CLUSTERING: AN INNOVATIVE STRATEGY FOR REGIONAL DEVELOPMENT IN OCEANIA

Final Report on the ODN-funded Research Project 2006_to_ODN_Secretariat_Samoa

Compiled by Research Team Leader,

Dr. Terence M. Laufa On behalf of the Team

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CLUSTERING: AN INNOVATIVE STRATEGY FOR REGIONAL DEVELOPMENT

IN OCEANIA

Terence Laufa1, David Kavanamur1, Elly Kinkin1, & Bernard Esonu2 1Strategic Management Division, School of Business Administration, University of Papua New Guinea, P.O. Box 320 University PO, 134 Papua New Guinea, Telephone + (675) 326 7405 Fax: + (675) 326 7144. 2School of Social Sciences, Division of Public Policy, Waikato University, Hamilton, New Zealand. Abstract This paper presents findings of an exploratory research into the scope and nature of industrial clustering in Papua New Guinea, of which the paper argues that its thesis has policy implications for regional development in Oceania. Three case studies were examined so as to explore and determine the extent to which enterprise, industries or sector of the economy cooperates and derives mutual benefits in terms of industry development in PNG. They are: (1) The crocodile skins industry; (2) experimentation with the Malahang Industrial Centre (MIC) – promoted by the PNG Ministry of Commerce and Industry and (3) artisanal fish clusters in a Motuan coastal area. The tentative findings are presented in tables for cross case comparison, using four key indentified operational definitions as it pertains to industrial clustering. The results of the three case studies presented, provide the basis for both short and long term policy implications for promoting and enhancing industrial clustering as an innovative strategy for regional development in Oceania, of which a special reference is being made to PNG. Keywords: Clustering, Industrial Districts (IDs), Oceania Regional Development, Pacific Island Countries (PICs), Papua New Guinea (PNG), Strategic Clustering




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Introduction It is argued that enhancing competitiveness poses a key challenge to all countries. The analysis of different developing regions shows that the most dynamic countries are not those that bank solely on competition between isolated firms, unconditional free trade and the state as an institution of regulation and supervision. Instead the successful countries are those that actively shape locational and competitive advantages. With the global economic environment marked by new patterns of competition, organizational concepts and technologies, the most efficient countries turn out to be those in groups of relevant actors succeed in organising rapid and effective learning and decision making processes, and shaping the business environment in accordance with new requirements. Research on clustering or industrial districts (IDs) is somewhat contextualised against that international business setting and that it has taken prominence in policy making initiatives in the Oceania region quite recently. This research report provides a brief overview, a literature review and the areas in which clustering research will explore to gain an in-depth understanding after testing its working hypotheses. It is anticipated that the research outcomes will be used as relevant policy making initiatives for industrial development and long-term growth in the Oceania region, especially that of the Pacific Island Countries (PICs). The main aim of this paper is to promote the concept of clustering as a possible research agenda for Oceania within the generic concept of regional integration. Clustering offers the region with the opportunity to reap benefits of economies of scale and scope as well as specialization. Certain industries such as tourism, winery, and light manufacturing have already benefited from clustering particularly in Australia and to an extent Fiji. The Australian government, in particular, has developed a policy intervention program known as the Business Network Program. This program is supported by AusIndustry, which oversees the development of business networks amongst Small Medium Enterprises (SMEs). Academic research such as those of Buttery (1992), Buttery and Buttery (1994, 1995) and Dean, Holmes and Smith (1997), among others, have been credited with providing the rationale and strategies for advancing the idea of clustering in regional Australia. One of the most advanced clusters is that of the Cairns Region Economic Development Corporation (CREDC), www.credc.com.au. The CREDC has a specialized Cluster Project Manager and a number of network brokers. Currently, it has 15 clusters under its umbrella. Research potential in Oceania There certainly are cases of clustering already in existence within Oceania, which require in-depth analysis in order to point up possible lessons. Certainly, Australia has adopted clustering as a strategy to regenerate developments in regions like the Greater Western Sydney and Far North Queensland. Sectors that have flourished through clustering in these areas include small businesses in both the service and manufacturing sectors as well as tourism. In these locations small businesses grew on their own and then were later supported by network brokers from AusIndustry who specifically assisted with linking up local firms with global buyers and suppliers (Buttery and Buttery 1995). Business advice is also based on concentrated research funded by the National Research Grant Scheme.




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In Fiji and other PICs, clustering of tourism service providers has greatly helped the development of tourism. Tourism is well developed in these countries partly because of geographical proximity of service providers and a good inputs market to support the industry. And in the area of small business, specialized business development service providers, business associations and chambers of commerce have specifically fostered their developments. The capacity of these cooperative associations has in turn been enhanced through funding and advice from external development partners and financiers such as the Pacific Enterprise Development Facility (PEDF) of the World Bank. Developments relating to clustering have however not been matched in PNG, thereby missing out on the potential benefits. Nevertheless, an increasing number of firms are entering into strategic alliances or business networks both in the form of kingdom and republic networks. More recently, the PEDF was in the process of replicating its efforts in the promotion of clustering in the region within PNG, particularly in the areas of ecotourism, urban business promotion, microfinance, spice and horticulture exports. Early signs of the development of clustering can now be observed in the tourism industry in PNG revolving around market segments such as eco-tourism, backpacker packages, and so on. Institutional intervention through the PNG Tourism Promotion Authority (TPA) is showing up some early positive results of business networking amongst tourism service and products providers, villagers, hotel owners and tour operators. As a result PNG is currently experiencing resurgence in the number of visitors coming in as tourists. Because of the country’s reputation as a high-risk country, more needs to be done to model and promote destinations such as New Britain, Milne Bay and Madang as ‘tourist destinations’ with minimal connections to PNG as a country. In fact, New Britain, comprising Kimbe and Rabaul, offer the best cases for trialing this strategy. Rabaul, in particular, has a relatively advance inputs market for an independent destination marketing strategy for backpackers. According to Prideaux (2005), PNG has so much tourism potential that could be tapped once well-known constraints are addressed. The country could potentially piggyback on the 2.3 million tourists visiting Cairns annually, particularly backpackers. Similar signs of clustering could also be observed in the primary commodity value chains such as that for coconut and cocoa. The Bogia Cooperative Society in Madang is a case in point which is showing up signs of cooperative efforts in the area of joint marketing, joint extension service provision, and cooperative accounting service provision for many of its affiliated local producers. It has been observed that because of past problems that plagued cooperative societies in PNG in the 1960s and 1970s it would be better for such clusters to initially cooperate in the area of marketing/accounting services, logistics, and microfinance provision in order to allow for a thickening of inter-relationships amongst relatively standalone producers. In fact, it is advisable that producers should maintain their independence but allow for cooperation in services that would not be otherwise accessible if one were to operate individually, hence the principle of ‘cooperative-competition’ resulting in ‘synergistic’




