Sustaining Competitive Advantage: The Challenge … · Sustaining Competitive Advantage: The...

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Sustaining Competitive Advantage: The Challenge for Belgium’s Chocolate Cluster DAVID CHAN SABINE PRINZ CARLOS RIVERA HELENE SOW HARVARD BUSINESS SCHOOL MICROECONOMICS OF COMPETITIVENESS PROFESSORS LAURA ALFARO, CHRISTIAN KETELS, AND JORGE RAMIREZ-VALLEJO

Transcript of Sustaining Competitive Advantage: The Challenge … · Sustaining Competitive Advantage: The...

Page 1: Sustaining Competitive Advantage: The Challenge … · Sustaining Competitive Advantage: The Challenge for Belgium’s Chocolate Cluster !!!! DAVID CHAN SABINE PRINZ

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

   

   

 

 

Sustaining Competitive Advantage: The Challenge for Belgium’s

Chocolate Cluster    

è  

DAVID CHAN SABINE PRINZ

CARLOS RIVERA HELENE SOW

HARVARD BUSINESS SCHOOL MICROECONOMICS OF COMPETITIVENESS

PROFESSORS LAURA ALFARO, CHRISTIAN KETELS, AND JORGE RAMIREZ-VALLEJO  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Introduction  

‘National   competitiveness   is   created,   not   inherited.   It   does   not   grow   out   of   a  country’s   natural   endowments,   its   labor   pool,   its   interest   rates,   or   its   currency’s  value,  as  classical  economists  insists.  A  nation’s  competitive  advantage  depends  on  the   capacity   of   its   industry   to   innovate   and   upgrade.   Companies   gain   advantage  against   the   world’s   best   competitors   because   of   pressure   and   challenge.   They  benefit   from   having   strong   domestic   rivals,   aggressive   home-­‐‑based   suppliers,   and  demanding   local   customers.   In   a  world  of   increasingly   global   competition,   nations  have  become  more,  not  less,  important.  As  the  basis  of  competition  has  shifted  more  and  more  to  the  creation  and  assimilation  of  knowledge,  the  role  of  the  nation  has  grown.’    

            -­‐‑  Michael  Porter,  On  Competitioni  

  As   Michael   Porter   notes   in   the   above   quote,   nations   have   become   increasingly   more  

important   in   an   era   of   global   competition.   Given   that   the   basis   of   competition   has   evolved   to   the  

amalgamation  of  knowledge,  nations  play  a  pivotal  role  in  facilitating  both  the  creation  and  sharing  of  

knowledge   between   market   participants   in   an   economy.   Indeed,   such   is   the   genesis   for   the  

development   of   competitive   clusters   –   after   all,   clusters   are   ‘geographic   concentrations   of  

interconnected   companies,   specialized   suppliers,   service   provides,   firms   in   related   industries,   and  

associated   institutions’ii,   and   cluster   knowledge   and   expertise   serve   as   the   interstitial   glue   that  

connects  the  different  cluster  pieces  together  to  compete  effectively.    

  Such  has  been  the  story  of  Belgium’s  chocolate  cluster  to  date  –  since  1635  when  chocolate  

was  first  brought  into  the  country  by  the  Abbot  of  Baudeloo  in  Ghent,  the  development  of  the  Belgian  

chocolate   cluster   has   been   one   of   knowledge   creation   and   sharing   over   generations,   which   has  

allowed  the  country  to  not  only  gain  a  competitive  advantage  in  chocolate  manufacturing,  but  more  

importantly  become  synonymous  with  chocolate  itself.  Coupled  with  a  favorable  location  at  the  heart  

of   Europe  which   led   to   the   development   of   quality   ports   and   transportation   infrastructure,   strong  

domestic  and  regional  demand,  and   favorable  policies,  Belgium  has  not  only  been  able   to  establish  

itself   as   a  market   leader,   but   also   prevent   new   entrants   from   eroding   its   competitive   position.   Its  

colonial   legacy   and   close   relationships   with   Africa   have   also   proven   beneficial,   and   continuous  

restructuring   of   Belgian   chocolate   companies   have   allowed   the   country   to   gain   a   competitive  

advantage   at   each   step   of   the   value   chain   unlike   its   competitors.   More   importantly,   given   the  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

commodity-­‐‑like  nature  of   its  primary  raw  product,  Belgium’s  chocolate  cluster  has  benefitted   from  

the  rise  of  institutes  for  collaboration  on  multiple  levels  –  local,  regional,  and  global.    

  However,   this  paper   is  worried  about  a   few  trends  –   first,   the  cluster  has  been  stagnant   in  

recent   years,   and   has   been   overly   focused   on   producing   only   chocolate   rather   than   considering   a  

diversification   into   other   by-­‐‑products.   Moreover,   there   are   questions   over   the   sustainability   of  

chocolate  production  given  the  availability  and  quality  of  cocoa  beans,  as  well  as  the  sustainability  of  

domestic   and   regional  demand   should  Belgium   lag   expansion   into  new  markets.   In   addition,   given  

consumers   demand   for   healthier   food   options,   Belgium   chocolate   manufacturers   are   facing   a  

fundamental   secular   challenge   to   their   hitherto   manufacturing   processes   –   while   these   processes  

have  been  handed  down  and  improved  on  over  generations,  changing  consumer  patterns  imply  that  

the   the  company  may  have   to  alter   their   current  methods  and   innovate   further.  More   importantly,  

Belgium  faces  a  fundamental  constitutional  question  about  its  polity  –  it  has  been  held  together  by  an  

unnatural  alliance  between  Brussels,  Wallonia,  and  Flanders,  and  questions  around  the  sustainability  

of   this   political   structure   remain   unanswered.   Indeed,   these   differences   are   not   only   accentuated  

through  the  economic  performances  of  these  regions,  but  also  in  the  type  of  policies  each  region  has  

implemented  –  this  lack  of  harmony  is  disconcerting,  and  limits  the  potential  of  Belgium  to  enhance  

its  position  further.    

  In   analyzing   Belgium’s   economy,   the   development   of   the   chocolate   cluster,   and   the   global  

chocolate  value  chain,  this  paper  thus  argues  that  Belgium’s  primary  challenge  moving  forward  is  in  

sustaining  and  improving  its  competitive  advantage.  It  cannot  rely  purely  on  its   legacy  or  historical  

competitive  advantage  to  ensure   future  competitive  advantage,  and  needs  to   formulate  a  concerted  

cluster  policy  to  address  these  issues  to  maintain  a  clear  value  proposition.  

 

 

 

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Overview  of  Belgium  

Located   in   Western   Europe,   Belgium   is   a   federal   constitutional   monarchy   with   a  

parliamentary   system   of   governance,   consisting   of   a   Senate   and   a   Chamber   of   Representatives.  

Divided   into   three   separate   regions,  Brussels,  Wallonia,   and  Flanders,  Belgium   straddles  Germanic  

and   Latin   Europe,   and   is   home   to   two   major   language   groups,   the   Dutch-­‐‑Speaking   Flemish  

community   in   the   north,   and   the   French-­‐‑speaking  Wallonia   community   in   the   south.   It   gained   its  

independence  from  Netherlands  in  1830,  and  during  the  20th  century  occupied  a  number  of  African  

colonies,  including  parts  of  Rwanda  and  Burundi,  and  the  modern-­‐‑day  Democratic  Republic  of  Congo.  

It  had  also  been  occupied  by  Germany  in  both  World  Wars,  and  has  played  a  major  role  in  the  post-­‐‑

war  reconstruction  of  Europe,  not  only  as   the   founding  member  of   the  Eurozone,  European  Union,  

and   NATO,   but   also   the   headquarters   of   the   latter   two   organizations   in   addition   to   many   other  

international  institutionsiii.    

 

 

 

 

 

 

 

 

  In   terms   of   geography,   Belgium   is   approximately   30,528   square   kilometers   large,  

approximately  the  size  of  Maryland.  It  is  located  in  between  Netherlands  and  France,  and  borders  the  

North   Sea,   allowing   for   easy   access   to   major   European   shipping   routes   which   have   led   to   the  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

1.40%

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development   of   Antwerp   as   a  major   port   in   the   region.   It   has   a   population   of   11.3  million,  with   a  

0.76%  growth  rate,  a  median  age  of  41.4  years,  and  a  dependency  ratio  of  54.2%iv.      

Belgium’s  Economy  

  Given  its  central  location,  developed  transportation  network,  and  diversified  consumer  and  

industrial   base,   Belgium  has  managed   to   achieve   solid   economic   performance   over   the   past   thirty  

years  –  GDP  per  capita  has  increased  nearly  4.5  times  from  $10,491  in  1980  to  $44,706  in  2015,  and  

higher  than  the  Eurozone  and  OECD  averages  as  seen  in  the  chart  belowv.  In  2015,  Nominal  GDP  was  

$494  billion,  and  the  economy  grew  by  1.3%.    In  terms  of  GDP  composition,  Belgium  also  has  had  a  

heavy  dependence  on  the  financial  services  sector  –  since  2000,  the  share  of  services  as  a  %  of  total  

GDP  has  increased  from  71%  to  77%,  industry  has  declined  from  27%  to  22%,  and  agriculture  as  a  

proportion  of  GDP  has  also  halved.  In  the  context  of  chocolate  manufacturing,  it  is  also  worth  noting  

that   manufacturing   only   accounts   for   13.1%   of   GDP,   and   employs   13%   of   the   current   Belgian  

workforce.  

 

 

   

 

 

 

 

 

 

 

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

  However,  Belgium’s  economy  has  revealed  cracks  in  recent  years.  As  noted  in  the  following  

chart,   Belgium’s   nominal   GDP   growth   rate   has   been   lagging   the   OECD   average.   Moreover,  

unemployment  has  been  persistently  high  at  8.6%  for  the  past  15  years,  suggesting  broader  anemic  

growth  and  weak   job  creation.   Inflation  stands  at  0.5%   in   line  with  broader  Eurozone  deflationary  

pressures.  While   the   Economic   Intelligence   Unit   suggests   that   inflation   in   2019   could   rebound   to  

1.5%  due  to  enhanced  ECB  quantitative  easing  and  commodity  price  normalization,   the  projections  

for  unemployment  remain  flat  at  8%vi.    

 

 

 Belgium  also  faces  a  bigger  challenge  of  managing  its  fiscal  budget  –  while  is  has  managed  to  

trims   its   budget   deficit   from   3.1%   of   GDP   in   2014   to   2.7%   in   2015,   allowing   it   to   exit   the   EU’s  

excessive  deficit  procedure  (EDP),  the  current  government  still  faces  an  uphill  task  to  follow  through  

on   its   commitment   to   fiscal   consolidationvii.  Admittedly,   a   large  part  of   the  overhang  over   the  past  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

few   years   has   been   due   to   the   government’s   recapitalization   of   the   banking   sector   post-­‐‑financial  

crisis   and   through   the  Euro   crisis   in  2010.  However,   it   is   clear   that   the   country  has  unsustainable  

fiscal  policies  –  social  security  and  welfare  account  for  37.6%  of  government  expenditure,  following  

by  healthcare  at  15.2%.  The  current  government  has  set  an  aggressive  structural  adjustment  target  

of   0.7%   of   GDP   per   year   in   2017,   and   has   proposed   a   reform   program   aimed   at   shifting   from   a  

revenue   based   adjustment   to   an   expenditure   based   adjustment   with   significant   cuts   to   public  

spending   through   the   tightening  of   the  social  welfare  criteria.  Given  anemic  unemployment   largely  

driven  by  high  direct  and  indirect  taxes  of  close  to  55%  (versus  48%  in  France  and  31%  in  the  US),  

the  Belgian  government  has  also  proposed  the  gradual  increase  in  the  retirement  age  to  67  by  2030,  

and  has  also  taken  steps  to  cut  employers’  social  security  contribution  from  33%  to  25%  to  reduce  

the   high   cost   of   labor,   and   increase  worker   productivity.   In   order   to   account   for   this   tax   revenue  

shortfall,   the   government  will   also   increase   taxes   on   electricity,   diesel   fuel,   and   speculative   gains,  

shifting   revenue   from   labor   to   consumptionviii.   While   ideal   in   theory,   the   proposal   still   faces  

numerous  challenges  –  (a)  austerity  limits  the  government’s  ability  to  deliver  on  other  aspects  of  its  

policy   agenda   to   increase   jobs   and   promote   competitiveness   due   to   reduced   public   spending   in  

training   and   infrastructure.   (b)  More   specifically,   the   government  will   likely   face   complaints   from  

trade  unions  and   the  Wallonia   government  given   the   complex  political   structure,   and   this  disunity  

will   hurt   its   agenda.   (c)   there   will   likely   be   higher   spending   pressures   due   to   increased   counter-­‐‑

terrorism  expenditure  and  from  refugee  integration  efforts.  

