Methodological Foundations for Cluster-Based Economic Development in the Kyrgyz Republic

MINISTRY OF ECONOMICS OF THE KYRGYZ REPUBLIC 

METHODOLOGICAL FRAMEWORK CLUSTER DEVELOPMENT OF THE ECONOMY OF THE KYRGYZ REPUBLIC 

The procedure and conditions for the formation of industry clusters in the regions of the Kyrgyz Republic 

Edition 1-e 

Bishkek - 2016 

Introduction

The National Strategy for Sustainable Development of the Kyrgyz Republic for 2013-2017, approved by the Decree of the President of the Kyrgyz Republic, emphasis is placed on the introduction of the principles of cluster development of the economy. The cluster principle involves the combination of sectoral and territorial management principles, including the combination and improvement of methods and methodology, as well as the procedure and conditions for economic development. 

As a practical guide for the implementation of the principles of the cluster, the Ministry of Economy of the Kyrgyz Republic recommends using these Methodological Frameworks (hereinafter MF). The basis for this development is the Decree of the Government of the Kyrgyz Republic No. 398-r dated August 19, 2015, adopted for these purposes. 

These MOs contain methods and methods, ways and approaches, norms and standards, priorities and order, order and sequence, as well as measures and standards in various areas of management, which together form the essence of the cluster formation methodology. Wherein cluster is a system of inter-industry relations concentrated in one geographical area. 

A certain choice of parameters from their total number described in MO is the essence of guidelines (MU). MUs are a practical guide to be used by authorities to prepare, create, manage and implement clusters. The order of presentation of materials in the guide is not a mandatory order, identical for the implementation of the cluster at any stage of its development. 

When implementing a cluster, all parts in the presented methodology are subject to a single goal of realizing the key advantage of a particular region. Specialization of the region in a particular cluster is the basis for its development and a condition for ensuring close economic interregional ties in the Kyrgyz Republic, subject to the policy of "strong regions - a strong country". 

General Provisions

Definition of a cluster, its goals, objectives and functions 

Cluster is a system of interindustry relations concentrated in a certain region of home. 

System of interindustry relations is a set of enterprises and organizations whose interaction creates a competitive advantage for each of them. Competitive advantage is realized through the design, production, production and organization of sales growth of a key product . 

The order and condition of the interaction of cluster subjects are the key condition for creating a cluster. Thus, the subject of the study of the methodology is the relationship between the subjects of the cluster, ways and means of satisfying their interests in interaction and partnership with each other. 

The cluster methodology answers the question: “What methods, ways, methods, as well as how and by what means can better interaction be achieved between two or more enterprises to organize the production and marketing of a key competitive product?”. 

Each enterprise or organization in a cluster performs a unique function, complementing each other and providing a synergistic effect. 

system core The cluster is an enterprise that produces a key product that realizes a competitive advantage. In order to increase the stability of the cluster, the competitive advantage may increase, the number of inter-industry relations may increase. In this case, the core of the system will be a group of enterprises. 

Base region - this is a territory that is a set of administrative-territorial units (ATU), on the territory of which a special favorable legal framework (NPB) is formed for the creation, production, and marketing of a key product and appropriate conditions for promotion. The home region concentrates all the available potential for the formation of a competitive advantage. Realization of a competitive advantage is carried out by the release of a key product for export outside the home region. The sum of key products, respectively, the potential of the home regions forms the export potential of the Kyrgyz Republic. 

aim cluster is the advanced development of the regulatory framework to realize the competitive advantages of the home region. A competitive cluster is a competitive regulatory framework, which implies, first of all, the speed and quality of the development of regulatory legal acts that adequately respond to market conditions. 

Priority development is understood as the raising to the urgent priority of legal acts, the change or updating of which gives the maximum synergistic effect in the cluster. 

The results of the functioning of the cluster are distributed in proportion to the investments of its subjects and are reflected in the socio-economic indicators of growth home region . 

Accelerated development of the region expressed by the annual improvement in the dynamics of indicators of socio-economic passports of its administrative-territorial units. The nomenclature of indicators of passports of socio-economic development of regions, as well as their dynamics, are indicators of improving the quality of life and its scale, respectively. 

