Clusters and Competitive Advantage_2 potx

8 Clusters and Competitive Advantage One of the main purposes of the present study is to add to knowledge of and the literature on clusters in the developing world by examining the phenomenon of clustering in Turkey, which is classified by the World Bank as a middle-income developing country. Defining clusters: industrial districts, networks and clusters Although the variety of clusters makes it difficult to define the concept precisely, there is no shortage of definitions in the literature. According to Hill and Brennan (2000, p. 66), for instance, a cluster is ‘a geographic con- centration of competitive firms or establishments in the same industry that either have close buy–sell relationships with other industries in the region, use common technologies or share a specialized labor pool’. This is similar to the definition adopted by Rosenfeld (1995, 2000), who sees a cluster as a geographically bounded agglomeration of related firms that together are able to achieve synergy. Redman (1994, p. 37) includes institutions as well and defines clusters as a ‘pronounced geographic concentration of production chains for one product or a range of similar products as well as linked insti- tutions that influence the competitiveness of these concentrations’. For ‘industrial districts’, a term that is sometimes used interchangeably with ‘clusters’ in the literature, Pyke and Spengenberger (1990, p. 2) provide Ludhiana Light engineering Delhi Cotton hosiery Okhla Garments Agra Leather footwear Morvi Roof tiles Tiruppur Cotton knitwear Bangalore IT/software Calcutta Cotton hosier y Kanpur Leather footwear Figure 1.3 Examples of highly concentrated industries in India Introduction 9 the following definition: ‘[Industrial] districts are geographically defined pro- ductive systems, characterized by a large number of firms that are involved at various stages, and in various ways, in the production of a homogeneous product’. According to them, small and often family-owned firms, innova- tiveness and entrepreneurial spirit, interfirm cooperation and flexible productive networks are common features of such districts. Another definition comes from the new industrial districts (NIDs) literature, which focuses on the set of locational characteristics implied by flexible specialization: a district is a spatially concentrated cluster of sectorally specialized firms, with a strong set of forward and backward linkages, a common cultural and social back- ground linking economic agents and creating a behavioural code, sometimes explicit but often implicit, and a network of public and private supporting institutions (Rabelotti, 1995). Biggiero (1999), on the other hand, defines indus- trial districts as ‘regional hyper-networks’, or ‘networks of firm networks’. Similarly, industrial districts are defined as a network of small and medium-sized enterprises within geographically defined production systems (Asheim, 1994). Meanwhile for Brusco (1990, pp. 14–15), industrial districts comprise ‘a cluster of firms producing something which is homogeneous in one way or another, positioning themselves differently on the market. Thus, the district could be defined as being a cluster, plus a peculiar relationship amongst firms.’ As a final example, Markusen (1996a) sees an industrial district as a spa- tially delimited area of trade-oriented activity with a distinctive economic specialization. Markusen classifies ‘sticky places’ (districts that demonstrated resilience in the postwar period in advanced industrialized countries) into four broad categories: Marshallian industrial districts (with an Italian variant); hub and spoke districts (such as Boeing in Seattle and Toyota in Toyota City); satellite industrial platforms (such as the US Research Triangle Park); and state-anchored industrial districts (such as a military base or a university influence on the development of some districts). According to Markusen, many localities exhibit elements of all four models. Silicon Valley, for instance, can be considered an industrial district in electronics, but it also has several important hubs (including Hewlett Packard and Stanford University) as well as hosting large branch plants of US, Japanese, South Korean and European companies (including IBM, Hyundai, Samsung and NTK Ceramics). Further- more it is the fourth largest recipient of military contracts in the country. In Markusen’s view, therefore, it is wrong to concentrate solely on Italian-type, small-firm industrial districts as ‘sticky places’ are the complex product of multiple forces, including corporate strategies, industrial structures, profit cycles, state priorities and local and national politics. From the definitions reviewed above, two broad questions emerge: is it a necessary condition for a cluster to be a small-firm agglomeration, and is it a necessary condition for a cluster to be geographically concentrated? These questions have to be answered in order to differentiate clusters from industrial 10 Clusters and Competitive Advantage districts and