Can Natural Resources Create Sustainable Development Using A Cluster Approach?

1

• Can Natural Resources Create Sustainable
  Development Using A Cluster Approach?
• Cluster and Competitiveness Development and
  Implementation of Cluster Policies at Regional
  Level
• Orbita, Moscow Area
• May 15-16, 2009

2
Outline

• Establishing a Common Understanding of Key Terms
• Cluster Definition, Examples, and Roles
• Natural Resource Based Clusters Selected
  Examples
• Three Case Studies of Cluster-based Approaches
• Critical Success factors in Catalyzing Clusters
• Lessons Learned
• Quotes for the Target Regions to Ponder when
  Catalyzing Clusters

3
Establishing a Common Understanding of Key Terms

• Natural resources are commonly divided into two
  categories -regenerative resources such as
  forests, soil, water and air, and extracted
  resources such as minerals and fossil fuels.
• Natural resource based clusters can be defined as
  groups of interrelated industries and businesses
  which grow around natural resources, such as the
  Finnish forest cluster and the Dutch flower
  cluster.
• Sustainable development is about maintaining a
  delicate balance between the human need to
  improve lifestyles and preserving natural
  resources and ecosystems.
• Innovation is the continuous process of
  discovery, learning and application of new ideas,
  new technologies, new techniques and new
  processes from many sources.
• Prosperity can be defined as having a higher
  salary, a higher standard of living and more
  disposable income.

4
Cluster Definition and Example

• Clusters are geographic concentrations of
  interconnected companies, specialized suppliers,
  service providers, firms in related industries,
  and associated institutionsthat compete but also
  cooperateclusters are a striking feature of
  virtually every national, regional, state, and
  even metropolitan economypoints to new roles for
  companies, governments and other institutions
  striving to enhance competitiveness.
• Michael Porter, 2000
• Examples of Famous Clusters include
• Canadas Telecommunication
• Finnish Mining Equipment and Services
• Swedish Forest Products
• Hollywoods Entertainment
• Houstons Oil and Gas

5
The Ontario Mineral Industry Cluster - A
Schematic View
6
Why a Cluster-Based Approach?

• The Cluster Approach can be defined as an
  integrated, comprehensive, and inclusive approach
  to economic development.
• The Cluster approach
• Brings together multiple constituents that would
  not normally have the opportunity to talk with
  each other into constructive dialogue, i.e.
  business, government, labour, and industry
  associations
• Focuses on what determines productivity -
  interdependence and the joint activity among
  multiple constituents
• Reveals the crucial interconnections with
  industries and institutions that strongly affect
  competitiveness
• Necessitates new roles for the cluster
  participants in enhancing competitiveness
• Creates enduring competitive advantages, such as
  personal relationships, trust, synergies, and
  social capital

7
The Role of Clusters in Creating Prosperity
Prosperity
Competitiveness (Productivity)
Innovative Capacity
Clusters
Competitiveness and innovation are concentrated
in mature clusters.
8
Role of the Public and Private Sectorin Cluster
Development

• Government
• Plays a pivotal role as facilitator to bring
  partners together in a productive dialogue
• Promotes clusters through legislation, policies
  and incentives
• Encourages public/private partnerships to enhance
  clusters
• Conducts ongoing cluster assessments to determine
  the influence clusters have on improving
  competitiveness of industries
• Provides seed funding to identify new and
  potential clusters

• Examples
• The French Government committed 500 M for
  cluster development over a three year period
• National Research Council of Canada committed
  C550 M to catalyze 11 clusters
• Ottawa-Carleton Regions Economic Generators
  Initiative (Based on Cluster Approach)
• Quebec Governments adoption of cluster-based
  economic development
• Arizonas Bill to Promote Cluster- Based Economic
  Development.

9
Role of the Public and Private Sectorsin Cluster
Development (Contd)

• Education and RD Institutions
• Act as catalyst in the development of new and
  better products, processes and technology
• Improve commercial awareness and entrepreneurship
  among researchers by supporting new start-ups
• Create value for the private sector -- applied
  research, commercially relevant research
• Lead relationship building between education/RD,
  government and industry
• Strengthen regional economic development -
  cluster analysis, consulting services

• Examples
• Queens, University of Toronto, and Waterloos
  programs, i.e. geophysics, remote sensing and
  environmental applications all contribute to the
  strength of Ontarios mineral industry cluster
• University of Waterloos focus on applied
  research contributes to Canadas Triangle Park.
• National Research Councils research plays a very
  critical role in Silicon Valley Norths success
  in Ottawa.
• Stanford Universitys highly educated and skilled
  pool of researchers plays a pivotal role in
  Silicon Valley.
• University of Guelphs R D contributes to the
  Agriculture Food cluster

