European Planning Studies, Vol, 12, No. 1, January 2004 Industry Clusters in Australia: Recent Trends and Prospects B.H.RobertsProfessor of Urban Management, Centre for Developing CitiesUniversity of CanberaCanberaACT 2601Australiabroberts@scides.canbera.edu.au BRIAN H. ROBERTS and MICHAEL. J. ENRIGHT [Paper first received, June 2002; in final form, November 2002] ABSTRACT This article explores the phenomenon of industry clustering in Australia. It includes an overview of the factors that have shaped the historic and recent developments of clusters in Australia. Two philosophical approaches to clustering based on a whole of industry approach and regional facilitation are discussed. Four case studies are presented on the Australian wine industry, the Far North Queensland, North Adelaide and Hunter region clustering initiatives. The case studies represent different approaches to regional industry clustering in Australia. The conclusion to the article discusses future prospects for using clustering as a tool to foster regional economic development in Australia. 1. Introduction In recent years, considerable interest has been shown in industry clustering as a means of stimulating regional economic development. The phenomenon of industry clusters, however, is nothing new. Industry clusters exist wherever there is loose geographic concentration or association of firms and organizations involved in innovating, producing, exchanging and trading in a specialized range of products and services. The economic reasons for the geographic concentration of firms and industries may be the presence of unique natural resources, increased scope for innovation, economies of scale in production, proximity to markets, labour pooling, the presence of local input or equipment suppliers, shared infrastructure, reduced transaction costs and other localized externalities. There is a significant volume of literature highlighting the importance of clustering to local and regional economic development processes (OECD, 1999; Baptista, 1998; Enright, 1991, 1996). Many of our ideas about clustering are derived from agglomeration theory (Giersch, 1995) and Michael Porter’s work on competitiveness (Porter, 1990, 1996). Regional economies tend to develop through the emergence of industry clustering activities (Porter, 2000). Clustering is also viewed as a way to stimulate local innovation leading to the development of new industries and investment, especially in regions that have experienced economic decline. Firms and organizations engaged in clusters are able to achieve synergies and leverage Brian H. Roberts, Professor of Urban Management, Centre for Developing Cities, University of Canberra, ACT 2601, Australia. E-mail: broberts@scides.canberra.edu.au Michael. J. Enright, Sun Hung Kai Visiting Professor, Hong Kong University, Hong Kong ISSN 0965-4313 print/ISSN 1469-5944 online/04/010000–00 DOI: 10.1080/09654310310001635706  2004 Taylor & Francis Ltd 100 Brian H. Roberts and Michael. J. Enright economic advantage from shared access to information and knowledge networks, resources and other support services available in a specific locality. The modern concept of a cluster can be interpreted as a localized manifestation of the system of global innovation and production (Guinet, 1999). Modern industry clusters involve integrated and often dissimilar firms and public agencies/institutions specializing and collaborating on R&D, innovation, commercialization and marketing to produce a range of new or re-engineered products and services. The quality and market-relevance of the functional arrangements amongst closely linked functions in the production chain is important to the development of clusters. It is the rate of change and especially innovation within firms that is facilitated greatly by cluster relationships. As information and knowledge becomes more readily shared through personalized networks, firms are forced to innovate continuously to remain competitive. It is the competitive advantages and higher productivity gains through information sharing and innovation that gives clusters their economic power (Porter, 2000). In the last decade, there has been growing interest in industry clustering in Australia. Many states, regions, cities and local communities have instituted plans based on facilitating the development of regional clusters (Brown, 2000; Enright & Roberts, 2001). However, interest in clustering as a tool for fostering economic development has generally been greatest in regions that have experienced economic hardship as the result of economic restructuring. There have emerged in Australia two distinct approaches to the development of clusters. The first involves a whole of industry approach, which has led to the natural development of clusters in regions as a by-product of industry reform. We might refer to these as natural or deduced (top down) clusters. These clusters are often large, a product of older industries, multi-regional, internationally focused and driven by powerful affiliations, networks, alliances and industry associations. The Australian wine, finance and tourism industries are examples of this type. The second is facilitated or induced clusters. These are predominantly regional and comprise small industry groups or local business networks forming a micro cluster of a new regional industry. The approach taken involves strong public policy support and initiatives to induce the development of localized industry innovation and collaboration to develop a cluster. This article explores the emerging phenomenon of industry clustering in Australia. It commences with a brief overview of the factors that have shaped the historic and recent development of clusters in Australia, followed by a discussion on recent research and policy initiatives by Federal and State governments designed to stimulate innovation and industry clustering in regions. Not all attempts to promote clusters in Australia have been successful. The two approaches to industry clustering mentioned earlier are then described. Four short case studies on industry clustering are presented on the Australian wine industry, Far North Queensland, North Adelaide and Hunter regional clustering initiatives. The case studies represent different approaches to industry clustering in Australia. A brief discussion on the reasons for successes and failure in the two approaches is given. The conclusion discusses future prospects for applying clustering as a tool to foster regional economic development in Australia. 2. Policy Initiatives Designed to Stimulate Industry Clusters 2.1 Early Developments History and economic geography have played a very strong influence on the development of industry clusters in Australia (Enright & Roberts, 2001). Research on clusters elsewhere shows that the origin of most clusters stems from historic industries upon which cities and regions were established (Department of Housing and Urban Development, 1996). Some industry Industry Clusters in Australia 101 clusters, such as the Swiss watch industry, date back hundreds of years. In Australia, primary industries provided the basis for the early development of food processing clusters. These tended to be geographically concentrated and serviced mainly local and export markets. However, few regions, until recent years, can be said to have developed an agglomeration of food industries that demonstrated specialization, high levels of integration or extended value-added production chains, which are features of modern industry clusters. Large-scale industrialization in Australia began in the early part of the twentieth Century. These new industries provided the basis for the development of larger urban industry centres, which gave rise to the first industry clusters, many of which have been metamorphosed in recent years. The rapid growth of manufacturing in the 1950s led to the development of national firms and greater industry agglomeration with strong vertically integrated production systems (Cochrane, 1980). However, the development of large-scale industry agglomeration was constrained, to some extent, by Federal government policies designed to achieve greater geographic distribution of new industries to support regional settlement. The effect of the decentralization policy was the development of single industry towns, such as Broken Hill, Newcastle and Whyalla, where more than 15% of employment was in one industry. The 1950–1970 era led to significant expansion of Australia’s industrial base. The focus of development was very much on import replacement rather than export. This was also a period of increased industrial diversification, with Australian products (i.e. agricultural and mineral commodities) being exported to many parts of the world. Steel, automobile, sugar, pulp and paper, textile and garment industries were expanded through significant foreign, mainly US and UK, investment. Many national and multi-national corporations established branch offices and factories in regions around Australia. By 1970, over half the world’s largest international corporations had investments in factories or offices in Australia (Caves et al., 1981). The post World War II Federal and State governments’ industry policies led to even greater agglomeration of industries and the consolidation of many industry clusters. Several clusters, especially the automobile, printing and publishing and textiles, had strong integrated local networks and supply chains. However, it was not until the late 1960s that greater local sourcing of services such as finance, design, research and technology development began to emerge (Cochrane, 1980). The development of the CSIRO and other research institutes reduced the dependency upon foreign technology and research into local industry development. The whitegoods and automobile industries in Melbourne and Adelaide, textiles and garment manufacturing in Melbourne and chemicals in Sydney and Melbourne, although foreign owned, began to make greater use of Australian services, enabling many of these to develop into mature