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1 TheFormationofAustralianMiningTechnologyServicesandEquipmentSuppliers.

AustralianStory-TheFormationof

AustralianMiningTechnologyServices

andEquipmentSuppliers.

APilotStudyfortheUnitedStatesStudiesCentre,

UniversityofSydney

DonScott-Kemmis

November,2011

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2 TheFormationofAustralianMiningTechnologyServicesandEquipmentSuppliers.

TheFormationofAustralianMiningTechnology,Servicesand

EquipmentSuppliers.

TableofContents

ExecutiveSummary...............................................................................................4

1.Introduction......................................................................................................8

BeyondtheResourceCurse.......................................................................................9

ResearchObjectivesandFocus................................................................................11

OrganisationoftheReport......................................................................................12

2.DevelopingNewCapabilities,FirmsandIndustries:FrameworksforAnalysis..12

2.1DemandSideDriversBackwardLinkagesandClusters.........13_Toc308427832

2.2EntrepreneurshipStudiesPerspectiveonNewVentureGrowth.....................26

2.3KeyIssuesforAnalysis..................................................................................32

3.AustralianMiningIndustryandtheDemandforGoodsandServices 34

3.1CharacteristicsoftheAustralianMiningIndustry.............................................34

3.2MiningIndustryDevelopmentandtheMTSESector........................................37

4.TheAustralanMiningTechnology,ServicesandEquipment(MTSE)Sector......44

5.DevelopmentofMTSEFirms...........................................................................52

5.1NewVentureFormation....................................................................................53

5.2NewVentureGrowthandDevelopment...........................................................56

5.3IndustryLevelDevelopment.............................................................................67

5.4EvidenceofClusterdevelopment....................................................................70

6.Conclusions....................................................................................................73

Sources .........................................................................................................78

Appendix .........................................................................................................89

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3 TheFormationofAustralianMiningTechnologyServicesandEquipmentSuppliers.

Acknowledgements

IgratefullyacknowledgetheguidanceandsupportoftheUnitedStatesStudiesCentre,and

particularlyProf.BruceMcKern,forthisstudy.ManyindividualsintheMiningTechnology,

ServicesandEquipmentsector,andtheorganisationsthatsupportthesector,have

contributedtothisstudy.IespeciallythankGaryZamel,LeannaTedesco,MikeFolleti,PhilMcCarthy,SoniaTurner,PeterLaver,GordonChakaodza,RichardRoberts,PeterClarke,Alan

Broadfoot,AlanBye,ElizabethLewis-Gray,Prof.ErikArnold,andJulieMcKerrow.

Acronyms

AusIMM AustralianInstituteofMiningandMetallurgy

Austmine AustralianMiningEquipment,TechnologyandServices

Austrade AustralianTradeCommission

ABAREAustralianBureauofAgriculturalandResourceEconomics

CAMESE CanadianAssociationofMiningEquipmentandServicesforExport

CSIROCommonwealthScientificandIndustrialResearchOrganisation

GFROsGovernmentFundedResearchOrganisations

ICT InformationandCommunicationsTechnology

JKMRCTheJuliusKruttschnittMineralResearchCentre

MCA MineralsCouncilofAustralia

MTEC MineralsTertiaryEducationCouncil

MTS MiningTechnologyServices

MTSAA MiningTechnologyServicesActionAgenda

NMITAB NationalMiningIndustryTrainingAdvisoryBoard

SME SmalltoMediumsizedEnterprise

VET VocationalEducationandTraining

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4 TheFormationofAustralianMiningTechnologyServicesandEquipmentSuppliers.

ExecutiveSummary

Thisstudyfocusesonaspecificissuethedevelopmentoftheminingtechnology,services

andequipmentsectorinAustralia.Itaimstooutlinetherecentdevelopmentofthesector,to

assessthesignificanceofthesector,andtoidentifythemajorfactorsthatpromoteorimpede

itscontinuingdevelopment.Asitisapilotstudy,someimportantissuesareraisedbutnotsystematicallyassessed.

Awiderperspectiveinformsthestudy.TheresourceboomthatisreshapingtheAustralian

economyisoneaspectofthatperspective.DoesAustraliahavethepolicysettingstoavoid

theDutchDiseaseandensurethat,aftertheresourcesboom,itwillbebetterpositionedfor

economicdevelopment?Inassessingthepoliciesthatcanhelptoensuretheeconomyhas

moreoptionsandmorecapabilitiesforanuncertainfuture,whatmightbetherolethe

demandsideieofstimulatingandrespondingtonewandchallengingdemandsfornew

goodsandservices?

Mineralsarenotsimplyeconomicresourceswithavalueindependentofthecapabilitiesto

identify,exploitandprocessthem.ThehistoryoftheUnitedStatesandothercountriesshow

thatdevelopingthosecapabilities,andleveragingresourcedevelopmentforwiderindustrial

development,requiresstrategyandinvestmentthatarenottheoutcomeofmarketforces

alone.

Withthoseissuesinmind,thestudyismotivatedbytwoquestions:

TowhatextentisAustraliacapturingthedynamicopportunitiesarisingfromthedemand-sideoftheresourcesectorgrowthandrelatedinvestmenttodevelopnewfirmsandnewcompetitivestrengths?

TowhatextentdoestheAustralianbusinesscontextprovideasupportiveenvironmentfornewventureformationandgrowthinthisarea?

Severalcountries,includingtheUnitedStates,Canada,SwedenandFinland,haveleveraged

resourcedevelopmentforindustrialandtechnologicaltransformation.Abriefreviewof

thosehistoriesindicatesopportunitiesthatcanbepursuedandsignalssomeoftheissuesthat

needtobeaddressedforthoseopportunitiestoberealised.Theypointtotheimportanceof

capabilitydevelopmentinindustry,theroleofcoordination(throughstrategyandsectoralorganisations),positiveexternalitiesandfacilitatingthewiderprocessesofclusterevolution.

Risingglobalcompetition,acceleratingtechnologicalchangeandmoreopenmarketshave

twounavoidableimplicationsthatarehighlysignificantbutpoorlyunderstood.First,

countriesneedtomoreactivelybuildtheircomparativeadvantage.Hence,themechanisms

throughwhichcomparativeadvantageisbuilt,strengthenedandrenovatedareofcentral

importancetoanyeconomy.Second,newventuresplayakeyroleinexploringareasofnew

opportunityandnewapproachestovaluecreationtheyarethebusinessexperimentswhich

signalprofitablepathsforinvestment.Themechanismsandcapabilitiesthatstimulateand

supportnewventuredevelopment,particularlyininnovativeareas,arevitalandtheir

importanceinaneconomyisincreasing.Onlysomenewventuresarelikelytosustain

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5 TheFormationofAustralianMiningTechnologyServicesandEquipmentSuppliers.

growth.Todosofirmsusuallyneedtotransformtheircapabilitiesandsystemsandentera

processofbusinessengineering,ofteninvolvingacquisitionsandnewproduct/serviceand

marketdevelopment.Understandingthefactorsthatshapeeachstageofdevelopment,

includingtheavailabilityoffinanceandtalent,isofgreatsignificanceforthelongerrun.The

literaturerelevanttotheseissuesisvastandrich.Drawingonarangeofrecentstudies,thereportdevelopsabasicanalyticallens,andasetofspecificanalyticalquestions.These

questionsconcerntheformationanddevelopmenttheevolution-offirmsandtheoverall

sector.

Theminingindustryisbooming.Itcurrentlyaccountsforabout8%ofGDP,at$138billion

annuallymorethan50%ofAustraliasexports,butemploysonlyaround200,000people(2%

ofthelabourforce).Withinvestmentatover$50billionperannum,andtheexpenditureon

inputsforexploration,production,processingandtransport,thatlevelofdemandisan

opportunityforlocalandinternationalsuppliers.Theissueoflocalcontenthaslongbeen

contentious.Theinformationavailableprovidesamixedpicturewithpossiblydeclininglocal

contentinmajoroilandgasprojectsbuthighlocalcontentinmineralprojects.

TherelationshipbetweentheminingindustryandtheAustralianMiningTechnology,Services

andEquipment(MTSE)sectorisshapedbythreeprimaryfactors:

1. TheminingindustryisconsolidatingandisincreasinglydominatedbysuchglobalfirmsasRioTintoandBHPBilliton.Thishasoftenmeantthatasupplyrelationshipin

Australiabecomesaglobalrelationship.

2.

Asinmanyindustries,miningcompanies,areoutsourcingmoreactivities,openingadiverserangeofopportunitiesfornewsuppliers.

3. Thebusinessofminingisbecomingmorecomplexandknowledge-intensive.InvestmentbyminingfirmsinR&D-closeto$4billion-accountsforalmost25%of

totalbusinessinvestmentinR&D.

Thereisastrongmining-relatedresearchbaseinAustraliaandminingfirmsareengagedin

significantlevelsofresearchcollaborationwithmanypublicsectorresearchorganisations.

ThegrowingroleofITthroughoutexplorationandmininghasledtonewpatternsofdemand

forequipmentandservicestypesofdemandnotdominatedbythelongestablishedglobal

suppliers.Thesenewpatternsofdemandarethemostimportantfactorstimulatingthe

developmentofinternationallycompetitiveAustralianMTSEsuppliers.Callingmining

quarryingandAustraliaaquarryfailstograsptherealityofminingandtheopportunitiesit

brings.

However,thecombinationofthosethreefactorsisasubstantialchallengeforthefuture

evolutionoftheMTSEsector.

ThereisnostandardspecificationforwhatconstitutestheMTSEsector.Onerestrictive

specificationemphasisesfirmswithspecialisttechnology,whileamoreinclusiveapproach

includesthemanysuppliersofcontractminingandconstructionservices.Basedonthe

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narrowdefinition,thesectoremploysatleast30,000people,hastotalsalesofatleast$9b,

exportsover$2.5billionandinvestsatleast$1billioninR&D.Themoreinclusive

specificationidentifiesasectoremployingover80,000,withtotalsalesnear$30billionand

exportsofatleast$6billion.Therestrictivespecificationidentifiesasectorsubstantially

largerandwithmuchmoreinternationalactivitythanthewineindustry.Fromtheinclusivespecificationthesectorissubstantiallylarger,muchmoreexportactive,growingmorerapidly

andalmostcertainlymoreprospectivethantheheavilysubsidisedautomotivesector.

MostMTSEfirmswereformedbyentrepreneursfromtheminingindustryortheirsuppliers.

Theytypicallybegananddevelopedthroughcloseinteractionwiththeminingfirms,often

aroundproblemsolving.Spin-offsfromresearchorganisations,venturecapital-backedstart

ups,andinnovationsupportedbygovernmentgrantshaveplayedaminorroleinthe

developmentofthesector.Manyoftheleadingfirmsinthesectorareinternationalising

rapidly,throughexportsandparticularlythroughopeningoffshoreofficesandsubsidiaries

oftenatanearlystageintheirlife.

Sustaininggrowthascustomerexpectationsriseandinternationalisationincreasesisa

challengeformanyMTSEfirms.Therearesignsthatconsolidationisunderwayinthesector.

