Role of Government in Industrial Clusters Essays

Role of Government in Industrial Clusters Essays Role of Government in Industrial Clusters Essay Role of Government in Industrial Clusters Essay 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 (Davies, 2001). In many of the failed or under-performing ICC developments, searchers 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). The 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 regions 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 meaner 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 clusters formation and development. Underpinning these issues is the observed difficulty of Australian policy-makers to conceptualize their role within Porters UDF (Brown 2000; Enriching Roberts, 2001). Indeed, Brown (2000) suggests Australias 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 Trains, 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 Australias most innovative and internationally successful industry clusters, that of the Tasmania Light Shipbuilding Industry (TLS) cluster. Since its inception, the TLS 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 TLS cluster generated an annual turnover of ADD$400 million (accounting for 25 percent of the states merchandise sports), and was fundamental in the development of an industry council that represented and coordinated the majority of the states maritime industry (Industry Audit, 1998). Given its demonstrable importance to the regional Tasmania economy, an examination of the TLS clusters 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 TLS cluster and the state government during the period 1977 to 2002. In particular, interviews were conducted with each of the state Premiers during the TLS clusters formation, the managing directors of the TLS cluster firms, and the heads of government departments and agencies with which the TLS 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 TLS clusters 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 TLS clusters history), and were formulated to elicit the primary data required to answer the research questions posed in this inquiry. Both 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. This 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 which 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 researchers 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 governments 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 (Sleeper, 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 TLS cluster over its life cycle. Results. The role of government during introductory stage of the TLS clusters life cycle. During the introductory stage of its life cycle, three key government roles positively influenced the TLS clusters development. The first was the state governments initial non-committal stance towards the specific development of the states burgeoning shipbuilding industry. The second role surrounded the enhancement of the states reputation within the domestic market as a centre for maritime research. The third role was the governments 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. The state governments initial non-committal stance towards the states burgeoning industry was not a deliberate one, as its policy focus at the time was on the macroeconomic restructuring of the states 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 Australias industrial cluster failures of the sass 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 Porters firm strategy, structure and rivalry) remained the sole responsibility of the private sector firms that existed during the industrial clusters initial formation (I. E. Clifford and his maritime friendship network). 8 The second key role was the state governments development of the regions 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 regions Factor Conditions, Related and Supporting Industry, and y developing the regions supply of human capital through both the generation of specialized employment and education within the broader industry. The regional economys 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 governments enhancement of the regions 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 Incests innovative semi-aluminum catamarans in the early sass 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 Incests innovative management in the introductory stage of the TLS clusters 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 governments support for Incests 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 Incests expansion would result in additional Jobs being created within the firm. This initial government support is consistent with the recommendation of Porters CT, as it allows for the challenges facing the burgeoning industry to be overcome whilst avoiding the inefficiencies associated with the governments direct involvement in private sector enterprise. The role of government during the growth stage of the TLS clusters life cycle. During the growth stage of its life cycle, three key government roles positively influenced the development of the TLS cluster. The first was the Tasmania governments 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 Incests fast-ferries. The second was the Tasmania governments direct involvement in Incests sales and negotiation processes with their international customers. The third was the Tasmania governments policy initiatives that served to maximize the synergistic relationship that existed between Incant and its supplier firms. The first of the state government policies that positively influenced the development of the TLS cluster was the continued enhancement of the regions reputation as a centre 9 for maritime excellence, although the policy 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 agitation activities, the Tasmania government used the success of Incant to illustrate the regions maritime competency to international buyers of these products, in turn facilitating an increase in the international demand conditions for Incests production. The Tasmania government also applied pressure on the remainder of the TLS cluster firms, and indeed the regions 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 regions 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 RD requirements of the industry. As with its direct support for Incests 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. The Tasmania governments reputation enhancement strategy served to increase the Demand Conditions enjoyed by the states 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 Incests suppliers to similarly improve their production output in line with the growing prestige of the region. The second role undertaken by the Tasmania government was that of direct support during Incests sales negotiations with their potential international customers. This was 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 Incests factory, but also by having the Premier accompany the potential customer during their visit. As a result of the state governments policy initiative to become involved in Incests 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 TLS cluster, as their inputs into Incests final product were also purported by the state governments involvement in the sale. In terms of advancing the Diamond Factors, the Tasmania governments second policy initiative served to develop the regional industry firm strategy, structure and rivalry by state Premiers personal endorsement of the TLS clusters output. It also served to align the TLS 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 governments involvement served to enhance the legitimacy of Incests product to potential international customers. The 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 Porters 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 Incests operations can more easily interact) the Tasmania government deliberately enabled the realization of the synergies of both scale and scope inherent to the regions 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 TLS cluster firms in residence at the Prince of Wales Bay marine park in Hobart. With the TLS 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 TLS clusters life cycle. During the maturity stage of its life cycle, three key government roles positively influenced the development of the TLS cluster. The first key role was the continued enhancement of the regional economys reputation as a world centre for maritime manufacturing excellence, although the focus of its efforts hanged from the singular promotion of Incests 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 governments deliberate strategy to dilute Incests importance and impact upon the regional economy. The first key government role was its continued enhancement of the regional economys reputation as a world centre for maritime manufacturing excellence. During the maturity stage however, the focus of the Tasmania governments petition strategy in the world shipping vessel market changed from the singular promotion of Incests success to incorporate the output of the entire industry, be they TLS 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 TLS cluster firms had enjoyed both the growth stage of the TLS clusters development, each of the supplier firms had secured their own export sales independent of those associated with their alliance with Incant. Further to this, two additional TLS 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 The second key role was to formalism the relationship between the regions entire set of shipbuilders and maritime manufacturers (TLS 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 Welding School, formed the Tasmania Maritime Network (TEN) within which the TLS cluster could better develop its communications and lobbying efforts. After the Bacon Labor governments industry audit program of 1998 was completed, the TEN was restructured to form an Industry Council that represented approximately 85 percent of the regions shipbuilding and marine manufacturing firms. The Industry Council program sought to provide the regions shipbuilding industry with a direct communication and lobbying channel between the industry as a whole and the Tasmania 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 TLS 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. The third key role was the Tasmania governments strategy to dilute Incests 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 TLS clusters 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 regions 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. This policy initiative had a direct impact on the diamond factors enjoyed by the TLS cluster (and indeed the entire industry) by effectively driving incremental demand from the international marketplace for regions maritime production. In addition, it allowed the TLS clusters supplier firms to develop exponentially greater linkages within the industry, and more importantly, with firms of similar importance as the original huffier in terms of their innovative ability and supply requirements. The travel and trading needs of the isolated Tasmania community necessitated the