networks. Amin and Thrift’s (1999) analysis of two districts – Santa Croce in Tuscany and the City of London, the former specializing in leather shoes and bags and the latter in financial services – is of special rele- vance in respect of the first question. Santa Croce is a successful small-firm district that targets the fashion-conscious end of the market. Meanwhile the Marshallian structure of the City of London has undergone considerable changes since the 1960s in that large corporations – including many multi- nationals – now have offices there. Importantly, however, the concentration of financial services has persisted, which – along with many other examples, such as car production in Detroit – signals that geographic concentration is not peculiar to small and medium-sized enterprises. Another interesting study that reinforces this point is Saxenian’s (1994) work, which compares the high technology cluster on Route 128 near Boston with Silicon Valley in California. The former is dominated by vertically integrated, large companies that prefer to maintain control over their technology and innovations. This is manifest in the fact that companies along Route 128 are located in large, self-contained, campus-like areas. In contrast Silicon Valley has a history of independent, ‘garage-based’ entrepreneurs. It is necessary to remember at this point that the definitions of industrial districts cited above usually emphasize the predominance of small and medium-sized enterprises, although it is not clear in the literature whether this is a necessary condition for industrial districts. With regard to the question of geographic concentration, many researchers, starting with Marshall (1949), have cited geographical proximity as a key characteristic of districts (for example Pyke and Spengenberger, 1990; Asheim, 1994; Van Dijk, 1994). According to Asheim (1994, pp. 93–4), ‘what distin- guishes an industrial district from other industrial agglomerations with strong external economies such as the Perrouxian development poles or the Japanese just-in-time production systems is precisely the existence of agglomeration economies’. The latter is therefore a common feature of industrial districts and geographic clusters, but not necessarily of networks. Instead a network is defined in more general terms as a set of high-trust relationships that are usually contractual and explicit. ‘In contrast to clusters, networks are generally based on a group of firms with restricted membership and specific, often contractual, business objectives . The members of the network choose each other; they agree explicitly to co-operate in some way’ (Brown and McNaughton, 2002, p. 27). Based on this definition, it can be argued that network relations are usually more cooperative in nature than are relations among cluster par- ticipants, for which competitive forces are also emphasized. For example Porter (1998) points to the intense rivalry in clusters. According to him, clusters offer transaction cost advantages without imposing the inflexibilities of vertical integration or the management challenges of creating and maintaining formal linkages such as networks, alliances and partnerships (ibid., p. 214). What can be deduced from the above is that a network usually involves explicit and formal links among firms that are often cooperative in nature. Whether Introduction 11 or not these are necessary conditions for networks, however, is again not entirely clear. What is clear is that firms in a network are not necessarily tied to the same location, while a cluster is a form of network that is situated in a particular geographic location. Following this rationale, clusters can be seen as ‘localized networks’ (Van den Berg et al., 2001) involving geographically concentrated firms from a particular sector with links that can be both cooperative and competitive in nature. Defined as such, it appears that clus- ters are a form of network, whereas industrial districts are a form of cluster. Although there are certainly network relations amongst firms that are not geographically restricted, the focus of the present study is on the role of the local environment in shaping competitive advantage in geographically con- centrated industries. In this regard Porter’s (1998, 2000) definition exactly matches the purposes of this study, and hence we shall define clusters as geographic concentrations of interconnected companies and institutions in a particular field (Porter, 1998, p. 197). 11 They include specialist suppliers, specialized infrastructure, other service providers and associated institutions (including universities, standards agencies and trade organizations), and also extend to customers and firms in related industries. 