10
Role of the Public and Private Sectorsin Cluster
Development (Contd)

• Business and Industry
• Lead participate in cluster development
• Propose legislative policy changes - identify
  barriers/opportunities to cluster expansion
• Increase investment in workforce development, new
  technologies and RD
• Nurture supplier industries and establish
  stronger links with firms in related industries
• Forge closer ties with research educational
  institutions to translate RD advances into
  commercial applications
• Provide financial capital such as venture and
  angel financing for start-up companies

• Examples
• Vale Inco and Xstrata contributed C10 M to the
  Centre for Excellence in Mining Innovation in
  Ontario
• Telus Corporations C225,000 financial
  contribution for the Greater Edmonton
  Competitiveness Strategy
• Global Mining Initiatives - contribution of US3
  million by multinationals towards sustainable
  economic development
• Nokia Ericssons leadership in experimenting
  with mobile telephony - resulting in lasting
  economic impact
• Genzyme Biotechnology Cluster in Massachusetts
  - Genzyme built critical mass for its cluster
  with the help of city and government

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Natural Resource Based ClustersSelected Examples

• Italian Ceramic Tile Cluster
• World leader in the production of ceramic tiles
• Geographic concentration 60 of the tiles are
  made the red clay deposits of the Sassualo area
• Contributing factors demanding customers and
  buyers, intense competition among local suppliers
  and machinery manufactures, strong distribution
  channels, and private ownership of companies in
  the sector
• Swedish Forest Industry Cluster
• Accounts for 12 of exports, 20 to 25 of
  industrial investments, and 3 of GDP
• Balance between environmental stewardship,
  economic sustainability, and social well being
• Facilities are wildly dispersed throughout small
  towns
• More information is contained in Appendix 1

12
Natural Resource Based ClustersSelected
Examples (Contd)

• Norwegian Marine Cluster
• Accounts for 10 of the worlds seaborne
  transportation
• Support industries and internal suppliers are the
  reasons for the success
• The cluster includes maritime transportation,
  fisheries, advanced shipyards, and the export of
  fisheries and ship building equipment
• Dutch Flower Cluster
• Competitive advantage in the growth, production,
  and marketing of flowers throughout Europe
• Comparative advantage is found in the development
  of new varieties
• Strength in marketing products outside the
  country and the development of a specialized
  transportation hub

13
Natural Resource Based ClustersSelected
Examples (Contd)

• Argentine Oil Seed Cluster
• Generates 25 of Argentinas exports and has
  recently experienced rapid growth
• Processing industry has grown from converting
  agricultural inputs into oils and oil by-products
• Industry produces 90 of processing equipment and
  has penetrated the most demanding markets
• Chilean Mining Cluster
• Comparative advantage created by having 25 of
  the worlds copper ore reserves
• Cluster has grown around the extraction and
  processing of ore
• Internal sources supply two-thirds of inputs, 40
  of equipment, and 70 of engineering services

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Natural Resource Based ClustersSelected
Examples (Contd)

• Finnish Forestry Cluster
• Generates 25 of Finnish exports and supplies the
  world with 40 of its plywood and 25 of its
  cardboard and paper
• Machinery is exported for all phases of
  production
• Increasing proportion of value added products
• Houston Oil and Gas Cluster
• Value added products and services contribute to a
  stable standard of living not associated with
  the production of oil and gas
• Houston is better known for exporting knowledge
  and supporting business than drilling for oil and
  gas
• Indias Diamond Cutting and Polishing Cluster
• No longer has operating diamond mines
• Established itself as the largest exporter of cut
  and polished diamonds exports are worth US8.6
  billion annually
• One million people are employed

15
Natural Resource Based ClustersSelected
Examples (Contd)

• Natural resources clusters through four phases
• First phase natural resources are extracted and
  exported with minimal local processing, and
  machinery and equipment are imported
• Second phase processing and export activities
  are initiated with local production of some
  inputs and equipment
• Third phase a cluster begins to export some of
  the goods and services that it originally began
  to produce for import substitution purposes
• Fourth phase all types of goods and services are
  produced locally and are exported, i.e.
  Californian Wine Cluster

