THE DEVELOPMENT OF KIMS FIRMS AND INDUSTRIES
3. Energy minerals
5.2.2 Stages in the Development of the International KIMS Sector
With its roots in the in-house accumulation of KIMS capabilities in mining companies, the emergence, development and evolution of a distinct, globally organised KIMS supplier industry has been a historical process whose life span covers more than half a century, starting around the 1940s. This section presents a periodisation of this process in four consecutive generic stages, through their overlap with imprecise starting and finishing dates. The identification of these stages came from interviews with experts of mining companies, supplier firms and university and technology centres in Chile and Australia, supplemented with the review of selected literature – in particular Segal (2000) and Dodgson and Vandermark (2000a).
The stages of KIMS sector development are identified in generic terms as worldwide phenomena, without referring to the particularities in any specific mining economy. However, each country has become involved and participated in this historical process in different ways and in many cases at different times. This has involved some common features across different mining countries as well as particular features for each. One of the central arguments of the thesis, developed through Chapters 6 to 8 with specific reference to Australia and Chile, is that the country specificities of these stages have shaped the development of „local‟ KIMS sectors and the competitive positions they have achieved in this global industry.
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Stage 1 – Gestation
(From around the 1940s to the early 1970s)
During this period world mining production experienced a significant expansion, most of the mining companies‟ activities, including production, investment projects and innovations were to a significant extent locally based.
During this stage, the industry was vertically integrated and most of the industry‟s KIMS capabilities were accumulated within mining companies. In consequence, KIMS providers, which played an important role in supporting production expansion, were internal engineering departments or technical units of mining companies and there were only a few external providers, which were closely related to mining companies. The bulk of innovation and learning took place within or close to mining companies. Correspondingly, the accumulation of the capabilities that enabled KIMS supplier sector emergence was a consequence of several decades of learning and innovation effort undertaken mostly by mining companies, who were the key drivers of the development of KIMS capabilities at this gestation stage.
Stage 2 – Emergence and Development
(From around the mid-1970s to approximately the early 1980s)
At this stage, world mining production kept growing, but at a slower pace compared to the previous stage, especially during the first part of this stage. Other regions such as South America, Australia and Asia captured a higher share of world mining production.
At the same time, the mining industry initiated a process of vertical disintegration, and technological capabilities became increasingly spread among mining companies and suppliers as many functions previously carried out within mining companies were spun-out. Consequently, a highly diverse and fragmented supplier sector for the mining industry emerged. Especially important was the emergence and growth of KIMS suppliers and contractors. New KIMS suppliers took advantage of capabilities that in the previous stage were accumulated and upgraded within mining companies and that during this
second stage became part of their own capabilities. In addition, KIMS suppliers kept developing further their capabilities by participating in new investment projects and operations related to their „parent‟ mining companies and to others. Also, new technologies, especially information technologies, enabled the industry to speed up the rates of innovation and productivity growth. This was part of the process of technological rejuvenation experienced by the mining industry, outlined in Chapter 2 and also in Section 3.4, which kept fostering learning and innovation in the decades to come.
User-producer interaction was a key learning and innovation driver; however this interaction did not necessarily involve a symmetrical two-way knowledge based interaction. Instead, mining companies usually presented new challenges and opportunities for learning and innovation associated with new investment projects or operational upgrading requirement. But suppliers typically generated the solutions as mining companies usually did not participate actively in this and limited their role to checking the plausibility of suppliers‟ proposals.
Stage 3 – Internationalisation
(From approximately the late 1980s to around the late 1990s)
During this period the growth rate of world mining production increased, relying importantly on Australia, South America and Asia. Mining companies‟ production activities became increasingly spread worldwide, and both mining companies and suppliers participated in production projects and operations on an international basis. In this context, KIMS suppliers deepened their knowledge and kept growing, first locally and then internationally.
Interactions between mining companies and suppliers kept playing an important role in learning and innovation processes, and there was a higher level of collaboration in learning and innovation projects. In addition, other interactions such as supplier-supplier interaction also become important.
During this stage a major deployment of products and services that came along with rejuvenation took place and a rapid development of pervasive applications based on ITs led to big impacts in terms of cost and productivity.
Stage 4 – Consolidation
(From the early 2000s and continuing)
At this stage, the growth rate of mining production increased again and the forecasts show a scenario of production expansion over at least the next decade and even beyond.
The process of merging and acquisition, which started at the 1990s, kept taking place among mining companies, and this has led to higher concentration based on bigger multi-mineral mining companies. The KIMS supplier sector has also begun to show consolidation features. The frequency of mergers and acquisitions has been gradually increasing. KIMS have not only merged or acquired „peer‟ firms; they have also been merging and acquiring suppliers in other, closely related supplier categories. Consequently, KIMS suppliers are widening the range of products and services offered and bigger firms are gaining control. This process has been encouraged by mining companies that have been seeking to simplify their external interactions by using larger supplier companies that are increasingly expected to offer „complete solutions‟.
