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INEFReport

Institute for Development and PeaceGerhard-Mercator-University of Duisburg

IM PR O VING UPO N NATURE.

CREATING CO M PETITIVE ADVANTAGE IN CER A-

M IC TILE CLUSTER S IN ITALY, SPAIN, AND BR A-

Z ILJörg Meyer-Stamer

Claudio MaggiSilene Seibel

Report 54 / 2001

Contribution to the Research Project"The Interaction of Global and Local Governance: Implications for Industrial Upgrading"

Project homepage: http://www.ids.ac.uk/ids/global/vw.html

Financial support from the Volkswagen Foundationand the Department for International Development is gratefully acknowledged

Abstract

This paper shows how using a combination of a cluster and a global value chain approach helps toassess local competitive strategies and upgrading possibilities. The global ceramic tile industry isdominated by two industrial clusters, Sassuolo in Italy and Castellón in Spain, which are not onlydominating tile production in their respective countries and in Europe but are also the global tech-nology leaders and the leading exporters. The Italian tile manufacturers are closely linked withcapital goods manufacturers, the Spanish with producers of glazing materials. The equipment andmaterials producers drive technical change and innovation in tile design, whereas the tile manu-facturers try to establish a competitive advantage in particular by innovating in downstream ac-tivities: training tilers, establishing diversified brands for different sales channels, and going intodirect sales. Analyzing the value chain, from inputs and capital goods to final sales, offers new in-sights into scope and alternatives of local upgrading. It also helps to reassess the competitivenessof tile clusters in the developing world. This is done for Brazil’s leading cluster which is locatedin Santa Catarina. Tile firms there can benefit from the fierce rivalry among Italian capital goodsproducers and among Spanish producers of glazing materials, as well as the rivalry between Italyand Spain. They are technology followers. However, having to deal with a volatile and very com-petitive market, they are innovative in downstream activities, experimenting with concepts whichare not yet used by Italian or Spanish manufacturers.

Content

1 Introduction 1

2 Main Features of the Tile Industry and its Value Chain 32.1 The geography of the tile industry 3

2.2 Features of the product and the production process 5

2.3 The role of suppliers of capital goods and glazing materials 6

2.4 The demand side 9

3 The Cluster of Sassuolo / Italy 133.1 The structure and evolution of the ceramic tile industry in Italy and the Sassuolo

cluster 13

3.2 Upgrading in the Sassuolo cluster 14

3.3 Structure of the value chain 173.3.1 Performance of the capital goods industry 183.3.2 Interaction between machinery and tile producers 183.3.3 Perspectives of technological upgrading 193.4 Product structure and market segmentation 203.4.1 Sales and after-sales services 203.4.2 Exporting and the relevance of international value chains 213.5 Structure of supporting institutions 22

3.6 Evolution of local governance 23

3.7 Competitive advantages and challenges 25

4 The Cluster of Castellón / Spain 274.1 The evolution of the Castellón cluster 28

4.2 Upgrading in the Castellón cluster 29

4.3 Structure of the value chain 31

4.4 Product structure and market segmentation 324.4.1 Sales and after-sales services 334.4.2 Exporting 334.4.3 The relevance of international value chains 334.4.4 Restructuring of the industry and internationalization 344.5 Structure of supporting institutions 34

4.6 Evolution of collective action 37

4.7 Competitive advantages and challenges 37

5 The Cluster of Santa Catarina / Brazil 385.1 The structure of the ceramic tile industry in Brazil 38

5.2 The SC cluster 39

5.3 Upgrading in the SC cluster 405.3.1 Benchmarking on Ceramic Tile Manufacturing Companies in Santa Catarina 425.3.2 The relevance of standards 465.3.3 Structure of the value chain 465.3.3.1 Market segmentation 465.3.3.2 Sales and after-sales services 475.3.3.3 Exporting 485.3.3.4 The relevance of international value chains 495.3.4 Structure of supporting institutions 495.3.5 Evolution and deterioration of collective action 515.3.6 Competitive challenges 525.4 Further perspectives for upgrading 525.4.1 Production technology and management 525.4.2 Product technology 535.4.3 Restructuring of the industry 545.4.4 Options for renewed collective action 54

6 Conclusions 546.1 Comparing the clusters 54

6.2 Mental models of industry actors 566.2.1 Wall vs. floor tiles 566.2.2 Red vs. white body 576.2.3 Italian tiles are more expensive than Spanish tiles 576.2.4 Increasing size vs. differentiated small sized designs 576.2.5 Wet vs. dry mixture 576.3 Evolution of the tile industry 586.3.1 Upgrading 586.3.2 Governance structure 586.3.3 Global value chains 596.3.4 Standards 606.4 The Interaction of Global and Local Governance: Implications for Industrial

Upgrading 60

7 Bibliography 61

1 Introduction

This is a report which can be read from dif-ferent angles. One option is to take it as astudy of latecomer industrialization. The is-sue as such has been the focus of intensive re-search for decades. But we will not go backto Gerschenkron, let alone List. We willrather try to take a case study of the tile in-dustry to show how, under current conditionsof globalization, latecomer industrializationcan still take place.

Another option is to take it as a case study oncompetitive advantage. The tile industry is avery dynamic industry, and the story is notjust about the rivalry between tile producers.It also involves two types of suppliers – thosewho produce the capital goods, and thosewho supply the glazing materials. It is thesesuppliers who, striving to establish a com-petitive advantage, are driving technologicalprogress in the industry.

Our research was guided by two conceptswhich have gained prominence in the courseof the 1990s, but which remained mostly un-connected; in fact, some people might haveargued that they were not connectable at all –the concept of clusters and the concept ofglobal value chains.

Clusters, commonly defined as concentrationsof firms of a given sub-branch of industryplus supporting industrial and service firmswithin a delimited region, started to receiveattention in the 1980s, initially based on thestriking growth and export performance ofItalian industrial districts, mostly populatedby small and medium-sized enterprises / SME(Piore and Sabel 1984, Pyke, Becattini andSengenberger 1990). As such clusters are fre-quent in developing countries, and the privatesector there mostly consists of SME, pro-moting clusters appeared as a promising newapproach to stimulate latecomer industriali-zation (Schmitz 1989). Clusters promised toreduce all sorts of barriers – barriers to intra-firm competence building, as firms couldspecialize more; barriers to exports, as local

firms could work jointly in export consortia;barriers to upgrading, since an agglomerationof many firms of the same branch createdstrong demand for business developmentservices. Firms in clusters which operated in-dividually did already enjoy all sorts of ad-vantages (e.g. the availability of specialized,experienced workers), but firms in clusterswhich managed to act collectively had achance to create a competitive advantage be-yond this, based on “collective efficiency”(Schmitz 1995, Nadvi 1999).

Yet closer investigation showed that the ca-pacity and scope for local governance (pri-vate and public) varies with the ways indus-trial clusters feed into global value chains, i.e.world-wide production networks which areoften coordinated by a small number of firms(large producing multinationals such as GM,or global brand holders such as Nike, orglobal distribution chains such as Ikea). Evi-dence surfaced which showed that the morethe key value adding activities in the chainare controlled by a small number of largeoverseas firms, the more difficult it becomesto establish effective joint action at the locallevel. The relationships between these over-seas firms and key local agents tend to disar-ticulate governance structures within thecluster, something that has been observed, forinstance, by Schmitz (1998).

This proposition built, to a certain extent, onearlier work by Gereffi (1996) and otherswho claimed that, apart from intra-firm tradeand arm's length transactions, an importantpart of world trade is based on value chains(Gereffi calls them "commodity chains"), i.e.relatively stable arrangements between pro-ducers, often in developing countries andsometimes small or medium-sized, and bigfirms in industrialized countries. Gereffi dis-tinguishes between supplier-driven commod-ity chains, for instance in the car industry,and buyer-driven commodity chains, for in-stance in the garment industry. We will showthat this conceptualization is somewhat nar-row, as there are clearly global value chainsin the tile industry, but they are neither buyer-

2 Meyer-Stamer / Maggi / Seibel

nor supplier-driven. The case of the tile in-dustry shows that there are still industries andcommercial sectors which, unlike car pro-duction or garment marketing, do not displaya high degree of concentration.

But this observation is only a minor contribu-tion of this report. Its main message is thatcombining cluster research with value chainresearch creates a enormous value-added. Thetile industry appears to be an obvious candi-date for a cluster study, since the leadingfirms of this industry are concentrated in justtwo relatively small regions. But it will be-come evident in the course of the report thatanalyzing the tile industry exclusively from acluster angle would not even remotely catchthe dynamics of struggle for competitive ad-vantage which are currently reshaping the in-dustry. Introducing the value chain perspec-tive permits a leap in understanding what isgoing on in the industry. At the same time,taking just the value chain perspective, ne-glecting the cluster issue, would be just asfoolish, since it is not by chance that clustersplay such an important role in this industry.

This leads us back to the starting point. Late-comer industrialization these days is increas-ingly about creating a competitive advantage.In the days of import substitution, having alocal market was often sufficient, and com-petitiveness was not much of an issue(Meyer-Stamer 1997). In an era of free tradeand globalized corporate structures, the late-comer has to face competition early on. In thetile industry, Italy was the early mover, beingthe first country where firms moved in the1960s from craft to industrial patterns. Spainwas the first latecomer, starting the transitionfrom craft to industry in the 1970s, with theBrazilian firms coming right behind. Bothcases show that even with a well-established,highly competitive industry being around,latecomer industrialization is still possible.But their experience also shows that this is aconstant struggle.

The research presented in this paper is basedon three fieldwork exercises which involved

three clusters – Sassuolo in Italy, Castellón inSpain, and Santa Catarina in Brazil.1 JörgMeyer-Stamer and Silene Seibel conductedinterviews with tile firms and other actors inthe Santa Catarina cluster in April 2000; thisincluded a visit to the Construction MaterialsFair in São Paulo (Feicon). All three authorsconducted interviews with tile firms and otheractors in Sassuolo and Castellón in October2000; this included a visit to the Tile Fair inBologna (Cersaie). Silene Seibel conducted abenchmarking exercise with six medium-sized tile firms in the Santa Catarina clusterin November/December 2000. Apart fromthis, we exploited the information provided intrade journals and by internal papers andworkshop documentations from sector asso-ciations.

There is surprisingly little literature on the tileindustry from an economic or social scienceperspective (Russo 1985, Porter 1990,Rowley 1996). We have investigated theSanta Catarina cluster before (Meyer-Stameret al. 1996), and subsequently a further in-vestigation has been conducted on that clusterfrom a "local systems of innovation" per-spective (Campos et al. 1998). Moreover,Brazil's National Development Bank, whichis the main creditor of tile firms in Brazil, hasrepeatedly investigated the sector (Romero etal. 1994, BNDES 1995, Gorini 1999). Wefound that hardly any of these studies givesan adequate view of the current competitivepattern in the sector.

This report is organized as follows. The fol-lowing section gives an overview of the mainfeatures of the tile industry and its value

1 We are grateful for the time company represen-tatives, association officials, and other sourcepersons spent with us. We are also grateful forthe feedback we received on the first draft fromHubert Schmitz and ASCER, the feedback onthe second draft we received during the work-shop at IDS in February 2001, and the subse-quent detailed comments from Hubert Schmitzand John Humphrey. The usual disclaimers ap-ply.

Improving Upon Nature 3

chain. It gives an overview of the main pro-ducer countries, the main locations, technicalfeatures of the production process and theproduct, the role of key suppliers, and thedemand side, i.e. the structure of the valuechain after production. The three subsequentsections present the main findings regardingeach of the clusters. Since neither of theseclusters has been adequately documented inthe recent literature, we will present a rathercomprehensive picture, including informationwhich is only indirectly related to the keyquestions which guided this research. The fi-nal section presents the main findings in acomparative perspective.

2 Main Features of the TileIndustry and its Value Chain

One may be tempted to perceive the ceramictile industry as a relatively mature, traditionalindustry. Nothing could be further from thetruth. There is a misconception of the tile in-dustry which is based on the fact that tileshave been used to cover floors and walls forcenturies. However, a modern tile has asmuch to do with an azulejo in Lisbon’s Al-fama as a microfibre jacket has with the Mar-quis de Pombal’s coat. The tile industry issomething like a "latecomer industry": it wasonly in the 1960s and 1970s that tile produc-tion started to evolve from craft production toindustrial scale, and this transition is still go-ing on. The tile industry is a highly dynamicindustry both in terms of technological inno-vation and design. If you see a floor or a wallwhich appears like stone, granite, or marble,it is probably made of ceramic tile. What ap-pears like brick may also be a tile. Even whatappears to be wood may be a ceramic tile.

The tile industry is enjoying strong growthboth in terms of world production and exportsWhat is behind this dynamism is, first of all,strong rivalry. More specifically, it is strongrivalry at four different stages which is cre-ating a constant process of upgrading – ri-

valry between manufacturers of capital goodsfor the industry, rivalry between producers ofglazing materials, rivalry between manufac-turers of tiles, and rivalry at the commerciali-zation stage. And three of these rivalries arestrongly localized: the first one in a cluster inItaly, the second one in a cluster in Spain, andthe third one in both of these clusters as wellas another cluster in Southern Brazil. This re-port will take a close look at these three clus-ters.

In this chapter we will discuss some generalfeatures of the tile industry. Having a basicunderstanding of the geography, some techni-cal features, and some issues regarding in-dustrial organization is important for an un-derstanding of the individual clusters whichwe will analyze in the three subsequentchapters.

2.1 The geography of the tile industry

What does the map of the tile business looklike? Let us take a narrow perspective first,just looking at tile production and consump-tion as such. First, there is China. It is by farthe largest producer and consumer of tiles.Production increased from 272 million squaremeters2 in 1991 to 1,842 million square me-ters in 1997, with a strong contraction since.3

2 The common statistic measure in the tile indus-try is the square meter (except for the U.S.,where it is the square foot). For participants inthe industry this has the advantage that they donot have to talk about sales, let alone profit.However, the analytical use of this measure forour purposes is low, except in terms of changesin the relationship between sales value andsquare meters sold. We will come back to thispoint later. – The source of square meter data, ifnot otherwise mentioned, is the trade journal Ce-ramic World Review, usually based on datafrom ACIMAC, the association of Italian tileequipment manufacturers.

3 Data from Ceramics World Review, various is-sues. It must be noted that some industrysources have serious doubts regarding the accu-rateness of these data.


But China is a self-contained market so far –there are no imports and little exports of tiles,and the boom of machinery imports whichmarked the first half of the 1990s seems to beover as well. Accordingly, we will take nofurther looks at China.

Second, there is a group of countries with astrong tile consumption, namely Brazil,Spain, the U.S., Germany, and Italy. Three ofthem are major producers, namely Italy,Spain, and Brazil, whereas the other two aremajor importing countries. With respect tothese countries, there is a clear pattern:

? Italy so far is theleading producer.It was the firstcountry where tileproduction movedfrom craft to in-dustry. Italianfirms achieve thehighest averageprice per squaremeter, a fact thatreflects the highquality of Italiantiles, not only interms of physicalcharacteristics butespecially in termsof features such asdesign, style,fashion, and im-age. It also reflectsthe higher cost ofItalian producers,in particular interms of high-quality inputs forhigh-end products.Italian firms domi-nate the Germanmarket but have astrong presenceelsewhere as well.Italian productionis concentrated inthe Modena prov-ince in the Emilia-

Romagna region (about 80% of total), es-pecially around the city of Sassuolo.

? Spain’s tile industry is more recent thanthe Italian. It enjoyed very strong growthin the 1990s; Spanish production is aboutto overtake that of Italy in terms of squaremeters, albeit not yet in terms of salesvalue since the average price of Spanishtiles per square meter is about 60 % ofthat of Italian tiles. Spanish production isconcentrated around Castellón de la Planain the Autonomous Region of Valencia(more than 90% of total).

Figure 1

Production and consumption of ceramic tiles by country

1999. Source: Ceramic World Review.

ChinaItaly

SpainBrazil

TurkeyMexico

IndiaThailand

IndonesiaGermany

USAJapan

TaiwanPortugal

IranFrance

MalaysiaEgypt

South KoreaPoland

UK

0 400 800 1200 1600

Production Consumption

© JMS

Figure 2

Exports of ceramic tiles

1999. Source: Ceramic World Review.

Italy

Spain

Turkey

Brazil

Mexico

France

Germany

Thailand

China

Portugal

0 100 200 300 400 500

© JMS


? Brazil is the second largest tile market inthe world. Import penetration is close tonil, whereas domestic producers have re-cently increased their participation in theworld market. Production is concentratedin the states of Santa Catarina and SãoPaulo.

? The U.S. have been, and continue to be,the most dynamic market open for ce-ramic tile exporters, with consumptionincreasing from less than 100 millionsquare meters in 1990 to more than 200million square meters in 1999. Two thirdsof this is met by imports, and part of thedomestic production comes out of plantsowned by Italian firms.

? Germany is by far the most important im-port market in Europe, with only onethird of the market being served by do-mestic producers. However, sales growthis very limited.

This was the narrow perspective. However, tounderstand the tile industry it is essential totake a wider perspective, taking a look at theentire value chain from inputs to retail sales.Competition is based on innovation – in termsof production processes, products, and mer-chandising and after-sales services. In termsof product and process innovation, and fol-lowing the terminology of Pavitt (1984), thetile industry is clearly a supplier-driven in-dustry. There are two types of supplierswhich drive innovation in the tile business,namely manufacturers of capital goods andproducers of glazing material. To understandtheir respective role, it is useful to take a lookat the technical aspects of the process andproduct.

2.2 Features of the product and theproduction process

There are two types of tiles, conventionaltiles and porcelain tiles (porcelanato). Thebody of a conventional tile mainly consists ofclay, feldspar, kaolin, and quartz, with other

substances such as salt being added for visualeffects. These are ground into a very finegranulate which then is formed and pressed tocreate a biscuit. The biscuit is then coveredwith a glazing material; this is the crucial stepin terms of color and surface pattern. Thematerial then passes through a kiln where it isbeing fired for less than an hour at tempera-tures of more than 1200° centigrade. At theend of the kiln the tiles are inspected, mostlyvisually, but increasingly by automatic in-spection machines, and graded into differentqualities. The end of the line, which is usuallyfully integrated, is packaging. A glazed tilemay suffer a second or even third trip throughthe kiln, with further glazing material beingadded to create a more refined visual appear-ance. An important part of the glazed tilessegment, especially those with elaborate pat-terns and colors other than white, are subjectto relatively quick changes in fashion, withprices being lowered after a year and theproduct life-cycle for the more fashionablesegment not extending over more than two tothree years. Standard tiles, such as white,glossy, and 20 by 20 or 30 by 30 cm are apermanent part of the product spectrum. Theyare the bread-and-butter segment of the in-dustry, having low margins but making animportant contribution to the amortization ofproduction equipment. It appears that formost firms they make up the larger part ofsales not only in terms of square meters butalso sales value.4

Apart from conventional tiles, there are por-celain tiles (gres porcelanato). This kind oftile goes back to a traditional Italian productwhich was ugly but very resilient (“gresrosso”). In the course of the 1980s its pro-duction was continuously refined, in the endleading to a product which for the laypersonis not distinguishable from marble or granite;“improving upon nature” is the leading ideaof manufacturers of such products, who sys-tematically look around in the world to un-

4 Firms are unwilling to unveil any data in this re-spect.


derstand which natural stones are preferredby customers and then proceed to reproducethem. The chemical composition of a porce-lain tile is only slightly different from that ofconventional tiles, with colors sometimesbeing part of the biscuit since most porcelaintiles are not glazed. But its physical charac-teristics are clearly different, with porcelaintiles being more dense, with water absorptionbeing less than 0.5 % and often achieving0.05 %, thus making the product viable foroutside installation in cold climates (both forpavement and covering of building surfaces);this, in turn, opens new markets for tile pro-ducers. A porcelain tile may be covered withglazing material, something that according tosome industry sources does not really makesense but reflects the sales effort of producersof glazing material. The current main trend inporcelain tiles are non-glazed, full-bodiedtiles, i.e. they look the same from both sides.In the production of such tiles, the press isbecoming the most important part of the pro-duction process. Whereas it is just pressingthe mixture of raw materials in the case ofconventional tiles, it is defining not onlyphysical but also visual characteristics of afull-bodied porcelain tile. Understanding andcontrolling what goes on inside the press be-comes paramount. Full-bodied porcelain tilesare comparable to marble or granite in termsof appearance and physical characteristics(“marmi / graniti di fabbrica”), but they arecheaper (although more expensive than aconventional tile). Life cycles of porcelaintiles are longer than those of conventionaltiles.

Table 1 summarizes the steps and the mainissues regarding the production process. Itdoes not distinguish between the two maintypes of tiles since the main features of theprocess are identical.

2.3 The role of suppliers of capitalgoods and glazing materials

Let us come back to the two types of supply-ing industries which play the main role in

pushing the technological frontier in the tilebusiness forward. First, there are suppliers ofcapital goods. They are located almost exclu-sively in Italy, with more than 56% being lo-cated inside the Sassuolo cluster, and many ofthe others not far away (for instance SACMI,the largest manufacturer, is located in Imola,some 40 km away). The generation of a radi-cal innovation such as the porcelain tile in-volved intense interaction between capitalgoods producers and tile manufacturers (witha limited role being played by producers ofglazing materials). The capital goods produc-ers played a leading role. Since the end of the1970s they came up with innovations such aswet grinding, pressing with high tonnage ma-chines, roller kilns, and increasingly sophisti-cated control instruments (Burzacchini 2000,98). Wet grinding allowed a much bettercontrol of the mass which enters into thepress, thus homogenizing product quality.Improved pressing had the same effect. Theintroduction of roller kilns shortened the fir-ing process, thus not only improving qualitybut also reducing production costs and im-proving the control of the firing process. An-other important innovation was the singlefiring process. Whereas traditionally therewere two firing processes, with the glazingmaterial being added and fired after the bis-cuit had already passed through the kiln once,with the single firing process the pressed bis-cuit was covered with glazing material beforeentering the kiln.

