All you need to know about Cluster Economy

Cluster model is a new economy competition

Dr Prashant Salwan Dr Srinivasan R IyengarUpdated: Friday, April 01, 2022, 10:08 PM IST
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Cluster model is a new economy competition. Competition in today’s economy is far more dynamic. Clusters are geographic concentrations of interconnected companies and institutions in a particular field. Paradoxically the competitive advantage in a global economy lie increasingly in local things — knowledge, relationship, and motivation that distant rivals can’t match. Conventionally the world class mutual fund companies are located in Boston, fashion shoe design companies are in Italy, best movies are produced in Hollywood, automobile companies are located in Detroit and IT companies are in Silicon Valley.

Today, economies map of the world is dominated by clusters that is critical masses in one place of unusual competitiveness success in particular fields. Now sourcing of capital, goods, information and technology from around the world with the help of communication diminish the role of location as competition. Companies can mitigate the risks and location advantages become irrelevant. Today, movies produced in Hollywood are distributed in India are translated with multilingual because of Bollywood, Sandalwood, Tollywood, Kollywood and many other regions for successful distribution. Now world class automobiles manufacturers are in the clusters of Noida, Chennai, Pune, Gujarat and Hyderabad.

Cluster encompasses the array of linked industries, suppliers, complimentary products related to industries. Typical cluster constituents include suppliers, producers, customers, labour markets and training institutions, financial intermediaries, think tanks professional and industry associations, university departments and schools, regulatory institutions and bodies of law and government.

Businesses do not compete in clusters, but collaborate with each other. However, there is also cooperation in connecting businesses in the connecting sectors, which means that competition can harmonise with cooperatives. Clusters promote competitions and cooperation’s in the form of alliances. Clusters can affect competition by increasing productivity, driving the pace of innovation and simulating the new form of businesses. Strategic alliances or collaborations offer a means for companies to access new markets, expand geographic reach, obtain cutting-edge technology, and complement skills and core competencies relatively fast.

Strategic alliances have become a key source of competitive advantage for firms and have allowed them to cope with increasing organisational and technological complexities that have emerged in the global market. Using a broad interpretation, strategic alliance is a relationship between firms to create more value than they can on their own. Firms unite to reach objectives of a common interest, while remaining independent. Companies are forming alliances with their rivals, their suppliers, and even their customers.

In conclusion, clusters can be a powerful tool for achieving a company’s strategic goals. Through cooperation and sharing of resources, “one plus one” may “equal three”. All intersections of clusters, insights and skills from various fields merge and sparking new businesses.

(Dr Prashant Salwan is Professor of strategy at IIM Indore; Dr Srinivasan R Iyengar is Director and Professor in the area of Strategy at JBIMS, University of Mumbai)

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