12 As a final note, in many of the definitions provided in the literature, clusters are implicitly seen as dynamic, successful and competitive. This brings us to the focal point of this study: the theorized link between clustering and competitiveness. Clusters and competitiveness The debate on the competitiveness of locations begins with the fundamental question of whether all clusters are successful. Surprisingly this question has received little attention in the literature. One notable exception is Amin (1994), who investigates the attributes of successful versus unsuccessful clusters based on two Italian case studies: Santa Croce in Tuscany and Stella in Naples. Santa Croce is a competitive cluster where fashionable leather shoes and bags are made, while Stella is a footwear cluster in an area with high unemployment and widespread poverty. Interestingly, Amin argues that many of the characteristics of the Stella firms are similar to those which have made the clusters in Third Italy so successful. For example the firms’ owners are master craftsmen, the production process can respond quickly to changing market signals, the existence of family businesses and community ties permits labour flexibility, the lack of job opportunities mean cash savings, and agglomeration and product specialization attract buyers and sellers of raw materials and machinery. According to Amin, however, the specialist shoe makers in Stella are not competitive since they have not formed them- selves into a locally networked economic system (ibid., p. 62). Instead, and despite their agglomeration, they are isolated from each other so there are no exchanges of ideas, spin-offs and economies of scale through specialization. Rather the artisans of Stella carry out ‘the tasks of the whole corporation 12 Clusters and Competitive Advantage internally, but without any scale advantages or resources’ (ibid., p. 62). In contrast Santa Croce has a typical Marshallian industrial structure, with entrepreneurial, institutional and social interdependencies. According to Amin, firms in successful clusters act like a collective brain, although what contributes to this and why unsuccessful clusters persist are not made clear in his analysis. What is clear is that the same conditions that are associated with internationally competitive clusters are also typical of some rather unsuccessful ones. The main reason why these are not covered in the literature is simply that they have had little publicity. The answer to the question posed at the beginning of this section is therefore ‘no’ – not all clusters are competitive. The following subsections will discuss alternative views on how and why some clusters manage to become competitive while others do not. Flexible specialization: a sure route to competitiveness? A stream of research called ‘the flexible specialization approach’ focuses on the organizational features of the regional economy and highlights the embedded- ness of economic relations in broader social and political contexts. The main argument (Piore and Sabel, 1984) is that there has been a transition from Fordism to post-Fordism over the past two decades and a new post-Fordist landscape has emerged: new industrial spaces containing small firms with specialized, flexible production. 13 This perspective has fuelled studies on the adoption of flexible manufacturing techniques and the link between industrial organization and agglomeration. Proponents of flexible specialization argue for vertically disintegrated and locationally fixed production, derived from examples such as Silicon Valley (high-tech), Third Italy (semirural) and Hollywood (inner city) (Amin and Thrift, 1999). In light of his study of indus- trial districts in Emilia-Romagna, Capecchi (1990) argues that the definition of industrial districts should include flexible specialization as a necessary condition, together with the presence of small and medium-sized enterprises (SMEs). There are, however, strong criticisms of the view that flexible production is a sure route to competitiveness. According to Amin and Robins (1990, p. 199), for instance, this view represents ‘a kind of anti-Fordist utopia’ and ‘an imposing orthodoxy’, since ‘we are being asked to believe that the very laws of capitalist development are becoming, as it were, Marshallian (as opposed to Fordist)’. In their view Fordism has far from disappeared, and the tendency for localized agglomerations is in fact paralleled by a countervailing tendency for transnational networks. It is therefore multinational corporations that are the real shakers and shapers of the world economy. According to this rationale, it is possible that clusters such as ‘Santa Croce will come to perform only specific tasks in an internationally integrated value-added chain, thus risking a shake out of firms dependent upon tasks no longer performed locally’ (Amin, 1994, pp. 59–60). In response to Amin and Robins’ (1990) Introduction 13 criticisms, Sabel et al. (1990, p. 230) state that proponents of flexible special- ization have never claimed that all agglomerations can be viewed as flexible production systems. Sabel et al. cite the Prato cluster as an example: this cluster ‘has survived, even flourished, on the ashes of a number of crises in its history. The current crisis – competition by large firms in some markets served by the district – might simply push the district into doing what it has done several