Clusters in regional tourism An Australian case

Annals of Tourism Research, Vol. 33, No. 4, pp. 1018–1035, 20060160-7383/$ - see front matter � 2006 Elsevier Ltd. All rights reserved.

Printed in Great Britain

doi:10.1016/j.annals.2006.04.005www.elsevier.com/locate/atoures

CLUSTERS IN REGIONAL TOURISMAn Australian Case

Julie JacksonPeter Murphy

La Trobe University, Australia

Abstract: With changing industrial patterns in regional Australia, tourism has gainedincreasing currency as an agent for regional economic development. This paper investigatesthe applicability of cluster theory in supporting the movement from comparative advantageto competitive advantage for four regional towns located on the Murray River in Australia.Thus far cluster analysis has largely been applied in the manufacturing industry. This paperreports on its potential as an analytical tool in service-based tourism and, through the casesstudied, identifies vital attributes of clusters that are lacking in the least economically success-ful region in the study area. Keywords: cluster theory, regional development, competition,leadership. � 2006 Elsevier Ltd. All rights reserved.

Resume: Groupements dans le tourisme regional. Avec les changements dans les schemasindustriels de l’Australie regionale, le tourisme s’est repandu comme agent de developpe-ment economique regional. Cet article examine l’applicabilite de la theorie de groupementpour soutenir le mouvement de l’avantage comparatif a l’avantage competitif pour quatrevilles regionales situees sur le fleuve Murray en Australie. Jusqu’ici l’analyse de groupementa ete appliquee principalement dans le secteur de la manufacture. Cet article rend compte deson potentiel comme outil analytique dans le tourisme base sur les services et, a travers les casetudies, identifie les attributs essentiels des groupements qui manquent dans la zone qui a lemoins de succes economique de toute la region de l’etude. Mots-cles: theorie de groupe-ment, developpement regional, competition, leadership. � 2006 Elsevier Ltd. All rightsreserved.

INTRODUCTION

Tourism is increasingly being regarded as a savior of the countryside,with many governments recognizing the industry’s potential in foster-ing regional economic development. With the loss of employment intraditional regional industries largely due to increasing use of technol-ogy, the flight of the young to the big cities, and the concomitantdecline in services and amenities, country areas have become desperateto find ways to attract new business and employment opportunities.Consequently, more governments are turning to labor intensive tour-ism as a way to stem the flow, hoping the general lure of beauty andtranquility, adventure and gastronomy can bring new business and

Julie Jackson is Pro Vice-Chancellor of La Trobe University (Victoria 3086, Australia. Email<[email protected]>). Her tourism research interests include business clusters andregional economic development, especially in Australia and China. Peter Murphy isFoundation Professor of the School of Sport, Tourism and Hospitality Management. Hisresearch interests are in community tourism, strategic management issues, and resorts.

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hope to certain rural regions. To accomplish this goal, traditional eco-nomic development models need to be augmented with those incorpo-rating an appreciation of customer demand and service rather than areliance on the economies of production and distribution.

This paper explores the prospect of incorporating a ‘‘new’’ serviceand organization model into the development equation for countryregions intent on improving their tourism competitiveness. It examinesthe relevance of Porter’s (1998) ‘‘cluster theory’’, with respect to devel-oping regional tourism and explores its utility in four Australia loca-tions that have similar factor advantages but which have experiencedvarying degrees of success in generating related economic impacts.In order to reflect on the applicability of cluster theory to this develop-ment, specific research questions were identified to address theelements of competitive advantage and the presence of prerequisitesfor successful cluster development in the four case areas. In the lightof their varied economic performance, the study also considers the ex-tent to which the different outcomes may be explained by the presenceor absence of these elements.

It is anticipated that embedding service and organizational featureswithin cluster theory will add to its relevance for tourism analyses, butthat its utilization will not necessarily be simple and direct in the realworld. Hence the application of cluster theory may need to be modi-fied according to the economic/political structure of the regionsinvolved.

CLUSTER THEORY AND REGIONAL DEVELOPMENT

In the past the thrust of regional development has been on theeconomic stimulation of peripheral areas, with the large-scale impactsof macro-economics being at the forefront of theory and policy. Theo-ries such as the core-periphery model, the potential model, and growthpole theory have been adopted by a variety of countries to help under-stand and then counter the growing concentration of economic activityin a few major urban centers (Peet 1999; Zhang and Murphy 2003).These approaches have traditionally focused on the primary andsecondary industries of these regions, but with the rise of the tertiarysector there has been growing interest in the potential of service indus-tries, including information technology development, low cost callcenters, retirement and tourism.

