Theoretical bases of Clusterization and backgrounds of their introduction to Georgia

Evgeny Baratashvili, Doctor of Economic Science, Full Professor, Georgian Technical University Nodar Dzidzikashvili, Expert for strategic planning Nana Nadareishvili, Doctor of Geography, Associated Professor, Georgian Technical University Jandri Zardania

The project was made possible with financial assistance of the Georgian National Science Foundation (grant No: GNSF/ST06/2-067). All views in the present article belong to authors and do not necessarily reflect views of the Georgian National Science Foundation

Structure of economy becomes more and more difficult while globalization condition. A little recently it was considered by many economists as created structure of two circles of country` s economy. [1, 2]. It is known that, microeconomics deals with firms and individual companies, supply and demand interaction mechanism, which determines market equilibrium and behavior of the units. Macroeconomics deals with the performance, structure of economy as a whole, structure of economic growth, financial system, labor market, relationship between the private and state sector.
Although the mentioned division of economic structure is often just conditional, as Macroeconomic analysis is impossible without priority research and motivation of companies’ behavior. The behavior can not be explained without inflation and investment activity of macroeconomic processes [3]. That` s why many economists believe such sort of division is already outdated.
Today, as traditional fields ruin, mezzo economic structures become main economic subjects – inter field economic unites, providing strategic management by means of technological chain–starting from procuring raw materials or working out new production, ending with its production and sale. The basic peculiarity of the structures is transition of participants’ relationship on the basis of project –organization and not on the of spontaneous –market background.
We believe cluster conception develops the theory of multi-level economics, sustaining quality resources attraction gear on the background of inter- field relationship.
Cluster, as inter-field production complex presents to be intermediary ring for the economy. Thereby it is sharp discussing point among economists.
Liberal economists, having radical attitude, claim maximally limited state interference in the economy, reject field support, as state is unable to define, which field determines long-term development of the economy.
Although examples of Finland and other Scandinavian countries prove importance of other conception: State and its regional bodies should always be supporters of clusters’ selection, formation and development.
Georgia’s economic growth is largely depended on foreign market demand. Embargo on Georgian wine, mineral waters and agricultural products imposed by Russian Federation, had a negative effect on Georgia’s economy.
Russia has traditionally been big importer of Georgian products. 17,8% of our country` s export was on Russia. Following the imposed embargo Russia’s share in Georgia’s export reduced till 7,6%.
Despite this, whole export of Georgia to the biggest partner countries increased with 14, 7 % comparing with 2005. We could have done better and have better results if we followed competitiveness advantage principles by M. Porter and paid more attention country clusterization.
We are convinced, that one of the most effective tools of rising Georgia’s competitiveness within global economy is the strategy of cluster development.
Accordingly, the present article deals with the theoretical basis of cluster, its formation and development opportunities in Georgia.
Cluster covers individual enterprise and/or service firms (including suppliers), technologies and know how (universities, scientific- research institutes, engineering companies), Market Intermediary Institutions (brokers, consultants) and consumer network, collaborating with each other under one created chain.
According to the theory of Michael Porter, cluster is a group of companies (suppliers, producers etc.) operating in certain sphere, being each others neighbors, being inter- filling and connected, together with their collaborator organizations (educational institutions, state administration bodies, infrastructure companies) [4].
Clusters have three broad definitions as a whole. Each of them outlines basic characteristics of its operation:
– These are regionally limited forms of economic activity interior to the neighboring sectors, which are usually attached to one or other scientific institution (scientific-research institute, university etc.,);
– These are vertical industrial chains – highly determined sectors, where adjuring phases of industry processes make center of cluster (e.g.: chain supplier –producer –seller –consumer). The same category includes forming networks around the receptacle firms;
– These are industry fields defined on high level of aggregation (e.g.: chemical cluster) or unity of sectors on higher level of aggregation (e.g.: agro–producing cluster).
Michael Porter [4] considers that within international competitive capacity prism, country’s competitiveness needs to be discussed not by its separate companies, but according to different clusters, firms unities. Besides, clusters’ capacity of using their interior resources effectively is of principle importance.
A cluster may cover a district, area, region, state or a whole city, including its nearby settlements and countries.
According to Porter’s theory, clusters may influence competitiveness by three directions:
1. Clusters rise production capacity of firms and fields;
2. Clusters create opportunities for innovation and industry growing;
3. Clusters encourage and facilitate formation of new businesses, which on their part support innovation and widening of clusters.
