Working Paper Series no: WP/EU-IND/1999/03
Contract no. IND/B7-3001/95/115-31
1999

Dhawal, Mehta¹,V.P.Kharbanda² and Dietrich Brandt³

The present day knowledge economy demands knowledge intensive enterprises, which only can survive in the ongoing process of globalization and increased international competition. As knowledge resides only in the human mind, it can only be harnessed by focusing on increasing human capabilities through the process of increased communication, cooperation and linkages, both within the enterprise as well as across enterprises and knowledge producing organizations. As the countries integrate into the global village, these enterprises, particularly, SMEs will have to respond accordingly and thus deserve special attention. To enable SMEs to mitigate problems of technological backwardness and enhance their access to new technologies, it is imperative to give them a conducive environment, which in the present context of globalization calls for a human centered approach with tacit knowledge playing a predominant role. How SMEs are facing this challenge in different culture areas? While these have been highly successful in Germany and Italy, much needs to be done in the Indian context. How SMEs located in different culture areas could exchange knowledge and information, and cooperate in an increasingly competitive environment. How these are moving towards industrial clusters to achieve this objective? What policy measures are required? These are some of the questions, which need to be examined in detail.

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The objective of this synthesis report is to highlight major characteristics of innovative SMEs in different culture areas of India. Germany, Italy and UK, and how these SMEs are tackling the above issues. How these can cooperate and learn from each other in a cross-cultural context. How a regional cross-cultural virtual network could be built up to create a constant learning environment.

This synthesis report is based on the studies conducted at Ahmedabad, Gujarat, India; Aachen region, Germany, and Bologna region, Italy, carried under the EU-India Cross Cultural Innovation Network Project, initiated in 1999. Some experiences of incubators in Sussex area in London are also highlighted. The report is divided into six parts. Part One discusses the achievements and challenges faced by Indian SMEs and adoption of a cluster approach to achieve the above objectives. Case studies of clusters of Oil engines in Rajkot, Gems and Jewellary in Surat, and Ceramic Clusters, Ahmedabad, Gujarat, India have been discussed. Part Two discusses the German Model for innovative SMEs through constant learning with strong academia — enterprise linkages. Part Three discusses the Italian Model, as to how the small enterprises in the Bologna region cooperate and compete internationally. Part Four discusses the role of incubators and clustering of enterprises in Brighton region in UK. Part Five examines the development of a virtual network for continuous learning in a cross-cultural context between EU and India. Part Six concludes.

India has nearly three million SMEs, which account for almost 50 per cent of industrial output and 42 per cent of India's total exports. It is the most important employment-generating sector and is an effective tool for promotion of balanced regional development. These account for 50% of private sector employment and 30-40% of value-addition in manufacturing (Thyagarajan, 1998). It produces a diverse range of products (about 8000) including consumer items, capital and intermediate goods. However, the SMEs in India, which constitute more than 80% of the total number of industrial enterprises and form the backbone of industrial development, are as yet, in technological backwaters vis-a-vis advances in science and technology. These suffer from problems of sub-optimal scales of operations and technological obsolescence. While most of the large companies, even in developing countries, have financial as well as technical capacity to identify technological sources and evaluate alternate technologies that would suit their requirements, unfortunately, this capacity is conspicuously missing in most SMEs. It is these features of SMEs that make them an ideal target for technological upgradation through technological cooperation with foreign and local enterprises, with R&D institutions and centers of technology development.

SMEs in India, which constitute more than 80% of the total number of industrial enterprises and form the backbone of industrial development, are as yet, in technological backwaters vis-a-vis advances in science and technology. These suffer from problems of sub-optimal scales of operations and technological obsolescence. While most of the large companies, even in developing countries, have financial as well as technical capacity to identify technological sources and evaluate alternate technologies that would suit their requirements, unfortunately, this capacity is conspicuously missing in most SMEs. It is these features of SMEs that make them an ideal target for technological upgradation through technological cooperation with foreign and local enterprises, with R&D institutions and centers of technology development. The problems presently facing SME’s in India are lack of access to information, knowledge, skills and finances, appropriate linkages with markets and the suppliers, inadequate strategies and organization and inefficient regulations and incentives.

Small enterprises in India, with their dynamism, flexibility and innovative drive are increasingly focusing on improved production methods, penetrative marketing strategies and modern scientific management capabilities to sustain and strengthen their operations. They are poised for global partnership and have the potential to absorb latest technologies in diverse industrial fields.

Small in India is more than beautiful - it is efficient, adaptable and add value in economic and social spheres. As the country integrates into the global village, the small and medium sector will have to respond accordingly. It deserves special attention as it plays a pivotal role in a country's socio-economic development. The problems faced by the SMEs particularly in accessing technology and maintaining competitiveness have been formidable. The reasons for the inability of SMEs to identify their technology needs are:

* Lack of management skills

* Isolation from technology hubs

To enable SMEs to mitigate above problems and enhance their access to new technologies for increasing their competitiveness in the international market, it is imperative to give them a conducive environment, which includes:

2 Building up technological capacity,

Conducive policy environment is a pre-requisite. Major policy reforms aimed at substantially deregulating industrial sector and liberalizing foreign investment as well as technology imports, have been the most significant development since 1991. The post-liberalization era in the Indian economy has enhanced opportunities and challenges for small industries sector. The ultimate objective of promotional policies is to enhance SMEs capacity to grow so that they become viable units. The national policies and programmes may be oriented to :

• Setting up Industrial District/Technology Parks/Clusters to promote sourcing of new technology, innovation and effective transfer
• Organizing local level information services, data banks and seminars in collaboration with professional bodies.
• Sending experts to SMEs to assist them with the introduction of new technologies
• To establish training centers for human resource development for SMEs.
• Establishing business centers
• Promote strategic alliances with R&D institutions, universities and other enterprises at national, regional and international level.

This calls for promoting endogenous industrialization with emphasis on self-reliance through use and creation of local resources and at the same time adoption, absorption and diffusion of the imported of technologies. This strategy involves an expanded role of SMEs which can alleviate high levels of unemployment and income inequality.

Access to advanced technologies and assistance in its adoption is crucial to build up Indigenous Technological Capacity (ITC) to face international competition. In the present scenario of globalization, knowledge of and access to latest advances holds the key to international competition. In this venture the industrial sectors which are able to identify their technology needs and adopt in time, will benefit the most. In India, the traditional sector which has shown this remarkable ability to adapt to technological change is Leather. Central Leather Research Institute (CLRI), Chennai, India, has successfully introduced microprocessor control in tannery wet operations at industry level and promoted cleaner processing, quality consistency and international equivalence. Anticipating the impact potential of computer-aided technique in footwear and garment design, CLRI alerted and prepared the industry so well that CAD is today widely employed by export manufacturers of footwear and garments.

In another example, under NISTADS¹ Bankura Project, a software package called as ‘MADHU’ (Modernization of Artistic Design for Handloom Unit) was developed in collaboration with Indian Institute of Technology, Kharagpur. This CAD software package facilitates computerized digitization of the picture/design produced by the artist/designer. This package has been successfully demonstrated to designers and weavers of Bankura. As a result a large number of craftsmen have adopted blending of this new technology to increase efficiency, quality, flexibility and cost effectiveness. The above shows how information technology can be of immense use to upgrade and modernize the small scale sector. The man and the machine can work together (in contrast to the most advanced automated systems) to bring out products with more flexibility and consumer oriented as also advocated by Brandt (1999).

A large number of CSIR laboratories all over the country help meet the technological needs of the SMEs. For example, Mechanical Engineering Research and Development organization (MERADO) Ludhiana, in particular, was established in 1965 to nurture the growing industrial clusters in Ludhiana in the field of knitwear, agro industrial machine tools and bicycles industry. Since then it has contributed significantly towards design, development and standardization of industrial machinery, agriculture machinery, machine tools, special purpose machines, consumer durables etc. Some of the notable examples are Design & Developments of 10 TPD Modern oil Expeller, Sugarcane Harvester, Electric cloth cutting machine, High speed overlock machine, Leather shaving machine, Flat bed & Post bed Leather sewing machines, Button hole attachment for domestic sewing machine, wool knitting machine, Friction welding machine etc. The technologies developed by MERADO, Ludhiana have benefited not only the SMEs in the state but also in other states e.g. in West Bengal, Haryana and UP etc. It also caters to major testing facilities for the SMEs in Ludhiana (MERADO, 1999). However, in the present scenario of globalization and liberalization, stronger linkages still need to be promoted not only between technology support institutions and SMEs but also between SMEs for horizontal transfer of technologies. In this direction human resource development in the technology support institution is one area of crucial importance, which needs attention.

