SMEs, clusters and competitiveness The Austrian experience

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1 Lugeck 2, A-1010 Vienna, Austria Tel: ( ) , Fax: ( ) DW 99, Working paper for the Bologna Conference of the OECD on Enhancing the Competitiveness of SMEs in the Global Economy: Strategies and Policies SMEs, clusters and competitiveness The Austrian experience Michaela Hajek, Jürgen Janger, Silvia Macek Project lead: Werner Clement Commissioned by: Federal Ministry for Economic Affairs and Labour Department for Industry, Technology and Innovation Stubenring 1, A-1010 Vienna Tel /5241, post@iv.bmwa.gv.at This Paper is also available in German. Please contact: Silvia Macek, Institute for Industrial Research, 0043/1/ or Eva Hribernig, Federal Ministry for Economic Affairs and Labour, 0043/1/

2 SMEs, clusters and competitiveness 1 The cluster concept in economic theory Nowadays, the cluster concept is a widely accepted instrument for the analysis of production systems and modern industrial policy. It provides a response to the question whether there are different methods instead of the traditional sectoral classifications (e.g. the European NACE system) to subdivide production systems, spawning more powerful results with a view to understanding economic processes and the conditions for competitiveness. The cluster concept has been developed in different approaches. MARSHALL (1938) explained the development of industrial complexes by the existence of positive externalities in agglomerations of interrelated firms and industries. Three main forces account for these externalities: knowledge spillovers between firms, specialised inputs and services from supporting industries and a geographically pooled labour market for specialised skills. The core of Marshall s hypothesis refers therefore to the concept of density. PORTER (1990) essentially transferred the notion of competitiveness on the firm level to the nation level: five nation specific attributes 1 defined in Porter s diamond create a national environment for doing business. A cluster is then composed of firms which operate within a value chain, stretching horizontally to firms with equal activities and vertically downwards to clients. The economic success of the clusters depends among other factors on the conditions provided for by the five elements of the national diamond. Analyses referring to the French notion of filière try to split a national economy into integrated, coherent production networks consisting of all types of firms, including service activities (TOLEDANO, 1978; QUELIN, 1994). Filières can be identified by technological, economic or firm strategy 1 Factor conditions; demand conditions; firm strategy, structure and rivalry; related and supporting industries; government and chance Institute for Industrial Research 1

3 analysis on the so-called meso-level. In the context of a globalizing economy, the firms belonging to a certain filière in a country profit from synergy effects. Filière-based industrial policy can be seen in contrast to créneau policy, i.e. the supporting of national champions in market niches. As such, rather than accepting the international division of labour, industrial policy tries to create appropriate conditions for the national production system. Competitive disadvantages concerning individual firms of the filière might be offset by effects of synergy. The OECD (1999) defines clusters in its latest main work on this subject as networks of production of strongly interdependent firms (including specialised suppliers) linked to each other in a value-adding production chain [which] encompass strategic alliances with universities, research institutes, knowledge-intensive business services, bridging institutions and customers. In Italy, clusters refer less to industrial policy initiatives than to existing firm agglomerations. This type of cluster comprises a lot of small, competing businesses. The example of the ceramic tile cluster around Sassuolo perfectly illustrates Marshall s cluster concept cited above. The positive effects of industry density are not so much the outcome of co-operation than of intense rivalry between the firms (PORTER, 1990). In the milieu innovateur around Sassuolo, news on product and process innovations spread rapidly, generating short product and technology life-cycles and therefore fostering international competitiveness. In Austria, cluster policy during the last 10 years was marked by two Austrian characteristics, namely a strong interaction between firms and the state and the lack of big multinational corporations (CLEMENT, 1994). Clusters therefore were often the outcome of state initiatives to integrate SMEs into networks. In order to increase the competitiveness of the participating firms, co-operation platforms were set up for various projects ranging from workforce training to the bundling of R&D efforts. As a résumé, the variety of approaches to clusters and the lack of a generally accepted method for identifying clusters indicate that finally, clusters receive their meaning by what they are used for: analyses of economic and social interdependencies in an economy as well as policy initiatives to increase competitiveness. Institute for Industrial Research 2

