75456 6 pages within 12 hrs

ltdprinwival

cluster_initiative_pub_web_ver.pdf

Home >Business & Finance homework help >Economics homework help >75456 6 pages within 12 hrs

CLUSTERS FOR COMPETITIVENESS A Practical Guide &

Policy Implications for Developing Cluster Initiatives

February 2009

THE WORLD BANK 1818 H Street, N.W. Washington, DC 20433

CLUSTERS FOR COMPETITIVENESS

A Practical Guide & Policy Implications for Developing Cluster Initiatives

February 2009

iii

TabLE OF CONTENT

Overview ........................................................................................... vii

1. Context....................................................................................... vii

2. Purpose, target audience, and the structure of the toolkit ......... viii

Chapter 1

A cluster-based approach to competitiveness: Key concepts ............. 1

1. What are Industrial Clusters? ..................................................... 1

2. What are Cluster Initiatives? ....................................................... 3

3. What is the role of the public sector? ........................................ 6

4. How do cluster initiatives compare to other instruments? ........ 7

Chapter 2

Key tools for implementation of cluster initiatives ............................ 11

Tool 1: Cluster mapping ................................................................. 14

Tool 2: Product and Market Segmentation ..................................... 18

Tool 3: SWOT – Strengths, Weaknesses, Opportunities,

and Threats ................................................................................. 21

Tool 4: GAP analysis ........................................................................ 24

Tool 5: Porter’s Five-Forces ............................................................. 26

Tool 6: Value-Chain Analysis ............................................................ 31

Tool 7: Market Trend Analysis ......................................................... 35

Tool 8: Competitive Position Analysis ............................................. 40

Tool 9: Old and New Institutions for Collaboration ....................... 44

Tool 10: Monitoring and Evaluation: The P.A.I.D. Framework ......... 47

Chapter 3

A broad process to develop a cluster initiative .................................. 51

Stage 1: Cluster Mapping and Initial Competitiveness

Engagement ............................................................................... 52

Stage 2: Diagnostics and Strategy Formulation .............................. 56

Stage 3: Implementation of Strategic, Policy, and Institutional

Initiatives ................................................................................... 60

Stage 4: Post-Initiative Sustainability ............................................... 65

Chapter 4

Policy implications for competitiveness ............................................. 67

1. A supplementary cluster tool: Porter’s Framework

on Competitiveness .................................................................... 69

2. Cluster initiatives as policy catalysts for competitiveness .......... 74

Annexes

Acronyms ....................................................................................... 79

References ...................................................................................... 81

aCkNOwLEdgEMENTS

This publication was prepared by Mallika Shakya of International Trade

Department of the World Bank. The draft report that formed the basis

for writing of this publication was developed by a team at J.E. Austin As-

sociates Inc. led by Kevin Murphy, and including Kwang Kim and Justin

Stokes.

Peer reviewers of this publication were Christian Ketels from Institute

for Strategy and Competitiveness of the Harvard Business School and

Mark Dutz from South Asia Finance and Private Sector Development

unit of the World Bank. The overall project was undertaken under the

guidance of Mona Haddad, Sector Manager, International Trade Depart-

ment. The toolkit contributes to the knowledge development program

of the Export Competitiveness Thematic Group led by the Internation-

al Trade Department.

Additional feedback was received from Michael Wong, Yutaka Yoshino,

Douglass Zeng, Maiko Miyake, Shaun Mann, Vincent Palmade, Alfred Wat-

kins, Eric Manes, Anil Sinha and John Speakman.

Kerry Frasers provided editorial and designing assistance in finalizing

the report for publication. Amelia Yuson and Zijing Niu provided sup-

port for production.

vii

O V

E R

V IE

OVERVIEw

1. Context

Development experience from around the world has shown that the

determinants of export competitiveness are many and complex. The

arguments for investment in physical capital and infrastructure have

been long present. Neoclassical economists, then, emphasized getting

the macro fundamentals right so resources flow into the right sectors,

and within those sectors, the right firms. Further, economists looked

at other issues: human and social capital, technological progress and

innovation, business enabling environments, firm sophistication and

demand conditions, product and market diversification, etc. Academics

and practitioners have now generally come to agree that many of these

issues are not mutually exclusive but jointly supportive.

The World Bank Group’s Export Competitiveness Initiative, which

aims to develop synergies among practitioners working on economic

growth, trade and private sector development, has underscored several

of the above issues. It draws on a myriad of policy tools and approach-

es already employed in the World Bank Group’s work on trade and

economic policy, customs and logistics, and direct enterprise support.

The policy agenda that typically emerges from a competitiveness analy-

sis relates to three core areas, and collectively they offer a platform on

which necessary policy dialogues can be developed:

Macro fundamentals• (e.g., economic biases due to tariff and non- tariff trade barriers, real exchange rate misalignment, tax distor-

tions, overall fiscal health of the economy)

Hard and soft infrastructure• (e.g., infrastructure, customs and trade logistics, the costs of doing business)

Supply-side measures• (e.g., technology creation and adaptation, product standards and certification, export promotion, human re-

source development)

Determinants of export

competitiveness are many and

complex…

…one should start with a basic

framework.

viii

O V

E R

V IE

The cluster-based approach presented in this report complements such

a platform by offering a new way of dividing and understanding an

economy and formulating policies and practices. A cluster is a system

of interconnection between private and public sector entities. It usually

comprises a group of companies, suppliers, service providers, and associ-

ated institutions in a particular field, linked by externalities and comple-

mentarities. An example would be a country’s auto industry, with its

manufacturers and all their supporting services, such as parts and equip-

ment suppliers, transportation companies, retail distributors, educational

institutions and R&D firms, public relations and advertising agencies, etc.

A cluster approach may be used in addition to the usual economy-wide

analyses. Cluster analysis encourages engagement with a diverse group

of stakeholders through which they may develop a shared understand-

ing of the underlying public policy issues and act on them jointly.

Developing such a joint platform with strong ownership by the public

and private sector stakeholders is often crucial in jump starting more

comprehensive economic reform processes in developing countries.

A cluster-based approach enables the policy debate and actions to be

more strategic and incremental. Understanding the state of clusters

within an economy makes it easier to diagnose economic inefficien-

cies and to specify and prioritize various shortages and impediments

to competitiveness and growth. It can focus attention on the unique

challenges that may be sector-specific and can address institutional and

coordination-related issues to leverage additional benefits of positive

spillovers.

2. Purpose, target audience, and the structure of the toolkit

Cluster Initiatives for Export Competitiveness: A Practical Guide and

Toolkit offers a rationale and a practical approach for using cluster

analysis to enhance competitiveness in developing countries. While this

document is not meant to be exhaustive, it presents a sound concep-

The cluster-based approach offers a

new way of dividing and understanding

an economy…

…and complements economy-wide

analyses.

This toolkit offers a framework and

key instruments on clusters…

O V

E R

V IE

tual framework, outlines key instruments that can be used to initiate a

cluster-based analyses and dialogues, and offers case studies on good

practices and lessons learnt. It does not entail a definitive set of instru-

ments; instead, it intends to contribute to ongoing discussions regard-

ing the use of cluster analysis to promote competitiveness.

The purpose of this toolkit is to assist World Bank and IFC staff when

contemplating export competitiveness. It has been written from a

non-technical perspective to be as practical as possible. It draws upon

a host of analytical and operational documentation available on indus-

trial clusters from around the world. This toolkit should be relevant to a

broad audience working on the export competitiveness of developing

countries: policy makers, business associations and leaders, and interna-

tional development agencies.

This document is structured as follows: Chapter 1 offers an introduc-

tion to a cluster-based approach to competitiveness. Chapter 2 outlines

10 core tools used in cluster initiatives, while Chapter 3 discusses the

key stages involved in initiating a cluster analysis, engaging stakehold-

ers, and implementing strategic cluster initiatives. Chapter 4 discusses

public policy implications of a cluster-based approach and is the logical

conclusion of the toolkit. A series of annexes offers resource materials.

…for policymakers and practitioners working on

competitiveness.

C H

a P

T E

R 1

CHaPTER 1 a CLUSTER-baSEd aPPROaCH TO COMPETITIVENESS: kEY CONCEPTS

1. What are Industrial Clusters?

An industrial cluster is an agglomeration of companies, suppliers,

service providers, and associated institutions in a particular field. Often

included are financial providers, educational institutions, and various

levels of government. These entities are linked by externalities and

complementarities of different types and are usually located near each

other. (See Figure 1) Because of their proximity—by geography and

activities—cluster constituents enjoy the economic benefits of several

location-specific externalities and synergies. Such benefits include ac-

cess to specialized human resources and suppliers, knowledge spill-

overs, pressure for higher performance in head-to-head competition,

etc. Moreover, through these linkages, one cluster is inevitably linked

with others and to the overall economy.

Cluster initiatives can contribute to comprehensive national competi-

tiveness efforts that include policy reform, trade capacity building, a

private-public dialogue, regional economic development, workforce

development, etc. At times, they become a catalyst, generating broad

public understanding and support for the economic reform agenda

by working with the media, universities and think tanks, knowledge

and technology foundations, industry leaders, government officials, etc.

When designed carefully and implemented efficiently, cluster initiatives

may well be one of the most effective tools in a broader context of

policy reform and other private sector development initiatives.

The concept of economy-wide competitiveness has brought forward

the relevance of a cluster approach. Competitiveness is a proxy for

the productivity of an economy and depends on the value of a na-

tion’s products and services, measured by the prices they command in

Clusters are agglomerations of

diverse actors.

They can be catalysts to policy

reforms and private sector

development…

C H

a P

T E

R 1

international markets and the efficiency with which they are produced.

However, excellence in productivity is not something firms can ac-

quire in isolation; they need to work with surrounding institutions and

agents whose undertakings have large impacts on how firms operate.

Industrial clusters can increase productivity and operational efficiency

through linkages, spillovers, and synergies across firms and associated

institutions and through efficient access to public goods, better coordi-

nation, and the diffusion of best practices.

Clusters can contribute to the foundation of knowledge and help

stimulate technological innovation, as is seen in the IT clusters in Sili-

con Valley and Bangalore. They may also spur creative innovation, as in

the fashion designing clusters in Paris and Mumbai. Clusters can facili-

tate commercialization and new business formation through spinoffs

…through exploitations

of linkages, partnerships and

synergies …

State Government and Donner Agencies

Educational, Research and Trade Operations

Clusters of Buyer/ Consumer Industries

Growers Processors

Figure 1: An Agribusiness Cluster

Clusters of Other Agricultural Products

Seeds Nurseries

Fertilizer, Insecticides, Herbicides

Farm Equipment

Storage Facilities

Irrigation technology

Crop Processing Equipment

Transportation

Packaging Services

Public Relations Advertising

Specialized Publications

Financial Services

C H

a P

T E

R 1

and startups. One cluster often seeds or enhances other clusters as it

disperses activities in the value chain to reduce risk, access cheaper

inputs, or better serve particular regional markets. A good example of

such a domino effect is the optics cluster in Arizona, which gave rise to

clusters in plastics, aerospace, environment technologies, information

technologies and biosciences.

Clusters whose activities span regional or national boundaries differ

from those that operate within a nation. The McKinsey Global Insti-

tute estimates more than70 per cent of developing country exports

are concentrated in six industries: agribusiness, mining, light manu-

facturing, tourism, information and communications technology, and

retail distribution. Clusters based on these industries are emphasized

throughout this toolkit, although it will try to differentiate export

industry clusters from those serving the local market. A study by the

Institute for Strategy and Competitiveness, Harvard Business School,

shows that locational patterns of export-oriented clusters are likely to

reflect the underlying forces of linkages rather than economic geog-

raphy. On the other hand, local industries are present at roughly the

same density throughout economy, showing they serve local markets

and are not exposed to direct competition across regions. They may

account for higher employment but lower wages, productivity, and

rates of innovation than the economy on average. In contrast, export-

oriented clusters are concentrated geographically because industries

in this category can choose where to locate and serve markets be-

yond the border. Such clusters account for relatively smaller employ-

ment but register above average wages, productivity, and innovation.

(Porter, 2003)

2. What are Cluster Initiatives?

Industrial clusters often evolve spontaneously over decades. However,

well-designed cluster initiatives can expedite the process and provide

a much-needed initial platform on which to grow in output and sophis-

…especially if they are export-oriented.

A cluster initiative…

C H

a P

T E

R 1

tication. Such initiatives should draw from and feed into the spillovers

influencing economic performance within and across clusters.

A cluster initiative offers a comprehensive assessment of a cluster’s

markets, products, linkages, externalities, and synergies to help identify

regulatory and business constraints, tap new and wider market op-

portunities, and develop sound business strategies to tackle its main

competitors. Strategic initiatives vary by country and cluster, but often

focus on improving market information, workforce development, sup-

ply chain improvements, quality standards, branding, forward integra-

tion, and process improvements.

An overview of one approach to developing a cluster initiative is sum-

marized below.

A cluster-based approach is a realistic way to identify the policy and

institutional impediments to competitiveness and can be an effective

vehicle for catalyzing reform. Through dialogues at the cluster level,

…develops sound business strategies for the clusters…

Figure 2: One Approach to Developing a Cluster Initiative

Implementation of strategic, policy and institutional initiatives

Diagnostics and strategy formulation

Cluster mapping and initial engagement

Post-project sustainability

Secure ownership from key cluster leaders in terms of time, ideas and cost-sharing; public- private dialogues on policy and institutional bottlenecks for imple- mentation of business strategies on cluster competitiveness

Apply the 10 cluster tools to ascertain its competitive position, develop collaboration among cluster member and develop collective business strategies

Economy-wide cluster mapping; identification and engagement with key cluster stakeholders

Ensure that cluster can handle resources indepen- dently beyond the life of the project; do due diligence and formalize the institutional structure of the cluster

Stage 1 Stage 2 Stage 3 Stage 4

C H

a P

T E

R 1

new partnerships can be forged between cluster leaders and various

public sector organizations (e.g., organizations working on indus-

trial development, infrastructure development, research, innovation

and training, etc.) that help expedite policy reforms. The growth of a

cluster is often the catalyst for complementary development in such

areas as: the provision of specialized infrastructure; and additions to

the country’s technology and knowledge base. It also may result in

the foundation and expansion of training and science institutions, and

agencies for export promotion, setting standards and regulations, etc.

Results can include improved operational efficiency, yielding more

and better jobs, higher exports, and above all, better coordination

between the public and private sectors on addressing productivity

bottlenecks and sustaining market-oriented reforms. Moreover, the

benefits spread beyond the cluster through its linkages, externalities,

and synergies.

Creation of industrial linkages through clusters helps find an effective

formulation and sequencing of policy reforms. Thus, a government may

pursue cluster initiatives along with policy reform, because together

they may create positive externalities by informing it of the policy im-

plications and possible business responses. This improved understand-

ing helps government develop a compelling pitch for policy reform.

Without the simultaneous move of a critical mass of industrialists to set

up and function as an initial cluster, isolated policy reforms might be

difficult, because there will be little feedback on the positive and nega-

tive impacts they have had on industries.

Analyses show that a dense network of domestic firms can compen-

sate for potential negative side effects of policy reforms. Where re-

forms help remove industry biases, a cluster initiative will help firms

make full use of the new opportunities. It is also possible that cluster

leaders, when provided with appropriate communication channels

and prevented from acting as lobbyists for the conservation of policy

biases, may be a sounding board through which to understand a policy

reform’s positive and negative impacts. Above all, clusters may act

…builds effective partnerships

with private and public sector

organizations…

…and enhances government efforts on policy reforms.

