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Industrial Clusters


- Papers on the Concept of Clusters
Documents on Cluster Programs

- Case Studies on Clusters 
- Useful Websites

Industrial Clusters

Clusters are geographic agglomerations of companies, suppliers, service providers, and associated institutions in a particular field, linked by externalities and complementarities of various types.  Clusters often include producers of complementary products, providers of specialized infrastructure, specialized training and education, innovation, research and technical support, and standards-setting agencies. Such clusters make investment more efficient, strengthen domestic markets of service provision, and increase returns via spillovers.

The core contribution of the industrial clusters lies in generating the solutions for Marshallian externalities such as technology and infrastructural and standards-related externalities which often remain unaddressed in developing economies due to coordination failures.

 On the Concept of Clusters
On Competition
Author: Michael Porter
Source: The Harvard Business Review Book Series, 1979

Addresses the role of location in competition and shows how prosperity for both companies and countries depend on the nature of the local environment in which competition takes place.  A framework for understanding the influence of location on competition reveals new roles for companies and governments in shaping their competitive context; the need for a new type of relationship between business, government, and other local institutions; and new ways of thinking about government policy.

The Microeconomic Foundations of Prosperity: Findings from the Business Competitiveness Index
Author: Michael Porter, Christian Ketels and Mercedes Delgado
Source: The Global Competitiveness Report 2007-08

Sound macroeconomic policies and stable political and legal institutions are necessary but not sufficient conditions to ensure a prosperous economy. Competitiveness is rooted in a nation's microeconomic fundamentals -- the sophistication of entrepreneurial operations and the quality of the microeconomic business environment in which companies compete.

Coordination Failures, Clusters and Microeconomic Interventions
Author: Andres Rodriguez-Clare
Source: Inter-American Development Bank Research Papers, June 2005

Although one may think of clusters as resulting from agglomeration economies, the notion of coordination failures is more useful to derive appropriate policies to encourage clustering. Offering of blanket public subsidies to clusters only invites misallocation of resources; policies should aim at fostering cooperation in sectors where the economy is already showing comparative advantage.

Clusters as a Driving Engine for FDI
Author: Etienne B. Yehoue
Source: IMF Working Paper, WP/05/193

By developing a game theoretical perspective, this paper shows how the combination of setting up a cluster and implementing policy reforms will be key engine for attracting FDI. Based on agglomeration externalities, the paper shows that the very emergence of clusters can make investment so profitable that investors can even afford to tolerate more policy-induced distortions than otherwise.

Theoretical Perspectives on Industry Clusters
Author: Gashawbeza Bekele and Randall Jackson
Source: West Virginia University Research Paper 2006-7

A review of the major theoretical propositions that seek to explain the
clustering of economic activity and its presumed link with regional economic
development. While there is undoubtedly some overlap on some of the explanations offered by various theoretical perspectives, the concept of clustering has been used widely in varying contexts and in a multifaceted manner. It is important to maintain clarity and coherence throughout cluster analyses and derivations of policy prescriptions.


 On Cluster Programs

The Cluster Initiative Greenbook
Author: Örjan Sölvell, Göran Lindqvist and Christian Ketels
Source: The Competitiveness Institute (TCI) September 2003

Based on data from over 250 CIs around the world, it analyses cluster initiatives in great detail: In what settings do they evolve? What objectives do they pursue? What does the cluster initiative process look like? And what are the drivers of good performance?  The Greenbook offers a new model which can be used to analyse and evaluate cluster initiatives.

Competitive Regional Clusters and National Policy Approaches
Author: Karen Maguire and Andrew Davies
Source: OECD Review of Regional Innovation

This report identifies trends and best practices in cluster-based approaches with respect to program objectives, targeting, instruments and inter-governmental role sharing. It is part of the work by OECD Territorial Development Policy Committee on competitive and innovative regions.

Cluster Economics: Elements for Program Evaluation
Author: Jorge Quiroz
Source: Inter-American Development Bank (IADB), March 2007 

The paper contributes towards bridging the cluster literature as led by Porter with the modern economic thought, particularly in the realm of industrial organization and international trade.  It proposes an evaluation methodology with a strong emphasis on the broader economic impact of the cluster programs.


 Studies on Clusters Around the World

World Development:  Clustering and Industrialization
Author: Hubert Schmitz and Khalid Nadvi
Source: Vol. 27, Issue 9, September 1999

This special issue on clusters is a compendium of twelve case studies on clusters around the world.  The volume specifies the circumstances in which clustering boosts industrial growth and competitiveness.  Differentiating between incipient and mature clusters, it examines whether or not clusters can help small enterprises grow in riskable steps.  Other contributions examine the ability of clusters in general to cope with global competitive pressures.  

EU: Clusters in the EU-10 New Member Countries
Author: Christian Ketels and Orjan Solvell
Source: Europe Innova Cluster Mapping, 2005

The EU-10 are the group of ten countries that have joined the European Union in 2004. They have a cluster specialization profile that remains distinct from more advanced economies. The EU-10 still has a far stronger natural resource-driven sector. And the EU-10 have a much stronger bias towards labour-intensive and manufacturing-driven cluster categories, while being relatively weak in advanced services and knowledge-intensive cluster categories.

Upgrading in Global Value Chains: Lessons for Latin American Clusters 
Author: Elisa Guiliani, Carlo Pietrobelli and Roberta Rabellotti
Source: World Development Vol. 33, No. 4, pp. 549–573, 2005

Clustering helps local enterprises compete in global markets. However, more attention needs to be paid to external linkages of clusters and to the role played by global buyers to foster quality upgrading at cluster levels. This case study contributes to this debate specially with a focus on the analysis of the relationships existing between clustering, global value chains, upgrading, and sectoral patterns of innovation in Latin America. It finds that sectoral specificities matter and influence the mode and the extent of upgrading in clusters integrated in global value chains.

