What Gives Industrial Clusters a Sustained Growth?

AuthorSingh, Sweta


Industrial clusters can be defined as "the concentration of specialized industries in particular localities" (Marshall, 1925). The term industrial clusters has seen interest from scholars of different disciplines such as geography (Krugman, 1991), sociology (Saxenian, 1994), strategy (Porter, 1990), political economy (Best, 1990) and more recently economy (Belleflamme et al., 2000). Clothing trade in Northern Italy, the electronics industry in California, timber products in Sweden, Kanpur leather industry in India are a few examples of such industrial clustering. Probably, due to the success observed in geographically co-located economic activities, the amount of attention given to territorial agglomeration has increased steadily. The importance of these clusters has been noted by many scholars including Porter (1998: 90) who states that "In a global economy- which boasts rapid transportation, high-speed communication, and accessible marketsone would expect the location to diminish in importance. But the opposite is true. The enduring competitive advantages in a global economy are often heavily local, arising from concentrations of highly specialized skills and knowledge, institutions, rivals, related business, and sophisticated customers."

The benefits accruing to the firms in an industrial cluster are manifold. For example, Molina-Morales (2001) found that the population of a firm with culturally homogeneous community benefits from the localized accumulation of skills. The first justification of the benefits derived from industrial clusters is Marshallian economies (Marshall, 1925) according to which economies can benefit from increased pooling of common factors like skilled human resources, technological spill-overs and specialized suppliers. Further, the intangible resources like knowledge, experience and information can aid the smooth functioning of industrial clusters (Mudambi et al., 2017). The diversity of local condition, institutional and economic environment influences the learning process and is as essential as microeconomic linkages (Saxenian, 1994). Industrial clusters have been recognized to generate knowledge (Li et al., 2019), competitive advantage (Schmitz, 1999), collective efficiency (Desmarchelier & Zhang, 2018), and better performance than isolated ones (Delgado et al., 2016). The competitiveness of industrial clusters has been attributed to new market exploitation and cost reduction (Iammarino & Mccann, 2006), but the sustainable development of industrial cluster has received insufficient attention.

Sustainability is a broad context and can have different connotations. The life cycle of a group of firms in a cluster and its sustainability could be understood from the environment perspective as well as economic development. Industrial clusters emerge, grow, stagnate and decline, and sometimes they emerge from crisis and regenerate. The question then arises: what factors contribute to clusters ability to sustain and what are the sources of their sustainability? This paper aims to offer arguments from a network-based perspective and resource dependence perspective to explain and understand the sustainability of firms belonging to the industrial cluster.

A Network-based View

The network is "a set of actors connected by a set of ties" (Borgatti & Foster, 2003) and networking is "the process of contacting and being contacted by people in our social network and maintaining these linkages and relationships ... a set of relations, linkages, or ties among people" (Burke, 1993). Social capital, in general, is the value of relationships and is often considered as a powerful renaming of a large band of network research (Walker et al., 1994). Relationships with other firms, organizations, and the government is characterized by reciprocal services, intimacy and emotional intensity. Through networking, organizations can get access to financial, strategic and information resources. Firm's network position can foster performance (Gulati et al., 2000). The value of superior network position can be realized in numerous ways to enhance the performance of the firm. Business is based on long term relationships; hence the position of the actor in the social structure is irrelevant. We address here questions like: (1) what type of networks does exist in an industrial cluster? (2) how the network affects the business among firms in an industrial cluster? (3) can the network and linkages among firms lead to the sustained growth of firms and industrial cluster as a whole?

Network Structure in Industrial Districts

The interest among researchers about inter-firm networks has shown increasing trends (Sydow, 2002). Network literature has extensively documented the benefits of ties in an organizational context. Insights from network theory can be used to explain and understand the web of interdependencies. In industrial clusters, the collaborative networks inside and outside the cluster do not include every firm in the cluster (Boschma & Wal, 2007). The firms in industrial clusters are embedded such that the different links present them different opportunities (Taddeo et al., 2017).

The ties and network in an industrial cluster will be seen through three lenses of network paradigms: embeddedness, trust-based relations and matching theory.

Embeddedness: Embeddedness, as discussed by Granovetter (1985), is a critical network mechanism according to which all forms of economic behavior are embedded in a social context. The main argument of this phenomenon reflects that economic behaviors are affected by social relations and the structure of the overall network of social relations. It is a continuous process which is shaped by relations of different constituents which facilitates trust-based relation and discourages opportunism. Restricted access, collective sanctions, reputation and macro culture, are cultivated in such type of relations (Jones et al., 1997). Embedded ties enhance business performance (Bai & Johanson, 2018). The repetitiveness of the relations generates embedded logics of exchange and has been found to affect the cost of capital (Uzzi, 1999); continued client relations (Baker et al., 1998) and clients (Uzzi, 1997). The Embeddedness of relationship between inter-organizations follows from 'whole' networks (Knoke, 1990). Strong embeddedness of economic transactions in social relations between organizations can depreciate opportunistic behavior (Shahmehr et al., 2015). Opportunistic behavior has a control effect which leads to incurring relative cost for an alternative course of action. In addition to cooperative behavior, dense embeddedness further leads to network closure and cohesive groups which facilitate learning, cooperation and trust. Industrial clusters are said to have an unusual level of social integration and embeddedness, which arises from durable social capital, social history and collective action (Gordon & McCan, 2000).

In such clusters where the trade is between local linkages, cooperation with firms outside the district is minimal (Gebreeyesus & Mohnen, 2012). The information is obtained from local and informal relations. The social relations are thus recognized, and preference for a transaction is given to those with a known reputation. This reputation builds over time results in dense, socially embedded relations which fosters business activities and is often long-term relation. Thus, the socially sustainable embedded relationship influences the ability of the industrial cluster to sustain such that the economic, as well as regional prosperity, becomes evident.

Network Based on Trust

Industrial districts have been found to have cooperative relations and trust among firms (Paniccia, 1998). Coleman's (1990) view on network closure focuses on the risk of being a broker and...

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