4 SMEs, clusters and competitiveness 2 Cluster in Austria After a brief overview of cluster theory, the present chapter gives an introduction to cluster-based policies in Austria during the last decade. The main issues cluster managers and governments were confronted with in implementing the cluster concept in Austria will be discussed subsequently. This paper comprises on the one hand the experience of the Institute for Industrial Research taken from a variety of cluster studies written in the last years and from the bioenergy cluster management and on the other hand the results of interviews with Austrian cluster manager. 2.1 Review of cluster-based policies in Austria Cluster-based policies have been popular throughout Europe for a couple of years. The Austrian economic structure featuring a large share of SMEs, economic policy quickly realized that clusters could be a powerful instrument to strengthen the competitiveness of small and medium-sized enterprises. To offset structural SME disadvantages compared to multinational corporations, bundling of resources by interfirm-co-operation is necessary. Networking of companies, research and training institutions, the government and other institutions in the form of clusters has consequently been applied in Austria as a means to enhance the competitiveness of SMEs. The explicit objective of these cluster-based policies has been to increase exports, productivity and innovative activity. Cluster development in Austria operates at different levels: regional clusters (as the Automotive Cluster Styria (AC Styria), the Automotive Cluster Upper Austria ), nation-wide clusters (as the clusters of the export campaign) and industry-research linking competence-centres have to be distinguished. These different forms of cluster implementation illustrate the diversity public support can take. Evaluations of the existing clusters in Austria will follow later on in this paper. Institute for Industrial Research 3

5 Before the first Austrian cluster was institutionalized in the automotive industry and the term cluster became known to economic policy makers, a forum for this industry - showing some of the features of a cluster had been developed in the 1980s. This forum, called AOEM, was established with targets similar to the nowadays famous automotive clusters in Styria and Upper-Austria. The forum supported the development of the dialogue and co-operation between suppliers of the automotive industry. The second precursor of the existing Austrian clusters was set up in 1990 and called Pro-Holz ( pro wood ). Organised as a working pool of the Austrian wood industry it aimed at improving the image of this sector and the utilisation of wood by starting an image campaign. As mentioned above, the first cluster in Austria to be institutionalized in 1996 was the Automotive Cluster Styria. The initiative was taken by the regional government after an analysis of the competence fields in Styria by the Institute for Industrial Research (cf. below, How to identify clusters?). Cluster management was done via a private consulting firm financed by the regional economic policy authority, today the cluster is financially independent. Two years later, the Austrian Federal Ministry for Economic Affairs (now Federal Ministry for Economic Affairs and Labour) mandated the Austrian Economic Chamber with the start-up of the so called Export Offensive, an export promoting campaign. The objective is the stimulation of Austrian companies export activities, especially to facilitate foreign market entry for SMEs. The formation of the Austrian Water Cluster was the first result of the programme in In the start-up period, the cluster comprised 22 Austrian companies; in Spring 2000, 37 companies and institutions co-operated within the water cluster. Until 1998, the establishment of 17 clusters was encouraged by the national government to enhance Austrian exports. For this programme, the Chamber manages a Euro 42.8 million budget. The largest regional cluster in Austria is the Automotive Cluster in Upper Austria, comprising approx. 282 organizations and employees. On the basis of a new regional economic policy concept called Upper Austria 2000+, the formation of a second Austrian automotive cluster after the AC Styria was carried out. This concept was elaborated by the regional government in collaboration with local companies, local universities and the representative bodies of interest groups. TMG, the regional institution for the promotion of technology and marketing (owned by the Institute for Industrial Research 4

