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Marks PhD examined the 25-year relationship between the Tasmania state government and the Tasmania light hobbling cluster In order to advance a more strategic ‘role of government’ In industrial cluster development. Mark is also Interested in researching strategic marketing concepts, particularly those concerning Ethics and Integrated Marketing Communications. CRITIC Cluster conference. Beyond Cluster- Current Practices & Future Strategies Ballard, June 30-July 1, 2005 Regional economic development: Exploring the ‘role of government’ in porter’s Industrial cluster theory.
ABSTRACT Porters Industrial Cluster Theory (CIT) is a theoretical framework that achieved prominence in Australian economic policy development. Despite its widespread adoption, however, Australia has remained significantly below the COED average in terms of its industrial clusters’ contributions to real wealth creation. In order to understand the positive role that (Australian) governments can play In the development of Industry clusters, this paper analyses the 25-year history of the the set of government policy roles that facilitated the development of this internationally competitive industry cluster.
This paper also proposes a re- conceptualization of CIT that will potentially increase its value as a predictive tool for seminal economic development. Key words: Industrial cluster theory, role of government, cluster policy, regional economic development. Ballard, June so-July 1, 2005 Exploring the ‘Role of Government’ in Porter’s Industrial Cluster Theory. Introduction. Since the asses, the onrush of globalization in Australia’s markets has presented significant economic policy challenges to the country’s federal and state governments Everett, 2002; Goldfinch, 1999; Instantaneous, 1999).
A major concern for Australian legislators was (and remains) the question as to how to make a nation previously retorted by a fortress’ of tariffs and subsidies more productive and competitive in Nor markets (Brown, 2000; Edwards, 2002; Martin, 2000; Quizzing, 1999). One theoretical framework that achieved prominence in Australian economic policy development since its inception in 1990 is Porter’s Industrial Cluster Theory (ACT) (see Australian Manufacturing Council, 1994; Bureau of Industry Economics, 1991; Keating, 1994; Kelly, 1993; McKinney & Company, 1994).
As part of his book The Competitive Advantage of Nations, Porter developed the notion that innovative industrial clusters re integral to export earnings and the generation of national competitive advantage. Porter’s CIT argues that a nation’s industry will be internationally competitive if a synergistic interrelationship exists between four important variables collectively known as the Diamond Factor Model: ‘Factor Conditions’; ‘Local Demand Conditions’; Related and Supporting Industries’; ‘Firm Strategy, Structure and Rivalry; and the two influencing roles of ‘Chance Events’ and ‘Government’. See Porter (1990) for a discussion of the Diamond Factor Model, and Figure 1 for a diagrammatic representation). Figure 1: Porter’s (1990) Diamond Factor Model. Since the adoption of Porter’s Diamond Factor Model (UDF) as a basis for policy development, however, there has been considerable debate concerning its effectiveness, and indeed its appropriateness as a policy framework for Australia (see for example, Soddy, 2000; Gordon & McCann, 2000; Lyons, 1995; Wellhead, 1999; Yell- Mantilla, 1994).
The debate has arisen due to the observed disconnect between the country’s numerous (and expensive) attempts to incorporate the UDF as a policy framework, and the fact that despite these efforts, Australia remains significantly low the COED average in terms of its industrial clusters’ economic contributions to real wealth creation (Brown, 2000; COED, 1998; Porter, 2002, cited in James, 2002). An examination of the literature identifies three main issues that account for the Observed failures and under-performance of Australian industrial cluster policy.
The first major issue is that Australian government policy development has largely been focused on descriptive information gathering rather than on achieving either business participation in, or greater understanding of the complex industrial clustering process 5 paves, 2001). In many of the failed or under-performing ICC developments, researchers noted that the associated government policy ignored the local and Interregional industrial linkages and/or the channels of technology and knowledge transfer that existed, instead relying on relatively simple measures (such as ‘Industry size’) to detect potential industry clusters.
These simplistic measures are a common feature of Australian industrial cluster policy, and formed the basis upon which expensive and complex resource allocations were made (Gordon & McCann, 2000). Rhea second major issue surrounds an assumption by Australian policy-makers that he facts explaining the existence of industry clusters around the globe are readily generalist to the Australian context (Soddy, 2000).
