An economic analysis of the industrial clusters strategy and the possibility of applying it to some industrial enterprises in Iraq

Salam Mounam Zamil1
1 Wasit University

Статья в журнале

Вопросы инновационной экономики
Том 11, Номер 1 (Январь-март 2021)

Цитировать:
Salam Mounam Zamil An economic analysis of the industrial clusters strategy and the possibility of applying it to some industrial enterprises in Iraq // Вопросы инновационной экономики. – 2021. – Том 11. – № 1. – doi: 10.18334/vinec.11.1.111508.

Аннотация:
The industrial clusters strategy is one of the new concepts in economic and industrial development, and its main goal is to develop the mechanism of work of small and medium enterprises. This research aims to determine the importance of the industrial cluster strategy and its role in the development of the industrial sector in Iraq, and the possibility of its application in the Iraqi economy, which will be reflected in the development of the competitiveness of the local industry.

Ключевые слова: industrial policy, industrial enterprise, cluster approach, a strategy of development

JEL-классификация: L26, L52, M21



Introduction:

The countries of the world are striving with all available efforts to develop their economic sectors, especially the industrial sector, as industrial development represents a solid basis for accelerating the pace of growth of the national economy.

And that these countries adopt the most recent strategies and developed mechanisms to develop their industrial sectors, and that industrial clusters are one of the most important new strategies that have become the focus of attention of many countries in the world [6] (Porter, 1998), such as the United States, Republic of China, India and other countries of the world, where its basic idea is on how to achieve economic development through the development of the base of industrial projects, by establishing rings of productive linkages between these projects in the various sectors that make up the national economy, such as public sector institutions and private institutions alike in all fields and for all other institutions related to the development of industrial projects such as education, scientific research, development, innovation, financing, and marketing institutions.

The Iraqi economy suffers from the deterioration of most of the productive sectors in it, especially the industrial sector, which suffers from neglect, backwardness, and the inability to develop production areas in it, and this is evident from the follow-up of the deterioration and decline in the contribution of the industrial sector to the gross domestic product in recent decades [9] (Salam Mounam Zamil, 2020).

Therefore, the concept of industrial clusters is one of the new concepts of industrial development, which aims to develop the mechanism of action of industrial projects of different types and sizes by improving their competitive capabilities at the local and international levels. It faces them, the most important of which is the disintegration of these industries and their lack of association in integrated industrial structures. Therefore, the strategy of industrial clusters contributes to developing productive practices for industrial projects by creating clusters and intertwines between these projects which provide them with competitive opportunities and advantages.

The search problem can be presented through the following question:

How can the strategy of industrial clusters be adopted in the Iraqi economy to create a competitive advantage in the industrial sector that suffers from backwardness and neglect and its failure to achieve productive indicators of added value, and can this strategy achieve the process of creating forward and backward linkages in industrial projects in the industrial sector in Iraq?

The research aims to achieve the following objectives:

(1) Explaining the concept of the industrial clusters strategy by analyzing the various aspects and basic dimensions of that strategy

(2) Clarifying the extent of the possibility of implementing the strategy of industrial clusters in Iraq for some medium industries operating in the industrial sector in which there are industrial interconnections and interconnections in the areas of production, namely (the manufacture of wood and wood products, the manufacture of paper and paper products, and the manufacture of furniture).

We can define the research hypothesis as follows: "The strategy of industrial clusters is one of the most important strategies that can be applied to develop industrial projects in Iraq because of their ability to achieve economies of scale through industrial interdependence, increasing specialization and developing production efficiency".

The main problems of the functioning of industrial enterprises in Iraq, as a whole, are lack of working capital and investment funds, significant physical and moral depreciation of fixed assets, low competitiveness, excess of imports over exports, weak domestic demand, the ineffectiveness of state support mechanisms, loss of innovative character development of production, unbalanced with the industrial tariff policy of natural monopolies. Under these conditions, the most effective instrument of industrial policy is the cluster strategy, which guarantees the establishment of stable economic relations between partners based on the development of integration processes, which has proved itself well all over the world and ensures high profitability of production, increasing the competitiveness of products and expanding sales markets [4] (Ihab Ali Dawood, 2017). The purpose of the work is to substantiate the need to integrate the cluster approach into the development strategy of industrial enterprises in the region based on identifying the competitive advantages of clusters in comparison with similar structural formations.

