FINAL CLUSTER ANALYSIS - Kohtla-Järve

Project: cluster DeveloPment anD B2B InternatIonalIzatIon In estonIan-russIan BorDer regIons 

FInal cluster analYsIs 

IDENTIFICATION OF CROSS-BORDER ECONOMIC CLUSTERS IN 

TRANS-BORDER REGION OF ST. PETERSBURG, LENINGRAD REGION AND IDA-VIRUMAA 

This project is funded by 

the European Union 

2009

This publication has been produced with the assistance of the European Union. 

The contents of this publication are the sole responsibility of project “EstRuClusters Development” 

experts and can in no way be taken to refl ect the views of the European Union.

Project: 

cluster DeveloPment anD B2B InternatIonalIzatIon 

In estonIan-russIan BorDer regIons 

FInal cluster analYsIs 

IDENTIFICATION OF CROSS-BORDER ECONOMIC CLUSTERS IN 

TRANS-BORDER REGION OF ST. PETERSBURG, LENINGRAD REGION AND IDA-VIRUMAA

Final Cluster Analysis 

t a B l e o F c o n t e n t s : 

Executive summary ............................................................................................................................. 3 

Glossary of terms ................................................................................................................................. 4 

1. Introduction ............................................................................................................................. 5 

1.1 Purpose of the Investigation ....................................................................................................................................................5 

1.2 Survey hypothesis ...........................................................................................................................................................................5 

2. Methodology ........................................................................................................................... 6 

2.1 Sources ..................................................................................................................................................................................................6 

3. Cluster definition ..................................................................................................................... 7 

4.Statistical survey results .................................................................................................................. 8 

4.1. Key findings in Ida-Virumaa .....................................................................................................................................................8 

4.2. Key findings in Leningrad region ......................................................................................................................................14 

5.Documentary Survey results ........................................................................................................ 21 

5.1. Key findings in Ida-Virumaa ..................................................................................................................................................21 

5.2. Key findings in Leningrad region ......................................................................................................................................22 

6. Key persons interview analysis .................................................................................................... 24 

7. Surveys conclusion ....................................................................................................................... 26 

8.Cross-border clusters identification ............................................................................................. 28 

8.1. Identified cross-border clusters from Statistical Survey ......................................................................................28 

8.2. Identified cross-border clusters from Documentary Survey ............................................................................29 

8.3. Identified cross-border clusters from Key Persons’ Interviews ........................................................................30 

9. Results of Working seminar for EstRuCluster project partners ................................................ 31 

10. Final cross-border clusters identification .................................................................................. 33 

11. Foresight on selected clusters, trends and drivers ................................................................... 34 

2 

11.1. Hospitality sector ......................................................................................................................................................................34 

11.2. Chemical sector .........................................................................................................................................................................37 

11.3. Woodworking sector ..............................................................................................................................................................41 

11.4. Metalworking sector...............................................................................................................................................................43 

© Narva Business Advisory Services Foundation, St. Petersburg Information and Analytical Center, Synergy International Ltd. 2008

e x e c u t I v e s u m m a r Y 

The overall mandate of the Final cluster analysis was to 

generalise the sectors of economic activities that are well 

or over-represented in the target areas of Ida-Virumaa region 

of Estonia and Leningrad oblast incl. St. Petersburg, 

Russia, and have a potential to be developed into clusters. 

This document is produced by an international consortium 

(here and after referred to as “Expert Group”) that comprises 

representatives from the following organisations: Narva 

Business Advisory Services Foundation (Estonia), Saint Petersburg 

Information and Analytical Center (Russia) and 

Synergy International Ltd (Netherlands). 

This Cluster Analysis is defining the existing and potential 

networks in relation to EstRuCluster Development project 

target areas. This document provides synthesised information 

from previous studies and research prepared by Expert 

Group, including Statistical survey, Documentary survey 

and Key Persons’ interviews. 

Final Cluster Analysis summarises cluster situation in Ida- 

Virumaa and Leningrad oblast and arguing the choice for 

the following four potential cross-border clusters: 

1. Hospitality cluster 

2. Chemical cluster 

3. Woodworking cluster 

4. Metalworking cluster 


3


g l o s s a r Y o F t e r m s 

Cluster – geographic concentrations of interconnected 

companies, specialized suppliers, service providers, firms 

in related industries, and associated organizations (such 

as universities, standard agencies, trade associations) in a 

particular field linked by commonalities and complementarities 

Cross-border cluster – geographically concentrated network 

of cooperating companies in the trans-border region 

in complimentary sectors and supporting institutions 

Foresight is a term that is used for future-related activities, 

trends and drives analysis, uncertainties and challenges. 

Foresight is a systematic, participatory, future intelligence 

gathering and medium-to-long term vision-building process 

aimed at present current decisions and mobilising joint 

actions. 

Nace code – a pan-European classification system that 

groups organisations according to their business activities. 

4 

Ida-Virumaa region flag 

Leningrad region flag 

St.Petersburg flag 


1.1 PurPose oF the InvestIgatIon 

1 

Current Final cluster analysis is aimed at identifying potential 

trans-border economic clusters in cross border region 

of Leningrad oblast and Ida-Virumaa and was carried out 

at European and national levels and focused on possible 

cross-border company networks. 

This survey is intending to assist EstRuCluster Development 

project partner consortium to identify and develop 

basis for trans-border economic clusters as new business 

opportunity for SMEs development and innovation in cross 

border Leningrad oblast and Ida-Virumaa territory. 

The objective of EstRuClusterDevelopement project is 

to raise awareness, identify and prepare development of 

trans-border economic clusters in the North-East Estonia 

and North-West Russia and to give potential cluster SMEs 

Introduction 

practical opportunities in developing cross-border contacts, 

open new markets and create innovative networks. 

It aims to raise awareness on clusters and improve capacity 

of local actors in encouraging cross-border activities providing 

for long lasting cross-border contacts and interaction 

with SMEs in cross-border environment. 

1.2 surveY hYPothesIs 


Experts assume that Russian region of Leningrad oblast, including 

Saint Petersburg metropolis, and Estonian region 

Ida-Virumaa, with the common border, similar economic 

pattern set up already in the former Soviet Union, sufficient 

levels of development and related groups of industrial sectors, 

have a potential for the development of trans-border 

industrial-innovative clusters. 

5


2 

The following analysis is based summary of results of studies 

and research conducted by Expert group from April-December 

2008: Statistical and Documentary surveys and Key 

persons’ interviews. Statistical survey sought all available 

statistical information concerning the company groupings 

that are well-presented in the target region. Documentary 

survey summarised different documents, articles, economic 

reports, policies and strategies for economic development. 

Key persons’ interviews provided an insight of 

obtained in previous surveys’ materials from stakeholders’ 

point of view. 

Moreover, based on the information provided by Experts 

during Working seminar, project partners made final decision 

concerning the choice of the target sectors to be developed 

on their territories. 

Current document summarised and analysed all obtained 

data and justified agreed final decision to develop perspective 

target cluster groupings. 

The methodology used in the Final Cluster Analysis is a 

desk research method that is based on several EU cluster 

methodologies, including Netwin-Methodological Guide 

to Networking and Cluster Development and is based on 

acquiring direct secondary information sources. The information 

obtained through desk research was verified, defined 

and is a subject to detalisation by quantitative field 

research. Number of major activity sectors for survey was 

limited to Industry and Service sectors according to the 

common decision made by the Expert Group during Expert 

Panel 1 (22.04.2008) and agreed with project partners. 

Cluster wise selection is be made inside these sectors of 

activity. 

1 http://ec.europa.eu/comm/competition/mergers/cases/index/nace_all.html 

2 Expert Group will later refer to the short title of the sector 

6 

Methodology 

2.1 sources 

The principal contributions to the survey were from the following 

documents: 

Statistical Survey, Documentary survey, Key Persons’ interview 

Sectors that were selected for the survey were taking from 

the list of Nace Codes1 , which is the international coding 

system for industrial classification used by the EU: 

CA.0.00 

Mining and quarrying of energy producing 

materials 

DB.0.00 

Manufacture of textiles and textile products 

(textile) 2 

DC.0.00 Manufacture of leather and leather products 

DD.0.00 

Manufacture of wood and wood products 

(woodworking) 

DE.0.00 

Manufacture of pulp, paper and paper products; 

publishing and printing 

DF.0.00 

Manufacture of coke, refined petroleum 

products and nuclear fuel 

DG.0.00 

Manufacture of chemicals, chemical products 

and man-made fibres 

DH.0.00 Manufacture of rubber and plastic products 

DJ.0.00 

Manufacture of basic metals and fabricated 

metal products (metalworking) 

DK.0.00 Manufacture of machinery and equipment n.e.c. 

DL.0.00 Manufacture of electrical and optical equipment 

DN.0.00 Manufacturing n.e.c. 

E .0.00 Electricity, gas and water supply 

F .0.00 Construction 

H .0.00 Hotels and restaurants (hospitality) 2 

I .0.00 Transport, storage and communication 

K .0.00 Real estate, renting and business activities 

O .0.00 

Other community, social and personal service 

activities 


3 


Cluster definition 

Previous studies on clusters did not mention in detail what 

term “cross-border cluster” implies. From a classical cluster 

definition by Michael Porter “Clusters are geographic 

concentrations of interconnected companies, specialised 

suppliers, service providers, firms in related 

industries, and associated organisations (such as universities, 

standard agencies, trade associations) in a 

particular field linked by commonalities and complementarities”. 

Expert Group concluded its own definition of cluster placing 

emphasis on cross-border aspect. 

Therefore, in the framework of EstRuCluster Development 

project expert services, cross-border cluster is “a geographically 

concentrated network of cooperating 

companies in the trans-border region in complimentary 

sectors and supporting institutions”. This definition 

is therefore will be used in this and subsequent documents 

to be produced by Expert Group. 

7


4 

4.1. KeY FInDIngs In IDa-vIrumaa 

According to the acquired data on the national and regional 

levels the most developed economic sectors in terms of 

general indicators in Ida-Virumaa until 2008 are: 

construction (ranging from companies involved in 

building constructions and civil engineering works 

to companies involved in installation and finishing 

works); 

transport (ranging from companies involved in logistics 

and warehousing); 

Statistical survey 

results 

tourism sector (is considered as quite important in 

terms of domestic tourism). 

wood sector (companies that involved in woodworking); 

metal sector (companies that involved in metalworking) 

chemical sector (although the number of companies 

is fairly small in Ida-Virumaa (12), this sector is very well 

developed and described in more depth in Documentary 

study); 

The following table summarises the results obtained in Ida-Virumaa from national and regional sources. 

SECTOR 

Total number 

of companies 

2007 

Number of 

emerged 

companies in 

2004-2007 

Predominant size 

of the company (%) 

Share of export 

from Ida-Virumaa 

to Russia 2007 (EUR) 

Table 1 

Share of import from 

Ida-Virumaa to Russia 

2007 (EUR) 

Construction 440 211 Small/micro (87%) 1 635 506 818 594 

Transport, storage and communication 312 128 Small/micro (85%) N/A N/A 

Hotels and restaurants 109 43 Small/micro (91%) N/A N/A 

Manufacture of basic metals and 

fabricated metal products 

90 43 Small/micro (90%) N/A N/A 

Other community, social and personal 

service activities 

80 44 Small/micro (80%) N/A 25 909 

Manufacture of wood and wood products 71 30 Small/micro (89%) 42 426 130 11 433 784 

Manufacture of textiles and textile 

products 

63 21 Small/micro (75%) 20 194 065 18 496 691 

Manufacturing n.e.c. 52 26 Small/micro (87%) 1 164 427 767 506 

Manufacture of machinery and equipment 

n.e.c. 