16
Natural Resource Based ClustersSelected
Examples (Contd)

• Common Characteristics of Natural Resource Based
  Clusters include
• Natural resources continue to provide a basis for
  the development of second generation industries,
  which in turn created long-term sustainable
  development even after the resource has been
  depleted (Indias diamond cutting cluster).
• Strong presence of local suppliers of equipment,
  services, and technology
• Continuous improvement and upgrading through the
  use of modern technology
• Export of products and services outside the
  region and the country
• Sustainable economic growth benefits from the
  production and export of value-added products and
  services

17
Natural Resource Based ClustersSelected
Examples (Contd)

• Challenges and Constraints associated with
  Natural Resource Cluster Development include
• Depletion of natural resources, especially
  non-renewable
• Low profile of natural resource sectors due to
  historical legacy issues
• Aboriginal/Indigenous culture, heritage, and
  asserted rights
• High level of capital investment required to
  create downstream industries
• Significant distances separate natural resources
  from population centres, capital resources, and
  corporate head offices
• Environmental considerations require additional
  time, money, effort, and resources unlike other
  clusters, such as high tech and bio tech
• Head offices are not located near the resources,
  i.e. mines and forestry companies

18
Natural Resource Based ClustersSelected
Examples (Contd)

• Can natural resources create sustainable
  development using cluster approach?
• The answer is YES!!
• Clusters founded on natural resources demonstrate
  that business activities developed around these
  resources can continue to provide sustainable
  development
• Technology provides geographically remote regions
  with the capability to produce sustainable income
  streams from participation outside local regions
• Improved communication, transportation, and
  education allows for easier and less costly
  access to a variety of new services at home and
  abroad

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Three Case Studies of Cluster-based Approaches

• 1 National Research Councils Technology
  Clusters
• The Impetus - Build competitive advantage in the
  technology clusters through research and
  innovation
• The focus is on technology clusters located
  throughout Canada
• 2 Ottawa-Carleton Regions The Economic
  Generators Initiative followed a systemic
  approach to cluster development as shown starting
  on Slide 22
• The impetus - Expand and Grow
• The focus was the entire region without reference
  to a
• particular cluster
• 3 Ministry of Northern Development and Mines
  Ontario Mineral Industry Cluster focused a
  cluster distributed throughout the entire
  Province of Ontario
• The Impetus - Significant loss in employment and
  need for economic diversification

20
Case Study 1 The National Research Councils
Technology Clusters

• is encouraging research between federal,
  provincial,
• and municipal governments, industry, and the
  higher-education
• sector. This initiative is accelerating the
  commercialization of
• new technologies produced by small and
  medium-sized firms. It
• is also building regional ST capacity in key
  sectors and
• industries across Canada
• Government of Canada, 2007
• Investment of C554.2 M between 2000 and 2010
• Integration of key players across a Canadian
  innovation system
• Contributing to a stable market place across
  regions by providing stable funding to the
  private sector and clustering projects
• Maintaining commercialization performance in the
  cluster communities
• Serving as a proxy for access to global markets

21
Case Study 1 The National Research Councils
Technology Clusters (Contd)

• Eleven clusters located across Canada that relate
  to a diverse range of technologies have been
  funded
• Fuel Cell and Hydrogen Technologies
• Nanotechnology
• Plants for Health and Wellness
• Sustainable Infrastructure
• Biomedical Technologies
• Photonics
• Aluminium Transformation
• Information Technology
• Life Sciences
• Nutrisciences
• Ocean Technologies

22
Case Study 2 Ottawa-Carleton RegionsThe
Economic Generator Initiative
23
Case Study 2 Ottawa-Carleton RegionsThe
Economic Generator Initiative

• Mobilization Phase
• The Economic Generators Initiative was launched
  to ensure that the Region kept its eye on the
  drivers required to remain competitive and to
  expand and grow
• The Ottawa Partnership (TOP), a group of public
  and private leaders committed to advancing the
  local economy was established
• The municipal government provided a number of
  opportunities for networking
• Assessment Phase
• International expertise in cluster development
  was retained to conduct quantitative and
  qualitative assessments of the economy
• The assessments revealed that Ottawa has seven
  clusters in its economy, each at a different
  point in its life cycle
• Strategy Formulation Phase
• TOP, as part of moving forward, developed three
  strategies
• Accelerated Cluster Development
• Enhanced Economic Foundations
• Balance economic growth with social equity and
  environmental sensitivity

