EU PROGRES

Clusters are a business venture, and when viewed as such, the answer to the question “why” is quite simple – “to improve one’s business operations”.

In these stormy waters of global economy, the waves of which have been sweeping over countries such as Serbia, which has been in transition for more than two decades now, there are a few catch words economic analysts, consultants, managers, and, as of recently, politicians as well, have been reiterating so often that they have almost acquired the character of a mantra: competitiveness, innovation, strategic partnership and cluster. The text below is devoted to the last word - cluster.

Practice has brutally proven that mere verbal support and repetition, no matter how widespread and chanted in unison, cannot improve business conditions, create a new value, a new product, a new service or a new job, or open a new market. This is possible only if the resources, potentials and problems are properly identified, if the priorities are set and programmes designed, programmes which will have the capacity to make the greatest impact on economic reality. That capacity can be created precisely through clusters.

“A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities.” – Michael Porter, Harvard School of Business Professor

Concentration and Voluntariness

Although Michael Porter, the “father” of the modern concept of clustering, highlights the geographic concentration of companies in the above definition, in my view, not enough significance is attached to the element of voluntariness, either in theory or in practice.

In that sense, there are at least two determinants affecting the level of voluntariness: the degree of economic development and the mindset. Entrepreneurship started taking root in Serbia in the 1990s, amidst the wars and sanctions. The market was closed and businesses were operating in irregular conditions, leading those operating at the time to create a business culture underpinned by mistrust of everything and everyone. When one presents an initiative to join forces to achieve common interests to such a group, one usually comes up against a very high wall, a wall that is very difficult to jump over, but, perhaps, not so difficult to circumnavigate, if one has enough time, will and funding. The business and entrepreneurial state of affairs in mature economies is not ideal either; absolute trust does not reign there either. Entrepreneurs in those countries, however, have a much easier time deciding on whether or not to enter a joint business venture, because the benefits or losses are relatively easy to calculate.

Apart from doing the simple sums, entrepreneurs in Serbia face a situation fraught with a lot of uncertainties.

There is also the issue of the Serbian mindset, which is not particularly propitious to association processes:

1. Short-term benefits have primacy over strategic interests
2. There is a widespread view that the returns on invested resources must be immediate and multiple
3. Inability to compromise to achieve common interests
4. Inability to separate personal from business
5. Constant focus on what the others are doing and how much they are benefiting

The above-mentioned issue of the geographic concentration of companies is extremely important as well, because it lays the foundations for using the resources more efficiently and, thus, improving the cost-effectiveness and profitability of business operations.

There have also been attempts to create the so-called national clusters, which, with the exception of extremely small countries, have little in common with the basic concept of clustering; rather, they most resemble associations. I assume, though I dare not assert, that the motivation behind calling a national association a cluster lies both in the “popularity” of the very word and in the idea that one will have easier access to sources of funding “as a cluster”.

All in all, concentration and voluntariness must be in harmony.

Who establishes clusters

Several models of initiating the establishment of a cluster may be distinguished: 

1. An absolutely independent initiative launched by a group of companies cooperating amongst themselves and aiming to expand their cooperation and raise it to a higher level – such initiatives should be supported by assisting their structuring, formalisation and prioritising processes.
2. An initiative of the public sector on the basis of precise analyses and studies laying the ground for launching the clustering process in a specific sector – a considerable amount of time needs to be invested in sounding the entrepreneurs’ opinions of the cluster concept and their integration. 
3. An initiative launched by the public sector based on experience and assumptions - additional sustainability and cost-effectiveness assessments have to be conducted before resources are spent.
4. An initiative launched by the public sector lacking a clear concept, analysis or objectives and based on the awareness that “clusters are a useful and good thing” – the only solution is to abandon such an initiative.

Motives and Goals

Clusters are a business venture, and when viewed as such, the answer to the question “why” is quite simple – “to improve one’s business operations”. The public sector has to bear in mind the broader perspective as well: how will the cluster affect the general social and economic situation, does it favour specific groups, et al.

Answers to the question “what”, i.e. what the goals of clustering are, vary. For, just as there are no two identical companies, there are no two identical cluster initiatives. These goals can, however, be grouped under several basic categories:

1. To survive and protect one’s business
2. To prosper
3. To conquer a market
4. To save money
5. To exert influence
6. To invest
7. To set the rules/regulate

In practice, the functioning of a cluster is always a combination of several of these goals. The main rule is to set these goals so that they can be measurable.

Leadership and Support

Practice has shown that cluster initiatives are more successful if there is leadership. Three models can be highlighted:

1. A mature and successful company is the initiator – it rallies a group vertically or horizontally.
2. The public sector is the initiator and small and medium size companies of comparable size and age are the target group – select a smaller nucleus of companies most committed to the initiative and work with them in the clustering process.
3. The public sector is the initiator and micro companies are the target group – the public sector will itself have to fulfil the leadership role in the initial stage, during which the future leader is to be identified.

The existence and engagement of support organisations is just as important as leadership. One of the fundamental roles of clusters is to develop innovation, which is to result in greater competitiveness, a goal that cannot be achieved without extremely close cooperation with the knowledge centres. Unfortunately, this collaboration has not been successful in the Serbian economy; clusters are no exception. A close relationship with the relevant organisations in this field has to be developed in the initial cluster development stage.

Cluster Life Cycle

A cluster also has a life cycle, it is born, it grows and it dies. But, as opposed to human beings, clusters are much more predictable and can be channelled and controlled more easily. The role the public sector can play in the birth and growth stages of clusters needs to be underlined in that context. The expectations of their “fathers” are raised during the promotion, planning and integration process. These “fathers”, however, have not fathered a baby Superman, but a baby cluster, of whom they have extremely high, frequently unjustified, expectations. On the other hand, the baby’s resources and capacities are very small and there is the risk of it being abandoned by the economically extremely cruel parents if it does not fulfil their expectations. It is in this stage that the public sector can, and, indeed, should play the role of assistant, help the baby cluster learn to walk and grow stronger. This can be achieved by combining proper nutrition i.e. providing it with the means to work in the initial stage, regular exercise i.e. the work of a service centre and the implementation of action plans and projects, and proper upbringing i.e. capacity raising programmes. If these efforts prove successful, the cluster will grow up and become independent, to everyone’s delight.

Nenad Popović
EU PROGRES Local Economic Development Expert