Tasks clusters include: 

• Revealing competitive benefits on home territories ;
• Definition cluster key product to realize the benefits;
• Formation of an adequate regulatory and legal framework;
• Dynamic management of growth indicators. 

Functions cluster: 

• Planning indicators and distribution of costs;
• Organization of events and formalization of processes;
• Motivation and consideration of the interests of cluster members;
• Coordination and change of priorities;
• Analysis and preparation of new solutions;
• Control and formation of balances. 

Methodology cluster is a set of procedures in determining its activities. These procedures cover: 

• methods and methods;
• ways and approaches;
• norms and standards;
• priorities and order;
• order and sequence;
• processes and their duration;
• operations and actions;
• as well as measures and regulations. 

The methodology is expressed and legally formalized in the guiding documents (RD) and is formalized in the manner prescribed by the current legislation. The tightening of the RD standards is the tightening of competition conditions. The willingness of the cluster subjects to higher standards is nothing more than the readiness to overcome the competitiveness of countries with lower rates of similar standards. 

RDs are presented in various forms of documents, such as state standards (GOSTs), industry standards (OSTs), departmental norms (VN), including construction (VSN), building norms and rules (SNiPs), sanitary norms and rules (SanPiNs), methods (M), including measurement methods (MI) and guidelines (MU), norms and rules (NP), including fire safety norms and rules (NMP), normative indicators of consumption of materials in construction (NPRM), various manuals and recommendations (P ), safety rules (PB), including labor protection rules (POT), as well as labor protection instructions (TOI), electrical installation rules (PUE), norms and prices (ENiRs), technical specifications (TU), standard instructions, requirements and other documents. 

Example 1.
In order to increase the development indicators of the city of Karakol and nearby areas, such tasks are solved as: (1) competitive advantages are identified in the form of a mountain landscape, a tourist ski base, and appropriate hospitable traditions; (2) determined key product - “ski ticket” and the “ski tourism” sector is developing; (3) the legal and regulatory framework for the installation of lifts and the necessary infrastructure is being formed; (4) a list of indicators for consistent funding from various sources is compiled. The methodology is used to develop the relevant GOSTs at the level of world standards, Technical specifications (TU) for the development and adoption of the Rules for the use of lifting installations, the cost and terms of wear are determined, from which the depreciation period and the amount of deductions are calculated to calculate the payback ratios.

Object, subjects and subject of the cluster 

object cluster is the regulatory framework, which involves the formation of a favorable investment climate. The investment climate is, first of all, the legal climate for all cluster members. 

Subjects the cluster are its members. 

Participants There are three sides to the cluster: 

Public authorities with the right to initiate regulatory legal acts. 

Local Self-Government Bodies (LSG) implementing the cluster policy of economic development in the region. 

Enterprises of various industries, of any form of ownership, united in an association, and conducting economic activities in accordance with the approved procedures for the development of the cluster. 

subject The cluster is a key product produced by enterprises of various related industries. Related industries are industries whose products directly or indirectly participate in the composition of costs when forming the cost unit of the key product. 

All methods covered in this methodology constitute a set of updatable legal acts (NLA). The essence of the updates is to change the regulations that make up the essence of the standards. An increase in the standard of living in a particular cluster-based region is carried out by financing standards, increasing their quantitative and qualitative indicators, ensuring their growth cycles and, thereby, continuously raising standards. 

The procedures for changing legal acts are carried out “from the bottom up” by replacing the fulfilled standards with others with higher ones in a cyclical manner. The changes involve the sharing and combination of funds from the republican and local budgets. The mechanism provides for an accelerated and advanced solution of local problems by financing the most rapidly growing projects of the cluster. 