Materials and methods: The implementation of research tasks was achieved based on the use of official materials in Iraq, as well as the study use the model (input-output model) to analysis of the possibility of applying industrial clusters to medium industries in Iraq.

Overview

Industrial clusters have emerged as a new mechanism and pillar of the most important pillars that are relied upon in economic and social development policies and plans in various countries of the world to raise the level of competitiveness of their economies, It is based mainly on the orientation of institutions towards developing their activities locally by working with a team of other institutions, research and development centers, universities, local and national organizations, within the framework of a specific specialization within a specific industry as a coherent system [2] (Elvira Uyarra, Ronnie Ram Logan, 2012). The systemic solution of a wide range of tasks for the transition of the Iraqi economy to an innovative, socially-oriented type of development is constrained by some problems of the functioning of enterprises in various sectors of the economy.

The main problems of the functioning of industrial enterprises in the whole country [9] (Salam Mounam Zamil, 2020) are lack of working and investment funds, significant physical and moral deterioration of fixed assets, low competitiveness, excess of imports over exports, weak domestic demand, the ineffectiveness of state support mechanisms, loss of the innovative nature of product development, unbalanced with the industrial tariff policy of natural monopolies.

Also, some requirements for industrial enterprises are not met, and in particular the need to overcome the lag of Iraqi enterprises from foreign ones in the field of production informatization, systematic renewal of products, provision of service following market requirements, rational use of production resources, and much more [3] (Guru raj, 2015).

The industrial complex in Iraq is represented by such industries as machine building and metalworking, food and forestry, woodworking and pulp and oil, medical and light industries. The industrial complex includes (27,189) enterprises and employs about 201,985 workers [7].

Table 1 shows the number of small, medium, and large industrial enterprises and the percentage of each of them, as well as the volume of production and the number of workers in each of them.

Table 1

The number of enterprises, the number of workers, and the volume of production in the industrial complex in Iraq


Large enterprises
Percentage
Medium enterprises
Percentage
Small enterprises
Percentage
Total
Production volume (billion dinars)
6,410,000
75.58%
132,000
1.56%
1,939,289
22.86%
8,481,289
Number of employees
115,986
57.42%
2,624
1.30%
83,375
41.28%
201,985
Number of industrial Enterprises
1,244
4.58%
198
0.73%
25,747
94.69%
27,189
Source: compiled by the author based on data of the Ministry of Planning, Central Organization for Statistics and Information Technology, at the following website (http://cosit.gov.iq/ar/)

The use of the (Input-Output Model) in analyzing the possibility of applying the industrial cluster strategy to medium industrial projects in Iraq

The industrial clusters strategy is not a new economic phenomenon, and the actual beginning of it was at the end of the nineteenth century when globalization and trade liberalization began to spread in many developing countries, but at present many developed and developing countries have adopted the strategy of industrial clusters as one of the economic mechanisms for economic development and regional, and it differs from one country to another and from region to another, and among other definitions, UNIDO [10] given the definition of industrial clusters are a geographical industrial sector concentration of industrial enterprises that produce and sell a wide range of products related or complementary to each other. It is also known as geographical groupings that may be local, regional, or global for a group of industrial enterprises that are geographically converged and which are linked to each other by complementary productive relations and common interests in a specific field, which represents a system of productive activities to strengthen and encourage competitiveness.

