One of the highest compliments that can be paid to industries today is comparison with the birthplace of the modern computing industry: California’s Silicon Valley.
The “Silicon Valley” comparison means more than being the largest or most profitable sector; it means that you are steeped in a culture of innovation that can help you be the best tomorrow.
Silicon Valley is also not about any single company – it’s about being a center of innovation. The combination of top suppliers, service providers and research institutions helps make good companies better, attract the brightest employees, and as a result keep the positive cycle moving.
Being the best tomorrow means more than continuing to perform at the same level as you do today, however. It also means imagining the future.
The “next” thing is sometimes obvious. When Amazon began as an online bookstore, it wasn’t difficult to imagine that they might one day sell CDs. But few would have guessed the company would be the giant it is today, or that over half its revenue would come from web cloud services. It’s the “next next thing” that true innovators see.
At DNB, we like to say that the salmon farming industry has its own Silicon Valley, right here in Norway. There are of course excellent salmon farmers and suppliers around the world (many people are of the view that Faroes-based Bakkafrost stands above as the best farmer on the planet, for example), but again, it’s not about single companies – it’s about the totality.
It’s the “next next thing” that true innovators see.
One experienced American fund manager who became interested in salmon farming told us that when he began to take a closer look at the industry, he was struck by how extremely centered it is to Norway. He had never seen anything like it in any other industry.
Overseas investors in Norwegian aquaculture companies tend to recognize this, and it’s rare that any companies are re-located outside of the country: EWOS, Cermaq, Pharmaq, Skretting, AquaGen and Optimar are just a few of the examples.
Last year, the Norwegian Business School published a report (part-financed by DNB) whose authors included Professor Torger Reve, considered the father of the cluster theory in Norway, noted that centralization of the aquaculture sector is unique in the country, though oil and gas, for example, is far larger.
Those other industries, however, largely use innovations and know-how from other countries.
“[Aquaculture] is a sector where we are actually world leaders in research-based knowledge production and innovation," the report authors wrote.
Clusters can crumble
While Norway is currently benefitting from the self-reinforcing Silicon Valley cycle, clusters can deteriorate quickly without effort.
Detroit was once the Silicon Valley of car manufacturing. They lost that position for two reasons: for one, the companies became complacent. Second, the US Government, at the urging of the auto industry, weakened emissions and fuel consumption standards, a move that in the end made American cars almost irrelevant in international markets.
The biggest threats to the Norwegian salmon cluster’s position could be similar: Are companies too complacent? And are regulators too narrowly focused on bits and pieces and losing sight of the big picture?
How can Norway maintain its pole position? First and foremost, the companies themselves have to lead the way. They must continue to be on the cutting edge. While profitability today is good, that risks weakening the “sense of urgency."
Companies must also innovate along new dimensions such as digitization and genetics, even if it is further away from the farmer’s heart than new nets and steel structures. Authorities must also contribute by improving regulations allowing for as much production as possible with the lowest possible environmental footprint. They must create regulatory space for new technology, and they must themselves use new technology to gain a better knowledge base for regulatory frameworks.
Both the industry and the authorities must keep in mind that the toughest competitors are not the ones Norway is competing with today, but the ones it will face in the future. The only way to face that competition is to keep up the hard work, and continually push to improve.
Dag Sletmo is Senior Vice President at DNB Bank's Seafood Unit and former head of investor relations at Cermaq Group.