Strategic management of industrial clusters in Thailand.

SUMMARY

Currently, the Thai government has implemented cluster development strategies to improve the national economic performance and technological capabilities. The strategic management of the reorganization of industrial clusters undertaken at the National Science and Technology Development Agency (NSTDA), a major research organization in Thailand, is based on the concept of the National System of Innovation (NSI). NSTDA has focussed on this cluster-based economic development model to position Thailand to meet the challenges in the environment of knowledge-based economy. The aim of the cluster-based strategy is to focus on specific internal capabilities in order to improve technological competitiveness and research capabilities to meet the needs of the country. This paper presents the process of defining the Key Performance Indicator (KPI) and using the Balanced Scorecard (BSC) as a framework for translating NSTDA's strategic direction into action. Specifically, the Operating Model of NSTDA is proposed as a manifestation for industrial development and effective research management to support Thailand's national innovation system. Policy implications and supportive initiatives at NSTDA will be useful for similar research organizations in other developing countries to better exploit the industrial cluster concept to develop technological innovations and enhance performance in the NSI.

KEY WORDS

cluster-based strategy; industrial clusters; National System of Innovation (NSI); Balanced Scorecard (BSC); innovation system; knowledge-based economy

1. INTRODUCTION

Facing a new paradigm of the knowledge-based economy, the Thai government has emphasized the nation's competitiveness by using a cluster-based approach as the main strategy for improving its National System of Innovation (NSI). The aim of adopting a cluster-oriented policy is to leapfrog from labor intensive positioning to R&D intensive positioning (from Level 1 to Level 3 as presented in Figure 1) and to produce tangible results contributing to the economic growth and development of the nation. To transition to a knowledge-based economy, a shift is being planned at the National Science and Technology Development Agency (NSTDA), a major research organization in Thailand, to direct and expand clusters, based on the national competitiveness agenda recommended by Professor Michael Porter (Porter 1990, 1998, 2001).

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Realizing the potential of innovation-driven growth, it is essential for NSTDA to strategically manage the industrial clusters to invigorate the innovation system. Section 2 reviews the concepts of NSI and the clusters to lay a theoretical foundation for case study analysis. Section 3 presents the case study of the research organization, NSTDA, and the process of reorganizing industrial clusters to improve internal capabilities for knowledge and innovation creation. Section 4 presents an analysis of findings for the NSTDA case study to provide valuable insights for management of innovation capability (the process of reorganizing industrial clusters). Section 5 draws some managerial and policy implications for application to similar research organizations in other developing countries in respect of technological innovation development and performance enhancement in an industrial system.

2. THEORETICAL FRAMEWORK

National System of Innovation (NSI)

The roots of innovation systems (IS) concepts are based on Schumpeterian economics, emphasizing innovation and entrepreneurship (Schumpeter 1939, 1967). The IS concept shares cultural and institutional dimensions which are an unorthodox perspective in the mainstream economic belief. Cross-cultural and institutional interactions, stressing knowledge and learning, constitute a shift of perspective and a new focus. The new focus, the core of IS, commences from the allocation of given and scarce resources to the creation, distribution and use of new resources.

The concept of a National System of Innovation (NSI) or national policies of innovation, particularly in industrialized countries in the Northern hemisphere, can be traced back to the work of Lundvall at Aalborg University and Chris Freeman in the mid-1980s (Freeman 1987; Lundvall 1992, 1998, 1999, 2003; Nelson 1988, 1993; Edquist 1997). NSI is the interactive system of institutions, private and public firms, universities and government agencies, aiming at production, diffusion and exploitation of knowledge within national borders (Cooke et al. 1997; Lundvall 1993). Interaction can be achieved through both market mechanisms and non-market mechanisms such as collaboration and long-term network arrangements. The NSI concept is also a dynamic tool to investigate, formulate, plan and position national economic and social development by using technology and innovation as the main driving force. Table 1 illustrates NSI definitions.

Lundvall (1992, 1998, 1999, 2003) argued that the most fundamental resource in modern economy is knowledge and, accordingly, the process of learning should be taken into consideration in the context of interactions among institutions. This study is based on an NSI concept emphasizing the role of various institutions in the innovation system (Table 1). In emerging industries, R&D is often seen as the source of continuous innovation. The technological capabilities of a nation's firms are a key source in the competitive process (Nelson & Rosenberg 1993). To promote economic growth in developing countries, the government needs to strengthen technological capability to support transition to a knowledge-based economy or a learning economy (Lundvall & Borras 1999; Gregersen & Johnson 2001).

Clusters as a source of national competitiveness

The literature on industrial clusters popularized during the 1990s. The cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (Porter 1990, 2001). According to Jacobs and DeMan (1996) and Rosenfeld (1996, 1997), the industrial cluster is a geographically bounded concentration of complementary businesses, with active channels for business transactions, communications and dialogue, that share specialized infrastructure, labor markets and services, and that are faced with common opportunities and threats. Porter (1990, 2001) has proposed incorporating industrial cluster policy into regional and national economic development.

The current government led by Prime Minister Thaksin Shinawatra has asked Professor Michael E Porter to do research on what Thailand should focus on in order to promote the country's competitiveness. The competitiveness agenda, recommended by Porter, was drawn on his research findings of Thailand's strengths and, according to his 2003 and 2005 study, cluster policies were recommended to improve Thailand's competitiveness. It was the first time that the Thai government has focussed on selective policies (Thaksinomics policies) to address five specific clusters: automotive, food, tourism, fashion and software. NSTDA has adopted the cluster-based approach as an economic development strategy. NSTDA attempts to improve competitiveness and industrial cluster reorganization will be discussed further in Section 3.

The cluster approach provides an understanding of economic development processes. Clusters lead to increased levels of productivity, growth and employment (Porter 1990, 2001; Feldman 2000; Steiner 1998). Within an industrial cluster, the social community and economic agents work together to drive product/process innovations to the marketplace (Gordon & McCann 2000; Schmitz 2000). Porter (1999) argued that the nation's innovative capacity is built on the combined strength of the common innovation infrastructure and the vitality of the environment for innovation in particular clusters. Another interesting concept is technological clusters. The study of Saxenian (1994) represents an evolution of technology-intensive industries in California's Silicon Valley and Boston's Route 128. Technological clusters, based on innovation activities, emphasize competition which in turn led to the growth of US Silicon Valley (Wonglimpiyarat 2005).

Government policy-makers worldwide have been challenged to implement the cluster concept as an economic development model. Industrial clusters are not confined to political boundaries and can be localized (like the clothing and garment industry of New York) or dispersed (like the North American auto industry). Within the context of industrial clusters, the institutional forms crucial to the development of NSI are common customers, common suppliers/ service providers, common infrastructure support, common knowledge base (human talents) for knowledge interaction, common educational base, common university/ research centers, and common risk capital market (Lorenz 1992; Padmore & Gibson 1998). Economic growth and development of NSI are generally associated with the management of institutional settings.