6 SMEs, clusters and competitiveness regional government of Upper Austria) was charged with the management; first with the Automotive Cluster, later on with further cluster initiatives in the fields of Diesel technology (initiated and mainly sponsored by the Federal Ministry for Economic Affairs), synthetic materials and bioenergy. Apart from the clusters mentioned above, other regional clusters were institutionalized in Tyrol, e.g. in the fields of medical engineering, energysaving construction and hydropower station building. Another initiative of the Austrian national government similar to the development of clusters is the programme for the start-up of competencecentres, called K-plus, K-ind, K-net. These programmes were part of the so-called Technology Offensive of the national government, carried out by the Federal Ministry of Science and Transport (now Transport, Innovation and Technology) and the Federal Ministry for Economic Affairs (now Federal Ministry for Economic Affairs and Labour). The main criterion for the support is the co-operation between university research institutions and businesses to improve applied, pre-competition research results. This has be done since 1995 and concerns the industry-research linking aspect of clusters. Finally, the programme aims particularly at the formation and upgrading of industrial clusters ( technology clusters ) to increase private R&D expenditures. Up to now, 13 competence centres in fields ranging from advanced composites to telecommunications research have been set up. The support of industry-oriented basic research is the goal of the Christian Doppler Forschungsgesellschaft, an association, open to Austrian companies and supported by the Federal Ministry for Economic Affairs, that is operating at the moment 17 so-called Christian-Doppler- Laboratories. These laboratories are directing university research towards industrial innovation on the basis of pre-competitive joint projects. The last group of clusters are export clusters of the Federal Ministry of Science and Transport (now Federal Ministry of Transport, Innovation and Technology). The aim of the technology policy of this ministry is to generate, diffuse and adopt knowledge to create competitive advantages Main issues Institute for Industrial Research 5

7 In the wake of cluster implementation in Austria, a lot of issues arose with a view to best-practice recommendations. The following chapter summarizes these issues from a pragmatic point of view. How to identify clusters How to initiate/establish clusters Basic requirements for successful cluster implementation Who should take the initiative to build a cluster? The role of the government Are there different tasks for national and regional economic policy? Is there something as a perfect cluster structure? The role of cluster management Is there a difference between the role of large firms and SMEs? Advantages from cluster participation for SMEs in a global economy What are prerequisites for an increase in competitiveness of clusterparticipating SMEs? How to handle the relationship between competing firms in the cluster? Cluster evaluation Employment effects of clusters Clusters in the new economy: an oldfashioned concept? How to identify clusters Cluster identifiying analytical methods differ on the basis of available data and on the purpose of the cluster analysis. An overview is given by OECD (1999). Input-Output analysis, cluster screening, foreign trade structure analysis etc. all give numerical indications on whether an economy features particularly large/competitive production subsystems. However, they cannot measure co-operative behaviour nor implicit knowledge flows. This has to be done via questionnaires. Cluster analysis is even more difficult at the regional level, since recent official statistics are sometimes highly aggregated. For the Austrian region of Styria, IWI combined a top down with a bottom up approach: for the period , turnover figures of the Styrian and Austrian industrial sector were extracted from offi- Institute for Industrial Research 6

8 SMEs, clusters and competitiveness cial statistics and regrouped into eleven clusters 2. A Boston Consulting Group portfolio type matrix (market share/industry growth) was then used to classify the clusters. Density was interpreted as the proportion a specific cluster takes in the total regional industry turnover in comparison to the proportion the same cluster takes in the total national industry turnover. This simple approach with its merit of recent data availability served as a starting point for regional cluster policy: the economics department of the region of Styria contacted the firms of the cluster automotive engineering (being the only one in the field Stars ) in a bottom up approach. A cooperation platform was set up and projects initiated, which gave birth to the Automotive Cluster Styria (AC Styria). How to initiate/establish clusters? An important distinction concerns the concepts of statistical and institutionalized clusters: whereas statistical clusters refer to the outcome of diverse numerical methods to identify economic interdependencies within the national production system, institutionalized clusters are based on generally governmental initiatives to network related companies. This point focuses on the set-up of such an institutionalized cluster; approaches to identify statistical clusters as a starting point for institutionalized clusters are discussed above. The initiating of clusters as an instrument of industrial policy can be done as shown below. Crucial to the success of cluster initiatives is the willingness of the concerned companies to engage in co-operation projects. Figure 1: How to create a cluster? 2 Telecommunications, wood&paper, metal&compounds, automotive engineering, pharmaceuticals&medical instruments, building&construction, electricity, chemicals&petrol, leisure industry, food, textiles Institute for Industrial Research 7