SomeAustralianfirmshaveacquiredlocalandinternationalfirms(oftenwithsupportfrom

privateequityinvestors)andsomeleadingAustralianfirmshavebeenacquiredbyoffshore

firms.MoreMTSEfirmsaretransformingfromtheearlyentrepreneurialstagetoagreater

emphasisonprofessionalstaffandbusinesssystems.ManyMTSEfirmsarealsodeepening

theirinvestmentincapabilitydevelopment,oftencollaboratingwithminingfirms.Someof

theleadingMTSEfirmsalsocollaboratewithuniversitiesandtoalesserextent,CSIRO.

TheMiningTechnology,ServicesandEquipment(MTSE)sectorisasignificantnewsectorof

Australianindustry,developedlargelybyentrepreneurswithengineeringortechnicaltraining

andpriorexperienceintheminingorcloselyrelatedindustries.ManyAustralianMTSEfirms

aregloballeadersintheirniche.

TheemergenceandgrowthoftheMTSEsectorarosefromthecombinationofthechallenges

facedbyminingcompaniesandthecapabilitiesofAustralianfirmstodevelopsolutionsto

thosechallenges.InparticularAustralianfirmshavebeenattheforefrontoftheapplications

ofITtoalmostallaspectsofmining.Throughpioneeringthisnewfrontierofinnovationtheyhavebeenabletodevelopglobalcompetitivestrengths.

TodaytheMTSEsectorisatakeystageofevolution.Manyfirms,includingrelativelysmall

firms,areinternationalisingrapidly,throughexportsandparticularlythroughopeningoff-

shoreoffices.Atthesametimemanyfirmsaretransformingtheirstrategies,structuresand

organisationalarrangementstosupportgrowth.Agreaterawarenessofthestrengthsand

performanceofthesectorwouldassistfirmsinattractinginvestment.

WhileavigorousprocessofentrepreneurshiphasdevelopedadiversepopulationofMTSE

firmsthereislittleevidencethatthepublicpoliciesdesignedtosupportnewventureformationortheformalcommercialisationinfrastructure,havesignificantlyassisted.

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Moreover,thegrowthanddevelopmentoffirmshasbeenconstrainedbydifficultiesin

attractingcapitalandbyshortagesofhighlevelpersonnel,includingengineers,managers,

andITandmarketingprofessionals.

Thispilotassessmentsuggeststhattheresearchinfrastructurerelatedtomininghasnotbeendesigned,orevolvedtosupportthedevelopmentoftheMTSEsector.

ThedevelopmentoftheMTSEsectordemonstratesthesignificanceofharnessingthe

demandsideforindustryandtechnologydevelopmentinAustralia.Inparticularitclearly

showstheimportanceofdiscontinuitiesintheknowledgebaseasabasisfornewpathsof

valuecreationandentrepreneurship.TheMTSEcasealsoremindsusthatitiscompetence

andentrepreneurshipinindustrythatisessentialandwhichcannotbesubstitutedbyhigh

levelcapabilityinresearchorganisations.Thisisachallengingareaforpolicy,particularlyas

anemergingsectorislikelytobepopulatedbysmallfirms,butitappearsthereisalackof

policyandsupportmechanismstoaddressthischallenge.

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Introduction TheResourcesboomandthedevelopmentofSuppliersto

theMiningIndustry

TherapiddevelopmentoftheresourcesectorhasthepotentialtotransformAustralian

industrypositivelyornegatively.Miningexportsintheyeartomid2011wereworthover

$150billioncontributingover50%ofthevalueofAustraliastotalexports.Investmentinresourceprojectscurrentlyexceeds$40bperannum-ofwhichabouthalfisinmining

1.

However,directemploymentinminingisonlyabout220,000.

Resourceboomspresentchallengesforpublicpolicy.Theroleofmajorresourcesprojectsin

industrydevelopmenthasalonghistoryinAustralia,withparticularlystrongdebatesaround

theBassStraitandNorthWestShelfProjects2.Oneofthechallengesarisingfrommajor

resourceboomsisduetotheDutchdisease.Thisreferstotheconsequencesoflarge

increasesinforeigncurrencyincomeduelargelytoresourcebooms3.Theseconsequences

include:pressuresongovernmenttoincreaseexpenditurebyusingadditionaltaxincomefortransferstolaggingindustries/firmsandsocialgroups,possiblyleadingtostructuralbudget

problemsinthefuture;relativepriceincreasesinthenon-tradedsectorrelativetothetrade-

exposedsectors,and,inparticular,thepossiblyseverecompetitivenessproblemsforthenon-

resourcetrade-exposedsectorsthatariseduetoarisingexchangerateandtheshiftofcapital

andlabourtotheresourcesector.ConcernabouttheimpactoftheDutchdiseaseon

manufacturingisbasedontheviewthat:

thelossofmarketshareinmanufacturedgoodsmarketsmaynotbereversible; thelossofmanufacturingmaylowerthelongerrungrowthprospectsfortheeconomy,

becausemanufacturingisassumedtobemoreknowledgeandR&Dintensivethan

resourcesectorsandtocreatearelativelystrongerdemandforhighlytrainedpersonnel.

Theapparentobservationthatmanyresource-baseddevelopingeconomieshavegrownmore

slowlythanthosewithoutsuchnaturalassetshasbeentermedtheresourcescurse4.Among

thevariousexplanationsfortheresourcescurseareanumberoffactorsthatcancombineto

diminishthelongerrundevelopmentimpactoftheresource-basedsectors.Onefactor,also

relatedtotheDutchDisease,ariseswherelittleoftheinvestmentandproductioninputs

requiredfortheresource-basedsectorsaresourcedfromthedomesticeconomy.Thelackof

backwardlinkagesleadstothedevelopmentoftechnologicalenclaveswithfewopportunitiesforlocalcapabilitydevelopment5.Agooddealofthewiderliteratureonthe

1ABS(2011)2HouseofRepresentativesStandingCommitteeonIndustry,ScienceandTechnology.(1989)

3Thetermwascoinedin1977byTheEconomistfirstusedthetermDutchDiseasein1977in

referencetothenegativeimpactoftheexploitationoftheNetherlandsnaturalgasresources(The

Economist,TheDutchdisease,26November1977,8283).SeealsoFrankel,2010,Heinrich,2011;

Corden&Neary,1982;Corden,1984;Gregory,1976. 4Averyextensiveliteraturediscussestheoccurrenceandexplanationsfortheresourcescurse,for

exampleamongthemorerecentare:Ross(1999),Frankel(2010),HausmannandRigobon(2002).5Arnold,E.etal.(2011).

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resourcescurseconcernsthecausesandimpactsofthefrequentpublicpolicyfailures:The

failureofstatestotakemeasuresthatcouldchangeresourceabundanceformaliabilitytoan

assethasbecomethemostpuzzlingpartoftheresourcecurse.6

BeyondtheResourceCurse

However,severalstudiesoftheroleofnaturalresourceexploitationinthedevelopmentof

countriessuchastheUnitedStates,Finland,SwedenandCanadabringanotherperspective.

Thisisaperspectivewhichemphasisesthepotentialforresource-basedindustrial

developmentiftherequiredstrategiesarepursued.Therearetwoaspectstothis

perspective:

First,mineralresourcesarenotsimplynaturalendowments.Theyrequireinvestmentbeforetheyarevaluable.Suchinvestmentrequirementshavebecomelarger,more

complexandmoreknowledgeintensiveovertime.Substantialresearchmaybe

requiredtosupportexploration,minedevelopmentandefficientprocessing:Because

extendingtheknowledgefrontiercanextendacountrieseffectiveresourcebase,itis

entirelypossibleforresourcessectorstoleadaneconomysgrowthforextended

periodsoftime.7

Hence,theexploitationofacountrysmineralbasecandevelopalongwitheconomic

growthandtechnologicalprogress.Indeedminingis(anincreasingly)knowledge

intensiveindustry.Thediscoveryofresourcesrequiresarangeofadvanced

technologiesandinvestment,aswellastheregulatoryregimesthatencouragethat

investmentAustraliasoverallmineralresourceshavebeenincreasing,despitetwo

centuriesofmining.Theefficientexploitationofamineralresourcemaybe

dependentonnewprocessestoenablemineralextractioninadditiontoinvestmentin

productionandtransportfacilitiesmanyorebodiesareofnoeconomicvalueuntil

innovationsprovideaneconomicmeanstoextractthemineral.Aswillbediscussed

furtherinSection3.2thedeclineinoregrades,therisingcostofenergyandthe

increasinglystringentenvironmentalandsafetyregulation,aredrivinginnovationinall

aspectsofmining.

Second,mineraldevelopmentcanstimulatewiderindustrialandtechnologicaldevelopment.TheUnitedStatesprovidesapowerfulexampleoflinkingmining

developmentwithbroaderindustrialdevelopment-by1913theUSwastheleading

producerofmostofthemajormineralsofthattime.Similarly,Smithsuggests8that

theexperienceofCanada,Norway,Finland,Sweden,theNetherlands,NewZealand

andAustralia)withsignificantresourcebasesshowsthattheresourcescursecanbe

avoidedwithappropriatepolicy.InthecasesoftheUS,DavidandWright(1997)show

6Ross,M.L.(1999)p.307

7Wright&Czelusta,(2002)p.208Smith,(2007)

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thatmineralsdevelopmentintheUSgrewinparallelwiththerisetoleadershipin

manufacturingbutthattheinter-industrylinkagesstronglysupportedwiderindustry

development9.DavidandWrightshowthatinthedevelopmentoftheminingindustry

intheUS,threefactorswerevital:

Asupportiveinstitutionalenvironment,particularlythelegalregimesclarifyingownership;

PublicknowledgeinfrastructureparticularlythevitalroleoftheUSGeologicalSurveywhichprovidedarichbaseofinformationtoguideexploration

10;and

Thedevelopmentofspecialisededucationandresearchcentresby1890theUShad20universitiesgrantingdegreesinmining,someofwhichweretheleading

internationalcentresofresearchandeducationinminingandtheproblem

solvingandinnovationthatsupportedexploration,miningandprocessing.

Moregenerallytheyarguethatthedevelopmentofacompetitiveminingindustryinvolvesalearningprocessatalllevels,whichleadstothedevelopmentof

technologies,capabilities,researchandeducationorganisations,knowledge(someof

whichishighlylocation-specific)ofthepathsforprofitableinvestment,appropriate

regulationsetc11

:

..whatmattersmostforresource-baseddevelopmentisnottheinherentcharacterof

theresources,butthenatureofthelearningprocessthroughwhichtheireconomic

potentialisachieved.12

Theseevolutionaryprocessesareatthecoreofclusterdevelopmentdiscussed

furtherinSection2.2.

PolicyFoundations

Theopportunitiesarisingfromresourcedevelopmentaremorelikelytobecaptured,andthe

risksoftheseriousmarketfailuresduetotheDutchdiseasearemuchmorelikelytobe

minimised,throughacoherentstrategy.Whilethepolicyprioritiesandmechanismswillvary

withthecontextofplaceandtime,acoherentstrategywillincludethreebroaddimensions13

:

Policiesforupgradingcapabilitiesintheresourcesectorsthroughinvestmentinresearch,educationandentrepreneurship.