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benefits, as promulgated in the ID model. There is an emerging literature that supports the idea that cooperation in private markets in rural areas is an age-old practice that could be harnessed to regenerate regional development in poorer regions. Joshi and Moore (2002) drawing from an extensive amount of work done on industrial clusters in the 1990s at the Institute of Development Studies, University of Sussex, refer to this as ‘co-production’. A final area where clustering potential exists is in the area of small businesses operating out of the informal sector. The current Informal Sector Development and Control Act 2004 has given rise to an increase in entrepreneurial activities in the urban locations of PNG. However, this development has not been carefully thought out so as to allow for land allocation for specialized activities such as furniture making, bakery, tool making, metal fabrication, automotive repair, and so on. It would be desirable for clusters to be established early with municipal support facilities such as land allocation, partitioned building blocks for rent, water supply, electricity, and other locational amenities that the local municipalities in Italy initially provided for the incubation of its industrial clusters. The experience of Export Processing Zones (EPZ) and industrial centres in PNG such as the Malahang Industrial Centre (one of the case study used in the study), which is currently half-full, shows that clustering of firms along a ‘family of products’ better promotes strong inter-firm cooperation than through the conglomeration of unrelated disparate firms. The lack of organization of the informal sector in PNG will ensure that street sellers will find it difficult to graduate beyond the current ‘buai-simuk’sub-sector into an export-oriented small business cluster. Research Problem Regionalisation in the Pacific has been mooted for some time now; however, the practicalities associated with the concept have much to do with its mutual response, rather than its mutual relevance. The ‘response’ factor appeals to the actual activities to bring about regionalisation, whilst the ‘relevance’ aspect is more aligned towards its conceptual significance, and proffers ways and means in which former can be attained. In normative terms, this means that mutual relevance has to exist before mutual response can be attained for regionalisation in the Pacific. Regional cooperation, pooling of resources and integration are buzz words that are promoted to deal with pressing issues of poverty, education, health, sustainable natural resource management, among others within the Pacific region. Fiji is perhaps the only country in the region after Australia and New Zealand to record better development indicators in a stark contrast to that of PNG. In spite of Fiji’s recently recorded strife in internal politics and smallness in size, it is establishing itself to be a major force to be reckoned in the region, as is seen through the promotion of business networking locally and regionally. Clustering has been promoted in Fiji and it is believed that the same could be replicated within the region, of which individual countries could adequately meet their own development costs, let alone, charter a path for progressive regional development. The bottlenecks to development in PNG are somewhat perplexing, given the nature of socio-cultural settings, in which developing business




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networks have been left wanting, albeit existence of wantokism1, which is quite similar to renqing2 practiced in China. Viewed in this context, clustering can be used as an innovative strategy to promote regional development in the South Pacific. In PNG there are areas that may be amenable to such strategic clustering and need to be explored as a strategy for overcoming current bottlenecks to regional development. Research Question In this research project, the main research question can be posed in this manner: Can the applicability of clustering or industrial districts be reviewed in the context of a number of potential areas in PNG, including tourism, the promotion of urban microenterprises, commodity cooperative societies and the creation of strategic clusters in the public service? Using the central tenets of European clustering, the primary objective of the study is to empirically establish how potential areas of clustering can be strategically aligned in PNG with a view to pointing up key managerial-, public policy-, theoretical- and future research-implications for Oceania. Main testable hypotheses (a) The basic working (null) hypothesis is to be subject to empirical investigation is:

Current development bottlenecks to regional development in PNG cannot be overcome through strategic clustering.

(b) In PNG there are areas that may be amenable to such strategic clustering and need

to be explored as a strategy for overcoming current bottlenecks to regional development.

Concomitant with conventional practice, the objective is to disprove the working hypothesis. The hypothesis will be addressed through the research methodology specified in the study. It is possible that other subsidiary hypothesis may transpire in the course of the study. The assertion is made here, as this is an exploratory study, of which after its initial finding and presentation of results will require further development of a more comprehensive research design that needs to incorporate more specific research questions. Therefore the outcome of this research will point to a more detailed research as is typical of formal ‘descriptive’ studies.

1 Wantokism: refers to a social network comprising people from the same location or clan who speak the same language or at a much broader level those who are brought together because of proximity, familarisation and regular contact. Such networks are held together by exchange obligations (Hess 2001; de Renzio and Kavanamur 1999). 2 In the People’s Republic of China renqing, or the performing of favours, is a necessary component of guanxi, which is really the building of relationships with a network of business people through which influence is brokered (Buttery and Wong 1999).




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Research Output and Policy Relevance The research output would prove useful, let alone is relevant as it has wider implications for strategic planning for business, development, growth and operations in the Southern Pacific region; especially in PNG whereby, it would serve as a vehicle for promoting the effective mobilisation and sharing of physical and natural resources, let alone, suggests workable ideas to be tested and evaluated in actual business practices. Businesses, as they operate in societies, are actually perceived to perform an enabling function, based on welfare considerations such as poverty reduction and provide an important avenue for revenue maximisation of firms, of which labour will obviously be drawn from within and outside of the region to fill the rank and file of the firms. The resource/information sharing that immediately awakens us to ponder the ‘cooperation-competition’ of the business-networking objective output alluded to by Joshi and Moore (2002) is a core principle of the European ID model. Findings of the study will be presented in workshops, culminating in a publication in an international journal that ascribes to research on small-scale or transitional industrial developments in developing economies. Literature Review The literature review briefly examines some of the examples of firms in Japan, Europe, United States, and Australia, which are increasingly adopting clustering and/or networking as a strategy. Following on from this will be a discussion on the theoretical basis for clustering, dwelling on its historical, let alone main elements that give conceptual glow to its application in different societal contexts. The last two decades have also witnessed the re-emergence of the Marshallian industrial district (Marshall 1920) in Europe (Italy’s Emilia Romagna, Germany’s Baden-Wurttemberg, France’s Rhone-Alpes, Denmark’s West Jutland, Belgium’s South-West Flanders, Sweden’s Gnosjo, Austria’s (Salzburg), Japan’s (Sakaki), Latin America (Brazil’s Sinos Valley and Mexico’s Leon and Guadalajara), United Sates (Silicon Valley, Hollywood, and Route 128), and South and East Asia (Pakistan’s Sialkot, Taiwan’s small and medium enterprises) and West Africa (Ghana’s ID’s in Kumasi region), are cases that can be reviewed for regional clustering development in Oceania. Case studies on these industrial districts show that their re-emergence is both the product of, and reinforced by wider trends in markets and technologies (Piore and Sabel 1984; Porter 1990). The clusters are typified by consisting of firms of various sizes: small, medium-sized and large firms; they are geographically clustered and they are sectorally specialised. The case studies on the clusters demonstrate that they are the source of growth in developing countries and they generate a good reference source for academics and practitioners alike. Theoretical Basis for Clustering Theoretically clustering owes its origins to the European concept of ‘industrial districts’ (hereafter ID). The term dates back to the 19th century when Alfred Marshall, in challenging the conventional view that efficiency in production can only be reaped by large firms due to




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economies of scale, rightly argued that greater efficiency could accrue from a division of labour not by individuals in a single integrated factory but by different highly specialised firms which compete with and yet complement each other (Bellandi 1989). Marshall’s views were based on early IDs in Britain where he noticed that the clustering of firms enabled them to reap benefits akin to what Schmitz (1990, 1997) has termed ‘collective efficiency’, defined as the competitive advantage derived from local external economies and joint action. Marshall introduced the notion of external economies to represent advantages arising from the “concentration of many small business of a similar character in particular localities” (Marshall 1920: 211). Although such externalities have often been seen as signs of market failure, Marshall saw them as serving an enabling function. Nadvi (1997: 6) summarises Marshall’s view of external economies as arising from sector-specialised clusters via: • the benefits of a local specialised labour market, lowering search costs for employers and

labour; • a division of labour in production, allowing firms to concentrate on core competence

while also accessing highly specialised machinery and other technical skills collectively, thereby exploiting economies of scale and scope which individually they would not have been able to;

• the presence of numerous allied and subsidiary sectors, providing firms with a cheap,

readily available local supply of specialised raw materials, machinery transport, and services; and

• easy access to industry specific trade and technical knowledge, allowing firms to access

market intelligence so as to absorb new ideas and learn, via demonstration effects, from others.

