Tuesday, December 6, 2011

The IADB Promotes Cluster Development

It appears that international organizations, governments and donors are increasingly using cluster development programs to promote economic development and shared value. In a paper published last month, the Inter-American Development Bank (IADB) reviewed its cluster development program (aimed at financing and executing projects to support cluster development) in Latin America and the Caribbean and discussed lessons learned from it.

As defined by Porter and Kramer, cluster development as the creation of “geographic concentrations of firms, related businesses, suppliers, service providers and logistical infrastructure in a particular field – such as IT in Silicon Valley, cut flowers in Kenya , and diamond cutting in Surat, India.” The view of these authors is certainly a business-centric perspective, although they do comment on the implications for government and nonprofit organizations. The IADB report takes a slightly different focus, highlighting the significant potential of cluster development programs “provided that they are consistent with the whole system of private sector development policy support.”

To date, the IADB has completed five cluster development projects, and has seven more in the pipeline- approximately 300 million USD has gone into these projects, most of them in Brazil and Argentina. These projects range from supporting infrastructure such as roads and logistics, to targeting the institutional strengthening of the cluster and enhancing public-private dialogue for PSD (the latter oftentimes embedded in what the bank calls “policy-based loans”.)

In all of their successful cluster development projects, the IADB saw that governments always took the lead to “initiate the cluster programs and provide the tools and at least part of the financing.” They go on to discuss how if undertaken, cluster programs need to be a high priority of a government, include coordination with other government bodies and sectors, and involve the community and private sector with the program from the very beginning. This distinct focus on government involvement is understandable – the IADB is an institution that works with member countries, which we can understand as meaning “with governments”. Their focus should in fact be on the governmental perspective.

Finally, as with any new strategy, there is a learning curve and a process of trial and error (sounds familiar! Echoes of McFarland’s “Should you Build Strategy Like you Build Software”?). The IADB projects in Latin America and the Caribbean have seen that cluster development requires governance, group decision-making, collective actions, complementarities and coordination, and capabilities to manage projects as complex as cluster development that involve all these elements are being created through experience. With time, we can hope that cluster development project coordinators and stakeholders continue along this learning curve and maximize the potential shared value that this approach can have. I wonder though, once we have made considerable progress along this curve, will we be satisfied or will we develop the next generation of the CSR/shared value concept, and start all over again?

Sources:

Porter, Michael E. and Kramer, Mark R. “Creating Shared Value: How to Reinvent Capitalism- and Unleash a Wave of Innovation and Growth.” Harvard Business Review, Jan-Feb 2011.

Pietrobelli, Carlo and Stevenson, Claudia. (Nov. 2011). “Cluster Development Programs in Latin America and the Caribbean Lessons from the Experience of the Inter-American Development Bank”. Discussion Paper No. IDB-DP-188. Inter-American Development Bank. Online at http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=36500996

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