clusters are groups of firms in a defined geographic area that share common
markets, technologies and skill requirements. The advantages of industrial
clusters or districts was first observed by the famous economist Alfred
Marshall in the 1920s when he tried to understand the working of clusters of
small firms in the metal-working and textile regions in England. While the
notion of an ‘industrial district’ was developed by Marshall, it was only after
the success of small firms in Italy in the 1980s that it became popular.
Policy-makers in developing countries like India began to promote them actively
as they realized that there several such small firm clusters in the country.
following are the chief characteristics of a successful cluster.
proximity of small and medium enterprises (SMEs)
competition based on innovation
socio-cultural identity, which facilitates trust
self-help organisations, and
regional and municipal governments.
therefore expected to collaborate and compete with one another at the same
time. By collaborating, they can expand their capacity and also learn from one
another. Through competition, they are forced to become more efficient.
may arise due to many factors. Certain clusters evolve over a long time in
history when artisans settle in one locality and evolve over centuries.
Handloom weaving clusters are one examples of this development. Or else, in
some sectors, when a large firm is established, a cluster of firms may emerge
to take care of its input and service requirements. At times, governments may
decide to encourage manufacturing using raw materials from a region, which may
also lead to emergence of clusters.