What is an Industrial Cluster?

A geographic agglomeration of producers, buyers and suppliers operating in a particular industry

A cluster is a sectoral and geographic concentration of enterprises facing common opportunities and threats:
Weavers, sector; tailors, garment producers in the textile

Hollow bloc producers, pre-cast beam producers, metal and wood workers in the construction sector;
Cereal, spices, and similar item processors in the food sector.

empirical features
Collaborating and competing; Geographically concentrated in one or several regions, even though the cluster may have global extensions; Specialised in a particular field, linked by common technologies and skills; Either science-based or traditional; Clusters can be either institutionalised (they have a proper cluster manager) or non-institutionalised.
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What is Clustering?
Clustering is to bring the enterprises of the same sector together in order to find sectorspecific solutions for common problems such as:

Premises, location and equipment; Transport and supply facilities; Product development; Markets and marketing; Access to finance
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Cluster Development
Enterprises are selected from:

Textile and garment; Food processing; Wood and metal works; Construction Job creation and Poverty reduction.
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With the objectives of:

Approach and Steps of Business Development Services in Clusters

1. Business advisors (facilitators) are stationed in each of the clusters; 2. Together with the enterprises involved, they identify common problems of the clusters and specific problems of the enterprises involved; 3. Business advisors discuss proposals of solutions and linked enterprises to other service providers to solve the problems; 4. Situation Analysis and Action Plan are done in collaboration with the enterprises.

Major problems of Clusters and Proposals of Solutions

Major Problems Joint Solutions

1. Bad road condition to secure raw materials and deliver finished products to the market

Establish road development committee, make contributions and construct the road; Contact government and NGOs for additional support. Rent sales rooms near potential clients; Publicize location and products; Link enterprises to projects. Link cluster members to MFIs; Minimize production costs. On-the-spot technical advise

2. Bad location for marketing products

3. Shortage of working capital 4. Lack of technical training

5. Housing development office is not taking products on time, capital is tied-up

Negotiate with the office to take finished products and effect payments on time
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Major problems

Major Problems

Joint Solutions

1. Insufficient information on tax regulations

Deliver information on time Invite tax people to brief enterprises on tax regulations Assist cluster members in business plan preparation and participate at exhibitions/bazaars Members take measures to level the site themselves Ask Kebele/Sub-city for intervention Negotiate with Kebele and city administrations to provide additional support in constructing the roads

2. The cluster is not well known by the public

3. The site is not properly prepared, exposed to flood and there is difficulty of using electrical machines and store raw materials 4. Access and internal roads not properly constructed

5. Housing development office is not taking products on time, payments delayed

Negotiate with the office to take finished products on time 8

Summary of Common Problems of Clusters

Infrastructure problems:
Roads not properly constructed for some of the clusters Insufficient electric and water supply Insufficient sanitation facilities

Market problems:
Inaccessibility of clusters to buyers (location) Competition from non-clustered enterprises Clusters are not promoted to the general public

Administrative problems:
No functional cluster associations and bank account Customers not taking finished products on time, payments are delayed Lack of coordination of common facilities
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Summary of Common Problems on Enterprise Level

Enterprise specific market and marketing problems Insufficient size of production premises Non-availability of raw materials in close proximity Lack of technical, managerial and record keeping skills Insufficient supply of machines Lack of information on suppliers, markets, laws and regulations Lack of technical advise on product quality

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Clusters and regional innovation systems

The concept of clusters developed to explain national or regional success Innovation seldom takes place in isolation but is systemic. The cluster is a reduced scale innovation system Clusters as networks of production of strongly interdependent firms linked to each other in a value-adding production chain. Clusters mostly also encompass strategic alliances with universities, research institutes, knowledge-intensive business services, bridging institutions (brokers, consultants) and customers. Communities of practice and networks of practice Knowledge communities e.g. Motorsport cluster

Creative industries cluster as a knowledge community

Audience

Education and training

Projects and venues

Creative knowledge pool

Specialist business services

Associations

Creative individuals

Creative firms

Local authorities

Business support agencies

Cultural and creative support agencies

Specialist manufacturing support

Retail

Creativity and talent

Cluster success requires and encourages flow of talented individuals Especially important in new economy, multimedia, creative industries etc Association between creative employment and open, vibrant communities Successful places are cosmopolitan, young people oriented, buzzing etc

Role of universities as knowledge institutions

Attractors and generators of talent Suppliers of knowledge not just technologies Increasing the stock of formal knowledge but also informal - know how and who networking and institution-building Facilitating learning at various levels Contributing to local governance and learning region strategies Community action and the social and cultural development of regions Contributing to thinking on sustainable regional development Role in shaping the quality of place

Industrial clusters are at the core of the innovation and learning system
GLOBAL VALUE CHAINS

INDUSTRIAL CLUSTERS

Integration of Industrial clusters

in global value chains
Large-scale, multi-outlet retailers Small-scale retailers

Global customers

Global buyers National boundary Buyer and export agents Local customers Large-scale or multiplant manufacturers

Small-scale manufacturers Domestic industrial cluster

Small-scale suppliers

Main types of industrial clusters

Clusters of large national firms Clusters of Small and Medium Enterprises

Clusters of subsidiaries of foreign firms

Drivers of cluster development

GLOBAL LINKS
Global Buyers

Foreign Investment Technological Acquisition

LEAD DOMESTIC BUYERS FIRMS

DOMESTIC SUPPLIERS

DOMESTIC CAPABILITIES
Enterprise Development
Skills Technological Efforts Infrastructure

Strategies of innovation and learning of clusters in global value chains

Clusters in developing countries enhance their competitiveness through a pro-active strategy of innovation and learning driven by the lead firms which includes : LINKING with more advanced foreign partners in global value chains LEVERAGING local competitive advantages to acquire the knowledge and technology of the foreign partners

LEARNING to up-grade capabilities by adapting, using and improving the acquired technology

Innovation paths of industrial clusters in global value chains

R&D

Design

Assembly and Manufacturing

Distribution

Marketing

The Innovation and learning Support System

GLOBAL VALUE CHAINS

Financial

INDUSTRIAL CLUSTERS

resources

Importance of framework conditions

Quality and stability of the political system Reliable and efficient legal system Macroeconomic stability Trade, investment and competition policies Tax system and business regulations

Resources, services and support institutions

Utilities, Infrastructure and logistics

Human resources and education/training

Technological development and Research,

Entrepreneurship and Business Development Services

Financial resources and institutions

Information on markets and industries

Product and environmental standards and support institutions

Support systems for global links

Attracting foreign investment, Promoting exports Developing partnerships with global buyers Acquiring foreign technologies

The Industrial Innovation and Learning System

GLOBAL INDUSTRIES

Financial

INDUSTRIAL CLUSTERS

resources

INDUSTRIAL GOVERNANCE SYSTEM

Central issues to be addressed in a business development perspective are:

The nature of industrial clusters and industrial districts. The nature of systems of production with regard to regional and/or functional characteristics. The organizational set-up of a system as supportive measure for cluster policy. Finally, an attempt is made to answer the question whether it is possible to stimulate clustering processes by public policy initiatives

Figure 2 Cluster development

Economic performance Mature clusters

Number of clusters

Development of cluster

Germinating or budding clusters

Cluster initiative Potential clusters time

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Advantages / Disadvantages of cluster-based economomic development policy:

Innovation and competitiveness; Skill formation and information; Growth and long-term business dynamics.

Risk of mono structure Lock-in effect Inelasticity Stress of competition