times in the past: move up the price-performance curve by specializing in higher quality items and leave the middle-range products to the large firms’ (ibid., p. 234). Thus the argument that larger corporations and multinationals are of determining importance is regarded as overrated. As suggested by Bellini (1996), the experience of Third Italy seems to offer irrefutable evidence of the possibility of an alternative, socially progressive path of capitalist growth, providing an intellectual base for a number of micro- interventions at the territorial level. In the early 1990s, however, there was a shift in the focus of research when some potentially negative effects of flexible production were brought to light. Harrison (1994), for instance, pointed to the adverse effect that corporate flexibility might have on labour practices in light of evidence that the use of child labour and the exploitation of immigrants were becoming more common in some small and medium-sized enterprises in Third Italy as global competition intensified. Malizia and Feser (1999, p. 224), on the other hand, underlined that cooperation between contracting firms did not necessarily imply an even playing field between partners. It is possible to bring the transaction costs approach to bear on the flexible specialization debate. This perspective focuses on the activities of the typical firm and presumes that if transaction costs are high the firm will choose to internalize its operations. Also, in a region that is relatively underdeveloped the firm may have no choice but to handle most of its basic functions in-house since the market may not be large enough for other companies to focus exclusively on producing the intermediate inputs or services needed. The flexible specialization approach, on the other hand, builds on the fact that there are dynamic external economies in districts, and the related benefit is manifested in reduced costs, enhanced productivity and superior innovation. These opposing views are likely to continue to compete in shaping not only the debates in academia but also the organization and location of production. To conclude, the flexible specialization perspective has a normative dimension in that industrial districts have effectively been defined as places where the dominant industries employ flexible production methods and are highly competitive. On the methodological side, what this means is that few researchers have conducted studies on the incidence of flexibly specialized clusters that are struggling in terms of performance. In the absence of such empirical studies, one might gain the impression that the type of industrial structure and organization highlighted in the flexible specialization literature is a guaranteed route to sustained competitiveness. This is of course a rather 14 Clusters and Competitive Advantage limited picture (Malizia and Feser, 1999, p. 235). In the United States, for instance, there are strong, resilient clusters that are not flexibly specialized (Porter, 1998, 2000). Such clusters have been understudied, as have ones that are flexibly specialized but not competitive. Storper (1999) thinks that although the flexible specialization debate is theoretically powerful, empirical investi- gation covering a wider sectoral base is needed to determine whether or not the experience is specific to Italy. In Storper’s view there are deep historical roots associated with the Italian districts that are difficult to generalize to other competitive cultures, such as the Anglo-American ones. Overall, although it is by no means certain that localized flexible special- ization is a sure route to competitiveness (Malizia and Feser, 1999, pp. 237–8), it is undeniable that the flexible specialization perspective has enabled us to develop a more sophisticated understanding of clusters, where not only markets and industries but also industrial organization, interfirm business relations and the social situation can be instrumental in success (see Chapter 2 for a discussion of this issue from the viewpoint of the management literature). An approach that shares a common thread with the flexible specialization perspective is the socioeconomic approach, which emphasizes the specific roles played by the social situation and politics. We shall consider this in the fol- lowing subsection. The parts played by the social situation, trust and politics This perspective is concerned with social, cultural and institutional influences on the competitiveness of clusters. Brusco (1996), for instance, argues that the importance of knowledge accumulation exceeds that of capital accumulation. According to him, two types of knowledge are of particular importance in this respect; namely codified knowledge (scientific and technical knowledge in scientific journals, technical reviews and textbooks, whose conventions and language are universal and known to the scientific community) and local or tacit knowledge (embedded in the minds, imagination and skill of people who live side by side and swap news and experiences when working together). The