PACA: Underlying concepts and methodologies Jörg Meyer-Stamer

Conceptual sources of PACA Academic work: Systemic competitiveness Cluster, Regional policy Policy networks Institutional economics Industrial sociology Economics of innovation Management science (strategy, competitive advantage) Field research: Clusters in SC Organizational development in business chambers, SC, Brazil Regional policy + LED in NRW Clusters in Italy, Spain, Scotland Methodology: PRA Moderation method Qualitative research Advisory work: Value chains in NE-Brazil Cluster + LED in SC, Brazil LED in Mpumalanga, South Africa Regional policy in NRW Investment promotion in Greater Mekong Subregion

Types of initiatives to stimulate local/regional economic development improvization / fragmentation of activities conducted by various organizations one big project = fixed idea strategic planning Participatory Appraisal of Competitive Advantage

Starting an LED initiative: Strategic Planning Advantages: Result = huge document –Useful in keeping supervisory bodies happy -- if performance is measured by input, not outcome –Useful in dealing with foreign donors Comfortable: you don’t have to leave your office –Let consultants and your junior staff do the legwork Disadvantages: Demotivates -- too complex, too many and too difficult proposals No action-orientation Does not stimulate learning- by-doing and adaptation of approaches

Starting an LED initiative: PACA Advantages: Action-orientation Motivates stakeholders Quick, visible effects Disadvantages: No big document, does not appear “scientific” Possible result of diagnostic: Better don’t start an LED initiative You have to leave your office, perhaps to listen to the complaints of companies

Characteristics of different approaches Pulverization Strategic planning PACA Planning Iterative process Initial diagnostic ImplementationEvaluation 

PACA is a methodology to evaluate the strong and weak points of a cluster, a city or a region –to start an effort to improve competitiveness of firms and effectiveness of already existing institutions or –to refocus ongoing local economic development activities The measure of success in PACA is the practical action that is initiated through it.

PACA is an exercise which seeks answers to three questions: What is the basic economic structure of the locality (city, region)? –in particular if we don’t have thorough, research- based information on the local economy What are the competitive advantages, assets, potentials and opportunities of the main sectors of the local/regional economy? –go for opportunities, not the biggest problem What can realistically be done to strengthen strengths and to alleviate weaknesses? –realistically refers to available local motivation, skills, capacities and institutions

Main concepts competitive advantage is created –inside firms, stimulated by rivalry –through collaboration between firms –through collaboration between firms and supporting institutions Michael Porter’s diamond Clusters and Industrial Districts Systemic competitiveness Market failure

Understanding localized competitive advantage: Michael Porter‘s „Diamond“ * A local context that encourages appropriate forms of investment and sustained upgrading * Vigorous competition among locally based rivals Factor (input) conditions Context for firm strategy and rivalry Related and supporting industries Demand conditions * Sophisticated and demanding local customers * Customers’ needs anticipate those elsewhere * Unusual local demand in specia- lized segments that can be served globally * Presence of capable, locally based suppliers * Presence of competitive related industries * Factor (input) quantity and cost - natural resources - human resources - capital resources - physical infrastructure - administrative infrastr. - information infrastructure - scientific and technolo- gical infrastructure * Factor quality * Factor specialization

What is Competitive Advantage? Comparative advantage (static advantage) Available of natural resources Tourism attractions like waterfalls Cheap labour Availability of real estate Competitive advantage (dynamic advantage) Created, high-value natural resources (e.g. FSC-certified plantations) Value-added attractions around a natural attraction (e.g. canyoning) Highly skilled and specialised labour Highly efficient, value-added infrastructure

What is a cluster? Passive cluster advantages: Skilled workers Suppliers of inputs and capital goods Customers Low barriers to entry Active cluster advantages: Strong, competent business associations Collective effort to improve factor conditions, e.g. –specialized, high-quality skills development effort –technology information and upgrading –targeted financial instruments. A geographical agglomeration of firms in the same or closely related sectors

A highly dynamic cluster: Ceramic tiles, Castellón, Spain VERY ACTIVE BUSINESS ASSOCIATION CERAMIC TECHNOLOGY INSTITUTE CERAMIC DESIGN INSTITUTE CERAMIC PROMOTION INSTITUTE UNIVERSITY WITH SPECIALIZED COURSES SPECIALIZED COURSES AT HIGH SCHOOLS AUTONOMOUS GOVERNMENT SUPPORT LOCAL GOVERNMENTS SUPPORT NEW INFRASTRUCTURES INVESTMENT

Determinants of systemic competitiveness Micro level Meso level specialised organisations and collective action improve the competitiveness of industries Macro level stable, competition-oriented economic, political and legal framework conditions Meta level development-oriented patterns of political and economic organization capacity to formulate visions and strategies collective memory social cohesion, social capital value systems which encourage learning and change social status of entrepreneurs competitive economic system sound financial basis of local government transparent, efficiently imple- mented rules and regulations infrastructure real estate education + training investment promotion SME promotion R+D, extension credit + microfinance intra-firm effort to improve efficiency, quality, flexibility, responsiveness; business strategy formal and informal co- operation, networks, alliances, collective learning

Factors inside the firm Relations with suppliers + subcontractors Relations with customers Relations with competitors Relations with meso-institutions Training Tech- nology Finan- cing Business Assns. etc. Meta level factors * entrepreneurial spirit * co-operative spirit * capacity of articulation Government Meta level Macro level Meso level Micro level Macroeconomic conditions Operationalizing Systemic Competitiveness for field research

PACA effects: A Systemic Competitiveness perspective Meta Macro Meso Micro Networking between companies, collective action Business development services Matching Supporting institutions Chambers, business associations Definition of purpose Closer interaction between public and private sector More efficient public service, less red tape Feedback loop More effective articulation of interest Matching

What is and what isn’t market failure? Market failure is the lack of response on the supply- or demand-side due to –natural monopoly –external effects –indivisibilities –asymmetrical information –public goods Market failure isn’t marketing failure the failure of a business to identify an adequate market lack of demand for a company’s products a crisis due to a downturn in a company’s main market.

How to address market failure in a PACA? Try to identify market failures Try to prioritize market failures according to their relevance Try to understand the root causes of very relevant market failures Design and scope practical activities in such a way that they address the cause of the market failure, not the symptom, and thus make markets work.

Contribution of main concepts Porter’s Diamond: help local stakeholders see their reality from a new angle Clusters: identify opportunities for creating active cluster advantages Systemic Competitiveness: help the external observer not overlook key issues and organize local reality Market failure: avoid market-distorting LED interventions

Other structuring tools to be used during PACA exercises Various mapping tools, e.g. –Cluster structure –Local political structure –Value chain structure Life-line Five forces Interaction matrix SWOT analysis...

Rapid Appraisal: The Participatory Learning and Action concept offsetting biases rapid progressive learning - flexible, exploratory, interactive, inventive reversals and triangulation principal investigators' direct contact, face to face, in the field seeking diversity and differences optimal ignorance, and appropriate imprecision

Participation and PACA Arnstein, Sherry R. "A Ladder of Citizen Participation," JAIP, Vol. 35, No. 4, July 1969, pp PACA aims here

PACA is... an opportunity for local actors to have, collectively, a close look at their own reality –check myths –identify opportunities for business linkages –identify opportunities for collective action a communication approach that –accepts the time constraints of local actors –respects the “workshop fatigue” of local actors –emphasises efficient communication.

Thank you for your attention!