9CitedinWright&Czelusta(2002).10Forananalysisoftheroleofpublicandsectoralinfrastructureandinstitutionsforminerals

explorationinAustraliaseeScott-Kemmisetal.(2006).SeealsoConnollyEandLewisC(2010).11

Mostcountriesthatsufferfromtheresourcecursearethosethatfailtolearn,inthesenseused

hereietheyfailtodeveloptheinstitutions,organisations,capabilitiesandtechnologiesrequired.12CitedinWright&Czelusta(2002).p.313

Smith(2007);Arnoldetal(2011);Wright&Czelusta(2002).Itisusefulheretoberemindedofthe

pointmadebyWestinhiscritiqueofthetheoryofcomparativeadvantage:..nonationhasdeveloped

byapplyingthetheoryofcomparativeadvantage,andtheyareawarethatinthemostimportant

industriesadvantageisdeliberatelycreated.West,J.(2010)

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Promotingthedevelopmentthroughupstream(supply)anddownstream(processing)industries.

Investingintheoverallnationalknowledgeinfrastructuretosupportinnovation,productivityincreaseandnewventureformationthroughouttheeconomythe

knowledgeinfrastructurehereincludeseducationandtraining,management

capability,competenciesinindustrytoinnovateandimplementnewtechnologiesand

strategies,andhencemaynotinvolvemajorinvestmentinpublicsectorR&D.

ResearchObjectivesandFocus

Thisstudyismotivatedbytwobroadquestions:

TowhatextentisAustraliacapturingthedynamicopportunitiesarisingfromthedemand-sideoftheresourcesectorgrowthandrelatedinvestmenttodevelopnew

firmsandnewcompetitivestrengths?

TowhatextentdoestheAustralianbusinesscontextprovideasupportiveenvironmentfornewventureformationandgrowthinthisareaspecifically,howdo

thecharacteristicsoftheentrepreneurshipandinnovationecologyinAustralia

comparewiththoseinthedynamicmilieuxofsuchregionsintheUnitedStatesas

SiliconValleyandSanDiego?

Thestudyisatargetedscopingstudy,aimingtodevelopasoundoverviewofthesectorand

ofnewventuredevelopment,andtocharacterisethekeyfeaturesofnewventureformation

inthesector.Specifically,thisscopingstudyaimsto:

Buildadatabaseofnewventuresinthetargetareas. Developarobustcharacterisationofthepopulationofnewventuressegments,size,

age,location,products/services,ownershipstructureandgovernanceinthesector.

Identifythekeyliteratureandstudiesrelevanttotheroleofthebusinesscontextinsupportingorhinderingtheformationanddevelopmentofnewventuresinthissector

inAustralia.

Locatethestudyinconceptualframeworks,throughaselectivereviewofrelevantliterature.

DevelopthemethodsappropriateforanalysingtheevolutionoffirmsandofcommunitiesoffirmsandtheirsupportinginfrastructureinAustralia.

Identifytheindustrysegments(egequipment,services,software)inwhichnewventureshaveformed,grownanddevelopedexportsandinternationaloperations.

Developawellinformedunderstandingoftheformationandgrowthoffirmsandcommunitiesoffirmsthroughacombinationofcasestudies,interviewswithindustry

expertsandselectivesurveys.

Assessthemainfactorsthatpromoteandinhibitventureformationanddevelopment,basedontheassessmentofasampleofnewventuresformedoverthepast20years.

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OrganisationoftheReport

Thisreportisorganisedinsixsections:

Section2discussestheconceptualframeworksandpriorstudieswhichhavebeenusedto

guidetheapproachandfocusoftheresearch.Oneareaofrelevantresearchconcernsthe

developmentofupstreamlinkagesbetweentheusersofequipmentandservices(andother

inputs)andtheirsuppliers.Workinthisareahasnowlargelybeenincorporatedintotherich

streamofstudiesonthedevelopmentofindustryclusterswheretheevolutionovertimeof

linkagesandcapabilitiesarestudied.Thesecondareaofresearchonwhichthestudydraws

concernstheformationandgrowthofnewfirmsandindustries.Thereisincreasing

awarenessthatastradeprotectiondeclines,newmarketopportunitiesgrowandthepaceof

innovationincreases,thecapacityofaneconomytosupporttheformationandrapidgrowth

ofnewventuresbecomesmoreimportant.Thissectionconcludeswithasummaryofthe

specificissuestobepursuedinthestudy.

Section3outlinesthecharacteristicsoftheminingindustryinAustralia.Italsodiscussesthe

changingpatternsofdemandforgoodsandservicesbytheminingindustryandthe

implicationsofthosepatternsfortheMiningTechnology,ServicesandEquipment(MTSE)

sector.Itnotestheperiodicconcernaboutthelocalcontentofresourceprojects.

Section4providesanoverviewoftheAustralianMTSEsector.Itdiscussesthemajorsegments

ofthesectorandcharacteristicsintermsoffirmsize,growth,exportactivityandinvestment

inR&D

Section5focusesonthekeyissuesforanalysis.Itdrawsonarangeofpriorstudiesandoriginalenquirytoassessthecharacteristicsofnewfirmformation,growthanddevelopment.

Thediscussionthenmovestohigheraggregationsatthesectorandclusterlevel,and

assemblessomeevidenceforthelevelofdevelopmentdrawingtosomeextenton

comparisonswithothercountries.

Theconcludingsectionreturnstotheframingissuesandassessestheevidenceforwhether:

theAustralianbusinesscontextsupportstheformationanddevelopmentofMTSEfirms?

thedynamicopportunitiesfromresourcesectorgrowtharebeingcapturedtodevelopnewfirmsandnewcompetitivestrengths?

2. DevelopingNewCapabilities,FirmsandIndustries:FrameworksforAnalysis

Thissectiondrawsonarangeofstudiestodeveloptheframeworkswhichshapethe

approachtothisstudy.Asnotedaboveweareconcernedwithtwospecificissuesandthis

sectionisorganisedaroundanexplorationoftheconceptualframeworkstoaddressthem.Weintroducethesethemesbeforeamoredetaileddiscussionofeachofthem.

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Harnessingthedemandsideforindustryandcapabilitydevelopment.Theroleofdemandininnovationandnewventuredevelopmenthasbeenincreasingly

recognised(forexample,vonHippel14

).Demandinguserswhocreateearlymarketsfor

innovativesuppliers,andoftencontributetoinnovationactivities,havebeenshownto

havebeenvitalforthedynamismofclusters(egintheworkofPorter15

)andofhighlyentrepreneurialregions(forexampleintheworkofSaxenian

16).Theroleofthemilitary

andotherleadingusersinthedevelopmentoftheITindustryintheUSandIsraeliswell

known,ifnotsystematicallyanalysed(forexamplebyLerner17

andConnell18

).Theroleof

theoffshoreoilindustryforindustrydevelopmentintheUKandparticularlyNorwayis

alsowellrecognised19

.Recently,awarenessofthesignificanceofthedemand-sidehas

influencedenvironmentalpolicy.Almostalldevelopedcountriesaimtoharness

environmentalpolicytoindustrydevelopment,specificallybyencouragingtheformation

offirmstoprovide,forexamplerenewableenergytechnologies,lowemissionengines,

newbatterytechnologies,recycledproducts,etc.

Newventureformationandgrowth.Entrepreneurshipandnewventuredevelopmentarevitalforeconomicgrowth.Change

inthedemandandsupplyofnewproducts,servicesandtechnologies,andintheuseof

newbusinessmodels,ismorerapid.Asmanyofthesechangesinvolvehighlevelof

noveltyandleadtonewinter-firmandinter-industryrelationshipstheyarealsomore

disruptive.Anewventureisabusinessexperiment.Theseexperimentsareatthecore

ofdynamiceconomies.Consequently,thelevelandqualityofthosecapabilities,activities

andorganisationsthatsupporttheformationandgrowthofnewventureswhichcould

betermedthenewventuredevelopmentsystemareofvitalinterestattheregional,

sectoralandnationallevel.Whileunderstandingofwhatconstitutesadynamicnew

venturedevelopmentsystemremainslimited,deepeningthisunderstandingisthefocus

ofagooddealofcurrentanalysis.

2.1 DemandSideDriversBackwardLinkagesandClusters

Manydevelopmenteconomistswhohaveemphasisedtherisksofaresourcecursepointtoa

lackoflocallinkagesasonereasonwhyresourceboomsmaycontributelittletolocal

development.Whereforeigninvestmentisusedlargelyforimportedequipmentandservices

andmostprofitisrepatriated,fewlinkagesdevelop(Ross,1999).

Severalstudieshavechartedtheevolutionofupstreamsupplyindustriesinresponsetothe

(increasinglysophisticated)demandfromresource-basedindustriesandfromdownstream

14VonHippel,E(1988)15

Porter,M.(1990,1998,2000);Jacobs&deMan(1996).16Saxenian,A.(2007,1996)17

Lerner,(1999),Gompers&Lerner,(2001), Azulayetal(2002),Honigetal(2006),Breznitz,(2002)

18Connell,D.(2006,2009)19Arnold,etal(2011)

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resourceprocessingindustries.Awellknownexampleistheforest-basedsectorinFinland

wheretheevolutionoftheindustryproceededfromproducinglumberthroughtoadiverse

rangeofmilledwood,pulp,paper,andfurniture,andspecialisedinputsanddiversegoods,as

showninFigure1.Thisevolutionincreasinglydrives,anditssurvivalisdependenton,a

deepeninganddiverseknowledgebaseandtheorganisationswhichacquireanddiffuseknowledgeanddevelophumanresourcesFigure2.

Figure1:DevelopmentoftheForestIndustryandLinkagesinFinland

ExportsMillion$

Chemicals

Machinery

Cellulose,paper

Cellulose, paper

Wood,woodproducts,furniture

Source:Fuchslocher(2007)p9.

Manycountries,bothdevelopedanddeveloping,havesoughttolinkcapabilityandindustry

developmenttomajorinvestmentinresourceprojects.Severalresearchershavesoughtto

identifythefactorsthatshapetheeffectivenessofmeasurestoharnessresourceinvestment

forlocalindustrydevelopment.Thefactorsidentifiedinanumberofrecentstudiesare

summarisedinTable1

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Figure2: DevelopmentofBackwardLinkagesintheFinnishForestryIndustry

INFORMATION

TECHNOLOGY

sensors, measuring& control

computationalintelligence,simulation andmachine vision

multimedia andtelecommunication

tomography

ENERGY &ENVIRON-

MENTAL TECHNOLOGY

biofuels, combustiontechnology

ecobalances closed cycles energy-saving &

emissions

FOREST INDUSTRY

Pulp and paper technology Wood products industry Machines, machinery &processes

CHEMICAL

TECHNOLOGY

paper &bleachingchemicals

surface treatmentsubstances

pigments, adhesives

MANUFACTURING

TECHNOLOGY

forestry machines process & productionmachinery material technology

MARKETS

quality competitiveness price competitivenessenvironmental expertise

BIOTECHNOLOGY

enzymes rot prevention gene technology

CONSTRUCTION &

WOOD TECHNOLOGY

modification of wood construction

technology &architecture

logistics, assembly

Source:Fuchslocher(2007)

Table1:MainDeterminantsfortheDevelopmentofDomesticTechnologysuppliersIndustry-Level

[MiningCompaniesand

MajorSuppliers]

SupplierFirmLevel Industryand

InstitutionalContext

IndustrialPolicyLevel

Demand(size,growth,

diversification,novelty,the

cumulativeeffectofother

domesticdemanding

industries,thescaleand

technology-levelrequired,

theageandmaturityof

technologiesworldwide

andthedistanceto

potentialinternational

suppliers)

Customerbehaviourand

policiesforcollaboration

Competitiveness/

Competence

(positionofestablished

globalproducers,

productionand

operations,

Industrialcontext

Financialandregulatory

barrierstofirm

formation,inter-firm

collaborationand

divisionoflabour

Leveloftechnological

interdependenceor

systemiclinks.

