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CSR in Industrial Clusters: An Overview of the Literature

Article in Corporate Governance · August 2012

DOI: 10.1108/14720701211267874

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Corporate Governance
Emerald Article: CSR in industrial clusters: an overview of the literature
Peter Lund-Thomsen, Renginee G. Pillay

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To cite this document: Peter Lund-Thomsen, Renginee G. Pillay, (2012),"CSR in industrial clusters: an overview of the
literature", Corporate Governance, Vol. 12 Iss: 4 pp. 568 - 578
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Academic paper
CSR in industrial clusters: an overview of
the literature
Peter Lund-Thomsen and Renginee G. Pillay
Peter Lund-Thomsen is an
Associate Professor at the
CBS Center for Corporate
Social Responsibility,
Copenhagen Business
School, Copenhagen,
Denmark.
Renginee G. Pillay is a
Lecturer in Law in the
School of Law, Faculty of
Business, Economics and
Law, University of Surrey,
Guildford, UK.
The authors would like to thank
Khalid Nadvi, Peter Knorringa,
Søren Jeppesen, and an
anonymous reviewer for
commenting on an earlier
version of this article.
PAGE 568 j CORPORATE GOVERNANCE
Abstract
Purpose – The paper seeks to review the literature on CSR in industrial clusters in developing countries,
identifying the main strengths, weaknesses, and gaps in this literature, pointing to future research
directions and policy implications in the area of CSR and industrial cluster development.
Design/methodology/approach – A literature review is conducted of both academic and
policy-oriented writings that contain the keywords ‘‘industrial clusters’’ and ‘‘developing countries’’ in
combination with one or more of the following terms: corporate social responsibility, environmental
management, labor standards, child labor, climate change, social upgrading, and environmental
upgrading. The authors examine the key themes in this literature, identify the main gaps, and point to
areas where future work in this area could usefully be undertaken. Feedback has been sought from
some of the leading authors in this field and their comments incorporated in the final version submitted to
Corporate Governance.
Findings – The article traces the origins of the debate on industrial clusters and CSR in developing
countries back to the early 1990s when clusters began to be seen as an important vehicle for local
economic development in the South. At the turn of the millennium the industrial cluster debate expanded
as clusters were perceived as a potential source of poverty reduction, while their role in promoting CSR
among small and medium-sized enterprises began to take shape from 2006 onwards. At present, there
is still very little conceptual and empirical work that systematically investigates the linkages between
industrial clusters and CSR in developing country contexts. Hence, the authors recommend that future
work in this area should focus on conceptually developing and empirically testing ‘‘cluster and CSR’’
impact assessment methodologies in Asia, Africa, and Latin America. This will provide insights into
whether joint CSR interventions in clusters bring about their intended consequences of improving
economic, social, and environmental conditions in the South.
Originality/value – This article is likely to be the first systematic review of the literature on industrial
clusters and CSR in developing countries.
Keywords Industrial clusters, Corporate social responsibility, Poverty reduction,
Small to medium sized enterprises, Global value chains, Collective action, Developing countries,
Social development
Paper type Literature review
Introduction
The potential contribution of industrial clusters to promoting corporate social responsibility
