Competitive Advantage in the Tile Industry

6.2The relevance of location

Does the importance of a complex game along the value chain, involving various actors in different countries, mean that location becomes irrelevant? We would argue for the opposite. There can be no doubt that currently location is highly important in the tile industry; the degree of geographical concentration is extremely high, not only for tile manufacturing but also for the production of machinery and glazes. Behind this is the constant interaction between suppliers of machinery, suppliers of glazes and tile producers; more than anything else, this is the reason why clustering is a prominent feature of the tile industry. In the case of Sassuolo, the cluster advantages are predominantly passive, whereas in Castellón we observed various active advantages of clustering being created by deliberate collective action and very effective associations.

It is notable that also in our latecomer case tile production is geographically concentrated in few places, basically for the same reasons. The same seems to hold true for other countries (for instance Turkey). It is very likely that both location and global value chains will remain key categories to create and understand competitive advantage in the tile industry. The expectation that location remains important does not mean that each single location remains important; one might rather expect that tile production in the Sassuolo cluster will start to decline in the near future. But it is unlikely that there will be a proliferation of attractive locations anytime soon; greenfield sites are not particularly attractive for tile producers. Restructuring of value chains, and increasing competitive pressure within them, will lead to an increase in locational requirements of tile producers. Apart from transport and communications infrastructure, this will in particular apply to education and training. The point is not only the development of new glazes, machinery and tiles which depends on the skills of designers and engineers. Moreover, efficient production with a yield of first-rate output that is as close to 100 % as possible depends on the skills of all the employees along the production process. Also, it is likely that forward integration will lead to increasing requirements in terms of formalised training of sales staff.

Increased formal training will not remove the importance of informal communication, which currently appears as a key element of locational advantage. On the contrary, it is likely that training in institutions which are located inside the cluster will strengthen inter-personal networks which are the basis of informal exchange, thus reinforcing the importance of location.

6.3Conclusions for cluster research and cluster promotion

There are two conclusions we want to draw from our case study for cluster research as such, as well as for cluster promotion. First, we argued in section 2 that linking a cluster perspective with a value chain perspective creates important insights which we miss if we use only one of the two concepts. Investigating the tile industry from a cluster perspective would have been very plausible, and it would have rendered results which would have appeared plausible as well. However, we would have missed important aspects which shape, and to an large extent limit, collective action for upgrading inside the clusters.

The second conclusion is more specifically related to the impact of value chain restructuring on upgrading in a cluster. What we observed in the case of the Italian tile industry is something which is probably not unique. The effort of large firms and groups in terms of forward integration, and specifically the struggle around the take-over of distribution channels, involves a variation of Battle of the Sexes Game. There is no compromise solution, as the number of Italian tile groups which can afford this is larger than the number of sales chains which appear as attractive targets for take-over, and more than group acting jointly to take over a sales chain would defeat the whole exercise which is about furthering the consolidation process. There may also be early mover advantages, either with respect to take-overs or to the possible alternative of creating an own sales chain. And it is not only that there is no option of a joint solution. Moreover, in this kind of setting, each of the players will tend to be secretive, as the leaking of information on plans for forward integration might cause pre-emptive action by competitors. This, in turn, creates a setting where firms will tend to avoid communication, including communication about issues not directly related to forward integration.

This leads us to the relevance of our findings for policy, specifically cluster promotion. As a matter of fact, the interaction of clusters and the value chain creates a policy dilemma. The consultants working with the Castellón cluster argued that forward integration is an important next step in upgrading. However, as the Italian case shows, forward integration would make joint action more difficult.

What about the possibility of government playing a role in overcoming obstacles to collective action? In fact, in each of the cases it would be difficult to conceive how government might play a strategic role. In the past, in each country government has made important contributions to upgrading, and sometimes actually played the crucial role in creating an internationally competitive industry. More recently, however, government has not even fulfilled its basic functions in Italy and Brazil:

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  In Sassuolo, the infrastructure is derelict, the training institutions are not at all comparable with their competitors in Castellón, and the business promotion operation appears to be better at presenting itself in international conferences than delivering services to firms in a way that makes a difference.
  
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  In Santa Catarina, the investment of Spanish glazing producers occurred at a time when foreign investors elsewhere were receiving massive tax breaks and other incentives, whereas the Spanish firms received no benefit or support at all. In general, local and provincial government have made next to no contribution to the competitiveness of the tile industry. Central government has created unfavourable macroeconomic conditions, it underinvested in the infrastructure, and it is responsible for the anti-export bias of the economy.
  

These observations are in line with the somewhat sobering findings Enright (2000) presents on the role of government in cluster upgrading. It is thus conceivable that the case of Castellón shows what an adequate role of government in supporting a cluster looks like. First, it provides the basic functions of local economic promotion, namely making industrial estate available and creating a good infrastructure. Second, it is providing a structure of specialised, sophisticated training institutions. Third, it has created a forum for research and reflection on the evolution of the industry. Government is not the strategic promoter of competitive advantage, but at least it is creating a favourable setting for the private sector to upgrade.