CAVIRC.net - SMEs Clusters

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SME CLUSTERSSME clusters refer to groups of small and medium-sized enterprises located in a relatively delimited geographic area engaged in the production of the same sort of products. Although there is strong competition among firms, often there is also a high degree of cooperation among firms in that the production processes are divided into distinct phases with separate firms responsible for different phases. Therefore, specialized small firms divide up the labor process and may group together, or regroup, depending on the requirements of the market.The competitive advantages of SMEs grouped in clusters are based on three aspects: specialization, cooperation and flexibility.&lt;img hspace="5" src="/files/01507200515.29.45-freedsa.7dvd" align="left" vspace="5" border="0" />This model allows for flexibility and short response times that large firms with fixed assembly lines are often unable to provide. It is important to point out that firms are interdependent, but do not necessarily have relations of dependency. The small firms tend to be relatively independent even if interdependent.Firm specialization is crucial to the success of districts or clusters in that it allows small firms to focus their resources (which are often extremely limited) on what they do best (core competencies). Specialization may also help curb problems of quality control - if a firm does only one thing, it has to do it well. However, specialization does not occur automatically. Certainly, small firms everywhere attempt to concentrate their efforts in areas in which they excel. But specialization, in terms of process, results in a division of labor among firms. One firm may be specialized in a certain phase of the production process if it operates near other firms specialized in complementary phases. The advantage of specialization is related to individual firms, but also to the cluster as a whole. The development of the cluster is accompanied by increasing specialization of technical and market competencies of local human resources. Local workers, technicians, managers and consultants often move from firm to firm; in this way the advantage of specialization belongs to the local system, rather than to a single firm. Furthermore, local infrastructure and training institutions become increasingly specialized in the cluster activity. The know-how accumulated in the local context becomes the main location factor for productive activities, even by external investors.A cluster of firms working together in a productive system characterized by a division of labor among the members is obviously based on a high degree of inter-firm cooperation. Through a reliance on cooperation with other firms, small firms may accentuate their specialization and compensate for any weaknesses. Inter-firm cooperation is important, not only in terms of the availability of resources, but also in terms of firm flexibility. Cooperative inter-firm relations help firms be more flexible in terms of amount of production since firms may outsource more work when there is increased demand, and less when there is a decrease. Cooperation among firms also helps firms be flexible in terms of type of production in that products can be made to order by grouping different contractors together according to the specialties required. This type of inter-firm cooperation requires coordination. In districts, there is often a strong presence of some form of intermediate governance structure. Governance is used here to mean the &quot;institutional organization of economic activity&quot; (Campbell, et. al., 1991, p. 361). Italian case studies demonstrate that such intermediate governance structures play a key role in facilitating cooperative activities among firms and between firms and institutions. Another element to consider is the location of the productive systems. SME clusters may be located in peripheral, or even rural communities, others in medium-sized towns, others within the industrial apparatus of medium/large cities. Normally, the peripheral rural systems are strictly monosectorial and concentrated on production activity, since they tend to lack qualified services and human resources;the systems located in medium- sized towns are more diversified within the same technological filiere and market target and, sometimes, there is a simultaneous presence of diverse productive systems in the same area; the systems located in larger towns, besides this diversification, can easily find qualified resources within the territory, due to the presence of service activities, universities and research centers, and sufficient infrastructure.It must also be considered that a SME cluster may be isolated or may be located within a larger, regional cluster linked together by technological or market similarities. Examples include the different districts in the province of Brescia, linked to the steel and non-ferrous metals filiere, or the ring of districts around Florence, connected to the fashion industry, or the integration between traditional activities and sectors producing technologies and complementary products for them, as in Emilia-Romagna food valley and in mature textile and footwear systems. The presence of complementary districts in the same region is an important factor for increasing competitiveness, since it facilitates the diffusion of information regarding markets and technologies, the mobility of human resources between complementary (not only similar) activities and the realization of common initiatives. Source UNIDO.org &quot;The Italian SME Experience and Possible Lessons for Emerging Countries&quot; Patrizio Bianchi, Lee M. Miller, Silvano Bertini </PRE>