Diapositiva 1

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Clusters, Value Chains and Technological
Capabilities Building Carlo Pietrobelli Professo
r of Economics Director of CREI, University of
Rome 3, Italy c.pietrobelli_at_uniroma3.it
www.pietrobelli.tk
Brussels Rural Development Briefings Brussels,
European Commission 23 September
2009 http//brusselsbriefings.net
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A summary in 3 statements
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Competitive SMEs are necessary !

• Micro, Small and Medium-sized Enterprises (MSME)
  play a key role in terms of employment and income
  generation in developing countries.
• but their development and performance also
  contribute to poverty reduction.
• The World Bank estimates that 80 of poverty
  reduction is due to economic growth. ..... the
  private sector drives the economic growth
  developing countries need. ....companies offer
  people the chance to get a job and earn a living.
  ... the private sector creates wealth and helps
  individuals and nations lift themselves out of
  poverty. The private sector does not just mean
  multinational companies. Small firms and
  enterprising individuals matter just as much.
  (DFID, 2009).

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All face a pressure to compete

• Pressure to compete in open markets
• Increasing globalization
• New knowledge-related barriers (e.g. technical,
  environmental, sanitary standards).
• Various ways of penetrating global markets
• Clusters of SMEs together
• Global Buyers driving the formation of globally
  dispersed and organizationally fragmented
  production and distribution networks (Value
  Chains)
• Remarkable consequences for firms performance
  and knowledge diffusion

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But being competitive is not enoough.. Rents
and barriers to entry

• All activities contribute to total value, but
  some add more value than others crucial to
  identify which activities provide higher rents
  along the value chain
• Rents arise in case of differential productivity
  of factors and barriers to entry (scarcity of
  factors and imperfect competition). Rents can
  depend on technological capabilities,
  organizational capabilities, skills and marketing
  capabilities (brand names)
• These differences among activities are relevant
  to understand the opportunities open to
  developing countries firms
• The relevant concept here is upgrading

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Part of a long trajectory of a research
Started with Clusters and Value Chains in Latin
America Opportunities for SMEs learning and
upgrading Sectoral dimension Role of firm-level
TCs and GVCs Measurement and impact of governance
(Thailand) Networks and innovation in Chilean
meat sector
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UPGRADING as a better deal for firms
Upgrading

• Process
• Product
• Functional
• Intersectoral/inter- chain

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Process Upgrading

• Achieving a more efficient transformation of
  inputs into outputs by reorganizing the
  production system and introducing superior
  technology
• Matching standards that are set by buyers (often
  a condition for market entry, but also a trigger
  for higher prices paid for a better products)
• Doing things more competently (matching strict
  logistics and lead times and delivering supplies
  reliably and homogeneously time after time)

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Product Upgrading

• Moving into more sophisticated products with
  increased unit value
• Producing a large range of products with
  different specifications across the whole range
  of quality and/or origins (e.g. wine portfolios
  representing all major regions, varietals, and
  price points)
• It is sometimes difficult to distinguish product
  and process upgrading, especially in agro-food
  products, where new processes generate new
  categories of products (e.g. organics,
  sustainable products).
• Example the apparel commodity chain in Asia
  upgrading from discount chains to department
  stores (Gereffi, 1999)

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Functional upgrading

• changing the mix of activities within the firm
  and acquiring new functions that increase the
  skill content of activities (for example from
  manufacturing to design).
• Example Torreons blue jeans industry upgrading
  from maquila to full-package manufacturing
  (Bair Gereffi, 2001).

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Intersectoral/inter/intra chain upgrading

• Applying competences acquired in one function of
  a chain and using them in a different
  sector/chain
• Learning what is taking place in one strand of a
  value chain (e.g. the one oriented towards
  domestic consumption) and applying to another
  (e.g. the one oriented towards export).
• Example in Taiwan competence in producing TVs
  later used to make monitors and thus move into
  the computer sector (Humphrey Schmitz, 2002,
  Guerrieri Pietrobelli, 2004).

