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...
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