Clusters and development agencies in crisis times. ppp, the answer.

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Authors: Javier Celdrán: Competitiveness Director / Development Agency Murcia (Spain) & Antonio Ruiz: Director TASO consultants (Spain).

The 21st century has brought a revision of regional competitiveness policies in Spain, addressing it to bottom‐up strategies instead of the old “one size fits all” strategies. Economic Development Policies have become more sophisticated. Cluster down to bottom‐up strategies Initiatives (CI) are now mainstream all over Europe as the linkage among all the cluster agents is essential to upgrade competitiveness.

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Clusters and development agencies in crisis times. ppp, the answer.

  1. 1. THE 15Th TCI ANNUAL GLOBAL CONFERENCE Basque Country, Spain. 17th October 2012 Clusters and Development  Agencies in crisis times: Agencies in crisis times: Public‐Private‐Partnership (PPP),  the answer. Authors:   J Javier Celdrán: Competitiveness Director /  p / Development Agency Murcia (Spain). Antonio Ruiz: Director TASO consultants (Spain). 1990s: a decade of top‐down strategiesDuring the last decade of the 20th century, Regional DevelopmentAgencies (RDAs) were born all over Spain. European Regional g ( ) p p gDevelopment Fund (ERDF) provided Agencies with a consistentfinancial support for business development. It was the time ofhorizontal policies, where training, innovation andinternationalization were the three pillars of interaction betweenagencies and firms. ContentAgencies were created as agile bodies close to companies andspecially oriented to upgrade competitiveness. ERDF was widelyused in two main fields: the construction of support infrastructures infrastructures, CONTEXT OF THE  CONTEXT OF THEsuch as Innovation and Technological Centers, business incubators, EXPERIENCE: logistic platforms, technology parks, and also the financial grants Three decades of programmes for company modernization, always under top‐down cluster policies in and “one size fits all” strategies. Murcia (Spain) European Regional Development Fund ( E R D F ) THE CHALLENGE:  ¿How to handle  FIXED ASSETS COMPANIES INNOVATION CENTERS sustainable  INTERNATIONALIZATION financing?  INTERNATIONAL INNOVATION INCUBATORS TRAINING LOGISTIC PLATFORM INNOVATION MODERNIZATION DEVELOPMENT AGENCIES TECHNOPARK KEY LEARNINGS:  ……. ……. Public‐Private‐ Partnership (PPP),  the answerIn this ecosystem, intermediary organizations developed a role ofdistribution channels between RDAs and companies. It was a time ofabundant financing capacity where everybody looks toeffectiveness rather than the efficiency of interventions.
  2. 2. In this context of economic abundance, companies were waiting in a2 “ready to receive” position. Active participation of companies in publicly supported projects was rather unusual. The permanent challenge of the decade: to build links between scientific knowledge and industrial development. The divorce between the “triple‐helix” actors became the hottest topic along these promising years. th i i“The linkage among all the  cluster agents became  Changing to Bottom‐Up strategies essential to upgrade  competitiveness” The new century brought relevant changes in competitiveness policies. Clusters Initiatives, promoted by sophisticated public programmes, experienced a huge expansion, becoming main stream all over Europe. The new microeconomic ecosystem forced Agencies to “roll” from horizontal to selective actions The linkage among all roll actions. the cluster agents became essential to be success on upgrading competitiveness. The need for active firm participation helped them to revisit the competition vs cooperation dilemma. The new paradigm required the development of new more business‐oriented tools, in a long term perspective: to business oriented, to “soft” instead of “hard” (in other terms, services instead of infrastructures), advising instead of grants, with a global objective of high performance. “More focused, more concrete, more specialized, more transparent, more effective”, is the new motto. THE CHALLENGE: ¿How to handle sustainable financing? The new scenario of economic crisis and the dramatic lack of public budget, demands to define a new paradigm. The key is the financial survival without public grants. Nobody can run away from the “flood”.“Cl ster Initiati es need to Cluster Initiatives need to  survive without grants” INTERMEDIATE ORGANITATIONS Reinvent NEW PARADIGM DEVELOPMENT CLUSTER AGENCIES INICIATIVES Cost-Effective Survive RDAs need repositioning to provide specialized services in a cost‐ effective basis in absence of financial grants. Intermediate Organizations based on public financial support, need to be reinvented. Bottom‐Up policies need counterparts, financially independent, independent in the private side to share a “macro” vision side, macro vision. And Cluster Initiatives, inspired from economic policies, need to survive in a new environment without grants, searching incomes through competitive programs and services selling. The forthcoming horizon in Europe, suggests the adoption of new microeconomic policies to drive competitiveness. This trends currently embodied by the “Smart Specialization Strategies” (S3), where word‐class sustainable clusters are to play an essential role.
