Clusters can be defined as concentrations of competing, collaborating and interdependent companies and institutions which are connected by a system of market and non-market links.
How do clusters benefit businesses and the wider economy?
Clustering can bring a wide range of benefits to both business and the wider economy. The following are examples of the types of benefits than can be gained:
- Companies can increase the expertise available to them if they locate amongst a cluster of other firms.
- They can also can draw upon others with complementary skills to bid for large pieces of work which each of the individual firms would have been unable to complete.
- Advantage can be taken of economies of scale by further specialising production within each firm, by joint purchasing of common raw materials to attract bulk discounts or by joint marketing.
- Social and other informal links are important and can lead to the creation of new ideas and new businesses.
- Reputations spread quickly within the cluster, enabling finance providers to judge who the good entrepreneurs are and business people to find who provides good support services.
- The cluster enables an infrastructure of professional, legal, financial and other specialist services to develop.
Indeed, research suggests that clusters of firms and skilled workers may be one of the key drivers of economic growth in localities, cities and regions. However, adopting a cluster approach is not the only way of encouraging regional economic growth. Informal networking, developing supply chains and improving workforce skills all have a part to play in creating business to business links, increasing knowledge and spreading best practice, thus improving competitiveness and creating growth.
Further information
- Background to the cluster approach see Chapter
5 of the Analytical Report of the 1998 Competitiveness White Paper
- The development and aims of DTI clusters policy
