Changes in inter-firm interactions due to other factors

5.3 Changes in inter-firm interactions due to other factors

1. Pellets shortages

Table 5.1

Source: (Ministerio del Poder Popular para las Industrias Básicas y Minería. 2011)

Pellets shortages are likely to change local interactions. As seen above, both briquetting and steel manufacturing sectors depend on local supply of pellets. Current deficit of pellets may trigger necessity of importing pellets which it is envisioned in MIBAM corporative plan (see Table 5.1) leading to disintegration of district due to an increase in linkages to non-local suppliers. Respondents elaborated:

Basically the decline of production was due to raw material shortages, which one? Pellets, pellets shortages; (FMO) pelletizing plant started to have problems…they could not manage to supply the amount of pellets needed. There was need to import pellets from Brazil, Qatar, we had to import pellets in 2007 and 2008 had we not imported pellets the plant would have shut down. (Interview 06, emphases, added)

Nowadays there is no enough pellets and the quality of pellets have decreased (Interview 07)

The plant (FMO pelletizing plant) next to us was inoperative in 2010 and part of 2011, I think it started recently the pelletizing plant (the interview was in August 2011) (Interview 09, emphases added)

2. Steel crisis

What did we do in 2010? We made a tolling agreement with SIDOR, they dispatched us pellets and we produced the briquettes. Because a ton a briquettes had more value added than a ton a pellets, we sent them the proportional material and we kept the remainder (Interview 09)

We implemented tolling agreements as an opportunity to keep doing business. FMO supplied pellets and VENPRECAR fabricated briquettes, then we charged FMO transformation services and FMO exported the briquettes (Interview 07)

One respondent reported variations in exchanges due to steel crisis:

We began here (in 2008) and sold the steel in 1250 to 1300 dollars per ton and it dropped to 380 to 360 dollars per ton, the international market declined as well as the domestic market… we had an important crisis, we had to export our inventories of finished products in disadvantage (Interview 11b, emphases added)

3. Government power saving program

The plant needs 750 megawatts to be operative, and the government put a top of 300 megawatts…we had to reduce production by 80%” (Interview 11b)

This is not a Guayana’s curse, aluminum and steel are highly electricity consumers, one furnace, one electric arc furnace and we have got 6, one furnace can consume the power that needs Maracay, the whole city of Maracay with all air conditioners, malls, discos, households everything switched on (Interview 11b)

4. Lacking of central government resource allocation

On top of other issues we have not received resources from the state…neither in quantity nor in opportunity (Interview 11b)

Guayana needs to receive large investments because we are too old in steel world, SIDOR has more than 35 years that is very old in steel world when you are old after 20 years, an old firms needs more maintenance…this a financial resource issue, we need to renovate including technology, nowadays exists green technology although it is more expensive. I think there is a financial resource issue and there has always been (Interview 15)

Because of nationalization and investment shortages, namely because we don’t have financial resources coming from the state, we haven’t received a penny, that’s the truth, we hope we will receive in the near future (Interview 08)

5. Reconversion plan

In 1990-1991 we (SIDOR) started what we called a reconversion plan. It was determined that one steel casting in Siemens-Martin lasted 9 hours while making it in electric arcs of Plan IV it lasted 1 hour… Siemens-Martin was shut down and we had to fire 4000 people or so. We kept Plan IV only; Plan IV had already a learning curve of 14 years (Interview 11b, emphases added)

The reconversion plan was probably a government attempt to keep SIDOR competitive towards external markets (Interview 11b) or perhaps preparing the firm for its imminent privatization (Interview 13).

5.4 Conclusion

This chapter has also shown that ownership alone cannot explain patterns of interactions. It was found that both domestic and external factors have influenced pattern of interactions. Interestingly, when it comes to domestic factors (pellets shortages, power saving program, resource allocation and reconversion plan) the state seems to be involved somewhat highlighting the importance of ownership structure for industrial districts.

Chapter 6
Conclusions

The study builds on typology of industrial districts put forward by Markusen (1996) to explore Ciudad Guayana’s I&S industry. Markusen contribution to industrial district analysis was designing a comprehensive framework that includes inter-firm connections, the role of national and local government, the role of large firms and embeddedness in local and non-local networks to conceptualized typology of industrial districts. Ownership structure is not directly addressed within Markusen’s framework, although she claimed that “the study of industrial districts requires a broader institutional approach” (Markusen 1996: 293). This research attempts to contribute to industrial district analysis by introducing ownership structure in the debate.

This study has explored inter-firm interactions among state-owned firms in Ciudad Guayana’s I&S. The findings suggest that along the productive chain: mining, pelletizing, briquetting and steel-making, the nature of co-operation seems to change. At the beginning of the chain the nature of co-operation seems to be coerced as the state functions as the only supplier of mineral for the district leading to greater bargaining power. It was also found that among firms within the same sector, voluntary co-operation seems to emerge, as seen in briquetting sector creating a joint operator to manage a Port, and in steel–making lending to each other specialized inputs and outputs which is in line with literature on industrial districts.

