Internationalization initiatives within Clusters: both means and end

Albert Solé

13th TCI Global Conference Competitiveness, Innovative clusters and Prosperity

DELHI, INDIA

December 1st 2010

The company in a nutshell Cluster Development is a team of 12+ highly specialized

consultants with an accrued experience on clustering (strategic analysis, process facilitation, training and cluster management)

Leading supplier of cluster consulting services in Spain, with around 30 cluster / regional competitiveness and innovation projects per year. Currently undertaking international projects and exploring alliances

Our services portfolio includes Regional Innovation Plans and Regional Mappings, but our core product continues to be the successful Strategic Development of a cluster

Our methodology is all-inclusive and process-based, always with an ultimate purpose in mind: facilitating a sound strategic discussion geared towards innovative action and industry change. We let competitive strategy lead the way

Our  clients  range  from  public  officials  (RDA’s)  to  associations  or  the  cluster itself

What we do

Where

Who

How

For whom

IMPROVED COMPETITIVENESS

CLUSTER

BUSINESS STRATEGY

Innovative business segmentation

(Strategy Vs Statistics)

Winning formula to sustain competitive

advantage

BUSINESS SEGMENTS

Utlimate GOAL

Process tool to engage in group strategic discussions and to execute action initiatives

that are aligned with the strategic vision

Key concepts

Internationalization and clusters: Two approaches

Internationalization as the ‘means’  to  strengthen cluster

strategies

Access to global markets as the natural goal of any cluster

to compete globally, clusters engage in Internationalization initiatives to sustain the implementation of winning strategies How? Improving the overall value chain through action initiatives in the international arena

SME access to foreign markets has often been seen as the ultimate goal within clustering efforts

Companies are more prone to collaborate abroad than in local markets

to improve competitiveness in a global context

…  always  with  an  ultimate  goal  in  mind:

A B

Some cases for both

Internationalization  as  the  ‘means’  to  strengthen cluster strategies

Access to global markets as the natural goal of any cluster

A B

Increase sales by accessing new markets

1 International Public Procurement

2 Cluster-to-market initiatives

3 Commercial extension in strategic markets

Increase competitiveness of value chain

4 Delocalization of certain value chain phases

5 Joint productive expansion abroad

Product Innovation

6 Access to sophisticated demand

7 R&D project partnerships with technology savvy companies

8 First hand knowledge on consumption habits

Secure raw materials / inputs

9 Guarantee access to raw materials

Diagnostic of capacities

-

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Occasional Exports

Experimental export

Regular exports

Commercial extension

Productive or service FDI

Accidental exports company receives  int’l  orders with no proactive sales

Degree of internationalization +

no control over final price (company does not reach end user), only with distributors and intermediaries

some degree of production capacity is  ‘reserved’  for  an  stable  int’l  client  portfolio creation of Exports department manages some MK variables, promotion to retailers

certain investment in material are human resources Price control to retailer but local distribution

first stages of the multinational company management allocates considerable resources

Chal

leng

es to

ove

rcom

e

Review organizational

model Market

diversification

Formulation of expansion strategy

Search for local distributors

Foreign investment

Typical internationalization process of a business

National public sectors and multilateral agents play a pivotal role to spur innovation-driven collaboration through public procurement, particularly in economic fields such as health, eco-innovation, and energy efficiency

International Public Procurement 1

The role of a cluster in public procurement To facilitate the creation of consortia,

capitalizing on cluster neutrality, brand and size.

To help anchor companies find cluster SME partners for hand key projects (BOT, PPP,  DBFO,  BOO…)

To promote the internationalization of knowledge-based services companies (engineering,  consulting  services,  training…  )

(1) Engineering, Procurement and Construction.

MAIN CONTRACTOR (EPC(1),  EP,  …)

Manufact.

installers Finance partner

Engineering and

know-how

Client (EPC(1),  EP,  …)

Components

civil

Traditional sectoral approach

The cluster facilitates the comercializatión under an umbrella brand, the institutional support and the foresight of strategic markets

Cluster-to-market initiatives 2

Multiectoral or sectoral commercial mission to markets that are intuitively considered interesting

Institutional relations

Attending international fairs of the sector that companies belong to

Vs.

Commercial mission of the cluster companies alone

The institutional aid opens the door to b2b opportunities (eg TURMED)

Attending fairs from client sectors (eg. Water treatment)

The approach follows the cluster strategy. The Cluster puts together a combined service-product offering

Firms with a complementary offering of products or services

Commercial extension in strategic markets 3

Public support

Examples

Participants La totalidad del cluster o el cluster

como institución

Temporary co-financing of a country manager and its operative expenses

The public sector funds a permanent antena or extension in strategic

markets

Offices in outbound markets of soft and

hard medical tourists

Representation at the Israeli embassies in

strategic water markets

Export groups based abroad (GED) with a huge multiplier

effect

Collaborating GROUPS of companies The cluster as a BRAND

Integrating a complementary offer of services and products

Diagnostic of capacities

-

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5

Occasional Exports

Experimental export

Regular exports

Commercial extension

Productive or service FDI

Accidental exports company receives  int’l  orders with no proactive sales

Degree of internationalization +

no control over final price (company does not reach end user), only with distributors and intermediaries

some degree of production capacity is  ‘reserved’  for  an  stable  int’l  client  portfolio creation of Exports department manages some MK variables, promotion to retailers

certain investment in material are human resources Price control to retailer but local distribution

first stages of the multinational company management allocates considerable resources

Chal

leng

es to

ove

rcom

e

Market diversification

Foreign investment

How the cluster can facilitate international initiatives

Joint access to markets

Joint productive

implantation abroad

Joint participation in fairs from

client sectors

Back up for export groups at home and

abroad

Shared export structures

CLUSTER STRATEGIES FOR THE FUTURE

The cluster must impulse the allocation of resources towards those international initiatives that are more STRATEGIC. Collaborative, Collective and for the whole cluster

Delocalization of certain value chain phases 4 Example of the Fine Chemicals Cluster in Catalonia Benchmarking the Catalan cluster (> 1,000 M€), with its main international competitor, the Indian cluster.