C H

a P

T E

R 1

as search mechanisms that initiate a process through which public-

private partnerships can be gradually fine-tuned to enhance overall

productivity.

3. What is the role of the public sector?

National economic frameworks and their spatial implications play a

role in the development and implementation of policies to promote

industrial clusters. Because clusters may range from the local to the

national, governments at all levels should be involved. However, central

coordination is needed because of the inherent externalities of cluster

activities, especially regarding issues such as innovation, knowledge,

and supply-chain development. Central level coordinating strategies

include inter-ministerial or inter-agency committees that conceptualize,

design, and respond jointly to cluster-based policy recommendations.

These are necessary for public-private dialogues to be meaningful.

Governments should have a high-profile role in the initial stages, such

as guiding the cluster mapping, and in the final stages, such as leading

public-private dialogues on policy and institutional bottlenecks that in-

hibit industry development and the business environment. The govern-

ment may assume a lower profile during intermediate stages, such as

the analysis of firm-level competitiveness and market and product seg-

mentation. However, the government should remain involved, because

these analyses will help it understand industry bottlenecks, which can

later inform policy and program formulations.

Different government entities may sponsor or co-sponsor a cluster ini-

tiative on their own or in partnership with an international aid agency.

This includes federal (e.g., the Ministry of Finance and/or the Prime

Minister’s Office), regional (e.g., the Secretary of Industries), or autono-

mous agencies (e.g., Competitiveness Funds). When international donor

agencies are involved, they may be part of broader technical assistance

programs, ideally spanning multiple years. It is important, however, that

Clusters emphasize inter-ministerial or inter-agency

collaborations…

…but governments should work with evolving clusters than create new.

C H

a P

T E

R 1

an initial exploratory period (of 3–4 months) should be established to

understand the linkages among clusters as well as their contributions

to the overall economy’s employment, growth, exports, and specializa-

tion. This initial exploratory period should also test rigorously whether

cluster leaders are sufficiently receptive and committed, because their

support for reform will be essential. (See Chapter 4 on the essential

stages of cluster initiative formation).

4. How do cluster initiatives compare to other instruments?

A number of supply-side competitiveness measures deserve mention

while discussing cluster initiatives. Countries have long used interven-

tions based on value chains and special economic zones (SEZs). They

have also pursued ambitious growth pole projects, and have manipu-

lated industrial policy. Although some of these are related to cluster

initiatives and are certainly complementary, cluster projects can be

differentiated mainly by their focus on actively engaging both private

and public sector stakeholders throughout the process, from cluster

selection to strategy formulation and policy implementation. Also,

cluster interventions try to exploit informal institutional capital (i.e.,

trust and cooperation) to help change the mindsets of both public

and private sector agents. Economic development programs have

run the gamut from micro-level projects for specific enterprises to

macro-level interventions targeting national policies and institutions.

Cluster competitiveness initiatives fill an important gap —the “miss-

ing middle”—between the firm level and that of industry sectors and

national institutions.

Clusters and value chains

A value-chain approach is transaction-oriented and focuses on transac-

tional efficiency within the chain; essentially, it is linear. In contrast, a

cluster approach is systemic; it includes an analysis of a cluster’s value

chain, has a strategy orientation, and focuses on solving coordination

and information failures through better participation of supporting

C H

a P

T E

R 1

institutions outside the value chain. While clusters typically are geo-

graphically centered, value chains may span multiple geographies.

Value chain projects tend to have a sharper focus on helping specific

beneficiaries, usually those stuck in poverty, such as producers in a

certain region or farmers who are receiving low prices. Cluster proj-

ects tend to involve the entire value chain plus any entity that has the

potential to influence the cluster and beyond. Such entities include

traders, processors, manufacturers, exporters, training institutes, govern-

ment standards bureaus, etc. Value-chain analysis is only one of several

tools a cluster approach may deploy.

Clusters and special economic zones

SEZs are geographic concentrations of firms. They are created to pro-

vide better infrastructure and R&D, and they offer government incen-

tives not found outside the zones. They are often established by direct

industrial policy intervention to promote regional economic growth,

where state policy offers incentives to attract anchor companies and

other firms to the same location. High tech parks, science parks, indus-

trial zones, and export processing zones are examples.

Clusters are much less top down, and there is less emphasis on con-

centration of physical infrastructure. Supportive institutions and R&D

facilities in a cluster evolve gradually to respond to cluster firms’ needs.

Government’s role is more that of a catalyst, providing a productive

business environment, and is not restricted to a particular sector. Anoth-

er point of difference is the nature of geographic concentration. While

an industrial zone is usually nested in a city or lies nearby, it is usually

smaller in span than a cluster, which can spread over the entire city,

province, or region.

Clusters and growth poles

Like clusters, growth poles highlight the importance of location and

the economies of agglomeration, but they differ sharply in how growth

is achieved. Growth poles became popular among policymakers in

C H

a P

T E

R 1

1960s and 1970s, based on theories developed by François Perroux

and others. They emphasize attracting firms to a region through tax-

incentives, infrastructure development, and other business support

facilities. The government acts as a master planner, targeting industries

and locations using a wide range of incentives, even in regions far from

principal economic centers. Clusters, in turn, use market-based solu-

tions by leveraging existing economic activities in a particular location.

The government plays an important but supporting role in a process

driven by the private sector. Such a shift of emphasis is crucial to avoid

the mistakes of unnatural investments in unnatural locations that fail to

catalyze sustainable growth.

Clusters and industrial policy

Cluster initiatives differ fundamentally from industrial policy in both

their intellectual foundations and their implications for government

policy. Industrial policy is based on a notion of zero-sum international

competition in which some industries offer better prospects than

others and hence must be protected until they acquire the necessary

scale and sophistication to function on their own. Cluster initiatives, in

contrast, rest on a more dynamic view of competition among firms and

their coordination with associated institutions. A cluster-based model

does not seek entry barriers—be they against local or foreign firms;

instead, the concept of a cluster stresses the need for the timely and

steady opening of the local market to imports, which improves sup-

ply chain efficiency, upgrades local demand conditions, and stimulates

rivalry, resulting in a positive sum view of competitiveness.

C H

a P

T E

R 2

CHaPTER 2 kEY TOOLS FOR IMPLEMENTaTION OF CLUSTER INITIaTIVES

Considerable confusion has arisen about how a cluster-based approach

can be applied to export competitiveness strategies of nations. In

particular, there are questions about differences between the use of the

term cluster to denote an independent conglomeration of firms that

have always existed almost everywhere and the use of cluster initiative

as a deliberate policy intervention. What types of problems can a clus-

ter initiative address effectively and what are its limitations? How does

one go about developing such an initiative systematically and strategi-

cally to achieve the most economic efficiency and sustainability? What

is its relevance, in terms of bridging the gap that often exists between

the private and public sectors, in formulating industrial and economic

policies and putting them into practice?

This chapter presents an integrated view of cluster initiatives in un-

dertaking rigorous and consistent analyses to inform decision-making,

develop a consensus among key stakeholders around potential oppor-

tunities, and formulate a coherent competitiveness strategy.

The tools presented here are meant to be comprehensive but not

exhaustive. It provides an integrated view of how a cluster initiative

evolves and matures as a sound public-private collaboration. While ear-

lier of the tools are applied to a larger number of clusters, these tools

also act as a filtration process through which less interested and less

committed clusters are dropped from the process. The most advanced

of the tools are then to be applied only to a select few clusters that

demonstrate firm ownership of the cluster initiative. Some countries

and industries may not necessarily need the application of all tools

listed here while other industries may require the use of other relevant

diagnostic tools that are not listed.

There is some confusion over

cluster initiative process.

This toolkit provides an integrated view of

cluster initiatives…

C H

a P

T E

R 2

These tools will be of interest to policymakers, industry leaders, and

development practitioners interested in improving export competitive-

ness of industrial clusters. On the one hand, cluster-related tools may

give policymakers and cluster facilitators an opening into strategic

frameworks and firm-level data currently available only with the private

sector. On the other hand, they help firms broaden their knowledge

of policies and institutions affecting productivities on their immediate

shop floors.

Before selecting specific clusters for intervention, specialists should

carry out a broader cluster mapping at a national level. In a country,

regional economies are specialized with each region exhibiting com-

petitiveness in a different mix of industry clusters. Such geographic di-

versity can be attributed to various factors, including locational issues,

but it is very important that inter-dependencies between regions and

between clusters are not ignored. Cluster mapping will help assemble

a detailed picture of the location and performance of industries in the

entire nation or region with a special focus on the linkages or externali-

ties across industries that give rise to clusters. The broader mapping

should form the basis on which individual cluster initiatives are con-

ceived and cluster tools are applied.

Once specific clusters are identified for further engagement, an analysis

should begin with the identification of market and product segments

in which the concerned cluster is located. Without getting the mar-

ket segmentation right, one can make grievous errors in applying the

remaining tools; the analyses likely will lead to ineffective attempts to

improve competitiveness.

The tool on product and market segmentation (Tool 2) is followed by

an interactive process through which the key stakeholders–producers

and suppliers, service providers, regulators and standards-setters, and

distributors–are brought to the table and a common agenda is devel-

oped to suit the business interests of many or all (Tools 3 and 4). Once

cluster leaders have developed a sense of community and a broad

…for policymakers, industry leaders

and development practitioners.

10 cluster tools— some interactive and

others analytical— are discussed here.

C H

a P

T E

R 2

consensus on the key issues facing them, it is possible to apply more

rigorous tools such as Porter’s Five Forces (Tool 5), which can be fol-

lowed up with the analyses of value chains, market trends, and compet-

itiveness positions (Tools 6, 7 & 8). These may be supplemented where

necessary with additional industry benchmarking and analyses.

Throughout the implementation stage, a number of tools can help

identify and offer guidance on how to engage with public and private

institutions for collaboration and how to create value propositions. A

rigorous monitoring and evaluation framework should be developed at

the outset and followed through the end.

Following are descriptions of tools that can guide and structure cluster

analysis.

Tools to develop a Cluster-based Competitiveness Initiative

Cluster definition Tool 1: Cluster Mapping

Cluster analysis Tool 2: Product and Market Segmentation Tool 3: SWOT (Strengths, Weaknesses, Opportunities, Threats) Tool 4: GAP Analysis Tool 5: Porter’s Five Forces Analysis Tool 6: Value Chain Analysis Tool 7: Market Trends Analysis Tool 8: Competitive Positioning Analysis

assessing Institutional Support Tool 9: Old and New Institutions for Collaboration

Controlling the Process Tool 10: Monitoring and Evaluation

C H

a P

T E

R 2

Tool 1: Cluster mapping

Objectives (i) To prepare an economy-wide outline of specific nuclei of economic activities within the overall economy; (ii) define the linkages, externalities and synergies that bind the entities into a cluster; (iii) begin the process of discovering possible gaps and weaknesses that limit the competitiveness at both cluster and economy levels.

Possible outcomes (i) Motivation to look at the elements of the business environment that hinder a cluster’s balanced development; (ii) insights into a cluster’s performance relative to peers and competitors; (iii) a deeper understanding of clusters as the location of related activities, not just the concentration of companies in a single segment of the value chain.

Entities involved Government economic policymakers, industry specialists, cluster leaders, facilitators, and donors.

key caveats Each cluster has to identify the activities in which it must be strong to achieve high productivity and deliver on its specific value proposition. The list of activities for a cluster provides an indication of the impediments to competitiveness that the intervention will attempt to remedy; it should not be interpreted as a benchmark that needs to be met equally by all clusters.

Cluster mapping is about contextualizing a specific cluster of econom-

ic activities within the overall economy. An economy-wide outline is

developed to indicate relative contributions made by specific nuclei of

economic actors, or clusters, on various aspects such as employment,

innovation, dominance, linkages, etc. Within this, specific clusters can

be disaggregated to outline the related activities that are graphically

organized around related subgroups of: core production and sales, sup-

pliers, service providers, educational and research activities, and regula-

tory bodies. Where appropriate, key public institutions can be mapped

Cluster mapping is about cluster-

economy embeddedness…

C H

a P

T E

R 2

along with the clusters to allow a cursory assessment as to how strong

or weak they are in their specific activities.

Evolution of cluster mapping as a scientific tool is a relatively recent

development. Heretofore, cluster initiatives drew on specialists’ insights

to understand which of the industrial sectors were more instrumen-

tal to economic growth. The development of cluster mapping as a

scientific tool relates to two aspects of cluster behavior: First, cluster

mapping is based on the mapping of the industrial classification code

into clusters. Second, these data allow the mapping of clusters across

geographies indicating the locations and perimeters of the nuclei of

related economic actors.

The cluster mapping exercise should be differentiated from other

studies looking into supply chain linkages and specific spillovers, for

example, input-output analysis, patent filing, etc. Unlike these studies,

a cluster-mapping exercise, as prescribed by the Institute for Strategy

and Competitiveness of Harvard Business School, does not look into

specific transmission channels for the local spillovers that drive the

given nuclei of economic activities. Instead, it is based on the revealed

effect of these spillovers that becomes apparent in the actual locational

decisions that firms within clusters take. At its core, cluster mapping

firmly grasps the sourcing and selling behaviors as well as the business

alliances of firms within the broader economy.

The key advantage of the cluster mapping exercise is its grounding in

actual cluster behavior. Without tracking the actual linkages and contri-

butions across and within clusters, the comparisons between industrial

sectors or geographic regions are likely to be only arbitrary. The key

disadvantages of the cluster mapping exercise, however, are two: First, it

is not easy to formulate the exact definition and perimeters of clusters.

Second, obtaining data at this level is time consuming, especially in less

developed countries.

…and it evolved only recently as a

scientific tool…

…to analyze revealed effect of

clusters’ spillovers…

C H

a P

T E

R 2

Cluster definitions are not always geography-specific, especially for the

more sophisticated industrial sectors. For example, in a region domi-

nated by tourism it is fair to subsume a large part of cultural and enter-

tainment industries as well as national or regional branding agencies.

Data gathering at this level is a time-consuming exercise and this may

sometimes be unfeasible in several developing countries. Where partial

data exists, cluster mapping should be combined with other data from

secondary sources, including national statistics and registers, to gain a

richer understanding of the economic performance of a cluster, of the

factors that explain the cluster’s profile and performance, and of its

likely future directions.

Once primary and secondary data collection is complete, some of the

following perspectives can be developed to understand the cluster’s

relative contribution to the economy as well as the type of spillovers

and linkages that create positive economic effects.

Size and dominance:• The relative importance of a cluster within an economy can be reflected in the number of employees as well

as the wealth it generates for them in terms of wages and other

remunerations.

Specialization:• If a cluster is more specialized than the overall economy across regions, this is likely to be an indication that the

economic effects of the regional cluster have been strong enough

to attract related economic activity from other regions. In addition,

spillovers likely are stronger than those of less specialized clusters.

Linkages: • If a cluster has far-reaching forward and backward link- ages with which it is firmly connected to, this indicates its inherent

externalities.

Some examples of cluster mapping may help clarify the concept. The

cluster map for the Life Sciences Cluster in Cambridge, Massachusetts

in the United States uses a generic structure of all activities that might

be present in an economic nucleus of this type. It then uses quantita-

tive data to differentiate activities by the relative strength of the loca-

…focusing on size, specialization and

linkages.

C H

a P

T E

R 2

tion in this activity, for example, by looking at the location’s share of

national employment. The data indicate the clear focus on research and

devices with weaker positions in manufacturing but also an impres-

sive breadth across a wide range of activities that have linkages to life

sciences. Because of this analysis and further discussions with cluster

participants, efforts were started to enable the location to gain manu-

facturing sites nearby. The analysis had shown that while Cambridge

was to remain a research hub, this function increasingly required to

have the first production line within close proximity to allow tight con-

tacts between researchers and engineers as the manufacturing of the

substances was scaled from laboratory to industrial size.