(CSR) in developing countries is an area of research that remains underinvestigated[1]. This
is surprising, because the role of industrial clusters in generating local economic
development has often been highlighted in both the academic and policy-oriented
literatures on this topic. In developing countries where poverty reduction concerns are
imperative, small and medium-sized enterprises (SMEs) are often co-located in such
clusters which are here defined as a geographically proximate group of interconnected
j VOL. 12 NO. 4 2012, pp. 568-578, Q Emerald Group Publishing Limited, ISSN 1472-0701 DOI 10.1108/14720701211267874
enterprises and associated institutions (Porter, 1998)[2]. On the one hand, the co-location of
SMEs within the same geographical setting may enhance the flow of knowledge between
these enterprises, thus stimulating the sharing of ideas and innovation in products and
business processes. SMEs may also access important inputs such as trained workers,
service providers, transportation companies, and specialized suppliers, reducing
transaction costs for individual firms as they form part of a cluster. In addition, SMEs may
engage in collective action in order to address issues such as market demands or
governmental requirements that threaten the survival of cluster firms (Nadvi, 1999; Schmitz
and Nadvi, 1999). However, when it comes to their potential for engaging in CSR, we still
know relatively little about the role that industrial clusters might play in fostering
economically, socially, and environmentally responsible business practices among SMEs.
This is not to say that earlier studies have not touched on this theme. As this article will show,
a number of studies have investigated how industrial clusters have jointly attempted to
address issues such as water treatment, the use of environmentally friendly technologies,
child labor, and social welfare projects in developing countries. However, to date, very few, if
any, attempts have been made at either systematically reviewing the literature on CSR in
developing country industrial clusters and/or assessing the main strengths, weaknesses,
and gaps in this literature while pointing to areas in which further work could usefully be
carried out on this topic.
This short article seeks to fill this gap in the literature, taking stock of what has been written
about industrial clusters and CSR in developing country contexts to date. In assessing the
strengths and weaknesses of this literature, it argues that a significant body of work already
exists to demonstrate that joint CSR initiatives and practices are undertaken in industrial
clusters in developing countries. However, we lack systematic studies that attempt to
conceptualize and empirically investigate the links between joint action CSR initiatives and
their broader economic, social, and environmental outcomes in developing countries.
Hence, the article recommends that impact assessment methodologies should be
developed and tested across Asia, Africa, and Latin America so that we may achieve a
better understanding of whether joint action CSR initiatives in developing country clusters
improve economic, social, and environmental conditions in the South.
The article is structured as follows. First, the article discusses how the initial debate on
industrial clusters in developing countries took off in the 1990s. It then analyzes the more
policy-oriented discussions about industrial clusters and poverty reduction that took place in
the period between 2000 and 2005 before reviewing the recent writings on CSR and clusters
that have emerged in the last five to six years. The conclusion summarizes the main findings
of the article while outlining possible future research priorities and policy recommendations
in this area.

