Regional cluster development: What is it?

The literature in economic geography and strategic management does not provide a unique definition for a regional cluster. The cluster concept defined by Porter (1990), however, has stimulated discussion about regional clusters that goes beyond traditional explanations of agglomeration in economic geography (Gordon and McCann, 2000; Delgado, Porter and Stern, 2010). Porter (2000, page 254) defines a cluster as: “a geographically proximate group of inter-connected companies and associated institutions in a particular field, linked by commonalities and complementarities.”

According to this definition, clusters share a physical geography, although the geographic scope of a cluster can range from a single city or state to a country or even a group of neighbouring countries.
The definition also introduces the issue of inter-connectedness and the potential for collaboration among firms by virtue of “commonalities and complementarities.” Taken together, this definition broadens the traditional view of regional clusters by going beyond geography and including other aspects (eg, social) of inter-organisational relationships between firms and related institutions. In a similar vein, clusters have been defined as “local or regional dimension of networks” (van Dennerg, Braun and van Winden 2001, page 187), which also underscores the potential social or relational aspects of a regional cluster.   

Dynamic inter-relationships
To evaluate these localised networks of economic activity and their ability to become a driving force of a region, it is crucial to place the cluster structure within the process of knowledge creation. To generate competitiveness and economic growth, we need to examine “processes of creating, combining, circulating, and sharing existing and new knowledge” (Bathelt, 2005, page 106).  In an industry cluster, it is this knowledge creation and interaction among different actors that reinforces the regional set of dynamic inter-relationships among industrial activities that potentially creates benefits from co-location in many ways. 

These benefits can also arise through social or collective processes. For example, research on economic sociology and economic geography show that co-location can provide benefits extending from inter-firm linkages to collective problem solving that helps firms to develop common understandings of their business activities (Best, 1990; Feldman, 2000; Saxenian, 1994). However, Bathelt (2005) and Delgado, et al, (2010) argue that these benefits and this collaborative process do not occur in every agglomeration automatically. Consistent with the literature on clusters, we define a regional cluster as firms related to the same industry that share geographical proximity within an administrative-defined region or province in a country, and commonalities and complementarities.

To understand what is distinct about clusters, we believe it is important to compare them to non-clustered industrial groups (those that do not share these characteristics) and to examine the internal dynamics of these different groups of firms. Whereas much previous research has examined clusters (Steiner and Ploder, 2008), only limited research has explored differences between clusters and non-clustered industrial groups. This comparison helps identify unique elements of the intra-cluster dynamic, such as inter-firm collaboration. As an example, Bagchi-Sen (2004) reports a study comparing collaborators and non-collaborators in the US biotechnology cluster focusing on the relationship among research and development (R&D) intensity, collaboration, innovation, and location. He found that firms with higher levels of R&D intensity were more intent on engaging in R&D alliances, especially research collaboration with universities.

Moreover, more firms co-located in defined clusters of the biotechnology industry engaged in collaborative R&D than did firms located elsewhere. As a result of this research, location has continued to be considered an important factor for start-up companies. However, whereas Bagchi-Sen (2004) studied vertical collaborations (R&D collaboration between firms and universities), some have questioned the generalisation of his findings. According to Sorenson and Audia (2000), clusters entail stronger and unfavourable competition. They suggest that a cluster’s advantage based in geographical concentration stems from heterogeneity in entrepreneurial opportunities. Competition occurs, they argue, when two parties vie for control of the same set of resources. That is, competition increases as the degree of overlap in resource requirements between organisations increases (McPherson, 1983). Thus, when geography imposes a limitation on desired resources, organisations will compete more intensely with local rivals.

Social network model
Taking a social network perspective, however, positive outcomes may prevail for clusters. Eisingerich, Bell and Tracey’s (2010) social network model of regional cluster performance suggests that high performance among firms in regional clusters is possible and predicated on the strength of ties in the network as well as the network’s openness. That is, strong relationships (eg, long-lasting, frequent social contact) and an open network (eg, diversity of cluster firms, outside-firm connections, accepting of new firms to the cluster) generally enhance cluster performance. In both cases, however, these effects depend on environmental uncertainty. With high uncertainty, the positive effects of openness grow stronger and the benefits of strong ties tend to weaken.

In light of the unresolved questions raised by these intriguing studies and the current relevance of the topic of collaboration for business professionals (see Spotlight on Collaboration, Harvard Business Review, July, 2011), it is time to examine specific types of collaboration within clusters, such as marketing co-operation. To be successful, this type of cooperation requires not only a proactive attitude from managers (Brown, McNaughton and Bell, 2010), but also a focus on creating social capital among participants (Gulati, et al, 2000 and Gulati, 2007). Our study is not just for academics; rather, the results of our study raise several practical implications for policymakers and for managers. Regarding policymakers, our results show differences between clustered and non-clustered natural resources-based industries in Chile in their activities for building social capital.

Although we do not have financial performance data, other research suggests performance benefits from these activities. Following from our findings, we encourage policies that establish new clusters and promote more regional clusters with the goal of providing better and more positive inter-firm interaction and subsequently greater co-operation. One result might be innovative marketing strategies at both local and international levels for firms competing globally. As well, we suggest that regional development bodies foster more co-operation among firms and trade associations. Again, although our research is located within Chile, we suggest developing and extending policies to include inter-country regional policies around clusters. This could be done through a new national and regional cluster strategy developed and implemented across Central and Latin American emerging economies, such as the Caribbean region, Costa Rica, Colombia and Peru.

Enhancing firms’ strengths
Regarding managers and executives, we suggest a serious self-examination. Many managers, including those in our study, express reluctance to cooperate with firms in their industry often due to concerns over diminishing their firms’ competitive advantage. On the contrary, theory and a growing number of studies are showing that co-operation through social networks may enhance firms’ strengths. We suggest that managers also think broadly (internationally) in developing their social capital including the active use and creation of global virtual teams for building strategic co-operation aiming to create sustainable competitive advantages. When potential partners are not in geographical proximity, Facebook, LinkedIn, Twitter, and other forms of virtual communication are now readily available to enhance new forms of informal communication and collaboration horizontally as well as vertically in the value chain. 

We conclude with the general recommendation to policymakers and managers that in order to improve firms’ strategic position, both formal and informal social networks need to be developed to yield inter-firm co-operation in marketing. From our study in particular, a managerial lesson for emerging countries is the importance of creating trade associations that represent SMEs. This can potentially facilitate social interaction (and the building of trust and social capital) between firms and enhance the likelihood of inter-firm cooperation. This suggestion is also applicable for creating public policies aimed at increasing local and international competitiveness of SMEs in emerging economies in Latin America.

Christian Felzensztein
is a professor of international marketing,
School of Business, Universidad Adolfo IbaĖez, Chile.

He will be one of the key speakers at the Arthur Lok Jack Graduate School of Business’ Regional Forum on Cluster Development, titled, Clustering opportunities for the Caribbean, on November 9 and 10 at the Hyatt Regency Trinidad Hotel, Port-of-Spain. e-mail: conferencing@gsb.tt, or log on to the Web site: www.lokjackgsb.org