Cluster dynamics as a mediating force for Industry 4.0's potential to backshore manufacturing activities - Bart Kamp

1. Bart Kamp
TCI 2019 Antwerpen
bart.kamp@orkestra.deusto.es
Cluster dynamics as a mediating
force for Industry 4.0’s potential to
backshore manufacturing activities
Insights from a large-scale survey from the
Basque Country on behalf of SPRI

2. 2
Is internationalization an irreversible process?
What’s behind this statement?
o Inferior costs of producing (in China)
o (Easier) access to (superior) production technology (in China)
o Superior availability of network partners / more complete value chains (in China)
Ultimately, what is off-shored stays abroad
Internationalization has typically been conceived as an "outbound“ and expanding process

3. 3
Or can internationalization processes actually be inverted?
With the arrival of "advanced manufacturing" and Industry 4.0 practices, it is becoming
fashionable to assume that internationalization processes may be inverted
How would that work? – Premissals from a cluster perspective:
• Cluster reasoning presupposes that localized cooperation brings advantages
• More in particular, cooperation with partners from the home base brings advantages
as it tends to build on deep trust & shared values
• This fosters longer lasting business instead of calculated trust/profit maximization
orientations with ad hoc or transactional partners
• Real proximity outperforms circumstantial/temporary proximity
‒ The former could imply that home-based industrial networking / bonding (in
Western economies) might outperform beat production in/offshoring to China
‒ Meanwhile, the uptake of Industry 4.0 (e.g. in cluster settings) could also give
Western production networks a manufacturing technology edge
‒ At the same time, the Chinese cost advantage starts to fleet and might erode further

4. 4
Research approach to examine the “backshoring thesis”
Within the context of SPRI/Basque Government’s contribution to UNIDO’s IDR 2020 “The future of industrialization”,
a large-scale survey was organized among Basque industrial firms with an active innovation/internationalization
profile, to assess e.g.:
1. The influence that clusters exert on the uptake of digital manufacturing technologies (DMTs)
2. The expectations that industrial firms have regarding DMTs’ impact on the backshoring of
manufacturing activities from abroad
3. The expectations that industrial firms have regarding DMTs’ impact on preventing the offshoring of
manufacturing activities
4. The mechanisms / advantages that lead DMTs to influence in location decisions (notably to develop
production in the home base)
Sample size and segments:
➢ Cluster members are more active in physical internationalization than non-cluster members: the split among
both sub-groups is +/- 75-25%
N Of which cluster member Of which non-cluster member
Total sample 486 228 258
Foreign plant owners 63 47 16
Non-foreign plant owners 423 181 242

5. 5
Findings
Do cluster members show more activity in the uptake of DMTs (10-Digital Transformation Monitor + 5 further
technologies) than non-cluster members?
Yes: although also the ownership of foreign plants seems to make a difference
Sub-group Average number of
digital technologies
(out of 15) taken up
Cluster members with foreign
production locations
7,4
Non-Cluster members with
foreign production locations
5,2
Cluster members without
foreign production locations
5,1
Non-Cluster members without
foreign production locations
3,7

6. 6
Findings 2
Do cluster members show more activity in developing and implementing DMTs together with partners
from their home base?
Not really:
Clear difference, though, between those with and those without foreign production locations

7. 7
Findings 3
Are the expectations of cluster members regarding backshoring possibilities through uptake
of DMTs more positive than those of non-cluster members?
(due to the size of the resp. sub-samples,
we focus on 3 sub-groups)
Cluster members appear to be more optimistic about backshoring potential
Nota Bene: credibility of foreign plant owners ’ answers to this question is higher than the
answers of firms without own production plants abroad

8. 8
Findings 4
Are the expectations of cluster members regarding “the avoiding of (a further) offshoring of
production activities through uptake of DMTs” more positive than those of non-cluster
members?
(due to the size of the resp. sub-samples,
we focus on 3 sub-groups)
Overall, cluster members are more optimistic about the chances that DMTs’ uptake will avoid
offshoring
Moreover, across the board companies expect that avoiding offshoring through uptake of DMTs
is more likely than that it will lead to backshoring

9. 9
Synthesis of findings
• Cluster members are more active in the uptake of DMTs than non-cluster
members
• But they do not rely more on local providers of DMTs than non-cluster members
• Firms with foreign production locations are more active in the uptake of
DMTs than firms that do not count with foreign production locations
• At the same time, firms with foreign production locations rely less on local
providers of DMTs than firms that do not count with foreign production
locations
• Cluster members are more prolific in setting up production plants abroad
than non-cluster member
• Meanwhile, cluster members are also more optimistic about DMTs’ potential to:
• Bring back production
• Avoid (further) offshoring
All this may seem paradoxal …

10. 10
Discussion / interpretation
The crux may be that cluster organizations either attract technologically and/or internationally more
mature firms (self-selection) or help firms to mature faster in the technological and international
realm (additionality)
As a consequence, cluster members may be more agile in embedding themselves in value chains
across or in different nations
Consequently, they may:
• Display stronger « insidership » development skills in both home based and foreign
(production) networks
• Embracing high equity foreign entry modes (FDI) more frequently
The punchline may thus be that companies that operate across borders:
• Have more location options for (advanced) manufacturing activities
• May form part of a tug-of-war game between distinct locations that compete in terms of
availability of & access to DMTs
Hence, whereas the assumption that the uptake of DMTs benefits production attraction/retention
may be correct, this does not mean that the home base provides the best Industry 4.0 environment
• Other places may be shaping up as well
• It may not be just a technology affair

11. 11
From a Standort perspective on industrial activities; digital manufacturing technologies seem
to be an enabler for strengthening localized (inter-organizational) production activities
➢ And cluster organizations appear to be a logical actor for leveraging such possibilities
However, such cluster dynamics can also unfold in emerging economies (even without
formal cluster organizations)
➢ Meaning that places like/in Europe do not have a monopoly in this sense
Moreover, while the location of advanced manufacturing activities is subject to the
availability of a developed technology supply side, it is likewise a question of access to
market(s) for high-end products
➢ And whereas offshoring to distant places used to be primarily a cost issue, …
➢ … emerging economies like China are witnessing a steady development of their
(premium) market segments as well as their technology supply side, …
➢ … allowing it to attract/retain production activities on those grounds
Conclusions

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Eskerrik asko!
¡Muchas gracias!
Thank you!
Bart Kamp
TCI 2019 Antwerpen
bart.kamp@orkestra.deusto.es