TCI2013 Towards a better understanding of value creation in clustered firms

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By Susanne Royer and John Burgess, University of Flensburg, presented at the 16th TCI Global Conference, Kolding 2013.

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TCI2013 Towards a better understanding of value creation in clustered firms

  1. 1. Towards a better understanding of value creation in clustered firms Susanne Royer & John Burgess Academic Summit: Clusters as entrepreneurial ecosystems 4 September 2013
  2. 2. Towards a better understanding of value creation in clustered firms A resource-oriented perspective with the focus on locational resources and the role of lateral cluster actors Susanne Royer (University of Flensburg, Germany) & John Burgess (Curtin University, Australia)
  3. 3. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Purpose & Agenda Agenda for today’s presentation 1. A resource-oriented cluster conceptualisation 2. Valuable resources on the locational level 3. Implications for cluster managers  main objective: investigate how shared locational cluster resources may be fostered by lateral actors  strategic firm perspective brought together with cluster management activities  rationale behind our conceptualisation of locational resources: enable cluster managers to reduce complexity of analysing location factors by providing a resource-oriented mapping tool that also identifies criteria to assess the value of resources for cluster firms and shows avenues for sustaining and upgrading them
  4. 4. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Resources on different cluster levels • Critical resources are often embedded in clusters (Enright 1999) • Resource-oriented cluster literature investigates the impact of resources on different cluster levels, on cluster performance respectively the performance of single players in a cluster (e.g., Brown et al. 2010a, Festing et al. 2012, Hervas-Oliver/Albors-Garrigos 2007, Steffen 2012, Tallman et al. 2004) • Examples for critical, strategically relevant resources in clusters:  informal networks which are especially relevant and valuable for company founders (Dahl/Pedersen 2003)  pool of qualified human resources (Hervas-Oliver/Albors-Garrigos 2007)  particular knowledge and adherent mechanisms to exchange this knowledge among cluster actors while at the same time protecting it against imitation by others (Tallman et al. 2004)
  5. 5. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Locational resources and value adding webs (VAWs) • when investigating valuable and less valuable location factors in different clusters we use a resource-oriented perspective • relevant unit of analysis: locational resources of a certain cluster [we are interested in their value as shared resources for the cluster members] • we define locational resources in terms of Wernerfelt’s (1984: 172) definition of firm resources as »anything which could be thought of as a strength or weakness« of a given location, i.e. focus on valuable resources embedded in certain locations and accessible for cluster firms Our definition: Clusters are VAWs in terms of a »series of linkages between single firms in a certain surrounding. Understanding clusters as value adding webs takes the connectivity of individual firms on different levels in a cluster into account. Value is added by horizontal, vertical and lateral actors« (Brown et al. 2008: 159). Source: Festing et al. 2010: 150.
  6. 6. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Cluster managers as key lateral actors  building on a resource-oriented understanding of value creation in clusters we investigate contextual resources in overlapping VAWs  focus: regional context of a cluster (=location and the embedded resources )  main objective: investigate how shared locational resources in clusters can be fostered by lateral actors  cluster managers as typical lateral cluster actors are suggested to profit when they get access to a better understanding of valuable shared locational cluster resources which in the next step then are to be sustained and/or upgraded
  7. 7. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Clusters and public policy • »organic« (bottom-up) vs. »developed« (top-down) cluster initiatives • ~2000 statistically relevant clusters in EU (almost 40% of EU jobs in clusters) Cluster development  core measure of public policy in the recent decade (Martin/Sunley 2003, Newlands 2003, Jayachandran et al. 2010)  central element of public policy in many countries to create jobs and wealth in certain regions (European Commission 2008, Pitelis 2012 )  more neo liberal market approach in countries such as Australia where cluster development is left to market (privately funded, bottom up development processes) or where lateral actors support cluster development at a very localised level; i.e., without an over arching national cluster policy or program (Grimstad/Burgess 2013) How can value creation of clustered firms be mapped and systematised? What are the advantages for a single firm to be located in a cluster? Which ideas for cluster managements (often paid for by public policy) can be derived? How to identify valuable resources? How to upgrade and leverage existing resources in a cluster to increase the value creation potential for the participants?