Producers of capital goods have in-house de-velopment departments for both machineryand tiles, and the large ones also have ex-perimental production lines. They constantlycome up with incremental innovations foreach step of the production process. Typicalexamples go like this:

? A capital goods manufacturer comes upwith a new line of tiles with an innovativesurface structure which appeals to tilemanufacturers since it offers the opportu-nity to produce a differentiated, higher-margin product. However, in order tomanufacturing this new tile they will have


to acquire a new, more powerful or bettercontrollable press.

? Another capital goods manufacturerlaunches a printing machine which is us-ing a rotating drum with a silicon surfacerather than the conventional serigraphicprinting process. Thus, it is possible toprint color patterns onto tiles which arenever the same, opening the possibility tocreate, for instance, marble-appearanceswith conventional glazed tiles. This inno-vation not only opens the way to substan-tial sales of the new machine but also se-

cures a constant inflow of cash since themanufacturer offers its customers to pro-duce the rotating drums according to theirspecifications.

Second, there are producers of glazing mate-rials (colorifici). Technically, this is a sub-sector of the chemical materials industry. It isa sector which has undergone profound re-structuring in the past 20 or so years. In theold days, manufacturers came from differentcountries, and not always from places withstrong tile industries; leading manufacturersthen were Colorobbia (Italy), Degussa (Ger-

Table 1: Production process in the tile industryProductionprocess

Features Technological issues Manufacturersof capitalgoods

Weighing ofraw materials

Important to control the characte-ristics and content of each rawmaterial

Brazilian producers underesti-mate the importance of scientificcontrol of this part

Milling Dry or wet milling Wet milling used to be superior tocontrol the process, but the diffe-rence is fading away, especiallyas Italian producers start to im-prove dry milling to reduce thewater intensity of the sector

Italian andSpanish

Atomization Essential to control the quality ofthe biscuit

Italian andSpanish

Silo Stocking and homogenizing ofmixture of raw materials

local in eachcluster

Press Current maximum weight 7,200tons

Essential for product quality. Incase of porcelanato, most im-portant step of the whole produc-tion process regarding productquality and visual appearance.

Italian, with lo-cal manufac-turers for tools

Dryer Using recycled heat from the kiln ItalianIntermediatestock of bi-scuits

First quality inspection. Wasteoften not counted in quality stati-stics

Italian (forhandling alongthe wholeprocess)

Mixing of gla-zing material

Italian andSpanish

Covering ofbiscuit withglazing mate-rial

May include printing process Efforts to reduce the thickness ofglazing = reducing costs.Different printing technologies

Italian andSpanish

Firing Continuous moving inside thekiln (single, double, or triple fi-ring)

With progress in roller technolo-gy, kilns are getting wider to givemore flexibility in terms of tile si-zes

Italian

Product in-spection

Grading of tiles into two or threedifferent quality grades

Move towards automation, espe-cially in terms of color shade

Italian, UK

Packaging Fully automated process


many), and Ferro and Johnson (U.S.). How-ever, today the sector is dominated by Span-ish firms, all of which have their headquartersand main laboratories in the Castellón region,and the four firms mentioned before also havelocated their main tile-related operationsthere, with both types having affiliates in sev-eral other countries as well. This was due tostrong and sophisticated demand from localtile manufacturers which differed from theirItalian competitors in two respects:

? They used a different kind of clay, onewhich was more tricky in achieving high-quality, especially a homogeneous qualityof the surface. Learning to deal with thischallenge was one of the elements in es-tablishing a technology-based competitiveadvantage for Spanish glazing producers.

? They pursued a more scientific approachto the production process, trying to get aprofound understanding of issues such assintering kinetics inside tiles while theymove through the kiln. This, in turn, isone of the basis of their ability to givetechnical assistance to the tile manufac-turers.

Since rivalry between producers glazing ma-terials is strong, they are constantly seekingfor ways to establish a competitive advantage.One way of doing so is free technical assis-tance to custsomers. Another way is to offernew designs for free to the customers, thuscreating a demand for the own glazing prod-uct. The core competence in design is there-fore moving from tile to glazing manufactur-ers. Producers of glazing materials have largein-house design departments. While a typicaltile manufacturer in Castellón may have threedesigners, the leading producer of glazingmaterials has 40 in Castellón and more in theaffiliates, while the total number of employ-ees is less than one thousand, distributedacross factories in eight countries and repre-sentative offices in some more.

One way of understanding the current dyna-mism in the industry is to define it as the out-

come of a power struggle about technologicalhegemony in the tile sector. Italian machinerymanufacturers are the dominating force in theporcelain segment of the industry, whereasSpanish producers of glazing materials arethe dominating force in the conventional tilesegment. Both are much more than just sup-pliers. They have substantial in-house ca-pacities to develop radically and incremen-tally new products; examples of a radicallynew product are the full-bodied porcelain tileor glazing materials for the single firing proc-ess, whereas incremental innovation in termsof new designs and surface structures is hap-pening all the time, with new products beinglaunched at each of the three main annualfairs (in Bologna, Valencia, and Orlando/NewOrleans). Both types of suppliers also provideassistance to tile manufacturers to sort outproblems in the production process. Rightnow, it appears that Italian manufacturers ofcapital goods have a strong position in China;no less than 27% of all porcelain tile manu-facturers are located there, only little less thanin Italy itself (32%; Ceramic World Review37/2000, pp 92 ff). Spanish producers ofglazing materials have a very strong presencein Brazil, where right now only the secondporcelain tile plant is being set up, whereasmost of the leading producers of glazing ma-terials are distributing or even producing lo-cally, and play a very important role in givingsupport to tile manufacturers, both in terms ofnew product designs and solution of produc-tion process problems.

At the same time, it is important to note thatthe economies of clustering appear to be verystrong in the tile industry. This reflects theconstant exchange going on along the valuechain, in particular between suppliers and tileproducers. Geographical proximity is para-mount in facilitating quick and effectivecommunication to sort out problems or comeup with innovation. Barriers to entry insidethe cluster are low, whereas in other locationsthe diseconomies of isolation are so strongthat it is difficult to run tile production in aprofitable way.


2.4 The demand side

So far we have looked at the supply side, i.e.the input and production stage of the tilevalue chain. Let us now have a look at thedemand side, i.e. the distribution and salespart of the tile value chain. In order to get anadequate understanding of the tile business itis essential to recall that, first, it is part of theconstruction material industry and that, sec-ond, tiles are competing with other materialsused to cover floors and walls, be they insideor outside buildings. This may appear trivial,but it has important implications for the in-dustry:

? Being part of the construction industrymeans being subject to demand fluctua-tions which are bigger than, say, in thedairy industry. This has not been a prob-lem in the recent past, since tiles havebeen taking market share from other cov-ering materials.

? It also means that tiles are a durable con-sumer good, and a specific one since anindividual over the course of his lifetimewill purchase tiles less frequently than,say, a car or a TV set. This, in turn, givesrise to problems of information asymme-try which create specific problems interms of brand-name strategies.

? Being part of the construction industry inmany places also means that informalityis a issue which is not alien to the busi-ness. This, in turn, creates a specific set-

ting in terms of business-government re-lationships, and it also means that themindset of tile firm owners is not neces-sarily of the MBA-variety.

? Competing with other covering materialsmeans that tile manufacturers have to beaware of tendencies in neighboring in-dustries with substitutive products. It is,however, important to note that in the re-cent past it was rather firms in neighbor-ing industries, such as marbles, granite,vinyl, wood, and carpets who were losingmarket share to tiles.

? Competing with other covering materialsmeans different things in different mar-kets. One of the reasons why Italy andSpain are the leading suppliers of theworld market is that domestic demand hasbeen very strong in these countries,something that can be explained withcustomer preferences shaped by the pe-culiarities of the local climate. In thesecountries, it is not rare to find that all thefloors in a house are covered with tiles. Incountries with moderate climates the useof tiles tends to be more limited, espe-cially to those parts of a house where hy-gienic considerations are important, i.e.kitchens and bathrooms.

A further issue in being part of the construc-tion business has to do with the structure ofcommercialization. There are two issues,namely who exactly is the customer and whois going to attend the customer.

Table 2: Differences between tiles and other durables and non-durablesTiles other durables non-durables

frequency of purchase 0 - 3 in lifetime every 2 - 10 years daily to monthlyinformation symmetry low high highimportance of brand low high low to highsystemic character ofproduct

high (style compatibilitywith other parts of inte-rior design)

limited (e.g. compatibi-lity of stereo compo-nents)low (e.g. cars)

limited (compatibility ofdifferent pieces ofclothing)

characteristics of pointof sale

very intransparent (buil-ding company + con-tractor + various supp-liers + service provi-ders)

easily understandablefor consumer

easily understandablefor consumer


? There are basically three types of custom-ers, i.e. tile-purchase decision-makers,namely consumers, architects, and con-struction companies (in countries such asGermany this includes small specializedtiling firms). Each of them has a differentway of making a purchasing decision, andis using different criteria. Consumershave usually little information, make theirdecision based on aesthetic and price cri-teria, and demand basic advice at thepoint of sale. Architects are well-informed, need more sophisticated infor-mation, and have a more refined set ofaesthetic criteria, making them the mostsophisticated customers in this respect.Construction companies are mostly inter-ested in a low price.

? There are three, and in some countriesfour, types of points of final sale. First,there are independent shops specializingin tiles. They cater to the medium- andhigh-price segment. They often have alli-ances with tiling firms, or even have theirown tilers. Second, there are home-centers and DIY shops, such as HomeDepot, Obi, and Le Roy Merlin. Theycater to the low- and medium-price seg-ment. Third, there are construction com-panies. Finally, in the U.S. there are floorcovering shops which used to sell mainlycarpets and vinyl but have recently startedto sell tiles as well. All of them may pur-chase tiles from wholesalers, but it is in-creasingly common for manufacturers todeal directly which final sellers, espe-cially large chains of home-centers andDIY shops.

What are the main tendencies in terms ofcommercialization? So far, commercializa-tion of ceramic tiles is not particularly con-centrated. A large tile manufacturer may haveas much as 4,000 customers. However, in-dustry insiders are anticipating, and in maturemarkets such as Germany already clearly dis-cerning, a strong concentration process incommercialization, in particular a stronggrowth of chains of home-centers and DIY

shops. This tendency would have two collat-erals. First, intermediate actors, such as im-port agents and wholesale traders, may sufferor even disappear. Second, it is likely thatthere will be a polarization in tile demand,with a strong demand both for cheap tiles(sold in home-centers and DIY shops) and forfashionable, design-intensive, high qualitytiles (sold in specialized shops), with themiddle segment slowly disappearing.

What is the importance of brand names in thisindustry? Regarding final customers, espe-cially individual consumers, it is low. Onlyfew firms found it worth the effort to create abrand image with individual customers; ex-amples are Marazzi from Italy and Porcela-nosa from Spain (albeit mostly in its homemarket). Brand image seems to be more im-portant in terms of interaction with shops. Wewill come to this point in particular in ana-lyzing the Italian cluster.

At first glance, a somewhat surprising obser-vation is that there is little synergy betweentiles and related products. One might expect atendency towards a complete product offer,for instance tiles, bath tub, wash basin, toiletand maybe even bathroom fittings all fol-lowing the same design concept and being of-fered by the same manufacturer. In fact, thereare isolated cases of firms pursuing such aconcept, such as the Spanish firm Roca. Butthe success seems to be limited, and there areseveral reasons why the synergy concept mayremain unimportant. One of them is that allmanufacturers in the segment are followingthe same overall design trends anyway, sothat for an individual customer, and evenmore for an architect, it is not difficult to geta compatible set of individual products. Thenthere is the observation that specialized pro-ducers tend to be more efficient and competi-tive than those who offer a broad range ofproducts. Another issue is that only some ofthe Italian firms, and hardly any in Spain, areso large that they have the financial clout toform an integrated group.


Regarding the future perspectives of demandfor tiles, the industry usually points at the dif-ferences in per-capita consumption. In such aperspective, not only the United States butalso several developing countries appear aspromising markets. Things look different ifwe relate tile consumption to gross domesticproduct calculated at purchasing-power pari-ties. In this perspective, the room for expan-sion in the two largest markets, China andBrazil, looks much more limited (Figure 3,Figure 4).

Figure 5 depicts the overall structure of thetile value chain. It does this with a look at the

actors, but from a rather tech-nical perspective. It gives arough overview of the varioustypes of supporting industriesand institutions, it mentionsthe alternatives for verticalintegration at the early stageof the production process, andit depicts the different saleschannels.

Figure 6 looks at the actorstructure from a somewhatdifferent angle. It is muchmore a (debatable) interpreta-tion of the current powerstruggle in the industry. Notethat the sales channels are notmentioned explicitly in thisfigure. What in our view ismore important to understandthe constant upgrading effortin the industry is localized ri-valry in Sassuolo and in Cas-tellón, both within the tile andits local main supplier indus-try. Moreover, there is the ri-valry between the Italian ma-chine producers and theSpanish glazing manufactur-ers about the dominant tech-nological pattern, and ofcourse between Italian andSpanish tile producers. This

affects some of the more recent latecomers.China appears to be very much influenced bythe Italian model of a strong emphasis onporcelanato, whereas Brazil rather follows theSpanish model, with a very strong position ofthe colorifici; things are less straightforwardin Turkey and the NAFTA countries.

In order to get a better understanding of theunderlying factors of these various rivalries,we have take a look at the two leading clus-ters and the Brazilian latecomer cluster in thefollowing three chapters, before coming backto a look at the evolution of the overall valuechain in the tile industry.

Figure 3

Per-capita consumption of tiles (1998)

Sources: Ceramic World Review, World Development Indicators.

ChinaBrazilSpain

United StatesGermany

ItalyFranceTurkeyMexico

IndiaJapan

PolandPortugalThailand

0 1 2 3 4 5 6 7 8

© JMS

Figure 4

Consumption of tiles related to GDP at PPP (1998)

Sources: Ceramic World Review, World Development Indicators.

ChinaBrazilSpain

United StatesGermany

ItalyFranceTurkeyMexico

IndiaJapan

PolandPortugalThailand

0 0,1 0,2 0,3 0,4 0,5

© JMS


Figure 5: The value chain of the tile industry

Figure 6: Power structure in the international tile industry


3 The Cluster of Sassuolo /Italy

Why is it that Italy is commonly per-ceived to be the dominating force in thetile industry? The immediate responseappears to be obvious: it has the largestfirms, it has a strong design compe-tence, and it is Italian machinery pro-ducers who deliver by far most of thecapital goods for the tile industry any-where in the world.

But this immediate response also hasits limits, since there are other aspectswhich are not in favor of Italy. Produc-tion costs are higher than in any otherimportant producer country. Environ-mental standards are stricter, which isthe result of a severe environmentalimpact the industry used to have (andto some extent still has). The domesticmarket is hardly growing at all,whereas other producers benefit fromvibrant albeit demanding local markets.Technology and production of glazingmaterials is dominated by Spanishfirms. And Spanish firms are betterthan Italian when it comes to scientificunderstanding and control of the pro-duction process. Thus, identifying thecompetitive advantage of the Italian tileindustry, and indeed finding outwhether there still remains a competi-tive advantage, is less straightforwardthat one might expect.

3.1 The structure and evolutionof the ceramic tile industry inItaly and the Sassuolo cluster

90 % of Italy’s tile production capacityis located in the Emilia-Romagna re-gion, with 80 % being concentrated in80 km² of ten municipalities around Sassuoloin the province of Modena, with some firmsbeing located in the neighboring provice ofReggio Emilia. The industry builds upon acenturies-long tradition in craft-based ce-

ramics manufacture. Today’s firms weremostly created in the post-war period, whenthe reconstruction of Italy created a strongdemand for construction materials. Business-founders often had a background in agricul-

Figure 7Historical evolution of export share of tile production in Italy

Counted in sqm. Source: Bursi.

1960 1965 1970 1975 1980 1985 1990 1992 19940

10

20

30

40

50

60

70

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Figure 8Evolution of number of tile firms in Italy

Source: Bursi, Assopiastrelle

1960 1965 1970 1975 1980 1985 1990 1992 1994 1996 1998 19990

100

200

300

400

500total Sassuolo elsewhere

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Figure 9Evolution of tile industry employees in Italy

Source: Assopiastrelle.

1984 1986 1988 1990 1991 1992 1993 1994 1995 1996 1997 1998 19990

5

10

15

20

25

30

35

40Sassuolo Rest of E-R elsewhere

© JMS


ture, and it was not rare that the availabilityof clay on a rural estate was an importantelement in generating the idea to start tileproduction.

In order to understand the evolution of the in-dustry since the 1960s, it is important tomention that the region was also a host tomany metal engineering firms and work-shops. It was these firms who started to drivetechnical progress in tile manufacturing. Theycame up with innovations such as continu-ously moving kilns, a major innovation whichimproved product quality, reduced productiontime from days to hours, and thus reducedcosts.

Starting in the 1970s, Italian firms startedsystemically to explore export markets(Figure 7). Leading firms, such as Marazzi,undertook a serious effort to create a brandidentity abroad, but it was mainly the Tilesfrom Italy label which made the difference,with Italian tiles having both a different ap-pearance and more diversified sizes thanthose produced locally in target markets. Tilemanufacturers also started to collaborate withexternal designers and artists to create inno-vative designs. In this era, it was essentiallyby combining a superior production technol-ogy and efficiency with superior productiondesign and marketing effort that the Italiantile industry established a clear leadership po-sition, driving traditional competitors such asGerman firms out of the market.

In order to understand the evolution of the in-dustry it is useful to look at the evolution ofthe number of firms and the number of em-ployees (Figure 8, Figure 9). The number offirms grew until the late 1970s but has beendecreasing ever since, whereas the number ofemployees has been more or less stable. Be-hind this is the fact that since the 1980s theindustry has been going through a process ofconcentration, with no new tile manufacturersentering and many producers being takenover by other firms.

3.2 Upgrading in the Sassuolo cluster

It is difficult to identify major turning pointsin terms of upgrading in the Sassuolo cluster;upgrading is a permanent feature of the clus-ter, and it is driven both by technology and bymarketing and sales. In the 1960s and 1970smajor technological innovations included theroller kiln and heavy presses. Examples ofmore recent innovations are Rotocolor andporcelanato. Rotocolor is a printing machinewhich is using a rotating drum with a siliconsurface. Porcelain tiles (porcelanato) havebeen mentioned before. The constant tech-nological upgrading involved strong interac-tion between tile and capital goods manufac-turers.

Restructuring of the cluster displays a ten-dency towards polarization. The followingtables indicate that the dominating trend istowards consolidation, i.e. typically mergersand acquisitions which lead to more productdiversification and vertical integration. Thesecondary trend is towards specialization, inparticular on special parts (final row in Table5).

In terms of marketing and sales, the effort tocreate a brand name and a strong presence inmany important countries was a major reasonfor the concentration process which hasmarked the industry since the 1980s; as Table6 shows, the ten largest groups today accountfor more of 60 % of total production. Therewere two typical patterns of concentration.First, there were frequent minority cross-holdings between firms which at some pointin time were transformed into more formalties, creating a holding. Second, basically allthe firms were family-owned, and in somecases families opted for selling the firm ratherthan going through the trouble of an intra-family management succession.


One would expect that concentration also in-volves an attempt to create economies ofscale. This has been the case regarding pro-duction, but much less regarding brandingand sales. A typical pattern was that the for-mation of a group led to better utilization ofexisting production capacity. As overall de-mand was growing more or less all the time,every firm was expanding all the time. How-ever, with the formation of a group the pro-duction of a given brand could take place inany factory of the group. There were only few

cases where a group would create a singlebrand; Marazzi is a rare example in this re-spect. A typical large group, such as Iris orCisa-Cerdisa-Ricchetti, has something likefour to six different brands. One or two ofthem may be product- or segment-specificbrands, whereas the other brands cover thesame, usually the entire, product spectrumand thus compete against each other. Thismay appear bizarre, but there is a clear logicbehind it which is related to the structure ofcommercialization. Let us assume that in agiven region, say Sussex, there is one major

Table 3: Diversification in Cluster of Sassuolo (number of firms)1987 1990 1995

One-product specialized firms 252 207 143Two-products specialized firms 74 101 50Diversified firms 29 39 147Total 355 347 340

Table 4: Sassuolo: Number of productive facilities by Firm1987 1995

Firms with 1 plant 315 283Firms with 2 plants 25 39Firms with 3 and more plants 13 20Total number of plants 415 435Total number of firms 353 340

Table 5: Sassuolo: Vertically Integrated and Specialized FirmsType of Firm 1988 1995Vertically integrated 123 172Specializ. on tile body 8 5Specializ. on glazing or 3rd. fire 128 83

Source: Cer Annuario, in Bursi (1997).

Table 6: Main groups in the Italian tile industry1994 1996 1998 accumulated share of

industry sales in 1998Marazzi 361,6 516,4 610,4 13,4%Iris 464,8 506,1 24,5%Cisa-Cerdisa-Ricchetti 187,0 315,3 405,9 33,5%Cooperativa Ceramica d'Imola 148,7 168,7 232,2 39,3%Concorde 142,0 179,3 256,8 44,9%Florim 147,7 160,8 204,2 49,4%Sirotti 139,4 154,4 159,6 52,9%Riwal Ceramiche 75,7 84,8 114,2 56,1%Panaria 55,2 91,6 134,1 59,0%Emilceramica 90,4 105,9 117,2 61,6%Turnover in EU. Source: Ceramic World Review, 34/1999.


tile store which is selling Ricchetti, apartfrom Iris and Marazzi. If we now assume thatin the same region a major home-center es-tablishes itself, the Cisa-Cerdisa-Ricchettigroup would like to get some shelf-spacethere, too. But if the home-center started tosell the Ricchetti brand, the tile store proba-bly would kick it out of its offer. The way outis to continue selling Ricchetti to the storeand to sell Cisa to the home-center. This isthe reason why many groups do not onlymaintain parallel brands but also parallelsales organizations (albeit not necessarilyparallel logistics operations).

