What is an Industrial Cluster?

A geographic agglomeration of producers, buyers and suppliers operating in a particular industry

A cluster is a sectoral and geographic concentration of enterprises facing common opportunities and threats:
Weavers, sector; tailors, garment producers in the textile

Hollow bloc producers, pre-cast beam producers, metal and wood workers in the construction sector;
Cereal, spices, and similar item processors in the food sector.


even though the cluster may have global extensions. Geographically concentrated in one or several regions. Either science-based or traditional.empirical features Collaborating and competing. Clusters can be either institutionalised (they have a proper cluster manager) or non-institutionalised.P.Cornett DK-NSRSA-2010 3 . linked by common technologies and skills. A. Specialised in a particular field.

Access to finance… 4 . Product development.What is Clustering? Clustering is to bring the enterprises of the same sector together in order to find sectorspecific solutions for common problems such as: Premises. location and equipment. Markets and marketing. Transport and supply facilities.

Cluster Development Enterprises are selected from: • • • • Textile and garment. 5 With the objectives of: . Construction – Job creation and – Poverty reduction. Wood and metal works. Food processing.

Business advisors (facilitators) are stationed in each of the clusters. Business advisors discuss proposals of solutions and linked enterprises to other service providers to solve the problems. they identify common problems of the clusters and specific problems of the enterprises involved. Situation Analysis and Action Plan are done in collaboration with the enterprises. 6 . 4.Approach and Steps of Business Development Services in Clusters 1. Together with the enterprises involved. 3. 2.

Major problems of Clusters and Proposals of Solutions Major Problems Joint Solutions 1. Bad location for marketing products 3. Shortage of working capital 4. Lack of technical training 5. Link cluster members to MFIs. Rent sales rooms near potential clients. Link enterprises to projects. make contributions and construct the road. On-the-spot technical advise 2. Minimize production costs. capital is tied-up Negotiate with the office to take finished products and effect payments on time 7 . Contact government and NGOs for additional support. Housing development office is not taking products on time. Bad road condition to secure raw materials and deliver finished products to the market Establish road development committee. Publicize location and products.

exposed to flood and there is difficulty of using electrical machines and store raw materials 4. The cluster is not well known by the public 3.Major problems … Major Problems Joint Solutions 1. Insufficient information on tax regulations Deliver information on time Invite tax people to brief enterprises on tax regulations Assist cluster members in business plan preparation and participate at exhibitions/bazaars Members take measures to level the site themselves Ask Kebele/Sub-city for intervention Negotiate with Kebele and city administrations to provide additional support in constructing the roads 2. Access and internal roads not properly constructed 5. Housing development office is not taking products on time. payments delayed Negotiate with the office to take finished products on time 8 . The site is not properly prepared.

Summary of Common Problems of Clusters Infrastructure problems: – Roads not properly constructed for some of the clusters – Insufficient electric and water supply – Insufficient sanitation facilities Market problems: – Inaccessibility of clusters to buyers (location) – Competition from non-clustered enterprises – Clusters are not promoted to the general public Administrative problems: – No functional cluster associations and bank account – Customers not taking finished products on time. payments are delayed – Lack of coordination of common facilities 9 .

laws and regulations Lack of technical advise on product quality 10 . markets.Summary of Common Problems on Enterprise Level Enterprise specific market and marketing problems Insufficient size of production premises Non-availability of raw materials in close proximity Lack of technical. managerial and record keeping skills Insufficient supply of machines Lack of information on suppliers.

Clusters and regional innovation systems The concept of clusters developed to explain national or regional success – Innovation seldom takes place in isolation but is systemic. – Clusters mostly also encompass strategic alliances with universities. bridging institutions (brokers. consultants) and customers. research institutes.g. Motorsport cluster . knowledge-intensive business services. Communities of practice and networks of practice Knowledge communities e. The cluster is a ‘reduced scale innovation system’ – Clusters as networks of production of strongly interdependent firms linked to each other in a value-adding production chain.

Creative industries cluster as a knowledge community Audience Education and training Projects and venues Creative knowledge pool Specialist business services Associations Creative individuals Creative firms Local authorities Business support agencies Cultural and creative support agencies Specialist manufacturing support Retail .

multimedia. creative industries etc Association between creative employment and open. vibrant communities Successful places are cosmopolitan.Creativity and talent Cluster success requires and encourages flow of talented individuals Especially important in new economy. young people oriented. buzzing etc .

know how and who – networking and institution-building Facilitating learning at various levels Contributing to local governance and learning region strategies Community action and the social and cultural development of regions Contributing to thinking on sustainable regional development Role in shaping the quality of place .Role of universities as knowledge institutions Attractors and generators of talent Suppliers of knowledge not just technologies Increasing the stock of formal knowledge but also informal .

Industrial clusters are at the core of the innovation and learning system GLOBAL VALUE CHAINS INDUSTRIAL CLUSTERS .

Integration of Industrial clusters in global value chains Large-scale. multi-outlet retailers Small-scale retailers Global customers Global buyers National boundary Buyer and export agents Local customers Large-scale or multiplant manufacturers Small-scale manufacturers Domestic industrial cluster Small-scale suppliers .

Main types of industrial clusters Clusters of large national firms Clusters of Small and Medium Enterprises Clusters of subsidiaries of foreign firms .

Drivers of cluster development GLOBAL LINKS • Global Buyers • Foreign Investment • Technological Acquisition LEAD DOMESTIC BUYERS FIRMS DOMESTIC SUPPLIERS DOMESTIC CAPABILITIES •Enterprise Development •Skills •Technological Efforts •Infrastructure .

Strategies of innovation and learning of clusters in global value chains Clusters in developing countries enhance their competitiveness through a pro-active strategy of innovation and learning driven by the lead firms which includes : • LINKING with more advanced foreign partners in global value chains • LEVERAGING local competitive advantages to acquire the knowledge and technology of the foreign partners • LEARNING to up-grade capabilities by adapting. using and improving the acquired technology .

Innovation paths of industrial clusters in global value chains R&D Design Assembly and Manufacturing Distribution Marketing .

The Innovation and learning Support System GLOBAL VALUE CHAINS • Financial INDUSTRIAL CLUSTERS resources .

investment and competition policies Tax system and business regulations .Importance of framework conditions Quality and stability of the political system Reliable and efficient legal system Macroeconomic stability Trade.

Resources. services and support institutions Utilities. Infrastructure and logistics Human resources and education/training Technological development and Research. Entrepreneurship and Business Development Services Financial resources and institutions Information on markets and industries Product and environmental standards and support institutions .

Support systems for global links Attracting foreign investment. Promoting exports Developing partnerships with global buyers Acquiring foreign technologies .

The Industrial Innovation and Learning System GLOBAL INDUSTRIES • Financial INDUSTRIAL CLUSTERS resources INDUSTRIAL GOVERNANCE SYSTEM .

Central issues to be addressed in a business development perspective are: The nature of industrial clusters and industrial districts. Finally. The nature of systems of production with regard to regional and/or functional characteristics. an attempt is made to answer the question whether it is possible to stimulate clustering processes by public policy initiatives . The organizational set-up of a system as supportive measure for cluster policy.

P.Cornett DK-NSRSA-2010 27 .Figure 2 Cluster development Economic performance Mature clusters Number of clusters Development of cluster Germinating or budding clusters Cluster initiative Potential clusters time A.

Risk of mono structure Lock-in effect Inelasticity Stress of competition .Advantages / Disadvantages of cluster-based economomic development policy: Innovation and competitiveness. Skill formation and information. Growth and long-term business dynamics.