 

 

 

 

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

As   for   Belgium’s   terms   of   trade,   its   current   account   balance   was   0.5%   of   GDP   in   2015ix,  

having   improved  since   the   financial  crisis,  as   low  commodity  prices  reined   in   import  costs  and  the  

depreciating  euro  supported  exports.  As  noted  the  chart  below,  export  growth  has  rebounded,  and  

Belgium’s  wage  moderation  program  could   serve   to   improve  competitiveness  moving   forward  and  

stimulate  further  export  growth.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Belgium’s   top   trading   partners   are   France   (at   14%   of   total   trade),   Germany   (13%),  

Netherlands   (13%)   and   the   United   Kingdom   (9%).   Outside   Europe,   the   United   States   is   Belgium’s  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

largest   trading   partner,   following   by   India   (3%)   and   China   (3%)x.   In   terms   of   its   export   portfolio,  

Belgium’s  largest  export  consists  of  oil  and  gas  products  at  $54  billion,  followed  by  pharmaceuticals  

at  $49  billion.  It  is  important  to  note  that  the  majority  of  products  are  within  the  top  ten  world  export  

rankings,  not  only  indicating  the  competitiveness  of  Belgium’s  industries,  but  also  its  diversity.  It   is  

also  worth  noting  here  that  cocoa  and  cocoa  preparation  accounts  for  approximately  $3.5  billion  of  

Belgium,  while  Food  Processing  and  Manufacturing  accounts  for  $33  billion  of  total  exportsxi.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exported)value)

2014)(US$)Bil)

Ranking)in)

world)

exports

Oil)and)Gas)Products 53.9 20Pharmaceutical) 49.8 3Vehicles) 45.9 11Machinery 33.2 15Plastics) 32.3 4Organic)chemicals 31.5 3Pearls,)precious)stones 23.3 8Iron)and)steel 16.7 7Optical,)photo,)medical)apparatus 14.9 13Electrical)Equipment 14.8 25Other)Commodities) 12.5 10Miscellaneous)chemical)products 8.2 7Footwear 5.6 5Paper)Products 5.6 10Rubber)Products 5.2 12Apparel 4.8 10Dairy)Products 4.4 6Meat)Products 4.2 12Tanning,)dyeing)extracts 4.1 6Vegetable,)fruit,)nut 3.9 5Cereal,)flour,)starch 3.8 6Soaps,)lubricants 3.7 3Beverages,)spirits)and)vinegar 3.5 9Cocoa)and)cocoa)preparations 3.5 4

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World&M

arket&Share&(%

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Change&in&World&Market&Share&(%)

Belgium's&Export&Potfolio&(2000A2014)

Pharmaceuticals-($62b)

Jewelry,-Precious-Metals-($21b)

Financial-Services-($8.7b)

Oil-and-Gas-($51b)

Food-Processing/-Manufacturing--($33b)

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Belgium  Competitiveness  /  Diamond  Analysis  

 

 

 

 

 

 

 

 

 

 

 

 

 

  According   to   the   New   Global   Competitiveness   Index   Report,   Belgium   is   the   14th   most  

competitive   country   in   2015.   This   is   determined   according   to   the   following   metrics:   Company  

Operations  and  Strategy  (15th),  Factor  Conditions  (18th),  Demand  Conditions  (20th),  Supporting  and  

Related   Industries   and   Clusters   (9th),   Context   for   Strategy   and   Rivalry   (17th),   Social   Infrastructure  

and  Political  Institutions  (16th),  and  Monetary  and  Fiscal  Policy  (42nd).  This  paper  will  now  analyze  

the   following   categories   in   depth,   and   argues   that   Belgium’s   competitive   positioning   essentially  

explains  the  composition  of  its  cluster  portfolio  and  performance  to  date.            

  Factor   Conditions:   given   Belgium’s   location   at   the   heart   of   Europe   and   proximity   to   the  

North  Sea,   it   is  blessed  with  a  natural  advantage,  which  the  government  has  capitalized  on  through  

significant  physical  infrastructure  investment  for  multiple  modes  of  transportation.  The  Belgian  road  

network  has  seven  international  motorways  with  a  combined  length  of  1763  km,  linking  seamlessly  

with  France,  Germany,  and  Netherlandsxii.   It  also  has  one  of  the  densest  rail  networks  in  the  world,  

carrying  188  million  passengers  and  over  62  million  tons  of  freight  each  year,  with  high  speed  trains  

running  up  to  10  times  a  day  to  Londonxiii.  Most  famously,  Antwerp  is  home  to  the  second  largest  port  

 9  

Factor Conditions:• Multilingual population and openness

to foreign skilled labor (+)• Large FDI as a source of capital and

expertise (+)• Well developed physical infrastructure

including ports, rail, roads, and airtransportation (+)

• Highly skilled work force (+)• High quality of education (+)• High labor productivity per hour (+)• Limited natural resources (E)• Strong influence ofunions (E)

Context for Firm Strategy and Rivalry:• Integration with EU: Full adoption of

policies and standards (+)• No tariffs: open borders and open

trade promotes local competition andrivalry (+)

• Preferential international traderelations (+)

• Favorable investment climate fordomestic and foreign investors (+)

• Modernization of SOE through partEprivatization program (+)

• Austerity measures and fiscalconsolidation plans may inhibit growth(E)

• Lack of coherent national policy foreconomic competitiveness (E)

• Fragmented federal structure adds tocomplexity and decreasesaccountability (E)

Demand Conditions:• Central location in Europe with

access to local markets and 500million customers (+)

• Affluent EU consumers with highquality standards (+)

• Belgian consumers enjoy high GDPper capita and disposable income (+)

• Closely linked to neighboring EMEAregion (+)

• Domestic demand not a significantdriver of growth given country size (E)

Related and Supporting Industries• Access to wide supplier base

throughout the EU• Firms that hold products across

multiple clusters able to driveimprovements in performance

 10  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

in  Europe  behind  Rotterdam,  handling  25.7%  of  total  container  traffic  in  Europe  versus  Rotterdam’s  

of  34%xiv.  However,  Antwerp’s  container  volume  growth  has  double  Rotterdam’s,  growing  by  9.5%  

while  Rotterdam  trailed  with  a  3.7%  increasexv.  Indeed,  the  important  point  to  note  is  that  Belgium  

has  been  continuous  re-­‐‑investing  in  its  infrastructure,  and  is  currently  in  talks  to  invest  another  $3.7  

billion  in  the  Port  of  Antwerp  to  increase  capacityxvi,  explaining  why  Cushman  and  Wakefield  reports  

on  European  Distribution   consisting   rank  Belgium   the   first   in   Europe   for   its   excellent   distribution  

networkxvii.   This   may   further   elucidate   why   oil   and   gas   products   rank   top   in   Belgium’s   cluster  

portfolio  –  most  of  the  oil  and  gas  companies  that  operate  in  Belgium  are  mostly  in  the  downstream  

sector,   focusing   on   refining   oil   and   purifying   gas.   Belgium   essentially   serves   as   a   link   between  

upstream   producers   and   final   end-­‐‑users   of   oil   and   gas,   and   it   is   of   pivotal   importance   that   a  

downstream  hub  is  convenient  located  close  to  major  sea  or  rail  routes.  Belgium’s  factor  conditions  

thus  allow  it  to  gain  a  comparative  advantage  in  this  export  cluster,  which  the  country  has  continued  

to  leverage  on.    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2000 2015

2000 2015

2000 2015

45

35

(Low)*Burden*of*government*regulation* 62

24

Doing*Business,*Paying*Taxes*(Low)*Payments*number*(WB)* 20

(Low)*Burden*of*customs*procedures*

11

6

(Low)*Time*required*to*start*a*business* 49

20

(Low)*Number*of*procedures*required*to*start*a*business* 21

42

Administrative,infrastructure, 29

20

Mobile*telephone*subscribers*per*100*population* 20

15

Internet*access*in*schools* 24

14

Telephone*lines*per*100*population* 22

14

Internet*users*per*100*population* 17

Percentage*of*households*with*computer* 20

21Communications,infrastructure, 21

27

20

Quality*of*electricity*supply* 10

16

Quality*of*roads* *

15

Quality*of*railroad*infrastructure* 12

6

Quality*of*air*transport*infrastructure* 24

17

Quality*of*port*infrastructure* 7

Logistical,infrastructure, 14

2000 2015

2000 2015

21

20

Availability-of-scientists-and-engineers- 37

Tertiary-enrollment- 12

16

7

Utility-patents-per-million-population- 16

5

Quality-of-scientific-research-institutions- 16

5

Quality-of-the-educational-system- (

3

University>industry-research-collaboration- 5

3

Quality-of-management-schools- 17

6

Quality-of-math-and-science-education- 3

48

Innovation(infrastructure( 9

46

Doing-Business-,-Getting-Credit-Legal-rights-index-(WB-)- 39

Soundness-of-banks- 7

31

31

Domestic-credit-to-private-sector- 24

29

Regulation-of-securities-exchanges-

23

Ease-of-access-to-loans- 10

Venture-capital-availability- 13

20

25

Financing-through-local-equity-market- 33

Capital(market(infrastructure( 18

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Since  2000,  Belgium  has  also  improved  on  its  human  capital,  with  the  quality  of  management  

schools   and   scientific   research   institutions   jumping   up   in   global   rankings   –   according   to   the   IMD  

World  Talent  Report  2015,  Belgium  spends  the  most  on  education  per  pupil  than  any  other  country  

in  the  world  at  39%  of  GDP  per  capita,  and  ranks  7th  in  the  world  for  quality  of  science  educationxviii.  

It   also   has   the   15th   most   number   of   R&D   researchers   per   million   people   in   world   at   4,003xix,  

explaining  the  strength  of  Belgium’s  R&D  and  innovation  capabilities.  It  is  hence  not  surprising  that  

pharmaceuticals   ranks   second   in   Belgium’s   cluster   portfolio   –   given   the   emphasis   on   scientific  

education,  and  its  ability  to  attract  R&D  researchers,  Belgium’s  pharmaceutical  companies  have  been  

able  to  attract  required  talent.      

    However,   there  are  a   few   factor   trends   that  are  worrying  –   in  particular,   there  has  been  a  

significant  weakening  of  credit  conditions,  in  large  part  due  to  the  weakness  of  the  Belgian  banking  

system   after   the   Euro   Crisis.   Based   on   the  GCI   report   above,   venture   capital   availability,   access   to  

loans,   domestic   credit   to   the   private   sector   have   all   declined.   According   to   the   National   Bank   of  

Belgium,  these  changes  in  credit  conditions  have  played  a  role  ‘in  the  decline  in  investment  following  

the  financial  crisis’  –  given  the  uncertainty  of  the  interbank  market  since  2009,  domestic  banks  have  

tightened   lending   criteria,   which   have   affected   loans   to   non-­‐‑financial   corporations   and   consumer  

credit   significantlyxx.   This   reduced   access   to   credit   hurts   small   and  medium   enterprises   the   most  

given   that   the   lack   the   credit   quality   to   access   funding   through   debt   markets   –   given   that   the  

chocolate   cluster   also   consists   of   a   large   number   of   small   and   medium   producers,   this   certainly  

creates  some  cause  for  concern  about  long-­‐‑term  sustainability  of  funding.    

   Context  for  Strategy  and  Rivalry:  Belgium  benefits  from  being  part  of  the  European  Union  –  

EU  competition  policy  encourages  open-­‐‑markets  and  private  enterprise,  and  this  is  further  supported  

by  the  European  Customs  Union  that  promotes  free  trade  in  goods,  services,  labor,  and  capital  across  

the  European  Union.  As  noted  in  the  following  GCI  figures,  Belgium  continues  to  remain  competitive  

in  the  low  tariff  rates,  and  low  market  dominance  by  business  groups.  However,  while  Belgium  has  

traditionally  been  characterized  by  high  foreign  direct  investment  (FDI)  at  a  high  of  30%  of  GDP  in  

2011,  and  there  has  been  some   improvement   in   the  FDI  and  technology  transfer  since  2000,   it  has  

 11  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

been  ‘among  the  countries  most  affected  by  fund  transfers  of  multinational  companies’xxi,  making  FDI  

inflows  and  outflows  highly  volatile  as  noted  by  UNCTAD’s  World  Investment  Report  in  2014xxii.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  There   are   a   couple   of  worrying   signs,   such   as   the   impact   of   taxation   on   the   incentives   to  

work  and  invest  –  the  personal  income  tax  is  high  at  around  55%,  of  which  49%  is  labor  tax,  and  an  

additional  VAT  of  21%,  while  the  corporate  tax  rate  stands  at  33%,  not  accounting  for  a  further  3%  

crisis  surcharge,  and  5%  fairness  taxxxiii.  While  the  new  tax  policies  implemented  by  the  government  

may  help  ease  this  problem,  more  action  needs  to  be  taken  to  reduce  this  disincentive.  On  the  other  

hand,  it  is  encouraging  that  pay  and  productivity  has  increased  from  42  to  15  since  2000  to  2015  –  as  

the  OECD  notes,   Belgium  has   the   third-­‐‑highest   GDP   per   hours  worked   in   the   Eurozone,   and   these  

productivity   gains   are   certainly   welcomedxxiv.   One   could   further   argue   that   the   continued  

improvements   in   wage   indexation   and   company   social   security   contributions   could   have   the  

additional  impact  of  fueling  further  productivity  increases  in  the  near  to  medium  term.  

  Demand  Conditions:  Even  though  Belgium  only  has  a  population  of  11  million,   its  strategic  

location  as  a  member  of  the  European  Union  allows  it  access  to  close  to  500  million  EU  residents,  and  

2000 2015

64

52

(Low)*Impact*of*taxation*on*incentives*to*work*

39

(Low)*Impact*of*taxation*on*incentives*to*invest*

Strength*of*investor*protection* 11

31

26

Prevalence*of*trade*barriers* 16

25

Business*impact*of*rules*on*FDI*

23

Cooperation*in*laborFemployer*relations* 33

19

Regulatory*quality* 20

17

Strength*of*auditing*and*reporting*standards*

16

Context*for*strategy*and*rivalry* 13

15

(Low)*Distortive*effect*of*taxes*and*subsidies*on*competition*

Pay*and*productivity* 42

14

13

Prevalence*of*foreign*ownership*

13

Efficacy*of*corporate*boards* 22

13

Effectiveness*of*antitrust*policy* 5

Intellectual*property*protection* 14

11

11

Intensity*of*local*competition* 6

7

FDI*and*technology*transfer* 13

5

(Low)*Extent*of*market*dominance*(by*business*groups)* 4

*+

(Low)*Tariff*rate* 5

Extent+of+cluster+policy+

GDP$per$hour$worked,$USDLuxembourg 82.1Ireland 71.2Belgium 61.8Netherlands 60.2France 59.5Germany 58.3G7$countries 55.2Euro$area 52.9OECD$Total 46.7

 12  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

nearly  725  million  total  European  residents.  The  majority  of  its  neighbors  in  Western  Europe  rank  in  

the  top  10  globally   in  GDP  per  capita,   implying  significant  disposable  income  for  Belgium  products.  

Moreover,  given  the  country’s  access  to  major  shipping  routes  through  the  North  Sea,  it  is  also  able  to  

access  markets  outside  of  Western  Europe  such  as  North  and  South  America.    