Tourism has been viewed as a significant agent for the economicredevelopment of certain isolated and rural regions because of theattraction of landscapes, mountain and water vistas, and the interestin second-home or investment opportunities at lower prices. ‘‘In manyareas of both the developing and industrialized worlds, tourism isincreasingly seen as a valid and important means of sustaining anddiversifying rural economies and societies’’ (Sharpley and Sharpley1997:22). But ‘‘. . .the economic conditions for the development oftourism must be suitable. Tourism is not a Cinderella industry fordeveloping all backward regions’’ (Tisdell 1998:16).

1020 CLUSTERS IN AUSTRALIA

There have been four recent changes that particularly influence therole of tourism in regional development. First, more researchers andgovernments now view such development in terms of a triple bottomline assessment. Following Elkington’s seminal work on corporatesustainability, which he saw as ‘‘focusing on economic prosperity, envi-ronmental quality, and . . . social justice’’ (1999:70), more rural com-munities are broadening the assessment of their growth potentialand looking for a wider range of indicators of progress (Rogers andCollins 2001).

Another element of this movement away from a simple economicemphasis is the interest in quality of life indicators as discussed byMercer (1994) and the Partners for Liveable Communities (2000). Itis no longer sufficient to stress quick-fix employment prospects if theysimply produce minimum wage opportunities, lead to large multiplierleakages, or degrade the environment. What really counts is the long-term net impact on local residents’ lifestyles, including such hard toquantify characteristics as happiness and confidence. Michael alsonotes ‘‘The concept of rural decline, as expressed in Australian politics,is not so much an economic phenomenon as it is a social one, wherethe loss of opportunity and the failure to deliver new prospects forgrowth are seen as the critical issues for future policy’’ (2003:135).

Combining the triple bottom line and quality of life interests into apractical package has reaffirmed the significance of the communityfunction. As Taylor has argued, ‘‘the concept of community involve-ment in tourism development has moved nearer to the centre of thesustainability debate’’ (1995:487); but it has also become more centralto all regional development options because of its political signifi-cance. For example, Richards and Hall (2000:7) note that grassrootsorganizations have taken on more importance as formal, and oftenexternal, government agencies have failed to deliver the desired triplebottom line expectations.

Furthermore, there has been a gradual recognition that many of theeconomic models used in the past have underestimated the impor-tance of the consumer. This is an especially significant gap in the con-sumer and service driven economies that now operate in most of theworld, and requires a rebalancing of the business equations by bothresearchers and policymakers alike. Instead of treating demand asautomatic or autonomous, regional development theory is beginningto recognize that peripheral areas should target their own specific mar-ket segments within the global economy, and work cooperatively as acommunity to reach and satisfy them (Murphy and Murphy 2004).

In the context of all of the above, a key means to furthering ongoingeconomic development in regional communities will be to translatetheir comparative advantages into competitive advantage. Porter’s(1980, 1990, 1998) work on cluster theory is at the forefront of thosedevelopments and his more recent work suggests it is possible to buildsocial capital alongside economic development, where social capital is‘‘features of social organization, such as networks, norms, and trustthat facilitate coordination and cooperation for mutual benefit’’(Putnam 1993:35). Halpern also maintains the importance of social


capital as a key contributor to economic productivity and growth(2005:70).

The Diamond Model

In his diamond model of competition, Porter (1998) essentially fo-cuses on four components of competitive advantage (Figure 1). Thestarting position for a business approach is demand conditions (espe-cially the quality of domestic ones). A region will need to understandthe current level and nature of tourist interest for its current attrac-tions along with potential demand in the future. The region’s naturaland built advantages form the factor conditions, which in combinationwith its location could be viewed as its comparative advantage. To con-vert tourism opportunity into a business activity requires the input of amyriad of different businesses, able to cooperate while otherwisebehaving competitively, as represented by structure of firms and rivalryand the presence of related and supporting industries includingaccommodation, food and beverage outlets, attractions, the transportsector and various government agencies.

As noted by Michael, there is also an important role for govern-ment: ‘‘Contemporary development policies now seek to enhance thedynamics of competition . . . This approach . . . imposes a need on[governments] to support the unique choices of communities withinformation and infrastructure to help them determine their own social

Context for Firm Strategy and Rivalry

Demand Conditions

Related and Supporting Industries

Factor (input) Conditions

. A local context that encourages appropriate forms of Investment and sustained upgrading . Vigorous competition among locally-based rivals

Figure 1. Sources of Locational Competitive Advantage (Porter 1998:211)


cost-benefit outcomes’’ (2003:144). Other roles for government includefacilitating inputs such as an educated workforce and maintaining anappropriate framework for regulation of standards. Additionally, itneeds to ensure macro-economic and political stability as well as appro-priate taxation and legal systems.