There is also a causal link between concen-tration and internationalization. Exports havedoubled in the 1990s (Figure 10). Firms arguethat there are minimum size requirements inorder to be able to be present in several ex-port markets, which are due to production ca-pacity and size of the sales force. Internation-alization so far mostly means having salesrepresentatives and in many cases distributionwarehouses in target markets. Internationali-zation of production so far is a rare phenome-non. An early mover in this respect was Ma-razzi, which set up factories in Spain and theU.S. in the 1980s. The second largest group,Iris, keeps all its production in the Sassuoloregion. The third largest group,Cisa-Cerdisa-Ricchetti, has af-filiates in Finland, Sweden, andGermany, which is not so muchdue to a clear strategy but ratherto the fact that Ricchetti forsome time was owned by a for-eign conglomerate whichmerged it with its factories inthose countries and then decidedto leave the tile industry alto-gether. The only other groupwith a strong manufacturingpresence abroad is Florim whichhas taken over a major but bank-rupt U.S. manufacturer.

A major competitive advantageof Italian tile manufacturers isquick delivery. This is based on

two factors. First, stocks are deliberately keptlarge; they amount to about three months ofproduction. Second, there is also upgrading,in this case in terms of distribution wheremanufacturers have created systems whichallow them to deliver a given lot of tiles toany place in Germany, the main export mar-ket, within four to five days. The most recentupgrading initiative in this respect was thecreation of Assocargo, a collective logisticssolution.

Another issue which is related to upgradingand competitive advantage is the environ-ment. One of the big issues in the cluster isEMAS, the EU certification for environ-mental management which is more compre-hensive than ISO 14 000. Many of the firmshave already been certified, and there is talkof trying to certificate the cluster as a whole.Behind these achievements is the fact that thetile industry is not necessarily environmen-tally benign. In the early 1970s, daily emis-sions of fluoride in the cluster amounted to 2tons. With the use of filters and changes inthe production process, this has been reducedto 0.5 tons, with a much larger overall pro-duction volume. Other issues are the high en-ergy intensity and water consumption.

Figure 10

Tile production in Italy

Source: Assopiastrelle.

19791980

19811982

19831984

19851986

19871988

19891990

19911992

19931994

19951996

19971998

1999

0

50

100

150

200

250

300

350

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450domestic sales export

© JMS


To actors in the cluster it appearsthat a strong process of concentra-tion and internationalization is oc-curring. However, compared withwhat is going on in other industries,concentration and internationaliza-tion in the tile industry are pro-gressing at a relatively moderatespeed. Assuming that the comingyears will be a period when in manycountries the future power structuresin the construction material industrywill be defined, one can even arguethat the speed is far too slow.

3.3 Structure of the valuechain

The first part of the value chain ofthe Sassuolo cluster is the deliveryof clay, mostly white clay, most ofwhich has to be imported fromGermany and the Ukraine; yet ac-cess to clay does not seem to be astrategically important issue. Proc-essing of the clay, atomization andpreparation of the biscuit are usuallyin-house activities conducted byeach tile manufacturer; to a limitedextent large firms are selling atom-ized clay to smaller manufacturers.But there are specialized providersfor many other important inputs and services:glazing materials, capital goods and infor-matics, design and special parts, transport,and marketing and sales.

The production of glazing materials nowa-days is dominated by Spanish producers.Even the single remaining important Italianproducer, Colorobbia, has moved centralfunctions to Castellón. The reason for thisshift is the fact that Italian tile manufacturershave shown much less propensity to out-source more than routine production of glaz-ing materials. There was less demand, and inparticularly less sophisticated demand, forglazing materials in Sassuolo.

Another important type of specialized firmsare those design and special parts firms. Thelargest of these firms has more than 100 em-ployees, many of them designers. They de-velop design concepts and entire collectionsof tiles. They are also subcontracted by tileproducers to manufacture special parts.

Another type of specialized firms are thoseactive in sales, in particular tradings. Italiantile manufacturers do not have their own saleschains (with the exception of two largegroups in their U.S. operations), and not all ofthem have their own sales reps in target mar-kets. This opens an important niche for trad-ing firms.

Figure 11Ceramics machinery production in Italy

Source: Acimac.

19881989

19901991

19921993

19941995

19961997

19981999

0

500

1000

1500

2000

2500domestic sales export

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Figure 12Ceramics machinery production in Italy:

Number of firms and employees

Source: Acimac.

19881989

19901991

19921993

19941995

19961997

19981999

0

50

100

150

200

250

5

6

7

8

9

10firms employees

© JMS


3.3.1 Performance of the capital goodsindustry

The capital goods industry has gone through aturbulent decade. Demand expanded stronglyin the first half of the 1990s, driven by do-mestic expansion, but much more by a strongincrease in exports, in particular to Asia. Inthe peak year 1996 more than half of total ex-ports, i.e. about EU 650 million, went to Asia.With the Asian crisis demand droppedsharply, amounting to just EU 130 million in1998. The impact on the industry is clearlyvisibly in Figure 12, i.e. the number of firmsin the industry and of employees dropped.

One of the main responses in dealing withfluctuating demand is outsourcing. Bursi andMarchi (2000) report an increasing tendencytowards outsourcing, being used by 50 % ofthe firms. For the subcontractors, the maincustomer represents on average 30% of thesales, and the main 3 around 55%. More than25% of subcontractors concentrate on themain 3 customers more than 75% of theirsales. There have been no major changes re-garding this latter over the last decade. Theperception of subcontractors with regard to itsrelation with final producers is one far closerto a buyer oriented chain. To confirm this, thesubcontractors inform that the average dura-tion of the subcontracting relationship with acustomer firm is 7 to 8 years.

In the second half of the 1990s, there was notjust a drop in demand but also a change in thetype of demand. The demand for turnkeyplants dropped close to zero, and sales ofkilns in 1999 were less than half of the 1996value. Sales of presses, glazing equipment,and handling equipment remained roughlystable. There are two distinct reasons for thelatter:

? Presses and glazing equipment have to beupgraded constantly to keep abreast withproduct innovation. To put it differently:There is a clear incentive for machineryproducers to come up with new types oftiles which can only be manufactured

with new kind of equipment, i.e. in-housedevelopment of tiles by machinery pro-ducers generates a demand for machinery.

? The tile production process is highlyautomated, and still there are continuedefforts to replace labor with machinery. Inthe case of Sassuolo, the motivation is notonly high wages but also the sheer lack ofworkers. Ongoing automation has led tofeatures such as fully automated packag-ing and palleting and laser-guided vehi-cles.

3.3.2 Interaction between machineryand tile producers

The relationship between tile manufacturersand capital goods firms is profoundly differ-ent from that with glazing producers; it ismuch less hierarchical, and if there is a powerdisequilibrium, then it is to the detriment oftile manufacturers. To start with, the largecapital goods producers are much older thanmost tile manufacturers; the largest firm,SACMI, started as a cooperative of craft-shops in 1920. In the case of Sassuolo, it iscapital goods manufacturers who drive tech-nological innovation. When they come upwith new types of equipment, they will ofteninstall it at one of the tile factories and refineit by on-site experimentation. This will in-volve the acquisition of a new piece ofequipment for free, or at least at a substantialdiscount, for the tile manufacturer. This is themain explanation for the claim, sometimesheard in other countries, that Italian tile firmspay less for equipment. They also enjoy someprivileges in terms of access to latest innova-tion. However, this does not involve exclu-sive relationships. The capital goods manu-facturers sell their products to whoever iswilling and able to pay. For instance, in thefirst half of the 1990s they sold huge numbersof turnkey plants to Chinese firms, and thereis no indication that this involved any out-dated equipment.


One might expect that there is highly conflic-tive relationship between capital goods andtile manufactures, since the former are veryactive in creating competitors for the latter.But they seem to have found a way of notletting that conflict become too manifest. It isnotable that even though Chinese or Brazilianfirms may have the same equipment which isin use at Italian tile manufacturers, the styleand elaboration of their products comes no-where close to that of Italian producers. Thishas to do with the transferability of tacitknowledge. First of all, tacit knowledge bydefinition is difficult to transfer. But thereseems to be another important factor. As ourresearch in Brazil clearly showed, customersin that country conceptualize technologytransfer as the acquisition of equipment plussome training, whereas Italian suppliers arewell aware of the fact that it is the other wayaround, i.e. some equipment plus lots and lotsof training. But the suppliers are happy toleave customers abroad in their misbeliefrather than enlightening them since this re-duces the level of conflict they have withdomestic customers who are not quite happyabout the creation of production capacityelsewhere. By leaving customers abroad intheir self-chosen ignorance, capital goodsproducers are causing somewhat less head-ache for Italian tile manufacturers.

3.3.3 Perspectives of technologicalupgrading

At the Ceramics Technology Fair in Munichin October 2000 the machinery firm System(which is based in Fiorano in the Sassuolo-cluster) launched a new product and produc-tion process. System had already revolution-ized the glazing process in the 1990s when itintroduced the Rotocolor machine. This time,the impact of its innovation may become evenlarger. The new product, called Lamina, andthe new process, called Sinterflex, are radi-cally different from established practices.Lamina has an appearance and physical char-acteristics which are similar to porcelain tiles,but it is just 3 mm thin (very thin tiles come

down to 6 mm) and it comes in panels of 90 x250 cm. The process departs from the currentpractice in several respects. The press ismuch smaller but stronger. The kiln is basedon electricity, permitting much shorter shut-down times and a better control of the proc-ess. The whole production line has an exten-sion of less than a third of a conventionalkiln; counting the extension of a normalglazing line as well, the size comes down toone tenth. The new process will be tested foranother two years in collaboration withsomething like five manufacturers and willthen be launched commercially.

The response of the tile producers in thecluster gives an idea of their current level ofcomplacency. Five of the large firms jointlyasked System for an exclusive contract,promising quick amortization of the invest-ment involved in development of the newtechnology. At the same time, firms from allover the world are queuing at System to bethe first to acquire the new process, and thisincludes not just tile manufacturers. As thenew process invalidates a large part of thetacit knowledge which is one of the advan-tages of the Sassuolo cluster, it opens a win-dow of opportunity for competitors such asPilkington or Eternit to enter the tile industry– or whatever this industry will then becalled.

Inside the cluster, at the time of the launchthe predominant view was that this was notreally a product competing with tiles. Currentefforts to make sense of the new productpoint at applications such as surface coveringof buildings or use to cover furniture (for in-stance, in the kitchen). Another suggestion isthat the panels may be cut into parts of theusual tile size, but this is not particularly con-vincing. It is rather likely that the new prod-uct will be used for purposes which nobodycan imagine right now. It certainly will bevery important for technical applications, e.g.floors in airports, train stations, etc. But thisis where many industry sources also see astrong growth potential for porcelain tiles.One can conceive that Lamina induces a pro-


cess of cannibalization, seriously cutting intothe market for porcelain tiles, i.e. the flagshipproduct of Italian tile manufacturers and thebackbone of the Sassuolo cluster.

The trend from glazed tiles to porcelain tilesso far benefits, most of all, the Italian indus-try since it is the Italian machine producerswho dominate this technology. In the Spanishindustry, the colorifici have a very strong po-sition and are main push element in terms oftechnological innovation. However, their po-sition is bound to weaken with the increasinguse of porcelain tiles.

On the other hand, the advent of new prod-ucts such as Sinterflex is jeopardizing theSassuolo cluster. Science-based products andprocesses erode one of the two locational ad-vantages of Sassuolo tile manufacturers,namely the employees' tacit knowledge,enormous experience, and deep familiaritywith tiles; the other advantage is style and de-sign creation, but this follows a product-outlogic and may be jeopardized by other clus-ters which develop a good understanding offinal customers’ behavior. Initially, all thiswill put a pressure on tile manufacturers andmay induce a major crisis of the Italian tileindustry. But since the machine producersvery much rely on close interaction with localproducers, they are at risk as well.

3.4 Product structure and marketsegmentation

We have already referred to the fact that Ital-ian tile manufacturers tend to have a broadproduct spectrum and often parallel brandsand sales organizations. There is some degreeof product specialization between manufac-turers, but this applies more to smaller firmsthan the large groups. There is a number ofsmaller producers which clearly opt for aniche strategy. There are two kinds of niches,i.e. a vertical and a horizontal niche. A typicalvertical niche are high-end, expensive porce-lain tiles. A typical horizontal niche are an-tique-looking, rustic tiles in small formats.

Current changes in terms of segmentationstrategies refer to the issue of branding. Thereare two distinct manifestations. First, somefirms opt for brand image transfer, for in-stance by launching a tile collection under theLaura Biagiotti name. This is part of an effortto widen the high-end of the market. It is notyet clear whether this is really an importanttendency. Second, some large firms are pro-ducing private labels for large customers, es-pecially home-centers. This is part of an ef-fort to stimulate growth at the low-end of themarket.

Overall, we found it difficult to identify reallyconvincing, sophisticated efforts in marketsegmentation. Design studios are launchingproduct lines based on overarching style anddesign concepts. But the tile manufacturersthemselves are pretty much pursuing product-out strategies, i.e. are constantly launchingslightly modified designs and hope that thereare enough people out there who are fond ofItalian style.

3.4.1 Sales and after-sales services

The competence of Italian firms in sales andafter-sales services is undisputed in the in-dustry. This applies, first of all, to the sheersalesmanship. But it also refers to issues suchas quick delivery, punctuality, reliability, andconsistent quality. In emerging markets suchas the U.S. further features are important,such as training of vendors, product informa-tion, and providing general information ontiling. It is obvious that somebody who hasbeen selling carpets for most of his life willneed more than just a brochure to give quali-fied advice on selecting tiles, and Italianfirms are offering training in this respect.Also, apart from individual firm advertisingefforts it is important to launch generic pro-motion campaigns for tiles.


3.4.2 Exporting and the relevance ofinternational value chains

Italy’s tile export structure is highly concen-trated, with about half of total exports goingto just three markets (Figure 13). Two ofthem are static, whereas the U.S. market isdisplaying strong growth. Italy’s market sharein the U.S. is twice that of Spain, its maincompetitor, and it is essential forItalian firms to defend their lead-ership in the U.S. market if theywant to keep their exports growingstrongly.

Italian tile manufacturers, espe-cially the leading firms, appear tobe relatively powerful actors ininternational value chains. Thisdoes not mean that they can domi-nate the chain to any extent. Butthey play an active role in shapingthe chain, especially in terms ofinfluencing changes at the com-mercialization stage. This is par-ticularly evident in the U.S.,whereas in Europe it appears that

home-centers are, at least in some countries(such as Germany, the largest market), themore aggressive actors. Table 7 gives a over-view of the different constellations.

We have argued above that the concentrationprocess is, among other things, motivated bymarketing considerations. It seems that theconcentration process in itself is one of the

Figure 13

Italian tile exports by country

in EU, 1999. Source: Assopiastrelle.

Germany 21,7%

U.S. 15,1%

France 14,0%

Other Europe 13,4%Asia 7,4%

Greece 3,7%Belgium/Lux 3,4%

Other America 3,3%Austria 3,1%

Australia/Oceania 2,9%UK 2,7%

Netherlands 2,5%Africa 2,0%Spain 1,4%other EU 3,5%

© JMS

Table 7: Structure of commercialization in key marketsDestination Market Distribution Structure Italian Position / StrategyUSA (North) Large intermediaries (Homecenters,

Carpet-chains). Product parameterstrend to be supply-driven.

Market advantage of “made in Italy”,competent sales force, and designoriented to local taste. Logistic effi-ciency. Assopiastrelle wants to pro-vide sea cargo in the Atlantic routes.

USA (South) Rather smaller distributors. Broadnetwork of both Italian and Spanishrepresentatives, which contact di-rectly to retailers. Tastes are moresimilar to Mediterranean.

Competent sales force to contactretailers. In addition, direct invest-ments of some groups to produce inUSA the lower quality tiles. Effort tointegrate forward into sales.

South America Less sophisticated market, price ori-ented; large importers/distributors

Marginal position, no advantages ofItalian product (too expensive)

Germany Strong tendency of polarization bet-ween low- and high-end. Growth ofhome centers to the detriment oftraditional shops and wholesalers

Leadership due to better image ofwhite body tiles and loyalty of cu-stomers.

South-West Europe Dominated by small distributors. Inmany cases, direct contact betweenmanufacturer and retailer

Strong position in domestic marketand Greece. French market is sha-red with Spanish product.

Central Europe Dominated by large distributorswhich serve small retailers. Tastestrend to follow the German market,but there are some differences

Similar to German market, but thereare exceptions (Poland)


factors which contribute to the deteriorationof local governance – firms are getting largerand thus more confident to be able to solveproblems on their own. But there is a furtheraspect which connects marketing and localgovernance. What has been receiving thelargest attention in the industry in the lastyears has been the U.S. market. This marketappears to be in a process of profound trans-formation, and it appears that firms perceivethe current situation as a window of opportu-nity, a kind of now-or-never-constellation.They try to establish for themselves a positionwhich is expected to guarantee them successin the future. The implicit key hypothesis isthat there is only so much opportunity to ei-ther take over one of the few existing relevantsales chains or set up an own distributionstructure from scratch. Those firms who donot establish this kind of position now arefacing an uncomfortable future. In otherwords, a fierce struggle is on, not only puttingItalian firms against Spanish ones but also,and most of all, putting the major Italianfirms against each other. Our hypothesis isthat this is creating a constellation wherecollaboration between these same firms isunlikely, except for the most pressing issues.

3.5 Structure of supporting institutions

The big event in the tile industry is Cersaie,the annual trade fair in Bologna. Cersaie isbeing organized by Assopiastrelle, the asso-ciation of Italian tile manufacturers. Asso-piastrelle, which occupies an impressive pa-lazzo in Sassuolo, is one of the two main as-sociations in the cluster; the other one isAcimac, the association of the capital goodsmanufacturers.

Apart from Cersaie, Assopiastrelle is pursu-ing a number of activities which can be sub-sumed under three main headings: servicesfor member firms, representation of the sec-tor, and research and documentation of trendsin the industry. The most effective servicesare those which relate to sales or to immedi-ate problems. Cersaie is an example of the

former, and the organization of a strong Ital-ian presence in trade fairs in other countries isanother example.

Regarding immediate problems, there are twoof them which Assopiastrelle is currentlytackling. One of them is transport, the otherone the environment. There are 5,000 truckswhich are circulating in the cluster per day,and the sad truth is that much of their timethey are not circulating but stuck in conges-tions. Assopiastrelle has founded Assocargo,which is operating as an independent firm tocoordinate transport in the cluster, both forincoming clay and for outgoing tiles. Theidea is to use the truck capacity more effec-tively and thus to reduce the overall numberof trucks. In fact, this is also the main envi-ronmental challenge these days, since otherproblems such as hazardous emissions andwaste generation have by and large beensolved (the latter by developing low-priceproducts based on scrap and residuals of theprocess). However, it is doubtful whether As-sopiastrelle’s environmental strategy is par-ticularly promising (see box).

As a matter of fact, the current state of the in-frastructure in the cluster casts doubt at thestatement one sometimes hears that Asso-piastrelle is politically a relatively influentialassociation. One of the firms not related totiles which is located in the cluster is Ferrari.If Ferrari wants to run a test to figure out howits cars behave under rough road conditions,it has to send a test driver out of the factoryand let him turn right at the next crossing.There he enters the main east-west axis of thecluster, and this road is literally breakingapart, being in a state which is comparable toroads in Eastern Germany before reunifica-tion. If Assopiastrelle were really powerfulone would have expected that it had lever-aged its influence to have that road recovered.


The other important association is Acimac. Itsprofile is similar to that of Assopiastrelle, butit appears somewhat more effective. In termsof services, it is promoting the tile machinery

industry, for instance by organizing jointstands at foreign fairs. It is also supportingmember firms in terms of information abouttechnical standards and quality issues.Moreover, it is organizing short-term training

Box 1: A hypothetical look into the past from the futurePeaceful Days in the Countryside.Rediscovering an Old Industrial Region which has Profoundly Changed its Face.Modena, 10 September 2012. The southern part of Modena province has become increasingly popular withretirees in the recent years. What once was an industrial hothouse is a tranquile, neat area now. Roads thatonce have been packed with trucks are mostly used by bicycles and tricycles nowadays, and the busy at-mosphere of an industrial region has given way to the relaxed culture of a place where recreational activitiesdominate.In fact, quite a few of today’s retirees remember the old days very well, when they were making pots ofmoney which they now spend on low-fat high-quality pasta meals and in thermal baths. In their view, thechange began in the late 1990s. Many of the problems of the earlier days had been solved, such as themassive air pollution which was due to an unbelievable concentration of ceramic tile plants. But then the re-gion was literally suffocated by its success, with enormous queues of heavy trucks occupying most of theplace available for transit, emitting huge clouds of exhaust fumes without moving much. The local businesscommunity had come up with some proposals to solve this problem, mainly by creating more roads. Butsince the region was running out of available space anyway, and since new roads have this funny tendencyto create new traffic rather than taking up the old one, nobody else found this idea very plausible.Instead, two things happened which profoundly changed the fate of the industry cluster. First, some of thefirms closed down, or at least drastically cut down, their local factories, investing in the foreign marketswhere they sold most of their product instead. Second, government took a drastic step which was the unin-tended outcome of a business initiative. Local business associations had proposed to turn the cluster into anecologically-correct cluster. Unfortunately, their plans in terms of implementation were not exactly inventive,and certainly did not deserve any ecological label: in the end it came down to building new roads and reor-ganizing the management of the huge fleet of trucks.When they presented their proposal to the EU, rather than just causing a good laugh they generated a totallyunexpected reaction, namely a joint action of the regional government and the EU to turn the region reallyinto an ecological region. The first thing the regional government did was to limit the number of trucks whichwere allowed to enter into the region, and to create a market for entry tickets which used smart, Internet-based auction techniques. Government quite rightly counted on the inability of the local business communityto come up with an effective resistance, since some of the firms which were operating full-steam were des-perate to get their inputs and quite willing to pay high sums to get their trucks in. However, since governmentreduced the number of available tickets on a quarterly basis, it soon became obvious that it was impossibleto get the usual amount of inputs in and products out.What helped the industry for some time was the creation of new types of tiles, which were much thinner andlighter. However, the technology behind this kind of innovation was pretty scientific, and local technicianswho had an enormous tacit knowledge on and feeling for tiles but little scientific education were unpreparedfor this kind of production and product. So it happened that firms from other locations and with a differentbackground entered into this line of the tile business. So in the end the local industry dug its own grave indeveloping this technology.The interesting thing to see is that this process created little if any hardships. The specialists from the localtile producers were eagerly hired by manufacturers all over the world, who in some cases paid royally to gethold of the specific knowledge of these tile production artists. Several of the important machine producershad been located elsewhere anyway, so the process did not really touch them, and the others relocated asthe region became increasingly uninhabitable for manufacturing industries.That is, all manufacturing industries except those which make things like eating such a pleasure. TheModena region had always been famous for its Aceto Balsamico and the Parmiggiano cheese, and thesethings are still in production, albeit consistently on a limited scale to avoid the pitfalls of mass production. Infact, little of what is filling the tables in the local trattorias is coming from places more than 50 miles away.But if you look in the high-price high-quality shelf of your local biological food store, you may find one or an-other of the products manufactured here. But better bring your virtual wallet, since high-price in this casemeans really high-price.


courses abroad which cater to employees ofcustomer firms. In terms of interest represen-tation, it is representing the sector vis-à-visItalian embassies abroad, and it is lobbying inthe context of international negotiations abouttariff reductions. In terms of information,Acimac is the most important place regardinginformation about the global tile industry.Since Acimac members sell to firms all overthe world, it is essential to be up-to-date withsector trends all over the world. Accordingly,the trade journal which is sponsored by Aci-mac (Ceramic World Review) is a gold mineof information about the tile industry.