  Related  and  Supporting  Industries:  As  highlighted  in  the  cluster  map  above,  Belgium’s  food  

processing   and   manufacturing   sector   constitutes   $33billion   of   total   exports,   of   which   $3.5   billion  

owes   to   cocoa  manufacturing.  Given   the   close   relationship  between   food  processing  and  R&D,   and  

the  increasing  emphasis  on  healthy  products,  the  importance  of  the  pharmaceutical  industry  cannot  

be  overstated.  Indeed,   it   is  comforting  to  note  the  increased  availability  of  specialized  research  and  

training   services   as   well   as   availability   of   latest   technologies   from   2000   to   2015.   Over   the   past  

decade,   Flanders   has   embarked  on   a  VIZ   scheme   to   foster   the  development   of   new   clusters,  while  

Wallonia  has  also   instituted  Wagralim   to  promote   the  development  of   agribusiness   in   the   region  –  

these  will  be  covered  in  greater  depth  later  in  the  paper.  

 

 

 

 

 

 

 

 

Company   operations   and   strategy:   Given   various   regional   efforts   to   improve   cluster  

development   and   innovation,   it   is   not   surprising   that   the   GCI   indicates   an   improvement   in   firm’s  

capacity   for   innovation.   This   has   been   supported   by   the   government’s   introduction   of   R&D   tax  

incentives,  which  has  encouraged  companies  to  invest  in  talent  and  innovation  systems.  In  2013,  the  

2000 2015Presence+of+demanding+regulatory+standards+ 19

9

Local+availability+of+specialized+research+and+training+services+ 20

*&

Supporting*and*related*industries*and*clusters* 14

6

Local+supplier+quantity+ 11

4

Local+supplier+quality+ 9

14

State+of+cluster+development+ 21

10

Availability+of+latest+technologies+ 19

*&

*&

Extent+of+collaboration+in+clusters+ 23

20

Local+availability+of+process+machinery+ 22

 13  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Belgian   government   allowed   employers   to   only   remit   20%  of   total  withholding   tax   from   qualified  

researchers,  retaining  the  remaining  80%  of  company  use,  offering  an  immediate  reduction  in  labor  

costs  for  Belgian  companiesxxv.  Moreover,  the  government  also  allowed  for  a  tax  deduction  of  14.5%  

of   the   investment  value  of   assets  which   seek   to  promote  R&D  of  new  products   and   technologies   –  

these  tax  deductions  may  be  carried  forward  in  the  event  of  insufficient  profits,  further  incentivizing  

firms   to   undertake   R&D   projectsxxvi.   However,   this   policy   is   not   actively   promoted,   and   some  

ambiguity   over   requirements   remainxxvii.   Moreover,   according   to   the   European   Union’s   2015  

Innovation   Scoreboard,   Belgium   is   still   classified   as   an   innovation   follower,   behind   leaders   like  

Denmark,  Sweden,  Finland,  Germanyxxviii  -­‐‑  while  the  increase  in  performance  has  been  above  the  EU  

average,  it  lags  on  small  and  medium  enterprise  innovations  as  noted  below.  This  is  again  cause  for  

concern  especially  in  the  chocolate  manufacturer  given  the  large  number  of  SMEs  in  the  cluster.    

 

 

 

 

 

 

 

 

 

 

 

 

2000 2015

18Capacity,for,innovation,

20Value,chain,breadth, 18

17Extent,of,marketing, 25

16

14

Control,of,international,distribution, 31

14

12

Nature,of,competitive,advantage, 11

12

Willingness,to,delegate,authority, 16

11

Company,spending,on,R&D, 12

11

Extent,of,staff,training, 12

10

Production,process,sophistication, 14

Reliance,on,professional,management, 20

 14  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

 

 

 

 

 

 

 

 

  Social  Infrastructure  and  Political  Institutions  /  Monetary  and  Fiscal  Policy:  As  noted  above,  

Belgium   has   unparalleled   primary   education   system,   and   also   spends   a   significant   amount   of   its  

budget   on   quality   healthcare   services.   It   has   a   strong   rule   of   law,   and   accountable   political   and  

judicial  systems.    

 

 

 

 

 

 

 

 

 15  

2000 2015

2000 2015

28

26

(Low)*Wastefulness*of*government*spending* 15

Transparency*of*government*policymaking*

20Effectiveness*of*law@making*bodies*

12

11

(Low)*Favoritism*in*decisions*of*government*officials* 22

11

Voice*and*Accountability*(WB)* 12

7

Public*trust*of*politicians*

16

Freedom*of*the*press*

24

Political*institutions* 22

22

Life*expectancy* 20

20

(Low)*Tuberculosis*incidence* 20

15

(Low)*Infant*mortality* 15

7

Primary*enrollment* 14

7

(Low)*Gender*inequality* 9

6

Accessibility*of*healthcare*services*

2

Health*expenditure* 15

1

Quality*of*primary*education* 6

Secondary*enrollment* 1

1

3

Quality*of*healthcare*services*

16

Basic*Health*and*Education* 6

Social*Infrastructure*and*Political*Institutions*(SIPI)* 16

2000 2015

2000 2015

61

48

Government-debt- 65

1

Government-surplus/deficit- 1

42

Inflation- 1

Monetary-and-Fiscal-Policy-(MFP)- 42

24(Low-impact-of)-Organized-crime- 24

23

22

Efficiency-of-legal-framework-to-settle-disputes-

22

Property-rights-

20

Safety' 22

19

Reliability-of-police-services- 16

18

Rule-of-Law-(WB)- 19

18

Obtaining-favorable-judicial-decisions- 22

17

Tax-payments- 20

17

Control-of-Corruption-(WB)- 17

17

Awarding-of-public-contracts-and-licenses- 14

17

Public-utilities- 18

15

Imports-and-exports- 24

14

Judicial-independence- 16

12

Efficiency-of-legal-framework-to-challenges-regulations-

12

Ethical-behavior-of-firms-

17

(Low-occurrence-of)-Diversion-of-public-funds-

28

Rule-of-law- 19

(Low)-Wastefulness-of-government-spending- 15

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

However,  Belgium  can  certainly  improve  on  the  transparency  of  its  government  policy-­‐‑making  –  this  

is  due   to   the   complex  political   system  which  makes   it   hard   to   coordinate  policies   across   the   three  

different   regions.   On   monetary   policy,   while   European   Central   Bank’s   prudency   has   provided  

appropriate  conditions  for  growth,  some  argue  that  more  can  be  done  to  stimulate  business  activity.  

More  worrying,  there  has  been  a  sharp  decline  in  its  government  deficit  and  noted  previously  and  in  

the  wastefulness  of  government  spending  which  the  current  government  is  trying  to  address  through  

its  austerity  efforts.    

Overview  of  Global  Chocolate  Value  Chain  

In   order   to   analyze   Belgium’s   chocolate   cluster,   it   is   important   to   gain   a   deeper  

understanding   of   the   global   chocolate   value   chain   –   indeed,   this   paper   argues   that   Belgium   has   a  

competitive  advantage  at  each  stage  of   the  value  chain.  A  simplified  version  of  the  cocoa/chocolate  

value  chain  is  described  below,  with  a  description  of  how  value  is  created  through  each  of  the  main  

stepsxxix.    

 

Cocoa  Production:  Cocoa   is  a   cash  crop  grown  exclusively   in  countries  around   the   tropical  

belt  in  Africa,  Asia,  and  Latin  America.  According  to  the  World  Cocoa  Foundation,  total  production  in  

2013  was  4.8  million   tons,  with  more   than  70%  of   the  Cocoa  beans  being  produced   in  Africa  with  

Ivory  Coast  and  Ghana  being   the   largest  producers.   In   the  Americas,  Brazil,  Ecuador  and  Columbia  

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are  the  main  producers,  while  Asia  accounts  for  the  remaining  17%  of  the  production  concentrated  

mainly   in   Indonesia,   Malaysia   and   Papua   New   Guineaxxx.   In   2014,   the   top   importers   of   cocoa,   in  

growing  order,  were  Germany,   the  USA,  Netherlands,  France,   the  UK,  and  Belgium,  with  more   than  

50%   of   the   production   processed   by   five   leading   companies   (Cargill,   Barry   Callebaut,   ADM,   Petra  

Foods  and  Blommer)  amounting  to  a  total  of  2.19  million  tons  of  cocoa  in  2014xxxi.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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However,  there  are  some  concerns  over  the  long-­‐‑term  sustainability  of  cocoa  production  as  

it   is   estimated   that   the   demand   for   raw   cocoa   will   continue   to   accelerate   to   meet   the   consumer  

demand.  First,  80%  to  90%  of  cocoa  comes  from  small  family  run  farms  with  an  average  size  of  less  

than   5   hectares   –   these   farms   suffer   from   low   productivity,   over-­‐‑aged   stocks,   and   are   highly  

susceptible  to  the  spread  of  disease  and  pest  infestation  which  can  deplete  the  quantity  and  quality  of  

cocoa  beans  produced.  In  addition,  consumers  are  increasingly  demanding  that  chocolate  producers  

respect  the  environment,  and  overtly  promote  more  sustainable  practices  while   increasing  product  

quality  and  price  for  the  small   farmers.  There  have  been  concerns  over  exploitative  child  and  slave  

labor   in   the   cocoa  growing   countries,   generating   the  attention  of   global   industry  watchdogs  which  

have   been   increasing   their   scrutiny   over   social   and   environmental   sustainability   of   the   beans  

products.   In   response,   the   industry   has   invested   in   new   schemes   such   as   Fair   Trade   certified  

chocolate  (guaranteeing  minimum  wages  to  producers  and  an  additional  bonus)  and  the  Rainforest  

Alliance  (ensuring   the  protection  of  ecosystem  and   fair  price).   In  2009,  3%  of   the  global  market  of  

cocoa  was  certified,  but   this  new  market  offers  opportunity   for   innovation  and   increased  products  

diversification  in  the  coming  years.xxxii  This  paper  believes  that  Belgium’s  colonial  relationship  with  

Africa,  and  active  participation  in  industry  groups  have  allowed  it  to  gain  an  advantage  in  shaping  the  

contours  of  cocoa  production.  

    Export  and  processing  of  the  cocoa  beans:  According  to  the  FAO  supply  chain  analysis,  after  

the  cocoa  beans  are  shipped,  they  are  stored  in  a  number  of  ports  –  in  Western  Europe,  Amsterdam  is  

the  primary  port  for  storage,  followed  by  Antwerp,  Hamburg,  Le  Havre  and  Bremenxxxiii,  which  speaks  

to  the  importance  of  Belgium  in  the  global  chocolate  supply  chain.  The  beans  are  then  grounded  to  

produce   cocoa   liquor   as   part   of   the   conversion   process.   It   is   worth   noting   that   the   conversion  

industry  is  highly  concentrated,  with  five  companies  operating  50%  of  the  worldwide  yearly  grinding  

volume   –   namely   ADM,   Cargill,   Barry   Callebaut,   Petra   Foods,   and   Blommer.   However,   it   is   worth  

noting   that   these   converters   do   not   manufacture   the   chocolate   end-­‐‑product,   and   see   themselves  

primarily  as  trading  companiesxxxiv.    

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Chocolate   production:   After   the   beans   are   harvested,   dried,   and   grinded,   they   are  

transformed  into  powder,  butter  and  liquor.  These  ingredients  are  then  mixed  with  milk,  sugar,  and  

other   products   (nuts,   fruits),   to   become   the   manufactured   chocolate.     Other   types   of   chocolate  

include  industrial  chocolate  (couverture),  as  well  niche  products.  The  great  majority  of  the  chocolate  

producers   purchase   butter   and   powder   from   the   major   producers,   intervening   only   on   the  

confectionary  markets.  It  is  worth  noting  that  smaller  companies  are  primarily  concentrating  on  the  

end  phase  of  the  chocolate  production  and  packaging  process.  

 

 

 

 

 

 

In   order   to   analyze   the   potential   of   the   chocolate   industry,   one   needs   to   evaluate   its  

performance  to  date.  The  global  chocolate  market  grew  by  2.9%  between  2010  and  2014  to  reach  a  

global  value  of  $87,503.6m  in  2014  –  assuming  a  CAGR  of  2.8%  will   thus   lead  to  a  market  value  of  

$100.514.4m  in  2019.  Exports   in  2014  amounted  to  $27,746.3m  with  Germany   leading  the  exports  

with  $4.9m  followed  by  Belgium  with  an  exports  value  of  $2.9mxxxv.    

 

 

 

 

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Four   multinationals   (Mondelez   International   Inc.,   Mars   Inc,   Nestle   S.A,   the   Hershey  

Company)   currently   produce   57.4%   of   the   total   value   of   the   market   in   2014.   These   leading  

companies   have   manufacturing   and   processing   facilities   in   all   geographical   regions   and   produce  

other   confectionary   products   in   addition   to   chocolate,   differentiating   their   products   through   a  

combination   of   product   specialization   and   aggressive  marketing.   As   of   2014,   Europe   accounts   for  

49.9%  of  the  global  chocolate  confectionary  production,  followed  by  Americas  at  31.9%,  Asia-­‐‑Pacific  

16.6%   and   1.6%   for   Middle-­‐‑East   and   Africa   respectively.   While   growth   in   Europe   is   expected   to  

remain  stable  at  a  CAGR  of  2.4%,  MarketLine  surveys  estimate  that  most  of  the  growth  will  happen  in  

Asia  Pacific  with  a  CAGR  of  4.5%  from  2016-­‐‑2020.  At  present,  distribution  channels  are  dominated  

by  supermarkets  /  hypermarkets  which  channel  32.5%  of  the  total  market's  value  while  independent  

retailers  capture  28.1%  of  the  market,  followed  by  convenient  stores  (18.3%),  and  specialist  retailers  

(5.1%).xxxvi  

Consumers:   According   to   EuroMonitor,   worldwide   consumption   of   chocolate   is  

approximately   7,255  million   kilograms   in   2014.   The   top   chocolate   consuming   countries   in   Europe  

with  a  respective  consumption  per  capita  are  as  follows  –  Germany  (12.2  kg/year),  UK  (8.7kg,  year),  

Switzerland   (8.9   kg/year),   Austria   (8.8   kg/year),   and   Belgium   (7.5   kg/year)   –   given   Belgium’s  

proximity  to  these  markets,  one  can  understand  why  the  cluster  has  managed  to  grow  over  the  years.  

