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.

However, technological change is often a trigger for shifts in national competitive advantage because it can nullify old competitive advantages and create the need for new ones. A nation’s firm far advanced along one technological track may find it difficult or unprofitable to jump to another one. Sometimes the effect of new technology is to shift the required factors, creating a major disadvantage in terms of available human resources, knowledge or infrastructure. Other nation’s firm may gain competitive advantage before readjustment can take place. Technological change may also create the need for new supporting industries that a nation does not possess, such as software, biotechnology, new materials, or electronic components. Another nations where leading suppliers of the new inputs already exist may take over competitive advantage. In medical imaging, for example, Japanese firms have emerged as formidable competitors in new electronic-based segments where Japan has strong positions in supporting industries, though Japan had a weak position in traditional X-ray equipment. The risk to competitive advantage is greatest where a new technology is integral to the industry and the industry represents a substantial application.  Where new technologies only affect a small part of the total product and the industry represents a narrow application, the new technologies can often be soured from abroad. For example, German and Swiss optical manufacturers have successfully obtained electronics technology through foreign subsidiaries and licensing, because applying electronics to optics requires deep and highly specialised knowledge. No electronic firm had the incentive to enter, given the moderate size of the industry. 

THE ROLE OF GEOGRAPHIC CONCENTRATION

Competitors in many internationally successful industries and often-entire clusters of industries are often located in a single town or region within a nation. The vast majority of Italy’s woollen textile producers, for example, are located in two towns. While geographic concentration of Italian industries is widely recognised, however, what is less understood is how prevalent the phenomenon is. British auctioneers are all within a few blocks in London. Basel is the home base for all three Swiss pharmaceutical giants. Danish windmill producers are centred in Herning. In America, many leading U.S. advertising agencies are concentrated on Madison Avenue in New York City. Large-scale computer manufacturers Control Data, Cray Research, Burroughs and Honeywell are all headquartered in or near Minneapolis, Minnesota. Pharmaceutical and related companies, among them Merck, SmithKline, American Cyanamid, Squibb, Becton-Dickinson, and C.R. Bard, are based in the new Jersey/Philadelphia area. General aviation aircraft producers are concentrated in Wichita, Kansas and minicomputer producers in Boston. 

Figure1 – Geographic Concentration in Selected Italian Industries

Source: Micheal. E. P. (1998).“The Competitive Advantage of Nations”, p.155.

 Figure2 – Geographic Concentration in Selected German Industries

Source: Michael. E. P., (1998). “The Competitive Advantage of Nations”. p.156. 

Maps of Italy and Germany, respectively, illustrating just a selection of the industries that are grouped around one or a few small elected German Industries geographic area. Concentration of domestic rivals is frequently surround by suppliers and located in areas with concentrations of particularly sophisticated and significant customers. The city of region becomes a unique environment of competing in the industry. The information flow, visibility, and mutual reinforcement within such a locale that in some places an industry is “in the air”. Thought not all industries are as striking as these are, the physical proximity of world-class rivals is so common across nations as to hold important insights into the process of competition. 

Geographic concentration of firms in internationally successful industries often occurs because the influence of the individual determinates in the “diamond” and their mutual reinforcement is heightened by close geographic proximity within a nation. A concentration of rivals, customers, and suppliers will promote efficiencies and specialisation. More important, however, is the influence of geographic concentration on improvement and innovation. Rivals located close together will tend to be jealous and emotional competitors. Universities located near a group of competitors will be most likely to notice the industry, perceive it to be important and respond accordingly. In turn, competitors are more likely to fund and support local university activity. Suppliers located nearby will be the best positioned for regular interchange and co-operation with industry research and development efforts. Sophisticated customers located nearby offer the best possibilities for transmitting information, engaging in regular interchange about emerging needs and technologies, and demanding extraordinary service and product performance. Geographic concentration of an industry acts as a strong magnet to attract talented people and other factors to it. Similar arguments apply to many of the other determinations.

The processes of entry also encourage geographic concentration. Spin-offs have a tendency to locate near the original company, because entrepreneurs not only live there but also have established relationships.  Entry from supplier, user, or related industries also frequently occurs in the same location. Proximity increases the concentration of information and thus the likelihood of its being noticed and acted upon. Proximity increases the speed of information flow within the national industry and the rate at which innovations diffuse. At the same time, it tends to limit the spread of information outside because communication takes forms, such as face-to-face contract, which leak out only slowly. Proximity raises the visibility of competitor behaviour, the perceived stakes of matching improvements and the likelihood that local pride will mix with purely economic motivations in energising firm behaviour. The process of clustering and the interchange among industries in the cluster also works best when the industries are geographically concentrated. Proximity leads to early exposure of imbalances, needs, or constrains within the cluster to be addressed or exploited. Proximity, then, elevates the separate influences in the “diamond” into a true system. Geographic concentration does carry with it some long-term risks, however, especially if most buyers, suppliers and rivals do not operate internationally. 