Similarly, other SME sectors, which need to be technologically upgraded are: electrical and electronics, light engineering, food processing, build materials, chemicals, drugs and pharmaceutical, ceramics and telecommunication. In this direction, a number of efforts are being done by the Indian government. For example, the National Small Industries Corporation (NSIC) has pioneered several schemes for the growth and development of small scale sector. In the initial stages of development of small scale industries after independence, it was the innovative and novel schemes of the NSIC such as Government Purchase, Hire Purchase, Development of Prototypes, Technical Training etc., which led to the establishment of new enterprises, development of appropriate manufacturing technologies and creation of a strong first generation entrepreneurial base. These schemes of the Corporation acted as a catalyst for this sector. It has helped the small units in identification, adoption, absorption and transfer of technology, entrepreneurial & technical training, common production facilities, marketing and financial support. With the successful implementation of NSIC schemes, a number of financial institutions and banks have also come forward to assist this sector thus creating an important constituent of the Indian economy. Further, Council of Scientific and Industrial Research (CSIR) is also an important technology generator in the country and has a lot of S&T inputs to offer to small scale sector. To further invigorate this sector, the NSIC, CSIR and Asia and Pacific Center for Transfer of Technology (APCTT) have pooled their resources and have formed a strategic alliance to help upgrade technology in the small sector. APCTT has a comprehensive Data Bank of information on appropriate technologies in diverse industrial sectors with access in the ESCAP region and elsewhere. It has been assisting technology buyers and technology sellers from different countries to come together. The alliance of these three organizations shall assist the SSI units through a single point in technology sourcing. APCTT, NSIC and the CSIR, India, have formed a consortium to assist small scale industries in the country with emphasis on the following aspects - improve and secure access of small scale industries to advanced technologies, strengthen linkages between R&D institutions and create and strengthen the local innovative system. To start with eight technology acquisition and modernization workshops (two days each) in selected industrial centers (New Delhi, Bangalore, Madras, Bombay, Ahmedabad, Ludhiana, Indore, Calcutta) were organized during 1994 to deliberate on specific technologies in identified sectors. These workshops provided an opportunity to identify specific technological needs and capabilities of small-scale units and the nature of technical assistance sought from promotional and financial agencies.

In India, most of the SMEs are building up ITCs through the process of Learning by Doing. The process of Learning by Doing is central to incremental innovation and technological change. It has been pointed out that engineers on the shop floor play a vital role in supporting the operator’s effort to acquire new skills and come up with new ideas (Okuda, 1983). This is a must for a learning organization. In a learning organization, everyone in a group is an expert and can give his/her knowledge to the process of complex problem solving (Honecker, et al., 1999). The fact that proper linkages between the managerial staff, including engineers and workers at the shop floor within an enterprise, are an important factor in the information flow and the innovation process is exemplified by the studies on firms in the electronics sector in India (Bowonder and Miyake, 1988; Kharbanda and Jain, 1997). The studies show that Learning by Doing and entrepreneurial capabilities have been instrumental in strengthening humanware and technoware at the enterprise level.

Dynamism of SMEs is crucial for their long term competitiveness. For this they need to focus on systems of knowledge accumulation rather than just production system (Bell, and Albu, 1999). The SMEs should have capabilities for generating, accessing and diffusing knowledge and also have openness to external sources of knowledge including new technology data bases. For this efficient national information services and networks are essential.

In developing countries, most of the SMEs do not have access to well researched technology databases that provide information pro-actively on a regular basis. The information usually remains in the banks untapped, while the purveyors of the information wait for the targeted beneficiaries to request it.

In India, an important technology information data bank is the National Research and Development Corporation (NRDC), which serve as an important link between research and SMEs. NRDC acquires, evaluates, develops and transfers all worthwhile technologies generated at the various national laboratories. The technologies available with NRDC for commercial exploitation cover a wide range of products, namely, drugs and pharmaceutical, pesticides and herbicides, plasticizers, resins, electro-chemical products, metals, paints and varnishes, leather chemicals and auxilliaries, electrical and electronic goods, building materials, etc. It provides a very comprehensive international patent search and also has a few renowned international data bases on line for carrying out search.

Through the Ministry of Science and Technology, the government of India has also established information centers in specific areas for assisting academic institutions and industry under the scheme called as National Information System for Science and Technology (NISSAT). There are information banks on food, leather, drugs and pharmaceutical, machine tools, and aeronautics. SME units can approach them for assistance, especially with regard to the latest developments in the field of technology.

An important database on local innovations is the "Honey Bee Database" supported by SRISTI², which is one of the biggest stores of knowledge on local

innovations by farmers and artisans covering about 72 countries. It is a knowledge network, which pools the technological solutions developed by people around the world (Gupta, 1996). Networking of these databases can be of immense use to mitigate the numerous technological problems of the SMEs

As at present, in India there are 2900 R&D institutions in total, of which 1350 are in the private sector. Out of these, over 1,250 are in-house R and D units, employing over 45,000 scientific and technical personnel and incurring an expenditure of the order of seven billion rupees per annum. However, the small scale sector is largely devoid of such facilities and is mainly supported by public R&D for acquisition of new technologies. In general, SMEs are encouraged to invest in localized technological development. As most SMEs lack financial resources, the best way is to enter into linkages and partnerships with other enterprises, academia and/or R&D institutions.

Over the past decade, emphasis in the concept of technology transfer has gradually shifted towards a new set of strategies which can be described as "creative partnerships" or "strategic alliances" to form learning organizations (Niosi, 1991) . This underlines the idea that forms of technological cooperation are no longer "one-way" but involve a longer-term mutual benefit beyond short-term financial success. According to Cooley, (1991) Learning by Doing is not enough. Those who know what they are doing-crafts people with skill and experience- are the ones who best understand what needs to be done. This depicts an inherent feature of entrepreneurial capabilities, which help pushing the organization towards a learning organization. "Learning by interaction’ is an important feature of technological upgradation and can only happen when firms cooperate and interact through strategic alliances and other forms of linkages. For this to happen most viable systems are the clusters, which offer good opportunities for interaction and industrial upgrading (Knorringa and Meyer-Stamer, 1998). The common feature of these new forms lies in the sharing of knowledge in technological capabilities and in cooperative intentions, which may or may not include government incentives. The diverse forms of alliances include:

Such partnerships have technical education, training and retraining, innovation, and sustainability as inherent features.

One of the most successful innovations is the concept of industrial clusters. In industrial clusters, one can see that the town and its population whether young or old, rich or poor, are working like one big-networked company, as in a Honey Beehive. Cluster like companies have their own lives, their own rise and fall but importantly they stay together for longer periods. The cluster concept has proved helpful in building local capabilities, competence building, public private partnerships, skill upgradation, technological development and a host of other aspects necessary for the growth of SMEs. There is increasing agreement that clustering helps small enterprise to overcome growth constraints and compete in international markets (Nadvi & Schmitz, 1999).

A simple definition of a cluster suggests that it is a network made for information and resource sharing between people. Clusters are defined as concentration of activities belonging to the same sub sector. Such clusters are a common phenomenon in Asia (Nadvi & Schmitz, 1994). An old Indian proverb says that two hands together are better than one. The same is true for small entrepreneurs also. Cluster or network of companies have inherent advantages of both the large and small companies.(Briley, Sue & Muzyka, 2000). Network has no centralized control. Network retains the agility, inherent in a small company yet it has competitiveness of a large company in financial and infrastructural depth. Network style of functioning automatically forces an efficient interlocking and works as a fit between the mesh or web of SMEs in the cluster. There is a palpable concept of one link in the chain, being on the one hand, a customer for the preceding link and, on the other hand, vendor for the succeeding link.

The approach encompassed by the concept of industrial districts/ technology parks/ clusters, offer new insights into the potential role of SMEs in enhancing their access to new technology. Sector-specific and geographically bounded clusters seem to be a common phenomenon for small-scale manufacturing in developing countries. Most of them have been very successful which are primarily based on tacit and accumulated knowledge through learning by doing and learning by interaction. Thus, the cluster concept primarily requires knowledge sharing between elements of cluster. This sharing becomes natural because there is a concrete realization of sink or swim together feeling, which it generates. Hence, learning is shared, exchanged, copied, improved upon, implemented and one big chain of innovation is continuously supported and nurtured by the virtual network. The present wave of applications of Information Technology (IT) has come to power every aspect of human activity on all economic fronts. It would be worth examining how IT impacts the clusters of Industries. Without much ado, we can say that the cluster concept or the network concept and Internet based IT world are made for each other (Mehta Dhawal, 2000). Whereas traditional industrial clusters had to be in the same geographical proximity to take root and flourish, Internet has radically redefined the same. Internet potentially enables industry clusters spanning the entire globe through potential networking.

The clusters thus may be local, national or regional. The local cluster is developed easily in India as most of the times the business is handled by a group of family members having different companies in the same industry (Desai, 2000). For example, in Rajkot Diesel Engine industry, most of the entrepreneurs are involved in the business of manufacturing diesel engines are from the same caste and nearly same family background.

