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Diapositiva 1


Clusters of SMEs together ... localized within clusters benefit from collective ... In GVCs and clusters this is often taken for granted and firms' learning ... – PowerPoint PPT presentation

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Title: Diapositiva 1

Clusters, Value Chains and Technological
Capabilities Building Carlo Pietrobelli Professo
r of Economics Director of CREI, University of
Rome 3, Italy c.pietrobelli_at_uniroma3.it
Brussels Rural Development Briefings Brussels,
European Commission 23 September
2009 http//brusselsbriefings.net
A summary in 3 statements
Competitive SMEs are necessary !
  • Micro, Small and Medium-sized Enterprises (MSME)
    play a key role in terms of employment and income
    generation in developing countries.
  • but their development and performance also
    contribute to poverty reduction.
  • The World Bank estimates that 80 of poverty
    reduction is due to economic growth. ..... the
    private sector drives the economic growth
    developing countries need. ....companies offer
    people the chance to get a job and earn a living.
    ... the private sector creates wealth and helps
    individuals and nations lift themselves out of
    poverty. The private sector does not just mean
    multinational companies. Small firms and
    enterprising individuals matter just as much.
    (DFID, 2009).

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

But being competitive is not enoough.. Rents
and barriers to entry
  • All activities contribute to total value, but
    some add more value than others crucial to
    identify which activities provide higher rents
    along the value chain
  • Rents arise in case of differential productivity
    of factors and barriers to entry (scarcity of
    factors and imperfect competition). Rents can
    depend on technological capabilities,
    organizational capabilities, skills and marketing
    capabilities (brand names)
  • These differences among activities are relevant
    to understand the opportunities open to
    developing countries firms
  • The relevant concept here is upgrading

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

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

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

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

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

Different forms of UPGRADING in a Value Chain

UNCTAD Oct.2007 12
How can SMEs face the challenge of upgrading?
Exploiting the opportunities offered by the local
forms of industrial organization Combined
with firm-level efforts to develop
Value Chains
Technological Capabilities
Clusters and Value Chains Two different but
complementary approaches
The analysis of industrial clusters is focused on
the role of local linkages in generating
competitive advantages in export industries.
The global value chain literature emphasises
cross-border linkages between firms in global
production and distribution systems.
A Cluster is a geographical agglomeration of
specialized enterprises
  • Firms (SMEs) localized within clusters benefit
    from collective efficiency (to improve their
    competitive advantages)
  • Together, they generate external economies, that
    may affect (spillover) other firms (involuntary
    effects passive of participating in a
  • They may carry out joint actions (conscious
    effects active of participating to a cluster)

VALUE CHAIN is based on a simple idea Design,
production, marketing of a product, involve a
chain of activities carried out by different
enterprises, in different places. Each activity
adds value.
Why the concept of VC is useful
  • It acknowledges the increasing importance of
    non-production activities (e.g. marketing
    design, sale) for the creation of value added
  • It emphasises the growing importance of global
    buyers and producers as key drivers in the
    formation of globally dispersed and
    organizationally fragmented production and
    distribution networks
  • These external linkages are key channels of
    knowledge for LDCs firms
  • Upgrading (and/or innovation) of firms
    participating in a value chain depends on the
    nature of the relationships (governance and power
    asymmetries ).

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

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

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

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

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

Policies 1/6 Capabilities for Policy-making
  • Improve capabilities for strategic policy design,
    formulation, implementation in LDCs and explore
    and develop avenues for private-public
  • Content of effective policies cannot be defined
    ex-ante, an ongoing process through continuous
    and pragmatic assessments and experiments
    (Pietrobelli, 2006).
  • Examples Public-Private Collaboration in
    Innovation Fundación Chile
  • Examples Public-private sector collaboration in
    innovation. Instituto Nacional de Investigación
    Agropecuaria and the rice sector in Uruguay

Policies 2/6 Standards
  • Technical assistance to support quality,
    sanitary, environmental, industrial standards -
    administered at the cluster level, through
    collective institutions and joint actions.
    Examples of Policy actions
  • Awareness raising campaigns directed to small
  • TA to help local SMEs fulfil international
    standards requirements
  • TA to strengthen local regulatory institutions,
    and institutions setting environmental and
    sanitary standards for local producers
  • Conditioning of the access to loans and grants on
    the effective implementation and maintenance of
    quality and sanitary standards.
  • Examples from SIDA and NORAD promoting African
    exports through quality and product safety.
  • Support the development of national standards
    infrastructures, especially for certification and
    testing to facilitate integration into GVCs
  • Example GTZ program for AfriCert to promote
    Local Certification Capability in Africa
  • Estimated that Argentina loses on average up to
    US 1 billion every year due to sanitary problems
    that force exporters to accept lower prices
    (UNIDO, 2005).

Policies 3/6 Research and natural resources
  • In NR-based GVCs, support to access to scientific
  • Research is concentrated in the leader,
  • SMEs do not easily get access to it,
  • public, local organizations should carry out
    research, disseminate findings, assist SMEs to
    adapt and internalize research advancements.
  • Policy programs to help disseminate research to
    SMEs (Gomes, 2007 on Brazil), engage SMEs in
    collaborations with research institutions, help
    guide the research priorities in directions that
    are useful to SMEs.
  • Strengthen skills and abilities in the backward
    production stages along the chain to help
    interact with global buyers.

Policies 4/6 Cluster-level for policies
  • Several stylized facts (especially in
  • insufficient size of many local suppliers
  • increasing buyer-drivenness
  • compelling demands on local suppliers
  • all point to the need to grow in size and
  • Horizontal cooperation at various stages of the
    value chain to exploit economies of scale in
    service delivery and in local systems to address
  • In this sense, the cluster-level is often
    appropriate to design and implement many
  • Examples promotion of cooperatives (for
    coordination and pooling of production, efficient
    delivery of TA), out-grower schemes linking small
    farmers and large buyers (Humphrey, 2005)

Policies 56/6 Dialogue, Evaluation, Dynamism
  • 5. in the design and implementation of policies
  • Open dialogue
  • transparency
  • accountability and
  • constant evaluation
  • To minimize corruption and private individuals
    (and firms) capturing the whole benefits of
  • Policies need to adopt a dynamic approach and
    evolve over time.
  • Example The Chilean salmon cluster, where
    policy requirements and realizations have evolved
    over time.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Joint actions (Nadvi, 1999)
  • Joint action within vertical linkagesbackward
    with suppliers and forward with traders and
  • Joint action within horizontal linkages between
    two or more local producers joint purchasing of
    inputs, selling under a collective label
  • Joint action within horizontal multilateral
    linkages among a large number of local producers
    co-operation in trade associations, joint
    participation in trade fairs, collective
    provision of business development services.

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