CLUSTERS: INNOVATION, ENTREPRENEURSHIP, NETWORKS & SMALL BUSINESSES
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1 CLUSTERS: INNOVATION, ENTREPRENEURSHIP, NETWORKS & SMALL BUSINESSES The Experience of The Competitiveness Company Beverley Morgan ECLAC Workshop, Trinidad, May, 2009
2 JCCP PROJECT DESCRIPTION & GOALS Point of Departure -National Industrial Policy (NIP) JCCP team to: work with 60 small and medium-sized firms in 3 Jamaican business clusters over 2 years to: Identify attractive customers Build collaborative partnerships Break into new markets Differentiate firms from the competition Improve firms relative positions in the market Strengthen firms financial strategy OVERALL GOAL To generate greater prosperity in Jamaica by building new competitive advantages at firm level increase firms export capacity Increase firms contribution to nation s economy.
3 REACHING OUT ESTABLISHMENT OF PARTNERSHIPS / BUILDING NETWORKS Partnerships, considered a key value, established with: UWI - Mona School of Business JTI (Jampro) Ministries of Government Key representatives of the donor community Key public sector bodies (PIOJ, JTB, SRC, Exim, e.g..) NIP s Industry Advisory Councils Key private sector representatives from each NIP cluster Local consulting firms and individual consultants (active participants in later cluster development work) Representatives of the financial sector MSME firms Large firms Enabled by local knowledge and relationships of JEA, in its Project Coordinator role
4 CLUSTER ASSESSMENT CRITERIA Each cluster selects itself by demonstrating to the Project Management Board: 1. A willingness to embrace new ideas and to put resources behind them 2. Clusters must have the potential to be internationally competitive 3. Employment potential and GDP contribution will be important but not determining factors 4. Clusters must have a critical mass of qualified firms 5. Selected clusters must have the potential to motivate other clusters by their success 6. The macro environment must not present insurmountable barriers to cluster success
5 CLUSTER THEORY LOCATION & COMPETITIVE ADVANTAGE Relationships among players develop gradually over time Create rich and supporting environment As consequence Firms embedded in these complex geographical contexts Rich in potential collaborators As well as competitors Gain competitive advantage Because the web of relationships arising from location in these physical spaces hard to replicate and imitate Thus it is that location and competitive advantage become linked
6 CLUSTERS: DEFINITIONS Clusters - striking feature of virtually every national, regional, state, and even metropolitan economy, especially those of more economically advanced nations Clusters are geographic concentrations of: Interconnected companies Specialized suppliers Service providers Firms in related industries and Associated institutions (for examples, universities, standards agencies, and trade associations) In particular fields that compete but also cooperate. (Porter, 1998).
7 COMMON FEATURES Clusters confer series of advantages: Access to specialised inputs and employees Access to information Complementarities Access to institutions and public goods Incentives and performance measurement
8 MORE COMMON FEATURES The development of the cluster results in greater sophistication of the firms Firms encourage one another to develop global strategies Firms enter more international markets Firms source inputs together from overseas location Firms improve operational efficiencies. Further, cluster is seen to function as a structure of incentives where explicit and implicit contracts are strengthened by the effect of reputation on firms Coordination problems significantly resolved
9 SPILLOVERS Activities in which firms in cluster engage, result in the creation of externalities. This is considered the source of the spillovers. The most important spillovers on which scholars focus are: Increase in rate of innovation Related to increase in knowledge Improvement in firm-level productivity New business formation.
10 AGRIBUSINESS CLUSTER PROCESS THREE LEVELS OF EFFORT & ACTIVITY 1. Full Session: Agribusiness Sector A. Learning Environment B. Overarching strategy and direction-setting C. Cross-cutting initiatives D. Sub-group initiative updates & cross-fertilization E. One new strategy tool per session F. Initially, bi-weekly, then monthly 2. Sub-groups A. Marketing, Sales Channels, Packaging, Standards, Supply B. Analysis of each opportunity area C. Initiatives to fill gap/meet opportunity D. Meetings as needed: initially, less frequently, increasing during implementation 3. Individual Company Projects A. Coaching as requested (by senior experts & cluster facilitators) B. Open to all cluster participants
11 What will cluster offer, and to whom? SOME KEY QUESTIONS Why will the customer buy the offering? Why will competitors not be able to imitate the offerings and success? What choices are reflected by offering: Customers, Products, Investment? What needs to be true for this to be the best option: Global segment size, profitable customers, opportunity for branding? Operational considerations: State of primary production, packaging, export logistics? Precedents from other countries?
12 PACKAGING AGRIBUSINESS CLUSTER WORKING GROUP SITUATION ANALYSIS Almost all packaging inputs are imported (Trinidad, Venezuela, USA, UK): Delivery from suppliers of packaging inputs is inconsistent. Our suppliers require 6 weeks to process and deliver orders, but we rarely receive supplies on time. We find this scenario happening for various packaging inputs at different times. Because of the need to ensure against any hitch in production and to reduce the cost of the imported inputs it is necessary to carry an inventory of these items, this ties up working capital. Import costs would be reduced if container space could be shared however this degree of cooperation has proven rare. Packaging related inputs account for 40% to 66% of total production costs. Bureau of Standards is the key agency for product packaging and labeling.
