JANUARY -JUNE 2005 15 The Competitiveness of National (Croatian) Economies through Development of Industrial Clusters

Ernest Vlacic, Sanja Tisme, Sanja Malekovic*

Original paper UDC 67:338.92(497.5) Received in June 2005

This article reflects upon some Croatian industrial and R&D conditions with the aim of providing an answer to the hypothetical question, what the possible role of the National science and technology (S&T) potential could be within the existing embryos or clusters (0 be developed in the forthcoming period. Particular attention is given to the national automotive industry, which is continuously struggling with tough international competition. Clustering, as a worldwide accepted industrial organizational model based on inter firm linkages and industrial and technological networking; could be an excellent source of competitive advantage, not only in comparison with the countries in the surrounding geographical area, but also much wider. Based on the first most recent experience with cluster development in , and having in mind Croatia :s existing research and development potential, the question arises as to whether Croatia is ready to initiate its automotive cluster and what the role of R&D could be in this process. Should the analysis of the automotive sector result as unfavourablefor future organizational networking, further research will be necessary related to cluster development in the framework of better performing industry sectors, within which, after all, thejirst Croatian cluster development initiatives are precisely at the moment being triggered. Understanding current worldwide processes: even if the answer to a research question regarding cluster development in Croatia under present circumstance turns out to be unfavourable, a logical hypothetical question that arises could be: is there any altemativert

Keywords: Clusters and clustering, organizational networks, research and development, innovation; technology transfer, Croatia, competitiveness, automotive industry

1. National competitiveness government policies such as e.g. protection, subsi- dies etc., or finally as a result of management prac- There is no single definition for the term of tices and management - labour relations. national competitiveness. Earlier defmitions linked In order to explain overall national competi- national competitiveness to macroeconomic variables tiveness one has to focus on specific industries and as exchange rates or govemrnent deficits, some other industry segments and how they gain competitive with the availability of cheap labour, as the result of advantage to compete internationally, including trade exports and foreign investments. One of the most

. Ernest Vlacic.Croatian Institute of Advanced Technologies, relevant and most quoted contemporary theorists of Zagreb; Sanja Tisrna, Sanja Malekovic, Institute for International global competitiveness Michael E. Porter categori- Relations, (IMO), Zagreb INTERNATIONAL RELATIONS REVIEW --16--...------.-----.-.-.------.------~----- ..------CROATIAN----.------.------.---~----.--- ..~-._-_._--_._------cally states in his speech in Wellington Town Hall, In the period of transition Croatia should (and (1998) that productivity is defacto the most probably does) by all parameters fit into the only synonym for competitiveness. second group of listed economies. However, under- Beside this affirmation, Porter further offers standing recent national orientation, there is a clear his vision of competitiveness in the global economy: vision among existing and particularly emerging in- "A nation, state or city's standard of living tellectual forces that innovation and further devel- (wealth) is determined by the productivity with which opment based on intensive use of scientific and tech- it uses its human capital and national resources: pro- nological development should be the top priority on ductivity depends both on the value of products and the governmental agenda when analysing organiza- services (e.g.: uniqueness; quality) as well as the ef- tional competitiveness and setting national develop- ficiency with which they are produced, it is not what ment strategies. a nation, state or city competes in that matter, but how firms compete in those industries productivity 1.1. The role of science and in a nation is a reflection of what both domestic and technology in national economies foreign firms choose to do in that location. The pub- lic and private sectors must each play different but The share of knowledge-based products in the interrelated roles in creating a competitive economy." world trade and output is increasing. In the circum- Kevin X. Murphy (200 i) one of 'Porterian ' stances of the scientific technological revolution, competitiveness theory supporters uses Porter's bases technology is set apart as a separate production fac- foe defining competitiveness and states that: tor with a key role in determining the production "Competitiveness is the ability of products and possibilities and structure of foreign trade. In addi- services to meet the test of the marketplace in tion, knowledge emerged as a new factor of'produc- competitive conditions, resulting in sustainable in- tion in terms of business competence of successful creases in standards of living" companies, regions and nations. In short, knowledge- The above-mentioned Porter's theory that based economic activities rely on possessing specific competitiveness derives directly from productivity information and abilities in order to effectuate the is followed with the hypothesis that productivity is specific advantages with respect to products or pro- closely related to performance efficiency and prod- duction processes which will ensure a considerably ucts value adding. Both processes are supported and greater added value. developed by innovations through applied scientific According to Posner (1961), permanent devel- research and implementation of new technologies or opment of products and innovation of production and upgrading existing processes. services enable single countries certain advantage Porter further recommends, as innovative ap- to master technologies that enable the creation of proach, the creation of network organizations under higher quality products or lower prices, as well as the term of clusters in order to boost, among other new products not represented on the world market aspects, innovation within clusters as well. There- so far. The technology must not be considered per se fore, innovation is one of the most important factors available in factorial sense, because its availability in global competitiveness on both national and or- in a certain country is not a given condition, but a ganizationallevel. result of innovation, learning and imitation process. There are however different approaches to The goal of building capacity for technology innovation interpretation and its implementation as adoption is not easy to achieve due to the variety of a process, and it is usually in direct relation with the knowledge needed, i.e. technical, technological, or- status of the country in the global economy. ganizational and managerial skills. According to In developed countries where macro and mi- UNCTAD (1999), successful countries do not apply cro economic conditions are well set; there is usu- the policy of import substitution or passive market ally a low level of governmental direct influence on liberalization. Generally, those countries have built economy and innovation, as a result of scientific and a strategic approach of adopting technology based technological development is used as a strong in- on the curve of active learning specific for each tech- strument to achieve organizational and national com- nology; as well as developing the possibilities, which petitive advantage. are crucial in locating the high-technology produc- On the other hand, developing countries; coun- tion in a certain country. tries of the Third World and European transition Investment in science and technology devel- countries use different innovation development strat- opment, particularly in the business sector is a pre- egies, or strategies that prefer technology copying condition for adopting new production processes and and license importing. creation of new competitive products that will en-