clusters. Offset programmes, which required foreign contractors supplying goods and services to government to use or establish local suppliers, helped to strengthen local industry networks and clusters. Australian manufacturing industry clusters, although much narrower in structure than similar clusters in the US and Europe, reached their peak at this time. However, this was to be short lived, as the initial impacts of globalization and structural reforms in the early 1970s marked the beginning of a period of rapid decline in Australian manufacturing and primary production industries, which lead to a substantial hollowing out of the nation’s industrial base. 2.2 Recent Federal Initiatives By the early 1980s, Federal and State governments recognized that restructuring of the national economy was necessary for Australia to regain its competitiveness and develop a new and more productive economy. Several important initiatives were taken during the late 1980s and early 1990s to reform the economy and encourage greater innovation. O’Neill and 102 Brian H. Roberts and Michael. J. Enright McGuirk (2002) identify seven significant factors that have influenced the restructuring of the national economy and resulted in changes to Australia spatial industry and employment geography during this period. These were the: • restructuring of the manufacturing sector; • growth in the development of business services, especially financial services; • corporatization of many State owned enterprises such as Qantas and the Commonwealth Bank; • reform of the public sector under National Competition Policy; • improvements in productivity gains; • removal of protective tariffs and financial deregulation; • Australia mimicking the structure of the US economy. The deregulation of the financial sector and the beginnings of the national competition policy (Hilmer, 1993) exposed local and regional domestic industries for the first time to national competition. This has had a profound impact on regional industry development, investment and employment. The combined effects of globalization and national reforms have been the gradual hollowing out of core elements of many older clusters (discussed later). Many local firms integrated in the steel, textile and automobile industry clusters subsequently moved off-shore or closed down. By the middle 1990s, the structure of many of the old industry clusters had been completely replaced by more globally integrated businesses networks, most of which are controlled by multinational corporations. Networking and innovation emerged as important platforms of public policy to integrate Australian industries more into global business structures (AMC, 1994; BIE, 1991). The Australian Manufacturing Report (Pappas ., 1990) introduced the concept of clustering, although not by name, by proposing regional industry partnerships involving core or flagship local industries working with other regional industries to strengthen networks and encourage innovation and development and technology transfer. Because of the way this report was produced (i.e. as an expert submission to government) the people who might have done something practical as a consequence (i.e. business) never really became aware of, or involved in, the implementation of the report’s recommendations. The report ‘Lead Local, Compete Global’ (McKinsey, 1994) was one of the first public documents to suggest that government should adopt clustering as an approach to regional industry and economic development. The Report introduced the concept of industry clustering as a process to foster smart industry development. There was also a strong emphasis placed on the development of soft infrastructure, especially leadership and entrepreneurship (Roberts ., 1996). The Federal Labour government’s ‘Working Nation’ (Keating, 1994) policy and several other initiatives led to Federal and State governments investigating and recommending a range of policies to facilitate the development of clustering as a means of stimulating regional industry development in Australia. In the years leading up to the new millennium, the Federal and State governments fostered a range of polices and initiatives to support innovation, research and development involving networks and clustering. The Federal Labour government’s regional development programme, which formed a keystone of the ‘Working Nation’ policy, led to clustering being adopted as a means of fostering economic development by regional development organizations in most States. Funds for this programme ceased in 1999, following the change of Federal government in 1996, leading to the abandonment of many clustering initiatives. Many of the initiatives to foster clustering failed, owing to the lack of experience, resources and training of regional development organizations to facilitate cluster development programmes. There was also a flaw with many initiatives promoted by regions caused by the failure to et al et al Industry Clusters in Australia 103 incorporate or recognize the vital functional links that national and international firms have in a cluster. Cluster functions have to be of high quality and strongly market-focused if they are to be economically constructive. As will be described later, the process of facilitating industry clusters since the cessation of the Federal government’s Working Nation Policy has been driven mostly by State governments, but with significantly less funding support. The Federal coalition government support for the concept of clustering has not been entirely dismissed. The ‘National Innovation Summit’ (2000) gave tacit support to the value of clustering. (The Resource and Infrastructure Consolidation and Cooperation and Building Industry working group reports gave strong recommendations for government to support clusters as a means of increasing innovation and industry development.) The preferred initiatives for industry development in the conference communiqué were to focus on partnerships, especially between universities and industries through collaborative research centres (CRC). This policy was supported in 2001 by the Federal government’s decision to expand significantly the Australian Research Council and other industry innovations and development programmes. (See Department of Science, Industry and Technology web page, http:// www.isr.gov.au, for range of programmes.) The Federal government’s ‘Regional Summit’ (DTRD, 2000) produced several initiatives to support the development of regional Australia. The ‘Regional Solutions Programme’, administered by the Federal Department of Transport and Regional Services and the ‘Regional Assistance Programme’, administered by the Department of Workplace Relations and Small Business, have supported clustering initiatives in regional Australia. Very little Federal assistance from these and other assistance schemes has gone to support initiatives to develop clusters in metropolitan regions. It is in the metropolitan regions where some of the most difficult problems of structural adjustment have occurred and where the greatest potential to develop industry clusters is to be found. 2.3 State Government Initiatives The States have played a much more active role in the development of industry clusters than the Federal government. However, there are significant differences in support given to clustering between the States and Territories. State interest in clustering began much earlier than that of the Federal government. In the 1980s, States began to support a range of technology initiatives to enhance national competitiveness and to stimulate the development of new technology-based industries (Blakely et al., 1987a). Most States prepared technologybased industry development strategies and built technology parks and innovation centres based on the Stamford Research Institute (SRI) model (Markusen & Hall, 1985). The SRI model was used widely to encourage innovation centres and the development of information, food, biotechnology and new materials technology-based industries, albeit with limited success. Many technology parks still remain half empty, due, in part, to the failure of governments to understand that there were many other elements of smart infrastructure needed to support technology-based industry development, such as venture financing, leading edge technological capabilities, strong commercialization capabilities in the business community, networks, clusters and partnerships. Ironically, the concept of industry clusters was embedded in many of the technology-based strategies developed during the 1980s, but the mechanisms for building clusters was not fully understood or incorporated into industry development programmes. The first attempt to apply the concept of clustering to develop new industries in Australia was for the Cape York International Spaceport concept in Queensland in 1988. This preceded much of the policy work of the Federal governments and derived many of its ideas from the early SRI work. Strategic management techniques were used to focus on a commercial spaceport based on Cape York’s advantages as a near equatorial launch site and 104 Brian H. Roberts and Michael. J. Enright the investigation process was open to allow participation and initiative by all of the diverse functions associated with commercial space activities. Key industry players and professional associations formed a consortium to foster the development of the project. Remarkable early results were achieved with the discovery of large potential benefits through networking and participants’ initiatives and with large numbers of international commercial proposals. The subsequent transition to traditional project management techniques and the Federal government’s lack of support to help develop strategic infrastructure prevented this dynamic project being translated into a reality. The project was an innovative attempt to facilitate a space industry cluster in Australia that was ahead of its time. Subsequently similar techniques were used for the Multi-Function Polis (MFP), a project which began in 1986. MFP was