Information and Communication Technology Infrastructure in Industrial Clusters

To integrate into global economy is one of the biggest challenges for MSMEs. Due to limited financial capabilities there are challenges to invest in technology which is necessary for such integration. Recently, during the discussion with one of the buying houses the doubts were raised on the logistic readiness of MSMEs to match with international retail chains. What should we do for this? Internationally Technology Centers are playing an important role to support small and medium enterprises by providing state of art ICT support. Recently, Microsoft under project Vikas has set up India’s first E-readiness centre to facilitate extensive application of ICT in Tirupur Knitwear Cluster in India. It will help more than 5000 textile units to get access to latest useful IT applications, an interesting read in todays’ THE HINDU at http://www.thehindu.com/2008/06/06/stories/2008060657360100.htm

Cluster Development Strategy

MSMEs to become Globally Competitive it requires a strategy over and above the normal production function. Michael E. Porter is arguably the best known name in the world for competitive strategy. Is it possible to use his strategy for the competitiveness of MSMEs? Porter in his work on Competitive advantage of Nations in 1998 observed that the 18th century work of Adam Smith and David Ricardo on factor comparative advantage cannot provide explanations for most of the trade that takes place today. The diamond model proposes four interrelated facets, each of which representing a determinant of regional advantage: (1) firm strategy, structure and rivalry; (2) demand conditions; (3) factor conditions; and (4) related and supporting industries. “Chance” and the “government” are two factors that influence these four determinants, but are not determinants themselves. Together these six factors form a system that differs from location to location, thus explaining why some firms (or industries) succeed in a particular location. Not all six factors need to be optimal for firms or industries to be successful.

However it is argued that Porter’s model is more effective in developed countries rather than in developing countries. There are some alternative strategies explaining the competitiveness of MSMEs in current global scenario. These are Collective efficiency by Schmitz (1995) and flexible specialization by Piore and Sabel (1984)

This week The Times of India covered a very interesting interview on M porter’s views on Strategy http://timesofindia.indiatimes.com/Business/Strategy_is_about_competitive_advantage/articleshow/3054691.cms
Also very interesting read for two alternate theories at http://www.ifama.org/tamu/iama/conferences/2001Conference/Papers/Area%20VI/Neven_David.PDF

Cluster Development Programmes and BDS Development Programmes in India

Currently, there are several approach prevalent to address the issue of local economic development especially in Industrial clusters. The most talked internationally are Cluster Development (CD) Approach and creation of Business Development Services (BDS). In one the recent workshops I attended the issues surfaced was whether these two approaches are complementary or mutually exclusive. According to UNIDO (http://www.unido.org/userfiles/RussoF/Hanoi.pdf) CD approach is based on the hypothesis that clusters
1. Give rise to external economies (e.g. specialized suppliers of raw materials, components and machinery; sector specific skills etc.);
2. favour the emergence of specialized technical, administrative and financial services; and
3. create a conducive ground for the development of inter-firm cooperation and specialization as well as of cooperation among public and private local institutions to promote local production, innovation and collective learning.\

On the other hand BDS approach primarily concentrate on the creation of BDS market for BDS services. As a part of classical cluster development approach we primarily concentrate on three macro issues external economies, market for BDS services and different types of cooperation with in the cluster.

The next logical inference is that BDS is sub set of CD approach and there is no need for BDS focused programmes. Any CD approach will automatically take care about BDS services in industrial clusters.

If we get little deeper in to CD approach implementation focus is on BDS interventions as a result of structural adjustment happening in the overall economic scenario. The audience for such services are firms rather than BDS ………..it is important to stress that UNIDO has tried to avoid, to the extent possible, the subsidization of BDS costs out of the conviction that the various cluster actors will not fail to perceive the economic viability of commercial BDS provision if they have been sufficiently sensitized to the value of such services. When subsidies were provided, they were aimed at start-ups providing innovative BDS (e.g. access to new technology cum training, quality management). On the contrary, significantly less support was available for BDS strengthening the commercial capacities of the SSEs or, more generally, to initiatives with an immediate impact upon the profitability of the latter (e.g. participation in fairs, product design). ….

Under CDP the focus remained on firms rather than BDS.

Accordingly, BDS focused programmes are necessary for the creation of a proper BDS market among MSMEs in India. The two methodologies CD approach and BDS are differ on account of timeline, focus, market orientation and to some extent on methodology.

