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As a region, state, and nation, we are being challenged to become more efficient, more intelligent, more ecological, in short - more competitive. Today, workforce shortages and shifting economic sands threaten even the most economically stable states.

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INTRODUCTION As a region, state, and nation, we are being challenged to become more efficient, more intelligent, more ecological, in short - more competitive. Today, workforce shortages and shifting economic sands threaten even the most economically stable states. It seems prudent in these times to make the most of our regional potentials and economic endowment. One of the ways we do this is to get smarter about our approach to economic development policy. We must begin to see industry, education, and other institutions in the context of the surrounding economy and begin to develop a unified approach to economic development problems. Based on research of Professor Michael Porter, he developed the diamond of advantage, a model that offers insights into industry clusters and competitiveness. He contends that regions develop a competitive advantage based on their firm's ability to continually innovate and that economic vitally is a direct product of the competitiveness of local industries. The factors that drive innovation and a cluster's growth include: 1) Factor conditions - such as specialised labour pool, specialised infrastructure and sometimes selective disadvantages 2) Home demand - or local customers who push companies to innovate, especially if their needs or tastes anticipate global or local demand. 3) Related and supporting industries - nationally competitive local supplier industries that create business infrastructure and spur innovation and spin off industries 4) Industry strategy, structure and rivalry - intense rivalry among local industry that is more motivating than foreign competition and a local culture that influences individual industries attitudes toward innovation and competition. In first part of my assignment I define and explain development of industry clusters. Also, I write about the role of geographic concentration and competitive advantages of cities and regions. Finally, I suggest reasons why companies still tend to locate themselves alongside their competitors. DEFINING AND DEVELOPMENT OF INDUSTRY CLUSTERS To be able to understand the development of clusters first we must know what industrial cluster mean. ...read more.


Location effect is powerful ones even if cultural, political or cost differences between locations are small.13 A good example is the United States persists despite linguistic, cultural, and legal homogeneity, open and efficient internal transportation and communication, a common currency and capital markets, and virtually no internal barriers. But nations are still important. Many of the determinates of advantage are more similar within a nation than across nations. Government policy, legal rules, capital market conditions, factor costs, and many other attributes that are common to a country make national boundaries important. Social and political values and norms are linked to nations and slow to change. It is the combination of national and intensely local conditions that fosters competitive advantage. State and local government can play a prominent role in industry success. Indeed, falling communication and transportation costs and the reduction in barriers to trade and international competition make location advantages for industry innovation even more significant because firms with true competitive advantages are more able to penetrate other markets. While classical factors of production are more and more accessible because of globalisation, differential knowledge, skills, and rates of innovation increasingly determine competitive advantage in advanced industries, which are embodied in skilled people and organisational routines.14 The process of creating skills and the important influences on the rate of improvement and innovation are intensely local. However, more open global competition makes the home base more, not less, important. The U.S. case suggests that cultural interchange among nations will not overcome the differences among them that underpin competitive advantage. Efforts at European unification are raising questions about whether the influence of nations on competition will diminish. Instead, freer trade will arguably make them more important. While the effective locus of competitive advantage may sometimes encompass regions that cross national borders, such as the region including southern Germany and German - speaking Switzerland, Europe is unlikely to become a "nation" from a competitive perspective.15 National differences in demand factor creation and other determinants will persist and rivalry within nations will remain vital. ...read more.


* Facilitates developing a higher competence level * Mitigates inter-industry competitive fears (builds trust and Cupertino) once implemented Key challenges * Needs to be industry driven * Defining the industry could be a challenge * Difficulty in selecting scale of strategy (state, regional, local) * Do not want to create factions in the business community * There may be private industry scepticism * The nature of the political system and traditional educational institutions may be a challenge * There may be a risk of dominance by big business * Public sector response must be quick * There may be institutional barriers to implementing such a strategy * Risks picking winners and losers * Defining governments role * Setting the criteria to define a cluster CONCLUSION As a conclusion we can say that even in age of globalisation, local economic circumstances like a cluster is still important. In a global economy where it is easy to move goods and information around the world these things become givens available to any enterprise. The list of clusters goes on and on. With the proximity that clusters provide, companies can do things together without formal ownership or legal relationships. And this kind of flexibility opens up more possibilities for change and dynamic, which are crucial ingredients, a modern economy where prosperity depends on innovation. However, one consequence of external economies of scale is that industries will be geographically concentrated in clusters of firms to reduce industry's costs. While economists are in disagreement on whether historical accidents or the antecedent conditions of a region play a larger role in determining the geographical location of a cluster, several causes have been suggested to explain benefits arising through external economies of scale. Firstly, a large industrial centre offers a pooled market to workers with specialized skills, creating liquidity in the labour market, which benefits both workers and firms. Secondly, a large industrial centre provides specialized non-traded inputs in greater variety and at lower cost. Thirdly, clusters promote technological transfers and spillovers as closer geographical proximity improves communication. However, too dense a cluster of economic activity creates congestion and diminishing returns. ...read more.

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