Cluster Development and the importance of Social Capital

Christian Felzensztein, PhDUniversidad Adolfo Ibanez, Chile

c.felzensztein@uai.clwww.clusterinnovation.com

Introduction• Continuous research in the area of natural resource-based clusters•From comparative studies between countries (MIP 2007, JBIM 2010, LRP 2010)•To comparative studies among regions within the country (JBM 2008, JBIM 2011)•…and longitudinal studies of change in Clusters (IMR)•Theoretical contribution and strong practical implications for firms, trade associations and public policy

Purpose of this study: This study reports on a four year longitudinal study that examined several dimensions of and changes in, inter-firm international marketing cooperation and social networks in an export-oriented cluster. It is used the emerging country context in Latin America.

The study is specifically related to the issues of firm interaction among competitors and relations for achieving an international marketing competitive advantage.

Emphasis on the social networking and strategic elements that help to reinforce those interactions at horizontal and vertical levels.

Following Porter (1998) regional clusters are based on the geographical proximity of firms related to same industry.

1. Geographic Co-location and ClustersIt is well known that co-location provides benefits from inter-firm linkages to

collective problem solving that helps firms to develop common understanding of their business activities.

There are some issues of coopetition that we need to consider: 1. Clustered firms must cooperate while compete (Mesquita 2007)

2. Co-location influences cluster performance (Hervas-Oliver and Albors-Garrigos 2007, Frisillo 2007, Perry 2007, Tonoyan el al., 2010, Porter, Delgado and Stern 2010)

3. Other studies found that the effect of co-location on performance may be less important than generally thought (Kahn and McDonough 1997; Kukalis 2010)

4. Trust is key for developing social capital and then inter-firm cooperation

Previous research based in the USA or Europe and in high-tech industries. Lack of longitudinal studies

Theory Development

Previous studies: Location continues to be important for both starting-up companies. Lack of research in the emerging Latin-American context.

The previous issues may be different if we study natural resources-based industries, where the location of those natural resources in specific areas is the main reason why companies co-locate. This is what Gulati (2007, p.15) calls as ´positional embeddedness´.

Since the network of firms changes over time, and especially young firms are subject to those changes (Schutjens and Stam, 2003; Hakansson, et al, 2006), it is possible to hypothesize that the externalities endowed by the cluster firms are expected to enhance cooperation over time in order to save cost and to improve their competitive advantage.

In particular, it is expected that externalities related with cost reductions will increase over time since they enhance competitiveness in international markets as a result of economies of scales.

2. Social networks and inter-firm cooperation

Researchers engaged in “networks”, “clusters” and “innovation systems” all stress how relationships and networks can be used to create new economic resources – although what is understood by these networks is sometimes vaguely defined. Even more optimistic interpretations are made by policy makers around the world. (Waluszewski, 2005).

Social networks are key elements in both organisational and personal relationships in embedded local firms (Johannisson, 1995). These networks can also facilitate rich information exchanges that enable firms to learn about new international alliances (Ahuja, 2000).

Formal and informal social networks require interaction. This interactional context in social networks includes issues of trust and commitment.

3. Some definitions

Inter-firm marketing cooperation: “the positive externalities that create specific marketing benefits as a result of active participation between co-located firms”.

This is a specific type of externality distinct from the externalities traditionally used by economists (Brown et al., 2010; Felzensztein et al. 2010).

Focus of the study: inter-firm international marketing cooperation including contractual and non-contractual joint ventures, market research activities and co-marketing activities such as joint distribution strategies, co-branding and joint new product development.

We propose two hypotheses:H1: The importance firms place on inter-firm international marketing cooperation is expected to increase over the life of the industry cluster

H2: Clustered firms will increase social networking activity over time to enhance their inter-firm international marketing cooperation.

Methodology and cluster selection

We focused our cohort in the salmon farming cluster in Chile, which in 2008 its exports represented by 32% of the world in this industry sector.

Presently, there are about 80 companies, highly localized in one region. The number of firms has declined by about 30% since 2003.

A mail survey methodology was used. The questionnaires recipients were either MD or marketing managers. The mail survey was sent during 2003 to the total population of 115 companies. An effective 20% response rate was achieved in this first stage.

The second stage was conducted four years later in 2007 when we tried to contact the same cohort of firms of which 16 responded effectively, representing 14% response rate in this stage.

The lower response rate is due to mergers and acquisitions + too many applications for data collection in this industry.

We conducted personal interviews with MDs to get more insights from the results.

Chilean export-oriented clusters have traditionally evolved from a ‘bottom-up’ approach, where the cluster strategy has been led by the companies, with minimal or no government intervention.

This model of cluster strategy differs from other international examples where a ‘top-down’ approach is prevalent, e.g. Scottish industry clusters that are led by the Scottish Executive, the developmental agency for Scotland (Felzensztein et al., 2010).

Scales of measurement and questions:Brown and Bell (2001); Granovetter (1973); Coote et al (2003)

The items were grouped into seven dimensions related to our two hypothesesDimensions related to inter-firm cooperation (H1):D1: general positive externalities D2: marketing externalitiesD3: importance of inter-firm cooperation in international marketingD4: resources allocation

Dimension related to social networks (H2):D5: formal and informal social networks

Additional dimensions:D6: marketing activities in which firms want to get involvedD7: reasons for having inter-firm cooperation in marketing

Main ResultsMain Results

The composition of the sample was not significantly different (i.e. p>0.05) from the main sample characteristics, except for the variable "percentage of annual sales from local market" which showed a significant increase over time in the export-based firms.

• In the dimension of general positive externalities provided by geographical co-location, two out of ten different variables were found to significantly change over the four years period:

• “Access to a skilled labour pool” increased (M Old Cluster= 3,13; M New Cluster= 3,75; p < 0,05)

• “Selling intermediate goods to other firms” decreased (M Old Cluster= 3,57; M New Cluster= 2,87; p < 0,05).

• For the dimension of the importance of inter-firm cooperation in international marketing, we found three of the five variables had significant differences over time.

• This fifth dimension analyzed refers to both formal and informal social networks. Two channels of communication between firms were found to decrease significantly over time: “contact mainly at an informal and social level” and “contact mainly at formal and informal levels on a one to one basis”.

• Marketing activities in which firms want to get involved, we found three of the eleven variables to increase significantly over time. These were “Local advertising”, “Inventory holding”, and “Market research”.

• Reasons for having inter-firm cooperation in marketing: showed a significant increase in one variable, “Attract new customers”. All other variables showed no significant changes.

Conclusions and managerial implicationsInterestingly and unexpected, H1 and H2 2 are not supported by our results.

Findings suggest that firms are acting in a more individualistic way in areas where international marketing competitive advantage can be threatened, while cooperating in areas where their competitive advantage is not at risk.

This study show that only two different aspects demonstrated intensified cooperation: 1. access to skilled labour pool and 2. joint product development.

Over time we found the trend is for less cooperation and more competition. This is surprising as the literature on coopetition (Porter 1998; Soubeyran and Weber 2002) points to the positive advantages and externalities of inter-firm cooperation for internationally oriented clusters.

Lesson for emerging Latin American economies, is the need for the Trade Association to better engage in informal social interactions between the cluster firms. This will increase the possibility of further inter-firm cooperation between firms in the industry.

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