The cluster map for the Thai tourism cluster in Phuket was much

simpler and less quantitative, reflecting the more challenging data

situation typical for many less advanced economies. It was used to

get a local team thinking about the different elements and activities

that contribute to the value that tourism clusters provides to cus-

tomers as well as the communities in which it happens. In applying

this structure, the team made headway in understanding the reasons

Phuket generated limited value from the tourists despite the presence

of many high-priced hotels. The cluster map identified strengths in

transportation (tourists had many choices to get to Phuket) and hotels

(the island is home to many high quality hotels) but also weaknesses

in attractions other than beaches that would lead to higher spending

by tourists.

Once potential clusters are selected for inclusion in an initiative, Tool

2 helps identify the products and markets in which each cluster com-

petes. This is a prerequisite first-step. If products and market segments

are incorrectly identified, the remaining diagnostic tools are likely to

be misapplied and hence the analyses they produce are likely to be

misleading. When properly defined, the products and market segments

identified here can give direction to the Porter’s Five-Forces and Com-

petitiveness Position analyses (Tools 5 & 8), which offer more rigorous

approaches to answer the ‘where to compete’ question.

C H

a P

T E

R 2

Tool 2: Product and Market Segmentation

Objectives (i) Identify the key products and market segments in which a cluster is currently and potentially active; (ii) team-building; (iii) generate a consensus regarding a cluster’s key problems.

Possible outcomes Insightful analysis of the potentials of success and the impediments.

Risks Failure to perform due diligence by crosschecking information.

Entities involved A facilitator, current and potential cluster members, and representatives of policymakers and donors as observers.

key caveats Members may not be fully aware of the basis of the competitiveness and success factors of rival clusters.

The facilitator should be sure the application of Tool 2 works as

an effective team-builder. During their discussions, cluster leaders,

government officials, representatives of supporting institutions, and

perhaps donor representatives should build the relationships essen-

tial to develop and implement a successful cluster competitiveness

strategy.

As part of the focus group discussion, the facilitator asks cluster

members to rank the performance of their country versus countries

they perceive to be the best performer(s) according to a set of clearly

outlined criteria. If the cluster is large, it is advisable for the facilitator

to precede focus group discussion with a flash survey to encourage

broader participation and a more systematic analysis. Based on aver-

age rankings, a quick gap can be measured on the spot. This is not a

scientific analysis but a tool to generate rigorous discussion, first on

C H

a P

T E

R 2

Steps to applying Tool 2

STEP 1: Identify key Cluster Products To begin the process of identifying key products prior to visiting the country, • conduct desk research from published materials and telephone conversa- tions with policymakers and experts not only concerning the selected cluster but also the supporting institutions. Once in the field, consult industry leaders. In addition, centers of excellence • are often found in universities, concerned ministries, and/or international organizations. Their experts can provide guidance and suggest key industry studies. Multiple consultations are recommended for accuracy.

STEP 2: Identify Current Product and Market Segments of the Industry Based on primary and secondary information, identify key products and • market segments to be focused on when applying subsequent tools and de- veloping strategies. Prepare a market segment map for each product identi- fied. Some of these key products may not yet exist but are seen as having potential. Crosscheck and enrich this information at the sub-product level by consult-• ing industry experts and reviewing studies.

STEP 3: Identify Potential Product and Market Segmentations This could be carried out in the beginning as an extension of the current • segmentation study through primary and secondary research sources. It is a list of product segments and markets in which the cluster could aim to compete.

(continued on next page)

the key criteria for competitiveness, and second on how they rank

the performance of a perceived best practice country in each of these

criteria and why.

C H

a P

T E

R 2

Steps to applying Tool 2 (continued)

Cluster: Horticulture cluster, NWFP, Pakistan Product Category #101: Mangoes

Food

Fresh fruit Jams/spreads Chutney Candy/Dried Mashed/mouse Ice cream

Current product ✓ LM segment ✓ NM ✓ IM Potential product ✓ LM ✓ LM ✓ LM segment ✓ NM ✓ NM ✓ NM

Beverages

Juices Sodas Nectar Pulp Liquor

Current product segment

Potential product ✓ LM segment ✓ NM

Oil

Cosmetics Cream Lotion

Current product segment

Potential product segment

Note: LM – local market and includes retailers within NWFP; NM – national market and includes sales through intermediaries and supermarkets in all of Pakistan; IM – international market and includes sales through traders mainly in the Middle East.

Source: J.E. Austin Associates Inc. analyses.

C H

a P

T E

R 2

Tool 3: SwOT – Strengths, weaknesses, Opportunities, and Threats

Objective Focus the discussion on the perceived state of the clusters with regard to competition in local and export markets.

Possible outcomes A consensus on SWOT among stakeholders that will help define strategies to include in the initiative.

Risks The analysis may be vague; cluster members’ engagement may be shallow.

Entities involved A facilitator, current and potential cluster members, and representatives of policymakers and donors as observers.

key caveats Although SWOT is familiar to most people and can be used to quickly organize information, it has limitations: it does not prioritize issues; it may not capture an accurate reflection of global markets; it is static and does not demonstrate causality; and it does not explain what causes the weaknesses.

This is the third interactive tool and its role is simply to clarify the

perceived state of the cluster among the actors with regard to what are

its strengths and weaknesses, who are the main competitors, and what

can constitute a feasible competitiveness strategy. Clarity on this point

means that later exercises can effectively address how to achieve preci-

sion in benchmarking cluster performance against its competitors and

how to design market development and policy strategies.

An assessment of strengths, weaknesses, opportunities and threats is

not a new framework for facilitation but it can be a useful exercise to

bring key cluster actors into one platform to agree on the key challeng-

es for the cluster and possible ways forward. A template of questions is

listed in the box below.

C H

a P

T E

R 2

SwOT Template of Questions

Strengths

What are our raw material strengths?• What are our human resource strengths?• What are our locational advantages?• What are our climatic advantages?• What are our cost advantages?• What are our distribution network strengths?• What other unique resources do we have?• How are we capitalizing on these assets?• What are our strengths re public policies and • institutions?

Weaknesses

What are our marketing weaknesses?• What are our distribution weaknesses?• What are our production weaknesses?• What are our input weaknesses? • Do we have adequate financing and is this critical? • How capable is the industry of working together?• What are the key policy bottlenecks for the industry, • business environment & infrastructure How effective are the public institutions supporting • or regulating the industry? What other weaknesses plague the industry?•

Internal

External environment

Opportunities

What are the growth rspects for the industry?• What are potential niche products or markets?• Are there unrealized value-adding opportunities?• Are there new market access opportunities nation-• ally or internationally? What public institutions (embassies, chambers, • associations) can help access foreign markets? What communication mediums can be tapped for • more info–internet portals and newsletters? What key trends (market, trade, and industrial poli-• cies) are building new opportunities? Where are the product/industry segments that we • directly compete with? What are they doing?

Threats

What can go wrong?• What is the competition doing?• What are the major domestic trends today that could • affect us? What are the major global trends today that could • affect us? Do we know how international markets view us?• What are our buyers saying?• Are there possible substitute products that can • displace us? Are we meeting international labor standards?• Are we meeting international quality and consumer • safety standards?

Source: J.E. Austin Associates Inc. analyses

C H

a P

T E

R 2

an Example of Tool application: Lao Tourism

A cluster-based methodology was applied in Lao tourism sector as part of the World Bank competitiveness assessment. Over fifty entrepreneurs, researchers and policymakers actively participated in this exercise. Following is the SWOT table that emerged from this interaction which guided formulation of a competitiveness strategy for Laos. This may serve as a good example as to how a SWOT tool can be applied in a cluster development process.

Source: J.E. Austin Associates Inc. analyses

Strengths

Great natural beauty• World heritage sites• Beautiful architecture• A navigable river for boat tourism• Relatively low costs• Unique ethnic cultures• Well known in France• Hospitality is an asset•

Weaknesses

Lack of bilingual and multilingual staff• Short high season• Unfavorable image during low season• Relative isolation• Limited air transport• Low capacity to market internationally• Lack of access to finance • Short stays and low spending by tourists•

Internal

External environment

Opportunities

Growth in global tourism• Operators seeking new destinations• Growth of low season targets (ASEAN)• Thai Air as promotion channels• Opportunity to shape image as a newcomer •

Threats

Regional image due to terrorism and SARS• Adverse environmental and social impact if tourism • is not well managed

C H

a P

T E

R 2

Tool 4: gaP analysis

Objective To help steer the focus to issues outside the cluster–competition is outside the country not inside the room.

Possible outcomes Generic insights into a cluster’s major drivers of success.

Risks Failure to do due diligence by crosschecking information, particularly regarding international competitiveness.

Entities involved A facilitator, current and potential cluster members, and representatives of policymakers and donors as observers.

key caveats Local firms may not be fully aware of the basis of competitiveness and the key success factors of industries outside their own country. Sometimes, local firms not historically exposed to global competition have a higher self-image than warranted. This tool provides a high Delphi value in terms of collective local expertise, but it needs to be quantified by rigorous industry benchmarking and verified by global industry experts.

On the surface, the Dominican Republic’s cigar industry seems to per-

form as well as or better than Cuba’s, but the Dominicans’ competitive

position and hence long-term profitability are vulnerable. The Cuban

industry has superior direct control over its marketing and distribution

channels in Europe while the Dominicans depend on international

brands and favored access to the US market. The Dominican industry

imports cigar wrappers whereas the Cubans produce their own. The

Dominicans can address these gaps by raising quality and new brand-

ing. Because their companies are not state-owned, they may be more

capable of innovating on these fronts.

C H

a P

T E

R 2

Primary research for this exercise can be carried out using the ques-

tions listed below, which must be contextualized through in-depth

interviews with policymakers, industry scholars, business strategists,

and cluster leaders. Secondary research using existing reports on firms,

industry, and the economy can complement the primary research. The

findings can be validated by presenting them to a focus group, which

can elaborate on the nuances.

an Example of Tool application: dominican vs. Cuban Cigars

Critical Success Factors Dominican Cigars Cuban Cigars GAP

Sales Volume 5 4 –1 (120 million sold) (80 million sold) Flavor 4 5 1 (#2 in blind taste tests) (#1 in blind taste tests) Packaging 4 4 0 (imported wrapper) (local wrapper) R&D Capacity 3 5 2 (weak—but improving) (strong) Distribution Channels 2 5 3 (mostly sells to (controls European Davidoff, etc.) distribution channels) Final Market 3 5 2 (over reliance on US embargo of (strong European Cuba for privileged access) penetration) Industry Management 4 3 0 (dynamic enterprises) (state-owned enterprises) Marketing 3.5–4 5 3 (rising image as a (strong “Cuban” “cigar country”) brand) Rating:

0 = non-existent 1 = extremely poor performance on this dimension

2 = poor performance on this dimension 3 = average performance on this dimension

4 = good performance 5 = excellent performance

Source: J.E. Austin Associates Inc. analyses

C H

a P

T E

R 2

Tool 5: Porter’s Five-Forces

Objective (i) To ascertain a cluster’s strategic efficiency; (ii) determine the long- and short- term implications of competing in certain product and market segments.

Possible outcomes (i) A clear understanding of the attractiveness of a cluster in selected product/ market segments; (ii) an indication of the impediments to competitiveness that should be removed by the cluster initiative.

Risks Overly pessimistic views of the business environment and public policies.

Entities involved A facilitator, current and potential cluster members, and representatives of policy makers and donors as observers.

key caveats This approach provides a means to evaluate potential profitability of a product, service, industry, or cluster. However, this potential is not a final determinant of profitability because firms within the same industry may use different business models to achieve varying returns on revenues or assets.

Porter’s Five Forces analysis is often done separately for each product

or market segment identified by the product/market segmentation

analysis (Tool 2). In some cases, the cluster may choose to focus only

on one or some of the product or market segments.

This tool is based on the principles of Porter Diamond (see Chapter

4) which was modified to address the circumstances of developing

countries, where the business enabling environment and policy/infra-

structural bottlenecks may be far more important constraints than the

degree of a firm’s sophistication. Sophistication is reflected in its ability

to meet the challenges it faces.

C H

a P

T E

R 2

Five-Forces analyses of the two product segments in the Pakistani gems

cluster demonstrate how it would be better off if it re-positioned to

produce fewer unprocessed and more value-added gems. Pakistan has

been slowly building a reputation as a regional gemstone-trading hub

but mainly in the unprocessed gems segment. Thanks to long experi-

ence in the non-value-added sector and gradual exposure to the value-

added sector, with the help of some technical assistance, Pakistan may

Porter’s Five Forces: data Capture Table (separate analysis per product or market identified through Tool 2 exercise)

A. Rivalry Who are the major players in your industry? What percentage of the industry’s production do they • account for? How many firms account for this percentage? What is their annual growth rate?•

B. Threats of new entrants How many firms entered this industry last year?• What is the minimum capital requirement to start a business in this industry?• What are the 2–5 key constraints in starting a business? This could include high initial investment • costs, brand name requirements, established distribution channels, policy or business environment issues, and industry-specific issues. How many firms exited the industry last year?•

C. Threat of substitute products or services Do buyers have a tendency to buy substitute products? What is your estimate of the price difference • between your product and its main substitute?

D. Bargaining power of buyers Who are the major buyers in your industry? What percentage of sales do they account for?• How many buyers account for this percentage? Are buyers price sensitive?• What is the approximate growth in demand per year?•

E. Bargaining power of suppliers Who are the major suppliers in your industry? What percentage of industry purchases do they ac-• count for? How are your suppliers organized? Do forms of co-operatives or state-controlled boards regulate • their functions? If so, are they market efficient? Is the supply of inputs reliable or do they face seasonal or transportation-based disruptions?• Do you have access to differentiated inputs as per your need?•

C H

a P

T E

R 2

now be in a position to make a strategic shift toward value-added gems

and jewelry, which have better long-term profitability prospects and

offer stronger bargaining power in relation to buyers, suppliers, and

potential substitutes.

Source: J.E. Austin Associates Inc. Analyses

Summary of Key Drivers in Cluster Attractiveness Analysis

RIVALRY AMONG EXISTING COMPETITORS

BARGAINING POWER OF SUPPLIERS

THREAT OF SUBSTITUTES

BARGAINING POWER OF BUYERS

THREAT OF NEW ENTRANTS

Determinants of rivalry: • Industry growth • Intermittent overcapacity • Fixed cost • Concentration • Entry/exit barriers • Diversity of rivals & product variation

Determinants of bargaining power: • Volume requirements • Price sensitivity • Brand identity • Buyer profits • Product differentiation • Ability to backward integrate • Buyer switching cost relative to cluster or firm switching cost

Determinants of substitution threat:: • Relative price performance of substitutes • Switching costs • Buyer propensity to substitute

Determinants: • Differentiated inputs • Concentration of suppliers • Volume • Switching costs of input suppliers • Availability of substitute inputs

Determinants of new entrants: • Economies of scale • Access to affordable inputs • Proprietary policy & regulation • Brand identity • High capital requirements • Access to distribution

C H

a P

T E

R 2

Source: J.E. Austin Associates Inc. Analyses

An Example of tool application: Product Segment 1 – Unprocessed Gems, NWFP

• Low investment requirements for entry in mining and trading industries • Minimal brand loyalty • Industry clandestine in nature, which makes it difficult for entrants to establish themselves • Mining activity is based on natural endowment of stones; hence new entrants are infrequent and generally emerge with the discovery of new deposits • Stiff International competition from China, India, etc.