I&S industry in Ciudad Guayana could be categorized as a state-anchored district according to the hypothesized features proposed by Markusen (1996). The role of the state was addressed; it was shown that national state have played an important role in promoting and sustaining the district; it was found a weak local government in promoting core industries as hypothesized by Markusen. The role of large firm, notably FMO and SIDOR, in shaping district business structure was explored; it was shown their success in attracting private sector investment both upstream and downstream. Local and non-local embeddedness was analysed; it was found that local commitment is higher than that of non-local. Although, not all features have been tested and the district has shown that some features are contrary to that of state-anchored district, but according to Markusen: “a real-world district may be an amalgam of one or more types, and over time districts may mutate from one type to another” (Markusen 1996: 296).

The study has shown that I&S industry has undertaken a trajectory that can be split into three historical periods where a distinct form of ownership is preponderant. The first stage was characterized as state ownership. Here the business structure of the district was dominated by two large state-owned firms: FMO and SIDOR. The role of CVG (the state agency with mandate to develop Ciudad Guayana) was deemed to be significant; it has served as key anchor tenant in the district. Through CVG leadership, the district appears to have succeeded in inducing agglomeration externalities, notably, access to skilled labour, specialized inputs (i.e. pellets) and technology spillovers (i.e. FIOR lab). Co-operation behaviour between firms was exhibited during this stage, albeit in a coerced fashion due to CVG ascendancy on the district which centrally commanded the construction of Ciudad Guayana with little participation of local authorities.

The second stage depicted a district where the business structure was dominated by private sector. The district exhibited co-operative behaviour (i.e. creation of joint port operator: COPAL) leading to collective action among briquetting sector. This sector comprised by medium enterprises, largely benefited from positive externalities created in prior stage. The nature of co-operation between FMO and now private-owned SIDOR became mainly negotiated. The ascendancy of CVG on the district diminished substantially during this period and involvement of local authorities in promoting district seem to remain weak. It appears that there was a shift towards more commitment of firms to external markets leading to disintegration of district.

The third stage of state ownership with workers’ self-management shows a district in redefinition as it is nowadays. The state owns the whole I&S industrial complex in Ciudad Guayana after being nationalized the private firms from 2007 and 2010. The nature of co-operation between state-owned firms seems to be in line with expected behaviour. They appear to interact under coerced fashion, albeit this time coercion is exerted by MIBAM (Ministry for Basic Industries and Mining) which in turn purports to implement workers’ self-management approach. The success of this approach seems to be undefined, as managers, especially from newly nationalized briquetting sector, manifested uncertainty of strategy. It was found that when state ownership is prevalent, interactions tend to strengthen local embeddedness leading to integration of district.

This study has shown that there are good reasons to believe that ownership structure matters for industrial district analysis. The case of Ciudad Guayana showed that when state ownership was prevalent, coerced co-operation tends to occur and the state appears to induce local embedded networks leading to integration of district. On the other hand, when private ownership was preponderant, voluntary co-operation seemed to emerge somewhat suggesting a connection between private ownership and the expected source of qualitative advantages that accrue to industrial districts according to the literature. These findings may not be generalized, but it might explain why industrial districts tend to succeed within production system of private SMEs that happen to be geographical and sectorial concentrated. It is acknowledged that ownership alone cannot explain patterns of interactions. It was found that both domestic and external factors have influenced pattern of interactions. Interestingly, when it comes to domestic factors (pellets shortages, power saving program, resource allocation and reconversion plan) the state seems to be involved somewhat highlighting the importance of ownership structure for industrial districts.

Appendices

Appendix I. List of Interviewees

Source: Markusen (1996: 299)

References

Altenburg, T. and J. Meyer-Stamer (1999) 'How to Promote Clusters: Policy Experiences from Latin America', World Development 27(9): 1693-1713. 

Banco Central de Venezuela, Anonymous 2011. Indicadores De Ferrominera Del Orinoco 2000-2011. Caracas: .

Benton, L. (ed.) (1992) The Emergence of Industrial Districts in Spain: Industrial Restructuring and Diverging Regional Responses. (F. Pyke and W. Sengenberger edn) Geneva: International Institute for Labour Studies.

Birner, J. and R. Ege (1999) 'Two Views on Social Stability: An Unsettled Question', American Journal of Economics and Sociology 58(4): 749-780.

Briquetera de Venezuela, Anonymous 2011. Avances, Logros y Perspectivas De BRIQVEN. Ciudad Guayana: .

British Geological Survey 'Statistical Summary of the Minerals Industry 1960s' Accessed 23 September 2011 .

British Geological Survey 'World Mineral Statistics 1970s' Accessed 23 September 2011 .

British Geological Survey 'World Mineral Statistics 1980s' Accessed 23 September 2011 .

British Geological Survey 'World Mineral Statistics 1990s' Accessed 23 September 2011 .

British Geological Survey 'World Mineral Production 2000s' Accessed 23 September 2011 .

British Geological Survey 'World Mineral Production 2005-2009' Accessed 23 September 2011 .

Brusco, S. (ed.) (1992) Small Firms and the Provision of Real Services. (F. Pyke and W. Sengenberger edn) Geneva: International Institute for Labour Studies.

