BUILDING e-CLUSTERS

Milan Davidovi
VSITE College for information technologies
Klaieva 7, Zagreb, Croatia
Phone +385 98 350 715/Fax +385 1 3764 264
E-mail: milan.davidovic@vsite.hr

Abstract

E-clusters are strategic alliance in TIM ES technology sector (Teleco mmunication,

Information technology, Multimed ia, Entertain ment, Security) where products and
processes are digitalized. They enable horizontal and vertical integration of s mall and
med iu m co mpanies and establish new added value e-chains. E-clusters also build supply
chains based on cooperation relationship, innovation, organizational knowledge and
compliance of intellectual properties. As an innovative approach for economic policy and
new e-business strategy e-clustering has very important role fo r o ld clusters renovation and
growth in region affected by economic crisis and other adversities. This paper analy zes
building of horizontal and vertical e -clusters. Results of this analysis can be used for
transformation of o ld clusters, innovation of clusters products, processes and added value
chains.
The structure analysis of horizontal e-clusters oriented to suppliers or customers, and
horizontal Marshallian e-clusters explain how those can enter in large e-supply chains.
Various organization forms, topology of cooperation and innovative process in ve rtical e -
clusters are analysed and focussed on e-logistic system structure and development.

Keywords: e-cluster, cooperation, e-supply chains, e-logistic

1. INTRODUCTION

Small and mediu m enterprises (SM E) fro m TIM ES technology sector, universities and
research institutes, customers, government and other stakeholders established TIMES
clusters or e-clusters which enclose processes of cooperation, innovation and process
oriented knowledge management. E-clusters have infrastructure which accelerate
knowledge d istribution, reduce transaction costs, stimu late co mpetition and cooperation,
enforce specialization and internationalization of the economic and cluster-specific
relations etc. (Hansen, 2004). E-clustering is a macroeconomic concept of building clusters
in TIM ES technologies sectors that support a wide concentration of rivals, customers and
suppliers as well as their focus on specializat ion, efficiency and innovation, digitalizat ion of
the internal cluster processes and processes between clusters (Hansen, 2005). It is an
innovative approach for economic policy and new e -business strategy for older clusters
based on continuous improvement of value-added chain and product innovations that result
in speeding growth of clusters and region (Bangura, 2009).
E-cluster is defined as information network that integrates industry, universities and
research institutes. Its functions are support for company promotion and marketing,
business administration, cluster management, information management on industrial

211
complexes and neighbouring regions, as well as for management of database of industries,
universities and research institutes 11 .
E-clusters are based on factor and demand conditions, related and supporting
industries, structures of companies and rivalry wh ich M. E. Porter arranged in a diamond-
shaped diagram. Th is paper will focus on cluster structures and suggests definition of e-
clusters as a business network that horizontally or vert ically integrate co mpanies in TIM ES
sector. In this way e -clusters build procurement and d istribution of e-channels and e-supply
chains, provide product and processes innovation and apply knowledge and other local
strengths for gro wth of productivity and attain ment global co mpetitive advantage
(Davidovi, 2013). This defin ition also imp lies generic horizontal and vertical e -clusters,
and logistics of e-cluster definitions (see Chapter 2).
Chapters 3 and 4 will analyse how to build horizontal and vert ical e -clusters and their
e-logistics, as well as how to t ransform horizontal to vertical e -cluster (see Chapter 4). This
e-cluster structure analysis implicates basic models and characteristics of cooperation
processes and their impact on e-cluster logistics.
There is a difference between the terms e-clustering and building e-clusters: e-
clustering is a macroeconomic concept and strategy, while build ing e-cluster is a fo rmation
of clusters organization.