9 End of public support: firm-based and objective-oriented cluster management Define lead projects, systemic offers etc. Build-up of a common brand, competence signalling Projects to reap positive economic effects of clusters: economies of scale creation of cluster management platform with public support Contacting of concerned companies: interested in cooperation projects? Top-down identification of successful industries Source: IWI Basic requirements for successful cluster implementation Agglomeration of economic activity within a defined area is seen as density. Marshall (1938), as cited above, first identified this phenomenon and formed a cluster hypothesis from this background. Today s theory has detailed the concept of density and introduced some new concepts as basic requirements for the establishment of clusters. Table 1: Requirements for cluster implementation 1. Existence of a critical mass of firms The structure of the participants covers a wide range of economic actors. The presence of horizontal and vertical firm input-output linkages is essential. 2. Technological competence Technological competence is often concentrated in the R&D departments of big firms and universities, resp. RTOs (Regional Transmission Organizations). Knowledge sharing is a requirement for clusters. 3. General and potential interest in a corporate representation and working together beyond organizational borders Institute for Industrial Research 8

10 SMEs, clusters and competitiveness 4. Basic framework provided by the government In developed countries the nation state has specific obligations. One of them is to provide the appropriate framework for economic activities, e. g. infrastructure 5. Network of co-operation A company seldom acts alone. Besides the linkages through value-adding processes along the production chain, interfirm co-operative behaviour and the interplay with local research and training institutions are important cluster requirements. 6. Motivation for continuous improvement The driving force for innovation is competition which makes continuous improvement necessary. Source: IWI, 2000 Who should take the initiative to build a cluster? In general, SMEs lack the insight into the benefits of co-operation within a cluster; firm managers are often overworked with no time to lead projects whose financial outcome is doubtful. Thus, government or government related institutions should take the initiative to propose cluster-like forms of organization to a selection of potential members. In Austria, a number of semi-public institutions created specifically for the purpose of managing clusters, R&D projects and co-operation programmes carry the operational responsibility for the success of clusters. Examples include the Upper Austria TMG (Oberösterreichische Technologie und Marketing Gesellschaft) or the Styrian SFG (Steirische Wirtschaftsförderungssgesellschaft) as cited above. The role of the government Questions to be discussed are: what is the optimal role of the government, should the government support the implementation and upgrading of clusters and how should it do that, what aspects of economic policy are concerned, what policy measures produce the biggest impact on clusters, when should the government withdraw from direct financial cluster support, what are the experiences in Austria? The Austrian experience shows that an efficient cluster development and upgrading requires the government to look after the following tasks: Institute for Industrial Research 9

11 1. Examination of the general framework conditions regarding cluster policy 2. Cluster-related economic policy (technology policy, educational programmes, etc.) 3. Support of supranational information 4. Provision of (missing) financial instruments 5. Act as a customer of the cluster participants if necessary, as long as compatible with EU-competition procedures Source: IWI, 2000 As mentioned above, different cluster approaches exist: The most widely discussed is certainly Porter s, which made the cluster concept popular. Porter stated that clusters are the driving force behind increasing exports and magnets for attracting foreign investment. Competition is affected in 3 ways: by increasing the productivity, by increasing the capacity for innovation and by stimulating new business formation that supports innovation and expands the cluster. (PORTER, 1998, p. 146) Before the role of the government will be discussed in detail, it is important to deal with the socioeconomy of clusters. For Porter, the presence of firms, suppliers and supporting institutions in a location does not ensure by itself that cluster effects are realized. The promotion of competitive advantages depends on the following conditions: the free flow of information, the discovery of value-adding exchanges or transactions, the willingness to align agendas and work across organizations and the motivation to improve. Relationships, networks and a sense of community interest are necessary to bind cluster firms together. These socioeconomic considerations illustrate possible areas where the government can offer support for the development and upgrading of clusters. The basic role of the government in general is to achieve macroeconomic and political stability. The second role is to improve the overall factor capacity of the economy (by improving the efficiency and quality of business inputs, like educated workforce, appropriate infrastructure, up-to-date economic information). The establishment of the rules and incentives governing competition in order to encourage productivity growth is another role of the government. Among these, competition policy, taxes, intellectual property laws, corporate governance rules and an efficient regulatory process promoting innovation are particularly important. But these roles may not be sufficient. An additional task is the facilitation of cluster de- Institute for Industrial Research 10