based on the concept of Japanese Technopoles (Castells & Hall, 1994). Japan proposed the MFP with Australia, nominally for international technological and cultural interchange. One initial concept of the polis involved the idea of industry network partnerships to create a regional industry cluster. Japanese participants, however, insisted on a primarily ‘real estate’ interpretation of the MFP. The polis had also been described as an experiment of a new concept of urban development, lifestyle and working environment. Several themes were identified for development by the polis including biotechnology, IT and CAD/CAM based industry production. The polis concept was extensively investigated, leading to the initial selection of a large site on the northern part of the Gold Coast—which was where Japanese participants originally proposed the MFP to be located. The Queensland government refused to fund the purchase of the site and it was subsequently moved to Adelaide and attracted very little international interest. After 12 years to develop the concept of the MFP, the MFP Corporation was wound up in 1998, with very little to show for the substantial effort put into the project. Queensland and South Australia have played the most active role in supporting the development of clusters. In South Australia, the Departments of Industry and Trade, Transport and Urban Planning and the Arts investigated and mapped South Australia’s clusters using geographic information system (GIS). Extensive investigations were conducted of the defence, spatial, water, and multi-media industries, which led to the formation of clusters. The initiative to develop these is described in more detail in the case study later in the chapter. In recent years the South Australian Regional Development Taskforce Report (Bastion, 1999) and Business Vision 2010 (SABV, 2000) project have supported the continuation of initiatives to encourage clustering in various regions of the State. The Office of Regional Development (ORD) under the Deputy Premier has the responsibility for policy and the fostering of initiatives to develop clustering. A cluster unit has been set up under the Business Vision 2010 programme to develop local business networks and local capacity building for clusters in the State. The unit has developed clusters initiatives in the Upper Spencer Gulf Region for the environment, conventions and the food industries. The Queensland State and local governments have generally been strong supporters of clustering as an approach to facilitate regional partnerships, networks and alliances to encourage the development of new growth industries and clusters. The acceptance of the concept of clustering by the State was influenced significantly by the early work on the MFP initiative—though even earlier work in this regard had been done in identifying and suggesting the development of functions in various new industries. Support for clustering is included in the State’s infrastructure policy and most policy documents. The 2000 Annual Report of the State Development outlines specific initiatives to support the development of industry clusters (QSDD, 2000). Queensland’s “Local Industry Policy: A Fair Go for Local Industry” (QSDD, 2000) also seeks to encourage major project investors to use local supply Q2 chains as a means of fostering clustering in the state. Queensland has adopted a top down and bottom up approach to cluster development. Industry Clusters in Australia 105 The approach is also very decentralized in an effort to improve capacity building and the development of new industries in the State’s 13 regions. At the peak industry level, the State government has established a number of joint industry taskforces, such as the Tourism and the Trade Coast Development taskforces. The latter was established to facilitate the development of logistics, chemicals and processing industry clusters in the Brisbane Gateway Ports Area. Most of the initiatives to develop clusters are focused on regional areas. Most regional development plans have adopted clustering as a means of supporting economic development. The State government provided funds for 3 years to regional development organizations to facilitate cluster development processes. One of the most advanced clustering development programmes has been in the Cairns Region, in the Far North of the State. This initiative will be described in a case study later. The larger southern States of New South Wales and Victoria have shown less interest in adopting clustering as a policy tool for regional economic development. New South Wales is Australia’s largest State economy and has many well-established and maturing industry clusters. Sydney is a lower order global city (Brochie et al., 1995) and is the nation’s leading centre in finance, information technology, biotechnology and producer service industries. Distinctive patterns of clustering are present in the metropolitan region: the information services and technology industries in the Central Business District and the northern suburbs/ Ryde corridor, transportation and logistics in the Sydney airport corridor and biomedical in the mid-west. Research to map the metropolitan region’s clusters shows the west and south-west developing as a significant technology based cluster for component manufacturing (Roberts & Murray, 2002). The development of these clusters is being driven increasingly by international factors, as Sydney becomes more integrated into the global market economy (O’Neill & McGuirk, 2002). Throughout the 1990s, New South Wales State government policies for economic development have been focused strongly on making Sydney a global city. The Department of State Development has investigated the concept of fostering industry clustering; however, it is not part of State industry policy. Much of the thinking on State economic development strategy has been driven by the assumption that attracting international corporations to Sydney would have spin-off or multiplier effects that would induce the development of local firms and industry clusters linked in to new global business networks and markets. In essence, this is a market-orientated approach to economic development designed to encourage industry agglomeration and the possible formation of clusters. The approach is a re-engineering of policies used for developing industry agglomeration and clusters in the post World War II era, but without major public investment to support the development of national industries. To some extent, this strategy has worked well, with over 40% of Australia’s largest national and international corporations headquartered in Sydney (Roberts & Murray, 2002; O’Neill & McGuirk, 2002). However, while the approach has benefited Sydney, it has done little to support the development of new industries in the State’s regions. Victoria is Australia’s second largest State economy. In the mid-1980s, the State government embarked upon a series of initiatives to develop specialized high technology industrial districts in the Werribee and East Melbourne areas as part of a strategy to develop new industries in the metropolitan region (Blakely et al., 1987b). Many of the initiatives proposed included the concept of clustering. Unfortunately, the success of many initiatives undertaken was limited, as these were politically rather than market driven. The State experienced crippling debt as a result of de-professionalizing its administrative machinery and then adopting adventurous economic tactics and was unable to follow through on many of its industry support programmes. The Victorian Liberal government of the 1990s showed little interest in the development of clusters and the infrastructure needed to support their development. However, several Q3 Q3 106 Brian H. Roberts and Michael. J. Enright regional development organizations using Federal funds have pursued the development of clusters in centres such as Bendigo and Ballarat. The focus on chasing headquarters worked well for Melbourne, but not for regional Victoria. The feeling of regional neglect resulted in voter backlash and a change of government in October 1999. The new government recognized the need to focus on industry capacity building, especially in the regions. In 2000, the Department of State and Regional Development began a strategic audit of Victorian industries to identify current business needs and to develop long-term strategies to realize the economic development potential of the State. Industry audits have been completed for the automotive; environmental management and renewable energy; metal fabrication and precise engineering; professional and technical servicing; textile clothing, footwear and leather and transport distribution and logistics industries. Other industries will be audited progressively and will be completed in 2002. The audits provide a useful basis from which a clusters map could be prepared, but the State’s policy is currently focused upon the development of sector industries and not clusters. However, there is a realization in some of the background papers prepared for the audit that clustering could have significant benefits in fostering industry development. It remains to be seen if the State will embrace clustering as a strategic approach to industry and economic development in the future. In the other States and Territories of Australia government interest in clustering has been relatively weak. The Western Australian government is encouraging the development of local supplier firms, which will help to develop industry clusters. This initiative is similar to local industry development policies in other States, which has been largely unsuccessful. However, economies of scale and a limited skills and technology base are factors that significantly constrain the development of resource-based industry clusters in the State. Recent changes of government in the two territories, Tasmania and Western Australia may bring about changes in policy that are more supportive of industry clustering in the future. 