Local clusters in a global economy

Concept[ edit ] The term business cluster, also known as an industry cluster, competitive cluster, or Porterian cluster, was introduced and popularized by Michael Porter in The Competitive Advantage of Nations The underlying concept, which economists have referred to as agglomeration economiesdates back toand the work of Alfred Marshall.

Local clusters in a global economy

Search Local Clusters in a Global Economy Economic geography during an era of global competition involves a paradox.

It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location. Yet clusters, or geographic concentrations of interconnected companies, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations.

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The prevalence of clusters reveals important insights about the microeconomics of competition and the role of location in competitive advantage. Even as old reasons for clustering have diminished in importance with globalization, new influences of clusters on competition have taken on growing importance in an increasingly complex, knowledge-based, and dynamic economy.

Clusters represent a new way of thinking about national, state, and local economies, and they necessitate new roles for companies, government, and other institutions in enhancing competitiveness.

Resources, capital, technology, and other inputs can be efficiently sourced in global markets. Firms can access immobile inputs via corporate networks. It no longer is necessary to locate near large markets to serve them. Governments are widely seen as losing their influence over competition to global forces.

It is easy to conclude, then, that location is diminishing in importance. In The Competitive Advantage of Nations Porter,I put forward a microeconomically based theory of national, state, and local competitiveness in the global economy.

Local clusters in a global economy

In this theory, clusters have a prominent role. Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions e.

Clusters, or critical masses of unusual competitive success in particular business areas, are a striking feature of virtually everynational, regional, state, and even metropolitan economy, especially in more advanced nations. Although the phenomenon of clusters in one form or another has been recognized and explored in a range of literatures, clusters cannot be understood independent of a broader theory of competition and competitive strategy in a global economy.

Clusters represent a new way of thinking about national, state, and local economies, and they necessitate new roles for companies, for various levels of government, and for other institutions in enhancing competitiveness. For companies, thinking about competition and strategy has been dominated by what goes on inside the organization.

Clusters suggest that a good deal of competitive advantage lies outside companies and even outside their industries, residing instead in the locations at which their business units are based.

This creates important new agendas for management that rarely are recognized. For example, clusters represent a new unit of competitive analysis along with the firm and industry. Cluster thinking suggests that companies have a tangible and important stake in the business environments where they are located in ways that go far beyond taxes, electricity costs, and wage rates.

The health of the cluster is important to the health of the company. Companies might actually benefit from having more local competitors.

Trade associations can be competitive assets, not merely lobbying and social organizations. For governments, thinking about the competitiveness of nations and states has focused on the overall economy, with national-level policy as the dominant influence.

The importance of clusters suggests new roles for government at the federal, state, and local levels. In the global economy, sound macroeconomic policies are necessary but not sufficient.

Government's more decisive and inevitable influences are at the microeconomic level. Among them, removing obstacles to the growth and upgrading of existing and emerging clusters takes on a priority.

Clusters are a driving force in increasing exports and are magnets for attracting foreign investment. Clusters also represent an important forum in which new types of dialogue can and must take place among companies, government agencies, and institutions such as schools, universities, and public utilities.

Local clusters in a global economy

Knowledge about cluster theory has advanced, and the publication of The Competitive Advantage of Nations Porter, helped trigger a large and growing number of formal cluster initiatives in countries, states, cities, and even entire regions such as Central America.

My purpose here is to summarize the current state of knowledge about clusters, their role in competition, and some of their implications. Clusters have long been part of the economic landscape, with geographic concentrations of trades and companies in particular industries dating back for centuries.

The geographic scope of clusters ranges from a region, a state, or even a single city to span nearby or neighboring countries e. They include, for example, suppliers of specialized inputs such as components, machinery, and services as well as providers of specialized infrastructure.

Clusters also often extend downstream to channels or customers and laterally to manufacturers of complementary products or companies related by skills, technologies, or common inputs.

Many clusters include governmental and other institutions e. Many clusters include trade associations and other collective bodies involving cluster members.

Finally, foreign firms can be and are part of clusters, but only if they make permanent investments in a significant local presence. Figure 1 shows a schematic diagram of the wine cluster in California.

Location, Competition, and Economic Development: Local Clusters in a Global Economy

This cluster includes commercial wineries and several thousand independent wine grape growers. An extensive complement of supporting industries to both wine making and grape growing exists including suppliers of grapestock, irrigation and harvesting equipment, barrels, and labels; specialized public relations and advertising firms; and numerous wine publications aimed at consumer and trade audiences.

A host of local institutions are involved with wine such as the Wine Institute, special committees of the California state senate and assembly, and the world-renowned viticulture and enology program at the University of California, Davis.Location, Competition, and Economic Development: Local Clusters in a Global Economy by Michael E.

Porter, Economic Development Quarterly November 15, It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location. Oct 18,  · Now, a new research paper suggests that economic clusters — usually used to explain development in local economies — have had a much wider impact on .

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Local economic development and clusters Local Economic Development (LED) is a strategy for promoting local economies as a way to fight poverty. LED programs often include elements of service market development and/or value chain development and vice versa.

Feb 01,  · Economic geography during an era of global competition involves a paradox. It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location. Yet clusters, or geographic concentrations of interconnected companies, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more.

Clusters represent a new way of thinking about national, state, and local economies, and they necessitate new roles for companies, government, and other institutions in enhancing competitiveness.

Location, Competition, and Economic Development: Local Clusters in a Global Economy by Michael E. Porter, Economic Development Quarterly November 15, It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location.

Business cluster - Wikipedia