12 SMEs, clusters and competitiveness velopment and upgrading. The government can motivate, facilitate and provide incentives for collective action by the private sector. (PORTER, 1998, p. 148ff) Cluster upgrading involves recognizing the presence of basic cluster requirements, then removing obstacles, easing limitating factors and eliminating inefficiencies. Limitating factors may exist in human resources (education and training policies may be irrespective of cluster needs), infrastructure (may be lacking) and regulation. (PORTER, 1998, S. 150) A current problem in Austria regarding the situation of the automotive clusters consists in the mismatch between supply of and demand for human resources (especially for qualified engineers). The government s challenge is now to change this situation and to provide the appropriate education and training schemes. As mentioned above, enhancing innovation is one of the desirable cluster effects. Therefore technology policy plays an important role. Technology policy has to pay attention to the transfer of knowledge and technology, to encourage co-operation with R&D institutions, transfer centres, universities, and with other firms to develop specific networks. Efficient frameworks for facilitating the fast economic application of new knowledge, for supporting the improvement of innovation and technology transfer infrastructure should be established. Technology policy should implement programmes to increase the technology absorption capacity of firms. (MANDL, 1996, p. 13f) Austrian cluster managers state that an appropriate technology policy should be one of the most important tasks for the government in order to improve cluster activities and to foster SME innovation. The focus on technology policy and export promotion has been very high in the last few years in Austria. Compared internationally, R&D expenditures are said to be too low ( 1,6% of gross domestic product). Therefore efforts are made to encourage research and development in the Austrian economy; a quantitative objective of 2,5% of GDP for R&D expenditures until 2005 was fixed in an inaugural speech. One of these efforts is the promotion of clusters. As mentioned above, clusters are an appropriate instrument to augment exports in an economy, therefore the Austrian government supports as shown in the chapter development of clusters in Austria - the exports of Austrian companies. Institute for Industrial Research 11

13 The export programme explained above is financed in three ways: first by a subsidy of the national government, second by the Austrian Economic Chamber which provides infrastructure for the start-up period of cluster development and third by the cluster participants through membership fees. The third point indicates that the enterprises are not primarily interested in obtaining subsidies but in co-operation and in reaching certain objectives together with other enterprises. A first estimation of the effects of the Export Offensive shows that 5,4% of total employment work in companies of the export clusters or are influenced by the cluster and the value added reaches 5,7% of the gross domestic product. The financing of the cluster management of all regional clusters in Upper Austria was taken over by the regional government. In addition to that cooperation projects are supported by the regional government to an amount of up to 40% of the total expenditures. The Styrian Automotive Cluster also was financed by the regional government. Since 1999 the cluster management is financed only by the participating enterprises and institutions. The number of participants dropped from 170 to 70. This year the regional government decided to provide additional support through a government related institution. The example of the Automotive Cluster in Upper Austria shows how the government can withdraw from cluster financing: every year, the percentage of self-financing through cluster participants rises and the share of the government declines. Actual cluster implementation proves that the institutionalizing and upgrading of clusters without governmental support is very difficult. Interviews with cluster managers showed the necessity of start-up financing. The most important recommendation in this context is to present the benefit of a cluster participation in economic terms as soon as possible to attract participation and to enlarge the cluster. These activities help to facilitate self-financing of the cluster. As the experience shows, many representatives of companies wait and see in the first step. For this reason, early results have to be promoted and the existence of leading companies in the formation of clusters is imperative. Another important task for cluster implementation is a clear commitment of the government to support the institutionalizing and to enable a long term planning. A planning horizon of two years for example is too short for a sound cluster concept. As Porter mentioned, clusters require a decade Institute for Industrial Research 12