24
Case Study 2 Ottawa-Carleton RegionsThe
Economic Generator Initiative (contd)

• Implementation Phase
• The Economic Generators Initiative identified 30
  initiatives for specific clusters and 9 flagship
  initiatives for all clusters
• The initiatives have champions and funding from
  both the public and private sectors the
  champions come from civic leadership, federal and
  provincial government and private sector.
• Monitoring Phase
• The Steering Committee met on a quarterly basis
  and monitored and reported on progress
• Accelerating cluster development allowed the
  Ottawa community to recover more quickly than
  other places from the economic downturn
• 
  Jocelyn Ghent-Mallet, ITAC

25
Case Study 3 Cluster Approach to Ontarios
Mineral Industry

• The Ontario Ministry of Northern Development and
  Mines established a formal project to
  determine applicability of the cluster based
  approach to its mining and mineral development
  sector
• Quantitative assessment using techniques such as
  Location Quotient, Share Matrix Growth, and
  Porters Diamond Model of Competitiveness was
  conducted
• The assessment revealed low employment growth,
  weak linkages across sub-sectors, and a lack of
  strategy to optimise Ontarios strengths
• Consultations were held with various stakeholders
  to solicit their feedback on and to seek their
  support for a cluster -based approach to
  Ontarios mining and mineral sector

26
Case Study 3 Cluster Approach to Ontarios
Mineral Industry (Contd)

• A cluster forum was convened (the first ever) to
  bring stakeholders together to explore how
  to overcome challenges and leverage strengths
  comparative advantage, i.e. Ontarios rich
  mineral endowment
• Private sector leadership emerged to lead a
  collaborative organization
• The Government of Ontario established a private
  sector led Ontario Mineral Industry Cluster
  Council (OMICC) to catalyze the Ontario mineral
  industry cluster

27
Case Study 3 Cluster Approach to Ontarios
Mineral Industry (Contd)

• Catalyzing the Mineral Cluster Through
  Collaboration
• Vision
• Unleashing the provinces mineral potential to
  promote sustainable growth and create prosperity
• Mandate
• Foster a sustainable and rising standard of
  living from Ontario's rich mineral endowment
• Lever the current mineral industry assets to
  create a larger and more globally competitive
  cluster of mineral and related industries and
  organizations
• Bring together the cluster of mineral-related
  industries and organizations that must compete
  and cooperate to win more prosperity
• Membership
• Leaders from mine operators, exploration
  companies, financial sector, suppliers, research
  institutions, associations, universities and
  colleges, environmental groups, and officials
  from three levels of government

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Case Study 3 Cluster Approach to Ontarios
Mineral Industry (Contd)

• Achievements to Date
• Modernization of the Mining Act - Bill 173
• Commitment to Resource Benefit Sharing between
  Ontario and Aboriginal/Indigenous peoples
• Ontarios Mineral Development Strategy
• Commercialization and Export Strategy
• Centre for Excellence in Mining Innovation
• Federated School of Mines
• Tools to profile mineral cluster
• An OMIC website
• The Rehabilitated Mines Calendars
• A Guide for Junior Exploration Companies
  Building a Dialogue With Aboriginal Communities
• Ontarios Mineral Industry Cluster An Economic
  Powerhouse brochure

29
Case Study 3 Cluster Approach to Ontarios
Mineral Industry (Contd)

• Government Support
• The Deputy Minister and the Assistant Deputy
  Minister, Mines and Minerals Division are
  Standing Members of OMICC and the OMICC Executive
  Committee
• The Ministry also provides the following services
  to OMICC
• Advice to the Minister, Deputy Minister,
  Assistant Deputy Minister, and OMICC Co-Chairs
• Develops reports, proposals, business cases,
  briefings, and manages correspondence
• Manages projects, develops and monitors OMICC and
  its Working Groups Work Plans
• Plans and organizes OMICC meetings, forums,
  workshops, and populates the web presence
• Keeps OMICC abreast of policies, programs, global
  trends impacting the cluster
• Serves as a conduit between OMICC and Ministry

30
Critical Success Factors in Catalyzing Clusters

• Private Sector Leadership
• Strong bias towards action
• Engage consultants with experience in cluster
  development
• A shared vision of the cluster among the cluster
  participants
• Wide involvement of cluster participants and
  associated institutions
• Platform for cluster participants to come
  together to network and build trust and
  relationships
• Government provides seed funding for cluster
  assessment and strategy development