_L JANUARY -JUNE 2005 17

able high added value. Therefore, it is necessary to imity and long-term contracting relationships be- stimulate companies' developmental function based tween firms. These networks can adapt to volatile on knowledge, technology and innovation. markets rapidly, while the drawbacks are high barri- ers to entry and geographic boundlessness. (Berger The state has a relevant role in terms of devel- et a1. 1999) Examples of relational value networks oping the education system, corresponding to entre- include the industrial districts of (Brusco & preneurship requirements, organizing state funded Righi 1989) and even Silicon Valley (Saxonian 1996). research projects as well as of stimulating scientific The third network type consists of 'turnkey and technological development in the business sec- value networks ', which are based on highly quali- tor as well as linking research conducted by univer- fied suppliers with the capability to provide custom- sities, both state and private ones. ers with end-to-end solutions (Sturgeon 1997). In these networks, the suppliers are of merchant char- 1.2. Clustering and acter, which is achieved through the development of organizational networking a large and diverse pool of suppliers. To facilitate this; turnkey suppliers often specialize in a cross- In the Oxford dictionary a cluster is defined cutting base process, base component, or base serv- as 'close group or bunch ofsimilar things' and that Ice. is approximately what the networking organizations Turnkey value networks are highly tlexible in their linked business interactions are. systems characterized by fluid relationships, geo- The role of geographic concentration in com- graphic flexibility, low costs, and rapid technologi- petitiveness was first studied by Marshall (1920), cal diffusion. In these networks, the brand-name firms who identified three reasons for localization. First, are in a risky position: they may lose their expertise the concentration of several firms in a single loca- after extensive outsourcing and, as a result, the turn- tion offers pooled markets for workers with indus- key suppliers might take their business (Berger et a!. try-specific skills ensuring lower probability of both 1999). The concept of value network successfully unemployment and labour shortage. Second, local- broadens the original view of value chain. With the ized industries can support the production on non- help ofthe value network, relationship between com- tradable specialized inputs. Third, informational panies can be described in a realistic way. spillovers can give clustered firms a better produc- Literature review on networking will com- tion function than isolated producers. mence with theoretical grouping formed by closely Groups of interconnected companies can be linked industries and companies. Cluster concepts called as value networks, value nets, or value webs. are stretching beyond traditional sector boundaries. According to Timmers (1999), value networks can The focus is not on distinction between individual be defined as "multi enterprise networks of relation- industries or companies but on the mutual connec- ships focused on integration of information flows to tions and interactions. exploit 'information and knowledge in the network Clusters are therefore formed through the flow for strategic business objectives". The common fea- of information or products between companies and ture of value networks is to realize external econo- industries that are functionally linked with each other. mies of scale and of scope by relying on fragmented The agglomeration of producers, customers and com- rather than vertically integrated forms of industry petitors, whether based on geographical proximity organization (Berger et al., 1999). or know how, promotes efficiency and increases spe- Berger at al. (1999) sees three types of value cialization. Agglomerates create positive externali- networks that play important roles in the world ties through increasing innovation, and especially economy today. First, there are 'captive value net- through technological spillovers. The core idea is that works' that rely on dominant lead firms coordinat- the cluster is better equipped to succeed than indi- ing tiers oflargely captive suppliers. The advantages vidual companies and industries acting separately of captive value networks include efficiency and without the benefit of resources that complement close coordination, while the main negative aspect each other. is that strong interdependence makes it difficult to Clusters affect competition in three broad begin and end supplier relationships. Captive value ways: by increasing the productivity of the firms and networks are typical in ; where the suppliers institutions, by increasing their capacity for innova- are usually highly dependent on a few key customer tion using recent science and technology develop- firms (Aoki 1987, Sako 1989). ment results, and by stimulating new business for- Second, there are highly fragmented 'rela- mation that supports innovation and expands the clus- tional value networks' that are built on social prox- ter. (Porter 1998) There are several reasons for analysing the ment but only 24 on overall microeconornic com- economic growth through clusters rather than indus- petitiveness. On the contrary, countries that score tries or sectors. First, clusters align better with the much higher on overall microeconomic competitive- nature of competition and the sources of competi- ness than on cluster strengths are Greece and, sur- tive advantage. Second, clusters capture important prisingly,. linkages, complementarities and spillovers of tech- Many observers have speculated on the evo- nology, skills, information, marketing and customer lution of clusters in Europe as European markets are needs that cut across firms and industries. Third, becoming increasingly integrated. It was argued that viewing a group of companies and institutions since a fall in barriers to trade would remove artificial bar- a cluster highlights opportunities for coordination and riers to agglomeration and thus foster the growth of mutual improvement in areas of common concern clusters. without threatening or distorting competition or lim- Unfortunately, there is no direct cluster data iting the intensity of rivalry. available to look at this question. However, a number r------.------,------I Sector approach Cluster approach

Organizations Within an industry sector form a Organizations in different industrial sectors form I

I value network a cross-industrial value network I Some industries offer greater wealth-creating All clusters are desirable and have the potential ill i prospe~lS and should thus be supported. contribute to prosperity. I "Wasteful" domestic competition and foreign Both domestic and international rivals are i nvals are eliminated until the supported industries welcome to enhance cluster externalities and

1 reach sufficient economies of scale. prod:.::u:..::c~ti:..--v~l·t):.L'~. ._ Table 1:The main differences between cluster thinking and traditional industrial policy by Raines (2001)