14 SMEs, clusters and competitiveness or more (!) to develop depth and to gain real competitive advantages (PORTER, 1998, p. 148). Cluster policy may not consist only of technology policy (mentioned as one of the important roles of the government) and export promotion but also of a regulatory reform, programmes to attract foreign direct investments, science policy, collection and dissemination of economic information, business establishing programmes, education policy and labour market policy. (PORTER, 1998, p. 151; IWI, 2000) Are there different tasks for national and regional economic policy? The tasks of national and regional institutions are determined by the constitution of each country. In Austria, regions are entitled to conduct innovation and technology policies. Since clusters are often localized at the regional level and the regional institutions know very well the economic tissue as well as the responsible economic subjects, regions should take over the active part in building clusters: cluster management and cooperation platforms are best done regionally. However, national institutions should provide for a general framework for this regional cluster policy: financial support, technology transfer programmes, training schemes and R&D policy should create an encouraging environment for regional cluster policy. Is there something as a perfect cluster structure? Cluster structure does not refer to firm structure with its concepts of cost curves, market structure etc. Cluster structure is to be understood in the sense of institutionalized clusters cited above, e.g. the AC Styria. The concept comprises thus essentially organizational questions. Austrian experience shows that clusters which work include the following aspects: institutionalized cluster management done by professional, full-time, qualified and committed persons who are chosen by cluster firms; cluster management initiates lead projects which integrate the cluster firms in a way which clearly communicates the economic value of cluster participation; the cluster institution, if it is not a public institution, receives especially at the beginning public financial support. After gaining financial independence, public support continues indirectly in the form of R&D, technology transfer, innovation management, promotion schemes, etc. Cluster management develops the relationship with the local education Institute for Industrial Research 13

15 and training institutions, perhaps setting-up cluster academies; strong ties link the cluster to local universities, RTOs (Regional Transmission Organizations), etc. Meetings on a regular basis strengthen the cluster esprit and lead to the exchange of tacit knowledge, finally resulting in innovations generating new turnover on the markets. However, cluster managers in Austria deny the existence of a perfect cluster structure: management experience is too short in order to identify best-practice models. The role of cluster management The performance of a cluster relies on the cluster management. The management has to be the driving force of the organization, but without companies willing to participate, the best management will fail. Clusters are a platform of interaction between different partners across sectoral borders. In the first stage of cluster implementation, cluster management must generate incentives by developing projects. These activities include the screening of advantages and benefits, providing information, organization of events, marketing and public relations, initiation of co-operation, acquisition of orders, internationalisation in order to ease organizational processes for the participators. Experience shows that the management must pay attention not to put certain firms at a disproportionate advantage to the detriment of other firms. On the one hand, managers coming from big firms generally exhibit more power when dealing with public authorities; on the other hand, managers from intermediary firms are better accepted among the remaining cluster firms. Another challenge is the financial support of the cluster management. This situation occurs when the cluster gets independent. This means that from this point on there will be no financial support from the government or state. Then it is up to cluster management to raise the money necessary for the cluster projects. Is there a difference between the role of large firms and SMEs? Large firms do not necessarily need a cluster to gain competitiveness. If they are to work together with SMEs in a way which goes beyond traditional supplier linkages, they must see some kind of economic advantage in cluster projects. Experience from Austrian clusters suggests that at first, large firms are sceptical concerning the outcome of cluster projects; in most of the cases, however, they are surprised by what they can learn from SMEs resp. inter-firm co-operation. Institute for Industrial Research 14

