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Posted by Bob Smith on December 25, 2001 at 01:17:52:
It is well known that in the long run, the application of new science and technology to an economy is what drives growth. It is a great sight to now see many developing regions, instead of relying solely on capital accumulation and macroeconomic policy, attempting to narrow the income gap with developed nations through the accumulation of science and technology in their economies. In these efforts to encourage innovation, however, it is of vital importance that both the public and private sectors do not overlook the more subtle aspects that allow an economy to maximize its productivity. Neglecting the simple but fundamental factors necessary for healthy business can result in significant barriers to competitiveness.
One of the most successful innovative cities in Latin America has been Curitiba, Brazil. Located in the southern cone, Curitiba, is a very unique city in Latin America. Curitiba is an exercise in precise city planning and ecological concern. With over 50m2 of green per inhabitant, the city was spotlighted along with two other cities in the world by the Worldwatch Institute of Washington D.C. for “livability over sprawl”. The metropolitan area contains 2.42 million residents1 and is strategically situated in the most potent economic corridor in South America - between the megacities of Brazil and the other Mercosul nations, Argentina and Uruguay. These factors have enabled Curitiba to attain the highest standard of living in all of Brazil.
The people of Curitiba understand that it is technological innovation that drives growth in an economy. And much of Curitiba’s success can be attributed to a recent government and economy-wide effort to focus on science and technology. This approach has led to the blooming of an information technology cluster supported by various institutions in the city.
Despite Curitiba’s success thus far, however, the city has failed to secure one of the most important factors that gives a ‘cluster’ its competitiveness: interchange. Harvard Business School Professor and author of The Competitive Advantage of Nations, Michael Porter, gives us a description of what interchange is:
Underlying…the phenomenon of clustering is the exchange and flow of information about needs, techniques, and technology among buyers, suppliers, and related industries. When such interchange occurs at the same time that active rivalry is maintained in each separate industry, the conditions for competitive advantage are the most fertile…Firms in a national cluster have different and sometimes conflicting economic interests. Suppliers and buyers, for example, face conflicts over prices and the resulting division of profits. This may bias or restrict information flow among them because of a desire to keep information proprietary. The fact that fluid interchange may benefit all the local firms in competing with foreign rivals does not wholly mitigate their concerns about relative bargaining position.
We observed sharp differences across nations, as well as across industries within nations, in how, and how well, clusters work. Nations gain an important national advantage where national attributes are supportive of intracluster interchange. 2
Clearly, the significance of interchange within a cluster must not be understated. Economies that encourage interchange are, in general, more successful than those that do not. Frequently, in the quest to spur the development of science and technology, however, officials overlook this vital factor of interchange. What is more, even those economies that plan ahead to foster cooperation and collaboration within their cluster are not always successful at producing healthy interchange. George F. Rae, co-founder and director of the think-tank BusinessLab in Scotland, reflects on this idea:
Collaboration, creativity and partnership are words that trip off the tongue very easily. And many organizations in the public and private sector use them to describe their approach. But, sadly, in all too many cases, it goes no further than the words. Blinkered, self-interest prevails. Mediocrity results.3
So why is healthy interchange so difficult to attain one asks? Interchange is an issue of trust; it is a characteristic embedded in a society’s culture. If you wish to improve interchange in an economy, therefore, you must first alter its culture. And unless you already have a trust-filled community, it is a daunting task to produce it.
In the United States, there are two technology clusters that represent opposite ends of the interchange spectrum. These are Silicon Valley and Boston’s Route 128. Berkeley professor Annalee Saxenian gives us a description of the interchange in these two economies in her book, Regional Advantage: Culture and Competition in Silicon Valley and Route 128:
Silicon Valley has a regional network-based industrial system that promotes collective learning and flexible adjustment among specialist producers of a complex of related technologies. The region’s dense social networks and open labor markets encourage experimentation and entrepreneurship. Companies compete intensely while at the same time learning from one another about changing markets and technology through informal communication and collaborative practices…the functional boundaries within firms are porous in a network system, as are the boundaries between firms themselves and between firms and local institutions such as trade associations and universities.
The Route 128 region, in contrast, is dominated by a small number of relatively integrated corporations. Its industrial system is based on independent firms that internalize a wide range of productive activities. Practices of secrecy and corporate loyalty govern relations between firms and their customers, suppliers, and competitors, reinforcing a regional culture that encourages stability and self reliance...the boundaries between and within firms and between firms and local institutions thus remain far more distinct in the independent firm-based system.4
Saxenian shows us that the technology cluster of Silicon Valley boasts a healthier interchange than that of Boston’s Route 128. Informal communication is higher, firms collaborate more and social networks allow businesses to trust each other more. Meanwhile, Route 128’s firms keep information from each other, aim to not depend on other firms and view each other with a sense of suspicion. This difference in interchange should not be passed off as irrelevant. In fact, it is precisely this difference that Saxenian attributes Silicon Valley’s triumph over Boston’s Route 128 in the past two decades.
Returning to the subject of Curitiba, a research project was conducted during the summer of 2001 to determine whether or not this famous Latin American IT cluster demonstrates a healthy level of interchange. Curitiba was chosen specifically because of its recent economic success, its emphasis on technology and its emergence as a prominent city of the world. The city represents the efforts of Latin America to defy expectations and achieve competitiveness on par with more developed regions. As such, any strategic improvements that might further bolster the competitiveness of the Curitiba cluster would be extremely helpful.
