Cluster based economic development and strategy

Abstract

Michael Porter in his book The Competitive Advantage of Nations, first published in 1990, pointed out the importance of "economic clusters." In recent years, cluster-based economic development has gained prominence among researchers and economic development professionals. Many nations are beginning to see the importance of cluster based progress and have launched initiatives to develop and strengthen clusters. However mapping of clusters to a framework has been challenging. Thus, economic policies based on clusters have not been particularly popular in the past. A lot of case based research has helped create awareness about the economic benefits of these clusters. A single cluster can steer a nation towards economic prosperity and thus it is important to nurture clusters and sustain them for long-term prosperity. Today, the software cluster in Bangalore has become the backbone of the IT boom in India. The Indian Government needs to wake up to the economic implications of this and other clusters to make key decisions about the economic policies that would help sustain competitive advantage. This report is structured as follows. To begin with, it discusses the fundamentals of the cluster concept and the various theories, which have been put forward by eminent economists, including Marshall, Porter and the more recent GREMI’s theory of the innovative milieu. Next, it discusses the evolution of the major clusters in India namely the Tiruppur garment cluster and the Bangalore cluster. An attempt is made to draw parallels among the success factors that played a key role in the formation and sustenance of these clusters. Finally some conclusions are drawn in terms of various steps that can be taken to induce and encourage cluster formation.