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What are Clusters? Porter (1998), who is the most frequently cited advocate and analyst of cluster policy, defines clusters as “Geographic concentrations of interconnected companies and institutions in a particular field, linked by commonalities and complementarities.” However, Porter’s definition is only one of many in the literature. The meaning of “cluster” is somewhat ambiguous, and the term is often used in different ways by different authors. Despite the widespread use of cluster analysis and strategies the actual meaning of the term is somewhat imprecise and ambiguous. Indeed, Martin and Sunley (2003, p. 16), in a highly critical article argue that the cluster concept “has acquired such a variety of uses, connotations and meanings that it has, in many respects, become a ‘chaotic concept’.” Indeed, they list ten different definitions of cluster that they found in their review of the literature (p. 12).
The definition of clusters by various authors is given below:
- Krugman, (1991): New economic geography: Clusters as co-location decisions of firms due to increasing returns to scale, lower costs of moving goods across space, etc.
- Rosenfeld (2005): clusters “are simply geographic concentrations of interrelated companies and institutions of sufficient scale to generate externalities.”
- Cortright (2006): “An industry cluster is a group of firms and related economic actors and institutions, that are located near one another and that draw productive advantage from their mutual proximity and connections”.
- Glaeser and Gottlieb (2009): “People cluster in cities to be close to something. At their heart, agglomeration economies are simply reductions in transport costs for goods, people, and ideas” (p.1005).
- Marshall (1890): Clusters as external economies created by labor market pooling and the benefits of moving people across firms, supplier specialization, knowledge spillovers.
- Porter (1998): “Geographic concentrations of interconnected companies and institutions in a particular field, linked by commonalities and complementarities”.
Clusters include: linked industries and other entities (suppliers), distribution channels and customers (demand), related institutions (research organization, universities, training entities, etc) (see also Porter (2000), p.254 for definition)
- Saxenian (1994): Clusters as social and institutional phenomena: technological change, organizations, social networks, and other non-market relationship in which markets are embedded: organization within and between businesses, relationship among firms.
- Hill and Brennan (2000, p. 67-8): We define a competitive industrial cluster as a geographic concentration of competitive firms or establishments in the same industry that either have close buy-sell relationships with other industries in the region, or share a specialized labor pool that provides firms with a competitive advantage over the same industry in other places.”
Nonetheless, there is a common core to the concept. In an attempt to capture the broad meaning of the term (at the expense of brevity) and drawing upon definitions of Michael Porter, Joseph Cortright and others, we define clusters to consist of firms in a region producing similar or related products, utilizing similar processes, or engaging in similar functions (headquarters; R&D), the regional suppliers and customers of these firms, specialized labor skills (occupations) possessed by workers in the region employed by these firms, public and public-private programs that provide services to cluster members (e.g., customized training by community colleges), and institutions (e.g., universities, community colleges, industry and trade associations, public and private sector organizations) whose presence or interaction , to the extent it exists (i.e., the extent of interaction is an empirical question), results in cost-savings to firms and/or knowledge spillovers that produce cost savings and/or product or process innovations.
Industrial Clusters in India: Definition of Clusters A cluster is defined as a concentration of enterprises producing same or similar products or strategic services and is situated within a contiguous geographical area spanning over a few villages, a town or a city and its surrounding areas in a district and face common opportunities and threats. Accordingly, we have not considered activities which are of daily use services and/or where scope for joint action or passive cooperation is minimal or where the product grouping is too wide for common threats/opportunities to emerge. Clusters may be broadly divided into the following broad categories:
departments are made using different criteria and at different times thus making aggregation extremely difficult. So the option that we were left with was to draw upon available statistical information, cluster level studies, source opinions from knowledgeable people including policy makers, funding institutions, regulators, credit providing organizations, development agencies and business membership organizations. Cross verification of the analysis made and numbers formed have therefore taken more than 14 years since 1996 when the first attempt to this effect was made in the context of India. Thereon, the numbers and diversity has increased to unearth a rich and wide variety of congregations of enterprises that Indian smaller enterprises are made of. The work even after 14 years can be called as ‘work in progress’ and this observatory makes a humble attempt to document what is available so far that hopefully will provide insights to what can be done to freeze the picture at a given point of time and what more may be undertaken in future.
