Member Article

Clustering for Competitive Advantage

In an increasingly competitive world there is nothing more natural to a business leader than to be focused solely on the success of their business and observing your competition from a safe distance. Indeed many companies have enjoyed huge success following this strategy, however the fact is when companies and industries ‘cluster’ they obtain a greater yield for their efforts and benefit from the long term effects

Regions and companies alike will often compete with one another to attract contracts, talent, investment and job creation to spur growth. To many business leaders the thought of collaborating with competitors goes against their natural sense, but in this day and age the need to focus on sustainable strategies that will produce tangible economic benefits for ourselves and our neighbour is paramount to achieving competitive advantage.

So simple I hear you say – lets all work together in unison and the sector will flourish. But it’s not quite that simple. Clusters cannot be built upon hopes and dreams, nor can they be erected over night. In order for a cluster to be successfully formed, existing strengths and assets in a specific sector have to be present to give leverage and drive growth.

As recently as the early 1980’s North East England was globally renowned for steel making, shipbuilding and for its chemical and pharmaceutical industries. Yet the lack of focus on UK manufacturing by successive Governments led to a loss of competitive advantage and resulted in the majority of UK manufacturing companies been acquired by foreign firms. For example, in 1988 UK companies were the subject of eighty five percent of all European merger and acquisition activity. Around this period specialisation strategies came to the fore and many services were outsourced resulting in a significant decline in direct employment numbers and a surge in indirect employment.

In the early nineties, before the Northeast of England Process Industry Cluster (NEPIC) was created, the process sector and the chemical industry was believed to be dead or dying in the UK. Many stakeholders believed this was true because they saw the sectors employment was in decline over a 20 year period. The view was held simply because there was no way of showing stakeholders the combined value of the sector, its potential for future growth and investment plus the huge growth in supply chain employment. However employment decline was seen in isolation, despite the fact that during the same period chemical output in the UK went in the opposite direction and growth was seen year on year.

Once NEPIC was created this changed and the combined strength of the companies and their supply chain, working collaboratively through the cluster, emerged. Today, we now know that the North East still has a thriving Chemical and Pharmaceutical sector and many globally significant companies have manufacturing bases in the region. But we must remember that these large multi-national companies follow strategies that tap into advantages through location with subsidiary sites located around the globe. This results in what is known as the “Branch Economy” and North East England is typical of such an economy where strategic decisions are taken outside of the UK.

Clusters, such as NEPIC, provide companies and their local management teams with extra knowledge and support, which they can use to demonstrate to offshore owners that their location has competitive advantages compared to elsewhere. This is important because many business managers here in North East England report that their real competition for future investment and work is internal, not external.

All this means that regions with effective clusters see more rejuvenation through direct foreign investment and industry growth. Through engagement with the cluster local company executives are more informed about the big picture and are more active in attracting growth to the region. It also helps them to deliver more new investments for their own sites.

The Process Sector in Northeast England now has an on-going portfolio of potential investments in the region that remains as high as £5 billion, with well over £3 billion being delivered over the last five years. This work has refocused the minds of those in UKTI and BIS, whom now recognise the importance of the Chemical sector and have reinstated it amongst others as a leading high teach manufacturing industry. It is a fact that over fifty percent of the regions exports come from these companies. The chemistry using industries across the UK have added a positive £20 million per day, every day over the last 20 years, to the UK balance of trade, whilst all other manufactured goods have had a negative £200 million per day impact!

This was posted in Bdaily's Members' News section by Dr Stan Higgins .