3. Research on Industry Clustering in Australia Unlike many Organization for Economic Cooperation and Development (OECD) countries, little investigative research on industry clustering has been undertaken in Australia. Morkel (1993), drawing on the ideas of Porter (1990), identified the importance of clusters and value chains to industrial output in Australia and the importance in developing local competencies to support the development of industry clusters. He argued that the best prospects for clustering were in the natural resource sectors, where Australia had and still has significant competitive advantages. Liyanage (1995) identified collaborative research programmes as having a significant impact on the structure of national innovation systems by creating and strengthening networks, which are essential for breeding innovation clusters. Marceau . (1997) discuss the necessary elements of learning or knowledge economy, and Australia‘s strengths and weaknesses in this regard. Marceau noted the importance of clusters and knowledge networks associated with them. In a paper published in the OECD proceedings on ‘Boosting Innovation: the Cluster Approach’, Marceau (1999) used national input–output tables to analyse changes in the domestic transactions between industry sectors for 1975 and 1989. The research demonstrated a significant reduction in the strength of domestic linkages in the Australian economy as the result of globalization and structural change, demonstrating clearly the hollowing out of many older industry clusters. The main cause of this is the lack of relevant leadership of responses in the face of those global pressures. The problem of hollowing out is exemplified in the Table 1 (National Economics, 2000) taken from the State of the Regions Report, which shows the importance of the share of domestic supply chains for selected key industries in Australia compared with OECD average in 1996. While Australia might be expected to have lower domestic market linkages than some et al Industry Clusters in Australia 107 Table 1. Import share of domestic market, in selected key industries, Australia compared with OECD average, 1996 Aerospace Computer/office equipment Drugs and medicine Communications equipment Professional equipment Automotive Electrical machinery Chemicals Non-electrical machinery Rubber and plastics OECD % Australia % 33 61 20 34 42 30 25 34 26 16 80 71 48 70 79 43 57 42 67 25 Source: National Economics (2000). of these industries shown in Table 1, compared to the OECD average, Table 1 provides compelling evidence to support Marceau’s research that Australian clusters are very weak. The National Economics study investigated 22 industry clusters in selected regions, including 11 manufacturing sectors and showed that there were significant weaknesses in knowledge networks in the regions studied, suggesting that the failure to develop soft infrastructure is undermining the competitiveness of regions to develop clusters. The strengths of regional firm and industry networks forming clusters have been investigated in the Hunter (Martinez-Fernandez, 1999) and Adelaide metropolitan regions. Brown (2000) describes over 70 regional cluster initiatives in Australia. He identifies three major problems with cluster development in Australia: insufficient critical mass, lack of focus and distinctiveness and political and administrative difficulties. Enright and Roberts (2000) and Brown (2000) have examined other aspects of public policy on industry clusters, arguing the important role for government to support cluster development initiatives. 4. Two Approaches to Fostering Industry Clusters There are two different scales of industry clusters operating in Australia. National clusters comprise a national network of regional industry firms and industries in clusters that collaborate and innovate collectively and independently through a range of alliances, federations, commissions and associations. The fishing, wine, tourism, film and education industries operate in this way. The second comprise Regional clusters. These clusters tend to be localized and have developed an acknowledged national or international competitive advantage. Many regional clusters are very small, highly specialized and with a strong regional export focus. The high-speed catamaran industry in Cairns, Hobart and Fremantle and the Equine Cluster at Scone in New South Wales (http://www.hedc.nsw.gov.au/hurdo/clusters/ equine.htm) are examples of this type of cluster. The term ‘industry cluster’ has been loosely and wrongly applied to small local networks of firms and industries that collaborate to leverage some form of competitive advantage. While these business networks might have potential to develop into micro or more mature clusters in the longer term, few demonstrate high levels of specialization, innovation or extended value chains, which are features of a well-developed cluster. Many regional networks of firms use the term ‘industry cluster’ as a marketing tool. These, in most circumstances, are business networks and not clusters. 108 Brian H. Roberts and Michael. J. Enright There are two philosophical approaches that have emerged to support industry clustering in Australia. The first is a holistic approach in which regional clusters have emerged as a natural by-product of national industry restructuring programmes. These are termed natural or deductive clusters. They are deductive in the sense that they are derived from something larger. Natural industry clusters in most cases are derivatives of older transformed industries; for example, car assembly clusters in Adelaide and Melbourne is a derivative of the automobile manufacturing clusters that developed in these two cities in the 1950s. Most natural industry clusters are held together by a system of national and regional network of associations, affiliations and industry alliances. It is misleading, however, to suggest that natural clusters are self-generating and sustaining entities. Most regional clusters have been encouraged to evolve, under the guidance of some form of government policy or industry partnership arrangement. The development of national network clusters is natural in the sense that they are driven primarily by market factors that enable competitive advantages in specific locations that favour industry agglomeration, as described by Weber many years ago (Weber, 1929). Without the reforms to the finance industry in 1996, the financial industry clusters so prevalent in Sydney and Melbourne might never have arisen. The support given by government to national industry reforms and innovation, which have indirectly assisted the natural development of a system of regionally networked clusters is substantial, compared to the direct assistance given under ‘Working Nation’ and State government programmes to facilitate cluster development in regions. Facilitated industry clustering is a bottom up approach adopted by State and Federal governments to encourage or facilitate regional economic development. The philosophy of approach used is that regional firms and industries can be induced to work together to collaborate in areas of innovation, research, product development and marketing. Queensland and South Australia have strongly supported this approach. Victoria and New South Wales have been less supportive and have tended to focus on a holistic approach to industry reforms, which have indirectly supported the development of regional industry clusters. In most cases, Federal and State governments have targeted regions that have experienced stress, or are in urgent need of diversification to reduce the dependence on one or two major industries. Facilitated industry clustering often involves partnerships between government and business, or direct public support for initiatives designed to foster local industry collaboration. Public funding to facilitate industry clustering is small compared to the very large sums that have indirectly benefited the development of national networked industry clusters described earlier. In the following section four case studies are presented which illustrate the two different approaches to industry clustering development in Australia. For more detailed work on clusters see Brown (2000). 5. Four Case Studies 5.1 Australian Wine Industry The Australian wine industry is world leader in innovation and product development. In the 1980s Australia exported 2% of its total production and was a net importer of wine. In 2001 the industry exported 32% of its production and holds 3.5% of the world wine market by volume. The rapid development of the wine industry poses two interesting questions. How did such a small export industry develop so quickly, and what role have regional clusters had in its development? Wine is grown in all States of Australia, but three wine regions dominate the industry. These are the Lower Murray Zone of South Australia, North West Victoria and the Hunter region, which collectively contribute to 58% of total wine production. South Australia Industry Clusters in Australia 109 dominates the red wine industry with 55% of production (ABS, 2002). In 2000 the industry employed 9173 persons and had a total turnover of $3.575 billion. In 2001 there were 351 locations around Australia that crushed more than 50 tonnes of grapes. Almost 33% of Australian wineries are located in South Australia, 25% in Victoria and 21% in New South Wales, mostly in the Hunter region. The Australian wine industry began as a series of independent wine growing regions. Until the 1980s there was very little structure or organization to the industry. In the past 10 years the wine industry has experienced substantial structural change. Haliday (1994, p. 59) has extensively documented these changes. Four companies, Southcorp, BRL-Hardy, OrlandoWyndham and Mildara Blass groups account for more than 51% of total wine produced in Australia (Marsh & Shaw, 2000). In the export sector these four groups account for more than 70% of wine exports. This has affected the pattern of development and operations of the industry. Each region had a small