As a small open economy that imports much of what it consumes, we have to export to earn the foreign exchange to fund these imports. Hence, the export sector has to be globally competitive- wherein competitive advantage makes more productive use of the inputs (sourced locally or otherwise) and which will require continuous innovation. Such a sustainable and high income economy needs a well-trained and skilled human resource to conduct the R&D, formulate the ideas that give competitiveness, international market development and marketing.
Experience in various parts of the world demonstrates that certain linked industries and other entities important to competition (specialised inputs, machinery, services and providers of specialised infrastructure) congregate as clusters in industrial parks or cities; examples are Silicon Valley in the US, California wine cluster, Italian leather fashion cluster. Some see this natural co-location of industrial groupings as being essential to their success. However, networks among the economic participants dispersed spatially can act in a similar fashion as for the co-located group of companies, by providing some or all of the utility gains and productivity increases so derived. Networks reduce the effective distances among the participants, reducing transaction costs (as for global value chains), which can be prohibitive. Hence, a company in a small developing country may survive and prosper when it exists on such a network.
We have built industrial parks, even put a university campus in one of them, hoping that investors would locate there and start clusters. We have had no success similar to Silicon Valley. Pt Lisas is a co-location of industrial plants that use natural gas, but a cluster as defined they are not. Although much is said about the competitiveness of such interacting groups of companies and supporting institutions, little is known about how these clusters begin and about how many clusters could emerge in any industry.
Prof Michael Porter of Harvard says: “Being part of a cluster allows companies to operate more productively in sourcing inputs, accessing information, technology and needed institutions, co-ordinating with related companies and measuring and motivating improvement.” (Harvard Business Review, 98609- “Clusters and the new Economics of Competition”).
Still, we have to diversify our economy and, possibly, one of the fledgling clusters is the tourism industry. I support the move to introduce the likes of Sandals and Apple Leisure into the local industry even though our hotels will be at the lower stage of the global value chain. This would serve as the jump off stage to build a local tourism cluster. Is this kind of networking the future of our cocoa industry?
However, the question looms large- how do we go about creating globally competitive export companies? The leader of the opposition says that if they were returned to power they would resurrect the sugar industry. This proposal was derided in many circles. The main reasons given were again those for its failure and the closing of Caroni (1975) Ltd; the withdrawal of preferential pricing and quotas by the EU and, more importantly, the high cost of producing sugar in T&T- 56cents/lb in T&T compared with 4cents/lb in Brazil. It is clear that productivity of this local industry did not benefit from the newer technologies. I recall referring to the local industry then as a ‘cutlass economy’. The failure was not of sugar per se but the poor productivity of the industry. It is interesting that the Netherlands, a high-income country, by the use of these high-tech methods has derived such a level of productivity that it is now the second largest exporter of food in the world.
Note Prof Porter’s comment that, “… companies can be highly productive in any industry- shoes, agriculture or semi-conductors- if they employ sophisticated methods, use advanced technologies and offer unique products/services. Productivity rests on how the companies compete, not on the particular fields they compete in. Modern competition depends on productivity, not on access to inputs or scale of the individual enterprise.” Indeed, flexible manufacturing techniques now allow small manufacturers to be as efficient as the large scale ones.
Thus, the parameters on which we have to base our choices of diversified industries include the use of sophisticated technologies, innovation that will drive product differentiation, protection of intellectual property, international networking and the institutions that support these. Though we may not know how to start a cluster, any area, company, can benefit from technology driven productivity improvement.
However, creating/transforming local industries demands resources- human, physical, financial- which in T&T are limited. Hence, choices will have to be made on how, when and where we employ these limited resources. Further, our dire need to build export industries will focus our attention onto certain areas.
I have recommended a formal foresighting exercise, not to pick specific companies (cherry picking) but to select sectors in which we have to develop the above parameters and an innovation system to implement the productive environment. Maybe like Israel we can define a sector based on a local requirement. Israel was able to build a competitive industry in irrigation equipment and other advanced agricultural technologies that reflected its drive for food self-sufficiency given a scarcity of water, hot and arid growing conditions. Climate change’s impact on sea level rise, flooding, more powerful hurricanes together with the use of our solar resource in the exploiting of renewable energy and its efficiency can be considered in the foresighting exercise.