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Regional cities can work together to counter global competition. Quamrul Alam, Findlay Johnston and Stephanie Miller look at three Victorian food processing centres to assess how this collaboration works.
Regional Australia is characterised by isolated local communities where individual businesses have historically had to function as independent units more so than their counterparts in Australian cities or in Europe or Asia.
While co-operation between regional businesses is slowly evolving to help them compete with and even counter global competition, results from the three regional areas of Victoria included in this study – Werribee, Bendigo and Shepparton – showed that ‘clustering’ is still in its infancy.
This study examined the factors which hinder businesses from establishing viable business clusters through collaboration. While business networking highlighted the need for more collective action, partnerships were hindered in two ways: there was a lack of adequate leadership to call for improvements in the physical and knowledge infrastructure; and insufficient use was made of electronic communication in the region.
All three regions in this study have produced and processed food for some generations. They have a relatively well-developed industry base, a suitable natural climate, some economies of scale in manufacture, labour pooling, local input or equipment suppliers, infrastructure, significant local and state support, proximity to at least one university (with research departments) and the presence of some successful international companies. They are relatively close to major markets – Werribee is 30km from central Melbourne, Bendigo 135km and Shepparton 170km.
While it is clear from the survey that industry, government and research institutes here network to some extent, it is also evident that the development of this initiative varies in the different regions. Bendigo, with the Central Victorian Business Network (CVBN), has the most fully developed network of businesses.
The CVBN provides information, networking opportunities and a useful website to 275 businesses in and around Bendigo. An initiative of the Department of Innovation, Industry and Regional Development (DIIRD) with support from Bendigo Bank, La Trobe University, Lead On and AusIndustry, and managed through the Centre for Sustainable Regional Development at La Trobe University Bendigo, this network has had early success with attendance and industry participation.
La Trobe University has put on the intellectual agenda some of the thinking behind the concept of clustering and Bendigo City Council has recognised its importance. From this, it is clear that the development of a relevant and flourishing business network needs the active participation of some key attractors. This aspect of the study reinforced the work of others in emphasising the need for strong leadership in cluster development. In this case, strong support from the highly regionally focused Bendigo Bank and the Centre for Sustainable Regional Communities at La Trobe University have worked as catalysts. Since this study, three specific industry clusters have formed in regional food industries with the active support of La Trobe University and DIIRD.
In contrast to the Bendigo experience, the Werribee food processors showed little evidence of clustering despite a nearby communication network. The Werribee Technology Precinct is a concentration of research establishments supported by CSIRO, Food Science Australia, Victoria University of Technology, Melbourne University and Agrifood. Nevertheless it appears to act as an attractor, according to a Local Government representative and member of the focus group who said: “We’ve had a number of companies that have come to Laverton North when they could have gone to Moorabbin or Craigieburn or any other place but came to Laverton North because, all other things were equal and at the margin the Tech precinct was here.”
Perhaps because of Werribee’s close proximity to Melbourne, businesses as well as research establishments feel the pressures of competition much more as a threat. A researcher in the focus group said: “There is a natural instinct to compete, not collaborate, as we are all aiming at the same funds and, let’s be honest about it, there would be the same pool of customers.”
As a direct result, clustering is not a priority in the Werribee region and its benefits are yet to be recognised. A local business manager said: “We all go along to the meetings and we all sit around nicely and discuss things like insurance rates, but the one thing we never talk about is what we do. You don’t want to give any secrets away – who your clients are, or the fact that you’re charging different rates to different people.”
In the Shepparton region, collaboration and effective networking is viewed in quite a negative light. The local representatives expressed the view that clustering was for smaller firms. In their opinion, the presence of international companies means that repositories of knowledge around research and development, innovation, marketing, export and best practice exist here within the confines of each separate firm and each is conscious of the need to preserve their intellectual property. Clustering and strong business networking is seen as a threat to that.
Members of the Shepparton focus group believe that clustering is not for the large multinationals in the region but for the many local small growers. This view is supported by other scholars.
The larger firms have their own support networks and they have good access to advice, market intelligence, research and skilled employees. A local grower and processor said: “You have a very large number of smaller growers, and that’s horticulture in general who need to work together. Clustering would be enormously beneficial for them in terms of economies of size for purchasing and cost cutting, but more so in terms of marketing. Australia produces some very good product. Unfortunately we don’t produce enough of it to get the world’s attention. Unless we get a critical mass no-one wants to know about us.”
