TCI2013 Towards a better understanding of value creation in clustered firms

Towards a better understanding of value creation in clustered firmsSusanne Royer & John Burgess

Academic Summit: Clusters as entrepreneurial ecosystems

4 September 2013

Towards a better understanding of value creation in clustered firms

A resource-oriented perspective with the focus on locational resources and

the role of lateral cluster actors

Susanne Royer (University of Flensburg, Germany) & John Burgess (Curtin University, Australia)

16th TCI Annual Global Conference Kolding/Denmark - September 2013

Susanne Royer & John Burgess

Purpose & Agenda

Agenda for today’s presentation1. A resource-oriented cluster conceptualisation2. Valuable resources on the locational level3. Implications for cluster managers

main objective: investigate how shared locational cluster resources may be fostered by lateral actors

strategic firm perspective brought together with cluster management activities

rationale behind our conceptualisation of locational resources: enable cluster managers to reduce complexity of analysing location factors by providing a resource-oriented mapping tool that also identifies criteria to assess the value of resources for cluster firms and shows avenues for sustaining and upgrading them



Resources on different cluster levels

• Critical resources are often embedded in clusters (Enright 1999)• Resource-oriented cluster literature investigates the impact of resources on

different cluster levels, on cluster performance respectively the performance of single players in a cluster (e.g., Brown et al. 2010a, Festing et al. 2012, Hervas-Oliver/Albors-Garrigos 2007, Steffen 2012, Tallman et al. 2004)

• Examples for critical, strategically relevant resources in clusters: informal networks which are especially relevant and valuable for

company founders (Dahl/Pedersen 2003) pool of qualified human resources (Hervas-Oliver/Albors-Garrigos 2007) particular knowledge and adherent mechanisms to exchange this

knowledge among cluster actors while at the same time protecting it against imitation by others (Tallman et al. 2004)



Locational resources and value adding webs (VAWs)

• when investigating valuable and less valuable location factors in different clusters we use a resource-oriented perspective

• relevant unit of analysis: locational resources of a certain cluster [we are interested in their value as shared resources for the cluster members]

• we define locational resources in terms of Wernerfelt’s (1984: 172) definition of firm resources as »anything which could be thought of as a strength or weakness« of a given location, i.e. focus on valuable resources embedded in certain locations and accessible for cluster firms

Our definition: Clusters are VAWs in terms of a »series of linkages between single firms in a certain surrounding. Understanding clusters as value adding webs takes the connectivity of individual firms on different levels in a cluster into account. Value is added by horizontal, vertical and lateral actors« (Brown et al. 2008: 159).

Source: Festing et al. 2010: 150.



Cluster managers as key lateral actors

building on a resource-oriented understanding of value creation in clusters we investigate contextual resources in overlapping VAWs

focus: regional context of a cluster (=location and the embedded resources )

main objective: investigate how shared locational resources in clusters can be fostered by lateral actors

cluster managers as typical lateral cluster actors are suggested to profit when they get access to a better understanding of valuable shared locational cluster resources which in the next step then are to be sustained and/or upgraded



Clusters and public policy

• »organic« (bottom-up) vs. »developed« (top-down) cluster initiatives• ~2000 statistically relevant clusters in EU (almost 40% of EU jobs in clusters)Cluster development core measure of public policy in the recent decade (Martin/Sunley 2003, Newlands

2003, Jayachandran et al. 2010) central element of public policy in many countries to create jobs and wealth in certain

regions (European Commission 2008, Pitelis 2012 ) more neo liberal market approach in countries such as Australia where cluster

development is left to market (privately funded, bottom up development processes) or where lateral actors support cluster development at a very localised level; i.e., without an over arching national cluster policy or program (Grimstad/Burgess 2013)

How can value creation of clustered firms be mapped and systematised? What are the advantages for a single firm to be located in a cluster? Which ideas for cluster managements (often paid for by public policy) can be derived? How to identify valuable resources? How to upgrade and leverage existing resources in a cluster to increase the value creation potential for the participants?



Identifying and enhancing locational resources

Upgrading the human resources pool

Expanding the cluster

Improving the business environment

Mandatory Certain (vocational) training programmes for particular professions may be compulsory

Setting a legal framework that facilitates entrepreneurial activities

Monitoring and reporting about the cluster development may guide public funding

Incentive A frequently used activity by cluster managers is to offer events and trainings to which cluster members have access

Frequently direct financing and/or the provision of facilities takes place

Developing the image/ reputation of a certain region in joint efforts by horizontal and lateral actors

Voluntary Sometimes lateral actors provide practical assistance and advice

Lateral actors such as universities may offer entrepreneurship education and support entrepreneurs

Networking events may be organised by lateral actors

Selected Objectives

Sele

cted

Pol

icy

Inst

rum

ents

Source: Activities and objectives adapted from European Commission 2007: 18; Policy instruments adapted from Hood 1983 as put in the context of cluster public policies by Brown et al. 2010a and b.



Cluster managers and locational resources

Clusters…- build on spatial proximity to develop networks of (in)formal information exchange and serve as a

focus to support specialists and key knowledge agents (Mitchell et al. 2010)- often have cluster managers who may act as brokers with regard to the joint use or exchange of

resources with the main task of managing resources embedded in social relations and structures (Gretzinger/Royer 2013 & there cited literature) - this function is important in not only identifying cluster resources, but in consolidating them and providing points of access, especially for new and small firms (Collins et al. 2013)

Locational resources may…- be structured into regional, competitive and institutional resources (Brown et al. 2010) - be assessed on the basis of the isolating mechanisms from the traditional resource-based view of

the firm (Barney 1991, Collis/Montgomery 2005)- lead to contextual rents (instead of Ricardian rents) Cluster managers…- after identifying locational resources may assess their potential to generate advantages for the

cluster actors,- can evaluate the possibilities to keep such resources exclusively in the cluster by investigating the

isolating mechanisms (i.e., physical uniqueness, path dependency, causal ambiguity, economic deterrence) at work

10

Systematisation of contextual resources

Value?Does a resource enable cluster actors to exploit external opportunities or neutralise external threats?