The other building block of collective efficiency is ‘joint action’ by local agents which is generated by clustering. Thus Schmitz (1992b: 67) describes external economies as ‘unplanned’ and joint action as ‘planned’, while Nadvi (1996, cited in Nadvi 1997) although in the same vein, prefers the distinction between ‘active’ and ‘passive’ as it captures more accurately the distinctive nature of inter-firm ties that bring about external economies and joint action gains. ‘Passive gains of clustering accrue to firms by virtue of their location in the cluster, while ‘active’ gains accrue as a result of joint action. The recent polarization of the ID concept has however been largely a result of the recent successes of sectoral agglomerations of small firms in Italy, Germany, Denmark, Mexico, Pakistan and Brazil where it is said that small firms have emulated the success of large firms and have been resilient amid the adverse economic conditions of the 1970s and 80s. Refinements to the ID concept have come particularly from Becattini (1989, 1990) who perceived the network of firms as a socio-economic notion implying that explanations of the successes of the Italian IDs went beyond mere economic variables. He considered factors such as culture, trust, self-help organizations, state involvement and even institutions like the church germane to any discussion of the Italian IDs.




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Although there is increasing interest in the ID model, there is still a need to sort out conceptual difficulties in standardising the definition of the ID model as well as the concepts used in discussing industrial districts so as to avoid confusion. Apart from conceptual difficulties, there are key principles of the Italian model that one can readily identify with. The first set of related dominant elements in the Italian IDs is that there are clusters of firms comprising mainly small and medium firms, which are within close geographical proximity and are sectorally specialised in a family of products – textiles, footwear, machine tools, and ceramics. The cluster also comprises firms providing raw materials, second hand machines, services and other essential inputs. A second element of the ID model is that of a strong and durable set of interfirm-relations (vertical/horizontal linkages, formal/informal) based on both market and non-market exchanges of goods, information and people. This is so because there is vertical disintegration at the firm level where certain processes of production are contracted out to ‘stage firms’ (Brusco 1990). Therefore it pays for economic agents to commit time, money, information, material and efforts toward the extension and consolidation of inter-firm relations. But at the same time, it goes without saying that the high degree of cooperation is equally matched by intense competition among firms in the clusters. Some positive results that derive from this ‘cooperative-competition’ include an impetus for continuous product (designs) innovation via user-producer interactions; upgrading of machinery, tools and worker skills (flexibility); reorganization of the production processes (cellular layout) and a propensity to capture new markets. All these factors have acted to propel the Italian IDs toward the ‘high road’ path of competition. Clustering resulting in vertical and horizontal links between the clusters of firms also facilitate a crucial factor, not easily enjoyed by dispersed firms, that of the diffusion of know-how and skills leading to a reduction in technological discontinuities/gaps (Spath 1992). And in the Italian context, the availability of a skilled, often multi-skilled, and flexible labour force is a key component for a competitive strategy based on flexibility and innovation. Providing the basis for the above scenario of inter-firm relations based on trust is a third element – the social milieu/social embeddedness. In the Italian clusters, there is a complex and tangled web of economic, social and cultural ties thickened over a period of 35 years that permeates and binds firms together. This is based on a common culture, similar past experience, kinship, and ideology. Over time codified norms and values (dos and don’ts) emerge and are learnt by new entrants via socialization agents including firms, people in formal and informal groups; and societal institutions such as municipal governments, labour, and religious institutions. The social milieu promotes trust and discourages malfeasance by increasing the ‘exit cost’ via, for instance, social sanctions namely shame and a loss of business reputation. A more recent concept that attempts to encapsulate terms such as trust, norms, social milieu, and networks is that of ‘social capital’. Coleman (1990) is credited with introducing the




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concept into mainstream social science. Other recent works include Putnam (1993) and Bazan and Schmitz (1997). The main thrust of social capital, according to Coleman (1990: 304) is that:

Just as physical capital is created by making changes in materials so as to form tools that facilitate production, human capital is created by changing persons so as to give them skills and capabilities that make them able to act in new ways. Social capital in turn is created when relations among people change in ways that facilitate action.

Outside of the Third Italy, social embeddedness has long been a subject matter of an extensive debate in business sociology (Granovetter 1985). While ‘trust or trustworthiness’ (Chinese Xiyong) per se is an age-old sacred concept and is at the core of Chinese non-contractual business relations and social structure, a subject which has recently attracted wide attention (see for instance Menkhoff 1992). Chinese merchants rarely use written contracts in daily business because they have strong, guild-type or province-related ties (called bang) (Kagami 1995: 26). If one violates a spoken promise, he or she will be ostracised from society. Thus, transaction costs in Chinese business traditions are negligible due to severe sanctions costs. In fact, relations of trust are bound to emerge from any stable social situation since the preference is to transact with individuals of known reputation. A final element of the ID model is the role of the state and sectoral associations in supporting the economic actors. In the Italian model, the municipal governments are active in supporting the cause of small firms by providing collective services as well as ensuring that the legal and regulatory framework is conducive to their growth. Self-help organizations also act to promote exports, hold trade fairs and exhibitions, conduct sales missions to foreign markets, lobby different levels of governments, conduct market research and training, and assist in credit provision (Best 1990). Whilst flagging the importance of institutions, one must not convey the impression that the IDs can easily be created by institutional intervention elsewhere. In the Third Italy experience, institutions only began to play a more meaningful role in the so-called Mark II period of the development trajectory of the firms (i.e. in the 1980s). This is the period where external intervention was necessary as new technologies and market developments in the 1980s posed grave problems for both small and large firms (Brusco 1990). Whereas in the Mark I period (i.e. up to the 1970s) small firms more or less grew as a result of individual efforts. The foregoing elements of the ID model enable small firms to reap the benefits of collective efficiency, and economies of scale and scope3, the latter two being benefits previously confined to large firms. At the same time, they have also led to a relative minimization of transaction and production costs. As well as making information cheap and accessible, 3 Economies of scope, is present when the cost of manufacturing two products jointly is less than the cost of producing them separately. It also arises when there is sharing or joint utilization of inputs. So the cost of efficiency is brought about by a ‘variety’ and not by ‘volume’ (as in economies of scale).




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benefits also accrue when in the settlement of disputes that do arise, the use of lawyers and accountants are a rare practice—hence the use of the phrase “transaction regime” (Knorringa and Cox 1992, cited in Nadvi and Schmitz 1993). The ID model offers important lessons for managing business networks or clustered networks in Oceania. These include clustering of firms within close geographic proximity, sectoral specialization in a family of products, strong and durable set of interfirm relations (vertical/horizontal linkages, formal/informal) based on both social milieu/social embeddedness, and supportive role of the state and sectoral associations. Overall, at the heart of the ID framework are three salient points. These are:

• the importance of interaction among firms; • the point that growth dynamics of small-firm clusters are based on

internal/endogenous capabilities of the district; and • the need for a holistic analysis that incorporates the social, economic and political

dimensions that influences the way in which clusters of small firms organize, function and develop (Sengenberger et al., 1990).