Figure 1: The Local Cluster Concept (LCC)

There are certain characteristics of the local clusters, which as observed, are as follows:

1. The creation of local cluster is due to the business being family business.

2. The state government support is higher.

3. Most entrepreneurs are from the same locality or of the same caste.

4. The business style or pattern followed is also very similar.

5. They all have similar competitive advantage.

6. Finance is generally generated within the family, that too from agricultural resources (e.g. Rajkot Diesel Engine industry).

7. They possess high knowledge about each other but less about their competencies

In general, although collaboration within the group is on the higher side, but competitiveness is lower. Major use of the cluster is made for the maintenance relationship and not for information sharing. The family will not share any new information with the other family group, which is a part of the same cluster. Culture also becomes an important part here as most of the entrepreneurs in the cluster belong to the same community or class or caste due to which they follow similar type of business policy and overall business pattern (Phansalkar, 1999). Like, in Rajkot Diesel Engine industry most of the people have been from the same caste i.e. Patel and most of the people also shifted their resources from agriculture to their present business. There is competition, conflict, rivalry and cooperation all together in a days business today also. The strong sense of family, cast, and linguistic and regional identities greatly influence the determination of business objectives and focus, and the means of achieving them for the entrepreneurs involved in the diesel engine business at Rajkot. Due to these community —caste — linguistic groups of entrepreneurs competing with each other, the result is an imperfect market nurturing dominant coalitions of firms by particular communities. According to Manimala (1999), one of the advantages a local cluster possesses is the support from local government. In many of the cases the government treats them as privileged group of entrepreneurs. They are provided special benefits like tax benefits, operational benefits and certain other extra benefits.

Generally resource rich countries like India have more than one cluster in the same industry. They are differentiated with their location. The national cluster is basically a group of local clusters spread geographically. For diesel engine industry, the national cluster consists of different local clusters based at Rajkot, Puna, Punjab, Coimbtore etc. National Clusters also have similar kind of advantages and characteristics like local clusters.

Figure 2: The National Cluster Concept : NCC

Some of the characteristics of national clusters are shown as below:

1. The creation of national cluster is also due to the business being the family business.

2. The state government support is not as high as given to local clusters.

3. They are treated as an industry by the central government.

4. Most entrepreneurs belong to the same caste or caste groups.

5. The business style or pattern followed is similar.

6. They all have similar competitive advantage.

7. Finance is generally generated within the family, and from other resources. But not from banks.

8. The entrepreneurs possess less knowledge about each other; as a result they are unable to identify competencies.

The major hurdle to national cluster concept is regionalization prevailing in the country. Due to regionalization, the state government’s support to the cluster as a local cluster is there but when it comes to national cluster it is low. Even the central government also treats it as an industry and all kinds of levies and taxes are levied on the entrepreneurs, who in turn are small-scale manufacturers. The regional clusters may also be formed. The same advantages and disadvantages as in the case of national clusters, that we have discussed above are faced by the regional clusters.

In India, at present, there are about 138 industrial clusters which are engaged in specialized industries such as: locks at Aligarh, leather footwear at Agra and Kanpur; cotton hosiery at Calcutta and Delhi; blankets in Panipat; power looms at Bhiwadi; diesel engines in Rajkot, diamond polishing in Surat. Space bound "dense clusters" related to a specialized industry are even more pronounced in the State of Punjab with woollen garments, bicycle and bicycle parts, sewing machine parts and machine tools in Ludhiana; printing and printing goods, water pipes and bathroom fixtures in Jallandhar; foundries in Batala, etc. Of these, the one at Ludhiana is one of the very successful cluster, having a wide range of diverse products which include sewing machines parts, bicycle and bicycle parts, auto parts components and machine tools. Ludhiana is also better known as the Manchaster of India, which alone contributes to the production of 95% of the country’s woolen knitware, 85% of country’s sewing machines and 60% of the nation’s bicycles and bicycle’s parts. Agra cluster makes 0.15 million pairs of shoes per day with a production value of 1.3 m US$ and exporting shoes worth US $ 57.14 million per year (Juneja, 1998). Knitwear cluster in Tiruppur, Tamil Nadu is responsible for 85% of Indian Market and its export earnings have expanded from US$ 25 million in 1986 to US$ 636 million in 1997. What is interesting about Tiruppur cluster is that it is organized in a web of small work places through which the entire town works like a living industrial organization(Chari, 2000). Here we present three detailed case studies of clusters relating to Diesel Engines in Rajkot, and Gems and Jewellary Cluster in Surat, and Ceramics Cluster near Ahmedabad, all located in the Gujarat region in India.

Rajkot Diesel Engine Industry is the leader in Indian Diesel Engine market with more than 60% of India’s total diesel engine production. It accounts for around 3 lacs no. of diesel engines per year valued around Rs. 250 crores sizes from 3.5 HP to 20 HP. Majority production is in the range from 3.5 HP to 8 HP. State wise production is given in Table 1. The industry is made up of small-scale manufacturers and has about 400 foundry units in the city. Their annual production is more than one hundred thousand tones of casting. It employs more than 40,000 workers. The development of the Indian diesel engine industry after Independence has passed through three distinct phases in the last three decades.

State and place of concentration	Percentage of concentration of unit
Gujarat — Rajkot	60 % of production consisting of high speed and slow speed diesel engines
Maharashtra — Pune, Kolhapur	15 %
U.P. — Agra	15%
M.P. — Indore	5 %
Other states (Tamilnadu — Coimbatore, Punjab — Few pockets)	5 %

Of the above State’s concentration, Rajkot in Gujarat is the major production center of slow speed Lister type diesel engines and caters to the irrigation demand, which constitute 75% production of Lister type diesel engines and remaining 25% goes for other purpose like concrete mixtures crushes, sugar cane crushes, flour mills, etc.

The Seventies saw the demand phase wherein the supply was short. Efforts were concentrated on indigenising and increasing production. Investments were made in production technology developed during the sixties. This period also witnessed a fuel crisis, which led to the sharp rise in prices of petroleum products as a result of which there was a need to improve the fuel efficiency of engines. The industry was mainly supplying goods to the commercial vehicle and the agriculture sectors.

In the Eighties, the second stage saw the manufacturers’ attention focused on improving fuel efficiency following the fuel crisis of the seventies. The central government also offered some lucrative incentive scheme for the large-scale manufacturers as well as for small-scale sector.

The third stage began in early Nineties, when the rest of the developed world was changing towards the rotary pump and the electronically controlled engine management systems, India continued to rely on the indigenised diesel engines, and was also able to export to developing countries due to high demand of the diesel engines made by Indian companies.

Interview conducted with the selected entrepreneurs (fifteen) associated with this cluster highlighted a number of problems faced by the industry. These are as follows:

The Rajkot Diesel Engine industry is facing severe problems on the front of competition and new product innovation. The problem is that the entrepreneurs are working without any support from the outside sources. They try to find solution to their problems from inside. They have created an association called Rajkot Engineering Association (REA), which takes care of raw material supplies and bulk buying. The association also helps to keep them updated with the latest information. But still the market share of the product is going down. After enjoying a growth of more than 22% for more than a decade in the international markets, the industry is now growing at a pace of 8%.

According to Pillai (2000), the problems of clusters worldwide seem to be eroding the fundamentals of the clusters. To what extent has the cluster an assured availability of key inputs like raw materials, components and parts from within the cluster itself? Adequate availability of inputs on site substantially reduces the transactions cost. In case of the components and machineries, the Rajkot cluster used to enjoy near self-sufficiency. By 1990s the situation changed and the long-standing relationship between traders and producers in the cluster which was earlier characterized by mutual trust, efficient timely delivery and good quality of the inputs, slowly started disappearing mainly because of payment delays, lack of enough orders, inventory accumulation, etc. As a result, the industry is losing its market share in the international markets and even in domestic market. In the international market the industry is facing competition from cheap Chinese goods. In domestic market the competition is somewhat different. It is not from the competitive goods but arises from a different basic source and that is the availability of electricity to rural farmers who now no longer need diesel engines to pump water for their farms. They now use electric motors rather than diesel engines. These are two different grounds on which this industry needs to survive.

Gems & Jewellery (G&J) is another industrial cluster in Gujarat, which has displayed great innovation at small enterprise level. G&J industry is second largest foreign exchange earner in India and concentrated in south Gujarat with number of small scale units engaged in diamond processing, doing innovations locally to serve 80% of world’s diamond market. The total export by this segment in the year 99-00 was approx. US $ 6500 million, which is about 16% of India’s total exports of US $ 35 billion. The industry has been growing at 15-17% annually since last few years.

The G&J industry in India is structured as diamonds, jewellery and precious/semi precious stones (Figure 3). These segments are further divided into sub segments. However, diamonds dominate the total G&J exports and contribute US $5.5 billion, which means about 81% of the total exports by the industry.

