Prospects And Challenges For Cluster Development

How do clusters emerge?

"The geographic scope of a cluster can range from a single city or state to a country or even a network of neighbouring countries" (Porter, 1998) When addressing the issue of the origins of industrial clusters, many researchers recognize the importance of external economies, of the local division of labor, and of the influence of social structures on the nature of competition in the area (Piore & Sabel, 1984; Brusco, 1982). Other authors downplay the importance of materials, climate, university research and typical locational factors in the creation of geographically concentrated industries (Scott, 2000). But, they all agree that there is no general law on how clusters are born. In fact, the conditions underpinning the emergence of new clusters are highly varied, as following: A lead or anchor firm - the cluster emerges out of the formation of one or two critical firms that subsequently feed the emergence and growth of numerous smaller ones (Wolfe & Gertler, 2004). The best example is provided by Silicon Valley where cluster emergence is linked to the founding and growth of Hewlett Packard (Porter, 1998). Public sector investments and activities - the existence of public research laboratories has been held responsible for the origin of knowledge-intensive clusters. An example is Massachusetts Institute of Technology and Harvard University, which are responsible for the biotechnology sector development in the Boston area (Porter, 1998; Owen-Smith & Powell, 2004). Shocks and precipitating events are held responsible for the emergence of clusters. For instance, mass redundancies at a Fiat tractor factory in Modena in the 1950s, have given rise to a local economy of small producers in the mechanical sector. Local demand and market patterns. This factor plays a major role in the emergence of clusters that later obtain an international level of competitiveness. An example is the cases of the Dutch transport and logistics industry. "The building of industry clusters is a progressive and learning process. Winning the confidence of business to share information, collaborate and operate as a cohesive industry cluster may take many years to develop. Overcoming these difficulties requires a strong commitment by government and industry champions to provide the leadership, the vision and the wear-with-all to make industry clusters happen" (Roberts, 1998). The most obvious manifestation of clustering is Europe's industrial districts and America's industry agglomerations, both of which have fascinated and attracted many researchers and policy planners (Goodman & Barnford, 1990; Pyke & Sengenberger, 1992). Well known examples of clusters are the computer technology cluster in Silicon Valley, the financial clusters in New York and London, the movie production cluster in Hollywood, the automotive clusters in Southern Germany and Detroit, the aerospace cluster in Toulouse, the fashion clusters in Northern Italy, the software outsourcing in Bangalore, the diamond cluster in Antwerp and others (Porter, 1990). And then there are the major clusters in Asia and China in particular, focused on high-volume contract manufacturing of low value footwear products. "The cluster known as the Packaging Valley is one of the most successful clusters in Italy. It is located around the northern province of Bologna and has the highest concentration of production of packaging machinery in the country. In this cluster we observe the joint presence of the biggest manufacturers of the industry, at the Italian level, and a large number of assemblers and specialized suppliers of parts and components, mainly small and medium-sized firms" (Boari, 2001). Moreover, small and medium-sized firms interact profitably in confined geographical locations. It is the case of Como in Italy, where the world's leading silk design capabilities are found, or Carpi, from where similarly high-quality knitwear originates.

Evolution of clusters

"Clusters develop over time; they are not a phenomenon that just appears or disappears overnight" (Ketels, 2003). Studies regarding the evolution of clusters are still in its infancy. The statistical analysis of the more than 800 clusters mentioned in the existing literature gives a cross-section of clusters at different stages of development, but so far does not allow to look more deeply at the factors shaping the evolutionary process over time (Ketels, 2003). Many authors claim that with the lower cost and the new tools of communication new types of clusters can emerge. They can supersede the need for physical proximity. Others claim that because of better communication technology as well as lower transportation costs, the world economies will face a "de-clustering process" . "The Maniago district, specializing in the production of knives, is now undergoing a serious crisis, mainly because of the globalization of the industry. While many Italian districts are confronting globalization by focusing on differentiation, firms in Maniago suffer uniformly and seem unable to identify new market niches and differentiate their production" (Boari, 2001). International experience shows that while this phenomenon occurs world-wide, many clusters have developed without the presence of any policies or efforts to upgrade them. Also, each cluster has its own development path. "The inherent economics of proximity have been enough to over time attract increasing numbers of companies and other institutions, leading to a self-reinforcing cycle that was often started by a chance event"(Ketels, 2003). The forces that foster the subsequent growth of regional clusters are not necessarily those that gave the locations their initial advantage (Enright, 1996). But other clusters have developed much faster because of the determined action of regional leaders that had spotted the potential of their region for the cluster. "Government can help or hurt the process, but it seems less able to create vibrant clusters on its own" (Enright, 1996). The spectacles cluster of Belluno originates from 1878 where a local man, Angelo Frescura, in collaboration with Giovanni Lozza and Leone Frescura, opened a craft workshop for the production of spectacles near Calalzo, in Cadore. Cadore remains the historical heartland of the Belluno spectacles district and after more than one than 125 years, it is still the area with the highest concentration of companies. Nowadays, the cluster produces two-thirds of the world's spectacles, its turnover accounting for 85 % of Italian production with more than 70 % exported.

Clusters and Economic Performance

"The presence of positive externalities explains the clustering process, whereas specific location sites for each cluster depend on either historical accident or the cost advantages provided by immobile factors that attracted the firms anchoring the cluster" (Doeringer & Terkla, 1995). As evidenced in the literature cited above, their varying definitions of industrial clusters help explain the differing arguments regarding the methodology to identify clusters. As nations develop, they progress in terms of their characteristic competitive advantage and modes of competing. Following the Porterian model, we identify three stages of economic competitiveness: factor-driven economy, investment-driven economy and innovation-driven economy . Governments can use clusters both to become more successful in attracting foreign direct investments (FDI) and to increase the economic value FDI generates for their economies. Countries should concentrate their marketing efforts on companies that fill the gap or increase depth in clusters where they have an establishment or at least emerging position. First, for such companies the country will be inherently attractive because it provides established markets, suppliers and skilled employees. This increases the likelihood of attracting them. Second, the negotiations with such companies will tend to quickly move from financial incentives alone and concentrate on the quality of the cluster-specific business environment and how it can be improved. In these areas much more can be done especially when the ability to compete on financial packages is increasingly restricted. Third, attracting such companies not only creates direct benefits through job creation, but also improves the quality of the location for the companies already present in the cluster, partly by adding relevant activity in the cluster and partly by upgrading the business environment to attract new company. This will increase the sustained impact of FDI attraction and it avoids the focus-loose plants exploiting only short-term arbitrage opportunities (Hunya, 2002). Because of the proximity, both in terms of geography and of activities, companies inside the cluster benefits from numerous positive location-specific externalities, such as: cost savings, due to the easy access to specialised suppliers, distributors and human resources; leanings form the close interaction with specialised customers and suppliers; knowledge spill-overs, which is critical in an effective industry cluster (Rosenfeld, 1996); pressure for higher performance in head to head competition; fast change reaction, due to the extreme specialisation inside the cluster and high productivity; imitation facilitates faster adoption of innovation.

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