The debate on industrial clusters in the 1990s

While the notion of industrial clusters can be traced back to the work of Alfred Marshall in his
book ‘‘Principles of Economics’’ (1890), an initial debate on how industrial clusters might
stimulate local economic growth processes in developing countries took off in the early
1990s. This was inspired by the Italian experience of how small-firm industrial clusters had
successfully competed in global industries through close interfirm collaboration in the
vertical sense – through complex and flexible supply chain relations – and in a horizontal
sense – with the help of industrial associations and government or private support
institutions (Pyke and Sengenberger, 1992). The question was:
B whether similar industrial clusters could also be found in developing countries; and
B whether these clusters might serve as a vehicle for local economic development,
increasing developing country exports, raising incomes and supporting local job creation
(Nadvi and Schmitz, 1994).
A number of studies undertaken from the early to the late 1990s have demonstrated that
industrial clusters were indeed widespread in Latin America, Africa, and Asia. In the editorial
to an influential special issue of World Development, Schmitz and Nadvi (1999) argued that

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VOL. 12 NO. 4 2012 CORPORATE GOVERNANCE PAGE 569
 industrial clusters could play an important role in ensuring the ability of SMEs to compete in
foreign markets. They captured this line of argument in the concept of collective efficiency
which had both a passive and an active part. In a passive sense, SMEs generated a number
of benefits from their close co-location within clusters. These related to the availability of a
trained pool of workers, specialized input suppliers, transportation companies, local support
institutions such as training institutes, and consultants that could guide the SMEs on all
aspects of running their business. However, there were also active benefits for SMEs in
relation to being located within cluster settings. They were able to engage in joint action
through their industry associations and/or in cooperation with national or international
support agencies that allowed them to quickly respond to external shocks/threats that might
challenge their future survival (Schmitz and Nadvi, 1999). This form of collective action
became more evident towards the end of the 1990s as clusters in developing countries were
increasingly facing international (and sometimes also local) pressures to comply with stricter
quality, social, and environmental standards. Hence, compliance with such standards
became a pre-condition for cluster-based SMEs that wished to access high value-added
markets in Western Europe and/or North America (Nadvi, 1999).
At the end of the 1990s, it became increasingly clear that broader forces of economic
globalization both facilitated and constrained the development of industrial clusters. Up to
this point the role of external actors, international buyers in particular, had not been the
subject of much analytical attention in the literature that was mostly focused on how cluster
internal processes could stimulate local economic growth processes. However, the work of
authors such as Schmitz (1999, 2004), and Humphrey and Schmitz (2002) convincingly
demonstrated that clusters faced both opportunities and risks associated with their trading
links to global buyers, particularly internationally branded firms that specialized in the
marketing, branding, and supply chain management functions of the global manufacturing
chain. In doing so, these authors were interested in how the interaction between global
(buyers) and local (cluster-based) actors might facilitate industrial upgrading. Industrial
upgrading here refers to local enterprises learning how to produce better quality products
more efficiently to move into higher value-added functions, and/or using their skills
generated through this interaction to become competitive in related industries. The verdict
coming out of these and later studies appeared to be that the interaction between global
buyers and local cluster-based firms might facilitate fast product and process upgrading
among developing country SMEs but that global buyers would rarely, if ever, let
cluster-based actors encroach on their core competence, i.e. the branding and marketing of
the products (see, e.g. the collection of papers in Schmitz, 2004). In addition, the prospects
for local firm upgrading in clusters appeared to vary from sector to sector depending on the
technological complexity of the products, the nature of interfirm ties, and the particular
linkages that existed between cluster firms and their buyers within each sector (Giuliani et al.,
2005).
If we critically assess this literature, it appears as if the success of developing country
clusters in accessing Northern export markets was based on an international division of
labor that saw Western buyers controlling the higher value-added part of the global
manufacturing chain (the branding, marketing, and supply chain management functions).
Developing country clusters were relegated to the lower value-added activities related to
labor-intensive manufacturing of industrial products. Rarely, if ever, did industrial clusters
manage to climb up the value-added ladder and take control of the branding and marketing
functions of their own products in Northern export markets which might have facilitated their
ability to generate a higher share of the profits accruing from their participation in these
markets.
At the same time, cluster integration into the global economy also brought substantial risks
for local SMEs as international buyers might shift their sourcing of particular products to
other manufacturing regions, or even establish alternative sources of supply (Schmitz,
1999). This process appeared to be closely linked to what Kaplinsky (2005) called
‘‘immiserizing growth’’. Immiserizing growth refers to a situation in which growth in
production and exports is not accompanied by a similar growth in the availability of jobs and

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local earnings in developing countries. In this process, it is particularly the long-term vs.
short-term prospects of local economic development that are at stake. Whereas local
economic regions may experience rapid expansion of the industrial base and exports in the
face of international buyers shifting their sourcing to these regions, they might similarly
quickly experience industrial decline and the loss of jobs as well as local incomes once
these buyers shift to other low-cost manufacturing regions in the developing world (Bair and
Gereffi, 2001)[3].
An influential study by Bair and Gereffi (ibid) of the Torrean blue jeans cluster in Mexico thus
brought home the point that there was no automatic link between industrial upgrading in
developing country clusters through their participation in the global value chains and better
economic and social conditions for the populations in the areas where such clusters were
located. In fact, until the turn of the Millennium, the industrial cluster debate had mostly been
based on the assumption that industrial upgrading was in itself socially economically and
socially desirable. However, in the absence of any detailed studies that conceptualized and
empirically investigated the links between industrial upgrading in clusters, their participation
in global markets, and changes in local levels of poverty in developing countries, there was
little detailed evidence to validate this assumption. This concern became the focal point for
the next phase of the debate about industrial clusters in developing countries that focused
more on whether such clusters could indeed make a contribution to reducing poverty in the
South.

The industrial cluster and poverty reduction debate (2000-2005)

