Saturday, August 31, 2013

Regional Economic Development after a Global Lightning Strike

Globalization has swept through areas like a lightning bolt striking down anything that no longer competes internationally. Despite its destructive powers, there are also opportunities for generating economies anew.  Research by Bailey, et. al. (2010) explores how the mechanical sector of Prato Italy and the automotive sectors of West Midlands United Kingdom in Europe were able to use “place leadership” to understand the economic, social, institutional, and cultural aspects of places for upgrading and renovating to create new international competitive products. 

Places of production are locations where people’s skills and corresponding firms develop a hub of economic activity. According to Bellandi (2006), they have the following criteria:

1.) The presence of industry that is embedded in the social fabric of people who have similar shared experiences within that industry. 

2.) An industrial cluster that defines the economics of a location.

3.) Local producers who share similarities in knowledge, norms, conventions, and trust based beliefs. Cooperative actions abound among business and institutional stakeholders. 

In essence, these industries define the economic activity of a place and are embedded into the very cultures of the people. As globalization takes hold it changes the economic pressures on the economic hub and can result in social and economic decline. There becomes a need to find new ways of using old platforms to create new products and services for both economically and socially viable. 

In such regional hubs, leadership is about developing the entire economic hub together as one system. In the context of regional economic development leadership is the realization of, “the tendency of a community to collaborate across sectors in a sustained, purposeful manner to enhance the economic performance of its region” (Stough, 2001, p. 35).  It is a process of getting people to work together in a way that encourage social and economic processes that lead to regional economic development. 

There are many reasons why an area may experience a level of decline. Technology changes and price shocks are two of the most common factors. When a socio-economic system, with its value system becomes mature, it can also become expensive. When a competitive price shock occurs, companies begin to cost cut and if the value chain is not responsive, they may move their operations overseas to maintain competitiveness. 

As such, businesses move overseas the local area begins to suffer the weight of a culture focused in a single direction and a hub of businesses that cannot cost cut labor, political structures that are unyielding, and “status quo” that stifles the need for change. The process of decline continues until an economic collapse occurs and change is the only way to improve. 

To adjust the downward trajectory would mean to create a more sustainable system using the old platform with new market realities to regenerate the productive capacity of the area. For example, an automotive and manufacturing region may opt to put in place innovative hubs that mix with manufacturing to develop new products that are sold on the open market. 

The report suggests improving production capacities by encouraging decision makers to do the following when decline is entrenched:

1.) Entering and securing high value-added market segments: Encouraging businesses to move away from mass manufacturing and pure price competition to niche markets and manufactured products that sell for higher value. 

2. Cross-sector fertilization: Fostering clusters of knowledge that move beyond traditional markets and fertilize new markets for future products, services and opportunities.

3.) Repositioning in the global value chain: Reposition current clusters within the global supply vines to find new value within the process. 

The report provided some interesting information on two case examples. To improve upon this model I would invite the consideration of three additional concepts that would further the development of international markets in both the short and long run. The researchers focused heavily on markets and how they are used to further change. Yet the very societal structure, new investments, and core competency are needed to indicatively develop sustainable markets for the future.

4.) Encourage international investments: Encourage investments into the regional hub to develop new jobs, tax revenues, and products.

5.) Use core competencies to create innovative industries: Use basic historical core competencies and build upon them to create new markets (i.e. automotive to household products, planes, trucks, etc… ; or, fishing industry to sea technology, sustainable fishing products, recreational boats, etc...

6.) Align institutional structure and culture for future growth: Adjusting governmental structure to create leaner management, culture that is progressive and rewards new ideas and performance, and foster the growth of innovative clusters.

Bailey, et. al. (2010). Plan-renewing leadership: trajectories of change for mature manufacturing regions in Europe. Policy Studies, 31 (4).

Bellandi, M., (2006). A perspective on clusters, localities and specific public goods. In: C. Pitelis,R. Sugden, and J. Wilson, eds. Clusters and globalisation. Cheltenham: Edward Elgar, 96, 113.

Stough, R., (2001). Endogenous growth theory and the role of institutions in regional economic development. In : Z.J. Acs, H.L.F. de Groot and P. Nijkamp, eds. The emergence of the knowledge economy: a regional perspective. Berlin: Springer.

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