Apart from the two associations, the structureof supporting institutions is remarkably un-derdeveloped. There is one technology insti-tute related to the sector, the Centro CeramicoBologna (CCB), which recently set up a smallaffiliate in Sassuolo. CCB is part of the ER-VET system of business support institutionswhich is maintained by the regional govern-ment. It is doing research about several issuesrelated to ceramics, but its main activity isrelated to testing and certification, and thisseems to be clearly separated from researchactivities. CCB is collaborating with the Uni-versities of Bologna and Modena to offer en-gineering courses with a specialization in ce-ramics. In any case, CCB is in no respectcomparable with the technology center in theCastellón cluster. Then there is the Scuola deArte in Modena which is an important sourceof design talent for the industry, although it isnot specializing in tiles. And finally, there isCerform, the vocational training center inSassuolo which, after intense negotiationbetween municipal governments and the twoassociations, was dedicated exclusively totraining of ceramics professionals since themid-1990s. Its annual output amounts tosome 60 graduates, which is short of theneeds of the industry.

3.6 Evolution of local governance

There are several examples which show thatlocal governance for upgrading the cluster is

working. The redesign of Cerform is one ofthem, the creation of Assocargo is anotherone, and the Cluster-EMAS may become an-other one in the near future. However, it ap-pears to the external observer that collectiveaction is not what it might, and what it proba-bly ought to be. The cluster appears some-what complacent, something that is not sur-prising given the successes of the past. But itmay jeopardize the future of the cluster; thebox develops a possible scenario of how thedecline of the cluster may occur.

In fact, some local actors do complain aboutthe deterioration of the effectiveness of localgovernance. However, the opinions regardingthe underlying reasons are divided. Somepeople point at traditional rivalries betweenfamilies. Others complain about a lack ofstrategic vision, and sometimes relate this to alack of "hunger" which is supposedly due tothe fact that all the founding families arequite rich nowadays. We shall argue belowthat, even though these arguments are cer-tainly valid, a look at the evolution of valuechains provides us with a more rational ex-planation.

Collective action in the Sassuolo cluster ex-ists, but to a lesser degree than in Castellón.The reason mentioned by local sources (per-sonally motivated rivalries and aversionsbetween families) appears not particularlyconvincing, since the situation in Castellón isnot different in this respect. It makes moresense to assume that there is limited collec-tive action because the key actors believe thatthis is sufficient. This is even more so as theindustry has not really suffered a major crisis(like the one which hit the Brazilian industryin 1990) for decades. The Sassuolo clustersees itself as the leader in the industry, andthere seem to be few actors who have any in-clination to consider strategic challenges, letalone suggest preventive action to prepare forthose challenges. At the same time, it is diffi-cult to guess what may happen once a majorchallenge appears. The most likely challengeis a contraction of the U.S. economy with aconcurrent severe drop in tile demand. One


might argue that such a situation might hit theSassuolo cluster much harder than its com-petitors. But since the institutions are in placeand there is probably still some social capitalleft, one might also conceive a strong collec-tive response of the cluster.

3.7 Competitive advantages andchallenges

Upgrading is a permanent feature of the Sas-suolo cluster. Table 9 summarizes the mainupgrading trends.

Yet upgrading in itself does not necessarycreate a competitive advantage, as competi-tors are upgrading as well. We would arguethat the Italian tile industry has three maincompetitive advantages: a strong productioncompetence which is based on tacit knowl-edge, a product style which is highly valuedin many target markets, and very competentsalespeople. Let us have a look at each ofthese factors.

First, Italian producers (more specifically:highly experienced and skilled, albeit oftennot formally high-trained workers) have atouch and feel for ceramic tiles which is un-disputed. It has been accumulated over centu-ries and may therefore be engrained in thegenetic code of the local population. Ratherthan controlling production in a scientificway, they just know what kind of minor ad-justment in kiln temperature, mix of mass orglazing material will create exactly the ap-pearance they want, in particular when itcomes to creating a rustic look. Spanish orBrazilian producers are perfectly capable ofcreating attractive rustic tiles, but they do notquite look as Italian as those from Italy.

Second, there is the Italian lifestyle explana-tion. Italians, this explanation goes, in generalhave special sense of aesthetic values, andthey are just better in design than most otherpeople. This applies to all sorts of products,including tiles. And in fact there are stronginfluences between different segments, withtrends in fashion and in other areas of indus-trial design having a strong influence on the

Table 8: Changes in governance patterns in SassuoloAspect Old Pattern Current trendConcentration ofindustry

low, many SMEs. Concentration, 15 to 20 big groups,together with 150 SMEs.

Dynamic of inno-vation

typical of Italian industrial districts, se-crets are kept but everybody knows“informally”.

increasing leadership of biggergroups. Equipment providers and co-lorificis are also relevant players.

Institutional sup-port

Assopiastrelle, lobby and export gene-ric promotion;CCB, research and tests. Training andeducation, no specialized institutions.Agenzia Polo Ceramico (Faenza)

No major changes.

Relationships withProviders

Close ties, with hierarchical preva-lence of tile producers, with local ma-chine and equipment providers.

Many providers start to produce inother countries like Spain; radical in-novation from machine manufacturerscan change power scheme in favor ofthe latest

Rationalization Focus on quality and design. “Ceramicis arts” patterns; low productivity stan-dards.

Rationalization to increase productivi-ty: index of sqm/blue collar worker;Lit./employee.Four steps in rationalization process:1. Automation to save labor costs; 2.Technology to save energy; 3. Tech-nology to save glazing material; 4.EMAS to production process efficien-cy improvement


design of tiles. Moreover, this explanationalso includes a further aspect, namely that bypurchasing an Italian tile one does not justacquire a piece of floor or wall covering butactually a little bit of the Italian way of life,

something which seems to be highly valuedin many countries.

Third, there is what one might ironically callthe Latin Tile Lover explanation. Italian firms

Table 9: Upgrading trends in the Italian tile industryProcess Product Service Strenghts/Weaknesses

Marketing Made in Italy conti-nues to differentiatethe Italian supply.Presence in all mar-kets.Limited joint efforts(Fairs).

Some marketingfunctionsoutsourced todealers. In USmarket, Italian in-dustry tries to“educate” theconsumer to em-phasize its qualityadvantage.

S: Strong image of “ma-de in Italy” continuouslyrenewed through highquality and fashionabledesign standards, whichset the trends on market.

Raw materi-als

Italian firms are in-vesting in minesabroad (India). Di-versification of ori-gin of RM.

It does not seem tobe a factor of diffe-rentiation

Machinery Better command oftechnology of Itali-an producersseems to be asource of differen-tiation via betterelaboration andquality

Strong interactionbetween users andproviders to improveand adapt solutionsto market require-ments.

Proximity ofsuppliers used tobe an advantage.Machine produ-cers are going tolocate in Spain,due to locationaladvantages.

S: Italy dominates theproduction of machines.That contributes to opti-mize the use of techno-logy.W: In the future, manymachinery firms will pro-duce also in Spain, andprobably they will repro-duce the Italian patternsof collaboration with tileproducers.

Design Project to speciali-ze “Scuola di Arte”of Modena in de-sign for tile indu-stry.

Design core com-petence in:Big tile producers;Colorifici (less thanin Spain);independent Stu-dios.

S: Dense network of di-stributed competences indesign.

Production Strong rationaliza-tion of processes.Environmentalcertification playsa relevant role.

Increase of productportfolio: big produ-cers offer 10 rangesand 500 types ofproducts/year

Logistic Broad portfolio en-forces improvementin distribution logistic

Increasing im-portance of logi-stic support todelivery on time(Home-Centers)

S: Italy seems to takeadvantage regarding todistribution chains inmarkets like USA, Ger-many.

Sales / after-sales

Increasing relevanceas source of productdifferentiation.

Most of them pro-vided by thecommercializationchain.


have excellent salespeople, who are not justextremely well-dressed and well-manneredbut actually extremely competent in creatinga feelgood atmosphere which appeals to cus-tomers not only of the female gender,whereas for instance the service culture in theCastellón region ranks even behind that ofGermany regarding features such as friendli-ness. Therefore, even if the Italians had justthe same product as everybody else, theymight be able to sell it for a better price.

Since this case study is part of a comparativeresearch project, we are in a position to com-pare the Italian tile industry with those whichrank second and fourth in terms of global ex-ports, namely the Spanish and the Brazilian.So what would come to mind as an explana-tion if this were an isolated case study sud-denly appears in a different light. There arepassive advantages of clustering, but they arepresent in Spain and Brazil as well. The ac-tive advantages of clustering actually aremuch stronger in Spain, and Brazil probablyis not much behind Italy in this respect. Thereis the strong position of the Italian capitalgoods industry linked to the sector, but thenthere is also the strong position of the Spanishglazing materials industry.

Applying conventional instruments such asPorter’s diamond would not lead us anywhereclose to an explanation of the fact that theItalian industry is the world market leader.The production competence is based on longexperience and on a dense local network ofexchange of experience, but it is much lessbased on modern management methods andscientific domination of the production proc-ess. The Italian image is a strong but staticcompetitive advantage. And the competenceof the salespeople is something which oughtto be replicable by important competitors. Inother words, the competitive advantages ofthe industry do not appear overwhelminglystrong.

In fact Italy is being overtaken by Spain interms of output, and also in terms of technicalmastery of the product and important parts of

the production process. In other words, therelative competitive position of Italy, and thismeans largely Sassuolo, is deteriorating.There can be no doubt that the Italian firmshave not mounted any vigorous collective re-sponse to the challenge posed by the Spanishindustry. Why this is so is much less clear.

We argue that the evolution of the interna-tional value chains is one important factorcontributing to this. In terms of dynamiccompetitive advantages the tile industry reliespretty much on the capital goods sector. Butthe capital goods manufacturers are selling tothe whole world, not just the Italian tilemanufacturers. Taking this together, the fu-ture for the cluster would not appear toobright. However, things look somewhat dif-ferent if we take the position of the tile pro-ducers towards downstream functions of thevalue chain into account. In this respect, atleast some of the larger groups seem to beable to position themselves in a favorableway, much more so than their main competi-tors.

4 The Cluster of Castellón / Spain

In Spain, having a press to form the biscuitsof ceramic tiles is almost as good as having apress to print money. What 30 years ago wasa rural, craft-based operation has become oneof the leading domestic industries, the power-house of the economy of the AutonomousRegion of Valencia, and the pacemaker in theglobal tiles industry. It is an industry whichhas been growing for almost twenty years,with output in square meters doubling be-tween 1981 and 1990, and growing by 168 %between 1990 and 1999. In other words, it isa remarkable case of latecomer industrializa-tion. All this in not only based on strong en-trepreneurship and rivalry, but also on a text-book case of passive and active cluster ad-vantages.

93 % of Spanish ceramic tile production isclustered in several small towns around Cas-


tellón. As Figure 15 shows, production inSpain has grown strongly in the 1980s, withtotal output doubling. In the course of the1990s, production has virtually exploded,growing almost threefold. In 1998, there were242 tile manufacturers in Spain, of which 190were located in the cluster. The overall num-ber of employees in tile firms grew from16,800 in 1995 to 23,200 in 1999.

4.1 The evolution of the Castellóncluster

The Castellón region has a long tradition intile manufacturing which goes back to the erawhen Arabs ruled the region. The process ofmodernization of the industry started in thelate 1950s with the introduction of electricalpresses which were imported from Italy andwhich substituted traditional man-poweredpresses. The next important step, beginning inthe mid-1960s, was the introduction of tunnelkilns which substituted the traditional circular“arab kilns”. The tunnel kilns were further

upgraded in the 1970s with the intro-duction of second firing. One of thefactors driving demand was the strongexpansion of the hotel industry in theregion, i.e. the Costa Blanca and theCosta de Azahar. At the end of the1960s, there were 138 tile manufac-turers with 5,500 employees produc-ing 25 million square meters.

After the second oil crisis, firmsstarted to increase their export effort,in particular towards the two neigh-boring countries, Portugal and France.One factor to motivate this was adrawback scheme introduced by thenational government to reduce thedeficit in the trade balance. It was im-portant for the tile manufacturers sincethey continued to depend on importsof capital goods from Italy. Lookingback to that period, industrialists ad-mit that the product quality was infe-rior but improved with increasing ex-ports, reflecting a process of learningby exporting.

The next important landmark in thehistory of the cluster is the beginningof the 1980s, when several factorsconverged to improve the competi-tiveness of the industry:

? Government-sponsored efforts topromote the local capital goodsindustry led to failure and success

Figure 14: Map of the Castellón tile cluster

Source: Payeras (1999).

Figure 15Tile production in Spain

Source: Ascer.

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at the same time. The attempt to build-upa local production base for kilns failed,but the effort led to a better bargainingposition vis-à-vis the Italian suppliers,which reduced their prices substantiallyand started to sell latest-generationequipment in Spain.

? In 1981, the region was connected to thepipeline which brought natural gas fromAlgeria. This was essential to be able toactually employ latest generation kilns,and it implied a massive reduction of en-ergy costs. The earlier generation of kilnshad been based on oil.

? In 1984, the single firing production pro-cess was launched.

4.2 Upgrading in the Castellón cluster

The story of massive upgrading in the clusteractually starts with the single firing process.This was the first major innovation emergingfrom the cluster. Before that, the industry wasusing a double-firing process, firing first thebiscuit alone, then glazing it and firing itagain. The point of departure for single-firingwas the fact that the Spanish clay is red be-cause it has a higher iron content which leadsto different sintering characteristics. TheItalian kilns were designed to work withwhite clay, using double firing, and the qual-ity of the Spanish final product did not matchthat of Italian tiles. Between 1981 and 1983,engineers from a tile manufacturer (Zirconio),a producer of glazing materials (Torrecid),and what was to become the Institute of Ce-ramics Technology (ITC), first part of theUniversity of Valencia and then in the Uni-versity of Castellón, developed a new proc-ess. It involved the development of differentglazing materials and the adaptation Italiankilns. The result was a process which was su-perior both in terms of production efficiencyand quality of the final product.

Single firing spread quickly in the cluster,reaching the majority of the firms until the

end of the 1980s. But it was more than a one-time radical innovation. It shaped the para-digm of the cluster, which has three mainelements:

? Competitiveness is, first of all, based ontechnological excellence. It is engineerswho rule in the cluster.

? Interaction between tile manufacturersand producers of glazing materials isstrong, with the latter being a strong pushfactor in terms of constant upgrading.Both types of firms are interacting on thebase of equality (unlike in Italy, wheretile manufacturers are stronger).

? Interaction between firms and local meso-institutions, in particular ITC, is strongand a key element in technological up-grading.

At the same time, the aftermath of the intro-duction also created a trauma which until to-day is an important element in the mindset ofthe cluster actors. With single firing, Spanishproducers were launching products whichwere comparable to those from Italy. Themain difference involved the reverse side,which was red rather than whitish. Accordingto the Spanish firms, the Italian industrylaunched an advertising campaign whichclaimed that white-body tiles were superior tored-body tiles, an argument which was re-peated over and again by sales staff and thusengrained into the minds of the customers.This campaign apparently was particularlysuccessful in Central Europe, where Italianproducers continue to have a dominating po-sition.

Listening to industry representatives, the in-troduction of single firing appears to havebeen much more important than anythingelse, including the accession of Spain to theEuropean Community. Nevertheless, the lat-ter brought some important changes. Existingexport incentives had to be phased out. Thecultural change which was related to the ac-cession process, implying an overall mod-


ernization of Spanish society, also affectedthe cluster. Reduced trade barriers facilitatedaccess to European markets. And then therewas a government intervention which facili-tated upgrading in the tile industry (and apartfrom that only in some agroindustries),namely the system of “ordenación comer-cial”. This meant that Spanish exporters wererequired to export first quality only, and sellonly with first-quality price (rather than sell-ing first quality for the price of second qual-ity), so that a low-price strategy became diffi-cult.

The second half of the 1980s lay the groundfor the massive expansion of the cluster in the1990s. Tile manufacturers expanded theirproduction capacity and upgraded their prod-ucts, and the producers of glazing materialsdid the same. In the case of the tile manufac-turers, the strong growth of the 1990s wasdue both to a strong local economy and astrong increase in demand from abroad. In thecase of the producers of glazing materials,upgrading was even more impressive, sincethere was not only an extraordinary growth in

exports but also a massive interna-tionalization push. This was not justin terms of exports (Figure 16).Many of the 24 firms from Castellónset up factories or at least distribu-tors in many of the main tile pro-ducing countries.

Some further important features ofthe 1990s were the following:

? There are continuing entries intothe cluster, both producers ofglazing materials and tile manu-facturers. The typical patterncontinues to be the family-owned firm. The vast majority offirms are small- or medium-sized

businesses. The typical firm has some 200employees.

? There is only a slow adoption of porcelaintiles. Although the producers of glazingmaterials have come up with the innova-tion of glazed porcelain, and at least onelocal producer is manufacturing porcelaintiles using red clay, the main shift to-wards porcelain that has been forecastedby Italian industry observers so far hasfailed to materialize. The share of porce-lain tiles in Spanish production is stable ataround 4 %.

In terms of technology, the transition to por-celain tiles has not been the kind of challengeto the Castellón cluster the Italian competitorshoped it would be. Investment into the crea-tion of porcelain factories is progressing at asteady but slow pace in Castellón, and thecluster is doing just fine this way. What maybecome a more relevant challenge is theLamina/Sinterflex-innovation which wasmentioned above. But even this is more rele-vant for glazing producers than for tile manu-

Figure 16Spain: Domestic sales and exports of

glazing materials

Source: Anffecc.

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Table 10: Size structure of tile manufacturersSize class < 25 25-50 51-100 101-200 201-500 > 500Share of firms (1998) 19,4 % 33,1 % 24,8 % 12,0 % 8,7 % 2,1 %Estimated share of totalemployees

3 % 13 % 19 % 18 % 31 % 16 %

Source for share of firms: Ascer.


facturers. Lamina will most likely cut into thesales of porcelain tiles and thus hit Italianfirms harder. Glazing producers have alreadyfound a way of dealing with porcelain,namely promoting glazed porcelain whichmakes little sense but sells anyhow. At thesame time when System launched Lamina,the largest of the glazing producers came upwith a radical innovation as well, namely atile-body which consists largely of glazingmaterials and frits (and hardly any clay),permitting differentiated designs (“plac-up”).

The only process standard which has beenreally important for firms in Castellón is ISO14 000; ISO 9000 apparently never was a bigissue. With increasing concerns regarding theenvironmental impact (which grew with theincrease in production), the pressure on firmsto reduce their emissions grew. ISO 14 000came timely in order to facilitate the responseto this pressure. Firms have reorganizedthemselves in order to reduce their environ-mental impact, introducing, for instance,closed circuits in the use of water and modi-fying production processes to reduce gasousemissions.

4.3 Structure of the value chain

Regarding the structure of the value chain,the Castellón cluster shows several differ-ences compared to Sassuolo:

? About 80 % of the clay comes from thelarger region, i.e. no more than 150 kmaway.

? Atomization, and in several cases also theproduction of biscuits, has been outsour-ced to specialized firms which usuallyhave been created jointly by some tilemanufacturers. There are clear economiesof scale in atomization, and an efficientatomization plant would have been toolarge for most of the tile manufacturers inthe 1980s. While this may appear per-fectly rational, it is important to note thatoften the manufacturers which jointly

own an atomizing operation otherwise arerivals.

? Spanish firms continue to depend onItalian manufacturers for most types ofcapital goods, the major exception beingglazing equipment, where the proximityto the leading glazing producers createdan opportunity for local machinery pro-ducers. However, it is a mutual depend-ency today. Demand for capital goods isstronger in Spain than in Italy, and Span-ish producers appear to be more de-manding in terms of technology thanthose in Italy. Moreover, they tend to bevery competent in terms of specifyingwhat exactly they want, rather than justpurchasing what the Italians want to sell.Accordingly, it is paramount for Italiancapital goods manufacturers to have aclose contact with Spanish tile manufac-turers to remain at the leading edge. Anindication of the relationship which isevolving is the fact that Acimac, the As-sociation of Italian firms manufacturingcapital goods for the tile industry, is ap-parently considering to set up a branch inCastellón.