At the turn of the New Millennium, the academic debate on industrial clusters in developing
countries appeared to reach a plateau from which it did not move much beyond the
traditional focus on enhancing local economic development through participation in global
markets and/or local collective efficiency. Instead innovation in the cluster debate largely
came from the more policy-oriented work of international development aid agencies such as
UNIDO. UNIDO had traditionally been charged with the task of promoting industrial
development in the South. However, at the turn of the Millennium, the agency was
increasingly coming under pressure from its donors to reinvent itself as a policy actor whose
core mandate was not only related to the promotion of economic development but also to
ensure that such development should be environmentally and socially sustainable.
In relation to its policy-oriented work on industrial clusters, UNIDO responded to this
challenge by commissioning a large study that was the first of its kind to systematically
conceptualize the analytical and empirical links between cluster-based economic
development strategies and their impact(s) on poverty reduction in developing countries
(Nadvi and Barrientos, 2004). This conceptual work was subsequently followed by a number
of UNIDO policy interventions that combined the agency’s cluster development strategy with
achieving pro-poor outcomes for vulnerable parts of cluster-based populations. The
agency’s India office was particularly active in this process, piloting a number of such
projects in the State of Orissa (Nadvi, 2007).
However, to date, the Nadvi and Barrientos (2004) study remains the only publication that
has made a serious attempt at linking the industrial cluster development and poverty
reduction debates. As such, there have been virtually no academic studies that addressed
this interface, leaving a very large gap in our understanding of whether the promotion of
industrial cluster development is indeed desirable from the perspective of equitable and
sustainable development. Interestingly, important lessons might have emerged from
conducting more in-depth, empirical studies of the lessons learned from the cluster and
poverty reduction experiments that UNIDO undertook in the first decade of the New
Millennium. However, very little, if any, academic work has systematically attempted to
assess whether cluster-based local development strategies make any difference in terms of
reducing poverty in the settings where they have been attempted. Indeed the authors of this
article have not been able to identify any such work when conducting this review.

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 The industrial cluster and corporate social responsibility debate (2005-2011)
Since 2005, a number of studies have begun to investigate whether industrial clusters have a
role to play in promoting environmentally and socially responsible business practices in
developing countries (Accountability, 2006). Although not necessarily framed as ‘CSR’
studies, various authors have documented how industrial clusters have been engaging in
joint action CSR initiatives in Latin America and South Asia (and to a lesser extent Africa). For
example, such initiatives have included the installation of common effluent water treatment
plants in the leather tanning cluster of Kasur, Pakistan and the textile cluster of Tiruppur,
India, the promotion of environmentally friendly technologies in the leather cluster industry in
León, Mexico, child labor eradication schemes, and the implementation social welfare
projects for stitchers and their families in the football manufacturing clusters of Jalandhar,
India and Sialkot, Pakistan. All of these initiatives were implemented through public-private
partnerships where cluster-based industry associations worked together with international
aid agencies, public sector authorities, private sector service providers and/or NGOs in
order to achieve common economic, social, and/or environmental objectives (Blackman,
2006; Crow and Batz, 2006; Tewari and Pillai, 2005; Sachdeva and Panfil, 2008;
Lund-Thomsen, 2009; Lund-Thomsen and Nadvi, 2010a; Khara and Lund-Thomsen, 2011).
Both global and local factors appeared to trigger this discussion on CSR in developing
country clusters. As far as global factors were concerned, internationally branded buyers
increasingly required that their developing country suppliers should implement their social
and environmental guidelines, so-called codes of conduct. To a large extent this happened
in response to civil society and media exposure of labor rights violations and pollution
incidents at these production sites (Seidmann, 2007; Mezzadri, 2010). For cluster-based
firms non-compliance with codes of conduct could potentially mean exclusion from the
supply chains of internationally branded firms in Western Europe and North America. When
faced with potential boycotts some clusters decided to initiate joint action CSR responses
that could help them deal with these new CSR pressures (Lund-Thomsen and Nadvi,
2010b). Another global factor appeared to be the interest displayed by international aid
agencies such as the ILO and UNIDO in contributing to the solution of social and
environmental challenges in global supply chains by co-funding joint action CSR projects in
developing country clusters. Clearly, both agencies played a central role in driving this
agenda through the project-based activities in Latin America, Africa, and South Asia. At the
same time, local factors such as the tightening of environmental regulation, judicial activism
by developing country courts, national media reports, and community-based protests not
only increased environmental awareness in many developing countries, but also put
pressure on a number of developing country clusters to clean up their operations. In some
instances for example, cluster-based manufacturers faced the threat of temporary or
permanent closure if they continued to violate national environmental laws. This was
particularly the case in Indian leather tannery clusters where judicial activism has played an
important role in incentivizing the leather manufacturers to install common effluent treatment
plants (see, e.g. Kennedy, 1999, 2006).
The evidence emerging from these studies is mixed. On the one hand, joint action CSR
initiatives appear to have facilitated the installation of water treatment plants, the diffusion of
environmentally friendly technologies, the introduction of child labor monitoring schemes,
and social welfare activities in leather tanning, brick making, textile and football
manufacturing clusters in Mexico, Pakistan, and India. On the other hand, the
commitment of cluster-based firms to such joint action initiatives has sometimes been
partial as has been witnessed in case studies analyzing the establishment and running of
common effluent treatment plants in Kasur, Pakistan and Tiruppur, India. As these initiatives
are mostly voluntary in nature, some firms in Tiruppur have borne a disproportionately large
part of the expenditures associated with establishing and sustaining such initiatives. Other
cluster-based firms in Tiruppur and Kasur have preferred to opt out of them or not live up to
their stated commitments, provoking questions about their overall effectiveness in light of
widespread free-rider problems (Blackman, 2006; Crow and Batz, 2006; Tewari and Pillai,
2005; Lund-Thomsen, 2009).