Methodology The research paradigm used in this study is that of interpretivism and more specifically phenomenology posited by Max Weber and Edmund Husserl respectively (Giddens 1979; Husserl 1999; Stewart and Mickunas 1974). At the research level, the case study method propounded by Yin (1989, 1994) using in-depth interviews, surveys, focus groups and secondary data analysis (completed studies by other researchers through within-case and cross-case analyses) will be employed. The four key elements identified in the Italian IDs serve as parameters for the testing the stated working hypothesis. This will be showcased against the Crocodile skin clusters in Middle Fly area, Western Province; and Malahang Industrial Centre in Morobe Province and the Artisanal Fisheries Clusters on Fisherman Island, Central Province. With each case study the four key elements of enquiry will be compared and these are cross-compared to see which sectors in PNG are amenable to clustering/business working strategy to be promoted. Specification of key elements of enquiry (hereafter K) In order to ascertain how the Marshallian ideas on industrial clusters work in PNG, several key research questions and its associated four key elements of enquiry are tentatively proposed and examined. The study therefore aims to examine the character and nature of the four key elements of the IDs to test the external economies (passive and unplanned) and joint action (active and planned). Here the key research questions asked are provided and the variables are highlighted. This will form the basis of interpretation and making relative predictions on how strategic clustering can be promoted and enhanced for not only PNG but its findings will have policy implications, too, for the Oceania region as well.




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Key research question What products/services are these clusters dealing with? Do these clusters also comprise firms providing raw materials, second-hand tools; services and other essential inputs? K1 K1 denotes close geographic proximity and are sectorally organised in a family of products. Key research questions What is the nature of inter-firm relation with respect to vertical/horizontal linkages, formal/informal linkages –the modus operandi prescribing the dos and don’ts? What are these inter-firm relations based on considering non-market and market exchanges of goods, information and people (transfers, transactions etc)? K2 K2 denotes be strong and durable set of inter-firm relations: e.g. based on market and non-market exchanges. Key research question Are the clusters based on common culture, similar past experience, kinship and ideology? How are rewards and sanctions provided to those participating in the clusters? K3 K3 denotes the social milieu / social embeddedness based on common culture, similar past experience, kinship and ideology. Key research questions Is the legal and regulatory framework in the industry conducive to a particular cluster’s growth? What is the level of support from self-help organization in regard to the following important matters: (1) export promotion, (2) holding trade fairs and exhibitions, (3) conduct sales missions to foreign markets, (4) lobby different levels of governments, (5) conduct market research and training, and (6) assist in credit provision?




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K4 K4 denotes role of the State and sectoral associations in supporting economic actors: e.g. based on market-friendly policies and strategies with social and economic inclusion activities. Description of Data Collection Case Study on Crocodile Skins Clusters in Middle Fly area – Western Province Two methods were employed here. Firstly, in-dept interviews were conducted between October and December 2006 in Port Moresby between an official from the Department of Environment & Conservation (DEC); a Port Moresby-based crocodile skins exporting firm and some hunters who flew into Port Moresby during the period in question. Secondly, a focus group of interviewing 10 village-based buyers and 2 local businessmen who buy from the hunters was undertaken from 18-20 May 2007 in Kiunga, Western Province. The village-based buyers had travelled almost a day by outboard powered outrigger canoe to meet with the researcher in Kiunga for the interviews then. Case study on Malahang Industrial Centre (MIC) – Morobe Province Survey method was employed by the Uni Consulting Group, of which the research group used this as a secondary data source for its case study analysis on MIC. UCG used a questionnaire to collect data from the MIC tenants in 2006. There were 27 MIC respondents and the data collection method can best be described as a ‘perception survey’, as it covered perceptions of MIC tenants in regards to how they conducted business there. Case Study on Artisanal Fisheries Clusters on Fisherman Island – Central Province A total of 22 fishermen from Fishermen Island were interviewed with an average age of 32 years old and this case study attempted to examine how fishermen networks are sustained over a period of time. The Fishermen Island is a five minute dinghy ride from Port Moresby. The interviews were conducted over a two-week period in January 2008 to complement the other two case studies as presented earlier. Results and Discussion Case Study on Crocodile Skin Clusters in Middle Fly Area, Western Province For the case study on crocodile skin clusters in Middle Fly area, data was collected via in-dept interviews with DEC official, three hunters and a crocodile skin exporting firm in Port Moresby between October and December 2006. From 18 to 20 May 2007 a field survey was undertaken, which employed a focus group of ten crocodile skins local village-based buyers and two local buyers in Kiunga, and this was aimed at realigning and verifying the validity




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and reliability of information collected in 2006. The group of hunters traveled up the river to meet with a member of this research team back then. Middle Fly area is mentioned here as it is the political boundary that is used to identify five villages. They are: Obo, Kasa, Levame, Kavenanga and Komovai, all within close geographic proximity. These villages are administratively located in Lake Murray Local Level Government area and its political boundaries are within the Middle Fly electorate of Western Province. The province is blessed with natural flora and fauna, of which the case study is focused on the crocodile skin trade in the Middle Fly area. To analyze the case study with the four variables, the results and discussion are presented in three sections: (a) how do the crocodile skin “clusters” work in Middle Fly area? (b) Inter- and intra- Firm relationships and (c) information and resource sharing within the chain of buying and selling. How do the crocodile skin “clusters” work in Middle Fly Area? The crocodile skin clusters operate within a tight-knit group of people: Port Moresby buyer (usually has the trade exporters’ license); the local buyer (a local businessman who has a traders license to buy) and the local hunters/buyers, who mainly use the crocodile meat for food and the skin for selling to earn extra sources of income. The third group is an interesting set up as the local hunter sometimes buys from other hunters and retails it to the local businessman, who then retails it to the Port Moresby Buyer/exporter. The same then exports the skins to Japan. During the peak dry seasons, the Port Moresby buyer/exporter travels to these areas to purchase the skins and returns via the same route. In order to purchase crocodile skins, the local hunters/buyers apply for traders’ license and require recommendation letter and endorsement from the Lake Murray LLG to the PNG Ministry of Environment and Conservation. The latter then charges license fees of forty-five Kina (K45-00). It is a highly organized, sustainable and regulated industry; however, it has its fair share of problems as will be dealt with later in the discussion. Inter- and intra- firm Relationships It should be observed that there is an existing business culture built over a long period of time amongst those actively involved in crocodile skins trade. There are at least four established crocodile skins exporting firms in PNG as shown below in Table 1. They are: Northern Trading Pty Ltd; Mainland Holding Ltd (who enjoys a comfortable 60% share in the market and is the only commercial crocodile farm operating in Morobe Province); Pacific International Pty Ltd (Japanese-owned Company) and Bush Development Pty Ltd. The four firms have their middlemen buyers (local businessman) who are strategically located in different parts of the country, especially there is an organized buying undertaken in the Western Province in Kiunga, Balimo, Obo, Lake Murray, Nomad, Bosep, and Daru. The other three exporting firms buy their crocodile skins harvested from the wild, whilst only Mainland Holdings Ltd has a commercial facility and employs mainly women to do the extraction of skins, using latest technology within the perimeters of the farm. Northern Trading Pty Ltd, Mainland Holdings Ltd and Bush Development Pty Ltd, all export their crocodile skins to Horiuchi Trading Company (HTC) in Tokyo, whilst Pacific International




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Pty Ltd exports crocodile skins to either Inoue or Stock Kojima (both based in Tokyo, Japan). Table 1 Showing Inter-Firm Relationships and relative market share (%)

Resident PNG Exporting Firms

Share of the market (%)

Location of Harvesting

Importers (Japan)

