Sunday, October 08, 2006

Networking Industrial Clusters: Global Clusters

The problems of a small entrepreneur

World over, small and medium scale enterprises are regarded as fountainheads of entrepreneurship, innovation, nimble - footed change, major employers in terms of absolute numbers and major contributors to society's economy. However, these small-scale manufacturers lose out on the strengths derived from size in terms of financial sustainability, depth and range of products, marketing clout, brand and bargaining power. These problems make the whole small-scale sector worldwide vulnerable to the global competitive environment after the WTO impact. The mere problem is not that a company will die but the magnitude is much bigger than one can expect. If this small-scale entrepreneur is not saved than we will probably loose the most innovative, creative and collaborative business system of our society. The threat is much bigger than one can really see. The problems mentioned above are all related to physical existence arising from the product impact, the price impact and the competition impact. But here one major factor is not seen and that is the information impact.

The Solution

Everywhere in the world many innovative ways have been practiced by small-scale units to ward off above disadvantages, one of the most successful innovations is the concept of industry clusters. In industry clusters, one can see that the town and its population whether young or old, rich or poor, are working like one big-networked company. Clusters like companies have their own lives: their own rise and fall but importantly they stay for longer period.

A simple definition of a cluster suggests that it is a network made for information and resource sharing between people. An old Indian proverb says that two hands together are better than one. The same is true for small entrepreneurs also. A single entrepreneur faces major problems mentioned above. And for solving the same there is a possibility that the entrepreneur may lose the focus of his business.

Cluster or network of companies has inherent advantages of both the large and small companies. Network is the company and company is the network. Network has no centralized control but a distributed control. Network retains the agility, inherent in a small company yet it has competitiveness as financial and infrastructural depth of a large company. Network style of functioning automatically forces an efficient interlocking and works as a fit between the mesh or web of small scale industries in the cluster. There is a palpable concept of one link in the chain being on the one hand, a customer for the preceding link and, on the other hand, vendor for the succeeding link. In fact, there are countless examples where large companies have tried to secure the advantages of networking concept by having various structures like SBUs (Strategic Business Units) and concepts like Internal Customer to bring about efficiencies and economies in all their processes, namely, marketing, customer communication, customer acquisition, production, procurement, packaging, delivery and after sales service.

The Way Out – Global Cluster

Across the world, there have been many initiatives (successful and unsuccessful) to develop and sustain regional and national level clusters. However, in today’s ever changing environment these attempts fall short as the competition within the marketplace is no more regional or national in nature. Therefore, in this era of mergers and acquisition, collaboration at local and national level is not sufficient. A very important point that local and national clusters both miss is the competitiveness.

A global cluster will change the threat of WTO for small-scale industries to an advantage. It is basically a cluster that is created between local clusters in different countries of the world. A global cluster nearly comes over the hurdles, which are faced by the local and national clusters. As it is a clusters made on a larger scale each cluster knows much more about the other clusters. It helps entrepreneurs in following manner.

  • Information sharing between the entrepreneurs
  • Competency understanding between the entrepreneurs
  • Work sharing between the entrepreneurs
  • Technology sharing between the entrepreneurs
  • Product sharing between the entrepreneurs
  • Market sharing between the entrepreneurs

The problem of getting the funds on a larger scale to improve on production and marketing as well research and development is always a problem for small entrepreneurs. With the help of such global industry clusters the entrepreneurs can easily contact venture capitalists worldwide that can help in igniting the business process. Easy contact with venture capitalists and other funding institutions will lead an entrepreneur towards hassle free financing that will make him more focused on the business as a whole rather than just the money part of it.

With the use of the clusters, the entrepreneur can also know what the customer in the world market needs, and what he should produce. This helps the entrepreneurs in generating long-term business. The clusters also provide all the product related changes. With the help of this the entrepreneurs can change or modify the current product sold by them and get an added advantage of not spending on R & D and still can earn more recognition and profits.