23 4 Small/micro (78%) 4 244 613 430 964 

Electricity, gas and water supply 23 6 Small/micro (57%) N/A N/A 

Manufacture of pulp, paper and paper 

products; publishing 

21 4 Small/micro (95%) 11 162 239 591 

Manufacture of electrical and optical 

equipment 

18 6 Small/micro (83%) 1 895 876 869 693 

Manufacture of rubber and plastic 

products 

15 6 Small/micro (67%) N/A N/A 

Manufacture of chemicals, chemical 

products and man-made fibers 

12 4 Small/micro (42%) 1 658 933 7 854 687 

Manufacture of leather and leather 

products 

6 0 Small/micro (67%) 1 705 869 1 349 001 



4 1 Medium (50%) 152 494 525 284 

Mining and quarrying of energy 

producing materials 

3 0 Large (67%) N/A 6 690 362 

8 


In terms of newborn companies, the most rapidly growing 

sector on national level is construction, as number of companies 

has increased more than twice since 2004. However, 

current decline in terms of work force and company 

number is evident in 2008. 

Number of companies manufacturing coke, refined petroleum 

products and nuclear fuel has also increased, however 

the total number of these companies is insignificant. 

Other sectors with a high number of newborn companies 

were transport, storage and communication sector, other 

community, social and personal service activities, hotels 

Sector Net sales in EUR (ths.) 

Transport, storage and communication 4 481 250 

Construction 3 552 153 

Real estate, renting and business activities 2 490 367 

Electricity, gas and water supply 1 198 644 

Manufacture of wood and wood products 1 135 463 

Manufacture of basic metals and fabricated metal products 850 989 

Manufacture of electrical and optical equipment 804 694 

Manufacturing n.e.c. 544 852 

Manufacture of textiles and textile products 468 826 

Manufacture of pulp, paper and paper products 452 885 

Hotels and restaurants 434 467 

Other community, social and personal service activities 433 767 

Manufacture of chemicals, chemical products and man-made fibres 422 557 

Manufacture of rubber and plastic products 339 052 

Manufacture of machinery and equipment n.e.c. 272 512 

Mining and quarrying of energy producing materials 208 790 

Manufacture of coke, refined petroleum products and nuclear fuel 90 009 

Manufacture of leather and leather products 30 247 

Total 18 211 523 

Graphical representation is proved below in figure 1. 

5000000 

4500000 

4000000 

3500000 

3000000 

2500000 

2000000 

1500000 

1000000 

500000 

0 

Transport, Transport, storage storage and 

communication 

and communication 

Construction 

Real estate, Real renting estate, renting and 

business and business activities 

Electricity, gas and water 

Electricity, gas and water supply 

Manufacture Manufacture of wood of wood and 

and wood wood products 

Manufacture of basic of basic metals 

and fabricated and fabricated metal metal products 

Manufacture Manufacture of electrical of electrical and 

optical and optical equipment 

Manufacturing n.e.c. 

Manufacture Manufacture of textiles of textiles and 

textile and textile products 

and restaurants, manufactures of basic metals and fabricated 

metal products, manufactures of wood and wood 

products and manufacturing n.e.c. 

The leading sectors in terms of net sales were transport, 

storage and communication, construction, real estate, 

renting and business activities, electricity, gas and water 

supply, manufacture of wood and wood products. These 

sectors altogether constituted over 10 milliards Euro of net 

sales in 2007. Graphical representation is provided below. 

Turnover data for all examined sectors3 is as following: 

3 Turnover figures per sector in Ida-Virumaa are unavailable; therefore, Expert Group concluded that national turnover figures would be used 

in order to identify regional most developed sectors.. 

Manufacture Manufacture of pulp, of pulp, paper 

and 

and 

paper 

paper 

products 

products 

Hotels Hotels and and restaurants 

Other community, Other community, social social and 

personal and personal service activities 

Manufacture of chemicals, of chemicals, chemical 

chemical products products and man-made and man- �bres 

made fibres 

Manufacture Manufacture of rubber of rubber and 

plastic and plastic products 

Manufacture Manufacture of machinery of machinery and 

equipment and equipment n.e.c. 

Mining and and quarrying quarrying of energy of 

energy producing materials 


Manufacture 

Manufacture 

of coke, 

of 

re�ned 

coke, 

petroleum 

refined 

petroleum products and 

products and nuclear nuclear fuel 

Manufacture 

Manufacture 

of leather 

of leather 

and 

leather products 

and leather products 

Table 2 

Fig.1 

9


In order to distinguish concentrated sector groupings in Ida-Virumaa, comparison on national scale must be done. This 

analysis aims to identify concentration ratio of Estonian sectors that are highly represented in Ida-Virumaa. The following 

table #3 reveals these concentration ratios. 

Sector 

Number of 

companies in Estonia 

Number of 

companies in Ida- 

Virumaa 

Table 3 

Concentration ratio 

in Ida-Virumaa (%) 

Manufacture of coke, refined petroleum products and nuclear fuel 13 4 30,7 

Manufacture of chemicals, chemical products and man-made fibres 108 12 11,1 

Manufacture of textiles and textile products 702 63 8,9 

Manufacture of basic metals and fabricated metal products 1045 90 8,6 

Manufacture of leather and leather products 71 6 8,4 

Electricity, gas and water supply 281 23 8,1 


Manufacture of machinery and equipment n.e.c. 331 23 6,9 

Manufacture of rubber and plastic products 223 15 6,7 

Mining and quarrying of energy producing materials 45 3 6,6 

Manufacturing n.e.c. 784 52 6,6 

Manufacture of wood and wood products 1210 71 5,8 

Construction 7574 440 5,8 

Hotels and restaurants 1946 109 5,6 

Manufacture of electrical and optical equipment 407 18 4,4 

Other community, social and personal service activities 2065 80 3,8 

Manufacture of pulp, paper and paper products 701 21 2,9 

Real estate, renting and business activities 18180 501 2,7 

Number of companies 21353 620 4,5 

Below is the graphical representation of the concentration ratios. 

35 

30 

25 

20 

15 

10 

5 

0 

10 

Производство кокса, 

Manufacture рафинированных of coke, нефтепродуктов refined 

petroleum products and и ядерного nuclear топлива fuel 

Manufacture of chemicals, Производство химикатов, 

химических chemical продуктов 

products and и искусственных man-made fibres волокон 

Manufacture of textiles Производство текстиля 

и текстильных 

and textile 

изделий 

products 

Производство основных 

Manufacture of basic металлов metals и продуктов and 

fabricated metal металлообработки 

products 

Manufacture of leather Производство and leather кожи 

и изделий products из кожи 

Electricity, gas and water Электро-, supply газои 

водоснабжение 

Transport, Транспорт, storage логистика and 

communication 

и коммуникации 

Manufacture of Производство machinery and машин 

и оборудования equipment (прочее) n.e.c. 

Manufacture of rubber Производство and plastic изделий 

из резины products и пластика 

Mining and quarrying Горная промышленность 

of energy 

и добыча энергосырья 


© Narva Business Advisory Services Foundation, St. Petersburg Information and Analytical Center, Synergy International Ltd. 2008 

Manufacturing Производство (прочее) n.e.c. 

Manufacture Производство of wood and древесины wood 

и продуктов деревообработки 

products 

Construction 

Строительство 

Hotels Гостиницы and restaurants и рестораны 

Manufacture Производство of electrical электротехнического 

and optical 

и оптического equipment 

оборудования 

Other Другая community, деятельность social по оказанию and 

социальных personal и индивидуальных service activities услуг 

Manufacture Производство of pulp, paper целлюлозы, and 

бумаги и paper продуктов products из бумаги 

Недвижимость, аренда 

Real estate, renting и деловая and деятельность business 

activities 

Fig.2

In terms of labour force the following table revealing concentration ratio of Estonian employees in Ida-Virumaa. 

Sector 

Number 

of employees 

in Estonia 2007 

Number of employees 

in Ida-Virumaa 


in Ida-Virumaa (%) 

Manufacture of coke, refined petroleum products and nuclear fuel 800 800 100 

Mining and quarrying of energy producing materials 5700 3700 65 

Manufacture of chemicals, chemical products and man-made fibers 2600 1600 62 

Electricity, gas and water supply 11400 5200 46 

Manufacture of textiles and textile products 21000 5500 26 

Manufacture of basic metals and fabricated metal products 15400 3300 21 

Manufacture of leather and leather products 2300 300 13 

Manufacture of machinery and equipment n.e.c. 3700 900 24 

Manufacturing n.e.c. 13000 2100 16 

Other community, social and personal service activities 27600 3100 11 

Construction 51200 4400 9 

Real estate, renting and business activities 39900 3800 10 


Hotels and restaurants 19800 1500 8 

Manufacture of wood and wood products 20200 1200 6 

Manufacture of electrical and optical equipment 11700 700 6 

Manufacture of rubber and plastic products 4100 300 7 

Manufacture of pulp, paper and paper products 7400 200 3 

Total number of employees 310300 43100 13,8% 

According to the presented data, the largest share of labour force concentrated in Ida-Virumaa in the following sectors: manufacture 

of coke, refined petroleum products and nuclear fuel, mining and quarrying of energy producing materials, manufacture 

of chemicals, chemical products and man-made fibers, electricity, gas and water supply, manufacture of textiles and textile 

products and also manufacture of basic metals and fabricated metal products. 

As statistical data indicated almost 100% of all employees from manufacture of coke, refined petroleum products and nuclear fuel 

industry are working in Ida-Virumaa 

Graphical representation is proved in figure 3 below. 

120 

100 

80 

60 

40 

20 

0 

Производство кокса, рафинированных 

нефтепродуктов Manufacture и ядерного of coke, топлива refined 

petroleum products and nuclear fuel 

Mining and Горная quarrying промышленность of energy 



Производство химикатов, химических 

Manufacture продуктов и of искусственных chemicals, chemical волокон 

products and man-made fibers 

Электро-, газо- и водоснабжение 


Manufacture Производство of textiles and текстиля textile 

и текстильных изделий 

products 

Manufacture Производство of machinery машин and 


Manufacture Производство основных металлов 

и продуктов of металлообработки 

basic metals and 

fabricated metal products 

Производство Manufacturing (прочее) n.e.c. 

Manufacture Производство кожи of leather и изделий and из leather кожи 

products 

Другая деятельность по 

Social 

оказанию 

and personal 

общественных, социальных 

и индивидуальных service activities услуг 

Real estate, Недвижимость, аренда 

и renting деловая and деятельность business 

activities 


Construction 

Транспорт, логистика Transport, и коммуникации 

storage and 

communication 

Гостиницы и рестораны 

Hotels and restaurants 

Производство изделий 

Manufacture of из rubber резины and и пластика plastic 

products 


Производство древесины 

Manufacture и продуктов of wood деревообработки and wood 

products 

Manufacture Производство of electrical электротехнического and optical 

и оптического оборудования 

equipment 

Table 4 

Fig.3 

Manufacture Производство of pulp, целлюлозы, paper and 

бумаги и продуктов из бумаги 

paper- products 

11


The mapping 4 fi gure provided below reveals that the most developed sectors in Ida-Virumaa in terms of number of companies, 

number of employees and net sales (turnover) are transport (incl. logistics and transit) and construction sectors. 

Second group of mature sectors in Ida-Virumaa are: textile, metalworking, hotels and restaurants (incl. tourism), social 

and personal services and woodworking. Expert group assumes that social and personal services, hotels, and restaurants 

could be further considered as tourism sector as such. 

