Cluster basics: Effective Engagement of the Private Sector

Effective Engagement of the Private Sector

KEY SUCCESS FACTOR IN CLUSTER INITIATIVES KEY SUCCESS FACTOR IN CLUSTER INITIATIVES 11th

Conference of the TCI

Cape Town, 28th October, 2008

Ted LymanSenior Principal

Economic Competitiveness Group

Human

ResourcesTechnology

Access to

CapitalBusiness

Climate

Physical

Infra-

structure

Economic Foundations

etwork of Supplier Firms

Firms supplying inputs, raw materials,

components, parts, and specialized services.

LeadingFirms

Key firms exporting

Goods and Services

Outside the Region

Economic Competitiveness Group, Inc.Economic Competitiveness Group, Inc.

Ted LymanSenior Principal

Economic Competitiveness GroupEconomic Competitiveness Group, Inc.Economic Competitiveness Group, Inc.

Definition of ClusterDefinition of Cluster

A cluster is a geographically proximate group of

interconnected companies and associated institutions

in a particular field, linked by commonalities and

complementarities.

The geographic scope of clusters ranges from a The geographic scope of clusters ranges from a

region, a state, or even a single city to span nearby or

neighboring countries.

-- Prof. Michael Porter

Other key references: TCI’s Green Book,, Mitchell Group

Report, UNIDO, etc.


CENTRAL TENANTS OF CLUSTER-BASED

ECONOMIC DEVELOPMENT

THE TRIPLE HELIXTHE TRIPLE HELIX

�Government

�Private sector

�Academia


�The creator of wealth

�The engine of growth

�The ultimate voice of the marketplace

WHY PRIVATE SECTOR ENGAGEMENT IS SO IMPORTANT

�Source of market signals

�Source of leadership

�Potential partner in many initiatives:

�Public Private Partnership

�Source of funding, investment


�Western Canada�E. Europe

Tianjin

�.�Russia

Spain

UK�.

�. �Georgia�.

�Kazakhstan

�OttawaSeattle

EXAMPLES OF CLUSTER INITIATIVES THAT ARE EFFECTIVELY ENGAGING THE

PRIVATE SECTOR

�Queenslan

�Chihuahua �Morocco

Singapore

Bangalore

�Tianjin

�Hong KongCampeche

�South Africa

�Pakistan

�Nicaragua

Panama

�.

�.

Spain �.

�.�.Malaysia�.

�Georgia

�Brazil

�Guyana Ethiopia

UgandaTanzania


Silicon Valley’s “Joint Venture: Silicon Valley” initiative

Silicon Valley’s


Seattle’s “Prosperity Partnership”

Seattle


Ottawa’s “Economic Generators” initiative

�Ottawa


Mexico’s “Chihuahua 21st Century initiative”


Ethiopia’s “Toward

Leather Together”

InitiativeInitiative


Addis Ababa

MAJOR HURDLES

� (1) Building Trust

�Leaders may:

�Worry about sharing information with competitors�Worry about sharing information with competitors

�Attend meetings much less than required

�They are often less committed to the success of

cluster initiatives


MAJOR HURDLE …contd

� (2) Overcoming Practical Impediments

�Leaders may:

�Have too little time to get heavily involved

�Want to delegate involvement to subordinates


SOME SUGGESTIONS FOR OVERCOMING HURDLES

�Make a compelling case of why private business leaders

should get involved in a cluster initiative

�Appeal to their business interests - Organize motivating

packages:packages:

�Access important market information

�Exposure to trends, issues in local industry

�Network with government and academic leaders

�Engagement with peers on critical issues

�Potential funding for their “pet” projects


�Prove decisions made in their absence affect their

interests any way

�Demonstrate international trade going towards

consolidation and globalization

SOME SUGGESTIONS……………contd:

�Show case success stories in cluster initiatives

�Prioritize on low hanging fruits

�Minimize overstatement of potential successes

�Design workable exit strategy and sustainable takeover


For more information, contact:For more information, contact:

Ted Lyman, [email protected] Lyman, [email protected]


ETHIOPIA’S TOWARD LEATHER TOGETHERA Successful, On-going Cluster Initiative

AGRIBUSINESS AND TRADE AGRIBUSINESS AND TRADE EXPANSION PROGRAM EXPANSION PROGRAM

Implemented by Fintrac Inc.

