Driving Economic Growth through Business Clusters: An Interview with Christian Kaufhold, GIZ Team Leader of Clusters4Development Project
In this exclusive interview, we had the opportunity to speak with Christian Kaufhold, the team leader of the Clusters4Development (C4D) project, implemented by GIZ in Georgia. As a visionary in the field of economic development, Christian shares his insights into the establishment of business clusters and their pivotal role in promoting economic growth and competitiveness.
With a focus on the achievements and challenges faced by C4D in Georgia's apparel, construction materials, and tourism sectors, Christian sheds light on the impact of international partnerships and collaborations in fostering sustainable development. Join us as we delve into the fascinating world of business clusters and their contribution to Georgia's economic landscape.
As the team leader of the Clusters4Development project, what drew you to this particular initiative, and how do you see the project fitting into the broader goals of the European Union and German Federal Government in terms of promoting economic development and growth?
Overall, promoting economic development and growth on emerging markets requires a multifaceted approach that addresses various factors that contribute to economic development. The aim of business clusters in general is to foster collaboration, innovation, and competitiveness among companies operating in related industries or sectors. Business clusters bring together companies, organizations, and institutions that are interconnected through supply chains, common markets, shared resources, or similar expertise. The primary goal of business clusters is to create a favorable environment for economic growth and development by promoting synergies, knowledge sharing, and cooperation among cluster participants. In order to achieve that, with the financial support of the EU and the German government the project Clusters4Development was kicked off in Georgia in 2019, implemented by GIZ. The goal of C4D is to improve the competitiveness of small and medium-sized enterprises by promoting the establishment of business clusters. The project developed four business clusters in the apparel, construction materials and tourism sectors that introduced a new model of business cooperation based on shared interests of entrepreneurs, to strengthen mutually beneficial connections.
Could you walk us through the process of establishing the business clusters in the apparel, construction materials, and tourism sectors? What were some of the challenges you faced during this process, and how did you overcome them?
Encouraging collaboration and fostering trust among companies within the cluster can be challenging in the beginning, especially when the awareness of the clusters on the market is low, considering the companies that are part of the cluster might be competitors operating in the same sector. This requires careful facilitation and relationship-building efforts, but our team of experts managed greatly to overcome this challenge and establish successful clusters in the abovementioned sectors. Once the clusters were established, I would say the biggest challenge was definitely COVID-19 pandemic, we had to adapt to the new reality basically right after the inception phase of the project when we were actively stepping into the first phase of project implementation. This meant that, all in-person workshops, expert visits, lots of planned events, study tours, and knowledge sharing trips had to be postponed.
The businesses took a big hit financially, with sales dropping due to the economic recession and lockdowns. Of these, the tourism sector has been the most adversely affected. Nonetheless, C4D enabled work to continue despite these circumstances, for example, the project was successful in establishing the groundwork for two clusters and shifted on digital support and technical assistance mostly for the construction materials and apparel sectors. But tackling the tourism sector remained a bigger challenge, as it was affected heavily by the pandemic and the related travel restrictions. Hence, the initiation of the tourism clusters, originally planned for the second quarter of 2020, was delayed. Once the country-wide lockdown was lifted, however, the project was able to continue field visits to the Imereti and Kakheti regions and finalize the list of SMEs for potential membership in areas of the food and wine, authentic/concept accommodation, and cultural heritage.
Now we are proud to say that we successfully established all anticipated clusters foreseen by the project despite the challenges. All four Clusters, GAFA, GCMC and two tourism clusters in Kakheti and Imereti are fully operational, they have their own branding, strategy, action plan, code of conduct and etc. which allows them ensuring the sustainability of the cluster beyond the initial funding period.
How have the four clusters that have already been established - GAFA, GCMC, and the two tourism clusters - impacted the local economies in Tbilisi, Imereti, and Kakheti? Can you share some success stories or positive outcomes from these clusters?
With the objective of establishing a baseline of cluster development environment before the intervention, C4D assessed and benchmarked 5 Georgian clusters on a common European benchmarking scale to see where they stand and how they compare to their European peers. A 70-page assessment report produced for each cluster serves as a custom-tailored manual of institutional development to become sustainable and competitive. EG’s cluster development team was trained in benchmarking to perform the exercise independently. Two of the five clusters, GAFA and GCMC were awarded the Bronze Label as a result of the benchmarking and are now visible on the European Cluster Collaboration Platform, where they can be found by European clusters for partnership programmes funded by the EU.
The Bronze label confirms the organisation’s status as a Cluster Management Organisation with a serious interest in striving for excellence and is considered one of the most promising approaches to increase the contribution of clusters to sustainable economic development.
Besides that, we have successful cases of collaboration within the members of the clusters.
