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Clusters and Competitive Advantage The Turkish Experience Özlem Öz Department of Business Administration Middle East Technical University METU Ankara, Turkey... List of Abbreviations x

Clusters and Competitive

Advantage The Turkish Experience

Özlem Öz

Clusters and Competitive Advantage

Also by Özlem Öz

THE COMPETITIVE ADVANTAGE OF NATIONS: The Case of Turkey

Clusters and Competitive Advantage

The Turkish Experience

Özlem Öz

Department of Business Administration

Middle East Technical University (METU)

Ankara, Turkey

© Özlem Öz 2004

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List of Abbreviations xvi

1 Introduction: A Background to Clusters 1

Defining clusters: industrial districts, networks and clusters 8

2 Clusters in the Management Literature 20

3 Industrial Clusters in Turkey 37

The Turkish business environment, past and present 37 Turkey’s position in international competition 41Geographic concentration of Turkish industries 45 Geographic concentration and competitiveness 52Finding a suitable methodology for the analysis of clusters 55Geographic clusters and competitiveness: which cases

4 The Furniture Cluster in Ankara 60

Origins and historical developments 62Sources of international competitive advantage 67 Reasons for geographic concentration 74 Concluding remarks and future prospects 81

5 The Towel and Bathrobe Cluster in Denizli 84

Origins and historical developments 85 Sources of international competitive advantage 88Reasons for geographic concentration 100 Concluding remarks and future prospects 109

viii Contents

6 The Carpet Cluster in Gaziantep 114

Origins and historical development 116Sources of international competitive advantage 119 Reasons for geographic concentration 128 Concluding remarks and future prospects 132

7 The Leather Clothing Cluster in Istanbul 135

Origins and historical development 136Sources of international competitive advantage 144Reasons for geographic concentration 149 Future prospects for the leather clothing cluster in Istanbul:

Appendix 2 A Brief Description of Fuzzy-Set Analysis 183

industry 624.3 Employment in Ankara, by economic activity 654.4 Concentration of furniture firms in Siteler, by street 754.5 Concentration of carpenters in Siteler, by street 754.6 Concentration of upholsterers in Siteler, by street 764.7 Concentration of polishers and varnishers in Siteler, by street 775.1 Employment in Denizli, by economic activity 895.2 Denizli exports of towels, bathrobes and closely-related

6.1 Employment in the Turkish carpet industry 1156.2 Employment in Gaziantep, by economic activity 1207.1 Employment in Istanbul, by economic activity 139

List of Figures

1.1 Examples of highly concentrated industries in the United States 61.2 Examples of highly concentrated industries in Italy 71.3 Examples of highly concentrated industries in India 83.1 Exports and imports, Turkey, 1982–2000 393.2 Standard of living, Turkey, 1980–2001 403.3 Selected examples of highly concentrated industries in Turkey 533.4 Methodological process followed in the study 564.1 Internationally competitive subsectors of the Turkish furniture industry, plus related sectors and institutions 724.2 Map of the furniture district in Siteler, Ankara 785.1 Products made in the textile cluster in Denizli, plus related

institutions 975.2 Towns in the province of Denizli 1016.1 Traditional Anatolian carpet-weaving centres 1156.2 Products made in the carpet cluster in Gaziantep, plus related

7.1 The Istanbul leather industry, production and sales sites 1367.2 Leading centres of leather production and trade, Turkey,

sixteenth and seventeenth centuries 1377.3 Products made in the leather clothing cluster in Istanbul,

plus related institutions and sectors 146

Preface

Economic and business life is conducted in space, and this geographicorganization has an impact on how the economy functions, as well as on theprocess of creating and subsequently upgrading individual firms’ competitiveadvantages Not surprisingly, then, the clustering of industrial activities ingeneral and the geographic concentration of specific industries in particularhave attracted considerable attention in the academic literature for a longtime, the first influential contributions dating back to the nineteenth century.Studies investigating the relationship between location and competitiveadvantage, for instance, can be traced back to the contributions of AdamSmith, while Alfred Marshall brought the topic of geographic concentration

of specific industries in districts to the attention of academics in the 1890s.The subsequent attempts to understand the extent of and underlying reasonsfor the clustering of economic activity resulted in an extensive body ofliterature A wide range of disciplines – including economic geography,location theory, regional development and growth poles, urban economicsand social networks – tackled different aspects of the issue and shed light onthe phenomenon of clustering