Notion of cluster among scientific circles was introduced by M. Potter in 1990, together with national competitive advantage conception of Rombe, which is the most popular work among those on national and regional competitiveness.
The term cluster ( an English word meaning: 1. to form a small close group, concentration) had been successfully used in various Natural sciences, before it was introduced in the sphere of economy. At first the term, presumably, was introduced in mathematics in 1930, when cluster analyzing machine for multi –measuring data was installed. Inorganic chemistry defines a cluster as a chemical mixture, including different numbers of transmitting steels. Physics of cluster is the most dynamically developing direction of modern Physics. One and the same type of computer calculating clusters, joined in control system, is effectively used in education and scientific researches, also for solving difficult accounting tasks. Therefore, a term cluster is not prerogative of economy. It is worth noting that the mentioned term was used by Soviet economic geographers in 1970 A.P. Gorkin and L.V. Smirnyagin, also by Swiss economists K. Fredrikson and L. Lindmark, with the meaning of joint industries [6].
Therefore, Porter was not the first to use the term, and, by the way, he does not deny it pointing at works of such economists and regionalists as: A. Marshal, A. Liosh, U. Aizard and others [4] who were famous with researches on Industrial processes in 1890-1950.
Although, as we have already mentioned, cluster as a term was used in case of gathering of different companies, not providing information exchange among each other, and not having artificial forms of innovations, Such as techno parks.
This kind of mixture of terms while determining processes with such different characteristics, make a negative effect on rising competitiveness of a country.
We believe it is important to classify cluster terminology according to their spatial components. Namely, non-spatial (industrial and national) and spatial (regional, local and trans-bordering) clusters. For instance, industrial (national) cluster should mention team of neighbor fields, like agro-manufactory complex and service, gaining success in international dividing of the job. Regional (or local) cluster should define team of companies of neighbor fields, to be concentrated on any exact region, producing similar production and providing exchange of information.
Concept of clusters and Territorial – Industrial Complex (TIC) theory is often imagined as analogies, but it is worth mentioning that regional clusters and TIC differ greatly.
We believe that classification of industry’s territorial organization forms should be basically submitted to two parameters: the first team should include forms of organization, being founded by spatial orientation of market forces.
The team should include regional and local clusters, and the second one team should include TICs, techno parks, science parks, business incubators etc. So, spatial organizations are created by authorities.
A great number of foreign monographs and editions have recently been published on the theory of regional clusters. Proper literature survey {7,8] is presented in works, clearly showing scientific basis of modern cluster theory:
First, phenomena of clusters attracted attention of the English economist Alfred Marshal in 1980. He noticed small and middle firms’ concentration peculiarities in Industrial Regions: Sheffield (production of kitchen equipment), Birmingham (steel output producing) etc. Marshal noticed high competitiveness of the mentioned industries. Besides, he distinguished three basic factors which determined competitive advantages of the firms:
1. Common market of skilled employees;
2. Local trading among firms;
3. Locality of labor distribution among firms.
The firms were creating especial local industry atmosphere in the industry areas, that encouraged development of industries. In Industrial age, effective system of mass production introduced by Ford, named Fordism, outran Marshal` s Industrial Regions theory till 1970’s.
This time was characterized as transition period on “flexible” industrial system from “post – Fordism” period (1970 -1980). Team of Italian economists headed by J. Bekatini renewed Interest towards A. Marshal` s conception on Industrial Regions in 90’s of XX century. The team was studding development of Italy’s industrial districts. The team members noticed that rising competitiveness was straightly depended on creating convenient environment for Small and Medium Entrepreneurs.
J. Shumpert in his works on Entrepreneurs and on Creative Destructive Forces’ role in economy had examples on innovative activities of clusters. Basing on works of J. Shumpert and A. Weber, published in 30’s of XX century, economists often discussed regional and inter- regional clusters, as inter – flied complexes, that create following transmitting on post –industrial information economy.
Forming of clusters is considered to be the bases of economic development and depressive region development, by S. Rozleferd. I. Sammpler mentiones regional clusters as industrial structure of informative century. But the other authors directly relate regional clusters to the globalization of economy.
Formation and development of regional clusters is estimated as an important competitive advantage in modern economy, that maintain real synergetic effect as the basis of regionalism within global economy.
According to Potter ` s theory of Competitive Advantage, clusters reflect integration and theory of economic generalization trends. Modern evolution theory of economic transformation is based exactly on it. It is related to the model of Fordism of industrial society, to transition of knowledge into global economy and searching of innovative systems of regional development.