While   consumption   growth   seems   to   have   reached   a   plateau   in   Europe,   European   consumers   are  

turning   to   higher   quality   and   more   premium   products.   Consumption   levels   are   also   rising   in   the  

emerging  markets   such   Brazil,   Russia,   India   and   China   (BRIC)   and  Mexico,   Indonesia,   Nigeria   and  

Turkey  (MINT)  –  for  instance,  Russia  is  the  only  non  OECD  market  to  feature  in  the  top  20  consuming  

nations  on  a  per  capita  basis,  but  Turkey  and  India  are  expected  to  stand  increase  its  share  of  global  

chocolate   consumption   in   the   short   future.   Indeed,   it   is   expected   that   the   value   of   the  Asia   Pacific  

confectionary  chocolate  market  will  grow  from  $12.6  billion  in  2014  to  $16.3  billion  in  2018xxxvii.  

Indicative  Cost  breakdown  of  a  typical  milk  chocolate:  This  paper  believes  that  an  understanding  of  a  

chocolate  bar’s  cost  breakdown  gives  us  an   insight   into  Belgium’s  competitive  advantage.  Based  on  

an  FAO   study  of   the   chocolate   supply   chainxxxviii,   one  notes   that   the  main   costs   are  processing   and  

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retail   costs   at   34%   and   24%   of   total   costs   respectively   –   as   this   paper   will   show   subsequently,  

Belgium’s  infrastructure  and  proximity  to  market  allows  it  to  reduce  retail  costs  of  distribution,  while  

its  restructuring  of  business  operations  in  the  1970s  has  allowed  it  to  reduce  processing  costs.    

 

 

 

 

 

 

 

 

 

Finally,  while  prices  of  the  cocoa  beans  have  shown  volatility  in  recent  years,  largely  due  to  shortages  

in   production,   it   only   accounts   for   3.5%   of   the   total   value   of   the   final   chocolate   product   –   a  

percentage   that   has   stayed   relatively   constant   since   2004.   The   cocoa   beans   are   traded   on   future  

markets   in   London   on   the   Euronext-­‐‑LIFFE   market   and   New   York   Board   of   Trade   (NYBOT)   –   the  

graph  below  shows  the  spot  cocoa  prices  since  2010  to  2014  based  on  data   from  the  International  

Cocoa  Organization.    

 

 

 

 

 

Tax15%

Retail,Costs,and,Margin24%

Producer,Price,5%

Intermediation,Costs,at,Origin,

3%

Freight1%

Other,Ingredients5%

Processing,Costs34%

Advertising,6%

Processors,Profit9%

Indicative*Cost*Breakdown*2 Milk*Chocolate

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

While   large   manufacturers   can   purchase   futures   contracts   to   hedge   against   market   volatility   and  

reduce  the   likelihood  of  price  shocks,   they  are   largely  price   takers  and  concentrate   their  efforts  on  

maximizing   value   creation   of   the   by-­‐‑products,   and   increasing   their   competitive   position   at   the  

processing  and  distribution  step  of  the  value  chain.    

Belgian  Chocolate  Cluster:  History  

The  Belgian   Chocolate   Cluster   remains   one   of   the   oldest,   still   thriving,   clusters   today.   The  

very  first  trace  of  chocolate  in  Belgium  dates  back  to  1635  when  the  Abbot  of  Baudeloo  brought  some  

cocoa  back  to  Ghent  –  at  this  time  Belgium  was  still  part  of  the  Dutch  empire  (until  its  independence  

in  1830),  and  it  had  access  to  many  of  the  best  cocoa  producing  regions  of  the  world  through  Dutch  

colonies  in  Africa  and  eventually  its  own.  The  first  sign  of  a  formal  chocolate  industry  taking  root  in  

Belgium  comes  in  the  late  17th  century  when  Emmanuel  Soares  de  Rinero  was  issued  the  first  license  

to   produce   chocolate.   The   18th   century   saw   the   rise   of   the   chocolate  manufacturing   sector  with   a  

variety  of  companies  and  specializations  appearing  as  chocolate  became  a  part  of  the  day  to  day  lives  

of  Belgian  citizens.  The  output  of  the  Belgian  chocolate  industry  rose  dramatically  in  the  19th  century  

with  the  industrial  revolution.  By  the  20th  century,  competition  within  the  cluster  was  producing  key  

innovations  that  would  set  the  Belgian  chocolate  cluster  apart   from  its  competitors.     Jean  Neuhaus’  

creation  of   the  praline  coverture   in  1912  would   further  catapult  Belgium  chocolate  production  but  

increasing  demand  for  Belgian  chocolate  by  tenfold  –  mass  quantities  of  coverture  would  be  created  

for   export   to   many   competitors   to   be   used   as   the   main   ingredient   in   making   their   own   unique  

finished   products.   By   positioning   itself   as   the   center   for   raw   goods   and   coverture   distribution  

Belgium  has  continued  to  strengthen  its  position  in  the  global  chocolate  market.  More  significantly,  

Belgian   chocolate  manufacturers  benefitted   from   industry   restructuring  after  World  War   II   –   from  

the  1960s  and  through  the  1970s,  there  was  a  period  of  consolidation  and  professionalization  from  

which   the   first   multi-­‐‑national   chocolate   businesses   would   rise.   The   proliferation   of   mergers   of  

smaller  chocolate  manufacturers  would  create  greater  operating  efficiencies  and  fuel  a  desire  to  not  

only  grow  exports,  but  also  to  increase  their  footprint  internationally.xxxix    

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Belgian  Chocolate  Cluster:  Portfolio  

Although  Belgium  has  slipped  slightly  from  its  early  20th  century  market  dominance,   it  still  

ranks  as  a  market   leader,  particularly   in  relation  to   its  population  size.  Currently  Belgium  ranks  as  

the  #  4  in  Cocoa  bean  importer  worldwide  (after  the  Netherlands,  USA,  and  Malaysia)  and  #  2  World  

Chocolate  Exporter  (10%    of    world    exports    value).   In  2015  confectionary  chocolate,  sales  grew  by  

1%  to  58,500  tonnes   in  2015,  while   total  value  grew  by  2%  to  $749m,  driven  by   single   size  portion  

and  seasonal  chocolate.   Mondelez   Belgium   BVBA   leads  the   confectionary   chocolate  

category  with  a  34.6%   share   of     value   in  sales,  followed   by   Mars   Belgium   (11,7%),     Ferrero  

Ardennes,  and  Nestle  Belgilux  (10.6%).xl  

 

 

A  deeper  analysis  on  the  cluster  composition  reveals  that  Belgium  sits  at  the  top  of  the  world  

export   rankings   in   chocolate,   cocoa   beans,   and   cocoa   paste.  While   these   rankings   are   impressive,  

there   are   concerns   regarding   the   growth.   The   most   recent   industry   data   shows   that   growth   has  

stagnated   in   the   last   5   years,   and   has   also   indicated   that   there   are   several   parts   of   the   chocolate  

Exported)value)2014)(US$)Bil)

Ranking)in)world)exports

Chocolate)and)other)food)preparations)containing)cocoa 2.953 2Cocoa)beans,)whole)or)broken,)raw)or)roasted 0.435 7Cocoa)paste,)whether)or)not)defatted 0.058 10Cocoa)butter,)fat)and)oil 0.011 26Cocoa)powder,)without)added)sugar 0.009 22Cocoa)shells,)husks,)skins)and)other)cocoa)waste 0.001 11

Total&Volume&Growth&(%) 2014/2015 201082015&CAGR 201082015&TotalBagged&Selflines/Softlines 2.8 3.5 18.7Boxed&Assortments 0.9 0.1 0.68&Standard&Boxed&Assortments 1 0.1 0.68&Twist&Wrapped&Miniatures 0.1 0.8 4.1Chocolate&with&Toys 1 0.3 1.7Countlines 0.4 0.2 1.2Seasonal&Chocolate 2.9 3.2 16.8Tablets 1.2 0.2 0.9Chocolate&Confectionery 1.1 0.6 3

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production   chain   that   are   underrepresented   such   as   cocoa   past,   cocoa   powder   and   cocoa   butterxli  

which  needs  to  be  addressed.  

 

 

 

 

 

 

 

 

 

Belgium  Chocolate  Cluster:  Import/Export  Dynamics  

While   the   supply   chain   has   been   covered   earlier,   it   is   important   to   realize   that   Belgium’s  

strongest  niche  is  in  the  coverture  export.  The  cluster  have  wisely  chosen  to  focus  on  this  product  as  

it  acts  as  an  intermediary  product  for  a  large  amount  of  chocolate  manufacturers.  In  addition,  it  is  a  

product  that  requires  a  sophisticated  production  method  to  produce  at  large  scale,  giving  the  Belgian  

producers  a  higher  barrier  to  entry  for  competitors  from  other  countries.    

This  growth  in  “industrial  chocolate”  accounts  for  a  majority  of  Belgian  Exports,  with  Barry  

Calebut   alone   accounting   for   about   30%   of   all   industrial   chocolate   produced   worldwide.   The  

company  has  benefited  from  the  trend  towards  modularity  by  other  large  global  competitors.  Barry  

Calebut  provides  a  key  ingredient  for  many  of  their  competitors.  For  this  reason  Barry  Calebut  calls  

itself,  “the  heart  and  engine  of  the  chocolate  industry”.  xlii    

!2%

0%

2%

4%

6%

8%

10%

12%

14%

!10% !5% 0% 5% 10% 15% 20%

World&M

arket&Share&(%

)

Change&in&World&Market&Share&(%)

Belgium's&Cocoa&Export&Potfolio&(2010C2014)

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

 

 

 

 

 

 

 

 

 

 

Belgian  Chocolate  Cluster:  Companies  

While  the  rise  of   large  multi-­‐‑national  companies  concentrated  the  export  production  of  the  

cluster   into   less   than  10  countries,   the  vast  majority  of  companies   in   the  Belgian  Chocolate  Cluster  

are  SMEs,  employing  less  than  10  workers.  As  of  2014,  of  the  261  Belgium  chocolate  companies,  173  

companies  employed  less  than  10  employees,  and  70%  of  these  employed  less  than  5  workers.  90%  

of  Belgian  chocolate  companies  employ  less  than  50  employees.  Many  of  these  are  small  shops  that  

benefit   from   the   long   tradition   of   handmade   chocolates   and   cater   to   the   unique   tastes   of   their  

communities.  Given  a  healthy  domestic  market  (Belgium  ranks  4th  in  terms  of  domestic  consumption  

per  capita),  these  small  shops  are  able  to  thrive.  The  disparity  between  the  large  and  small  players  in  

the  cluster  has  created  some  tensions  with  regards  to  regulations  that  will  be  discussed  later  in  this  

paper.  xliii  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

 

   

 

 

 

 

 

 

 

 

 

 

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Chocolate  Cluster:  Companies  Performance  

  It   is   hard   to   deny   that   the   Belgian   chocolate   companies   have   done   well,   but   parsing   out  

whether   they   have   ridden   the   wave   of   global   chocolate   consumption,   or   developed   significant  

operating  advantages  over  their  competitors  is  more  difficult.  The  total  number  of  workers  employed  

by  Belgian  chocolate  companies  remained  consistent  between  1965  and  1990,  with   just  over  6,500  

workers   in   1965   and   over   6,200   workers   in   1990.   As   a   result,   during   this   period   the   average  

production  per  worker   increased   from  11.1   tons  per  worker   to  44.2   tons  per  worker.   From  1995-­‐‑

2007  the  chocolate  sector  along  with  the  vegetable  fruit  and  potatoes  sector  are  the  only  sectors  to  

grow   in  number   of   companies   and   employees.  However,   this   growth   in   companies   and   employees  

has  not  increased  at  the  same  rate  of  production.xliv  As  a  reference,  in  1965  Belgium  produced  70,650  

tons   of   chocolate,   by   1990   Belgium   produced   268,068   tons   of   chocolate   and   by   2013   Belgian  

production  had  increased  to  545,200  tons.xlv      

 

 

Belgian  Chocolate  Cluster:  Competitive  Advantage  

The  cluster’s  main  competitive  advantages  are  location  and  production  methods.  These  take  

advantage   of   the   two  main   cost   inputs   into   chocolate;   transportation   and   production.   The  Belgian  

government  has  worked  to  systematically  reduce  the  taxes  and  any  trade  barriers   that  could  affect  

the  import  of  raw  goods.  As  noted  in  our  country  analysis,  Belgium  has  spent  heavily  on  the  Port  of  

Antwerp   and   its   logistics   to   help   the   country   act   as   a   central   distributor   of   Industrial   chocolate.  

Having  the  central  distribution  and  centralized  production  of  the  key  intermediate  products  has  led  

to  a  mutually  re-­‐‑enforcing  model.  This  strategic  restructuring  of  many  Belgian  chocolate  companies  

has   led  to  significant   improvements   in  ownership  and  management  and  has  created  the  conditions  

for  the  international  expansion  that  has  been  a  part  of  the  last  two  decades.    

Average  Annual  Growth  Rates  of  Export  of  Belgian  Chocolate  Volumes  and  Values  (1950-­‐‑2013)

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Belgium  Chocolate  Cluster  Map  

What  is  particularly  interesting  when  analyzing  the  cluster  map  of  such  an  old  cluster  is  how  

well  developed  each  of  the  participants  are  in  the  cluster.  The  cluster  has  managed  to  survive  many  

of   its  growing  pains  and  now  has  a  network  that  not  only  supports  the   largest  players,  but  also  re-­‐‑

enforces   the   smaller   players.   As   a   sign   of   the   maturity   of   the   cluster   Educational   and   Research  

Institutions  are   robust  elements  of   the   cluster   -­‐‑   this  advanced   level  of   cooperation  between  public  

and   private   sectors   has   been   made   possible   by   the   government   prioritizing   the   agri-­‐‑food   and  

chocolate   industry   through   the   development   of   the   Ghent   University’s   Cacaolabxlvi   in   partnership  

with   the   Flanders   Institute   for   Biotechnology.   The   Belgian   government   has   invested   into   the  

infrastructure,  research,  and  financing  base  over  decades,  that  has  pivotally  supported  the  rise  of  the  

industry  –  these  will  be  discussed  further  in  our  regional  analysis.  

 

 

 

 

 

 

 

 

 

 

 

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Belgian  Chocolate  Cluster:  Diamond  Analysis  

The  elements  of  the  Belgian  Chocolate  Cluster  Diamond  are  particularly  strong,  with  only  a  

few  areas  of  weakness.  