-2 

35 

30 

25 

20 

15 

10 

5 

DH DK 

DF 

H 

DN 

O 

CA 

DB 

0 DC 

0 2 4 6 8 10 12 14 16 18 

-5 

40 

35 

30 

25 

20 

15 

10 

5 

0 

-5 

DE 

DH 

DE 

DN 

DD 

DL 

DL 

DG 

H 

O 

I 

DD 

F 

DJ 

DB 

DK DC 

E 

-20 0 20 40 60 80 100 120 

DJ 

The following potential cluster mapping takes into consideration those sectors that are concentrated in Ida-Virumaa from 

national perspective. The mapping is represented in the fi gure below. 

Precluster sector maturity mapping in Ida-Virumaa 

4 Y-axis represents number of companies in Ida-Virumaa, X-axis represents number of employees in Ida-Virumaa, 

the diameter of the “bubbles” represents turnover in Estonia. 

12 

Number of companies (%) 


I 

F 

Number of employees (%) 


CA 


E 

DF 

CA 

DB 

DC 

DD 

DE 

DF 

DG 

DH 

DJ 

DK 

DL 

DN 

E 

F 

H 

I 

O 

CA 

DB 

DC 

DD 

DE 

DF 

DG 

DH 

DJ 

DK 

DL 

DN 

E 

F 

H 

I 

O 

Fig.4 

Fig.5

To conclude, Expert Group have identifi ed following company groupings that may have a tendency to further develop 

into clusters: 

Manufacture of coke, refi ned petroleum products and nuclear fuel 

Mining and quarrying of energy producing materials 

Manufacture of textiles and textile products 


Manufacture of basic metals and fabricated metal products 

Manufacture of machinery and equipment n.e.c. 

Manufacture of chemicals, chemical products and man-made fi bers 

Transport, storage and communication 

Construction 


Hotels and restaurants (the following sector will be later referred to as hospitality sector) 


The pure statistical evaluation of concentrated sectors in Ida-Virumaa will be compared with Leningrad region and will be 

validated together with Documentary survey and key persons’ interviews analysis. 

13


4.2. KeY FInDIngs In lenIngraD regIon 

According to the acquired data on the sub-national and regional levels the most developed economic sectors in Leningrad 

region until 2008 are: 

The following table summarises the results obtained in Leningrad region: 

Sector 


(traditionally developed sector with engineering 

and scientifi c background); 


metal products (as a supplier for a wide range of 

industries); 


and man-made fi bers (rather mature and diversifi 

ed sector); 

Total number of 

companies 2007 

Average trade 

turnover 

2005-2007 

Average number of 

employees per sector 

2004-2007 

Table 5 

Joint Russian- 

Estonian ventures 

by sector in 

Leningrad region, 

2006 

Transport, storage and communication n/a 547 854 124,10** 526 763 25 

Real estate, renting and business activities 94317* 269 445 033,30** 509 681 25 

Construction 48 053* 391 972 705,30** 351 433 9 

Manufacture of machinery and equipment n.e.c. 2 364 66 222 372,79 281 079 - 

Other community, social and personal service 

activities 

42 523* 53 848 547,70** 202 203 3 

Electricity, gas and water supply 4 791 215 363 436,73 200 564 - 

Manufacture of basic metals and fabricated metal 

products 

505 186 738 603,40 115 718 2 

Hotels and restaurants 14 364* 31 783 367,23** 90 210 - 

Manufacture of wood and wood products 2 529 54 777 047,15 77 752 11 

Manufacture of textiles and textile products 1 569 12 461 468,86 44 764 2 

Mining and quarrying of energy producing materials 316 115 209 098,10 43 586 2 

Manufacturing n.e.c. 2 583 34 918 748,73 42 174 4 

Manufacture of chemicals, chemical products and 

man-made fi bres 

835 77 471 297,14 40 883 1 

Manufacture of rubber and plastic products 862 18 012 797,76 16 628 4 

Manufacture of coke, refi ned petroleum products 

and nuclear fuel 

Transport, storage and communication (the 

most attractive for the development of Russian- 

Estonian companies in the region); 

Construction (the most dynamic and large-scale 

sector); 


(sector with the experience of joint venturing). 

108 38 501 455,92 8 700 - 

Manufacture of leather and leather products 199 1 303 124,47 6 988 - 

Manufacture of pulp, paper and paper products; 

publishing and printing 

2837 111 141 390,10 80 616 3 

Manufacture of electrical and optical equipment 2309 10 463 817,20 108 667 3 

14 

* Data of 2006. 

** Data of 2007. 


According to the statistics, North-west Federal District of Russia has a well-diversifi ed industrial structure with a stable 

growth. The greatest activity is observed in service sectors, especially in construction industry (by all four basic criteria), 

transportation and storage services and business activities. All that should provide proper networking opportunities 

for trans-border clustering, especially in case of rather long distances between cooperating companies. 

On the other hand, production industries are also increasing their scale in the region, especially: metalworking, manufacture 

of wood products in general and pulp and paper industry. These sectors are very perspective for clustering, 

because they provide lots of opportunities for common related and supporting chains of cooperation. 

Concerning the rate of growth of the employment during last four years: it shows stability, except diff erent types of 

manufacturing, where the number of employees signifi cantly increased, and textile industry with great reduction of 

work force. There may be diff erent reasons for such decrease: more sophisticated equipment, which needs less people, 

or the pressure of cheap imports. The Expert Group assumes, that mostly it is the second reason, so, there is an 

opportunity to co-operate with foreign (Estonian) textile sector also because Estonian products are well accepted in 

the Russian North-west. 

In terms of export and import activities, the following fi gure provides the most prominent sectors in trade relations 

between Russia and Ida-Virumaa. 

e x P o r t : 

Construction – 17,93% 

Textile – 7,27% 

Woodworking – 4,29% 

Electronics – 4,22% 

RUSSIA 

IDA-VIRUMAA 

Estonian companies have the experience of doing business 

in the region and the number of joint ventures is increasing. 

Mostly Russian-Estonian companies are involved in the Transport, 

storage and communication sector (Expert Group may 

assume that logistic companies and sea ports are included 

into this category). Besides, Manufacture of wood and wood 

products and Construction sector are also the most attractive 

for Estonian business in the Russian North-west. 


Fig.6 

I m P o r t : 

Woodworking – 18,36% 

Manufacture of coke – 11,29% 

Mining and quarrying – 10,66% 

Textile – 9,77% 

15


The mapping provided below reveals that the most developed sectors in Leningrad region in terms of number of companies, 

number of employees and annual net sales (turnover) are: construction (F) and transportation, storage and 

communication (I): they provide the balance between number of companies on the market and great employment 

together with signifi cant turnovers. 

The sector of electricity, gas and water supply (E) follows the leaders but, having very similar fi gure of the turnover, lags 

behind by the number of companies and people employed. 

Sector of machinery and equipment manufacturing (DK), despite its modest fi gures of employment and number of 

companies, provides the greatest turnover, which is even more important. 

Sector of manufacture of pulp, paper and paper products, publishing and printing (DE) also show results, strong 

enough for future clustering. Besides it provides opportunities for building up various chains of cooperation. 

16 

Number of companies from total (%) 

40 

35 

30 

25 

20 

15 

10 

5 

0 

-5 

-10 

DH 

DN 

CA 

DK 

H 

K 

DL 

DF DG 

Pre-cluster sector maturity mapping in Leningrad region 

(size of «buubles» = % od sales from total turniver by sector) 

DJ 

DE 

O 

0 2 4 6 8 10 12 14 16 18 20 

Number of employees from total (%) 


E 

DD 

I 

F 

CA 

DB 

DC 

DD 

DE 

DF 

DG 

DH 

DJ 

DK 

DL 

DN 

E 

F 

H 

I 

K 

O 

Fig. 7

In order to makethe choice of concentrated sector groupings in Leningrad region more precise, comparison with sub-national 

level should be done. This analysis aims to identify sectors of the North-west of Russia, which are highly represented 

in Leningrad region. The following table provides a comparison in terms of number of companies. 

Sector 

Number of 

companies in the 

North-west. 

2007 

Number of 

companies 

in Leningrad 

region. 2007 

Table 6 

Concentration 

ratio in Leningrad 

region 

Manufacture of wood and wood products 2529 549 21,71 

Manufacture of coke, refi ned petroleum products and nuclear fuel 108 21 19,44 

Manufacture of chemicals, chemical products and man-made fi bres 835 151 18,08 

Manufacture of rubber and plastic products 862 113 13,11 

Manufacture of basic metals and fabricated metal products 2505 295 11,78 

Manufacture of textiles and textile products 1569 178 11,34 

Mining and quarrying of energy producing materials 316 35 11,08 

Electricity, gas and water supply 4791 464 9,68 

Manufacture of machinery and equipment n.e.c. 2364 204 8,63 

Manufacture of leather and leather products 199 16 8,04 

Manufacturing n.e.c. 2583 200 7,74 

Manufacture of electrical and optical equipment 2309 159 6,89 

Manufacture of pulp, paper and paper products; publishing and printing 2837 170 5,99 

Construction n/a 3649 n/a 

Hotels and restaurants n/a 1075 n/a 

Transport, storage and communication n/a 2548 n/a 

Real estate, renting and business activities n/a 7360 n/a 

Other community, social and personal service activities n/a 3597 n/a 

As it is evident from the table, Leningrad region is one of the most industrialized in the whole North-west. Average concentration 

ratio for Leningrad region is rather signifi cant (app. 10 % of all number of companies of the North-west Federal 

District are located in Leningrad region). 

Concerning industries of the North-west, the most concentrated sectors in Leningrad region are: manufacture of wood 

and wood products, manufacture of coke, refi ned petroleum products and nuclear fuel, manufacture of chemicals, chemical 

products and man-made fi bres, manufacture of rubber and plastic products and metalworking. Unfortunately, offi cial 

statistics on services in the North west lacks, though Expert Group may assume signifi cant concentration of such companies 

in Leningrad region. 

25 

20 

15 

10 

5 

0 

Manufacture of Производство wood and древесины wood 

и продуктов деревообработки products 

Manufacture of coke, refi ned 

Производство кокса, рафинированных 

petroleum products and 

нефтепродуктов и ядерного топлива 

nuclear fuel 

Manufacture of chemicals, 

Производство химикатов, химических 

chemical products and man- 

продуктов и искусственных 

made 

волокон 

fi bres 

Manufacture Производство of rubber изделий and 

plastic из резины products и пластика 

Manufacture Производство of basic основных metals металлов and 

fabricated и продуктов metal металлообработки products 

Manufacture Производство of textiles текстиля and 

и textile текстильных products изделий 


Горная промышленность 



Electricity, Электро-, gas and газо- water и водоснабжение supply 

Manufacture of Производство machinery машин and 


Manufacture Производство of leather and кожи 

leather и изделий products из кожи 

Производство (прочее) 

Manufacturing n.e.c. 


Manufacture Производство of электротехнического 

electrical and 

и оптического optical equipment 


Manufacture Производство of pulp, целлюлозы, paper бумаги and 

paper и продуктов products; из бумаги; publishing издательские and 

и типографские printing услуги 

Fig.8 

17


In terms of labour force, the following comparison with sub-national level has been made in order to elaborate concentration 

ratio. 

Sector 

Number of 

employees in the 

North-west. 

2007 

Number of 

employees in 

Leningrad region. 