? Producers of glazing materials continue tobe very important for constant productupgrading, even though firms try tostrengthen their internal design capacityin order to have some unique designs.Nevertheless, design departments atglazing producers continue to be largerthan at tile manufacturers, and the topgraduates of design courses join glazingrather than tile firms. It appears that thepower position of design specialists isstronger in glazing than in tile firms, withthe latter being dominated by productionengineers.

? So far there is no concentration trend inthe tile industry, and as a collateral multi-brand firms are rare. So far, there seemsto be sufficient sales potential for every-body, and there is also no generationalchange which might stimulate mergers or


takeovers. Moreover, there is no interna-tionalization trend in terms of production.There are several reasons for this. First,Castellón displays remarkable locationaladvantages. It is not by chance that Ma-razzi, the largest Italian firm, set up itsSpanish subsidiary in Castellón. Second,average firm size is smaller than in Italy,and in fact most firms are SME, with in-sufficient managerial capability to dealwith the challenges of managing a multi-national operation. Third, there is no ne-cessity since the sector is doing excep-tionally well with its current modus oper-andi.

? The marketing competence and salessystem of Italian firms seems to be supe-rior (Generalitat Valenciana et al. 1999,87), but there seems to be only a limitedeffort among Castellón firms to upgradein this respect. What they do is to copysomething the Italians started to do in the1980s, namely promoting a “Tiles ofSpain” label. Apart from that, it appearsthat they can count on the fact that poten-tial buyers turn up to acquire their prod-uct, which is one of the reasons whytradings play hardly any role in Castellón.

? There is a strong rationalization potentialin logistics, something the tile industryassociation found out in a recent study.One of the reasons is the fact that deliverylots are getting smaller all the time, asdemand becomes more differentiated anddistributors reduce their stocks, so that atypical lot size is headed from one con-tainer to one pallet to one package. How-ever, so far there seems to be little effortto realize this potential. Stocks at tilemanufacturers remain somewhere aroundthree months of output.

4.4 Product structure and marketsegmentation

The main issues regarding the product struc-ture of Spanish tile manufacturers are the

transition (or not) to porcelain tiles, alreadyreferred to, and the red vs white issue.

The main raw materials for most types of tilesis clay, which comes either in white or red.Italian manufacturers used predominantlywhite clay, whereas the Spanish prefer redclay since it is more easily and cheaply avail-able. Both sides claim that their raw materialis superior, but in fact there is no differencein terms of relevance for the quality of the fi-nal product (the only exception being manyvarieties of unglazed porcelain tiles whichcan only be manufactured using white clay).In fact, the red vs white controversy to someextent appears as a conflict between scienceand belief-systems. But there is also a real is-sue involved, namely the capacity of Italianmanufacturers to create, by means of an ad-vertising effort, the image that white-bodytiles are better. Spanish manufacturers love tocomplain about this.

A further aspect refers to the product portfo-lio. The general preference of manufacturersin Castellón is to have a broad spectrum ofproducts, i.e. both floor and wall tiles, low- tohigh-end, and glossy as well as rustic. Thisreflects an important feature of the business,namely the fact that distributors tend to dealwith a limited number of producers, so thatgaps in the product portfolio may lead to adiscontinuation of business relations with agiven customer. The exception from this roleare the producers of special parts. Whereassome manufacturers of normal tiles have anin-house production of special parts, manyother outsource this activity to specializedproducers.

Some manufacturers pursue some rough mar-ket segmentation, other rather a country seg-mentation (“this kind of product is much ac-cepted in Germany”). However, the segmen-tation effort inside the industry seems to bevery limited so far, the overall pattern beingsimilar to the product-out strategy already ob-served in the case of Italy.


4.4.1 Sales and after-sales services

The increasing logistics problems due tosmaller orders and lots have already beenmentioned. Another issue are services relatedto sales and after-sales, where representativesof the Spanish sector admit that Italian firmsare more competent and inventive in this re-spect.

A serious problem on the domestic market isthe low quality of tiling. Consumers complainabout the quality of tiles which are breakingapart after installation, but this is due to theinadequate competence of the tiler rather thanthe quality of the tile. The obvious response istraining of tilers, something the industry iscurrently promoting.

4.4.2 Exporting

Even though the export ratio of the Spanishtile industry is lower than that of Italy, Spainis by far the second most important exporterof tiles. Both production and exports aregrowing, but since domestic demand is alsogrowing, the export share remains stable ataround 55 % of value and 51 % of volume.

Spanish exports are less concentrated thanthose of Italy, at least so far: the stronggrowth of the U.S. market, and the strong

presence of Spanish producers there, maychange this in the future. In 1999, the 7 larg-est markets accounted for 50 % of exports,the 14 largest for 66 %.

4.4.3 The relevance of internationalvalue chains

The Spanish tile industry is involved in aglobal value chain which has a networkstructure, i.e. involves neither arms’ lengthrelationships nor hierarchical relationships.This applies both to inputs and sales. Theproblem of one-sided dependency on Italiancapital goods manufacturers was solved longago. The relationships with glazing producersare based on partnership. Local tile manu-facturers in Castellón are not exactly happyabout the fact that the glazing producers selltheir products and give away their know-howand designs to tile producers everywhere, butit is not causing a serious headache, either.

Regarding sales, it seems that tile manufac-turers are in a strong albeit not dominatingposition vis-à-vis buyers. In Spain, there aremore than 200 tile manufacturers, and thebigger among them attend the majority of the3,000 distributors which currently exist inSpain (Bigné 1998). It is difficult to imaginethat either side can acquire a dominating po-sition. However, it is notable that – unlike

Italian producers – Spanish firms dis-play little propensity for forward in-tegration into commercialization.Given the fact that there is a clearconcentration process at the commer-cialization stage, this may prove to bea strategic error in the long term. Atthe same time, it must be acknowl-edged that even the large Spanishfirms probably are too small and donot have the necessary capital to pur-sue a strategy of forward integrationinto commercialization, in particularin foreign markets.

Figure 17

Spanish tile exports by country

in EU, 1999. Source: Ascer

USA 11,6%

France 8,6%

Portugal 8,3%

UK 8,0%Germany 6,2%Saudi Arabia 3,9%

Israel 3,9%Poland 3,7%

Italy 3,3%

Greece 2,9%Netherlands 2,2%

Mexico 1,9%Ireland 1,6%

Belgium/Lux. 1,6%Australia 1,4%

Russia 1,3%Arab Emirates 1,3%

Singapore 1,3%Hong Kong 1,2%

others 25,9%

© JMS


A minor issue which is often mentioned byrepresentatives of the Spanish sector is thefact that ceramics distribution is in the handof Italian emigrants in many export markets.However, this does not appear to create seri-ous problems for Spanish exporters.

4.4.4 Restructuring of the industry andinternationalization

In a diagnostic of the cluster conducted in1999, the consultants of Cluster Competitive-ness recommended that firms should seek aclearer market positioning, forward integra-tion into sales, and internationalization (Gen-eralitat et al. 1999). For an outsider, this ap-pears as a plausible suggestion, not the leastsince it comes down to replicating the suc-cessful recipe of the Italian industry. How-ever, for the cluster firms the suggestion isless plausible. The firms are huge successfulwith their current business model, so there isnot reason to move to an entirely differentmodel which poses all sorts of risks and un-certain benefits, even more so since growthand profitability of the Spanish industry are

stronger than those of their Italian competi-tors. At the same time, in particular forwardintegration appears as a risky, costly concept.

At the same time, it is notable that the ClusterCompetitiveness diagnostic is an importantpoint of reference for industry actors, espe-cially since it was based on an exercise whichstrongly involved them. It may happen that inthe near future a learning and discussion pro-cess occurs in the industry which leads to anre-evaluation of the recommendations, espe-cially in the light of the discernible restruc-turing of building materials commercializa-tion chain.

4.5 Structure of supporting institutions

One of the distinctive feature of the Castellóncluster is the density and competence of thesupporting institutions. First, there are severalbusiness associations. Ascer is the associationof tile manufacturers. It appears to be themain actor in the cluster when it comes tocollective action and strategic initiatives. Itprovides information for and about the in-dustry. It is articulating the industry’s de-

Table 11: Structure of commercialization in key marketsDestination Mar-ket

Distribution Structure Spanish Position/Strategy

USA (North) Large Intermediaires (Homecenters, Car-pet-chains). Product parameters trend tobe supply-driven.

Followers

USA (South) Rather smaller distributors. Broad networkof both Italian and Spanish representati-ves, which contact directly to retailers. Ta-stes are more similar to Mediterranean.

Direct investments of the largerfirms to have their own magazines.Better position to approach the Hi-spanic population

South America Markets not so sophisticated, price orien-ted

Leadership, but it is a relative limi-ted market

Germany Strong tendency of polarization betweenlow- and high-end. Growth of home cen-ters to the detriment of traditional shopsand wholesalers

Marginal position, behind Italy, lo-cal supply and Turkey

South-West Eu-rope

Dominated by small distributors. In manycases, direct contact between manufactu-rer and retailer

Stronger in Portugal, UK and localmarket. French market is divided,and exporting even to Italy andGreece.

Central Europe Dominated by large distributors who provi-de small retailers. Tastes trend to followthe German market, but there are somedifferences

In some countries like Poland Spa-nish product has gotten the lea-dership, due to design and a moredynamic marketing than Italy.


mands vis-à-vis government, from the local tothe regional to the national and EU level. It isorganizing joint purchasing for gas, electric-ity, telephony and mobile telephony. Ascerhas a staff of about 20 full- and part-time pro-fessionals. All the local tile manufacturers areaffiliated, and when elections come up, theretend to be more candidates than offices.However, unlike its Italian counterpart in thecase of Cersaie, it does not participate in theorganization of Cevisama, the Spanish ce-ramic tile fair.

Anffecc is the association of the 24 glazingproducers. It is being administrated by a legalfirm, a feature which gives an indication ofthe fact that it operates in a different wayfrom Ascer. Its role is, first and foremost, as alobby organization vis-à-vis government. Oneof the reasons is the fact that glazing produc-tion has a serious environmental impact sothat constant negotiations with governmentbodies are essential. For other activities, Anf-fecc convenes commissions with profession-als from firms. Two years ago, Anffecc alsostarted to organize short-term courses for firmemployees. Asebec is the association of thecapital goods manufacturers. Its status re-flects the fact that the local capital goods in-dustry is relatively weak. 35 firms, with anaverage of 24 employees, are affiliated. Themain professional organization is the Asso-ciación de Tecnicos de Cerámica. Then thereis the Chamber of Industry and Commerce(Cámara Oficial de Comercio, Industria yNavegación de Castellón). Its activities in-clude, since 1992, the organization of the bi-annual technical-scientific forum Qualicer.

Apart from these associations, there is a well-developed set of institutions. First of all, thereis the Ceramics Technology Institute, ITC(see box). It emerged from an institute forchemical technology which was founded atthe University of Valencia in 1969 and in-creasingly focused at the tile industry in the1970s. In 1983, a part of the institute was re-located to the Castellón campus of the univer-sity. In 1984, the Research Association of theCeramics Industry (Asociación de Investiga-

ción de las Industrias Cerámicas, AICE) wasfounded to facilitate cooperation between ITCand firms. In 1991, the first chemical engi-neers with a specialization in ceramics re-ceived their graduation at the institute. In1992/93, the name changed to ITC, and theinstitute was integrated into the now-independent University of Castellón. ITC’sactivities comprise training professionals forthe tile and glazing industry, conducting testsfor firms, and working independently andwith firms on R&D projects. ITC has its ownpilot plant for experimentation with tile pro-duction issues.

The Institute for the Promotion of CeramicsDesign (Asociación para la promoción deldiseño cerámico, ALICER) was founded in1993. Its main activities are training and sup-port for firms. ALICER offers a five-yearcourse at tertiary level. The majority of the 20students which graduate every year are em-ployed by glazing firms. In contrast, jointprojects with firms are almost exclusivelyconducted with tile manufacturers. – Beforebecoming an independent institute, ALICERwas a department within CTI. It was createdas the perception was spreading that limiteddesign competence was a severe competitivedisadvantage of the Spanish tile firms. As thedepartment grew, ITC’s management decidedto spin it off since it felt that design was out-side the main focus of ITC. However, thisspin-off is not necessarily as plausible as itmay appear at a first glance. To create, say, awallpaper design, a doctoral degree in materi-als science is probably useless. Things aredifferent when it comes to tiles. Even thoughnot being mandatory, advanced knowledge inphysics and materials science is highly useful.

Another training institution is the vocationaltraining center (Escuela de Artes y Oficios),which is offering, inter alia, basic training indesign. It is also involved in the effort to traintilers.

Apart from supporting the training institu-tions, government has created the Instituto dePromoción Cerámica, an institution which


organizes activities such as expositions aboutthe history of tile production. Then there isthe SME promotion agency of the regionalgovernment (Instituto para la Pequeña Indus-tria de la Comunidad Valenciana, IMPIVA)which is providing financial support to sev-eral institutions. From the side of the nationalgovernment, the export promotion agencyIcex plays an important role in supporting theTiles of Spain label campaign.

Another important supporting institution isBancaixa, the region’s bank, which is themain source of credit for the firms. Since theperformance of the sector is essential for thebank’s performance, it is playing a leadingrole in organizing a process of reflection in-side the cluster. For this purpose it organizeda series of seminars with key actors from thecluster, but also from Italy, in 1999, and it co-

Box 2: Best Practices in University-Industry Cooperation – The CeramicsTechnology Institute (ITC)The Ceramics Technology Institute (Instituto de Tecnologia de Cerámica, ITC) plays a fundamentalrole for the competitiveness of the cluster. Many institutes of this kind have been set up with themission of technology transfer to industry, and most of them struggle to come closer to companies.Why is ITC such a huge success?First, there is a clear mission. The ITC sees its mission in the education of the university professionals,chemical scientists and chemistry engineers with a focus on industrial ceramics. In the words of thedirector of the ITC, “We see our students as future partners in joint research projects with companiesin the future; they will be our links in the companies”. Seeing students as future clients is not a usualperspective, and the results seem to confirm the success of this strategy in terms of close cooperationwith local companies. About 500 university graduates (2% of sector workers) have entered the sectorsince 1987; 3,100 professionals attended 107 courses delivered since 1983.Second, ITC has its main business focus quite clear: “our business is technology, to be developed inclose cooperation with companies”. The machinery is Italian, which led ITC to focus on processtechnology, development of raw material and frits/glazes. The local industry is qualified to specify theequipment variables necessary to adjust machines to the particularities of the Spanish productionprocess characteristics. And it is accepted, even among prominent Italian manufactures, that Spanishproduct quality has reached world class standards.The main lines of action are: natural and processed raw material; manufacturing process; finishedproduct focused on innovations. The increasing number of development projects with companiesshows the important role of ITC.

Year 1991 1992 1993 1994 1995 1996 1997 1998 1999Nr. Projects 10 16 28 25 38 57 44 54 53Total Revenue fromprojects (.000 US$) 399 635 812 877 942 1012 1099 1281 1442

ITC responses to companies’ demands are swift. When the sector understood that design should besubject of studying, ITC has started a group work. As it grew, ITC spun it off, thus creating ALICER.Although ITC offers continuous education for professionals, Castellon has its own vocational trainingcenter, were correspondent activities are concentrated, when necessary with support of ITC.Accordingly, there is no destructive competition among institutional service providers.Third, ITC has managed to overcome the different perspectives of university and companies regardingtime, deadlines, practical relevance of results and need of confidentiality. With the creation AICE, anon profit organization, it was possible to manage the cooperation with companies in a more “businessoriented” way. ITC’s focus on cooperation with companies is paramount, and often the academicoutput of the center has to be put in second place when confidentiality conditions of contracts makepublication of results impossible. Credibility is achieved with hard work and remarkable results,recognized by companies.Were there no conflicts or shortage of budgets? Yes, plenty of the very normal conflics between theacademic and the “real” world of technology in companies. This is the “everyday conflicts we have tomanage”, considered in right perspective when compared with the challenges the real world ofcompanies face them with. In other words, ITC has an adequate, rather than a romantic, concept ofuniversity-industry interaction.


sponsored the work of Cluster Competitive-ness (Generalitat Valencia, Bancaja & ClusterCompetitividad 1999).

Then there is the issue of infrastructure. Thetruck traffic in the Castellón region is moreintense than in the Sassuolo district; in 1998,there were about 10,000 trucks per day, com-pared to 5,000 around Sassuolo. However,there are notably less congestion problems inCastellón, and the overall quality of the roadsis visibly better. This reflects, among otherthings, the fact that the whole region of Va-lencia is classified as a Objective 1 regionwithin the EU’s structural policy, thus re-ceiving substantial financial support fromBrussels (somewhere in the order of magni-tude of EU 180 million annually).

An issue which may become a limiting factorin the medium term regards the availability ofreal estate. When one of the municipalitiesrecently launched a new industrial estate, halfof the firms which intended to acquire a pieceof real estate were put on a waiting list. In-dustry representatives complain that the de-velopment of estates is seriously lagging be-hind the existing demand.

4.6 Evolution of collective action

Basically all the tile manufacturers are affili-ated with Ascer, and when it comes to elec-tions for offices there are more candidatesthan posts. Like the other business associa-tions in the cluster, Ascer does not appearparticularly fancy, but it fulfills the essentialtasks in a very effective way, both in terms ofpolitical representation and services to affili-ated firms. Regarding the latter, joint pur-chasing is probably the most tangible serviceprovided. Further evolution of joint purchas-ing is, however, difficult to predict due to theemergence of e-commerce and the entry ofprivate e-commerce operators into the pur-chasing business.

Apart from business rivalry between firms,there are two other elements of rivalry which

strengthen cohesion inside the cluster. First,there is rivalry between the production towns.Most of the firms are not located in Castellón,but rather in Onda, L’Alcora, Almassora, andVillareal. Although they are just a few kilo-meters apart, each of these towns has a dis-tinct history, tradition, and local culture, andthere seems to a strong, albeit not destructive,element of “us vs. them” in terms of collec-tive identity in each of these towns. Second,there is a strong sense of rivalry with Italy.With Italy appearing as the leader in the in-dustry and Castellón being the latecomer, it isan obvious point of reference and a constantchallenge for all the actors in the cluster.

One indicator of the importance of socialnetworks for business success in the cluster isthe limited success of external investments.Firms such as the manufacturer of bathroomceramics Roca have set up or purchasedplants in the cluster, but they are clearly not aleader in any respect.

4.7 Competitive advantages andchallenges

The Castellón cluster enjoys a broad set ofcompetitive advantages. Some of them arequite simple and straightforward, such as theuse of regionally available red clay instead ofwhite imports which creates a cost advantagevis-à-vis Italian manufacturers. But then thereis the countervailing element of Italian mar-keting in terms of superiority of white-bodytiles.

The essential dynamic competitive advan-tages largely accrue to cluster effects, and inparticularly active advantages of clustering.Most importantly, there is a strong scientificand technological competence, which isbased on a strong effort in training of profes-sionals at all levels and the existence of com-petent and business-oriented support institu-tions. Learning-by-interacting, in particularbetween tile manufacturers and glazing pro-ducers, and informal communication insidethe cluster create a strong dynamism of tech-


nological upgrading. The fact that there is lit-tle patenting going on, not only by tile manu-facturers but also by glazing producers, indi-cates the prevalence of tacit knowledge andlearning.

A further competitive advantage, especiallycompared with Italy, is the low “CustoEspaña”, i.e. the fact that government seeksto remove obstacles for business ventures andcreates a good infrastructure and supportinginstitutions. In fact, talking to business repre-sentatives in the cluster the limited degree ofcomplaints about government is notable. An-other feature mentioned by business repre-sentatives is the embeddedness of the indus-try in the society, meaning that it suffers littleharassment from environmentalists or otherproblems.

5 The Cluster of Santa Catarina /Brazil

In earlier research (Meyer-Stamer et al. 1996,Meyer-Stamer 1998) we have pointed at theceramic tile cluster in Santa Catarina as asuccessful case of upgrading through effec-tive local governance, lead by the privatesector. It was a case that contrasted starklywith the experience of other clusters in thesame region. This chapter will update theprevious research and, more importantly, re-examine this cluster by drawing on a com-parison with clusters in the same sector butother countries. We come to a more differen-tiated assessment of local upgrading strate-gies in the context of the national and globalvalue chain in which the Brazilian cluster op-erates. On the one hand, its achievementslook more modest when compared with itsEuropean counterparts, in particular as localgovernance has deteriorated since our firstround of field research. On the other hand,the prospects for functional upgrading lookbrighter than would be expected from readingsome of the recent literature on global valuechains. The key is that the tile ceramics

chains are much less driven by powerful ex-ternal lead firms. In this respect, the Braziliancluster shares an important feature with theItalian and Spanish counterparts analyzedearlier: the scope for local governance is notrestricted by the structure of the chain inwhich the cluster operates.

5.1 The structure of the ceramic tileindustry in Brazil

There are three tile clusters in Brazil, one inSanta Catarina (SC), two in the state of SãoPaulo. The clusters in Santa Catarina and inMogi-Guaçu, São Paulo, were created in theimport-substitution phase, and their expan-sion was facilitated with financial support ofthe National Development Bank BNDES.The third cluster, located in Santa Gertrudes,São Paulo, has a completely different history.It started as an informal sector operation andgrew producing cheap tiles for poor andlower middle-class households.

The cluster in SC is geographically concen-trated in the southeastern part of the state,around the city of Criciúma. One large andone medium-sized firm are located in theGreater Florianópolis region, about two-and-a-half hours away, and another medium-sizedfirm is located in the northern part of thestate. According to the available statistics(which include only part of the SantaGertrudes output) the tile producers in SC ac-count for about a third of production and twothirds of exports.