Clusters in Europe of researchers have looked at the regional disper- sion of industries across Europe instead. Their work Porter's (1990) The Competitive Advantage of has two main results. First, there is no strong trend Nations already included a significant number of for increasing geographic concentration of economic European examples and until recently, information activity across European industries. on clusters in Europe has been based mainly on in- This was contrary to some expectations be- dividual case studies. In the years since then, nu- cause the initially more integrated U.S. economy merous individual case studies have been conducted; displays a higher level of geographic concentration. one compilation of cluster case studies includes a Concentration increased mainly in low growth in- total of 449 entries from European countries. While dustries that restructured to focus less production in nobody has an exact figure, it is obvious that Europe fewer locations. Concentration decreased, however, is home to a large number of clusters. in some high growth industries that spread out into The Global Competitiveness Report provides new locations with additional manufacturing activi- comparative data on overall cluster strength for 75 ties. Second, the European economics have become countries including all European countries. The sur- more unequal over time after 1992 when the Com- vey generating the data includes a specific question mon Market legislation took effect. This has reversed on the state of cluster development, and it includes a an earlier trend of increasingly equal industrial struc- set of additional questions that can be used to calcu- tures that was observed in the 1970s and 1980s, and late an overall measure of cluster strengths. brought European industrial patterns closer in line Table 1 reports the ranks for these two meas- with the U.S. economy. ures as well as for broader business environment quality and overall microeconomic competitiveness. Clusters in Croatia and On average, Europe ranks slightly lower on cluster development and cluster strengths than overall on In the very sense of their meaning, we can microeconomic competitiveness but the difference hardly say that clusters exist in Croatia at all. While is small. Nevertheless.just as regarding many meas- in neighbouring Slovenia the number of active and ures, the high degree of heterogeneity among the functional clusters exceeds two dozens and even European countries makes it more interesting to look more, Croatia struggles with the first initiatives tar- at individual countries. Clearly, a special case is Italy, geting cluster development. There are various forms which scores best in the world on cluster develop- of associations of related industry members created

_L JANUARY - JUNE 2005 19 within the Croatian Chamber of Commerce, as well tions are involved in the clustering and 29 projects as independent groups, but direct and concrete gov- of company linkage are in progress. The Ministry ernment supported associations or initiatives are will continue to promote cluster development. De- hardly visible. velopmental initiatives will be aimed at supporting However, it would not be justified not to men- the implementation of research and development tion some very first initiatives in favour of cluster projects of clusters and at targeted support for clus- development in the past year or so, which at least ter development projects. confirm that this relevant model of industrial organi- Slovenia's case proved that the active govern- zation has raised the interest of some relevant asso- ment role in cluster creation is essential, and it seems ciations, as well as policy makers. that the Croatian government could learn from the First, within the National Competitiveness neighbours and follow the same course. Council an expert and policy makers working group for regional and cluster development was established 2. The role of R&D in rising in 2003. Together with the results of several other economic competitiveness working groups, aimed at proposing measures to the Croatian government for raising economic competi- The role of research institutions as drivers of tiveness, the recommendations of this joint experts/ cluster development has been emphasized by the policy makers working group were included in the experiences of places like Silicon Valley in the USA document "55 Recommendations for Developing and Cambridge in the UK where universities have Competitiveness in Croatia", which was presented been important components in the development of to, as well as accepted by the Croatian government. the cluster. In the Cambridge, cluster estimates of Among the recommendations was the establishing the proportion of new firms that have spun out of the of a task force for cluster development and the de- university are up to 31% of new firms. 42 out of 50 velopment of cluster pilot projects. Among other firms in one survey reported free technological ad- govemment initiated task forces for raising competi- vice from University based staff, through formal or tiveness, the task force for regional and cluster de- informal networks, with 14 reporting these as criti- velopment was established a year ago; but still with cal to the success of the firm. no concrete results. A more recent, as well as more promising ini- 2.1. Croatian current R&D tiative took place in April 2005 with a project initi- capabilities and its profile ated by the Croatian Employers Association to de- velop 8 clusters in Croatia by the end of the year. In the past decade, Croatia was behind in us- This association established the National Centre for ing knowledge as a production factor, losing export Clusters and is expecting to sign an agreement with markets for technologically demanding products. the government related to ajoint project "Clusterising Companies were more focused on privatisation, sur- of the Croatian Economy". At the moment, within viving and defensive restructuring. Restructuring, by this centre, several clusters are in different stages ways of developing the existing technologically in- related to their establishment. The most developed tensive activities and moreover by entering more one is the metal cluster; which was established within advanced production segments, suitable to Croatian this centre, but the textile, wood and additional metal rather high labour costs and educated workforce, is clusters are not far behind with their establishment. necessary. However, the business sector so far has Clusters in the informatics and food industry will be not adequately used this potential by investments in established in 2006, along with other 10 planned, as their own research arid development. Only in the past well as further 14, as planed by the end of 2007. It few years, a greater intensity in research-tcchnologi- remains to be seen how far this initiative will go, cal activities in business sector has been recorded, particularly having in mind the previous initiatives The expenditure for research and development with no substantial results. However, the very posi- in Croatia is relatively modest, but the situation is tive reactions from high positioned policy makers rather similar in the more developed EU candidate- give grounds for optimism. countries. The estimated R&D intensity in Croatia On the other side, the Slovenian Ministry of (share of expenditure for research and development Economy has been promoting cluster development in GDP) in 2001 (1.25%) is considerably lower than since 1999. The results of clustering have been en- the EU average (2.21 % in 1999), but higher than in couraging. Several clusters have been institutional- Ireland and Italy. In comparison to the new member ised and are functioning while several other initia- states, only Slovenia and the Czech Republic have tives are very promising. 450 companies and institu- higher R&D intensity than Croatia. 20 CROATIAN INTERNATfONAL RELATIONS REVIEW

Table 2: Main indicators for R&D in 2001 (or last year with available data)