• Lack of branding initiatives in the local industry • Local sellers generally go to the same international shows, but in their individual capacities. • Local traders compete for the same stone resources being mined in Northern Areas, FATA and NWFP as well as in neighboring Afghanistan • India, China, Colombia and Brazil are more accessible (given security concerns) than Pakistan for international buyers • Bangkok and India are much ahead in the regional gem cutting industry

• Mining segment dominated by fragmented clusters with micro & small sized enterprises • Different suppliers for different stones, hence supply risk is diversified • Supply tends to be irregular depending on discoveries, season, quality, etc.

• Buyers generally have different sources to purchase from, such as Brazil, India, China etc • Prices are not standardized and subject to negotiations • Supplies of stones tend to be irregular owing to the mining activities in different clusters • Local dealers mostly sell their gemstones in uncut/unpolished form, and hence buyers perform the main value adding activities

• Synthetic gemstones is an emerging market • With a few exceptions, most of the stones mined here can also be found in other parts of the world

Strong buyer power, high rivalry, substitute products and the threat of new entrants result in a challenging industry for unprocessed gems

RIVALRY AMONG EXISTING COMPETITORS

BARGAINING POWER OF SUPPLIERS

THREAT OF SUBSTITUTES

BARGAINING POWER OF BUYERS

THREAT OF NEW ENTRANTS

Moderate / High

Moderate

High

C H

a P

T E

R 2

Source: J.E. Austin Associates Inc. Analyses

An Example of tool application: Product Segment 2 – Processed Gems and Jewelry, NWFP

RIVALRY AMONG EXISTING COMPETITORS

BARGAINING POWER OF SUPPLIERS

THREAT OF SUBSTITUTE

PRODUCTS OR SERVICES?

BARGAINING POWER OF BUYERS?

THREAT OF NEW ENTRANTS

• Mining segment dominated by fragmented clusters with MSMEs

• Diiferent supplies for different stores, hence supply risks diversified

• Supply tends to be irregular depending on discoveries, season, quality, etc.

Value-added stones places the NWFP Gems sector in a better bargaining position with buyers, while it is less threatened by new entrant, or by substitute products

Moderate

Moderate / High

Moderate Moderate

Moderate

• Competition from India, China, Thailand, Colombia and Brazil, but compared to raw stones, Pakistan is more

competitive in processed stones given the varieties it has

• A combination of processed and rare stones increase the bargaining power

against buyers • Buyers generally have different purchase sources but they are more restricted for

processed stones than raw stones • Prices are not standardized and are subject

to negotiations

• Only a select group of rollons are able to significantly compete in value-added gems • Lots of International competition from established countries such as Australia, India

and Sri Lanka • New African countries are also emerging as producers of value-added gems

• Synthetic gemstones is a rapidly emerging market • With a few exceptions, most of the stones mined here can also be found in other parts of the world • It is considerably more difficult to fully saturate the market with processed stones than raw stones

C H

a P

T E

R 2

The value-chain analysis framework centers around three major seg-

ments that describe each production link in the value chain: source,

make, and deliver. Each activity mapped in the value-chain diagram can

be represented by a cost breakdown. In addition to mapping the value

chain, a VCA typically includes measurement of the chain’s perfor-

mance, establishment of benchmarks, and finally, analysis of the perfor-

mance gaps, taking into account government and market failures. (FIAS,

2007)

Value-chain analysis is conducted in two stages: (A) a snapshot of the

current value chain is prepared, where all involved actors and activities

are listed, and key productivity issues are highlighted; (B) informed by

this, a value-chain proposal is developed, which ideally benchmarks the

value chain to assess potential interventions so greater value can be

added during the production process.

Tool 6: Value-Chain analysis

Objective (i) Assess linkages within the value chain of production; (ii) develop alternative strategic options and scenarios.

Possible outcomes (i) Effectively engage all stakeholders in the value chain; (ii) broaden cluster composition.

Risks Information generated may be too vague if not conducted with a strategic mind.

key caveats This is a relatively broad tool, which offers a bird’s eye view of a cluster’s operations. To develop definitive business strategies, it needs to be complemented with tools such as competitive positioning, which bring more precision to the analysis.

C H

a P

T E

R 2

Example: Upgrading the Value Chain in Mongolian Meat Industry

The Mongolian meat industry has traditionally exported animal carcasses to Siberia. Through work with the Mongolian Competitiveness Initiative (MCI), plans were made to integrate value-added operations such as quality checks, packaging, and marketing into the meat industry value chain. These upgrades were intended to reorient firms toward more demanding and lucrative export markets.

With USAID and USDA assistance, the cluster solicited a former USDA expert in meat regulatory standards to facilitate improvements in health and sanitary standards. MCI also identified transportation options and completed cost studies to confirm the feasibility of exporting to five Asian and two Middle Eastern markets. Lobbying various associations and government agencies, the project worked with industry to streamline government policies and standards related to agricultural exports.

In Figure 1, both the traditional and a new “processed” meat export value chain are detailed. In this figure, the processed- meat export channel represents the opportunity to add value by incorporating additional operations within the value chain. The “VC Intervention” arrows represent opportunities identified for intervening in the Mongolian meat industry to deepen the value chain.

Value Chain analysis: data Capture Table

For a value chain snapshot What are the key inputs/raw materials needed to produce a good or service?• Who are the key players/stakeholders in creating this product?• What are the steps that transform the inputs at each stage to an output until the final product is • delivered to the consumer Define these key subsectors and identify their value addition • What are the key interactions between the stakeholders in this value chain? How many of these are • formal? What are the contractual norms in the value chain of each subsector? What are the ordering and • payment norms? For each of the following inputs, detailed questions on the (i) quality and quantity of product, • (ii) regulatory and compliance issues, (iii) the split between imports and exports (iv) financing and capital (v) training and upgrading (vi) role of technology and R&D (vii) transport costs and logis- tics (viii) extent and nature of wastage:

Raw and intermediate materials used in the making of products ° Primary factor inputs of land, labor and capital used in the production process ° Utilities and other costs ° Trade and transport in delivery of the end product to next stage in value chain ° Marketing and distribution channels to customers for intermediate and end products °

For a value chain proposal What are competitor value chains doing within the country, the continent or region and globally? • What international benchmarks are used by the industry? How does the productivity (for labor, capital, and key inputs) of national firms in the sector compare • with global & regional best practice? How does the capacity utilization of domestic firms in the industry compare with global & regional • best practice? How does the technology in the sector compare with global and regional best practice?• How do the factor costs compare with global & regional best practice (labor, capital, and key inputs)?• What are the productivity cost, price, and time figures at each step of the value chain such as (i) • output per unit labor hour; (ii) capital and equity efficiency; (iii) yield per unit of land; input conver- sion ratio; (iv) incremental output/input ratio; each input costs as a percentage of shipment value; (v) cost of bureaucracy and red tape; time taken to start, transact and finish business; (vi) time taken for customs clearance and export transactions

C H

a P

T E

R 2

Example: Upgrading the Value Chain in Mongolian Meat Industry

Slaughter House

Traditional Exporter Channel Processed Meat Export Channel

Figure 1: Mongolian Meat Export Value Chains: Processed & Traditional “Un-Processed”

Grapestock

Marketing Firms

Packaging Labeling

Processors

Meat Inspector

VeterinarianHerderes

Exporters

Freight Forwarders

Wholesale Markets

VC Intervention

New Markets (Middle East)

New Products (HalalMeat) Quality Checks

(continued on next page)

C H

a P

T E

R 2

“Figure 2: Deepening the Value Chain Under Two Scenarios” quantifies the value that can be added by deepening the value chain. In this instance, the addition of veterinary services, meat inspection, processing, packaging, labeling, and marketing operations to the Mongolian meat value chain provides gains of nearly 40 percent in meat industry earnings.

Herder Slaughter House

Exporters

Freight Forwarders

Herder Veterinarian Slaughter House

Processors Exporters

Meat Inspectors

Packaging Labeling

Marketing Firms

Freight Forwarders

Value Chain

Earnings

Value Chain

Earnings

T290

T290 T30 T480 T500 T305

T410 T281

Scenario 1: Exporting unprocessed carcasses to traditional markets

Scenario 2: Exporting processed meat to specific markets

Frozen Carcass Exports to Traditional Market

Earnings to Economy = T 981

Frozen Carcass Exports to Demanding Markets

Earnings to Economy = T 1605

Figure 2: Deepening the Value Chain under Two

While value-chain, market-trend, and competitive-position analyses

(Tools 6, 7 & 8) concern firms, government officials should at least

monitor their application; it can help them better understand industry

bottlenecks and develop policies and programs.

Example: Upgrading the Value Chain in Mongolian Meat Industry (continued)

C H

a P

T E

R 2

Market Trend Analysis quantifies trends that are critical to a cluster

strategy formulation. It is sometimes combined with but usually done

as a prelude to competitive positioning analysis (Tool 8). It seeks to

answer questions such as: What are the potential product and market

segments that the cluster may be missing? How has the cluster been

performing at the global and regional level, and how is it expected to

perform? What are the global industry trends regarding performances

in terms of product, price, production volume, and market share?

Detailing global industry and/or market trends can provide critical

insights to shape the cluster strategy.

Tool 7: Market Trend analysis

Objective (i) To pin down the potential product and market segments that a cluster may be missing; (ii) to assess and anticipate the performance of regional and global markets in terms of product, price, volume, and market share.

key caveats This analysis gives excellent insights into the cluster’s international competition but does not fully answer the question: “What prevents my competitors from taking my customers?”

C H

a P

T E

R 2

Market Trend analysis: data Capture Table

A. Data on global market What are the total volume and the value of world market in revenues?•

What is total volume and value of world exports and imports?•

What is the rate of growth of industry, projected rate of growth (to assess potential)?•

Who are the leading countries in the global arena? What are their market shares and changes in • market share over a time period (to assess their growth)?

How do the country • and the cluster per- form in the global market with regard to revenue, trade, and market share?

Who are the region-• al leaders? Where does the country stand regionally and globally?

B. Structure of global industry and trade How is the industry • structured glob- ally? What are the different product segments in the industry?

What does the • value chain look like?

What are exports • and revenues? What are the growth rates for each of these segments?

Pricing• : What are the major pricing determinants in the world market? Is it supply or demand driven? Is the price volatile? How does elasticity of demand affect prices in this industry?

Cost Structure• : What are the different costing models being used in the industry globally?

Technical Analysis• : What is the role of technology in production? How is it changing?

Does being on the cutting edge of technology make a difference to competitiveness?•

What, if any, are the trends in production technology?•

Does R&D make a difference to the competitiveness of the industry? If so, how much is spent on • R&D globally?

18.00%

16.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

–2.00%

–3.00% –2.00% –1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00%

Share in World Exports (2005)

Change in Market Share 2001–2005

Global Pharmaceuticals exports, 2005

Belgium Germany

France

United States

United Kingdom Netherlands

= $10 billon

Switzerland

Example A: Jordanian Pharmaceuticals (country shares of world exports and change over time)

Source: J.E. Austin Associates, Inc. analyses

C H

a P

T E

R 2

How is this expenditure split between the private and public sectors?•

What is the level of patenting in the industry?•

What sort of organic and targeted innovation is happening to create niche specialty segments that • could add value to the product? (see the Uganda example)

Financial Analysis• : What are the global expenditures in this industry by private and public sectors?

What is the nature of financing in the industry? Is it loan, equity, or venture capital intensive?•

What are the industry’s FDI flows globally?•

Nature of the labor force• : Are labor force quality and size important?

What are the emerging trends to ensure the supply of this labor force quality? What can be seen • among the leading countries?

A. Product position that is difficult to imitate but low revenues, e.g., lack of demand

Low revenues and easily imitable

High revenues but generic nature makes it easily imitable, e.g., non-copyrighted new product

High value

High value Low value

Low demand High demand

B. Product position that is difficult to imitate, high revenues

C Example:1

Example 1

The diagram measures the degree of industry segmentation trends in two dimensions: (1) product sophistication (generic versus specialty coffee), and (2) effective demand (low versus high). The best position for a firm or cluster is to aim for product sophistication in high demand segments, resulting in highly defensible positions and sustained profitability.

The curve represents the achievable level.

Market Trend analysis: data Capture Table (continued)

C H

a P

T E

R 2

Example 2: Jordanian pharmaceuticals

The data below shows the market trends in major buying countries, with the U.S. and Germany being the most attractive overall export destinations. It is important to note that this analysis shows general trends, rather than specific segment trends.

Export data on comparison countries (actual or potential competitors) below indicate that large exporting countries such as Canada have experienced high rates of growth, but Jordan’s regional competitors have seen limited growth and even decline. This could be due to a number of factors, including difficulties in penetrating existing

Uganda Coffee (Bancafe)

US$ bn

Specialty

Commerical

1980 1985 1990 1995 1997

The diagram to the right shows the global demand for specialty coffee increasing at a rate that is several times faster than generic coffee.

This type of analysis has been applied by a number of countries in recent years, particularly in Africa. It helped re-position their coffee industry from crowded generic coffee markets to more attractive specialty segments.

Top Buyers of Drugs: Global 2001–2005

2001

10,000,000

9,000,000

8,000,000

7,000,000

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

2002 2003 2004 20050

USA Germany France Italy Belgium

Year

Source: ITC (2008), product code=541

U S$

Market Trend analysis: data Capture Table (continued)

C H

a P

T E

R 2

distribution channels in key markets, or inability to differentiate with most advanced competitors.

D. Global Environment in which the Cluster Competes

What are the current rules • and regulations affecting the global industry? Do global standards need to be met?

How are these evolving?•

What are the trends in • state and private sector roles among successful countries?

What is the nature of complementary industries? How are they performing globally? Is the cluster’s • strength growing? Are threats to the cluster developing?

E. Critical Success Factors

What are the critical success factors for firms and countries to compete in this industry? •

Do the leaders use unique selling propositions/models to compete?•

F. Future Forecasts and Estimates

What are the global growth projections for the industry? What are the estimates of revenue, exports, • and market shares?

Where does anticipated demand lie? •

What does the future structure of the industry look like? Will the value chain and/or the delivery • method for the product or service change?

Primary Sources Surveys of the country’s industry organizations and leading firms, business leaders, regulatory bodies, and key state officials associated with the industry

Secondary Sources World regulatory and standardization bodies (WTO, ISO) Industry studies by leading global research firms

2001

700,000

600,000

500,000

400,000

300,000

200,000

100,000

2002 2003 2004 2005

Year

Supply in Selected Country (Jordan Comparators): Global 2001–2005

USA Germany France Italy Belgium

Source: ITC (2008), product code=541

U S$

Market Trend analysis: data Capture Table (continued)

C H

a P

T E

R 2

Tool 8: Competitive Position analysis

Objective (i) To analyze key cluster products and services on attributes decisive to desired market segment vis-à-vis their competitors. This analysis helps inform cluster stakeholders about opportunities to reposition the cluster, preferably to higher value-added market segments or into the lowest cost position. The product scope analysis that is part of this tool helps determine product position in terms of complexity, variety, and value addition. The cost benchmarking element helps prioritize and structure key areas for improvement and helps set quantifiable and achievable goals.

key caveats This analysis can provide a general strategic direction but does not outline specific actions and should be complemented with other resources, such as market research. Sometimes, obsessive cost benchmarking will limit a cluster to imitating, not innovating.

Tool 8 draws on primary and secondary data. Experience gained in ap-

plying the preceding tools will indicate who the best primary sources

are and how to conduct interviews and focus group discussions. The

secondary sources for a competitive position analysis include industry

reports, competitors’ annual reports, websites, and interviews with

their suppliers and buyers.