The first firms in SC started operating in the1950s. The first phase of evolution was be-tween the 1950s and 1970s, when the firstfirms entered production and were learningthe basic features of tile production. The sec-ond phase, in the 1970s and 1980s, wasmarked by expansion of production capacityin order to be able to satisfy a growing market(which is today the western world's largestmarket), regardless of product quality. Thethird phase began when the sector stumbledinto a deep crisis in 1989. By 1991, sales had


dropped by a third, one of the large firmsfiled for chapter 11, and other firms cameclose to following suit. The firms reacted bydefining technological upgrading as the wayout, opting for quality instead of quantity;collective action played an important role inthis context. Production capacity in SC hasincreased only slightly in the 1990s.

5.2 The SC cluster

The ceramic tile cluster in the Brazilian Stateof Santa Catarina is currently passing througha phase which can best be described as "try-ing to figure out". One might be tempted tocall this, using management-speak, "strategicrepositioning". But the firms give a strongimpression that they are involved in search-and trial-and-error-process rather than ananalytically well-founded activity. This ispartly due to the fact that the firms’ mainconcern refer to challenges “outside the fac-tory”, meaning marketing, sales and distribu-tion. They are moving from a “product out”to a “market in” commercialization strategy.Convinced that they have achieved a reason-able production competence, companies focus

very much on the market place, where theyperceive little latitude for cooperation amongeach other, and mistrust is pervasive, muchmore than with respect to process-relatedtechnical matters. The market evolved to-wards a buyers’ market for the companies lo-cated at the cluster, and they do not see a per-spective for cooperation in the near future.

The cluster faces competition from the SantaGertrudes cluster, located in São Paulo, butthe perception of individual companies in SCvaries a lot in this respect. Asked about thedifferences between both clusters, the threemain firms (domestic medium prices rangingfrom US$ 4 to 6) rather underestimate thethreat, pointing out their superior productquality level and the different customer targetsegment. The medium sized companies seethe Santa Gertrudes cluster (domestic me-dium prices ranging from US$ 1.5 to 2.5) as areal threat; they recognize the fast upgradingprocess going on, stating that their superiorityin product quality is technically undisputed(their domestic medium prices are about US$3.5), but unfortunately not perceived as suchby end customers, whose purchasing criteriaare visual apprearance and brand/price. Howto sell superior quality, making it visible forcustomers, is the challenge number one.

Figure 18 shows that production has beengrowing continuously since the crisis of1990/91; in the last three to four years thishas been mostly based on the expansion ofthe Santa Gertrudes cluster, whereas SantaCatarina has rather stagnated in the domesticmarket, increasing its export sales, as will beexplained later.

As profit margins are small, firms name re-ducing production costs and increasing utili-zation of installed production capacity (com-panies estimate to be working some 10% un-der the target 95%) by increasing marketshare, as the main short-term targets. Fromthe total turnover, 18% is the cost of com-mercialization and 27% transport and logis-tics, an evidence of the importance of the lat-

Table 12: Cost StructureCost item % of total costLabor 23LPG + other fuel components 15Electricity 3Raw material 37Other 22

Source: Gorini and Correa 1999

Figure 18


ter for the cluster. The cost structure of theend product is given in Table 12.

One of the main problems of the firms is thatsome of them are technically bankrupt (Table13). Tile production is a capital-intensivebusiness, and therefore firms rely on credit toexpand or modernize production facilities. Atthe same time, a sound business strategy inBrazil is to minimize, and preferably to avoid,any long-term credit. As the country is hov-ering from one macroeconomic crisis to thenext, real interest rates are unpredictable, ex-cept for the fact that they never come down tosingle digit figures. In the two most recentcrisis, the central bank charged close to 50 %.As the companies’ representatives point out,the only business viable with such credit costis drug traficking. So companies are facing atough choice. Basically, their solution hasbeen to constantly renegotiate their debt withthe National Development Bank. Neverthe-less, this solves their problems only partially,since they stay indebted and are occasionallyin arrears, with the latter creating obstacles inobtaining further credit, for instance for ex-port financing. Moreover, the firms also tendto be in arrears with the public utilities,something that further increases their vulner-ability.

5.3 Upgrading in the SC cluster

What is going on in SC is a specific variety ofwhat Michael Porter (1996) has described as

the search for strategy which follows the re-alization that applying leading-edge technol-ogy and lean manufacturing practices often isnot sufficient to establish a competitive ad-vantage. The tile firms have passed through aprofound change process in terms of techno-logical upgrading and application of newmanagement concepts, especially total qualitystrategies.

A substantial investment in ISO 9000 certifi-cation was made in the search for higher pro-ductivity and product quality, when compa-nies in the cluster faced a demand crisis at thebeginning of the 90’s, as a consequence forthe breakdown of the government’s popularhousing financial system. Nowadays, compa-nies admit that their expectations towards thebenefits of ISO standards were overstated; theISO label failed to establish a competitive ad-vantage in the market place, since customers’main decision criteria is either price or theaesthetics and the company’s brand. Somefirms have decided not to renew their ISO9000 certification. ISO 14 000 is an issue forthe bigger exporting companies, seen as apossible future barrier in the export marketsrather than a further opportunity to improveprocess efficiency.

There is a strong belief inside the firms thatthe production process is under control andtechnology upgrading is a matter of updatingthe equipment, which is not a priority due tofinancial constraints. The real upgradingchallenge is seen in the commercializationstages, which have been subject of much less

Table 13: Leading ceramic tile producers in SCCompany Locality Net Turno-

ver (Real$th.)(99)

GrossProfit(99)

Net Assets(RealTh.)(99)

Cash Flow(Real$th.)(99)

Em-ployees(98)

Liability(Real$th.)(99)

Cecrisa Criciúma 203.325 74.260 141.380 3.560 1.435 135.392Portobello Tijucas 177.873 65.495 89.225 2.449 1.393 81.461Eliane Criciúma 141.092 18.200 11.707 5.351 1.827 8.871Itagres Tubarão 39.090 14.817 9.347 26 281 21.089Ceusa Urussanga 26.941 12.136 60.309 2.224 200 6.136Icisa Imbituba 19.619 886 6.935 9.267 452 5.636

Source: BNDES (1988); Projeto Plataforma (IPEN/USP); Balanço Anual da Gazeta Mercantil (1 US$ = 1,60Real$)


investment than the production technology. Inthe following subsection we will see that thisperception does not entirely fit with the find-ing of a benchmarking exercise; Box 3 alsoindicates something different. Nevertheless,there is a shift of focus downstream in thevalue chain, and the upgrading is expected tobe driven by marketing and sales. Invest-ments have been already made in inventorymanagement and distribution logistics, withstock levels being much lower than those ofthe European clusters, an example of how afinancial crisis can drive upgrading, sincethere is no money available to immobilize inthree months stocks, as it is common in Italyand Spain.

Upgrading in marketing and sales meanshelping the customer at the point of sales toperceive the value of the product. Everycompany is investing in the exhibition space(show-rooms) and in the training of the salesforce, both inside the company to improve thecommercial relationship with the sales repsand at the point of sale to better advise theend customer. Evidence is the decision to se-lect the best ceramics technicians to work in

the sales department, whereas some years agothis people were put in the supervision func-tion in the shop floor. Since the demand inthe domestic market is stagnant, it is expectedthat upgrading will focus on sales and exportsfor the time being. Training of sales and ex-port professionals is an issue for the cluster,but no collective action is in course so far.

The most significant tendency in product up-grading is the set up of plants to produce por-celain tiles by the three biggest companies.One of them has been producing porcelaintiles since 1996; the other two will start pro-duction soon. Furthermore, these companiesare rebuilding some of the structure their de-sign departments used to have in the middleof the 1990s, when design was perceived asan important source of competitive advan-tage. They keep a small group of profession-als to define a product portfolio identity, try-ing to differentiate themselves from the com-petition, since the strong outsourcing of prod-uct design, mainly to glazing producers andsome design studios, led to products whichincreasingly looked the same, independent ofwho produced them.

Box 3: Acquiring vs fine-tuning technologyAfter presenting the findings of this report to one of the large firms in SC, we had the opportunity tovisit their recently launched porcelanato factory. Some observations we made during this visit illustratethe technology-related issues of tile producers in SC.1. A substantial part of the factory is dirty. More specifically, it is very dusty. A substantial amount of

the mass escapes from the presses and gets blown around inside the factory. We did not observethis kind of phenomenon in Spain, whereas Italian factories give a similarly dusty/dirty impression.

2. Related to this is the observation that losses along the production, due to loss of mass and break-age of biscuits, amount to 6 % of the total input. If we assume, conservatively, that inputs contrib-ute one third to total cost, this loss means that 2 % of total cost is just wasted.

3. Next to the kiln a plate explains what is happening there. It indicates that inside the kiln tempera-ture is around 1220° centigrade. However, during a visit to the control panel we could observe thatthe maximum temperature at that moment was 1208°, and that at most sensors inside the kiln thetemperature was below 1200°.

These observations indicate a lack of effort to improve the operation of the production line and to getthe maximum yield and quality out of it. The problems we observed reinforce each other: Inadequateoperation of presses is one of the important reasons for losses, and it is also an indicator that theoverall control of the pressing process is inadequate. This, in turn, contributes to the high incidence ofbreakage at later stages. Moreover, lack of control at the early stages leads to variety of quality at thelater stages, in particular inside the kiln. This is reinforced by the variation of temperature inside thekiln, which causes an even larger variety of quality, and a high incidence of second rate tiles which re-ceive a much lower price.The firm is clearly immensely proud of its new baby. This pride seems to distract the executives fromthe fact that acquiring a production line of the latest generation is one thing, whereas operating it effi-ciently is something quite different.


5.3.1 Benchmarking on Ceramic TileManufacturing Companies inSanta Catarina

What makes a world class manufacturer?Many executives are striving to developworld-class manufacturing operations to en-sure that they become or remain competitivein increasingly global markets. To do this,they are adopting a range of manufacturingpractices, from organisational changes suchas empowerment and teamwork to the use oftechniques such as just in time and pull pro-duction.

Most companies in the Criciúma ceramiccluster share this view and have focused ontechnological and management upgrading toincrease competitiveness. Starting in the early90s, during a severe crisis in the constructionsector, companies respond with increasingproductivity, investments in new equipmentand total quality management, as well as ISO9000 standards. The initiative was stronglysupported by the National Development Bank(BNDES), which financed the modernisationinitiative of companies that had already re-ceived loans and were not always able toservice them.

The question of how far companies havemoved towards world-class manufacturing isat the heart of the Made in Brazil project, abenchmarking study of manufacturing prac-tice and performance. It is linked with theMade in Europe project comprising similarstudies in Britain, Germany, The Netherlands,Finland and Switzerland, co-ordinated by theInternational Institute for Management De-velopment (IMD) in Lausanne. It has beencoordinated by Instituto Euvaldo Lodi-SC, aninstitution affiliated with the Federation ofIndustries of the State of Santa Catarina, andthe professional in charge was Silene Seibel.

The central hypothesis of the study is that theadoption of best practice leads to high per-formance. The studies, which are highlystructured, examine six areas of manufactur-ing practice and performance in detail.

Figure 19 shows the areas covered. The ex-ternal part of the model comprises the organi-sation as a whole: total quality and organisa-tion and culture; the interface between theplant and the market: concurrent engineeringand logistics; the internal plant organisation:lean production and manufacturing systems.

The benchmarking questionnaire was recentlyapplied in 6 of the 13 most important compa-nies in the Criciúma cluster. We present thekey findings and discuss the introduction ofbest practice and the achievement of superiorperformance. The questionnaire comprised 48indicators in all the six areas mentionedabove. The indicators were assessed in a par-ticipatory approach with the plant manage-ment, and audited at the plant site by accred-ited specialists.

Figure 19: The benchmarking model

Figure 20: Practice vs. Performance relative tothe ceramic industry in Europe

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70

80

90

100

0 10 20 30 40 50 60 70 80 90 100

Overall Practice (%)

Ove

rall

Per

form

ance

(%)

Ceramic Industry Criciúma (average)Ceramic Industry Europe (individual plants)


Figure 20 shows a scatter diagram of practiceand performance, positioning the company inthe following categories: a world class com-pany is considered to be the one which pres-ents an overall score of at least 80% of manu-facturing best practice and performance; ifthe company scores between 60-80%, it isconsidered to be a contender to world class;scoring between 50-60% the company is con-sidered to be a “makeweigh”, and less than50% is a critical score, putting the companyin the category “punchbag”.

Figure 21 shows the average positioning of 6ceramic tile companies located in theCriciúma cluster in relation to companies ofthe corresponding European sector (com-prising manufacturing companies of clay andconcrete products; Spain and Italy did notparticipate in the European initiative thatcomprised 816 plants in all sectors). The av-erage score is about 60% both in practice andperformance situating them in the contendercategory; this position shows that the sectorin Criciúma has a reasonable level of manu-facturing best practices in place and perform-ance achieved. The position of the individualplants at the chart shows also that the centralhypothesis of the study can be confirmed,with higher level of practice leading to higherperformance scores.

Comparing the average scores of theCriciúma ceramic tile plants with the scoresof the 10% best plants (leaders) of the Euro-pean sector, as shown in Figure 21 and Table14, one can see that overall the manufacturingplants in Criciúma lie about 9% behind theirEuropean competitors, both in practice andperformance. Logistics display the most sig-nificant difference, with a distance of about14% and 12% respectively in practice andperformance; a critical point is customer de-livery performance, with companies havingdifficulty to meet customer delivery commit-ments, caused in part by a lower level of leanproduction techniques in place, which reflectson longer total business cycle time (customerorder to delivery).

Lean production lags by 10% and 11%, withcompanies in Criciúma working with biggerbatch sizes, in the well-known struggle be-tween higher productivity and market flexi-bility. Another point to regard is the keybusiness performance measures used to man-age the business. While in Criciúma successis measured comparing established goals withend results concerning a few indicators likecost reduction, production output, productiv-ity and profit, companies in Europe includeindicators like customer satisfaction, marketshare and focus on business processes ratherthan individual business functions. Althoughthe claim that the “challenge is at the marketplace” is frequently heard, the performance isstill measured in physical and financial indi-cators.

The differences in organisation and cultureare concentrated in the time horizon and linksbetween manufacturing strategy and businessstrategy planning. In Criciúma, manufactur-ing strategy planning is rather short time (lessthan a year and seldom documented). Em-ployee participation is a reality in the sector,and investments in education and training area standard practice. A further relevant point iscustomer orientation, with European compa-nies being ahead in the introduction of cus-tomer satisfaction measurements and com-municating customer needs throughout theorganisation. Although the customer is notany more a unknown entity for companies inCriciúma, they recognize that the great chal-lenge they have to face is outside the plant.Later we will compare this reality with thechallenges business managers face to imple-ment their visions.

Regarding manufacturing systems, one canconfirm that manufacturing practices are verysimilar, laying behind by only 5%, whereasperformance lay 10% behind; it means thatalthough companies in Criciúma have accessto the same technology as their Europeancompetitors, they are not able to get the sameresults; the main difference relate to produc-tion process control and the information sys-tems in place, where companies in Criciúma


present a lower level of integration of theirinformation systems along the process. What total quality management is concerned,

the Criciúma ceramic tile companies lag byabout 7%, presenting a lower level of ISO

Figure 21: Spider chart against the leaders in the ceramic industry in Europe

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100

Manufacturing Systems PR %

Manufacturing Systems PF %

Lean Production PR %

Lean Production PF %

Logistics PR %

Logistics PF %

Concurrent Engineering PR %

Concurrent Engineering PF %

Total Quality PR %

Total Qualitity PF %

Organization and Culture PR %

Organization and Culture PF %

Ceramic Industry Criciúma (average)Leaders Ceramic Industry Europe (10% best)

Table 14: Comparison of indices between the ceramic industry in Criciúma and theleaders in the ceramic industry in Europe

AreasCriciúma Leaders

Europe Difference

Manufacturing Systems PR % 58,3 63,0 -4,7Manufacturing Systems PF % 67,8 77,3 -9,5Lean Production PR % 58,3 68,3 -10,0Lean Production PF % 62,3 73,3 -11,0Logistics PR % 58,9 73,3 -14,4Logistics PF % 65,1 77,2 -12,1Concurrent Engineering PR % 86,6 86,0 0,6Concurrent Engineering PF % 48,9 51,3 -2,4Total Quality PR % 62,9 69,7 -6,8Total Qualitity PF % 58,3 65,8 -7,5Organization and Culture PR % 55,9 67,3 -11,4Organization and Culture PF % 56,6 66,0 -9,4

Overall Practice (PR) (%) 59,7 69,1 -9,4Overall Performance (PF) (%) 60,5 69,4 -8,9


certification than the competitors. Althoughmost companies have quality processes inplace, several have discontinued the ISO cer-tification, claiming that the burden and costsof keeping the system is very high comparedwith the benefits at the market place, spe-cially in the internal market, where it does notrepresent a differentiation factor. Companiesrecognise the importance which ISO stan-dards have had to organize their processesand improve quality, and are assessing its ne-cessity in their main export markets.

Looking at Figure 21 one realises that thedistance in manufacturing best practices be-tween the average of companies in Criciúmaand the European leaders in the sector is nottoo far. There is a regular distance betweenboth lines, showing a comprehensive ap-proach to the modernisation of manufactur-ing, not limited only to the hardware aspects;furthermore, this results confirm the generalobservation that modernisation of manufac-turing has been a central issue and is reasona-bly accomplished. There is of course a way togo, but surely the main issues are focused inthe market place.

Let us look at the second group of questionsreferred to the personal opinions of generalmanagers regarding their business vision. Theresponding companies export on average 15%of their turnover. First they were asked abouttheir conditions to compete successfully withthe best competitors anywhere in the world.They responded they are satisfactory (50%)or partially (50%) able to compete globally.Asked about how long it would take to pre-pare themselves to successfully compete withthe best competitors anywhere in the world,33% responded they don’t know, 16% wouldneed at least 1 year and 50% stated theywould need at least 5 years. This is evidencethat although export is an important issue andthey intend to increase their export share upto about 20 – 30% of turnover, none of themfeels mostly or completely prepared to com-pete globally, neither know very well how toprepare themselves to this challenge.

The inhibitors in achieving the business vi-sion are mainly external factors, like foreignexchange rates, international competition andgovernment policy (35%). These factors re-flect that export is a priority in the businessagenda on the one side, and that companiesare aware of the difficulties of having successin the activity on the other. Although the ex-ternal factors are the most critical obstacle toexports and the “Custo Brasil” is very high(and even mentioned by Italians and Spanishcompetitors as the main inhibitor to a suc-cessful Brazilian export strategy), it is notablethat there is very little joint initiative to mo-bilise the political actors to change the situa-tion; availability of money (33% but men-tioned at the first place by all companies) wasthe main internal factor mentioned, reflectingthe critical internal cash flow situation.

The main priorities in achieving their busi-ness vision are external factors such as tomaximise market share, to be a leader incustomer service and in product innovation(61%). Internal factors such as to be worldclass, reduce manufacturing costs and investin technology and engineering are far lessimportant (33%), as well as product qualityissues and time to market (11%).

The most valuable source of external advicein the present are fair and exhibitions (27%),followed by suppliers (22%) and customersand clients (16%); in the future, companiessee customers and clients (33%) as the mainsource, followed by benchmarking the com-petitors (22%), suppliers (16%) and universi-ties/management consultants (16%); thischange underlines the shift in priorities frominternal plant matters to the external factorsthat determine their competitiveness. Havingrelied on the suppliers of manufacturingequipment and glazing materials in the past,companies see the need of a more proactiveattitude towards getting information first handfrom the customers and clients, and havingaccess to innovation and knowledge in theuniversities and from management consult-ants.


5.3.2 The relevance of standards

Most of the tile manufacturers are ISO 9000certified, even though this does not seem toestablish a competitive advantage, either do-mestically or abroad. The advantage ratherlay in the reorganization of the productionprocess, leading to improved efficiency.Some firms are ISO 14 000 certified, or pre-paring for certification, and one of the largefirms is preparing for BS 8800 certification,which is a standard for occupational healthand safety. Again, this effort is part of thefirm's philosophy of constant upgradingrather than reflecting an acute or imminentpressure from customers.

Another standard which firms presented asbeing very important in 1996 is ISO 13 006which defines the features of a tile. Firms inSC were keen to be certified, and to create aninfrastructure for efficient certification, sincethey hoped that this might establish a decisivecompetitive advantage vis-à-vis their com-petitors from Santa Gertrudes. However,things did not quite work out that way, andthis for two reasons. First, final customers didnot pay that much attention to the certifica-tion and rather made their decisions accord-ing to design and price. Second, some of thecompetitors from Santa Gertrudes also gottheir products certified. As firms from SCpoint out, products from Santa Gertrudes justbarely stay within the limits established bythe standard, but this detail does not makeany difference in terms of competitiveness.Representatives from some firms in SC arefantasizing about stricter standards to keepSanta Gertrudes out of end product certifica-tion; this reflects their unwillingness to taketheir competitors seriously rather than it is aviable option, especially since standards suchas ISO 13 006 are defined by industry bodiesin Europe without any participation fromBrazil.

5.3.3 Structure of the value chain

The companies in the Santa Catarina clusterhave a very high degree of vertical integra-tion. In 1996 the field research showed noreadiness for outsourcing, justified by com-panies by the lack of specialized suppliers inthe cluster. In the meantime, this situation haschanged remarkably for design, maintenanceand transport. The machinery is Italian andthe glazing and frits are mostly Spanish, al-though local suppliers are in place (the thirdbiggest glazing producer is a local firm, aspin-off of one of the big local producers,selling about half of its production to SantaGertrudes). From 3 multinational supplierspresent with sales offices in the cluster in 95,holding the business in a monopoly-like way,the cluster counts with 7 glazing producingcompanies and a total of 28 companies inBrazil, associated in the recently founded na-tional association ABRACOLOR. The glaz-ing producers supply the same range of serv-ices they do in the European clusters, due tothe pressure of the companies to have thepresence of suppliers within the cluster, butalso since competition between glazing pro-ducers is fierce and each one is constantlysearching ways to differentiate itself.