Expenditure Expenditure Expenditure R&Din Number of Patent forR&D forR&D [or R&D business researchers registration (mil. €) per capita %GDP sector per 10.000 of residents persons of per mil. "' . workforce residents (1999) Croatia 276 63 1,25 42 37 61 (2001) EU-15 141,200 374 1.90 66 52 - 50,316 612 2,46 70 60 904 Austria 3,687 455 1,79 56 34 380 Ireland 1,076 283 1,21 74 51 327 Italy 11,524 200 1,04 54 33 167 Slovenia 297 149 1,52 56 21 147 Czech 744 72 1,33 60 26 60 Republic 405 40 0,80 44 31 77 Lithuania 73 21 0,60 22 - 24

Source: Annual report on Croatian Competitiveness 2002-2003, National Competitiveness Council, Zagreb, 2003

There is a relatively large number of research- range from 1 to 7) and average rank value of 52, ers in Croatia, with 37 researchers per 10 000 per- roughly matches the average assessment of Croatian sons of workforce. In that respect,Croatia is ahead national competitiveness. of Italy, Austria, the Czech Republic and Hungary, Croatian managers that contributed to the sur- but considerably below the average of EU countries vey have stated that licenses are a good way of ob- (52 researchers). However, the share of researchers taining new technologies.However, licenses are as in the business sector with 16% of the total research- a way of obtaining old technology, whereas the de- ers' employment in Croatia is exceptionally low, veloped technology could be obtained by direct pro- whereas the same indicators for the EU countries are prietary investments. 49% and for the OECD 63%. Although managers have a relatively positive Concerning patent registration, Croatia is simi- attitude towards the quality of research and devel- lar to the new EU member states, which are behind opment scientific institutions and Croatia is ranked the EU old members; except Slovenia. This activity on the 37th place, the cooperation with local univer- in Croatia is 6 times lower than in Austria and 15 sities is assessed as poor (rank 56). Relatively satis- times lower than in Germany. factory is the assessment of their own research and There is a considerably large share of natural creation of new products, acceptance of new tech- science in research-development activities which nologies and technological development of produc- account for 41% of total expenditure, whereas the tion process. share of engineering is relatively low, only about According to managerial responses in the sur- 22%, which puts Croatia considerably behind the vey, the level of companies' investment in research compared countries. and development is rather low, whereas the innova- However, the presented indicators cannot tion is of insignificant importance for companies' show precisely the quality aspects of science and revenues. According to entrepreneurs, the state sup- technology development activities and these data are port for research and development as well as the co- usually obtained by comparing surveys. One of the operation of the business sector with universities is most known "benchmark" surveys of entrepreneurs inadequate. in various countries is conducted every year in the Entrepreneurs assessed the contribution of frame of the Global Competitiveness Report, pub- foreign investment in the use of new technology as lished by the World Economic Forum (WEF). In the very poor. However, that refers to the evaluation of year, 2002 Croatia was for the first time included in the existing international direct investment in the report, which enables us to benchmark survey Croatia, and not the FDI potentials in high technol- data conceming research and development activities. ogy sectors. The poorest mark in the survey is linked The average mark on science and technology to the general technological development of the coun- development related survey responses of 3.71 (in try, ranking Croatia on the 67th place, most probably JANUARY - JUNE 2005 ------21 Table 3: Results of the survey: Global report on competitiveness 2002-2003 , Mark Rallk Croatia EU Croatia Ell I Average mark ofR&D activities 3,71 4,84 52 24 Licence as a way of acquiring new technologies 4,87 4,96 33 29 quality of scientific research institutions 4,25 5,05 37 19 Research and creation of new products, processes 3,28 4,96 41 16 or imitations Interest of companies for accepting new 4,82 5,17 45 32

technologies I Working or technological intensity of production 3,42 5,34 50 16 Public purchase of high technology: focu ed 3,40 4,11 51 25 towards innovation stimulation or low price Cooperation with local universities 2,90 4,55 56 18 Importance of innovation for companies revenues 5,11 5.37 57 36 Subventions or tax-deductibles for R&D 2.66 4,21 58 18 Company investment in R&D 2,87 4.58 59 20 Direct foreign investment as a source of new 4,21 4,88 65 41

technologies I

Country's technological development 2,77 4,93 67 22 I Source: Eurostat, Statistics in focus, Theme 9 - 1/2003, 3-2003 "Research and development 200", State Bureau of Statistic Note: R&D indicator is calculated as the rate of GDP in gross expenditure for research and development. Official data on Croatian R&D expenditures are adapted to include the assessed R&D activities within small enterprises that are not included in the R&D statistics. due to the obvious falling behind regarding new in- tion (rank 43) and lCT (rank 37) as well as on sur- vestment in technologically demanding production vey data on technology transfer (rank 35). On the segments. other hand, survey data on ICT (rank 51) and moreo- ver on innovations (rank 78) indicate that rather ad- These survey data. together with R&D and vanced communication technology infrastructure and information and communication (lCT) indicators, a significant innovation potential do not transmit to contribute to the technology index; as defined in the innovative and technologically modern business sec- Global Competitiveness Report, by which, with a tor. rank value of 43, Croatia was surprisingly placed significantly above the average rank value of indi- 2.2. Current projects and cator of potential future growth (rank 58). However, development trends as evident from Table 4. that outcome is far behind of S&T in Croatia the values oftechnology index of the Czech Repub- lic. Hungary and Slovenia, ranked 20. 21 and 25 re- A question is posed as to how to stimulate sci- spectively. entific and technological research in order to allevi- The technology index in Croatia was pushed ate the previously mentioned shortcomings. There up by rather well ranking statistical data on innova- is no unique answer. Optimal measures for the reali-

Table 4: Technology index and its components - rank values Czech Republic Hungary Slovenia Lithuania Croatia