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Different forms of UPGRADING in a Value Chain

UNCTAD Oct.2007 12
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How can SMEs face the challenge of upgrading?
Exploiting the opportunities offered by the local
forms of industrial organization Combined
with firm-level efforts to develop
Clusters
Value Chains
Technological Capabilities
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Clusters and Value Chains Two different but
complementary approaches
The analysis of industrial clusters is focused on
the role of local linkages in generating
competitive advantages in export industries.
The global value chain literature emphasises
cross-border linkages between firms in global
production and distribution systems.
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A Cluster is a geographical agglomeration of
specialized enterprises

• Firms (SMEs) localized within clusters benefit
  from collective efficiency (to improve their
  competitive advantages)
• Together, they generate external economies, that
  may affect (spillover) other firms (involuntary
  effects passive of participating in a
  cluster)
• They may carry out joint actions (conscious
  effects active of participating to a cluster)

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VALUE CHAIN is based on a simple idea Design,
production, marketing of a product, involve a
chain of activities carried out by different
enterprises, in different places. Each activity
adds value.
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Why the concept of VC is useful

• It acknowledges the increasing importance of
  non-production activities (e.g. marketing
  design, sale) for the creation of value added
• It emphasises the growing importance of global
  buyers and producers as key drivers in the
  formation of globally dispersed and
  organizationally fragmented production and
  distribution networks
• These external linkages are key channels of
  knowledge for LDCs firms
• Upgrading (and/or innovation) of firms
  participating in a value chain depends on the
  nature of the relationships (governance and power
  asymmetries ).

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The Challenge of Upgradingis the picture
complete so far?
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The Micro foundations of TCs and GVCs

• Few studies explicitly explore how firms learn
  through external linkages (i.e. the mechanics,
  the pre-conditions, the investments and behaviour
  required)
• In GVCs and clusters this is often taken for
  granted and firms learning processes and
  technological change are not analyzed
• diffuse determinism in combining specific GVC
  arrangements to learning patterns
• the extent and variety of technological efforts
  at firm level are rather neglected.

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Technological Capabilities (TCs) in developing
countries

• TCs Technical skills, technological knowledge,
  organizational structures needed to operate a
  technology efficiently and improve upon it
• They are firm-specific institutional knowledge -
  individual skills - experience accumulated over
  time
• Technological change the result of purposeful
  activities undertaken by firms (Technological
  Efforts). Not exogenous/automatic
• Pace and direction of technological efforts also
  depend on the features of knowledge and on
  internal vs. external sources of knowledge
• GVCs or other forms of industrial organization
  may contribute to industrial development, but
  firm-level efforts are always essential.

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Some Ideas on Policies

• key principles
• key stakeholders, even if located far away, need
  to be involved in the policy support.
• A proper understanding of a VC analysis may help
  identify points of leverage and the powerful
  interests within the VC
• Knowledge flows within value chains play a
  central role, and they are themselves the object
  of a severe competition (and power).
• Clusters and Value Chains often complementary for
  SMEs

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IN SUM Policies to enhance SME integration into
GVCs

• Improve LDCs capabilities to design and
  implement policies (a process)
• TA for quality, sanitary and environmental
  standards,
• Improve access to scientific knowledge and
  research in NR-based VCs
• Due to small size of local suppliers, horizontal
  cooperation at different stages of the VC should
  be promoted (e.g. Clusters as a tool to deliver
  policies).
• Open dialogue, transparency, accountability,
  constant evaluation, in the design/implementation
  of policies
• Dynamic and evolutionary approach to policies.

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Thank you !!!!Prof. Carlo PietrobelliCREI,
University of Rome 3, Italyc.pietrobelli_at_uniroma
3.itwww.pietrobelli.tk

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Policies 1/6 Capabilities for Policy-making

• Improve capabilities for strategic policy design,
  formulation, implementation in LDCs and explore
  and develop avenues for private-public
  collaboration.
• Content of effective policies cannot be defined
  ex-ante, an ongoing process through continuous
  and pragmatic assessments and experiments
  (Pietrobelli, 2006).
• Examples Public-Private Collaboration in
  Innovation Fundación Chile
• Examples Public-private sector collaboration in
  innovation. Instituto Nacional de Investigación
  Agropecuaria and the rice sector in Uruguay