The tile producers see the main challenge inthe development of the competencies in themarket place, with a forward integration intodistribution, commercialization, and tiling, asa part of the strategy of convincing the cus-tomer of the superior value of products fromthe Santa Catarina cluster.

5.3.3.1 Market segmentation

The traditional way of market segmentationin Brazil is by income range: class A =households with an income of more than 20minimum wages (i.e. the rich and the reallywell-off), class B = households with an in-come of 11 - 20 minimum wages (i.e. the up-per middle class), class C = households withan income of 6 - 10 minimum wages (i.e. thelower middle class), and class D = house-


holds with an income of 3 - 5 minimumwages (i.e. poor households with some dis-posable income). The reasoning of tile firmsfrom SC still is very much linked to this clas-sification. They assume that the homogeneityof consumption behavior within each of theclasses is more important than cross-classlifestyle issues. More specifically, they arguethat it makes sense to cater to each of theclasses through a specific marketing channel:

? A promising way of catering for class Aappears to be specialized, classy shops.Two of the large firms are setting up ex-clusive franchising networks. Inside theshops, well-trained salespeople are at-tending customers, and architects are of-fering, free of charge, design proposals,involving combinations of floor- andwall-tiles.

? Customers from class B, firms assume,are more likely to enter multi-productshops for construction material, a seg-ment where a major change seems to beunderway. Traditionally, the dominantpattern were small- and medium-sized,family-owned shops. In the recent years,some large foreign chains started to es-tablish themselves in Brazil (Castoramaand Le Roy Merlin from France) or are inthe process of evaluating the market po-tential (Home Depot from the U.S.), andsome domestic chains are being set upwhich follow the same pattern. It is acommon expectation that the constructionproduct sales will experience a concen-tration, professionalization and upgradingprocess similar to the one which hap-pened in the super- and hypermarket-segment, although the evidence in this re-spect so far is mixed. Large chains suchas Wal-Mart already had to learn that theycannot simply transfer their model toBrazil, and it is possible that the necessityto adapt is even larger in constructionproducts.

? It is even less clear what customers fromclasses C and D are going to do. Sales in

this segment are to a certain degree in-formal, i.e. without sales taxes. Smallneighborhood shops play an importantrole in this segment. Firms from SC seeclass D as a lost case, since these custom-ers will usually opt for cheap productsfrom Santa Gertrudes, whereas there maybe some sales potential in class C.

5.3.3.2 Sales and after-sales services

In analyzing customer complaints, firms re-alized that there is little sense in producinghigh-quality tiles if the tiler is not sufficientlycompetent to place them. The most radicalmanner of dealing with this problem is con-sequent forward integration: producing notonly tiles but also making sure that they getset in the correct way. There are three stagesthrough which firms get to this point:

1. Firms start, at their own cost, to train til-ers, organizing courses both at their homelocation and elsewhere in the country. Insome cases, this includes fitting the tilerwith a box of tools.

2. Firms not only train but also certify tilers,and offer customers a 5 - 10 year war-ranty in case they employ the certifiedtiler to set the tiles using the firm's ownargamassa and rejunto. This full packageis especially offered by one of the largefirms with own shops, so that the cus-tomer has only the shop to deal with,paying only one bill.

3. Firms start to train and employ their owntilers, offering the full package to con-struction companies. This is not onlybased on quality considerations but alsoon the observation that the cost of settingthe tiles is higher than the cost of pro-ducing them, so that the full packageopens up the opportunity to increase themargin.


5.3.3.3 Exporting

Firms from SC have been increasing their ex-ports over the course of the 1990s (Figure22), even though some observers claim thatthey were losing money due to the over-valuation of the Brazilian currency. The Bra-zilian exports is by far dominated by thecompanies located in the cluster (Figure 23).

Exporting probably became profitable afterthe devaluation in January 1999. The term"probably" refers to the fact that ever sinceinternational shipping companies, on whichBrazilian exporters rely, have been increasingthe freight-rates, which grew from about US$900 per container to US$ 1,400 to 2,000; theprecise rate differs according to the overallvolume, with volume exporters getting lowerrates. Some firms claim that exports to certainregions, especially the Caribbean that used tobe an important market, are no longer viable.The main target markets are the U.S., Merco-sul, and other parts of Latin America. Lessimportant foreign markets include South Af-rica and Australia. Europe is no target mar-ket; one of the large firms actually closed thesales office it used to have in Brussels.

Firms are organizing exports in differentways:

? The most frequent pattern is the employ-ment of representatives in key markets.

? The second option is collaboration withtrading firms in the target markets.

? One of the large firms has a whollyowned subsidiary in the U.S. which istaking the role of a trading firm.

Exports have been growing recently, afterfluctuating in the years before. The decreasein 1990/91 reflected the chaotic economicsituation in Brazil, the decrease after 1994 theeffect of the appreciation of the Brazilian cur-rency. In any case, exports represent no morethan 10% of total production, far behind theItalian (69% in 1998) and Spanish (about50% in 1998) export share. Companies in the

SC cluster are working hard to increase theirexport share, the most successful firmachieving an export share of about 20% ofproduction and 25% of turnover. Export me-dium target prices are about US$ 4 per squaremeter.

There is a governmental export promotionprogram (EXIM), but access to export creditsis difficult due to the arrears mentionedabove. ANFACER has recently approved anexport promotion program with the federalexport agency APEX, aiming at the promo-tion of the Brazilian product at target marketsand the joint presence in important interna-tional fairs.

Figure 22

Brazilian Tile Exports

Source: Anfacer.

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 19980

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Figure 23

Main Tile Exporters from Brazil (1998)

Source: SECEX.

CecrisaEliana

PortobelloIncepa

ChiarelliVectra

deLuccaImbituba

ItagresMoliza

Casagrandeother

0 5 10 15 20 25

Santa Catarinaother states


5.3.3.4 The relevance of internationalvalue chains

Brazilian tile firms are integrated into inter-national value chains, but in a completely dif-ferent way than, say, footwear or garmentmanufacturers. Whereas the latter rely on for-eign firms in the downstream part, i.e. when itcomes to commercializing products, the tilefirms rely on foreign firms in upstream ac-tivities, i.e. capital goods and crucial inputs.

Dependence on foreign suppliers of capitalgoods is not a particularly unusual feature foran industry in a newly industrializing country.In fact, in the tile industry apparently every-body depends on Italian capital goods manu-facturers, including firms in Spain. The capi-tal goods producers are one of the two maintechnology drivers in the industry. Machineproducers offering new options stimulate asubstantial part of product innovation. In fact,product change in tiles is more rapid, andmore fashion-prone, than one might expect,reflecting a circle which may be seen as vir-tuous as well as vicious, involving machineproducers and tile producers which both seeproduct innovation as the main competitiveweapon against their respective competitors.Firms in Brazil report that access to latestvintage equipment is not restricted, thoughmachine producers tend to collaborate withsome Italian tile producers during the finalphase of machine development. A represen-tative of the machine producers' associationconfirmed that, to the dismay of Italian tilemanufacturers, machinery is sold to whoeveris able to pay. The latter is the much moreacute bottleneck for firms from SC than ac-cess to production technology.

Input manufacturers, especially colorifícios(producers of glazing materials), are the othertechnology drivers in the tile industry.Whereas Italian firms are the undisputedleaders in capital goods, Spanish firms have avery strong position among colorifícios, withtheir Italian competitors having dropped to adistant second place. The second half of the1990s saw a profound change regarding the

structure of the colorifício business in Brazil.Until the early 1990s three TNC affiliateswere producing glazing materials in Brazil(from Italy, Germany, and the U.S.). With thestrengthening of the Spanish tile cluster, andthe growing competitiveness of producers ofglazing materials, Spanish colorifíciosfounded affiliates in Brazil, mostly in SC.Today, there are about a dozen important anda few more small colorifícios operating inBrazil. Competition between them is intense.In order to create a competitive advantage,they changed their behavior in a profoundway. According to tile manufacturers, in theold days a colorifício would come up with anew glazing variety, drop it at the porter's andleave it to the tile manufacturer to figure outwhat exactly to do with it. During the lastthree to four years, the colorifícios have setup development and design teams, offering afull service to tile manufacturers – the design,the glazing material needed to produce it, andtechnical assistance in mastering new designsand solving problems in the production proc-ess. We found no indication that Brazilian tilemanufacturers are discriminated. It ratherseems to be the other way around, i.e. Span-ish colorifícios draw on know-how availableat headquarters and at Spanish R&D centersif they cannot solve production problems lo-cally.

5.3.4 Structure of supportinginstitutions

One of the main features of the 1990s was thestrong effort in the cluster to upgrade thesupporting institutions. In fact, it is a show-case in two respects. It shows how a clustercan organize the creation of active advan-tages, and it shows how a cluster can screwthings up by failing to find adequate institu-tional solutions.

The upgrading effort involved three institu-tions:

? One of the large firms had its own techni-cal school, operating at secondary level,


the Colégio Maximilian Gaidzinski. Itopened the school for students from otherfirms.

? A Center for Ceramics Technology(CTC) was founded as part of the SENAIsystem. It was modeled after ITC in Cas-tellón and was supposed to offer testingand certification services to firms as wellas conduct research projects with firms.One of the rationales of firms in de-manding the foundation of the CTC wasto achieve economies of scale in testingof inputs, and to have a local institutionfor technical certification of final prod-ucts, thus saving time and money.

? The local university (UNESC) set up acourse in ceramics technology in 1996and another course in materials engi-neering in 1998. The course in ceramicstechnology leads to a certificate, but notto a formal graduation. It has been for-mulated in close cooperation with thefirms, and there is a supervisory councilwith firm representatives specifically forthis course which is tailor-made for thetile industry. The material engineeringcourse leads to graduation, and it catersboth to the tile industry and the plasticsindustry which has a relatively strongbase in the region.

Even though each of these institutions is upand running, the effect is falling short of theexpectations. This has to do with two con-flicts which erupted or materialized in thecreation of these offers.

First, there is the way CTC was organized. Itis administrated by SENAI. SENAI is themain organization in vocational training inBrazil, and it is administrated by the privatesector, being part of the system of the state-level Federation of Industries. Yet it has ahigh degree of independence, and it is oftenperceived as a governmental institution byfirms, a perception that reflects, among otherthings, the fact that SENAI schools are rarelyrun in a business-like manner. SENAI is fi-

nanced via a levy paid by each industrial firm(1 % of the wage sum). But as formal em-ployment is constantly decreasing, SENAI’sincome is decreasing as well, and thereforethe organization has been involved in effortsto secure survival for quite some time. In thecase of Santa Catarina, this took the shape ofupgrading. SENAI is phasing out what usedto be its main task, namely apprenticeshiptraining, and is creating course offers forshort- and long-term courses at secondary andtertiary level which it is selling to firms. Fur-thermore, SENAI is setting-up technologycenters in each of the main clusters in SC,something that is even further away from itstraditional mission. Managing these centers ispretty much based on learning-by-doing, andthus depends to a high degree on the individ-ual characteristics of the director. Since it isnot sure that a director of a SENAI school hasfrequently set his foot into a firm or workedthere, it is a challenge for a director of a tech-nology center to have a clear and updated no-tion of business management and the kind ofdemands a firm may have.

To make bad things worse, the CTC was notjust run by SENAI but involved a partnershipwith the Materials Laboratory of the FederalUniversity of Santa Catarina (UFSC) inFlorianópolis. While the engineering depart-ments of UFSC have an excellent record inquality of training, their record in terms ofcooperation with the private sector is any-thing but. So the CTC ended up with a doubledirectorship – a SENAI person with no in-dustry background, and an UFSC professorwith no industry background, either, butstrong academic aspirations. So rather thanemulating the experience of Castellón’s ITC,the actors in the cluster managed to create ex-actly the opposite. Up to this day CTC suffersfrom lack of credibility with the firms. Oneelement, which is not at all helpful, is the factthat there are hardly any full-time employees;even the current director is another person onloan from UFSC who spends at best threedays per week at CTC. Most of the research-ers are postgraduate and doctoral students fi-nanced with postgraduate scholarships, and


for their personal career perspectives it is es-sential to achieve academic excellence, ratherthan selling services to firms or helping themin solving their everyday problems. Accord-ingly, interaction between ITC researchersand firms is complicated; just one of the mi-nor problems involved in technological de-velopment work is the fact that what a CTCresearcher perceives as a prototype appears asa rough sketch of a possible idea to a firmperson.

Second, there is the position of UNESC andits relationship with CTC. It is important toknow that UNESC is a private university, de-riving its income mainly from the fees paidby students, so that offering courses whichare locally in high demand is essential for theeconomic viability of the university. The cur-riculum of the ceramics technology coursehad originally been developed by SENAI,only to be transferred to UNESC after the in-tervention of one of the main cluster actors.One needs little creativity to imagine the kindof feelings SENAI/CTC had for the univer-sity afterwards, and it is not surprising thatthe relationship has been somewhat cool eversince.

Another important element in terms of thesupporting institutions are business associa-tions. They went through a process of up-grading in the first half of the 1990s, both atthe cluster and the national level. The na-tional association of the sector, ANFACER,has become more active in organizing confer-ences, seminars, and statistical work. Firmsfrom SC play a key role in the association;currently, ANFACER’s president it the son ofthe founders of one of the large firms. AN-FACER also set up a national center for thesector. At the cluster level, the employers’ as-sociation, Sindiceram, broadened its scopetowards organizing seminars and playing akey role in organizing the lobby effort. How-ever, its profile has dropped significantly inthe recent past.

5.3.5 Evolution and deterioration ofcollective action

Collective action was very strong in the firsthalf of the 1990s. It was aimed at solvingacute problems:

? Tests and certification, to be done by theCTC,

? Higher education course, to be created atthe local university,

? The provision of natural gas through anextension of the Bolivia-Brazil pipeline,

? Political lobbying to revive the construc-tion sector.

The deterioration of collective action whichwas observable over the past three or so yearscan be traced back to several factors:

? The main technology and productionproblems are considered to be solved.

? Challenges are emerging at the market-ing/sales/distribution stages, but this is avery competitive subject where compa-nies are not ready to cooperate. To phraseit differently, in the categories of our re-search: The increasing importance ofgovernance and rivalry inside the valuechain, in particular downstream fromproduction, militates strongly againstcollaboration between producers.

? With respect to the management problemsin CTC, it is important to note that creat-ing a physical structure is simpler thanmanaging the interface univer-sity/academic research vs. applied tech-nology. What remains is the question whythe original role model, Castellon’s ITC,has not been analyzed in a more profoundway.

? Regarding the change in the sector asso-ciation, it is important to see that individ-ual leadership is highly important in asso-ciations with a low degree of profession-


alization, such as Sindiceram – and thecurrent president never aspired this posi-tion and is actually much more gifted inleading his firm than the association.

? Finally, there is the issue of party politics.In Brazil, política partidiária means notjust party politics. The connotation of theterm outside the political system isstrictly negative, as it describes a Ma-chiavellian conceptualization of politics,based on zero-sum games, where any ini-tiative launched by Party A will facefierce resistance by Party Z for the simplereason of having been launched by thatparty, even if it is a meaningful initiative.Accordingly, a business associationwhere key actors belong to competingparties is effectively paralyzed. Thisseems to have been another problem af-fecting Sindiceram, as well as the localbusiness chamber which played a con-structive role in the early 1990s butceased to do so later on.

5.3.6 Competitive challenges

Even though firms in SC display quite differ-ent views regarding the competitive threatSanta Gertrudes establishes, in became quiteobvious during the interviews that firms inSC are worried, and that the Santa Gertrudesfactor figures heavily in their competitivestrategies (and certainly much more thanMogi-Guaçu). The main point made by firmrepresentatives is that low-price strategies,which had been pursued by some firms fromSC in the past, are no longer viable. But thereal issue is a different one and the irritationof firms in SC may be explained by this. Forthem, the days of a seller's market are over,and they are looking with a mixture of envyand disgust at firms from Santa Gertrudeswhich were still very much operating in aseller's market (views differ as to whether thissituation continues). This cluster received amajor boost after the Plano Real stabilizationprogram in 1994. As the purchasing power ofpoor households increased, the demand for

small lots of cheap tiles increased as well.Being at best semi-formal, there are no reli-able data available on the cluster, but insidersestimate that production grew tenfold in the1990s. According to recent estimates, the av-erage price of a tile from Santa Gertrudesamounts to R$ 3 / sqm., whereas firms fromSanta Catarina rather get R$ 9 / sqm. Firms inSC have to enter into a serious marketing ef-fort to convince consumers to pay a higherprice, and they find that this is no easy task.

This leads us back to the observation of dif-ferent phases in the cluster's evolution. Thethird phase, in the 1990s, was about produc-tion, and much less about marketing. Thesedays, the main challenges in the productionprocess have been mastered, but things arenot going as well as expected. But the firmsare not quite prepared, in terms of human re-sources, to deal with the marketing challenge.They mounted a major effort in terms of up-grading of human resources in the 1990s, butthis was mostly directed at technological is-sues rather than marketing, sales, and after-sales services.

So what exactly are firms trying to figureout? First, they try to figure whether, andhow, they can come to adequate market seg-mentation. Second, they try to develop salesand after-sales services to create a competi-tive advantage. Third, they are lookingabroad, trying to expand their export share.

5.4 Further perspectives for upgrading

5.4.1 Production technology andmanagement

Even though most firms have gone through aprofound technological upgrading process,the sector will have to confront two majorchallenges: improved control of the produc-tion process and management upgrading.

Regarding the production process, there seemto be two problems. First, control of the proc-ess is to a large degree based on trial-and-


error and learning-by-doing, as opposed to aprofound understanding based on scientificinsights. Under normal circumstances thefirms control the production process reasona-bly well. However, when they switch fromone type of tile to another one (e.g. a differentsize), or when they introduce a new productaltogether (e.g. using a new kind of glazingmaterial), there seems to be an extended ex-perimentation process which involves sub-stantial amounts of scrap.

Second, control of the production process hasin the past been focused at the firing process,i.e. starting after the press. The process ofmilling and mixing the argile was much lessunder control. Part of the trial-and-error andscrap involved in process changes appears tobe due to insufficient control of the first pro-duction stages. Increasing control of this partwas often mentioned as an important stepforward in increasing quality and reducingcosts.

A highly disputed issue regards the process ofpreparation of the mass. Firms in SC are us-ing a wet process, whereas most firms inSanta Gertrudes are employing a dry process.The wet process is more costly but the massresulting from it is more homogeneous, thuspermitting higher quality tiles. However, spe-cialists argue that it is possible to reach acomparable degree of control of mass usingthe dry process, thus getting a good-qualitytile at lower costs.

Regarding management upgrading, there is aconsensus among firms that the recent up-grading efforts have focused at the technicalside of the business, neglecting the commer-cial side. A typical story would be that firmshave upgraded to produce high-quality prod-ucts, but that the sales department and repre-sentatives fail to understand the specific char-acteristics of the improved product, thus con-tinuing their traditional way of doing busi-ness, i.e. selling based on lower prices. It isnotable that, even though virtually all thefirms we interviewed mentioned this prob-lem, there is so far no discernable effort to

solve it, e.g. repeating the successful experi-ence which led to the creation of the ceramicstechnology course. The explanation given bythe firms was that it is difficult to imagineany kind of collaboration when it comes tosales, even though several firm representa-tives confirmed our observation that in, say, acourse to train sales personnel 80 - 90 % ofthe content would be generic.

5.4.2 Product technology

Given the fact that it is usually perceived as amature industry, the speed and degree oftechnological evolution of the tile industry issurprisingly large. Major product innovationsin the recent past were gres porcelanato andgres polido. Both products try to emulate, orin fact improve upon, the visual appearanceof natural stones, especially marbles andgranite. Gres porcelanato started to appear inItaly in the second half of the 1980s and be-came widespread in the second half of the1990s. One of the large firms in SC started tomanufacture it in 1996; the other two willlaunch production in 2000. Gres porcelanatois a high-value product, with the ex-factoryprice three- to tenfold higher than that of or-dinary tiles.

Gres polido targets a similar market segment,has a slightly different appearance and a pricein-between that of conventional tiles and gresporcelanato. Italian producers in the mid-1990s first introduced it. The first (medium-sized) firm in SC started production two yearsago, and other medium-sized firms launchedgres polido in 2000. The price so far is be-tween two and four times higher than that ofordinary tiles, but it is likely that this pre-mium will decrease as supply increases.

Nobody mentioned any innovation whichmight be the next big thing after porcelanatoand polido, but given the experience of therecent past it is likely that something new willappear. However, this kind of radical innova-tion depends on suppliers of machinery andglazing material rather than the tile producers.


5.4.3 Restructuring of the industry

It is not unlikely that the near future willbring increased specialization in the cluster,including a new division of labor betweenfirms. As one firm representative put it, thereare firms which are good at producing butbad at selling. Since the large firms are mov-ing forward into strengthening brand imagesand integrating retail sales and services, onemay speculate that they may opt foroutsourcing of production. For medium-sizedfirms, especially those which currently arestruggling to survive, this may open a road tosurvival. It is interesting to note that none ofthe interviewed firm representatives formu-lated such a scenario, but that they confirmedit as a likely evolution when we presented thehypothesis in the interview.