SMEs(innovation,

ventureandstart-up

capital,export

promotion,training,

technologyand

informationtransfer)

Structure(highconcentrationand

instabilityhaveanegative

influenceoncooperation

rivalryfavoursinnovation

andbargainingpowerof

technologysuppliers,

relationships/divisionof

labourbetweenlargeand

smallerfirms)

Entrystrategy(actingonthecompetitivefactors,

capableentrepreneurs

strategicmanagement

andcooperation),

Mentoring

Entryfromsuppliersto

otherindustries,spin

offsfromusers,spinoffs

fromsuppliers,spinoffs

fromresearch

organisationsCapabilitytoattractrisk

Industryorganisations thatsupportnetworking

andpolicylobbying

Linkages(territorialpromotion,information

transfer,coordination,

localcontent

requirements,linking

dynamicsectorwith

strategicbutless

dynamicones,tax

incentives,encouraging

theinstitutionalroleof

largebuyerfirms)

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capital,developmentof

customerrelationships,

roleofnetworks

Geographical

concentration(influences

throughtransportcosts,

technologicalspill-overs,

laborpooling,cooperation,

trust,lowriskand

transactioncosts,high

specialisation,institutional

roleofbuyers,and

internationalisation,localexternaleconomiesand

developmentofshared

culture

GrowthStrategy

Entrepreneurial

intentions

Dynamiccapabilities

researchand

development,absorptive

capacity,management,

financialfactors,

marketingandsales)

Knowledge

Infrastructure

Researchorganisations

Educationandtraining

organisations

Industrydevelopment

support(credit

subsidies,tax

concessions,investment

ininfrastructure,

buildingcapabilities,

coordinationof

activitiesand

investments,public

procurementfinancingofR&D,andtechnology

support,Export

support)

Developedfrom:Fuchslocher(2007);Fuchslocher(2010);Maloney(2002);Stevens(2003).

ClustersandRegionsastheContextforNewVentureFormation

Theconceptofclusterdevelopmentissimilartothatofbackwardlinkagesdiscussedabove

buttakesintoaccountawiderrangeofinteractions(demand,competition,collaboration)and

actors(firms,complementarygoodsandserviceproviders,industryassociations,government,

researchandeducationorganisations,etc).Valuecreationfrommineralresourcesinvolvesat

leastthreestages:exploration;exploitationandprocessing,andeachofthesestagesincludes

theprovisionofcapital,equipment,services(includingfinancial,trainingandresearch

services),technology,andsomeformsofinfrastructure.Theoverallvaluecreationfrom

mineralresourceswilldepend,inpart,ontheextenttowhichthesestages,andtheprovision

ofinputstoeach,aredevelopedandsourcedlocally.

However,thekeyfactorinclusterdevelopmentinvolvesfarmorethanimportsubstitution

andlocalsourcing.Itrequiresthedevelopmentofpositivefeedbacksandincreasingreturns

whichdriveanendogeneousprocessofcapabilitydeepeningandupgradingamongmost

actorslinkedthroughmarketandnon-marketrelationships.

Itisclearthatresourceindustrydevelopmenthasleveragedwiderindustrydevelopmentin

several(now)advancedeconomies:

..inSweden,Finland,theUnitedStates,Canada,andtoacertainextentAustralia,

thenaturalresourcesectorevolvedfromapositionoflowtoonecharacterized

byhighly-skilled,knowledgeintensiveandexport-orientedactivities.Suchagrowth

strategywasbased[on]increasingthedomesticvalueaddedassociatedwithsuch

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naturalresourcesbypromptingthedevelopmentofthoseactivitieswhichnaturally

tendtoclusteraroundresource-basedprocessingandextractionindustries.These

includedindustriessupplyingcriticalsidestreaminputs(suchascapital

equipment,consultingservices,andconsumables),andactivitiesengagedinthe

furtherprocessing..oftheoutputs(downstreamindustries).Clusteringnotonlyenhancedtheproductivityoftheworkforce,butalsoresultedinincreasedincome

distributioninthelocalpopulationandrapideconomicgrowth.Moresignificantly,

itpromptedashifttoamoredynamicandsustainablegrowthtrajectory..20

Therecentimprovementinthetermsoftradeformineralcommoditieshasstimulated

renewedinterestinthedevelopmentofmining-relatedclustersandagooddealofresearchis

underwayinseveralcountries(particularlyCanadaandChile)andregions(includingAfrica

andSouthAmerica)21

.

Perhapsthefirstmining-basedclusterwasthatintheGulfofBothniaandincludingfirmsfromSwedenandFinland.TheBothnianMiningClusterhasbeenthecontextforthedevelopment

ofseveralofwhatarenowleadingglobalsupplierfirms,asshowninTable2.

Table2. BothnianMiningCluster22

Segment Swedish Finnish

SuppliersforMining

Exploration Hagby,Craelis,Flexit SMOY,Kati

MineStructures ABB,Alimak,Indau,Jama Sandvik,Wartsila,Ahlstrom,

Robit

Drilling Wassara,AtlasCopco,Tamrock

Blasting DynoNobel,Kimit Normet,Kemira

Loading Sandvik

Hauling Tora,Volvo

SuppliersforProcessing

Mineralpreparation Metso,Sandvik

Physicalseparation ITTFlygt,Grindex,Alvenius Outotec,Metso,Tamfelt

ChemicalSeparation Outotec,Kemira

Source:Noras,2009.

20

EconomicCommissionforAfrica(2004)p.1321

Forexample:Torres-Fuchslocher ,(2010)Tiffin,(2008)Hall&Donald(2009);EconomicCommission

forAfrica(2004);Bas,T.G.Amoros,E.&Kunc,M.(2008);Walker,M.(2005) 22Noras,P.(2009)

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Figure3: DevelopmentofBackwardLinkagesintheFinnishBaseMetalIndustry(TEKES)

INFORMATION

TECHNOLOGY

sensors,measuring&

control

computationalintelligence,

simulation&machinevision

multimediaand

telecommunication

CHEMICALTECHNOLOGY

mineraltechnology

hydrometallurgy

corrosionprevention

Mining

steelandmetalindustry

technologysolutions

Businessservices(KIBS)

MANUFACTURINGTECHNOLOGY

miningmachinery&equipment

enrichingequipment

materialtechnology

BIOTECHNOLOGY

bioenrichmentwastewatertreatment

CONSTRUCTION

TECHNOLOGY

steelconstruction

METALLURGICALTECHNOLOGY

processeswithfewstages(flash

smelting,verticalcasting.)

processautomation

engineering

MARKETS

quality competitiveness

price competitiveness

Logisticalexpertise

environmental expertise

Source:Noras,2009

AnassessmentoftheevolutionoftheBothnianMiningClusterhasprovidedthebasisfor

suggestionsontheformulaornecessaryconditionsforclustercreationinothercountries23

:

Macroeconomicequilibrium; Tradeopenness; Industrypolicysupportingbusinessgrowthandinvestmentwithstrongsupportfor

educationandinnovation;

Developmentofclusterstrategiesatthesectoralandwholeofgovernmentlevel; Strongnationalinnovationsystemwithalongtermstrategyforrelevantcapability

development;

Networkingamongindividuals; Criticalmass; Wholeofvaluechainapproachandencouraginggrowthanddiversificationtosupply

otherindustries;

Marketingsupportforsmallfirms; R&Dprojectswiththesectorstechnologyleaders.

Similarly,RitterhasexploredthedevelopmentofthemineralclusterinCanada,particularlyin

NorthOntario,anddetailedtheevolutionarydevelopmentofanincreasinglydiverserangeof

upstreamanddownstreamindustries,linkedtominingasshowninTable3.

23

Noras&Ericsson,(2006).

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Table3. ActivitiesLinkedtoMining:TheMineralClusterinCanada24

A. MineralMachinery,EquipmentandConsumablesExploration:Drillrigs,drillsteelandbits;

Aerialexplorationequipment;

Explorationinstrumentation;

Instrumentsandequipmentforlaboratories

MineDevelopment:

Constructionmaterials,formining,processing,personnelandrelatedactivities;

Infrastructureandrelatedbuildingmaterialsandequipment;

UndergroundMining:

Drillrigs,steel,andbits;

Explosivesandblastingequipment;

Continuousminingequipmentandconveyorsystems;

Shaftsinkingandtunnellingequipment;

ShaftfurnitureandHoistingEquipment;

Undergroundtransportsystems,railorwheel;

Equipmentforventilation,electricity,water-removal;

Mininginstrumentation

OpenPitMining:

Drillrigs,bitsandsteel;

Explosivesandblastingequipment;

Excavatorsandfront-endloaders;

Off-roadtrucksandwheelloaders;

Concentrating,Smelting,andRefiningEquipment;

BulkHandlingEquipment;

EnvironmentalandSafetyEquipment;

PersonnelEquipment;

SpecializedTransportationEquipment,forRoadandRail.

B. MineralServicesExplorationServices;

Aerialessaying,remotesensing,andcartographicservices;

AnalyticalLaboratories,geophysicalandchemicalanalysis;

ConsultantServices:geological,exploration,mining,processing,management,

financial,environmental;accounting;

Mine-SiteConstruction;

ContractMiningandDrillingServices ;

MaintenanceandRepairs;

CommunicationEquipment,UndergroundandSurface;Transportation,formineralore,concentrate,machinery,andinputs;

C. OtherServicesResearch:Geological,Exploration,MiningSystemsandProcessing;

AviationServices;Forpersonnel,atmine-siteandforfly-in:flyoutmining

Educationofspecializedpersonnel:Universities,Colleges,Tradestraining;

FinancialServices,includingthestockexchanges

SpecializedMineralClusterPress;

LegalServices

MarketingandExportConsultants

Source:Ritter,2000

24Ritter,(1996,2000),Ramos,(1998),Robinson,(2004).

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ThemajorMTSEclusterinCanadaisinNorthOntario.Theformationofthissectorwas

stimulatedbythedownsizingoftheminingindustryintheregioninthe1980s.The

terminationofemploymentofaskilledandprofessionallabourforcealongwithanincrease

inoutsourcingledtotheformationofmanysmallfirms.TheSudburyandAreaMiningSupply

andServiceAssociation(SAMSAA)facilitateslinksbetweenthemanySMEs,asdoestheOntarioMiningIndustryClusterCouncil(OMICC).Technologydevelopmentissupportedby

theNorthernCentreforAdvancedTechnology(NORCAT),theCentreforExcellenceIMining

Innovation(CEMI)andtheMiningInnovation,RehabilitationandAppliedResearch

Corporation(MIRARCO).AttheLaurentianuniversitytherewerethirteenmining-related

researchinstitutesorcentresandfiveresearchchairsrelatedtominingby2004(Robinson,

2004).

