsectoral innovations stimulate economic diversity. based on the analysis results from the previous steps. The flipside of the coin is a tendency of clusters to institutionalize into ‘sectors’. Step six: Preparing business and action plans for the selected industry cluster The results from step two and five provide useful information in what the deficiencies are to strengthen the competitiveness of industry clusters as well as supporting infrastructure in the city-region. To compete at the international textile market.

domotica. Enschede. The Triangle innovation policy grew out of ‘Knowledge Mapping NEW Triangle’ (NEW = Nijmegen. They have to support their members in difficult times and open their eyes for strategic future developments. sharing interests in new projects. 105 Clusters 2. We are currently developing a European project under the Interreg 4B scheme addressing this subject. the generation of new companies with an expected high growth and a global reach. smart energy. like ‘Feed the World’. but also need an empathic component focusing on individual persons. Through this process we are generating a new community of inter-cluster leaders (fashion. the financial crisis affects sectors you wouldn’t expect and two years later business again develops faster than ever. Catalonia Government In Catalonia. The starting point was the assumption that if you can identify ‘hot’ spots of cutting-edge knowledge or technologies and the persons who are the leading and acknowledged experts in these fields.) working together. then. having these leaders as investors. This approach could be combined with the potential market drive of societal challenges relevant for the main clusters. All sorts of multi-party collaborations. exist in the triple helix. this applies to cluster organizations. New cluster approaches shouldn’t only be business-oriented. food. Globalization causes developments that are hard to understand and even harder to foresee. cluster policy was started around 1993 with a focus on promoting strategic change in the 23 micro-clusters (narrow approach in small geographical areas) identified at that time. building. care. Klaus MFG Baden-Württemberg mbh In our days the business environment that we work in changes nearly every day. because they have the powerful management skills and finance capacity of these leaders. The result is. The presentation addresses these challenges and will demonstrate how learning and change processes can be organized. you can connect and facilitate them in research programs. etc.). Another challenge would be the internationalization of clusters trough international cross sector combinations of clusters. To cope and keep track with such developments doing business as usual isn’t enough—not for companies and at least not for cluster initiatives. patterns of processes better. More than ever. technical installation. The Manifesto of the European Year of Creativity and Innovation 2009 states that workplaces need to be transformed into learning sites.0: How to Think Positive and Think Big in a Crisis Period? Estévez. combinations of partners. if they do not know each other. basically. Joan Martí ACC1Ó. we could intervene and stimulate better. If we understand the dynamics in such groups. and. These cluster leaders share the view of thinking positive and big to get out of the crisis through transformational projects. The classic cluster management approach needs to be thought through and adapted. Wageningen). the agenda building. ‘Renewable energy and sustainable production’. Since January 2011 Journal of Competitiveness . Or a starting point can be a by definition be a transsectoral integrating theme. One of the most remarkable experiences we are involved in is a corporate entrepreneurship project with 20 cluster leaders of the clusters we are developing at the moment. how to keep networks and clusters open enough to prevent stagnation or lock-in? A part of the answer can be found in analyses of dynamics in alliances and the groups/teams involved in open innovation projects. ‘Affordable health care in an ageing society’ etc. which become new companies. ICT. motorcycles. like Smart Living (ICT. there has been an interesting evolution in inter-cluster reinforcement—an open-cross innovation approach. etc. This will with high probability lead to new combinations of knowledge and can eventually lead to innovations through connected businesses. pharmaceutical.novations. Learning Clusters in Creative Environments Haasis. leadership.

This approach found wide application in various domains such as psychotherapy and counseling. The regional innovation networks must therefore be able to atJournal of Competitiveness January 2011 . Shared vision 5. Boundaries between open and closed. Mid Sweden University It is becoming increasingly common for networks of actors (universities.) to be formed in order to jointly develop innovations. Internationalization of regional innovation networks Hyder. Such networks are often encouraged and financed by regional and national authorities. real and virtual become more blurred. n Positive psychology by Martin Seligman and Mihaly Csikszentmihalyi is a branch of psychology that seeks “to find and nurture genius and talent”. enterprises and government organizations. Knowledge management Peter Senge explains in “The Fifth Discipline: The Art and Practice of the Learning Organization” that a learning organization has to be skilled in specific fundamental disciplines. Cluster actors need trust to learn from each other and to benefit from collaboration and exchange. more and more innovations are created between actors in the international arena. This concept not only applies to organizations. Personal mastery of one’s capacities 2. can contribute to create. That way it enhances a system’s capacity for collaboration and change. etc. research institutes. Employees and managers are also encouraged to examine together their often negative perceptions or “mental models” of company people and procedures 4. n The person-centered approach from Carl Rogers. Carl Rogers has developed his own approach to understand personality and human relationships. the presentation will demonstrate different practical examples on how to make use of the concepts introduced in terms of regional and cluster management. It can be used as an effective tool for cluster management. who was an influential American psychologist. Relationship management One aspect that remains a key element of all successful clustering approaches is relationship management and along with it the aspect of trust. and “to make normal life more fulfilling” not simply to treat mental illness. Tommy. Sweden Roxenhall. knowledge management and relationship management—knowledge management to learn from and with each other. and relationship management meaning to trust each other. organizations and other group settings. a concept brought to life by David Cooperrider. Akmal . ensure and increase trust between the different actors. University of Gävle. However. the so-called person-centered approach. education.We will look at two components that are essential for learning organizations. Team learning through group discussion of individual objectives and problems 3. situations or organizations. How do we deal with that challenge? Creating a trustful environment for cluster organizations is a crucial first step that can be supported by different approaches: 106 n Appreciative inquiry. Systems thinking These principles support the “learning from and with each other” in organizations. Using the example of MFG as a well-experienced cluster organization (recognized as “Excellent Knowledge Organization” by the Federal Ministry of Economics and Technology) and the Creative Industries in Baden-Württemberg. He describes five components a “learning organization” requires: 1. This method promotes positive relationships and builds on the basic goodness in persons. The presentation gives an overview on how to adapt this very appealing concept to a cluster environment and why cluster managers and regional representatives will be well advised to implement it in their future strategies. serves to analyze the strengths of an organization and how to foster them. Currently we find people cautious about sharing their knowledge and information with each other—a development also mirrored in Europe in public discussions on privacy issues of services like “Google Street View” or Facebook. but also to regions and clusters.