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Policies 2/6 Standards

• Technical assistance to support quality,
  sanitary, environmental, industrial standards -
  administered at the cluster level, through
  collective institutions and joint actions.
  Examples of Policy actions
• Awareness raising campaigns directed to small
  producers
• TA to help local SMEs fulfil international
  standards requirements
• TA to strengthen local regulatory institutions,
  and institutions setting environmental and
  sanitary standards for local producers
• Conditioning of the access to loans and grants on
  the effective implementation and maintenance of
  quality and sanitary standards.
• Examples from SIDA and NORAD promoting African
  exports through quality and product safety.
• Support the development of national standards
  infrastructures, especially for certification and
  testing to facilitate integration into GVCs
• Example GTZ program for AfriCert to promote
  Local Certification Capability in Africa
• Estimated that Argentina loses on average up to
  US 1 billion every year due to sanitary problems
  that force exporters to accept lower prices
  (UNIDO, 2005).

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Policies 3/6 Research and natural resources

• In NR-based GVCs, support to access to scientific
  knowledge.
• Research is concentrated in the leader,
• SMEs do not easily get access to it,
• public, local organizations should carry out
  research, disseminate findings, assist SMEs to
  adapt and internalize research advancements.
• Policy programs to help disseminate research to
  SMEs (Gomes, 2007 on Brazil), engage SMEs in
  collaborations with research institutions, help
  guide the research priorities in directions that
  are useful to SMEs.
• Strengthen skills and abilities in the backward
  production stages along the chain to help
  interact with global buyers.

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Policies 4/6 Cluster-level for policies

• Several stylized facts (especially in
  agriculture)
• insufficient size of many local suppliers
• increasing buyer-drivenness
• compelling demands on local suppliers
• all point to the need to grow in size and
  capabilities.
• Horizontal cooperation at various stages of the
  value chain to exploit economies of scale in
  service delivery and in local systems to address
  standards.
• In this sense, the cluster-level is often
  appropriate to design and implement many
  policies.
• Examples promotion of cooperatives (for
  coordination and pooling of production, efficient
  delivery of TA), out-grower schemes linking small
  farmers and large buyers (Humphrey, 2005)

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Policies 56/6 Dialogue, Evaluation, Dynamism

• 5. in the design and implementation of policies
• Open dialogue
• transparency
• accountability and
• constant evaluation
• To minimize corruption and private individuals
  (and firms) capturing the whole benefits of
  policies
• Policies need to adopt a dynamic approach and
  evolve over time.
• Example The Chilean salmon cluster, where
  policy requirements and realizations have evolved
  over time.

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On Dynamic Policies the Chilean Salmon Cluster

• From 0 to 25 of world salmon farming
• Exports 1985 US 1 mill., 2002 US 1,000 mill.
• Policies have evolved over time
• 1978-85 Initial learning regulation,
  technology transfer, investment in
  pre-competitive research
• 1986-95 Maturing physical infrastructure,
  export promotion and marketing, innovation and
  development of suppliers (cages, nets, food)
• 1996-today Globalization productivity
  increase and technology transfer, environmental
  management, biotechnology (diseases and genetic
  handling)

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Pieces of Evidence Pietrobelli and Rabellotti
2007

• Analysis of 50 empirical cases of clusters in LA
  (11 original)
• Selection criteria Agglomeration Value Chains
  Upgrading Policy lessons
• Analysis and measurement of
• Collective Efficiency 0-3 (external economies
  joint actions)
• Governance of the value chains
• Models of Upgrading of products, processes,
  functional, intersectoral 0-3

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The case studies

• Resource-based industries
• Agro-industry melon in Rio Grande do Norte,
  mangos in Petrolina and apples in Santa Catarina,
  BRAZIL (R. Gomes, MIT, Boston)
• Salmon cluster in Southern CHILE (C. Maggi,
  Fondo de Innovación Tecnológica, Bío Bío)
• Milk and dairy cluster in Boaco and Chontales,
  NICARAGUA (N. Artola, Nitlapán, Universidad
  Centroamericana, Managua, and D. Parrilli,
  Università di Ferrara)
• Complex Product Systems industries
• Metalworking sector, State of Espirito Santo,
  BRAZIL (J. Cassiolato, Universidade Federal de
  Rio de Janeiro and A. Villaschi, Universidade
  Federal do Espirito Santo)
• Traditional Manufacturing Industries
• Traditional furniture in Chipilo, Puebla, MEXICO
  (E. Zepeda, UAM, Mexico)
• Manufacturing Clusters in Mezzogiorno, ITALY (G.
  Viesti, Università di Bari and D.Cersosimo,
  Università della Calabria)
• High Tech industries
• Software clusters in Guadalajara, Monterrey,
  D.F., Aguascalientes, MEXICO (C. Ruiz Duran,
  UNAM)
• An extensive survey on the existing literature
• 50 cases of clusters and value chains in Latin
  America (E. Giuliani, Università di Pisa)