Figure 3: G&J Industry Structure in India

G&J industry in India is labor intensive and employs over 1 million people, which indicates its massive socio-economic impact on Indian sub-continent. The industry is mainly fostered in Gujarat, Maharashtra, Uttar Pradesh, Rajasthan, Tamil Nadu, West Bengal and Kerala. In this Diamond has lion’s share in Indian G&J exports. Export of cut & polished diamonds is almost 81% of total gems & jewellery exports. India is considered to be one of the world’s largest centers for cut & polished diamonds. Indian cut & polished diamonds account for about 45% of international diamond production in value terms & 70% in terms of carats. It is the main center for processing of diamonds, i.e., making cut & polished diamonds from roughs, processsing about 100 million Carats of rough diamonds against the worlds total output of 117 million of rough diamonds. Thus, it is the largest diamond-polishing center (Figure 4). USA on the other hand is the largest market for loose polished diamonds and diamond jewelry.

The Indian diamond polishing industry has come a long way from mere US $ 38 million in 1970-71 to US $ 5500 million in 1999-2000. Table 2 below shows the significance of G&J industry in total Indian exports and that of diamond polishing industry in the total exports of G&J.

Out of every batch of 10 diamonds made in the world, 7.5 are made in India. It shows that India has established itself as the world’s largest diamond processing center. In India, the diamond processing units are mainly located in Gujarat, particularly in Surat, Navsari and some parts of Saurashtra & north Gujarat region. About 80% of country’s diamond processing work is being done in Gujarat, out of which more than 50% is conducted at Surat only. The diamond processing industry in India, thus, is quite unique as it is developed at one location in an industrial cluster. Surat city is known as diamond city of India.

The Industry comprises of about 2000 units of cutting & polishing out of which about one third are located in Surat. It employs about 1.5 million people directly and provides employment opportunities to more than 2.5 million people. Their wage bill comes to Rs. 15 billion per annum. An investment of Rs. 50 million in this sector creates an employment for 1000 people. The industry is, thus, a major employer.

The processing capacity of each unit ranges from 4 to 400 carats, While production capacity depends on the type, shape and size of the diamond, it also depends on the skill of the workers. There are about 7000 different types of diamonds. The processing is done through ingeniously manufactured and manually operated machines. The industry developed in 60s in Surat because of its proximity to Mumbai, where most of the export houses are located. Later, industry has developed its footing in some of the centers of Saurashtra like Amreli, Bhavnagar, Mahuva, Palitana and some of the centers of Naorth Gujarat like Visnagar, Mehsana, Sidhpur, Palanpur, etc.

The key characteristics of this cluster are:

1. Most of units are in the cottage & small sector.
2. Labor intensive & not capital intensive — so more entrepreneurs, more employment
3. It is not power-intensive nor polluting,
4. Traditional business approach
5. High level of product innovation
6. Family owned businesses
7. Based on imported raw materials
8. Uses inherited skills of domestic workers
9. Wholly export oriented
10. High working capital and high inventories
11. The technology & skill required for cutting and polishing of diamonds have been largely developed within the country and at industry’s own costs
12. Most of the diamond dealers are inter-connected with each other and have developed a collective interest in achieving higher & higher export targets thus forming a viable Network.
13. 95% of active diamond exporters are based in Mumbai and Surat thus making it possible for the trade to serve the varied requirements of the numerous foreign buyers from different countries
14. Vast manufacturing base and marketing network
15. Large volumes, wide varieties & economical costs
16. Gradual switch over from contract processing to in-house processing, modern quality control and healthy working conditions.
17. The professional expertise and venture some spirit of youngsters resulting into diversification of export markets
18. Varied product mix, consistent assortments, prompt deliveries and sales on credit, reputation for quality
19. Infrastructure facilities in terms of :
20. Cutting down on export duties on capital equipments, fully free import of gold and other metals, movement of imported goods free from sales tax & octroi, exemption of export profits from income tax and cutting down red tape procedural delays.

According to the survey conducted at Surat by Keyoor Purani (2000), there is high amount of innovation in this cluster. The innovativeness is summarized as below:

The diamond industry has developed unique aspects in developing Dynamic/ Diverse (D/D) product-mix to meet worldwide demands, customer tastes & preferences. Innovations have been made in the product mix keeping it dynamic & diverse by non-standardizing the processing of diamonds, mastering the craft and maintaining large raw material inventories.

Product innovations have been made by improvement in its cut, carat, color and clarity. Through unmatchable skills in cutting & polishing, there have been a variety of new cuts the Indian industry has been able to produce. US market has great demand for fancy cut diamonds processed in India. The popular cuts are: Marquise, Pear shape, Heart shape, step cut, baguettes, tapers, etc.

Israel may use fully automatic diamond bruiting machine, computerized centering machine or girdle faceting machine or other innovative automatic machinery. India which uses non-perfect diamonds like polycrystalline, macles, distorted crystals, ‘near gems’ or ‘near industrials’, processing is not easily amenable to automation and has developed machinery to suit these applications as also to take advantage of cheap skilled labor. Indian entrepreneurs have, to their credit, indigenously developed laser kerfing and sawing machines.

Indian diamond industry has identified a niche and has decided to stick to it. The niche of small diamonds. With this it has not lost focus from overseas export market. The domestic market is just US $ 120 million as compared to US $ 5500 million export market.

The entrepreneurs have maintained organic growth model and most of the units are low key with skilled workers directly working under the entrepreneurs. The units have 2 to 50 mills each equipped with 4-5 skilled labors. On an average, about 30 craftsmen work in a unit.

The entrepreneurs have unique way of acquiring skills. The skills are passed on from generation to generation and identification of roughs, cutting, polishing and even marketing skills are inherited by people from their senior family members. Education is not emphasized, but learning by experience is what is practiced.

Marketing of diamonds by cottage scale units world over is a unique process and is carried by is networking. Maintaining contacts, keeping relationships with family members and friends abroad does the trick. As a whole industry is clustered around one or few locations, and networking works beautifully. Bharat diamond bourse and Surat diamond bourse are the trading centers helping this activity.

The Industry organization is quite unique. Thousands of small units work in harmony. As 95% of the units are clustered around Mumbai & Surat, they are more complimentary than competitive. They collectively serve diverse needs of customers from across the globe.

The industry with such values as borrowing is sin. Low start-up capital requirements, few easy installments, organized financing options have made it follow unique model of self-financing. Most of the units have started with entrepreneurs’ own money and have grown organically.

Central Glass & Ceramic Research Institute (CGCRI) Naroda Centre, Ahmedabad, is one of the constituent laboratories of the Council of Scientific and Industrial Research (CSIR) having 40 laboratories across the country, and is actively serving the ceramic clusters in the region. This is a small institute with 18 scientists primarily engaged in improvement of traditional ceramics and rural pottery. There are 950 Ceramic units in Gujarat. The Institute was established in 1977 to serve these cluster units and to cater to the needs of the developing ceramic industries in the small-scale sector of Gujarat and adjoining areas. Most of these clusters are poor in knowledge but have high entrepreneurial spirit. To improve the skills of these units, training and manpower development programme were initiated in 1978. Since then it has been conducting training-cum-demonstration programmes and capsule courses on various topics of current interests to the ceramic industries. The Institute had so far conducted 32 technology development programmes and has trained about 600 persons from the industry. It has also conducted three entrepreneurship development programmes for encouraging new enterprises. The clusters at Morbi, Himmat Nagar and Mehsana etc. have benefited a lot in technology development from CGCRI, in improving the quality of the raw materials for the manufacture of ceramic tiles and in improving process control parameters. One of the important achievements of the Institute has been that it has been able to use the Fly ash (a highly polluting waste product of thermal plants) in the manufacture of Ceramic tiles. Ceramic tiles now contain 30% of the raw materials as fly ash. It has also been able to produce blue ceramic tiles, which are free from lead. Ceramic filter candles have been developed which also contain 20-30% of fly ash. Cotton wick of the kerosene oil lamp has been replaced by the permanent ceramic wick which need not be replaced at all. It has developed the technology for production of Bone China utilizing the China clays of Gujarat . This technology has been transferred to 21 units in the small scale sector including M/s. Anil Ceramics, Mori; M/s. Hitari Ceramics, Himmat nagar; and M/s Ideal Ceramics, Delhi. The training of the workers is carried on the site which has received very encouraging response. However, there is need to build up linkages with the university sector, to benefit from the generation of new knowledge.

