Dette projekt, Benefit4Regions, finansieres af midler fra Den Europæiske Fond for Raegionaludvikling.Dieses Projekt, Benefit4Regions, wird gefördert mit Mitteln des Europäischen Fonds für regionale Entwicklung.

Value Adding Webs (VAW) in rural regions

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Disposition

1. Defining Value Adding Webs 2. Levels and resources in Value Adding Webs 3. Phases in the development of Value Adding Webs 4. Facilitation of Value Adding Webs 5. References

Jane Petersen University of Southern Denmark Benefit4Regions March 2019

www.benefit4regions.eu

www.copedia.eu

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1. Defining Value Adding Webs Porter defines clusters as: “[…] geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (e.g. universities, standard agencies, trade associations) in a particular field that compete but also cooperate” (Porter, 2000).

Brown et al (2007) suggest that clusters consist of several Value Adding Webs (VAW). VAWs are “[…] 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). Horizontal actors are firms providing products or services in the cluster. Vertical actors are buyers and suppliers in the cluster, and lateral actors are facilitators of cluster development, competitiveness and sustainment – e.g. public policy actors (Brown et al, 2010). These actors engage in activities to create value and they share an interdependent relationship that varies in strength and quality (Brown et al, 2007).

In other words, a VAW can be described as an agglomeration of participants (called actors) sharing a connection. Actors include organisations with different positions (horizontal, vertical, lateral). They engage in creating value by forming interdependent relationships. VAWs exist in a specific context.

In the Interreg project Benefit4Regions, nine case studies have been formed which can be viewed as VAWs. The case study members are primarily representatives from municipalities (lateral actors) but local firms/interest groups (horizontal and vertical actors) also take part in the case study. Thus, the network partners of each case study are often local firms. Members originate from rural areas such as Sønderborg, Plön and Guldborgsund (specific context) and they cooperate on finding solutions to rural challenges (shared connection and value creation), depicted in the figure below. In this specific context funding was provided by the European Regional Development Fund. Development in rural areas is often depending on public funding as private investors primarily prefer to support development in urban areas with high economic potential.

Example of a VAW case study within Benefit4Regions, Jane Petersen, 2019.

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2. Levels and resources in Value Adding Webs When evaluating the value creation of VAWs, it is important to understand the resources and capabilities that exist and come into play (Hervas-Oliver and Albors-Garrigos, 2007). In the resource-based view, resources in VAWs can be allocated to the firm-level, network-level and context-specific level (Brown et al, 2007, 2008, 2010).

The firm-level refers to participants in the VAW and can include horizontal, vertical and lateral actors. The network-level is concerned with the relationships among all the actors. The context-specific level deals with the location of the VAW – e.g. the geographical region or industry (Brown et al, 2010).

In Benefit4Regions, the firm-level refers to the participating organisations (e.g. Guldborgsund Municipality or Kreis Plön), whilst the network-level is the interplay between these organisations and the rural area is the context-specific level, as illustrated in the figure below.

Levels within the nine VAWs in Benefit4Regions, Jane Petersen, 2019.

Resources on the firm-level can be tangible resources (e.g. physical equipment, buildings, financial assets), intangible resources (e.g. image, knowledge, reputation) and human resources (e.g. employees) (Black and Boal, 1994; Teece et al, 1997).

Relational resources are found on the network-level. They are a product of the relationships and interplay in the VAW (Brown et al, 2010). Relational resources are e.g. knowledge-sharing routines based upon personal relationships (de Nisi et al, 2003).

Context-specific resources are resources that are available through the VAW location – such as natural resources, climate and market or industry structure (Brown et al, 2010).

In the context of Benefit4Regions, the case study members are firm-level resources as they represent different organisations and the knowledge and experiences that exist within them (intangible resources, tangible resources and human resources). The sharing of experiences, building of personal connections and relationships in the case studies are relational resources. Context-specific resources are e.g. regional networks of food producers (the food case study), as illustrated in the figure below on the next page.

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Resources within the nine VAWs in Benefit4Regions, Jane Petersen, 2019.

3. Phases in the development of Value Adding Webs VAWs come in many variations as they differ in terms of e.g. number of participants, type and intensity of interaction (Barkley and Henry, 1997). According to Ingstrup and Damgaard (2013): “These differences in cluster characteristics are important, as they influence how value and benefits are created as well as how clusters develop and how this developmental process can be supported and facilitated”.

VAWs seldom develop out of the blue or without help – rather, they develop over time following a certain pattern and with the assistance and guidance from facilitators (Ingstrup and Damgaard, 2013).

The development of VAWs is typically described in terms of a life cycle (Ingstrup and Damgaard, 2013) – e.g. infancy, growth, maturity, and stagnation/decline or revitalisation (Belussi and Sedita, 2009) or creation, growth, maturity and petrification (Tichy, 1998).