AstudyoftheformationofMTSEfirmsintheSudburyarea25

foundthatmosthadbeen

formedsincethemid1980s.NetworklinkagesamongtheMTSEfirmswerelargelycustomers,

andassociationswithresearchinstitutionsratherthandirectcontact.Thekeyfactorsin

locatingintheSudburyareaofOntariowere,inorder:

1. Presenceofkeysuppliersand/orcustomers?2. Physicaltransport,communicationinfrastructures?3. Supplyofworkerswithparticularskills?4. Specializedresearchinstitutionsanduniversities?5. Specializedtrainingoreducationalinstitutions?

ArecentstudyfortheOntarioNorthEconomicDevelopmentfoundthatthesector26

:

includesabout500firmsandorganisationswithatleast50%oftheirbusinessfromsupplyingtheminingindustry;

had2010salesofC$5.6bandemploysabout23,000;and wasoverwhelminglydomesticmarketfocused(81%ofsales)andmostfirmswere

dependentononeortwocustomersforthemajorityoftheirbusiness.

Thestudysurveyedabout150firmsandorganisationsinthesector,andonthisbasis

concludedthatthesectorneededtogrowthroughdiversifyingmarketsandproducts.In

particularthestudyidentifiedagrowingdemandforintegratedminingsolutions,ratherthan

merelypartsandequipment,andforthisreasonthatasectorgrowthstrategyalsorequired

aninnovationstrategy,includingasubstantialincreaseintheinvestmentinR&D.Thestudy

proposedamoreactiverolebygovernmentandmorecollectiveactionbythesector,toraise

awarenessofsectorcapabilitiesandsupportmarketing,throughindustryorganisations.

Morerecentlytherehasbeensignificantdevelopmentofaminingtechnologyclusterin

Chile,particularlyaroundAntofagasta.Astudyin2003foundstrongevidenceofenterprise

development,growinglocalcontentandsomeexports.Butthestudyconcludedthatfurther

25Robinson,(2004)26Doyletech,(2010.

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capabilitydeepeningwasimpededbythesmallsizeofmostfirms,thelackofvisionatthe

sectoralandgovernmentlevelandapassiverolebyuniversities.27Amorerecentassessment

ofmining-relatedclusterdevelopmentinChilesuggestedthatthelevelofgovernmentfocus

onminingsupplierdevelopmenthadincreased,ashadthesupportforinnovation.This

assessmentalsofoundthatthedevelopmentofthesectorhadprogressedwithsomesuppliersbeginningtodiversifyintosupplyingotherindustrymarketsaswellasexportmore

widely28

.

FrameworksforClusterDevelopment

OneinfluentialapproachtogeneralindustryclusterdevelopmentisthatofMichaelPorter

(1990,1998)andcolleagueswhoemphasisetheroleoffourclusterdimensions:

Demandparticularlywhetherthatdemandisspecialised,unusualorleading,inthatitanticipatespatternsofdemandthatwillbemorewidespreadinthefuture;

InputfactorsTheavailabilityofhighqualityinputsofegcapital,labour,naturalresources,infrastructure,knowledge;

Complementaryandsupportingindustriesandorganisationswhichprovidegoodsandservices(includingresearchandeducation)todifferentstagesofthevaluechain;

Competitionandrivalryinthecoresectorwhichdrivescompetitionandtheongoingsearchforsourcesofimprovedperformance;

However,theanalysiswhichinformedPortersclusterframeworkwasbasedonclustersformedlargelybeforetheeraofmoreopenmarketsandthegrowinginternationalisationof

trade,investmentandinnovation.Thisraisesthequestionoftheextenttowhichthe

processesofclusterformationandevolutionwilloperateinmoreopenmarketswherean

increasingproportionofgoods,services,investmentandknowledgeflowsaredispersed

globally.Italsoraisestherelatedquestionofwhetherthestrongemphasisinthecluster

literatureontheroleofgeographicalconcentrationwillremainasrelevant.Whilethese

issuesremainopen,recentresearchonclustersinCanada(aneconomywithmanysimilarities

toAustralia),amongotherrecentcluster-relatedresearch,doesemphasisetwopoints:

Geographicalproximityremainsimportantforthedevelopmentofcooperation,wheretrustisoftenvital,andforeffectiveknowledgediffusion,wheredirectandclose

interactionisvitalforthetransferoftacitknowledge;

Howeveranincreasingproportionofinput-outputflows(trade,investmentandknowledge)inaclustercanbegeographicallydispersedaslongaskeyfactor(often

27LimaandMeller,(2003).28Cereceda,(2008)

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thelocalpooloftalent)shapingthedynamicsoflinkageandupgradinganchorsthe

clustertoalocation(Malmberg&Power,2006;Wolfe,2008).

Chanceeventscantriggerthebeginningsoftheseprocessesofaccumulation,buttheinitial

conditionsmustbefavourable.Anotuncommonsuchchanceeventhasbeenthefailureofa

largeanchorfirm,liberatingthemanagersandengineerstheyhavebroughttoalocationand

spawningahighlevelofnecessity-drivenentrepreneurshipseethehistoryofclustersin

OttawaandCalgaryinWolfe(2008).Asaclusterdevelopstheformationofadeeperlocal

knowledgepool,thebuildingoflinkswithresearchandskilldevelopmentorganisations,the

establishmentofprovenmarkets,technologiesandbusinessmodelsandtheformationof

networksandsectoralandregionalorganisations,allcontributetoexternaleconomies

whichbenefitallfirms.Theseexternaleconomieslowerthecostsandrisksofventure

formationandinnovation,encouragingfurtherentrepreneurshipandinvestment.

Drawingonanextensiveresearchproject,thatinvolveddetailedcasestudiesof26diverse

clustersinCanada,andonareviewofpriorclusterresearch,Wolfe(2008)identifiedsix

factorsthatshapetheemergenceandevolutionofclusters:

3. EntrepreneurshipandManagementThroughbusinessexperimentswhichexploreareasofmarket,resourceand

technologicalopportunity,andthroughestablishingnewbusinessmodels,

entrepreneursopennewpathsofprofitableinvestment.Otherentrepreneurswho

replicateandextendthesedirectionsdeepenandwidenthecluster,extendingthe

dynamictofurtherinputsectorsandnewmarkets.Theseprocessesarecentraltotheemergenceofevolutionofclusters.Noviceentrepreneursoftenbenefitgreatlyfrom

thesupportofotherentrepreneursandnetworkingcontributestothatinteraction

(Wolfe,2008).Inrobust,knowledge-basedclusterahighproportionoffounding

entrepreneursofhighgrowthfirmscomefromexistingfirms,particularlyinnovative

establishedfirmsorpreviousstart-ups,iemanyentrepreneursbuildcapabilitythrough

formsofmentoring/apprenticeship/exemplars(Casper,2007;Casper&Murray,2004;

Garnsey,1998).Atalaterstageofevolutionofaclustermanagementcompetencyis

vitaltodevelopsophisticatedbusinesssystems,strengthenthecompetitivenessof

firms,managegrowthanddiversificationandenternewmarkets.Alackofsupplyofprofessionalmanagerscanconstrainthegrowthofclusters.

4. SectoralKnowledgeBasesOneclearfindingfromtheCanadianstudieswasthattheprocessesofcluster

formationanddevelopmenthavestrongsectoralcharacteristics.Thosesectoral

characteristicsarerelatedtothesourcesofknowledgeandthenatureofinnovation

andcapabilitydevelopmentinsectors.Inparticular,manyresearchersdistinguish

betweenanalyticalknowledgebases,suchasthoseusedbyscience-basedindustries

workingatthefrontierofnewknowledge,andsyntheticknowledgebases,suchas

thoseusedbyengineeringsectors,whereinnovationtypicallyinvolvestheapplication

andrecombinationofexistingknowledge(Malerba,2005;Asheim&Gertler,2005).

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5. GeographicalProximityMostclusteranalysishasfocussedonclusterswithahighlevelofgeographical

concentrationandasaresultthereisastrongoverlapbetweenclusterstudiesandthe

fieldsofregionalinnovationsystemsandeconomicgeography.

6. ResearchInfrastructureTheCanadianstudiesfoundnoexamples,outsideofthefewscience-basedsectorslike

biotechnology,ofdirectseedingofclusterformationthroughspin-offsfromresearch

organisations.Thepresenceofuniversitiessometimeshadaroleindevelopingand

attractingtalentormajorfirmstoaregion.Thecontributionsofresearch

organisationstoproblemsolvingresearch,respondingtoratherthanleadinglocal

demand,wasoftenacontributortothemomentumofdevelopment.Onthebasisof

theseCanadianstudiesWolfe(2008)concludedthattheemphasisonuniversitiesand

researchorganisationsasleadersofclusterformationismisplaced.

7. TalentTheroleofapoolofcapablehumanresourceswithrelevanttypesandlevelsof

knowledgehaslongbeenrecognisedinclusterstudies.TheCanadianstudiesfound

thatthetalentbaseofknowledgeworkerswasoneofthemostimportantfactorsin

clusterformationanddevelopment,andafactorthatcanbeshapedbypublicpolicy.

Wolfe(2008,p20concludes:..policieswhichcontributetothedevelopmentofadeep

poolofhighlyskilledtalentareultimatelytheoneswiththegreatestlong-term

potentialforclusterpromotion.

8. SectoralandClusterOrganisationsandInstitutions,andSocialNetworksFirmslocatedwithingeographicalclusterstendtohavehigherinnovation,growthand

survivalperformancethanventuresnotinclusters.[Gilbert,etal,2008].Butthe

emergenceofnewclustersinvolvesinstitutionalinnovation,andhenceexperiment

andlearning,todeveloppoliciesandorganisationsthatareeffectiveinspecific

nationalandregionalcontexts(Saxenian,2007;Feldmanetal,2005;Lester,2003;

ThorntonandFlynn,2003;CasperandKettler,2000;Haeussler,2010;OECD,2010).

Theearlystagesofclusterdevelopmentofteninvolvetheformationofsectoralor

regionalorganisationsthatfosterinter-firmorindustry-researchnetworkingandcollaboration.Suchorganisations,typicallyindustry-ledalsoprovideamechanismfor

coordinatedactiontoshapepublicpolicyataregionalorwiderlevel.Thiscanbevital

whenregulatorybarrierstogrowthariseorwhennewpublicinvestmentsin

infrastructure,researchoreducationarerequiredtosupportahigherlevelof

performance.Socialcapitalbasedoninter-personalnetworksandsharedvaluesand

perspectivesisoftenseenasanimportantelementofclusterdevelopment(Wolfe&

Nelles,2008).Thesenetworkscanfunctionwithinindustries,butalsobetweenmany

differentcomponentsofacluster(leadersfromdifferentindustrysectorsandfrom

publicsectororganisations)inaregion.BasedontheCanadiancasestudies,Wolfe(2008,p.28)concludes:Manyofthemostsuccessfulclustersamongthecasestudies

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havedevelopedhighlyeffectivelocalassociationsthatpromoteinteractionand

networkingamongthevariousmembersofthecluster,aswellasadvocatingforlocal,

regionalandevennationalpolicyinterventionsthatworktothebenefitofcluster

members.