For example, our GAFA member Kaba brand was promoted on the e-commerce platform of
Commode, a fellow GAFA member. Another example is the collaboration of Tamuna Ingorovka and Colors of Caucasus on innovative eco-textiles. C4D enabled GAFA member Situationist’s participation in the Paris Fashion Week. The opportunity helped the fashion house triple their sales, vastly increasing their brand visibility and paving the way to collaborations with new international partners. Moreover, the brand promoted tourism in Georgia by featuring local cultural heritage destinations. This is just a limited number of examples of successful cases of collaborations. Now After four years, other clusters members as well from tourism and construction materials are organically collaborating, working on joint projects, taking part in policy dialogues, etc.
It is noteworthy that project allowed our beneficiaries to be displayed at important, leading trade shows and exhibitions such as ITB, Pitibimbo, Showroom of Tokyo, Paris, Bauma, etc., which led to increase their competitiveness; deepen their understanding on local and international market requirements and build connections with industry leaders.
How has the project worked with the Georgian government and its agencies to improve the institutional framework for clustering and business development? What have been some of the key policy changes or initiatives that have been implemented as a result of this collaboration?
Improving the institutional framework for clustering and business development requires a strong collaboration between the government and industry stakeholders. By establishing a dedicated agency or task force, developing a supportive regulatory environment, providing access to finance, and supporting research and development, it is possible to create a favorable environment for clustering and business development.
Under the component “Institutional Capacity development,” the project team worked with key stakeholder MoESD on the modalities for improving the policy framework for cluster and business development. As a result of this advisory activity throughout the project we worked closely with our partners from Enterprise Georgia. One major milestone was the completion of the National Cluster Development Policy Framework, a guideline for Enterprise Georgia to support emerging or established clusters. The guidelines come with a detailed 5-year action plan and performance measurement indicators to help estimate the realistic cost of the intervention from the planning stage. The project also implemented activities in support of further institutional capacity building for the agency including its HR system development. C4D continued to support Enterprise Georgia in pilot implementing impact assessment framework, which enables the agency to continuously evaluate economic and social impacts of its projects, assess their effectiveness and efficiency, and make better-informed decisions moving forward. In addition, a new survey software was introduced that allows the collection of regular feedback from beneficiaries of the agency. The gathered data can be aggregated, visualised and assessed by the monitoring and evaluation team through state-of-the-art business intelligence software. This will support them further to support other businesses as well in Georgia to thrive.
As the project nears its end in 2023, what are some of the key milestones or goals that you hope to achieve in the remaining time? How do you plan to sustain the work of the clusters beyond the end of the project?
Ensuring the sustainability of the cluster beyond the initial funding period is a common challenge. Developing strategies for long-term financial viability, securing ongoing funding sources, and creating mechanisms for self-sufficiency are critical to sustaining the cluster's activities and impact. This requires a focus on building a strong sense of community, encouraging collaboration and knowledge sharing, focusing on commercialization, developing a sustainable funding model, and measuring and communicating impact. By adopting these strategies, clusters can continue to thrive and contribute to the economic development of their region over the long term.
Within the four years of project implementation, we worked hard to ensure these measures are addressed and by the end of the project clusters are ready to shift to continue operating independently. We successfully piloted a fee-based membership within the cluster during project implementation. Now two clusters already operate on that financial model, which allows them to operate independently on their own as a strong organization even when the project is over.
The Clusters4Development project is financed by the European Union and the German Federal Government. How has this funding enabled you to pursue your goals and make a positive impact in Georgia? What role do you think international partnerships and collaborations can play in promoting economic development and growth in emerging markets?
International partnerships and collaborations provide emerging markets with access to knowledge, resources, investment, enabling them to overcome development challenges and accelerate their economic growth. These type of support interventions foster innovation, transfer of technology, capacity building, and policy reforms, ultimately contributing to sustainable economic development and promoting economic development and growth in Georgia. The funding from the European Union and the German Federal Government through Clusters4Development project provided resources to our beneficiaries such as technical assistance, capacity building, expertise which resulted to increased competitiveness of the companies. We are proud to emphasize the results of the final research implemented among our beneficiaries – as a result, up to 80% of our project beneficiaries are confirming that the project had a positive impact on the turnover of the enterprises. 73.4% of respondents reported that the project helped them create new jobs, and 33% indicated that it sustained existing jobs. These numbers indicate how important the international donor organizations support means to the local SMEs that are the backbone of the local economy in the country.
What advice would you give to other organizations or leaders who are interested in promoting economic development and improving competitiveness through the establishment of business clusters?
Promoting economic development and improving competitiveness through business clusters requires long-term commitment, strong leadership, and effective collaboration among stakeholders. By following these pieces of advice, organizations and leaders can create a conducive environment for cluster development and drive sustainable economic growth.