  8. 8. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Identifying and enhancing locational resources Upgrading the human resources pool Expanding the cluster Improving the business environment Mandatory Certain (vocational) training programmes for particular professions may be compulsory Setting a legal framework that facilitates entrepreneurial activities Monitoring and reporting about the cluster development may guide public funding Incentive A frequently used activity by cluster managers is to offer events and trainings to which cluster members have access Frequently direct financing and/or the provision of facilities takes place Developing the image/ reputation of a certain region in joint efforts by horizontal and lateral actors Voluntary Sometimes lateral actors provide practical assistance and advice Lateral actors such as universities may offer entrepreneurship education and support entrepreneurs Networking events may be organised by lateral actors Selected Objectives SelectedPolicyInstruments Source: Activities and objectives adapted from European Commission 2007: 18; Policy instruments adapted from Hood 1983 as put in the context of cluster public policies by Brown et al. 2010a and b.
  9. 9. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Cluster managers and locational resources Clusters… build on spatial proximity to develop networks of (in)formal information exchange and serve as a focus to support specialists and key knowledge agents (Mitchell et al. 2010) often have cluster managers who may act as brokers with regard to the joint use or exchange of resources with the main task of managing resources embedded in social relations and structures (Gretzinger/Royer 2013 & there cited literature) - this function is important in not only identifying cluster resources, but in consolidating them and providing points of access, especially for new and small firms (Collins et al. 2013) Locational resources may… be structured into regional, competitive and institutional resources (Brown et al. 2010) be assessed on the basis of the isolating mechanisms from the traditional resource- based view of the firm (Barney 1991, Collis/Montgomery 2005) lead to contextual rents (instead of Ricardian rents) Cluster managers… after identifying locational resources may assess their potential to generate advantages for the cluster actors, can evaluate the possibilities to keep such resources exclusively in the cluster by investigating the isolating mechanisms (i.e., physical uniqueness, path dependency, causal ambiguity, economic deterrence) at work
  10. 10. Systematisation of contextual resources Value? Does a resource enable cluster actors to exploit external opportunities or neutralise external threats? Rare? Is a resource currently controlled by only a small number of competing locations? Assessment if resources have potential to generate locational advantage: Regional resources: Type of area Natural resources (e.g., minerals or a particular climate) Others +/-/~ +/- √/(√) Industry-related resources: Rivalry between horizontal cluster actors Entry barriers to the cluster Bargaining power of vertical cluster actors (suppliers & buyers) Bargaining power of external suppliers and buyers Threat of substitutes +/-/~ +/- √/(√) Institutional resources: Social specificities Cultural specificities Legal specificities +/-/~ +/- √/(√) 10+ YES; - NO; ~ neutral; √: further investigation (√): no further investigation of resources Source: Brown et al. 2010a: 28 (VRIO elements adapted from Barney and Hesterly, 2010: 70 and 84).
  11. 11. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Locational resources in the Glashütte watch cluster • Glashütte since 1845 established a unique and path-dependent close relation to watch making and became a branded location for craft-oriented mechanical watches • implicit experiential knowledge makes up a large portion of the relevant knowledge for making mechanical watches (causal ambiguity) • limited market size does defer potential competitors from becoming actual competitors (mechanical watch making as a niche market) Active coordination of locational resources can be crucial:  e.g., locational brand Glashütte is protected by the so-called lex Glashütte (prohibiting using the name when not at least 50% of value creation happens in Glashütte) which has been established and is enforced  identified valuable locational resources of a particular cluster can be assessed by the shown criteria leading to a resource profile which shows the value creation potential of the resources (ideal profile) as well as the actual use of resources (real profile) and thus reflects the current cluster position as well as the possible future position and makes avenues to follow more obvious  resource profile leads to founded pragmatic implications
  12. 12. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Locational resources profile in the Glashütte watch cluster  Limited access to specific land-use areas (regional resource)  High bargaining power of suppliers since only few suppliers are able to provide the needed inputs in the required quality and quantity (industry-specific resource)  Lex Glashütte protected by the trademark protection act (institutional resources) Source: translated and adapted from Festing et al. 2012: 268. Type of Resource Critical resources on the cluster and locational level Ideal profile (value creation potential of resources) low medium high Real profile (actual use of resources) low medium high Location- specific resources in the cluster •Support programs •Lex Glashütte •Buildings and land •Labor pool •Entry barriers •Suppliers in Glashüttte •Cluster-related distribution channels
  13. 13. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Pragmatic Implications Analytical focus on competitive advantage generation of participating firms makes systematic mapping of clusters possible. Cluster managers get knowledge how they can sustain and improve the resource profile.  Resource development: Sustain and upgrade locational resources in regional context!  Let actors learn from each other: Identify local knowledge and foster regional knowledge exchange!  Help actors to find balance: Understand local shared resources better to help firms to find there position between competition and cooperation!