Of particular concern has been the assumption of Australian policy makers that simply replicating the policy choices of governments associated with successful clusters (such as Silicon Valley) will be successful despite the lack of evidence to support this contention. Body (2000) suggests that there are clear dangers in attempting to reproduce significant policy direction from a relatively small number of specific cases, especially those whose economic performance is inherently atypical.
One of the major dangers of incorporating a ‘carbon copy approach to policy development is that of misunderstanding the specific origins and competencies inherent to a region’s networks between firms and industry is created and maintained, government policy directed at merely ‘locating firms together’ appears to omit and/or ignore the most important and dynamic aspects of the industrial clustering process. The third issue concerns the record of Australian governments’ resource allocation as it pertains the development of industry cluster formation.
Fuser and Bergman (2000) note that, at least at the regional level, the approach frequently adopted by policymakers involves little more than the identification of current regional specializations as targets for traditional development initiatives. In such cases, a cluster strategy serves more often as a means of allocating scarce resources than as a way to build the linkages and future inter-industry synergies documented so frequently in successful industrial districts (Fuser & Bergman, 2000).
For example, in Europe, the US and Australia, many ‘planned’ clusters have failed to materialism spite heavy investments by government into the required infrastructure’. The implication is that although setting up the infrastructure may be paramount to the diffusion of industrial clusters, it is not sufficient in of itself to ensure a cluster’s formation and development. Underpinning these issues is the observed difficulty of Australian policy-makers to conceptualize their role within Porter’s UDF (Brown 2000; Inherit & Roberts, 2001).
Indeed, Brown (2000) suggests Australia’s poor ICC performance is almost entirely predicated on the ‘confused role of government and TTS policy makers’, a statement echoed by Porter when he stated that: … In Australia, what is less understood is that the government has some positive roles, like innovation and training, infrastructure, and things like that. I think that the real frontier is [understanding] the positive roles to be played by government whilst avoiding the distortion or intervention in competition (in Tirana, 2002:39).
In order to understand the positive roles that a government can play in the support of entrepreneurial activity and the development of innovative industrial clusters, this paper reports upon an examination of the 25-year history of one of Australia’s most innovative and internationally successful industry clusters, that of the Tasmania Light Shipbuilding Industry (TILLS) cluster. Since its inception, the TILLS cluster has grown substantially in terms of its sales volume, innovative output, and impact on the industry overall development as a world-class maritime producer (Industry Audit, 1998).
At its peak between 1996 and 1998, the TILLS cluster generated an annual turnover of ADD$400 million (accounting for 25 percent of the state’s merchandise sports), and was fundamental in the development of an industry council that represented and coordinated the majority of the state’s maritime industry (Industry Audit, 1998). Given its demonstrable importance to the regional Tasmania economy, an examination of the TILLS cluster’s development provides an opportunity to observe the role that government played in the development of an innovative and internationally competitive industry cluster.
This research comprised a series of semi-structured interviews with all of the key informants within the TILLS cluster and the state government during the period 1977 to 2002. In particular, interviews were conducted with each of the state Premiers during the TILLS cluster’s formation, the managing directors of the TILLS cluster firms, and the heads of government departments and agencies with which the TILLS cluster had significant interactions. In total 25 semi-structured interviews were conducted, each lasting between 60 and 90 minutes.
The interview questions posed to the participants were derived from an extensive collection and analysis of historical data pertaining to the TILLS cluster’s development. As such, the interviews contained both standardized interview questions (I. . Common to all informants) and specific interview questions (I. E. Aimed at the key informants’ specific involvement in the TILLS cluster’s history), and were formulated to elicit the primary data required to answer the research questions posed in this inquiry. 10th the standardized and specific interview questions were formulated to facilitate the aggregation, analysis, and validation of information, and enabled the researcher to interrogate the evidence gathered from other sources. These questions were designed to cover the necessary issues, but were framed in an open-ended manner, o allow the interviewees sufficient latitude for introspection and open reporting of their own perspectives. As a result, the informants were free to pursue those matters that they considered important. His collection of primary data using a semi-structured interview method allowed the informants to tell their own story in their own way, thereby allowing the researcher direct access to the experience of the case (Clinician & Connelly, 1994). These individualized recollections aid to strengthen the inquiry by counteracting the bias that may exist in the secondary documents (Burgess, 1982), by adding matters of fact r detail that may only be recorded in individual memory (Samuel, 1982), and by giving voice to those not usually heard (Fontana & Frey, 1994).