there is a lack of knowledge about how regional innovation networks are internationalized through collaboration with innovation networks in other countries. and transcends many disciplines. have process geometries approaching 65 nanometers and require intense research and development to produce high quality integrated circuits at those extremely small dimensions. In many cases. It is our conviction that mere contact or certain access to other foreign networks is not adequate. The hub of a regional innovation network contacts their foreign colleagues in order to create a partnership between them by forming a strategic alliance. Furthermore. this work can make a practical contribution in organizing innovative companies around hub of their local networks and get benefit of internationalization through long-term ties (strategic alliances) established with vital foreign partners. nanotechnology. involves research and development of extremely small components and structures. This is to help smaller companies to come out on foreign markets with technology solutions and products that smaller companies have developed in the regional innovation system. Studies show that regional innovation network has established relationships with international actors. with applications of these materials to energy. By exploring the knowledge on internationalization of regional innovation networks. its importance in Arizona. government and other organizations make for an important and 107 . This is of course not an easy task for regional innovation networks as there are many competitive players active in the global market seeking international outlets. regional networks need to establish some vital ties with foreign partners for long-term collaboration and development. Paradoxically. The Arizona Nanotechnology Cluster promotes technology statewide for Arizona. nanotechnology involves using quantum properties that occur at very small sizes. regional innovation networks are working with many small businesses and they need to attract more foreign companies as partners. An increased number of companies that are continuously looking for research expertise around the world create considerable pressure on regional innovation networks to enable them to compete with the leading innovation networks in the world. it becomes easier for member companies to identify relevant partners to establish different kind of contacts for getting a foothold in the foreign market. In general. The purpose of this project is therefore to study such processes. This complexity also explains why many regional companies with high technological potential fail to grasp a satisfactory position in the international market. Arizona In general terms. and by utilizing these effects that arise from small dimensions it is possible to create structures that have unique properties that are normally unrealizable in nature. the regional innovation networks in their specific areas of expertise collaborate with world-leading innovation networks so that competitive knowledge and skills are guaranteed. the science of the small. How linkages to the general public. nationally and internationally will be discussed. In more specific terms. for example. Research institutions and companies are woven together in very complex networks that cut across national boundaries. and to recruit individuals with key skills that are active in the international market. Arizona Nanotechnology: Our Cluster Strategy Kim.tract international operators and investors. The presentation describes how the two main categories of nanotechnology—nano-engineering of the solid state and molecular nano-engineering—allow the formation of new types of manmade structures and how it is possible to nano-engineer the materials to enhance certain physical properties. but few have knowledge of how to internationalize it (Vinnova 2008). biology and the environment. With nanotechnology allowing for control and tailor making of materials properties. Matt QuantTera. ongoing globalization creates new challenges for process innovation networks. Once such a January 2011 Journal of Competitiveness vital alliance is established. Semiconductor firms.

2010. http://www. Furthermore. http://www. However.iit-berlin. the challenge today is not to create more clusters. Gerd Meier zu Agency Competence Networks. the comparative portfolio contains 85 clusters benchmarked so far. which drives innovation. Dedicated focus is given to cluster organizations. and this could also be used to achieve a higher impact of research and innovation support. Cluster organizations play an important role in catalyzing and facilitating action in cluster initiatives.clusterobservatory. is the key success factor for benchmarking. Promoting cluster excellence is of high relevance. Promoting Cluster ExcellenceMeasuring and Benchmarking the Quality of Cluster Organizations and Performance of Clusters.php?id=102&nid= http://www. and to create more dynamic clusters with global reach. The most common cluster management benchmarking approach was designed in 2007 by the Agency of Competence Networks Germany. clusters and cluster organizations must seek excellence in order to better serve the needs of enterprises and support their competitiveness. Germany Clusters provide fertile ecosystems for companies to thrive. assessment and comparison between clusters’ performance. but other aspects related to the cluster framework conditions and cluster actors are also regarded. So far. it is not policy-or scientific-driven.necessary base for economic technology development will be described. As benchmarking has to be understood as a voluntary comparison among cluster in order to stimulate mutual learning among the involved cluster management.pdf Journal of Competitiveness January 2011 . which is based on collaboration between companies and research institutes and other institutions offering knowledge to businesses. the quality and completeness of the comparative portfolio.cluster-excellence. One of the key questions today is how to better promote clusters and how to make better use of excellent clusters in response to societal challenges. n Benchmarking of cluster managements2 n European Cluster Excellence Initiative3 108 Benchmarking organizational cluster management performance and the quality of cluster organizations is already an accepted approach within Europe.). Conference Proceeding of EC-Expert Workshop. regional development and competitiveness. but to build upon and exploit the cluster concept. Clusters are said to provide a more productive and innovative environment for enterprises. in order to enable measurement. this should be the baseline objective of all cluster initiatives worldwide. against the individual cluster managements are compared. especially for cluster managers. today enterprises and clusters face new ways of dealing with innovation and management of knowledge in order to be efficient and successful in a more open‐knowledge environment. Rosted (eds. After many years of efforts to develop clusters. The benchmarking approach is based on seven dimensions and 60 specific indicators: Cluster structure Financing of cluster organization Typology and governance Diversity of services offered by the cluster organization n Output of services n International orientation and visibility n Achievements and reputation Besides the practical approach. This would require shifting focus from supporting clusters to using them more effectively. n Quality Frame4 New Approaches towards Cluster Management Excellence Köcker. So far. it is not a new type of ranking or rating. All of them fulfill high quality in order to be listed in this portfolio. eu/index. like from n n n n 2 3 4 Meier zu Köcker. but rather to enhance the competitiveness and sustainability of existing and new clusters. there are three approaches prevailing how to promote cluster management There is clear evidence that benchmarking can lead to much better results than conventional evaluation approaches. The issue is not to consider clusters as privileged or even exclusive partners for finding better solutions. Clusters from various European countries are listed.

as evidence shows. The findings presented here are the outcomes of the second European cluster poll in which more than 100 clusters from 11 countries participated. The ECEI aims at developing training materials and setting up a relevant approach to label the quality of cluster organizations. The presentation reveals the specific approach.Austria. there is still a lack of knowledge about main barriers and drivers as well as about the progress made so far. it is important that cluster initiatives and organizations (which support them) internationalize too. which is based on a peer-assessment according to January 2011 Journal of Competitiveness . Lysann. Policy makers on all levels as well as cluster organizations give a lot of attention and make considerable efforts in order to better internationalize clusters and their firms. Hungary. POLUS Programme. An additional key success factor for the recognition of the benchmarking approach is the following aspects that are regarded in the current approach n Cluster managements can be benchmarked against pre-selected groups with specific characteristics (technological domain-wise. As firms within clusters internationalize their activities in creative ways. the current findings show what has been gained within the last three years and how the current challenges looks like. age-wise) n A flexible approach allows to encompass the broad variety of clusters and cluster initiatives n A simple procedure consisting of a face-to-face dialogue (max. how to set up the peer review groups and results European Clusters Go International: Current Status and Key Success Factors Köcker. Changes in the global economic environment are also making cluster linkages on the international level more important. Future policy supporting measures can only be effective if the real demand of the cluster organizations and cluster firms are known. Denmark. Agency Competence Networks. Although. Figure 1 reveals the four key areas. size-wise. It doesn’t provide information whether a publicly-funded cluster initiative has met the political objectives nor can substitute an impact assessment The main objective of the European Cluster Excellence Initiative (ECEI) is to gather key European organizations in order to identify and set up quality indicators and peer-assessments of cluster management. Agency Competence Networks. Germany. Quality frame stands as quite a new approach. the ECEI will Figure 1: The key areas of the European Cluster Excellence Initiative the internationally recognized EFQM-Model (European Foundation for Quality Management). most actors involved in clusters are interested in learning from and developing concrete activities with partners in other geographical locations internationally. As the first poll was made in 2007 and the European cluster landscape and framework conditions have changed dramatically. Hungary Creating stronger linkages between clusters in different locations that offer complementary strengths is one of the most promising ways to get access to the most advanced technologies. Zita. 109 then create and act as a club of professionals and institutions promoting cluster management excellence. Besides. Dedicated attention was given to involve mainly matured and internationally-competitive clusters. half-day) between the cluster management and the Benchmarking Team n The benchmarking is mainly addressed to the cluster management. Norway and Switzerland. best know-how or relevant markets. Germany Zombori. Germany Müller. Such labeling is intended to support cluster managers in achieving high levels of excellence and succeeding in their peer-assessments. Gerd Meier zu.

