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Styria’s clustering (Austria)

Using clusters to kick-start a local economy

Keywords: Rest of World, Empowerment, Partnership Working, Leadership, Employment, Skills

Overview

In the 1980s the Austrian region of Styria was in trouble. Aging, heavy industry and increasing international competition meant unemployment had rocketed to 18%. In response, the Provincial Government set up a series of cooperative commercial networks known as “clusters”. These clusters were designed to strengthen and modernise existing industries, develop new industries and support education and knowledge sharing. The result created around 50,000 new jobs and put Styria firmly into the top 50 of Europe’s most innovative regions.

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Styria is a classic example of a former industrial area finding a new role for itself in the 21st Century. Prior to World War II the area prospered thanks to a mix of heavy industry and manufacturing. Post-war reconstruction continued to bring prosperity, however by the 1980s the area had fallen into a deep decline, as its markets evaporated and international competition exposed serious flaws in local business management. Things hit rock bottom as unemployment reached 18%.

Something had to be done, so the Styrian Provincial Government introduced a radical “cluster” policy with the aim of boosting the regional economy. The clusters formed groups of companies and organisation to work together on specific projects, develop networks, swap information and technology etc. The first automotive cluster was soon joined by clusters focussing on timber, human technology, materials, eco issues, food technology and the creative industries.

As a result, a remarkable change has taken place. Clusters have helped support, strengthen and modernise Styria’s existing manufacturing sector. They’ve also helped the development of new industries, as well as supporting technology transfer and promoting the province to attract inward investment. Styria now specialises in high-grade automotive steel and is a leader in the manufacture of paper mill machinery. Local employment is up from 495,000 in 1995 to 539,800 in 2005.

Summary

Styria is Austria’s fourth largest province with an industrial base focussed on traditional heavy engineering.

In the 1980s it faced an economic crisis that resulted in 18% unemployment.

The Provincial Government responded by introducing regeneration “clusters”, network-based self-help cooperatives with well-researched strategies and long-term goals.

The clusters have helped restructure the local Styrian economy and led to the introduction of new, higher technology industries.

Unemployment has fallen by 50,000 and the area is now rated as Europe’s 41st most innovative region.

» Background

Background

Styria is Austria’s fourth largest region and lies in the south east of the country. It has a population of 1.2 million and is a classic example of an industrial area in transition.

Before the Second World War, the area’s wealth was based on iron and steel production, papermaking and the automotive industries. In the immediate post-war period, eastern Austria (including Styria) became part of the Russian zone, and these mainstays of the Styrian economy were nationalised. Heavy industry remained under state control until 1955 when Austria regained its independence, and steelmaking in particular prospered thanks to post-war reconstruction.

However, during the 1980s, the region started to suffer. The growth in international business and increasing competition from low-wage Asian economies exposed inefficiencies and over manning within Styria’s industries. Unemployment rose to 18% as it became clear that action needed to be taken.

» The Project

Overview «

The Project

The depth of the crisis meant there was agreement amongst local groups regarding the problems they faced and the need for a unified response. Since the region had a tradition of involving universities and other experts in industry it seemed logical to turn to economists and others from the university system to help develop strategies for recovery.

Based on their advice, the Styrian Provincial Government set up the Styrian Business Promotion Agency (Steierische Wirtschaftsförderung, or SFG) in 1991. This independent, semi-public regional development agency was tasked with promoting economic development and regeneration. As well as offering financial support to business, providing consultancy services and facilitating links between businesses and decision-makers, the SFG also introduced the concept of “clusters”.

Under the cluster system, local businesses work together for their common good, developing networks, transferring technology and information, forming special interest groups and initiating cooperative projects. Each cluster is set up as a limited company 100% owned by SFG. This percentage is gradually reduced and private sector ownership increased as the cluster prospers. Membership is open to a wide range of organisations, and their joining fees help finance the cluster.

The Automotive Cluster (known as AC Styria) was the first example of this approach. Its members included the SFG itself, private sector companies and other organisations such as local universities. Since then six other clusters have been created covering Timber, Human Technology, Materials, Eco-cluster, Tech for Taste (focussing on food technology) and the Creative Industries.

» The Impact

Background «

The Impact

Since the mid 1990s Styria has undergone a remarkable recovery, with the restructuring of traditional sectors and the development of a new, higher technology industrial base. The cluster approach is widely credited as driving this change by local businesses and politicians.

Styria is still a major steel producer, but instead of making low grade, general purpose steel it now makes specialist steels that meet the needs of the automotive and other industries. The wood and paper industries have also been modernised, and the region has become a leader in the production of papermaking machinery.

The automotive cluster, which helped kick start the change, has built on its old skills (specifically the production of four-wheel-drive vehicles), and now manufactures vehicles for prestige companies like Mercedes, BMW, Chrysler and Aston Martin. As a result employment is up, from 495,000 in 1995 to 539,800 in 2005, while the whole area is now rated as Europe’s 41st most innovative region.

» Lessons Learned

The Project «

Lessons Learned

Explaining the situation helps inspire action. In Styria, spelling out the sheer scale of the problem, combined with the region’s small size and strong identity, made it relatively easy to get agreement for drastic action amongst local interest groups.

Trust is the basis for all collective action. Styria’s remarkable transformation depended on a joint effort by a wide range of players. This in turn depended on one key factor - trust. Because the interested parties knew they were working for their common good, the usual infighting and suspicions didn’t arise.

Make sure everyone involved understand that policy and spending decisions are in their interest. This becomes far easier if the action programme is realistic and builds on existing capabilities. It also needs to be based on a properly researched, coherent strategy that doesn’t threaten or serve the interests of any one organisation.

Choose effective local leaders with a stake in the result. Such individuals must combine technical experience, the ability to leverage private and public sector expertise, a strong commitment to the successful transformation of ‘their patch’ and the ability to combine informal networks with more formal structures.

Where a large company goes, smaller companies follow. The involvement of larger companies brought status and resources to the clusters and encouraged smaller businesses to get on board.

» Reference

The Impact «