Porter sees it as a geographical grouping of establishments and institutions interconnected in a specific field, and the clusters represent groups of industries and other entities important for competition and include, for example, suppliers of specialized inputs such as components, machines and services, and providers of specialized infrastructure. Clusters also extend from downstream to channels. And customers agree to the complementary product factory and related institutions by having common skills and technologies, and finally, the clusters include government institutions and other institutions such as universities, agencies, and training and development facilities that provide information, expertise, specialized training, research, and technical support. Thus, the main elements that Porter uses in his definition are geographic focus, linking between Corporations and institutions, both competition, cooperation, and specialization exist [11] (Zuhair Zouach, 2014). Table 2 shows the Input-Output Model for a sample of medium industrial enterprises in Iraq for the year 2018.

Table 2

Input-Output Model for a sample of medium industrial enterprises in Iraq for the year 2018 (Million dinars)

Output
Input
Intermediate demand
Total intermediate demand
Final demand
Total demand
X1
Manufacture of wood and wood products
X2 Manufacture of paper and paper products
X3
Furniture Industry
X1
Manufacture of wood and wood products
25,375
1,449
725
27,549
33,190
60,739
X2
Manufacture of paper and paper products
37,800
8,364
13,150
59,314
260,000
319,314
X3
Furniture Industry
410,240
33,720
31,150
475,110
865,200
1,340,310
Intermediate consumption
473,415
43,533
45,025
561,973


Value Added
570,114
200,686
387,590

1,158,390

Total supply
1,043,529
244,219
432,615


1,720,363
Source: compiled by the author based on data of the Ministry of Planning, Central Organization for Statistics and Information Technology, at the following website (http://cosit.gov.iq/ar/)

From table 2 we extract the technical parameters matrix (Matrix A), and through it, the calculation of (front and backlinks, direct and indirect for medium industries), for the study model, and this is done by dividing the output of each industry by the total demand (a11 = x11 / xi), and through that and for all industries (x1, x2, x3) we get a matrix of technical transactions (A) as follows [1] (Adnan Karim Najm al-Din, 1999):

.

Direct links

· Direct backlinks, which represent how much the industry needs (x1) from other industries, and are extracted according to the following formula [5] (Majeed Ali Hassan, Afaf Abdel Jabbar Saeed, 2000):

The results for the industries in the study model are as follows:

Based on the results, the industries are ranked in terms of the connections between them in table 3.

Table 3

The direct backlinks to a sample of medium industrial enterprises in Iraq for the year 2018

rank
Dbl
Industries
1

X1
3

X2
2

X3
Source: compiled by the author.

· Direct forward links, which represent what the industry needs (x1) from other industries and are extracted according to the following formula [1] (Adnan Karim Najm al-Din, 1999):

The results for the industries in the study model are as follows:

Based on the results, the industries are ranked in terms of the connections between them in table 4:

Table 4

The direct links to a sample of medium industrial enterprises in Iraq for the year 2018

Rank
Dbl
Industries
1

X1
3

X3
2

X2
Source: compiled by the author.

From the analysis of the results referred to in tables 1, 2, we find that the wood and wood products industry (x1) obtained the highest direct and backward link, and then came the furniture industry (x3), and then the third was the manufacture of paper and paper products (x2).

Indirect links

· Indirect back links are calculated according to the following formula [1] (Adnan Karim Najm al-Din, 1999):

;

;

.

We calculate the determinant in the first-row method and as follows:

The matrix adjacent (I-A) will be calculated as follows:

.

We calculate the transposed matrix as follows:

.

We calculate the inverse of the matrix as follows:

Through the matrix , we calculate the indirect links between industries in the study model and as follows:

· Indirect back links as follows:

Accordingly, the arrangement of the industries will be according to the indirect linkages of the industries, in the model of the study as in table 5.

Table 5

Indirect backlinks for a sample of medium industrial enterprises in Iraq for the year 2018

Rank
Idbl
Industries
1

X1
2

X2
3

X3
Source: compiled by the author.

· Indirect forward links, calculated according to the following formula [5] (Majeed Ali Hassan, Afaf Abdel Jabbar Saeed, 2000):

.

