Construction Cluster - First and Successful Clustering Experience of Ukraine

by Denis Nedin

One of the biggest achievements of Khmelnytskyi region is introduction of the first in Ukraine cluster model of regional policy of economy. Moreover, this case is especially interesting since it serves as a prominent example of effective cooperation of government, business and institutions concerning in revival of regional economy. This was activity of Khmelnitskyi Regional Civil Organization “The Podillya Pershyi Association” which united heads of regional state authorities, heads of Khmelnitskyi authorities, directors of private and state enterprises, professors, bankers, leaders of NGO. As a result, the Khmelnitsky Regional Public Association “Construction Cluster” was registered in August 14, 2000 and started implementing in full a managerial role in the cluster.

Distinctive feature of clusters, in spite of its scale and industrial accessory, is focus on creation and production of competitive products which can be exported abroad or at least to other regions. However, the cluster in Khmelnytskyi region is special form of the cluster model because construction industry is, first of all, oriented on domestic market and main product is building of modern comfortable housing.

Nevertheless, possibility of cluster creation in this industry area was feasible due to several reasons. First, Khmelnytskyi region is transitional territory for high financial flows: there are large wholesale markets, and significant amount of remittances are being transferred from abroad. Therefore, it was expected that activity of the Construction Cluster would assist redistribution of these transits in favor of local construction and production of construction materials.

Second, Khmelnytskyi region has large reserves of natural resources, most of them are used in construction, which stimulates active building in the region. Thus, utilization of own minerals for producing construction materials provides corresponding workload of associated companies, reduces transport costs and positively affects prime cost of final product .

Construction cluster differs from other types of clusters because of very diverse members and broader scope of goals. The cluster combines all components of production process ranging from minerals suppliers to consumers of final goods, including service sector and specialize infrastructure.

Nowadays, Construction Сluster consists of 32 companies specializing in implementation of construction works, production of construction materials, projecting, designing, enterprises and establishments of infrastructure which provide trade, juridical, audit, marketing, training and research development services. The most important players are: Khmelnitsky Design Institute "Tsyvilprombud", Khmelnitsky National University, PF "Prospektbud", LLC "Budklast", LLC "Budvest-tempo", LLC "Building Industry", PF "Dita", JSC "Khmelnitsky Plant Building Materials ", LLC" Trade House "Megapolis", HF JSC "State Export-Import Bank of Ukraine", Podolskiy Department of Capital Construction of Ukraine, Scientific-Production Enterprise "City", CJSC "Electro", JSC "Hmelnytskhaz", HF "Ukrsotsbank", HF JSC "Bank", JSC "Slavuta Ruberoid Plant", LLC "Kamenetz", Center for Scientific, Technical and Economic Information, State Center for Standardization, Metrology and Certification, and others .      

The main goal of the integration is achievement of concrete economic result – production of competitive product which enhances efficacy of activity of every individual enterprise and accelerates the development of regional economy.

In order to assess effectiveness of the cluster, I consider dynamics of the construction companies (table 1). As we can see, over the period from 2000 to 2009, the volume of realized products in construction increased 5 times. At the same time, the number of construction enterprises increased by 50 per cent, from 14 in 2000 to 21 in 2009.

The raise in number of economic agents indicates attractiveness for investments. It is worth to point out that decrease in number of people employed in construction and, at the same time, the growth of realized products during analyzed period is an evidence of boost in labor productivity which is certainly positive tendency. There is also observed an increase in average wages of constructors by more than 8 times from 2000 to 2009, which is the biggest rate in Khmelnytskyi region.

Table 1. Main indicators of construction cluster

The level of profitability increased three times – industry turned from unprofitable to profitable.

Economic effect of creation construction cluster is caused by production and building cooperation which allowed: to use effectively aggregate potential of network partners; to diminish costs on modernization of construction products by passing part of work to specialize partners; to enhance effectiveness of supplying construction production with building materials, details, constructions on the basis of establishing long-term partnerships; to increase efficiency of execution of certain managerial functions through division of labor, involvement of specialize organizations of building profile; to increase efficiency in marketing, servicing and purchasing of essential resources; to improve reliability of network partners in investment and production sphere .