2. e-CLUSTERS AND e-CLUSTERING

E-cluster is a geographic concentration of interconnected TIMES co mpanies,

specialized suppliers, service providers, companies in related industries, and associated
institutions (universities, research institutes, standards agencies and trade associations) in a
particular field that compete but also co-operate (Hansen, 2004; Porter, 1998).
E-clusters can be classified into horizontal and vertical. Horizontal e-clusters share
common factors: same TIM ES technology, digitalized working processes, skills and other
organizational knowledge, market for end digital products and same suppliers or customers.
Horizontal e-cluster is usually a group of TIM ES SM Es that work the same level of a value
chain. Bet ween members of a cluster there is no digital products flow (no interchange);
while the cooperation is oriented only to common performance in the market (see Chapter
3).
Vertical e-clusters consist of members and partners linked through buyer-seller
relationship supported by e-business system. All members and partners enter in cluster e-
value chain and participate in the realization of co mmon end products or cooperative
projects. Vertical e -clusters set up a common value e -chain, e -procurement and e-
distribution channels or chains, and supply e-chain with a new added value. Structure of
vertical e-cluster is determined by a topology of cooperation process (see Chapter 4).
E-clusters as regional clusters have the ability to offer knowledge, relationship and
motivation which cant be matched by their distant rivals (Porter, 1998). Bu ild ing e-clusters
include fostering their local strengths and a collaborative environ ment organization where
job and innovative digital products creation and new entrepreneurial innovations are able to
flourish and can reap the tangible returns (Po rter, 1998). E-clusters therefore need an
organization of three mutually dependent digitalized processes: cooperation, innovation of

11
T he Industrial Complex Cluster Program of Korea, Ministry of knowledge economy of Korea and KICOX
Korea Industrial Complex Corporation Cluster, November, 2010 [available at www.kicox.kr or www.e-cluster.net]

212
digital products and processes, and cluster knowledge management. Innovations and
knowledge are the main drivers of e-clusters competitiveness and growth (see Fig 1).

Figure 1 E-cluster processes and drivers

Cluster knowledge management

Cluster knowledge
Cluster knowledge Cluster knowledge Cluster knowledge management
production difussion applying

>
Knowledge

Process of innovation

Innovation
Research& Product /
Idea Prototyping Pilot
development Process

>
Innovations (new added value)
Information Knowledge

>
Suppliers Member's
Process #1 Process #2 ... Process #n-1 Process #n Customers
digitalized
processes

Proces of co-operation

Source: Author (based on Hansen, 2005; Davidovi, 2013)

Process of innovation enables improvement of digital products and digitalized

cooperation processes through the following phases:
- idea,
- research and development,
- prototyping,
- pilot construction,
- implementing the innovation (digital product or digitalized process);
Results of innovation increase cluster productivity and originate spiral g rowth of
cluster knowledge.
Organizational knowledge management includes next phases:
- creating or production,
- diffusion or distribution and
- applying;
E-clusters can organize knowledge management either as a function of cluster
management or as cooperative projects (Davidovi, 2012).
The universities, research institutes and consulting organizations participate in
processes of innovation, creating and diffusion of organizational knowledge.
The process of cooperation in horizontal e-clusters is very simp le, as it is oriented only
towards common performance of cluster in do mestic and international market. Horizontal
e-clusters can use suppliers and customers e-services or set up own procurement and sales

213
e-channels (see Chapter 3). The cooperation in vertical e-clusters is structured as a project,
production, end products structure or relationships between cluster members (see Chapter
4).
E l ogistics consists of processes necessary to transfer the goods sold over the internet
to the customers. It prov ides supply chain integration that can eliminate intermediaries
such as wholesaler or retailers and fosters the emergence of new players like logistician s,
whose role is to adapt traditional logistics chains to take into account the requirements of e -
business (Gro znik & Kovai, 2004). E-clusters integrate the e-logistic in process of
cooperation, since digital products transfer is directed fro m external/ internal seller to
internal/external buyer (sellers up-load to buyer or down-load on demand of buyer).
An e-cluster e-business system is e-logistics subsystem that supports (Davidovi,
2013):
- a safety interchange of intangible products, e-services, money and information,
- a cooperation of relationships based on business processes restructuring and
improvement,
- standardized electronic transactions in interchange between members and partners,
- a realization of clusters cooperative projects and digital produ cts, and
- a performance of cluster in the domes tic and international market.
E-clustering is a part of macroeconomic politics and strategy that fosters the
networking of TIM ES co mpanies and other participants in new value -added chains. The
objective is to bundle the potentials and competences in e-clusters as a driving force and an
accelerator for the economic and technological development of a region (Hansen, 2004).
Building e -clusters is a key act ivity in the e -clustering policy or strategy implementation,
because wrong model can prejudice relationships between cluster members or raise
investment, and therefore slowdown the growth of e-cluster. Follo wing analysis showcases
a potential organization of horizontal and vert ical clusters, transformat ion fro m a horizontal
to a vertical e-cluster, and various comb inations of topologies that get mo re effective
performance of clusters in the global market.