Mainland Holdings Ltd 60 Farmed HTC Bush Development Pty Ltd 20 Wildlife HTC Northern Trading Pty Ltd 15 Wildlife HTC Pacific International Pty Ltd 5.0 Wildlife Stock Kojima/Inoue

Source: Solicited from Interview (2006 and 2007). HTC apparently is the price-giver and sets price according to world market conditions and the exporting firms set their own prices for either the saltwater belly or freshwater belly and these are graded, first, second and third according to size and quality of the skin. Saltwater belly fetches high incomes compared to the freshwater belly. In this particular instance, passive gains of the clustering accrue to HTC by virtue of its location in the cluster, while active gains accrue to PNG-based exporting firms and their middlemen buyers as a result of joint-action. With the fall in Kina value, exporting firms have been comparatively reaping the benefits of high export earnings denominated in US dollars. HTC has been doing business with some of these PNG-based firms for the last twenty-five (25) years and this typifies social-embeddedness that has thickened over a long period of time (cf. Granoevetter 1985). According to an in-depth interview with a Port Moresby buyer/exporter in October 2006 and later in April 2007, he has been purchasing skins since 2004 in the Middle Fly area. Table 2 below shows how he has organized his business networks with locals in the areas mentioned over a four-year-period. Table 2 Showing Clustering trends from 2004 – 2007

Village

River system 2004 2005 2006 2007

Obo Fly River 8 5 3 2 Kasa Strickland River 19 8 6 3 Levame Strickland River 3 3 3 1 Kavenanga Fly River 7 5 4 2 Komovai Fly River 2 1 1 0

Source: Solicited from Interview (2006 and 2007). Table 2 typically illustrates continuous/conscious learning, let alone a socialization process that attempted to thicken business relationships over a four-year-period. The results make an inference that social embeddedness as a principle of ID concept and assessed as a variable in this case study can be usefully analyzed and explained. It can be further explained that in the intervening years (2004 through 2007), mistrust, leading naturally to misuse of logistics (resource sharing between Port Moresby buyer and Local hunter/buyers) constrained the




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ability of the network to ‘cooperate’/‘compete’ with others in similar clusters. It was established during the interview that fuel (zoom for outboard motor) meant for the group (a cluster of local crocodile skin buyers) was used by some local buyers within the cluster, who then sold their crocodile skins to another buyer in Port Moresby. It was established that instead of selling the crocodile skins to the Port Moresby buyer, who in good faith, provided the fuel in the first place so as to facilitate effective river transportation between villages along Lake Murray and Strickland River to buy directly from village-based hunters. The moral hazard problem here is that the other exporting firm in the city provided no resource inputs but passively gains through external economies created by this malfeasance. The reward for these hunters was immediate exclusion (socially ostracized) from the cluster group (cf. Menkoff 1992; Kagami 1995). According to the interview, it was very frustrating, as economic resources explained by the Port Moresby buyer did not reap the benefits that it was initially intended. This partly explains, for instance, the situation in Kasa village, of which the Port Moresby buyer had 19 locally recruited hunters’ group in 2004, which fell to 8 in 2005 and by 2007 the number was further reduced to only 3. In clusters there are always ‘exit’ and ‘entry’ points that either thicken or dismantle based mainly on social reasons. Mistrust appears to hinder the progress of sustaining business relationships in this particular case of crocodile skins buying and selling (op. cit. Granoevetter 1985). Information and Resource Sharing within the chain of buying and selling Information-sharing via telephone calls or by radioing to inform Port Moresby buyer of the need to do direct purchasing in the Middle Fly area appears to be more rewarding; however, the actual buying is sometimes constrained by flight cancellation on the part of Airlines PNG Ltd. A ‘one-off’ opportunity is presented wherein illegal (non-licensed) buyers lure hunters to sell crocodile skins to them during the time the Port Moresby buyer is unable to travel to Obo or nearby villages. According to the interview with the buying agent from Kiunga, he observed that “Western Province has a lot of crocodile skins; however, some unscrupulous people of Chinese origin, without crocodile skin traders license fly into Kiunga and Obo from Mt. Hagen or Lae to purchase skins”. To counter this act of illegal buying, the people themselves and the Lake Murray LLG have been imposing restrictions and reporting the matter directly to DEC authorities in Waigani. Those found involved in selling to illegal buyers have been heavily fined to deter them from practicing the art further. Here it is argued that the local people detest illegal buying and are forming a buffer and are indirectly implementing what DEC is promoting through the Convention on International Trade on Endangered Species (CITES) Act 1967. This piece of legislation prohibits unlicensed traders from purchasing crocodile skins and also sets the legally harvestable size (ranging from 18 to 51 cm) of crocodile skins to be purchased. Crocodile skins over and under that specified measures are not allowed to be exported, as with every export to be made by an exporting firm, a DEC official does an actual count of skins on site; goes through all measurements meticulously and puts either green tags for freshwater and red tags for saltwater skins and gives clearance for the export to be made thereafter. This formality effectively eliminates the




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need for exporting ‘over sized’ and ‘undersized’ crocodile skins and helps to protect and conserve the crocodile livestock in the country. Freight costs incurred from flying crocodile skins from Middle Fly area into Port Moresby are borne principally by the Port Moresby buyer who also organizes with the TNT Air Cargo for carriage to the firm’s warehouse. The airline industry and local freighting services industry all contribute to the value chain of the crocodile skins from its habitat right through to the export phase. This resource-sharing arrangement keeps the business network intact as the local hunters and local buyers are probably reluctant to fly their skins because of the high freight cost imposed by the airlines industry, let alone eases the technological difficulties created by communication links between Port Moresby and Middle Fly area (see for instance Spath 1992). From another perspective, it is a form of burden sharing through cooperation but at the same time makes competition amongst other hunters and buyers in the Middle Fly area more attractive. From Port Moresby, using the Laurabada Shipping services, bails of 50 kg bags of salt and diesel/oil drums (for zoom) are sent by ship. The local hunters are then provided with salt, batteries for torches and the required volume of zoom to go out into the wild for crocodile skins. Trust has been established and resource use is controlled, as it is lifeblood of participating in the industry. Financial rewards provide the main motivating factor in being in this business. For instance, the local buyer in Kiunga is sent at least Forty Thousand Kina (K40,000-00) per month via bank transfer to buy crocodile skins, whilst the Port Moresby buyer spends the same amount by travelling at least twice a month to the area to maintain and sustain buying of crocodile skins. A fifteen percent (15%) commission is paid to the local buyers, depending on the value of the purchases made within the Western Province. According to the focus group interview, each hunter earns on average K12,000-00 a month, depending on the number of skins collected and sold. Make it happen and earn is the main motivating drive for the local hunters who take considerable risks in hunting crocodiles and many have become adept at what they do for their livelihood and survival. It was also established from the focus group survey that hunters and local buyers have never benefited from provision of microfinance, albeit its popularity in Western Province via the PNG Sustainable Development Program, acting through its subsidiary –the Koki Microfinance Ltd. The money earned from quarterly allocation from Ok Tedi Tax Credit Scheme, let alone from the sale of crocodile skins hardly are saved, although some people have tried saving their money at the Kiunga Bank South Pacific. Provision of rural banking services, via microfinance is an indispensable rural development task as it is quite evident that savings cannot be made, as people generally tend to focus on consumption in the short term. Spend as you earn mentality cannot be sustained if the Ok Tedi mine shuts down in 2012 and this alludes to the probability that there is hardly any savings to complement extra sources of income to provide means to hunt and buy crocodile skins in the long run. This view supports the idea that cooperation in private markets in rural areas is an age-old practice that could be harnessed to regenerate regional development in poorer regions, of which co-production results in strengthening the industrial cluster (see Joshi & Moore 2002).