16 SMEs, clusters and competitiveness Advantages from cluster participation for SMEs in a global economy SMEs face some structural disadvantages when faced with global competition: their cash-flow capacity often is too low to allow for projects which do not immediately generate turnover, such as innovation processes, R&D, marketing, workforce training schemes... They also lack the qualified human resources necessary for carrying out complex projects in the long run. Therefore they have to build up alliances and networks in order to use bundled power on a mutual base. Clusters provide considerable advantages for SMEs. Above all, SMEs learn how to present themselves to global players, how and where to bid for offers; generally SMEs do not work in cooperation with large companies. In a cluster, large firms transmit their managerial know-how to SMEs. The participation in a cluster also facilitates the opportunity of access to markets. A further advantage of the cluster is its increased negotiating power: a cluster represents a much stronger pressure group than an individual firm. Advantages can be summarized as follows (IWI, 2000): Acknowledgement of synergies from co-operation More effective access to latest developments and methods Contacts to leading experts and partners in the emerging markets (e. g. co-operation exchange agencies) Risk-sharing within innovative projects (like the virtual enterprise) Sectoral awareness Incentive for locating new and complementary companies New programmes for job training What are prerequisites for an increase in competitiveness of clusterparticipating SMEs? From the experience of Austrian cluster managers, it can be said that cluster projects should be conducted following certain rules: e.g., each project must integrate an SME. Common training schemes for the workforce of big firms and SMEs can lead via an informal information exchange to the adoption of more sophisticated management models by SMEs, especially in the fields of innovation management. The foundation for an increase in technological competitiveness is the presence in SMEs of a technologically competent person, i.e. an engineer; in Austria numerous support schemes exist to foster the employment of so-called innovation assistents Institute for Industrial Research 15

17 in firms, people with a technical background whose job is financed partly by the state. How to handle the relationship between competing firms in the cluster? As shown above (clusters in Italy, Marshall s density concept), rivalry fosters competitiveness. In an institutionalized cluster, competitors can be brought together to work in competition-neutral projects as common training schemes for the workforce, which might even speed up technology diffusion as employees from competing firms learn from each other. The Austrian R&D support scheme Kplus competence centers only executes pre-competition research projects; the knowledge gained can be used by competing firms without threatening a firm s competitiveness. AC Styria brought together six transport firms in a project called Logistics in the value chain of the automobile industry, initiating a common reflection by competitors how to increase each firm s competitiveness. Cluster evaluation The evaluation of a cluster is fairly easy in theory. The output depends on the targets set and their fulfilment. The main target of the cluster implementation in the first step will be increased co-operation of the participating agents. In subsequent stages, attention will turn to improvements in basic indicators of business success, such as revenue growth. In addition to these general aims specific targets can be defined, like increased revenue, market-share, creation of jobs, etc. If the named targets are reached the cluster can be seen as successful. Statistical evaluation of clusters represents a difficulty. The most effective method is to use questionnaires. In that case the data availability depends on the companies. If this method is not feasible, official statistics have to be used. This bears the drawback that official classification systems are often too highly aggregated. The Automotive Cluster Upper Austria is an example for an attempt to gather economic indicators. The following tables demonstrate an approach for the evaluation of cluster activity. Institute for Industrial Research 16

18 SMEs, clusters and competitiveness Table 2: Development of certain indicators between 1997 and 1998 in the Automotive Cluster Upper Austria Productivity Volume of export R&D per employee in mill. ATS Size of companies % % % Medium 1,33 2,02 51,2 0,55 0,83 50,9 0,25 0,2 8,0 Small 2,03 2,33 15,5 1,62 1,92 18,5 0,14 0,19 34,5 Large 0,96 1,15 20,4 0,72 0,87 21,4 0,03 0,05 51,4 Total 1,85 2,31 24,6 1,29 1,6 23,8 0,14 0,17 25,9 Source: TMG OÖ, IWI Employment effects of clusters As mentioned above the provision of economic indicators is rather difficult. Elevations should be comparable at least over a decade in order to indicate economic effects. The AC Styria and the Automotive Cluster Upper Austria have already started to monitor relevant indicators of economic activity. Regarding the Automotive Cluster Upper Austria, additional jobs could be generated in the first year. The development was in favour of SMEs (+272) although in absolute figures big firms (+1.655) experienced the highest growth. The number of employees in SMEs increased by 12,5 percents. Table 3: Employment effects in the Automotive Cluster Upper Austria employees Size of company change in % Small ,5% Medium ,2% Large ,3% Total ,2% 3 shows the change in % from 1997 to 1998 Institute for Industrial Research 17