CLUSTER DYNAMICS AND INNOVATION IN SMEs: THE ROLE OF CULTURE

When we talk of clusters in Indian context, it is very difficult to avoid Tirupur cluster reference. In all cluster related conversations Tirupur is assumed as an exception for any kind of success story. Why Tirupur is assumed to be sure success for joint actions for common benefits? There are many reasons which I have experienced in the last 10 years. One of the most important one is the culture of Tirupur. The experience of Tirupur shows that strength of a local economic system, and its capacity to grow and to innovate, are closely related to the pattern of knowledge (thus cultural) stratification, to the territory itself and to learning capacity. When we gave them a presentation on the the growing need of Tirupur SME to integrate better in globally economy, Tirupur Exporters Association instantly agreed to have their common own ICT infrastructure ( E-Readiness centre ) . This shows their cultural capacity to collectively acknowledge that ICT is an important global integration tool, thus TEA play a key role when considering the dynamics of innovation process and growth opportunities for Small and Medium Enterprises (SMEs).

Tirupur hosiery cluster in India is a live example of this. There are several factors visible in the behaviour of TEA , such as the cohesion of stakeholders for the creation of innovation, the development of new institutions in the cluster.

To know more about role of culture in cluster dynamics and innovations there is a very interesting reading CLUSTER DYNAMICS AND INNOVATION IN SMEs: THE ROLE OF CULTURE by Callegati Enrico e Silvia Grandi available on line at
http://www.eblacenter.unito.it/WP/2005/3_WP_Ebla.pdf

Understanding Indian Clusters

Understanding of industrial clusters in Indian context especially by Indian authors can be counted on fingers. A systematic work to my knowledge started by SIDBI and SBI in late 80s. The nineties saw a sudden spurt in cluster related activities and focus on cluster related work mainly by international agencies and authors. In the last five years a lot of consolidation happened in terms of understanding of industrial cluster issues in India.

One the works done is Development of Industrial Cluster ( 2005) by Sudesh Kumar.
The paper gives an interesting insight into some of the work done by UNIDO under Cluster Development programme in India. The complete text of the book may be accessed at http://mpra.ub.uni-muenchen.de/171/1/MPRA_paper_171.pdf

Poverty Alleviation and Cluster Development

Under cluster development programme of UNIDO one of the POC ( Proof of Concept ) initiated was to explore the link between clusters focused interventions and poverty levels. Initially, it was very difficult to establish that clusters and poverty were connected. Dr Khalid from University of Manchester, UK tried to answer some these questions in his recent presentation in USA in Oct, 2007 (http://idbdocs.iadb.org/wsdocs/256,1,Competitiveness of Small Enterprises: Clusters, Business Environment and Local Development ‘Clusters, Territorial Competitiveness, Poverty and Social Sector Integration’ ) Among the three evidences one of the evidence of his presentation was work done by UNIDO in Chanderi, Madhya Pradesh, India. He primarily looked into characteristics, dynamics, poverty nodes in the cluster to explain the relationship. As consequence of UNIDO’s intervention one of the important things happened is corporatisation of artisans specially in Chanderi, an interesting story in todays's Economic Times( http://economictimes.indiatimes.com/News/News_By_Industry/Cons_Products/Weavers_to_become_shareholders_of_Fab_India_subsidiaries/articleshow/3013640.cms )

Strategic Management of Industrial Clusters- Garbage in Garbage out

The last decade has seen mushrooming of cluster development implementing agencies in India. The majority of these agencies are with in government or semi government kind of environment. The massive scaling up of CDP has created a major challenge for CD methodology to produce the desired results as claimed by advocates of CD approach. Surprisingly, there is no strategic management exist to professionally manage implementation work in more than 1000 clusters involving 1000 crores of rupees.

There is need to define key performance indicators, and a right framework to convert strategic direction in to action. Currently, most of CDA/ CDMs and implementing agencies are not trained/ accredited to a critical threshold cluster methodology related actions, resulting into a complete marginalization of CD approach as such.
The major leveraging points of the approach are general not the central point of implementation.

There is visible polarization on soft and hard inputs without understanding that both are complementary to each other. The best utilization of any hard infrastructure happens in best networked and trust based clusters viz Tirupur hosiery cluster in India.

There is need to better exploit the industrial cluster concept and to review all CDPs in the light of Strategic management of these programmes with proper performance indicators and cluster experts.