and creation of an enabling environment that promotes innovation. there is clear evidence that cluster firms and cluster organizations tend to be more successful in going international than others. research and development. Based on the statistical evaluation and deepening expert interviews. outputs and ultimately prosperity. thereby improving process. The methodology is outlined in order to promulgate the development of a prosperity “value chain”. Financial and personnel shortages are still the main huddles. access to financing. but quality of products and technologies is still an important aspect. n Whereas good progress in initiating international co-operations has been gained. This is considered a considerable challenge. Begin with the end in mind: The groundwork for Journal of Competitiveness January 2011 . which creates prosperity. n EC-funded projects with focus on internationalization matters have been very successful. Mark T. the premise of which is that innovation drives productivity. fix it anyway: The practical definition of innovation Innovation is the practice of turning ideas into reality. thereby building competitiveness. n Whereas the existence of an internationalization strategy was still an exception in 2007 (only 10% of the participating clusters had have such strategy set into force). development of a world-class workforce. B. LLP USAID Jordan Economic Development Program The presentation discusses the effects of innovation on the creation of prosperity. If not. The Road to Prosperity is Paved with Innovation: Embracing the Prosperity “Value Chain” McCord. as well as a fivepronged methodology for promoting innovation. This methodology focuses on business development. This methodology is the common thread that innovation-oriented countries have used to build a culture of prosperity.The main findings can be summarized like following: n Cluster organizations in Europe are taking over more and more responsibility to actively support their cluster firms in internationalization matters. The authors are convinced that the main findings are of relevance not only for the current situation in Europe rather than for all clusters world wide interested in internationalizing their business. little progress is reported of increasing international visibility and reputation. n There is clear evidence that cluster organizations being in charge with internationalization matters on behalf of the cluster firms perform much better in this respect than clusters where the cluster firms feel responsible to internationalize. n The barriers and enablers for internationalization did not change much over the last few years. If it isn’t broken. Deloitte Consulting. nowadays more clusters have an appropriate strategy in force. n Most European clusters made considerable progress in going international with often positive impact on the business development of the cluster firms. if the benefiting cluster organizations really have a mandate to support cluster firms to go international. 110 which is implemented and accepted by the cluster firms The presentation will discuss the findings mentioned and also reveal that there are considerable country specific differences although mainly the most competitive clusters have been invited to the cluster poll. those projects mostly fail and do not reveal any positive impact on the cluster organizations or respective firms. The findings are expected to contribute to better understand how clusters and cluster organizations should internationalize. if the following key success factors are fulfilled: n High competitiveness of the products and services provided by the cluster firms n The cluster organization is officially in charge and has a mandate to support cluster firms going international n The cluster (organization) has developed and implemented an internationalization strategy. The major themes of the presentation are: n Linking innovation and prosperity A. what the main key success factors are and how policy makers can better support clusters and cluster organizations going international.

and that innovation must permeate society. However. other elements of the methodology cannot be implemented. which have long been a staple of development in emerging markets. will not build prosperity because they do not promote innovation and/or productivity. Competitiveness creates prosperity D. This will create a “mass” of innovative and competitive companies that will in turn create opportunities for foreign direct investment. a country must develop significant support for research and development by building alliances between the academic community. and political stability. and academic sectors. Innovation is like cellular division: Innovation has to continue in order for countries to maintain prosperity. angel networks. D. Productivity builds competitiveness C. n The innovation methodology A. F. Prosperity is sustained through innovation The premise of the prosperity value chain is that prosperity supports economic. Development of the workforce has to come before other elements of the methodology in order to lay the foundation for success. as well as civil society. Develop a strategy: The development of an innovation strategy must include influential members of the public. They do not build competitiveness. their government. thereby increasing prosperity. n The prosperity value chain A. Every day without innovation is another day of falling behind: The gap between countries around 111 . Innovation’s Dirty Little Secret: Countries that are known for innovation must continue to innovate or they will not sustain the prosperity developed through implementation of their initial strategies. C. Prosperity trickles down not up: Countries must focus on high value jobs that are created through innovative approaches in targeted sectors. private. countries must continue to innovate to sustain prosperity. Acceleration is the Key: Innovation accelerates a country’s ability to achieve impact targets by creating a culture of prosperity. C. This includes. and the implementation of the strategy in an organized manner to promote prosperity. High value jobs will create economic opportunities throughout the strata of society. which comes through a change in the way citizens think about their quality of life. revenue enhancements and public support. significant impact will be created in the areas of job creation. and ultimately their value system. Develop a supportive enabling environment: The catalyst for innovation can come either from the private sector (as in the case of Nokia in Finland) or the public sector (as in the cases of January 2011 Journal of Competitiveness Ireland and New Zealand). Until a cohesive strategy is developed. D. Business development: Innovation begins at “home”. which means that mental models have to be changed and that there must be broadbased support for innovation throughout society. C. Develop a world-class workforce: Countries must focus on core sectors and develop a workforce within these sectors that will promote competitiveness. E. thereby moving up the prosperity value chain.innovation is laid through the development of a cohesive strategy that includes the involvement of the public and private sectors as well as academia. Access to financing: Access to capital is crucial if companies and ultimately countries are to move up the prosperity value chain. research and development funding and other mechanisms designed to promote innovation. n Conclusions: A. but is not limited to. but simply make countries “less poor”. The strategy should include a focus on target sectors where innovation can make the country competitive and ultimately prosperous. B. The premise is that poverty alleviation programs. start up capital. their economy. Innovation drives productivity B. Support for research and development: For innovation to take root. the private sector and the government. social. meaning that if local companies begin to innovate. a public sector must collaborate with the private sector to develop an enabling environment that supports innovation and ultimately the creation of prosperity. B.