Technology index 10,;- " -, _- 20:- - _21 '~5 40 43 '" ;' -, Innovation sub-index 42 34 24 33 50 Statistical data 48 37 23 34 43 Survey data 27 32 30 51 78 lCT sub-index 28- 29 26 40 37 Statistical data 30 31 22 39 38 Survey data 26 21 33 49 51 Technology transfer 4 6 38 32 35 Source: National Competitiveness Council (2003), Annual Report on Competitiveness in Croatia 2002 22 CROATIAN iNTERNATIONAL RELATIONS REVIEW

zation of this goal depend on the country's economic Germany is a good example, where large re- strength, tradition in supporting scientific and tech- search organizations are financed, as a rule, by gov- nological development, certain technologies' prop- ernment and are under the responsibility of the Fed- erties, the scientific and technological support infra- eral Ministry of education and research, addition- structure, as well as the society's vision regarding ally supported by scientific programs. However, the scientific and technological development. In any Ministry of Economy and Technology finances the case, it is necessary to develop the system of organi- largest part of technological research, especially in zation, financing and evaluation of government sup- the sector of small and medium enterprises. The cen- ported research and development activities; particu- tral role for supporting the scientific technological larly in line with the interests of the business sector. development is assigned to two institutions; Max- Planck-Gese llschaft (MPG) and Fraunhofer- Theoretically, the optimal share of government Gessellschaft (FG). Whereas the MPG deals with in project financing is determined as a share that basic research in the field of strategic importance " considerably decreases the uncertainty of project for the country's future, the FG activities are con- realization'. Alternatively, the share of government centrated on applicable research and research results in supporting the projects regarding the technologi- transmission in new products, processes and serv- cal development should be proportional to the pub- ices, with some 40% of income from contractual re- lic content of this project. Both approaches have a search for the industry. Hereby the success of scien- justified logic, but could be mutually contrasted, i.e. tific-research work is evaluated according to the re- the difference between the entrepreneurs taking risks search type i.e. the basic research is evaluated through in full and by government subventions decreasing reviews and bibliometrics, whereas the evaluation private risk of certain technological development criteria for applicable research are indicators of es- does not have to be linked with social expenditure tablished commercial cooperation. and benefits that arise as the consequence of the de- velopment of new technologies. Generally, the allocation of government funds for R&D depends on the system of organization fi- The main reasons for increasing the collabo- nancing model, research type and field. The tradi- ration between government and private sector in tech- tional concept of quality, based on scientific compe- nological development financing are: tency, i.e. scientific contribution is applied for basic scientific research. Researches linked to projects or • The need of a country to support development programs with defined goals and tasks are evaluated, by way of technological development, in order to in general ex ante while choosing respectively fi- increase the competitiveness on the global market; nancing decisions but also ex post evaluation of the • Limited possibilities of the Government fi- realization of initially set goals. The survey research nancing of the development of technology due to the with precise questions of research impact evaluation necessity of decreasing overall government consump- is used in the case of research with a precise pur- tion; pose, respectively known end users. Impact evalua- • Strengthening private sector activities in sci- tion on the level of activities, total economy or socio- entific and technological research and transfer to- economic goals poses problem due to long-term and wards establishing generic technologies from uni- complex nature of these impacts and is conducted t versities to industrial institutes. for evaluation on higher levels, respectively for fi- nancing large research programs. The systems and policies of scientific and tech- nological research very much diverge in different Sometimes it is possible to avoid the unreli- countries. The scientific-research system of major able direct estimation of success in demanding proc- countries, besides the standard government system ess of choosing the projects and programs. includes the system of private scientific foundation; is the example of very instructive evaluation experi- government supported commercial research and ence of innovative research in industry. The parallel mixed partnership financing. The aim of research valorisation of projects has been replaced, after half financed by different parties is, as a rule, totally dif- of the projects of the second generation support ferent from non-commercial research within the pub- scheme to new scientific-technological projects lic universities to work on technological projects fi- ended unsuccessfully, with the «implicit» evaluation nanced by ministries of economy, with companies based on 50% project co financing for which com- as end users. panies warrant with readiness for financing. Namely, it is assumed that companies themselves will assess J~ANU~~A~Ry~~-J~UN~E~2~OO~5~ 23 best where to invest their own funds and co financ- try, and in that case. institutions are additionally ing based on that criterion is therefore the best way stimulated to collaborate with national (and interna- of assigning government support. tional) SME's.

According to Norwegian experience, the suc- In certain conditions, those institutions cess of projects is greater if the governmental financ- (Brodarski Institute (Croatian Institute of Advanced ing is lower. This is a good example and shows to Technologies), Institute Rudjer Boskovic and others which extent the supporting tools have impact on involved) could lead the process of intensive indus- project realization. trial networking in various fields.

In Croatia. there is a traditional, relatively in- However. strong opposition is met among flexible model of research activities at universities eminent scientists, particularly within the leading and institutes, classically organized and financed by institutes in the segment of natural science (lRB), the state. At the same time, a contraction of research due to the uncertainty that the project is bringing activities and decrease of the number of institutes along. Although there is no alternative to upgrade occurred. In the past few years, the activities in- knowledge in Croatia. the pace of the process should creased in pharmaceutical industry, telecommunica- be balanced through years and it should mitigate the tion and computers as well as in food industry. risk as much as possible.