Application of Cluster Theory

Porter’s (1998) cluster theory might explain why certain industrialconcentrations have maintained their dominance while their initiallocational advantages have eroded with time. This question is highlyrelevant to the many rural regions that have lost their competitive edgeover the past decades. His answer is that during their existence theyhave built institutional advantages which more than make up for theemerging competition from new firms and locations. For Porter, theessential institutional advantage is the power of clusters, which takeadvantage of local collaboration, a growing international reputation,and community involvement. A contributing factor in this processcould well be the development of social capital through the fosteringof networks and business clusters.

Porter’s clusters are ‘‘geographic concentrations of interconnectedcompanies, specialized suppliers, service providers, firms in relatedindustries, and associated institutions (universities, standards agencies,and trade associations) in particular fields that compete but also coop-erate’’ (1998:197–198). Such a definition could be used also to describea destination, with its conglomeration of competing and collaboratingbusinesses, generally working together in associations and through part-nership marketing to put their location on the map. Porter, in fact, hasused a tourism-related cluster as one of many examples of clustering inpractice, citing the ‘‘California wine cluster’’ (1998:183, 201–202, 205),for its complementary association of tourism and food components withwine production. The principles of his diamond model can be com-bined with cluster theory to provide a more comprehensive andbalanced approach to regional economic development and tourism’srole within it. Applying the theory in the industry has also been consid-ered by a number of researchers, including Go and Williams (1993),Hall (1997, 2004, 2005a, 2005b), Jackson and Murphy (2002), andMichael (2002, 2003) in regional Australia.

Clusters have become significant forces in tourism development, par-ticularly where they have gelled into active organizations or destinationassociations. A key function of these is to market the local area and pro-vide cooperative opportunities for greater exposure and reach thanwould be possible within individual marketing budgets. However, to ex-ploit the expectations of cluster theory, these organizations need tolook beyond marketing and short-term business horizons, to preparethe local industry for the future through investment and sustainedupgrading. Consequently, more destination associations are movingto include research, training, services, and product development undertheir umbrella. These associations have effectively become a commu-


nity unit of tourism development that includes industry elements work-ing with government, residents, and other agencies.

Cluster theory is a blend of economic and geographic theory,assisted by government policy, with individual business operatorsworking in conjunction to serve customers’ needs and enhance theattraction and development of the local destination region. An impor-tant aspect of its success is the development of organizational skills andsystems that can help overcome individual interests and provide con-flict resolution to disputes that arise over time. This process has beenrecognized in the past by Selin and others (Selin and Beason 1991;Selin and Myers 1998) but needs to be resuscitated within this theoret-ical framework.

A cluster has much in common with economists’ descriptions ofindustrial districts (Table 1), in that both contain interdependent busi-nesses engaged in cooperative competition and interacting within acommunity-based culture with a supportive public policy. But clustersgo further in emphasizing a shared understanding of the competitivebusiness ethic, appropriate boundaries, the importance of privatesector leadership, a broader involvement of participants, more institu-tional support, a social structure and attention to personal relation-ships, and the relevance of product lifecycles. These characteristics ofbusiness clusters form the ‘‘glue’’ that pulls together the four dimen-sions of competitive advantage identified in Porter’s diamond and cre-ate a forceful and competitive product for the region. A number ofthese aspects of clusters are also considered prerequisite to the devel-opment of social capital, including the bonding and linkages facilitatedthrough leadership, broad involvement of participants, and socialstructure and attention to personal relationships.

Another significant element of cluster theory is the development ofinstitutions that assist in the enhancement of local competitiveness.Past examples of these would be the development of industry-basedresearch and development centers. To these has been added the

Table 1. Characteristics of Industrial Districts and Clusters

Characteristic Industrial District Cluster

Interdependence of firms * *Flexible firm boundaries * *Cooperative competition * *Trust in sustained collaboration * *Community culture and supportive public policy * *Shared understanding of competitive business ethic *Private sector leadership *Wide involvement of cluster participants *Appropriate cluster boundaries *Institutionalisation of relationships *Social structure and attention to personal relationships *Lifecycles *


support of publicly funded institutions such as education providersthat have developed programs specifically to support the researchand training needs of a cluster’s predominant industry.

This study addresses four key questions. The first is the extent towhich the elements of competitive advantage identified in Porter’s dia-mond are present in the regional destinations selected as cases. Thesecond is the extent to which the prerequisites for successful clusterdevelopment are present in the four case areas. Third, there is consid-eration that differences in economic performance in the tourismindustries of the case areas may be explained by the absence of certaincluster attributes. Fourth, the study considers whether Porter’s clustertheory is suitable for application in regional tourism development.