Production costs

Research costs

R+Dq Prod. Q R+Df Prod. F MKT

10-40 invest. 3-5 w DMF / Yr

1-2 facilities - - -

70-200 invest. 10-15 new DMF / Yr

5-7 facilities First approved ANDA 1-3 facilities

Average company at the CATALAN CLUSTER

Average company at the INDIAN CLUSTER

KEY SUCCESS FACTORS

35-150 M$

50-150 M$

Production costs in India = 25% Facility set up cost in India = 30-50 % less

Cost for one reseracher in India = 20% that of Spain

Joint productive expansion abroad 5 The example of Farm Equipment cluster in Catalonia Companies strategically decide to study implantation in Slovakia and Poland, where production costs are 15-20% lower and the market grows steadily, not stagnant farm incomes as in Western Europe. Establishing there will help them develop suitable products, since the average farm in these countries is 10 times that of Spain

Access sophisticated demand markets 6 Accessing markets with a high degree of sophistication, pressures our innovation capacity both product and process-wise

The Prous Science case:

Established in 1960, supplier of value added publications de alto for the biomedical international

community

Establishes itself in the Japanese market, one of the most

requiring markets in the field

Nowadays it is one of the only non/american companies sitting on the board of the Federal Food

and Drug Administration

Prous Science Kabushiki Kaisha

Why did they do it? - Because once they manage to penetrate that market, they will be

prepared to access virtualy any market Within clusters product innovation can be achieved by being present in sophisticated markets or advanced clusters (eg design antennas for furniture clusters in Italy…  and  other  fashion-related clusters)

R&D project partnerships with technology savvy companies 8 In the case of the EU, triple-helix innovative projects applied to market are promote and encouraged through collaboration between companies in different member countries.

European Technology platforms

Networked and Electronic Media

Mobile and Wireless Communications

Networked European Software and Services Initiative

Intergral Satcom Initiative

Joint Technology Initiatives (2007)

Fuel Cells and Hydrogen Aeronautics and Air Transport

Innovative Medicines Initiative (IMI)

Nanoelectronics Technology 2020 (ENIAC)

Embedded Computing Systems (ARTEMIS) Energy Efficient Buildings (EN DESARROLLO)

…and  Regions of Knowledge (3 or more European clusters develop a joint action plan in research)

First hand knowledge on consumption habits 8 The situation UK fish processors have decreasing margins due to a very strong

consolidated distribution and fierce int'l competition in frozen, they MUST move towards prepared fresh food to sustain competitiveness

What to do? Must gain expertise in the 'convenience‘  segment,  but  to  do  this  gradually  

first they have to learn by reaching consumers themselves They are small so they decide to do it together with the support of the

development agency, which will work on a regional brand

Where to? In the UK? They risk retaliation from their existing customers

Internationalization is the answer: collaboratively set up a retail shop in PARIS to gain knowledge on consumers behavior The support of the development agency Yorkshire Forward was essential

to guarantee financial and strategic support to companies that were used to compete aggressively with each other

Secure access to raw materials / inputs 9 Some companies of the Leather tanning Cluster in Vic

(Catalonia) relocate to Brazil because it combines access to raw materials + large domestic market. Companies that have not secured raw materials locally or internationally or have maintained the whole productive cycle go downhill

Fish processors in the Humber Seafood Cluster jointly ensure the supply from Iceland, due to the depletion of marine stocks in its fishing zone

The Cluster of Marble in Carrara (Italy) did not vanish when the local marble resources ran out. Capitalizing on their excellent know-how in handling and marketing, they secured raw materials in Brazil, South Africa and India, overcoming the disadvantage of transport costs and the lack of local sourcing

The example of SOLAR POWER CLUSTERS FRANCE - SPAIN (SOLARTYS-DERBI) After matching the respective value chains and identifying market oportunities de cada actions  in  third  countries  are  defined,  taking  advantge  of  each  cluster’s  assets

Intercluster Collaboration Initiatives can facilitate many of the initiatives  we’ve  seen  before

Complementaiety in product offering

Architectural integration Vs

Conventioanl panels

Know-how in installation Small roof projects

Vs Big projects

Opp’s  in  new  markets

French-speaking

markets inthe Mediterranean

Opp’s  in  the  development  of R&D projects

R&D centers, other infraestr. Joint research

projects

Alig

nmen

t with

SO

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YS s

trate

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Com

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ith D

ERBI

WIN-WIN INITIATIVES AND SPIRIT

www.cluster-development.com EsadeCreapolis Avenida de la Torre Blanca, 57 Sant Cugat del Vallès 08173 Barcelona, Spain +34 93 587 86 36

International contact

Albert Solé – albertsole@cluster-development.com Eduard Ribas – eribas@cluster-development.com

Business dynamics change, new successful  strategies  emerge…  the  way  we  

work with clusters must evolve too