3. BUILDING HORIZONTAL e-CLUSTER

3.1. Supplier oriented horizontal e-clusters

If members of horizontal e -cluster are supplier oriented then e-cluster either enters in
suppliers e -sales channel or links with a supplier over own e -procurement (see Fig. 2a and
2b).

214
Figure 2 Supplier oriented horizontal e-clusters
CLUSTER CLUSTER

Supplier

> >
> Supplier
>
> >
> > >
> >
>
(Producer/Distributor/Vendor) > e-procurement

> >
Digital products
Digital products >
>
Supplier's
e-sales channel
a) E-cluster in a supplier's e-sales channel b) E-cluster with an e-procurement
Source: Author

A supplier is any producer, distributor or other vendor of digital products. Products

flow fro m a supplier to members of e-cluster. Every member adds a new value and can
compete to others. E-procurement is an e-service of a member, partner or a cluster
management.

3.2. Customer oriented horizontal e-clusters

When members of horizontal e-clusters are customer oriented then e-cluster enters in a
customers e-supply chain or builds an own e-distribution channel (see Fig. 3a and 3b).

Figure 3 Customer oriented horizontal e-clusters

CLUSTER CLUSTER
> >

> Cluster's e-distribution channel

> >
> > >
> Customer
> > Customer
>
> >

> (Producer/Wholesale/Retailer) (known/unknown target market group)

Digital products
Digital products >
Customer's >
e-procurement channel

a) E-cluster in a customer's e-supply channel b) E-cluster with e-sales or e-distribution channels

Source: Author

Customer is a producer, a distributor, a wholesaler or a retailer of d igital p roducts. E-

sale is a service of member, partner or cluster management. If cluster has adequate e -
distribution channel (for example, Web shop) then any member of a cluster can deliver their
digital products to unknown consumers directly or over fu lly auto mated clusters e-sales
function. Every member can co mpete to others in common using clusters e -distribution
channels and another market sectors.

215
3.3. Marshallian e-clusters

Interconnections between horizontal e-cluster, a larger supplier and a customer shown

in Fig. 4a are theoretically possible, but taken risks maybe unacceptable for customer,
supplier or cluster. The structure known as Marshallian cluster12 is a better solution (see
Fig. 4b), because it provides integration in supply chains created by other producers and
larger buyers of digital products.

Figure 4 Integration of horizontal e-clusters in other supply chain and Marshallian

horizontal e-cluster
HORIZONTAL MARSHALLIAN
CLUSTER CLUSTER

> > >

>
Supplier > > Customer Supplier > > Customer
> > > >
> > > > > >
> > > >
> e-procurement > e-sales
>

> >
> >

>
Digital products
Digital products >
>
Supplier's Customer's
sales channel e-procurement channel
a) Links between E-cluster and its supplier and b) Horizontal Marshallian e-cluster
customer
Source: Author

Basic structure of horizontal Marshallian e-cluster is a result of integration topologies

in Fig. 2b and 3b. Members provide services in a producers supply chain such as
development, sales, maintenance, help desk o r education. For examp le, a cluster of small
software companies uses providers software and every member has all intellectual p roperty
rights needed for new software products development and their distribution to a known
customer.

3.4. Performance of e-clusters in the market

A group of SM Es fro m TIM ES technology sectors is a horizontal e-cluster when it has

e-procurement and/or e-distribution channels. Through horizontal cluster, members can
jointly enter markets and thus exploit hu man and other resources with greater efficiency
(see Fig 5a).
Cluster knowledge management supports acquisition, diffusion and applies new
organizational knowledge (know-what, know-why, know-how, know-who, know-where
and know-when) and so improves the cluster performance in market. Knowledge
management can organize as process, task or cooperative project (Dav idovi, 2012).
However, sustain development of horizontal e-cluster necessitates the innovation of
members digitalized processes , services and products (see Fig 5b).