The rejuvenation process keeps shaping the industry‟s performance through pervasive applications; however their impacts are diminishing and innovation projects require larger budgets compared to previous stage.
Interactions, including both user-producer (mining company-supplier) as well as producer-producer (supplier-supplier) interactions, are an important source of innovation and learning. These interactions take place within a complex network of actors organised on a „glocal‟9
basis.
On the one hand, global innovation systems are set-up, which are articulated by large mining companies and large suppliers. On the other hand, KIMS suppliers and contractors need to work close to mining investments and operations, which creates important local innovations systems. Also, in addition to mining companies, some „key suppliers‟, such as international project management firms and some equipment and input suppliers have gotten a higher degree of control of the whole interaction web.
The information above about these four stages is summarised in Figure 5.1, providing a general overview of the entire process of development of the international KIMS sector since the middle of the last century. The upper row shows the different stages and the approximate lifespan of each. (Since the transition from one stage to the next is gradual, a diagonal separates the stages.)
Figure 5.1: Historical Stages of KIMS Sector Development
The four rows in the mid-section summarise the information in the outlines above in terms of the key features of the conceptual framework outlined earlier in Section 3.6 and they show how these have evolved over the different stages. The first two cover factors at the level of the mining industry that shape the potential for learning and innovation. The next two cover features of the learning and innovation cycle associated with the efforts at the micro level to exploit the potential shaped by external, industry-level and other factors.
The row at the bottom shows features of the process of technological rejuvenation, which opened special opportunities for learning and innovation not only for the mining industry but for the entire economy. Rejuvenation besides
2000s 1990s 1980s 1970s 1940s . . . Stage 1: Gestation Stage 2: Emergence and Development Stage 3: Internationalisation Stage 4: Consolidation
KIMS technological capabilities Mining production activity level
Structure and organisation of the mining industry
Technological rejuvenation Learning and innovation effort
Mostly located within mining companies
Located within mining companies and also increasingly within KIMS
suppliers
User and suppliers increase international production capacity Significant production
expansion, mostly locally based
Technological Capabilities spread globally
Time (Decades – Periods)
. . .
KIMS Development Process and Stages
Production expansion slowed-down, but still growing
Production expansion increasingly internationally based
Significant production globally based High degree of
vertical integration
Growth of supplier sector driven by services and contractors outsourcing process and „Spin-outs‟
User-producer networks articulated by mining companies and large suppliers
“Glocal” networks and M&A
New technologies enabling significant productivity/performance „improvement of “Old” technologies
Pervasive technological rejuvenation process
Rejuvenation keep going-on Driven by mining companies
efforts to accumulate and upgrade internal capabilities
Driven by the change of industry‟s organisation: Exploiting capabilities
previously accumulated „in-house‟
Setting new Arrangements / institutions “Glocal” systems of innovation & learning M inin g i nd ustry le v e l fa c to rs M ic ro or firm le v e l fa c to rs Tec hnologic a l Change 2000s 1990s 1980s 1970s 1940s . . . Stage 1: Gestation Stage 2: Emergence and Development Stage 3: Internationalisation Stage 4: Consolidation
KIMS technological capabilities Mining production activity level
Structure and organisation of the mining industry
Technological rejuvenation Learning and innovation effort
Mostly located within mining companies
Located within mining companies and also increasingly within KIMS
suppliers
User and suppliers increase international production capacity Significant production
expansion, mostly locally based
Technological Capabilities spread globally
Time (Decades – Periods)
. . .
KIMS Development Process and Stages
Production expansion slowed-down, but still growing
Production expansion increasingly internationally based
Significant production globally based High degree of
vertical integration
Growth of supplier sector driven by services and contractors outsourcing process and „Spin-outs‟
User-producer networks articulated by mining companies and large suppliers
“Glocal” networks and M&A
New technologies enabling significant productivity/performance „improvement of “Old” technologies
Pervasive technological rejuvenation process
Rejuvenation keep going-on Driven by mining companies
efforts to accumulate and upgrade internal capabilities
Driven by the change of industry‟s organisation: Exploiting capabilities
previously accumulated „in-house‟
Setting new Arrangements / institutions “Glocal” systems of innovation & learning M inin g i nd ustry le v e l fa c to rs M ic ro or firm le v e l fa c to rs Tec hnologic a l Change
posing new demands for learning in new areas of technology opened up opportunities for the development of KIMS firms as entry barriers were diminished. KIMS sector firms took advantage of this, which fostered their own learning and innovation processes.
As stressed earlier, this discussion of stages in the evolution of the KIMS sector is a broad global picture. In individual countries both the mining industries as a whole and the KIMS sectors in particular have moved through those stages in different ways and at different times. The next section examines the development of the mining industries in the specific cases of Australia and Chile, The industry contexts for the development of the KIMS supplier sector are examined later in Section 5.4.