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Lessons Learned

• Government and private sector have separate, but
  equally important roles in catalyzing clusters
• Focus simultaneously on both short-term needs and
  long-term priorities
• Cluster forums can serve as galvanizing events
• Comparative advantages - best geology - will not
  guarantee sustainable growth
• Innovation is not limited to high-tech and
  bio-tech
• There is no single cookie cutter approach to
  cluster development, but the essential elements
  must be present
• Cluster development can take decades before it
  reaches maturity
• Patience and persistence are required to sustain
  momentum

32
Quotes for the Target Regions to Ponder in
Catalyzing Clusters

• A nation can be prosperous and productive in
  virtually any field. What matters is how a
  nation competes, not what industry it competes
  inwe must stop thinking that traditional
  industries are bad and that the nation must move
  into high tech
• Porter, 1998
• government, working with the private sector,
  should reinforce and build on established and
  emerging clusters rather than attempt to create
  entirely new ones. New industries and new
  clusters emerge best from established ones
• Porter, 1998
• There is room for governments to show great
  entrepreneurial acumen and zeal in providing
  support to clusters Governments should seek out
  cluster participants and proactively understand
  their needs at a time when early action can have
  a transformative impact. Governments should seek
  out cluster participants and proactively
  understand their needs at a time when early
  action can have a transformative impact
• 
  Michael Porter and Roger
  Martin , 2000
• it is a mistake to think that government should
  simply stay on the sidelines and focus only on
  keeping a lower tax base and social services. In
  other words, the private sector cant do it all
• Arthur J.
  Carty, National Advisor
• to the Prime Minister, 2004

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Quotes for the Target Regions to Ponder in
Catalyzing Clusters (Contd)

• Canadas private sector needs to work harder at
  improving productivity and competing vigorously
  at home and abroadwe have a responsibility to do
  our part, not only in growing our own businesses,
  but in encouraging others to raise their sights
  and be bolder in exploring the opportunities of a
  global market
• Canadian Council of Chief Executives, 2005
• Minerals production would not only supply
  necessary raw material for domestic use but could
  become the first industry sector and seed
  further, non-mining related industries. The
  additional requirement for services both
  up-stream and down-stream could potentially form
  a sustainable and viable cluster
• 
  Magnus
  Ericsson, Sweden Pentti Noras, Finland, 2005
• Innovation is a hallmark of a successful
  economy, and it drives growth and the creation of
  new jobs. Government at all levels have a
  responsibility to accelerate the rate of
  innovation
• Innovation America, Innovation America A
  Public-Private Partnership, 2008
• Strategic clusters for European innovation and
  global competitiveness is becoming more important
  every day. Cluster policy needs a step-change in
  ambition and effectiveness to be a real driver of
  European prosperity. Success depends on
  concerted changes in policies, initiatives, and
  thinking at many different levels across Europe
• European Presidency Conference on Innovation and
  Clusters, 2008

34
Thank You

• Questions?
• Indira Singh
• Director, Executive Projects Office
• Ministry of Northern Development and Mines
• Ontario, Canada
• indira.singh1_at_ontario.ca
• For more information on the Ontario Mineral
  Industry
• Cluster, visit the website at www.omicc.ca

35
APPENDIX 1SWEDISH FORESTRY CLUSTER An Example
of a Natural Resource-based Vibrant Cluster

• Michael Porter, who coined the concept of
  clusters and an authority on cluster theory and
  practices, referred to the Swedish forest
  industry cluster as an example of a strong
  cluster. According to Porter, if there are
  several companies in one country that compete
  with each other -- as the companies in the
  Swedish forest industry do -- then it means that
  not only the large companies become strong, but
  that they will provide a valuable market for
  competent suppliers. It is no coincidence that
  Volvo and Scania are up among the leaders in the
  global heavy truck industry, Eka Chemicals is a
  world leader in bleaching and paper chemicals,
  Tetra Pak packaging for liquids.
• Strength/vibrancy of a cluster can be measured by
  the presence of upstream and downstream
  industries the level of competitive inputs such
  as services, machinery and equipment the level
  of employment in all business activities the
  rate of increase in value-added products and
  services and the rate of increase in exports of
  differentiated goods and services.
• The Swedish forest industry clusters exports
  amounted to 110 billion kronor in 1996 (enough to
  pay for all of Swedens imports of oil, food,
  clothing and cars)
• 23 of the Swedish manufacturing sector turnover
  and 27 of its value-added are created by the
  companies in the forest industry cluster
• 26 of all industrial employees in Sweden work
  within the forest industry cluster and, together
  with companies, they pay 32 billion kronor per
  year in tax
• 33 of Swedish industrial investments are made
  within the cluster -- the forest industry along
  invests some 12 million kronor per year in Sweden.