SME CLUSTER AND NETWORK DEVELOPMENTIN DEVELOPING COUNTRIES:THE EXPERIENCE OF UNlDO

Giovanna Ceglie and Marco Dini

Prof. Alessandro Arrighetti

Bizzarri FabioElian OmarMazzoni Lorenzo

A.Y. 2013/2014

The United Nations Industrial Development Organization (UNIDO), is a specialized agency in the United Nations system, headquartered in Vienna, Austria. The Organization's primary objective is the promotion and acceleration of industrial development in developing countries and countries with economies in transition and the promotion of international industrial cooperation.

The Experience of UNIDO

The paper describes the background and experience of the UNIDO technical assistance programme for SME networking.

This programme is emphasizes:

- on the Promotion of efficient Systems of Relations (between enterprises and between enterprises and institutions) which allow enterprises to overcome their isolation and common problems due to SIZE, - on the Development of Local Institutions to act as facilitators of the networking process.

SMEs can play a key role in developing countries. However, this potential role is often not fulfilled because of a particular set of problems related to their SIZE. In particular: - Achieving economies of scale in the purchase,- Internalization of Functions- Introduction of innovative improvements to their products and processes

Individually, SMEs are often unable to capture market opportunities which require large production quantities, homogenous standards, and regular supply.

SME in Developing Countries

SME & Cooperation

• Horizontal Cooperation with other SMEs occupying the same position in the value chain.

‘enterprises can collectively achieve scale economies beyond the reach individual small firms and can obtain bulk-purchase inputs, achieve optimal scale in the use of machinery and pool together their production capacities to satisfy large-scale orders’ (Pyke, 1992).

• Vertical cooperation with other SMEs as well as with large-scale enterprises along the value chain).

‘enterprises can specialize on their core business and give way to an external division of labour’ (Marshall 1990)

‘Inter-firm cooperation also gives rise to a collective learning space’ (Best, 1998)

MAIN CONCEPTS. DEFINITIONS• Network refers to a group of firms that cooperate on a joint

development project complementing each other and specializing in order to overcome common problems, achieve collective efficiency and conquer markets beyond their individual reach.

• Cluster is used to indicate a sectoral and geographical concentration of enterprises which produce and sell a range of related or complementary, with common challenges and opportunities.

• Networking refers to the overall action of establishing the relationships characterizing both networks and clusters.

Source: Pittaway et al. 2004

CASES

HONDURAS

1993 – Honduran government requested UNIDO a technical cooperation project for SME sector focused on the enterprise level.The project consisted initially in two phases:1) identification of groups of enterprises with similar characteristics and weekly joint discussions to support the group of enterpreteneurs in analyzing problems and solutions.2) Creation of a work plan that suggested a division of tasks among members and the set up of a common fund to finance common activities.

RESULTSAfter 5 years:33 NETWORKS ESTABLISHED involving 300 enterprisesSales increased between 35% and 200%Employment increased between 11% and 50%Investment in fixed assets increased between 10% and 100%

How to increase the impact of the project:• Training of network brokers to

diffuse networks• Draft a methodology to facilitate

the transfer of knowledge• Integration of vertical networks

and the development of clusters

How to guarantee the sustainability: Process of project “privatization” with the creation of a foundation

NICARAGUA• 1995 – PAMIC (Programa Nacional de Apoyo a

la Micro Empresa) started the networking project with the establishment of 20 horizontal networks by a team of seven national consultants

The public sector counterpart has had three distinct consequences:• An easier entry into local policy dialogue and

formulation• The project had a prominent role in inter-

institutional coordination• A clear prospect of sustainability

The second part of the project contains other three important points:

• Establishment of a inter-institutional committee and a more important role of the project in the National Committee for Competitiveness and Sustainable Development.• Increase the local capacity building.• Diversification of activities to include

horizontal networks and the promotion of industrial districts.

MEXICO1997 – Mexican Confederation of Industrial Chambers launched the “Programme of Industrial Integration” (PII).The PII aim is to stimulate and supporting local projects to promote networks by a deeper and broader integration with the locally established multinational corporations.Two projects initiated in the states of Chihuahua and Jalisco, both of them are in the projects of establishing two technical centres.

The experience gained until now highlighted strengths and weaknesses of this kind of approach:1) The important role of leading firms provides a

direct financial support.2) A center for supplier development can

coordinate the demand for the goods and services with the possibility of economies of scale.

3) Speed-up decision making process.4) The leading firms must provide their own

technical personnel.5) Technical support initiatives

JAMAICAProject initiated in 1994 and a second phase launched in 1997 for a duration of three years.The project was requested by the government of Jamaica to assist the public development agency, JAMPRO, in the local SME sector.The productivity center is now performing some important functions:Like the identification of SME needs and Networking and communication activity.The center provide technical competencies to local enterpreneurs.An high degree of local ownership is guaranteed, so there are good prospects of sustainability.

Metodology of Unido• The promotion of network;• Restructuring at the firm

level;• Improving the institutional

environment;• Improving the dialogue

between the private and public sector.

The promotion of network• Promotion and motivation;• Strategic planning;• Pilot project;• Strategic project;• Self-management.

Restructuring at the firm level

The individual enterprises will be pushed to improve their internal

organization to respect the quality standards, production schedules and pricing levels decided by the

group.Group pressure will stimulate

individual enterprises, and will sanction members for failing to accomplish common objectives

Improving the institutional environment

The cluster/network brokers and the networking unit belong to the first

type of institutions and play a pivotal role at the level of direct assistance to

the enterprises.The external institutions, essentially

support the realization of the networks’ work plans requiring a wide

range of technical and financial services.

Improving the dialogue between the private

and public sectorThe aim of such relations is to promote the emergence of a

coordinated industrial policy and identify, develop and implement coherent actions to support the

entrepreneurial effort.

CONCLUSIONSDeveloping countries are afflicted by big handicaps: lack of economic resources, experience, and the capability to innovate. It is noticeable the absence of multinationals enterprises that can help the market growth and the creation of specialized services.Individually, SMEs are often unable to capture market opportunities which require large production quantities, homogenous standards, and regular supply.Cooperation is the fundamental requirement to solve SMEs problems in relation with their size.SMEs need to cooperate each other, but in some cases is not enough and a massive intervention by external associations is required.Agreements between enterprises may emerge spontaneously or can be guided by institutions or entities like showed before with UNIDO. The final result achieved by those kind of programs is not always positive, but it can also be negative because is the direct consequence of a big series of factors not easy to manage all together.Networking is a phenomena in continuous evolution and there are no common rules that describe how to manage it.

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