  3. 3. KEY LEARNINGS: Public‐Private‐Partnership (PPP),  3 the answer Understanding the cluster’s position in its Life CycleThe concept of Life Cycle can also be applied to clusters. Usually, theStarting phase is associated with a “Cluster Initiative (CI)” (see TheCluster Initiative Greenbook), most frequently leaded by governmentinstitutions or, at least, resulting from their microeconomic policyguidelines. The involvement of firms in the Initiative, from the earlybeginning, is a key factor for cluster success on upgradingcompetitiveness. Competitiveness “The main role of the  Cluster Cluster Manager (CM)  in the Starting phase should be to shape  the relations among  C all the participants  Time who integrate the No less than 2‐3 years will be needed for the Cluster Manager Triple Helix”(Facilitator) to be able to build a common vision, the cluster objectivesand a comprehensive activity agenda, shared by the cluster coremembers. This is not an easy task. The main role of the ClusterManager (CM) in the Starting phase should be to shape the relationsamong all the participants who integrate the “Triple Helix”. Thepotential b i l benefits of the cluster “ hi fi f h l “architecture” on competitiveness may ” iinot be obvious, especially to firms. Dealing with a couple ofcollaborative projects during this phase can help definitively togenerate visibility and to create trust about the add‐value services thatthe CM may develop. Active (and temporary) financial support frompublic bodies in this stage will demonstrate that the Initiative is“politically” significant. Looking around at successful clusters, from awide perspective (not only selecting clusters from the same sector),should bring useful benchmark references as well as good practices to g g pimport in this creative period.The Growth phase should demonstrate that the Cluster Initiative may “The Growth phaseexpands from its initial core of members and activities until reaching should demonstrate that its “break even”. It shall allow members to benefit from interactionscales, and generate an environment favoring cooperation, innovation the Cluster Initiative may and knowledge, and subsequently upgrading competitiveness. Cluster expand from its initial Manager should develop add‐value services to the companies finding core of members and the i htth right positioning b t iti i between f free services offered b public b di i ff d by bli bodies activities until reaching until reaching and typical consultant services portfolio. Developing such a source of its break even”incomes furthermore reduces the dependence of the cluster’s budgeton public grants. It shall allow consolidating a small but dedicatedmanagement team, who will then face another strategic challenge: thecluster‐to‐cluster relations in order to extend interactions beyond thestrict cluster frontier.
  4. 4. When stable, self‐financed, credible, and well‐founded, a cluster can 4 be considered having reached its Maturity. Not many clusters all over the world may exhibit such a position. Even though cluster fostering is a mainstream competitiveness policy around the world, clusters are relatively young organizations with a high mortality rate. Clusters in their third phase (maturity) should be a collaborative projects f ll b i j factory specializing i managing complexity, i li i in i l i deploying a wide range of sophisticated services (in this perspective online services are crucial) provided in alliance with outsourced specialized partners. Intercluster Cooperation Strategies become an imperative advanced tool to leverage the cluster’s Value Chain with activities allocated in clusters partners, in order to make up a Global Value Chain. This leads to build an international road map, made of cluster‐cluster interactions aiming at integration among firms (or agents) from different clusters. g g ( g ) “Clusters in their third phase (maturity) should be a collaborative project factory  specializing in managing complexity, deploying a wide range of sophisticated services  provided in alliance with outsourced specialized partners” Cluster