number of independent growers and producers. The first important step in the development of the industry was the development of industry associations using a range of government incentives. The Australian Wine and Brandy Corporation in 1981 provided the catalyst for developing a more cohesive industry. From this government/industry initiative several other industry associations followed, such as the Australian Wine Makers Forum (1984) leading to the Wine Makers Federation in 1989. The Federation gave the industry a single entity and resources to make a concerted attempt to develop an international export market for Australian wines producers. The Wine Makers Federation provided the umbrella for other specialized industry groups to form that were linked to the Australia wine industry: The Australian Wine Foundation, which had a focus on health, the Australian Society of Wine Educators responding to the growing consumer interest in wines and the Grape and Wine Research and Development Corporation. By 1992 more than eight industry associations had been established to service different interest groups within the industry. (See Marsh & Shaw, 2000 for more detailed discussion on the industry associations and the Australian Wine Industry.) With the development of the national industry, specialization began in the regional wine industries. To a large extent, growing conditions drove specialization, but so too did scale differences create differential stakes in collaboration on product and market developments. Collaborative action and learning was pioneered by the industry in 1993 and this was to have a profound impact on both innovation and export development. The industry became a learning industry, where the sharing of information and knowledge, especially at a regional level, drove the development of local innovation and collaborative developments, including blending, which is now an important strength of the Australian industry. In recent years the industry has embarked upon strategic alliances and buy-ins of producers and distribution networks in the US and Europe to protect and gain stronger market position. The development of the Australian wine industry is a remarkable story. The role of government in the process has been very important, especially in providing direction and support to the development of the industry. The Wine Makers Federation provided the catalyst that encouraged greater collaboration and innovation within and between wine regions and propelled the industry to a world leader. The industry has gone from a series of independent producers lacking organizational structure, to a network of regional industry clusters of wine producers, dominated by four dominant producer groups. These groups continue to innovate and improve their market share in the highly competitive global wine market. There are important lessons learned from the development of the national wine industry cluster. First, government had a key role in re-organizing the industry. This was done by incentives to mobilize industry groups to work together on produce development and marketing. It was not regulation driven. Second, the key to the development of the industry 110 Brian H. Roberts and Michael. J. Enright and the clusters has been the development of networks of industry interest groups, which make up the wine industry cluster. Third, The restructuring of the industry was necessary to provide a critical mass and a competitor structure that has been conductive to fostering competition and innovation within the industry. This has given the industry significant competitive advantage when compared to the European wine industries. Fourth, the development of an industry learning process has ensured that growers and purchasers along the whole production and value adding chains gain access to information and knowledge on leading practice, which ensure that the industry remains one jump ahead of its global competitors. Finally, the collaborative research and development and marketing efforts of the industry within a national competitive model has been a critical success factor in the development of the industry. 5.2 Adelaide Metropolitan Industry Cluster Initiative Prior to World War II, the State of South Australia was predominantly a rural-based industry economy. The post era was one of rapid industrialization for the State, most of which occurred in the Adelaide region. The car, metals, food and construction industries began to dominate the structure of the region’s manufacturing sector. By the late 1960s more than 28% of metropolitan employment was in manufacturing. In response to incentives by Federal and State governments in the 1960s, national and international companies were attracted to Adelaide and established many branch line factories in the northern and southern suburbs and in the new satellite town of Elizabeth. By the 1970s Adelaide was the third largest manufacturing centre in Australia. However, by the middle 1980s the impacts of globalization and national economic reforms had resulted in a significant contraction of the local economy, with the closure of many manufacturing firms. By the 1990s Adelaide was facing a crisis, with unemployment in the north Adelaide manufacturing areas reaching 21%. The awarding of the MFP project to South Australia was seen as an opportunity to address a chronic unemployment problem facing the region by developing new technology based industries and to restructure older industries. In 1995 planning for the MFP was well advanced. The Development Corporation recognized the value of clustering as an approach to spearheading new industry development in regions experiencing a decline in manufacturing, based on the experience of initiatives undertaken by the Silicon Valley Joint Venture Partnership (SVJVP) to turn around the economy of that region during the 1989–1991 global recession. Collaborative Economics, which had a key role in SVJV, was commissioned by the MFP Development Corporation to provide the intellectual and implementation drivers to adapt and apply the SVJV model for the Adelaide metropolitan region. The cluster development process involved a six stage process that took 9 months to complete. The steps involved: (1) the engagement of industry champions and key stakeholders to develop a cluster leadership group; (2) background research and investigations by facilitators to map the structure of regional clusters; (3) a series of carefully planned meetings to develop trust and consensus on how industries and firms involved in a cluster could work together; (4) the preparation of an action and business plan for each cluster to undertake strategic projects; (5) the review of the leadership group and securing of resources necessary to support the development of the cluster; (6) the preparation of a framework for the ongoing development and management of each cluster. Industry Clusters in Australia 111 Figure 1. Map of the Adelaide metropolitan region defence industry cluster. Source: South Australian Business Vision 2010 (2000). In conjunction with the State government, employers and the Chamber of Commerce & Industry, the MFP Development Corporation introduced the above model and launched a pilot project in September 1995 to trial and adapt it for the local environment. Two clusters were selected. These were defence and advanced electronics, and multimedia. Extensive research was undertaken to map these clusters. Figure 1 shows the cluster map for the defence cluster. The Defence Teaming Centre Inc. cluster was formally launched on 25 September 1996. The cluster has a membership of 44 companies with a fully functional office. Members of the cluster include industry, defence and defence support companies, State and Federal governments and universities. The success of the defence industry cluster can be attributed to changing world security and the demand for technologically advanced weapons and intelligence systems, rather than heavy equipment production. South Australia has been able to develop applied knowledge in these fields. The multi-media cluster process coincided with the establishment of the Ngpartji Cooperative Multimedia Centre under the Keating Government’s ‘Creative Nation’ programme. This provided the institutional home to support the action-focussed projects that emerged from the cluster process to promote awareness and uptake of multimedia and electronic commerce within business and the community. Following the success of the defence industry cluster initiative, the Development Corporation extended the programme to develop other clusters utilizing the facilitators trained during the pilot project. Further investigations were undertaken of the spatial information and water industries. The Department of Administration and Information Services sponsored the formation of the spatial information cluster. The initiative complements the government-led Spatial Information Industry Project and the engagement of Fujitsu as a spatial industry alliance partner. However, the cluster was primarily built around one project and Fujitsu recently withdraw from the project. The cluster has been bedevilled by complaints of an inner core securing all the work to come from the clusters. The water cluster initiative led to the formation of the Water Industry Alliance in 1998. The Alliance has over 100 members, and 112 Brian H. Roberts and Michael. J. Enright the management organization fosters and promotes sustainable export-orientated water products and services to many countries. The termination of the MFP project in 1998 did not undermine the sustainability of the defence, spatial and water clusters. These clusters have continued to grow with the support of State government funds to maintain the basic administrative infrastructure needed to service each cluster. The Department of Industry and Trade has provided substantial resources through South Australian Business Vision 2010 (a partnership of business, government and community) to support the facilitation effort required. Business Vision 2010 continues to facilitate the development