Cluster Formation

The case of Konya Automotive Parts and Components Cluster

Important Notice

Launched in March 2007, “Development of a National Clustering Policy” is an EU-funded technical assistance project (the Project, hereinafter) that seeks to contribute to elaboration of a national clustering policy, through development of a “whitepaper” on clustering. The Project is being implemented by the Undersecretariat for Foreign Trade (UFT) with the technical assistance of an international consortium, contracted by Central Finance and Contracts (CFCU).

The methodology, deployed for the development of this and other Roadmaps reflects the key priorities of the DCP Project. Therefore, it, on the one hand aims at developing a roadmap that demonstrates how the cluster can be more competitive, and on the other, serves the key purpose of informing the process of cluster policy-making and development of policy-level and institutional recommendations. The Roadmap for Konya Automotive Parts and Components Cluster has been developed with direct involvement of a broad range of stakeholders: enterprises, governmental and non-governmental organisations, academic and research organisations, and other relevant cluster actors. Cluster roadmap itself, is the strategic plan of cluster development that includes the cluster vision, definition of its strategy, key factors for its successful development and the skills, competences and capabilities which are required for ensuring that the success factors are in place. Roadmap report then proceeds to the analysis and recommendations related to the cluster governance and outlines specific cluster activities in the form of pilot project fiches that should be implemented in short-, medium- and long-term.

Cluster Formation

The case of Konya Automotive Parts and Components Cluster

1.1.         Vision

The vision of Konya APC Cluster was developed, in outline, at the first Working Group Meeting (WGM), and was revised and agreed at the second WGM. Its rationale is based on the issues and challenges arising from the findings and results of the “diamond analysis” and the resulting discussions held at the first WGM – importantly it also reflects the Working Group’s understanding and experience of the Cluster’s dynamics and initiatives undertaken during the Cluster Initiative’s first ten months of activity.

The Working Group found that whilst Konya should seek to continue to supply auto parts for the Turkish and export aftermarkets, it was a priority to undertake the transition to become suppliers to automotive OEMs. This transition is based on the recognition that competition in the aftermarket is becoming increasingly price-focused, with lower-cost producers from China, India and Taiwan undertaking an increasingly aggressive marketing approach. Secondly, Turkey’s growing automotive sector provides a substantial opportunity for Konya-based APC suppliers – described by one partner as “where the opportunities and money are”.

Such a transition requires that the cluster undertake (1) a series of cluster actions to ensure that the cluster is more competitive and (2) measures to ensure that the existing cluster structure is strengthened, so as to continue direct and administer cluster activities and to develop the required positive image by countering the negative aftermarket and counterfeiting perceptions and acquiring the image of a modern APC supplier.

Competitiveness and OEM supply requires the take up of innovatory practices, especially those associated with product and process innovation together with the introduction of quality assurance measures that will allow the cluster and its partners to meet OEM supplier demands.

Finally, there is the necessity to institutionalise, for cluster partners to adopt the management and protection practices that will allow such change to occur most notably transforming the family owned businesses into a business with a corporate structure.

The cluster vision developed reflects this transition:

1.2.         Strategy

The Konya APC Cluster’s strategy was developed in the second WGM. Its rationale is based or focused on the recognition that Konya APC Cluster seeks to undertake the transition from being a cluster that is predominantly focussed on aftermarkets to one that is a competitive supplier to Turkish automotive OEMs - considered to be a more sustainable market than the auto-parts aftermarket.

Such a transition requires that the Cluster, and its partners, adopt a strategy that places the cluster in the position where it is competitive and able to meet the management and production demands and disciplines required by the OEMs. These demands and disciplines include: the ability of the cluster members and partners to innovate their production processes, attain recognised quality assurance standards, and establish effective costing and pricing models and other management strategies[1].

Working towards attaining these structures, and being seen to work towards attaining these, will assist in ensuring that the Cluster is trusted and respected – as well as improving the image of Konya’s APC Cluster.

