Business clusters: How location can enhance learning, linkages and growth

By Joycelyn Williams

 

Joycelyn Williams is a Lecturer in the Economics Department at the University of Guyana and a Programme Management Consultant.

 

The idea that similar businesses located in one geographical area can have a strong impact on the performance of each, was made popular by Michael Porter in the Harvard Business Review in 1998 in an article, “Clusters and the New Economics of Competition”. Since then, many scholars and countries have tried to implement variants of this idea, trying to boost small business or make existing industries more competitive. This semester, the students of the Industrial Policy Class at the University of Guyana, were so inspired by Porter’s thesis, that they delivered some equally scholarly papers which suggest that they believe it has substantial implications for industrial planning in Guyana. Clusters are geographical concentrations of interconnected companies and institutions in a particular field. They include a wide range of linked industries and other entities important to their competitiveness.

Porter notes that, “Today’s economic map of the world is dominated by what I call clusters: critical masses in one place—of unusual competitive success in particular fields. Clusters are a striking feature of virtually every national, regional, state and even metropolitan economy, especially in more economically advanced nations” (ibid, p 78).

Joycelyn Williams
Joycelyn Williams

The best known examples of clusters are Hollywood and Silicon Valley. A person with newly discovered talent in acting is more likely to head down to the Hollywood cluster of world renowned actresses and actors to get easily connected for the big roles and big business in theatre and motion pictures than to any other location. Similarly, Silicon Valley is the geographical concentration of the largest number of business startups and high technology firms in the US. For our own examples, we see lawyers clustered in the vicinity of Croal Street in Georgetown.

It is obvious that successful businesses can grow outside of clusters. The important point in Porter’s thesis is that a larger number of world class competitive businesses can be found in clusters. There are several reasons for this, including any of the following: clusters promote both competition and collaboration. When firms are located in proximity it makes it more obvious that they have common objectives even while they compete. Just by being located together, it reduces the problems involved in arm’s length transactions and promote greater coordination, and linkages of various types. Firms can share knowledge and technological knowhow. They can share contracts and involve in coordinated input procurement. As we have noted, these possibilities of clusters have implications for planning for industrial development.

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