Local Clusters in a Global Economy

Topics: Productivity, Economic geography, Economics Pages: 34 (11419 words) Published: January 24, 2011
LOCATION, COMPETITION, AND ECONOMIC DEVELOPMENT: LOCAL CLUSTERS IN A GLOBAL ECONOMY

By: Porter, Michael E.; Economic Development Quarterly, Feb2000, Vol. 14 Issue 1, p15, 20p, 4 diagrams

Economic geography during an era of global competition involves a paradox. It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location. Yet clusters, or geographic concentrations of interconnected companies, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations. The prevalence of clusters reveals important insights about the microeconomics of competition and the role of location in competitive advantage. Even as old reasons for clustering have diminished in importance with globalization, new influences of clusters on competition have taken on growing importance in an increasingly complex, knowledge-based, and dynamic economy. Clusters represent a new way of thinking about national, state, and local economies, and they necessitate new roles for companies, government, and other institutions in enhancing competitiveness. Resources, capital, technology, and other inputs can be efficiently sourced in global markets. Firms can access immobile inputs via corporate networks. It no longer is necessary to locate near large markets to serve them. Governments are widely seen as losing their influence over competition to global forces. It is easy to conclude, then, that location is diminishing in importance.(n1) This perspective, although widespread, is hard to reconcile with competitive reality. In The Competitive Advantage of Nations (Porter, 1990), I put forward a microeconomically based theory of national, state, and local competitiveness in the global economy. In this theory, clusters have a prominent role. Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions (e.g., universities, standards agencies, trade associations) in a particular field that compete but also cooperate. Clusters, or critical masses of unusual competitive success in particular business areas, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations. Although the phenomenon of clusters in one form or another has been recognized and explored in a range of literatures, clusters cannot be understood independent of a broader theory of competition and competitive strategy in a global economy. The prevalence of clusters reveals important insights about the microeconomics of competition and the role of location in competitive advantage. Even as old reasons for clustering have diminished in importance with globalization, new influences of clusters on competition have taken on growing importance in an increasingly complex, knowledge-based, and dynamic economy. Clusters represent a new way of thinking about national, state, and local economies, and they necessitate new roles for companies, for various levels of government, and for other institutions in enhancing competitiveness. For companies, thinking about competition and strategy has been dominated by what goes on inside the organization. Clusters suggest that a good deal of competitive advantage lies outside companies and even outside their industries, residing instead in the locations at which their business units are based. This creates important new agendas for management that rarely are recognized. For example, clusters represent a new unit of competitive analysis along with the firm and industry. Cluster thinking suggests that companies have a tangible and important stake in the business environments where they are located in ways that go far beyond taxes, electricity costs, and wage rates. The health of the cluster is important to the health of the company. Companies might actually benefit...

References: Adams, J., & Jaffe, A. (1996). Bounding the effects of R&D: An investigation using matched establishment-firm data. Rand Journal of Economics, 27, 700-721.
Audretsch, D., & Feldman, M. (1996). R&D spillovers and the geography of innovation and production. American Economic Review, 86, 630-640.
Brandenburger, A., & Nalebuff, B. (1996). Co-opetition. New York: Currency/Doubleday.
Cairncross, F. (1997). The death of distance: How the communications revolution will change our lives. Boston: Harvard Business School.
Caves, R., & Porter, M. (1977). From entry barriers to mobility barriers: Conjectural decisions and contrived deterrence to new competition. Quarterly Journal of Economics, 91, 241-261.
Enright, M. (1990). Geographical concentration and industrial organization. Unpublished doctoral dissertation, Harvard Business School.
Enright, M. (1993). The geographic scope of competitive advantage. In E. Dirven, J. Groenewegen, & S. van Hoof (Eds.), Stuck in the region? Changing scales of regional identity (pp. 87-102). Utrecht: Netherlands Geographical Studies.
Glasmeier, A. (1991). Technological discontinuities and flexible production networks: The case of Switzerland and the world watch industry. Research Policy, 20, 469-485.
Govern d 'Andorra. (1993). Andorra pla estrategic, la Vella, Andorra: Author.
Harrison, B., Kelley, M., & Gant, J. (1996). Innovative firm behavior and local milieu: Exploring the intersection of agglomeration, firm effects, industrial organization, and technological change. Economic Geography, 72, 233-258.
Jacobs, D., & de Man, A. P. (1996). Clusters, industrial policy, and firm strategy: A menu approach. Technology Analysis and Strategic Management, 8, 425-437.
Jaffe, A., Trajtenberg, M., & Henderson, R. (1993). Geographic localization of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics, 108, 577-598.
Krugman, P. (1986). Strategic trade policy and the new international economics. Cambridge, MA: MIT Press.
Krugman, P. (1993). The current case for industrial policy. In D. Salvatore (Ed.), Protectionism and worm welfare (pp. 160-179). New York: Cambridge University Press.
Marshall, A. (1920). Principles of economics (8th ed.). London: Macmillan. (Original work published 1890)
Porter, M
Porter, M. (1996). What is strategy? Harvard Business Review, 74(6), 61-78.
Porter, M. (1998a). Clusters and competition: New agendas for companies, governments, and institutions. In M. Porter, On competition (pp. 197-287). Boston: Harvard Business School Press.
Porter, M. (1998b). The microeconomic foundations of economic development [parts I and II]. In The global competitiveness report 1998 (pp. 38-63). Geneva: World Economic Forum.
Suarez-Villa, L., & Walrod, W. (1997). Operational strategy, R&D, and intra-metropolitan clustering in a polycentric structure: The advanced electronics industries of the Los Angeles basin. Urban Studies, 34, 1343-1380.
Tyson, L. (1992). Who 's bashing whom? Trade conflicts in high-technology industries. Washington, DC: Institute for International Economics.
Waits, M. J. (1996). State of cluster-based economic development in Arizona. In R. Breault (Ed.), Global networking of regional optics clusters (pp. 1-10). Denver, CO: International Society for Optical Engineering.
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • The Role of Local Governments in the Global Economy Research Paper
  • Essay on Global Clusters of Innovation
  • Essay about Global Brand and Local Brand
  • Global Economy Essay
  • Global Economy Essay
  • Essay about Global Economy
  • Management in the New Global Economy Essay
  • China and Its Impact on Global Economy Essay

Become a StudyMode Member

Sign Up - It's Free