TheCanadianstudiesalsofoundthatthedynamicsofclusteringprocessesandthepriorities

forpublicpolicyinterventionsvariedwiththestageoflifeofacluster.Fourstageswere

characterised,assetoutinTable2.

Table4:ClusterLifeCycleStagesStage Keyprocesses Coordination

Latent Developmentofkeyresources,

strongfoundationofhuman

resources,marketorknowledge-basedopportunity

Loosenetworksandinformal

coordination

Developing Entrepreneurship,

Growingspecialisationin

researchandeducation

Financeandthebuzzfrom

exemplarsandinformation

supportnewventures

Linkages&collaboration.

Developmentofsectoral,

cluster/regionalorganisations

Established Investmentattraction,growthin

firmsizeandsophistication,

Diversifyingentrepreneurship

Establishedfirmstheincubators

fornewventures

Strengtheningpositivefeedbacks

Growingroleofcrosssectoral

organisationtoaddressshared

interests.

Transforming Investment,entrepreneurship,

explorationofnewdirections,

roleofbusinessangelsandVC.

Establishedfirms,organisationsandresearch/education

organisationsasplatformsfor

initiatives.

Newleadershiptosupportnew

organisationalandpolicy

directions

Source:BasedonWolfe,2008.

Oneoftheconclusionsoftheseveralstudiesofthedevelopmentofmining-relatedclustersis

theimportanceofinstitutionsthatenablecooperationacrossindustries,betweenindustry

andgovernmentandbetweenindustryandeducationandresearchorganisations:

Oneofthereasonsforthesuccessful[resource-basedindustrialisation]processin

Sweden,Finland,CanadaandtheUnitedStateswasthatdevelopmentoccurred

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withinacontextofcommitmentandcooperationatthenationalandlocallevel,

whichprovedanessentialingredientinensuringthesustainabilityofthevirtuous

cycleofinnovationinthefinalstagesof...Moreover,cooperationbetweenthe

publicandtheprivatesectorsintheshapingofnationalscience,technologyand

innovationpolicyhasprovidedafoundationforacommittedandcoordinatedapproachtothelong-termdevelopmentofknowledgeandskillsinthesecountries..29

Thisbriefdiscussionraisesseveralissuestoconsiderinthefollowingsurveyofthe

developmentofminingtechnology,servicesandequipmentsuppliersinAustralia.In

particular,towhatextent:

doesthewidegeographicaldispersionofminingactivityinAustralialimittheformationofclusters,orperhapsleadtosmallernodesinsomeareas;

havehavestronglinksandmechanismsofcoordinationdevelopedbetweensupplierfirmsandtheeducationandresearchsectors;

doestheoverallshortageofskillslimitthesupplyoftalentforthedevelopmentofthesupplierssector;

havesectoralorganisationsandnetworksdevelopedtochampionandsupportthedevelopmentofthesuppliersector?

Aparticularchallengefordetailedanalysisisthatmuchofwhatconstitutesthereal

dynamismanddevelopmentpowerofclustersisnoteasilyvisibleandcertainlynotreflected

inavailablestatistics-seeFigure4.Inthefollowingsectorwefocusonanadditionalissue

theroleandmechanismsofnewventureformation.

29

EconomicCommissionforAfrica(2004).

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Figure4: ClusterDimensions-TangibleandIntangible

Firms&Sectors

Information

Skills&routines

Knowledge

Capabilities

(managerial,

technologicaletc)

Technologies

Organisations

(research,

education)

Relationships

(inter-firm,indy-research,indy-

govt)

Institutions

(regulatory,public

policies,

strategies)

2.2 EntrepreneurshipStudiesPerspectiveonNewVentureGrowth

Entrepreneurshipandnewventuredevelopmentarevitalfortheeconomichealthofnationsandregions.Thisisincreasinglyrecognisedandhasledtoastronginterestinframeworksfor

moreeffectivelypromotingcommercialisationandthedevelopmentofregional

entrepreneurshipsystemsandnetworks30

.Inthe1980sand1990smanycountriessoughtto

buildtheirequivalenttoSiliconValleybyemulatingwhatwereseentobethenecessary(and

sufficient)pre-requisites.Therehavebeenveryfewsuccesses,andnoneapproachingthe

scaleandsignificanceofSiliconValley.

Manyrecentstudiesshowthatsuccessincommercialisationandindustrydevelopment

involvesarangeofevolutionaryprocesseswithstronginteractionandfeedback.Arangeof

recentresearchhasbeguntofocusonthedynamicsoftheseprocessesandtoassessthe

scopeforpolicytoaugment,oratleastreducetheimpedimentsto,theirdevelopment.That

workhasledtoabetterunderstandingofthedevelopmentofsocialcapitalinsectorsand

regions,andalsotothedevelopmentofresearchtoolstoanalysethesepatterns31

.

30Usefulreviewsinclude:VanGeenhuizen,2003;Cooke,2000;Holley,2005;Pietrobelli,2009;OECD,

2010.UsefulrecentAustralianstudiesofbiotechandotherhigh-techclusterandnetwork

developmentinclude:Mohannak,(2007);Gilding,(2008);Stead,(2010);MatthewsandFrater,2008.

31vanderValk,T.&Gijsbers,G.2010providearecentoverviewoftheuseofsocialnetworkanalysis

ininnovationstudies.SeealsoTheCouncilonCompetitiveness,2006.

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Oneapproach,theregionalandsectoralinnovationsystemsperspective,hasrecentlyfocused

onthepatternsofemergenceandearlyevolutionofclustersorsectors,throughthe

processesoffirmformationandgrowthandtherelateddevelopmentoflinkages.This

approachhasalsoledtothedevelopmentofusefulanalyticaltoolsbasedonthekey

functionsordimensionsofanemergentinnovationsystemandthefactorsthatcanenhanceorimpedetheseinnovationandenterprise-relateddimensionsofperformance.Theanalysis

oftheearlystagesofclusterdevelopmenthasalsodrawnonthecomplexadaptivesystems

frameworks32.

Forthedevelopmentofclustersandsectorsafocusonfirmformationmustbe

complementedbyafocusongrowth.Whydosomenewventuresgrowandothersdont?

Drawingonpriorstudies,Gilbertetal.(2006)estimatethatofthe700,000newventures

startedeachyearintheUnitedStates,only3.5%growsufficientlytoactuallyevolveintolarge

firms.Ingeneral,firmsthatremainsmallarelesslikelytosurvivethanthosethatgrowviabilityincreaseswithageandsize(Gilbert,etal.,2006).

Gilbertetal.(2006)havedrawnonanextensiverangeofpriorstudiestoidentifythemajor

factorsthatcontributetothegrowthofnewventures.Theyidentifytenkeyfactors:

Aspiration-GrowthintentionsGrowthistheresultofintentionalactionsandhenceadecisiontogrow.Thatdecision

isshapedbythegoalsoftheentrepreneurandtheirperceptionsofthescopetogrow,

therisksindoingso,andtheirowncapacitiestomanagegrowth(Baum&Locke,2004;

Orseretal,2000). EntrepreneurCharacteristics

Relevantpriorexperience,andparticularlytheknowledgethatprovidesofinformation

sourcesandtheaccesstosuchsourcesthroughinter-personalnetworks,hasbeen

showntobeimportantfornewventuregrowth.Suchexperience,whetherofan

individualorofateam(especiallyateamofdiverseexperience)cancontributeto

greaterinsightsintoopportunitiesandbetterdecisionsregardingstrategy(Mullins,

1996;Gilbert,etal,2006).

InternalHumanResourcesThecapabilitiesofemployeesareoneofthevitalresourcesfornewventuresandthetypeofhumanresourcesrequiredchangesastheventureevolves.

ExternalHumanResourcesAccesstoadviceandinformationthroughmentors,networksandboardsofdirectors

hasalsobeenshowntocontributetogrowth(Ostgaard&Birley,1996;Leeetal,

2001).

FinancialResourcesFirmswithhigherlevelsoffinancialcapitalisationaremorelikelytogrow.Greater

32

Hekkertetal.,2007;Bergerketal2008;Arikan,2008,2009,2010;Phaal,etal,2011.

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financialresourcesenablemoretimetodevelopeffectivestrategiesandtoinvestin

measuresthatsupportgrowth.Butfirmswithmoreinnovative(growthenabling)

technologiesaremorelikelytoattractcapitalfromexternalsources(Bollingtoft,etal,

2003).Firmsthatthroughnetworkshavelinkstobanksandpotentialinvestorsare

alsomorelikelytoattractfinanceandtogrow(Lee,etal,2001). Location

Somelocationsprovidearichcontextthatsupportstheformationofnewventures

through,forexample,areadysupplyofcapablehumanresources,andaccessto

adviceandriskcapital(Saxenian,1990,1994;Porter,1995)iethroughhighlevelsof

thefactorsthatsupportfirmformation,survivalandgrowth.Firmslocatedinclusters

arealsomorelikelytobeinfluenced,inthedecisiontofoundaventureandthe

strategiesadopted,bytheexemplarsaroundthem.

StrategyGilbertetal(2006)acknowledgethattheresearchinthisareaisunsatisfactoryand

hasnotadequatelydealtwiththecontingent(iecontext-specific)natureofeffective

strategies.Nevertheless,theyfindstrongevidencethatventureswithastrongfocus,a

uniqueproductorservice,ordifferentiationthroughinnovationandquality,butalso

withrelevantresourcestopursuesuchastrategyatentryandduringgrowth(strong

internalcapabilities,investmentinR&D,adequatecapitalandexternalalliances),

showedhigherlevelsofgrowth(Chandler&Hanks,1994a,1994b;Leeetal,2001;

Bruton&Rubanik,2002).However,afterapointanalternativeorcomplementary

strategyisthatofgrowththroughacquisition.Inthecaseoffirmspursuingthis

strategy,thekeyinternalcapabilitiesarethoseofbusinessengineeringratherthan

technologicalcapabilities.Whicheverstrategyispursueditmustbealignedwiththe

specificresourcesaccessibletotheventure(Edelmanetal.,2005,Zahraetal.,2000)

IndustryContextNotsurprisingly,growingandemergingmarkets,particularlywherenewnichesare

arising(includingthoseduetonewtechnologicalopportunities),providemore

opportunitiesandmoretoleranceofstrategicmistakesthanslowgrowingmarkets.