 

 

 

 

 

 

 

 

Factor   Conditions:   The   large   investment   in   infrastructure   has   benefited   the   entire   cluster  

and  has  enabled  efficiencies  within  the  country  and  has  enabled  the  rise  of  a  large  export  capability.  

Belgium’s  location  is  also  an  important  factor  that  has  enable  its  rise  as  a  chocolate  powerhouse.  Not  

only   is   Belgium   located   in   Europe,   it   is   also   benefits   from   having   a   deep   water   port   making   it   a  

natural   central   point   for   distribution.   The   strong   historical   ties   to   the   cocoa   producing   regions   of  

Africa  have  given   it   the  advantage  of  securing   long  term  contracts   through  deep  relationships  with  

growers  in  the  region.    Belgium  has  a  highly  educated  workforce  and  has  the  benefit  of  a  long  history  

of  chocolate  production  that  provides  Belgian  companies  with  a  highly  capable  and  skilled  workforce  

capable  of  helping  companies   innovate  at  a   faster  rate  than  if   the  workforce  was  unskilled.  Further  

strengthening   the   factor   conditions   are   the   cluster   supporting   elements   from   both   private   and  

government   organizations.   The   cluster   has   also   developed   institutions   specifically   geared   towards  

research  and  development.  This  has  benefited  the  cluster  by  institutionalizing  learnings  from  across  

Factor Conditions:• Good%infrastructure• Good%location%within%the%EU• Abundant%skilled%labor• Cluster%supporting%elements%

from%the%private%and%government%organizations%

Context for Firm Strategy andRivalry:• EU%membership%allows%for%free%

access%to%largest%market• Well%developed%internal%market%

driving%competition%and%innovation

Demand Conditions:• Centralized%access%to%EU%

Market%• Top%Five%– domestic%demand%of%

chocolate%per%capita%• Questions%over%sustainability%of%

demand%– lack%EM%growth

Related8and8Supporting8Industries• Intermediate%product%(couverture)%

produced%at%a%global%scale%in%Belgium

• Nearly%all%raw%materials%are%imported

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

the   companies   and   elevating   the   competitiveness   of   all   the   Belgian   firms   in   comparison   to   their  

international  competition.    

 

 

 

 

 

 

Demand  Conditions:  The  global  demand  growth  for  chocolate  over  the  last  two  decades  has  greatly  

benefited   the   Belgian   chocolate   cluster.   Particularly,   the   growth   in   demand   from   the   EU   has   been  

helpful   to   the   cluster   as   the   growth   Belgium   has   struggled   to   capitalize   on   the   growth   in   the  

American  market  with  the  rise  from  competitors  such  as  Mexico.  However,  as  noted  in  our  analysis  of  

the  global  chocolate  industry,  demand  in  these  markets  is  stable  and  unlikely  to  accelerate.  Belgium  

needs  to  look  into  other  emerging  markets  like  China  and  India  to  expand  consumer  demand.  

 

 

 

 

 

Belgium  has  also  benefitted  from  domestic  demand  –  it  currently  ranks  5th  in  the  world  in  terms  of  

consumption   per   capita.   This   internal   demand   is   particularly   helpful   in   supporting   the   small   to  

medium  businesses  that  make  up  a  majority  of  the  cluster  in  Belgium.  However,  a  major  weakness  is  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

in  the  sustainability  of  this  demand  –  it  still  lags  behind  other  European  markets,  and  there  is  more  

that  the  cluster  can  do  to  promote  further  domestic  consumption.  

 

 

 

 

 

 

 

Context   for   Firm   Strategy   and   Rivalry:   EU  membership   has   certainly   been   helped   in   providing   an  

access   point   to   the   strongest   market.   Strong   internal   demand   has   produced   a   strong   internal  

competitive   landscape   that   continues   to   fuel   innovation.  While   labor   cost   is   high   as   compared   to  

some  competitors,  technological  advances  have  kept  strong  margins,  particularly  for  the  large  scale  

producers.  Meanwhile,  the  boutique  shops,  have  generations  of  knowledge  and  skills  that  are  difficult  

to  replicate  in  newer  markets.    

 

 

 

 

 

 

12.22

8.86

8.8

7.58

7.54

7.23

6.69

5.84

5.66

3.93

3.42

2.87

2.74

0 2 4 6 8 10 12 14

Germany

United7Kingdom

Austria

Denmark

Belgium

Finland

France

Ireland

Lithuania

Italy

Spain

Portugal

Poland

CONSUMPTION*OF*CHOCOLATE *PER*EU *RES IDENT*(KG)

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

 

 

 

 

 

 

 

 

 

 

 

 

Related  and  Supporting  Industries:  The  strongest  performing  part  of  the  sector  is  the  production  of  

industrial  chocolate  or  coverture  –  as  previously  mentioned,  this  intermediate  product  is  produced  at  

a   global   scale.   However,   a   clear   risk   to   this   part   of   the   cluster   diamond,   is   that   nearly   all   the   raw  

materials  necessary   for   this  product  are   imported,   and  as  noted   in  our   chocolate   industry  analysis  

above,  there  are  questions  over  the  sustainability  of  supply.  Other  supporting  institutions  include  the  

Port   of   Antwerp   which   acts   as   a   central   logistics   hub   for   several   different   chocolate   markets,  

including  competitors,  as  well  as  public  and  private  agencies  that  help  lobby  for  the  industry  inside  of  

Belgium   as   well   as   the   EU   –   such   as   Flanders   Food   and   Choprabisco   which   will   be   described   in  

greater  depth  later  in  the  paper.  

 

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

Belgian  Chocolate  Cluster:  Government  Policies  and  Institutes  for  Collaboration  

      The  government   involvement  with   the  Belgian  Chocolate  Cluster  has  been  quite  extensive,  

and  what   is   unique   about   the   chocolate   cluster   is   that   it   has   institutes   for   collaboration   on   three  

different  but  intersecting  levels:  Local,  Country,  and  EU.  An  analysis  of  the  government  involvement  

reveals   some   tensions   inside   the  cluster   that  are  not  otherwise  apparent  –   there  are   two  points  of  

contention  for  the  cluster,  primarily  over  origin  and  definition.    

First,   it   is   worth   noting   that   there   is   a   distinct   definition   for   what   constitutes   Belgian  

Chocolate   which   has   effectively   solidified   Belgium’s   competitive   position   –   this   serves   as   a   high  

barrier  to  entry,  and  gives  Belgian  manufacturer’s  a  monopoly  position.  This  Belgian  chocolate  code  

was   created   by   Choprabisco,   the   Royal   Belgian   Association   of   the   Biscuit,   Chocolate,   Pralines   and  

Confectionary   –   this   private/public   organization   counts   180   members,   ranging   from   the   small  

company   to   the  multinationals   companies.   A   vast  majority   of  members   are   small   local   companies,  

and  therefore  the  Belgian  Chocolate  Code  is  written  to  address  the  concerns  of  SMEs.  Specifically,  the  

requirements   around   defining   place   of   origin   have   been   contested   as   the   larger   Belgian   chocolate  

companies   have   started   to   produce   a   portion   of   their   final   products   outside   of   Belgium.   The  

requirements  imposed  by  the  Belgian  Chocolate  Code  are  in  many  ways  more  onerous  than  those  of  

the   EU   regulations   around   origin.   xlvii   Nonetheless,   this   combination   of   local   and   regional   policy  

around   origin   has   served   to   enhance   the   cluster’s   value   proposition   by   increasing   consumer  

willingness  to  pay.  

  The   second  area  of   contention  was  what  was  known  as   the  30  year   “Chocolate  War”.  This  

battle   played   out   at   the   EU   level   and   pitted   the   traditional   strongholds   of   chocolate   production,  

Belgium,   France,   Switzerland   and   Germany   against   the   United   Kingdom   and   the   Nordic   countries.  

The  battle  centered  around  the  definition  of  chocolate,  and  traditional  actors,  led  by  Belgium  argued  

that  anything  defined  as  “chocolate”  should  not  be  allowed  to  include  vegetable  oil  of  any  percentage  

and  should  strictly  use  milk.  This  battle   lasted  for  30  years  and  was  finally  resolved  by  a  European  

Court   of   Justice   ruling   and  by   the  European  Directive   2000/36  which  mandated   that   vegetable   oil  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

substitute  could  still  be  used  to  produce  chocolate  up  to  a  maximum  of  5%.  This  was  seen  as  a  clear  

levelling  of  the  quality  standards  for  chocolate  products  in  general  because  most  Belgian  companies  

pride   themselves   in   only   using   100%   cocoa   butter.   Consequently,   this   is   still   being   considered   by  

many  Belgian  manufacturers  as  a  potential  threat  of  reduced  quality  standards  for  chocolate,  and  to  

the   Belgian   code   has   became   stricter   in   response   to   these   regulation.   The   Ministry   of   Economic  

Affairs   instituted   the   Ambao   certification   program   to   tighten   the   definition   of   Belgian   chocolate,  

which  has  further  frustrated  the  larger  Belgian  chocolate  corporations.  xlviii  

  Indeed,  it  is  important  to  note  that  the  commodity-­‐‑like  nature  of  chocolate  creates  significant  

opportunity   for   collaboration   on   multiple   levels   –   apart   from   Choprabisco   on   the   local   level,   the  

Belgian  chocolate  cluster   is  also  involved  with  Caobisco  on  the  regional   level,  and  the  International  

Cocoa  Organization  on   the   global   level.   The   important  point   is   that   the  Belgian   cluster   is   a  pivotal  

member   of   these   respective   institutions   –   they   are   at   the   forefront   of   shaping   regulation   and  

guidelines,  and  also  provides  an  opportunity  for  knowledge  sharing  between  different  partners  in  the  

supply  chain  across   three  dimensions.  This  sharing  of  knowledge  enhances   the  existing  knowledge  

sharing  on  the  cluster  level,  and  further  strengthens  Belgium’s  positioning.  

Federalism  and  Chocolate  Cluster  Performance  By  Region    

Institutionally,  Belgium  is  divided  into  four  language  areas  (the  Dutch-­‐‑speaking,  the  bilingual  

Dutch/French,   the   French-­‐‑speaking   and   the   German-­‐‑speaking),   and   is   composed   of   three  

Communities   (the   Flemish,   the   French   and   the   German-­‐‑speaking)   and   three   Regions   (Flemish,  

Brussels   Capital   and   Walloon).   Consequently,   policy-­‐‑making   within   the   country   is   prepared   and  

executed   by   various   authorities,   based   on   three   distinct   pillars,   each   with   their   own   range   of  

competencies:   a   federal,   a   community,   and   a   regional   pillarxlix.     Consequently,   the   Belgian   form   of  

federalism   is   unique,   because   each   region   has   exclusive   powers   and   competencies   in   a   number   of  

areas   –   there   are   no   shared   competencies   between   the   regions,   so   that   each   entity   has   its   own  

separately   elected   parliament,   government,   administration,   legislation,   and   advisory   bodies.   No  

hierarchy  exists  between  the  different  entities  regarding  their  competencies  so  that  no  overruling  is  

possible.     In   1980,   the   regional   authorities  were   establishedl   –   the   Flemish   authorities   decided   to  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

merge  the  existing  institutions  of  the  Flemish  Community  and  the  Flemish  Region.  Since  then,  a  single  

Flemish  Parliament,  Flemish  Government,  and  administration,  with  consultative  or  advisory  bodies,  

have   managed   and   overseen   both   community   and   regional   competencies   in   the   various   policy  

domains.   The   Flemish   Parliament   debates   and   legitimates   all   official   legal   decisions   pertaining   to  

both  community  and  regional  competence.  Likewise,  the  Government  of  Flanders  is  charged  with  the  

execution   and   implementation   of   policy   decisions   of   both   the   community   and   the   regional  

competencies.  This  decision  making  process  differs  in  the  French-­‐‑speaking  part  of  the  country,  where  

the   French   Community   and   the   Walloon   Region   are   separate   institutional   entities   with   different  

parliaments,  governments  and  public  authoritiesli.    

 

 

 

 

 

 

 

 

 

 

 

 

 

  Based   on   Oxfam’s   analysis   of   the   Belgium   Chocolate   Clusterlii,   one   notes   that   there   are  

significant  differences  in  performance  by  region.  As  noted  in  the  graph  above,  Flanders  is  responsible  

for  nearly  75%  of  total  employment,  turnover  and  number  of  companies  in  the  chocolate,  cocoa,  and  

sugar   confectionary   industry   in   Belgium.   This   indicates   the   following:   (a)   the   chocolate   cluster   is  

disproportionately   concentrated   in   the  North   of   the   country   arguably   due   to   greater   access   to   the  

North   Sea,   (b)   As   a   result,   Flanders   has   benefitted   from   increased   employment   in   the   chocolate  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

cluster,  and  it  also  has  a  more  robust  knowledge  base  given  the  historic  presence  of  most  companies  

in  the  region  –  this  has  also  allowed  it   to  develop  a  strong  cluster  around  food  manufacturing  over  

the  years.            

Comparison  of  Regions  

  In  order  to  understand  this  difference  in  performance,  and  evaluate  future  prospects  for  the  

Belgium   chocolate   cluster,   one   needs   to   understand  what   each   region’s   strengths   and  weaknesses  

are,  and  how  current  processes  can  be  improved.  

Flanders   –   Flander’s   population   accounts   for   about   58%   of   Belgium's   total   population,  

whilst   its   surface   area   covers   about   44%   of   the   country.   The   majority   of   the   companies   and   the  

working   population   of   Belgium   are   located   in   its   northern   region,   which   also   has   a   higher  

employment  rate.  As  a  result,  the  economy  of  Flanders  represents  about  58%  of  the  Belgian  economy  

(as  measured  in  GDP).   It   is  also  a  very  open  economy:  according  to  the  EU  definition,  exports   from  

Flanders  are  worth  almost  125%  (2014)  of  its  GDP  (partly  due  to  the  trade  of  goods  arriving  in  the  

harbor  of  Antwerp).    On   the  other  hand,   the   relative  wealth  of  Flanders   -­‐‑   as  measured   in  GDP  per  

capita-­‐‑  is  about  20%  higher  than  the  EU-­‐‑28  average  but  slightly  lower  than  the  Belgian  average.  The  

main   reason   for   the   latter   is   the   “capital   city”   effect   of   the   small   Brussels   Capital   region,   with   its  

strong  presence  of  company  headquarters  and  public  administrations.  If  the  wealth  generated  by  the  

daily  commuters  from  Flanders  into  the  Brussels  Capital  Region  were  attributed  to  their  residence  in  

the   Flemish   Region,   the   Flemish   GDP   per   capita   would   rise   above   the   Belgian   value.   Total  

expenditure  on  R&D  (GERD)  in  Flanders,  which  reaches  5.8  billion  euro,  equates  to  over  64%  of  the  

Belgium  total  (2013)  and  the  Flemish  R&D  intensity  exceeds  the  national  value  for  Belgiumliii.  