The semi-structured Interviews assisted this inquiry in each of these areas, as they enabled the researcher to 7 access facets of the case that would not have been available by any other data gathering technique. The interpretation of the data, and the verification of the conclusions, were facilitated by the use of the USSR NUDE*SIT software package. The interview transcripts were imported into the NUDE*SIT software database, following Inch the categories (I. E. He coding of the data) were established as a series of nodes.
These nodes were initially generated from the themes highlighted in literature review process, formed part of an index system that allowed the researcher to categories respondent data in terms of extant theory. Each node was then reviewed in order to identify common themes necessary for the researcher’s second- round coding that underpins the discussion and conclusions in this paper. One of the most prevalent concerns surrounding the reporting of longitudinal cycle.
Peters and Hood (2000) discuss how the industrial life cycle notion can influence the effectiveness of a government’s industrial cluster policy platform. A growing literature base suggests that Who innovates’ and ‘how much’ innovative activity is undertaken by an industry cluster is closely linked to the phase of the industry life cycle, and is of vital importance to effective policy implementation Kipper, 1996; Leigh, 2003). It is therefore necessary for this research to report on the longitudinal variation in government policy development, and link them to the needs of the TILLS cluster over its life cycle.
Results. Rhea role of government during introductory stage of the TILLS cluster’s life cycle. During the introductory stage of its life cycle, three key government roles positively influenced the TILLS cluster’s development. The first was the state government’s initial non-committal stance towards the specific development of the state’s burgeoning shipbuilding industry. The second role surrounded the enhancement of the state’s reputation within the domestic market as a centre for maritime research.
The third role was the government’s support for the entrepreneurial activities undertaken by Incant, when it became apparent that the company was a potential source of significant economic growth for the regional economy. He state government’s initial non-committal stance towards the state’s burgeoning industry was not a deliberate one, as its policy focus at the time was on the macroeconomic restructuring of the state’s economy away from its dependence on hydroindustrialisation.
Due to this focus on the macro-economic restructuring process, the Tasmania government did not at any stage pre-empty the growth requirements of the potential industry cluster. As such, the Tasmania government avoided the issues surrounding many of Australia’s industrial cluster failures of the asses in which governments built up the infrastructural support to potential industries in the hope that this would attract firms, as for example, the federal and South Australian government did with the failed multi-function polis planned for Adelaide.
Consequently, the development of the innovative technologies (I. E. the development of elements of Porter’s firm strategy, structure and rivalry) remained the sole responsibility of the private sector firms that existed during the industrial cluster’s initial formation (I. E. Clifford and his maritime friendship network). Rhea second key role was the state government’s development of the region’s petition within the broader domestic maritime market as a national centre for maritime research.
The Tasmania government implemented a series of lobbying initiatives that resulted in the federal government providing additional funding to the Australian Maritime College and relocating its national maritime research institute the CAIRO) to Hobart. These state government lobbying efforts were largely aimed at the federal government rather than the private sector, but their success had Implications for the region’s ‘Factor Conditions’, ‘Related and Supporting Industry, and y developing the region’s supply of human capital through both the generation of specialized employment and education within the broader industry.
The regional economy’s related and supporting industry factor was advanced by the increase in the sophistication of supply of inputs to the private sector firms (in terms of products and world standard maritime research). The Tasmania government’s enhancement of the region’s reputation helped to develop the demand conditions faced by the private sector shipbuilding firms, most significantly in the from of customers ready to import their products from interstate.
It was only after the domestic exporting success of Incest’s innovative semi-aluminum catamarans in the early asses were realized that the Tasmania government undertook its third key role, that of accommodating the growth requirements of the innovative cluster firm. Although the Tasmania government did provide its first direct support for Incest’s innovative management in the introductory stage of the TILLS cluster’s life cycle, it did so only after the firm was able to demonstrate the potential in the domestic Australian market for fast-ferry transportation.