Wheretheindustrylifecycleisatamaturestage,withadominantdesignandmany

establishedsuppliershighlevelsofcompetition,andlimitedscopefordifferentiation,

thescopefornewentrantstotakemarketshareislimitedunlesstheneedsof

customerschangeornewtechnologiesenablesignificantlydifferentapproachestothe

supplyofgoodsorservices.Newmarkets,orthosesignificantlydisruptedbynew

needsornewtechnologies,willoftenhavelowerlevelsofdirectcompetitionandalso

oftenhavelowerlevelsofcapitalrequirementforinitialentry(Christensen&Bower

1996;Christensen&Raynor,2003)

OrganizationalStructureandSystemsAsfirmsgrowthedivisionoflabourandthecoordinationanddecisionmakingsystemstypicallyinformalsystemswithaleadingrolebythefoundingentrepreneurs-that

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wereeffectiveintheearlystagesbecomelessso.Continuedgrowthwillnormally

requireatransformationtohigherlevelsoffunctionalspecialisationandmoreformal

processforplanning(Kazanjian&Drazin,1990;Ensley,etal,2006).

InternalorInternationalMarketFocusWhereasithaslongbeenassumedthatfirms(should)internationaliseonlyafterfirmestablishmentinthedomesticmarket,itisclearlythecasethatmanyfirmspursuean

internationalisationstrategyeitherfromtheoutset(bornglobals)orinearlystages

oflife.Internationalisationstrategiescaninvolvedifferentcombinationsofdirect

exports,useofagents,jointventuresordirectinvestmentthroughacquisitionor

greenfieldinvestment.Firmspursuingnicheorhighly-focusedproductorservice

specialisationoftenhaveahigherrequirementtointernationalisetopursuegrowth

withoutlosingfocus(Baumetal.,2001).The(limited)availableevidencesuggests

that,ceterisparabis,firmswhichinternationaliseatanearlystagetendtooutperform

domestically-focusedfirmsintermsofreturntocapital,growthofoverallsales,and

perhapsrateofcapabilitydevelopment.However,thedesignandimplementationof

internationalisationstrategiesplaceshighdemandsonmanagementandprior

experience(eitherinternallyorthroughadvisorsandboards)ofinternationalbusiness

islikelytobeacriticalrequirement(Bloodgoodetal,1996,Coviello&Munro,1995).

Thiscomprehensivereviewraisesacentralissuethatmustbeincorporatedintheanalytical

frameworkthefirmsthatgrowarethosethataimtogrowandthatupgradetheir

capabilities,linkagesandsystems.Accesstocapital,totalent,togrowingmarketsandoften

collaborativecustomers,torelevantsourcesofresearchservices,andtosupportinglinkages

withotherfirms,contributetoorlimit-growthandupgrading.

Networks,MentoringandtheRe-useofLearningtheEvolutionofEntrepreneurialSystems

Thediscussionabovehasshownthatentrepreneurship,andparticularlytheformationof

potentiallyhigh-growthinnovativeventures,isanimportantfunctioninaneconomy,vitalfor

theexplorationofnewopportunityandthediscoveryofnewpathsofgrowth.Astherateof

changeintechnologiesandinmarketsincreasestheprocessesofnewventureformation

becomemoreimportant,andmorecritical,dimensionofaregionalornationalinnovation

system.Thereisanincreasingdivisionoflabourinthenewventuredevelopmentprocess

withnewactors(privateandpublic,andvarioushybrids)creatinganincreasinglycomplex

newventureecologyorsystem-forexample,variousformsofinvestor(angels,earlystage

investors,VCs);advisors(inalmostallaspectsofcommercialisation);incubatorsofvarious

types;andprovidersofinnovation/commercialisationservices33

.

33EuropeanUnionCommission,2008;Arikan,2008;Basant,2002;Braunerhjelm&Feldman,2006;

Feldman,2002;Garnsey,1998;Gilbert,etal,2008;Keeble&Lawson,1998;Liu&Chaminade,2010;

Owen-Smith&Powell,2004.

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Thenewventuredevelopmentprocessishighlyknowledge,management,serviceandcapital-

intensiveandisalsohighrisk.Thequalityofknowledge,managementandserviceinputshasa

majorbearingontheprobabilityofsuccess34

.Aclearfindingfrompreviousstudiesisthatthe

performanceofentrepreneursandentrepreneurshipsupportorganisations(technology

transferorganisations,incubators)generallyimprovesthroughexperienceiethereisalearningprocessbyallinvolved(Casper,2007).Withtheincreasingextentandimportanceof

entrepreneurshipandnewventuredevelopmentthereisaparalleldevelopmentofactors

andinstitutions(regulations,policies,networks)thatcollectivelyformthemainelementsofa

newventuredevelopmentsystem.

Entrepreneurshipisincreasinglyacollaborativeprocessdrawingonideas,support,and

servicesetcfromanarrayofactors(entrepreneurialteams,innovativecustomers,fundersof

varioustypes,advisors,incubatorsetc).Hence,itinvolvesarangeofactorswhoplay

complementaryroles35.Morerecentlymanyoftheresourcesandservicesrequiredto

developanewventure(egresearch,prototypedevelopment,trials,marketing)canbe

accessedfrompartnersand/orindependentexternalserviceprovidersunderdifferenttypes

ofcommercialrelationship(egcontractorequity).Thereareexamplesofvirtual

commercialisationbusinessmodels,wheretheventureoutsourcesasmanyfunctionsas

possibleforaslongaspossibleuntilinvestmentininternalresourcesisnecessaryand

justified.Thisvirtualordistributedapproachenablesleaner,morecapitalefficient,

commercialisationandmoreeffectivere-useofcommercialisationknowledge.Increasing

specialisation,alongwiththehigherlevelsofinteractionmadepossiblebyICTandthe

internet,hasledtoagreaterdiversityofbusinessmodelsandofformsofcollaborationamongfirms.Thesedynamicsarealsoleadingtomoreexperimentationwith

commercialisationbusinessmodels,particularlyleannewventuremodelswherealmostall

functionsareoutsourced,exceptstrategyandcoordination36

.

Thereisalsoagooddealofevidencethat,withinaregion,theentrepreneurialcapacity(eg

thecapacitytocreateenterprisecapitalfromtechnologicalormarket-basedopportunity)

improvesthroughtheformationandgrowthoforganisationsthatsupportnewventures,the

increasingdivisionoflabourandhencespecialisationandthelearningineachoftheseactors.

Insomecasespositivefeedbacksleadtoastronggrowthinentrepreneurialactivityand

quality37.Successfulclusters(inbiotechandinsomeotherfields)havebeencharacterisedby

socialstructuresbuiltondensenetworksofscientistsandseniormanagers,bylabourmarket

mobilitywhichfacilitatesinnovationandreducesthecareerriskinvolvedinjoiningastart-up,

byindividualsandorganisationswithadiverserangeofskillsandexperience,andbyastrong

34

Shane,2004;Carlsson&Braunerhjelm,2002;Cooke,2000;Haeussler,2010;Stead,2010.35Adomaviciusetal,2005;Carlsson&Braunerhjelm,2002;ChiaroniandChiesa,2006;Lester,2003;

LyonsandKutzhanova,2004.36

Saxenian,2007;Adomaviciusetal2005;Morris,etal,2005;Libaers,etal,2010;Haeussler,2010.

37Adomaviciusetal,2005;Arikan,2008;Basant,2002;Casper,2007;Casper&Murray,2004;Garnsey,

1998.

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commercialorientationwithastrongturnoveroffirms.Thenetworkstowhichnewventure

foundersandmanagersarelinkedhaveavitalroleinthedevelopment,growthandsurvivalof

theventure38

.Thecombinationoflearning,specialisation,thescaleanddiversityofthe

talentmarketandthegenerationofnewknowledge,andpositivefeedbacksthatreinforce

networks,canleadtoaninflexionpointintheevolutionoftheclusterornewventuredevelopmentsystemafterwhichthereisrapidgrowthintherateoffirmformationandthe

levelofgrowthofestablishedventures39

.Thedynamicsofthisevolutionencourageand

supportentrepreneurship,aresummarisedinFigure5.

Figure5:GrowingIncentivesandSupportforNewVentureFormation

EntrepreneurshipFirmFormation

Firm

Development

Risk Capital

Demand, customers

[primary & intermediate]New markets

Knowledge Base

Research, TransferTalent

knowledge & skill resources

Complementary

suppliers

Investment,

New entrants

Exemplars

Mentors

Networks

Angelinvestors

Similarly,drawingonawiderangeofpreviousstudies(includingSpilling,1996andVande

Ven,1993)andontheirdetailedstudyofnewfirmdevelopmentinColorado,Necketal

(2004)alsoarguethatregionaleconomicdevelopmentthroughnewventurecreationinvolves

theinteractionofmanyfactorsanentrepreneurialsystem.Theyalsoconcludethatthe

developmentofsuchasystemisevolutionary.Duetotheseincreasinglysystemicprocesses

andsequencingthereisahighlevelofpathdependenceandchanceinthedevelopment,such

thatthetimingofeventscanbedecisiveindeterminingtheirimpact.Necketal(2004)

identifyseveralkeyelementsoftheentrepreneurialsystemtheystudied:

Entrepreneurialsupportthroughincubatorsorothersupportmechanisms; Networkstoaccessinformationandadvice; Accesstofinancialresources,particularlyinvestmentcapital;

38Sousa,etal,2008;MeldmanandRomanelli,2006.39Arikan,2010;Casper,2007;Bergerketal2008;Braunerhjelm&Feldman,2006.

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Accesstoknowledgeandhumancapitalthroughastronglocaltalentpoolandregionaluniversitiesorresearchorganisations;

Anchorcompanies-thatcontributetothevitalityofthetechnologybaseandtalentpool;

Culturesharedvaluesandoptimism.2.3 KeyIssuesforAnalysis

Basedonthesefourconceptualfoundations,andfocussinginparticularonthekeyareasof

convergenceacrossthem,thispilotstudywillpursuetheissuessetoutinTable5andinthe

KeyIssueMap.

Figure6: MapofKeyIssues

EntrepreneurshipNew VentureFormation

Risk Capital Knowledge Base

Research, Transfer

Exemplars,Mentors

Networks,Angelinvestors

Market Entry to

MTSE Sector

Firm Growth

Upgrading

New products& servicesInternationalisation

Priorexperience

Roleof

thecustomer

Demand, customers

[primary & intermediate]

Talent knowledge

& skill resources

Knowledge Base

Research, Transfer

Table5: KeyIssuesforAnalysis

1.NewVentureFormation Thebackgroundoftheentrepreneurs-linkstonetworks,priorknowledge. Marketentrypathstheroleofmarketdemandtypeofopportunity(nicheor

wide,equipment,services,newneed;levelofcomplexity,exploration,investment

orproductionstage),whyopentoanewfirm?;theroleofUseraccessto

market,barrierstosupply,assistancefromcustomer,relationshipwithdifferent

typesofuser,priorlinkswithuser.

Resourcesandsupportformarketentry-roleandsourcesofresourcesforentryknowledge,credibility,capital;roleofmentorsandnetworks;Significanceofaccesstotalent/capablehumanresources;roleandsignificanceoftheknowledge

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baseotherfirms,researchorganisations.

2.NewVentureGrowthandDevelopment

Venturedevelopmentandinternationalisation. Corporatedevelopment-theroleofresourcesindevelopmentknowledge,

talent,professionalmanagement,capital;growthstrategiesprofessionalization,

andbusinessengineering;barrierstodevelopment;entrytonewmarkets

internationalisation,horizontalmarkets,sourceofcompetitiveness.