COMPETITIVE ADVANTAGE OF CITIES AND REGIONS

The importance of geographic concentration raises interesting questions about whether the nation is a relevant unit of analysis. The conditions that underlie competitive advantage are indeed often localised within a nation, though at different locations for different industries. Indeed, the reason why a particular city or region is successful in a particular industry are captured by the same considerations embodied in the “diamond”, for example, the location of the most sophisticated buyers, possession of unique factor-creating mechanism and a well-developed local supplier base.

For example, London region is prospering in the United Kingdom, because of its advanced demand for many goods and services its clusters of supporting industries and the presence of highly skilled labour pools, among other considerations.

Location effect is powerful ones even if cultural, political or cost differences between locations are small. 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. 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. National differences in demand factor creation and other determinants will persist and rivalry within nations will remain vital.      

BENEFITS OF AN INDUSTRY CLUSTER STRATEGY

An industry cluster strategy offers a state or region several benefits and opportunities. A clear benefit is the ability of industry, government and education and to work co-operatively to strengthen both state and regional economies. This leads to more efficient and effective use of public and private resources and helps region or state develop strong and dynamic clusters. These clusters will spawn additional economic growth. A cluster strategy can also help a region or state address critical issues such as human capital and workforce development, infrastructure planing and development and rural and community development.

An industry cluster strategy offers significant opportunities for a state or region by highlighting key business relationship and linkages. States and regions are often motivated to adopt an industry cluster strategy as a result of a crisis: high unemployment, a recession, a stagnant economy, real estate collapse, or loss of a key industry. However, states and regions can also be enhanced by the opportunities created through cluster-based approaches.

The development and improvement of infrastructure often requires large-scale investment and planing. There is invariably more work to do than resources available to do it. An industry cluster strategy help a state or region set priorities for these major investments and ensures that infrastructure is appropriately developed to ensure the greatest effectiveness and efficiency. For example, if Minnesota's information technology cluster is an important to the state's economy, then significant and appropriate investment in telecommunications infrastructure and workforce development may be beneficial to spur cluster growth. Similarly, if a key cluster in a rural region is having difficulty shipping its large equipment out of the area, efforts such as road improvements could be made to facilitate product distribution. The pay off is healthier industries that generate more economic activity and, thus, provide tax revenue for additional infrastructure investment.

For example, in Minnesota, a workforce shortage hinders the growth of some industries. By working collaboratively in industry clusters, government, education, and industry can take steps to address this problem. Industry, government and education can respond to shortages by providing training and promoting research that enhances productivity. Employees and the region overall will benefit from enhanced skills and higher wages as their productivity increases. It makes sense for rural regions to focus on strengthening existing industries. By supporting and developing strong clusters that promote exchange and collaboration among firms and co-operation with government and education, rural regions strengthen their own economies. Regions can strengthen existing industries, develop an attractive business climate, and foster new business growth by maintaining a strong regional economic base and investing in the skills of the new and incumbent workforce. In a strong cluster, entrepreneurs may leave larger firms to create their own businesses. This trickle-down effect of new firms tends to complement or compete with existing firms, which in turn stimulates innovation and cluster growth. Politicians, business leaders and taxpayers often talk about the need to streamline government, avoid duplication of services and make government more responsive. An industry cluster strategy provides a state or region with the opportunity to accomplish all of these objectives, particularly in the area of economic development. By working with clusters government's co-ordinate their economic development efforts. With regard to training, instead of creating a variety of programs around the state to train precision manufacturing workers, educational institutions can work with industry to determine the key needs, develop the curriculum and deliver it in regions where demand exists. This saves time for educators and industry and helps ensure that students receive the latest training and develop transferable skills. A cluster approach also offers industry an opportunity to expand in international markets and create joint ventures. Those industries already selling to or working with firm's abroad can help open the doors for other cluster members. Their complementary products might also be marked jointly. Firms within the cluster might form join ventures to meet market needs outside the country or may partner with firms in clusters elsewhere to produce new products. An isolated firm working on its own and relying just on government export assistance is not going to have the same opportunities as an entire cluster working to expand its international presence.  