Enright (2003) has developed a cluster life cycle where different life cycle stages are classified as to the level of activity and self-realisation. The higher the level of activity and self-realisation, the higher the value creation. His model captures five different stages - wishful thinking clusters, policy-driven clusters, potential clusters, latent clusters and working clusters. Like clusters, VAWs develop over life cycle stages and we build on Enright’s categorisation by explaining the life cycle of VAW. In the following, three of these stages will be explained - that is, potential clusters, latent clusters and working clusters.

According to Enright (2003), a potential cluster has “[…] some elements necessary for the development of successful clusters, but where these elements must be deepened and broadened in order to benefit from the impact of agglomeration […]. Latent clusters have a critical mass […] sufficient to reap the benefits of clustering, but have not developed the level of interaction and information flows necessary to truly benefit from co-location. This can be due to a lack of knowledge […], a lack of interaction […], a lack of a common enough vision of their future, or a lack of the requisite level of trust […]. Working clusters are those in which a critical mass of local knowledge,

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expertise, personnel, and resources create agglomeration economics […]. These three life cycle stages are illustrated by Ingstrup and Damgaard in the figure below.

Cluster life cycle framework for cluster facilitation, Ingstrup and Damgaard, 2013.

At the beginning, all nine case studies in Benefit4Regions were potential clusters – clusters with a potential to find solutions to rural challenges, but lacking e.g. members or topic-specific knowledge. Later, most case studies have built up a basic knowledge base to draw from but still lack a critical mass of members. The level of interaction is characterised by case study members working alongside one another, rather than working together, and by case study members focusing on individual gains rather than mutual value creation.

4. Facilitation of Value Adding Webs VAWs rarely arise or develop spontaneously, rather progress is driven by facilitators that support and coordinate the work within VAWs. Without the assistance from facilitators, VAWs often fail or stagnate in their life cycle as facilitators have significant influence on the speed and scope of VAW development.

Facilitators can be individuals, firms, public institutions and knowledge institutions (Gagné et al, 2010; Mesquita, 2007). VAW facilitators focus on creating trust between actors and thereby laying the ground for cooperation (Mesquita, 2007). Furthermore, VAW facilitators focus on creating a frame where information, ideas and resources are exchanged, and they encourage and enable the creation of knowledge and innovation between actors (Gagné et al, 2010; Molina-Morales, 2005).

A successful facilitator is characterised by several attributes. Thus, a facilitator should be e.g. forward-looking, credible, neutral, integrative, result-orientated, innovative, entrepreneurial as well as have well-developed managerial and communicative skills (Zagorsek et al, 2008). Furthermore, a facilitator should be able to mediate and arbitrate to create a common understanding (Mesquita, 2007).

In the following, the focus turns to the three VAW life cycle stages mentioned earlier and it is described how the focus, role, tasks and competences of facilitators change depending on the life cycle stage. This is in line with the figure from Ingstrup and Damgaard.

In a potential VAW, facilitators aim to attract enough actors to reach a critical mass and to create a sense of fellowship amongst the actors. In this stage, facilitators focus on establishing a VAW framework and on networking to locate and attract new actors as well as getting the actors to get to

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know each other. They engage in tasks such as branding, funding and lobbying and they need to be good at e.g. communication, networking and selling just as much as they must be credible to potential participants (Ingstrup and Damgaard, 2013).

In latent VAWs, a critical mass of actors has been reached but a lack of or insufficient interaction between the actors hinders value creation. A facilitator in a latent VAW focuses on getting the interaction to work by e.g. creating bonds between the actors, building trust, locating needs and creating cooperation. They take on the role of an entrepreneur and relationship builder and carry out tasks such as branding, idea workshops and small-scale cooperation projects. They need to be good at e.g. analysing and problem solving (Ingstrup and Damgaard, 2013).

In working VAWs, facilitators no longer focus on “getting the VAW going” but on “keeping it going”, and on enabling the VAW to reach its full potential. Thus, facilitators in working VAWs focus on e.g. locating new opportunities, creating new activities and on expanding and exploiting the trust between the actors. They have roles as business seekers and integrators and fulfil tasks such as doing market analyses, innovation projects and cross-cluster cooperation. Needed competences are e.g. managerial skills, business understanding and industry knowledge (Ingstrup and Damgaard, 2013).

The role, focus, competences and tasks of facilitators in potential clusters, latent clusters and working clusters are summarised in the figure below by Ingstrup and Damgaard.

Cluster life cycle framework for cluster facilitators, Ingstrup and Damgaard, 2013.

In Benefit4Regions, the project leader (Wirtschaftsförderungsagentur Kreis Plön) has appointed a leader for each of the nine case studies and these leaders act as facilitators. Depending on the life stage of the case study, the facilitator role differs. In some case studies, the facilitator struggles with getting actors to attend/show interest, whereas in other case studies the facilitator has attracted enough engaged participants to focus on e.g. relationship building, finding common goals and projects.