Capabilityupgradingextent,driversandmechanisms;theroleandsignificanceoftheknowledgebase,talentmarketsandnetworkslinkstootherfirms,

researchorganisations;levelsofabsorptivecapacity.

3. IndustryLevelDevelopment(areclusterdynamicsinevidence?) Developmentofknowledgeinfrastructureappropriatetothedevelopmentof

thesector/cluster.

Thesignificanceofgeographyinlinkagesdoesitmatter? Developmentofindustryresearchorganisation,andindustry-education

relationships.

Clusterdevelopmentandthedevelopmentofindustrylevelorganisationsforthepromotionofsharedinterest,linkages,collectivelearningandadvocatingpolicy

development.

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3AustralianMiningIndustryandtheDemandforGoodsandServices

3.1 CharacteristicsoftheAustralianMiningIndustry

Thereareatleast300miningcompanies,600explorationcompaniesandperhaps300mines

inAustralia.MininghasamajorroleintheAustralianeconomy.Amongdevelopedcountries

mininghassuchakeyroleonlyinCanadaandNorway.Australiaholdssubstantialsharesof

worldmineralsproductionandknownresourcestocksTable6.

Table6.AustralianMineralResources2009

Shareofworld

production

Indicative

life(yrs)

Shareofworldest.

resource

Worldranking

Blackcoal 6% 100 7% 5

Ironore 17% 70 17% 2Gold 9% 33 12% 2

Copper 5% 91 13% 2

Nickel 12% 145 35% 1

Zinc 11% 45 25% 1

Uranium 16% 125 46% 1

Source:GeoscienceAustralia

Theminingindustryaccountedforabout5%ofAustralianGDPthroughthe1990sto2004,

risingtoover8%by2011.In2009-10,thevalueofmineralsexportswas$138billion40

.

MineralsexportscurrentlyaccountforaroundhalfofAustraliastotalexportsofgoodsandserviceswithcoalandironorealonemakinguponethird

41.Mininginvestmenthasrisen

from$12billionin2003-04toanestimated$56billionin2010-11.In2008-9newcapital

investmentbytheAustralianminingandpetroleumsectorwasaboutA$38b,ofwhichabout

A$10bwasforplantandequipment42

.Withincreasingdemandthelevelofinvestmentis

risingandbytheendof2010miningindustry(iemineralssectoronly)plannedcapital

investmentstoodat$131.2billion43

.Employmentinthemineralsindustrywasatalmost

190,000bytheendof2010.

Expenditureonexplorationislessconcentratedthaninvestmentinminedevelopmentand

juniorminingcompanies,whichmaysellidentifiedresourcestolargerfirms,accountfora

substantialshare(insomeyearsmorethan50%)ofexplorationexpenditure.Minerals

explorationexpenditurehasgrownstronglysince2000,withover2008-9duetotheglobal

financialcrisis.

40Grantetal(2005);AustralianTreasury(2011 ),2011)41

MineralsCouncilofAustralia(2011)2011-2012Pre-BudgetSubmission.MCA

42Tedesco&Haseltine,2010.43ABS(2010a)

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Surprisingly,multifactorproductivity(MFP)intheminingindustryhasdeclinedby24percent

between2000-01and2006-07.Assumingthatthemethodologiesusedforassessing

productivityaresound,themajorcausesofthisapparentdeclineappeartobethedeclining

qualityofresourcesandthedelayedimpactofinvestmentinnewminesandtheexpansionof

existingmines44

.

MiningindustryinvestmentinR&Dgrewstronglythroughthe2005-2009period.By2009-10

R&Dexpenditurebytheminingsectorwas$3.7b(22%ofbusinessexpenditureonR&D),a

slightdeclinefrom2008-945

.TheAustralianBureauofStatistics(ABS)surveyed1,650firmsin

theminingindustryin1998toassessthelevelsoftechnologicalinnovationovertheprevious

threeyears.Thesurveyshowedthatwhereas26%ofmanufacturingfirmshadundertaken

technologicalinnovationoverthisperiod,42%ofthemineralsbusinesseshad.Thefocusof

innovationeffortisonprocessimprovement46

.Thissurveyalsosoughtinformationonthe

overall level of investment in innovation. The findings emphasise that R&D is a small

componentofsuchexpenditure:5%inthecaseofcoalminingand8%inthecaseofmetal

oreminingFigure7andhencethatR&Dexpenditureisoflimitedvalueasanindicatorof

innovationactivityinthisindustry.

Figure7InnovationinMininginAustralia:TypesofExpenditure

Exploration

19%Feasibility

Studies

4%

R&D

8%

MineDevelopment&

Construction

27%

NewTechnology

36%

Environment

3%

Marketing

2%

Training&Education

1%

Source:ABS(1997)

ThemajorminingcompanieshavelongbeenamongthelargestbusinessinvestorsinR&D.

Significantly,thegrowingroleofmineralsproductioninAustraliaandthe(partial)reflection

44

Topp,etal(2008).SeealsoABS(2101b)

45ABS(2010a)46ABS(1997)

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36 TheFormationofAustralianMiningTechnologyServicesandEquipmentSuppliers.

of this in the development of research infrastructure led to Australian mining research

accounting for a growing share of global mining research. This was both because of the

sustainedinvestmentinAustraliaandthedeclininginvestmentinminingresearchinEurope

and the United States through the 1990s (Upstill & Hall, 2006). In a submission to the

Productivity Commission in2007,Rio Tintoclaimedthat the decisions over the locationof

R&D investmentswere driven primarily by the existence ofa criticalmassofworld class

research facilities and researchers supporting basic science, with which we can establish

strongrelationships.47

ThemajorminingcompaniesoperatinginAustralia,bymineraltypeareshowninFigure8

companiesaccountfor75%ofthemarketvalueoftheminingcompanieslistedonthe

AustralianStockExchange(ASX):BHPBillitonLimited,RioTintoLimited,NewcrestMining

LimitedWoodsidePetroleumLimited,andFortescueMetalsGroupLtd.Thefirstthreeof

thesearemajorityforeignowned.SomeofthemajorcompaniesoperatinginAustraliaare

notlistedontheASX:Xstrata,AngloAmerican,PeabodyandNewmont.Hence,thelevelofforeignownershipoftheAustralianminingsectorishigh

48.

Figure8 MajorMiningCompaniesinAustralia

MAJOR MINING COMPANIES IN AUSTRALIA

Iron Ore

Rio Tinto

BHP Billiton

Portman Ltd

Mount Gibson

Aztec Ress

Fortescue

Alumina /Bauxite

Alcoa

BHP Billiton

Worsley

Alumina

Comalco

Alcan

Coal

BHP Billiton

Xstrata Coal

Anglo Coal

Pacific Coal

Macarthur Coal

Centennial Coal

Nickel

BHP Billiton

Minara Ress

LionOre

Mincor

Resources

Gold

Newmont

Barrick Gold

Newcrest

Gold Fields

Jubilee Mines

Anglo Gold

Ashanti

Other

Perilya (silver,

zinc)

Mangellan

Metals (lead)

Sterlite (copper)

47

ProductivityCommission,(2007)p.390.48

Currentcomprehensiveinformationonforeignownershipisnotreadilyavailable.ForearlierinformationseeABS(2004)EconomicActivityofForeignOwnedBusinessesinAustralia,2000-01,

2000-01.Catno5494.0andABS(1985)Foreignownershipandcontroloftheminingindustry.Catno

5317.0.

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37 TheFormationofAustralianMiningTechnologyServicesandEquipmentSuppliers.

3.2 MiningIndustryDevelopmentandtheMTSESector

ThegrowthoftheminingindustryinAustraliaisthekeydriverforthedevelopmentof

suppliersofequipmentandservices.Theheavyminingequipmentsectorisdominatedby

longestablishedglobalsuppliers,andthebarrierstoentryintothosesegmentsare

formidable.Themajorinternationalsuppliersarelistedin98

Figure9: InternationalMiningEquipmentSuppliersinAustralia

INTERNATIONAL MINING EQUIPMENT SUPPLIERS IN AUSTRALIA

Exploration

Mapping,Geological &

Geotech Surveys,

Borehole Drilling

Hatch

Bulk MaterialHandling

Conveyors,Crushers,Winches, Vehicles,Weighing &Measuring

Sandvik Tamrock

Detroit Diesel

Hitachi

Terex

Surface Mining

Drilling, Electrical &Hydraulic Eqpt,Shovel buckets

Sandvik Tamrock

Caterpillar

P&H Minepro

Atlas Copco

Hitachi

Liebherr

DBT

Komatsu

Bucyrus

Underground

MiningBlasting, Drilling,

Electrical&Hydraulic

Equipt,CommunicationsCaterpillarSandvik - TamrockAtlas CopcoHitachiJoy MiningMachineryDBTKomatsuMichelin

Health andSafety

Ventilation, Dustcontrol, WasteMngmt, SafetyEqpt

3M Mining

LocalContent

Thesourcingfromlocalsuppliersofequipmentandservicesformajorresourceprojectshas

beenacontroversialissueforover20years.Forexample,in1998aHouseofRepresentatives

CommitteereportonAustralianParticipationinMajorProjectsupdatedanearlierCommittee

report,bothfocusedontheNorthWestShelfoilandgasdevelopments49

.Basedon

informationprovidedbyWoodside,thereportestimatedthatoveralllocalsourcingforthe

NorthRankinplatform,theGoodwynplatformandLNGtrains1,2&3,wasover70%for

investmentprojectcostsandover80%foroperationalcosts(totallyabout$10b)these

levelsareverysimilartoearlierestimatesina1992AllenConsultingGroupreport.Itisnot

clear,however,whatproportionofthelocalsourcinginvolvedequipmentalthoughsupplied

byalocalfirmwasactuallyimported.

TheDepartmentofStateDevelopmentinWesternAustraliacompilesdetailedinformationon

thesourcingofinputsforresourceprojectsinthatstate50

.Thefindingsofthemostrecent

reportaresummarisedinTable7andmoredetailedinformationisinAppendix1.

49HouseofRepresentatives,StandingCommitteeonIndustry,ScienceAndTechnology(1998)50WADepartmentofStateDevelopment(2011).

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Table7.SourcingofEquipmentandServicesforResourceProjectsinWestern

Australia

YearandProjectType WesternAustralia OtherAustralian Overseas

2009

OperatingProjects 80 12 8

NewProjects 58 7 35*

2010

OperatingProjects 86 10 4

NewProjects 61 8 31*

Source:WADepartmentofStateDevelopment(2011

*Forsomemajorprojectstheproportionoftotalinvestmentgoodsandservicessourcedoffshoreexceeded50%.

Thisreportconcludedthatprojectmanagerstendedtouselocalsuppliersfordesign,

procurementandcontractmanagement,butthattheleveloflocalsourcingoverallis

decliningdueto:

theincreasingexchangerate; thegrowingcapabilityofEastAsiansuppliers; lowcoststeelsourcedfromChina;

particularlyinthecaseofChineseinvestors,acloserlinksbetweenprojectequityandsourcing;

readeraccesstoremoteWAsitesduetoadvancesintransportandcommunicationtechnologies;

globalisationofsupplychainsandmarketingarrangements; thegreateruseofmodularconstructiontechnologyformajo