Comparison between Natural Industrial Clusters and Policy-Based Industrial Clusters

Comparison between Natural Industrial Clusters and Policy-Based Industrial Clusters

CHAPTER II: LITERATURE REVIEW

Significance of the Study

With globalization taking effect on virtually every industry in the world, there continue to be incidents where small scale businesses have been driven out of business by multinational corporations. One of the reasons behind the closure of these businesses is that they lack technical and operational expertise that multinationals posses. This study on industrial clustering would provide us with an insight as to the effects of clustering on small scale firms when compared to formal large scale organizations. By understanding the concepts and notions with the two forms of clustering, we would able to understand the rationale behind the use of these forms. It would also enable us in discovering the benefits associated with either form of clustering.

Comparison between Natural Industrial Clusters and Policy-Based Industrial Clusters

In Latin America, for example, clusters in the region comprise of a number of small and micro firms with limited activities thereby reducing the barriers to entry. A number of these firms engage in businesses of shoes, garments, automotive repair and furniture. Several of these firms have been known to operate in areas that have a low-income population and high rate of unemployment (Porter, 2004). The size of such policy-based industrial clusters varies significantly. In some areas, the number of firms can be in hundreds and in some to thousands. The existence of the population of such businesses is often referred to as supply-driven cluster that promotes employment. These clusters often have to produce jobs on their own or look for informal or untrained employees working in local businesses. Even though these employees may have some form of training from working in their shops, they are unaware of the modern technology and the advancements in expertise. Their potential to self-generate employment is limited to a number of activities or skills. Therefore, the question beckons is that why are such activities of survival clustered spatially?

Upon conducting a survey of small shoe and garment manufacturers revealed that the situation is based on business culture built on limitations. All such clusters can be marked back to one pioneer businessman that was able to learn the required skills and initiate a business and then trained family members and a handful of employees. Upon successful acquisition of the required skills and saving seed investment capital, these businessmen started their own facilities in the existing industry. Informal apprenticeship, as a consequence, is the only means of acquiring skills. In these policy-based clusters, the self-employed often resort to creating businesses in their native lands or areas. These businesses look to utilize their family, friends and other sources to hire labor and market their offerings. Moving the business may not be the ideal situation as the there are a number of cultural factors at stake (Martin et al, 2008).

It is due to this that the number of micro firms in such clusters increases. By clustering such SMEs and micro ...