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Case Study on Malahang Industrial Centre in Lae In the perception survey of the Industrial Centres Development Corporation (herafter ICDC) review of Malahang Industrial Centre (hereafter MIC), the following findings emerged from the survey data of September 2006, of which the following are explained: (a) membership by MIC tenants to Lae Chamber of Commerce; (b) inter- and intra- linkages among MIC tenants; (c) information and resource sharing – the need for joint services; and (d) input market and transport. Findings According to UCG’s findings, only 12 percent of the respondents from the total 27 tenants from the MIC were from the manufacturing sub-sector with the majority (27 percent) being from the services sub-sector as service providers. 23 percent were retail-based, which was indicative of the fact that the incentive to be at MIC was merely for office space rather than for any incentive toward making any substantial contribution to the overall GDP. Another explanation provided was that the bulk of the tenants are not exporters (89 percent); only 11 percent are exporters. Majority of the tenants (71 percent) knew MIC through their business associates and this reveals a situation that marketing effort of ICDC in relation to MIC is negligible. The UCG (2006) argues that with this level of marketing effort manufacturers and exporters will not be able to make it into the MIC in the foreseeable future. Membership by MIC Tenants to Lae Chamber of Commerce The results indicate that only 11 percent are members of the established business associations such as the Chamber of Commerce or Manufacturers Council. The other 89 percent could possibly be having a weak link with industry boards and these relationships are merely tokenism. Industrial clusters elsewhere around the world are built around active membership of industry associations as there are clear benefits such as: information-sharing on trade fairs, technology and industry quality standard requirements and then over time inter- and intra linkages deepen (UGL 2006, citing Kavanamur 2006). The critical point made is that with membership vital information about resources and markets flow to the cluster. Firms need information on intermediaries and input suppliers to make their associational life at clusters more dynamic and beneficial over time. The need for strategic alignment of MIC within the realm of private sector is critical for partial industrialization process to be sustainable and a lot depends on linking up with bodies such as the Manufacturer’s Council or similar arrangements whereby all stakeholders, including the Government are represented and allocated what they need to achieve within their mandate (UCG 2006).




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Inter and Intra-firm Linkages among MIC Tenants Survey data reveals some degree of networking developing amongst tenants at MIC. It was observed that 79 percent of the tenants networked with each other in one way or another; however, it cannot be associated with sectoral-agglomeration principle or cluster-based industrialization as described by Alfred Marshall in the early gun powder cluster of Manchester in the UK (Marshall 1920), because the type of networking is rather social in nature. After further probing, it was observed that people are ‘indifferent’ in their attitudes towards networking. People networks constitute 26 percent followed by sharing of information (22 percent). Sharing of tools was nil and outsourcing was conspicuously put at 19 percent. The main reason for this ‘indifference’ can be attributed to high mobility of tenants, let alone the disparate nature of firms present within the MIC relationships. Therefore, we arrive at the conclusion that relationships will remain social in nature rather and will not be based on strong inter- and intra- firm linkages, which epitomizes IDs or such clusters worldwide. Information and Resource Sharing – the Need for Joint Services The views of the MIC tenants on the need for joint services to facilitate the livelihood of the cluster were expressed in the following manner: 59 percent did not express the need for joint services, owing to the ‘indifference’ as noted earlier and therefore it is unforeseeable for the development of a social milieu for the cluster. Issues such as marketing, transport, saving costs as joint service scored very low, confirming majority of the firms in this category (15 percent of the tenants at MIC were operating as stand-alone entities with little linkages to one and another, both horizontally and vertically. This trend is not surprising as it is consistent with the earlier proposition that generalized clusters develop differently from sectoral-based clusters (UCG 2006: 95). Input market and transport Lae is an ideal industrial site and this provides an advantageous position to MIC tenants to access a variety of input from the broader environment. The survey data shows that 59 percent of the respondents indicated that they have a good inputs market outside of the MIC while 41 percent indicated otherwise. More specialized firms could not access key supplies from Lae while majority of the firms could access key supplies from Lae. UCG (2006: 96) notes two possible interpretations from the data provided. Firstly, Lae already has a good inputs market and MIC might not be a host, as it would imply duplication. Secondly, the need for critical mass of certain type of industry is indispensable because of the need for economies of scale and this can only motivate input providers to relocate to MIC from within the country or even from overseas. From the perspective of transport and infrastructure, 59 percent lamented the state of the roads in the province implying that whilst other types of infrastructure may be present, the bad state of the road was a critical factor and affected operations, leading to serious decline in profits as vehicle maintenance costs was eating into the profits. For instance, the road




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system in Lae, let alone the Okuk (Highlands) Highway’s bad condition resulted in late delivery or even worse non-delivery of goods, thereby contributing to loss in revenue. Meanwhile back in the warehouse, inventories are stockpiling and it sets a chain reaction in motion of non-sale of goods to the customer right through the producer. The end result is tying up of much needed working capital required for further production. Industrial planners need to strategically align this type of distribution channel analyses and costing so as to appreciate the actual needs and effective delivery of goods and services to the end users (ibid: 97). Case Study on Artisanal Fisheries Clusters on Fisherman Island – Central Province The Fisherman Island is a five minute dinghy ride from Port Moresby. The Island was originally settled by fishermen from predominantly the Hula village who used it as a stopover point for deep sea fishing. The inhabitants rely heavily on fishing as their main source of income and have been the main providers of fresh fish to the local markets in Port Moresby. The average number of persons living in the same household was about seven persons. Sixty-eight percent were married, whilst 32 percent were singles with an educational level ranging from primary education to college/university. The people of Fisherman Island have a fairly reasonable level of education with thirty-two percent of the sample population claimed to have completed Grade Ten and eighteen percent have a college/university education as can be observed in Table 3 below. Table 3 Educational level

Educational Level

No. %

College, UNI 4 18 Grade 10 7 32 Grade 9 1 5 Grade 8 1 5 Grade 7 2 9 Grade 6 3 14 Grade 4 1 5 Vocational 2 9 Unknown 1 5

22 100 Fishing As can be judged from Table 4 below, the majority of the fishermen go fishing 6 days a week and the allocated time for the fishing trips vary among fishermen. Some go fishing during the morning part of the day, whilst others go fishing during the evening part of the day. There are still others who opt to go out fishing at night. Meanwhile, it would appear that the weekends are left to marketing or attending to social activities such as church fellowships for spiritual growth and development. This fishing community lives and sustains its livelihood from selling for other necessities, whilst concurrently having fish meals on a somewhat daily




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basis. Therefore fishing captures the essence of a human activity system, of which the inhabitants of Fisherman Island are culturally and materially bound for reproducing their own unique social order in a typical fishing community. Table 4 Fishing Days per week

No. % 5 days fishing 3 14 6 days fishing 16 73 7 days fishing 2 9 Weekends 1 5 22 100

Table 5 Time of fishing No. % Night time fishing 1 5 morning time fishing 1 5 day & night fishing 20 91 22 100

The most common practice is fishing during the day as well as night and often in groups. Individuals rarely go fishing alone perhaps due to safety reasons at sea. To do fishing is considered a laborious activity that is defined by a whole range of activities from operating the motor right through catching fish and storage before heading back to shore for marketing and distribution thereafter. This therefore requires concerted efforts and that fishermen in groups stand a good chance of lightening their workload and enhance productivity as opposed to working alone. Fishing in groups also facilitates communication networks amongst fishermen and more importantly keeps one from falling asleep and enhances teamwork coordination and cooperation for mutual benefits. Table 6 Fishing in groups, individually or both No. % In group 15 68 Individually 2 9 Both 5 23 22 100

The survey reveals as per Tables 7 and 8 that fishers relate to one another well and their level of trust ranges from satisfactory to very good. About 45 percent of fishers interviewed rated their level of trust among fellow fishers as very good. A part of the explanation is that most of the inhabitants are related to one another through kinship ties. Keeping mutual social relations and societal harmony among members of the family is indispensable for one’s safety, survival and there are immense benefits that flow onto to the household. This partly explains why the families as social groups operate in close-knit manner.