Special editions are devoted to national innovative systems’ formation by means of clusters, their advantages and problems of their development, forming regional and inter- regional clusters in Germany [9], Scotland [10], U.S. [11]. Finland [12, 13], on international comparison of clusters (Ranging) [14].
Cluster analysis and theory of cluster politics have become an important direction in Regional Studies {15, 16]. Important practical recommendations and methods of cluster analysis are given in special work proposed by the European Commission in 2003. [17]. Special work on industrial clusters [18] includes consideration of it as solid developing aspect of competitiveness.
Who are Cluster participants?
Participants of cluster are companies included in cluster. Development and strengthening of cluster is only possible by effective participation of industrials entrepreneurs. Business leaders play an important role in rising competitiveness process. But they do not present to be the only participators of the process. Universities being educational institutions, maintain cluster` s participants with innovations and establishment of science- technologies. Other participants of cluster include financial organizations, as Venture companies and different business service providing companies (consulting companies and associations). Local government officials, development oriented institutions and organizations also play important role in clusters ` formation process.
What is the common interest of cluster participants?
First of all production of competitive goods’ on market, that is achieved by means of high productivity based on specialization and inter-filling policy cluster participants. Draft No: 1 shows Cluster Participants.
There are other conceptions on clusters.
Accordingly, following concepts of clusters should be distinguished:
. Industrial cluster –several industries, including consumer –seller, supplier –buyer, or common technologies, common buyers, or distribution channels, or common human resources.
. Industrial district (e.g. in Italy) –The concentration of firms, involved in inter- depended industrial processes, often in industrial segment approbated in local society and oblige daily walking to the work.
.Regional Cluster –The industrial cluster, where member firms are in direct relationship with each other. Regional clusters may include industrial districts of small and middle firms, high –tech concentrations of the companies, dealing with developing of common technologies and manufactory systems. Such sort of companies appear to be strong, head companies and their local suppliers being separated from head companies.
. Business network might be defined as a group of firms, collaborating with talented and skilled employees and use correspondence resources. Considering each other’s problems and defining specializations. Network participators may achieve joint results and occupy markets outside single firm’s individual market. Network usually consists of several firms that cooperate with each other and that may have defined inter-dependent level, although they are not able to work with contiguous fields or have tight relationship with team.
. Clusters are often identified with industrial sectors, what is incorrect. Cluster differs from industrial sectors with its geographic borders, resources, provision, habits and what is the most important –with stable contacts. Clusters are most successfully used as a sort of regional systems. Check draft No: 2, that shows the structure of regional cluster.
According to Draft No2, regional and inter- regional cluster presents to be interdependent sectors of economy, covering market (profile for region) area, supplier area and its products, consumer areas, as well as correspondence tools and service providers, first of all high–tech and scientific –educational.
Cluster should have the following distinguishable signs:
– It`s share on correspondence production market (national, the world) should exceed middle portion of region ` s domestic product (RDP) on the market;
– Growing rate of produced goods by cluster should exceed growing rate of domestic product of the region (RD);
– Competitiveness of the cluster should keep the same level as it is in the world and in regions having correspondence sectors;
– Cluster including areas should have stable cooperation with each other and on the background of it should provide forming of interior informative channels and network organization of agglomerative processes.
– Cluster including industries should provide modern technologies based informative and marketing relationships. Common standards on industries, supplement and administration, cluster brands should be developed under inter –regional economic integration frames.
Analysis of cluster initiative confirmed important growth of competitive capacity countries, where such sort of methods of approach have been inculcated. Besides, the following was achieved:
– On the expenditure of investitions grow and new companies creation;
– Strengthening of export potential;
– Employment rising;
– Developing of new technologies;
– With cluster including corporations production and competitiveness capacity rising;
– Tight cooperation of science and production;
– Developing of infrastructure;
– Improvement skills of corporation` s staffers.
As the result Cluster is defined as cooperation of tightly related companies, maintaining each other in competitiveness rising. Clusters fulfill role of Domestic Market points and base function for international expansion whole economy of the country. On the trace of the first, new cluster is creating and international competitiveness of the country rises that way. This last one bases on separate clusters ` strong positions, without of which the strongest economy may face just middle results. For instance, Japan has huge auto and electro technical companies, weekly developed chemical and pharmaceutical industry, and completely backwards in air-space dealing.