The cluster strategy is one of ensuring a transition from the aftermarkets to that of the OEM markets:

The Konya APC Cluster strategy can also be seen as the transition from the perceived image of Konya as a traditional auto-parts supplier to that of a modern auto-parts supplier – one that works with OEMs to innovate and develop technology, utilise licensing agreements, seek to achieve economies of scale in purchasing and production, and enjoy a strong bargaining position against upstream and downstream suppliers.

Although the transition from a cluster that supplies aftermarkets to a one that supplies to the OEM markets can be defined as a revolutionary process, the strategy, adopted by the working group, takes the local dynamics into account and reflects a consensus among the local actors.

1.3.         Key Success Factors, Requisite Skills and Capabilities

Below table lists the key success factors, which need to be in place for the cluster to implement its strategy, and progress towards achievement of its vision. It also includes the range of skills, competences and capabilities at the cluster level that are required for successful cluster development (in the short-, medium- and long-term).

Key Success Factors and Requisite Skills and Capabilities

1.4.         Cluster Governance

“Cluster governance is about the intended, collective actions of cluster actors to upgrade a cluster[2]” Effective development of the cluster and the implementation of the Cluster Roadmap depend, to a large extent, on the ability of the cluster actors to organise its activities in a coherent way, to manage and implement the planned strategic actions, as well as to monitor, review, obtain feedback and update its overall strategy and vision, if and when necessary.

The notions of “governance” and “management” have much in common; the difference is that governance refers to a more strategic overview, and relates more to setting a direction for the development of the overall cluster community:

• Governance describes the mechanisms that an organisation or system uses to ensure that its stakeholders and members follow its established processes and policies. It implies the key ways of maintaining oversight and accountability in a loosely coupled organisational structure. Proper governance strategy includes systems to monitor and record progress, takes steps to ensure compliance with agreed policies and strategies, and provides for corrective action in cases where the accepted rules have been ignored or misconstrued.
• Management of cluster initiatives, at a more practical (day-to-day) level, is also very important and needs to be combined with (integrated into) the overall governance of the cluster. Therefore, mechanisms to ensure the overall cluster governance and detailed management and coordination need to be established in order for the cluster to operate efficiently as a coherent system.

There is a great variety of cluster management and coordination mechanisms worldwide that are established to perform the above functions. There is no single “prescriptive” solution that fits all, and each cluster should decide whether it needs an institutionalised management mechanism, and what the best legal and organisational structure of this mechanism should be. Leadership and commitment of key cluster members in the process of formation of this structure is crucial.

More often than not, cluster initiatives benefit from presence of a unit that coordinates the cluster initiative. Ideally, the cluster coordination unit (CCU) should be established as an independent and impartial organisation, dedicated to serving the interests of the cluster as a whole, without favouring any specific cluster actor, element or activity. The role and function of a cluster coordination unit is to act as a catalyst and a “challenger” for the cluster; its role is also to encourage cluster partners to:

• Compete, cooperate and coordinate where appropriate the building and / or enforce of cluster relationships;
• To raise the cluster’s competitive performance through the cluster partners recognition of and take up of innovation and technology, and
• To raise cluster partner aspirations – growth and development.

The governance and management structure of the Konya APC Cluster Initiative was established under Konya’s previous “cluster project” (i.e. Cluster Potential in Konya and an Empirical Study) and can be described as a “loose” public-private partnership model, in which the cluster initiative is being lead by the Konya Chamber of Industry, which is quasi-governmental organisation that provides public services and represents the local business community. 

Cluster Partnership Structure

To be successful and to ensure that the cluster coordination unit can undertake its role and function, cluster partners are required to join the cluster. Membership is voluntary, but necessary in order that cluster partners maybe identified, communicated with and assisted when and where appropriate. There are currently (November 2008) 17 (from a total of some 350) cluster partners (i.e. auto-parts suppliers to the aftermarket sector), which have joined the Konya APC Cluster Association. In addition there are ten stakeholder representatives from the ABIGEM, AKTISAD, Chambers of Industry, Chambers of Trade, Konya Industrial Zone, Konya Governorate, Konya Metropolitan Municipality, KOSGEB, MUSIAD, and Selçuk University.