Below we list a broad template which can be followed to assess the

product scope and differentiation. A first step is to benchmark size and

share of the market that the cluster currently and potentially operates

in. This includes a scientific analysis that ascertains growth potentials.

It can then provide a basis on which to formulate an effective strategy

for achieving such growth.

C H

a P

T E

R 2

Product Scope and differentiation analysis: data Capturing Template

A. Assess and benchmark size and share of market

What are the main products/product lines (or services) in this cluster?•

What are the net export sales for these product segments? (actual or estimated)•

Who are your 3–5 major international competitors for each product listed in the preceding item?•

What are the net export sales for each international competitor?•

• B. Assess and benchmark product scope (Y-axis)

How does the complexity of your products compare to that of competitors’? Use the following scale: • 1 = low (e.g., raw products); 3 = medium (semi-processed e.g., yarn); 5 = high (e.g., garments)

C. Assess and benchmark product differentiation (X-axis)

How do your products and the competitor’s compare in level of differentiation? • 1 = low (i.e., price competition); 3 = medium (price & differentiation); 5 = high (differentiation)

Tool application Example: Mongolian Cashmere

In the 1990s, Mongolia produced the world’s best raw cashmere. However, the country had great difficulty competing in apparel and other value-added cashmere products. In addition, Mongolian cashmere exporters had to compete directly with Chinese producers, who paid herders more for raw cashmere. Competitive position analysis helped the Mongolia industry identify opportunities and reposition toward differentiation, first by certifying its raw materials and subsequently developing and implementing strategies that added value through cashmere-based garment manufacturing and branding.

Monogolian Cashmere Industry: Challenges in 1990s

Italy

China

Afghanistan

Mongolia (1990s)

Scotland

Cashmere and Cashmere Garment Exports Cashmere garments

Raw Cashmere

Low Price

Certification

Garment Manufacturing

Differentiation

Washed/Dehaired

Raw Cashmere

Cashmere exports

Yarn and Cloth

Garment

Product Scope

Source: J.E. Austin Associates Inc. analyses

C H

a P

T E

R 2

Cost benchmarking: data Capturing Template

A. Internal Costs

Which product(s) should we benchmark?•

What are the different components of the cluster’s products?•

Using a uniform unit of measurement, what is the value of each cost component? •

What are the crucial cost drivers?•

•

B. Competitor Costs

Who are your main competitors?•

What is the value of each cost component for your competitor’s product? •

What are their crucial cost drivers?•

Example 1: Tool Application Example: Uganda Floriculture

The following example is an application of cost- benchmarking analysis.

To help assess Uganda’s • floriculture competitiveness, the World Bank benchmarked production costs against those of Kenyan growers.

Kenya was selected because • it is located in the same geo- graphic region and competes with Uganda.

The analysis (below) shows • that Uganda must reduce the cost of airfreight by at least 17% and of chemical inputs by 11% to compete with Kenya.

After identifying the key cost drivers compared with the competition, the next step is to identify the • causes of high costs, which could involve the cost of regulatory barriers in air transportation.

Conclusion: Ugandan flower exporters face a cost disadvantage because of high costs of air freight and fertilizers. It does have moderate cost advantages in labor and wages but not sufficient to compensate for the disadvantages. Directly competing on cost with Kenya will place Uganda at a continuing disadvantage. Instead, it needs to compete on quality, market niche, and higher-value products. By careful choice of products and markets, it can improve margins.

Uganda must reduce air freight costs and fertilizer costs to be able to compete with Kenyan flowers

KenyaUganda

C Example:1

Fertilizer 25,000 Fertilizer 30,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

USD

Air Freight 71,205

Air Freight 63,503

Net margin

Repairs & maintenance

Royalty fee

General prod. costs

Staff/management

Labor

Electricity Fuel

Fertilizers/Chemicals

Packing material

Auction/Agent fees

Handling costs (Local)

Handling costs (NL)

Air freight costs

Source: JE Austin analysis Inc. analyses

C H

a P

T E

R 2

Example 2: Tool Application Example: Rwanda Coffee

Competitive Position Analysis

A similar case is that of Rwanda

coffee. Total production grew from

16,000 to 29,000 tons between

2000 and 2004. During the same

period, production of low-value

coffee declined from 72 to 50

per cent of total production. In

comparison, high-value coffee

increased from 19 to 40 per cent.

Such an improvement was possible

through repositioning of the

coffee industry in Rwanda. Market

research had showed that higher-

value coffee was very attractive

to global markets. World experts’

cupping/taste results showed that

Rwanda had significant potential to

produce specialty coffee that can

be at par with higher achievers like

Guatemala, Ethiopia, and Kenya.

C Example:1

Source: J.E. Austin Associates Inc. analyses

Kenya* Ethiopia*

2010+

Rwanda Specialty Coffee (ie Starbucks)

Brazil**

Vietnam**

2005

Rwanda 2000

Rwanda 1990

DifferentiationLow Cost

Low Value Added)

High Value Added)

*Represents specialty coffee/not drawn to scale **Represents commodity coffee/not drawn to scale

2010+Guatemala*

Cost benchmarking: data Capturing Template (continued)

C H

a P

T E

R 2

Tool 9: Old and New Institutions for Collaboration

Objective To identify whether a cluster has institutional and/or social capital to sustain collective action.

Possible outcome (i) Reform of existing government and/or private sector institutions; (ii) creation of necessary new institutions; (iii) stronger focus on the process of economic reforms and not just their content; (iv) stronger focus on regional institutional capacity and not just on the central government.

key caveats Efforts of external organizations such as international donors to create institutions may face limitations. Institution-building is a long-term effort that has to deal with lack of trust among local partners, especially at regional levels. The experience in how to achieve this remains limited.

Institutions are the underlying rules of the game and can change the

course of the economy for better or for worse. Some common ex-

amples include business associations, alumni, regulatory and standards-

setting bodies, research centers, clubs, etc. However, the concept of

institutions should not be limited to bureaucratic structures, because

a wide range of implicit institutions also dictates how entrepreneurs

react to a given set of opportunities and challenges. Some examples are

the informal institutions that have to do with attitudes on rent seek-

ing, trust, traditional know-how, and social capital. How entrepreneurs

respond to a set of incentives or penalties will depend not only on the

bureaucratic measures in place to facilitate them but also on a whole

series of informal institutions that set the rules of the game.

C H

a P

T E

R 2

Institutions are key to Competitiveness

Who is the key actor in developing institutions that matter for com-

petitiveness? Governments have imperfect information and hence

should not pick winners. The private sector also suffers from imperfect

information and from externality dilemmas and hence is incapable of

creating public goods on its own. Economic development requires col-

laboration among government at multiple levels, companies, teaching

and research institutions, service-providers, standards-setting bodies,

and private sector organizations. What works best is a bottom-up ap-

proach in which a wide range of public and private institutions takes

joint responsibility for productivity. A cluster initiative is a good way to

initiate this process.

An especially important set of institutions has to do with knowledge

generation and sharing, which ultimately lead to a sense of economic

identification or branding. Progress in technology, innovation, and

product diversity come under this umbrella. It is important to note that

such institutions have extended gestation periods. A good example is

the Australian wine cluster (see figure below).

line ministries

business registrar

Public sector institutions Private sector institutions

export promotion

investment promotion

market research agencies

business associations lawyers

arbitrators training institutes

standards and certification universities

IPRS R&D

industrial zones

innovation and technology foundations

business service providers

C H

a P

T E

R 2

The analysis of the Australian wine cluster with its rich set of institu-

tions provides an important backdrop to understanding its remarkable

success. While the cluster has long historical roots–some dating to the

1930s–the development of modern institutional structures began large-

ly in the 1990s, when a mix of private, semi-private, and public organi-

zations with clearly defined roles started to emerge. These included the

Winemaker’s Federation of Australia (established in 1990), the Coopera-

tive Centre for Viticulture (1991), the Australian Wine Export Council

(1992), the Wine Industry National Education and Training Council

(1995), the Wine Industry Information Service (1998), etc.

The new institutions provided overall orientation for the cluster’s export

strategy and created platforms for cooperation among cluster participants

on issues such as quality standards, research, training, and export promo-

tion. Soon after, the growth rate of Australian wine exports increased sig-

nificantly. But it is extremely important to note that the new institutions

worked because they drew efficiently on the capital that had been built

through old institutions over decades. Other examples of the importance

of the long-term development of an institutional base are found in suc-

cessful clusters, such as Acoplasticos Colombia and Fundacion Chile.

The Ausralian Wine Cluster

1930

First oenology course at Roseworthy Agricultural College

1965

Australian Wine Bureau established

1980

Australian Wine and Brandy Corporation established

1991 to 1998

New organiza- tions created for education, research, market information, and export promo- tions

1955

Australian Wine Research Institute founded

1950s

Import of European winery technology

1960s

Recruiting of experienced foreign investors, e.g. Wolf Bass

1970s

Continued inflow of foreign capital and management

1980s

Creation of large number of new wineries

1990s

Surge in exports and international acquisitions

1970

Winemaking school at Charles Sturt University founded

1990

Winemaker’s Federation of Australia established

Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002.

C H

a P

T E

R 2

Tool 10: Monitoring and Evaluation: The P.a.I.d. Framework (Progress, action, Investment, and delivered Results)

Objective To evaluate the progress of a cluster initiative, including its actions, investments, finances, ownership and hence sustainability.

key caveats Real results of cluster initiatives may not mature for a long time. Establishing the appropriate balance between flexibility and boundary-setting is important.

P3 P2 P42

P.A.I.D. Framework for Monitoring & Evaluation

Source: ?????

$ Investment

Indicator Types

Project life (yrs)

Project Investments

Co-Investments Mobilized

P.A.I.D. Framework for Monitoring & Evaluation Indicators Change Over Time During the Life Cycle of a Project

Note: P1: process indicators; P2: action indicators; P3: investment indicators; P4: results indicators

The horizontal or x-axis represents the lifespan of a cluster interven-

tion. The vertical axis represents the level of investment during its life.

The solid curve shows donor/ government investment. This increases

C H

a P

T E

R 2

during the intervention’s early stages through implementation and

declines as the implementation winds down. As the intervention pro-

gresses, ideally other projects and investments will be initiated with

increasing private sector co-investments (as represented by the dotted

line). The indicators are classified as follows:

P• rocess Indicators (P1) are used to track the first stage of the initia- tive’s development, including the identification of cluster leaders,

and beginnings of building a community of stakeholders.

A• ction Indicators (P2) track cluster analyses and the development of strategies to help clusters improve competitiveness.

I• nvestment Indicators (P3) track investments and co-investments made during the initiative’s implementation. Co-investments begin

modestly but advance with the project.

D• elivered Results Indicators (P4) track measurable results of the cluster initiative. These can include increases in exports, revenues,

employment, wages, industry profitability, and the establishment of

new enterprises.

Tool application Example

The Pakistan Initiative for Strategic Development and Competitiveness is a USAID-funded project to support self-selected Pakistani industries in developing and implementing competitiveness strategies and to institute a sustainable mechanism for effective public-private dialogue. Implemented in cooperation with Pakistan’s Small Enterprise Development Agency (SMEDA) the project included two sectors—dairy and gems/jewelry.

Key: Project Components

P1: Start-up, Industry Research, Formation of Sector Working Group•

P2: Cluster Diagnostic and Strategy Development •

P3: Implementation of Strategic Initiatives •

P4: Results-based Performance Tracking: (4.1) Submission of an inception report with a perfor-• mance tracking plan; (4.2) Reviews of cluster initiatives; (4.3) Submission of quarterly reports to SMEDA; (4.4) Interim completion report; (4.5) Submission of a project performance report

C H

a P

T E

R 2

P1 – Process Indicators (month 1–3): During the initial phase of monitoring and evaluation, stakeholders measured process by establishing leadership, encouraging cooperation, and establishing commitments. Process indicators used in this phase by the SMEDA–JAA team included the following:

Analytical activities •

Competitiveness presen-• tations

Signed Memoranda of • Understanding

Agreed schedules and levels of participation by the cluster leadership and strategic working groups. •

P2 – Action Implementation Indicators (month 4 – completion): After action plans are identified, plans for implementation are made and became part of SMEDA’s operational program. These lay the ground for investments to be made. Action indicators in this phase:

Technical assistance for specific clusters•

Completion of strategies for each cluster •

Completion of action plans with responsibility split among cluster representatives•

P3 – Investment Indicators (month 7 to completion): As the project progresses, the initiative begins to generate investment from the clusters that are greater than the initial investment made to begin the project. Investments are modest to begin but may increase substantially with time. Investment indicators include:

Private investments in projects •

Investment in retained earnings earned by cluster projects •

Venture capital invested in areas such as fee-for-service, private sector financing, or university research•

P4 – delivered Results, (month 10 to completion): The last indicator is to track delivered results directly attributed to the project. Pakistan focused on productivity. Thus, indicators measured increases in value added, export revenues, employment, wages, tax revenue, and enterprise growth.

P3 P2 P42

Source: California Wine Institute Internet Search, California State Legislature. Based on research by MBA 1997 students M. Alexander, R. Amey, M. Black Frost, and A. Shiwanunda.

$ Investment

Indicator Types

Time (months)

Project Investments

Co-Investments Mobilized

P 4.1 12

P 4.2

P 4.4 P 4.5

P 4.3

P2 P1

X X X X X X

XX X

3 6 9

Tool application Example (continued)

C H

a P

T E

R 3

CHaPTER 3 a bROad PROCESS TO dEVELOP a CLUSTER INITIaTIVE

Cluster initiatives will be relevant only where minimum conditions of

macroeconomic and physical stability, hard and soft infrastructure for

doing business, and a basic institutional system for supply-side func-

tions have been met.

Cluster initiatives around the world show that the crucial element of

initiative development is the creation of a platform for meaningful

dialogue within the cluster, to develop business strategies, and with the

public sector, to discuss policy changes and possibly financial support.

Success will require increasing the involvement of the cluster’s support

Facilitation is key to a cluster-initiative

process.

Implementation of strategic, policy and institutional initiatives

Diagnostics and strategy formulation

Cluster mapping and initial engagement

Post-project sustainability

• Immediate implementation of quick wins • Mobilize and facilitate participants of study tour to lead action initiatives • Work with this team and government to release immediate policy constraints and formulate long- term strategies and policy reform

• Apply diagnostic tools to assess the market trends, value chains, and analysis of competitive positioning of the cluster • Coordinate with initiatives related to supporting clusters • Gather baseline data for evaluation for study tours to world-class centers of excellence (COE) • Organize study tours so it directly contributes to development of business plans for cluster competitive- ness strategies

• Economy-wide cluster mapping • Identify key stake- holders/cluster leaders • Convene leadership and engage them on key competitiveness aspects of the cluster • Go:no-go decision • Form sector working groups and establish MOUs • Engender ownership among stakeholders of the cluster initiative.

Foster cooperation from other supporting clusters.

• Encourage cluster to ensure continuity beyond the formal life of cluster initiative • Resources and sector leadership to be taken on directly by the cluster • Due diligence and formalization of the institutional structure of the cluster

Stage 1 Stage 2 Stage 3 Stage 4

C H

a P

T E

R 3

entities and greater portions of its value chain. The dialogues will result

in a common strategy for competitiveness that is owned by the private

sector and supported by the government. In addition, the tone will be

set for other collective tasks and analyses to be undertaken throughout

an initiative’s development. During the process, a facilitator or facilita-

tors will be enormously helpful. Besides having an excellent facilitator

in cluster development team, the role of an industry expert is apparent.

While the job of the facilitator involves assisting participants identify key

challenges and opportunities, that of the industry expert is to validate or

refute the hunches of businessmen thorough analyses. These two are the

building blocks that enable clusters to formulate a systematic strategy for

both a policy dialogue and the implementation of follow-up tasks.