Strong   Institutions   for   Collaboration:   The   backbone   of   the   Flanders’   knowledge   base   is  

shaped   by   the   5   university   associations,   5   strategic   research   centers,   and   a   number   of   other  

knowledge   institutes   in   specific   domains   such   as   marine   sciences,   tropical   health,   agriculture  

research,   and   various   collective   research   institutes   active   in   specific   fields   –   institutions   such   as  

Ghent  University,   the  Flanders  Institute  of  Biotechnology  and  the  Agency  for  Innovation  by  Science  

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and  Technology  have  played  a  key  role  in  fostering  the  development  of  the  food  manufacturing  sector  

in   Belgium   overall   and   in   Flanders   specifically.   Several   of   these   knowledge   actors   in   Flanders   are  

recognized   as   centers   of   excellence   in   their   field   of   activity   and   conduct   research   integrated   in  

renowned  international  networks  and  with  partners  throughout  the  world.  Some  of  these,  such  as  KU  

Leuven   or   Ugent   have   established   subsidiary   activities   abroad   (US,   Asia)   by   often   involving   local  

counterparts  or  partners.  The  European  Research  Ranking,  which  is  based  on  the  publicly  available  

data   from  CORDIS  on  European   research  projects   funded  by   the  European  Commission  during   the  

past   years,   contains   three   institutes   from   Flanders   in   the   top-­‐‑100:   KU   Leuven,   iMinds   and   VUB.    

Indeed,     ‘the   winning   combination   of   Flander’s   dense   population   of   companies,   SMEs,   large  

enterprises,   local   companies,   and   their   traditional   willingness   to   cooperate   in   order   to   extend  

themselves,   has   provided   a   hotbed   for   the   development   of   various   knowledge   clusters’liv   –   which  

provide   a   critical   backdrop   for   the   formation   of   specialized   clusters.     This   economic   specialization  

pattern  (based  on  the  relative  export  shares)  of  Flanders  reflects  the  pattern  of  a  mature  economy  as  

well  as  that  of  a  highly  diversified  economy.  In  most  sectors  the  Flemish  economy  has  maintained  a  

critical  mass  to  remain  competitive.  The  food  and  beverages  sector  is  the  largest  industrial  sector  in  

terms  of  employment  with  a  wide  set  of  specializations  in  pork  meat,  frozen  vegetables  and  potatoes,  

beer  and  chocolateslv.  

Policies:  The  Government  of  Flanders  has  supported  several  innovative  networks,  involving  

various   knowledge   actors   and   industries,   usually   including   companies   from   a   specific   sector.   The  

main   policy   instrument   is   the   “VIS-­‐‑scheme”   which   provides   a   legal   structure   for   various   types   of  

networks/projects   that   offer   innovative   solutions   to   a   specific   problem   or   a   demand-­‐‑driven  

opportunity   relating   to   a   collective   of   companies,   resulting   in   a   clear   economic   added   value   for   a  

broad  target  grouplvi.  Since  2002,  the  VIS-­‐‑scheme  has  supported  the  emergence  of  excellence  centers  

or  innovation  platforms  –  these  organizations  coordinate  between  different  actors  such  as  industrial  

partners,   universities,   professional   organizations   of   a   specific   industry,   by   providing   relevant  

research  and  innovation  potential  and  diffuse  knowledge  in  the  Flanders  region.  As  the  OECD  notes  

in  its  report  on  innovation  policy,  the  ‘VIS  scheme  is  targeted  to  intermediary  network  organization  

that   actively   support   technological   innovation   in   companies’,   and   critically   helps   to   increase  

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awareness   and   improve   access   to   technology   and   knowledge   transfer   for   enterpriseslvii.   Flanders  

Food   is   one   of   the   initiatives   supported   by   VISlviii   –   consisting   of   181  member   companies   and   25  

knowledge   institutes,   it   serves   as   a   consolidated   knowledge   center   that   brings   together   food  

companies  dedicated  to  innovationlix,  specifically  in  the  West  Flanders  region  due  to  a  combination  of  

geographical   proximity   to   the   ports,   as   well   as   unique   climatological   conditions   that   allow   West  

Flanders  to  use  two-­‐‑thirds  of  its  surface  for  agriculture  and  horticulturelx.    

In   2015,   the   Flemish   Government   also   approved   a   Concept   Note   on   Cluster   Policy   that  

describes   the   framework   of   a   more   general   Flemish   cluster   policy.   It   includes   initiatives   that  

reshuffle   the   existing   landscape,   among   other   by   adapting   funding   criteria,   and   direct   future  

innovative   cooperation   among   companies’   networks   into   two   types  of   clusters:   spearhead   clusters  

and   innovative   enterprise   networks.   Spearhead   clusters   will   be   complementary   to   the   strategic  

domains,   large   scale,   limited   in   number,   and   strictly   selected.   It   will   be   supported   for   a   10-­‐‑year  

period  with  a  50%  public  support  part,  and  require  a   triple  helix  model.   In  contrast,  the   innovative  

enterprise  networks  will  be  shaped  on  a  smaller  scale,   through  a  bottom-­‐‑up  approach,  and  focus  on  

future  potential  by  concentrating  on  emerging  markets  or   the  bundling  of  various  small   initiatives.  

During   a   3-­‐‑year   period,   a   50%   public   support   part   will   be   available,   and   the   simplification   and  

streamlining  of  the  large  number  of  intermediaries,  structures,  and  innovation  actors  are  the  leading  

goals   of   this   new   policy   slated   to   be   implemented   in   2016   or   2017   intended   to   foster   the  

development   of   a  more   focused   demand-­‐‑driven   approach.     Indeed,   the   aim  of   this   on-­‐‑going   policy  

process  is  to  unlock  unused  economic  potential  and  to  increase  the  competitiveness  among  Flemish  

companies   through   an   active   and   continuous   cooperation   of   actors,   to   contribute   to   a   solution   for  

societal  challenges  with  an  economic  added  value  for  companies.  Indeed,  according  to  Jan  Larosse  at  

the   Flanders   Department   of   Economy,   Science   and   Innovation,   a   key   challenge  moving   forward   is  

dealing  with  the  innovation  paradox  in  Flanders  –  primarily  the  translation  of  innovation  projects  to  

monetization,  which  the  2014-­‐‑2019  governing  agreement  has  established  as  the  core  focuslxi.  

Wallonia  –  Concentrated  in  the  Southern  region  of  Belgium,  it  covers  55%  of  the  total  land  

area   but   only  makes   up   33%   of   the   total   country   population.  While   it   covers   the  majority   of   the  

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country,  GDP  only  accounts  for  23%  of  Belgium’s  totallxii.  As  highlighted  above,  Wallonia  has  its  own  

separate  competencies  with  respect  to  how  it  functions  as  a  region  within  the  overall  Belgian  federal  

framework  –  it  is  thus  responsible  for  its  economic  policies  and  is  allowed  to  pursue  its  own  external  

trade   policies,   including   the   signing   of   treaties.   This   autonomy   may   be   part   of   the   reason   why  

Institutions  for  Collaboration  (IFCs)  only  exist  at  the  regional  and  not  the  national  level.  Despite  the  

fact   that   the   population   of   Wallonia   is   highly   educated,   overall   labor   market   data   in   Wallonia  

highlight   crucial   economic  problems.  With   an   employment   rate   of   57.2%,  Wallonia   is   doing  worse  

than   Belgium   and   the   EU-­‐‑27   on   average.   This,   coupled   with   an   unemployment   rate   of   9.6%,   also  

higher   than   Belgian   and   EU-­‐‑27   averages,   raises   some   concerns   about   the   region.     One   potential  

explanation  for  these  severe  underutilization  indicators   is  the  recent  de-­‐‑industrialization  processes  

that  Wallonia  has  experienced  over  the  second  half  of  the  20th  century.    

Policies:   In   August   2005,   the   Government   of  Wallonia   decided   to   implement   the   “Priority  

Action  Plan”,  or  also  “Marshall  Plan”  which  aimed  at  supporting  Wallonia’s  economy  and  giving  it  a  

qualitative   jump.   Spearheaded   by   AMEX,   the   Wallonia   Export   and   Investment   Agency,   this   new  

industrial  policy  mainly   focused  on   the  development  of   industrial  networking   through  two  policies  

which  are  linked  very  closely  to  each  other:  (a)  The  Competitiveness  Poles  policy:  The  main  objective  

of   this   policy   is   to   develop   some   key   growth   sectors   on   the   basis   of   strong   partnerships   projects  

between   enterprises,   research   and   training   centers.   It   aims   to   implement   leading   industrial   and  

technological   projects   within   the   5   sectors   considered   essential   for   the   regional   economy:   life  

sciences  and  health  (Biowin),  the  agrifood  industry  (Wagralim),  the  Aeronautics  and  space  industry  

(Skywin),  mechanical  engineering   (Mecatech),   transport  &   logistics   (Logistics   in  Wallonia).   (b)  The  

Clustering  policy:  The  objective  of   this  policy   is   to  develop  business  networks   in   specific  domains,  

and   eventually  with   research   operators,   and,   to   develop   a   cooperation   framework   and   a   stronger  

economic  structure  within  the  sectorlxiii.    Given  this  paper’s  focus  on  the  chocolate  cluster,  we  look  at  

Wagralim,   the   agri-­‐‑food   cluster,   which  was   created   as   part   of   the   ‘Marshall   Plan’   to   shore   up   the  

competitiveness  of  companies  and  to  boost  business  and  jobs  in  the  sector.  The  regional  government  

has  set  aside  close  to  €  55.3  million  for  projects,  with  €  38.3  million  of  which  from  the  public  purse  

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(funding  by   the  Walloon  Region).  The  Cluster’s  partners  mainly   include  companies,   scientists   from  

universities,   research   centers,   and   training   institutes.   At   present,   there   are   40   industrial   partners  

(including  19  SME)  as  well  as  31  scientific  players  are  project  members,  and  entities  such  as  industry  

federations  like  Fevia  Wallonia  aid  in  the  development  of  the  cluster.    

However,   the   problem   is   that   only   one   chocolate   factory,   Ferrero   in   Arlonlxiv,   is   currently  

based  in  Wallonia  –  as  noted  above,  the  majority  of  companies  are  still  concentrated  in  Flanders,  and  

there   are   questions   over   the   success   of   the   above   initiatives.   As   noted   by   Florence  Hennart,   from  

Wallonia’s  Economic  Policy  Department,  Wallonia’s  ranking  in  agriculture  production  across  the  EU  

stands  at  72,  and  more  needs  to  be  done  to  improve  its  performancelxv.    

 

 

 

 

 

 

 

 

 

Brussels   –  While  Brussels   only   accounts   for   3%  of   overall   production   volume   in   the   food  

sector,  it  plays  a  pivotal  role  in  the  development  of  the  sector  in  Belgium  as  a  whilelxvi.  Through  the  

Brussels  Enterprise  Agency,  the  Brussels  has  focused  its  efforts  on  being  the   ‘interface  that  enables  

all   those   doing   business   in   the   Brussels   region’   to   find   the   necessary   information,   and   provide  

selective   support   to   high   potential   industries   which   will   lead   to   the   growth   of   a   sustainable  

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ecosystem  for  innovate  enterpriseslxvii.    In  particular,  Brussels  has  focused  on  the  development  of  the  

biotechnology  sector  given  the  relationship  between  biotechnology,  and  the  development  agri-­‐‑food  

specific   innovations   in   additives,   nutrients,   and   even   packaginglxviii.   This   paper   argues   that   the  

presence  of  large  multinational  corporations  like  Nestle,  Danone,  Ferrero,  and  Unilever  in  the  capital  

serves  two  important  functions:  (a)  given  that  these  companies  need  to  be  in  Brussels  either  to  lobby  

politicians   in   the   European   Union   or   to   keep   abreast   of   the   latest   regulation,   there   is   a   natural  

community  for  knowledge  sharing  that  can  only  benefit  the  development  of  Belgium’s  own  agri-­‐‑food  

cluster.   (b)   The   fact   that   these   corporations   have   chosen   to   site   their   regional   headquarters   in  

Brussels  also  creates  a  powerful  signaling  effect  indicating  the  importance  of  Belgium  at  the  heart  of  

Europe.   In   this   sense,   Belgium   has   a   powerful   competitive   advantage   not   completely   due   to   its  

inherent  competencies,  but  also  in  part  due  to  the  fact  that  it  is  also  the  capital  of  Europe,  giving  it  the  

opportunity  to  leverage  on  this  position  to  grow  its  agri-­‐‑food  cluster  moving  forward.  

