What is meant by the regional concept of a cluster? What are strengths and weaknesses of regional economic policy based upon creation and development of clusters?

St. Andrews University, Scotland

What is meant by the regional concept of a cluster?
What are strengths and weaknesses of regional
economic policy based upon creation and development of clusters?

by 

Peter T. Schüssler

Table of contents

What is meant by the regional concept of a cluster? 3

Conditions /Framework for Clusters 4

Possible starting points of regional policy
on the creation and development of clusters 5

Strengths and Weaknesses 7

Conclusion 9

Bibliography 10

Clusters can be motors for regions. They are supposed to reduce unemployment, ensure growth and wealth. This essay will discuss the question critically whether regional economic policy is able to create and enforce those new industrial districts. The limited extent of this text forces us to describe the topic nearly without examples; it is also not possible to mention all theoretical approaches in depths, it was rather just necessary to combine different ideas (e.g. in the definition part).

It will be shown that there is still a lot of academic work to be done until the phenomenon of regional cluster will be utterly understood. Nevertheless it will become clear that the strength of the policy is that there are many possibilities to affect the growth and evolution of clusters. Yet, most of them have several weaknesses to be thought of.

Due to the fact that most clusters have been created or came into existence throughout decades, a change in policy makers` minds will be necessary. They have to accept that building up successful clusters is not possible within a short term perspective.

What is meant by the regional concept of a cluster?

In the report of the Government′s Clusters Policy Steering Group, clusters are defined as " Geographic concentrations of interconnected companies, specialised suppliers, service providers, firms in related industries, and associated institutions (for example, universities, standard agencies, and trade associations) in particular fields that compete but also co-operate". (Trends Business Research " Business Clusters in the UK - A first Assessment")

This definition is very similar to the one , once introduced by Michael Porter in 1990.
Like the two definitions already mentioned, most of them emphasise 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 (compare Feser/Bergmann, Rosenfeld, Redman, Armstrong and Taylor).
So what is the advantage successful clusters provide for participating companies?

Due to these conditions there are several external economies or synergies, which just can be exploited by companies within the cluster. This results in reduced average cost of production.
Especially stressed in current research and as sources for these economies, is the existence of a supportive socio- cultural system and an "institutional thickness", which refers to a strong local network of private and public institutions (Armstrong and Taylor,2000).

Conditions /Framework for Clusters

Before discussing the possibilities of creating or developing a cluster, it is necessary to identify the main characteristics of the conditions that clusters “need”. In this part we try to give an impression of the scope and number of possible factors influencing the dimension of these areas. . It is difficult to come to a common view of the topic because various approaches are pointing in different directions. We try to combine some of the main ideas to cover the most important elements which are responsible for the decrease or decline of clusters.

Infrastructure is a key variable for regional development (Porter,1998,p.4). The firms basic needs have to be fulfilled, starting with electricity and ending with an airport and optical fibre cable. 

Institutional linkages and co-operation is supposed to play a decisive role; knowledge “spillovers from local academic and industrial R&D to firms and regions are important for the concept of clusters (Breschi/Lissoni,2001,p.257). Those industrial areas should consist of companies connected horizontal (same products) and vertical (supplier relationship) so that linkages between firms are frequent and reactive. Transactions between the firms and formal as well as informal relations (compare trust; social capital) should lead to an interaction although the competition is still a force among them (Gordon,2000,p.520,p.517).

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