Government support to research and develop- 2.3. Croatian industry ment activities within the business sector is still in and cluster embryos the very initial phase in Croatia. There are programs of co-financing the risky and new projects presum- The Croatian industrial sector is intensively ably in technologically intensive activities within the changing and the effects of the full scale and strate- TEST and RAZUM programs of the Ministry ofSci- gically thought out restructuring of this sector arc ence and Technology. Apart from that, there are cer- evident in many areas, from privatisation to the tain support programs within the activities of the strengthening of exports to western markets. devel- Ministry of Economy and small and medium enter- opment of new products and innovations to existing prises. An important step in supporting business products and manufacturing processes, to increas- R&D activities was made this year by implementing ing the level and standardization of quality, satisfy- special tax benefits for research and development ing environmental protection conditions, reaching expenditure and the Science and Technology project cost effectiveness, etc. proposed from the Government of Croatia (STP) with the objective to improve business infrastructural en- The 2003 industrial production growth totalled vironment for science and technology and to reorient approx. 4%. while a lower growth rate is expected them to benefit the economy. in 2005 and further (3-4%). Again, in 2004 industry employed more than 270,000 workers, who repre- The ultimate objective of the proposed STP sent 26 percent of Croatia's total workforce. would be to improve the business support infrastruc- ture environment for science and technology, includ- Industrial goods account for 97% of Croatia's ing restructuring Research and Development Insti- total exports and the highest share in Croatia's GD P tutes (RDIs). upgrading Technology Centres, improv- at approx. 20% level. Industry thus remains the most ing technology development financing programs (in- important branch of the Croatian economy. cluding venture capital). The Project will help to reorient the R&D infrastructure to benefit the real The profile of Croatian industry and its com- sector and economy at large. petitiveness level could be extracted from the na- tional competitiveness chapter as well as from It appears that the currently leading govern- sources from the Croatian Chamber of Commerce. ment is supporting this project as well. There is ob- where clothing; wood processing, leather and food viously an increasing awareness among governmen- processing industries are the most competitive tal authorities to initiate stronger involvement of the branches. R&D capabilities in support of the national economy. The project practically stimulates various R&D in- As can be noticed, tourism as one of the most stitutions to start offering or strengthening (or prod- profitable and attractive Croatian sectors was not ucts) to the market, particularly in regard to indus- listed in any of the competitiveness or industry list- 24 CROATIA ~ TERNATIONAL RELATIO S REVlEW

ing for the simple reason that tourism is classified as weak and segmented, there arc indications that clus- a service sector and not industry. tering could help some branches to improve their performance. Within the industry, the largest sector's do- mestic income is made within industry of food and from previous discussions. it could be under- beverages, followed by petroleum, chemicals, elec- stood that industry clustering is a powerful frame- trical manufacturing, paper printing and publishing, work for regional economic development because it and shipbuilding.Leading income earners in export captures economic relationships among specific in- industries are shipbuilding, food and beverages fol- dustry sub-sectors, and it provides a set of tools to lowed by metal and electrical industries. help define economic development strategies. Indus- try clustering can improve short-term industry attrac- Transportation industry is highly placed in tion efforts through the identification of industry gaps industry classifications as well, but as already men- and definition of specific advantages. In addition, tioned, the large share derives from the shipbuilding industry clustering is useful in defining medium-term industry. strategies for retaining, establishing, and growing of the regional industry, as well as for organizing long- r The Automotive Sector, which will be exam- term strategies to sustain industrial growth within a ined in the further text, is present with a limited region. number of vehicle components producers spread around Croatia with some focal points around the Saying that, it is very indicative that 'cluster' capital of Zagreb.Although the industry is relatively or 'organizational networking' as terms, did not UI1-

Table 5. Croatian producers of automotive components (mostly SME's)

Producer Citv Product Emnlovees AD Plastik Solin Plastic components 854 Cimos Buzet and Roc Components for bodywork, breaks 416 gearshift and engines Elcon Zlatar Bistrica Electric cables, devices and accessories 70 Eloda Zagreb Switches and electrical parts 30 SAS Zadar Special machining centres 200 Koncar alati Zagreb Tools and moulds 124 INA Zagreb Oil refinery 13867 TUP Dubrovnik Brushes 186 Chromes Zagreb Paints and varnishes 220 Datit Daruvar Casting of iron cast and steel 466 Feroimpex Bregana Cone-cylinrical bearings, housing for Y- 151 bearings Intermobil Vukovina Ball joints, steering linkages, radius arms, 13 suspension joints, angle joints and yokes I Jedinstvo TMS Tvanec Clutches and clutch equipment 45 Metalservis-TAD Bjelovar Tie rods, steering arms, homikin. etc. 24 joints, rubber-metal parts, gear wheels I Munia Zagreb Batteries for cars 190 MUROS Sveta Nedjelja Clutches, brake drums NA Polim Sv. Kriz Plastic components NA Zacretje Prevent Zlatar Zlatar Cover for seats 75 SiJa Zagreb Radiators, seats and gaskets 109