Example 2.
If there is an urgent need for compaction of a settlement, a standard of 11 sq.m per 1 person is taken for budgeting. After fulfilling this standard and providing housing, upon the onset of demolition in a certain area of ​​​​the housing for compaction, a standard of 17 sq.m per 1 person is adopted in this area. Finally, with a further onset of the demolition deadlines when the previous standard is met, a higher standard of 22 sq.m per 1 person is accepted. The combination of budgets is made in the following way: payment for mortgages by citizens in a given territory is deducted from the income tax of citizens. In this case, the falling income tax is modified into an income tax, which is paid from the profits of a construction company that sells housing. This process is carried out by amending the relevant SNiP, which indicates the standard of living space for 1 person. At the same time, accounting is carried out using the standard method for a typical residential building, since the construction company can vary the cost per square meter, which can cost from 467 USD to 1000 USD. per 1 sq.m. 

Thus, the development of the cluster consists in the continuous dynamic updating of the RD and NLA based on this methodology. At the same time, the volume of sales of the key product in monetary and physical terms serves as an indicator of development. In the above example, the provision of housing is measured in kind to square meters, in monetary terms - from 467 USD. per sq.m. up to 1000 c.u. per sq. m. In order to account, analyze and monitor the dynamics of such indicators, the method of alternating substitutions of price and quantity indicators is used. 

Cluster Identification

Cluster identification is a set of criteria in accordance with which a decision is made on the possibility of forming a cluster. Cluster identification is carried out in the following sequence: 

The key product is determined; 

Competitive advantages are assessed to promote a key product; 

Opportunities for realizing the identified benefits are identified; 

A legal and regulatory framework (NPB) and relevant RDs are being developed. 

Determining the key product of the cluster

A key product is a product (service), the implementation of which is associated with the development of two or more industries. The criteria for choosing a product (service) as a key product of the cluster are: 

The presence of inherent competitive advantages; 

Concentration on a specific territory, promising as a cluster base region; 

Availability of a mechanism for coordinating activities and cooperation of cluster members with the possibility of obtaining a synergistic effect. 

The criterion for the presence of competitive advantages is estimated by the calculation method. To do this, the selected key product is split according to composition of costs with the expectation that the price reflects the cost of each type of cost. 

Concentration in a specific area implies uniform rates of transport costs, energy costs, etc., necessary for the cluster. 

The mechanism for coordinating activities and cooperation implies the possibility of summing up a common regulatory framework for the cluster as a whole. 

Example 3.
In identifying meat as a key product, an inherent advantage is the availability of water in the region, as well as the concentration of the forage supply within a limited area. Transportation costs for all cluster members in the entire value chain are the same. The calculation is based on the initial data: 7 soms per 1 kg of bran. Consumption per 1 head of cattle according to the consumption standard of 6 kg and weight gain of 800 g / day . is for 100 days: 7*6*100=4200 soms. Total: in 100 days, young cattle give 80 kg of meat on bran, which is 4200 soms. Similarly, the calculation is based on haylage from a norm of not more than 100 kg / day, silage 15 kg / day, etc.

Nevertheless, the meat cluster should be understood not as the production of only meat, but as the development of products of related industries: leather, wool, lard, etc. Therefore, in order to achieve a synergistic effect from cooperation, regulatory legal acts should regulate the cooperation of participants in all industries. A competitive advantage for a cluster in this design will be the availability of drinking water, since the production of 1 kg of meat requires 15-20 tons of clean drinking water. 

Assessment of the competitive advantages of a cluster

Competitive advantages are assessed based on factors in terms of money. Competitive factors include: 

Presence of internal competition and/or formation of oligopolies; 

Availability of the necessary and sufficient number of suppliers of raw materials, auxiliary materials, fuel and energy, as well as labor resources; 

Market stability when newcomers enter it; 

The autonomous nature of the behavior of the production of substitutes; 

Proximity and access to sales markets; 

Competitive NPB, dynamically responding to the behavior of the market for products manufactured in the cluster. 

The presence of internal competition is designed to ensure that economic entities reduce the cost of their products. If necessary, and also in order to accelerate the return on investment, cluster entities are gradually consolidated into oligopolies in order to increase rate of return on the principle of “fewer participants - more market share”. 