latter type of knowledge is acquired by seeing how other people do things, a process that is better managed in a local system (ibid.) Becattini and Rullani (1996, p. 167) attribute special importance to a local system’s ability to integrate codified and contextual knowledge, and argue that this makes the cluster concept essentially socioeconomic and thus a ‘disciplinary hybrid’, combining economics, sociology, geography and indus- trial organization. In a similar vein, and building on the fact that phenomena that persist over time possess some internal logic that cannot yet be explained in full, Becattini (1990) calls for a ‘socioeconomic notion’ that will link neo- classical, Marshallian and Marxian thinking. According to him, ‘better equi- librium in analysis cannot be reached without the direct contribution of the non-economists’ (ibid., p. 38). Only then can we understand what leads to the construction of a strong image that evokes feelings of identification and Introduction 15 belonging, ‘giving substance to expressions such as “the response of Prato” to the lira devaluation’ (Becattini and Rullani, 1996, p. 172). In contrast to this line of thinking, Lissoni (2001) points to the possibility that even in clusters dominated by small and medium-sized firms, knowledge may be highly codi- fied and firm-specific, rather than flowing freely throughout the cluster. The idea that economic action is embedded in the structures of local social relations paved the way for a related body of work on the role of social capital in reducing transaction costs and facilitating network formation (Granovetter, 1985). According to this literature, close social networks and thus proximity can help social capital to develop (Brown and McNaughton, 2002). A lead- ing scholar in this field, Putnam (1993), argues that areas with low levels of social capital, which in the case of Italy are concentrated in the south, have slower rates of economic development than those with high levels of social capital, which are concentrated in the central and northern parts of the country. According to Putnam, repeated interaction and trust enhance social capital, and it is likely that there will be a high demand for law enforcement in areas with low levels of social capital as a result of heightened distrust. Of course it is possible that other communities will exhibit a different type of social capital (Flora and Sharp, 1997). Cohen and Fields (1999), for example, examined social capital networks in Silicon Valley and found that the understanding of social capital influenced by Putnam’s (1993) ideas (which refer to the complex of local institutions and relationships of trust among economic actors that evolve from unique local cultures) does not fit the situation in Silicon Valley. Specifically, ‘networks of civic engagement’, which Putnam sees as facilitating the activities of politics, production and exchange, have played little role in Silicon Valley. For instance it is not possible to say that business relations in Silicon Valley are embedded in family structures, given that Silicon Valley is a world of strangers and newcomers. Moreover there is no deep history to speak of. For Cohen and Fields, Silicon Valley is an economic space built on a very different kind of social capital, where the pursuit of economic objectives relates specifically to innovation and competitiveness and there is virtually nothing in the history of Silicon Valley to connect these networks of innovation to civil society. The high incidence of lawyers, accountants and auditors is presented as an indicator of the limited degree of informal, familial and communitarian trust in Silicon Valley, while the rapid turnover of employees reveals a commitment to innovation rather than to any particular company. Cohen and Fields conclude that there is trust in Silicon Valley, but it is of a specific kind. This commercially valuable and performance-focused trust is the building block of Silicon Valley’s ‘particular brand of social capital’. Another dimension is the role of work and politics in the competitiveness of clusters. According to Brusco (1996), competitiveness and worker partici- pation are closely linked. He argues (rather dramatically) that the clusters in Emilia-Romagna show that cluster firms have at least solved some of the 16 Clusters and Competitive Advantage key problems of large companies, that is, ‘How to involve workers and indeed all production people generally in the productive process, how to secure the participation of workers and technicians, how to storm world markets with products that are the creation not only of the hands but also of the heads and hearts of those that have made them’ (ibid., p. 154). Trigilia’s (1990) emphasis is on the related issue of local political subcultures. Following the institutional perspective, he examines two locales with similar socioeco- nomic but different political structures: the ‘red’ Valdelsa (furniture and glass) and the ‘white’ Bassano (shoemaking). The results of Triglia’s research show that not only social components such