Inter-actor Network Creation

The case of Denizli (and Uşak) Home Textiles Cluster(s)

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 Denizli (and Uşak) Home Textiles Cluster(s) 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.

Inter-actor Network Creation

The case of Denizli (and Uşak) Home Textiles Cluster(s)

1.1. Vision

In order to develop this Cluster Roadmap, three workshops were facilitated with active participation of cluster working group members, including representatives of the Chamber of Industry, Chamber of Commerce, DETKIB (Textile and Apparel Exporters Union), Pamukkale University, and large- and medium-scale home textile producers, as well as local opinion leaders. The objective of the first workshop was to develop a shared vision for the cluster that would reflect their preferred future and positioning in the global market. The workshop participants revealed varying levels of understanding of international market trends. However consensus regarding their strong aspiration to build an internationally recognized regional brand emerged in the following vision statement:

The brand value propositions for this cluster vision are the following:

• To simplify a time–pressured selection and purchasing process for customers and consumers by building the image of a place with producers of state-of-the-art quality and design products
• Consistency with the brand image throughout the whole region
• To build the confidence of customers by setting high standard production processes
• An image as a place where constant product improvements are happening, while at the same time preserving in the design the region’s unique history and culture

The group had difficulties selecting a brand name: whether to promote under the name of Denizli or Pamukkale. According to the working group, “Denizli” is a well known name among the trade customers, but “Pamukkale” is an internationally recognized geographical and touristic name. Since no studies on the brand perception by consumer and customers were carried out, the cluster members preferred to leave the issue open and subject to study by a branding specialist.

1.2. Strategy

The home textile sector is a highly competitive industry, for which cost minimization is the dominant strategy worldwide. In choosing also to pursue a low cost strategy, the companies in Denizli face very tough competition from East Asian and Eastern European countries.

To achieve differentiation means that strategy rests on unique activities serving customer needs, customers’ accessibility, or a variety of products and services. A cluster approach can serve here to create a value chain with unique links and activities that would be difficult to imitate not only for one company but also by a competing region. For the few companies in the Denizli cluster that have achieved operational excellence and reduced costs to the minimum, it will be impossible to reduce their margins any more. The remaining companies still have room for productivity improvements. However, as a cluster they understand that just production efficiency cannot create a competitive advantage. The cluster members formulated their overarching strategy as follows:

Three strategic directions can be derived based on the vision and the overarching strategy:

• The attempt to upgrade the relationship with customers to a level that can be describes as a partnership;
• To embark on a branding exercise;
• To make an innovation the permanent activity for the cluster that will result in new product developments.

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

One of the most important aspects of a cluster development plan is the nature and structure of the organizations that will actually drive the transformation of the cluster. In studying the experience of clusters around the world, there is an enormous variation in the organizational structure, from purely informal and implicit networks (e.g. Silicon Valley’s high tech clusters) to highly vertical and regimented structures (e.g. Austria’s automotive cluster). There is no single right answer, because organizational structures must not only help resolve the particular set of issues facing the cluster, but also be consistent with the culture and context in which they are situated. However, some general principles can be applied to Denizli’s HT Cluster.

There are two key dimensions, in particular, which can help to characterize any given cluster:

• Institutional capacity – representativeness (how much of the cluster is connected to the cluster initiative), command of resources sufficient to achieve its goals, autonomy, etc., and
• The Governance Model – who are the main actors driving the initiative, who is paying for the budget, and which partners are the most influential.

Christian Ketels links these to the evolution of the cluster:

“the general trend seems to be that as cluster initiatives become older and more mature they connect to larger parts of the cluster and companies become a more important source of funding. This suggests that cluster initiatives experience an evolutionary process, where the public sector can play an important role in the early phase thus helping to overcome the collective action problem of creating a cluster group and becomes one player among many as the cluster initiative matures.”[1]

Clearly, although producers in Denizli represent one of the great concentrations of home textile manufacturers in the world, the cluster’s stage of development, in terms of the organizational structure, is still early in its evolution. Laying out a clear and convincing path, from institutional capacity and low share of funding by companies, to much higher levels of both will be important.

Overall, it can be said that this evolution will represent the growth of “social capital” within the cluster – the development of more relationships, newer relationships, and greater trust in all relationships. The development of this social capital is crucial for the cluster to be truly dynamic and innovative.