The Tasmania government’s support for Incest’s innovative capacity was provided only when the firm could demonstrate that it did not possess the resources required for its continued expansion. The Tasmania government also required evidence that their support of Incest’s expansion would result in additional Jobs being created within the firm. This initial government support is consistent with the recommendation of Porter’s ‘CT, as it allows for the Challenges facing the burgeoning industry to be overcome whilst avoiding the Inefficiencies associated with the government’s direct involvement in private sector enterprise. E role of government during the growth stage of the TILLS cluster’s life cycle. During the growth stage of its life cycle, three key government roles positively Influenced the development of the TILLS cluster. The first was the Tasmania government’s continued effort to enhance the reputation of the regional economy, although the focus of these efforts changed from a focus on the domestic maritime market to one that encompassed the international market for Incest’s fast-ferries.
The second was the Tasmania government’s direct involvement in Incest’s sales and negotiation processes with their international customers. The third was the oarswoman government’s policy initiatives that served to maximize the synergistic relationship that existed between Incant and its ‘supplier firms’. Rhea first of the state government policies that positively influenced the development of the TILLS cluster was the continued enhancement of the region’s reputation as a centre 9 for maritime excellence, although the policy’s focus changed markedly to encompass the international marketplace.
This change in focus was driven by the continued Through the use of government sponsored trade missions and the associated stagnation activities, the Tasmania government used the success of Incant to illustrate the region’s maritime competency to international buyers of these products, In turn facilitating an increase in the international demand conditions for Incest’s production.
The Tasmania government also applied pressure on the remainder of the TILLS cluster firms, and indeed the region’s maritime industry as a whole, to similarly increase the quality of their production in line with the growing international reputation of the region. The Tasmania government helped the region’s shipbuilding and maritime manufacturing firms to achieve high quality reduction by maintaining its existing lobbying efforts for additional infrastructural funding for the industry.
Specifically, the Tasmania government undertook political action to secure additional funding for the educational and R&D requirements of the industry. As with TTS direct support for Incest’s needs, however, the Tasmania government only lobbied for additional federal government funding after its need was recognized by the private sector, and where the private sector firms could demonstrate that these needs were necessary for their future growth. He Tasmania government’s reputation enhancement strategy served to increase the Demand Conditions enjoyed by the state’s shipbuilding industry, and in particular, for the output of the regional industry innovative firm, Incant. It also served to apply a degree of pressure upon the Incest’s suppliers to similarly improve their production output in line with the growing prestige of the region. Rhea second role undertaken by the Tasmania government was that of direct support during Incest’s sales negotiations with their potential international customers.
This Nas directed by the incumbent state Premier at the time, through his department of economic development, most notably in the form of funding for international customer visits to Incest’s factory, but also by having the Premier accompany the potential customer during their visit. As a result of the state government’s policy Initiative to become involved in Incest’s sales negotiation process, it provided a level of prestige, moral support and sales expertise that was otherwise beyond the ability of the hub-firm to provide.
Indirectly, this policy also served to highlight the supplier firms within the TILLS cluster, as their inputs into Incest’s final product were also purported by the state government’s involvement in the sale. In terms of advancing the Diamond Factors, the Tasmania government’s second policy initiative served to develop the regional industry firm strategy, structure and rivalry by state Premier’s personal endorsement of the TILLS cluster’s output.
It also served to align the TILLS cluster firms’ goals with that of the state government by pressuring all of the individual firms to innovate their products in line with the requirements of the innovative Incant. In terms of advancing the Demand Conditions enjoyed by the regional industry, the Tasmania government’s involvement served to enhance the legitimacy of Incest’s product to potential international customers. Rhea third key role undertaken by the Tasmania state government was to undertake measures to deliberately maximize the synergistic relationship that existed between Incant and its supplier firms.