One of the key benefits of clustering is that industry groups can collectively lobby governments to improve infrastructure to support industrial growth in the regions. These following factors were identified in the survey as those affecting business cluster development in these three regions:
A shortage of skilled labour is of critical concern and seen as a hindrance to development. Regional training providers have failed to supply suitable and timely skills-based courses for potential labour. A food industry representative said: “Australia is probably the worst serviced in the world in the relationships between business and education. We’ve got some brilliant people here in education and manufacturing but they’re not doing it together.”
There is a clear correlation between distance from the major business centre, Melbourne, and concerns about transportation (see Figure 1). The Bendigo focus group indicated that the road system was not suitable for the more cost-effective large road transport. B-double trucks could not easily navigate the highway between Melbourne and Bendigo and there was no major yarding facility or ‘inland port’. The Shepparton focus group agreed and said the poor state of the railway system compounded problems. At Maroopna, 14,000 containers a year are going out of the most primitive freight set up with two freight trains a day. A food industry representative said: “We don’t have standard gauge rail. If we’re really going to start to be a competitive region we’ve got to get standard gauge rail.”
A major attractor to the Werribee region is the concentration of food industry research facilities, however, many businesses are not aware of what the regional campuses of the universities can do to assist in local food industry R&D. There’s no central point for people to go and get their research done. A business manager said: “If you went round to Bendigo manufacturers I think you’d find very few that would even know of what research or support or assistance the University could give to them… Once you get some collective minds together in complementary businesses and you have your close networking or collaboration then these options would start to grow.”
As previously indicated, the potential role of the regional universities is not fully realised despite a clear need for research assistance in areas furthest away from Melbourne (see Figure 2). Not surprisingly, perhaps, the food processing industry is much more aware of the potential of professional and government research instruments in assisting their development.
Little infrastructure exists for marketing regional produce. Small growers do not have the expertise nor the capacity to market their produce widely. Regional SMEs surveyed have access to the internet and more than 70 per cent have used internet to receive orders. But the use of electronic communication in marketing, networking and other collaborative activities is limited (see Figure 3).
Given the recent very severe drought and its affects on regional Australia, it is no surprise that the development and maintenance of a reliable supply of water for irrigation and processing is seen as critical to development for each regional cluster.
Shepparton is the region where water and water management is of greatest concern. Discussion in the focus groups there revealed that, as a direct result of drought conditions, one of the large food processors last year processed about 70,000 tonnes of tomatoes whereas in 2004 it was only about 50,000 tonnes. The equivalent of seven dairy herds a week was being killed because of the drought. Farmers were selling young breeding stock to China because of lack of feed.
The study revealed that support from the State and the Federal Governments is a critical requirement for regional business development (see Table 1).
Despite various initiatives taken by the State Govern-ment, this study found that cluster formation is in its formative stages in regional Victoria and networking is not widespread. However, the lack of infrastructure in the area, plus its remoteness from the Melbourne CBD, should encourage potential clustering.
The study showed that the Bendigo region is the most successful in forming and sustaining business clusters because of industry leadership, the proactive role of the Bendigo City Council and the strong participation of the tertiary sector. For example, the Bendigo Bank, a successful regional bank with a strong commitment to the region, has been instrumental in creating a formal network and has partnered with the local university’s research centre for regional development.
There are less multinationals in the Bendigo region compared with those in Shepparton and this means that networking partners are more balanced in size. There is less collaborative R&D in Shepparton, as these larger businesses often have their own global R&D teams. In Werribee, there is little collaboration as businesses there are hesitant to share commercial knowledge.
MBR subscribers: to view full academic paper email mbr@buseco.monash.edu.au
Public access: www.mbr.monash.edu/full-papers.php (six months embargo applies)
Dr Quamrul Alam is Senior Lecturer in the Department of Management, Monash University.
Dr R Findlay Johnston is Associate Professor, Department of Business, La Trobe University.
Dr Stephanie Miller is Senior Lecturer at Victoria University.
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URL: http://www.austlii.edu.au/au/journals/MonashBusRw/2007/29.html