Evolution: The process of identifying clusters in India started with UNDP project (TSS 1) implemented by UNIDO 1996. This publication was authored by Mr. Mukesh Gulati at present Executive Director of Foundation for MSME Clusters. This publication identified 138 industrial and 1657 artisanal clusters. This list of industrial clusters also found place in the Abid Hussian Committee report published in 1997. Thereafter the list was gradually increased to 338 industrial clusters and approximately 2500 artisan clusters under the auspicious of the four UNIDO projects – US/GLO/95/144, US/ IND/97/148, US/GL/02/059 and US/IND/01/193 executed during the years 1997 to 2005. During these projects the UNIDO team interacted with number of informed persons (representative of industry associations, State Government Directorates of Industries & Crafts, their District Industries Centres, other technical institutions, the then office of Development Commissioner, Small Scale Industries (DCSSI) and its regional offices Small Industries Service Institutes (SISIs), etc. The information was collected both by seeking information directly and also during the various cluster development training programmes that UNIDO conducted since the year 2000 directly as well as with other institutions like Entrepreneurship Development Institute of India (EDII) Ahmedabad, Indian Institute of Entrepreneurship (IIE) Guwahati, NISIET (now National Institute for Micro, Small and Medium Enterprises NIMSME) Hyderabad, Kerala Bureau of Industrial Promotion (K-BIP) Thiruvananthapuram. Data was also shared with DICs/SISIs and response was incorporated wherever possible. This helped the list of industrial clusters to grow
up to 338 by the year 2004/2005. During these projects, UNIDO also collected number of reports and census document on handicraft and handloom clusters and thus a list of around 2500 handicrafts clusters and 535 handloom clusters was also created. By the year 2008, a chain of UNIDO projects came to a close and before that the Foundation for MSME Clusters was created at the suggestion of the Govt. of India and technical support of UNIDO, in the year 2005. The Foundation planned in the year 2009 to update the available list of clusters compiled under the UNIDO string of cluster projects. The Foundation has for over the period 2008-11, did the following to update the resources with financial support drawn from the project ‘Promoting Innovation Clusters in India’ funded by Department of Science & Technology, Ministry of Science & Technology, Govt. of India:
- Interact with the office of DCMSME to get access to the list of clusters and diagnostic studies undertaken under their ongoing scheme of assistance MSECDP (Micro, Small Enterprises Cluster Development Programme). Here the All India Census of SMEs undertaken in the year 2003 by the office of DCMSME was also helpful to identify the industrial clusters.
- Interact with various State Governments during the process of training that the Foundation provided to their teams and gathered knowledge about more clusters along with their details. During this process the Foundation has interacted with the state governments of West Bengal, Kerala, Haryana and also with various institutions which have regional presence including the NIMSME, KBIP, EDII, IIE, Cane and Bamboo Technology Center (CBTC) etc. Apart from this the Foundation also interacted with the representatives of over 150 associations all over India and gathered intelligence from them regarding the presence of clusters.
- The Foundation also got useful information from a number of other financial institutions particularly, Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD)
- Information was also verified with net based survey and feedback received internally from the four regional offices of the Foundation. The Foundation also did primary survey of the clusters of Orissa undertaken in the year 2008 with support from interns drawn from Indian Institute of Forest Management
- It may be mentioned here that this portal has data about the estimated number of firms in the clusters and/or estimated gross financial turnover for around 60% of industrial
E. Bhaskaran (2012) made an attempt to study the technical efficiency and peer weights of MSME clusters and also to study input slacks, output slacks and variable Returns to Scale of MSME clusters in India. Data has been extracted from department of industrial Policy and promotion, Government of India, on 26 DMU (clusters). He employed Data Envelopment Analysis of Input Oriented Banker Charnes Cooper (BCC) Model by taking Project Cost, No. of units and No. of Employment as inputs and Sales and exports in Crores as output. Of the 26 DMUs 10 are found to be efficient and the rest need to i ncrease in sales or exports to become efficient like other 10 clusters. Banker et al (1984) for the first time introduced the VRS in DEA models through convexity constraints and thereafter remarkable change has led to make changes in CCR DEA models. In the study 20 DMUs are found to be exhibiting increasing RTS and 6 are constant RTS.
References: Cortright, J. (2006). Making sense of clusters: regional competitiveness and economic development. Discussion paper Brookings Institution Metropolitan Policy Program. Glaeser, E. and Gottlieb, J. (2009). The Wealth of Cities: Agglomeration economies and spatial equilibrium in the United States. Journal of Economic Literature , 47 (4), 983-1028. Hill, E. and Brennan, J.F. (2000). A methodology for identifying the drivers of industrial clusters: the foundation of regional competitive advantage. Economic Development Quarterly , 14, 65- 96. Krugman, P. (1991). Increasing returns and economic geography. Journal of Political Economy , 99 (3 ), 483-99. Martin, R. and Sunley, P. (2003). Deconstructing clusters: Chaotic concept or policy panacea? Journal of Economic Geography, 3 , 5-35. Porter, M. (1998). Competitive Advantage. Creating and sustaining superior performance. New York: Free Press. Porter , M. (2000). Locations, clusters and company strategy. In Clark, G., Feldman, M. and Gertler, M. (Eds). The Oxford handbook of economic geography (pp.253-274). Oxford: Oxford University Press. Rosenfeld, S. (2005). Industry Clusters: Business Choice, Policy Outcome, or Branding Strategy? Carrboro, NC. Regional Technology Strategies. Saxenian, A. (1994). Regional advantage: Culture and competition in Silicon Valley and Route
- Cambridge and London: Harvard University Press. Geoffrey G. Bell (2005), Research Notes and Commentaries Clusters, Networks, and Firm Innovativeness, Strategic Management Journal, 26: 287–
