Italian Clusters: Porters Theory - Article Example

Italian Clusters: Porter’s Theory Clusters have become a popular subject among economic scholars, economic policy makers and development specialists. Michael Porter, a popular economic scholar who has extensively explored the issue of clusters with regard to a competitive advantage notes that clusters are a dominant feature in many developed economies (Porter, 1998). Clusters refer to geographical concentration of a group of organizations and related economic players that derive a competitive strength from their connectivity and mutual proximity (Cortright, 2006). Clusters exist in various nations around the world especially in the economically advanced nations like the U.S and some European nations. Examples of world’s renown clusters include the Hollywood film cluster, the Californian wine industry cluster and the Silicon Valley cluster (Boja, 2011).Among the popularly known clusters, the Italian clusters have received much attention for their wide distribution across different regions and industries. However, clusters have been faced with a myriad of challenges leading to a decline in economic viability of most clusters. The purpose of this paper is to analyze the Italian clusters and provide an informed opinion as to why they are declining and whether they can be improved. Many of Italy’s clusters concentrated across several industries and geographical districts have been in existence for many years. Italian clusters are composed of various firms of varying sizes belonging to different industries but sharing common or complementary technologies (Boari, 2001). Some of Italy’s popular clusters include food machinery clusters located in Parma, footwear industry clusters in Fermo, Tiles cluster in Sassulo Silk cluster in Como and Woolen products clusters in Biella among others (Castellanza et al, 2011). Clusters offer a number of economic benefits to members and to the nation or region. According to Porter (1998), clusters affect competitiveness at the national and regional level by influencing innovation, increasing productivity of firms within the geographical area and encouraging emergence and growth of new businesses (Rosenfeld, 2002). Clusters are vital because geographical concentration enables small firms to overcome the limitations associated with size. It also enables small firms to enhance their technology and increase their local and global competitiveness (Barrientos and Nadvi, 2004). More specifically, clusters allow each of the cluster members to enjoy benefits beyond its capacity without having to forgo its flexibility (Porter, 1998). Despite the benefits offered by clusters, most of Italian clusters have not been able to sustain the competitive advantage over the years. The decline in performance and closure of most Italian clusters illustrates that competitiveness can no longer be attained from the geographical proximity offered by clusters (Porter, 2000). Only a few of the Italian clusters like the Leather Fashion Cluster have been able to survive the emerging challenges (Castellanza et al, 2011). The major strength exhibited by the Leather Fashion Cluster is largely due to synergistic relationship complementarity and multiple connections enjoyed by the cluster members (Porter, 1998). Conversely, many of the once popular Italian clusters like the Cotton mill clusters and the Woolens cluster have lost their competitiveness leading to closure (Castellanza et al, 2011). The decline and disappearance of most of Italy’s clusters can be attributed to loss of competitive advantage due to several factors. At the macro-economic l level, the major factor leading to loss of competitiveness is due to globalization which has led to increased competition for local industries (Porter, 1990). Globalization has created access to international markets leading to outsourcing of cheap labor (Cortright, 2006).For instance, the Jeweler cluster is faced with intense competition from Chinese firms which enjoy less tariffs and friendly labor regulations than the local Jewel industries (Castellanza et al, 2011). The declining competitiveness of the Italy’s clusters is also due to disintegration of the production channels leading to the weakening of the cluster networks and loss of complementarity (Bergman, 2008). The situation faced by Italian clusters cannot be easily rectified without a change in strategies. To mitigate the threat of further decline, clusters have been forced to diversify their product portfolio and move their operations into new geographical markets (Ramachadran and Ray, 2005).This has weakened the links among the cluster members rendering the cluster concept less relevant to them (Martin and Sunley, 2011). Cluster members can help in arresting the situation by utilizing technology to enhance their individual competitiveness without moving their operations to other regions (Porter, 1998). The ultimate survival of the Italian clusters is largely dependent on government interventions through public policy. From this article, it is evident that the challenges encountered by Italian clusters are as a result of failure of the government to enact appropriate legislations to support and safeguard the industry clusters from global competition (Castellanza et al, 2011). The government can assist the clusters by creating an enabling environment for the clusters by enacting appropriate legislations to enhance the competitiveness of the local industries (Halder and Nadvi, 2002). Specifically, the Italian government can promote clusters by supporting creation of knowledge through training, encouraging and supporting entrepreneurship and providing incentives through subsidies and increasing capital availability and access (Cotright, 2006). The government can also promote cluster growth by engaging in dialogue with individual cluster members and establishing a working relationship with private cluster firms (Porter, 2000). To overcome the present challenges, the cluster members should engage the government into negotiations. This will help in presenting their unique needs and the possible policy interventions. Each clusters’ member should seek to identify their internal competitive strengths through interaction with other cluster members and complementary actors within the cluster network (Morosini, 2004). Additionally, cluster members should focus on building their competitive strengths by exploiting the opportunities in their geographical regions instead of trying to emulate clusters in other regions. Works Cited Barrientos, Stephen & Nadvi Khalid. “Industrial clusters and poverty reduction: towards a methodology for poverty and social impact assessment of cluster development initiatives”. Vienna: United Nations Industrial Development Organization, 2004. [Online] http://www.unido.org/fileadmin/user_media/Services/PSD/Clusters_and_Networks/publications/industrialClustersandpoverty_NADVI.pdf Accessed on 28th April 2012. Bergman, E. M. “Cluster life-cycles: an emerging synthesis”. 2008. Print. Boari, Christina. “Industrial clusters, focal firms and economic dynamism: a perspective from Italy”. Washington, DC: The World Bank, 2001. Print. Boja, Catalin. “Clusters models, factors and characteristics”. International Journal of Economic Practices and Theories, vol. 1, no. 3(2011): 34-43. Castellanza et al. “Italian industry clusters flustered: Global competition seems to be weakening the benefits of being a cluster”. The Economist, April 14, 2011. [Online] http://www.economist.com/node/18560669, accessed on 28th April 2012 Cortright, Joseph. “Making sense of clusters: regional competitiveness and economic development”. A Discussion Paper Prepared for the Brookings Institution Metropolitan Policy Program, 2006. [Online] http://www.brookings.edu/metro/pubs/20060313_Clusters.pdf, accessed on 28th April 2012 Halder, G. & Nadvi, Khalid. “Local clusters in global value chains: exploring dynamic linkages between Germany and Pakistan”. IDS Working Paper 152, Institute of Development Studies, Brighton, 2002. Print. Martin, Ron & Sunley Peter. “Conceptualizing cluster evolution: beyond the lifecycle model”? Papers in Evolutionary Economic Geography, #11.12, 2011. [Online] http://econ.geo.uu.nl/peeg/peeg1112.pdf, accessed on 28th April 2012 Morosini, P. (2004). “Industrial clusters, knowledge integration and performance”. World Development, vol. 3, no. 2 (2004): 305-326. Print. Porter, Michael. The Competitive Advantage of Nations. New York: The Free Press, 1990. Print. Porter, Michael. “Clusters and the new economics of competition”. Harvard Business Review, November-December 1998, p. 77-90. Porter, Michael. “Location, competition and economic development: Local clusters in a global economy”. Economic Development Quarterly, vol. 14, no. 1 (2000): 15-34. Ramachadran, K. & Ray, S. “Formation of information technology clusters: how late movers follow models different from early movers”. Working Paper series, Indian School of Business, 2005. Print. Rosenfeld, S. “Just clusters: economic development strategies that reach more people and places”. Corrboro, NC: Regional Technology Strategies, Inc., 2002. Print. Read More