Teshome Kebede

DCOP/Hides, Skins & Leather Sector Manager



�Ethiopia is among the world’s top ten countries endowed with the largest livestock resources

��Its livestock is not ranch based but owned by farmers that Its livestock is not ranch based but owned by farmers that comprise 85% of the country’s 80 million populationcomprise 85% of the country’s 80 million population

Opportunities in the Ethiopian Leather Sector

comprise 85% of the country’s 80 million populationcomprise 85% of the country’s 80 million population

��Adding value to livestock resource in Ethiopia means Adding value to livestock resource in Ethiopia means addressing poverty at its grass rootsaddressing poverty at its grass roots

�60% of the world’s finest quality of gloving leather comes from Ethiopia

�The leather sector is the forth largest industrial sector for the country



�Factors affecting the sector’s competitiveness:

�In Ethiopia, animal breeding is traditional and household based

�Most of the slaughtering is done in private homesteads

instead of abattoirs

Opportunities….contd.

instead of abattoirs

�Collection of raw hides and skins involves a long line of stakeholders with incoherent relationships

Market

�Huge global market – <70bln per annum and increasing�Ethiopia shares <1/10th of 1% of this!

�Quality is suffering and earnings reducing as a result

Breeding Tanning

Why Cluster?

� Integrate VC actors to coherently work together



Market

Tanning

Breeding HarvestingLG

ProductionMarket

�Enlarge the industry to benefit from the economy of scale� Increases their respective shares than otherwise � Makes them competitive in the global market

Breeding Tanning



INCREASE EXPORTS BY 70%

OVER THREE YEARSGOAL

LEAD Ministry of Trade and IndustryLEAD

FUNDING

STATUS

Ministry of Trade and Industry

United States Agency for

International Development (USAID)


Completed 3 years of work,

beginning 2-year final phase



IMPACT IN FIGURES

10,000

12,000

52% in

2 years

0

2,000

4,000

6,000

8,000

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr ay Jun

2005/06

2006/07

2007/08

� Full Partner with Government and Academia

� Key trade association fully engaged:

�Ethiopian Leather Industry Association preparing



ROLE OF THE PRIVATE SECTOR IN TLT

�Ethiopian Leather Industry Association preparing

to take over initiative

�Industry cost sharing in funding action initiatives

� 30 private sector leaders individually engaged in CWG

activities with gov’t and academic leaders meeting at least

once a quarter

�Several PS leaders are “champions” of cluster initiatives

�More than six other clusters inspired



NEW SUCCESS DIMENSIONS ACHIEVED

�Decreased hides and skins pre-harvest damages

from 69% to 53%from 69% to 53%

�Increased raw stock collection by 15%

(Value of above two between USD 56 to >200 million)

�FDI/Private sector investment in the industry

increasing



NEW SUCCESS DIMENSIONS ACHIEVED..contd

� Promotion of branding Ethiopian leather

products showing marked success:products showing marked success:�The TAYTU brand now a regular high end

product in US upper market segment

�Footwear made in Ethiopia getting

momentous response from US buyers



Participation by

A Taytu tie’n die bag Unmistakably Taytu Participation by Invitation

Buyers in D&A stunned by what Taytu could offer so differently from the usual



LESSONS LEARNED



Effectives clusters are result of creating working

and lasting partnership between:

GovernmentGovernment

Private Sector

Academia

Indispensable trio-partners difficult to partner!

LESSONS LEARNED



Government:

� Broad scoped

� Resources and attention thinly spread� Resources and attention thinly spread

� Political attunement, tendency to

control/champion

� Exposed to corruption

� Influenced by change of leadership

� Who does it belong to?

LESSONS LEARNED…contd



Academia:

� Too theoretical and lots of abstraction� Too theoretical and lots of abstraction

� Often influenced by training background

� Detached from situation on the ground

� Does not have value for time

� Usually risk averse

LESSONS LEARNED…contd



Private Sector:

�Self centered

�Value optimization

�Faster than situations on the ground can allow�Faster than situations on the ground can allow

�Striving to catch up –opportunities are time bound

�Limited capacity for slow impacting initiatives

�Time value of resources –no nurturing of china eggs

�Dissociated

�Striving for best match making

� Suspicious more often than not

�Avoid burning your fingers more than once



A successful cluster is

the result of institutional

partnership between the

three indispensable

agents of development, agents of development,

government, academia

and the private sector,

where the partnership

goes on whether or not

the individuals that

initiated it prevail.TLT’s triple hilex vowing to stay

together



THANK YOUTHANK YOUTHANK YOUTHANK YOU



FOR ANY CONSULTATION/ EXPERIENCE SHARING

Teshome KebedeTeshome Kebede

DCOP/HSL Sector Manager

USAID Agribusiness and Trade Expansion Program

E-mail: [email protected]



FOR ANY CONSULTATION/ EXPERIENCE SHARING

Teshome KebedeTeshome Kebede

DCOP/HSL Sector Manager

USAID Agribusiness and Trade Expansion Program

E-mail: [email protected]