Anne Katrine Research Council of Norway The presentation has two interlinked parts. which is conducive to high levels of innovation. It is debatable to what extent it is possible to impact on and manage the development process of clusters. R&D institutions and the government authorities. The nature of interaction depends on. while there is less research on how they develop. The production of services is rapidly expanding and it is necessary to work smarter. professional and administrative boundaries. VRI encourages innovation. VRI is one of the main programs funding innovation and organization research. which has been funded by this program. The method needs to center on ways to impact on and develop interpersonal relations. Furthermore. Network IGP (individual. Geographical proximity between enterprises makes interaction easier than Journal of Competitiveness January 2011 . Cluster Research in Norwegian Regions: The Case of the Norwegian Water Cluster Normann. it is possible to spark mechanisms that support and 112 stimulate the cluster development process. and added value through regional cooperation and a strengthened research and development effort within and for the regions. The program’s time-frame is ten years (2007-2017). in group and in plenary) and network reflections are methods that can develop trust through organizing persons from different enterprises to partake in individual and collective reflection processes. and hence. and cooperation across scientific. and to establish close ties to other national and international network and innovation measures. It is not sufficient to be innovative in terms of products. exchange of experience. and building legitimacy is a vital part of the process. These methods have proven to have a positive effect on the development of innovative networks. Fundamental components of the VRI program include research activity. Here the method for developing learning networks is central. Therefore. and implies that the participants are from different enterprises. Results of the funded research projects are an indicator of the success of this kind of research program and funding mechanisms. it is time to stop thinking about the development of an innovative culture and move on with making it happen. The case is the water cluster in the VRI region of Vestfold in Southern Norway. research-based development processes in the regions. The nature of interpersonal relations has an impact on innovation. where 20 core firms form the cluster. the other part is a presentation of a case study—the creation of a water cluster. which is the Research Council of Norway’s main support mechanism for research and innovation in Norway’s regions. the development of personal relations and social networks can be an efficient innovation strategy. IGP function as meeting places. learning. It is designed to promote greater regional collaboration between trade and industry. The research poses the question whether social researchers can contribute directly to the development of inter-firm networks. Innovative networks and clusters have been the subject of extensive research. This must be done according to the participants’ needs. knowledge development. and it offers professional and financial support to long-term. tacit and contextual knowledge. Process innovation depends on abstract. people rotate for each group work so that people that are new to each other have to collaborate. geographical distance. process innovation becomes increasingly more important. one is on the Program for Regional R&D and Innovation (Norwegian acronym: VRI). conducive to an industrial cluster. Such knowledge can only be shared through interaction. and hence. An assumption is that development of trust is essential for the establishment of regional networks. The assumption here is that while it is not possible to manage.the world is widening. which methods are adequate for facilitating networks among knowledge-intensive small and mediumsized enterprises? The method chosen is decisive for the process of developing networks. Optimal organizational learning processes are assumed to be achieved through a combination of individual and collective processes. among other factors. Legitimacy and trust are intertwined. group work with persons from different enterprises.

January 2011 Journal of Competitiveness Development Challenges in Networking/Partnering/Clustering Management Rezec. This introduction will be followed by a discussion of key challenges and questions that arose in the course of the first three years namely: n How to balance regional and federal state interests and activities? n What set of functions is needed and who pays for it? n How to balance the need of strategic orientation and the requirement of openness facing short-term new challenges? n How to evaluate young cluster initiatives that aim at long standing impacts? n How to organise cross-cluster management with clusters based on very specific sector and cultural backgrounds? Summing up. and all together affect the final success of any networking/partnering/clustering forms. but the innovative power of geographical proximity is under debate. the federal state of North RhineWestphalia launched its new and in our view very ambitious cluster strategy focusing on 16 sectoral clusters and related professional cluster management infrastructures. The water cluster as a project works towards creating arenas and establishing networks in order to increase the activity and strengthen the value creation and innovation in water treatment enterprises. numerous combinations are of course established. At the same time. Different combinations of the elements evident in the following graph substantially affect the selection of suitable management. Doing this. In practice. The presentation will begin with an introduction of the North-Rhine Westphalia cluster approach. For proximity to stimulate innovation. the strengths and weaknesses of the North Rhine-Westphalia approach will be discussed. In doing so the North Rhine-Westphalia approach combines top-down and bottom-up activities. It tries to balance key performance indicators on the one hand and to base on a strong commitment by the companies and their self organisation on the other hand. each with specific strengths and weaknesses. Dieter University of Applied Science. its institutional and strategic settings. strategies and visions on 113 . Companies face the issue or search for suitable ways to reach their goals. however only with a duly selected form or type of networking/partnering/clustering in relation to a specific problem or vision of a company. Irena Wotra Ltd The networking/partnering/clustering approach is of extreme importance for competitiveness. with the right management that considers both the different aspects of networking/partnering/clustering as well as the trends in the environment and together with this also introduces suitable methods and tools used among individuals in a selected connection. Regional networks are essential to innovation.long distances. Social researchers have used network IGP in an early phase of the development of the water cluster. reflection processes are now in demand at the cluster’s meetings. While some of the clusters where upgraded from successful regional to federal state clusters. Gelsenkirchen In 2007. and the influence alone of these combinations on management or even development of suitable tools has not yet been systematically researched. the regional networks must be knowledge-intensive. Balancing Bottom-up and Top-down Cluster Activities: The Case of North Rhine-Westphalia Rehfeld. different institutional settings have been established. but they must be part of global cooperation. While there initially was skepticism towards group work. open to global knowledge and global capital. to be established as a project with an elected board. others are based on sector initiatives or focus completely new thematic areas. The water cluster has developed from being a losely organized network with an interim board without commitment for the enterprises.

