Developing and sustaining the new wave of business clusters

Definition of a cluster

According to Harvard Professor Michael Porter, who popularized clustering as a result of his research and many publications, clusters are: “geographical concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (for example universities, standards agencies, and trade associations) in particular fields that compete but also cooperate” . (Porter 1998).

When using the term cluster, the United Nations International Development Organization (UNIDO) understands sectoral and geographical concentrations of enterprises that produce and sell a range of related or complementary products and, face common challenges and opportunities. These concentrations give rise to external economies such as the emergence of specialized suppliers of raw materials and components or growth of a pool of sector-specific skills and can foster development of specialized services in technical, managerial and financial matters (UNIDO 2000).

OECD (2005) Programme for Local Economic and Employment Development (LEED) provides another definition of cluster, defining them as an agglomeration of vertically and/or horizontally linked enterprises operating in the same business field in conjunction with supporting institutions.

Some authors are describing clusters and their characteristics, using the term Hot Spots, or industrial districts, etc, but in spite of the differences in defining inter cluster relations, the extent of innovation, or size of geographical coverage, there are certain common elements which are giving enough reasons for investigating clusters as a separate phenomenon.

Main common denominator in all definitions is that clusters are inter-related firms and other institutions that work together towards achieving same goal and drive the competitiveness of a given industry. Clusters consist of private enterprises of various sizes including producers, suppliers, plus government, professional associations, and academic, research or training institutes.

In businessmen’s language “clustering” is a strategy for extending capabilities, resources and responses to would not be achieved by a single firm. Though businesses may not necessarily use the term clustering, many firms are conscious of the fact that working with other businesses on joint projects can lead to mutual gain.

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