Clusters & The New Economics Of Competition

A Cluster Is the Manifestation of the Diamond at Work

Introduction to Clusters

Today’s economic map of the world is dominated by clusters: critical masses – in one place – of unusual competitive success in particular fields.

Clusters are a striking feature of virtually every national, regional or state economy. E.G., Silicon Valley, Bollywood or Pune auto cluster.

Productive Use of Inputs

Competition in today’s economy is far more dynamic. Companies can mitigate input-cost disadvantages through global sourcing.

Now competitive advantage rests on making productive use of inputs, which requires continuous innovation.

Environment

What happens inside a company is important but clusters reveal that the immediate business environment outside companies plays a vital role as well.

Clusters often extend downstream channels and customers and laterally to manufacturers of complementary products.

Why Cluster?

Reduce costs Specialize Leverage on another’s specialties Increase rates of innovation Pursue joint solutions to common problems Build common labor pool, technology and

infrastructure Learn collectively what it takes to be competitive

What Is a Cluster?

Clusters are geographic concentrations of interconnected companies and institutions in a particular field.

E.G., Suppliers of specialized inputs such as components , machinery, services & specialized infrastructure.

Clusters and the new economics of competition. Harvard Business Review; Boston; Nov/Dec 1998; Michael E. Porter; http://polaris.umuc.edu/~fbetz/references/Porter.html

Constituents

Many clusters include governmental & other institutions such as universities, standard setting agencies, think tanks, vocational training providers & trade associations.

Clusters promote both competition and cooperation. Rivals compete intensely to win & retain customers. Without vigorous competition, a cluster will fail.

How do clusters collaborate?

Inform—newsletters and cluster directories

Learn—seminars, conferences and training

Market—strategic plans for exports, cluster brochures

Purchase—buyer-supplier linkages

Produce—bid on projects, joint ventures

Build Economic Infrastructure—technology transfer and telecommunications

Networking—formal and informal

Clusters and the new economics of competition. Harvard Business Review; Boston; Nov/Dec 1998; Michael E. Porter; http://polaris.umuc.edu/~fbetz/references/Porter.html

Clusters Are Critical to Competition

Clusters increase productivity of companies based in the area.

Clusters drive the direction and pace of innovation, which underpins productivity.

Cluster allows each member to benefit as if it had greater scale or as if it had joined with others formally – without losing flexibility.

Improves Productivity

Better access to employees & suppliers Access to specialized information Complementarities Access to institutions & public goods Better motivation & measurement

Clusters & Innovations

Presence of sophisticated buyers. Companies plug into customer needs & trends

speedily. Ongoing relationships with others within the cluster

enables learning about evolving technologies, marketing concepts & so on.

Close involvement of cluster members in the innovation process.

Stimulates New Business Formation

Needed assets, skills & inputs are easily available in cluster locations.

Cluster often presents a significant local market & an entrepreneur may benefit from established relationship.

Local financials institutions already familiar with the cluster may require a lower risk premium

Stimulates New Business Formation

Individuals working in a cluster can more easily perceive gaps in products and services.

Barriers to entry are lower.

Maharashtra clusters

Centre releases Rs 15 crore for the Rs 67 crore auto cluster being established in Pune-Pimpri-Chinchwad. Sectors planned for the cluster include auto electronics, CAD/CAM and rubber/polymer & plastics.

Other clusters proposed are at Roha and Thane Belapur (for chemicals), Ichalkaranji (textiles) and Aurangabad (auto components).

Auto Cluster in Pune

Automotive component manufacturers, trade associations, engineering colleges, research institutes, banks, financial institutions (FIs) and government agencies have been asked to develop & promote this cluster.

Cluster Development ProgrammeCluster Development ProgrammeCluster Development ProgrammeCluster Development Programme

UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATIONUNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION

UNIDO in Action

HondurasHonduras

IndonesiaIndonesiaBoliviaBolivia

El El SalvadorSalvador NigeriaNigeriaNicaraguaNicaragua

MexicMexicoo JamaicaJamaica

MadagascarMadagascar

TunisiaTunisia

ZimbabweZimbabwe

MoroccoMorocco

SenegSenegalal

PakistaPakistann

IndiaIndia

UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATIONUNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION

Cluster Development ProgrammeCluster Development ProgrammeCluster Development ProgrammeCluster Development Programme

India Project

UNIDO was requested by the Indian Ministry of Industry to promote pilot projects in selected clusters, and formulate a national cluster development programme.

With initial funding provided by the Italian Ministry of Foreign Affairs, a comprehensive Project was prepared to promote cluster development.