among which are regional. financial. legal-formal. good practices. as well as management adapted to this has a important influence on the development or even competitiveness of an individual company or a group of connected companies. as well as new development challenges of the networking/partnering/clustering management. good or bad training programs. If yes. and numerous other aspects. the interest or economic aspect. organizational or managerial model of networking/ partnering/clustering and related methods and tools. and that professional management correspondingly qualified for networking/partnering/clustering management is necessary especially for some individual networking/ partnering/clustering forms or perhaps according to an individual combination of elements evident in the graph? There are many other questions and development challenges arising. and also substantially affects the selected networking/partnering/clustering form. while the other forms are practically not promoted. etc. perhaps the aspect of internationalization. Journal of Competitiveness January 2011 . in which cases and in what way? n In what way and which trends should be monitored. or which are the trends that most affect the management and methods and tools in a network? n Which methods and tools will be necessary for successful networking/partnering/clustering of companies or networking/partnering/clustering management in the future. innovation aspect. HR. a company usually does not possess such knowledge on the appropriate networking/partnering/clustering form or later the implementation. we perhaps get the recommended business.e. and do potential governmental initiatives for the development of these methods and tools meet the trends? n In what way should companies. networking/partnering/clustering management. which can be classified under general managerial aspects (e. yet all probably demand more managerial dynamics than what we are used to. which might be even more appropriate for their own cases. i. and that it therefore should also be treated this way. or applied methods and tools introduced in strategic alliances. Networking/partnering/clustering is without a doubt one of the strategies that can be used in various cases for various purposes. knowledge-sharing aspect. where we can successfully transfer technology even from one sector into a completely new. or if we analyze the trends in the environment for all previous elements of the model or trends in relation to the selected combination. which is transferred from one networking/partnering/clustering form into a completely different networking/partnering/clustering form even for a different purpose? Can we learn something from good or bad practices. methods and tools to clusters or perhaps technology platforms. Researching combinations that originate from the research model bring numerous new questions to light. This is actually the central element of connecting that originates from the purpose of networking/partnering/clustering.a daily basis. this is at the same time also a “trap”. sector-based aspects and the aspects connected with the basic purpose of networking/partnering/clustering. However. as especially small and medium-sized companies do not decide at the same time or only also for other types of networking/partnering/clustering. This is appropriate in certain cases.g.). for example: n Can we similarly to technology transfers. seemingly noncomplementary sector. orga114 nizational and managerial model and the recommended methods and tools. and transfer part or all of these experiences. the selection of methods and tools. develop also a business. etc. consultants and also those offering governmental or other support to companies be taught that the issue of networking/partnering/clustering is complex. etc. cooperatives. and others. The appropriate form or perhaps more forms of networking/partnering/clustering at the same time. Governmental support usually refers either to clusters or technological platforms. If we analyze the needs for the appropriate management style or the necessary methods and tools with regard to the current phase of the lifecycle of networking/partnering/clustering development. but from the viewpoint of consultants and companies. The next question that arises in the process of networking/partnering/clustering is connected to various aspects of networking/partnering/clustering.

prepared by the ARDP after exami. 2006. in order to lay the foundation for later empirical testing. Finland Business competence and capability to use and create knowledge in learning networks are in a key role among business leadership skills. applied research. Pavitt. because what it is needed in practice is funding in order to put in place actions and projects that would be able to keep the energy of the process and the confidence of both the private and the public sector. Bessant. empirical research results show (Ritter. having suitable human and material resources as well as experience in research. Chile: Where the Money Comes From Salvador. into to the same field of discussion. and what January 2011 Journal of Competitiveness are the links and interaction between these two concepts. innovative entrepreneurship. nation and evaluation of regional experts. 2008) emphasizes the meaning of strategic competences. public or private. technology centers. are significant. dissemination and 115 . released the first public competition to fund innovative projects to promote and develop economic and institutional environments that encourage innovation in the region. transfer and technology diffusion. Chile Implementing competitiveness programs and innovative initiatives with a regional and local perspective. and whose main activity is research. shall be designed to promote science. past research in management (Nonaka. Especially. the Atacama Regional Council. Pisano. The projects should be framed in the axes defined as strategic by the Regional Government. 1999). Funding Innovation in Atacama. technological development. learning networks and innovation performance. or institutes. von Krogh & Voelpel. In this contest may participate universities (state or recognized by the state).Links between Business Competence and Learning Networks: Theoretical Model Rissanen. Earlier studies have found the connection between dynamic capabilities and organizational learning as a source of innovation-based strategy. The initiatives presented in this contest. integration of communication culture and openness of corporate culture. sometimes represent problems that go far beyond putting in place perfect methodologies and to have in place social capital. 2007. Suen. Furthermore. Learning organizations (Senge. networking and innovation as a success factor in various business contexts. This paper aims at giving a conceptual basis of “business competence” and “learning network” for future empirical research. under the Innovation Fund for Competitiveness (FIC). Prahalad & Krishanan. as well as attempts to identify the components of a theoretical model. the Regional Government and the Regional Development Agency (ARDP) developed the basis of a contest that responds to a vision of the requirements of the territory and innovation needs of the region. that such factors as availability of internal resources. network orientation of human resources management. technological development and transfer and technology diffusion. which are contained in the Regional Innovation Agenda 2010. Riitta Savonia University of Applied Sciences. Doz & Kosonen. Atacama Regional Government. 1990) and networks (Tidd. for example creation of trust and informal networking. In a process never held before. learning. 2002). 2005) have a key role in sharing knowledge and learning to design alliances. where management can effectively coordinate internal and external competences and create new competences (Teece. influence a company’s network competence. This study attempts to answer the following questions—how the concept of business competence and the concept of learning network is defined and verified empirically in previous research. Zollo & Winter. the people-related factors or competences. development. Marynella Atacama Regional Development Agency. through its Commission of Science and Technology. In successful alliances. The theoretical orientation of this paper encourages diverse approaches of business competences. 1997.

In the case of the Atacama region. where indicators of competitiveness place Atacama in eighth place (2008 SUBDERE Competitiveness Indicator). 1. and has also been built on the basis of an agenda that was elaborated with a bottom up technique. energy and environment. not file patents which places it in last place. generating elements to balance economic development depending on the conditions of the territory in respect of water. These are some of the lines to which institutions can access a proposal that is expected to be welcomed and represents a clear effort to shift towards decentralization of productive innovation. dissemination and transfer of best business practices in innovation. strengthen and maintain skills. providing transparency. through this competition. It is being considered that people are important for innovation and competitiveness so it is important to attract. State University . flexibility and strategic direction for public action by the State. set of researchers in industry. training and attracting skilled human resources. under the leadership of the Regional Governments (Gores). the innovative culture will be strengthened. towards increasing business initiatives to improve productivity and boost the regional economy on a sustained basis as a contribution from Atacama to a more developed Chile in 2020. the industry was heavily damaged. Russia Gorokhov. Dmitry. infrastructure and equipment support and promotion of culture towards innovation and entrepreneurship. the instrument is joining the regional institutions in the process of strategic decision on the issue of innovation and resource allocation. inter alia. including for the strengthening of regional innovation networks. which states that they define the destination of the resources available. implementing and transferring methods to activate the regional system. Russia The purpose of the paper is to analyze the case of building relationships within the Russian toys and baby-goods industry. the Strategic Innovation and Improvement Plans Competitiveness (PMC). approx. in a technical model that acknowledges the gaps and constraints that currently exist in the region to innovate the requirements for a qualitative leap and streamline—a model that recognizes the particular character of innovation according to a regional but global vision. With this orientation. there are 21 doctors. accredited institutions can submit projects that strengthen regional capacities and networks for innovation. the overall amount available for this item is $ 671. the respective Regional Development Strategy (ERD). On the other hand.4 million dollars. private sector. State University . specialized internships and technological transfer. Thus. from the provisions of the Budget Law Public Sector. Thus. The FIC is a financing tool for the implementation of national and regional innovation. this case marks a milestone for decentralization in the management of public funds with resources from the FIC. we are working of the quartile model: government. After all the macroeconomic and political changes of the past decades in Russia. technological institution 116 and financial issues.Higher School of Economics. is in innovation.Higher School of Economics. Marina. infrastructure and equipment support and promotion of culture towards innovation and entrepreneurship. promoting. aimed at strengthening the national innovation system and in regions. Emerging Business Clusters in Russian Toys and Baby-Goods Industry Sheresheva. On the one hand. the percentage of public funding allocated to I+D+ is relatively low. training and attracting skilled human resources. taking into account the National Innovation Strategy for Competitiveness. Therefore. of the 15 regions occupied last. which places it at number 13. training initiatives and advanced technical work for innovation through programs—construction and updating maps of applied skills in the regional productive sector. develop.633. this fund is the main instrument to provide new and additional resources to the various efforts that the State is doing around innovation. From the point of view of local innovation and competitiveness.100. along with three other regions. At the beginning Journal of Competitiveness January 2011 .