The Australian Context

In regional Australia traditional sources of employment havedeclined. Between the 1991 and 2001 censuses, while the nationalworkforce increased from 7,086,175 to 8,298,606, employment in theregionally based industries of agriculture, forestry, fishing, and miningdeclined from 5.7% of the total workforce to 4.9%. Across Australia,employment in tourism-related fields increased from 5.8% of the work-force to 7.3% (Australian Bureau of Statistics 2001).The political back-lash from regional areas concerning their declining economic baseensures that more attention is currently being paid to these areas,but at the same time, industry policy is becoming increasingly non-interventionist. The 2003 Green Paper on Tourism in Australia in-cludes growing the industry in regional and rural Australia as a keyfocus for the government’s medium- to long-term strategy (Australia2003:4). However, the government is eager to be a facilitator ratherthan a direct contributor to the process.

The 2003 Green Paper states the government’s intent for tourismdevelopment over the next ten years. It observes that healthy tourismcontributes to the economic and social well-being of all Australians,but focuses on the need to bring more such opportunities to the regio-nal and rural areas of the country. It also notes it ‘‘has the capacity toreduce emigration from rural and regional areas and maintain regio-nal capacities and services . . . [by expanding on] . . . cultural tourismthemes, local festivals, heritage trails . . . [and] . . . the industry will needto develop in a manner that is environmentally sustainable and meetsthe needs and aspirations of local communities’’ (Australia 2003:7). Inother words, it supports a triple bottom line approach to regional tour-ism development.

Currently, the industry accounts for 11.2% of total export earningsand 4.7% of GDP, with 50% of domestic and 22% of international tour-ism occurring in non-metropolitan Australia. More than 90% of thesebusinesses are small- to medium-sized enterprises, of which 40% areregional and rural (Australia 2003:7). Hence the government recog-nizes the need to draw more tourists to the regions and to find waysto increase the competitiveness and yield of small regional businesses.

Figure 2. The Murray River Region


Employment opportunities in traditional regional industries have de-clined in the Murray River region. This area, which straddles the borderbetween the states of Victoria and New South Wales, is part of the agri-cultural heartland, based on the Murray–Darting irrigation district(Figure 2). The Murray stretches some 2560 kilometers through south-eastern Australia, connecting a number of towns that utilize the naturaladvantages of the river basin in promoting tourism. These advantagesinclude an abundance of natural wildlife, irrigation, rich soil, tradethoroughfare, and entertainment and sporting venues. The mild Med-iterranean climate along the river attracts domestic tourists who campalong its banks. Four towns along the river, which in the past havemainly been service centers for local agricultural communities, arethe subjects of the study: Albury-Wodonga (population 97,300), Echuca(12,500), Swan Hill (9,400), and Mildura (46,900) (The World Gazet-teer 2004).

In 2003 the total expenditure by those staying overnight in theMurray East region in which Albury-Wodonga is located, and whichpossesses the richest endowment of factor advantages (Table 2), was$86.7 m (all amounts are in in US dollars). For the central Murrayregion, where Echuca is located, it was $151 m. For the western endof the Murray in Victoria, where Swan Hill and Mildura are located,the tourist expenditure was $164 m (Bailey, Carter, Collins and Heaney2004). Using estimated expenditure for overnight tourists per capita oflocal population as a crude performance indicator, the result forAlbury-Wodonga was $891, for Echuca $12,064 and for Murray West$2,920. Population size was used here to act as a proxy for potentialeconomic capacity of each town.

Table 2. Factor Conditions for the Four Regional Centres

Factor Albury-Wodonga Echuca Swan Hill Mildura

Natural AdvantagesMediterranean climate X X X X

Location in relation to the large populationcentres of Melbourne, Sydney, Canberra

X X

Snowfields access X

Rivers/waterways X X X X

Parklands, scenery X

Historical towns X X X X

Built FactorsAirport X

Major highway link X X

Passenger rail link X X

Sporting facilities X X X X

Hume weir and lake X

Snow skiing facilities X

Wineries, food bowl X X X


Each of the towns has developed to varying extent tourism businessclusters based on location, but as the data above suggests, each experi-ences a different degree of economic success. A possible explanation isthat, while the other three locations are more strongly identified as des-tinations, with its location on major transport arteries, Albury-Wodon-ga may be perceived as a transit point rather than a destination in itsown right. But the local industry wishes to change this status, currentlymarketing itself as ‘‘Destination Albury-Wodonga’’.