One of the case examples of academia — enterprise linkages is the ‘Sonya Ceramics’ in Ahmedabad. The Managing Director of this enterprise Rupesh G Shah-a chemical engineer from USA, took over the business from his father, who set up this business in 1959, manufacturing sewage pipes. Over the years, with the cooperation of the CGCRI and his own R&D efforts, he has been able to improve the process technology and consequently improve the products. He diversified his business and today the enterprise is manufacturing about 560 products used in a wide area of social activity - from thermal insulators to sewage pipes. It has taken 9002 ISO standard and works in close cooperation with the customers. The products are modified with the demand from the customers as required by them. In a case example, cited by the director, a customer named "Gurubhai" had all along come from Delhi to get the Switch altered according to his specific requirement. The problem with the switch was that it could not be held firmly with the grip of the hand. Only three fingers could be adjusted into the grip. To hold a firm grip all the four fingers must be use. So the switch had to be modified leading to a new design. This was an excellent example of enterprise — customer interaction to improve the product and to bring in the necessary technological change. The enterprise has about 80-100 personal, some of which were also given specialized training at CGCRI. The enterprise has two qualified engineers. The quality of glazing has also been improved with the help of CGCRI. The enterprise, although it has no in-house R&D, has strong linkage with the R&D institutions. Today the products of this enterprise are being exported to 15 countries in USA and Europe.

By observing the innovations created by the entrepreneurs at Rajkot, Surat and Ahmedabad, the following model appears to be very prominent. The factors of the model are as follows:

In Germany the Aachen Region has been described as the Learning Region, as it has a unique network of academia and the enterprise for continuous innovations and transfer of technologies from academia to the enterprise. The Aachen region has a total population of 3,50,000. In the region there are at present 8000 companies, four universities, 20 R&D institutes having 50-100 researchers each. Main research areas are lasers, ceramics, car engines, plastics, software & communications. The two main universities out of the four are University of Technology and University of Applied Sciences. University of Technology has about 30,000 students and is mainly engaged in research on basic sciences and imparts Ph.D. degrees. It is mainly financed by the State. Recently the departments have also started taking up projects from the enterprises. For example its Department of Computer Sciences in Mechanical Engineering takes up the projects only from the enterprises for its PhD work. The University of Applied Sciences has around 10,000 students. It mainly takes up the projects from the industry. Thus a strong linkage has been built up between the university and the enterprises within the region. Apprenticeship development is the main characteristic feature of the region and also in Germany. The region has more than 100 schools which import apprenticeship training to about 10,000 students.

In 2001, some 29,000 students were enrolled at the Aachen University of Technology in over 65 degree courses. The largest single group of students (approximately 40 per cent) are studying for an engineering degree; about 21 per cent are studying the natural sciences; some 10 percent each are enrolled in the Faculties of Arts, Economics and Medicine. In all the multifarious academic activities conducted by the 260 institutes, chairs, readerships and central institutions of the University, there is a clear across-the-board emphasis on practical relevance, interdisciplinary and internationality — all aspects with a strong element of student participation. As an application-oriented university, the RWTH has in the last few decades come to be a significant economic factor in the city and the region. With a total staff of over 10,000 - approximately 400 professors, 1,900 non-professional academic staff 5,300 non-academic staff, almost 1,000 trainees and staff on temporary placement — the University is the largest employer and training facility in the Aachen region. Its budget now exceeds Euro 650 million, of which approximately 120 million are funded by non-governmental sources. It is in fact one of the world’s largest universities with a technological focus. It is not, however, just budding graduates who are completing their application-oriented studies at the RWTH. There are also a total of 1,000 trainees and temporary staff on placement being given their practically oriented vocational training in the trade-technical and scientific and commercial sectors as well as in paramedical and non-medical practice. The total range of 43 training occupations offered are in the academic, central and medical institutions of the university extending from doctor’ assistant through photographic laboratory assistant to dental technician.

An outstanding feature of RWTH is its linkages with the enterprises. Industrial internships are for instance a condition of admission to the final examinations for engineering students, whilst all the University’s engineering curricula include project work which usually comprises the investigation of a practical problem using scientific methods. Professors in the engineering faculties typically have strong personal links with industry, often going back to work experience of their own in industry prior to their University appointments, and these are often invaluable in setting up applied research projects of mutual interest to both parties. On the basis of contractual co-operation agreements with the Aachen Chambers of Industry and Commerce as well as with the Aachem Chamber of Handicrafts, a multifarious network of University-specific business contacts has evolved in the course of time. Aachen University of Technology is also anxious to intensify collaboration with firms in the region. To this end, the Regional Industry Club for Information Technology in Aachen (REC INA) was founded. A considerable proportion of new businesses in the Aachen region are spin-offs resulting from research staff moving from the University to the private sector. The University itself has again and again played midwife to any number of new enterprises. Resourceful young scientists with new ideas — backed up and encouraged by start-up capital from European, national, and local government funds — are taking the plunge into self-employment. More than 80 per cent of the new enterprises launched in the Aachen Technology Centre (TZA) since 1984 have originated from the immediate environment of Aachen University of Technology.

The RWTH Aachen attaches much importance to advanced academic training. It is the very first company focusing on the marketing of advanced academic training programmes at a German university. The Aachen Global Academy supports the transfer of new scientific results and methods as well as new problem-oriented strategies from university to business and society within the scope of job-oriented advanced academic training.

The spin off enterprises from the university has been the major feature in the Aachen region. The Enterprises in Aachen region are basically divided into three groups:

- High Technology enterprises,

- Art & craft enterprises, and

- Low technology enterprises.

High technology enterprises are highly automated with lasers and computer aided automatic machines manufacturing for example, computer parts like modems and computer peripherals. The Art & craft enterprises are the enterprises with mix of modern and traditional technologies producing furniture and other household goods. The low technology enterprises are basically in the area of recycling meant to increase employment opportunities. Most of the people employed in the third group are from Asian countries. Prof Deitrich Brandt highlighted how the University of Technology was helping students to work on industry oriented projects for their Ph. d. work and to set up close relation with the enterprise. The past experience of highly automated enterprises has not been of much success in Aachen region. Most of the highly automated enterprises like Krantz Co. producing air conditioning systems went bankcrupt as it had to pay high salaries to the employees. They have shifted their production systems to the areas where labour is cheap, and are now only concentrating on design and prototype development. Workers have been reduced from 2000 to 300 only. Thus, due to this shift, overall unemployment has increased over the years from 5% in 1974 to about 12-13% on average in Germany as at present to counter this situation, the present emphasis is on small enterprises with close connections with the university. A large number of small companies are being created to fight unemployment. One of these companies is in the area of recycling of electronic products, particularly computers, washing machines and television sets etc.

In this direction Engineer Uwe Gohr bandt explaining the "Regional project to fight unemployment of low-qualification personnel" pointed out that a Ph.D student from the University of Technology Aachen, created a company named "Relektra" for recycling electronic products, particularly to give employment opportunities to the unskilled people. The company was set up initially with the help of the State in 1983 with five employees. Initially all infrastructural facilities & necessary equipments were provided by the State. At present it has 150 employees. The electronic waste products are unscrewed and dismantled, parts separated for plastic, copper and other materials and are given to the factories where these are recycled. This enterprise has been very successful in giving fruitful employment to the people. The employees are also given regular training and retraining to increase their skills and capabilities. A number of employees after getting training at ‘Relektra’ have been able to get high skilled jobs in other factories.

Another company which has been created by the Ph D students of the University is the ‘MA&T’ company. This company was started by three students with the investment of 25,000 DM each. The company provides consultancy services in the areas of modern management techniques, Group work, learning organisations, Remuneration system, Environmental management system and information Technology solution. At present the company has nine consultants with five engineers, two industrial psychologists and two IT specialists, and 11 administrative staff. All these consultants are from the University of Technology, Aachen. The administrative staff and the part time staff member engaged in the company are the students of the university. Their areas of activities include the re-engineering of large and medium-sized production enterprises; taylor-made software programs for communication and business processes in industry; specific training programmes for trade union groups and shopfloor stewards. The company is engaged in such projects all over Germany, in several Eastern European countries and in Belgium and the Netherlands. The company helps the enterprises to increase efficiency, product diversification, increase quality and fight environmental issues. In collaboration with the university they arrange the training programme of the workers on regular basis. Training is imparted in the areas of employee participation, problem solving, team based project management, communication and leadership, and software applications. MA&T Company is also doing research in the area of personnel development, organizational development and Human — Centered Technology designs. Its main source of appointing new staff is the University of Technology Aachen which is also its main partner in projects requiring the joint commitment of a large consortium. This co-operation includes to hire junior academic staff from the university if certain large projects of the company need additional personnel.

As part of the PhD project at the University of Aachen, two problem areas of industrial clusters were identified — one in Bielfeld and other in Aachen. These two case studies have been taken up to develop them into Eco-Tech Parks.

The problem with this area has been that 1/3 of the area was unused, power station with 76 MW Thermal power, two stage bio-sewage works for industrial effluent, over 40 wells providing fresh water, heat and electricity network, conference facilities, laboratories, guard, fire department. The aim of the study was to safeguard the future of companies in threatened industry using economic and environmental principles. The consultant have helped to establish 20 companies, with common use of infrastructure and resources with saving of 20% on energy, water and sewage costs, and greater use of combined heat and power plant. Similarly the consultant professional engineer from Aachen University helped to rejuvenate industrial estate using economical and environmental principles.