The Triple C Approach to Local Industrial Policy (customer-oriented, collective and cumulative clusters)
Author: John Humphrey and Hubert Schmitz, IDS, University of Sussex
Source: World Development, vol. 24, no. 12, pp 1859-1877, 1996

The European experience on SME clusters suggests that local and regional governments as well as the joint public/private sector initiatives can play an important role. The examples of network promotion in Denmark and in Chile show that specialization and cooperation between SMEs can be promoted through public institutions. More policy insights on SME clusters are emerging from experiments in developing countries themselves. The additional challenges developing countries face regarding, both public institutions and cluster initiatives, however, indicate that public interventions on SME clusters in developing countries will be relevant only if they give sufficient attention to the Triple-C requirements, namely, being guided by customer-orientation, being collective in terms of reducing transaction costs and mutual learning; and achieving cumulative improvements in competitiveness.

Industrial Clusters and Networks: Case Studies of SME Growth and Innovation
Author: Khalid Nadvi
Source: UNIDO Small and Medium Enterprises Program, October 1995

This is a study of five selected SME clusters from Latin America and Asia that have demonstrated technical innovation, international competitiveness, and sustainability. While each case reflects the collective efficiency advantages of SME clusters, they also indicate that there is a case for the "benign neglect" by the State in cluster intervention. The Latin American clusters indicate greater degree of public intervention compared to the Asian clusters; but in both cases, public intervention have been relevant only when there is an active involvement by the participating firms and their buyers themselves.

Upgrading in Clusters and Value Chains in LAC: The Role of Policies
Author: Carlo Pietrobelli and Roberta Rabellotti
Source: Inter-American Development Bank, Sustainable Development Department Best Practices Series, January 2004

This three-dimensional analysis is based on the collection of original data from eleven new clusters in Latin America, which show that clusters and value chains belonging to different groups of industries tend to follow systematically different patterns of collective efficiency, modes of chain governance, and upgrading. While external economies are easier to achieve in most clusters, it is difficult to achieve sectoral diversity. Only in traditional industries, upgrading is achieved through signals received from large global buyers; in complex production systems and in natural resources industries, this has been difficult to achieve. While process and product upgrading are more common, functional upgrading is only rarely achieved.

Africa: Knowledge, Technology, and Cluster-Based Growth
Author: Douglas Zhihua Zeng
Source: WBI Development Study, April 2006

A set of eleven case studies from Africa ranging from the cut flower and textile cluster to computer hardware. A focus on the knowledge and technology aspects.  It emphasizes on the joint action potentials of industrial clusters on public policy issues.

Brazil: Forms of Governance, Learning Mechanisms and Upgrading Strategies in the Tobacco Cluster in Rio Pardo Valley
Author: Marco Antonio Vargas
Source: IDS, University of Sussex, Working Paper 125, 2001

How are the cluster's local organisation and innovation paths influenced by the global tobacco chain? What are the long term prospects of this cluster considering the power assymetries associated with the cluster's production and knowledge systems.

Transnational Corporations and Network Effects of a Local Manufacturing Cluster in Mobile Telecommunications Equipment in China
Author: Henry Wai-Chung Yeung; Weidung Liu; and Peter Dicken
Source: World Development, vol. 34, no. 2, pp520-540, 2006

Examines the formation in Beijing, China, of one of the world’s few mobile telecommunications manufacturing clusters. Shows how Nokia, the lead firm in the local industrial cluster, is able to create non-cluster external economies for its key suppliers co-locating in this purpose-specific industrial cluster.

Is the East Asian Experience Good for Africa?
Author: Keijiro Otsuka
Source: Foundation for Advanced Studies on International Development (FASID), 2006

Using the examples of garment and motorcycle clusters in China and Japan, this powerpoint makes a case that industrialization is initiated by merchants and engineers which is later followed by the quantity expansion phase of immitation and quality decline. Since merchants are society-specific, industrial trajectories are bound to be so. An East Asian model of cluster-based industrial development is then further explored for any relevance it might have for African industrialisation.

Italy: Parma and San Daniele Food Processing Quality Consortia
Author: Michelle Clara
Source: UNIDO/Italy Program for SME Development, April 1999

The Italian foodstuff industry, especially the MSME producers, are increasingly under pressure to follow the certification of origin and standards. Growing number of products is being sold at a significant price premium with a guarantee concerning its origin, characteristics, and quality. This case study describes how two largely successful governance institutions -- the Consorzio del Prosciutto di San Daniele and its Parma counterpart -- were formed. These helped the Italian ham producers organize into consortia to be able to meet the growing demand for certification of origin and standards.

 Useful Websites

Harvard Business School: Institute for Strategy and Competitiveness
ISC is dedicated to the study of competition and its implications for company strategy; the competitiveness of nations, regions, and cities; and the relationship between competition and society.

IADB's Competitiveness and PSD Program looks into the role of business climate and regulatory reforms, privatization and public-private partnership in achieving global competitiveness. Its work on SME networks and clusters is comprehensive.

International Trade Centre (ITC) offers useful tools and information for market analysis and development in developing countries especially from an SME perspective.

UNIDO Develops an Export Consortia Program to promote medium- to long-term strategic cooperation among firms, and it organizes joint activities to facilitate access to foreign markets. See UNIDO guidebook on creation of export consortia.


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