Consolidation is expressed by an increase in invested funds in the authorized capital of an economic entity, reflected in the balance sheet (report No. 1). For new members of the cluster, capital is increased by making a contribution to the management company, for existing enterprises - by accruing profits at the disposal of the enterprise after paying all taxes. 

The availability of the required number of suppliers is assessed along the entire value chain. The types of costs in value added must strictly correspond to the list of costs in the nomenclature of the cost of production. The list of costs is calculated in two ways: 

By cost elements; 

According to the calculation items. 

If it is not possible to include competitive advantage factors in the costs, temporary accounting units are used until the development of the relevant NLA. At the same time, the factors themselves are taken into account in the balance sheet. All types of costs when forming a unit of production in a cluster are taken into account normative method. 

The stability of the market with the entry of newcomers is ensured based on the capacity of the market and its segment. If there are risks from newcomers, additional legal acts are initiated to protect the domestic market. Protective mechanisms of legal acts do not conflict with international legislation ratified by the Kyrgyz Republic in the prescribed manner. 

The autonomous nature of the behavior of the production of substitutes is designed to minimize the risks associated with the marketing of the cluster's products. 

Proximity and access to sales markets is estimated by the costs of cluster entities for the sale of products outside the home region. Costs for the sale of products are accounted for in the corresponding account of the Chart of Accounts. At the same time, expenditures made using innovative information and communication technologies (ICT) based on the Internet (IT) are encouraged. 

Competitive NPB, dynamically responding to the behavior of the market for products manufactured in the cluster, is a system of indicators that change adequately to market changes. 

Identify opportunities to realize identified benefits

Determining the opportunities for realizing the identified benefits is carried out by dividing the factors into physical and monetary types of indicators. After dividing the factors into types by the calculation method, the possibility of improving the production / marketing process is mathematically evaluated key product. 

To improve the process, it is necessary to use the progressive method, which provides for the division of the process into operations, operations - into actions, actions - into swings and turns. Each section uses an integrated approach to analyze the possibilities, including which tool is used in a particular section of operations. 

When identifying opportunities for improvement, the effect in monetary terms is evaluated in parallel. After comparing the cost-effect ratios, an action plan is drawn up to change the technological balance. 

Example 4.
When determining garments as a key product for marketing, the product is divided into factors: production conditions, the relative cheapness of electricity, skilled labor, and the availability of cotton. A comprehensive analysis reveals the absence of such factors: fabric and yarn. When translating the factors into natural and monetary values, it can be estimated that the available raw cotton costs 400 USD/t, yarn 2000 USD/t, fabric 9000 USD/t, finished products 16000 USD ./T. Using the progressive method, it can be determined that investments in the production of yarn are technically feasible, and the production of fabrics pays off in monetary terms. 

The maximum possibilities are realized by the method of optimizing the placement of factors, as well as their choice from among the available ones. 

When optimizing the placement of productive forces (plants, factories), economic and mathematical modeling methods (EMMM) are used. To select the geographically optimal location, the EMMM “Transport problem” is used. 

To select the optimal structure of output volumes, the EMMM “Simplex method” is used. 

All EMMM calculations are made by specialized institutions, universities, research institutes, as well as specialists of the appropriate skill level. 

Cluster Design

Procedure for creating a cluster 

The cluster is considered created from the moment of its legal registration. The procedure and conditions for registration are determined by the relevant law on clusters, and in its absence, by decrees of the Government of the Kyrgyz Republic. 

Registration of the cluster is carried out by legal registration of business entities in the relevant association. The Association, on behalf of and in the interests of its members, develops the fundamental initial data for the formation of a cluster. Based on the initial data, a rationale is compiled and sent to the LSG bodies for approval and coordination of joint plans for the development of the cluster. 

From the moment the association applies to the LSG body, the rule “maximum consistency, minimum adhesion” is adopted. Each party must understand the interests of the other parties, at the same time, none of the parties should not be contrary to the interests of anyone in the cluster. 

After approval by LSG bodies of the initiative to create a cluster, a project is being developed. The project on the formation of a cluster should give all the answers to questions on the mechanism of its development. Approval of the project must be discussed in the local representative authorities. Each of the members of such a representative body is responsible for informing the population about the planned cluster. At the same time, the association provides the population with comprehensive information about the progress of the project, its goals and objectives. 

