So far in this chapter we have looked at clusters in somewhat static terms.

We have
profiled various types of clusters and the different types of ‘glue’ – in the form of traded
and untraded interdependencies – that bind firms together within those clusters. We
have also highlighted the role of non‐firm organizations,
regional economic cultures, and global pipelines as important shapers of clusters.
But that leaves some important questions unanswered, such as: how do clusters
form in the first place? How do they develop over time? And why do some
clusters disappear over the longer term while others go from strength to
strength?
So, this part will help you answer three above questions.
Clusters pass through a life cycle consisting of four phases – emergence, growth,
sustainment, and decline. Through the video will help you better understanding about
cluster life cycle.
As firms learn from one another, over time the benefits from being in the cluster will
diminish, as their capabilities start to converge due to ongoing processes of interaction
and knowledge exchange. In essence, it becomes harder to stand out from the crowd,
and over time the specialization of the cluster in a particular area of economic activity
changes from a strength to a weakness, as a process of lock‐in occurs and established
ways of doing things start to stagnate. If the issue is unaddressed, the cluster will then
decline unless it can launch a process of renewal that sustains the cluster or, more
radically, a transformation process that launches another life cycle entirely.
So how do clusters form in the first place and how do they growth? Sometimes a cluster
is created through accidental events, such as an unplanned innovation or an arbitrary
location decision of a company or an entrepreneur that acts as a ‘trigger’ for growth.
Often, however, a cluster emerges due to a mixture of pre‐existing conditions and
certain trigger events, which may be either local or non‐local in origin.
An example about the Biogas industry in Scania region – Southern Sweden,
where a cluster of some 40 firms that developed from the 1990s onwards now produces
20 per cent of the country′s biogas. The preconditions for growth were established in
the 1990s through investments in natural gas infrastructure and some local biogas
experiments.
The Swedish Government launched its Climate Investment Program over the period
2002–2008, local firms were well placed to take advantage of funding aimed at local
initiatives that would reduce greenhouse gas emissions and increase energy efficiency.
Scania alone received half of the national funding targeted at biogas. Emergence evolved
into sustained growth from the late 2000s onwards, propelled by the decision of the
regional government.
Through this case, we can see how trigger events at both the national and regional scales
interacted with the pre‐existing knowledge and infrastructure base to drive cluster
emergence and expansion.
After a period, decline will set in, and clusters will contract due to the limits to
specialization. Indeed, the economic landscape is littered with cases of former clusters
that have gone into inexorable decline. And decline is not only related to ‘local’
processes of lock‐in but rather,
as with cluster birth and emergence, is also shaped by external triggers
Another Scandinavian example provides a good example of this process.
From the 1960s onwards, the Arendal area of southern Norway emerged as the country
′s leading cluster for the production of glass fiber leisure boats, driven by its heritage in
combination with some inward investments By 2000, the area accounted for 75 per cent
of Norway′s production of such leisure boats, and the cluster encompassed 800 jobs
across 30 boatyards and their supplier networks. Initial signs of decline were then
exacerbated by the global financial crisis of 2007–2008, which saw demand fall
significantly. By 2018, there was only one significant firm left in the cluster, with the rest
having either shut or moved their production to cheaper sites overseas.
So how, then, can clusters avoid lock‐in and decline through the processes of
renewal and transformation
Renewal tends to be driven by sustained innovation within the same sector of the
economy
Transformation processes, in turn, can take two forms.
+ First, if growth can be generated in a related activity to the core business of the
cluster, this can be
thought of as a branching process.
+Second, if growth can be generated in an entirely new area, this can be characterized as
the process of path creation. The latter developments are far more challenging and less
commonplace and are most likely to occur in broad‐based agglomerations, such as
Silicon Valley or global cities
The notion of related variety captures the benefits to diversification and
heterogeneity. Related variety aims to capture the extent to which firms are related to
another in terms of underlying technologies
and/or markets. Within an agglomeration, firms that are different but somewhat related
may have the potential to combine knowledge through their interactions in ways that
can be innovative and thereby drive economic growth.
Unrelated variety, by contrast, describes a situation in which economic activities are
too disparate for such knowledge interactions to be productive.