12
T his cluster model has equivalent topology as Marshallian industrial district; Alfred Marshall (1842-1924)

216
Figure 5 Relations between processes in horizontal e-cluster
> >
Knowledge Knowledge
Innovation
management management

>
>

>
Member's Member's
Performance cluster Performance cluster
digitalized digitalized
in market in market
processes processes

> >
a) Knowledge management as driver of performance b) Knowledge management and innovations as
cluster in market drivers of sustain development and growth of e-
cluster
Source: Author

Horizontal e-cluster needs a good relationship with universities, research institutes,

consulting companies and creat ive people. This is a way for new value-added chains
building and transforming horizontal e-clusters in more efficient vertical e -clusters (see
Chapter 4).

3.5. E-logistics of horizontal e-clusters

E-procurement and e-sales are parts of e-logistics in horizontal e-clusters. E-

procurement collects and combines members e-orders in one cluster e-order to a supplier.
E-payment can do a cluster member d irect to a supplier or across th e cluster account (see
Fig 6).

Figure 6 E-logistic of horizontal e-cluster

Cluster Management Cluster Management

e-order e-offer
E-sales
e-procurement (e-distribution
e-invoice e-invoice
(e-payment)

channel)
Money
Money

Cluster Cluster Cluster (e-payment)

e-invoice
e-order member member member money
e-order e-invoice
IS IS IS (e-payment)

SUPPLIER CUSTOMER

Digital products Digital products

Know how
Intellectual properties

Source: Author (based on Davidovi, 2011)

Horizontal e-cluster can organize e-sales over indirect d istribution e-channels (Fig. 3a)
or direct d istribution e-channels (Fig. 3b). Indirect distribution e-channels are producers and

217
customers supply chains or e-portals. Direct distribution e-channels are market ing e-
channels, Web shops and e-portals (Davidovi, 2011).
E-logistics of horizontal e-cluster is an e-business system. Basic application
framework of e-procurement and e-sales are e-order, e-offer, e-invoice and e-payment. If
the cluster does business with know-how and intellectual properties then e-contract need
include. Digital products up-load and down-load are function of e-sales.

4. BUILDING VERTICAL e-CLUSTER

4.1. Cooperati ve projects oriented e-clusters

Structure of cooperati ve projects oriented e -clusters is described with a d irected

graph in Fig. 7a.

Figure 7 Cooperative projects oriented e-cluster

Activities#1 Activities#2 Activities#3 Activities#4 Activities#5 Activities#6 Activities#7
>
>

> > > >

> > > > > >
> > > > > >
>
>

> > >

>
Digital products
>

a) Direct graph b) Cooperation process and value-added chain

Source: Author

The nodes determine project act ivities. Directed branches are correspondent the
interrelations between members in p roject realizat ion. Each cluster member or partner can
realize one or more activ ities which add a new value. Direct ed graph can include activities
of innovation process, procurement, product realization, delivery of the product to the
customer and post-sales e-services. Cooperative project can be one time or regularly
recurring by orders of customers. Members and partners realize pro ject activit ies and sub -
processes that build value-added chain as in Fig. 7b.

4.2. Topology of e-clusters oriented to common end product

E-clusters oriented on common product can have four types of topology:

- Linear chain (see Fig. 8)
- Star (see Fig. 10 and 11)
- Tree (Hierarchical organization, see Fig. 12)
- Network (see Fig. 9b).
Network is a generic topology, while chain, star and hierarchical organization are their
special cases: a linear chain is correspondent to a path, while a star and hierarchical
organization correspond to a tree in the network. The cluster topology depends of
technology, product structure, and relationships in the cluster.

218
4.3. Cooperation process as linear chain

When e-cluster builds the chain of activities, or sub-processes and value-added chain
as in Fig. 8a, then every member of the chain is an internal seller and buyer, except of the
first and the last. The first member is an external partner (supplier) or a cluster member as
an internal seller, while the last member in the chain is an internal buyer that delivers
products to customer or known external buyer. Every member can organize their own
procurement or uses e-procurement services of a cluster organized as in Fig. 2b.
Horizontal e -cluster can transform to vertical e-cluster when buildings its own supply
chain with new members and partners such as in Fig. 8b. This model is also typical for e -
clusters that gather SM Es due to necessary capacity of production or assortment of products
and services.