2007 

Table 7 


in Leningrad 

region, % 

Manufacture of coke, refined petroleum products and nuclear fuel 9 289 5 569 59,95 

Manufacture of chemicals, chemical products and man-made fibres 40 973 9 686 23,64 

Manufacture of rubber and plastic products 17 087 3 695 21,62 

Electricity, gas and water supply 194 120 30 204 15,56 

Manufacture of pulp, paper and paper products; publishing and printing 81 282 12 581 15,48 

Manufacture of leather and leather products 6 658 907 13,62 

Construction 354 253 43 514 12,28 

Manufacture of textiles and textile products 36 170 4 281 11,84 

Manufacture of wood and wood products 72 851 8 266 11,35 

Manufacture of basic metals and fabricated metal products 112 881 12 302 10,90 

Other community, social and personal service activities 204 428 18 877 9,23 

Manufacturing n.e.c. 46 461 3 809 8,20 

Transport, storage and communication 515 363 41 465 8,05 

Manufacture of machinery and equipment n.e.c. 437 678 34 142 7,80 

Real estate, renting and business activities 517 591 37 791 7,30 

Hotels and restaurants 107 758 7 379 6,85 

Manufacture of electrical and optical equipment 106 563 5 268 4,94 

Mining and quarrying of energy producing materials 42 258 1 512 3,58 

Total: 2 903 664 281 248 9,69 

As it is evident from the table, Leningrad region is one of the most populated and industrialized in the whole North-west. 

Average concentration ratio of labour force for Leningrad region is rather significant (app. 10 % of all number of companies 

of the North-west Federal District are located in Leningrad region). 

Industrial sectors of the North-west Federal District of Russia with the highest representation of labor force in Leningrad 

region are: manufacture of coke, refined petroleum products and nuclear fuel, manufacture of chemicals, chemical products 

and man-made fibres, manufacture of rubber and plastic products, electricity, gas and water supply and manufacture 

of pulp, paper and paper products. The graphical representation is provided in figure 9. 

60 

50 

40 

30 

20 

10 

0 

18 

Manufacture Производство of coke, кокса, refined рафинированных petroleum 

нефтепродуктов products и and ядерного nuclear топлива fuel 

Manufacture Производство of chemicals, химикатов, химических chemical 

products продуктов и and искусственных man-made волокон fibres 

Manufacture Производство of rubber изделий and 

из резины plastic и products пластика 

Electricity, Электро-, gas газо- and и водоснабжение 

water supply 

Manufacture 

Производство 

of pulp, paper 

целлюлозы, 

and 

бумаги 

paper 

products; и продуктов publishing из бумаги; and издательские printing 

и типографские услуги 

Manufacture Производство of leather кожи and 

leather и изделий products из кожи 

Construction 


Manufacture Производство of textiles текстиля and 

и текстильных textile products изделий 

Manufacture Производство of wood древесины and 

и продуктов деревообработки 

wood products 

Manufacture Производство of основных basic metals металлов and 

и 

fabricated 

продуктов металлообработки 

metal products 


Other community, social Другая and деятельность personal 

по оказанию service общественных activities 

и персональных услуг 


Транспорт, логистика 



Manufacture Производство of machinery машин and 


Недвижимость, Real estate, renting аренда 

and и деловая business деятельность activities 

Hotels Гостиницы and и restaurants 

рестораны 

Manufacture Производство of electrical электротехнического and optical 

и оптического оборудования equipment 

Fig. 9 

Mining and Горная quarrying промышленность of energy 

producing и добыча энергосырья materials

At the same time, it is important to determine, what part of annual trade turnover of companies in the North-west is 

generated in Leningrad region. These data are shown in the neat table. 

Sector 

Annual trade turnovers 

in the North-west. 

2007, ths. RUB 

Annual trade turnovers in 

Leningrad region. 2007, 

ths. RUB 

Concentration ratio in 

Leningrad region, % 

Manufacture of coke, refined petroleum products and 

nuclear fuel 

63 181 506,96 24 917 698,48 39,44 

Manufacture of rubber and plastic products 26 220 740,44 8 799 631,44 33,56 

Manufacture of chemicals, chemical products and manmade 

fibres 

79 576 730,56 19 523 101,68 24,53 

Manufacture of pulp, paper and paper products; publishing 

and printing 

132 120 815,20 29 827 556,99 22,58 

Electricity, gas and water supply 240 467 331,70 45 147 582,24 18,77 

Construction 391 972 705,30 53 602 625,55 13,68 

Transport, storage and communication 547 854 124,10 66 580 497,2 12,15 

Manufacturing n.e.c. 41 323 677,86 4 493 680,54 10,87 

Manufacture of machinery and equipment n.e.c. 81 278 672,30 7 870 465,04 9,68 

Manufacture of wood and wood products 72 532 271,34 6 987 730,72 9,63 

Manufacture of textiles and textile products 13 931 622,04 991 166,81 7,11 

Real estate, renting and business activities 269 445 033,30 17 295 946,26 6,42 

Hotels and restaurants 31 783 367,23 1 331 548,96 4,19 

Manufacture of basic metals and fabricated metal products 370 200 219,9 15 020 979,09 4,06 

Other community, social and personal service activities 53 848 547,70 2 056 186,97 3,82 

Manufacture of leather and leather products 1 228 284,01 32 711,81 2,66 

Manufacture of electrical and optical equipment 128 174 180,60 2 467 039,52 1,92 

Mining and quarrying of energy producing materials 188 008 455,20 57 511,00 0,03 

Average share of sales provided by the companies of Leningrad region in the whole North-west is 12,5%. Sales of companies 

from the whole North-west, concentrated in Leningrad region, mostly come from: manufacture of coke, refined 

petroleum products and nuclear fuel, manufacture of rubber and plastic products, manufacture of chemicals, chemical 

products and man-made fibres, manufacture of pulp, paper and paper products; publishing and printing, Electricity, gas 

and water supply and construction. The graphical representation is provided in figure 10. 

40 

35 

30 

25 

20 

15 

10 

5 

0 

Производство кокса, 

Manufacture of coke, рафинированных refined petroleum нефте- 

products продуктов and и ядерного nuclear топлива fuel 

Производство изделий 

Manufacture of rubber and plastic products 

из резины и пластика 

Производство химикатов, 


химических продуктов 

and man-made fibres 

и искусственных волокон 

Производство целлюлозы, бумаги 


products; 

и продуктов 

publishing 

из бумаги; 

and printing 

издательские 

и типографские услуги 

Electricity, Электро-, gas газо- and и water водоснабжение supply 

Construction 


Транспорт, логистика 




Manufacture of machinery Производство and equipment машин 

и оборудования (прочее) n.e.c. 

Производство древесины 

Manufacture of wood и продуктов and wood деревообработки products 

Manufacture of textiles and Производство textile products текстиля 

и текстильных изделий 

Недвижимость, аренда 

Real estate, renting and business activities 

и деловая деятельность 

Hotels Гостиницы and restaurants 

и рестораны 

Manufacture of basic 

Производство 

metals 

основных 

and fabricated 

металлов 

и продуктов metal металлообработки products 

Other community, Другая social деятельность and personal по service оказанию 

общественных и личных activities услуг 


Производство кожи 

Manufacture of leather and leather 

и изделий 

products 

из кожи 

Manufacture of electrical Производство and optical электротехнического 

equipment 

и оптического 


Table 8 

Fig.10 

Mining and quarrying of Горная energy промышленность 

producing 

и добыча энергосырья materials 

19


The following potential cluster mapping takes into consideration those sectors that are concentrated in Leningrad region 

from the perspective of the North-west Federal District of Russia. The mapping figure is provided below. 


30 

25 

20 

15 

10 

5 

0 

-5 

0 

DK 

DL 

CA 

DN 

DD 

DJ 

DB 

DH 

E 

DG 

10 20 30 40 50 60 70 

Overall, taking into account the following set of factors: 

chosen list of industries 

concentration of labor and capital resources, necessary 

for further cluster formation 

growing economic activity in the sectors 

Estonian orientation of trade and investment activities 

in the sector 

To conclude, Expert Group has identified following company 

groupings on the regional (Leningrad region) scale 

that may have a tendency to further develop into clusters: 

20 



Manufacture of rubber and plastic products 


products 



metal products 


n.e.c. 

Table 9 


and man-made fibers 


Construction 



saInt PetersBurg metroPolIs 

DF 

DF 

DG 

DH 

E 

DB 

DD 

DJ 

DN 

DK 

DL 

CA 

Fig.11 

Saint Petersburg keeps the role of industrial centre with 

concentrated industries, mainly: manufacture of pulp, paper 

and paper products; publishing and printing, manufacture 

of electrical and optical equipment (including scientific 

institutions and construction bureaus), manufacture of 

basic metals and fabricated metal products. 

Manufacture of electrical and optical equipment, as one of 

the most innovative industries with high value added, has 

the highest turnover. Also profitable are: electricity, gas and 

water supply (as a “common utility” producer) and production 

of basic metals and fabricated metal products. 

Besides, the figures for these sectors are increasing 

(2006-2007) 

Number of employees may prove another strong side of 

Saint Petersburg, its service-oriented economy. The first 

positions have real estate, renting and business activities, 

transport, storage and communication, and construction. 

Electrical equipment is strong but decreasing, metal and 

paper are strong and increase the employment. 


5.1. KeY FInDIngs In IDa-vIrumaa 

5 

The current Estonian policy is mainly based on horizontal 

measures, related to entrepreneurship, export promotion, 

innovation and R&D support, foreign direct investments 

and access to capital. Future development of state measures 

partly is planned to be realised through the cluster approach, 

as previously revealed by the Estonian R&D Strategy 

“Knowledge-based Estonia” (2002-2006). One of the 

instruments that can apply here is the creation of so-called 

Competence Centres. Sectoral studies have been conducted, 

which have shown that the ties between the enterprises 

within the clusters, as well as the enterprises’ ties with 

research institutions, are weak, using the argument that Estonia’s 

case concerns operation within international (North 

European) rather than domestic clusters and therefore the 

policy of supporting the clusters cannot be efficient. Most 

of the EU studies consider Estonia quite undeveloped in 

terms of clustering activities. The emergence and development 

of clusters that would create competitive advantages 

has been restrained by the lack of a critical mass of strong 

enterprises acting in one sector, which amplified the need 

for Estonian enterprises to find and develop cooperation 

with enterprises outside Estonia. 

During this structural assistance period, 2007-2013 entrepreneurship 

is among supported fields. Key goal is to introduce 

the cluster-based approach in less knowledge and 

technology-intense sectors and traditional branches of 

the economy. For raising the innovation capacity in traditional 

economic sectors and building critical mass through 

enterprise cooperation (incl. with R&D institutions), it will 

be important to implement cluster specific approach. The 

development of cooperation networks joining enterprises, 

R&D institutions and local municipalities will be supported. 

In the clusters that have been activated by the “bottom 

up” approach, inter-enterprise cooperation in the fields of 

training, product development and export marketing will 

be supported. 

Support measures to the cluster-specific needs will be ensured, 

such as cooperation between enterprises in the foreign 

market participation will be supported sharing of orders, 

formation of export consortiums and joint marketing. 

Documentary 

Survey results 


Estonia has now several good opportunities to improve its 

innovation capacity: 

The development of a new R&D Strategy for 2007 -2013 

and the new round of Structural Funds; 

The ongoing development and launching of new innovation 

support schemes targeting the existing company 

base and its needs to become more competitive; 

The launching of a State venture capital fund in 2005 

and the increased financial support for national R&D 

infrastructures. 

The development of Estonian innovation policy is mainly 

obstructed by two factors: Insufficient awareness of the 

need for an innovation policy among politicians, different 

understanding of innovation policy among various ministries 

and the lack of resources. 

In 2008 Estonia Ministry of Economics & Communication 

as a responsible body for implementation Operational Programme 

for Development of Economic Environment proposed 

that grants for development of innovative clusters 

under Capability of innovation and growth of business priority 

would be made available in October 2008, as Regulation 

of the measure will enter into force. Total amount of 

100 million EEK (6,3 million EUR) for 2008-2013 will be allocated 

towards cluster initiatives in Estonia. 