The Krantz Co., after its closer, later established the Krantz Business Centre and started subletting/leasing the premises to the other companies. At present there are 30 companies in this complex and form a kind of Technology/Industrial Park. These enterprises share a number of common infrastructural facilities and resources. Krantz Centre has, practically, also developed into an Eco-Tech Park where the enterprises are sharing the infrastructural facilities and resources. These save about 20% of energy, water and sewage costs.

The Schell Gruintechnik, Korneli Munster, Aachen is the classic example of an entrepreneur emerging from scratch and promoting innovations in the manufacture of Heavy — duty lawn mowers systems through university — enterprise cooperation. Franz Josef Schell who is the owner of the company, after obtaining Apprenticeship Diploma in Mechanical Engineering, he gained experience in another big company for maintenance of lawn mowers and thus started his career in 1971 with maintenance and repairs of the lawn mowers. Slowly he started making his own spare parts for repair of lawn mowers. With the experience gained, he started making his own lawn mowers in 1981 and in 1991 it grew to 10-21 employees. Four of the employees are of its own family members. The sales rose to 1 million US dollars and in the year 2000 it rose to 5 million US $. The rate of growth of the company has been 20-25%. In 1998 it had linkages with the university to for improvements in aerodynamic and hydraulic systems. The main problem to be solved was the aerodynamics of high-speed grss cutting and removing in the maelstrom inside the housing close to the ground underneath the lawn mower. This problem was solved by the company in close co-operation with the Department of Aerodynamics and Aircraft Design of the University of Technology, Aachen. The solution comprises the cutting-up of the grass into sufficiently small bits which can be left on the lawn to rot and fertilize the ground. Today about all leading lawn mower producers world-wide buy the Schell mowing systems to attach them to their own brands of lawn mowers. The next step of technological development will be the remote-control and the un-manned automated lawn mowers.

In this direction, presently, it has contacts with the car engine department of the Technical University of Aachen and an Austrain company for the development of robotic lawn mowers which can be operated from the remote control. Thus the company has grown from low technology to high Technology with the help of University of Technology Aachen. These lawn mower now can be used in hilly regions and an uneven grounds. The level of the cutters is controlled by the hydraulic systems. The grass is also cut into very short length and left in the lawn to serve as manure. The speed of the cutter is 2500 revolutions per minute. At present it has 25 employees with 8 of them from his own family. The other main feature of the company is that not all parts or components of the lawn mower are made in the enterprise. Some 20% low tech parts are obtained from China and about 50% parts are obtained from local suppliers. Around this company, there are about 10 more companies which also supply components to it. About 30% of the components which are particularly high tech components and have the 70% cost of the mower are manufactured in the enterprise it self.

The main features of this region are:

- It has a cluster of 12 firms

- It also gives apprentice training to the students of the university.

Holz Coop. Company in Aachen is another enterprise with university linkages engaged in manufacture of household furniture. The company was established in 1985 by two young carpenters. The aim was at that time to offer to other young unemployed people the opportunity to learn basic carpentry as a start experience for their own professional careers. The project was supported by the regional church and the Regional council. It has at present 14 employees out of which four are partners in the company. It is a furniture company supplying wooden products to the local area. The company gives apprentice training to three students at a time and only one student is recruited every year. The Chamber of Craft Enterprises accredits the Diploma. When established in 1985 it had the turnover of 600,000 US $ per year, which has grown to 1.25 million US $ as at present. This craft enterprise derives some of its regional success and appreciation from communication and management training courses organized for them by some young teachers of the University of Technology Aachen.

Development of Incubators or Technology Centres is another important feature of the Aachen region. In the region there are at present 13 Technology Centres, which are owned jointly by the City Council; Department of Computers for Mechanical Engineering, University of Technology; a Bank and the Chamber of Trade, forming a consortia. One of these centres is the AGIT Technology Centre. (Association of Aachen Innovation and Technology). This Technology Centre has about 40 companies in the region. Out of these, five companies have direct linkages with the University of Aachen. University help these companies in :

(1) Training in co-operative communication and Group working;

(2) Computer software development

(3) Data processing for environmental Management.

There is also an ICON Institute in the AGIT Technology centre, Aachen, functioning as an consultancy company and is headed by Dr. Franz Dunkel as Managing Director. He is one of the five managing directors of the ICON Holding Cologne having five different companies. ICON Institute is the training institute which imparts tailor made training to the enterprise and persons in developing countries particularly in North Africa and some Asian countries in the area of mechanical engineering, electrical engineering and automobile sectors. For example recently they have imparted training in Trinidad and Tobacco for maintenance and operation of desalination plants. The company is thus imparting education and training on a worldwide basis. Presently it consists of three staff members who are running the enterprise as the hub of a large regional and international network of customers and suppliers. The customers are governments and industry world-wide which are requiring tailor-made training and education programmes for their technical and administrative staff. The programmes are to be offered in Germany according to German standards and qualifications (e.g. for technical teachers or technical personnel from Libya, the Caribbean, Syria, Asia etc.). The Icon enterprise organises such programmes which may last for several months or up to 1 year. It designs the curriculum of the courses; it hires all teaching staff (e.g. from the regional technical colleges and universities etc.); it provides accommodation and subsistence for the participants. Faculty for the training is drawn from various sources including the University of Aachen which is in fact the main resource. This Institute started with three people in 1988 with an annual turnover of 2.5 million US $. At present it has five people with annual turnover of 4-5 million US $. Annual turnover of ICON Holding is about 17-18 million US $.

Another company named AK-Media GmbH, located at the AGIT Technology Centre, is a spin off of the Aachen University. It was also started by two students from Aachen University to become a regional multimedia company. This company started with two people in 1980 with a bank loan of 50,000 DM. Their aim as to make entrepreneurial use of their academic experiences in Electrical Engineering and Multimedia as well as in business studies and project management. Thus they designed their company to fulfill a broad range of regional needs in multimedia:

The company developed very fast into a leading enterprise within the region serving about all large and medium-sized enterprises as well as all important public institutions and universities of the region (and beyond). At present it has 25 people having Annual Turn Over of five million DM. It has close collaboration with the university for development of multimedia products. Students of the University also take up specific project jobs who work for half a day and get the stipend accordingly. Thus earning while learning is the characteristic feature of the University. Frequently these students have become the next-generation full-time staff members of the enterprise.

Emilia-Romagna in Italy is the characteristic model of innovative SMEs in Italy, and is also known as the Third Italy. The Population of Emilia-Romagna is 3,924,352, approximately 7% of the national population. The region accounts for 8.3 percent of national employment and nearly 9 percent of the Gross National Product, surpassed only by Lombardia and Lazio. The region has the third lowest rate of unemployment (4.5% compared to the national average of over 11%) among Italy’s 20 regions, surpassed only by Valle d’Aosta and Trentino Alto Adige in the far North. Emilia-Romagna boasts one of the largest business classes in Italy. The productive system is characterized by Small and Medium-sized Enterprises (SMEs) (employing an average of 5.48 people per enterprise), with a huge number of artisan enterprises (126,639 out of 304,947) and co-operatives (7,923, including 2,336 farming co-operatives and 1,187 labour and manufacturing co-operatives). The region comprises of nine provinces i.e. Bologna, Ferrara, Forli-Cesena, Modena, Parma, Piacenza, Ravenna, Reggio Emilia and Rimini. The major companies of the region are Barilla and Parmalat in the food sector; Ima and Tetrapak in the industrial machinery sector; Lamborghini and Ferrari in the motor vehicle manufacturing sector; and Ducati Motor in the motorbike sector. In order to optimize the advantages and reduce the limits associated with the small firms, production in Emilia-Romagna region has taken on a particular structure over the years, giving rise to local productive systems known as ‘industrial districts’.

The regional economy is characterized by a very low level of vertical integration. It is, in fact, rare for a single firm to undertake a complete production process. Even major firms, which supply final goods, usually carry out only certain productive processes and leave the rest up to other firms. A complex network of suppliers has thus developed each undertaking a single production phase often on behalf of different firms. As a result, every supplying firm, however small, may maximize its level of specialization, knowing that it can rely on a sufficient number of orders to pay off the cost of technological investments. This particular form of organization of production has moreover created room for the development of complementary businesses, which distribute raw materials and semi-finished goods among suppliers and even larger firms which manufacture machine tools. There is constant exchange of information, so that the product may easily be made to individual specifications. There is thus high degree of flexible specialization.