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More recently, a comparative study of the implementation of joint action CSR initiatives in the
Sialkot (Pakistan) and Jalandhar (India) football manufacturing clusters suggested that the
differential integration of clusters into global value chains might partly explain why clusters
implement joint action CSR initiatives in different ways. In both clusters, joint action initiatives
involving local industry associations, international donors, and NGOs facilitated the
implementation of child labor monitoring mechanisms and social projects aimed at
transferring children from stitching footballs to studying in local schools. However, in the
Sialkot cluster, where the presence of international megabrands such as Nike and Adidas
was acutely felt, local manufacturers were under greater pressure to comply with the CSR
requirements of international buyers. In Sialkot, this led to the development of a more
rigorous child labor monitoring mechanism than in Jalandhar. In fact, as the Jalandhar
football manufacturers were primarily selling their products to less visible, smaller
international buyers, these were less rigorous in monitoring compliance with CSR
requirements within their supply chains. Yet, in Jalandhar, this provided the local industry
association, the Sports Goods Foundation of India, with greater freedom to design its own
social projects for football stitchers and their families from the ‘‘bottom-up’’ (Lund-Thomsen
and Nadvi, 2010a).

Moreover, the emerging literature on the role of CSR in industrial clusters has explored the
links between industrial upgrading and social upgrading in global value chains (see,
e.g. Puppim de Oliveira, 2008; Posthuma, 2008; Damadoran, 2010; Khara and
Lund-Thomsen, 2011). In this literature, the focus has been on whether product
upgrading (improving product quality), process upgrading (making them more efficiently),
functional upgrading (moving into higher value-added functions in the chain), and
intersectoral upgrading (using knowledge/skills generated from competing in one industry
to gain competitive advantage in another) would translate into better working conditions for
those laboring in industrial cluster settings. While it is still early days to draw even preliminary
conclusions from these studies, it appears as if industrial upgrading in clusters may
generate both winners and losers among workers. For example, larger and medium-sized
firms in industrial clusters that serve more demanding international and local markets may
experience faster product and process upgrading that are accompanied by the creation of
better and higher paid jobs in factory-based settings with greater levels of social protection
for workers. However, industrial upgrading might also displace smaller, micro-level
enterprises and certain categories of workers (e.g. female home-based workers) that cannot
meet these product or technological demands. This is sometimes the case in South Asia
where female home-based workers may not be allowed to work outside the home by their
male family members due to local gender-based norms in the communities in which they
reside (Posthuma and Nathan, 2010). This preliminary set of findings would appear to
confirm the evidence produced from other studies that found similar results being
associated with industrial upgrading in global value chains although these studies did not
have a specific focus on industrial clusters (see, e.g. Nadvi, 2004; Barrientos et al., 2010;
Lee et al., 2011).
At a more fundamental level, cluster-based CSR initiatives have also been criticized for
mainly catering to the concerns of Western NGOs, consumers, and branded buyers (e.g. in
the case of child labor eradication schemes), while doing little or nothing to address more
immediate, poverty reduction related concerns facing local manufacturers, contractors and
workers in developing country contexts. Hence, another recent study of the Sialkot football
manufacturing cluster documented how some exporters perceived cluster-based CSR
initiatives as a form of economic and cultural imperialism. Western buyers would often insist
that local cluster-based firms should upgrade in social terms;, e.g. for example by paying
their workers the minimum wage. However, at the same time, these international buyers not
only demanded constant price declines, and were unable to secure local suppliers a steady
source of income due to fluctuations in demand but they were also unwilling to share the cost
of social upgrading, For example, by pricing their products in such a way that local
cluster-based firms would actually be able to pay their workers the local minimum wage
(Khan and Lund-Thomsen, 2011).