Curitiba’s software sector is one of the strongest parts of the IT cluster. Since it presumably would provide a good representation of the whole, this part of the cluster provided most of the evidence. A few other technology firms were contacted as well, however. Furthermore, in order to take into consideration different perspectives of intra-cluster interchange, members of government technology institutions, trade organizations and a university were consulted. Evidence was qualitative, gathered through the conduction of many interviews with various executives representing each institution.
The qualitative evidence collected through interviewing suggested quite decisively that the software cluster of Curitiba suffered from a low level of interchange. Firms see each other not as resources to provide information and motivation but as enemies. They are short-sighted, rarely looking beyond not only their own walls, but the walls of the city as well. With focus directed on Curitiba’s limited market, executives feel that cannibalism results. Firms and government institutions fiercely fight over what little sustenance this region’s market can provide. A lack of trust saturates the cluster of software firms precluding the emergence of spontaneous cooperation. As a result of this atmosphere of non-collaboration, executives tend to agree that Curitiba’s productivity is being stifled. The report concludes that Curitba’s unfortunate business environment will prove to be a large barrier to reaching the goal of competitiveness on a global scale.
Among numerous pieces of evidence gathered that demonstrate Curitiba’s poor collaborative spirit are two examples that merit mentioning. The first example is a division that has emerged in the software cluster in recent years. It has its roots in a dispute for power in the Centro Internacional de Tecnologia de Software, a private organization devoted to the advancement of software in Curitiba. The dispute arose as many private software firms felt that the leaders of the organization were providing preferential treatment towards certain firms. Apparently, these private firms, fed up with what they perceived as favoritism, carried out a coup d’etat of CITS during the elections in September of 2000, removing the president of the organization from power. Some claim that this takeover was engineered unfairly. Since then, the Secretary of Science and Technology, who was allied with the former president of CITS, withdrew his support for the center. The Secretary, also president of the government institute, Tecpar, then extracted an important development program from CITS and transplanted it inside Tecpar. The former president was also relocated to a position at Tecpar. As a result of these transitions, the executives of a number of software firms in the cluster who represent CITS are at odds with the leaders of Tecpar. The two sides do not communicate much. Many firms, including members of both sides of the dispute have recognized that this dispute between CITS and Tecpar has been detrimental to the productivity of the software sector. One official commented, “[The dispute] is not affecting individual firms but it is affecting the region’s productivity.” This division demonstrates well the lack of trust between members of the Curitiba software cluster.
The second key piece of evidence is a joke told by Curitibanos which pokes fun at their culture. It was recited on a number of occasions when executives were asked why the spirit of collaboration in Curitiba was so weak. Here is one way the joke can be told, although other versions do exist:
In Brazilian hell, there are three pits where the condemned labor in the fiery heat. There is one for the Cariocas - those from Rio de Janeiro. There is one for the Paulistas - those from São Paulo. And there is one for the Paranáenses - those from the state of Paraná-home of Curitiba. The pit for the Cariocas is surrounded by guards to prevent them from escaping. The Cariocas do not like it there but it is not so bad because they are used to the heat. The pit for the Paulistas is also surrounded by guards. But they are not too unhappy. Since they are from São Paulo, they are used to the hard labor. The pit for the Paranáenses is different. They dislike hell just as much as the others but there are no guards surrounding the edge. Why is this? Because no guards are needed. Whenever one tries to climb out of the pit and escape, the others pull him back down.
The joke demonstrates perfectly Curitiba’s problem with its business environment. Interchange is poor because the culture of Curitiba renders firms extremely self-interested and untrustworthy. Perhaps this is why loyalty is such a prized quality; it is just so rare to see. Some executives mentioned that it is because of this failure to collaborate that the state of Paraná has never produced a president of Brazil. The region has simply never been able to unite itself behind one candidate. As one can imagine, interchange is hindered in this business climate creating a clear barrier to competitiveness.
What can be done about Curitiba’s issue of interchange? As mentioned earlier, it is quite a difficult problem to solve. Essentially, trust must be built up among members of the cluster. Personal relationships must be further developed so that firms feel comfortable enough to rely on each other and exchange valuable information. The social arm of the Curitba IT cluster must be strengthened. Michael Porter reiterates this point and offers a number of channels through which interchange may be strengthened.:
Mechanisms that facilitate interchange within clusters are conditions that help information to flow more easily, or which unblock information as well as facilitate coordination by creating trust and mitigating perceived differences in economic interest between vertically or horizontally linked firms. Some examples are the following:
Facilitators of Information Flow:
-Personal relationships due to schooling, military service
-Ties through the scientific community
-Community ties due to geographic proximity
-Trade associations encompassing clusters
-Norms of behavior such as a belief in continuity and long-term relationships5
The process of improving intra-cluster interchange is a difficult task and will not occur overnight. Acknowledging that there is an area of the cluster in which great improvement can be made is a great start, however. But if Curitiba seriously intends to be a beacon of technological development to the rest of Latin America, the issue of interchange must now be confronted.