Enhancing Industrial Cluster Formation Through the Realistic Export Opportunities of the TRADE‐DSM

• Author: Wilma Viviers,Noleen Pisa,Riaan Rossouw
• DOI: http://doi.org/10.1111/saje.12138
• Date: 01 September 2017
• Published date: 01 September 2017

ENHANCING INDUSTRIAL CLUSTER FORMATION

THROUGH THE REALISTIC EXPORT OPPORTUNITIES OF

THE TRADE-DSM

NOLEEN PISA*

†

,WILMA VIVIERS

†

AND RIAAN ROSSOUW

†

Abstract

This paper explores the natural synergies between industrial cluster formation and the identifica-

tion of realistic export opportunities (REOs), using the TRADE-DSM

1

for a resource-dependent

region, the North West Province of South Africa. The structural path analysis and power of pull

methods were applied to a provincial social accounting matrix to identify the top industrial clus-

ters. Ten industrial clusters were identified and matched to the results of the TRADE-DSM. Six

of the industrial clusters analysed had REOs. These results provide a basis for focused export

market development and for the formalisation of the cluster initiative as a strategy for sustained

economic and export growth.

Keywords: North West Province, industrial clusters, competitiveness, realistic export opportunities,

export market selection, TRADE-DSM

1. INTRODUCTION

Firm competitiveness is no longer an industry-specific or regional phenomenon. It has

evolved to the extent that it now has global implications. The growth in regional and

international competition and the ineffectiveness of many regional development policies

have put regional economic development under the spotlight (Goetz et al., 2010). In par-

ticular, greater attention is being paid to industrial cluster promotion, both in developed

and developing countries, since clusters can be a source of sustainable economic growth

and development (Enright, 2003; Goetz et al., 2010).

An industrial cluster is a geographically

2

proximate group of interconnected compa-

nies and associated institutions in a particular field, linked by commonalities and com-

plementarities (Porter, 2000). Industrial cluster formation improves the competitiveness

of firms in different sectors and boosts the region’s overall competitive position because,

by acquiring access to technology, firms are able to produce sophisticated goods and serv-

ices (Chiaroni and Chiesa, 2006). Firm competitiveness is also enhanced through

* Corresponding author: Senior Lecturer, TRADE Research Focus Area, North-West

University, Potchefstroom Campus, Private Bag X6001, Potchefstroom 2520, South Africa.

Tel: 127115594288. E-mail: noleenp@uj.ac.za

†

TRADE Research Focus Area, North-West University, Potchefstroom Campus, Private Bag

X6001, Potchefstroom, 2520, South Africa

1

The TRADE-DSM is a scientific model that prioritises products and service s according to the

probability of export success.

2

“Geographic” in this context refers to clusters that are seen to be located within the same provin-

cial or regional space/area. No more specific spatial proximity is suggested.

V

C2016 Economic Society of South Africa. doi: 10.1111/saje.12138

386

South African Journal of Economics Vol. 85:3 September 2017

South African Journal

of Economics

reduced transport and transaction costs, improved operational efficiency, and the avail-

ability of education and training resources and capital (Sonobe and Otsuka, 2006).

In addition to industrial cluster formation, firms can maintain their competitiveness

through internationalisation. Internationalisation ensures that firms are able to serve

many markets from existing manufacturing bases, obviating the need to establish produc-

tion plants in other markets. It reduces the over-reliance on domestic markets as well as

the business risks associated with single market dependency. Van Laere and Heene

(2003) suggested that firms, particularly small and medium enterprises (SMEs), can sur-

vive and remain competitive in an environment of increased global integration and com-

petition by enhancing three firm capabilities, namely innovation, learning and

internationalisation. Awuah (2009) found that firms in less developed countries can cope

with the challenges of globalisation and take advantage of the opportunities it presents

by forming industrial clusters and adopting a strategy of internationalisation.

The North West Province (NWP) in South Africa, which is a major platinum and gold

mining region, has a highly specialised economy. Figure 1 shows the output per sector in

the NWP in 2013. The main economic activities in the province in terms of their contri-

bution to output in 2013 were mining and quarrying, which together accounted for 31%

of national mining and quarrying output that year. Other leading contributors to output

in the NWP were finance, insurance, real estate and business services; general government

services; and wholesale and retail trade, catering and accommodation. Together these sec-

tors contributed 71% to total provincial output in 2013 (Quantec, 2016).

Table 1 shows the value of exports in each of South Africa’s provinces in 2014. ZAR 621.6

billion-worth of exports (representing 65% of South Africa’s total exports) originated in Gau-

teng. KwaZulu-Natal ranked second with 11.5% of South Africa’s total exports. The NWP

in turn exported goods and services worth ZAR 17.7 billion (a 1.8% share of total exports)

in 2014. This indicates that exports are only moderately important to the province and that a

more concerted effort should be made to enhance the province’s export performance.

Figure 1. NWP’s outputper sector in 2013 [Colourfigure canbe viewedat wileyonlinelibrary.com]

Source: Quantec, 2016.

387South African Journal of Economics Vol. 85:3 September 2017

V

C2016 Economic Society of South Africa.