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RESULTS on the Mode of Governance and Upgrading

• Participation to global buyer-driven chains
  fosters the relationships with the international
  market.
• Large foreign buyers (chain leaders) favour
  product and process upgrading in traditional
  manufacturing sectors
• Upgrading in COPS needs local institutions and
  network-brokers negotiating with chain leaders
• In all cases functional upgrading is not enhanced
  by the presence of foreign buyers and chain
  leaders
• Several forms of value chains coexist in the same
  cluster, and may offer profitable alternatives
• The governance of the value chain is a dynamic
  process, and it may evolve over time.

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RESULTS of the Field Studies
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1. COLLECTIVE EFFICIENCY (external economies and
joint actions) foster the process of UPGRADING

• CE has a positive effect on upgrading (e.g.
  Salmon cluster in Chile, mangoes cluster in PJ
  and apples in SC, Brazil)
• CE reaches higher levels in clusters based on NR
  and in software clusters
• The development of a cluster takes time
• External economies (passive) are more frequent
  joint actions require specific investments, or
  responses to external challenges
• CE may be hindered by the domination of strong
  and hierarchical relations (e.g. Furniture
  cluster in Chipilo, Mex)

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2. The Model of Governance of the Value Chain
Affects SMEs Upgrading

• Participation in global value chains led by large
  buyers from advanced countries (buyer-driven
  chains) fosters the relationships with the
  international market.
• Large foreign buyers (chain leaders) favour
  product and process upgrading in traditional
  manufacturing sectors
• However, functional upgrading is rarely achieved
  
• Several forms of value chains coexist in the same
  cluster, and may offer profitable alternatives
• The governance of the value chain is a dynamic
  process, and it may evolve over time.

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3. The sectoral dimension is essential

• In NR-based clusters CE together with
  participation in value chains matter a lot!!
  (e.g. Fresh fruit clusters in SC and PJ, Bra,
  salmon in Chile, sugar in Valle del Cauca, Col)
• In traditional manufacturing clusters
  integration in value chains help product and
  process upgrading, but hinders functional
  upgrading (p.ej. Shoe cluster in Sinos Valley,
  Bra)
• In Complex Systems Products (COPS) local CE do
  not matter much chain leaders follow a global
  strategy and demand high quality standards and
  certification
• Software clusters CE is an important factor of
  upgrading opportunities for the development of
  niche markets close to clients (e.g. in Mex).

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4. The macroeconomic context matters

• Unfavourable Macroeconomic Conditions may rapidly
  revert success into failure (e.g. furniture
  cluster in Chipilo, Mex)
• Competitive factors do not stay forever, are
  dynamic and change

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Resource-based industries

• Process and product upgrading are necessary, and
  they are often related to the scientific base of
  the activity. This is due to the following
  characteristics of technology and scientific
  knowledge high uncertainty, crucial constant
  innovation, results are public goods
• In buyer-driven chains global buyers facilitate
  the link with the international market by
  signaling the need (and the modes) of the
  necessary upgrading. However, they do not
  normally foster and support the SMEs upgrading
  process
• Positive relationship between the degree of
  collective efficiency and upgrading (i.e.
  institutional network, research centers,
  Universities, international co-operation)

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Complex Product Systems Industries

• Technological accumulation and upgrading are
  generated by the design and development of parts
  components of complex products
• Global value chains are dominated by large
  assemblers and their first-tier suppliers
  (producer-driven chains)
• Local suppliers (which are second or third-tier)
  are required to attain high quality standards and
  certifications to be part of the subcontracting
  network but the lead firms have little
  understanding and sensitivity of the upgrading
  concerns of local firms
• Little collective efficiency, and upgrading is
  left to the market
• Spin-offs appear to be a way of diffusing
  capabilities
• Difficult perspectives for locally-owned second
  or third-tier suppliers
• A viable strategy is to find a profitable niche
  by servicing large leading firms in the chain
  (e.g. metalworking cluster in Espirito Santo,
  Br.).

