Metallurgical industry in Donbass region

Clustering concept

This article will focus on the case for examining the reasons behind the establishment of the metallurgical
industry in the Donbass region of Ukraine, these steams from conducting a similar exhaustive study of
the National Innovation Systems concept in Finland (e.g. Nokia) as well as the Cluster system in Basque
region of Spain.

The two systems mentioned above complement each other. NIS is the frame and institutional set-up for
business operations, while a cluster is one of the results of the implementation of the NIS framework.

The diagram below illustrates the concept:

Diagram 1. National Innovation System structure1

Parliament

Government

Science and technology Policy Council

Ministry of Education Ministry of Trade and Other Ministries

Industry

Academy of Finland Tekes Sitra

National Technology
Agency

Universities and Government Research Institutes

Enterprises, Private research Institutes, Funds and Foundations

* Tekes funds innovative research and development projects in companies, universities and research
institutes. Tekes is a gateway to the best technology partners in Finland. The main financing organization
for applied and industrial research and development, offering channels for cooperation with local
companies.
1

1 Source: ERRIN: European regions research and innovation network

Metallurgical industry in Donbass region. Clustering concept | Olena Achkasova

Hult International Business school
 ** Sitra, the Finnish Innovation Fund is an independent public fund which under the supervision of the
Finnish Parliament promotes the welfare of Finnish society. Sitra’s responsibilities have been stipulated in
law. Since its establishment, Sitra’s duty has been to promote stable and balanced development in
Finland, the qualitative and quantitative growth of its economy and its international competitiveness and
co-operation. Its operations are governed by a vision of a successful and skilled Finland. SITRA has
always approached its operations with strong belief in the future and in the ability of the latest technology
to generate well-being.

While implementing the above described concept of NIS we can talk about appearance of the formations
– clusters – where the value chain of the industry is completed by additional links:

Diagram 2. Combination of National Innovation System structure and cluster concept

R&D
Procurement
institutions Ministries

Inbound
Operation
logistics
s
Development Marketing
Infrastructure HR
Outbound and sales
logistics
Services

Financial Educational
Technology
Funds and development institutes
Foundations

An examination of the Donbass region from the year of its origin till now shows that the government at
that time had particular plan for this region.

Donetsk was established as a labor city for the metallurgical industry. Later it became a coal mining hub
2 providing supportive raw material supplier’s base for the metallurgical industry, which by fact, has existed
much earlier than the main industry.

Metallurgical industry in Donbass region. Clustering concept | Olena Achkasova

Hult International Business school
 The inner cluster of the heavy industry include: Inbound logistics, Operations, Marketing and Sales,
Services for industries and Outbound logistics (Donetsk enlarged its factories and mining to the nearest
areas, such as Shaktersk, Makeevka and etc.) had been formed by 1897.

The secondary activities were mainly developed by the main owner of the first metallurgical plant. One
interesting fact is that the HR unit at that time was focused on getting skilled manpower from
neighboring countries in order to serve the new-growing industry. Later, Infrastructure, Procurement and
Technological development took place, but in a slow pace.

After WWII, the region turned into student city with a large number of institutions, which had the
primary responsibility of developing young specialists for these two industries: from blue collar to the
workers on the factory or mines floor. More attention was given to the R&D areas of the region. A large
number of government R&D institutions were working on heavy industry development. By 1950 with
new investments from central government, Donetsk had become an important industrial center of
Ukraine and the whole USSR.

Moreover, looking at the government structure of Soviet Union, I can track a similar pattern, described in
the Diagram #1. It shows cooperation of social system of parties and educational, research and
development institutions, which followed particular plan (so called ‘government strategic plan’ at that
time) that could ensure the region development towards heavy industry, including additional, but not less
important structures, as specialized Universities and Schools.

In a nutshell, there is a some benefits to be gained by conducting a detailed research on the development
of the metallurgical industry within Donbass region, with the help of such methodologies as
country/region analysis, value chain analysis of the industry and cluster analysis, in order to understand
how to use the lessons from other NIS and cluster systems to revive the metallurgical industry in the
Ukraine.

The objective is to study the current situation of the industry, learn about the gaps, and come up with the
solutions in order to:

- Analyze and revitalize the heavy industry cluster in the Donbass region
- Support its continues development
- Come up with new solutions – as replenishment to current industries - that would influence the
region growth, due to exhaustion of natural resources, i.e. coal, iron and etc.

Metallurgical industry in Donbass region. Clustering concept | Olena Achkasova

Hult International Business school