Figure 8 Vertical e-clusters with linear chain topology

> >
> >
> > > > > >
> > > > > >
Digital products
> >
>
> >
> >
Digital products
>

a) T he chain of e-cluster members b) Horizontal e-cluster transforming in a vertical e-cluster

Source: Author

In vertical Marshallian e-cluster (see Fig. 9a) exists links between members and
partners which result with new added values for customers. This topology is derived fro m
horizontal e -cluster topology (see Fig. 4b ) and building linear chain between several
members and external partners as in Fig. 8a. Marshallian clusters can derive fro m network,
too (see Fig. 9b). In Marshallian clusters there is no dominant member.

Figure 9 Vertical e-clusters with network topology

>
Customers
>

>
>

>
Suppliers

>

>
> >
>
>
>

SME Digital products

>

a) Marshallian vertical e-cluster b) Network (n=6)

Source: Author

219
4.5. Network topology

Network topology (Fig. 9b) is appropriate for co mplex creation of creat ive products,
process of innovation and knowledge management processes. Lin ks between members of
network are directional or bidirectional. Cluster management system and e -logistics are
more co mplex in large networks and mult iply relat ionships between members, hence
building vertical e -cluster should be based on business cases which need e-logistics with
simp le topology. The network of a cluster can be divided in the simplest topologies that
correspond to business cases based on end digital p roducts (in mult iproduct clusters),
cooperation processes or tasks (linear chain, star, h ierarch ical structures), cooperative
projects (in cluster oriented to projects) or their combinations.

4.6. Vertical e-cluster models based on star topology

Organization models of clusters have star topology (see Fig. 10a and 11b). Node A is a
hub or a centre that corresponds to dominant members in hub -and-spoke clusters, satellite
platform cluster and state centred cluster models. 13 Other nodes correspond to the members
internal sellers (Fig. 10a) or the internal buyers (Fig. 10b). Direction of branch shows the
flow of products; in Fig. 9a it performs input of A, in Fig. 10a output of A. Networks on
Fig. 9a and 9b correspond to procurement and sales network or channels.

Figure 10 Star topology

>
>
>

>

> A A >
>

> >
>

a) Hubs procurement network b) Hubs sales network

Source: Author

Basic structure of hub-and-s poke cluster is a co mbination of star topologies fro m

Fig. 10a and 10b (see Fig. 11a). A member in the real structures can link with do minant
member A over linear chain (see Fig. 11b). In this model every dominant member has its
own e-procurement and e-sales network, post-sales e-services etc. The hub-and spoke e-
clusters have two or more star topologies, relating to number of do minant members
(leaders) in cluster. Hub lin ks each other hubs; no direct linkage between other members
(SMEs) to other stars exists.

13
T hese terms take from Boja [10]

220
Figure 11 Hub-and-spoke vertical e-clusters

>
Suppliers Customers
Star topology
>

>
>
Dominant

>
> > > > >
member
> > > > >

>
(Hub) e-sales A
> > > >
> > > > > > > >
> > >
> > >
> > > >

>
> >

>

>
> >

>
>
cooperation process

e-procurement chain e-distribution chain

Small and medium companies

Large companies

a) Basic model b) Real model

Source: Author

The state centred cluster model has topology shown in Fig. 11a (this model has only
one hub). The satellite pl atform cluster model has two or more separate and independent
star topologies that set up branch offices of mult inational co mpanies (Dav idovi, 2013;
Boja, 2011).

4.7. Hierarchical organization of e-clusters

Cooperation process in vertical e -clusters can organize h ierarchy equivalent to end

product structure or content (see Fig. 12a). Value added chain for this case is shown in Fig.
12b. One member can realize more activities on different stages of e-supply chain.
Hierarchy structured vertical e-cluster can be build fro m horizontal e-clusters when
those specialize in production parts of digital end-products.

Figure 12 Hierarchic structured e-clusters

Activities #1 Activities #2 Activities #3 Activities #4

>

>
>
>

>

>
>

> >
> >
>
>
>

> > >

>
>
>
>
>

>
>

> > >

> >
>

>
>
>

>
>
>

a) Direct graph b) Cooperation process and value-added chain

Source: Author

4.8. Building e-logistics in vertical e-clusters

E-logistics in vertical e-cluster is an e-business system that supports procurement,

cooperation and distribution processes (see Fig. 13).

