Cluster creation stages

The global experience in clusters creation is very large and there are many different manuals for their creation. The Kyrgyz Republic adopted the document "Basic procedure of cluster regions development", which contains the main directions for the implementation of cluster initiatives.

The number and content of stages in different manuals may differ, but their essence remains generally the same. The following is a summary of the different practices.

 

Stage 1. Cluster initiation

First, an initiative group of 3-10 people is created. The creation of an initiative group is an informal process, it is necessary to find the most initiative, qualified and trustworthy people. If this is a joint initiative of entrepreneurs, state or regional authorities, then representatives of all parties can be included in the initiative group on a parity basis.

When an initial agreement is reached on the goals, objectives, outlines of the cluster, the so-called "cluster initiative" is formulated. If this is a fairly large-scale project, then it needs administrative, financial and, possibly, political support at the regional or national level. Without such support, this project may simply not be implemented.

The initiative group designs activities for the implementation of the cluster initiative and is engaged in identifying enterprises and individual entrepreneurs interested in a cluster creation.

 

Stage 2. Diagnostics and design of the cluster operation scheme

It is difficult to create a cluster from nothing. There must be certain prerequisites. The most important ones are the following.

First. The presence of potential cluster members located in a specific area, whereas their number is close to the "critical mass" (experience of other countries - at least 30-50 enterprises).

It is important that in the territory selected for cluster creation there are some fragments, signs, enterprises, based on which the concept of cluster development can be fulfilled.

In addition to the quantity, the scope of activity is important, as well as the level of their coherence - the intensity, the volume of sales between them in the implementation of economic activity. This is how the world-famous electronic engineering clusters has been created in Japan, shoe clusters in Italy, wine-making clusters in Portugal, woodworking clusters in Finland and many others.

Second. The key natural resources availability for the production and marked industry specialization of the region. The localization and specialization of the region, the level of production, etc. are assessed. The more the specialization of the region is marked and resources in place, the more conditions for a cluster creation.

Third. Availability of financial and market infrastructure, i.e. banks, consulting companies, technology parks, etc. to provide funding, communication, innovation, etc.

Fourth. Cluster development State and regional authorities support. These are legislation, institutional mechanism, policy documents, quality of management.

In case of cluster creation prerequisites availability, it is necessary to determine cluster structure. The design results are reflected in the cluster functional structure including the main aspects and cluster key participants (by type of activity), key partners, main counterparties, their interaction.

The core of the cluster is a total number of enterprises connected by a value chain producing the main cluster product. The cluster has established connections in various markets - retail chains, large markets, product exporters.

As a rule, there is a large enterprise in the cluster - the leader (anchor enterprise), which determines the long-term economic, innovative and other strategy of the entire system. Leading enterprise performs a key production and integration function in the value chain.

Generally speaking, in developed clusters of a national or global scale, there can be several enterprises - powerful companies that are competitive in the world market and spread their positive influence not only on the immediate environment, but also on the economy of the entire country.

In addition to leading enterprise, the cluster includes other participants. These are enterprises, individual entrepreneurs involved (in accordance with the specialization) in the production of a main cluster product or service.

Cluster members can be conditionally divided into core ones - these are enterprises that are directly related to the production of the main product of the cluster, and non-core ones - enterprises that do not have such a direct connection. For example, financial organizations, transport companies, etc.

Fig. 2 as an example shows a functional diagram of the dairy cluster (model) with regard to Kyrgyzstan. The cluster participants shown in the diagram are milk producers (raw material production link), milk collectors (raw materials delivery link), an enterprise for processing the collected milk and release of finished products for sale (a final product production link - an anchor enterprise). In this scheme, the participants also include a financial organization that provides loans to cluster members.

The cluster is surrounded by various companies that provide goods and services to ensure the production of the cluster main product. They can also be conditionally divided into two groups. For example, suppliers of goods and services, on which the continuity and sustainability of the production activities of cluster members depends, can be distinguished into a separate group (Fig. 2, Key Partners). The cluster can establish a special relationship with them, or one of them can also become a member of the cluster. There are also companies on which the cluster has no such dependence, but their activities are very important for the cluster. For example, these are transport companies, laboratories, etc. (Fig. 2, Other counterparties).