  14. 14. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess Concluding summary  VAW conceptualisation facilitates systematic cluster mapping on the basis of strategic resources on different levels; we focused on locational resources  compilation of findings of our previous conceptual and case study research to illustrate the analytical framework we have developed and highlight competitive advantages offered to single (and new) firms from cluster participation  locational resources and their contribution to value creation and possibilities of lateral actors to sustain and upgrade such resources are relevant topics in a world where clusters are a dominant public policy in many countries  cluster management and development as important factors in sustaining a cluster and in facilitating the development of new businesses within clusters: requires not only knowledge of the cluster context and its resources, but a framework for resource sharing and access. essential role of information brokers to span gaps between different cluster actors and provide (in)formal points of access to existing and new cluster participants
  15. 15. 16th TCI Annual Global Conference Kolding/Denmark - September 2013 Susanne Royer & John Burgess References Barney, J.B. (1991) ‘Firm Resources and Sustained Competitive Advantage’, Journal of Management Vol. 17 No.1, pp. 99-120. Barney, J.B. and Hesterly, W.S. (2010) Strategic Management and Competitive Advantage – Concepts and Cases, 3rd Edition, Prentice Hall, Boston et al. Brown, K., Burgess, J., Festing, M., Royer, S., Steffen, C. and Waterhouse, J. (2007) ‘The value adding web - A multi-level framework of competitive advantage realisation in firm-clusters’, ESCP-EAP Working Paper No. 27, ESCP-EAP European School of Management, Berlin. Brown, K., Burgess, J., Festing, M., Royer, S., Steffen, C. and Waterhouse, J. (2008) ’Single Firms and Competitive Advantage – Context analysis identifying the embeddedness of a winery in the Hunter Valley’, in Festing, M. and Royer, S. (Eds.), Current Issues in International Human Resource Management and Strategy Research, Rainer Hampp Verlag, Munich, pp. 157-177. Brown, K., Burgess, J., Festing, M., Royer, S., Steffen, C., Waterhouse, J. and Keast, R. (2010a) ‘Conceptualising Clusters as Overlapping Value Adding Webs’, in Brown, K., Burgess, J., Festing, M. and Royer, S. (Eds.), Value Adding Webs and Clusters – Concepts and Cases, Rainer Hampp Verlag, Munich, pp. 10-42. Brown, K., Burgess, J., Festing, M., Keast, R., Royer, S., Steffen, C. and Waterhouse, J. (2010b) ‘Public Policies to Enhance Cluster Development’, in Jayachandran, C., Thorpe, M., Subramanian, R. and Nagadevara, V. (Eds.), Business Clusters: Partnering for Strategic Advantage, Routledge/Taylor and Francis, New Delhi, India, pp. 260-280. Collins, D., Bray, M. and Burgess,J. (2013), Responding to Global Warming Mitigation Policies: the Hunter Valley Construction and Engineering Cluster. Collis, D.J. and Montgomery, C.A. (2005) Corporate Strategy – A resource-based approach, 2nd edition, McGraw-Hill/Irwin, Boston et al. Dahl, M.S. and Pedersen, C.Ø.R. (2003) ‘Knowledge Flows through Informal Contacts in Industrial Clusters: Myths or Realities?’ DRUID Working Paper No 03-01, ISBN 87-7873-132-1 De Oliveira Wilk, E. and Fensterseifer, J.E. (2003) ‘Use of resource-based view in industrial cluster strategic analysis’, in International Journal of Operations & Production Management Vol. 23 No. 9, pp. 995- 1009 Enright, M. J. (1999) ‘Regional clusters and firm strategy’, in Chandler, A.D., Hagström, P. and Sölvell, Ö. (Eds.), The dynamic firm - the role of technology, strategy, organization, and regions, Oxford, pp. 315- 342. European Commission (2007), Innovation Clusters in Europe: A statistical analysis and overview of current policy support, DG Enterprise and Industry Report (available online: http://www.central2013.eu/fileadmin/user_upload/Downloads/Tools_Resources/Cluster.pdf, last access 13-08-2013). European Commission (2008), Towards world-class clusters in the European Union: implementing the broad-based innovation strategy, Communication, COM (available online: http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0652:REV1:en:PDF, last access 06-08-2013). Festing, M., Royer, S. and Steffen, C. (2012) ‘Unternehmenscluster schaffen Wettbewerbsvorteile. Eine Analyse des Uhrenclusters in Glashütte’, Zeitschrift Führung + Organisation (ZfO), Vol. 81 No. 4, pp. 264- 272. Festing, M., Royer, S. and Steffen, C. (2010): ‘Case Studies on Mechanical Watch Clusters’, in Brown, K., Burgess, J., Festing, M. and Royer, S. (Eds.), Value Adding Webs and Clusters – Concepts and Cases, Rainer Hampp Verlag, Munich, pp. 126-171. Gretzinger, S. and Royer, S (2013) ‘Relational Resources in Value Adding Webs: The case of a Southern Danish firm cluster’, European Management Journal (2013), http://dx.doi.org/10.1016/j.emj.2013.02.004 Grimstad, S. and Burgess, J.(2013), ‘Environmental Sustainability and Competitive Advantage in a Wine Tourism Micro-cluster’, Management Research Review. Forthcoming. Hervas-Oliver, J.L. and Albors-Garrigos, J. (2007) ‘Do cluster capabilities matter? An empirical application of the resource-based view in clusters’, in Entrepreneurship & Regional Development Vol. 19, pp. 113- 136. Hood, C.C. (1983) The Tools of Government, Macmillan, London. Jayachandran, C., Thorpe, M., Subramanian, R. and Nagadevara, V (2010) Business Clusters: Partnering and Strategic Advantage, Taylor & Francis Group, Dubai. Martin, R. and Sunley, P. (2003) ‘Deconstructing clusters: chaotic concept or policy panacea?’, Journal of Economic Geography Vol. 3, pp. 5-35. Mitchell, R., J. Burgess and J. Waterhouse (2010), ‘Proximity and Knowledge Sharing in Clustered Firms’, in Brown, K., Burgess, J. Festing, M. and Royer, S. (Eds.), Value Adding Webs and Clusters: Concepts and Cases, Rainer Hampp Verlag, Munich, pp. 62-78. Newlands, D. (2003) ‘Competition and Cooperation in Industrial Clusters: The Implications for Public Policy’, European Planning Studies Vol. 11, pp. 521–532. Pitelis, C. (2012) ‘Clusters, entrepreneurial ecosystem co-creation, and appropriability: a conceptual framework’, in Industrial and Corporate Change Vol. 21 No. 6, 2012, pp. 1359-1388. Steffen, C. (2012) How firms profit from acting in networked environments: Realising competitive advantages in business clusters. A resource-oriented case study analysis of the German and Swiss watch industry. Rainer Hampp Verlag, Munich. Tallman, S., Jenkins, M., Henry, N. and Pinch, S. (2004) ‘Knowledge, Clusters and Competitive Advantage’, in Academy of Management Review Vol. 29 No. 2, pp. 258-271. Wernerfelt, B. 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  16. 16. Towards a better understanding of value creation in clustered firms A resource-oriented perspective with the focus on locational resources and the role of lateral cluster actors Susanne Royer (University of Flensburg, Germany) & John Burgess (Curtin University, Australia)

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