Study Methods

This study focuses on the development of local tourism business clus-ters at each of these four locations which have historically competedagainst each other as destinations. The cluster boundaries in each weredefined by the areas from which members of the local tourism industryassociations were drawn. Consequently they do not necessarily strictlyreflect statistical districts or local government areas. Initially, an evalu-ation was conducted of the four elements of Porter’s diamond whichunderpin competitive advantage: factor endowment, demand condi-tions, presence of related and supporting industries, and local firmstructure and rivalry. This was done through the collection of second-ary data from a variety of sources, including local economic and tour-ism business associations, and augmented with some primary data fromtourism industry representatives.

Having determined the presence of elements underpinning compet-itive advantage, the next stage was to evaluate the receptiveness of localindustry to cluster development. This included an appraisal of the atti-tudes of members of the local industry to cluster development in termsof an understanding of competition and competitive behavior. It also


included an assessment by local members of the degree of involve-ment, interaction, and relationship formation among business leaders.This appraisal was conducted using a sampling frame of members ofthe local tourism industries obtained from each of the regional tourismorganizations’ databases supplemented by local telephone directories.These lists were stratified into the different elements composing theindustry, including accommodation, food and beverage, attractions,and tour organizers. Within these strata, systematic samples wereselected, ensuring representation of the various segments of the indus-try from each case area.

Responses were drawn from two different questionnaires, which con-tained common questions, but one of which was administered by tele-phone in Albury-Wodonga and the other by mail to the other towns.The response rate for the telephone survey was approximately 95%with 30 responses, for the mail questionnaires approximately 25% witha total of 30 responses from the other three towns. These containedthe same diagnostic questions used to evaluate the understanding ofcompetition, measured on a 7-point Likert-type scale. Participants werealso asked about the other attributes of clusters, including private sec-tor leadership, linkages between firms and trust in sustained collabora-tion, cooperative marketing and wide involvement of clusterparticipants, using a 5-point Likert-type scale. Because the responseswere represented by ordinal data, the non-parametric Mann–Whitneytest was used to determine variation in attitudes between Albury-Wodonga and the other towns.

Limitations to this study relate to constraints imposed when testingtheory in the field. A particular limitation is the use of different sourcesfor secondary data and the different definitions of regions in the variousdata sources. Secondary data to indicate the relative economic success ofeach region was accessed from the Tourism Research Australia database(Bailey et al 2004). The tourism product regions defined in this databaseas shown in Figure 2 do not exactly match the case regions, being MurrayEast in which Albury-Wodonga is situated, and Central Murray, in whichEchuca is located. Swan Hill and Mildura are both in the Murray Westregion of Victoria. Additionally, much of the secondary data availablefrom the Australian Bureau of Statistics is based on local governmentareas, which again do not correspond exactly with the tourism regionsdefined by the Bureau of Tourism Research.

On the New South Wales side of the Murray River, there are no de-fined river-based tourism regions. This imposes a limitation on thestudy, in that there are no economic measures available for river-basedtourism or general economic activity north of the river. A further lim-itation was imposed in the primary data collection, with one set of ques-tions measured on a 7-point Likert-type scale and another set beingmeasured on a 5-point scale.

Elements of Competitive Advantage

Porter contends that the presence of demanding and sophisticateddomestic customers encourages producers to improve (1998:212).


With recent world events, including the SARS outbreak and increasingterrorist activity, the potential for domestic tourism activity in Australiahas been enhanced. Indeed, results from the survey indicate that, formost of the respondents along the river, 90–95% of their tourism-gen-erated business is derived from domestic demand. However, while thedomestic customers may be sophisticated and looking for innova-tive products, very little formal market research has been conductedby the firms studied, with fewer than half of those interviewed inAlbury-Wodonga conducting any formal market research, instead rely-ing on ‘‘speaking to them (the tourists)’’, ‘‘gut feeling’’, ‘‘indirect/observing’’. Hence there is little understanding of their target marketsor of the needs of these customers. Until the firms better identify thesemarkets and understand their needs, there is little impetus to improvecurrent provision or to anticipate future directions for their industry.

The natural and built advantages of each of the four regional centerswere identified through gathering secondary data and through theresponses of members of the local industry. In Table 2, a check markrepresents the presence of a factor and a blank the absence. This studyassumes that the Murray River is a significant natural advantage fortourism in these four river towns. However, it is interesting to notethe different value placed on the river by the case groups. When askedto identify natural advantages of their regions, only 23% of respondentsfrom Albury-Wodonga mentioned the river, while 100% of Echucarespondents, 85% of those from Swan Hill, and 83% of Mildura identi-fied the river among their key natural advantages. This might relate tothe abundance of other natural advantages enjoyed by the Albury-Wodonga region as shown in Table 2, but may also point to a significantperceptual and marketing deficit. Alternatively, while the local market-ers see the region as a destination, individual industry members may nothave moved beyond the notion of it as a transit point.