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Traditional Manufacturing Industries

• Supplier-dominated as major process innovations
  are introduced by machinery and materials
  producers
• Upgrading may occur by incremental developments
  and imitation large buyers often help as they
  depend on the skills of their local suppliers
• Integration into value chains is a two-edged
  sword
• On the one hand, it facilitates inclusion and
  rapid enhancement of product and process
  capabilities
• On the other hand, SMEs become tied into
  relationships that often prevent functional
  upgrading (e.g. Sinos Valley footwear)
• Collective efficiency favors local firms
  capabilities to process and product upgrade
• A leader-firm (and an innovative entrepreneur)
  may spur the creation of a cluster of successful
  firms
• The example set by the leader may be followed by
  others, who may benefit from the learning already
  acquired by the innovator (footwear cluster in
  Puebla, and sofa shoe clusters in Puglia)
• Nevertheless, a cluster takes time to develop and
  excessive dependence on few players may be risky
  (footwear in Puebla)
• Favourable macroeconomic conditions are
  essential.

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High Tech industries

• Our focus on software (client-driven to develop
  or adapt software packages to the specific
  requirements of local clients)
• Technological accumulation from corporate RD
  labs and Universities
• Low barriers to entry, start-ups near major
  clients
• Software houses perform incremental product and
  process improvements. Functional upgrading is
  easier ( i.e. when software firms engage in
  design and commercialisation of their
  activities).
• The relationships with clients is usually of a
  market/network type
• Local firms perform low value added activities,
  but the presence of a leading firm may facilitate
  access to markets and sustain the formation of
  skilled labour force, but without direct
  knowledge transfer
• Spin-offs are a mean of diffusion of knowledge
  and generate start-ups.

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• We also explored the sectoral dimension.
• Traditional Manufacturing industries
• Promote linkages between firms
• Promote access to new additional value chains
• NR based industries
• Promote public-private collaboration in research
  and disseminate research to SMEs
• Promote the adoption of quality and sanitary
  standards, environmental regulations, and enforce
  quality inspections and controls
• COPs
• Promote/support network brokers
  (articulators)
• Set up an incentive framework aimed at inducing
  large firms to source locally and to support
  their suppliers upgrading strategies
• Specialised suppliers (Software)
• Invest in Highly Skilled Professional.

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External economies

• The availability of a pool of specialized skills
• Cheap and ready available supply of specialized
  inputs
• Easy access to specialized trade and technical
  knowledge and rapid dissemination of information
  
• Improved market access the concentration
  attracts customers.
• Relationships based on mutual trust and shared
  values (social capital)

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Joint actions (Nadvi, 1999)

• Joint action within vertical linkagesbackward
  with suppliers and forward with traders and
  buyers
• Joint action within horizontal linkages between
  two or more local producers joint purchasing of
  inputs, selling under a collective label
• Joint action within horizontal multilateral
  linkages among a large number of local producers
  co-operation in trade associations, joint
  participation in trade fairs, collective
  provision of business development services.

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Examples of Collective Actions (IADB-M.Dini)
PROYECTOS RESULTADOS
Red de Cabriteros, Proyecto Córdoba Reducción de costos por concepto de compra en conjunto de materia prima
Red de Curtiembres, Guanajuato México Reducción de costos de comercialización
Red de productores de Uva Isabella Establecimiento de una relación comercial con agroindustrias
Red de productores de Uva Isabella Definición de una norma del producto Uva Isabella
Red Electrónicas, Córdoba Reducción de costo en la compra de un equipo automático de producción
Red Software Córdoba Ahorro del 2/3 en el costo de una consultoría para la certificación CMM
Red Software Córdoba Programa de formación para competencia para 1.200 profesionales (post universidad)
Red Software Córdoba Ley para el fomento del sector
Vinos Finos de Exportación, Uruguay Aumento del número de clientes internacionales
Vinos Finos de Exportación, Uruguay Reducción del costo de comercialización de los vinos finos de exportación de Uruguay