Managers are quite similar to long‐ Support A ti iti S t Activities distance runners. They feel alone most of the Infrastructure Human Tech. time. Their clients do not trust their work and Procurement Resources Chllenges are quite skeptical about the benefits of the CI for their own companies. They have an almost impossible mission ahead.Prima Activities Market Service Service Service It requires open‐mindedness to believe a Searching Design Set-Up Delivery cluster can improve your company’s competitiveness. The only way of achieving ary that is through facts. Firms need to be INNOVATION PROCESS (ANTE) OPERATION PROCCESS (POST) involved in collaborative projects providing them with direct benefits or to access open innovations or know how, which may be impossible to reach in an individual manner. And the CM usually has to deal with a severe lack of resources. The skills to be found in a Cluster Manager are quite unique. The capacity to build added value services oriented to upgrade companies’ competitiveness is a strong requirement. Let us use the concept of Value Chain popularized by Michael Porter in “Cluster Managers are quite  1985 (Competitive Advantage: Creating and Sustaining Superior similar to long‐distance  Performance) to list out the activities a CM needs to perform. runners” First of all, a bunch of Support Activities need to be considered. Conventional Value Chain categories such as: Infrastructure, Human Resources, Technology Challenges or Procurement, can be used. Concerning P i C i Primary A ti iti Activities, ttwo diff different phases should b t h h ld be considered. Cluster management services always need to incorporate a relevant set of innovations in order to be leading edge services. The innovation process is an activity ex‐ante to service delivery. The main task in this process should be Market Searching or Service Design. Once the service exists, the operation (or delivery) process arises. Activities within this process are: Service Set‐up and Service Delivery.
  5. 5. How to climb the Everest? 5Cluster Managers cannot climb the Everest top alone. Their personaleffort is imperative, but they need the valuable support of base campand sherpas.Competitiveness policy makers and public bodies (such asDevelopment Agencies), especially in Europe, are questioning theirrole in the new scenario of budget restrictions. May DevelopmentAgencies carry out a cluster fostering policy without financiallysupporting clusters? That’s the question.The answer only can be positive. Cluster Mangers have a huge task toperform and, like in the Everest, they cannot do it alone. They need tobe excellent in all the capacities along their Value Chain, as seenabove,above and to do it within a context of a lack of human resources And resources.the only way of doing it is through a focused strategy. CM shouldconcentrate on those distinctive capacities which are at the core oftheir service offer and outsource the remaining.Setting an outsourcing strategy means trading‐off between factorspushing to perform an activity inside (control, integration, induceddemand or differentiation ability) and those pushing to outsource “Cluster Mangers have a (scale economies, fixed cost, investment or know how). huge task to perform and, The approach below may provide an answer to this in‐out dilemma: like in the Everest, they  cannot do it alone cannot do it alone” Human Tech. Infrastructure Resources Challenges Procurement DEVELOPMENT AGENCIES Market Service Service Service Searching Design Set-Up Delivery INNOVATION PROCESS (ANTE) OPERATION PROCCESS (POST) OUTSOURCING (ANTE) CLUSTER MANAGEMENT (POST)Cluster managers should define as their core business the valuable gactivities which are closer to their clients (such as service set‐up orservice delivery). Development Agencies can play a cost‐ effectiverole providing Support Activities to all the clusters located in theirRegion (the base camp in the Everest climb). These activities are “A new paradigm for quite common to all the clusters and imply significant scale cluster management: the economies. Repositioning the Development Agencies to this emergingrole would be a good reason to preserve these bodies. Public‐Private‐Primary Activities linked to the Innovation Process require a high Partnership (PPP)”degree of specialization and a b d dd f i li ti d broad demand f b ki even. It d for breakingsuggests the profile of high‐value consultant services (the sherpas inthe Everest example).Therefore, excellence in cluster management leads to an allianceamong Cluster Managers, Development Agencies and Consultants. Anew paradigm for cluster management: the Public‐Private‐Partnership (PPP).

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