Sustaining  Competitive  Advantage  and  Improving  the  Value  Proposition    

  In  this  paper’s  analysis,  while  Belgium  certainly  has  an  established  comparative  advantage  in  

the   chocolate   cluster,   it   needs   to   continue   sustaining   and   improving   on   this   advantage   for   it   to  

continue   being   a   market   leader.   Indeed,   Belgium’s   current   value   proposition   is   this   –   it   has   the  

experience  and  expertise  in  chocolate  manufacturing  forged  over  generations  of  history  and  practice,  

which  has  not  only  allowed  it  to  produce  a  superior  product,  but  also  increase  consumer  willingness  

to   price.   This   superiority   has   been   solidified   through   a   combination   of   regional   and   domestic  

legislation   that  has  protected   the   ‘Belgian  Chocolate’   label,   giving   it   an  essential  monopoly  over   its  

production  even   though   the  raw  materials  are  almost  entirely  sourced   from  outside   its  borders.   In  

addition,  its  central  role  in  linking  domestic,  regional,  and  international  cocoa  organizations  gives  it  

an   influential   voice   in   shaping   regulation   and   policies   for   the   industry   –   it   is   able   to   dictate   the  

contours   of   industry   guidelines   moving   forward,   preventing   it   from   being   blind-­‐‑sided   by   other  

competitors.  Moreover,  given  the  improvements  it  has  made  to  manufacturing  processes  through  the  

consolidation  of   the   industry,   the  cluster  has  also  been  able   to   lower  processing  costs.  Couple  with  

Belgium’s   inherent   strength   in   infrastructure   and   proximity   to  major   transportation   routes,   retail  

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and   transportation   costs   have   been   significantly   reduced.   It   essentially   has   a   natural   advantage   at  

each   step   of   the   value   chain,   which   has   allowed   to   indirectly   integrate   manufacturing   across  

vertically.  This   combination  of   increased  willingness   to  pay,   and   lower  marginal   costs  has   allowed  

the  cluster  to  create  and  capture  value  not  only  for   itself  but  also  for  the  country  as  a  whole,  but   it  

needs  to  improve  on  a  few  areas  for  it  to  sustain  its  value  proposition.  

Country  Recommendation  

This  paper  is  believes  that  a  major  hindrance  for  Belgium  moving  forward  is  in  its  political  

structure  –  while  the  regional   federalist  structure  may  have  worked  for  now,   it   is   tenuous,  and  has  

the   ability   to   fracture   at   a   moment’s   notice,   possibly   unraveling   generations   of   investment   and  

expertise   in  the  chocolate  cluster.  Moreover,   the  country’s  anemic  economic  position  is  concerning,  

and  it  needs  to  solve  its  current  fiscal  position  in  order  to  ensure  the  sustainability  of  existing  policies  

and  programs.  Here  are  our  recommendations  in  order  of  importance:  

Recommendation   1:   Address   lingering   concerns   over   the   democratic   structure   and  

relationship  between  the  three  different  regions.    

It   is   incredibly  worrying   that   Belgium  did   not   have   an   elected   government   for   nearly   589   days   in  

2010-­‐‑2011   because   opposing   Flemish   and   Walloons   were   not   able   to   agree   on   how   to   form   a  

governing  coalitionlxix.  This  not  only  hamstrung   the  government’s  ability   to  conduct  any  policy,  but  

also   create   a   perverse   sense   of   uncertainty   about   the   business   and   investment   community   that   is  

inherently  inimical  to  growth  and  competitiveness.  While  this  scenario  has  been  solved,  there  is  no  

guarantee   that   it   could   not   happen   again,   and   this   paper   argues   that   Belgium   needs   to   settle   the  

structure   of   polity   soon   through   a  more   intense   dialogue–   continued   rumors   over   the   breakup   of  

Flanders   and  Wallonia   are   not   helpful,   and   needs   to   addressed   comprehensively   as   it   dictates   the  

scale  and  scope  of  cluster  policy  moving  forward.  The  major  actors  involved  in  this  step  are  likely  to  

be   the   respective   regional   governments,   the   European   Union,   and   likely   the   population   through   a  

referendum.   Realistically   however,   given   existing   talks   of   Brexit,   it   is   unlikely   that   Belgium   will  

undertake  a  similar  referendum  –  rather,  similar  to  what  it  has  been  doing  thus  far,  it  will  continue  to  

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punt  the  issue,  leaving  a  shroud  of  uncertainty  which  will  cloud  the  development  of  successful  cluster  

policies  on  both  the  regional  and  federal  level.  

Recommendation   2:   Belgium   needs   to   improve   on   its   cluster   coordination   across   all   three  

regions  in  order  to  develop  a  successful  chocolate  cluster  policy  

As  noted  above,  each  of   the   three  regions  have  detailed  plans   for   the  development  of   the  agri-­‐‑food  

and   manufacturing   cluster.   However,   there   is   little   communication   and   harmonization   across   the  

three   regions   apart   from   some   coordination  between  Flanders   and  Brussels   given   their  proximity.  

The  lack  of  partnership  implies  that  policies  may  overlap  and  compete  with  each  other  rather  than  

competing   with   external   competitors.   While   regional   competition   is   common,   as   noted   in   South  

Carolina   in   the   United   States,   there   is   a   sense   that   competition   between   Flanders   and  Wallonia   is  

tinged  with  a  degree  of  antagonism  due  to  its  acrimonious  history  and  relationship.  This  is  counter-­‐‑

productive,  and  limits  the  oveall  potential  of  Belgium’s  chocolate  cluster  if  not  adequately  addressed.  

Given  the  tense  relationship  between  regional  governments  which  may  limit  the  viability  of  forming  

cross-­‐‑regional   taskforces   on   the   governmental   level,   companies   in   each   region   should   organize  

specific  committees  and  councils  dedicated  to  the  harmonization  of  strategy.  The  role  of  Choprabisco  

is  key  –  as  domestic  institutions  overseeing  the  chocolate  cluster,  they  play  a  neutral  role,  and  could  

be  a  pivotal  force  in  influencing  governmental  collaboration.    

Recommendation  3:  The  government  needs  to  solve  Belgium’s  current  fiscal  position  which  is  

not  sustainable,  as  well  as  address  the  high  tax  burden  which  has  decreased  the  incentives  to  

work  and  invest  in  the  country    

As  noted  above  in  our  country  analysis,  Belgium’s  high  tax  rate  has  worsened  incentives  to  work  and  

invest   since   2000,   and   this   is   inimical   to   the   development   of   strong   clusters   given   the   impact   on  

productivity,   labor   force   participation,   and   economic   growth.   It   is   comforting   to   note   that   the  

government  has  put  forward  a  series  of  austerity  measures,  but  its   impact  is  still  questionable,  and  

continues  to  be  challenged  by  the  Wallonia  government.  Indeed,  part  of  this  issue  lies  in  the  inherent  

tension   between   regions  which   has   limited   the   ability   of   the   government   to   formulate   acceptable  

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policies   without   facing   challenges   from   either   side.   In   any   case,   the   government   needs   to   follow  

through  on   its  plans   for  tax  reform,  and  also  offer  more  clarity  on   its   tax   incentives   for  R&D  which  

can  stimulate  further  investor  interest  and  involvement  in  the  country.  

Recommendation  4:  Improve  access  to  credit  by  strengthening  the  banking  sector    

As   highlighted   above,   the   weakening   of   the   credit   markets   has   impacted   small   and   medium  

enterprises  the  most,  which  constitutes  a  significant  portion  of  the  chocolate  manufacturing  industry.  

This  also  explains  why  innovation  in  SMEs  is  low  relative  to  other  European  Union  economies  –  given  

weak   credit   conditions,   SMEs   are   less   incentivized   to   invest   in   R&D   given   funding   constraints,  

creating  a  vicious  spiral.  The  government  (Ministry  of  Economic  Affairs,  and  the  Ministry  of  Finance),  

in  collaboration  with  industry  associations  such  as  Choprabisco,  needs  to  partner  with  banks  to  re-­‐‑

invigorate  lending  in  Belgium  –  this   in  part  depends  on  the  lending  standards  across  the  Eurozone,  

but  with   the  European  Central  Bank’s  easing  bias,  and  continued  quantitative  easing   through  asset  

purchases   and   offering   cheap   financing   to   banks   in   the   form   of   long-­‐‑term   financing   operations  

(LTRO),   one   can   argue   that   credit   conditions  will   gradually   improve  over   in   the   coming  years   and  

bolster  growth.  

Cluster  recommendations  

  This  paper  believes  that  Belgium’s  chocolate  cluster  faces  three  secular  headwinds  –  first,  

concerns  over  the  sustainability  and  supply  of  cocoa;  second,  over  the  stagnation  of  its  global  market  

share  due   to   an  over-­‐‑reliance  of   a   stable  European  market;   and   three,  meeting   evolving   consumer  

demands   in  an   increasing  crowded  space.  These  are  worrying   trends   that  may   inhibit   the  cluster’s  

ability   to   continue   sustaining   its   competitive   advantage   and   value   proposition.   Here   are   some  

recommendations  to  address  these  issues  in  order  of  priority:  

Recommendation  1:   Improve   sustainability   of   the   supply   of   cocoa  beans   in   order   to   ensure  

long  term  availability  and  quality  of  cocoa  beans.  The  cluster  should  pre-­‐‑empt  the  demand  for  

increased   corporate   social   responsibility,   and   take   more   discrete   measures   to   improve   its  

adherence  to  global  CSR  norms  

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As  noted   in  our  analysis,  Belgium   largely   imports  all  of   its   raw  materials   in  cocoa  production.  This  

implies  that  it  is  not  only  susceptible  to  supply  shocks,  but  more  importantly,  may  be  vulnerable  to  

changes   in   the  production  process.  This   could  happen   in   two  ways:   (a)   companies  decide   to  move  

their   production   facilities   closer   to   the   raw  materials,   or   (b)   exporting   countries   begin   developing  

their   own   chocolate  manufacturing   capabilities   and   export   end-­‐‑products   on   their   own.  While   this  

paper  does  not  think  these  are  likely  in  the  near  term  given  Belgium’s  value  proposition,  and  control  

over  the  Belgium-­‐‑chocolate  label,  it  still  needs  to  ensure  that  it  is  not  vulnerable  to  supply  changes.  It  

is  worth  noting  that  the  country  has  a  long  term  relationship  with  Ivory  Coast,  as  well  as  cooperation  

programs   with   most   of   the   African   producers   of   cocoa   given   its   historical   links   with   Africa.   The  

government  should  continue  building  on   these  relationships   through  diplomatic  efforts  either  on  a  

Track  1  basis,  or  through  industry  associations  like  ICCO.  Moreover,  given  this  relationship,  it  is  also  

well   placed   to   influence   these   countries   to   adopt   CSR-­‐‑adherent   production   best   practices.   Given  

increased   consumer   demand   for   socially   conscious   products,   Choprabisco   should   take   a   lead   in  

pushing  for  increased  certification  of  cocoa  beans,  and  securing  long-­‐‑term  supply  contracts  for  these  

products   to  meet  demand.   In  addition,  other   institutes   for  collaboration   like   the  Belgium  Trade   for  

Development   Center   should   also   improve   its   marketing   of   Belgian   chocolates   by   emphasizing  

sustainability  as  a  key  principle  of  the  cluster.    

Recommendation   2:   Promote   Belgian   Chocolate   Brand   to   enhance   customer   willingness   to  

pay,  especially  in  the  emerging  market  

The  Belgium  chocolate  cluster  should  reinforce  its  position  in  quality  products  and  the  top  segment  

of   the   market   –   while   Ambao   and   Choprabisco   have   done   a   commendable   job   in   promoting   the  

Belgium  brand  across  historical  markets   in  Western  Europe  and  North  America,   these  markets  are  

experiencing  stagnant  and  stable  growth.    The  cluster  thus  needs  to  expand  into  growing  regions  in  

the  emerging  market  such  an  India  and  China,  and  create  greater  awareness  of  Belgium  chocolates  

through  partnerships  with   local  distribution  networks,   retailers,  and  domestic   suppliers.  While   the  

institutes   for   collaboration  and   industry  groups  play  a   critical   role   in   this  endeavor,   the   respective  

regional  governments  and  trade  promotion  agencies   like  Flanders  Food  can  also  play  a  pivotal  role  

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by   inviting   foreign   distributors   and   retailers   to   observe   production   process   of   Belgium   chocolate  

manufacturing.   Indeed,   the   key   point   here   is   to   build   on   the   established   Belgium   chocolate   brand  

name   –   while   it   is   unlikely   that   its   reputation   will   decline,   it   still   faces   competition   from   other  

producers   in   Switzerland,   and   the   cluster   needs   to   not   only   retain   its   customers   through   product  

differentiation  from  other  lower  quality  options,  but  also  continue  growing  consumers’  willingness  to  

pay  in  order  to  sustain  its  competitive  advantage.  It  has  certainly  helped  that  the  European  Union  has  

clarified  the  definition  of  milk  chocolate  through  the  European  Directive  2000/36,  but  there  can  be  

further   dialogue   between   industry   groups   and   regulators   to   ensure   the   competitive   position   of  

Belgium  forward.    

Recommendation   3:   Maximize   value   added   throughout   the   supply   chain   by   improving   on  

current  processes,  and  through  innovation.    

Belgium  chocolate  industry  players  have  acquired  a  leading  position  in  the  intermediate  products  but  

should   improve  on   its   efficiency   to   reinforce   their  position  –  while   restructuring   in   the  1970s   and  

1980s   has   helped   to   bolster   current   operational   effectiveness,   it   should   continue   enhance  

improvement   efforts.   Indeed,   Belgium’s   competitive   advantage   across   the   value   chain   can   be  

enhanced   through   innovation   projects   either   through   more   energy   efficient   manufacturing  

processes,  or  by  developing  new  technologies  to  facilitate  increase  export  volume.  This  can  be  led  by  

a   partnership   between   regional   cluster   groups   such   as  Wagralim   or   Flanders   Food,  with   research  

institutions  like  the  Agency  for  Innovation  by  Science  and  Technology,  and  Choprabisco.  

Recommendation  4:  Stimulate  national  consumption  

As  highlighted  previously,  while  the  average  Belgium  citizen  consumers  7.5kg  of  chocolate  per  year,  

it  still  lags  behind  Germany,  the  United  Kingdom,  and  Austria.  While  its  domestic  market  is  small,  the  

cluster  can  still  promote  further  consumption  –  for  instance,  industry  associations  like  Choprabisco  

should   capitalize   on   the   recent   policy   developments   which   acknowledge   the   health   benefits   of  

moderate   chocolate   consumption   to   increase   the   share   of   the   chocolate   sales   in   the   consumers’  

basket.  Targeted  marketing  efforts  are  needed  to  nurture   further  demand  for  chocolate  as  a  health  

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product  rather  than  a  compulsive  purchase.    Given  the  similarity  of  German  and  Austrian  consumers  

with   Belgium   consumers,   industry   groups   should   conduct   a   cross-­‐‑border   analysis   of   consumer  

patterns  to  gain  a  deeper  understanding  of  success  factors  which  can  translate  into  further  domestic  

sales.  