Inherent in Porter’s CIT is the notion that within a clustered network of firms, some forms of scale or scope economies exist through which the industrial cluster develops an internationally competitive advantage. Through its development of marine parks and industrial councils (in which firms implementers to Incest’s operations can more easily interact) the Tasmania government deliberately enabled the realization of the synergies of both scale and scope inherent to the region’s natural industry.
The third state government role served to advance the diamond factors by developing the firm strategy, structure and rivalry and the ‘Factor Conditions’ enjoyed by the TILLS cluster firms in residence at the Prince of Wales Bay marine park in Hobart. With the TILLS cluster firms in close geographic proximity, the individual firms were better able to communicate and ordinate their interrelated production and training activities, as well as allowing them to access the advanced and specialized (and expensive) infrastructure developed for the marine park. The role of government during the maturity stage of the TILLS cluster’s life cycle.
During the maturity stage of its life cycle, three key government roles positively influenced the development of the TILLS cluster. The first key role was the continued enhancement of the regional economy’s reputation as a world centre for maritime manufacturing excellence, although the focus of its efforts hanged from the singular promotion of Incest’s success to incorporate the production of the entire set of industry members, be they cluster firms or otherwise. The second role was to formalism the relationships that existed within the regional shipbuilding and marine manufacturing industries.
The third role was the government’s deliberate strategy to dilute Incest’s importance and impact upon the regional economy. The first key government role was its continued enhancement of the regional economy’s reputation as a world centre for maritime manufacturing excellence. During the maturity stage however, the focus of the Tasmania government’s petition strategy in the world shipping vessel market changed from the singular promotion of Incest’s success to incorporate the output of the entire industry, be they TILLS cluster firms or otherwise.
The functional strategies incorporated by the Tasmania government included trade missions, direct involvement in the international sales negotiations process, and the provision of marketing assistance to the industry. The marketing assistance provided to the industry was specifically targeted at generating a consistent message for all of Tasmania firms in the international marketplace.
The policy to incorporate the entire set of cluster firms developed the demand conditions for the regional industry, with the region now marketed as a ‘one-stop- shop’ for a wide variety of innovative and high-quality maritime production, not simply fast catamaran production. The state government could afford to undertake this marketing strategy given the success that the TILLS cluster firms had enjoyed both the growth stage of the TILLS cluster’s development, each of the supplier firms had secured their own export sales independent of those associated with their alliance Ninth Incant.
Further to this, two additional TILLS cluster firms, Lifeboat Systems and Richardson Divine, emerged within the industry and enjoyed immediate export success, largely due to their association with Incant and the innovative and valuable nature of their output. 11 Rhea second key role was to formalism the relationship between the region’s entire set of shipbuilders and maritime manufacturers (TILLS cluster firms or otherwise) and the state government.
After the Prince of Wales Bay maritime park was established by the Tasmania government, the private sector firms, along with the Aluminum Melding School, formed the Tasmania Maritime Network (TEN) within which the rolls cluster could better develop its communications and lobbying efforts. After the canon Labor government’s industry audit program of 1998 was completed, the TEN Nas restructured to form an ‘Industry Council’ that represented approximately 85 percent of the region’s shipbuilding and marine manufacturing firms.
The Industry Council program sought to provide the region’s shipbuilding industry with a direct communication and lobbying channel between the industry as a whole and the oarswoman government. The Industry Council arrangement also helped to ensure hat that the set of firms within the industry could better incorporate the success factors of the TILLS cluster into their operations, and therefore become involved in the process of further developing the regional industry ‘Firm Strategy Structure and Rivalry to comply with world-best standards. He third key role was the Tasmania government’s strategy to dilute Incest’s importance and impact within the regional economy. The policy was implemented through the attraction of additional innovative shipbuilding firms to the region producing vessels unlike those of Incant) in the hope that the TILLS cluster’s supplier rims would have alternate sources of sales opportunities incremental to that of Incant.
The Tasmania government was able to attract additional innovative firms through marketing the region’s advanced infrastructure, support that was initially provided solely for the benefit of Incant. Where needed, the Tasmania government also provided the option to undertake an equity arrangement with the new hub- firms, an arrangement that involved funding of the new firms’ relocation and start-up costs, but did not involve the state government intervening in the innovative process of the firm.