One should start with cluster-

mapping…

Stage 1: Cluster Mapping and Initial Competitiveness Engagement

Objective (i) Establish cluster-economy embeddedness; (ii) bring key actors within clusters together around shared interests; (iii) test appropriateness of longer-term project.

Milestone MOUs signed between selected clusters and government.

key decision Continue or not with long-term cluster competitiveness initiative.

The first stage involves engaging cluster and policy leaders to produce

an economy-wide map that shows cluster locations and their link-

ages with the wider economy. The aim is to understand actual cluster

behavior. In countries where data are available at the cluster, subcluster

and firm levels, actual linkages within and between clusters are tracked

through detailed analyses of their sourcing and selling behaviors as

well as their business alliances. This analysis then allows the mapping

of clusters across geographies indicating the locations and perimeters

C H

a P

T E

R 3

of the given clusters. It is important to note, however, that such detailed

data is often not easily found in several developing countries.

In practice, the initial stage of a cluster initiative involves bringing on

board cluster leaders and policymakers to establish the concept’s valid-

ity before deciding on which clusters to work with. Ideally, discussions

with policymakers should be based on a rigorous cluster mapping ex-

ercise as described above. However, the fact that adequate and accurate

data often are unavailable must be taken into account. This may make

technical analyses rather arbitrary and subsequent policy dialogue less

informed, which may result in major failings during a cluster initiative

process. An in-depth evaluation of cluster competitiveness initiatives by

USAID (2003) showed that pre-selection of clusters in most developing

countries failed because it tended to create a poor psychological con-

tract whereby cluster leaders believed they were receiving a mandated

entitlement. Cluster specialists have partially overcome the data prob-

lem by requiring clusters to prove their worthiness for engagement

by demonstrating their commitment through the investment of time,

ideas, and most importantly, through their willingness to bear the initial

costs of developing an initiative.

Therefore, a key method of cluster selection is self-selection, which is

one of the outcomes of the initial cluster engagement. Thus, it is im-

portant to include several key clusters in the long list of candidates for

inclusion in the initiative if only through descriptive statistics. This long

list of clusters is usually the result of analyzing the economy’s major

industries, including the major export industries. Especially important

are industries that are key to a specific region and those that are grow-

ing quickly even if they are still small. This approach limits the danger

of trying to create clusters where none exists.

Not all cluster initiatives use self-selection. Sometimes, the government

will identify a long list of clusters to work with and have consultants

shorten the list. While doing this, it is important that consultants take

into account the cluster leaders’ enthusiasm for and commitment to

…although there may be practical

challenges…

…thus giving rise to the idea of self-

selection.

C H

a P

T E

R 3

the possibility of developing a cluster initiative. Leaders who are unen-

thusiastic are unlikely to participate fully in the development process

and their clusters are unlikely to benefit significantly.

An important contribution donors can make at this stage is the provi-

sion of expertise. The initial staffing for Stage 1 normally involves a

seasoned facilitator and an industry expert with sharp analytical skills

and in-depth knowledge on the sector. A local operations and research

support team is important not only to assist the facilitators but also

to prepare for handover of the cluster upon completion of the life of

the cluster initiative. In addition to this, it is important that a gifted

and respected local co-presenter be made part of the cluster initiative

process from the very outset in order to provide local insights and

credibility. This is a lean team to prepare and conduct initial presenta-

tions, contract the local team, and manage their preparation of initial

economy-wide and cluster analyses.

The local sponsors of the cluster initiative are responsible for con-

vening cluster and government leaders. If this has not happened, the

initial team will have to develop its own cluster and leadership maps

and invest the time to ensure that leadership meetings are properly

convened. The initial team also selects and contracts with a local

counterpart that can help benchmark the current position of local

industry clusters relative to their counterparts in other countries. An

intensive round of compelling and relevant presentations are made

by knowledgeable presenters using participatory methods to cluster

leaders, two or more government ministries, various business associa-

tions, the economic press, economic and business faculties, and civic

associations. Each presentation is tailored to the specific interests of

the audience but shares the common theme of defining competitive-

ness, benchmarking the country’s current position, demonstrating

how competitiveness is achieved, providing practical examples from

their industry in other countries, and using highly interactive and

participatory techniques to elicit responses and to test relevance and

receptivity.

Local ownership is a must…

…and local partnership

should be ensured in leadership, analyses and

implementation…

…so that clusters do not focus on

government favors but form a genuine

collaboration for competitiveness.

C H

a P

T E

R 3

Facilitators must make it clear that only a handful of clusters will be in-

cluded in the initiative; inclusion is not guaranteed. Clusters will largely

select themselves by meeting certain requirements, including:

convening a critical mass of the entities comprising the cluster • agreement not to focus on subsidies and protectionism• formal commitment to invest time• agreement to invest financial resources or to line up financing for • strategic initiatives that prove to have strong positive returns

a checklist for engaging clusters

To be led by cluster specialists in coordination with donors and policymakers:

An economy-wide cluster mapping•

Competitiveness and benchmarking materials tailored to the country and to the industries that will • be convened (month 1);

Leadership in each industry cluster convened (month 2);•

Intense round of compelling competitiveness presentations made to a diverse set of industry clus-• ters, more than two government ministries and several universities (month 2);

Initial diagnostic work conducted with a selected subset of industries showing the greatest interest • and commitment (month 3-4);

Presentation of strategy, strategic initiatives and policy initiatives to country leaders and testing of • relevance and receptivity for long-term initiative (month 4);

Go ➔ No Go Decision:

A. No-Go ➔ Go on to next cluster candidate (month 4) B. Go: Initiate an intertwined process of analytical and operational initiatives on the cluster (below)

Implementation of strategic initiatives, policy dialogue leading to reforms, investments undertaken, • results being recorded (2-5 years);

Monitoring and evaluation of results (ongoing);•

Sustainability of cluster initiatives continues and mechanism for reporting results achieved after of-• ficial project ending (post-project).

C H

a P

T E

R 3

While it is helpful for the national government to indicate the impor-

tance of a cluster initiative, it is equally important that cluster leaders

not come to the table primarily to gain special government favors. That

would be a dynamic completely contrary to the objective—to enable

and empower business leaders to improve their results and reposition

their industries by taking responsibility for their own strategic initia-

tives. Once clusters have been selected, one can proceed with cluster

engagement, which is the subject of the next step.

Once clusters have been selected for the initiative, the second stage

involves a strong analytical and process agenda. The initial analysis in-

Cluster strategies will evolve through

interactions and analyses…

Questions to ask during the MOU signing meeting:

What should be the objective of the cluster process?•

What are the 4–5 things that we are agreeing to? •

[e.g., committing to attend regular meetings at agreed intervals, committed to inclusiveness or • agreeing to participation parameters during the cluster process, initial and on-going financing ar- rangements (how activities/initiatives should be funded), appointing a cluster champion]

What is the formal and informal credibility of the entity signing the agreement?•

Stage 2: diagnostics and Strategy Formulation

Process Objective (i) Build cooperation and raise strategic sights; (ii) apply industry diagnostics and produce sound strategy

Milestone Formal presentation of industry strategies to cluster constituents

key decision Cluster representatives must formally sign off

C H

a P

T E

R 3

cludes tools described in Chapter 2 (product and market segmentation,

SWOT, GAP, Porter’s Five Forces analyses, value chain analysis, market

trend analysis, relative competitive positioning, and possibly others). In

general, tools focusing on team-building (Tools 2–5) should generally

precede thorough analyses (Tools 6–8); yet there is no strict linearity in

application of the cluster tools. If anything, what differentiates a clus-

ter approach to competitiveness from several other approaches is that

team-building, industry analyses, and strategy formulation are inter-

twined and overlapped with each other. Each of the elements provides

the building block for the other two throughout the entire lifespan of a

cluster initiative.

What kind of competitiveness strategies should a given cluster ini-

tiative focus on is a question that should evolve from the cluster

dialogues and analyses, and should be fully owned by the cluster

members. Experience shows that these are largely about creating foun-

dation of knowledge and innovations, or strengthening inter-cluster or

cluster-economy linkages, promotions, reform of policies and public

institutions, etc. Although there is no strict recipe as to what kinds of

strategies may be identified by a given cluster and how they evolve

over time, a broader process of strategy formulation can be described

in three phases.

The Analytical Agenda. This consists of industry and policy analyses

as well as the formulation of technical assistance and strategic actions.

Here is where most of the tools described in this toolkit are applied.

The facilitator, who conducted the initial diagnostics in coordination

with the public sector (government and/or donors), plays an important

role in the analytical agenda phase, but the process is much more coop-

erative and should ensure active involvement of cluster members and

policy specialists through cluster workgroups and in-depth interviews.

Clusters should play an increasing role in determining the analytical

agenda, with the facilitator serving as a resource.

…and mature through meaningful

collaborations.

C H

a P

T E

R 3

Industry Diagnostics. Once a memorandum of understanding

is signed, the facilitator will apply the diagnostic tools described

Chapter 2. A leading global expert from the industry in question may

provide technical assistance. The combination of excellent facilita-

tion skills, strategic thinking, and industry expertise is powerful, and

under normal conditions elicits a high level of counterpart commit-

ment from the clusters. Early cluster initiatives in many countries took

several months to analyze the clusters. However, in later initiatives the

time needed for diagnostics was reduced substantially. Approximately

5–6 cluster sessions and detailed consultations with policymakers

and industry experts may be held to apply the diagnostics. The results

are compiled and the conclusions are presented to stakeholders. The

conclusions are then summarized succinctly, referring to the support-

ing analyses.

Study Tours and Expert Visits. While the diagnostic tools are being

applied, arrangements can be made for key cluster members to go on

study tours to target markets or countries where centers of excellence

are located and which represent leading clusters in their industries.

These study tours often take place in the context of major international

industry conferences and conventions. The Pakistani gems and jewelry

industry, for example, visited the exclusive Magic Show in Las Vegas

and the more accessible regional gems and jewelry convention in Bang-

kok, Thailand, making immediate sales in the latter. The facilitator and

industry expert often prepare cluster participants to take maximum

advantage of these trade shows, helping them make appointments in

advance with important industry contacts and arranging site visits in

the host country.

Strategy Formulation. With the application of each successive diag-

nostic tool, a strategy to improve cluster competitiveness takes shape.

Tools such as market trend analysis and competitive positioning are

particularly relevant to informing stakeholders regarding strategic deci-

sions. The strategy begins with an articulation of a vision for the cluster,

elaboration of challenging and quantifiable goals, the identification of

C H

a P

T E

R 3

strategic initiatives to reach those goals, and the pinpointing of policy

and institutional constraints that impede the strategy’s implementation.

Cluster leaders formally sign the strategy document to indicate that it

represents the clusters’ consensus. This milestone is useful although the

strategy is a living document that will evolve over time.

Possible roles of policymakers and/or donors throughout the development of a cluster initiative

Identifying sources of financing • to kick-start cluster initiatives and meet immediate costs, such as hiring a facilitator, cluster meetings, etc.

Selection of Facilitators. • Once sources of finance have been identified, the government plays a criti- cal role in selecting the cluster team. The sponsoring government agency and the contractor also agree on project objectives and a monitoring and evaluation framework, but leave room for specific metrics to be defined by cluster members. When cluster projects are envisaged as part of broader policy reform program, it is advisable to have a policy specialist work within the core cluster imple- mentation team. The policy specialist should pay special attention to intra- and inter-cluster discus- sions to note policy implications that may arise.

Cluster Engagement and Selection. • The sponsoring government agency works with facilitators to select the long list of clusters to be considered and then the short list of clusters to be included in the initiative.

Diagnostics and Strategy Development.• The government may or may not choose to participate in all cluster events but should be present at key milestones, such as the initial presentations, the first cluster meeting following the signing of a memorandum of agreement, the formal acceptance of the industry strategy, and other meetings as may be deemed useful.

Implementation.• The government may assist in brainstorming on sources of finance to implement strategic initiatives. The government can play a key role in facilitating the participation of donors, who often have access to outside financing and technical expertise.

C H

a P

T E

R 3

Stage 3: Implementation of Strategic, Policy, and Institutional Initiatives

Process Objective (i) Implement strategic projects, mobilize investment, and improve the business environment; (ii) mobilize cluster leaders to initiate productive public-private dialogues for implementation of policy and strategic initiatives.

Milestone Strategic and policy initiatives being implemented

key decision Choice of investment funding sources

Initiatives could be about supply

development, diversification, cost

reduction…

The combined inputs of local and international industry experts, the

competitiveness strategy expert, visits to international centers of excel-

lence, and trade show visits will have led to a mix of 5–15 policy and

strategic initiatives. These will vary by industry cluster and are unique

to their specific situation.

1. Strategic Initiatives

These are activities industrialists within the clusters undertake on their

own with the support of facilitators and/or technical experts. They may

include a wide range of activities, such as those that are demand relat-

ed, focusing on market and consumer intelligence (e.g.,, the Mongolian

tourism which sought to attract Japanese tourists), on producer link-

ages (e.g.,, the Thai animation cluster which brought together fledgling

software animators and gave them a successful platform–Thai Anima

Exposition), on market diversification (e.g., the Sri Lankan tourism

cluster which refilled hotel beds by focusing on the Indian market after

a terrorist attack deterred European and US arrivals), or on branding

(e.g., the Sri Lankan sapphire cluster), e-commerce (e.g., the Romanian

C H

a P

T E

R 3

tourism/b&b cluster). Or they may be product-related with a focus on

private sector standards and certifications (e.g., Thai agricultural clus-

ter), cost reduction or product diversification. They may be related to

innovation with a focus on technology acquisition, R&D, and workforce

development. Or they may focus on the efficiency of the supply chain

or investment and export promotion.

2. Policy Initiatives

While strategic initiatives can be undertaken by the private sector

alone, policy initiatives ultimately require decision-making by the

public sector. A cluster initiative’s promoters should wait until the

preparatory phase is complete before engaging outside government

agencies to discuss issues related to macroeconomic and trade poli-

cies, business regulatory constraints, investments in infrastructure and

human resources, etc. The role of a cluster initiative in this is to move

away from old models that assign the entire responsibility to either the

government or the private sector; instead, the initiative should cata-

lyze a process whereby context-specific, location-specific, and issue-

specific collaborations emerge between the public and private sectors

to address policy bottlenecks more effectively. A carefully thought out

public-private dialogue should be embedded in the initiative develop-

ment process from the outset, making policy formulation from industry

insights a natural and organic outcome.

Cluster leaders typically will seek to turn the discussion to something

of immediate advantage to them, which often means enumerating

policy and institutional shortcomings and blaming the government for

the state of their industry. Cluster competitiveness facilitators should

expect this and be capable of developing a psychological contract with

cluster leaders that the focus of discussion will be on strategically repo-

sitioning their industry, not complaining about the government. A good

facilitator will need sound and rigorous policy and business analyses

to diagnose the situation accurately and offer meaningful leadership in

…or about policy reforms…

…in areas of clusters’ concerns.

C H

a P

T E

R 3

policy dialogues. These will add mileage to the spirit of public-private-

partnership cluster projects often foster.

A good case in point is the Pakistan dairy cluster. Even at an early stage

of cluster development, the members saw the need to correct the

national trade policy bias against imports of small-scale dairy chillers.

While the large-scale chillers enjoyed duty exemption, small-scale chill-

ers carried a tariff approaching 50 per cent of the ad-valorem value.