After the official approval of the project by the representative authorities, the project is sent by the association to the central government authorities. If there are questions on the design of a cluster development project, the association applies to the authorized state authority for local self-government. After agreeing on the issues on the design of the project, as well as in the absence of such, the association applies to the Ministry of Energy of the Kyrgyz Republic. 

Prioritization of cluster issues 

The prioritization of cluster issues is essentially the raising of urgent priority to legal acts related to the promotion of the cluster's key product. 

All expenses for the promotion of the project in the process of creation, its consideration, coordination in the draft legal acts, as well as the presence of the expert staff, scientists and specialists, are borne by the association. 

The authority that received the cluster project for approval, consideration, etc., provides all the conditions for achieving a positive result. 

The effectiveness of a particular authority is assessed by comparing the cost of the effect as a result of a positive consideration of issues. 

Example 5.
When determining the “cost” of decisions, as well as missed opportunities, the timing and duration of such delays, the method of comparing the cost of effects is used. So, if a farmer has grown cotton, the function of the MACM is considered to be fulfilled within the price of 400 USD/t for 1 ton of raw cotton. The “cost” of the functions of the processing sector is the increase in the cost of raw cotton and cotton fiber with the production of yarn to the price of 2000 USD/t. This cost is created by API KR. Similarly, at the price of fabric 9000 cu/t and finished goods 16000 cu/t, the authorities responsible for providing employment and exports are estimated, respectively. 

In case of delay in the consideration of the project by one or another body, the association applies to the higher body with suggestions and comments, as well as conclusions, recommendations and comprehensive detailed information on the current situation. 

The guillotine method is used in the process of coordinating draft legal acts. 

If there are several questions at the same time, the Shell method is used for consideration. At the same time, the issue with the maximum number of connections of cluster subjects is brought to the fore. 

If there are insurmountable obstacles to the further progress of the cluster project, the project is returned for review by the association. At the same time, the body that has identified such insurmountable obstacles makes its proposals, comments, conclusions with recommendations and comprehensive information for updating the project. 

To formalize the procedures for the movement of the cluster project, the relevant regulations for the work of representatives from each side, including state authorities and local governments, as well as the corresponding cluster association, are adopted. 

Combination of clusters 

The clusters are combined when they are raised to the national level. The combination is carried out by methods of specialization, concentration and cooperation of cluster placement. 

With the uniqueness of the projects of each of the clusters, the specialization method is applied. The Ministry of Energy of the Kyrgyz Republic ensures the interaction of the regions where such clusters are based and links their interests through the mutual exchange of production products. 

In the presence of the same types of cluster products, associations are offered two strategies for further development: (1) differentiation by improving quality and (2) reducing costs by increasing the scale of production and expanding sales markets. 

If there is a competitive beginning between the same clusters, the Ministry of Energy of the Kyrgyz Republic is obliged to initiate a study of external markets to bring the cluster products for export at this stage. At the same time, a profitability standard is established for all such clusters. 

In the presence of the investment potential of clusters without development prospects, the Ministry of Energy of the Kyrgyz Republic initiates a reduction in the scale of competition by bringing the size to oligopolies. With such regulation, management methods based on knowledge of market mechanisms are used. 

In order to ensure the sustainability of clusters, as well as guarantees to its investors, the cluster, upon agreement by the regulatory state body, determines the composition of costs when forming the cost of a key product, as well as the size and types of possible deductions. 

At the national level, the development of clusters is carried out by zoning them for the purposes of specialization, zoning for the purposes of concentration, and optimizing the distribution of productive forces for the purposes of cooperation. 

Final Provisions

Cluster Termination 

The cluster ceases to exist provided that it fulfills its tasks as it achieves the indicators laid down in the relevant RD. 

If the cluster entities seek to increase their competitive advantages, the association initiates a new cycle of project approvals. 

About making changes 

The order and conditions in these methodological bases are carried out in the same way in which this document was adopted.