Recommendation   5:   It   should   also   address   stagnant   market   share   in   chocolates   by  

diversifying  into  other  by-­‐‑products  and  developing  other  niche  products  

The  ITC  Trade  Map  indicates  that  while  Chocolate  accounts  for  the  largest  share  of  Belgium’s  cocoa  

export  portfolio,   its   change   in  market   share   is   stagnant.   In   contrast,   Cocoa  beans  and   cocoa  butter  

have  been  growing  at  a  rate  of  15%  and  8%  respectively  since  2000.  While  a  small  part  of  the  overall  

export  portfolio,  there  is  great  potential  in  developing  these  by-­‐‑products,  and  the  cluster  should  look  

to   diversifying   into   other   products   to   gain   a   further   advantage   over   other   manufacturing   peers.  

Similarly,  it  should  increase  R&D  efforts  in  promising  niche  areas  such  as  organic  chocolate  and  low  

diet  products  –  this  not  only  address  changing  consumer  demands,  but  also  allows  it  to  create  value  

by  expanding  the  market.  This  should  be   led  by  a  consortium  of   firms,  research  institutes,   industry  

groups,  and  regional  cluster  agencies.    

Conclusion  

‘Whatever  the  future  holds,  one  thing  is  certain.  As  competition  continues  to  evolve,  it  will  be  both  unsettling  and  the  source  of  much  of  our  prosperity.’    

            -­‐‑  Michael  Porter,  On  Competitionlxx  

  In  summary,  there  is  little  doubt  that  Belgium’s  chocolate  cluster  has  come  a  long  way,  and  

has   already   entrenched   itself   as   a   market   leader   in   chocolate   manufacturing   –   its   success   has  

certainly   confirmed   the   notion   that   cluster   knowledge   serves   as   the   interstitial   glue   connected  

related   industries  across   the  value  chain   in  a  particular  geography.  However,   as   this  paper  argues,  

the   path   forward   is   less   clear   –   given   concerns   over   the   sustainability   of   its   raw   materials,   the  

sustainability   of   the   Belgium   polity,   and   the   sustainability   of   chocolate   demand   in   its   traditional  

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markets,  Belgium  faces  a  fundamental  challenge  to  the  sustainability  of  its  competitive  advantage  in  

chocolate  manufacturing.    

  Indeed,  competition  is  unsettling,  but  as  Michael  Porter  notes  above,  it  can  be  the  source  of  

much   prosperity.   There   are   certainly   numerous   challenges   in   the   road   ahead,   and   this   paper   has  

offered   a   few   recommendations   on   how   to   solve   them   –   while   it   may   require   a   degree   of   effort,  

Belgium   has   the   potential   to   create   and   capture   further   value   in   the   industry   given   its   existing  

advantage   in   all   parts   of   the   value   chain,   its   brand,   and   its   role   in   all   three   levels   of   IFCs   (local,  

regional,   and   global).   More   importantly,   Belgium’s   chocolate   cluster   has   shown   tremendous  

resilience   over   the   years,   from   its   innovation   of   the   couverture   in   1912   to   the   restructuring   of  

business   processes   in   the   1970s,   and   this   paper   is   convinced   that   the   cluster   will   continue   to  

innovate  and  improve  to  enhance  its  value  proposition  for  generations  to  come.    

 

 

   

 

 

 

 

 

 

 

 

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                                                                                                               i  Michael  Porter,  On  Competition  (Boston:  Harvard  Business  Review  Press,  2008),  171.  ii  Id,  213.  iii  CIA  Factbook  2015  iv  Id.  v  OECD  Statistics,  https://data.oecd.org/  vi  Economic  Intelligence  Unit,  Belgium  Report,  March  8th,  2016  vii  Id.  viii  Natalia  Drozdiak,  Belgium  to  Try  to  Ease  Employment  Costs,  Wall  Street  Journal,  October  13,  2015,  http://www.wsj.com/articles/belgium-­‐‑to-­‐‑try-­‐‑to-­‐‑ease-­‐‑employment-­‐‑costs-­‐‑1444753999  ix   IMF   World   Economic   Outlook   Database,   April   2016,  https://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx  x  International  Trade  Center,  http://legacy.intracen.org/marketanalysis/default.aspx  xi  International  Cluster  Competitiveness  Project  Data  xii   Business   Belgium,  http://business.belgium.be/en/investing_in_belgium/reasons_to_invest/infrastructure  xiii  Id.  xiv  Nicholas  Brauchlecht,  ‘Hamburg  Slips  in  Port  Ranking  as  Russia  Trade  Slumps’,  Bloomberg,  May  18,  2015    xv  Bruce  Barnard,  ‘Antwerp  Container  Volume  Growth  Double  Rotterdam’,  http://www.joc.com/port-­‐‑news/european-­‐‑ports/port-­‐‑antwerp/antwerp-­‐‑container-­‐‑volume-­‐‑growth-­‐‑double-­‐‑rotterdams_20150720.html  xvi   Flanders   New,   ‘Possible   3.7   Billion   Investment   in   Port   of   Antwerp’,  http://deredactie.be/cm/vrtnieuws.english/Economy/1.2329294  xvii   Cushman   and   Wakefield,   ‘Guide   to   Logistics’,   2012,  http://www.nieuwsbladtransport.nl/Portals/0/docs/Guide%20to%20Logistics.pdf  xviii   IMD   World   Talent   Report   2015,  http://www.imd.org/uupload/IMD.WebSite/Wcc/NewTalentReport/Talent_2015_web.pdf  xix   World   Bank   Data,  http://data.worldbank.org/indicator/SP.POP.SCIE.RD.P6?order=wbapi_data_value_2013+wbapi_data_value&sort=asc  xx   De   Sloover,   Burggraeve,   Dresse,   ‘Belgian   Business   Investment   in   the   Context   of   the   Crisis’,  https://www.nbb.be/doc/ts/publications/economicreview/2012/ecorevii2012_h2.pdf    xxi  https://en.santandertrade.com/establish-­‐‑overseas/belgium/foreign-­‐‑investment  xxii  http://unctad.org/en/PublicationsLibrary/wir2014_en.pdf?lien_externe_oui=Continue  xxiii   Deloitte,   ‘Taxation   and   Investment   in   Belgium   2015’,  http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-­‐‑tax-­‐‑belgiumguide-­‐‑2015.pdf  xxiv  Labor  Productivity  Data,  http://stats.oecd.org/Index.aspx?DatasetCode=LEVEL  xxv  http://www.amcham.be/policy/research-­‐‑development/rd-­‐‑and-­‐‑innovation-­‐‑belgium  xxvi  Id.  xxvii  Id.  xxviii   European   Commission   Innovation   Union   Scoreboard   2015,  http://ec.europa.eu/growth/industry/innovation/facts-­‐‑figures/scoreboards/files/ius-­‐‑2015_en.pdf  xxix   “The   Mexico   Chocolate   Cluster   (2010)   |   U.S.   Cluster   Mapping,”   accessed   April   4,   2016,  http://clustermapping.us/resource/mexico-­‐‑chocolate-­‐‑cluster-­‐‑2010.  xxx   World   Cocoa   Foundation,   Cocao   Market   Update,   2014,  http://www.worldcocoafoundation.org/wp-­‐‑content/uploads/Cocoa-­‐‑Market-­‐‑Update-­‐‑as-­‐‑of-­‐‑4-­‐‑1-­‐‑2014.pdf  xxxi   Chocolate   Statista   Dossier,   2011.   http://www.statista.com/study/10607/chocolate-­‐‑statista-­‐‑dossier/  xxxii  “Sustainability  in  the  Cocoa  Sector  -­‐‑  Review,  Challenges  and  Approaches,”  accessed  May  1,  2016,  https://www.researchgate.net/publication/255726498_Sustainability_in_the_Cocoa_Sector_-­‐‑_Review_Challenges_and_Approaches.  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

                                                                                                                                                                                                                                                                                                                                         xxxiii   Oxfam_Wereldwinkels,   “The  Belgium  Chocolate   Sector:  Role   and   Importance  of  Belgium   in   the  Cocoa  and  Chocolate  Chain,”  November  2010.  xxxiv   Commodity  Market   Review,   Value   chain   analysis   and  market   power   in   commodity   processing  with   application   to   the   cocoa   and   coffee   sectors,   Christopher   L.   Gilbert,   FAO   2008,  http://web.unitn.it/files/5_06_gilbert.pdf  xxxv  ITC  Trade  Map,  http://www.trademap.org/Product_SelProductCountry.aspx  xxxvi  MarketLine  Industry  Profile,  Global  Chocolate  Confectionery,  August  2015.  xxxvii   Euromonitor,   ‘Economy,   Standard,   or   Premium?   What’s   Driving   Growth   in   Chocolate  Confectionery?’,  September  2015.  xxxviii   Commodity  Market  Review,  Value   chain  analysis   and  market  power   in   commodity  processing  with   application   to   the   cocoa   and   coffee   sectors,   Christopher   L.   Gilbert,   FAO   2008,  http://web.unitn.it/files/5_06_gilbert.pdf  xxxix  Cassiday,  Laura.  The  Secrets  of  Belgian  Chocolate,  http://www.aocs.org/Membership/FreeCover.cfm?ItemNumber=18144    xl  Euromonitor  International,  Passport,  Belgian  Chocolate  Confectionary  in  Belgium.  August  2015  xli  ITC  Trade  Map  http://www.trademap.org/Index.aspx  xlii  Schokkaert,  Ben.  The  Belgian  Chocolate  Sector,    http://modulas.kauri.be/uploads/Documents/doc_1482.pdf  xliii  Maria  Garrone,  Hannah  Pieters  and  Johan  Swinnen.  From  Pralines  to  Multinationals  The  Economic  History  of  Belgian  Chocolate,  https://feb.kuleuven.be/drc/licos/publications/dp/dp369  xliv  Schokkaert,  Ben.  The  Belgian  Chocolate  Sector,    http://modulas.kauri.be/uploads/Documents/doc_1482.pdf  xlv  Maria  Garrone,  Hannah  Pieters  and  Johan  Swinnen.  From  Pralines  to  Multinationals  The  Economic  History  of  Belgian  Chocolate,  https://feb.kuleuven.be/drc/licos/publications/dp/dp369  xlvi    xlvii  Chopabrisco.  Belgian  Chocolate  Code,  http://www.hbingredients.co.uk/uploads/august/belgium_code.pdf    xlviii  Osborn,  Andrew.  Chocolate  War  Over  After  30  Years,  http://www.theguardian.com/uk/2003/jan/17/foodanddrink  xlix   Marleen   Brans,   Lieven   De  Winter,  Wilfried   Swenden,   ‘The   Politics   of   Belgium:   Institutions   and  Policy  Under  Bipolar  and  Centrifugal  Federalism’  (Routledge,  2013),  8.  l   Robert   Mnookin   and   Alain   Verbeke,   ‘Persistent   Nonviolent   Conflict   with   No   Reconciliation:   The  Flemish   and   Walloons   in   Belgium’,   Law   and   Contemporary   Problems,   2009,  http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1524&context=lcp    li  http://www.cacaolab.be/https://web.archive.org/web/20070927233218/http://www.flanders.be/NASApp/cs/ContentServer?pagename=MVG_FL/Template/MVG_FL_Html_Detail&cid=1072097196838&enablelasturl=1&p=1053963211306  lii   Oxfam,   ‘The   Belgium   Chocolate   Sector’,   2008,    http://modulas.kauri.be/uploads/Documents/doc_1482.pdf  liii   http://www.investinflanders.be/en/flavor/Why-­‐‑Flanders/page/High-­‐‑density-­‐‑of-­‐‑knowledge-­‐‑clusters#Flanders’  Food  liv  http://www.food-­‐‑port.eu/sites/default/files/Cluster%20Report.pdf  lv  http://www.investinflanders.be/en/Sector/Food/chapter/Assets  lvi  OECD  Reviews  of  Regional  Innovation  Regions  and  Innovation  Policy,  (OECD  Publishing,  2011),  229.  lvii  Id.  lviii  http://www.flandersfood.com/wie-­‐‑flanders-­‐‑food  lix  http://business.belgium.be/en/investing_in_belgium/key_sectors/agro_food_sector  lx  http://www.food-­‐‑port.eu/sites/default/files/Cluster%20Report.pdf  lxi  Jan  Larosse,  ‘Towards  a  targeted  cluster  policy  in  Flanders’,  Presentation,  2014,  http://www.ewi-­‐‑vlaanderen.be/sites/default/files/bestanden/Jan%20Larosse_Strategic%20Cluster%20Policy_EWIFocus_12052014.pdf  

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 Sustaining  Competitive  Advantage:  The  Challenge  for  Belgium’s  Chocolate  Cluster  

                                                                                                                                                                                                                                                                                                                                         lxii  https://ec.europa.eu/growth/tools-­‐‑databases/regional-­‐‑innovation-­‐‑monitor/base-­‐‑profile/wallonia  lxiii  https://www.awex.be/fr-­‐‑BE/Pages/Home.aspx  lxiv  https://www.rtbf.be/info/regions/luxembourg/detail_arlon-­‐‑ferrero-­‐‑investit-­‐‑21-­‐‑000-­‐‑000-­‐‑dans-­‐‑son-­‐‑usine-­‐‑et-­‐‑cree-­‐‑50-­‐‑emplois?id=9195111  lxv  Florence  Hennart,  ‘Evaluation  of  the  Cluster  Policy  in  Wallonia’,  Presentation,  November  17,  2015,  http://clustermapping.us/sites/default/files/files/page/Hennart_Wallonia.pdf  lxvi  http://business.belgium.be/en/investing_in_belgium/key_sectors/agro_food_sector  lxvii  http://www.abe-­‐‑bao.be/content/about-­‐‑impulsebrussels  lxviiihttp://business.belgium.be/en/investing_in_belgium/key_sectors/agro_food_sector  lxix  Valerie  Strauss,  ‘589  with  no  elected  government’,  Washington  Post,  Oct  1,  2013,  https://www.washingtonpost.com/news/answer-­‐‑sheet/wp/2013/10/01/589-­‐‑days-­‐‑with-­‐‑no-­‐‑elected-­‐‑government-­‐‑what-­‐‑happened-­‐‑in-­‐‑belgium/  lxx  Michael  Porter,  On  Competition  (Boston:  Harvard  Business  Review  Press,  2008),  xxx.