of other industry clusters and support those that have emerged. The Federal Department of Industry, Science and Resources and the State Environmental Protection Authority are supporting an environmental cluster, and the Office of Sport, a sports cluster. Much has been learned from the experience of industry cluster development in the Adelaide metropolitan region. Leadership, vision and a long-term commitment to capacity building are key factors contributing to the successful cluster building process. A sense of crisis was also important in the beginning to change the mindset of many industries and firms in the region into recognizing that industries had to look at alternative ways of doing business. Achieving some initial results was essential to keep the momentum of the process going. A considerable period of learning and mentoring was necessary before firms trusted each other sufficiently to understand that collaboration can enhance firm competitiveness and create opportunities to develop new products and markets. The initial 6–9 month period set to develop the initial clusters was too short and this has led to misunderstandings and false expectation in some participants in the clustering process. Most of the initiatives to facilitate the development of clusters in metropolitan Adelaide have been supported by the State government. However, there are other clustering processes going on elsewhere in the State involving aquaculture, forestry and wine that are more industry driven. These take the form of industry associations that tend to be much more narrowly based than the new clusters facilitated in the Adelaide metropolitan region. Most have developed from mature or re-engineered resource or agriculture industries, where the depth and strengths of networks have been in place for a long time. These industries are seeking to broaden and seek opportunities or cross-industry collaboration. The Adelaide clustering experience demonstrates that success in building and sustaining new industry clusters requires a strong and long-term commitment by industry stakeholders and governments to a process of learning and partnership building, based on mutual respect and trust. The main thing that would improve current South Australian effort is attention to upgrading the relevant knowledge assets available to potential leaders. 5.3 Far North Queensland Clustering Initiative Far North Queensland is one of Australia‘s most internationalized regional economies and popular tourism destinations. Located in the northern part of the State of Queensland, the area was once a small backward economy producing mainly sugar, timber, tobacco and beef. In the early 1980s the region experienced a remarkable transformation, which was brought about by the influence of national economic reforms, environmental policies and the vision of a few community leaders to build an International Airport. The opening of the Cairns International Airport in 1984 started a development process that has led to Cairns becoming one of the most internationalized and rapid growing regional economies in Australia. Like many regions of the world that have experienced rapid development, the initial bubble of success faded in the early 1990s. Between 1985 and 1991 over $US 600 million in foreign investment poured into the local economy, mainly into tourism and residential Industry Clusters in Australia 113 Table 2. Sixteen clusters identified based on American and New Zealand experiences Business Mining Arts and culture Agri-business Transport services Retail Marine industries Manufacturing Multimedia Education services Film and television Food industries Tourism Environmental services Construction Health services property development. Much of this was from Japanese sources. In 1991, the Japanese economy entered a prolonged recession and foreign investment in the Cairns region dried up overnight. At the same time, the global recession, high foreign exchange rates and a disastrous pilot‘s strike resulted in a significant contraction to the region‘s economy. The economic base of the region had become distorted, with a high dependence upon tourism that had left the economy very exposed to cyclical features and fluctuations synonymous with this industry (Stimson et al., 1993). In 1994, the region embarked upon an extensive regional planning process to prepare an Integrated Growth Management Plan to guide the development of the region to 2010 and beyond (FNQ, 1998). A key initiative of the planning process was an economic development strategy that focused on the development of industry clusters (DTSBI, 1996). The process of facilitating the building of industry clusters was led by the Cairns Regional Economic Development Corporation (CREDC, see www.credc.com.au). The former CEO of the organization had a key role in this, having brought back from the US many ideas and concepts used there for the development of clusters. Strong support was given by Federal and State government regional development programme (REDO) funds. There was also strong local industry support for the idea of clustering. Using models for cluster analysis based on the US (DHUD, 1996; Waits, 1995) and New Zealand (Ffowcs-Williams, 1996) experiences, 16 clusters were identified as listed in Table 2. The CREDC has provided considerable resources to support the industry cluster-building programme. It began with a series of cluster musters. These were meetings comprising business representatives, whose firms or organizations shared similar markets, suppliers and networks and facilitated by trained staff of the Corporation. The musters were designed to explain the benefits of local industries learning to collaborate. The cluster development process has been as much a learning experience for cluster stakeholders as it has an experience of doing things more collaboratively. The guidelines used for screening and prioritizing firms to become part of an industry cluster were adapted from the Greater Tucson Strategic Economic Plan (GTEC, 1996): • • • • • • Firms that are stable or are from growth industries. Industries with the capacity to become world competitive. Industries that have a unique competitive advantage. Firms that use local labour and suppliers. Firms that assist export orientated businesses. Firms with the best potential to joint venture internationally. The largest industry cluster in the region is tourism. However, the industry has not been involved in the cluster facilitation process. It is a natural cluster that has spun off the development of the national tourism industry in the 1980s. In 1993 tourism was estimated to contribute more than 24% of the region’s economy (Horwarth & Horwarth, 1993). In the 1980s, substantial public investment was made in tourism infrastructure and marketing to promote the industry. The cluster forms part of a network of regional tourism clusters that 114 Brian H. Roberts and Michael. J. Enright make up Australia’s national tourism industry. The industry is well organized through the Cairns Tourism Promotion Bureau and other associations and has not seen any advantage in embarking upon a facilitation process to enhance its development. While most of the clusters in the region are relatively small and are perhaps better described as business networks, they have continued to mature into larger industries since the clustering initiative began. They comprise firms and organizations with strong local networks of association and a desire to work together collaboratively to develop fledgling regional industries and new exports markets. An important step in the clustering process has been to develop cluster strategic plans. All the clusters have strategic plans, which include an analysis of the competitiveness of core competencies, strategic infrastructure, regional risk and economic development opportunities and an action plan for their development. All the clusters identified have a range of firms that identify with the clusters and share common suppliers and distributors. The clustering process in Far North Queensland has met with mixed success. It is strongly supported in the region, and is accepted by local firms as a valuable tool to encourage greater collaboration and resource sharing between and within industries to help reduce costs. The region’s isolation increases transportation costs. Local firms are keen to look for ways to collaborate and innovate to reduce costs and develop new markets and products. The development of several clusters is well advanced. Others, such as the environmental and health services, have struggled to develop. The marine industry cluster, centred on the region’s $150 million fishing industry, has established a company, Eco-Fish, which represents the interests of the industry. It has over 150 members and raises funds from a levy on fishing vessels according to size. Eco-Fish is involved in promoting the interests of the industry, research and export markets development and has developed education courses with the local technical college. The education cluster has established a company, Cairns International Education Providers, which collaboratively markets regional education services into Asia. Cairns International Technology Enterprises was established in 2000 to represent and promote the interest of IT industries in the regions. Other clusters likely to form companies include the film and television, tropical fruits, arts, environmental and agribusiness industries. Several lessons can be learned from the Cairns experience. First, there was a realization by business and government that the economic base of the region was too dependent upon two major industries, tourism and mining. Diversification was essential, but this would require greater collaboration and resource sharing to enable innovation and new industries to develop. Second, isolation created opportunities for local firms and industries to seek opportunities for resource sharing to reduce business costs. Clustering offered a way to do this. Third, CREDC and its former CEO and Board had a key role in educating