as the extended family and the local community, but also specific political components such as industrial relations and the activities of governments in respect of the Catholic and communist subcultures have played a part in the continuing competitive success of the clusters studied. Regardless of its being ‘red’ or ‘white’, a political movement that actively defends the collective interests of the local society seems to matter. Innovative milieu and untraded interdependencies 14 Schumpeter (1934) stressed the importance of the past trajectory of a locale as a sign of its future innovative capacity. Accordingly the likelihood of the next wave of an innovation to take place in its original area of development is quite high. In this regard, Lagendijk and Charles (1999) call for a distinction to be made between scholars who emphasize the role of networking in a particular sociocultural context, as captured in the term ‘innovative milieu’, and those who adopt the more institutional concept of ‘regional innovation systems’. For the former, the growth of a locally embedded innovation system is essential in shaping the social routines and strategies of actors in the regional economy, whereas the latter pay more attention to the development of and interaction between specific technology-oriented organizations such as universities and research centres (ibid., p. 129). Borrowing from Storper (1997, p. 16) however, there are a large number of universities around the world but ‘there is a much smaller number of Silicon Valleys’, which sug- gests that there must be other necessary conditions for the development of innovative clusters (Brown and McNaughton, 2002). An innovative milieu supports the development of such conditions. Spe- cifically, based on the concept of knowledge spillovers in clusters, the milieu approach focuses on the ways in which a local socioeconomic network creates favourable conditions for innovation and competitive capacity: ‘local factors such as business services, public support, infrastructures, skilled labor and venture capital must be successfully woven together in order to sustain and support innovation’ (McDonald and Vertova, 2002, p. 45). A closely related concept is the ‘learning region’, in which a collective learning process by firms takes place via social and business networks and becomes embedded in the region (Camagni, 1991). This can also be linked to knowledge creation Introduction 17 and the importance of tacit and codified knowledge in this process, as dis- cussed above. According to this approach, globalization has triggered a shift in the sources of competitive advantage towards innovation and thus knowledge-based economic activity. In turn, knowledge-intensive economic activities have a high propensity to cluster within a geographic region since knowledge is generated and transmitted more efficiently in a local system (Audretsch, 1998). According to Storper (1999), this approach is paralysed by the circularity involved in its analysis: innovation occurs because of a milieu, and a milieu exists in regions where there is innovation. Instead, what really generate region-specific assets and thus govern the sustainability of a cluster’s com- petitiveness are ‘untraded interdependencies’. Storper argues that a region can be seen as ‘a nexus of untraded interdependencies’ among three systems: the labour market, the input – output system and the knowledge system. A process of becoming specific that is in operation in such regions, imply that ‘there is only one Silicon Valley if one wants to be “in the know” for the most advanced innovations in semiconductor technology’ (ibid., p. 213). The same logic can be extended to explain why some clusters persist and maintain their competitiveness over time. That is, there are webs of user– producer relations and untraded interdependencies, and localization of these is frequent. The region is then key in the supply architecture for learn- ing and innovation (ibid., p. 214). The literature, however, is inconclusive about the conditions that lead to the emergence of an innovative milieu or untraded interdependencies in a locale (see Chapter 2 for the management literature’s view on how clusters foster innovation). Is it just an accident of history? Path dependency and the lock-in phenomenon This approach investigates how and why a cluster emerges in a given location and looks at the conditions associated with its subsequent development. Understanding how certain standards or technologies persist despite the fact that they might not be optimal has been the special concern of some researchers (David, 1985; Arthur, 1985). Regarding the initiation of a cluster, several authors (Marshall, 1949; Myrdal, 1957; Scott, 1988; Krugman, 1991a) emphasize the role of ‘historical accident’. That is, the initial pattern may simply be an accident of history, and once established a self-reinforcing loop might occur (Martin, 1999). Thus the initial pattern becomes locked into an area for economic and sociocultural reasons. 