221
Figure 13 E-logistic of vertical e-cluster, basic model
Cluster Management Cluster Management

e-order e-offer
E-sales
e-order e-order
e-procurement (e-distribution
e-invoice e-invoice
(e-payment)

channel)
Money
Money

Cluster Cluster Cluster (e-payment)

e-invoice
e-order member member member money
e-order e-invoice
IS IS IS (e-payment)

SUPPLIER CUSTOMER

Digital products Digital products

Know how
Intellectual properties

Source: Author

The project oriented e- clusters can use project management system and internet for
digital products transfer. The product oriented e-clusters can implement supply chain
management system or intellectual property management system for other intangible assets.
These e-business systems can support cluster cooperation and innovation processes, a nd the
performance of cluster in domestic and international market s. E-clusters with e-knowledge
management are more co mpetitive because knowledge and innovation are the key drivers
of cooperation development (see Fig. 1 and 5b).

5. CONCLUS ION

Building e-clusters is the first phase of imp lementation of e-clustering as

macroeconomic polit ics or strategy. The choice of e-cluster organization structure
determines its future market position and further development.
The development of horizontal clusters is oriented to building adequate e -logistics and
positioning in a large supply e-chain which allows its building extension based on
innovations and new value-added chain organization (linear chain, vert ical Marshallian e-
cluster). The attachment of one geographic concentration of SMEs TIM ES co mpanies with
a dominant large TIM ES co mpany, mu ltinational co mpany branch office, state or public
company results as a hub-and-spoke, satellite platform cluster or centred state cluster,
respectively.
Project and co mmon product oriented e-clusters develop structure equivalent with
project or d igital end-product structure, and innovate or renovate it according to customers
needs.
E-clusters develop e-logistic that is integrated in the cooperation process and includes
an e-business system, p rocess oriented cluster organizational knowledge management and
innovation management. Universit ies and research institutes support sustain of e-cluster
development based on new TIMES technologies or digitalized cooperation processes,
digital products and e-services innovations.
This analysis can apply in old TIMES cluster renovation, too.

222
6. REFERENCES AND SOURCES OF INFORMATION

1. Bangura, A. K.: Using e-clustering to reinvigorate the Mano River Union, GLOBELICS
2009, 7th International Conference, 6-8 October, Dakar, Senegal.
2. Boja, C.: Cluster Models, Factors and Characteristics, International Journal of
Economic Practices and Theories, Vol.1, July, 2011.
3. Center of the Faculty of Econo mics, Working papers, ISSN 1408 -1504, Ljubljana,
2004.
4. Davidovi, M.: Fro m cluster e-business system to e-cluster (orig. Od sustava e-
poslovanja klastera do e-klastera), 36. MIPRO, May, 2013.
5. Davidovi, M.: Role of the knowledge management in the performance of business
cluster in do mestic and international market (orig. Uloga upravljan ja znanjem u nastupu
klastera na domaem i stranom tritu), Poslovna logistika u suvremeno m
menadmentu, Osijek, 2012.
6. Davidovi, M.: The business clusters distribution e-channels (orig. Distribucijski e -
kanali klastera), Poslovna logistika u suvremenom menadmentu, Osijek, 2011.
7. Gro znik, A; Kovai, A.: E-logistics: Informat ization of Slovenian Transport Logistics
Cluster, Research
8. Hansen, U.: e-clustering an innovative approach for economic policy, Refereed
Paper No. 650. ERSA European Regional Science Assotiation Congress, Porto,
2004
9. Hansen, U.: Innovation through process oriented knowledge management, 45 th
Congress of the Regional Science Assotiation, Amsterdam, August, 2005
10. Porter, M. E.: On Competition, Harvard Business School Press, Boston, MA, 1998.
11. The Industrial Co mplex Cluster Program of Ko rea, Min istry of knowledge economy of
Korea and KICOX Korea Industrial Co mp lex Corporation Cluster, November, 2010
[available at www.kicox.kr or www.e-cluster.net acess 10.09.2013.]

223