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 As a response to this perception that CSR may become an alien, foreign-imposed concept
with little or no connection to the economic and social realities facing cluster-based firms in
developing countries, attempts have been made at developing more Southern-centered
approaches to enterprise social responsibility. In fact, in the Indian context, the UNIDO office
decided to adopt the term ‘‘enterprise social responsibility’’ (ESR) instead of corporate
social responsibility in recognition of the fact that most of India’s cluster-based firms are not
large-scale corporations but instead SMEs that may face a different set of challenges in
relation to their social and environmental commitments to the communities in which they are
embedded. A systematic attempt was therefore made at mapping the perceptions of
cluster-based SME entrepreneurs in terms of what they perceived as their social and
environmental responsibilities.
To a large extent these policy-oriented studies undertaken in the Indian context confirmed
earlier findings from Latin America that documented that SMEs often engaged in more
‘‘hidden’’ and ‘‘silent’’ social initiatives that remained largely unpublicized, rooted in the local
communities where SMEs operated and were closely linked to the personality/personal
motivation of small-scale entrepreneurs (Vives, 2006; Sachdeva and Panfil, 2008). As
Spence and Painter-Morland (2010) have convincingly argued, ethical considerations are an
integral part of the everyday business interactions that SMEs have with a variety of
stakeholders. In fact, SMEs often do not use the concept of CSR. Instead building networks,
nurturing community relations and establishing a reputation in these communities are what
are at the heart of the daily running of these enterprises. This seems to be one of the reasons
why these activities often remain ‘‘silent’’ in comparison with those of large companies that
spend a lot of time developing, analyzing, monitoring, and publicizing their CSR activities.
While this literature may have made some progress in relation to demonstrating that
cluster-based firms are not ‘‘devoid’’ of any social and environmental engagement outside
Western-style CSR interventions, it seems too early to conclude what, if any, significance
such ESR practices have. As in the case with the poverty-oriented interventions undertaken
by UNIDO in the first decade of the new millennium, the implications of ESR practices for
local incomes, work, and environmental conditions have not been studied in depth. In fact,
we do not know whether these practices cause any social or environmental good. At the
moment, the only evidence pointing in that direction is the statements of SME entrepreneurs
who – in their own words – believe that they are making a difference by engaging in such
practices. Crucially, the intended beneficiaries of ESR practices, workers and communities,
have so far not really been surveyed in terms of what they think of their ESR practices such
as their employers providing them with tea or paying for their weddings. In fact, as a recent
study points out, there seems to be a risk that perceiving such ‘‘local’’ ESR practices in
industrial clusters as a policy alternative to Western-style CSR initiatives may remove
attention away from cluster-based SMEs committing labor rights violations such as not
paying workers their minimum wage, not providing them with any health insurance or
pension scheme, and failing to provide them with a regular source of income (see,
e.g. Jamali et al., 2011).

Conclusion and future reflections

In this review article, we traced the debate on industrial clusters and CSR back to the early
1990s where academic and policy-oriented writings began to investigate whether clusters
could serve as a vehicle for local economic development in the South. The evidence
emerging from a wide range of studies in the 1990s confirmed the initial hypothesis that
clusters could indeed play a role in promoting local economic development. However, the
literature did not engage with the more fundamental question of whether such local
economic growth processes translated into broader poverty reduction gains for the
population residing in these clusters. This became the main question addressed in the more
policy-oriented debate that took place on industrial clusters and poverty reduction from
2000 to 2005. At the same time, both global factors (in the form of global value chain and
advocacy pressures as well as donor interest) and local factors (national regulation, the
news media, judicial activism, and community-based activism) pressurized a number of