Complejo Siderúrgico de Guayana, Anonymous 2011. COMSIGUA 10 Años 1998-2008. Ciudad Guayana: .

Corporación Venezolana de Guayana (1990) 'CVG Hacia Sus 30 Años', pp. 1-29Sol de Guayana.

Dam, O., R. Whipp and C. Osborne (1998) 'Venezuela's Role in the Merchant DRI Market', Metal Bulletin's Latin American Steel and Iron Ore Conference, Rio de Janeiro, 22 March. pp1-12.

Granovetter, M. (1985) 'Economic Action and Social Structure: The Problem of Embeddedness', AJS 91(3).

Hilhorst, J. (1998) 'Industrialization and Local/Regional Development Revisited', Development and Change 29(1): 1-26.

Hite, A. (2004) 'Natural Resource Growth Poles and Frontier Urbanization in Latin America', Studies in Comparative International Development 39(3): 50-75.

Hot Briquetted Iron Association 'What is HBI Association' Accessed 17 October 2011 .

Instituto Venezolano de Siderurgia 'Informe Anual IVES 2005' Accessed 27 October 2011 .

Kristensen, P.H. (ed.) (1992) Industrial Districts in West Jutland, Denmark. (F. Pyke and W. Sengenberger edn) Geneva: International Institute for Labour Studies.

Luong, P.J. and E. Weinthal (2006) 'Rethinking the Resource Curse: Ownership Structure, Institutional Capacity, and Domestic Constraints', Annual Review of Political Science 9(1): 241-263.

Markusen, A. (1996) 'Sticky Places in Slippery Space: A Typology of Industrial Districts', Economic Geography 72(3): 293-313.

Markusen, A. (1994) 'Studying Regions by Studying Firms', The Professional Geographer 46(4): 477-490.

Markusen, A. and S.O. Park (1993) 'The State as Industrial Locator and District Builder: The Case of Changwon, South Korea', Economic Geography 69(2): 157-181.

Ministerio del Poder Popular para las Industrias Básicas y Minería, Anonymous 2011. Plan Corporativo 2011-2013. Caracas: .

Ministerio del Poder Popular para las Industrias Básicas y Minería, Anonymous 2010. Plan Guayana Socialista: Situación Sectores De Industrias Básicas. Caracas: .

Orinoco Iron, Anonymous 2011. Visita Técnica MIBAM. Ciudad Guayana: .

Parrilli, M.D. (2009) 'Collective Efficiency, Policy Inducement and Social Embeddedness: Drivers for the Development of Industrial Districts', Entrepreneurship & Regional Development 21(1): 1-24.

Piore, M. and C. Sabel (1984) The Second Industrial Divide. New York : Basic Books.

Porter, M.E. (1998) 'Clusters and the New Economics of Competition', Harvard Business Review 76(6): 77-90.

Porter, M.E. (1990) The Competitive Advantage of Nations. London and Basingstoke: Macmillan.

Pyke, F. and W. Sengenberger (eds) (1992) Industrial Districts and Local Economic Regeneration: Research and Policy Issues. Geneva: International Institute for Labour Studies.

Sabel, C.F. (ed.) (1992) Studied Trust: Building New Forms of Co-Operation in a Volatile Economy. (F. Pyke and W. Sengenberger edn) Geneva: International Institute for Labour Studies.

Schmitz, H. (1995) 'Collective Efficiency: Growth Path for Small‐Scale Industry', The Journal of Development Studies 31(4): 529-566.

Schmitz, H. and K. Nadvi (1999) 'Clustering and Industrialization: Introduction', World Development 27(9): 1503-1514.

Schmitz, H. (ed.) (1992) Industrial Districts: Model and Reality in Baden-Württemberg, Germany. (F. Pyke and W. Sengenberger edn) Geneva: International Institute for Labour Studies.

Scott, A.J. (1992) 'The Role of Large Producers in Industrial Districts: A Case Study of High Technology Systems Houses in Southern California', Regional Studies 26(3): 265-275.

Siderúrgica del Orinoco "Alfredo Maneiro", Anonymous 2011. Evolución De Producción De Acero Líquido y De La Fuerza Laboral. Caracas: .

Siderúrgica del Orinoco "Alfredo Maneiro", Anonymous 2010. Procesos Industriales SIDOR. Ciudad Guayana: .

Uphoff, N. (1989) 'Distinguishing Power, Authority & Legitimacy: Taking Max Weber at His Word by using Resources-Exchange Analysis', Polity : 295-322.

Vakhitov, V. and C. Bollinger (2010) 'Effects of Ownership on Agglomeration Economies: Evidence from Ukrainian Firm Level Data', Discussion Papers .

Venezolana de Prerreducidos Caroní, Anonymous 2011. Nacimos En Guayana Briqueteando Hierro Venezolano. Ciudad Guayana: .

World Steel Association 'Steel Statistical Yearbooks 1978-1999' Accessed 19 October 2011 .

World Steel Association 'Steel Statistical Yearbooks 2000-2011' Accessed 19 October 2011 .