local firms and industries about the value of clustering in helping to foster the development of new industries. Fourth, there has always been a close working relationship between government and industry in Far North Queensland. This combined with the highly entrepreneurial nature of the business community has been probably the single most important factor in making the facilitated industry clustering initiatives in this region work The emphasis on clustering, however, may have overlooked other options to develop and create a more efficient economy, such as developing import substitution opportunities and strategic regional industry networks alliances, such as the New Zealand Berry Network. The focus on the development of individual clusters has also resulted in possible cross-industry clustering opportunities being overlooked. Overall, the initiative to use industry clustering as a means of developing new industries to help diversifying the Far North Queensland economy has been successful. This has not been the case elsewhere in Australia. Industry Clusters in Australia 115 5.4 Hunter Region Experience The Hunter region, in New South Wales, which includes the City of Newcastle, is one of Australia’s largest export regions. Founded primarily on agriculture and coal mining in the middle nineteenth century, the region’s industrial base expanded significantly in 1915 with the establishment of BHP. Newcastle grew in the 1930s to become one of Australia’s major industrial centres. In the 1960s the BHP steel plant was one of the largest mills of its kind in the world. The Hunter region is also a major producer and exporter of coal, aluminium, wine, and electricity and is a major domestic tourism destination. In the 1980s, Newcastle was severely affected by the restructuring of the manufacturing sector and has undergone massive restructuring since then. The structure of the economy has changed significantly, with services accounting for more than 78% of regional employment compared to 61% in 1971. As part of the Australian Labour government’s ‘Working Nation’ programme, the Hunter Urban and Regional Development Organization (HURDO) was formed in 1994 to facilitate economic development in the region. Faced with massive losses in employment in the steel and metals fabrication industries, HURDO was charged with developing an economic plan to revitalize the region. Work on an interim economic development strategy commenced in 1996 with a conference involving a satellite link-up with Professor Michael Porter from the Harvard Business School. The conference was used to assist with the development of a planning framework for the economic development of the region, which would involve the strengthening of local networks, linkages and collaboration between local firms and industries through the development of industry clusters. HURDO prepared a detailed programme of cluster mapping which was funded with assistance from a BHP Development Trust. The research on mapping the industry clusters was important in providing information used in a series of regional meetings to explain the clustering process. Workshops were held with representatives from business, government, regional development and community groups representing 23 clusters identified by the mapping process. These included the larger well-established regional clusters, such as wine, coal, mining and steel, as well as potential new clusters such as sustainable energy, education and information technology. The meetings were intended to inform regional firms and industries about clusters and to encourage feedback on the interim economic development strategy. The clustering development process adopted for the Hunter region was similar to that undertaken in Adelaide. The first phase involved meetings to gain stakeholder commitment to an agreed process to develop local industry clusters. The second phase involved a commitment to the preparation of strategic plans to guide the development of selected clusters. This stage was designed to firm up and formalize networks and the management structure proposed for each cluster. The third phase involved the selection of priority projects, their detailed feasibility and design and implementation. Four industry clusters that went through the process have been registered as corporate bodies, with several others in various stages of incubation. Other clusters, such as defence, wine, equine and engineering manufacturing, developed independently with support of industry organizations. The education cluster, EdNet, was formed in 1999 and includes most of the region’s higher education and training institutions. Several joint-venture training products have been developed and improved marketing of regional education services has eventuated as the result of the cluster. The Sustainable Industries cluster is an incorporated body representing the interests of renewable energy and renewable energy management, water and land quality management and products that contribute to environmental sustainability. Newcastle is a leading international research centre for the development of wind powered generated electricity. The cluster has developed a number of products and services through to commercialization. Global Build Incorporated is an industry cluster that includes 116 Brian H. Roberts and Michael. J. Enright industry, government, university and employee organizations with interests in building and construction. Hunter Tech Inc. is a network of information technology that is involved in extensive cross-cluster collaboration. Agribusiness and mining services are industry clusters at an early stage of development. In 2000 HURDO was dissolved owing to the finish of the 3 year funding arrangement under the previous Australian government’s Regional Development Programme. The Hunter Advantage Economic Development Plan (HRDO, 2000), which was the final piece of work undertaken by the organization, puts in place a long-term strategy for the development of new clusters in the region. The cluster development process has been transferred to the Hunter Economic Development Corporation (HEDC) and the Industry Development Centre (IDC), which together with other regional development agencies continue to drive the process. The cluster development process in the Hunter region has been a difficult learning process and for many initiatives these have proved unsustainable without continued public sector support. Many industries and firms in the region were sceptical of a process that involved collaboration with competitive firms. There was significant mistrust of government leading the clustering process, given the government’s handling of the demise of the steel industry. This situation was not dissimilar to the South Australian experience. Fear of sharing information, lack of trust and a ‘what’s in it for me’ attitude are factors that had to be overcome through a cluster learning process. Significant public funds were invested in the process and ongoing government assistance has been necessary to maintain a basic secretariat to support cluster activities. The experience in the Hunter region suggests that it takes between 3 and 5 years of learning and capacity building before clustering is embraced by local firms and industries and that clusters are capable of becoming self-financed. Even then, size is a major factor in clusters self-financing. However, several regional clusters such as the coal, wine and equine industries have developed into highly competitive industry clusters. These industries have had a long history in the region and are backed by strong local and national associations and widely developed networks. The industries have also received substantial support from State and Federal governments. The lesson from the Hunter region is that it takes many years to develop the networks and significant public sector support to develop mature clusters that are relatively self-sustaining. The four case studies demonstrate that industry clustering can have very positive benefits in helping regions to facilitate the development of new and existing industries. The results and experiences of the cluster development process in the three regional case studies have varied. This is to be expected, as not every attempt at encouraged clustering of new regional industries that lack established networks, resources and core competencies will be successful. There is a stage when support for the process has to be withdrawn. In Cairns, this had a positive result and led to the development of the film and television association cluster. The principal lessons learned from the clustering experience in the three case studies is that the process is difficult, requires a long term and considerable learning and unlearning by both participants and facilitators along the way. 6. Industry Clustering in Australia: What Prospects for the Future? There have been two different approaches that have fostered the development of regional industry clusters in Australia. One approach has come about as a by-product of holistic reforms or support for the development or restructuring of national industries. The second has been a deliberate policy attempt by State governments to foster innovation and collaboration between local and regional firms to form industry clusters in support of economic development. The investigation of clustering activities using this approach in Australia indicates that Industry Clusters in Australia 117 much of the effort has been targeted at regions experiencing economic distress from structural changes in the Australian economy. Regional industry clusters derived from the restructuring of older established industries appear to be functioning well and growing. Successful regional clusters, involved with tourism, wine, fishing and finance, all have well-established regional business and marketing networks and a strong local capital base. Clusters that have been facilitated are very much weaker and many are disadvantaged by a lack of access to benefits offered by national industry support schemes. Substantial