Australia's National Local Government Newspaper Online

Cluster led economic development is not a fad

The Good Oil by Rod Brown*

How often we forget that capacity building at the local level is achieved by maximising local advantages and having the people on the ground to connect the dots. The same problem surfaces overseas, which is why numerous development agencies in Europe and the USA are busy facilitating the development of industry clusters &endash; each specialising in building on the inherent advantages of their local communities.

Professor Michael Porter from Harvard University, and the OECD in Paris, are at the forefront of this thinking. They argue that economic success depends on viable investment by innovative, world competitive companies, and this in turn depends in part on the existence of quality economic and social infrastructure.

The term 'industry cluster' is used interchangeably with 'industry precinct'. The latter has European origins, while the former derives from the US experience and Porter's seminal work.

In Australia, most industrial parks and trade/commercial zones would not fit either definition, because of the random mixing of tenants and hence a lack of synergy.

In any event, the international concept of industry precincts and clusters involves a wider spatial dimension than a property development.

The often quoted example is Silicon Valley, commonly referred to as an IT cluster. Forty years ago, its claim to fame was its apricot orchards.

Strategic investments were then made by a university and associated enterprising companies, more start up companies were spawned, other smart firms gravitated there from interstate, and the IT revolution was born. There are other examples.

The Emilia-Romagna in northern Italy is home to numerous industrial precincts including the following.

• The small city of Modena specialises in high performance cars, and is the home of Ferrari, Lamborghini and Maserati.
• Montebelluna is a community of 25,000 close to the Italian Alps. It produces 65 percent of the world's ski boots &endash; names like Caber, Lotto, Nordica, Solomon, and Tecnica. This town is also home to Rollerblade skates and Asolo hiking boots.
• Sassuolo, in northern Italy, is the home of 150 tile manufacturers, accounting for 60 percent of all tiles traded internationally.

How have the Italian industrial precincts succeeded in the face of relatively high labour costs and competition from developing countries?

The explanation is three fold. First, the precincts mostly specialise in value added goods and services that have significant world markets.

Secondly, local authorities have facilitated the upgrading of key infrastructure, and have also nurtured inter firm alliances.

Thirdly, the cooperation, trust and sense of self destiny that develops as a result of these alliances provide a crucial psychological boost to innovation and investment.

Industrial precincts/clusters are currently being developed, with varying degrees of government encouragement, in the Netherlands (cut flowers), France (defence equipment, education, pottery, food processing), England (motor vehicles, whitegoods, electronics), Scotland (food processing, IT) South Africa, and places as diverse as Guatemala, Brazil, Scandinavia, eastern Europe, New Zealand and Jordan.

Industry clusters have evolved in Australia in a haphazard way &endash; a mix of locational advantages as well as luck and chance happenings.

They may not be called, or even commonly recognised, as precincts but they have characteristics similar to some of those overseas.

Food processing in Shepparton is a local example. Ten world scale food companies are located there, including SPC, Ardmona, Bonlac, Campbells, Kraft Foods, Snow Brand and Unifoods. Combined output is upwards of $700 million. The area arguably did not have outstanding locational advantages, but the construction of Eildon Reservoir, which provided secure water supplies, plus State Government support of various kinds, has led to incremental growth.

My company is collaborating with some 20 others to better understand the clustering phenomenon and how to do it properly.

Those well versed in cluster agendas are Business Vision 2010 agenda and the City of Playford in South Australia, plus the Newcastle IDC.

Other agencies coming in behind are Ballarat University, UTS, Gippsland Development, the CSIRO, South West Province (WA), UNE, Hepburn Shire, Warrnambool City Council, West Wyalong and Bega Valley Shire Councils, to name a few.

We are now moving into action mode &endash; if you would like information, please email apd@orac.net.au

Next month, we will look more closely at some of the cluster agendas unfolding.

*Rod Brown's Canberra based consultancy group, Australian Project Developments Pty Ltd, specialises in industry/regional development and government liaison. For further information telephone (02) 6231 7261 or email apd@orac.net.au

The following articles are also included in this edition or go BACK to the main page: