Let the local, and global, clustering begin

The Mitsubishi closure and the proposed BHP/Rio deal each have huge implications that could fundamentally change the way you do business.

Let the local, and global, clustering begin

Two enormous events have just occurred, which are signalling to smart companies that the structure of business is fundamentally changing. Australia is increasingly moving towards a cluster model. This has implications for entrepreneurs who need to rethink the way they go about business.

First is the announcement that Mitsubishi is terminating more than 900 employees at its Adelaide plant. Second is the BHP/Rio Tinto bid.

Both events are an example of the clustering that is occurring – at both a local and a global level. Mitsubishi is an example of localising the services industry and BHP/Rio of the globalisation of the resources sector. So what does it mean to you?

Take the Mitsubishi decision. The car industry has been spread across Australia. Now the car industry will consolidate back into Victoria. As states work hard to prevent duplication under a Rudd Government, the opportunity arises for each state to specialise and for clusters to develop.

South Australia will concentrate on defence and aerospace industries, Victoria is concentrating on the auto and high-tech design industries, NSW on green energy, solar power and environmental restoration projects, including the Murray River basin, Queensland and WA will remain focused on global commodities supply, Tasmania on green tourism (and pulp) and the ACT on futures forums to find some other alternatives.

Smart businesses need to ensure they are linked into the local clusters to provide the skills, services, staffing needs and product needs on a very timely basis.

Take the grey (spare) parts industry. Either Victoria or South Australia could concentrate on becoming the grey capital of spare parts. They could have the capacity to supply the whole of Asia and maintain cars with spare parts as the market transforms from large cars to smaller more fuel efficient cars. Short term contracts with cluster companies will usually be sourced from local companies that need to be closely linked in.

Then today, the former Big Australian BHP will decide what to make of a Chinese company (Chinalco) and an American company (Alcoa) deciding to play “chicken” with its decision to proceed with an attempted creation of a mega-mining company with Rio for a cool $50 billion.

The BHP M&A would be seen as a similar development of a cluster strategy designed to break out various parts of the mining value chain, with Chinalco and Alcoa getting the aluminium business, BHP/Rio and Fortescue concentrating on iron ore, and a new coalition emerging to build nuclear power stations and control the global nuclear energy game.

This is part of a global shift away from national economies towards a more integrated form of strategic alliances in each industry sector, establish hegemonies and economies of scope rather than scale.

This is the cluster models that the great management thinker Michael Porter talks about.

Companies increasingly will have to align their cost structures on a worldwide basis as you can buy anything on the internet and commodity prices are globalised. On the other hand, you have the localising of the services industry increasingly looking at supplying the skills, products and services to provide what is needed as soon as it is needed.

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