With the ‘mid-century advent of neo-classical economics, however, locationmoved out of the economics mainstream’ (Porter, 1998, p 206), and it wasonly recently that there was a revival of interest in the topic Scholars ofinternational trade, international business, industrial organization and businessstrategy have joined geographers and urban economists in investigatinggeographic concentration (Ellison and Glaeser, 1994) For example Krugman(1991a) contributed substantially to the field by discussing the role ofgeography in international trade (the role of geography is in fact implicit inany analysis of trade), after realizing that he had spent his ‘whole professionallife as an international economist thinking and writing about economicgeography, without being aware of it’ (ibid., p 1) Similarly, growing interest inlocation-related issues in general and clusters in particular became evident inthe management literature, a discipline that had previously shown minimalinterest in the subject

The literature posits that very different circumstances, both economic andnon-economic, might have an impact on the structure and competitiveness

of clusters Accordingly the foundations of success might be rather different

in, say, the clusters in Baden-Württemburg where there is ‘Darwinian petitive pressure’ than in the clusters of ‘Third Italy’, where non-economicfactors play a significant role (Staber, 1998) Distinct explanations of why

com-a cluster might become competitive com-and sustcom-ain its competitiveness includethose related to the organization of production (for instance in the form of

xii Preface

flexibly specialized small and medium-sized enterprises – Piore and Sabel,1984), the social and political context (the role of tacit knowledge, institutions,the nature of work, trust and social capital – Putnam, 1993; Becattini andRullani, 1996; Brusco, 1996) and relations within the cluster that pave theway for innovation, learning and untraded interdependencies (Camagni,1991; Storper, 1999) There is also the possibility that both the initiationand the subsequent development of a cluster might be an accident of history,which is then locked into the region (Krugman, 1991a, 1991b)

Although each of these explanations has undoubtedly improved ourunderstanding of the competitiveness of clusters, none of them fully explainswhy certain clusters manage to become competitive whereas others do not.Contrary to what the flexible specialization perspective posits, for instance,there are competitive clusters that are not flexibly specialized and flexiblyspecialized clusters that are not competitive (Amin and Robins, 1990) Likewise,although the parts played by historical circumstances, the social and politicalcontext and strong collaboration among cluster participants might havecontributed substantially to the success achieved by some clusters, such asthose in Third Italy, these factors cannot explain the success of prominentclusters such as Silicon Valley (Saxenian, 1994) Similarly, explanations thattie the competitiveness of a cluster to innovation, learning and untradedinterdependencies do not sufficiently elaborate why some clusters manage

to become innovative and/or develop untraded interdependencies whereasothers do not (Porter, 1998, 2000) So despite there being a rich variety ofapproaches in the literature, each of which has improved our knowledgeabout the clustering of economic activity, we still lack a comprehensive theorythat can fully explain the competitiveness of clusters

