Industrial Clusters

Industrial Clusters

Industrial 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.

The following are the chief characteristics of a successful cluster.

• geographical proximity of small and medium enterprises (SMEs)

• sectoral specialisation

• close inter-firm collaboration

• inter-firm competition based on innovation

• a socio-cultural identity, which facilitates trust

• multi-skilled workforce

• active self-help organisations, and

• supportive regional and municipal governments.

Firms are 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.

How Do Clusters Originate?

Clusters 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.