The region is also characterized by high level of exports. In the region, last year the sales from exports exceeded 29 trillion lire (Aprox.14 billion $), equal to 11.2% of the national total. Emilia-Romagna region is, thus, the fourth-largest exporter after Lombardy, Piedmont and Veneto. The products include minerals and non-metallic products (32%, a sector including ceramics), food products (18.7%), farm machinery (18%) and metal and mechanical goods (12.4%). Even within the scenario of the general slow-down in Italian exports in 1998, especially in the second semester, Emilia-Romagna recorded a growth rate of 5.3% equal to almost double the national average and higher than all the principal exporting regions of the North. It is particularly interesting to note that among all the regions in the so-called "Third Italy", Emilia-Romagna, along with Friuli-Venezia Giulia, are the regions which have, least of all, been hit by the effects of foreign competition compared with what has happened in regions more specialized in traditional production such as Veneto, Marche and Tuscany.

One of the main features of this success has also been that, the SMEs of Emilia-Romagna region have set up associations to promote exports and form business alliances. For example the Emilia-Romagna Regional Federation of the National Confederation of the Craft and the Small and Medium enterprises (the Emilia-Romagna CAN) represents and defends all interests of craft firms, of small and medium enterprises and atypical workers in relations with public Administration, and with political, social and economic organizations. It seeks to promote their growth in an open competitive environment, permitting the best to exploit their full managerial and enterprise potential and skills. It works at local, regional, national and regional level (Europe-wide) and is rooted in both Italian and European cultures. The Emilia-Romagna CAN has set up an extraordinary range of services and benefits which include:

• assistance in the starting up of new businesses
• assistance and consultancy to enterprises run by young entrepreneurs
• consultancy and financing
• business, managerial, vocational training
• information and consultancy in export, promotion, internationalization and marketing
• prevention, safety and the environment
• company consultancy
• assistance in the area of quality control certification
• information and consultancy on European legislation
• IT and telematic services with analysis of system requirements and design
• Tax services
• Assistance and management of tax litigation
• Pay-roll service, personnel administration and consultancy on Employment problems
• Assistance in contracts
• Assistance and consultancy in the fields of health and pensions

The Emilia-Romagna CAN is made up of 10 provincial associations: Bologna, Modena, Ferrara, Reggio Emilia, Piacenza, Parma, Ravenna, Forli-Cesena, Rimini, Imola. To provide information and to assist enterprises in every aspect of their work, there are 226 CAN local offices spread throughout the region. The work force based in the offices totals more than 2,500 skilled and professional staff. It has also set up a Women Business Committee (Comitato Impresa Donna) to assist women to start up and establish themselves in business, while it has also set up the Young Entrepreneurs Committee (Comitato Giovani Impreditori) designed to assist and encourage young people in Business.

Cesena is at the heart of the Emilia Romagna region, and forms a link between Northern and the Central Italy and between Italy and the Central Europe. With a population of 1,80,000, Cesena’s economic prosperity looks to the future through vigorous competition with other most developed areas in Europe. Its geographic location, acting as a pivot between central Italy and north eastern Europe, offers a wide range of opportunities for trade and exchanges. Cesena’s economic prospects are based on technological innovations and to the quality of both products and services. For this purpose linkages between the university, research centres, international trade fairs and science and technology parks are at the forefront. The "CENTURIA" Science and Technological Park" located in this region, in particular, has helped to bring together the leading companies in the food sector to foster research and innovation, through synergies with the Bologna University and other scientific institutions. It has brought about the most singular and effective concentration of high technology companies, specialised in the different sectors of the agro-industry. The main characteristic feature of the region is that, to enable immediate direct contact between the various components, all the production, transport, technological information, technology, research, promotion, marketing, export management and professional capacity support structures required for the growth and consolidation of investments in the agro-industrial sector, are located in the region itself. There exist leading experiences in the fields of preservation, processing and transportation of fruits and vegetables and poultry products, of sugar, of seed and animal feed production right up to robotics applied to automatic sorting and packaging, to bio-technologies and advanced information technology. A large number of research laboratories work in conjunction with the university. These are all specialized in the agro-industrial sector and represent vital instruments for the innovation of enterprises, for research within the field of bio-technologies, for agricultural experimentation, for food and processing technologies, information technology and transport. The Centuria Science and Technology Park, which benefits from the participation of major local industrial groups, is active putting companies into direct contact with scientific and technical expertise of research institutes and the university. With this, Cesena has become a basin for agro-industrial expertise and experience with no equals in Europe in terms of concentration and achievements. For example, Poultry farming has today become an integrated system whereby the industrial groups of Cesena control the entire process from feed farming, right up to meat processing. The cultivation of sugar beet is linked to the large sugar industry (the second in order of importance in Italy). The road transport sector has consolidated into a park of over three thousand specially equipped vehicles connected by satellite and sophisticated system of telecommunications. A fundamental part of this success can be put down to the extraordinary local know-how on the subject of refrigerated transport.

Another significant Cesena experience is in the field of biotechnology. A bio-factory has been established for the mass rearing of beneficial insects and for development of biological and integrated pest control techniques applied to fruits and vegetable growing — the first of its kind in Italy. Established in 1980’s as a research and experimentation centre, the bio-factory is today able to produce and market a vast range of beneficial insects throughout Europe and the Mediterranean basin. Research in Cesena’s agro-industrial sector not only involves specialized centres, but most of the companies participating in the "CENTURIA" Science and Technology Park also have advanced laboratories.

Dr. Marco Baccanti, Director, CSTP and Vice president of the International Association of Science Parks, Spain, pointed out that the main objective of this Science and Technology Park (CSTP) is to enhance the competitiveness of SMEs in the agro-industrial district in Romagna. It has been specifically created for agro-industrial technological innovations in this region of Cesena. This district has developed from a traditional agriculture region to an advanced high tech agro-industrial region with robotics, food processing machines, fruit sorting and packaging machines, logistics and transportation and application of biotechnology. The three main areas of activity are Poultry farming and animal feed: Sugar production; Fruits and Vegetables, with about 1000 SMEs and 15000 employees in total and a total turnover of 4 billion US$. About 40% of the profit go to the Consortium and 60% is distributed among the farmers. The co-operative helps the farmers in all operations from plucking to packaging. This CSTP has the following special features:

This model of networking of players of innovations has been reported to be most successful which is practically based on the concept of continuous learning, co-operation and competition. This model of enhancing the competitiveness through the management of a system of relationship in the territory can work anywhere if

There is territory with a good concentration of economic activities in similar fields.

The local actors of the competitiveness are ready to cooperate. (companies, institutions, banks, university/research)

There is a ‘bottom up’ approach to the problem solving.

The structure is market driven.

This consortium was created in 1960. According to Mr. Enzo Treossi, President, ‘Apofruit’, the focus of this group is on innovation and development with a co-operative approach. It does business for a large number of associated fruit growers within a modern organised and rewarding system. Today this agricultural consortium has 3500 associated growers, with 5 production plants, 20 agriculture advisers, modern operating infrastructure and an internal strategic and operative marketing unit. The agriculture advisers update procedures and systems on a daily basis maintaining close contact with the growers and production managers. It has a modern operating infrastructure with three refrigerated loading platforms with centralised system for weighing and checking; specialised processing lines for quality production and diversified and innovative packaging lines. It has internal strategic and operative marketing unit to maintain company’s policies in line with modern distribution, to promote new products, and for direct co-marketing support for clients. The salient features of this group are:

This consortium is comprised of 50 small firms. The Consortium deals with property management projects for public bodies, for example to execute construction projects as well as projects in specialized electrical and hydraulic services etc. It is also engaged in financing and construction project activities at the global level. According to Mr. Mauro Pepoli, Director, the role of consortia has changed with globalization. Earlier it was only engaged in traditional technical services, which were not enough. Consortium felt that there was a need of tailor made services with specific information, which has been facilitated by the new IT tools. For this there is practical need of human resource management and knowledge management. In this concern it arranges specialized training for the employees of the SMEs in new technology areas and building up new capabilities.

This consortium has nine different firms, particularly engaged in hydraulic services and bathroom fittings, and installations for warming of the house. It has linkages with the University of Bologna to bring in new products and technologies. The consortium has about 350 installators to execute the project at the sites. The consortium arranges regular demonstration and practical training activities for the installators for building up technological capabilities. Created only three years ago, the total value of specialised equipment sold to the installators jumped from52 billion Lire (25 million US $) in 1998 to 71 billion Lire (35 million US $) in the year 2000. This consortium is now well established in the region and is competing internationally. A specific feature of this consortium is that group cohesion is maintained through socio-cultural activities.

The Sussex Innovation Centre, opened in May 1996, provides support for the creation and growth of technology and knowledge based companies in Sussex. The Centre is a now thriving business environment for nearly 30 high growth companies. Initially, this Innovation Centre was conceived as the flagship development of the ‘Sussex Academic Corridor’ (SAC). Formed in 1991 SAC is a unique collaboration between the public, academic and business sectors committed to harnessing the economic potential of the extensive education and research resources available in the Brighton and Lewes area. This Innovation Centre builds on the successful experience of university based incubators in the United States and at Oxford and Cambridge Universities. Professor Walter Heriott from the University of Cambridge was a consultant for the Sussex project. The principle is that new technology based companies (especially those linked to academic research) have the potential for high growth but also have specific needs in terms of management support and profiling. Experience and research has shown that incubators increase dramatically the proportion of companies that survive the traumatic first three years (over 85% survival and often higher) and provide high growth. The experience at the Sussex Innovation Centre certainly reinforces this experience.