5.4.4 Options for renewed collectiveaction

We found a substantial degree of collectiveaction to improve competitiveness in our fieldresearch in 1996, whereas today there is littleactivity in that respect. This is certainly notdue to the fact that there are not obvious op-tions. We see at least two such options. First,there is management upgrading. Local uni-versities in other parts of SC offer, for in-stance, courses to train professionals special-ized in foreign trade, or management updat-ing courses with teachers drawn from leadingMBA programs. There is no such activity inand around the tile cluster. Accordingly, itwould make sense if firms suggested suchcourses to the local university, and committedthemselves to liberate their professionals totake part in them. Second, there is training ofsales personnel and representatives. As men-tioned before, there seems to be a major gapin this respect. There also exist obstacles, es-pecially secrecy considerations. However, asmany firm representatives confirmed, a largepart of such training would have a genericcontent, and the advantages in terms ofeconomies of scale, quality, and flexibilityought to be obvious.

6 Conclusions

In the first part this section we will start witha summarizing comparison of the three clus-ters. In the second part we will discuss mentalmodels, an issue which is helpful in under-standing the tile industry in two differentsenses. By presenting and questioning somemental models, we throw a light at some ofthe issues industry insiders love to discuss,and they are certainly issues of some impor-tance. Therefore discussing them is helpful tobetter understand some tendencies in thesector. At the same time, in our view they arenot the key issues, but rather camouflagethem, in particular the ongoing struggle forsupremacy in the sector, which is somethingindustry insiders do not like to discuss.

In the third part of this section, we will ad-dress what in our view are the key issues inthe sector at large. They relate to upgrading,the governance structure, and the relevance ofvalue chains and standards to better under-stand this sector.

6.1 Comparing the clusters

The differences between the three clusters,and in particular between Sassuolo and Cas-tellón, are remarkable (Table 15). Sassuoloand Castellón reflect nothing less than differ-ent paradigms, something that can not be ex-plained by the different stages of evolution.Sassuolo is the more mature cluster, and yet itstands for a model of industrial organizationthat appears less advanced than that in Cas-tellón. Sassuolo is still very much experience-based (as opposed to science-based), and tacitknowledge plays a much larger role than ascientific approach. Castellón moved fromcraft to industrial production at a later pointin time. The technology-oriented paradigmwhich is one of its main features was not de-liberately chosen but rather emerged out ofnecessity. From a technology- and produc-tion-angle Castellón appears as the mostcompetitive place in the tile industry.


It would thus appear that Castellón is betterprepared for the future, even if productiontechnology is to an important degree drivenby Italian capital goods producers. But theyare working closely with Spanish tile produc-ers. If there are doubts regarding the future ofCastellón, then they are due to the evolutionof global value chains. Italian firms are moreaggressive in their move forward into distri-bution, and in this way they may establish adecisive competitive advantage.

There is evidence that the move into distribu-tion is one of the factors militating against ef-fective local governance for improved com-petitiveness in Sassuolo. In this respect, it

would appear that the dense institutional fab-ric in the Castellón cluster so far benefitsfrom the firms' decision to focus at produc-tion rather than distribution. This is evenmore plausible if we look at the Braziliancluster, where the firms' increasing attentionto the final section of the value chain is againan important explaining element in deterio-rating local governance (Table 16).

Talking about governance, it is important tomake explicit that it was no omission that therole of government has only rarely been ad-dressed in this paper. The tile industry clus-ters illustrate that in terms of locationalstrategies governance and government can bevery different things. In the cases of Brazil

Table 15: Cluster Comparison – Industrial OrganizationItaly Spain Brazil

Clusterparadigm

Style, design, image, tacitknowledge

Technology, scientificunderstanding of productionprocess

In search of paradigm -- forwardintegration?

Maincompetitiveadvantage

DesignBrand image, Made in ItalyCompetence of sales repsCustomer service; quickdelivery

Aggressive business culturePrice/quality ratioSpecific designReliability

Price/quality ratioForward integrationKnowledge of domestic market

Clusterweakness

Collapsed infrastructure(transport); limited effectivenessof collective action

Dominance of technology-basedparadigm

Deterioration of collective action

Technologicalcompetence /domination ofproductionprocess

Tile producers: Experience-based, profound tacitknowledgeCapital goods: Strongtechnology base

Technology understood asprocess technology; leaders inglazing and frits

Strong role of Spanish colorificiLimited understanding ofproduction process

Competitivestrategy

Technological leadership(capital goods)Design leadershipNew applications for tilesForward integrationInternationalizationMergers and acquisitions –economies of scale inproduction, diversified brands

Product / design differentiationProduction competenceFast follower

Design and innovation followerForward integration

Productdiversificationstrategy

To complete the product scopeto supply a larger range of endmarkets; implemented byacquisition of medium sizedspecialized firms

To complete the product scopeto supply a larger range of endmarkets, with different demandlevels; only local investment inexpansion of productioncapacity

Same as Spain; focused inlower market end

Verticalintegration oftile firms

Medium to high Low Very high

Industrialstructure

Holdings of several specialized,legally independent firms

Few groups, mostlyindependent family-owned firms

3 large and about 10 medium-sized firms

Internationalization strategy

Global presence in allpotentially relevant marketsFDI in main markets

FDI by glazing producersNo FDI in tile production

Reps in main markets


and Spain, government policies have beenimportant in earlier phases of the evolution ofthe sectors; in both cases it was central gov-ernment policies. But over the last years, inthe clusters in Italy and Brazil governmenthas played hardly any role, and in Spain it hasrather managed to remove obstacles thantrying to be a strategic actor. Upgrading in theclusters had a lot to do with collective actionand the creation of locational advantages, butthis was largely driven by the private sector.

6.2 Mental models of industry actors

To better understand the industry, it is usefulto have a look at some mental models whichare very strongly developed in the sector, i.e.come up in almost any conversation. Some ofthem are outright myths, whereas some othersare at least distorted representations of a real-ity. All of them, however, in one way or an-other refer to the evolution of the industry inthe past three decades, which was the periodof transition from handicraft to industry in tileproduction. All of them also distract fromwhat the key issues in the industry are,namely governance issues along the valuechain.

6.2.1 Wall vs. floor tiles

Tiles may be used to cover their walls orfloors. The appearance of both is often thesame, but the physical characteristics are not.Floor tiles have to be more resistant, espe-cially if set in places with a lot of traffic.Therefore, they usually have a lower waterabsorption, i.e. they are denser and thus lesssubject to abrasion. Creating a denser tile ismore costly, so it makes little sense to put afloor tile at a wall.

A common statement to characterize the in-dustry is that Italy is specialized in floor-tilesand Spain in wall-tiles. A glance at the num-bers does not really verify this. Italian indus-try has a product mix with a share of morethan 80 % for floor tiles, while in the case ofSpain the ratio is about 50/50. What is behindthis statement is, in fact, a perception whichhas to do with the style traditions in the twoindustries. Italian tiles often were rustic,whereas Spanish tiles often were glossy. Thefirst was perceived as more appropriate forfloors, the second for walls. However, thisdistinction is making ever less sense.

The real issue is the marketing strategy.Spanish producers typically offer their cus-tomers a complete assortment of style-

Table 16: Cluster Comparison – Governance IssuesItaly Spain Brazil

Organization ofvalue chain

- local machine producers- mostly Spanish colorifici- local tile producers- sales reps

- Italian machine producers- mostly local colorifici- local tile producers

- Italian machine producers- foreign colorifici with local

production- local tile producers- some firms integrating for-

ward into retailCommer-cializationstructure

Own distribution network seenas key by leaders; own mana-gers present in main markets;specialized retailer shops offerspecification and installationservices

Leaders target high-end seg-ment by own distribution net-work building; brand develop-ment; specific design

Specialized shops offeringcomplete service to higher endcustomer; show rooms, specifi-cation and installation recom-mendation at point of sale forhigh-medium product ranges

Power structu-re in the clu-ster

Strong position of tile manufac-turersPower struggle between machi-ne and tile manufacturers

Strong but not dominant positi-on of glazing producers

Strong position of three largefirms, fierce rivalry betweenthem

Role of go-vernment

Very limited Supportive role of national, re-gional and local government

Limited support from regionalgovernment

Evolution of in-stitutionalfabric

Strong business associationsLimitations in terms of othersupporting institutions

Very strong environment ofsupporting institutions

Effort to build supporting institu-tions, but inadequate manage-ment led to low effectiveness


compatible wall and floor tiles, whereas manyItalian producers focus much more at floortiles. This reflects to a large extent prefer-ences in the home market and some key ex-port markets.

6.2.2 Red vs. white body

The main raw materials for most types of tilesis clay, which comes either in white or red.Italian manufacturers used predominantlywhite clay, whereas the Spanish prefer redclay since it is more easily and cheaply avail-able. Both sides claim that their raw materialis superior, but in fact there is no differencein terms of relevance for the quality of the fi-nal product (the only exception being manyvarieties of unglazed porcelain tiles whichcan only be manufactured using white clay).In fact, the red vs white controversy someextent appears as a conflict between scienceand belief-systems. But there is also a real is-sue involved, namely the capacity of Italianmanufacturers to create, by means of an ad-vertising effort, the image that white-bodytiles are better. Spanish manufacturers love tocomplain about this.

6.2.3 Italian tiles are more expensivethan Spanish tiles

The statistical data are indisputable: The av-erage price per square meters of Italian tiles issomewhere around EU 8, whereas for Span-ish tiles it is something like EU 5. What isdisputable, however, is the sense that this cal-culation makes. The prices of standard tilesand graniti di fabbrica differ by a factor often, or even more, and so-called special parts(used, for instance, for ornaments and otherkinds of decoration) are even more expensive.Moreover, an important element in explainingthe different averages is the overall productstructure of the Italian industry, with a muchhigher share of porcelain tiles which not onlysell for a higher price but also use more ex-pensive raw materials and are more costly toproduce. In fact, Spanish sources claim that

firms from Castellón achieve higher margins,and are more profitable, than their Italiancompetitors.

6.2.4 Increasing size vs. differentiatedsmall sized designs

In particular in Brazil, it is common to hearthe statement that increasing the size of tilesleads to higher prices and better margins.However, the overall validity of this state-ment is highly dubious. There can be nodoubt that tile sizes are getting larger all thetime. 20 by 20 and 30 by 30 cm continue tobe standard sizes, but sizes such as 60 by 60,90 by 90 and 60 by 120 are increasinglyavailable, especially with porcelain tiles. Butthis does not mean that small formats are al-ways cheap. A simple white 20 by 20 tilemay cost next to nothing, but a set of 10 by10, 20 by 20 and 10 by 20 tiles, some of themdecorated and creating an aged rustic appear-ance achieves a much better price per squaremeter than a standard 40 by 40 porcelain tile.Therefore, not size is the issue but design,differentiation and marketing. As a matter offact, in Italy the dominating format, with al-most 50 % of production, is 30 by 30 and 33by 33.

6.2.5 Wet vs. dry mixture

Another issue which comes up in particular inBrazil involves the preparation of the mass,which may or may not involve the use ofwater. Currently wet grinding leads to a supe-rior control of the overall process and thus toa better product. But there is some evidencethat this difference will fade in the near fu-ture, as Italian manufacturers of capital goodsare starting to refine the dry grinding process.This is a response to increasing environ-mental concerns, in this case in particular thehigh consumption of water in the productionprocess.


6.3 Evolution of the tile industry

In this subsection we take a look at the inter-national tile value chain at large. Rememberthat the three clusters which we have investi-gated produce about 70 % of the tiles whichare traded across borders. One may speculatethat this may change drastically in the futureif the Chinese manufacturers seriously enterinto the world market. But so far knowing thethree clusters is sufficient to understand theproduction side of international value chainsin the tile business.

6.3.1 Upgrading

For the external observer, what is one of themost remarkable features of the tile industryis the constant upgrading. One is used to thisphenomenon in other industries, especiallythose denominated as “high-technology”, butone would not necessary expect it in a sub-sector of the construction materials industry.In fact, there are four different aspects to up-grading.

First, there is incremental change in products.There are annual or even semiannuallaunches of new products, responding tochanges in fashion, creating new colors, sur-face structures, and design concepts. The life-cycle of many tiles is short, just 2 - 3 years.

Second, there is product differentiation:

? A given firm tends to expand its productspectrum, which today is far beyond therustic vs. glossy difference.

? The production of special parts has beenvery dynamic, creating an enormous vari-ety of options.

? Many firms come up with dedicated de-signs for important markets, reflectingcountry differences in terms of style andcolor.

? Tiles are launched for new purposes: fa-çades, public places, etc.

Third, there is radical product innovation.Right now, what is coming up is lamina andplac-up. In the year 2000, the big thing wasmarmi and graniti di fabbrica. Before, it wasgres polido and porcelain, and before thatmonoporosa / single firing.

Fourth, there is radical change in the way thevalue chain is being organized. E-commerceis only just coming up, but innovation such asmoving forward into commercialization oreven going into tiling are spreading rapidly.In fact, this is something where Brazilianfirms have leap-frogged Italian and Spanishcompanies. They have achieved a high levelof development of the final stage of the valuechain, in terms of creation of ambiences, am-bience-related advice to customer, and theavailability of architects at showrooms whogive advice for free.

6.3.2 Governance structure

Looking at the tile industry as a whole, thereare two different axis where governance is-sues are currently at stake. First, there is theItaly vs. Spain axis. The relationship betweenthe two leading clusters is marked, at thesame time, by strong rivalry and by co-operation. Both clusters share certain inter-ests, such as the development of new marketsand the reduction of import barriers in poten-tial markets, and there is even some degree ofdirect co-operation between the clusters, i.e.between Assopiastrelle and Ascer. But the ri-valry is also notable. In fact, Italians tend tohave a somewhat patronizing way of talkingabout their Spanish competitors, whereas theSpanish speak with respect about the Italianswithout hiding the pride about their ownachievement. For the external observer, thereis strong evidence that the Spanish cluster hasovertaken the Italian, not only in terms ofproduction volume. The Castellón cluster is ashowcase of upgrading via fierce local ri-valry, collective efficiency, and effectivecollective action, whereas the Sassuolo clus-ter is not. The Spanish tile producers are hun-gry, whereas their Italian competitors some-


times appear as if they had just finished atypical Emilia-Romagna five course dinner.

But the real issue in terms of governance andItaly vs. Spain is the contest between thecapital goods industry and the glazing materi-als producers about who will be the domi-nating force in the future. Both industries arethe main process and product technology anddesign drivers, and both struggle to establishthemselves as the leading force. It is unlikelythan either will succeed in doing so in thenear future. We may rather look forward toongoing upgrading.

The second axis involves the tile manufactur-ers vs. tile sellers issue. Currently, both sidesare only at the beginning of a concentrationprocess, and power seems to be widely dis-tributed. It is difficult to forecast which sidestands a better chance of gaining the morepowerful position, especially since there is alot of reflection going on in the tile industry,looking at the experience of other industrieswhere commercialization is strongly concen-trated and thus powerful. Many actors in theindustry have a clear notion of what is atstake. Restructuring of the final section of thevalue chain is not so much governed by theinvisible hand of the market but rather byconstant analysis, reflection, and powergames. But it must be noted that even thelarge tile producers are at a disadvantage vis-à-vis competent national sales chains. Wehave seen that the structure of the retail chan-nels in the main target countries differs. Un-like in other industries, such as fashion orfurniture, it is unlikely that any tile manufac-turer can establish a single model of distribu-tion and sales across very different countriesand markets. The experience of one of the bigBrazilian firms, which is moving to an exclu-sive franchise network is instructive: It is toobig to sell all its production this way; but if itwere much smaller, it would not have the fi-nancial clout to set up a franchise network.

So what is the main pattern of evolution ofgovernance in the tile value chain? So far thepredominating pattern is network governance,

with hierarchy playing a very small and mar-kets a somewhat larger role. It is networkrather than market since the value chain isboth a negotiation system, with commercialnegotiations not occurring anonymously atsome exchange but rather over an espressoand some petit fours at Cersaie or one of theother fairs, and a discourse community, withconstant reflection going on, not just aboutfashion/style trends but also about the re-structuring of the sector, in particular theevolution of the distribution system. At theproduction stage, it is notable that there isregular interaction between the business asso-ciations, which recently started to organize"World Meetings", where representatives ofassociations of all major producer countriesmeet.5

Speculating about the future evolution ofgovernance, we would suggest that it is likelythat network governance will prevail for quitesome time. There can be no doubt that manyactors in the industry would like to move to-wards quasi-hierarchies, and everybodywould like to call the shots. But as power re-sources appear to be relatively evenly distrib-uted along the value chain, it is unlikely thatany single actor or group of actors will suc-ceed in establishing a quasi-hierarchy.

6.3.3 Global value chains

In the context of the tile industry, the issue ofglobal value chains has to be addressed in adifferent way than, say, in the garments,footwear, or furniture industry. For a repre-sentative of a large sales chain, there are lessplaces to go shopping for tiles than for furni-ture, even though in each of the places thereare many firms to choose from. But then thereare also more purchasing representatives than

5 At the meeting in Modena in May 2000, pres-entations were given by representatives from It-aly, China, Spain, Brazil, Turkey, Mexico, In-dia, Portugal, and the U.S. The meeting was or-ganized by Acimac (see Acimac 2000).


in other industries since the degree of con-centration is lower, and there are more distri-bution channels (Figure 5). Therefore, thepowerful global buyers who have such astrong position in other industries do not existin the tile industry.

What is currently going on is a process of re-structuring of international value chainswhich emanates from both manufacturers andsellers. Each of them wants to position him-self as the player who calls the rules of thegame. As we have seen in the case of Sas-suolo, this is a game that involves rivalry notonly between sellers and buyers, but alsoamong sellers who are competing for domi-nance in scarce marketing channels. This ri-valry is compromising collective efforts toenhance competitiveness in the Italian cluster.A similar process, albeit along the domesticrather than the international value chain, isgoing on in Santa Catarina, with the same ef-fect of weakened local governance.

6.3.4 Standards

Standards are less important in the tile indus-try than in many other industries. Productcertification does not play much of a role sofar, be it technical, environmental, or socialstandards. Many products are certified ac-cording to technical standards, but this doesnot create a competitive advantage and is noteven expected by customers. ISO 9000 playshardly any role at all. Many firms are certi-fied according to ISO 14 000 or EMAS, andthey expect that this will be expected by cus-tomers in the future; right now, it is no issue.Social standards do not play any role sincethe level of technological sophistication in theclusters we have investigated is so high.

6.4 The Interaction of Global andLocal Governance: Implications forIndustrial Upgrading

Where does all this leave us in terms of thelead questions of the research project to

which this paper makes a contribution? Sev-eral observations come up:

? The process of concentration of com-merce has not occurred to the same de-gree in all industries and types of prod-ucts. Whereas it is very strong in most ar-eas of consumer non-durables, it hasmade less progress in certain durables.Construction materials is one of them.

? The international commercialization oftiles clearly does not involve arms-lengthtransactions, so the question for govern-ance patterns in the value chain is a validone. But the distinction between buyer-driven and producer-driven commoditychains does not make much sense for thetile business. The tile value chain cur-rently is pretty much organized in a net-work-like way, with power resources be-ing distributed more widely than in othervalue chains.

? A very strong position of a leading clusterin a given industry does not necessarilyimpede the development of latecomers.The cluster in Castellón has, at least forthe last 20 years, had full access to inno-vation emerging from capital goods pro-ducers in Italy. The cluster in SantaCatarina has enjoyed access to both Ital-ian machinery and Spanish glazing mate-rials, and we did not find evidence thatthere are obstacles in terms of transfer oflatest design.

? Upgrading is, first and foremost, drivenby rivalry. The extent to which localizedcompetitors can overcome their rivalryand embark on successful joint action, forinstance to create supporting institutions,depends to a large extent on the collectiveself-definition of the cluster. In the caseof both Spain and Brazil, catching-upwith the Italians was a sufficiently strongmotive to overcome personal animosities.

? Locational strategies, based on collectiveaction inside the cluster, are viable even if


external actors play a decisive role. In thecase of Castellón, the dynamics inside thecluster are so strong that Italian machin-ery producers are gradually strengtheningtheir local base, in the same way the for-eign glazing producers did in the past. Inthe case of Santa Catarina, the strong in-flow of foreign glazing producers may, inan indirect way, have contributed to theweakening of collective action, but otherfactors were much more important in thisrespect.

Taking these findings together, we see thatcombining the cluster / local governance andthe value chain / global governance perspec-tive leads to valuable insights into the func-tioning of industries. Cluster research tendedto focus at core production activities, whereasvalue chain / commodity chain research paidlittle attention to local / cluster issues. In thecase of the tile industry, it becomes obviousthat production is not the main issue when itcomes to understanding rivalry and competi-tiveness. They are rather determined by actorsand through interaction along the value chain– upstream from production by capital goodsand glazing materials producers, downstreamby access to distribution channels. Sophisti-cated production technology and dominationof the production process are basic conditionsin this sector. They do not establish a com-petitive advantage. It is rather based on de-sign competence, logistics, marketing and ac-cess to distribution channels. It is notable thatthe cluster which is the latecomer in this re-spect, the one in Santa Catarina, is a pioneerwhen it comes to creative approaches to dis-tribution channels, and perhaps logistics. It isalso notable that the fierce local rivalry,which is being intensified by value chain is-sues, makes local governance difficult but notimpossible. Even in the Santa Catarina clusterwe found that there would still be options forlocal governance to enhance competitiveness,if local leadership were stronger. And thecase of Castellón demonstrates the enormousdynamism which can be created through ef-fective local governance.

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Annex: Production process of ceramic tiles (Source: Gorini and Correa 1999)

1 Raw materials storeStock of basic raw materials

2 WeightWeighting of raw materials accordingto formula

3 Ball millWet milling of raw materials to getpaste

4 AtomizationAtomization of paste to get powder

5 Powder silosStockkeeping and homogenization ofpowder

6 Press and dryerFormatting and drying of biscuit

7 Stock of glazing materialsWeighting of glaze according to for-mula

8 Glaze mill and moved tankMilling of glaze and stockkeeping

9 Glazing lineApplication of glaze and decoration

10 KilnFiring of tile

11 Selection and automated packag-ingSelection and classification of grade,packaging

12 ExpeditionStock and transport

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