Prof. dr.

Tea Petrin, Ministry of the Economy, Republic of Slovenia

A COHERENT CLUSTER STRATEGY FOR

SLOVENIAN CLUSTERS

Over the past decade Slovenia became an open economy, strongly affected by
globalization and integration processes influenced by international environment.
However, becoming a full member of the enlarged EU in May next year is an
important step further in globalization of our economy.

In spite of the fact that Slovenia according to the level of economic

development (GDP/capita in PPP over 17.000 US$; 72% of EU 15 average) is the
most successful new member, we still need to catch up with the most developed
economies of EU-15. To achieve this goal, our growth needs to be higher than the
growth in these countries, and therefore, Slovenia does need to become more
innovative and more competitive.

In the past, Slovenias economic growth disproportionately depended on the

investments into physical assets and much less on investments in knowledge and
technological advances. Consequently, productive resources are not used optimally
and thus the economic growth, all other things being equal, is lower than possible.

Already in 1999, the Ministry of the Economy formulated entrepreneurship and

competitiveness policy, in order to speed up the process of change and to stimulate
businesses to innovate and succeed in the world of knowledge driven economy.

The formulation of the policy is based on the identification of industries'

relative competitive strengths and weaknesses, i.e. nation's relative competitive
position. The overall ability of society to generate growth in all areas that crucially
determine the nation's growth potential were assessed, such as the state of
education, the labor market, taxation and tax system, transport infrastructure,
telecommunication and information technology infrastructure, energy management,
technological environment, social security and environment. In addition, we took into
account business models of industrial innovation, since the core of economic
development is innovation in its broad sense, which determines nation's capacity to
generate higher quality, lower cost products than had previously been available.

The policy is aiming at increasing the competitiveness of Slovene economy,

which should result in:

- The structure of the economy comparable to the structure of EU 15 economies,

that is especially the increased share of industries with higher added value;
- Improved competitive capacity of the enterprises, especially in diminished gap
in labor productivity compared to the EU 15 average;
- Balanced economic base of Slovene regions.

European Seminar on Cluster Policy, Copenhagen, 10. June 2003

 Prof. dr. Tea Petrin, Ministry of the Economy, Republic of Slovenia

The measures to achieve this goal are organized in three broad programs:

- Knowledge for development;

- Improving enterprises' competitive capacity;
- Promoting entrepreneurship and utilizing entrepreneurial opportunities.

Within the program Improving enterprises' competitive capacity special emphasis

is given to the promotion of enterprise networking and cluster development.

It supports and stimulates networking and clustering of enterprises as the type

of industrial organization where innovation is built and enhanced by interaction
between enterprises within a cluster and among clusters. It aims at development of
support structure such as universities, technological parks, research centers and joint
research, marketing, and product and technology development projects. This project
aims at fostering the spread of open-system model, in which innovation is built
directly into the process whereby firms establish their core capabilities and network
with other firms. This model is of utmost importance for attaining sustained
economic development of Slovenia, since new technology industries are lacking and
opportunities these technologies offer for productivity improvements are far from
being fully exploited by enterprises.

The program has been designed through the following steps:

1. A special study was done in 1999, in order to identify the potential clusters
in Slovenia through analyzing the geographic concentration of industries and
existing degree of networking and innovation systems, linkages with the
universities, research centers etc. 12 regions were covered and over 55,000
enterprises within 46 industries.

The results:

Ten potential clusters were identified in the following sectors: electric-optical,

automotive, household appliances, construction, transport, information technology,
furniture, textile, tourism and pharmaceutical systems. Employment in these sectors
is roughly 35 per cent of the national employment, thus clusters in these sectors
could have a significant impact on the national economy. In general, the existing
linkages between enterprises proved to be weak.

2. Establishment of specific measures to promote basic enterprise

networking and co-operation. Through these, positive experiences and
practices began to establish a culture conducive to the development of vigorous
clusters.
a. The Ministry established a program for the co-financing of joint
projects involving a minimum of five companies and support
institutions like universities in the fields of marketing, product
development, technology improvements, and the specialization in supply
chains.

European Seminar on Cluster Policy, Copenhagen, 10. June 2003

 Prof. dr. Tea Petrin, Ministry of the Economy, Republic of Slovenia

The results:
The response in the first two years (2000-2001) of implementation was
very positive and more than 200 projects were supported. Government
financial support was used mainly for research and development activities
and training (82%). If the most important co-operation between companies
in the first year was co-operation along the production value-added chain,
in the year 2001 the horizontal networking already reached 34 %. It can be
seen that government support enhancing co-operation between enterprises
reinforced networking in the direction of cluster development.

b. A pilot project in a potential cluster development was initiated by

inviting groups of at least ten companies in a value-added chain along with
at least three support institutions, which could qualify as a potential cluster
nucleus. Selection was based on the following criteria: existing level of co-
operation in the field of R&D, technology management, new product
development and skills development; awareness of the benefits of
networking; existing organizational structure and resources for project
implementation.

The results:
Three pilot projects in the automotive, transport and tool making industries
all started in 2001, with the Ministry co-financing the initial phase that
entails defining the cluster's structures and strategies. In the first year,
partners in the cluster established cluster hub, employed the cluster
manager and decided upon cluster development strategy. The cluster
initiated joint projects such as upgrading the supply chain, development of
the joint research infrastructure and programs for enhancing skill formation
according to the needs of the cluster members. In the second year, all of
the clusters have established their formal organization, defined their
common vision and development goals. The middle-term plans of
development projects were defined, as well.

3. Measures in support of cluster development and the new initiatives

In 2002, eight new cluster initiatives were supported in wood-processing, air-

conditioning and heating devices production, plastics, information technology, and
geodesy. Altogether, there are approximately 160 companies and more than 40
support institutions involved in the three clusters and 8 new initiatives, with
altogether more than 41 000 employees. More than 130 projects are running, in
which over 500 enterprises and over 50 institutions are involved, including two
Universities.

Another area of interest is a development of local clusters of micro enterprises.

In the analysis more than 50 local networks have a strong potential to become such
local clusters.

The most recent attempt of the Ministry of the Economy is to seize the Slovenian
potential in technology development by creating technology networks of industry,

European Seminar on Cluster Policy, Copenhagen, 10. June 2003

 Prof. dr. Tea Petrin, Ministry of the Economy, Republic of Slovenia

academia, and resource providers that can both, develop and transfer resources and
capabilities between higher education and industry, as well as across industries.
These technology networks need to represent areas of technology in which there is a
critical mass and strong interest in acting on technology development, deployment
and related areas of technical assistance and training.

The specific technology groupings, i.e. grouping of industries and knowledge

institutions by technology interest and business application interest have already
been identified in four main areas:

- Biotechnology and pharmaceuticals

- Information and communication technology
- Environmental technologies and new materials
- Process control and management systems

By the end of this year the groupings are expected to present their vision and
strategic goals, analyze the potential and opportunities for the development of
technology, identify the priority fields of research and define the planned investment
in R&D for the following 4 years. Apart from that, they should present their plan for
the dissemination of knowledge. On the basis of this extensive information, further
activities of the government will be defined.

European Seminar on Cluster Policy, Copenhagen, 10. June 2003