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5. References

Barkley, D. L.; Henry, M. S. (1997). “Rural industrial development: To cluster or not to cluster?”, Review of Agricultural Economics, 19(2), pp. 308-325.

Belussi, F.; Sedita, S. R. (2009). “Life cycle vs. multiple path dependency in industrial districts”, European Planning Studies, 17(4), pp. 505-528.

Bergman, E. M. (2007) “Cluster life-cycles: An emerging synthesis”, in Karlsson C. (Ed.) Handbook of Research on Cluster Theory, Cheltenham, Elgar Publications, pp. 114-132.

Black, J. A.; Boal, K. B. (1994). “Strategic resources: Traits, configurations, and paths to sustainable competitive advantage”, Strategic Management Journal, 15, pp. 131-148.

Brown, K.; Burgess, J.; Festing, M.; Royer, S.; Steffen, C.; 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, Berlin 2007.

Brown, K.; Burgess, J.; Festing, M.; Royer, S.; Steffen, C.; Waterhouse, J. (2008). “Single Firms and Competitive Advantage – Context analysis identifying the embeddedness of a winery in the Hunter Valley”, in Festing, M.; Royer, S. (Eds.), Current Issues in International Human Resource Management and Strategy Research, München, Mering, Hampp Verlag, 2008, pp. 157-177.

Brown, K. A.; Burgess, J.; Festing, M.; Royer, S.; Steffen, C.; Waterhouse, J. M. (2010). “Conceptualising clusters as overlapping value adding webs”. In Brown, K. A.; Burgess, J.; Festing, M.; Royer, S. (Eds.), Value Adding Webs and Clusters : Concepts and Cases; München, Rainer Hampp Verlag, pp. 11-42.

DeNisi, A. S.; Hitt, M. A.; Jackson, S. E. (2003). “The Knowledge-Based Approach to Sustainable Competitive Advantage”, in Jackson, S. E., Hitt, M. A., deNisi, A. S. (Eds.), Managing Knowledge for Sustained Competitive Advantage: Designing strategies for effective human resource management, San Francisco, Wiley, 2003, pp. 3-33.

Enright, M. J. (2003). “Regional clusters: What we know and what we should know”, in Bröcker, J.; Dohse, D.; Soltwedel, R. (Eds), Innovation Clusters and Interregional Competition, Berlin, Springer, pp. 99-129.

Gagné, M.; Townsend; S. H.; Bourgeois, I.; Hart, R. E. (2010). “Technology cluster evaluation and growth factors: Literature review”, Research Evaluation, 19(2), pp. 82-90.

Hervas-Oliver, J.L.; Albors-Garrigos, J. (2007). “Do cluster capabilities matter? An empirical application of the resource-based view in clusters”, Entrepreneurship & Regional Development, 19, pp. 113-136.

Ingstrup, M.B; Damgaard, T. (2013). “Cluster Facilitation from a Cluster Life Cycle Perspective”, European Planning Studies, 21(4), pp. 556-574.

Mesquita, L. F. (2007). “Starting cover when the bickering never ends: Rebuilding aggregate trust among clustered firms through trust facilitators”, Academy of Management Review, 32(1), pp. 72-91.

Molina-Morales, F. X. (2005). “The territorial agglomerations of firms: A social capital perspective from the Spanish tile industry”, Growth and Change, 36(1), pp. 74-99.

Porter, M.E. (2000). “Location, competition, and economic development: local clusters in a global economy”, Economic Development Quarterly 14(1), 2000, pp. 15-34.

Sölvell, Ö.; Lindqvist, G.; Ketels, C. (2003). “The Cluster Initiative Greenbook”, Stockholm, Ivory Tower.

Teece, D. J.; Pisano, G.; Shuen, A. (1997). “Dynamic Capabilities and Strategic Management”, Strategic Management Journal 18(7), 1997, pp. 509-33.

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Tichy, G. (1998). “Clusters: Less dispensable and more risky than ever”, in Steiner, M. (Ed.), Clusters and Regional Specialisation: On Geography Technology and Networks, London, Pion Limited, pp. 226-237.

Zagorsek, H.; Svetina, A. C.; Jaklic, M. (2008). “Leadership in clusters: Attributes of effective cluster leader in Slovenia”, Transformations in Business and Economics, 7(2), pp. 98-113.

List of graphics

Example of a VAW case study within Benefit4Regions, Jane Petersen, 2019.

Levels within the nine VAWs in Benefit4Regions, Jane Petersen, 2019.

Resources within the nine VAWs in Benefit4Regions, Jane Petersen, 2019.

Cluster life cycle framework for cluster facilitation, Ingstrup and Damgaard, 2013.