Participants in the cluster development workshops in November, 2008 determined that strong leadership will be important, since the goals of the cluster are ambitious. They decided to create a new organization which will have two main components, a Cluster Advisory Board (CAB) and a professional management staff. The CAB would act as a consultative committee to guide the cluster’s overall development in the initial stages, and it would give direction to the staff. The CAB would have seven representatives, four of which would be permanent, representing specific organizations, and three would be rotating, according to the following scheme:

• Permanent representatives: DETKIB, Chamber of Industry, Chamber of Commerce, Pamukkale University
• Rotating representatives: Three business and opinion leaders from individual companies in the cluster – drawn from active exporters, subcontractors, and customers

The professional management team would be hired to manage the implementation of initiatives, fundraising, and other functions as prescribed by the CAB, which will also specify their job descriptions. This staff capability would be the nucleus of what could eventually develop into a formal Cluster Management and Coordination Agency.

The cluster meeting participants also recognized the need for strong leadership for the cluster – an individual who is universally well respected, and who is willing to spend extra time playing an active and visible role.

This is one of the most important aspects of cluster development, and yet one of the trickiest. While quantitative analysis has clearly highlighted how crucial a role leadership plays, most of the actual decisions in this area must be made on the basis of judgment and experience, weighing intangible factors like culture, history, and motivations.

A cluster leadership organization is actually just a ‘special case’ of a public/private partnership, and therefore we can benefit from a broad set of research on that topic. For example, a study by the World Bank covering public/private partnerships across 40 countries finds the following issues to be the most important for governance: participation, structure, and goals/outputs (see Rows 2, 3 and 4 of Table 6). For example, under structure, the authors highlight the need for:

• Permanent secretariat
• Individual leadership
• Working groups
• Role of government
• Transparency and rules of engagement
• Institutional flexibility
  
  
  Range of issues to identify and tackle in structuring public/private partnerships

Individual leadership, in particular, is one of the trickiest areas. In some of the most famous ‘organically grown’ clusters, such as Napa Valley’s wine cluster, the role of one strong individual – a ‘natural leader’ was paramount.[2] In others, such as California’s Silicon Valley, leadership was dispersed, although it could be argued that a “godfather” role was played by Fred Terman, the Dean of Engineering at Stanford University.

In some of the more successful ‘artificially stimulated’ clusters that have been initiated since the appearance of Michael Porter’s “The Competitive Advantage of Nations” (1990), the strengths and weaknesses of the “single leader model” have been tested. One difference between artificially stimulated clusters, which have been catalyzed by government or chambers, and the naturally evolving ones is that the former tend to have tighter timelines, and sponsors have found that selecting a single ‘natural leader’ can be effective, but often has pitfalls, such as polarization of organizations. If the chosen leader is from the largest city in the region, people from the next largest city may feel spurned; if the leader is from the electronic side of the cluster, companies in the electrical side of the cluster may become resentful, etc. Such unsatisfied groups often leave the main cluster initiative to form their own organization, diluting the ability of the main cluster initiative to represent the best interests of the entire cluster.

One of the ‘best practices’ from these cluster experiments has been to adopt the use of two co-chairs, rather than one chairman, for this top leadership function.[3] While it is sometimes impossible to find all of the right characteristics in one person, it’s often easier to find two people who together can fulfil the requirements. If the main rivalry in the cluster is between two cities, one co-chair can come from each city. If the main rivalry is between two segments of the cluster, one co-chair can be selected from each one. Also, from a highly pragmatic point of view, when one co-chair is travelling or otherwise absent from important meetings, the chance of having at least one co-chair available to represent the cluster is much higher when there are two.

Using the co-chair model has some potential problems – if the two co-chairs allow their rivalry to overshadow the cluster’s agenda, then it can be worse than sticking with a single individual. But if the candidates chosen for such a position are truly “natural leaders,” experience has shown that they can rise to overcome these traditional rivalries – working in a new organization devoted solely to the competitiveness of the entire cluster gives them a chance to mend fences in a way that can often get around the obstacles that the older structures, such as chambers and associations, may have enshrined. However, some observers have pointed out that in Turkey, organizations benefit from the clarity that derives from having a single, unambiguous leader. If this need is paramount, then the co-chair model can be modified through the use of rotating chairmanships, where the vice-chairman serves for a specified period (such as a year) in the runner-up position, with everyone aware that he or she will serve in the primary position the following year.

Some criteria for selection of co-chairs include:

• Well-known, visible executives with good local reputation (“if he or she signs an invitation, people will come”).
• Can be from large or small companies. Often one co-chair is from a major corporation, and the other one is an active representative of small or medium-size businesses.
• People chosen because of their leadership, vision, and commitment, rather than because they are CEO or VP of a major company – ultimately the qualities of the individual are more important than which company they represent.
• If one at least one co-chair is from a private company, it can be OK to have the other be a well-known academic or a representative of an association or chamber – but only when they are especially active and well respected by the private sector.