Documentary survey revealed that the largest economic 

spheres in Ida-Virumaa regions are: shale oil refining, electricity 

and heating power production, chemical industry, 

trade, construction and building of materials, woodworking, 

metalworking, food processing, tourism. The backbone 

of Ida-Virumaa industry is formed with oil shale production 

and power engineering complex, internationally competitive 

production, as well as development service sectors: logistics 

and tourism. The most essential strategic priorities for 

economic development in North-East Estonia according to 

Ida-Virumaa County Development Plan (2005-2013) are: 

Power production, • Power production – in addition to 

generating power based on local raw material - oil-shale, 

it is also one of the most rapidly developing regions in 

Estonia using wind energy for power production; 

21


Strengthening of processing industry – including metal 

processing, chemical industry, production of building 

materials, manufacturing pulp; 

Development of transport and logistic systems for supporting 

enhancement of transit and local industry; 

Enhancement of tourism. 

A special natural characteristic trait of Ida-Virumaa is the 

availability of oil shale, which is used as raw material in power 

stations, chemical industries and in enterprises manufacturing 

building materials. However, environmental impact 

of oil shale industry is considered as quite signifi cant, as the 

oil shale-fi red power plants, which provide the atmospheric 

emissions of gaseous products, cause main air pollution. 

Metal processing has started to develop to support and 

enrich the mentioned big branches of industry. In December 

2007, there were more than 70 actively functioning 

metal processing enterprises; their volume of investments 

and number of people employed is one of the biggest in 

the entire region. These are mostly enterprises involved in 

export, which invest considerably in development activities 

and elaboration of new products. 

Wide forested areas have allowed for developing pulp industry 

and the seacoast has been a favourite spot for tourists 

and holidaymakers for centuries. 

The most promising economic sectors of the region according 

to regional authorities are: 

Chemical industry, 

Textile, 

Construction and processing industry, 

Metalworking, 

Hospitality. 

Now no clusters are formally functioning in Ida-Virumaa. 

However, six industrial (manufacturing) parks (Narva, Sillamäe, 

Kohtla-Järve, Jõhvi, Püssi and Kiviõli) can be identifi 

ed in the region. 

Cluster approach as a way of developing competitive network 

of companies could well be used as way of funding 

attainment. Transit and logistics sector currently experienc- 

22 

ing diffi culties due to the political tensions between Estonia 

and Russia. Expert Group agreed that the main challenge 

is to convince any potential cluster member company 

and regional stakeholders that increased productivity and 

competitiveness both of companies and the region can be 

streamlined and increased through cluster networking. 

Overall, Documentary survey revealed that the following 

company groupings that may have a tendency to further 

develop into clusters in Ida-Virumaa are: 




products and man-made fi bers 

Hospitality 

Transport and communication 

Woodworking 

Metalworking 

5.2. KeY FInDIngs In lenIngraD regIon 

Table 10 

For several years, Russian Government is paying a great 

attention to cluster initiatives as the main engine of international 

competitive advantage of the Russian Federation. 

Therefore, cluster concepts are incorporated into offi cial 

documents, i.e. legislation and documents that are more 

informal. Cluster concept was elaborated in Russia due 

to recent Potential Competitiveness of Russian industries 

study by Michael Porter in 2006. 

In 2007 the Ministry for Economic Development of the Russian 

Federation has worked out the project of the Concept 

of Cluster Policy in Russia and plan of its implementation. Its 

realization should stimulate innovations, foreign direct investments 

and economic growth of regions of potential clusters. 

Concept of Cluster Policy consists of three main blocks: 

Institutional assistance in cluster 

development, 

Measures for competitiveness of cluster participants 

Formation of favourable conditions for cluster development 


One of the main engines of clusters formation has become 

the concept of Special Economic Zones. Cluster initiatives 

in Saint Petersburg are implemented in the open dialogue 

of authorities, scientifi c circles and business structures: 

such cooperation may be described as a triple helix. In January 

2008, Saint Petersburg Government has adopted the 

Complex Program of Activities for Realization of Innovative 

Policy in 2008-2011, consisting of two blocs, both of which 

include direct and indirect cluster activities. Cluster policy 

of Saint Petersburg includes: 

Planning activities of SPb cluster policy realization, 

Assistance in development of pilot innovative cluster 

Research activities for pointing out industrial and interindustrial 

groups, complementary small enterprises of 

SPb in prioritized sectors of with export potential or 

potential of import-substitution (in the framework of 

cluster policy development). 

Saint Petersburg as an industrial centre, “engine” for cluster 

building, the following sectors are to be mentioned: 

Wood-processing industry, 

Shipbuilding (such historical large-scale plants, as: “Baltic 

Plant”, “Admiralty Dockyards”, now forming Joint 

Shipbuilding Corp., partly owned by the state) 

Instrument-manufacturing 

Defense engineering with traditional high-level scientifi 

c school 

Energy engineering (“Electrosila”, turbine plant) 

Food industry (joint ventures) 

In general, app. 480 000 employees are working in manufacturing. 

In case of Russian-Estonian, cluster initiative Saint Petersburg 

should become the centre of information and new 

knowledge production. Saint Petersburg is one of the Russian’s 

main information technology centres, playing a signifi 

cant role in the world’s ITC exports. Certain domains of 

specialization in the IT sector can be identifi ed as follows: 

navigation, speech recognition, translation and educational 

software. Summarizing advantages of Saint Petersburg 

as a centre for trans-border clustering, it is important to put 

an accent on diversifi ed structure of production, innovative 

potential and role of a transportation hub. 

According to the offi cial sources, currently, attracting investment 

in the production sector is one of the most important 

tasks of the social and economic development of 

the Leningrad Region. The Baltic Pipeline System implies 

building a new Russian crude oil transhipment terminal 

near the city of Primorsk (Vyborg district) – one of the most 

perspective projects in the whole of the Russian Federation. 

( The structure of gross value added of the Leningrad region 

is rather mature: industrial output makes 1/3. In the structure 

of production, prevail: food industry, including tobacco 

and beverages, pulp & paper, means of transportation, oil 

products and chemical products. Total share of these types 

of production made in 2007.4 % of the completely industrial 

output. Additional investments are also planned for the construction 

materials industry engineering and metal processing 

and the light and metallurgy sector. 

In practice, Saint Petersburg city Administration announced 

a tender among diff erent scale companies for a pilot cluster 

creation. Recently two main branches of cluster development 

are of great attention of the municipals: automobile 

industry and electronics. 

Overall, Documentary survey revealed that the following 

company groupings that may have a tendency to further 

develop into clusters in Ida-Virumaa are: 


products; publishing and printing 

Construction 

Woodworking 



Table 11 


n.e.c. 

Transport and communication 

Hospitality 


23


6 

Delivery of Key persons’ interviews was made in Russian 

and Estonian partner regions respectfully. 2 specifi c questionnaires 

were developed and delivery of 82 interviews 

was made. 39 interviews were conducted in Estonia and 

43 interviews in Russia. Prior to that list of potential stakeholders’ 

was identifi ed in order to establish a short list of to 

be interviewed key persons. 

The main purposes of the interviews were to obtain information 

and were designed primarily to elicit the interviewee’s 

reactions and suggestions. The goal is to learn about 

the person’s views and vision concerning potential crossborder 

clusters identifi cation. 

Key persons were interviewed included representatives and 

heads of Estonian ministries, Ida-Virumaa and Leningrad region 

town governments and St. Petersburg, Ida-Virumaa 

County Government, Ida-Virumaa town council members, 

Chambers of Commerce and Industry, Enterprise Estonia, 

Institute of Economics and Management, Industrial Parks, 

Confederation of Estonian trade unions, banks and other 

organizations. 

The interviews focused on local national economic strategies, 

existing business networks, cluster support measures, 

potential cluster identifi cation from existing sectors, cluster 

identifi cation from developing sectors, cluster identifi cation 

from new economic sectors. 

The interviews were focused on regional economic strategies, 

existing business networks and cluster support measures. 

24 

Key persons 

interview analysis 

Because of the key persons’, interviews the main recent 

objectives resulting from problems of target region were 

identifi ed: 

Modernization of equipment for large-scale enterprises, 

Creation of the effi cient sub-contracting network (supporting 

industries), 

Improvement of professional level, 

Development of transportation and engineering infrastructure, 

Creation of non-physical («soft») infrastructure, 

Greater dynamism of mature industries, 

Balancing of Russian and foreign capital investments. 

Achievement of mentioned above objectives seems to be 

of great importance for trans-border clustering. 

At the same time, opportunities of cluster development in 

Ida-Virumaa, Leningrad region and Saint Petersburg were 

pointed out: 

Movement of wood-processing cluster from latent to a 

potential stage, development of the full-cycle production 

process; 

Introducing models of sustainable business development 

in large-scale enterprises; 

Increasing of knowledge sharing on the problems of 

cluster-creation on the level of businesses and supporting 

institutions; 

Development of trust between public and private participants 

of clusters; 

Supporting of innovations (effi cient exchange with 

Saint Petersburg). 


The results of cluster identifi cation from number of existing sectors are summarised in the following table. 

Sector % 

Mining and quarrying of energy producing materials 43,6 

Construction 43,6 

Hospitality 41,0 

Manufacture of wood and wood products 35,9 

Manufacture of chemicals, chemical products and man-made fi bres 35,9 

Manufacture of machinery and equipment n.e.c. 35,9 

Transport, storage and communication 33,3 

Manufacture of textiles and textile products 25,6 

Electricity, gas and water supply 25,6 

Manufacture of coke, refi ned petroleum products and nuclear fuel 23,1 

Manufacture of basic metals and fabricated metal products 23,1 

Real estate, renting and business activities 20,5 

Manufacture of electrical and optical equipment 15,4 

Other sector 15,4 

Other community, social and personal service activities 12,8 

Manufacture of leather and leather products 10,3 

Manufacture of rubber and plastic products 7,7 

Manufacture of pulp, paper and paper products; publishing and printing 5,1 

Manufacturing n.e.c. 5,1 


Table 12 

25


7 Surveys 

conclusion 

The following table synthesised potential clusters according to statistics, documents and opinions of key persons. Potential 

Estonian clusters from existing sectors in Ida Virumaa 

Statistical Survey Documentary Survey Key Persons Interview 






materials 

Tallying 

coeffi cient 

Woodworking Woodworking Woodworking 3 


chemical products 




products 

Table 13 

Metalworking Metalworking Metalworking 3 

Hospitality Hospitality Hospitality 3 

Transport, storage and 

communication 


communication 

Transport, storage and communication 3 


petroleum products 

- 



2 


products 

- 


products 

2 

Manufacture of machinery and 

equipment n.e.c. 

- 


equipment n.e.c 

2 

Electricity, gas and water supply - Electricity, gas and water supply 2 

Construction - Construction 2 

26 


3 

3

The following table synthesised potential clusters according to documents, statistics and opinions of key persons. Potential 

Russian clusters from existing sectors in Leningrad region. 

Statistical Survey Documentary Survey Key Persons Interview 

Manufacture of pulp, paper and 

paper products; publishing and 

printing 

Manufacture of pulp, paper and 

paper products; publishing and 

printing 


products; publishing and printing 

Tallying 

coeffi cient 

Table 14 

Construction Construction Construction 3 

Woodworking Woodworking Woodworking 3 





Manufacture of chemicals, chemical products 3 






n.e.c. 