13 Consolidated purchasing of glass bottles: REAL RESULTS FOR REAL FIRMS Individual Consolidated Cost Savings Per Unit Cost (5oz bottle): % Shipping/storage/transport: % Finance: 26% 12% 14% The avg. cluster member can expect to realize overall cost savings of some 10%. Greater reliability of supply will result from improved customer service and reduced lead times as inventory will now be located in Kingston not off-island.
14 THE CUSTOMER EXPERIENCE MODEL Using the Customer Experience Model as your guide the analysis should address each of the following questions: Planning Selection Use/Service Post-Use 1 - What makes the customer want to buy the category? Market size Relevant comparisons History of use Typical customers Frequency of use 2 - Why did the customer choose this product instead of other options? Advertising vehicles Price position Location Positioning 3 - How was the product used? 4 - What happened after it was used? Interpreting survey results through the lens of The Customer Experience Model can reveal areas of opportunity in the cluster s product cycle. Source: OTF
15 SO HOW DID THIS WORK? Group selected 11 sauces for detailed analysis Tabasco, Pick a Pepper, McCormick s, Goya, Walkerswood, Busha Browne, Tweedside, Ruth s, Grace Kennedy, Heinz, A1 One firm/person per product Studied, using Customer Experience Model Reported back to group in structured manner
16 Preparation Phase: ENTERTAINMENT CLUSTER Determine Competitive Landscape and Benchmarks Determine Market Size of Opportunity Identify Market Segments to be Targeted Delineate Vision Determine Offerings Tabulate findings and prepare report Second Phase Determine Best of Jamaica Gather content and descriptions of every element Bring in outsiders to rate selections Coordinate visits Research US standards as benchmark Create list of criteria
17 Marketing ENTERTAINMENT (CONTINUED) Determine best market mechanisms Decision to establish website Draft Request for Proposals to invite firms to bid Collect pictures and demos Create interview questions for prospective participants Determine costs and prices Institutionalisation Establish NGO Confirm cluster leadership for post-project phase Develop budgets Identify sources of funding Develop three-year plan to guide
18 JCCP OUTCOMES AT END OF PROJECT DEMONSTRATION EFFECT Significant results - cost savings, profits, new product development. Agribusiness Cluster: joint purchasing program established for glass bottles yielding project cost savings of over USD $500,000. Tourism & Entertainment Clusters: 30 new tours developed with over US $800,000 in new investments made by cluster members. Entertainment Cluster: Jamaica Signature Beats created to improve and market the island s professional studio offerings.
19 ASSESSING INTERNATIONAL COMPETITIVENESS (DATA + FRAMEWORK = INSIGHT) ENTERTAINMENT CLUSTER Size of potential market is $3.5bn for Reggae, Dance Hall and Hip Hop/Urban - just in the US. However, the size of JA sales is $2mm. Much more originated from JA artists but from international labels. Problems with the product that inhibit international competitiveness: Sophistication of production Fragmented industry does not reach international markets Technology facilities for easy distribution not available Jamaica falls in the last category, with national legal sales of US$ 2m or 0.01% of the value of world music sales. Of the 78 countries tracked, Jamaica has the smallest share of the market. Source: Recording Industry in Numbers 2002, IFPI The cluster method followed emphasised the role of data in the decision process, and taught firms how to gather and analyse data. These findings were presented and discussed at cluster meetings.
20 Data Gathering SITUATION ANALYSIS MARKET SIZE & DEMAND DISTRIBUTION CHAIN STANDARDS & REGULATIONS PRODUCTION VOLUMES LOGISTICS QUALITY REQUIREMENTS PROFITABILITY CLUSTER MAPS CUSTOMER SURVEYS COMPETITIVE POSITIONING Tourism Cluster Identifying a New Segment
21 UNIQUE JAMAICA EXPLORE IT, TASTE IT, FEEL THE VIBES Roots Jamaica Dance Hall sessions Rum Bars Fish feeds Markets Trench Town Culture Yard Round Robin in Towns on Friday nights Dominoes Taste of Jamaica Food Local Theatre Art exhibitions Cultural shows ATV Maroon Towns Jamaica Naturally Waterfalls Hiking Trails Natural Parks Caving River rafting Bird watching Working group created 5, 7 and 10 day experiences that travelers can choose from to Explore, Taste and Feel the Vibes of Jamaica.
22 Birth of a New Group & Segment
23 OUTCOMES REACH More than 300 firms participated in the programme, Approximately 200 organisations (over 150 firms) actively participated in the three selected clusters. While the bulk of firms were small and mediumsized enterprises (SMEs), larger firms also participated actively in cluster activities. Work continues, hopefully, benefiting from lessons learned: Tourism Jamaica Signature Beats Sauces & Spices Ornamental Fish
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