Straia plastika Hum na Sutli Plastic components 290 I TANG Nova Gradiska Forging as component parts NA Tehnoelektro Samobor Contactless and multipurpose alternators NA TLM-Promal Sibenik Commercial vehicles (superstructures) NA using different truck chassis TLM-TAL Sibenik Secondary casting aluminum alloys an die NA casting

~~~~~~~---- LJ JANUARY - JUNE 2005 25

til recently exist in the Croatian national economy support association organized by Dr. Marusic (em- development strategy. Promotions and discussions ployed at the Zagreb Faculty of Mechanical Engi- related to potential future clustering are performed neering and Shipbuilding). at a low level of individuals, enthusiasts or groups of economists who are limited to theoretical gener- This association prepared and held back in alizations having no executive power for project re- 2002 an extended focus group in Zagreb on the im- alization. portance of Croatian and world automotive industry attended by Croatian experts that created a respect- 3. Automotive case able and competent group, which focused the main part of the discussion on technical aspect of the in- 3.1. The automotive sector dustry. Nevertheless, some recommendations and in Croatia conclusions from the group meeting were extrapo- lated: The automotive industry in Croatia is certainly not a massive and particularly developed one. In re- • Croatia should continue to intensify its pro- ality, it is segmented and dispersed countrywide. duction of components and subsystems There are no original vehicle manufacturers (OEM • lmprovement of present production should be in further text) present in Croatia, but only compo- improved by dynamic introduction of innovations nent manufacturers that operate as the first ring of • Special vehicles (fire fighting, police, ambu- components suppliers (three of them) while others lances, TV-trucks, funeral vehicles etc.) could be belong to the second and further rings. Besides three manufactured in Croatia. These products require a larger (Cimos, Elka and AD Plastika) there are more higher level of technical and manufacturing skills or les 20 smaller companies that are in the automo- with lower volumes required for the market tive business directly, ranging from 13 up to 850 • Rijeka (a north Adriatic port) should be more employees (table 5). aggressively proposed and subsequently used in au- tomotive industry as products entry-exit hub as well Until the 1990s, manufacturers of components as a manufacturing centre for finishing and person- were producing exclusively for the industry of the alizing of ordered vehicles Yugoslavian group of OEM producers (Zastava, • Tourism, particularly related to sport such as TAS-VW, etc.), With the dissolution of the Yugo- races, could be the nest promoter and booster of the slav federation Croatian companies have turned com- automotive industry. pletely to the European marked and today automo- tive industry employs 3500 persons with the turno- Besides some generic declarations, the listed ver of approximately 100 million euros. group conclusions are reasonable and realizable. No matter how unintentional it may seem, the cluster- The largest components manufactures produce ing issue was not raised at the meeting, thus ignor- parts such as: plastic components of interiors and ing an important aspect that became reality in neigh- exteriors, casting shops for bodyworks for breaks bouring countries such as Slovenia, Hungary and gearshifts and engines, cables and switches etc. Fi- Austria. nal customers of those components are large OEM producers in Austria, , Italy, and Ger- Focus group meeting of experts in various many as PSA group, VW, BMW, Ford, etc. fields (R&D, producers, financers, GVT authorities etc.) held in 2003 with discussion topic on future The association that presently gathers auto- clustering in automotive industry generated fairly motive components manufacturers operates under the concentrated conclusions and recommendations, name of 'Association of ManuJacturers ofParts and along with an 'action plan' that could guide future Accessories Jar the Automobile Industry' . It is a rather approaches to the clustering process. loose association that operates within the Croatian Chamber of Commerce and which apparently does A very concrete conclusion reached by the not support their members in their business needs at focus group was the confirmation that clustering was all. definitively a process to continue with, understand- ing it as a 'best practice' option that achieved more Croatian Automotive Association is another or less success in a large number of countries. The association that supports and analyses Croatian au- question is, which option and what initiation proc- tomotive industry and operates more as an industry ess should Croatia select, and if it is going to be a 26 CROATIAN INTERNATIONAL RELATIONS REVIEW top-down or bottom-up approach etc. Therefore. in cellent illustration of how regional and industrial Croatia, it is necessary to select one of the already development policies can help stimulate the success- functioning cluster creation methodologies and to ful restructuring of a regional economy following adjust it to the particular Croatian circumstances. Austria's entry to the ED and the opening of Styria's eastern borders to market competition. The excep- The next conclusion of the meeting related to tional governance and structure of AC Styria is likely the industry. It appears that the automotive industry. to be its most interesting feature." due to its relatively small size, should be extended with the metalworking and tooling sector in order to Among other stakeholders, a strong presence create a critical mass of potential clustering mem- of the R&D institutions, which are significantly con- bers. tributing to create added values among cluster mem- bers, is very evident. Very similar configuration and This conclusion was followed by the assess- position of the R&D could be found among other ment that clusters should emerge at the nationallevel, automotive clusters in other automotive clusters in but that, in the second phase, they should become other developed EU member economies in Germany, I members of the neighbouring stronger clusters, such Spain and Holland. f as the Styrian one from Austria. Hungary has attracted by intelligent govern- The next proposal at the group meeting was mental FDI-attraction-policy 4 OEM manufacturers that the government should pay far more attention to (Ford, Audi, Opel and Suzuki) in the beginning of economy improvement processes such as the intro- the last decade (1990s). Those manufacturers cre- duction of organizational networking. ated the first and the second ring of local OEM sup- pliers in northern Hungary, which significantly con- It is a common opinion that without previous tributed to the creation of the first automotive clus- extended and aggressive promotion activities organ- ter in that area. The mentioned Hungarian cluster ized by governmental and nongovernmental bodies, operates in the whole Transdanubian region and be- a premature cluster creation request addressed to sides basic structure and initial budget, the cluster, government bodies would not receive particular at- according to Andreas Grosz", aims at performing tention. Industrial networking should be intensively business services; capital development, members' introduced and prepared for further concrete gov- cooperation, information and communication, diag- ernment initiatives. The government is recognized, nostics and consultations, etc. as it was the case in Slovenia, as the initiator and the trigger of the future networking process, not only of Slovenia is another neighbouring country that the automotive industry, but also other industry sec- has constituted clusters as forms of industrial net- tors. working. Among other (tooling industry, furniture) the automotive cluster was created only recently 3.2. Automotive sectors and under the initiative of the Slovenian Minister of clustering in neighbouring Economy Dr. Tea Petrin that realized the importance countries of industrial networking. The cluster was created by ~I at least 10 manufacturing members and minimum The mentioned neighbouring and other coun- three institutions (universities and innovative cen- tries in the region, such as Slovenia, Hungary and tres), as conditioned by the Slovenian government Austria, have quite different experiences and differ- in order to initiate the network. Surprisingly, the big- ent automotive industry backgrounds, as the conse- gest OEM manufacturer, Renault, that has the as- quence of their different history of industrial devel- sembly line of Clio model, is not a member of the opment. cluster yet. On the other hand, a large first ring sup- plier of important European OEMs named CIMOS, Austria is not a large OEM manufacturer, how- was one of its initiators. ever it hosts Eurostar Chrysler's and Daimler Pooch vehicles production lines that have helped to create The common denominator of these countries an extremely efficient and substantial industrial net- is the presence of the automotive industry cluster in work in the recent 10 years under the name of Styria each of them. Of course, the technological level of Automotive Cluster. their clusters and the clusters' life cycle position Edward M. Bergman, and Patrick Lehner fairly differs. The Austrian Styrian automotive clus- (1998)2 quote: "The cluster's development is an ex- ter" could be, for example, considered as a cluster in