3 


communication 


communication 




- 

Manufacture of coke, refi ned petroleum 

products 

2 

Metalworking - Metalworking 2 

Electricity, gas and water supply - Electricity, gas and water supply 2 


products 

- 


products 

2 

- Hospitality Hospitality 2 

Cross-border clusters that could be developed from following sectors, which according to the statistics, documents and 

key persons’ opinions are highly developed, on both sides of the border are following: 

Transport, storage and communication, 

Woodworking, 

Manufacture of chemicals, chemical products, 

Metalworking 


Hospitality 

Construction 

Manufacture of coke, refi ned petroleum products 

Table15 


3 

27


Russian-Estonian trans-border cooperation triangle 

8.1 IDentIFIeD cross-BorDer clusters From statIstIcal surveY 

The following fi gure provides potential cross-border clusters in Ida-Virumaa and Leningrad region according to Statistical 

Survey results. 

28 

Gulf of Finland 

Baltic Sea 

Kohtla-Järve Sillamäe 

manufacture of pulp, 

paper and paper products 

manufacture 

of chemicals 

woodworking 

woodworking 

8 

metalworking 

manufacture 

of chemicals 

Narva 

manufacture of machinery 

and equipment n.e.c. 

electricity, gas 

and water supply 

metalworking 

Slantsy 

construction 

Cross-border 

clusters 

identifi cation 

Kingisepp 

IDA-VIRUMAA LENINGRADSKAYA OBLAST’ 

manufacture of rubber 

and plastic products 

electricity, gas 

and water supply 

construction 

Mining and quarrying 

of energy producing materials 

manufacture of coke, 

re�ned petroleum products 





textile 

transport, storage 




hospitality 

St. Petersburg 


Fig.12

As evident in the fi gure provided above, Expert Group identifi ed eight statistically potential cross-border clusters from statistical 

point of view: 

Construction 

Manufacture of chemicals, chemical chemicals, chemical products 

and man-made fi bers 

Table 16 

Manufacture of coke, refi ned petroleum products and nuclear fuel 

Metalworking 




Woodworking 

Other sectors, such as manufacture of textiles and textile products; hospitality; mining and quarrying of energy producing 

materials; manufacture of pulp, paper and paper products, publishing and printing; manufacture of rubber and plastic 

products are only concentrated in either Ida-Virumaa or Leningrad region. 

8.2 IDentIFIeD cross-BorDer clusters From DocumentarY surveY 

The following fi gure provides potential cross-border clusters in Ida-Virumaa and Leningrad region according to Documentary 

Survey: 



woodworking 

woodworking 

construction 

manufacture 

of chemicals 

Manufacture of chemicals 

mining and quarrying 


hospitality 





hospitality 

metalworking 



As evident in the fi gure provided above, Expert Group identifi ed documentary supported 4 potential cross-border clusters: 

Hospitality 

Woodworking 

Manufacture of chemicals, chemical chemicals, chemical 



Fig.13 

Table 17 


29


8.3. IDentIFIeD cross-BorDer clusters From KeY Persons’ IntervIeWs 

Following cross-border clusters from existing sectors have been identifi ed according to the key persons’ opinions. The 

results are summarised in the fi gure below. 

metalworking 



manufacture 

of chemicals 

construction 

woodworking 

metalworking 

As evident in the fi gure provided above, based on key persons’ analysis Expert Group identifi ed eight potential cross-border clusters:: 

Hospitality 

Woodworking 

Manufacture of chemicals, chemical chemicals, chemical 



Construction 

woodworking 

manufacture 

of chemicals 

Metalworking 



hospitality 



construction 

hospitality 

Manufacture of coke refi ned petroleum products 








textile 







Key persons in both target regions were asked to point out those sectors that are emerging and new in the region and 

could possibly be developed into clusters. The results are summarised in the fi gures as following 

manufacture 

of construction materials 

utilisation 

utilisation 

IT 

IT 

food industry 

alternative 

energy resources 

alternative 

energy resources 

manufacture 

of construction materials 

port and services 

port and services 

food industry 

mechanical engineering 

Table 18 

Fig. 15 Fig. 16 

utilisation of oil shale 

secondary products 

(construction materials) 

Production of fuel 

biotechnology 

from oil shale development of pharmaceutics 

production of new materials 

(nanotechnology, aeronautics) 

packaging 

utilisation of oil shale 

secondary products 

(construction materials) 

packaging 

Production of fuel 

from oil shale 

biotechnology 

production of new materials 

(nanotechnology, aeronautics) 

development of pharmaceutics 

To validate the fi ndings of Expert Group (point 8.1, 8.2, 8.3) and add additional sectors to other possible cluster identifi 

cation, Expert Group had conducted a Working seminar #1 for EstRuCluster Development project partners and other 

participants. 

30 


Fig.14

9 

As it was mentioned above special practical exercise 

– Working seminar was aimed to identify potential 

clusters in partner regions, to validate and to 

present the fi ndings of Expert Group, to elaborate 

new cluster groupings and to collect opinions of 

project partners. 

Hospitality 22% Metalworking 19% 

Manufacture of rubber and plastic products 14% Hospitality 19% 

Transport, storage and communication 14% Manufacture of chemicals, chemical products 17% 

Woodworking 11% Woodworking 9% 

Metalworking 8% Construction 6% 


materials 


Results of Working 

seminar 

for EstRuCluster 

project partners 

Each of the participants could choose exisiting sector groupings 

proposed by Expert Group. The persenatge of the total 

voting was evaluated and summarised in the following 

table. 

8% Electricity, gas and water supply 6% 

Manufacture of chemicals, chemical products 8% Mining and quarrying of energy producing materials 6% 

Manufacture of machinery and equipment n.e.c. 6% Transport, storage and communication 6% 

Construction 6% Textile 6% 

Textile 3% Manufacture of rubber and plastic products 3% 

Table 19 

Manufacture of machinery and equipment n.e.c. 3% 

31


Tallying in terms of sectors was almost identical, however Electricity, gas and water supply sector was chosen only by 

Estonian participants. 

Voting distribution per partner-towns in persentage is as following: 

Table 20 

Sector Kohtla-Järve Sillamäe Narva Slantsy St. Petersburg 

Kingisepp/ 

Ivangorod 

Metalworking 25% 12,5% 13% - 25% 9% 

Hospitalty 13% 12,5% 37% 27% - 24% 



18% 12,5% 13% 19% - 5% 

Woodworking 13% 12,5% - - - 19% 

Construction - 12,5% 13% - 25% 5% 

Electricity, gas and water 

supply 


- 25% - - - - 

of energy producing 

materials 

13% - - 27% - - 


communication 

13% - - - 25% 19% 

Manufacture of rubber and 

plastic products 

- 12,5% - 27% - 9% 

Textile - - 24% - - 5% 

Manufacture of machinery 


5% - - - 25% 5% 

Project partners and participants chose utilisation, food industry and manufacture of construction materials, port and 

services from emerging sectors in both regions. 

Consequently, project partners and participants chose packaging industry, fuel production from oil shale and utilization 

of secondary oils shale products as new sectors. 

Other practical exercise was to distinguish cross-border clusters, whereas project partners and participants were chosing 

4 cross-border clusters (from current, developing and new sectors) each. The following table as a synthesis of the results 

obtianed from the 2nd part of the exercise based on the voting of each participant. 

Hospitality 9 

Metalworking 6 

Manufacture of chemicals, chemical products 3 

Woodworking 3 


Packaging 3 

Utilisation 3 

Manufacture of rubber and plastic products 3 

32 

Table 21 


1 Hospitality cluster 

2 Chemical cluster 

3 Woodworking cluster 

4 Metalworking cluster 

10 

The following clusters correspond to concrete sectors. 

However, effectiveness of cluster formation is also lay in the 

cross-sectoral cooperation, where corresponding innovative 

strains and products could be elaborated. Moreover, while 

supporting cluster initiatives added value could be established 

through horizontal introduction of ICT, cooperation 

with R&D and educational institutes, introduction of innovation, 

including industrial design. 

Such based on knowledge clusters could no be sustained 

and developed solely on the basis of knowledge and materials 

transfer with minimal operating costs. A key additional 

process involves the connections between some of the actors 

in a given sector with outsiders (e.g. firms with suppli- 


Final crossborder 

clusters 

identification 

Based on the findings in the previous sections and aims of EstRuCluster Development project, the following 

final cross-border clusters have been identified. 

Table 22 

Cluster includes following sectors: 

Hotels, resorts and restaurants, tour operators and travel agencies, 

excursion operators, PR companies, transport companies, etc. 


Manufacture of basic chemicals, manufacture of rubber and plastic 

products, mining of chemical products, companies dealing with packaging 

industry, manufacturers of oil shale fuel, food industry, construction, etc. 


Manufacture of wood and of products of wood and cork, furniture; 

manufacture of articles of straw and plaiting materials, forestry industry, 

manufacture of veneer sheets; manufacture of plywood, and other panels 

and boards, sawing industry and other sectors related to woodworking. 


Metalworking companies, welding companies, manufacturers of 

machinery and equipment, construction companies and other related 

sectors. 

ers, customers, or sources of knowledge). In other words, as 

well as “local buzz” there have to be regional (or even global) 

“pipelines”: channels of communication to other sectors in 

other places. The process of knowledge creation and innovation, 

therefore, consist of a complex set of networks and 

processes operating within and across various spatial scales, 

from the global, through the national and the regional, to 

the local. 

In case of Saint Petersburg and trans-border region of Leningrad 

region and Ida-Virumaa, it is important to provide those 

pipelines for proper knowledge and information transfer. 

This is one of the main challenges for the future cluster development. 

33


11 

The following European trends and drivers of 

4 selected cluster sectors have been synthesised 

in order to establish proper foresight 

picture of sector competitiveness. Threats 

and challenges have also been considered 

in order to complete foresight analysis. The 

gathered information is coming from the 

various sources, such as European Commission, 

European Monitoring Centre on 

Change any other perspective studies and 

researches that contain foresight information 

on selected sectors. 

34 

Foresight on 

selected clusters, 

trends and 

drivers 

11.1. hosPItalItY sector 

The key drivers in the hospitality sector are presented below 

with a brief description. 

socIologIcal DrIvers 

Key sociological drivers include the ageing of populations 

in many of the EU Member States, combined with changing 

lifestyles and tastes among workers and consumers 

across the EU. The ageing of the workforce and the increasing 

levels of educational attainment among young people 

can be expected to aff ect the structure of the workforce 

and its working conditions. Population ageing is also likely 

to lead to a change in consumer preferences and, hence, 

in the services supplied. Changing consumer lifestyles and 

tastes, brought on by improvements in living and working 

conditions, evolving social conventions, economic development 

and new technology, are creating more informed 

and demanding consumers, who are also becoming more 

organised as a collective force. 

technologIcal DrIvers 

On the supply side, the prevalence of information technologies 

over the last 20 years, and in particular the last 10 years, 

has allowed enterprises to be more fl exible by allowing 

them to manage and monitor both their resources and supply 

chains better. Information technologies also facilitate the 

greater customisation of services on off er. For consumers, 

it has led to an expansion of choice of information providers 

and where they spend their money. It is also changing 

consumers’ shopping habits and the way they interact with 

enterprises. Beyond developments in information and communication 

technologies (ICT), new kitchen and production 

technologies are leading to structural changes in catering 

establishments by allowing the outsourcing of many operations 

and the simplifi cation of kitchen processes, but with 

largely negative eff ects for the workforce. 


The adoption of technology in the sector carries some uncertainty 

and raises certain issues. It is not entirely clear to 

what extent new technology will improve working conditions 

and job opportunities and to what extent its impact 

will be negative. It has led, and will continue to lead, to 

changes in the quantity and structure of labour demand in 

the sector. The International Union of Food, Agricultural, 

Hotel, Restaurant, Catering, Tobacco and Allied Workers’ 

Associations (IUF) argued that new technologies require 

less-skilled staff and so result in many job losses in 

the industry. Moreover, the IUF argues that technology will 

devalue wages by deskilling the remaining workforce. In 

contrast, timesaving technology could benefi t workers in 

the sector by reducing the stress and pressure placed on 

workers, allowing them to work in a more favourable environment. 