19 Source: TMG, IWI The next table refers to the ÖNACE-classification 34 4 and underlines a job creating environment in Styria. It states a growth of employment by 25 percent from 1995 to Table 4: Employment effects in the Automotive Cluster Styria change in % NACE category Styria Austria Styria Austria Styria. Austria % + 8% Source: ÖSTAT, IWI This positive development hints at positive employment effects from clusters. Clusters in the new economy: an oldfashioned concept? If the notion New Economy refers to increased transaction speed, knowledge and information society, clusters are more up-to-date than ever. Within clusters, exchange of tacit knowledge is fostered by spatial proximity, common learning and organizational platforms. Innovation processes are accelerated and put into economic application at less cost (economies of scale, sharing of R&D, marketing resources etc.). Clusters, along with multinational corporations, might turn out to be the basic economic cells, units or agents in a New Economy, especially in countries with a large share of SMEs in its economic tissue. 4 Automotive sector Institute for Industrial Research 18

20 SMEs, clusters and competitiveness 3 Salient findings and perspectives Cluster studies of the Institute for Industrial Research have revealed salient findings and perspectives for cluster-based policy as follows: The role of clusters in the New Economy 1. Regular up-date of statistical clusters (predominantly clusters in the New Economy) 2. Consideration of regional dimension 3. Development of a master plan by the government Improvement of incentives for the formation and fostering of clusters 1. The initiative should be government-driven 2. Bonus for co-operation and cluster participation 3. Fostering spin-offs 4. Joint cluster-specific R&D-programmes 5. Stimulation of exports and undertaking guarantees 6. Cluster-oriented creation of a favourable environment for establishing businesses Improvement of efficiency of cluster management 1. Remuneration for the cluster management based on success 2. List of duties for management 3. Peer-Reviews 4. Improved cluster-internal information-management 5. Augmenting the use of new media Public-private-partnerships in clusters 1. Joint financing of clusters 2. Provision of a specific framework by the government: Creation of infrastructure Institute for Industrial Research 19

21 Pure research Pre-competitive research Knowledge and technology transfer Education and qualification Image creation and international marketing Public procurement Institute for Industrial Research 20

22 SMEs, clusters and competitiveness References CLEMENT, Werner: Cluster und ihre industriepolitischen Konsequenzen in Österreich, IWI Working Paper Nr. 5, Vienna 1994 IWI (Institute for Industrial Research): Zwischenbilanz und Perspektiven der Clusterbildung in Österreich, Wien 2000 MANDL, Josef: in: Competence Clusters, Workshop Report, Land Steiermark, Graz, 21./22. Nov MARSHALL, Alfred: Principles of Economics: An introductory volume. 8. ed., London: Macmillan, 1938 OECD, Boosting Innovation: The cluster approach, Paris OECD: Cluster analyses & cluster-based policy in OECD-countries, The Hague/Utrecht 1998 OECD, Enhancing the competitivness of SMEs in the global economy: Strategies and policies, Paris 2000 PORTER, Michael: The competitive advantage of nations. London: Macmillan, 1990 PORTER, Michael: Clusters and Government Policy, in: Wirtschaftspolitische Blätter, Wien, 2000 QUELIN, Bertrand: Les analyses de la filière: bilan et perspectives. IWI Working paper Nr. 6, Vienna 1994 TOLEDANO, Joelle: A propos des filières industrielles, in: Revue d économie industrielle, Vol. 6, Nr. 4, 1978, p Institute for Industrial Research 21

23 Institute for Industrial Research 22