The Government of the Kyrgyz Republic, the Ministry of Economy and the relevant ministries regulate and support clusters through the adoption of laws, policy documents, action plans implementation.

Fig. 2. Functional diagram of the dairy cluster

 

In Kyrgyzstan, at the initiative of the Russian-Kyrgyz Development Fund and a number of other financial and consulting companies, the Ministries of Economy and Agriculture, signed a Memorandum, within the framework of which the signatories commited to provide clusters support within their mandate.

 

Stage 3. Cluster members and capacity quantification

A cluster creation is a process that involves a wide range of business entities - potential cluster members. The initiative group is the "engine" of the process.  A facilitator - a specialist with the cluster creation competencies is an important figure in the cluster creation process.

Those who can join the cluster should be interacted. It is necessary to identify potential cluster members united by one technological process. It is necessary to form such a composition of participants, which is close to the "critical mass" in number.  They can ensure the continuity of production. The cluster contains all the links necessary for production.

It is necessary to implement a rough quantitative analysis of what is and what will be the result. That is, it is necessary to give an approximate assessment of the existing aggregate production potential of people who have expressed their intention to join the cluster, the possible productivity of the cluster for the main products in the future.

For more detailed assessments, it is necessary to prepare a feasibility study of the cluster. But this is quite difficult and costly, since there is a need to involve the companies specializing in such studies. 

Quantitative analysis data, along with the functional cluster diagram, give a sufficient understanding of the cluster being created - how the cluster will work, what it is pursuing to achieve. This information is used to inform and attract potential cluster members.

 

Stage 4. Cluster establishment, formation of governing bodies, adoption of strategy and plan 

 

According to world practice, not all clusters find it useful to create a special management system and introduce formal membership. But it is generally accepted that a cluster development is more successful given the establishment of special governing bodies.

In Kyrgyzstan, there are no legal requirements for the organizational and legal form of the cluster. The most convenient form of cooperation is a simple partnership contract (agreement on joint activities) between the cluster members without incorporation of the legal entity.

In the Kyrgyz Republic a cluster can operate based on the following documents: an agreement on the cluster creation (on joint activities - a simple partnership); regulation on the cluster and the rules of its functioning; cluster membership agreement (signed by each member of the cluster).

The general meeting of cluster members is a collegial body that determines the goals, development objectives and evaluates the cluster activities. The function of the executive body is performed by cluster management (operates on a regular basis). The management body is elected from the members of the cluster or it is also possible to sign an agreement with the management company.

 

Fig. 3. Cluster organizational structure

Cluster management provides intra-cluster interaction, building trust, increase cooperation and technological transfer, coordinate the development and support of the most important cluster projects that stimulate innovation (first of all, funds attraction). Participation of support institutions will help to cope with funding issues for core cluster activities as well as the assistance with the implementation of cluster management events.

Cluster management implements the strategy adopted by the general meeting.

 

Stage 5. Cluster evaluation and monitoring

Cluster management activities should be aimed at implementing the cluster strategy and action plan. These documents should include relevant indicators of performance and effectiveness. For example, it could be:

  • growth in total production and sales volumes, growth in production capacity, implementation of individual large cluster projects;
  • improving the cluster competitiveness;
  • increasing the cluster product share in foreign and domestic markets;
  • strengthening cooperation networks.

Cluster monitoring and evaluation helps to understand the dynamics of cluster development, its compliance with the strategy.

Finally, the last and very important information. It can take from 1 to 3 years to create a full-fledged cluster. Therefore, the cluster creation process consists of intermediate stages, by completing which and reaching the targets, it is possible approach the state of a developed cluster. Thus, the formation of a well-organized value chain can be viewed as an intermediate result that allows to move further towards an effective cluster creation.