Given the small scale of many of the enterprises in this sector, 

the adoption of technology is likely to be very sensitive 

in terms of the cost of implementation and the expected 

fl ow of benefi ts over time. Another infl uence in the adoption 

of new technologies is likely to be legislation on working 

conditions and health and safety standards. Adopting 

new technologies generally raises working conditions, but 

its impact on labour demand is unclear. Timesaving technology 

may lead to reduced labour demand or it may create 

new work opportunities, and specialist technology may 

require new skills that demand higher wages. 

It is not clear if globalisation, changes in consumer demand 

and the internet will benefi t the sector. It appears to have 

made consumers more mobile and fl exible as shoppers. 

It may well be that it leads to a dichotomy where some 

companies successfully adapt to these forces while others 

fail to adapt and become unable to compete. Furthermore, 

these forces probably favour larger businesses more than 

small ones. Their greater scale and pool of resources makes 


it easier for them to exploit these new opportunities. At the 

same time, although current conditions in the hotels and 

catering sector are forcing small enterprises to fi nd new 

ways to compete in order to survive, potential benefi ts 

from technologies to small enterprises are likely to be limited 

because their size limits the opportunity to generate 

economies of scale. As a result, further consolidation and 

an increasing presence of chains within the sector can be 

expected. 

economIc DrIvers 

Globalisation is one economic driver infl uencing the hotels 

and catering sector. Through the free movement of labour 

and capital as well as economic and political integration, 

globalisation has opened up new geographical and consumer 

markets. These present both threats and opportunities. 

For all companies, there is the prospect of tapping 

into new consumer and new labour markets. However, for 

existing workers, this also throws up the potential threat 

of more effi cient and/or better-skilled labour elsewhere 

and the threat of new destinations, cultures and companies. 

Another economic driver is the recent, rapid expansion 

of low-cost air travel. This has made it easier for agents 

to travel as both tourists and workers, but it also creates 

further problems. Together, these drivers stimulate other 

socio-economic and political issues concerning skills levels, 

migration and working conditions. 

envIronmental DrIvers 

Adverse weather patterns in recent years have pushed the 

issue of climate change and energy use into the political 

mainstream. Adverse weather itself is likely to aff ect the 

sector where it forms part of the tourist industry situated in 

areas at risk from climate change, with coastal and winter 

sports resorts most at risk. Politically, part of the response 

is to target air emissions and energy effi ciency. In this way, 

35


political eff orts to improve resource effi ciency across the 

economy, particularly with respect to utility inputs, are 

likely to lead to cultural and hardware changes within the 

industry. Another issue aff ecting the sector as part of the 

tourist industry is the environmental impact of tourists 

who use hotel and catering establishments. 

PolItIcal DrIvers 

While legislation and international relations represent the 

clearest types of political drivers, EU enlargement and social 

dialogue are, respectively, partly economic and partly 

social drivers. Developments in international relations continue 

to infl uence consumer confi dence and behaviour, 

and this is likely to continue to aff ect demand for the hotels 

and catering sector as part of the tourist industry. As the 

EU becomes more attuned to consumer and human rights 

and standards of living, key pieces of legislation likely to 

aff ect the sector relate to working conditions and to the 

marking, quality and safety of food. This desire to promote 

higher living and working conditions should also stimulate 

social dialogue between companies and employees. Within 

this social dialogue framework, the accession of new 

Member States is likely to generate new pressures and perspectives. 

Beyond this framework, the expansion of the EU 

off ers further opportunities in existing and new Member 

States by opening up new untapped consumer markets 

and labour forces. 

36 


11.2. chemIcal sector 

As one of the largest and internationally most successful 

of European industries, the chemicals sector is capital-intensive 

and that has made it appropriate for its production 

to be located in mature industrialised countries. In the era 

of globalisation and capital mobility, however, this is no 

longer true for the manufacture of commodities and consequently 

there is very substantial foreign investment in 

chemicals production in the booming markets of Asia. Because 

commodities have a substantial share in the product 

portfolio of the chemicals industry, the European industry 

has to accelerate its pace of innovation to stay in the lead. 

Economic policymakers currently face the challenge of providing 

conditions that promote a more knowledge-driven 

industry with a sound basis for production in Europe. 

The key drivers in the chemical sector are presented below 

with a brief description. 


Part-time employment, sabbaticals, etc. have become 

important tools for companies to attract highly qualifi ed 

applicants, in particular to tap into the full potential of 

the female labour force. The adoption of new patterns of 

working time has, however, been far from uniform across 

EU Member States. Within the EU15, the southern Member 

States lag behind the others. They are roughly on the 

same level as the new Member States, where the share of 

part-time employees ranges between 2% and 4% of all 

employees. 

The chemicals industry has also been suff ering from a 

long-term brain drain as experienced workers have left and 

the young choose other careers. The attractiveness of the 

chemicals industry as a career choice has been declining 

since the 1990s. Many chemicals companies are working 

to improve matters. BASF, for example, is among the most 


active of the leading global chemicals companies when it 

comes to fostering an understanding for chemicals. The 

company runs ‘Kids Labs’ at schools, which allow children 

to learn more about the chemicals that surround them at 

home. Similarly, Air Products, a global supplier of chemicals, 

industrial gases and equipment, sends ‘science ambassadors’ 

to schools and organises workshops at universities 

where undergraduates can get hands-on experience. 


Research and development (R&D) is particularly important 

for the chemicals industry. Technological advances not 

only benefi t the industry itself, but also feed into many 

downstream industries because its products are often intermediate 

goods in the production chain. This role makes 

the chemicals industry important for a country’s competitiveness 

in terms of innovation. 

Traditionally, the EU has been a technology leader, but 

some of this has been lost during the 1990s to the United 

States (US). The share of research and development (R&D) 

expenditure as a proportion of total sales has remained 

constant in the US and Japan since the mid-1990s, but in 

the EU the share has shrunk. 

One explanation for this trend could be the enormous 

eff ort that the European chemicals industry has put into 

restructuring in order to remain competitive. After completing 

their restructuring programmes, companies might 

shift more resources back to R&D. However, this is likely to 

be an optimistic view. EU companies face higher costs and 

generate lower profi ts than their foreign counterparts. The 

gross-operating surplus of EU chemicals companies is only 

half that of those in the US. 

There are at present two main challenges to innovation in 

the European chemicals industry. The fi rst is the structural 

change in other manufacturing industries. Relocation of 

37


production to non-EU locations has removed many industries 

that used to take advantage of technological advances 

in chemicals. For example, the textiles industry has to a large 

extent shifted its production to Asia, and the development 

and manufacture of feedstock for textiles is expected to follow. 

Although the EU remains a leading supplier of hightech 

intermediates, these too are likely to move in time as 

the chemicals industry in Asia becomes more sophisticated 

and the market for end products grows. In most cases, basic 

research has remained in the EU, but the adjustment of intermediates 

to customer needs is carried out elsewhere. Examples 

of this are liquid crystals for television screens (Merck 

KGaA) and substrate for computer memories (Bayer AG), 

both of which are manufactured in Asia. 

The second challenge to innovation in the European chemicals 

industry comes from the deferred take-off in biotechnology. 

European biotechnology has relied too much on 

processes that have been around for a long time, such as 

the fermentation of foodstuff s and beverages, and it is also 

a small industry in Europe. Its total workforce amounts to 

no more than 3% of the numbers employed in chemicals. 


The chemicals industry accounts for around 12% of the EU’s 

total energy demand according to the European Chemical 

Industry Council’s review 2004-2005). Energy is not only a 

major cost in the processing of chemicals, but gas and oil 

are also used for the manufacture of many chemical products. 

In 1998, a comparison of energy prices and effi ciency 

in the EU and US chemicals industry highlights that energy 

prices in the EU are roughly one-tenth higher than in the 

US. This turns out to be a disadvantage for production locations 

in the EU because chemical products are sold into the 

global market and higher energy prices cannot be passed 

on to clients. 

Furthermore, EU and national environmental policies aim 

38 

at reducing emissions by 20% by 2020 and thus rely heavily 

on emissions trading as the means of allocating scarce resources. 

This is likely to lead to further increases in Europe’s 

already high energy prices. Energy is therefore likely to become 

a constraint on the EU chemical industry’s growth 

and its price competitiveness will continue to deteriorate. 

Since the early 1990s, the energy intensity of the EU chemicals 

industry has reduced because of structural change in 

the industry, which has led to the relocation of the more 

energy-intensive processes away from the EU. Tough emissions 

regulations have also encouraged this relocation. European 

production has thus been based on imports from 

countries with less strict emissions regulations. 

Traditionally, most of the world’s chemicals production has 

been carried out in the advanced industrial countries. Thus, 

the EU15, US and Japan accounted for two-thirds of global 

chemicals production in 2002. However, they are losing 

out to Asian countries, where output has soared from 

13% of global production in 1990 to around 24% in 2002. 

Meanwhile, the EU share has fallen from 32% to 28%, the 

US share from 27% to 26%, and the Japanese share from 

12% to 10%. 

Despite the high level of investment in new capacity in 

Asia, domestic supply of chemicals has not kept pace with 

demand. European exports of chemicals to China grew at 

double-digit rates between 1995 and 2002, which mostly 

contributed to the improvement in the EU trade balance for 

chemicals. However, Asian demand for imported chemicals 

is likely to last only until the capacity under construction 

there comes on stream. Furthermore, the new chemicals 

plants in Asia incorporate the latest production technology 

and are much bigger than plants in the EU, and so they will 

enjoy far greater economies of scale. When these plants 

are operational, the fl ow of chemicals commodities is expected 

to be from Asia to Europe. 


Another threat to the EU chemicals industry comes from 

oil-producing countries. Such countries are increasingly investing 

in the primary processes of the chemicals industry. 

Joint ventures between Western and local companies are 

bringing together Western technology with the regional 

advantages of being near sources of oil. For example, Jubail, 

a branch of Sabic, which was founded in 1976 to invest 

in the petrochemicals industry, has a joint venture with 

Canada’s Acetex to build a $1 billion petrochemicals plant 

in Saudi Arabia. Sabic has also invested in downstream 

companies; for example, in July 2002 it acquired the Dutch 

chemicals group, DSM, along with its production sites in 

the Netherlands and Germany. In these ways, the chemicals 

industry is developing cross-border linkages along the 

value chain, as well as affi liations between companies. 


Although recent restructuring has shifted the focus of the 

chemicals industry towards low energy-intensity products, 

chemicals remains the most energy-intensive industry. New 

process technologies, combined heat and power generation 

(of electricity and steam), will play an important role 

in further reducing the energy intensity of the chemicals 

industry, as well as public policies aimed at reducing emissions. 

During the 1990s, the chemicals industry shifted its 

focus towards low-energy processes and became less dependent 

on fuel imports. This trend is expected to become 

more pronounced, as the use of biomass and waste as energy 

inputs is expected to grow by 10% per year to 2030, 

according to the Commission’s EU-15 energy and transport 

outlook to 2030 (2003). 

The protection of the environment, consumers and workers 

from hazardous chemicals are institutional aspects of 

outstanding importance for the industry. Formerly, diff erent 

national regulations hampered the free circulation of 

chemicals in the single market. With the principle of mu- 


tual recognition, however, products legally marketed in 

one Member State must in principle be admitted in any 

other Member State. This institutional framework has made 

the free movement of chemicals easier within the internal 

market with the obligation to preserve high levels of environmental 

protection. 