With over 90% of tourism businesses in Australia being small- tomedium-sized enterprises and with 40% located in regions, these busi-nesses operate within a competitive market economy. Governmentindustry policy is based on the premise that the market is the bestmechanism to efficiently allocate national resources. Of the firms stud-ied in the region, 80% have fewer than five employees, and so can beclassified as micro-businesses, 61% are family- or individually-owned,with most of the remainder describing themselves organizationally assmall companies. Each of the four cases has a local tourism authoritythat attempts, with varying degrees of success, to coordinate destina-tion marketing including product development and promotion.

Each of the four regions has a well-developed set of related andsupporting industries, including local tourism organizations, food andbeverage outlets, a range of accommodation types, supportive local gov-ernment, attractions, agricultural and horticultural producers includingwineries and gourmet food products, and handicraft producers. Exceptfor Swan Hill, there are also local post-secondary education providerswith tourism and hospitality programs. Albury-Wodonga is the only citywith registered tour providers of any scale, who emphasize tours into itshinterland regarding wine, heritage, and outdoor recreation.


Potential for Cluster Development

To evaluate attitudes to competition and competitive behavior, busi-nesses in each of the case areas, drawn from the local sampling frames,were asked to indicate how they could become more competitive byrating a number of statements concerning competitive behaviors ona 7-point Likert-type scale, with 1 representing unimportant and 7indicating a high degree of importance. As identified in Table 3, mostrespondents are willing to work in cooperation with other members ofthe industry, see the importance of innovation and differentiation intheir product rather than focusing on imitation- or price-based compe-tition, and would prefer less government taxation, regulation, andintervention in the local industry. Participation in local tourism

Table 3. Attitudes to Competition and Competitive Behavior

My own business could becomemore competitive by:

Albury-Wodonga

Echuca SwanHill

Mildura Total

Improving productivity(more efficient use of resources)

4.8 (2.3) 4.5 (1.7) 4.9 (1.7) 3.3 (2.7) 4.6 (2.1)

Reducing prices 2.3 (1.7) 2.7 (1.3) 2.9 (1.7) 4 (2.4) 2.7 (1.8)Imitating other successful

businesses2.8 (1.9) 3 (1.4) 3.6 (1) 3.5 (1.4) 3.1 (1.6)

Reducing production costssuch as wages

4.4 (2.3) 4.1 (1.8) 4.7 (2.1) 3.3 (2.6) 4.3 (2.2)

Reduced taxes 5.8 (2.0) 5.5 (1.8) 5.3 (2.5) 4.8 (1.6) 5.5 (2)Innovations in my product 6.3 (1.1) 5.7 (0.9) 5.2 (2) 4.4 (1.8) 5.8 (1.4)Receiving government subsidies 4.3 (2.6) 4.6 (2.2) 4.3 (2.4) 3.8 (1.9) 4.3 (2.4)Participating in local tourism

organisations involved in sellingthe destination

5.4 (2.2) 5.9 (0.9) 4.7 (2) 5.2 (1.3) 5.3 (1.9)

Building relationships withlocal suppliers

5.4 (2.0) 4.8 (1.5) 4.6 (1.9) 4.7 (2) 5 (1.9)

Clearly differentiating my productfrom other similar products

6.1 (1.4) 5.4 (2.1) 5.6 (1.4) 5.2 (2.3) 5.8 (1.6)

Reduced government regulation 5.8 (1.6) 5.4 (1.8) 5 (2.4) 4.8 (2.3) 5.5 (1.9)Increasing my advertising

expenditure4.1 (2.1) 4.2 (1.9) 4.3 (1.2) 3.7 (2.2) 4.1 (1.9)

Working cooperatively with other,similar, businesses

5.6 (1.6) 5.3 (1.7) 4.6 (1.3) 5 (1.5) 5.2 (1.6)

Joining with other businesses tolimit entry to the local market

4.7 (2.2) 3.6 (2.2) 3.6 (2.5) 3.8 (2.3) 4.2 (2.3)

Working cooperativelywith other local businessesin the tourism industry

5.6 (1.8) 6.3 (0.8) 5.3 (1.6) 5.2 (1.7) 5.6 (1.6)

Working cooperatively withother national businessesin the tourism industry

5.0 (1.8) 5.9 (1.2) 4.8 (1.9) 5 (1.7) 5.2 (1.7)

Sample size 30 11 13 6 60

(Mean, standard deviation).


organizations is also identified as important. Overall, in the view ofrespondents, there is less support relative to the other factors, for theanti-competitive conduct of expecting subsidization by the governmentor for joining with other businesses to limit entry to the local market.