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Table 7 Social relations among fishers No. % satisfactory 7 32 good 2 9 very good 12 55 unknown 1 5 22 100

Table 8 Level of trust among fishers No. % satisfactory 8 36 good 3 14 very good 10 45 unknown 1 5 22 100

Fishing methods Fishers from Fisherman Island use fishing methods such as diving and spearing, casting or setting nets, hand lining and trawling. The methods are dependent on seasonal winds (different weather patterns), type/species of fish to be caught and perhaps it reflects on the social make up of how the fishing is done either individually or in groups. Marketing About 77 percent of the fishers bring their catch to Koki market, whilst the 23 percent sell their fish in other markets throughout the city. Fish is often stored in coolers such as eskies either sold as individual fish or in a bundle. A common practice is to bundle smaller fish and sell bigger fish individually. The survey showed that social relationship between fishers and fish buyers is generally good or very good. Meanwhile the level of trust between fishers and fish buyers is seen as satisfactory, good or very good. Financial Information Fish that fetch more income include tuna, red emperor and reef fishes. Many fishers sell mix species such as snappers, long toms and travellies. There are variances in average incomes




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and average expenses per fisher. A more accurate way to interpret the situation is to use the weekly average incomes and expenses per fisher. One can obviously interpret from survey data that if the monthly average income is less than monthly average expenses, it would be unthinkable to do fishing as a fisher is making a loss. On the whole, the income flow and its accompanying expenses can be attributed to several other factors like the weather changes, health of fishermen, availability of logistical support such as zoom (one part oil and four parts petrol. Table 9 Average Income/fisher

Incomes Amount (PNGKina) Weekly income 408 Monthly income 875

Table 10 Average Expenses/fisher

Expenses Amount (PNGKina) Weekly expense 323 Monthly expense 888

Key expense items include petrol, food, water, ice and repayment of loans. About 14 percent of the fishers borrow to finance their fishing activities. Fishers borrow either from PNG microfinance or other sources. The National Fisheries Authority The National Fisheries Authority is the body that overseas the Fisheries sector, however, according to those interviewed, there has been no extension work undertaken by fisheries officers from the National Fisheries Authority on Fisherman Island (in the recent past). The Fishermen indicated that they have received very little direct information about the fisheries sector. What can be gleaned from the Fisheries Survey? The following concluding points will greatly assist and improve the fisher’s current state of affairs:

o Better transportation is required to transport fish from point of catch to selling point;

o Better cool storage facilities and systems at market locations around the city for fish preservation and quality;

o Better and easy access to credit facilities (to assist in equipment repair, replacement of equipment, rising fuel prices etc); and

o Better information on fish markets and support from National Fisheries Authority o Better security for sellers.




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What can be gleaned from the three case studies? Triangulation approach To better appreciate and understand the situational trends of industrial development in PNG with special reference being made to clusters as a pathway for business development and growth, we use the triangulation approach to compare and contrast the three case studies. The four key elements of clusters (industrial district models) are judged against the case studies in Table 11 and in Table 12 the explanation and predictions are provided, of which some policy implications can be made. Table 11 Showing Cross-Case Analysis of the three Case Studies

Key element (K)

Case Study (A) Case Study (B) Case Study (C)

K1 – Product Specialization

Crocodile skins of two types: Saltwater belly & freshwater belly

Various types of firms with various products

Fish of various species

K2 – Vertical/ Horizontal Integration

Information & resource flows are considered optimal.

Lack of these elements and this is closely related to K3

Information & resource flows are not as free-flowing owing to differences and lack of capacity to be more innovative.

K3 – Social embeddedness

Thickening of relationship over a period of time 4-25 years for both social & economic reasons

Only social in nature owing to occupancy and security reasons. Temporary stay, resulting in indifference amongst MIC tenants.

There is evidence of close family kinship ties but how close they relate to other fishermen, is open to question.

K4 – Sectoral Association

CITES Act (1967), License is closely monitored and supervised by DEC and LLG

Membership to Lae CoC is limited. Hunters form their groups to deal with local buyer & Pom buyer in an informal setting. This needs to be regulated to maintain cohesiveness and dynamism of the cluster.

National Fisheries Authority has to do more to establish a better dialogue with fishermen in order to make the sector more market effective and efficient. Regular visits and business advice from NFA might lead to a better fishing village community that will one day manage its fish resources in a sustainable manner.

Sources: Collated from results and discussion as per (2006) and (2007); MIC perception survey of 2006 and Fisheries Survey Jan 2008.




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Notes: Let case study (A) be Crocodile Skins clusters in Middle Fly area, Western Province Let case study (B) be Malahang Industrial Centre in Lae, Morobe Province. Let case study (C) be Fisheries Clusters, Fisherman Island, Central Province. CoC refers to Chamber of Commerce. Table 12 Showing what works, what doesn’t and why

Key element (K)

Explanation and Prediction

K1 – Product Specialization

A is more specialised whilst B’s is within a number of sub sectors but has the potential to form clusters in future if marketing-based incentives are provided. C is also more specialised and with appropriate level of support from authorities such as NFA and access to credit facilities such as microfinance/microcredit, will develop into a thriving fisheries industry.

K2 – Vertical/ Horizontal Integration

A is more clearly visible with respect to exchange of market and non-market goods, which cuts costs and results in joint action benefits and economies of scale, determined by virtue of location within the cluster. B because of high mobility of MIC tenants, indifference is constant companion and prevents cluster formation.

K3 – Social embeddedness

A’s cluster has thickened varying between 4-25 years and is more of market-driven incentive as opposed to social affiliation. B is more social in nature and less on market exchanges due to the same reasons provided in K2 above. Win-win situation is maintained and sustained, whilst no-win situation is rewarded with exclusion. There are different reasons for entry and exit points for economic and social actors within the cluster. C is more based on kinship ties and it is quite solid because of the mutual support and benefits considerations.

K4 – Sectoral Association

Sectoral association and role of the state are key ingredients that need to make the clusters work for mutual gains, taking into serious consideration the issues of economies of scale, scope and specialization. This demands change in managerial style, approach and establishment of institution to facilitate mutual exchanges within clusters. There is also a concern to market these activities so as to lobby for support, microfinance provision and even training for participants to be effective in their area of engagement within the cluster. A is more regulated by DEC, whilst B receives very support from Chamber of Commerce, whilst C’s situation is plagued by lack of advisory support from National Fisheries Authority (NFA).

Sources: Collated from results and discussion as per (2006) and (2007); MIC perception survey of 2006 and Fisheries Survey Jan 2008. Notes: Let case study (A) be Crocodile Skins clusters in Middle Fly area, Western Province Let case study (B) be Malahang Industrial Centre in Lae, Morobe Province. Let case study (C) be Fisheries Clusters, Fisherman Island, Central Province. CoC refers to Chamber of Commerce.




