Antofagasta

THE MINING CLUSTER IN ANTOFAGASTA Integrating Small and Medium Suppliers into the Productive Chain

BY MALAIKA CULVERWELL
PhD Candidate - University of Cambridge, Judge Institute of Management Studies Associate Researcher - Instituto de Economia Aplicada Regional, Universidad Catolica del Norte

Contact Details Flat 2a 85 Bell Street London NW1 6TB England Tele: 44 -207 7230 586 Email:meac2@cam.ac.uk

M. Culverwell

August, 2000

CONTENTS
Page 3

Introduction

PART ONE: (i.)

MINING CLUSTERS IN ANTOFAGASTA Value-added from the Mining Sector at the Regional Level Historical Evolution of Policies and Institutions associated with Regional Productive Linkages Defining the Mining Clusters in Antofagasta 5

(ii.)

8

(iii.)

11

PART TWO:

INTEGRATING SME SUPPLIERS IN THE SHORT TERM (ii.)(ii.) (iii.) Conceptualising SME Integration The Mining Company Power Base Small and Medium Supplier Vulnerability ? Dependency ? ? Vulnerability ? ? Need for Participation ? ? Need for Assistance ? Attempts at Collective Efficiency- some examples ? Chuqicamata, CDP and SME Suppliers ? ? Minera Escondida Ltd. and SME Suppliers ? ? PROFO Suppliers and Mining Clients ? 16 17 19

(iv.)

24

CONCLUSIONOpportunities for Improving Collective Efficiency Bibliography End Notes

27 28 31

2

M. Culverwell

August, 2000

INTRODUCTION This paper will describe the mining cluster in Antofagasta by analysing buyer supplier relationships among large mining companies and their small and medium suppliers. As Porter (1990) indicates in his diamond model of competitive advantage, flows of information aboutneeds, techniques and technology among buyers and suppliers are greatly enhanced by proximity. Proximity or affinity is at the very heart of the definition of the cluster concept. Proximity of complementary trading businesses can give rise to agglomeration economies which result because local linkages either lower the cost or increase the revenue (or both) of the firms taking part in such anexchange. Although for Porter, the country is seen as a proxy for this territoriality, in the case of mining in Chile, it is readily apparent that there is a physical concentration of certain specialised and non-specialised suppliers around the mining companies in Region II, Antofagasta. The issues that will be addressed in this paper highlight the fact that not all suppliers are viewed as essential orvaluable to the mining firms in the regional cluster. What cost can be reduced or what revenue can be garnered from the exchange of goods and services is the basic factor delineating the priority given to certain suppliers. This in turn affects how we view the mining cluster and the appropriateness of certain policies. Large, specialised suppliers can be said to belong to one type of cluster andsmall and medium non-specialised suppliers to another. Although the meeting of these two clusters is addressed in terms of long-term collective efficiency, it is the short-term goal of maintaining small and medium suppliers within their cluster that is emphasised in this paper. A recent trend for Copper Mining Companies in Chile has been to seek further managerial improvements in the Purchasing andMaterials Management arena. Here the theme of Supply Chain Integration has received much attention with the Purchasing and Contracts departments been required to network closely within the internal clients, and suppliers to realise greater cost, quality and time efficiencies. An initial observation of the cluster reveals that long-term relationships with large, specialised suppliers have thepotential to add more value to the mining companies in terms of total cost and quality and time on delivery. Small and medium suppliers on the other hand, tend to present an opportunity for the mining company to influence the supply market and obtain leverage /negotiation power and benefits from cost reduction and flexibility of use. More recently, the idea of cost minimisation through agglomeration...