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Reading 2-1: Clusters and New Economics of Competition by Mind Map: Reading 2-1: Clusters and
New Economics of
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Reading 2-1: Clusters and New Economics of Competition

"Clusters are geography concentrations of interconnected companies and institutions in a particular field."May cross national borders

Paradox: Secret to success in global economy lies increasingly in local stuff that distant rivals can't match

Knowledge, Relationships, motivation...

Advantages of cheaper inputs can be mitigated through global sourcing, advantage of better use of these inputs can not

Promote both competition and cooperation

Cooperation mostly vertical

Competition is mostly horizontal

Competition and cooperation can coexist because they happen in different dimensions

Promote competition

Increase productivity of companies in the area

More productive sourcing of inputs

Better access to employees and suppliers

Access to specialized information

Complementaries, Good performance of one company boosts others, Companies more likely to recognize important links between each other, Cluster increases popularity of a location in a given field so buyers will rather look for a vendor there, Clusters are attractive to buyers because they can visit many vendors at once

Access to Institutions and Public Goods

Better motivation and measurement, Local rivalry stimulates competition, Easier benchmarking

Drives direction and speed of innovation

Sophisticated buyers are often part of cluster so companies in cluster have good view into market

Companies can source more quickly

Stimulates the formation of new businesses

People in cluster see niches better

Local financing institutions already familiar with industry

Alternative way of organizing the value chain

More flexible than vertical integration

Close proximity of companies fosters coordination and trust

Trust and coordination of vertical integration but at the same time flexible!



Often from historical circumstances

One or two innovative companies stimulate growth of others


Cluster is self reinforcing

The most vibrant where two clusters meet


External forces, Technological discontinuity, Government Restrictions, Shift in buyer's needs in rest of world compared to people around cluster

Internal forces, Overconsolidation, Cartels, Groupthink

New issues for strategic agenda

1. Choosing Locations

Companies have often moved to low wage countries where they have no cluster effects

Location important for innovation

Cluster especially crucial for "home base" where R&D, strategy development.. take palce

Move groups of linked activities of your company to same place

2. Engaging Locally

Getting important tacit knowledge from clusters requires f2f communication and "insider" status

Companies need strong local presence to maximize cluster benefits

3. Upgrading the Cluster

Health of local business environment is crucial for health of cluster

4. Working Collectively

Trade associations just lobby and look for government benefits, Instead should be forum to exchange ideas and collectively overcome obstacles, Flower auction house in holland

New Roles of Governments

Must ensure high-quality inputs like educated people and infrastructure

Must set rules of competition through antitrust laws etc

Should promote cluster formation and upgrading

Rather focus on improving existing clusters than formation of new ones