According to the above results, the industries are ranked according to the indirect forward links, as in table 6 as follows:

Table 6

Indirect front links to a sample of medium industrial enterprises in Iraq for the year 2018

Rank
Idfl
Industries
1

X1
3

X2
2

X3
Source: compiled by the author.

Through the calculated results of the indirect backward and forward linkages for each of the industries, the study model shows that the wood and wood products industry (x1) also obtained the largest indirect backward and forward linkage, and then came the paper industry, paper products, and furniture industry, respectively, about the indirect backlink The furniture industry and the paper industry, respectively, came after the wood and wood products industry in terms of indirect front linkage, and based on these results there is a possibility to adopt the strategy of industrial clusters for medium industries and to form an industrial cluster of industries as a model study in Iraq.

Conclusions

1. The industrial clusters strategy works to raise the competitive capabilities of these enterprises because they are exposed to the strong competition which is not in their interest and thus enhances the competitiveness of small and medium enterprises in the local and global markets.

2. Industrial clusters contribute to reducing production, transportation, and marketing costs for projects. Study model by taking advantage of the gathering of several companies and institutions in one geographically converged cluster characterized by the division of labor, production, specialization, and the dissemination of information and data between them.

3. Industrial clusters support innovation, which is the engine of industrial development and industrial production, due to reducing costs and effort, providing information, developing and increasing work ties with research and development institutions in the public and private sectors through a network of joint work between industrial cluster institutions and research and development institutions.

Recommendations

The study developed some recommendations, which came as follows:

1. The government and all research and economic institutions shall prepare detailed investment maps that include economic feasibility studies for industrial projects, especially in the industries in which Iraq enjoys comparative advantages through which treatment for all obstacles standing in the way of improving these industries and the growth of their competitiveness can be achieved.

2. Work to build a local technological base and support the local manufacturing of equipment and capital machinery by increasing direct investments in this field while encouraging private investment, and supporting scientific research in this field.

3. Work to fully link between institutions and research bodies and work to implement industrial applications of innovations in this field, as scientific research is the basis of any strong and sustainable industrial structure, especially with the rapid development of production methods with the development of technology.

4. The development of the wood and wood products industry, the paper and paper products industry, the furniture industry needs more studies, especially about the marketing aspects, and where marketing research centers can be used in this field.


Источники:

1. Adnan Karim Najm al-Din Mathematical Economics. / first edition. - Wael Publishing House, Amman, Jordan, 1999.
2. Elvira Uyarra, Ronnie Ram Logan The Effects of Cluster Policy on innovation. - Manchester Institute of Innovation Research Manchester Business School, University of Manchester, 2012.
3. Guru raj Entrepreneurship & Industrial Clusters // Global Journal of Multidisciplinary Studies. – 2015. – № 3.
4. Ihab Ali Dawood The possibility of benefiting from the experience of industrial clusters in developing small and medium enterprises in Iraq. / PhD thesis. - University of Karbala, College of Administration and Economics, 2017.
5. Majeed Ali Hassan, Afaf Abdel Jabbar Saeed Mathematical Economics. / first edition. - Wael Publishing House, Amman, Jordan, 2000.
6. Porter M.E. Clusters & the New Economics of Competition. - Harvard Business Review, 1998.
7. Ministry of Planning, Central Organization for Statistics and Information Technology, Statistical Collections for the years (2017, 2018)
8. Rachel V. Smith Industry Cluster Analysis: Inspiring a Common Strategy for Development. - Central Pennsylvania Workforce Development Corporation Lewisburg, PA, 2009.
9. Salam Mounam Zamil Determinants of the competitiveness of the manufacturing sector in Iraq // Journal of Economic Sciences / University of Basra. – 2020. – № 57.
10. The UNIDO Programmers. / Development of Clusters & Networks of SMEs. - Vienna, 2001.
11. Zuhair Zouach Industrial Clusters as a Pilot Model for Improving the Competitiveness of Small and Medium Enterprises - The Case of Algeria // Journal of Human Sciences. – 2014. – № 42.

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