Independence and sustainability

One of the biggest challenges facing the cluster at this juncture is securing the funding for the professional staff – without which the implementation of initiatives becomes very problematic. As decisions are made about where the funding comes from, it’s important to ensure that the organization itself is relatively autonomous from outside interference. If there are changes in outside entities, for example due to elections, the cluster organization should be structured, if possible, so that it will sustain itself even when there are shifts in the political backing for the cluster.

1.5. Cluster Actions

The following list of Cluster Actions defines the specific steps that can be taken to achieve the Key Success Factors and make the Denizli Home Textiles Cluster more competitive.

1.5.1  Cluster Action 1: Establish Customer Relationship Management network (CRM)

Through this action the cluster members will improve their competitiveness using the tools of upgrading their customer relationship management capabilities. The rational behind calling it a network is that all activities should target the network and not an individual company. For example, the cluster will organize meetings and seminars with the participation of top managers from the leading retail chains only if more than 20 Denizli companies will apply and express the interest. This action will produce additional benefits for the participants from the networking activities itself.

1.5.2  Cluster Action 2: Establishment of Centre of Excellence in HT Fashion Trends & Marketing

The cluster member emphasized the lack of information about the fashion and industry trends they are experiencing. To become an internationally recognized brand it is a must that the mindset of the customers and consumers are properly evaluated before the actions are taken. The rebranding strategy (Cluster Action #4) should be understood and accepted by consumers and customers. The objective of the Denizli Centre of Excellence for Home Textile is to create an innovating positioning for the Denizli brand that translates into huge market opportunity for the cluster member and enables them to capture the market. Knowledge sharing is another most important objective of the Centre.

1.5.3  Cluster Action 3: Raising product standards throughout Denizli

Part of rebranding Denizli will involve actually raising the quality of products and production processes in all cluster companies. The most effective actions the cluster can take to reinforce this initiative is to develop and implement a unique certification system that is specifically customized to the specific features of home textile products. At least initially, a lot of this effort will be in the direction of expanding the utilization of ISO-14000 and other environmentally advanced properties (e.g. organic raw materials, high use of renewable energy, fair trade). An internal audit system to monitor progress on development and adoption of such standards would ensure that targets are established and progress can be measured. The Applied Research Centre (Cluster Action 5) will help to provide technical inputs and best practices, but a separate initiative to focus on development and monitoring of standards is also required.

1.5.4  Cluster Action 4: Rebranding Denizli.

Rebranding is the process that markets product or services in a new brand name or new identity. The cluster participants believe that the brand Denizli textile already has high quality connotation. However it is not enough to have high quality proposition in order to build the competitive advantage. It was expressed that there is a need to reposition the Denizli brand moving it upwards. Rebranding action aims to increase consumer loyalty, improve cluster members professionalism, enter a new market trend, create a stronger voice in the industry and reenergize a cluster. The brand becomes successful when it’s provided with adequate branding. The intense rebranding requires significant finances to be provided in the short period of time, however it is important not to start spending the money before the brand value proposition matches the reality.

1.5.5   Cluster Action 5: Establish an Applied Research Centre.

Cluster companies are quite aware that applied R&D is crucial for their competitiveness. A well-designed Home Textiles Applied Research Center (HTARC) would create a single location where functions that are too expensive for any one company can be made available to all companies – primarily pre-competitive research. The Centre would initiate product and process development projects in collaboration with universities and the Istanbul Textile and Apparel Research and Development Centre (ITA) that are responsive to the needs identified in the marketing departments. The Centre could feature a modular sample production centre, and facilitate the introduction of advanced process management practices in companies, in order to reach the highest possible efficiency standards throughout the value chain.

1.5.6   Cluster Action 6: Establish a Cluster Advisory Board and Professional Management Team

The cluster clearly requires a strong entity with good leadership to implement the various cluster actions. Initially, this entity will consist of a 7-member Cluster Advisory Board, which will guide the implementation process, and supervise the work of the professional management staff. Eventually, this entity may evolve into a full-fledged Cluster Management and Coordination Agency.

Key Success Factors vs. Cluster Actions

The activities that need to be fulfilled within each cluster action, along with indicative budgets are presented in the annexes. Although most of the proposed actions should be launched as soon as possible, the establishment and staffing of the Cluster Advisory Board is a priority and a prerequisite for the others.