The cluster project helped broker a dialogue between the private

sector and the government that resulted in an immediate elimination

of these duties. Within months, the dissemination of dairy chillers in

remote villages increased substantially, doubling rural milk collection

rates. Another case is the Sri Lankan tourism industry. Having success-

fully implemented a business strategy to attract Indian tourists to offset

European and US cancellations due to a terrorist attack, the Sri Lanka

tourism cluster persuaded the government to agree to an open skies

policy that widened the scope for tourism substantially.

There are other examples. The Pakistani marble and granite quarry-

ing industry created a model quarrying facility as a private-public

partnership to teach specialized techniques to recover larger slabs of

marble instead of using indiscriminate blasting techniques. The Croa-

tian furniture cluster enhanced the effectiveness of export promotions

by developing design competitions conducted among manufacturers

to select the best designs to display at international expositions. This

private-sector-led selection process was crucial to releasing the export

promotion agency from bureaucratic lethargy.

3. Institutional Initiatives

At times, policy formulation or change may not be sufficient to over-

come industry bottlenecks, which can require long-term processes or

even the establishment of new institutions to develop mechanisms for

new policy implementation. A good example is Fundacion Chile, which

C H

a P

T E

R 3

is a key institution enabling technology transfers to Chile’s renewable

natural resource clusters. It developed over three decades through a

complex and incremental collaboration between government at various

levels, Chileans abroad, R&D institutions, and private firms. Fundacion

Chile started out as a specialized service provider in 1976. Between

1982–85, it took on responsibility for incubating companies with new

technologies to nurture a demonstration effect. Since 1986 it has evolved

as a self-sufficient organization by weaning itself off public funding un-

der the guidance of the McKinsey consultancy.

Another example is the case of labor training in Lesotho’s apparel in-

dustry. The government started out by providing stand-alone training of

apparel machinists, which was formidably costly and utterly unsustain-

able. Over 80 per cent of the graduates remained unemployed while

nearby factories continued to suffer from a shortage of trained machin-

ists. Factories complained that the graduates did not meet their needs

and hence were unproductive. A study showed that 69 per cent of

Lesotho’s businessmen were willing to pay for training if it addressed

their needs. (DFID, 2002) A cluster model was used, first to promote

networking among factory owners, and then eventually to forge a

public-private-dialogue to develop a roster of training experts and a

collection of training modules that met international standards. Once

the public sector established the infrastructure and training schools,

factory owners paid for training modules and sessions as per their

individual needs. On one hand, this mechanism addressed the scarcity

of skilled manpower; on the other, it solved the problem of the low em-

ployability of graduates from the government’s training institutes. Today,

Lesotho’s apparel exports constitute close to 40 per cent of the African

total. (World Bank, 2008)

For donors, this stage is also an opportunity to capture important

cluster- and industry-specific insights for subsequent formulation of

country assistance strategies. For the World Bank, this could involve

incorporation of critical industrial insights into operational lending ac-

tivities, as well as coordinating with country dialogue exercises, such as

Or, they may be about developing

institutions to work on innovation and

technology…

…and a lot depends on where investments come

from.

C H

a P

T E

R 3

Mobilizing Co-Investments for financing the initiatives

Strategic and institutional initiatives require varying levels of investment. These are often identified in the later stages of cluster engagement when the project team works with cluster stakeholders to develop business plans and financing proposals. Depending on whether the proposed initiatives are for building public or private goods for competitiveness, financing sources may vary:

Commercial bank financing:• This is a market-based solution. Bank officers who participated in the clus- ter process (such as through the finance workgroups) may be persuaded to offer favorable terms for the creation of cluster products and services;

Equity financing:• Companies, either individually or through joint ventures, may invest their own funds in implementing a strategic initiative. In Sri Lanka, several companies created a joint venture to establish the first eco-tourism lodge as a way of sharing risk and learning together about this niche of the market. This includes co-financing by cluster members or through an outside investor, based purely on projected market returns;

Development bank financing:• Development banks are not only able to provide financing at below-market rates, but can also serve as financing wholesalers by mobilizing other private and non-private banks;

Industry Cess: • This can be a voluntary check-off system such as with the US Soybean Association, or a cess on international telephone calls by hotels in the tourism industry as was developed in the case of Dominican Republic.

Voluntary industry contributions: • Many industry clusters have found ways to raise funds among them- selves to sponsor strategic initiatives that have evident and broad benefits for the cluster;

Venture capital investment:• This is particularly applicable in high tech sectors in more advanced countries, as a form of innovative private sector financing. Angel investment communities can also be involved to provide seed capital. In Sri Lanka, a venture capital group combined with industry to fund the development of tea color separator technology by University of Moratuwa engineers;

Attraction of new investment: • This can help fill gaps in the value chain. This requires coordination between the industry and the country’s foreign direct investment (FDI). It can be especially relevant in the apparel industry, where button or label makers may be needed to round out the cluster and improve turn-around-time and logistics.

Government investment: • When public goods are involved, such as supporting infrastructure or special- ized training, seeking government investment may be appropriate.

C H

a P

T E

R 3

Successful cluster initiatives will last

beyond the project lifespan…

…in various forms.

Policy Notes and Country Assistance Strategies. It is important to build

on the momentum after the initial policy dialogue takes place, so short-,

medium-, and long-term assistance instruments need to be carefully

considered and sequenced. This includes allowing the cluster to come-

up with its own financing solutions (See box).

When cluster initiatives are successful, participants tend to explore

organizational modalities to continue operations. They may decide to

establish a formal organization to make legal representations or under-

take expenditures. This is not a decision that the outside funding agent

or contractor should make. Indeed, the reason for having an informal

cluster organization is not to compete with existing industry associa-

tions but to involve all of them if they are active.

It is very much in the interest of a cluster initiative’s sponsor(s) that it

continue after the project ends. First, it shows the project concept was

valid and participants want to keep it going. Second, the cluster usually

wants to inform the initiative’s sponsor(s) of the ongoing results—in-

creases in employment, value-added, productivity, exports, etc.—which

often reach critical mass after the project has ended. This reporting can

be useful for post-project validation, and a little ongoing engagement

Stage 4: Post-Initiative Sustainability

Process Objective (i) Cluster undertakes post-initiative projects; (ii) continuation of long-run investments.

Milestones Cluster organization continues after the intervention.

key decision Choice of organizational modality.

C H

a P

T E

R 3

with the sponsor can catalyze additional strategic and policy initiatives.

The cluster can also be enlisted to support other economic reform and

policy initiatives in which the sponsor may be involved.

A cluster’s formal organization can take various forms:

Non-profit organization• , which has the benefit of not being taxed and projects the image of service to the cluster, the govern-

ment, and the broader public, while staying focused on cluster

activities.

Industry association• , if the interests of some cluster components (e.g., farmers or exporters) can be balanced with interests of other

cluster components (e.g., technicians and other service providers)

Corporation• , when the cluster needs to receive contributions and make investments. These were formed in Pakistan to receive public

and private contributions and invest in initiatives with common

benefits. The key challenge with this modality is often the profes-

sionalism of the management, especially when government funding

is involved.

During the latter half of a project, it is advisable to provide organiza-

tion, legal, and tax specialists to the cluster initiative team and to focus

on the legal and organizational modalities for post-initiative opera-

tions. The initiative will have paid the costs of the project coordinator,

industry experts, facilitator, and policy specialists providing technical

assistance. The cluster will have to find a way to absorb these costs if it

decides to continue at the same level of operations.

C H

a P

T E

R 4

CHaPTER 4 POLICY IMPLICaTIONS FOR COMPETITIVENESS

As discussed in the previous chapters, cluster initiatives could be effec-

tive tools for countries to improve their competitiveness in international

trade. Clusters may evolve naturally over time to exploit economic

benefits of location-specific externalities and synergies. Specific cluster

initiatives can be developed to draw from and expedite the spillovers

influencing economic performance within and across clusters. But com-

petitiveness is not a quick fix; stakeholders will eventually agree that it is

a complex challenge and no single policy or grand step can be a panacea.

This chapter explores some of the major policy and institutional deter-

minants of export competitiveness. It adopts an analytical framework

that distinguishes between micro-level business strategies that dictate

the extent to which an economy can gain competitiveness on the one

hand and the broader macro-level issues which must be addressed on

the other hand. Competitiveness is largely determined by the produc-

tivity with which a nation uses its human and natural resources. It is

not a static concept but dynamic especially in the context of pervasive

globalization, which has resulted in a dramatic rise in technological

absorption, leading to companies’ increased sophistication and markets’

unprecedented global integration. Competition is no longer restricted

to the traditional fronts of cost and price but increasingly plays out on

multiple fronts: connectivity, standards and certifications, quality and in-

novation, exploitation of cultural and geographic endowments, success

of branding, etc. Because these new fronts are constantly changing and

reshaping, a competitiveness strategy should be dynamic and should

simultaneously engage diverse institutions and agents that are neither

wholly private nor wholly public and that are linked at various levels

on various dimensions.

A competitiveness strategy should start from the basic. It is impos-

sible to work towards competitiveness until there is a sound incentive

Competitiveness is complex…

…but micro and macro issues should

be differentiated and addressed.

C H

a P

T E

R 4

regime in place to ensure that resources flow to the industrial sectors

that have the best comparative advantage, and within those, to the

firms that are economically most efficient. The incentive regime should

reward good performance such as high productivity and large positive

externalities, and punish bad performance such as rent seeking. If such

a regime is not in place already, it should be the starting point of any

discussion on competitiveness. A competitiveness strategy should not

shy away from first generation economic reforms such as deregulation

of domestic markets, removal of explicit and implicit trade barriers,

ending distortions in exchange rates and taxation, and development of

a sound property rights regime, etc.

Experience from around the world has shown that formulation of mac-

roeconomic policies alone may not be sufficient to trigger and sustain

improvements in competitiveness; attention also should be given to

An Economic Incentive Regime Import and export tariffs, exchange rate systems, factor market and tax policies.

Services and Costs Energy, telecommunications, customs services, transport and logistics, specialized skills and business services.

A sound incentive regime and

infrastructure are essential…

Core Policy Framework for Competitiveness

Pro-active Policies and Institutions Export and investment promotion agencies, standards bodies, agencies to support innovation and R&D, cluster facilitation, agencies to help skills transfer.

C H

a P

T E

R 4

how they are translated into the operations of firms and markets. Firms

that have to pay more than their competitors for energy, telecommu-

nications, customs services, transport and logistics, finance, specialized

skills and business services, and overall security will find it hard to

compete in both the domestic and overseas markets. Competition and

regulatory oversight in these services industries lie at the heart of the

policy challenge.

Beyond macro-economic, infrastructure and the investment climate,

competitiveness is about the way how production and exchange of

goods and services can be made more advanced. Firm sophistication

lies at the heart of competitiveness because the firm is the level at

which wealth is created and competition occurs. But firms’ produc-

tivity is inextricably interknit with the environment in which they

operate. This is what makes the improvement of competitiveness

dependent on the government and other societal institutions. A com-

petitiveness framework should focus on addressing of any government

and market failures that limit access to global and local public goods

necessary for firms to function effectively. Within this, specific atten-

tion may need to be given to public goods such as export and invest-

ment promotion agencies, standards bodies, agencies that support

innovation, R&D, etc.

1. A supplementary cluster tool: Porter’s Framework on Competitiveness

Professor Michael Porter’s framework on competitiveness lies at the

heart of the 10 tools outlined in Chapter 2, and offers an excellent

framework through which to identify and sort the diverse issues relat-

ing to competitiveness. He sets out guidelines to maximize the success

of cluster-based analyses and evaluates the rationale for cluster initia-

tives. Specifically, the Porter Diamond measures competitiveness in

terms of four interrelated areas of: (i) the quality of factor conditions,

(ii) the context for firm strategy and rivalry, (iii) the quality of local

…but so are supply- side issues.

C H

a P

T E

R 4

demand conditions, and (iv) the presence of related and supporting

industries.

Professor Porter has emphasized that improving a clusters’ competi-

tiveness depends on the pace at which firms within the cluster shift

from competing on basic and inherited endowments to competing on

advantages arising from efficient and distinctive processes and prod-

ucts that contain as much added value as possible. Within firms, such

a shift will require innovation of products, processes, and markets,

adaptation of new technologies, and new partnerships among produc-

tive forces, such as workers, suppliers, service providers, and buyers.

Beyond firms, the shift will require parallel changes in the surround-

ing microeconomic business environment, which will depend on the

mobilization of private and public sector actors and institutions. The

business environment is well depicted in the Porter Diamond as a

complex interplay among the forces of factor and demand conditions,

the context for firm strategy and rivalry, and supporting institutions

and industries.

The Porter framework organizes

these issues well, and lies at the heart

of this toolkit.

C H

a P

T E

R 4(continued on next page)

applying the Porter diamond to a Cluster Strategy: a broad Template

A. Factor (input) conditions: The efficiency, quality and specialization of the inputs available to firms

To what extent is the cluster’s competitive advantage depended on • basic factor conditions, i.e. cli- mate, cost and productivity of land, location, availability of basic inputs, low cost labor? To what extent is it based on • advanced factor conditions, i.e. human resources such as skilled labor force, physical infrastructure such as efficient transport and logistics, scientific and technological infrastructure, information infrastructure including economic data and corporate disclosure, etc?

B. Demand conditions The presence of demanding and sophisticated local customers

How directly is the cluster exposed to the most sophisticated and demanding consumers?• Do local consumers or buyers anticipate trends in global demand?• Are there sections of the local market that provide sophisticated feedback signals?• Do the cluster’s foreign buyers send signals or provide feedback to monitor the pulse of change?•

C. Related and supporting industries Who coordinates inter-firm activities in the cluster?• If present, how would you rate the performance of the following institutions? And which among these • the institutions are the key reasons behind such performance: industry associations, chambers of commerce, small business associations, export associations, cooperatives, industry boards, stan- dard setting agencies, rating agencies, other institutions? Are there competitive and high quality suppliers?• What is the availability and quality of business services?• Are there strong ties with research institutions?• What is the quality of education and training providers?•

D. Context for firm strategy, structure and rivalry To what extent are firms investing in new forms of knowledge, innovation and R&D?• To what extent is competition among firms driving the innovation and upgrading process?• To what extent are firms shielded from outside competition?• To what extent do the strategies of firms put upgrading front and centre?•

A Porter Diamond analysis including comparisons with the Dutch clus-

ter (See figures above) showed that although Europe was an important

market for Uganda’s cut flowers, its competitive position was com-

promised due particularly to cut-throat competition among Ugandan

producers of undifferentiated flowers. Uganda exported US$25 million

of cut flowers—about 40 per cent of its total non-traditional agricul-

C H

a P

T E

R 4

Strong association support for business + activities Restrictive shipping facilities through – airport

MEDIUM

Association considering innovative + distribution channels (supermarket, mass- market, direct-to-wholesaler) One company selling directly to consumer + through Dutch partnership 17 growers who began in 1993 or later+ Main export is basic rose which competes – strictly on price All competitors producing virtually the – same product Little consumer knowledge–

LOW Mild year round temperatures, long days + of sunlight, fertile soil Low, but rising wage rates+ High transport costs– Highly-skilled workers expensive– New technology primarily comes from – Europe and Israel Poor road infrastructure– Initiating program for training in manage-+ ment, fertilization, and business activities at Makerere University

MEDIUM

Local consumption of flowers low but + growing (est. $180,000/year) “Ugandans did not give flowers but today + young Ugandans like them and give them as gifts.” No discernment of Ugandan product in – international market

LOW

Strategy and Rivalry

Supporting Entities

Demand Conditions

Factor Conditions

Example: Ugandan floriculture

applying the Porter diamond to a Cluster Strategy: a broad Template (continued)

Source: Monitor Company

tural exports but a mere 0.4 per cent of the global floriculture market.