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Further research and policy implications for clustering in Oceania Highlighting some of the literature reviewed, and based on the results of the three case studies, a comparative discussion broadly put forward, will be made and we would also draw likely policy implications and avenues for further investigative research on specific themes that were not covered in this study. At the regional level, if regionalization has to take place clustering must be considered as a proven strategy where resources can be pooled to overcome the region’s inherent problem of economies of scale. The practice of ‘doing-it-alone’ should be re-evaluated in preference for increased regional cooperation in production and service provision. The ID model offers important lessons for managing business networks elsewhere. These include clustering of firms within close proximity, sectoral specialization in a family of products, strong and durable set of interfirm relations (vertical/horizontal linkages, formal/informal) based on both social milieu/social embeddedness, and supportive role of the state and sectoral associations (see Kavanamur 2006). Any policy response to the identified bottlenecks to regional development should place emphasis on providing avenues for cooperative efforts in the area of joint marketing/accounting services, logistics and microfinance provision in order to allow for the thickening of inter-relationships amongst relatively standalone producers. The benefits of this can only be realized in the presence of an active sectoral association that provides direction and leadership for marketing and co-production (op.cit Josh and Moore 2002). The role of state in harnessing regional cooperation, leading to development of SMEs, is arguably an extremely important function of existing decision structures and multilateral trade arrangements. Governments in PICs need to examine the issues of external economies of scale, scope and specialization in their specific contexts and provide the enabling environment for clusters to mature and develop into viable and sustainable business ventures within the region. Therefore further research is needed in the areas of ecotourism, small-scale fisheries and agro-based industries and this would hopefully provide the basis for clustering policy formulation and implementation in Oceania. Conclusion The ID model offers important lessons for managing business networks elsewhere. These include clustering of firms within close proximity, sectoral specialization in a family of products, strong and durable set of interfirm relations (vertical/horizontal linkages, formal/informal) based on both social milieu/social embeddedness, and supportive role of the state and sectoral associations. Clustering has to be seriously looked into by researchers in Oceania, taking into considering the four key elements of enquiry identified and measured




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in the study. Lessons from the Australian experience could be gleaned and studied more closely taking into account their environmental contexts. These experiences could then be juxtaposed with the lessons from Africa such as those from Kumasi in Ghana and South Asia, particularly that of Sialkot in Pakistan, for adoption in Oceania. With sufficient research funding being directed at clustering from research networks such as the Oceania Development Network (ODN) and its parent research organization, the Global Development Network (GDN), it is argued that our collective understanding can be further enhanced resulting in immense improvements to Oceanian competitiveness and livelihoods. Acknowledgements The research team acknowledges the generous research funding support from Oceania Development Network (ODN), without which this study would not have been possible. Any errors of commission and omission remain the exclusive responsibility of the authors. References Bazan, L. and Schmitz, H., 1997, ‘Social capital and export growth: an industrial community in Southern Brazil’, IDS Discussion Paper 361, IDS, University of Sussex, Brighton. Becattini, G., 1989, ‘Sectors and/or districts: some remarks on the conceptual foundations of industrial economies’ in E. Goodman and Bamford (eds.), Small firms and industrial districts in Italy, Routledge, London, pp.123-35. Becattini, G., 1990, ‘The Marshallian industrial district as a socio-economic notion’, Industrial districts and inter-firm cooperation in Italy, International Institute for Labour studies, Geneva, pp.37-51. Bellandi, M., 1989, ‘The industrial district in Marshall’, in Goodman et al. (eds.), Small firms and industrial districts in Italy, Routledge, London, pp.136-52. Best, M.H., 1990, The new competition: institutions of industrial restructuring, Polity Press, Cambridge. Brusco, S., 1990, ‘The idea of industrial district: its genesis’, in F. Pyke, G. Becattini, and W. Sengenberger (eds.), Industrial districts and inter-firm co-operation in Italy, ILO, International Institute for Labour Studies, Geneva, pp.10-19. Buttery, A., 1992, The potential for networking of small firms in Queensland, DBIRD, Brisbane. Buttery, E. and Buttery, A., 1994, Business networks, Longman Business, Melbourne. Buttery, E. and Buttery, A., 1995, The dynamics of the network situation, AusIndustry, Canberra. Coleman, J.S., 1990, Foundations of social theory, Harvard University Press, Cambridge.




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Dean, J., Holmes, S. and Smith, S., 1997, ‘Understanding business networks: evidence from the manufacturing and service sectors in Australia’, Journal of Small Business Management, 35(1): 78-84. Granoevetter, M., 1985, ‘Economic action and social structure: the problem of embeddedness’, American Journal of Sociology, 91 (3): 481-510. Joshi, A. and Moore, M., 2002, Organisations that reach the poor: why co-production matters, IDS, University of Sussex, Brighton. Kagami, M., 1995, ‘Strategies for competitiveness in production - an East Asian approach’, Small Enterprise Development, 6 (1): 24-34. Kavanamur, D., 2006, ‘Clustering: A Research Agenda for regional development in Oceania’, Development Bulletin, 70: 24-8. Development Studies Network, RSAPS, ANU. Kavanamur, D. and Toledo, C., 1993, The industrial district model (ID) and small firms in the Sinos Valley of Rio Grande do Sul, Brazil: assumptions and reality, IDS, University of Sussex, Brighton. Marshall, A., 1920, Principles of economics, 8th ed., Macmillan, London. Menkhoff, T., 1992, ‘Xinyong or how to trust trust? Chinese non-contractual business relations and social structure: the Singapore case’, Internationales Asienforum, 23 (3-4): 261-288. Nadvi, K., 1997, ‘The cutting edge: collective efficiency and international competitiveness in Pakistan’, IDS Discussion Paper 360, IDS, University of Sussex, Brighton. Nadvi, K. and Schmitz H., 1993, ‘Industrial clusters in less Developed Countries: review of experiences and research agenda’, IDS Discussion Paper 339, IDS, University of Sussex, Brighton. Piore, M. J. and Sabel, C.F., 1984, The second industrial divide: possibilities for prosperity, Basic Books, New York. Porter, M., 1990, Competitive advantage of nations, Macmillan Press, London. Prideaux, B., 2005, ‘Using scenario analysis to identify the potential for attracting backpackers to Papua New Guinea’, forthcoming. Putnam, R.D., 1993, Making democracy work: civic traditions in modern Italy, Princeton University Press, Princeton. Schmitz, H., 1990, ‘Small firms and flexible specialisation in developing countries’, Labour and Society, 15(3).




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Schmitz, H., 1992, ‘On the clustering of small firms’, IDS Bulletin, 23 (3), IDS, Sussex University, Brighton. Schmitz, H., 1997, ‘Collective efficiency and increasing returns’, Working Paper 50, IDS, Sussex University, Brighton. Sengenberger, W., Loveman, G.W. and Piore, M.J., (eds.), 1990, The re-emergence of small enterprises: industrial restructuring in industrialized countries, International Institute for Labour Studies, Geneva. Spath, B., 1992, ‘The institutional environment and communities of small firms’, IDS Bulletin, 23 (3), IDS, Sussex University, Brighton. Uni Group Consulting, 2006, ‘Industrial Centres Development Corporation Review – Final Report’. Chapter 6: End-User Perceptions – Malahang and the Implications on the ICDP 86-102.

Documents

CLUSTERING: AN INNOVATIVE STRATEGY FOR REGIONAL DEVELOPMENT IN OCEANIA