2 Clusters and supply chains

One of the themes developed by Gibbons et al (1994) is that inter-organizational collaboration is increasing and this improves knowledge production and competitiveness. In a chapter entitled ‘Competitiveness, Collaboration, and Globalisation’ they note that “parallel to the diffusion of Mode 2 knowledge production, network firms, R&D alliances, high value-added firms and new interface relations between competition and collaboration emerge.” One of the ways these patterns of collaboration manifest themselves is in the new institutional form called ‘clusters’.

The well-known business strategist, Michael Porter, has done much to promote the term ‘clusters’, through his influential book ‘The Competitive Advantage of Nations’ (1990). He notes the paradox that in an era of globalisation, competitive advantage often rests on local factors such as knowledge and relationships – since good global transportation and communication linkages provide easy access to capital and information and supplies. Where previously location had given advantages of lower input costs (like labour or energy), now competition in many markets is far more dynamic, being based on continual innovation. And while it is important an enterprise is internally innovative, increasingly people are recognising that competitive advantage also derives from the environment of an enterprise – in terms of local institutional factors as well as relations with trading partners. Porter describes clusters as: “geographic concentrations of interconnected companies and institutions in a particular field”. This consists of linkages and complementarities such as: suppliers of goods and services, infrastructural supplies (e.g. transport/communications), customers, manufacturers of complementary products, companies using similar skills, expertise, and technologies; as well as institutions like universities, standard setting bodies, advice, training and education providers, trade associations, and information and research bodies, etc. One of the distinctive and interesting things about these clusters is that they comprise in their supply chains and networks, small and medium enterprises in the main; and thus as an economic model present an interesting challenge to large firms.

Porter (1998) gives several examples of clusters:

  • The California wine cluster – the main players are growers and their vineyards plus wineries and processing facilities. There are educational and research institutions plus trade associations. Suppliers include those for grape stock, fertilisers, pesticides, herbicides, harvesting equipment, irrigation technology. And suppliers at the other end of the production process include those for winemaking, equipment, barrels, corks, etc, labels plus services of PR, advertising, etc) with links to the agricultural sector. The cluster also includes customers like the tourism sector, and is linked to food and restaurants clusters.
  • The Italian leather fashion cluster which comprises a wide range of specialist facilities and factories associated with several chains of linked industries processing leather and producing leather fashion goods such as belts, gloves, clothing, footwear, and leather clothing. At the customer end it includes large retail outlets with famous fashion names like Gucci. And at the supply end it has machinery suppliers, machine tools, moulds, leather processing, etc.
  • The economic map of most countries can be divided up by different business clusters. So in the USA, Boston has biotechnology, software and computer networking clusters, New York has financial services, advertising, and publishing clusters, Detroit has auto equipment and parts, Los Angeles has defence/aerospace and entertainment, Silicon Valley has microelectronics, biotechnology, and venture capital, Minneapolis has cardiovascular equipment and services, and so on.

Although clusters seem like one of the most advanced forms of economic organisation, they were first identified in their traditional form of ‘industrial districts’ by the 19th century economist Marshall, and they apply to most economic contexts where there has been some degree of industrialisation and specialisation. Clusters don’t necessarily fit within traditional regional or national boundaries. The defining concepts of linkage and complementarity lead to different types of clusters, for example on the basis of sharing technologies, or skill bases, or marketing channels.

One paradox of clusters is that they comprise formally autonomous enterprises that compete within a market framework e.g. enterprises directly competing or those indirectly competing in a supply chain, but they also collaborate in some respects for mutual advantage (like in a ‘prisoners dilemma’ game), and the institutional context usually helps establish the trust necessary for this to take place, as well as providing a supportive context for skill development, knowledge bases (universities, government research institutes), and so on. Trust also improves competitive relations by reducing their ‘transaction costs’ – of ensuring that a market contract is properly fulfilled.

Drawing on this collaborative, yet competitive dynamic, clusters achieve productivity, innovation, and entrepreneurship (new enterprises). In fact in the “Mode 2” economy they can be seen as particularly well-suited to meet the need for continual innovation.

However while acknowledging the significance of clusters, it is important to note that there are many forms of collaboration for innovation and competitiveness that can be found within networks, and not all of these are found in clusters. The range of collaborative forms involves large/small firms as wells as a range of institutions, as Freeman (1991) notes in the following list:

  1. Joint ventures and research corporations
  2. Joint R&D agreements
  3. Technology exchange agreements
  4. Direct investment (minority holdings) motivated by technology factors
  5. Licensing and second-sourcing agreements
  6. Sub-contracting, production sharing and supplier networks
  7. Research associations
  8. Government-sponsored joint research programmes
  9. Computerised data banks and value-added networks for technical and scientific interchange
  10. Other networks including informal networks

There are several different schools of thought on clusters, and this has given rise to various critiques of the theories, and various questions – about the extent of linkage. For example, are they local or outside the region? Are clusters more properly described as agglomerations? Is the competitive advantage more from institutional factors rather than direct collaboration between trading partners, and so on? Some of these questions are explored in the following consideration of clusters in the north of Italy.

2.1 The clusters of Northern Italy