The greatest challenge currently faced by the European 

chemicals industry lies in the proposed REACH legislation 

(REACH is an acronym for the Registration, Evaluation and 

Authorisation of Chemicals). The chemicals regulations, 

proposed by the Commission in 2003, require companies 

to register some 30,000 substances with a new organisation 

called the European Chemicals Agency. Companies 

would have to demonstrate that the chemicals they use 

cause no harm to humans or the environment. 

Two recent reports suggest that the REACH proposal will 

hurt chemicals businesses, but probably less than previously 

feared. A 2005 impact assessment based on a case 

study approach, written by KPMG and funded by the industry, 

argues that REACH is likely to impose ‘signifi cant’ 

one-off costs on companies (KPMG, 2005). In one case examined, 

costs amounted to 20% of annual turnover. However, 

the report also says the new framework is unlikely to 

force companies to abandon the production of critically 

important substances. It also points out that businesses 

could reduce costs by joining forces with other companies 

or by rationalising their product portfolios. The second report, 

by the Institute for Prospective Technological Studies 

(IPTS) and funded by the European Commission, assesses 

the impact of the new rules on the chemicals sector in the 

12 new Member States. It concludes that they will have 

very limited impacts on the competitiveness of chemicals 

manufacturing companies, but may cause problems to importers. 

39



DG Research of European Commission and the European 

chemicals industry have launched a platform for a sustainable 

chemicals industry (SusChem), which aims to 

bring together researchers from industry and academia to 

40 

Environment 

Interest/ 

pressure groups 

Workforce 

Health and safety 

Trend and driver linkage 

Consumers 

Consumers goods 

Chemical producers 

Legislation 

Government 

stimulate innovation in the private sector. The focus is on 

dynamic high-tech areas such as biotechnology and materials 

technology, but it is also to concentrate on the identifi 

cation of institutional constraints on innovation. 

Oil price 

Internatonal 

relations 

EU enlargement 

Globalsation 

Technology 

Concolidation 

Source: Institute for Economic Research (IEO), Munich, 2005. 


11.3. WooDWorKIng sector 

The key drivers in the woodworking sector are presented 

below with a brief description. 


There is already a certain amount of labour from the new 

Member States working in the pre 2004 EU15 woodworking 

sector. The number of incoming workers varies from 

country to country with a tendency of infl ux being high 

between border countries. The number of workers is still 

limited because of the transitional schemes in various 

EU15 countries that regulate (and restrict) the possibilities 

for east European labour to enter EU15 labour markets. The 

consequences of this free movement of labour within the 

EU25 are still not clear and vary between countries and 

sub-sectors. Despite the Directive 96/71/EC concerning 

the posting of workers in the framework of the provision of 

services, European Federation of Building and Woodworkers 

feels that incoming labour puts a downward pressure 

on wage levels (Bijen, 2004). European employers tend to 

see the infl ow of low-paid labour from the new Member 

States as a marginal problem. 


Technological development drives change in the woodworking 

sector as research and development leads to innovation 

and new technologies. However, the pace at which 

these developments are integrated and implemented in 

the sector, particularly among the smaller companies, is 

very slow. The main barriers to unfolding the potentials of 

these technological developments are awareness, knowledge, 

competencies among construction companies and 

incentives. 

On another hand wood material research plays key role 

in developing innovative, cost-competitive, eco-effi cient 


products, processes and services, e.g. radically reduce the 

use of raw material in fi bre and wood products, create new 

functionalities for wood-based products, improving wood 

and fi bre properties. 


The forest-based industries account for a production value 

of € 365 billion, with a value added of around € 120 billion 

and have more than 3 million employees working in 344 

000 enterprises. Many parts of the forest-based industries 

play an essential role in maintaining sustainable employment 

in rural areas. In the woodworking sectors, SMEs are 

predominant while in the manufacture of pulp, paper and 

paperboard the presence of larger fi rms is signifi cant. 

The EU is the biggest trader and second biggest consumer 

of forest products in the world, with a positive trade balance 

overall. However, within this context, the EU is a net 

importer of raw materials, mainly round wood that comes 

mostly from the CEECs and CIS, and wood pulps from 

North and South America and other regions having high 

growth rates and low costs for timber growing. Within certain 

sub-sectors where there is a particularly high level of 

domestic supply, the EU is a prominent exporter, especially 

for the more highly value-added products such as paper 

and furniture. 

The industry is characterised by global, regional and local 

companies, including some big, globally present multinationals 

as well as hundreds of thousands of small and 

medium-sized enterprises, mostly privately owned. 

The EU is very dependent on ‘imports’ of sawn hardwood 

and pulp while markets outside the EU are very important 

for ‘exports’ of certain printing paper grades and sack paper. 

These imports represent 30-60% of EU consumption, 

depending on the product and the exports represent similar 

percentages of EU production levels. 

41



The use of wood as a bio fuel can be both a threat and 

an advantage for the woodworking industry. The threat 

comes from prime wood being used directly for energy 

generation rather than passing through a value-adding 

cycle - the cascade use of wood. Unjustifi ed subsidies for 

renewable energy could cause raw materials to be directed 

away from existing woodworking facilities. The advantage 

comes from energy providing an outlet for used wood at 

the end of its value chain, or in localities where market outlets 

for forest produce are limited. 

Another positive face of bio fuel is the fact that the woodworking 

industry itself is seen as a major channel for developing 

renewable energy initiatives. The forest industry as a 

whole is a signifi cant producer of renewable energy and as 

such, this represents a strong position for the industry in a 

key global issue. 


The Communication on Innovative and Sustainable Forestbased 

Industries in the EU was adopted on the 27 February 

2008. It addresses the challenges that these industries face 

in a 19-point action plan. The challenges of the forest-based 

industries relate to innovation, increased global competition, 

access to third-country markets, climate change and 

high energy and transport costs. Moreover, the access and 

availability of both virgin and recovered raw material at 

competitive prices and the strategic role of these industries 

in limiting climate change impacts are issues that need to 

be addressed specifi cally. Furthermore, and in particular in 

the woodworking and printing sectors, the SME dimension 

is especially relevant. 

In 2003, Roadmap 2010 for the European Woodworking 

Industries following the Lisbon Agenda 2000 was promulgated. 

Overall objective of the Roadmap is to trigger a 

common strategy to make wood the leading material in 

construction and interior solutions by 2010. 

42 


11.4. metalWorKIng sector 

The key drivers in the woodworking sector are presented 

below with a brief description. 


Metalworking is a traditional industry that is very well 

developed in the EU. The number of incoming workers 

also varies from country to country, so it is common with 

woodworking industry. 

Globalization processes, job mobility, social protection, 

safety at work, unemployment and other factors such as 

EU enlargement entail new challenges both for the fi rms 

and for the workers in this sector, in particular for those belonging 

to EU recent accession and candidate countries. 

Strengthening social dialogue might help workers’ organizations 

and employers’ organizations to cope with the sector’s 

deep transformation. 

Being aware of facing a common challenge and recognizing, 

in particular, the existence of skill shortages on both 

sides, in 2006 the two main European employers’ and workers’ 

associations, i.e. CEEMET1 (the Council of European Employers 

of the Metal, Engineering and Technology-based 

Industries) and the EMF (European Metalworkers’ Federation), 

established a permanent working group in Brussels 

in order to discuss competitiveness and employment issues 

in the sector over next 2 years. 

In 2007, the EMF and CEEMET also agreed to set up a permanent 

social dialogue body to “seek to contribute to creating 

and maintaining an environment that ensures a competitive 

manufacturing sector able to deliver high quality 

and sustainable employment. Equipping workforces and 

companies in the metal sectors to meet the challenges 

arising from globalization and the need to cope with ever 

faster technological and organizational changes is of vital 

importance in this context”. 


The Centre’s Employers’ Activities Programme, for its part, 

is seeking to equip metalworking employers’ organizations 

with modern tools and skills with which to attract more 

members and serve them better, with a view to promoting 

the interests of the companies in this sector through 

eff ective social dialogue. A fi rst workshop took place in Turin 

in 2008 and provided an opportunity for 18 high-level 

executives from metal industry employers’ organizations in 

Bulgaria, Croatia, Estonia, Lithuania, Poland and Slovenia to 

exchange views with their peers from Belgium, England 

and Germany. 

Another critical issue in the sector is that workers can be 

exposed to the fl uids by breathing aerosols generated in 

the machining process, or through skin contact when they 

handle parts, tools, and equipment covered with the fl uids. 

The National Institute for Occupational Safety and Health 

(NIOSH) defi nes MWF aerosol as the mist and all contaminants 

in the mist generated during grinding and machining 

operations involving products from metal and metal 

substitutes. 


Little major innovation is expected in this sector as it is 

deemed already mature. The current technology trends 

seem more likely to be incremental improvements in the 

various value chain processes. In the heavy metals sector, 

innovation mainly concerns aspects like the improved use 

of gravel as a form of ore, the improved extraction of lower 

grade ore by developing improved reduction and extraction 

techniques and the more effi cient use of energy. 

More innovations are expected in the light metals sector, 

specifi cally aluminum, magnesium, titanium and the development 

of alloys with focus on the development of a 

cheaper, continuous extraction processes for magnesium 

and titanium. The EU metals industry has a global lead in 

many technological areas. Sound research performance is 

43


one of the most important strengths of the EU metals industry 

and a key factor for the development of the sector’s 

long-term competitiveness. However, more innovation is 

needed to meet the ambitious requirements of environmental 

legislation, in particular for the optimisation of energy 

and raw materials consumption 


Europe’s strong and constantly growing demand for metals 

over the last two decades is related to the needs of EU 

manufacturing industries (automotive, aerospace, chemicals, 

electrical and mechanical machinery, etc.) and the 

construction sector to which metals are a key input material 

due to their specifi c physical properties. For over 20 

years, the European Union has been the biggest consumer 

and one of the major producers of ferrous and non-ferrous 

metals in the world. In recent years, the EU metals industry 

has had to adapt to dramatic changes on world metals 

market with the emergence and recovery of big new 

economies like China, Russia and India. 

For over 20 years, the European Union has been the biggest 

consumer and one of the major producers of ferrous 

and non-ferrous metals in the world. In recent years, the EU 

metals industry has had to adapt to dramatic changes on 

world metals market with the emergence and recovery of 

big new economies like China, Russia and India. 

The new competitiveness challenges for the EU metals industry 

are evident as world metal markets are rapidly changing 

under the pressure of new producers and consumers. 

For example, China has become the most important world 

player in metals production and a major competitor for the 

EU in access to metals’ raw materials. These market changes 

and other developments have resulted in a situation where 

44 

the EU depends more and more on imports of refi ned metals 

(except steel) as domestic production is stagnating or 

decreasing compared to consumption. This trend is likely 

to accelerate in the forthcoming years. 


The Commission will implement the future REACH provisions 

with a particular relevance for the metals industries. 

The objective is to reduce environmental impacts associated 

with resource use in a growing European economy 

and worldwide. The strategy seeks to decouple environmental 

impacts from economic growth. In this context, 

decoupling means that the economy continues to grow, 

while environmental impacts decline. Main action here 

is to develop technical guidance related to substances in 

special preparations including assessments of substances 

incorporated into special preparations, such as metals incorporated 

in alloys. 


To improve the competitiveness of the European metals 

sector, the Commission is proposing policy actions in line 

with the European Partnership for Growth and Jobs in the 

framework of the Lisbon Programme. Given the new structural 

developments in world metals markets described 

above, an integrated and co-ordinated approach between 

the Commission, Member States and stakeholders is needed, 

in order to ensure full use of the EU policies available to 

respond to the raw materials, recycling, energy and environmental 

challenges. If necessary, new policy options and 

instruments aimed at ensuring a level playing fi eld could 

also be assessed to address actual and future problems affecting 

the supply conditions of the EU metals industry.

FINAL CLUSTER ANALYSIS - Kohtla-Järve

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?