Frequently Asked Questions (FAQs) About Clusters
1. What is a Cluster?
IDB defines a cluster as “A productive agglomeration aiming at exploiting local linkages to generate and strengthen competitive advantages” (Pietrobelli and Stevenson 2011).
Michael Porter defines a cluster as a “A geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities” (Porter 1998).
The image below illustrates the different stakeholders involved in an Agri-business cluster.
2. What is a Cluster Initiative or Project?
Cluster initiatives foster collaboration and sophistication of diverse stakeholders in a value chain. They also support organisations such as regulatory bodies, quality standards, academic and training institutions, research and testing centres, economic development organisations, etc.
According to the World Bank, “A cluster initiative offers a comprehensive assessment of a cluster’s markets, products, linkages, externalities, and synergies to help identify regulatory and business constraints, tap new and wider market opportunities, and develop sound business strategies to tackle its main competitors. Strategic initiatives vary by country and cluster, but often focus on improving market Information, workforce development, supply chain improvements, quality standards, branding, forward integration, and process improvements.”
3. What is the purpose of a Cluster initiative?
The main purpose of cluster project is to drive PRODUCTIVITY and INNOVATION over time, which are driven by a great mix of cooperation and competition at the micro level. More specifically, the objectives tend to focus on:
- Joint marketing and regional/national co-branding to access larger markets and more value per customer
- Solving coordination problems
- Establishing relationships with government and partners
- Training – co-investing in human capital
- Research and Development (R&D)
4. What are the benefits of cluster initiatives?
The value of clustering for the Caribbean’s small and medium private sector organisations lies in the opportunity to become more competitive through cost savings, cost sharing, co-branding and innovation. The combined efforts of networking and strategic alliances can lead to a stronger international profile.
Cluster initiatives contribute to comprehensive national competitiveness efforts that include policy reform, trade capacity building, a private-public dialogue, regional economic development, workforce development, etc.
Ultimately, business clusters generate employment and revenues. Clustering is proven to help upgrade the sophistication of diverse stakeholders involved in a cluster such as suppliers, wholesalers, regulatory bodies, government/NGOs, as well as university and training institutions. Overtime, collaborative approaches in business development, applied research, ICT, and R&D foster the relationship between the alignment of the supply with the needs of the private sector, which in turn drives innovation and productivity at the country level.
Other benefits include:
- The multiplication of economic growth through spillovers: the diverse and disperse activities in the value chain used to reduce risk, access cheaper inputs, or better serve particular regional markets.
- Enables countries to shift policies from cost cutting (tax incentives / subsidies) to promoting growth and innovation.
A. FOR PRIVATE SECTOR FIRMS
- Access to specialized human resources and suppliers,
- Improve quality and productivity
- Workforce development
- Knowledge spillovers as a result of collaboration and networking with diverse stakeholders
- Innovative products/services or processes (better ways of doing same or different things)
- Costs reduction and operational efficiency
- Risks mitigation
- Performance improvement due to international or competitive pressures
- Supply chain improvements/ Reduction or elimination of bottle-necks in the eco-system
- Improvement of market information and access to larger markets
- Branding and market penetration (new or diversification)
- Access to research & development (R&D)
“Through dialogues at the cluster level, new partnerships can be forged between cluster leaders and various public sector organizations (e.g., organizations working on industrial development, infrastructure development, research, innovation and training, etc.) that can help expedite policy reforms. Better coordination between the public and private sectors on addressing productivity bottlenecks.”
B. FOR GOVERNMENT AND DEVELOPMENT AGENCIES
- Improve competitiveness on the global market
- Enable countries to shift policies from cost cutting (tax incentives / subsidies) to promoting growth and innovation
- Increased exports (more foreign exchange obtained domestically from tourists/expats or abroad)
- Sustained market-oriented reforms
- Multiply economic growth beyond the cluster through its linkages, externalities, and synergies
- Higher value/quality standards adopted
- More effective policy and regulatory environment
- Faster technology adoption
- More investment in research & development from the private firms
- Innovation and competitiveness
“A cluster-based approach is a realistic way to identify the policy and institutional impediments to competitiveness and can be an effective vehicle for catalyzing reform. The growth of a cluster is often the catalyst for complementary development in areas such as the provision of specialized infrastructure and additions to the country’s technology and knowledge base. It also may result in the foundation and expansion of training and science institutions, and agencies for export promotion, setting standards and regulations, etc.”
C. FOR CITIZENS
- Better coordination enables the identification of value-added services leading to the creation of more and better jobs
- Obtain better understanding of the economic reform agenda
- Access to educational and training programs that are more aligned with market demand
- Greater quality of products and services available
5. What are the key success factors for effective clustering?
Based on to a survey of 500 clusters worldwide described in the The Cluster Initiative Greenbook, some trends can be identified:
- It is of vital importance that stakeholders reach a consensus on top priorities for the cluster to grow, based on a SWOT analysis
- Cluster Initiatives (CIs) can be initiated and funded by the government, industry or both
- CIs are selected through a competition process perform significantly better on the international level
- CIs have 10 active members or more
- The members are self-selected (not picked by government)
- CIs limited to domestic companies tend to perform worse than those not limited
- CIs have a dedicated facilitator and budget funded by cluster members
- Companies remain the decision makers and most influential parties, even if the CI is funded or facilitated by the government/NGOs
- Adequate time and effort must be allocated to building a framework of shared ideas about why the CI is beneficial and how it operates
- Failure is strongly related to a lack of consensus, highlighting the importance of the credibility and skills of the facilitator
- CIs must have a M&E system with performance indicators to track both progress and impact of activities over time
The most successful clusters are important in terms of job creation or foreign exchange and in time become a priority for economic development at the national (and almost always regional) level.
6. Where can I get more information on clusters and cluster initiatives?
- Cluster for competitiveness – A Practical Guide & Policy Implications for Developing Cluster Initiatives, World Bank Group, 2009
Click here for Practical guide, World Bank
- The Cluster Initiative Greenbook, Solvell, Lindqvist, Ketels, 2003
Click here for Cluster Initiative Greenbook
- Clusters in the Caribbean, IDB, 2017
Click here for Clusters in the Caribbean
- Cluster Best Practices for the Caribbean, IDB, 2010
Click here for Cluster Best Practices in the Caribbean
- Cluster Development Programs in Latin America and the Caribbean: Lessons from the Experience of the IDB. 2011
Click here for Lessons learned about cluster initiatives in LAC
7. What are some examples of cluster initiatives in the region?
Examples of successful export oriented clusters that benefited from Compete Caribbean support in 2016:
8. Which types of organisations are involved in a cluster?
A cluster initiative usually starts as a network of firms and support organizations in a territory with a common goal. In addition to the firms, other stakeholders may include:
- academic and training institutions
- institutions involved in research and testing
- regulatory bodies
- institutions that develop or monitor quality standards
- economic development agencies and NGOs
- investment promotion agencies
- sector associations
9. What are the three types of clusters?
- See application form for anwers