Albert Cluster Development. regarded now as one of the main factors of success. Firstly. a group of local companies within a region and a value chain is better equipped to compete in the global arena when cluster dynamics are in place and SMEs tackle strategic common needs collaboratively. In this context. It also aims to discuss some results of the research paying main attention to recent initiatives in clustering and their possible effects on the January 2011 Journal of Competitiveness competitiveness and profit-generating capacity of cooperating actors. and how governments can activate and harness them. The presentation will focus on what constitutes prosperity. Looking at the changes in the industry and analyzing the recent evolution of inter-firm networking. internationalization therefore becomes the ‘means’ to an end (competitiveness). followed by a brief overview of the developments in the Russian toys and baby-goods industry pointing out some industry-specific and country-specific features and showing the trend to reappraisal of long-term inter-organizational relationships. 117 . it focuses on the literature on the subject. not an end in itself. Barcelona Boosting exports is usually seen as one of the top goals within a cluster. The focus of the presentation is to demonstrate the above by means of cases and examples that allow the audience to familiarize them with cluster practice cases. what are its key components. and regional/ municipal levels as they participate in the creation of enduring prosperity. programs and interventions will be explored and presented to illuminate the pivotal role of governments at the federal. not as adversaries. Not surprisingly. The paper presents the results of preliminary research carried out by means of in-depth interviews conducted with top managers. provincial. There are some obvious results of such activity. Field experience increasingly tells us how clusters turn to internationalization in order to strengthen cluster strategies that will improve and sustain overall competitiveness. Russian toys and baby-goods producers and retailers started to create win-win situations considering each other as collaborators. internationalization is more than that. The situation in the market began to change recently. What forms of inter-organizational cooperation can better help Russian toys and baby-goods enterprises to gain sustainable competitive advantage and to fight the problems brought by the world economic crisis? The paper is organized around the following topics. Internationalization Initiatives within Clusters: Both the Means and the End Solé. Indira Ontario Mineral Industry Cluster Council Governments around the world aspire to create prosperity for their citizens but. and get inspired by the ongoing applications of cluster initiatives worldwide. a number of government policies. as well as interviews with industry experts. The most active firms of the industry started to build intensive relationships aiming to raise competitiveness in Russia and abroad. What is the Role of Government in Creating Prosperity in the New Economy? Singh. Just like the ‘cluster’ concept. over time. Their market share has fallen to less than 10% of the fast growing Russian toys and baby-goods market (14 to 20% per year).of the decade Russian toys and baby-goods producers seemed to have no competitive advantages at all. Nevertheless. we aim to find out which forms of long-term relationships are the most promising for the industry in modern conditions. very few have been successful in achieving and sustaining this goal. The study is based on the IMP network approach that offers a solid ground to observe network relationships in which economic actors are involved. Relational assets built by actors that now appraise the role of intensive relationships helped them to strengthen their consolidated position and to gain governmental support of their initiatives as well as to create new value by combining complementary assets and key competencies.

with complementary specializations along the value chain. The presentation introduces examples in the following two areas. and internationalization and access to global markets as the natural goal of any cluster.Two key concepts discussed are internationalization as the ‘means’ to strengthen cluster strategies. The case of solar power clusters in Spain and France that collaborate to penetrate third countries around the Mediterranean basin. Internationalization sustains and enriches the execution of the strategies for the future by improving the value chain of its member companies with international initiatives and alliances. experienced clients with cluster experts on their teams (from regional governments to local development agencies) increasingly require to take the cluster concept one step forward. clusters are developed following this basic methodological process: 0. a field where cluster de118 velopment is increasingly getting involved throughout Europe. In a cluster development project. Long-term Sustainability of Cluster initiatives: The Cluster Innovation System Solé. companies are more confident and committed to collaborate in non-local markets. Generally speaking. On the other hand. Strategy development: Shared vision and discussion on the strategic focus of the cluster Journal of Competitiveness January 2011 . in an increasingly globalized economy. alliances and consortiums with companies of superior know-how or technology on international projects / programs -Gain access to the consumption habits of the end consumer in order to innovate in product/service n By excelling at the raw materials sourcing -Grant access to key raw materials Special attention is given to cross-national. Based on four years of experience being in charge of sectoral policies at the Catalan Competitiveness Agency. Both these things are done with the ultimate goal of increasing competitiveness in a global context. That is to say. are at the front line of the cluster arena at present times. Barcelona Cluster Development’s high degree of specialization and the fact that. throughout its history. defining solutions to guarantee the cluster’s ability to collaboratively identify and implement those initiatives that better serve winning competitive strategies. because of its approach and nature. and the establishment of European decision-making institutions being headquartered in both Barcelona and Marseille. In addition. taking advantage of geographical and cultural links. a third section explores how regional development agencies can support the internationalization process of companies and how clusters facilitate this public-private effort. classic export-oriented set and more strategy support ones. Initiatives to increase sales by expanding into international markets n International public procurement n institutional support to foster Cluster initiatives in strategic countries n Inter-cluster collaboration in third markets n Representation in strategic markets Initiatives to reinforce strategy n By strengthening competitiveness along the value chain -Delocalization of phases of the value chain -Joint productive internationalization n By innovating in product design and manufacturing -Penetration of markets with sophisticated demand (test your product or service) -Partnerships. examples of how a cluster approach had helped the agency to tackle initiatives that were in fact in position to better assist the real strategic needs of the companies. inter-cluster collaboration. Albert Cluster Development. the international component must be inherent to any cluster’s strategic plan. and optimized public resources to support the companies’ long-term strategies are introduced. the firm sustained long-term relationships with a wide array of public-sector clients has gradually triggered the materialization of cluster development projects that.

