Virtual industrial clusters--a next step model for clusterization of Croatian SMEs.

Kolakovic, Marko ; Sisek, Boris

1. INTRODUCTION

Clusters and virtual organizations exist alongside other modern organizational forms (virtual teams, networks and outsourcing models, strategic alliances, partnerships etc.) and tend to replace the more traditional organizational structures. A major driver for this development lies in the uncertain and turbulent business climate.

Under such business ambivalent conditions of unpredictability of competitors' actions combined with unified business processes and methods dynamically interconnecting SMEs fare a better chance of success.

Dynamic strategic linking and networking of enterprises thus enables modern SMEs to optimize costs, increase efficiency of utilization of capacity, and maximize flexibility when responding to changes in market conditions.

In addition to the above microeconomic perspective, dynamic strategic linking and networking has implications for political economy, in particular for economic development and industrial innovation policy. This indeed supports and further develops the ambitions of the Croatian regulators and policymakers at the regional and national level.

In particular, it allows our clustered SMEs to comprehensively integrate with existing industrial complexes, educational and scientific institutions, along with the private sector consulting, financial, and investment activities. Such a process transforms the originally geographically defined clusterization by region and country into boundaryless and global virtual industrial clusters.

2. DEFINITION OF CLUSTERS AND VIRTUAL ORGANIZATIONS

One of the most frequently used definitions of clusters is that of Michael E. Porter who defines clusters as "geographically concentrated, horizontally and vertically interconnected specialized enterprises--suppliers, service providers and connected institutions--which in certain areas connect their core competencies for joint product creation" (Porter, 1998). More simply said, clusters are groups of interconnected business entities with superior performance and committed to achieving common goals.

On the other hand, virtual organizations are specific forms of network organizations whose existence is enabled by modern information and communication technologies (the Internet / intranets / extranets) that facilitate business cooperation between entrepreneurs and enterprises through space, time, and organizational boundaries.

Virtual organizations can be defined as groups of enterprises, parts of enterprises, or sole proprietors who mutually network for the purpose of specific temporary or permanent business activities.

Inversely to partnerships in the technical sense, individual members of virtual organizations keep their legal independence with respect to each other, but appear as cohesive business entities to the market.

Virtual organizations are apparently nonhierarchical organizational forms of independent enterprises that individually decide about network entry where they exchange raw materials, equipment, information, knowledge, technology, research and development, products and services.

Thus both the cluster concept and the construct of the virtual organization are new business models of strategic linking and networking of unique activities.

The difference is that the clusters are predominantly (but not necessarily) composed of small and medium enterprises and mostly have regional character. Even in the context of European integration, though, the notion of region remains a relative concept.

Similarly the definition of SME in Europe differs (e.g. many Croatian large enterprises may be categorized as only SMEs in the forthcoming EU classification).

Other important characteristics of clusters are:

* superior level of success of enterprise members,

* implementation of modern technology and innovativeness,

* clear expectations and commitment to a common goal as guiding principle for participation,

* construction and development of mutual trust,

* willingness to share knowledge actively,

* the active participation in cluster management activities (e.g. the management of the network and the cluster, coordination of activities of the cluster and management of external linkages),

* voluntary and independent integration and participation of the members, etc.

These cluster characteristics are equally valid for the concept of the virtual organization!

Furthermore, through the virtual organization it is possible to achieve the increase of loyalty of buyers, market share, sales, profit, competitiveness, growth rate and individual product value. These are also primary objectives of clusters.

Very common areas of cooperation of subjects included in the cluster concept are (Horvat & Kovacevic, 2004):

* promotion and marketing,

* procurement of raw and production materials,

* cooperation in the area of distribution (especially during of new market development) and its maintenance,

* separation of similar activities between different enterprises and engagement of additional partners for such activities (e.g. IT),

* training and development of expert human potential,

* cooperation in the area of research,

* information exchange concerning competition, etc.

Indeed, the concept of the virtual organization, through its construct of specialization of core competencies and outsourcing covers the same. These similarities and overlaps demonstrate a very close relationship between the two conceptions.

In fact today, with the growth of clusters and the involvement of new, ever more distant members any geographic definition disappears in favor of virtualized business activities coordinated by virtual clusters.