Cluster Governance

The Konya APC Cluster Initiative is governed by a recently established association, management committee of which includes seventeen representatives drawn from the cluster partners, with an elected Chairman. The cluster management committee meets on a monthly basis, to review the Cluster Initiative and the needs of the Cluster.

The cluster is managed and administrated, on a day to day basis, by a cluster management unit (CMU) based at Konya Chambers of Industry, which is responsible to and governed by the cluster management committee. The Konya APC Cluster employees one fulltime employee (seconded by Konya Chambers of Industry) who is assisted in his work by three consultants – a cluster management structure that is the norm for European automotive clusters (Automotive Clusters in Europe study),   

The formal structure that represents the Konya APC Cluster is an association. The decision to institutionalise the cluster initiative through establishment of an association was made upon considering the other options (i.e. a cooperative and joint company) as well. Unfortunately, the questionable activities of certain cooperatives and holdings in the 70s and 90s in Konya paved the way for weakening the image of such collective initiatives. As such, legal structures that would allow for establishment of an institution that can directly engage in commercial activities were not considered appropriate.

1.5.         Cluster Actions

Building on the KSFs and the identified requisite skills and capabilities the Working Group identified five broad cluster actions (combining Innovation and R&D take up) that would further develop the cluster, ensure its effective management and seek to address the intentions of the cluster strategy. Cluster actions are a series of mutually supportive activities that seek to develop and strengthen both the cluster dynamic and its competitiveness together with that of the individual cluster partners – seeking to ensure that the whole is greater than the sum of the parts.

These five broad Cluster Actions are: (1) Cluster Development; (2) Innovation and R&D; (3) Quality Assurance Standards; (4) Cost Effectiveness Programme; and (5) Supply Chain Productivity, with their collaborative projects are outlined below.

Cluster Action 1: Cluster Development

The motivation behind this action line is the fact that the Konya APC Cluster is in a developing stage, and that there is the need to build on the existing cluster structures to ensure that it can undertake the transformation from a developing cluster to a mature cluster. As indicated above, these require the ability to continue to build on existing social capital, existing cooperation and coordination activities, and to encourage the take up of innovative and competitive actions, especially those that lead to the establishment of a positive image for the auto-parts cluster and its partners. Accordingly, the objective of the Cluster Action 1 is to continue the cluster development process with a view to ensure the transformation from leveraging on the existing successful cluster structure.

Cluster Action 2: Innovation and R&D

The objective of this particular Action is to encourage the take up of innovative practices and actions by Konya APC Cluster partners, and at a later stage, to encourage the take up of R&D activities. This Action is composed of three components: (1) launching an innovation take up programme; (2) establishing an innovation agency (facility); and (3) launching an R&D take up programme.

Cluster Action 3: Quality Assurance Standards

The objective of Cluster Action 3 is to introduce and to embed quality standard ISO 16949 into appropriate cluster partners. This objective is expected to be achieved through (1) introduction of automotive quality assurance standards; (2) launching an ISO 16949 acquisition programme; and (3) developing ISO 16949 accreditation capacity in Konya.

Cluster Action 4: Cost Effectiveness Programme

As with quality standards automotive OEMs demand that suppliers provide “costing models” for the auto-parts, sub-assemblies or services provided to them. As noted earlier, if such a costing and pricing model cannot be supplied, then the cost model and price is imposed on the supplier. So as not to be in a position where a cost and price structure is imposed, there is the need to develop within the cluster and its partners the ability to understand, predict and established costs and related prices both as a competiveness measure and as a productivity measurement tool. This need is planned to be addressed by Cluster Action 4, which will launch a cost effectiveness programme.

Cluster Action 5: Supply Chain Productivity

The motivation behind Cluster Action 5 is to ensure that the Konya APC Cluster is in a position to bargain or negotiate with the automotive OEMs. For this to happen, it is necessary to ensure that the Cluster and its partners are able address the other KSFs, achieve proficiency in specific manufacturing activities (casting, moulding and machining), and where appropriate undertake the management institutionalisation processes. Here, the role of the Cluster Initiative is not to undertake such productivity initiatives, but to oversee their take up and implementation by using resources readily available in Konya, say ABIGEM, Chambers of Industry and Selçuk University.