INSIGHT: Clustering in Europe for advantage

02 October 2007 15:20  [Source: ICIS news]

By Nigel Davis

BERLIN (ICIS news)--Just how do you drive greater production efficiency in Europe? Companies do what they can individually but ultimately this is a negative sum game.

You can always learn - usually on a global basis and across different business segments: continue to drive efficiencies across the refinery/cracker interface, for instance. But there are, perhaps, better ways of doing things.

"It's easy to be brilliant if you are in the right location," Michael Porter told the EPCA conference on Tuesday. Of course, he is right.

But if you are not in the right place then competing European regions offer potentially attractive production locations.

"The cluster approach is a different mindset. It's not less competition, it's smarter competition. It's competition on a higher plane," maintains the man who knows more than most about competitive advantage.

Companies will always be trying to push down costs. That means better, more efficient operations and smarter relationships with suppliers, logistics partners and the distribution network.

They also need to innovate and in an increasingly competitive world, innovate sharper and better

The concept of ‘clustering’ in Europe is hardly new. Indeed it is centuries old. In chemicals, European production locations rather than nations vie for producers’ capital investment. Regional development authorities add further - not always useful in an industry sense - spice to the mix.

What has the EPCA study of clustering published here in Berlin revealed? A great deal that was known before but most tellingly that companies could co-operate further if they wanted for the benefit of themselves as well as the sector.

The big question currently is who wants to do that.

There has been so much talk in Europe about industry logistics and efficiencies. The European propylene pipeline project looked as though it could greatly improve the sector’s logistics profile.

But after years of study the project floundered on conflict between the regions through which the pipeline would pass - and the grants that might be available to whom.

The one big step that would have demonstrated the worth of greater cross company collaboration was lost.

Porter maintains that regional clusters are the drivers of economic growth. Not perhaps in the old sense but in the way they can bring together intellectual capital and regional resources to drive competitive advantage.

“In a world of global competition, location becomes more important,” Porter said. Clustering helps companies drive value creation, not just efficiencies.

Porter believes that development is a collaborative process involving government, companies and other institutions at multiple levels.

The developing competitiveness of regions is demonstrating that new levels of value creation can be reached using different collaboration models.

Europe has too many clusters, he suggests – which is not a comment likely to be welcomed by its chemicals sector.

The European industry values its clusters highly. It believes, however, that it can learn from other sectors such as automobiles and consumer electronics that have showed how collaboration and competition can sit effectively side by side.

Europe’s chemicals clusters first perhaps need to start with enhanced supply chain collaboration. Beyond that the groundwork has to be laid for greater co-operation.

As the EPCA study notes, Europe needs a long-term perspective on cluster development.

By: Nigel Davis
+44 20 8652 3214

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