Uganda was able to benefit from the Netherlands’ experience. Dutch

flowers comprised 55 per cent of the global floriculture market; it is a

seasoned market characterized by advanced factor conditions, sophisti-

cated demand, and strong within-cluster cooperation mechanisms.

The project pointed to four key issues that needed urgent attention

if Uganda’s floriculture cluster to strengthen its global competitive

position:

C H

a P

T E

R 4

Favorable proximity to European markets+ Low transport costs to European markets+ Gas relatively inexpensive+ High productivity of workers+ Heated greenhouse cultivation essential; – government considering energy levy Expensive land– Fertilizer and pesticide emissions to the – soil, air, and water meet increasingly stringent environmental standards High labor costs– Scarcity of labor– Excellent roadway and airport network+ Advanced computer networks to track + auction transactions (95% of production goes through auctions) Extensive advanced training courses + and research; adequate capital to fund research Many growers have in-house research + facilities

HIGH

Logistics coordinated through auction + houses; two largest auction houses account for 81% of production High proportion of costs incurred by + grower offset by extremely efficient logistics system Research and technology from related + sectors, i.e. vegetables Share distribution channels with flower + bulb and tree nursery sectors Strong position in breeding and + propagation Information and innovation pass quickly + through network of sectors

HIGH

High located demand—61% of families + buy flowers at least once every 4 months Strong local demand for new products +

HIGH

Heavy domestic rivalry (9,350 cut flower + nurseries, 1900 exporters) Technology leaders+ Differentiated product strategy +

HIGH

Source: Monitor Company

Strategy and Rivalry

Supporting Entities

Demand Conditions

Factor Conditions

applying the Porter diamond to a Cluster Strategy: a broad Template (continued)

1. Although some Ugandan producers started floriculture exports as

early as 1993, they had not differentiated their products in the Eu-

ropean market. Their main exports were basic sweetheart roses and

chrysanthemums. Such undifferentiated products were not only

overly dependent on basic factors such as cheap labor, sun, and soil,

but also were exposed to volatile pricing.

2. Lack consumer knowledge and the specialized skills necessary for

product sophistication was one reason Uganda was trapped in the

low-cost flower segment. Compared to the Dutch cluster, acquir-

a Comparator: The dutch floriculture

C H

a P

T E

R 4

There will always be more pressing

barriers than others in any economy…

ing skilled scientists and managers in Uganda was difficult and

expensive.

3. Infrastructure bottlenecks were the second reason why Uganda

had not advanced and diversified its products. There was an appar-

ent need for more reliable and less costly services, e.g., transporta-

tion to market, shared distribution channels with related industries,

and tracking of the delivery system.

4. Knowledge and infrastructure were both giant issues in them-• selves and could not be solved with a single stroke. However, as

was the case with Dutch floriculture, strategic and incremental

interventions could be designed to address these issues at a cluster-

level. Discussions are already underway in Uganda among private-

sector cluster representatives and the government regarding

advanced training systems, R&D, and transport networks.

2. Cluster initiatives as policy catalysts for competitiveness

Competitiveness in developing countries depends both on microeco-

nomic business environment (e.g. access to capable suppliers and

related support industries) as well as the macroeconomic fundamentals

(e.g. demand conditions, factor conditions and context for firm strategy

and rivalry). One implication of the tools and methodologies presented

in the preceding two chapters is that competitiveness initiatives in

developing countries require sustained efforts to develop a common

platform between the private and public sectors to systematically

formulate problems, undertake diagnostics and analyses and design

reforms on both micro and macro fronts.

Although economies suffer from myriads of problems, in any given

cluster at a particular point in time, a few elements will represent the

most pressing barriers to improving competitiveness. This may certain-

ly vary across countries depending on the stage of development they

are in. For middle-income countries, the relatively developed infrastruc-

ture and the better functioning market suggest that their rivals are

C H

a P

T E

R 4

often the higher income countries and they require additionally sophis-

ticated interventions both in terms of economic policy reforms as well

as formulation of firm-level and supply chain strategies.

For lower-income countries, efforts on competitiveness may have to

start at a lower level. On the one hand, they may need to start correc-

tion of market and government failures in functioning of the factor and

demand conditions. On the other hand, it is likely that cluster initiatives

themselves may encounter added challenges having to do with the

lack of data required for analyses and the basic institutional structures

required for effective implementation.

Setting aside country-level differences, however, it would still be a mis-

take to base any competitiveness strategy on ideological assumptions or

narrow notions of zero-sum competitiveness. Situations may arise where

macroeconomists are arguing for complete government withdrawal

from market activities, and the private sector is lobbying for higher pro-

tection and weaker regulation. In such cases, it is important to ensure

that cluster initiatives develop a strategic order for policy reforms firmly

underpinned by in-depth cluster analyses and sound sector expertise.

A rigorous road map for achieving competitiveness is impossible to

draw, and there is no set formula as to what is the role of the public

and private sectors in leading competitiveness initiatives. The classi-

cal notion that government have impmerfect information and hence

should not be picking winners is increasingly being complemented

with the new realization that the private sector also suffers from imper-

fect information and externality dilemmas when it comes to creation of

public goods. Notwithstanding this, the tools and methodologies pre-

sented in this document points to the following principles and policy

directions that appear likely to promote progress of clusters and that

may be able to guide policy makers.

Cluster-specific competition policies• can be the starting point of the initial cluster dialogues where public sector has a clear role.

…and priorities may vary across

countries.

A road map does not exist…

C H

a P

T E

R 4

It is generally seen that once organized into clusters, firms have

more incentives and ability to improve their individual perfor-

mances than vertically integrated conglomeration of firms because

of the pressure of head-to-head competition within local rivals. Also,

compared to industrial policies which tend to be isolationist and

economy-wide approaches which tend to be generic, hurdles to

competition are often easier to spot at a cluster level, and it is the

role of the government to correct them.

Specialized inputs and skills • are easier to access and are cheaper when firms are spatially organized in a cluster. Firms may

acquire inputs like production components, machinery, and busi-

ness and training services through vertical integration or formal

alliances, but complex bargaining and governance problems can

inhibit a firm’s flexibility. Instead, when firms are organized in

a cluster, they offer a critical mass, which attracts such inputs

but makes it possible for firms to engage in informal—and often

superior—relationships.

Public information and knowledge• of buyer needs, markets, and production mechanisms are more effectively accumulated and dis-

seminated within clusters than the government on its own. The pub-

lic sector may have a role in developing mechanisms in these areas.

Quasi public goods • such as specialized infrastructure, specialized educational programs, trade fairs, FDI attraction, information and

technology pools, quality centers, etc, can be better handled by gov-

ernments at the cluster level than either the macro or sector levels.

Clusters as the ‘search engines,’• or a filtration process, through which better performing industries, processes and practices, and

markets could be singled out from the lesser performing ones.

Given the existence of market and government failures, it is advis-

able that cluster performances are used for developing scrutiny

and/or reward mechanisms for policies and institutions to qualify

for any public support.

These are some of the critical areas where the public sector has a role

in removing binding constraints for competitiveness. These can be

…but creation of some of the public

goods is a necessity for all.

C H

a P

T E

R 4

seen at various levels. First, effective cluster initiatives would have en-

gaged private and public sector stakeholders into a joint action group

which demonstrate clear ownership of any policy discussions relat-

ing to the cluster. Stakeholders may include business leaders, trade

associations, entrepreneurs’ associations, standards-setting agencies,

quality centers, technology networks, etc. Effectiveness of the cluster

initiative will in fact be reflected in a strategic diversity of institu-

tions involved within the cluster initiative as well as the cluster’s bias

toward action.

Second, clusters promote joint business strategies and lead public-

private dialogues to scrutinize and fine tune policy reforms. Porter’s

Diamond analysis can be particularly useful in ascertaining the strate-

gic efficiency of proposed reforms, while the specific technical tools

such as value-chain analysis, market-trend analysis, and competitive-

ness positioning analyses can ascertain operational efficiency of such

reforms.

Finally, when led by a competitiveness-oriented leader and under-

pinned by analytically sound evidence of strategic and operational effi-

ciencies, public-private dialogues generated through a cluster initiative

can suggest a detailed policy map that is politically more feasible, while

it addresses the most critical constraints and improves communication

among stakeholders. It can also provide a platform of legitimacy to

implement reforms in a situation where politicians and specific busi-

ness lobbies have vested interests against the proposed reforms.

The table below shows some of the potential policy and strategic re-

forms that to evolve from a cluster initiative pursuing competitiveness:

Cluster initiatives help policymakers engage effectively

with the private sector…

…scrutinize and fine tune reforms…

…and draw a detailed policy map

and implement it meaningfully.

C H

a P

T E

R 4

Possible policy and strategic recommendations from a cluster initiative

Public Policy Private Sector Business Implications strategy implications

Remove entry/exit barriers in industries • related to the cluster. Remove regulatory burdens that prevent • firms from functioning efficiently. Develop institutions that cater to the • collective R&D needs of firms in the cluster. Develop institutions that offer special-• ized skills for competitiveness. One-stop shop for dissemination of • public information on products and markets. Facilitate export promotion and FDI • attraction. Develop provisions for basic provisions • such as land, labor, and capital as well as advanced factors such as skilled labor, technology and equipment, faster/ cheaper transportation, etc.

Identify new product and market seg-• ments and develop business strategies for increased outreach. Shop floor enhancements of technology • and management for higher productiv- ity. Improve the capacity of specialized • input and service providers. Market research• Promotion of specific products in the • local, regional and international markets Develop semi-private institutions such • as business associations, research and advisory centers, knowledge transfer centers, etc.

Cluster-specific

Economy-wide

Restructure the incentive regime and set • up performance measurement systems as necessary. Develop basic infrastructure necessary • for industries to function. Develop sound institutions that contrib-• ute to the capitalization of natural and socioeconomic endowments. Develop strong human capital.• Expedite overall regulatory reform.•

Increase private sector investments in • infrastructure and services. Strengthen private sector capacity to • smooth and sophisticate the overall supply chain. Develop strong, competitive institutions • for training and R&D.

a N

N E

X E

aNNEX 1 aCRONYMS aNd abbREVIaTIONS

ASEAN The Association of Southeast Asian Nations

DFID UK Department for International Development

EC-TG Export Competitiveness Thematic Group, The World Bank

FDI foreign direct investment

FIAS Foreign Investment Advisory Services, The World Bank

ICT information communications technology

IFC International Finance Corporation

ISC Institute for Strategy and Competitiveness, Harvard

Business School

ISO International Organization for Standardization

IT information technology

ITC International Trade Centre

JAA J.E. Austin Associates Inc.

MOU mémorandum of understanding

MSME micro, small and medium enterprises

NTB non-tariff barriers

NWFP North West Frontier Province of Pakistan

PAID process, action, investment, delivery – M&E framework

PISDAC Initiative for Strategic Development and Competitiveness

SARS Severe Acute Respiratory Syndrome

SEZs special economic zones

SME Small and medium enterprises

SMEDA Pakistan’s Small Enterprise Development Agency

SWOT strengths, weaknesses, opportunities and threats analysis

USAID US Agency for International Development

USDA US Department of Agriculture

VCA value chain analysis

WTO World Trade Organization

a N

N E

X E

aNNEX 2 REFERENCE

Bekele, G. and R. Jackson (2007). Theoretical Perspectives on Industry

Clusters. West Virginia University Research Paper 2006–7.

DFID (2002). Lesotho Garment Industry Subsector Study.

Guiliani, E.; Pietrobelli, C. and R. Rabellotti (2005). ‘Upgrading in Global

Value Chains: Lessons for Latin American Clusters.’ In World Devel-

opment. Vol. 33, No. 4. pp. 549–573.

Humphrey, J. (1995). ‘Trust and the Transformation of Supplier Relations

in Indian Industry.’ In C. Lane and R. Bachman, eds., Trust Within

and Between Organizations. Oxford: Oxford University Press.

Humphrey, J. and H. Schmitz (1996). ‘The Triple C Approach to Local In-

dustrial Policy.’ In World Development. Vol. 24, No. 12, pp. 1859–1877.

Ketels, C. and Ö. Sölvell. (2005). EU Clusters in the EU-10 New Member

Countries. Europe Innova Cluster Mapping Report.

Ketels, C.; Lindqvist, G. and Ö. Sölvell (2006). Cluster Initiatives in

Developing and Transition Economies. Center for Strategy and

Competitiveness Stockholm.

Maguire, K. and A. Davies (2007). Competitive Regional Clusters and

National Policy Approaches. OECD Review of Regional Innovation.

Otsuka, K. (2006). Is the East Asian Experience Good for Africa? Foun-

dation for Advanced Studies on International Development (FASID).

Palmade, V. (2005). Industry Level Analysis: The Way to Identify the Bind-

ing Constraints to Economic Growth. World Bank Policy Research

Working Paper 3551.

Pietrobelli, C. and R. Rabellotti (2004). Upgrading in Clusters and

Value Chains in Latin America and the Caribbean: The Role of

Policies. Inter-American Development Bank Sustainable Develop-

ment Department Best Practices Series.

Porter, M. (1979). On Competition. The Harvard Business Review Book

Series.

Porter, M. (1990). The Competitive Advantage of Nations. New York:

Basic Books.

a N

N E

X E

Porter, M.; Ketels, C. and M. Delgado (2007). The Microeconomic Foun-

dations of Prosperity: Findings from the Business Competitive-

ness Index. In World Economic Forum (2007). The Global Competi-

tiveness Report 2007–08.

Quiroz, J. (2007). Cluster Economics: Elements for Program Evalua-

tion. Inter-American Development Bank (IADB), March 2007.

Rodriguez-Clare, A. (2005). Coordination Failures, Clusters and Mi-

croeconomic Interventions. Inter-American Development Bank

Research Papers.

Sabel, C. (2005). Bootstrapping Development: Rethinking the Role

of Public Intervention in Promoting Growth. Cornell University

Conference Paper.

Sabel, C.F. and J. Zeitlin (1997). ‘Stories, Strategies, Structures: Rethinking

Historical Alternatives to Mass Production. In C.F. Sabel and J. Zeitlin

(eds.) World of Possibilities: Studies in Modern Capitalism. Cam-

bridge University Press: NY and Melbourne.

Schmitz, H. (1999). ‘Collective Efficiency and Increasing Returns.’ In

Cambridge Journal of Economics 23 (4): 465–483.

Schmitz, H. and K. Nadvi (1999). ‘Clustering and Industrialization.’ In

World Development. Special Issue, Vol. 27, No. 9, September 1999.

Sölvell, Ö.; Lindqvist, G. and C. Ketels 92003). The Cluster Initiative

Greenbook. The Competitiveness Institute (TCI). September 2003.

USAID (2003). An Assessment of Cluster-Based Approaches. An Evalua-

tion Undertaken by The Mitchel Group.

Vargas, M.A. (2001). Strategies in the Tobacco Cluster in Rio Pardo Val-

ley. IDS Sussex Working Paper 125.

Yehoue, E.B. Clusters as a Driving Engine for FDI. IMF Working Paper,

WP/05/193.

Yusuf, S.; Nabeshima, K. and S. Yamashita (eds.). Growing Industrial

Clusters in Asia: Serendipity and Science. The World Bank Washing-

ton DC.

Zeng, D.Z. (eds.) (2006). Africa: Knowledge, Technology and Cluster-

Based Growth. World Bank Institute Development Study.

CLUSTERS FOR COMPETITIVENESS A Practical Guide &

Policy Implications for Developing Cluster Initiatives

February 2009

THE WORLD BANK 1818 H Street, N.W. Washington, DC 20433