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developing country clusters to engage in joint action CSR initiatives from the late 1990s
onwards. Hence, since 2005, a number of studies have analyzed, mostly in empirical terms,
how industrial clusters have engaged in joint action CSR initiatives.
In terms of the gaps in the literature, very few conceptual studies have so far attempted to
explore whether, and, if so, how industrial cluster development might contribute to poverty
reduction. While an important policy-oriented study was undertaken by Nadvi and Barrientos
(2004), there are virtually no academic studies on the relationship between industrial
clusters and poverty reduction in developing countries. Given the broader poverty reduction
imperative in developing countries, and since many aid agencies, national, and local
governments in the South are actively promoting the development of industrial clusters, this
seems to be a very significant gap in the literature. In both conceptual and empirical terms,
an important task would thus be to develop and test more sophisticated impact assessment
methodologies that could be used to analyze the economic, social, and environmental
outcomes of collective CSR action within clusters across Latin America, Africa, and Asia.
From a policy perspective, this might be helpful in terms of providing international aid
agencies, governmental agencies, and cluster-based industry associations with a more
solid knowledge base to assess whether the interventions they sponsor actually contribute
to achieving equitable and sustainable development in the South.
Unless more in-depth impact assessment studies of joint action CSR initiatives are
undertaken in Latin America, Africa, and Asia, there seems to be a real risk that joint action
CSR cluster initiatives might simply become another form of ‘‘SME greenwashing’’, with
clusters attempting to portray themselves as being socially responsible for public relations
reasons albeit with very little evidence to substantiate the claim that collective action CSR
issues in these settings make a contribution to local economic, social, and environmental
welfare. Similarly, there is a risk that joint cluster CSR initiatives may be perceived by local
cluster actors as part of a Western project of economic and cultural imperialism unless
attention is paid to the divergent economic interests and CSR perceptions of actors inside
and outside of these clusters. For example, if interventions take the form of public-private
partnerships committing globally branded firms, local cluster-based exporters, NGOs and
other actors to collaborate on CSR issues within particular cluster settings, it would be
important to try to create economic incentives for all firms along the value chains to address
CSR issues within the cluster. At present, these costs are mostly passed on by international
brands to local manufacturers without any compensation. At the same time, it would be
important to map out the different perceptions that international buyers, local manufacturers,
NGOs, and other actors have of CSR ensuring that a balance can be struck between
internationally accepted standards (e.g. labor standards) and more locally accepted CSR
practices (see also Lund-Thomsen and Nadvi, 2010a). This might help in improving their
perceived local relevance and impact in developing country contexts.

Notes
1. In this article, CSR is defined as companies integrating economic, social, and environmental
concerns in their core business practices.
2. In the context of developing countries, various distinctions have been made between different types
of industrial clusters which emphasize that developing country clusters often take on specific forms
different from those found in the developed world. This is embodied in distinctions such as ‘‘dormant
clusters’’ serving poor consumers and generating low-income forms of employment, and ‘‘dynamic
clusters’’ with closely networked firms competing in global markets (Sandee, 1995). Authors such as
Schmitz and Nadvi (1999) have also referred to ‘‘incipient clusters’’ at an initial stage of industrial
development, situated in low-income areas, using simple technologies and labor skills and more
‘‘mature’’ clusters that compete in global markets, using more advanced production technologies
requiring more sophisticated labor skills. These definitions highlight the role that developing country
clusters may play in promoting local economic development, promote skills development, and
reducing poverty in low income, poverty-stricken communities.
3. Whereas this part of the literature on industrial clusters has been rather pessimistic in its outlook on
the prospects for sustained local economic development as a result of cluster integration into world

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 markets, later studies indicate that clusters – at least to some extent – can protect themselves from
the risks associated with participation in economic globalization. While cluster-based firms might
experience quick product and process upgrading through their linkages with global buyers, they
can simultaneously develop their own brands in local, national, and regional markets that reduce
their vulnerability and dependence of globally branded buyers (Bazan and Navas-Aleman, 2004;
Navas-Alemán, 2011). Indeed the experience of firms in East Asia appear to suggest that firms in
developing countries or countries in transition may become direct competitors to Western branded
firms by first linking up with them, then learning about their products and processes through this
interaction before starting to develop their own brands in ‘‘nearer to home’’ markets before
competing on an equal footing with Western brands on a world-wide scale (Mathews, 2006).

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About the authors

Peter Lund-Thomsen is Associate Professor at the Center for Corporate Social Responsibility
and the Center for Business and Development Studies, Copenhagen Business School,
Denmark. His research focuses on the relationship between global value chains, CSR, and
competitiveness in developing countries. Peter Lund-Thomsen is the corresponding author
and can be contacted at: plt.ikl@cbs.dk
Renginee G. Pillay is a Lecturer in Law at the School of Law, Faculty of Business, Economics
and Law, University of Surrey, UK. Her research focuses on the conceptual ideas of CSR
from a critical corporate law perspective as well as its socio-legal aspects in developing
countries.

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