In the local and national clusters sharing of information, skill or knowledge most times is informal. Information regarding the latest development and competency understanding is much less. Work sharing is not observed in the local and national clusters, as it is a fight in-between for the same customer and in the same market. Even though the product and technology used by the entrepreneurs are similar; the tendency to share is found to be below the critical limit among the cluster participants. And as most clusters are made for production related issues like, procurement of raw material, maintenance and corrective actions etc. the marketing related issues are never dealt with. The marketing related issues are the real differentiators between a multinational company and the small-scale industry entrepreneurs. With the creation of local and national clusters the small-scale industry entrepreneurs can fight with the multinational company on the issues of quality and other production aspects. But when it comes to market the multinational companies are ahead a million times than the small-scale entrepreneurs. With the marketing muscle the multinational companies take away the market share from the hands of the small-scale entrepreneurs.

If we look into the above problems, it can easily be understood that local and national clusters don’t really serve the purpose of clusters and of what they are meant for. The local and national clusters nearly miss the vital factor of knowledge sharing between elements of cluster. As cluster’s definition say they are meant for sharing of information but the non-sharing between the elements of local and national clusters create a situation wherein the cluster’s real impact is lost.

Global clusters can help in changing the situation. As a global cluster is an international phenomenon entrepreneurs are very keen about what is happening. As the entrepreneurs are more interested in the information about what is happening between the clusters all over the world, the information sharing is much higher than normal. Due to more information sharing the local clusters’ entrepreneurs understand other entrepreneurs’ competencies in a better way which in turn leads them to work sharing between them.

Due to global cluster the small-scale industry entrepreneurs can fight with the multinational companies in a better way with the work sharing comes into existence. It is said that now the world has become one marketplace. Any entrepreneur who has an added advantage over others can sell easily anywhere in the world. The Asian countries have the easy and cheap labour advantage over the others. They can use this advantage to reduce the prices and sell more of the product and generate more profits. This in turn creates more revenues for the government that also enhances the image of the country in the world marketplace, which in turn helps other entrepreneurs from the same country to sell the product in the other country. The whole economy prospers.

For example, company X which is in USA floats an inquiry for their product, company Y which is a part of the cluster in India gets the order but due to some legal constraints they are not able to supply to company X. At this point of time global cluster comes to rescue, due to work sharing and technology sharing between Indian and Korean clusters, company Z that is in Korea executes the order at the same price. The product is very similar as far as technology and competence is concerned. So, company X gets the product, company Y retains the order and company Z gets a new client.

There would be a win-all situation. The entrepreneurs at Rajkot can have an access to the latest technology. They also can get the innovative products made by the Korean entrepreneurs. With the same the Korean manufacturers can get the wide experience, which the entrepreneurs at Rajkot possess about the market and the strategies adopted by them.

If this kind of networking global cluster can be made between two countries, they can give a good fight to the competitor. And as Kautilya, the master strategist from India in Middle Ages states, collaborate with the enemy’s enemy and you can be stronger can be applied by the entrepreneurs at global scale.

Local Cluster

  • State government's support
  • Most entrepreneurs are of same locality or the same cast
  • Similar business style
  • Knowledge about each other and less about competencies
  • Similar competitive advantage

National Cluster

  • Central Government support
  • Most entrepreneurs are of same community
  • Business style nearly similar
  • Less knowledge about each other and little knowledge about competencies
  • Similar competitive advantage

Global Cluster

  • No support and pure competition - cluster supporting itself
  • Community alliances are not there
  • Business style changes drastically
  • Only competence based knowledge
  • Different competitive advantage

Why Global Cluster
Global cluster is a concept which will change the threat of WTO for small scale industries to an advantage

How does it do it?

  • Information sharing between the entrepreneurs
  • Competency understanding between the entrepreneurs
  • Work sharing between the entrepreneurs
  • Technology sharing between the entrepreneurs
  • Product sharing between the entrepreneurs

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