Important characteristics of this forthcoming model of virtual clusters can be identified as follows:

* flexibility, adaptability and modularity of member activities,

* narrow focus of members on very specialized core competencies,

* significant employment of information and communication technology,

* mutual confidence and partnership attitude of participants in virtual networks,

* nonexistence of clearly defined time and place of business activities,

* sharing of resources, capacities, infrastructure and costs,

* relentless pursuit of excellent performance and perfected responsiveness to buyers,

* knowledge sharing and aspirations towards the constant increase of knowledge--the learning organization.

3. THE IMPORTANCE OF CLUSTERS FOR DEVELOPING COUNTRIES AND BASIC CHALLENEGS AND RESPONSIBILITIES OF GOVERNMENTS IN CLUSTER DEVELOPMENT

Clusters and virtual organizations enable business entities in numerous ways otherwise unavailable to them individually. They are the direct result of close cooperation of business entities with complementary services and public institutions which ensure research, training and other specialist opportunities (Kolakovic, 2006).

Further development of clusters would enable countries and regions to better respond to the resource and timing requirements of investment. Additionally, clusters support the pursuit of social goals and provide promotional capacity for regions or countries.

Superimposing the virtual organization onto the cluster concept provides the additional major advantage of elegantly addressing the challenges of an increasingly uncertain market environment.

VOs thus enable quick market access to new markets, provide activities in much shorter time with considerably lower costs and at lesser risk. They increase the share of sales and profit, they improve competitiveness and consumer loyalty. They also open new opportunities for better geographic and professional complementarity among partners, and reduce need for employment of new people (Lazibat & Kolakovic, 2004).

Basic tasks of governments in the creation of strategy for modern virtual clusters are therefore:

* creation of the legal and administrative conditions for the promotion of competitiveness;

* planning and the execution of promotion concepts that support the development of clusters;

* encouragement of national competitiveness for purposes of higher quality and increased innovation.

Concrete effects of such clusters for regions and the countries could be summarized as follows:

* accelerated growth of industrial production,

* improved economic restructuring and transformation of traditional industrial complexes

* stimulation of development of entrepreneurship and the strengthening of the sector comprised of small and medium sized business entities,

* growth of competitiveness of the entire national economy including exports,

* revitalization of traditionally underdeveloped and less densely populated regions,

* linking with clusters of neighboring countries on the basis of common interest--internationalization and the virtualization of clusters.

4. CONCLUSION

The above cluster concept represents a solution of high quality and acceptance for the promotion of SMEs' competitiveness in developed countries already. Regrettably, in Croatia the process of clusterization is still rather unpopular. The ensuing resistance is mostly due to ignorance, bad experiences with and distrust in partnering.

Recent results, however, show some positive movement of Croatian SMEs towards the acceptance of undeniable benefits of dynamic strategic linking and networking. The Croation government (especially through its Ministry of the Economy) has recognized progress in this area and has thus initiated various programs with the purpose of directly encouraging such advances.

In this context the concept of the virtual organization represents one logical next step towards regional SME networks expanding internationally with compatible partners not limited to SMEs but comprised of any type of enterpise, including large global entities, parts thereof, as well as numerous associated financial and research institutions. Members of such virtual clusters jointly perform certain temporary or permanent business activities, make decisions jointly, keep their legal independence and outperform traditional entities in similar business activities.

5. REFERENCES

Croatian Ministry of Economy, Labor and Entrepreneurship & German Society for Technical Cooperation (2007). Cluster Management, Part A, Handbook

Horvat, D. & Kovacevic, V. (2004). Clusters--a way to competitiveness, ISBN CERA PROM p.l.c., Zagreb

Croatian export offensive, Strategy for period 2007.-2010., Croatian Ministry of Economy, Labor and Entrepreneurship

Kolakovic, M. (2006). Entrepreneurship in knowledge based economy, ISBN 953-6895-32-3, Sinergija, Zagreb

Lazibat, T. & Kolakovic, M. (2004). International business in global condition, ISBN 953-6895-19-6, Sinergija, Zagreb

National Competitiveness Council (2003). Suggestions for improvement of competitiveness, Expert Commission for Regional Development and Clusters, Zagreb

Porter, M. (1998). Clusters and the new economics of competition, Harvard Business Review, 76(6), p. 77-90.