This methodology will have to encompass three basic areas and three January 2011 Journal of Competitiveness . with transfer of leadership from the sponsor of the initiative to cluster companies and institutions 2. forcing us to look overseas and to establish strategic alliances among clusters in order to develop state-of-the-art or excellent projects. as that ‘roadmap’ is seldom a detailed plan that goes beyond the first year of implementation. and internationally speaking as well. leadership and support to do that on a regular basis. that it is able to reinvent itself and refine the strategy as inescapable changes take place in global business. to later draw the theoretical conclusions based on field experience (not the other way around) will be outlined. and the purpose of this presentation is to convey our learning experience in this field. the proposed working scheme has to do with building on successes and failures of previous years. more so. Therefore. This activity does not need to be done constantly. structure and develop those key areas of special interest for cluster companies that better support the strategic framework agreed upon during the activation of the cluster.1. it is with this second group particularly that we have learn the dos and don’ts of long-term cluster dynamization. Rather. It is not a matter of the cluster manager’s ability alone. Given that Cluster Development SL works with both emerging and mature clusters. first. to establish a cluster’s network of innovation (process). Area 3: Communication The communication process is key to the cluster’s national and international visibility and to facilitate the integration of new members and to establish linkages with other clusters and international networks of experts. each one consisting of different tools to generate content. The strategic content must noticeably influence the annual calendar of cluster activities and projects. It is nurtured by the continuous exposure to business trends and international best practices that may influence the key success factors within a business segment. Those cases in which the cluster manages and participating companies and institutions manage to sustain the innovation-driven collaborative dynamics. Cluster activation: Formalization and articulation of the cluster. but the 119 How to establish a cluster innovation system The training of the cluster manager is not enough to guarantee that the cluster faithfully follows a roadmap towards the shared vision and. The real challenge. The methodology is divided into three phases. The phases are the following: n To establish a technology monitoring and competitive intelligence system It has to do with the definition and updating of strategies for the future of the cluster. and for the visibility and positioning of the cluster (communication). Cluster innovation system: Systematization of promotion and management of projects within the cluster and consolidation of the visibility and international positioning of the cluster Step number 2 will be the goal of the presentation. Often times we see how a cluster initiative successfully manages to kick-start the process and captures the ‘momentum’ to deliver short-term action initiatives. it is imperative to establish a working methodology that goes beyond the mere facilitation of group discussions. and without missing the strategic focus the cluster needs. Often times the local value chain is not comprehensive enough. is how to bring into the formula the proper structures. Unlike other tools used to identify the current strategic position of a cluster (often criticized for being too ‘static’). Area 2: Process The process development has a dual objective— among cluster companies. though. the enduring cluster operations and processes require that a specific set of ingredients are in place in order to foster the continuous mushrooming and implementation of strategic projects within the cluster. different phases towards the generation of strategic projects: Area 1: Strategic content The strategic content deals with the ongoing ability to continuously identify.

in order to clarify the intention of the label: n The quality Label focuses on cluster management. Improving Competitiveness and Innovation Through Better Cluster Management Stü—the European Cluster Excellence Initiative. While management at the company level has been developed as a science by business schools across the n To reach consensus on and definition of the different areas to develop n To identify and select those projects that must be pursued immediately because either they represent short-term opportunities or because of strategic relevance n To establish a process for the execution of projects The project management process of those projects identified in the previous phase has to be thus is structured around a set of indicators that will define “quality cluster management”. n It is based on a modular set of quality indicators and a transparent process of how to benchmark them. a precondition is to make excellent cluster management measureable before it can be improved. The quality label will motivate cluster managers to compare with each other and to learn from the best. The promotion of high quality standards of clusterrelated activities and services could be one of the main approaches to make cluster management more efficient. The cluster quality label developed within the project will be based on these indicators. The following aspects are important to point out. measurable and duly timed. All modules of Cluster-Excellence. main objective and included tasks. They are 120 only transmitted from master to apprentice based on experience on good judgement in codified knowledge. Thirteen project partners from nine countries—all well experienced in the field of cluster management and support—create a uniform set of cluster quality indicators and develop a label for promoting excellence in cluster management. target those cluster organizations who want to become excellent.platform for debate and discussion must be taken into account. Cluster-Excellence. the excellence of cluster management organizations has to be improved based on the given framework conditions. The European Cluster Managers’ Club and the ClusterCollaboration Platform set up within the framework of Cluster-Excellence. n The quality label is voluntary and enables cluster managers to receive proof of their cluster management excellence by an independent third body according to clear indicators. Today. a PRO INNO Europe Project lead by IESE Business School. University of are modules to foster excellence in cluster management. But to translate this overall goal into reality. Cluster Excellence. everybody can claim him or herself to be a cluster manager. voluntary proof of cluster management excellence that is accepted and recognised all over Europe. both Journal of Competitiveness January 2011 . not on the framework conditions or a cluster as such. Daniel Project Manager. Needless to say that better cluster management not only serves the companies involved but results in a more efficient use of public funds provided through cluster organizations. the skills needed for cluster management are still in a nascent stage. MFG Baden-Württemberg mbH How can cluster initiatives be managed professionally? And what skills do cluster managers need when striving for cluster excellence? These questions are being explored by the consortium around Cluster-Excellence. stakeholders and policy makers. It is applicable for all different types of clusters existing all over Europe and will enable cluster managers to demonstrate their excellence towards interested third parties like members. It has to allow for a diversity of company typologies (with different capacities and resources) to participate according to the initiative. In order to make clusters competitive. Cluster excellence means a more efficient cluster management that follows a methodological approach. The European Cluster Managers’ Club and the European Cluster Collaboration Platform. therefore. The overall approach is to create an independent.

will support and promote the adoption of the label. three factors can be identified that are critical for the development of successful clusters in the region: 1. lamb meat. management support in development of “local clusters”. The existence of a strong skills base Assessment of current situation The process of clustering in the Republic of Macedonia started in 2002 with the support of USAID project Macedonia Competitiveness Activities (2002-2006). information technology. etc. wood processing. Cluster development program Direct measures: n Incentives for networking: Specialization in valued/production chains. automotive components. Existing clusters have mainly been created with the purpose of “grouping of small enterprises” to better sell on the markets and have done much less in the area of sharing and creating economies of scale in purchasing. apply and expand knowledge and create innovative solutions to business challenges. development of technology networks n Promotion of networking: Network of experts. with supporting R&D activities where appropriate 3. learning by doing 2004: Pilot projects Start with the pilot projects. support in development (two years) Indirect measures: n Incentives for investment in R&D: Industrial Clustering in the Republic of Macedonia Trajanoska. These range from the promotion of the label and the training materials to tailored activities like workshops and case studies on issues of special concern for cluster managers. fairly unknown method for economic development and business partnership in the Republic of Macedonia. invitation for the interested groups to become pilots Selection of five projects with the highest interest and potential 2007/2009: Cluster policy design (Ministry of Economy) January 2011 Journal of Competitiveness research. Big companies are generally not active members of Macedonian clusters. According to the survey. wine. The presence of functioning networks and partnerships 2. development of new products and services to compete better in the global markets. tourism. agricultural mechanization. 2002: Mapping. Analysis of successful clusters around the world shows that successful clusters gather. The Club will be the first professional association for cluster managers striving for excellence. quality standards and continuous improvement systems in value/production chain Several cluster initiatives are already operating in Macedonia—textiles. According to the research. Nikolina Ministry of Economy. food-processing. fashion design. Republic of Macedonia Clustering represents a new. technology investment for groups of companies and R&D institutions n Incentives for productivity increase measures: Introduction of new management tools. identification of potential clusters Conclusion from the mapping exercise: Culture of cooperation is low but there are groups with potential for cluster development Strategic decision: “Bottom-up approach”. sheep cheese. The key weakness that all existing Macedonian clusters share is a lack of potential for innovation. These clusters are at various stages of development and as such need specific support to further accelerate their development. experiences exchange n Incentives for cluster development: Support for initial phase (one year). Macedonian firms would highly appreciate policy measures oriented 121 .eu. It will provide different services to improve cluster managers’ skills.modules in the framework of Cluster-Excellence. A strong innovation base. applicable research and development and innovation. These qualities of clustering still need to evolve in Macedonia.

