The document discusses clusters, which are geographic concentrations of related companies and institutions in a particular field. Clusters arise because they raise productivity by providing local assets and access to other firms and infrastructure. Location affects competitive advantage through its influence on productivity and productivity growth. The development of well-functioning clusters is essential for moving economies to an advanced stage. Clusters increase productivity, innovation capacity, and stimulate new business growth. Government policy can focus on removing constraints to improve cluster productivity rather than distorting competition. Micro-cluster initiatives in Catalonia identified industry strengths and weaknesses, created consensus visions, and strategies to improve market access and upgrading.

1. Chapter 7: Clusters and Competition
New Agendas for Companies, Governments and Institutions

2. What Are Clusters?
• Today’s economic map of the world is
characterized by “clusters.”
• A cluster is a geographic concentration of related
companies, organizations, and institutions in a
particular field that can be present in a region,
state, or nation.
• Clusters arise because they raise a company's
productivity, which is influenced by local assets
and the presence of like firms, institutions, and
infrastructure that surround it.

4. Historical and Intellectual Antecedents:
Cluster Theory
First
• “Externalities of specialized industrial location”
Principles ofEconomics, 1890, Alfred Marshall
Past
• Attention to geography or location has been minimal.
Now
•Clusters constitute an important multi-organization form,
•Central influence on competition
•prominent characteristic of economy.

5. Location and competition
• Location affects competitive
advantage through its influence on
productivity and on productivity
growth.
• Prosperity depends on the
productivity with which factors are
used and upgraded in a particular
location.

6. Cluster and Developing Economies
• The development of well functioning
clusters is one of the essential steps in
moving to an advanced economy.
• Firms must often vertically integrate.
• Backward
• Forward

7. • Economic activity concentrated around large capital cities.
• This pattern inflicts high cost in terms of productivity.
• Congestion
• Bottlenecks
• Inflexibility lead to high administrative cost
Internal trade and investment

8. Cluster and Competitive Advantage:
Clusters affect competition
First
• Increase the productivity
Second
• Increase capacity for innovation
Third
•Stimulating new business to support innovation and expand the
cluster

9. Cluster and Productivity
- Access to specialized input and employee
- Access to information
- Complementarities
- Access to institutions and public good
- Incentives and performance measurement

10. The Birth, Evolution and Decline of Clusters
Birth
DevelopmentDecline

11. Cluster versus industrial policy
• Industrial policy
 Given the importance of scale.
 Supported through subsidies.
 Eliminating destructive or wasteful internal competition.
 Selective protection from imports.
 Restricting foreign investment.
 The goal is to gain a larger share for a particular nation.
 Aim to distort competition in favor of a particular location

12. Cluster versus industrial policy
• Cluster policy
 Focus on removing constraints to improve their productivity.
 Welcome foreign firms that enhance cluster externalities and
productivity.
 All activities in nation contribute directly to local employment and
investment.
 Open the local market to imports that boost local efficiency.
 Upgrade local demand condition and stimulate rivalry.
 Do not emphasize market share but dynamic improvement.

13. Government influences on cluster upgrading

14. Cluster and overall economic policy
• Coordination among transportation systems, energy networks, and other areas among
neighboring countries can benefit productivity.

15. The corporate role in cluster development
• The role of trade associations
and collective bodies.
• Corporate location.
Private Sector Influences on Cluster Upgrading

16. Organizing Cluster Development Initiatives
• A shared understanding of
competitiveness and the role of clusters
in competitive advantages.
• A focus on removing obstacles and
easing constraints to cluster upgrading.
• A structure that embraces all clusters
in a nation or state
• Appropriate cluster boundaries.
• Wide involvement of cluster
participants and associated instutions.

17. Micro clusters in Catalonia
• History
• 13% of the Spain’s population
• 20% of GDP, 40% is Industrial Export.
• Product: furniture and wooden toys,
agricultural machinery, jewelry, leather,
knitting, processed meat, publishing and
consumer electronics.
• Antoni Subirá
• Catalonia’s Minister of Industry in 1989.
• Apply the methodology to find details about
strengths and weaknesses of Catalonia’s
Industry.
• Trade & Commerce were reorganized
• Local Consult firm lead the series of
cluster initiatives

18. Micro clusters in Catalonia
• Received new and more productive
dialogue between government and
Business.
• Broadcast sector wider in Catalonia
• Subsidies and tax cuts
• Region’s industry has benefited form
cluster perspective
• The SME has numerous firms
• Improve the market access of cluster
upgrading
• More research, new Technology
First
•Identified the cluster’s problems and opportunities
•Find the basic concept of cluster upgrading
Second
•Study process of the consensus vision of cluster’s future
Third
•Create strategies and action steps for fulfill the vision
•Specific individuals were identified to lead the action
initiatives
Process of Change Results

19. Thank you