BENEFITS TO ECONOMIC DEVELOPMENT

Cluster strategy is first and foremost, an economic development strategy. It provides a co-ordinated and efficient way to promote economic growth. By making a cluster approach a key part of state economic development strategy, state agencies are more likely to co-ordinate their efforts, avoid duplications of services and develop a more comprehensive approach to economic development. A cluster approach and the co-ordination it brings also helps an industry set priorities and establish a constructive relationship with government. A cluster approach does not mean that industry set priorities and than asks government to address their problems and fund solutions. Rather, the industry takes the lead in addressing the concerns while government and education play facilitation and support roles. In effect, the cluster approach can create a more positive business climate for state or region. This climate helps existing firms grow and attract new business to the area.

BENEFITS TO THE PUBLIC SECTOR

An industry cluster strategy allows public agencies to direct resources more effectively and efficiently. Instead of creating myriad programs that meet the needs of individual firms, public efforts can be focused on meeting the needs of many firms with similar issues. The industry cluster approach allows public agencies the opportunity to work directly with industries and develop strategies for building a sustainable economy. The strategy provides a framework for delivering government services so they have a greater impact.

BENEFITS TO ESTABLISHED AND EMERGING INDUSTRIES

An industry cluster strategy places increasing importance on the needs of a given industry or clusters and focuses public and private resources on meeting those needs. The industry clusters identify their primary needs and work with public and private entities to address them. These needs might include industry-focused training programs at state colleges and universities or infrastructure development that addresses telecommunications, transportation or other needs. Industries and firms also benefit from forums and meetings convened to address issue and concerns. This saves the time and effort associated with identifying and working with all of the appropriate agencies. If an industry cluster strategy is part of a statewide policy, the clusters have a powerful voice in setting the statewide agenda for economic development. Other benefits of effective cluster strategies come through firm's participation in an organised cluster. These benefits include:

• Access to a specialised workforce – companies in clusters can draw on large markets of people with specialised skills and experience for related firms.
• Access to specialised suppliers – companies in clusters have access to concentrations of specialised suppliers of inputs and services.
• Access to extensive networks – companies in clusters has access to information flows and technological slipovers that speed information.

BENEFITS TO INVESTMENT IN HUMAN CAPITAL

An industry cluster strategy focuses on developing a workforce with the skills and training necessary to strengthen and built competitive, innovation-driven industries. An industry cluster has a clear advantage over individual firms in helping set education and training priorities within a region or state. The cluster also provides cues to students and current workers on future employment options and opportunities to gain both general and specialised skills.

As the labour market becomes tighter and the need for skilled workers increases, the regional availability of skilled workers becomes increasingly important. Firms are now more likely to make location decisions based on the presence of a skilled workforce than on traditional economic development conditions such as taxes. A region that understands its strengths and creates strong framework for working with key industries, education and training institutions and other service providers is more likely to be able to ensure the industry's success and high quality jobs for residents. An industry cluster strategy also helps ensure that a region's competitive advantage is developed and nurtured. The result is

• Healthy firms providing residents with employment opportunities in growing industries,
• Collaboration between industry ad educational institutions that helps ensures that the productivity of workers increases, creating savings for firms and higher wages for employees.

BENEFITS TO COMMUNITIES

By working with clusters, community organisations may be able to increase their efficiency and effectiveness by directing services toward larger groups of firms. For example, organisations can enhance an industy`s employee retention efforts through their childcare services, transportation services, housing and home ownership programs and training programs. By working closely with a cluster, the organisations also have the opportunity to built relationship with industry that can facilitate the delivery of their services. Community organisations can work together with industry and public agencies to assist people in moving from welfare-to-work into specific industries with promising futures. By listening to industry cluster needs, economic developers can develop broad strategies to complement existing industries in the area.

Rural communities can benefit from cluster strategies since they help regions strengthen and built on their key industries. Key exporting industries drive the economic vitality of a region and make a variety of important support industries possible. These support industries, including restaurants, stores, healthcare services and recreational opportunities, contribute to a community's quality of life. Industry clusters are also a good way to built social capital within a community or region. The cluster brings together for the improvement of the economy. The relationship developed is important to the economic success of the region.

Example of benefits and challenges of a cluster strategy in Minnesota

During an October 2nd discussion with representatives of industry, government and community organisations, the state and Local policy program learned that many of the participants were interested in exploring how an industry cluster approach would work for their organisations as well as the state as a whole. During the half-day discussion, the participants discussed the benefits and challenges of an industry cluster approach.

Key benefits                                                                                    

• Creates a framework for collaboration
• Relies on an existing organisational infrastructure
• Helps build a common agenda
• Helps achieve economies of scale
• Uses workforce shortage to focus on higher wage and competitive advantage industries
• Focuses and co-ordinates existing resources
• Provides information for educators (job descriptions)
• 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.  

                                                   BIBLIOGRAPHY

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