Mixed results from digital cluster pilot born during the pandemic

A $20 million package was announced in September 2020 to help small businesses and tourism operators ‘transition digitally’, with the newly formed Digital Boost programme offering an online learning platform to help them embrace ecommerce, new technologies and digital skills.

The Digital Boost Alliance sprang up – a network of around 20 businesses and organisations, from 2Degrees and Amazon Web Services to the banks, Spark and Xero. The organisations undertook to offer free or discounted products and services to small businesses. Three years later, the alliance is still active.

David Kelly, chair of website design and e-commerce specialist Zeald, saw an opportunity to help likeminded small businesses build some critical mass in their online operations. 

“New Zealand obviously has that geographical isolation, where it's heavily dependent on export trade,” says Kelly.

“We also have this dynamic where we're a nation of small businesses, and they can really struggle operating internationally.”

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Cluster economics

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A conversation Kelly had with Paul Conway, then BNZ’s chief economist and now the Reserve Bank of New Zealand chief economist, saw them hatch an idea – offering support and infrastructure to help digital clusters get off the ground.

The resulting Digital Clusters Initiative drew heavily on advice from Nelson-based digital clusters and economic development expert Ifor Ffowcs-Williams, who has advised successful digital clusters all over the world. 

As Conway explained in a video recorded during lockdown in 2021, the digital cluster sought to address the growing gap in economic growth between our cities and parts of regional New Zealand.

“Cluster economics works by emulating the success factors of cities,” he said.

“It is inclusive, it has a strong local community flavour and it is tailored to who and what we are working with.”

The common theme was digital transformation, but with a strong focus on the cluster participants building a marketplace to market themselves internationally.

“Nothing really demonstrates the value of clustering like winning more business, opening up new markets,” says Kelly.

An application round in early 2022 saw three clusters selected. But the pilot was soon to lose two of its three participants – a baby products and accessories cluster largely featuring Auckland-based businesses, and a group of Central Otago-based winegrowers.

“We didn’t get that far with either of them, for different reasons,” says Kelly.

“The winegrowers were sceptical about whether it was going to really yield results. The baby cluster felt they were already clustering to a degree and doing significant ecommerce.”

The last cluster standing is a group of Māori artists who live in or whakapapa back to the Tauranga area. In July, over a year of work culminated in the soft launch of Te Tauranga Toi, an online marketplace for artists specialising in sculpture, weaving, painting and new media.

The difference, says Kelly, was that the artists had a driving force in the form of a person who really believed in the cluster’s potential. That person was Julie Paama-Pengelly, chairperson of Te Tuhi Mareikura Trust – a small charitable arts trust formed in 2015 to promote the artistic legacy of the Tauranga Moana region.

“Julie said yes to doing it. She could see the opportunity of bringing our artists together to create an ecommerce platform to help them, and support them with professional development,” says Ayesha Kee, the trust’s community development manager.

While Te Tuhi Mareikura has only three full-time employees, Paama-Pengelly’s enthusiastic backing saw the project gain momentum. Kereama Taepa, a digital/new media artist and trustee of Te Tuhi Mareikura Trust, says the cluster model is a natural way of working for indigenous communities.

“Artists tend to work solo, very siloed. But at the same time, Māori communities work together generally as a larger community. In essence, it's not really a new way of working for us,” he says.

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A lot of basic stuff‍

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The biggest market for Māori art is offshore, so Te Tauranga Toi now gives Taepa and his fellow artists a digital front door, which Zeald designed and built. 

“A lot of art-based websites have opened and closed because that market doesn't really align with digital. But that's changing,” says Taepa. He points to the likes of Artsy.net, a major online marketplace for fine art. 

While marketing Te Tauranga Toi is now the priority, Kee says the cluster also aims to ramp up its professional development services for the artists.

“How to write your own bio, how to photograph the product so it looks good on a website, and how to price their work – there's some really basic stuff which some of our artists struggle with, which we can help with,” she says.

Te Tuhi Mareikura Trust didn’t receive direct funding for the cluster pilot but in-kind support to develop the online marketplace.

“Having the people resources, as well as the financial resources to get this going has actually been really challenging,” says Kee.

"We would like to make money, but that’s not what the kaupapa is about for us. It is about upskilling our artists and supporting them, whichever way that we can.”

How to continue funding development of Te Tauranga Toi is an open question for both the trust and Zeald.

“We're very much at a point where the future is a bit uncertain,” says Kelly, reinforcing Ffowcs-Williams’ advice that a cluster needs sustained funding, possibly from government or an economic development agency.

“I still very much believe in the model. I think it's got a huge potential. But it's been a long, hard road.”

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Digital clusters – David Kelly’s lessons learned:

1. A cluster needs dedicated managerial support to go the distance. “It can’t be an external person, it can’t be outsourced. They need to have the rapport and the depth of relationships. You need someone at least 20 to 30 hours a week driving it.”

2. A successful cluster rests on the concept of ‘coopertition’. “It requires a significant mindset shift for businesses that maybe, for a long time, have been in fierce competition on a local level.”

3. Don’t expect success in six to 12 months; it needs sustained commitment to come to fruition. “It’s a lot of work. You really have to really believe in it, and really believe in the long-term value. There's going to need to be a whole bunch of time and energy and even capital invested into it upfront.”

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This is the second in a monthly series on New Zealand clusters and what they're delivering for startup founders.

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