23).4%).6%). Supply chain partnerships acceleration: To improve the competitive position of the Macedonian industry.26 on the scale between 1 and 6). it seems that export market orientation stimulates cooperation/networking with other firms and that foreign-owned firms are more aware of the benefits of networking. the most promising areas for networks/clusters in Macedonia are the food industry (35. agriculture (39. Support cluster analysis and strategy development accompanied with action plan and specific projects: Cluster analysis and strategy development will be supported by the govern- ment together with action-oriented initiatives mobilizing a set of strong leaders from business.3%). In all three kinds of cooperation the exchange of information is the the enhancement of collaboration in networks and clusters regionally and internationally (5. the public and private sector. Governmental support to clustering and networking will emerge throughout the public-private dialogue. 2.5%). winery (20. support of networks of R&D institutions to provide a variety of applicable technological services and integrated and efficient innovations: Members of such a network are to become a complete network of highly-qualified individuals and advanced technological infrastructures driven towards promoting a solid and competitive industrial web. Further awareness raising and training for clustering/networking: Awareness raising activities will be implemented by seminars. Measures The following measures for collaboration in clusters and networks are introduced by the government: 1. for example “on time delivery” implementation. etc. 3. tourism (23. 4. Such projects can deal with variety of their business challenges. EU programs and funds) will contribute to the creation of demonstration clusters as best practices for future innovation-based clustering. which will be beneficial for both. technological centers and parks on the regional level.71 on the scale between 1 = weak and 6 = strong). and in the case of export-oriented than in domestic-market-oriented firms. Knowledge about clustering and cluster management will be strengthened by training sessions and international knowledge and experience exchanges. Macedonian companies exhibit the highest intensity of cooperation (networking) with their suppliers (score of 3. As expected the intensity of cooperation with competitors is much lower (2. regional and international conferences and match-making events. training and joint development of products/services. Specific development and international cooperation projects of clusters would be co-financed by the government. In the case of cooperation with competitors.6%). Thus. 122 Journal of Competitiveness January 2011 . stronger supply chain partnership led by key exporters needs to be created. Groups of companies that co-operate as buyers and suppliers will be invited to apply for co-financing of analysis of existing supply chain and joint projects. better positioning on the wholesale or retail markets.6%). government and universities in a process that will enable competitiveness of Macedonian clusters. there are possibilities of joint purchasing and joint marketing. Expected results Implementation of policy measures in clustering and networking will lead to the improvement of understanding of the positive effects of clustering and networking for the Macedonian industry.67). textiles (18. IT (18. but this proved to be less customers is stronger in the case of majority foreign-owned than majority domesticowned firms. The intensity of cooperation with the customers is not far behind (3. According to the interviewees. Implementation of policy measures (supported by the government as well as other donors. to better overcome challenges of collaboration. inventory. implementation of common information system to track orders. Stimulation of. etc.

New Zealand Trade and Enterprise. Spain. European Cluster Collaboration Platform and Clusterland Upper Austria. Johansson. Jordan. New Zealand. Joy. Cluster Development. Ifor. N. India. Stephen. Lars. Wolfgang. Enright Scott and Associates. Sweden. Georgette. European Commission. Ba. Spain. MDI. defined in the current presentation as intentional and structured attempt for internationalization. Elisabeth. Frater. Foundation for MSME Clusters. Vego Consulting. his intention was to examine what makes nations prosper. Desert Knowledge Australia. Cluster Navigators Ltd. Sunil. CLAUT Automotive Cluster of Nuevo Leon. Korpi. Koziarski. MDI. Rene Baltic Innovation Agency. Lehmacher. Rauli. Simone. Events. The Scandinavian Competitiveness Group. Senegal. Taylor. Richard. Maini. USA. Auckland Tourism. Asra. Shah. Bob. Markkanen. New Zealand Trade and Enterprise. Cliff. It particularly focuses on innovative cluster-based international cooperation approaches as new ways to stimulate prosperity. Anna. Jagat. India. Montoya. India. Pamminger. Ibrahima. K. Werner. Government of Catalonia. Regional Council of Central Finland. Michael. Mikko. Ffowcs-Williams. Manuel. CLOE (Cluster Linked over Europe) and also reflects on the policy discussions and recommendations by the European Cluster Policy Group in this area. Barnabas. New Zealand Trade and Enterprise. Marsé. Subirà. EcoPlus. New Zealand Trade and Enterprise... Breault. Cluster Pulse. Ibrahima. Eklund. Manoj. India. Based on some empirical experiences the presentation examines what role clusters play in making their regions prosper and more specifically what is the role of international cluster cooperation in this respect. Green Chip Ltd. BIPE. Kawthar A. IESE Business School. Foundation for MSME Clusters. India. Turkey. Sweden. Waelbroeck-Rocha. EduCluster Finland. SIDBI. The presentation includes the firsthand experiences gained from such innovative cooperation projects like European Business and Technology Center (EBTC) in India. Tamal. Ribas. Paul. Gareth. Enright. Estonia When in 1776 Adam Smith published his seminal work Wealth of Nations. Vedat. Chaplin. Economic Development Australia January 2011 Journal of Competitiveness 123 . Breault Research Organization. Eduard. Finland. iRegions (Internet-based and mobile technologies for regions in the net economy). New Zealand. SCA. Fuller. Vinnova. Economic Development Ltd. Wade.K. Cavanagh. Makerere University. Special mentions Al-Zo’ubi. Uganda. Austria. Walker. GeoPost Intercontinental.. Chaplin. Alan. Mukesh. Gareth. Gulati. but incidentally he also laid down the foundations of classical economic theory. India. Hagenauer. Nawangwe. Gupta. Kunt. V. DG Enterprise and industry. Marta. The presentation focuses on the ways how clusters and cluster initiatives that are strongly engaged in international cooperation can contribute to the increase of prosperity in their own and other cooperation regions. Spain. HK. Mittal. Mexico. Sorvari. Sarkar. Antoni. SIDBI. France. Business Arena. Lalis. PCE-USAID. Cecilia. Ministry of Planning and International Cooperation. India.The Role of International Cluster Cooperation in Increasing the Prosperity of Regions Tõnnisson.

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