As the Albury-Wodonga region performs less well on earnings fromtourism both in absolute terms and relative to its population size, acomparison with the other river regions was conducted to determinewhether this relates to their understandings of competitive behavior.Using the Mann–Whitney test, compared to other river towns,Albury-Wodonga respondents have significantly less regard for reduc-ing prices as a competitive strategy (Z = �1.97, p = 0.049) and are moreconscious of the need for product innovation (Z = �2.8, p = 0.005).While only significant at a a level of 0.10, three other factors includedan awareness of the advantages of developing relationships with localsuppliers (Z = �1.8, p = 0.07), differentiating their products (Z =�1.7, p = 0.08), and working cooperatively with other similar businesses(Z = �1.9, p = 0.06). Hence, there appears to be an understanding ofcompetitive conduct consistent with the potential for cluster forma-tion, so this should not be a barrier.

Regarding the importance of strong local leadership, 80% of Albury-Wodonga, 91% of Echuca, 50% of Swan Hill, and 67% of Mildurarespondents rated its presence as important or extremely so. Echucaand Mildura currently enjoy strongly supported local tourism associa-tions providing effective local leadership. However, in open-endedquestions all down the river, respondents felt a need for stronger suchleadership. In Albury-Wodonga, when asked in open-ended questionsabout barriers to creating and supporting linkages, responses revealedthat most of the sample felt the absence of this leadership was thegreatest barrier to progress.

While three of the four towns studied appear to have well-definedand appropriate cluster boundaries largely based on local governmentareas, Albury-Wodonga straddles the Murray River which forms theborder between the states of Victoria and New South Wales (Figure2). It is possible that dealing with the federal and two sets of stateand local government authorities hampers the development of aneffective local cluster, through internal rivalries, difficulties in dealingwith relevant legislation, or the incapacity to identify a single source oflocal leadership.

Regarding interaction with other businesses, while respondents indi-cated that the competitiveness of their businesses could be improvedby working cooperatively with other tourism businesses and greaterlinkages between businesses, they identified a need for support indeveloping and maintaining linkages. Still, they felt that was best donelocally rather than by government intervention (Table 4). Membershipin local tourism organizations among the respondents to the survey isquite high.

Once again, because of the apparent difference in success of theAlbury-Wodonga region relative to the other river towns, a comparisonwas conducted, via the Mann–Whitney test, of attitudes to interactionamong businesses. Compared to the other river towns, respondents

Table 4. Interaction with other Businesses

Interaction with Others Albury-Wodonga

Echuca SwanHill

Mildura Total

Where possible I take theopportunity to workcooperatively with otherlocal tourism relatedbusinesses to sell thedestination first

3.7 (1.4) 3.5 (1.3) 3.3 (0.7) 3.2 (0.8) 3.5 (1.2)

I compete strongly with othersimilar local businesses

3.5 (1.4) 3 (1) 2.8 (1) 2.4 (1.1) 3.2 (1.3)

I am a member of localtourism/businessorganisation

4.1 (1.4) 4.1 (1.2) 3.7 (1.7) 4.3 (1.5) 4 (1.4)

I regularly attend industryfunctions and activities

3.0 (1.6) 3.7 (1.3) 2.9 (1.4) 2.8 (1.3) 3.1 (1.5)

I prefer to do business withpeople I know well

3.5 (1.7) 3.7 (1.6) 3.3 (1) 3.2 (0.4) 3.5 (1.5)

I think that there is thepotential to increase linkageswith other tourism relatedbusinesses in this region

4.3 (0.9) 3.5 (1.2) 3.6 (1) 2.7 (1.5) 3.8 (1.2)

The local industry needs helpto develop and maintainthese linkages

4.3 (1.0) 3.9 (0.9) 3.7 (0.9) 3.3 (1.4) 4 (1)

Development and leadership ofsuch linkages should bemanaged by local organisationsrather than governments

4.4 (1.0) 3.7 (1.3) 3.8 (1.1) 2 (1.2) 3.9 (1.3)

Sample size 30 11 13 6 60

Responses measured on a 5-point Likert scale 1 = Never, 5 = Always.


are more likely to regard themselves as competing strongly with othersimilar businesses (Z = �2.4, p = 0.02), but are also more likely to seethe potential to increase linkages with other tourism businesses (Z =�3.3, p = 0.00), and to see a need for support in developing and main-taining these linkages (Z = �2.7, p = 0.01). However, they are moreopposed than the other centers to this support deriving from govern-ment (Z = �3.1, p = 0.00). These results could be interpreted as show-ing awareness by the local industry of the shortfall in the clusterprerequisites relating to wide involvement and networks.