Rare?Is a resource currently controlled by only a small number of competing locations?

Assessment if resources have potential to generate locational advantage:

Regional resources:Type of areaNatural resources (e.g., minerals or a particular climate)Others

+/-/~ +/- √/(√)

Industry-related resources:Rivalry between horizontal cluster actorsEntry barriers to the clusterBargaining power of vertical cluster actors (suppliers & buyers)Bargaining power of external suppliers and buyersThreat of substitutes

+/-/~ +/- √/(√)

Institutional resources:Social specificitiesCultural specificitiesLegal specificities +/-/~ +/- √/(√)

+ YES; - NO; ~ neutral; √: further investigation (√): no further investigation of resourcesSource: Brown et al. 2010a: 28 (VRIO elements adapted from Barney and Hesterly, 2010: 70 and 84).



Locational resources in the Glashütte watch cluster

• Glashütte since 1845 established a unique and path-dependent close relation to watch making and became a branded location for craft-oriented mechanical watches

• implicit experiential knowledge makes up a large portion of the relevant knowledge for making mechanical watches (causal ambiguity)

• limited market size does defer potential competitors from becoming actual competitors (mechanical watch making as a niche market)

Active coordination of locational resources can be crucial: e.g., locational brand Glashütte is protected by the so-called lex Glashütte (prohibiting using

the name when not at least 50% of value creation happens in Glashütte) which has been established and is enforced

identified valuable locational resources of a particular cluster can be assessed by the shown criteria leading to a resource profile which shows the value creation potential of the resources (ideal profile) as well as the actual use of resources (real profile) and thus reflects the current cluster position as well as the possible future position and makes avenues to follow more obvious

resource profile leads to founded pragmatic implications



Locational resources profile in the Glashütte watch cluster

Limited access to specific land-use areas (regional resource) High bargaining power of suppliers since only few suppliers are able to provide the needed

inputs in the required quality and quantity (industry-specific resource) Lex Glashütte protected by the trademark protection act (institutional resources)

Source: translated and adapted from Festing et al. 2012: 268.

Type of Resource

Critical resources on the cluster and locational level

Ideal profile(value creation potential of

resources)

low medium high

Real profile(actual use of resources)

low medium high

Location-specific resources in the cluster

•Support programs•Lex Glashütte•Buildings and land•Labor pool•Entry barriers•Suppliers in Glashüttte•Cluster-related distribution channels



Pragmatic Implications

Analytical focus on competitive advantage generation of participating firms makes systematic mapping of clusters possible.Cluster managers get knowledge how they can sustain and improve the resource profile.

Resource development: Sustain and upgrade locational resources in regional context!

Let actors learn from each other: Identify local knowledge and foster regional knowledge exchange!

Help actors to find balance: Understand local shared resources better to help firms to find there position between competition and cooperation!



Concluding summary

VAW conceptualisation facilitates systematic cluster mapping on the basis of strategic resources on different levels; we focused on locational resources

compilation of findings of our previous conceptual and case study research to illustrate the analytical framework we have developed and highlight competitive advantages offered to single (and new) firms from cluster participation

locational resources and their contribution to value creation and possibilities of lateral actors to sustain and upgrade such resources are relevant topics in a world where clusters are a dominant public policy in many countries

cluster management and development as important factors in sustaining a cluster and in facilitating the development of new businesses within clusters:- requires not only knowledge of the cluster context

and its resources, but a framework for resource sharing and access.

- essential role of information brokers to span gaps between different cluster actors and provide (in)formal points of access to existing and new cluster participants



References

Barney, J.B. (1991) ‘Firm Resources and Sustained Competitive Advantage’, Journal of Management Vol. 17 No.1, pp. 99-120.Barney, J.B. and Hesterly, W.S. (2010) Strategic Management and Competitive Advantage – Concepts and Cases, 3rd Edition, Prentice Hall, Boston et al.Brown, K., Burgess, J., Festing, M., Royer, S., Steffen, C. and Waterhouse, J. (2007) ‘The value adding web - A multi-level framework of competitive advantage realisation in firm-clusters’, ESCP-EAP Working Paper No. 27, ESCP-EAP European School of Management, Berlin.Brown, K., Burgess, J., Festing, M., Royer, S., Steffen, C. and Waterhouse, J. (2008) ’Single Firms and Competitive Advantage – Context analysis identifying the embeddedness of a winery in the Hunter Valley’, in Festing, M. and Royer, S. (Eds.), Current Issues in International Human Resource Management and Strategy Research, Rainer Hampp Verlag, Munich, pp. 157-177.Brown, K., Burgess, J., Festing, M., Royer, S., Steffen, C., Waterhouse, J. and Keast, R. 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Towards a better understanding of value creation in clustered firms

A resource-oriented perspective with the focus on locational resources and

the role of lateral cluster actors

Susanne Royer (University of Flensburg, Germany) & John Burgess (Curtin University, Australia)

TCI2013 Towards a better understanding of value creation in clustered firms

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