One likely contributor for a more complete understanding of the tiveness of clusters is a latecomer to the area, namely, the managementdiscipline The unique perspective offered by this discipline involves puttingthe firm at the centre of the analysis and trying to understand the phenom-enon of clustering from that point of view An interest in clustering has alsobeen observed in the sub-disciplines of strategy and international business.International business scholars (for example Rugman and Verbeke, 2000)have focused on the geographic concentration/dispersion of foreign directinvestment, and emphasized the two-way interaction between multinationalenterprises and local clusters Within the strategic management literaturethe contributions by Porter (1990, 1998, 2000) are noteworthy Porterasserts that sources of advantage are local, and the impact of local conditions

competi-on the internaticompeti-onal competitiveness of clusters has become more nounced, despite the increasing trend towards globalization Understandingthe competitiveness of clusters, according to Porter (1998, p 208), requiresembedding clusters in a dynamic theory of competition Accordinglythe basis of competitive advantage has shifted from static efficiencies(such as low input costs) to the ability to innovate and upgrade skills and

in the strategic management literature in general and by Porter (1990, 1998)

in particular, since the purposes of this study are best served by thatapproach Apart from the fact that Porter’s framework provides a good basisfor highlighting the key sources of advantage in a geographically clusteredindustry, it also makes an explicit connection between the geographicconcentration and international competitiveness of specific industries, which

is the focal point of this study This approach is supplemented by insightsfrom several other perspectives, including those offered by the literature onpath dependency, social networks and international business Thus theimplications of the key findings are discussed in respect of not only strategybut also the broader debates on clusters to provide a full account of what theTurkish experience, when looked at from the viewpoint of the strategicmanagement discipline, offers to further thinking on clusters

The link between clustering and competitiveness has been a major area ofinvestigation, but most researchers tend to assume that studying successfulclusters is sufficient to understand sustainable competitiveness Thus funda-mental questions such as whether all clusters are competitive and whichcharacteristics of competitive clusters differentiate them from uncompetitiveones have not received the attention they required It is by no meansguaranteed that clustering will automatically bring competitiveness, or thatthe typical characteristics of success stories (for example the dominance ofclusters by flexible small and medium-sized enterprises) are the principalreasons why these clusters are competitive Contributing to this relativelyunderstudied aspect in the literature is another of the purposes of this study

In addition, by examining the competitiveness of clusters in Turkey, a countrythat is classified by the World Bank as a middle-income developing country,the study hopes to help overcome another shortcoming in the literature:evidence on the competitiveness of clusters has mainly been derived fromanalyses of clusters in developed countries, so very little is known about thecompetitiveness of clusters in the developing world (Nadvi, 1994), includingwhether the conditions that lead to the emergence and subsequent upgrading/loss of competitive advantage are any different from those in developedcountries It is equally rare to see detailed discussions of uncompetitivecases, let alone addressing these issues together, especially from the viewpoint

of the management literature The contribution offered by the present study

is therefore threefold: it examines the competitiveness of clusters in a oping country setting, it includes a detailed study of an uncompetitive cluster,

as the subject matter is of vital importance to government policy makersand strategic planners in firms, it is likely to be of appeal in these circles aswell In fact the subject has been so important in policy-making circles thatthe World Bank alone has funded 266 cluster projects in recent years(Lundequist and Power, 2001) Researchers who are interested in the individualindustries covered in the book (furniture, textiles and leather products) arealso likely to benefit from the study Needless to say, given that the investi-gation sheds light on the pattern of international competitiveness andgeographic concentration of Turkish industries, as well as providing acomprehensive analysis of several key Turkish clusters, the book will be ofinterest to researchers and planners working in or writing about Turkey.Finally, the book may also be helpful to graduate and undergraduate students,especially those studying strategy, international business, internationaltrade and economic geography

The structure of the book is as follows Chapters 1 and 2 set the theoreticalfoundations for the study and introduce the reader to the main conceptsthrough a review of the growing body of literature on clusters Chapter 3provides an overview of the Turkish economy and analyses industry andtrade data to identify patterns of international competitive advantage andgeographic concentration in Turkey Chapters 4 to 7 are devoted to fourin-depth cluster case studies: a furniture cluster in Ankara, a towel and bathrobecluster in Denizli, a carpet cluster in Gaziantep and a leather clothing cluster

in Istanbul Chapter 8 discusses the key findings and the policy implications

of the study

ÖZLEM ÖZ

London and Ankara