Overview of Competitive Advantage and Cluster Potential

While there is evidence of domestic demand for the tourism productalong the Murray River, driven by a well-developed set of factor condi-tions, adequate local level research into market segments and customersatisfaction is not apparent. There is generally a good understanding of


the nature of competition, and competitive demeanors consistent withthe development of business clusters through cooperative competitionare observable. Hence, the conditions for structure of firms and rivalryare present in all four towns, along with a range of suitable related andsupporting industries.

In the case of Albury-Wodonga, which is particularly well endowedwith factor advantages, there has been only a slow movement towardsexploiting these advantages when tourism income per capita of localpopulation is used as a performance indicator. The elements ofPorter’s diamond are present, as are those for cluster development,including a good understanding of competition and considerableinterest in forming linkages among businesses. But the local industryis fragmented and fraught with internal divisions. Hence, the ‘‘glue’’needed to hold the cluster together appears to be absent, with a scar-city of leadership to provide guidance and a focus for cluster develop-ment through fostering wide involvement of cluster participants andsocial networks. With stronger local leadership, deliberate policies toenhance the development of such social capital might ensue.

Aside from the issue of leadership, another explanation for thesedivisions may be the difficulty in defining cluster boundaries becausethe tourism region falls across two states. The multiple levels of govern-ment to be dealt with also may have created a degree of suspicion inAlbury-Wodonga about the usefulness of government involvement inthe tourism industry. If Albury-Wodonga is to move from its supposedstatus as transit point to that of a destination, these are issues that mustall be addressed. It seems that there is a real opportunity for this city tomove forward, if it develops a level of local leadership that can over-come the inter-state rivalry and rebalance its social capital, to pursuethe development of a tourism business cluster.

CONCLUSION

In the face of changing industrial patterns, declining employmentprospects, and stagnating economies in regional Australia, the federalgovernment has identified tourism as an important means of fosteringlocal economic development. However, tourism is not a panacea, asnot all regional areas possess the appropriate factor conditions to at-tract visitation. For those centers with attractive attributes, the questionis how to convert comparative advantage into competitive advantage.The research proposition was that business clusters could be used tofacilitate this transition.

This study applies Porter’s theories to regional tourism develop-ment, focusing on four case towns in regional Australia with similar fac-tor conditions. The results suggest that the degree of success inexploiting these varies among the regions, and that the presence ofthe prerequisites for cluster development also varies, with those areasdisplaying the strongest presence being the most economically success-ful. The theory of business clusters could provide a means of fosteringa regionally based organizational structure within which local tourism


businesses and related and supporting industries can interact bothcooperatively and competitively where competition is based on differ-entiation and innovation rather than on anti-competitive activity orprice or cost cutting. Through cluster development, factor endow-ments could be better packaged to develop a region’s competitiveadvantage.

The study identified the elements of Porter’s diamond as being lar-gely present in the four study centers. However, in the less economicallysuccessful centre of Albury-Wodonga, notable barriers to cluster devel-opment include an absence of strong local leadership, and weaker link-ages among businesses compared with the other areas that possessactive and cohesive local tourism organizations. Another prerequisitefor cluster development is appropriate, well-defined boundaries, whichwould enable the development and institutionalization of a focus forindustry leadership. This study notes a state boundary passing throughthe middle of the least economically successful centre. On an optimisticnote for the Albury-Wodonga region, the local tourism organization hasrecently been reinvigorated and a new destination based on the lengthof the Murray River, and including all four regional centers discussed inthis paper, has been created (personal communication in 2002, CEO,Murray River Tourism). This demonstrates the potential for redefiningcluster boundaries to engender greater cooperation between compet-ing regions.

The study finds that business clusters are eminently suitable for appli-cation to tourism especially in regional areas where, within a geographicregion, there are specific local factor endowments, a range of industrysectors, and varying market segments. A competitive market frameworkwith the presence of appropriate levels of social capital enables compe-tition to be based on cooperation, differentiation, and innovation. Withthe cluster attributes of strong local leadership and more formally insti-tutionalized relationships between businesses, actions such as collabo-rating to impose barriers to entry, requiring government subsidization,price-based competition, or imitation might be avoided, and the positiveinnovative aspects of business clusters engendered.

Acknowledgements—The authors acknowledge the financial support received from the Austra-lian Research Council via an ARC Linkages Research Grant and from industry partners,Albury-Wodonga Tourism, the Albury City Council, the Sunraysia Area Consultative Commit-tee and the Mildura Grand Hotel. The excellent work of PhD student and research assistantClare Lade is also gratefully acknowledged.

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Submitted 23 April 2005. Resubmitted 20 September 2005. Resubmitted 9 January 2006.Resubmitted 21 March 2006. Final version 21 March 2006. Accepted 28 March 2006.Refereed anonymously. Coordinating Editor: Kit Jenkins

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Clusters in regional tourism An Australian case