Definition of clusters

In recent years, there have been great discussions regarding the phenomenon of globalisation and its impact on the business world. For some researchers globalisation can be translated into “end of geography”, the “death of distance” and the

“delocalisation” of economic and social relationships (Martin & Sunley 2001).

However, not all scholars share this view. On the contrarily, for some globalization is directly linked with the phenomenon of localization.

According to Enright (2000) “[g]lobalisation can result in a geographic spread of economic activities over space, but it also can allow firms and locations with specific sources of competitive advantage to exploit their advantages over ever wider geographic areas, often, though not always, at the expense of other areas”.

In addition, globalisation has brought both global market opportunities and also increasing pressure on the business organizations. The effects of globalisation were more intensely felt by the small and medium enterprises. Their main challenges can be restricted to two main actions. They could either try to transform and become more competitive (Fassoula, 2006). Or, due to their limited size, they can enter into cooperative relations with other SMEs and related partner institutions; thus taking advantage of the synergy effect.

In order to overcome their size limitation, but also to improve their productivity, innovativeness and overall competitiveness, the most viable solution for SMEs is to form clusters.

It all started in 1890, when Marshall has identified in his paper “The Principles of Economics”, what he then named “industrial clusters” (Bergman & Feser 1999). His framework established a link between co-location by companies and economic efficiency, as companies would cluster in order to benefit from positive externalities associated with their respective activities. These local concentrations of economic specialization became an important characteristic of the industrial organization.

The idea was further developed by a multitude of researchers in the industrial organizational literature, who believed that there was a strong connection between regional space, economic actors and innovation. The studies conducted in the Italian industry districts (qtd. in Andersson, Schwaag-Serger, Sörvik & Hansson 2004) in the 1980s came to better prove the advantages that these types of structures add over the regional economies.

However, it took 100 years until this phenomenon was defined. In his book, the Competitive Advantage of Nations, Porter (1990) aimed to change the understanding of the strategic factors, which promote innovation and economic growth. By factor conditions, Porter (1990) refers to the basic inputs that can create an environment that permits competition. Factors that are generic across many industries can be a source of competitive disadvantage, but are diminishing as a source of advantage because many locations have them. Therefore, “to maximize the productivity, these factor inputs should have better efficiency, quality, and specialization to particular cluster areas”

(Porter 2000: 20).

In 1990, Porter further insisted that local competition creates incentives to imitate best practice and boost pressures to innovate, while also connecting the strengths of competition with the virtues of selective cooperation. In Porter’s (1990) view, local units, like clusters, have a significant role in increasing the competitiveness of

individual firms in spite of globalization and internationalization. Moreover, he argues that “the building of a “home base” within a nation, or within a region of a nation, represents the organizational foundation for global competitive advantage” (qtd. in Lazonick 1993).

However, there is no universally valuable definition of clusters as the cluster has received various definitions over time. These definitions varied along the following dimensions: formal input-output or buyer-supplier linkages, geographic co-location, shared business related local institutions, and evidence of informal co-operative competition (Feser & Bergman 2000). According to Porter (1990) clusters tend to be localized in space, thus he provided the following definition of clusters: “[c]lusters are geographic concentrations of interconnected companies and institutions in a particular field”.

Furthermore in 1998, Porter reconsiders the definition of clusters and states: “[a] cluster is a critical mass of companies in a particular location, whether it is a country, a state, a region or even a city”. Moreover, he suggests that clusters can take varying forms depending on their depth and sophistication. However, a group of companies and suppliers of specialized inputs, components, machinery and sources, and firms in related industries are the actors that most of the clusters are made (Porter, 1998:10).

After a decade from this above definition of clusters, Porter (2008) has stated that the definition of clusters hasn’t changed. However, different clusters depend on their size, location and development stage. The definition that he gives to cluster at the 2008 conference in Sweden is the following: “[a] cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (external economies)”.

There have been many scholars that have shown great interest in the domain and not all have shared Porter’s view. For example, Bergman and Feser (1999: 2) developed a cluster definition from an institutional concept to a functional one, without considering the value added of products. In their opinion "an industry cluster may be defined very

generally as a group of business enterprises and non-business organizations for whom membership within the group is an important element of each member firm's individual competitiveness”.

To complete the lack of approach on the value added of products, Roelandt and den Hertog (1999) believe that "clusters are networks of production of strongly interdependent firms linked to each other in a value adding production chain”. In some cases, clusters also encompass strategic alliances with universities, research institutes, knowledge intensive business services, bridging institutions and consumers.

As we have noticed from the previous definitions, clusters are made up of more than one element and various views seem to overlap. This makes it challenging to arrive at a central theme that defines what a cluster is and how it operates. In order to give a better understanding of the cluster, in the following subchapter, I aim to investigate and discuss the major characteristics of clusters.