---~ JANUARY - JUNE 2005 27 ------the mature phase with more than 220 members (as with the finances, and the Croatian government did producers), involvement of several investment and not manage to introduce in the proper way a financ- financing groups and active presence and member- ing instrument that could facilitate the R&D opera- ship of universities and research institutes. The tions within companies. A good basis for such an Croatian Chamber of Commerce is a member of the initiative could be the current EU FP6 program Styrian cluster as well, and that is a fact that could CRAFT that promotes innovation, SMEs, R&D and strongly influence premises and ideas for the future networking. possible Croatian automotive networking associa- Nevertheless, although the cooperation be- tion. tween the industry and the R&D institutions is not On the other side, Hungarian and particularly on a desirable level, it has to be said that the univer- Siovenian cluster, far from the size and strength of sities and institutes are developing their R&D ca- the Austrian association, are positioned low within pacities and skills by conducting individual research the growth phase. Yet, they were created in a sys- and projects. tematic way, functioning with clear missions and tar- Recent developments within the sustainable gets that were realistically projected for long peri- mobility field are raising the awareness among the ods of time. Understanding clustering as a relatively national institutions. One of them is the initiative slow and systematic process, Hungarian and among groups of scientists to introduce automotive Siovenian cluster creators focused their activities hybrid power for the taxi and minibus fleets in the primarily on educational and, as much as circum- city centres, particularly in Zagreb. stances allowed it, innovation activities as well. It is obvious that the mentioned neighbouring countries have realized the importance of network- 4. Summary and conclusions ing organizations and benefits that can be derived from such organizations. Could Croatia after all ben- National and transnational clustering and or- efit and learn from these three clusters? ganizational networking is undoubtedly an efficient instrument to increase national competitiveness. On 3.3. Current R&D in the Croatian the other side, research and development activities automotive industry are very important for knowledge and innovation- based economic and technological development. The cooperation and the role of the R&D in- Although there is a very negative attitude of stitutions with automotive components in Croatia are Croatian managers towards general Croatian tech- rather weak. It is increasing in certain fields ofR&D, nological development and collaboration with sci- but generally, the perception of the national institu- entific institutions, a more positive attitude exists tions, particularly within the SME's, is still nega- towards licenses than towards technology transfer tive. Some embryos of cooperation could be found through foreign investments. in certain areas; cooperation of CIMOS with the In the long term period, it will be necessary to university of Rijeka and Polytechnic study in Pula, develop new mechanisms - particularly from the cooperation of the Brodarski Institute with the bus point of view of organization and financing the re- producers and others. However, those linkages are search system, but also to support the cooperation on an ad hoc basis and are fairly segmented. between government, public and private sector in- Previous research done within national auto- volved in R&D as well as through evaluation of re- motive sector demonstrated that various initiatives search programs and projects. This would be possi- that were launched in the top-down (GVT-sector) ble only with carefully planed and prepared upgrad- and bottom-up (sector-G'VT) directions failed due ing of the organizational system, as well as financ- to the insufficient institutional support, here also in- ing research and development activities in Croatia cluding the Croatian Chamber of Commerce. in such a way as to develop and support the plural- Further to institutes of advanced technologies, ism of organizational forms and types of research, there are fairly strong university centres in engineer- develop partnership models and linkages between ing (Zagreb, Rijeka, Split, Osijek and Siavonski industry and science, as well as to foster research Brod) within the country that could more intensively activities in the private sector. support R&D within the component producer SME's On the other hand, R&D institutions are ex- and even multinational companies - such as INA. pected to take an initiative and leading role within Beside trust, another crucial condition for the organizational networking and cluster creation due boost of such cooperation and networking is of fi- to their natural position within those agglomerations. nancial nature. As elsewhere, SMEs are struggling The government, as the main stakeholder of these 28 CROATIAN INTERNATIONAL RELATIONS REVIEW

institutions, should implement approaches and meas- Future organizational networking should not wait for ures to promote and further support these initiati ves drastic and dramatic improvements within the coun- in line with the approach undertaken by the Slovenian try's economy, because we have learned that the level government. of competitiveness could simply change in a few years, Due to the relatively weak national automo- and the cluster itself could even contribute to it. tive sector, it appears that one of the feasible options In the segment of cooperation and network- in networking could be the transnational network ing of R&D institutions and the industry, the most with the surrounding countries. However, the em- important issue is the generation of stimulating fi- bryo should be created nationally, and at a later stage nancial arrangements due to the incapacity of the linked to the surrounding networks. SME's to finance the extremely needed R&D in or- Will then the automotive sector be finally in- der to increase individual competitiveness. This topic tegrated and capable to gather segmented component is getting even more interesting form the point of producers within the Automotive Industrial Cluster? view that R&D institutions are recently being forced ,L In addition, the answer is: yes it could work, to the free market, which complicates their financial regardless of the general economic circumstances. sustainability for the benefit of the society. • rI NOTES

1 Which is already in earlier phases of new technologies devel- economic and regional development' Gros has described in de- opment tails creation, structure and targets of Hungarian Automotive 2 In the paper released by Austrian Chamber of Commerce: Cluster 'Industrial cluster learning platforms: Methodology and Case 4 The strongest automotive association in Austria is present in Studies of four local Austrian industry clusters' Styria county around the county capital Graz 3 In his paper 'Cluster initiatives in Hungary as new forms of

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