On Competition (Harvard Business Review Book) by Michael E. Porter

Author:Michael E. Porter [Porter, Michael E.]
Language: eng
Format: epub, mobi
Publisher: Harvard Business Review Press
Published: 2008-10-01T04:00:00+00:00

CLUSTER DEVELOPMENT

While the birth of clusters has many causes, the development or lack of development of clusters is more predictable. Though there is no guarantee that a cluster will develop, once the process gets started it is like a chain reaction in which the lines of causality quickly become blurred. The process depends heavily on the efficacy of the diamond’s arrows or feedback loops, on how well, for example, local educational, regulatory, and other institutions respond to the cluster’s needs, or how rapidly capable suppliers respond to the cluster opportunity. Three particular areas deserve special attention: intensity of local competition, the location’s overall environment for new business formation, and the efficacy of formal and informal mechanisms for bringing cluster participants together. Healthy rivalry is an essential driver of rapid improvement and entrepreneurship. The entrepreneurial climate is important because the creation of new firms and institutions is so integral to cluster development. Finally, organizational and relationship-building mechanisms are necessary because a cluster’s advantages rely heavily on linkages and connections among individuals and groups.

In a healthy cluster, the initial critical mass of firms triggers a self-reinforcing process in which specialized suppliers emerge; information accumulates; local institutions develop specialized training, research, infrastructure and appropriate regulations; and cluster visibility and prestige grows. Perceiving a market opportunity and facing falling entry barriers, entrepreneurs create new companies. Spinoffs from existing companies develop, and new suppliers emerge. Recognition of the cluster’s existence constitutes a milestone. As more institutions and firms recognize the cluster’s importance, a growing number of specialized products and services become available and specialized expertise responsive to the cluster arises among local financial services providers, construction firms, and the like. Informal and formal organizations and modes of communication involving cluster participants develop.29 As the cluster grows, it develops greater influence not only over what other firms do but also over public and private institutions and government policies. Policies that have deterred cluster upgrading are often modified.

From numerous case studies, it appears that clusters require a decade or more to develop depth and to gain real competitive advantage—one reason why government attempts to create clusters normally fail. Clusters at different locations often develop unique subspecializations, notably in product segment coverage, the array of suppliers and complementary industries, and the prevailing modes of competing.

Cluster development often becomes particularly vibrant at the intersection of clusters. Here, insights, skills, and technologies from different fields merge, sparking new businesses. The presence of multiple intersecting clusters further lowers barriers to entry, because potential entrants and spinoffs come from several directions. Diversity of learning stimulates innovation. Germany, for example, has both a home appliance cluster and a household furniture cluster. At the intersection of these clusters is built-in kitchens and built-in appliances, products in which Germany has a higher share of world exports than in either appliances or furniture overall. Figure 7.10 illustrates some cluster intersections in Massachusetts that have proven to be fertile breeding grounds for new companies.

In a national or global economy, cluster development can be greatly accelerated by attracting cluster participants from other states or nations.

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