The basic features of the business model for the Sussex Innovation Centre are:

• Through an initial public investment of over 2 million the Sussex Innovation Centre was developed as a purpose built business incubation facility based on the campus of the University of Sussex.
• Rent levels are set which, while reflecting the prime location and excellent facilities offer the tenant companies an ideal, flexible and relatively inexpensive environment to grow their business.
• The Innovation Centre Management Company (ManCo) collects rents on behalf of the Development Company (DevCo). Any surplus is reinvested into the Incubation Support via a "Management Fee".
• The Innovation Centre supplements its income through undertaking projects, consultancy, sponsorship and running events which are consistent with its core objectives of incubation, commercialization and to act as a focus for new technology companies in Sussex.
• The universities gain through an increased focus on commercialization, a higher profile within the local business community and a clear route for academic spinouts.
• The local authorities receive their "Investment Return" through the impact on the local economy of the growth of the new technology companies.

The Centre has also extended its services by establishing a new department: The Commercialization Support Group (CSG). CSG’s services are designed to help local companies, academics and individual inventors to develop and commercialize new products and services by making the commercialization process easier and quicker. Charges for the CSG services are intentionally kept low, to ensure accessibility. In some circumstances the Innovation Centre may even make 'seed’ investments to enable the company to use the CSG resources.

• Services offered by CSG are:
• General business advice
• Assistance with raising finance
• Advice and sources of information for protecting Intellectual Property
• Carry out Market research
• Marketing assistance
• Assistance to secure Licensing deal
• Advice and sources of information for accessing Manufacturers
• Access to basic and applied research
• Access to general Prototying assistance and prototying centres

This Centre is also engaged in the development of a range of technical and professional networks. These include:

• Know How Exchange — network of Sussex companies who have agreed to share non-commercially sensitive information and experience within an informal environment. The Centre manages the network, maintain the company databases and facilitate the exchanges.
• Academic Expertise and Facilities — working with the Sussex Further Education Colleges and Universities, the Centre maintains a database of academic resources and will assist companies locating the appropriate expertise, skills and facilities. Details of the research groups can be searched via the online Skills Directory.
• Sussex Companies Expertise and Facilities — The Centre maintains a database of Sussex Companies which includes extensive information on the available expertise and facilities. A large part of the database is available for online searching through the Skills Directory.
• Professional Advisors — The Centre maintains close relationships with a wide range of commercial, legal, financial and Intellectual Property professionals who provide advice to the Innovation Centre and our client companies.

The Sussex Innovation Centre gives specialist services. For example, it is directly involved with a number of initiatives aimed directly at promoting new ideas and helping innovative companies to grow. These include the running of Inventor Workshops (with Business Link Sussex), the creation of commercialization support Group, establishing a small Seed Fund, development of the Innovation Capital business angel network (with capital Match), creation of a new regional bioscience initiative — Southern Bio Ventures (with other South East Incubators and universities).

The characteristic feature of the European Innovation model (German, Italian or UK) is the establishment of proactive entrepreneurial culture by establishing strong linkages between the enterprise and the universities/R&D institutions, through the establishment of Consortia, and science and technology parks e.g in Cesena and Ravena regions in Italy; Incubators and industrial parks and clusters e.g. in Aachen region in Germany; and incubators e.g. Sussex Innovation Centre, Brighton, UK. All these approaches have been highly successful in consolidating the SMEs with infusion of high technologies and constant learning process with the academia. Vocational training has been one of the characteristic features of this region. Co-operation and competition among the SMEs has been the crux of success in all three cases, although it is also evident in the Gujarat Model of Innovation in India. Exploitation of all knowledge resources including international, national and local(the tacit dimension), through networking with the help of information technologies and learning by doing to capture the tacit dimension has been recognised as the prime factor for competition in this globalized world. In India, although academia-industry linkages have begun to emerge in various clusters, but this needs further large scale commitment and action.

The Indian experience shows that the local and national clusters sharing are mostly informal. Information regarding the latest development and competency understanding is much less. Work sharing is not seen in the local and national clusters, as it is a fight for the same customer and in the same market. Even though the product and technology used by the entrepreneurs are similar; the tendency to share is less among the cluster participants. And as most clusters are made for production related issues such as, procurement of raw material, maintenance and corrective actions. the marketing related issues are never dealt with. The marketing related issues are the real differentiators between a multinational company and the SMEs entrepreneurs. With the creation of local and national clusters the SMEs entrepreneurs can compete with the multinational company on the issues of quality and other production aspects. But when it comes to market, the multinational companies (MNCs) are much ahead of the small-scale entrepreneurs. With the marketing muscle the multinational companies take away the market share from the small-scale entrepreneurs. Further, Local and National clusters are mostly formed for production purposes, i.e. for the issues related to production, like procurement, assembling, and maintenance. The clusters are not formed for marketing the products. As such, in local and national clusters, the entrepreneurs are less aware or even unaware of the competitors' strengths and weaknesses. Thus, the local and national clusters do not really serve the purpose of clusters for which they are created. The local and national clusters nearly miss the vital factor of knowledge sharing between elements of cluster and united marketing to face the competition from the MNCs. On the other hand, it is very well noticed in case of Italy. The creation and use of specific data basis from production to marketing (as in case of Italy and UK) is wanting. Non-sharing of information between the elements of local and national clusters creates a situation wherein the cluster’s real impact is lost.

In this era of globalization, mergers and acquisition, collaboration at local and national level is not sufficient. We have seen the pros and cons of local and national clusters. A very important point that local and national clusters both miss is the competitiveness at the international level. A global cluster will change the threat of WTO for SMEs to their advantage. It is basically a cluster that is created between local clusters in different countries of the world. Applications of information technologies have facilitated this process to a great extent. A global cluster nearly over comes the hurdles, which are faced by the local and national clusters. It helps entrepreneurs in following manner.

As global cluster is an international phenomenon, entrepreneurs are very keen about what is happening. As the entrepreneurs are more interested in the information about what is happening between the clusters all over the world, the information sharing is much higher than normal. Due to more information sharing the local clusters’ entrepreneurs understand other entrepreneurs’ competencies in a better way which in turn leads them to work sharing between them.

With a global clusters, the SMEs can compete with MNCs in a better way with the work sharing and joint efforts coming into existence. As the world has become one marketplace, any entrepreneur who has an added advantage over others can sell easily anywhere in the world. The Asian countries have an easy and cheap labour advantage over the others. They can use this advantage to reduce the prices and sell more products and generate more profits.

The problem of getting funds on a larger scale to improve on production and marketing through research and development is always a problem for SMEs. With the help of such global clusters the entrepreneurs can easily contact venture capitalists worldwide that can help in igniting the business process. Easy contact with venture capitalists and other funding institutions will lead an entrepreneur towards hassle free financing.

Thus a Global/Regional Cluster can help:

1. Information sharing between the entrepreneurs

2. Competency understanding between the entrepreneurs

3. Work sharing between the entrepreneurs

4. Technology sharing between the entrepreneurs

5. Product sharing between the entrepreneurs

6. Market sharing between the entrepreneurs

In case of Rajkot Diesel Engine industry in Inida, the Global Cluster based techniques can be used to resolve the problem. The real competition in international markets is coming from Chinese manufacturers. They are also giving tough fight to the Korean manufacturers of diesel engines. The entrepreneurs at Rajkot can network with the Korean or European entrepreneurs and can benefit from the transfer of technology. With knowledge transfer from the other clusters they can have an access to a new innovative product line that they can modify according the needs of the consumer in India. The diesel engines can have features like less diesel consumption and more power. The diesel engine can be made compatible with electricity. Dual efficiency diesel engines, which use electricity and diesel whichever is available, can be made. In turn the Korean manufacturers can get wide experience, which the entrepreneurs at Rajkot possess about the market and the strategies adopted by them. This would be a win-win situation and can compete globally. Similarly, many other problems faced by the entrepreneurs can be solved by the use of global clusters. It is all in the hands of the entrepreneurs and the government to get educated about the usage of global clusters and make things happen in their favour. But above all, as Dietrich Brandt (2001) mentions that the base for successful networking is trust. Only when we have fundamental trust in each cluster partner, the Network can create a win-win situations to everybody’s advantage. Equality and mutual trust have to be established despite the threats of a competitive economic environment, and national and cultural borders. The challenge lying ahead is how we can make possible a just Cooperation, Communication and Competition despite different underlying cultures and values.

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