capacity building to support regional strategic infrastructure is needed to turn a local or regional network of firms and industries into a cluster. In distress regions government is the only organization capable of funding this. Even then, facilitated clusters take many years to develop and reach maturity, if the US and European experience is anything to go by. When new regional industry clusters appear to reach a point that might be considered mature and considered sustainable, government incentives may still be necessary to maintain their viability. Large industry associations, corporations or industry/group alliance businesses have a key role to play in the structure and development of regional clusters in Australia. These organizations attract high-level functions that are critical in servicing the operational needs of firms in a cluster. The lack of high-level functions in many regions is an impediment to many initiatives designed to facilitate industry clustering. National and international corporations and firms find advantage in being part of a local industry cluster only if it is highly innovative and develops applied knowledge about technology and markets. The evidence suggests that sustained public investment over a long period is required to build or develop local and regional industry clusters. Regional development associations and boards are the primary organizations responsible for funding cluster identification and development processes. The range and structure of regional development agencies and the approaches used to foster industry clustering therefore varies significantly. The evidence gathered from Australian regional development agencies trying to facilitate industry clustering suggests that the more enterprise driven these organizations are, the greater the prospects of clustering initiatives being successful. The Far North Queensland case study exemplifies this. Federal and State government interest and support for industry clustering to foster economic development and competitiveness vary significantly. This situation is unlike most other OECD countries where governments have given strong support to a range of approaches to develop clusters. Queensland and South Australia have adopted the most comprehensive approaches to clustering, ranging from State and regional industry task forces to substantial funding support to local economic development organizations to foster local business clusters. The success of industry clustering will depend upon the competence with which the process is undertaken, the willingness of business to take a leadership role, a long-term commitment to the processes and the development of regional and national strategic architecture that will enable firms and industries to be innovative, entrepreneurial and work more collaboratively to compete for trade and investment opportunities in the domestic and international economies. There is considerable rhetoric about the success of clusters. Clustering only works if there is commitment by regional industries and firms to a process that builds trust, respect, collaboration and an effort resulting in the achievement of common goals or targets. The success of the Australian national wine industry, which by its very nature is made up of many regional industry clusters, has been the commitment to collaboration and the achievement of targets set by the industry. A parallel can be drawn here with the Australian tourism and film and television industries. These were not significant industries in the Australian economy less than 20 years ago. The three regional case studies demonstrate that cluster development 118 Brian H. Roberts and Michael. J. Enright processes can achieve positive economic outcomes and develop new industries for regions. The Adelaide metropolitan and Hunter regions have been affected significantly by globalization and structural reforms. Clustering has been a means of rebuilding capacity and competitiveness in these two regions. Far North Queensland is an example of a region that has embraced the concept of clustering to building and re-engineering its strategic architecture to support the development of new products and services which regional firms and industries are exporting to Asian markets. The question of the macro-effectiveness of clustering in Australia has never been fully examined. European and US experience suggests that clustering has significant benefits and that the widespread adoption of clustering strategies in Australia needs to be considered. Overall, Australia seems to be failing to cope with change—both economically and politically and its major institutions are also breaking down. The national summit on innovation provided a unique opportunity for the nation to focus on using industry clusters as a means of stimulating regional innovation and networking to support new competitive industries to replace or value-add to those based on the old economy. There is a lack of cohesive policy at Federal, State and local government level, as well as in industry, on how to develop spatial platforms for innovation to foster regional industry clusters and networking. There is much Australia can learn from the way other OECD countries are capitalizing on clustering as a means of realizing the goals of macro-economic policies and programmes to build a smarter nation. Clustering is one of many initiatives open to governments and businesses to foster industry development and build regional competitiveness. Australia lags well behind many OECD countries in embracing the concept and realizing the benefits of clustering. Many governments and industries still see clustering as boutique and a novel approach to addressing regional and local economic development problems. Many national and State economic development policy advisers do not understand the concept. Government agencies and industry organizations must undergo a considerable learning experience before the value and process of cluster development as the process of creating links rather than adding additional elements, is more accepted and understood. This is especially important for the nation’s capital cities, where the potential value of clustering will be greatest. The willingness of governments to commit to long-term cluster capacity-building programmes creates uncertainty for the development of local and regional industry clusters. Another constraint is business’s unwillingness to take the lead, and governments’ frequent unwillingness to let them do so. Cluster building is something that the stakeholders involved must learn. It also involves developing partnerships based on trust. There is considerable uncertainty in the process; the feasibility of initiatives to build regional industry clusters must be thoroughly investigated. Not every cluster building initiative will be successful. The process cannot be forced, nor is there a standard model for success. Some clusters will form naturally as a spin-off from existing industry networks and the strong presence of social capital. Others will require government assistance to help build the synergies and networks of collaboration needed to sustain the development of new industry clusters. There is still much to be learned about clusters and their contribution to economic development. Much more research is required to improve our understanding of the nature and benefits of promoting industry clustering. As a nation we must understand how to develop industry clusters, networks, partnerships and strategic alliances that will make Australia’s metropolitan and regional industries more competitive. We must also learn how to build more flexible national and regional strategic architecture to support the development of clusters. The wine and film industries are world leaders. These are industries made up of a network of geographically spread clusters that is a formidable global competitor. The wine and international tourism industries demonstrate that the tyranny of distance that held back Industry Clusters in Australia 119 Australia for many years is not the obstacle it once was. Unlocking the key to building local clusters and interregional, national and global networks is one of the greatest challenges facing governments, industries and communities in building and maintaining a competitive and sustainable Australia. Clustering is the way of the future; however, it is a process that must be learned, cultivated and constantly reinvented. These are the lessons learned from Australia’s limited experience of industry cluster development. Clustering in Australia is at a crossroad. At the grass roots level, much has been achieved in developing networks of firms, partnerships and clusters in non-metropolitan and regional Australia to encourage industries and firms to collaborate and develop new industries and markets. In metropolitan Australia, clustering is a concept that has drawn only minor interest. There are significant differences in public policy support for clustering at all levels of government within and between the States. 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Chicago, IL: University of Chicago Press. Author Query Sheet Manuscript Information Journal Acronym Volume and issue EPS Author name Roberts 12.1 Manuscript No. (if applicable) AUTHOR: The following queries have arisen during the editing of your manuscript. Please answer the queries by marking necessary corrections at the appropriate positions on the PROOFS. Do not answer the queries on the query sheet itself. Please also return a copy of the query sheet with your corrected proofs. QUERY NO. QUERY DETAILS Q1 Pappas et al. Please provide initials Q2 QSDD 2000. Please provide reference Q3 Roberts & Murray, 2002. Please provide reference Q4 Q5 Blakely et al., 1987a. Please provide initials for Kinhill, Cameron & McNamara or change reference to Blakely & McNamara, 1987, ie. McNamara, K.C., changing reference Blakely et al., 1987b to just 1987 Please check references Enright & Roberts, 2000, 2001, p. 39 Q6 State Development Department & Queensland, 2000. Please cite in text.