15 Once a locale has become a centre of activity the lock-in effect comes into operation, and even if exogenous circumstances change (perhaps reducing the attractiveness of the site) economic agents may not want to move away and forgo the benefits of agglomeration. History, then, might be a determining factor in the spatial pattern of economic activity. A connected idea is related to sunk costs and how these bear upon [...]... concludes that in Ireland there is a general preference among industries for large urban areas such as Dublin and Cork, and that there is little association between sectoral clustering and industrial performance O’Malley and Van Egeraat (2000) have also investigated the link between industrial performance (in this case in terms 28 Clusters and Competitive Advantage of growth) and clustering, and concluded... specialization approach envisages, there are competitive clusters that are not flexibly specialized and flexibly specialized clusters that are not competitive, as discussed above On the other hand, although the part played by the social and political situation in general and extensive collaboration among cluster participants in particular might be important to the success of some clusters, such as those in Third... explain the competitiveness of clusters in full One likely contributor to a more complete understanding of the competitiveness of clusters is a relative latecomer to the area; namely the unique perspective offered by the management discipline, which is the subject matter of the next chapter 2 Clusters in the Management Literature This chapter provides a review and discussion of recent debates on clusters. .. cluster might become competitive and sustain its competitiveness include those related to the organization of production (for example flexibly specialized small and mediumsized enterprises), the social and political context (for example the part played by trust, social capital and institutions) and the existence of relations within the cluster that pave the way for innovation, learning and untraded interdependencies... multinationals and foreign direct investment (Rugman, 1991; Bellak and Weiss, 1993; Dunning, 1993; Hodgetts, 1993; Rugman and D’Cruz, 1993; Rugman and Verbeke, 1993) Criticisms of his diamond framework relate to the undue importance attributed to the relationship between domestic rivalry and international competitiveness (Smith, 1993) and the indirect role envisaged for the government (Stopford and Strange,... historical circumstances and the cost of coordination and transportation, which may be high enough to necessitate close proximity (Malizia and Feser, 1999, p 233).1 22 Clusters and Competitive Advantage Paralleling the network literature in general, the study of local networks, which has only recently secured a prominent place in the research agenda (Porter, 1998), focuses on trust and identity In this... According to Shaver and Flyer, firms with the best technologies, human capital, training programmes, suppliers and distributors will gain little but suffer much when their technologies, employees and access to supporting industries spill over to competitors Therefore, unlike firms with weak 24 Clusters and Competitive Advantage endowments, these firms have little motivation to cluster Shaver and Flyer found... understanding of clusters, Porter’s contributions are of particular relevance to this study since they specifically focus on the relationship between clustering and competitive advantage The rest of this chapter will therefore be devoted to a discussion of these contributions and the debate they have spawned in the literature Porter-style geographic clusters The main focus of Porter’s book The Competitive. .. the interaction between the sources of competitive advantage Pressure and challenge are of particular importance in the emergence and sustainability of competitive advantage, and both are driven by intense domestic rivalry and felt more heavily when firms are in close physical proximity In his subsequent works Porter (1998, 2000) argues that the existence of clusters is a manifestation of diamond theory... ‘group-think’ among cluster participants, which 26 Clusters and Competitive Advantage can result in an overly inward-looking cluster) cause shifts in relative competitive positions In Porter’s (1994) view the basis of competitive advantage has shifted from static efficiencies (such as low input costs) to the ability to innovate and upgrade skills and technology This has brought about a radical change . circumstances and the cost of coordination and transportation, which may be high enough to necessitate close proximity (Malizia and Feser, 1999, p. 23 3). 1 22 Clusters and Competitive Advantage Paralleling. successful and competitive. This brings us to the focal point of this study: the theorized link between clustering and competitiveness. Clusters and competitiveness The debate on the competitiveness. differentiate clusters from industrial 10 Clusters and Competitive Advantage districts and networks. Amin and Thrift’s (1999) analysis of two districts – Santa Croce in Tuscany and the City of