Economy of Bangladesh

Concept and importance of industrial cluster development

Concept and importance of industrial cluster development


Md. Joynal Abdin

The Independent on August 14, 2018


Cluster is a concentration of homogeneous interlinked and interdependent manufacturing or service provider organizations in a particular location. In Bangladesh, more than 50 homogeneous enterprises collocated in a particular cluster and shares common strengths, weaknesses, opportunities and threats is known as a cluster. Availability of raw materials, skilled labours, market demands, favourable infrastructure so on and so forth factors have direct or indirect impact to develop a cluster at a specific location.

Alfred Marshall, the English economist, is supposed to have propounded the cluster concept in 1910. He examined the industrial districts found in Europe and explained that main reasons of localization of industry are physical conditions such as climate and availability of raw materials. These factors resulted in benefits of externalities for firms within them such as technology availability, access to a skilled labour, access to inputs and marketing advantages.

Later on, Michael E. Porter (2003) who is recognized as the founder of industrial cluster concept defined cluster as a “Geographically proximate group of interconnected companies, suppliers, service providers and associated institutions in a particular field, linked by externalities of various types” (Porter, 2003). SME Foundation defined SME cluster for the first time in Bangladesh in 2013 as “A Cluster is a concentration of enterprises producing similar products or services and is situated within an adjoining geographical location around 5 km radius and having a common strengths, weaknesses, opportunities and threats” (SMEF, 2013).

Professor Michael Eugene Porter is the founder of modern industrial cluster concept through his book ‘the Competitive Advantage of Nations’. Similar but not the same concept one village one product, one city one product concept was originated in Far East in early 80s.

But industrial cluster concept has basic differences than that of the said concepts. The term cluster is commonly known as industrial cluster, competitive cluster, Porterian cluster. Michael Porter claims that clusters have the potential to affect competition in following three ways:

  1. By increasing the productivity of the companies in the cluster,
  2. By driving innovation in the field,
  3. By stimulating new businesses in the field.

A long list of economists, researchers, professors, practitioners have contributed to popularize the concept throughout the world. They have defined clusters from multiple aspects. A good number of models were developed for cluster development. A long list of organizations including the United Nations Industrial Development Organization (UNIDO), the World Bank, Government of Several Countries and Think tanks came forward and popularized the concept. Different economists, researchers, practitioners and organization have defined industrial clusters in different ways. Followings are the notable definitions of industrial cluster:

  1. Michael E. Porter, who is recognized as the founder of industrial cluster concept, defined the cluster as “geographic concentration of interconnected businesses and associated institutions in a particular field”.

  1. United Nations Industrial Development Organization (UNIDO) defines industrial cluster as: “Cluster can be defined as concentration of micro, small and medium enterprises in a given geographical location producing same or a similar type of products or services and these enterprises face similar type of opportunities and threats. The cluster is known by the name of the product being produced by principal firms and the place they are located in”.

  1. SME Foundation (Bangladesh) has defined cluster as “A Cluster is a concentration of enterprises producing similar products or services and is situated within an adjoining geographical location around 5 km radius and having a common strengths, weaknesses, opportunities and threats”.

  1. Rosenfeld (1997) defined cluster as “Geographically bounded concentration of similar, related or complementary businesses, with active channels for business transactions, communications and dialogue, that share specialized infrastructure, labor markets and services, and that are faced with common opportunities and threats.”

  1. Enright (1998) defined cluster as “Regional clustering has been used to describe industrial districts of small crafts firms, high technology centers, agglomerations of financial and business service firms in cities, company towns, and large branch plants and their supply chains.” “…clusters at least must be characterized along relevant dimensions if appropriate policies are to be devised … (these include) …density. Breadth depth…activity base…growth potential…innovative capacity”.

  1. Cluster Development Programme of the Ministry of MSME (Government of India) defined it as “A cluster is a group of enterprises located within an identifiable and as far as practicable, contiguous area and producing same/similar products/services”.

  1. Government of Gujarat (India) defined cluster as “A minimum of 50 industrial units, indulging in the manufacture of the same or related products and located within a radius of 10 km in a particular location, is referred to as a cluster”.

Almost all of the above definition considered the following factors to define a cluster:

  1. A cluster displays a shared identity and future vision.
  2. A cluster is an arena of dense and changing vertical input-output linkages, supply chains and horizontal inter-firm networks.

iii.    Products or services should be similar or homogenous along with related products

  1. Enterprises must be production or service units with collocation, interlinked, and interdependent
  2. Adjoining geographical location: several villages, wards, unions and industrial estates
  3. Over time, clusters can reveal features of emergence, dominance and decline.

Classification of industrial clusters:

Clusters can be categorized in different perspective, feature, origin, function, stage of development, market orientation, as follows:

1) Classification based on origin: Clusters are classified into two major categories based on their origin. These are naturally grown clusters and man-made clusters.

2) Classification based on stage of development: Clusters are classified into three major categories based on the stage of development. These are growing cluster, matured cluster, declining cluster.

3) Classification based on activity performs: If the enterprises of a cluster manufacturing oriented is known as Manufacturing Cluster. While enterprises of a cluster provide service the cluster is termed as Service Cluster.

4) Classification based on size of cluster enterprises: Clusters could be termed as SME cluster if the enterprises of that cluster represent small and medium segment of the industry. Export oriented cluster dominated by exporters.

5) Classification based on technology used: Categorization can also be made based on the technology they use. There could be family based Artisan clusters if they are using indigenous technology; whereas the enterprises in a cluster using modern technology and labor force outside the family members can be termed as. Industrial cluster.

Importance of industrial cluster:

Enterprises of a cluster are collocated, interdependent, interlinked, and shares common strengths, weaknesses, opportunity and threats. As a result an invisible competition is there among the enterprises to produce qualitative products in competitive price. Firms are always in thinking of additional feature of a common product to get comparative advantage in the market. New innovation and higher productivity provides economies of scale where large numbers of buyers are available at a cluster. Enterprises located at a cluster enjoys following positive impacts:

  1. Higher productivity
  2. Better quality
  3. Economies of scale
  4. Availability of buyers
  5. Availability of high standard raw materials
  6. Availability of skilled labors
  7. Knowledge about newer technology
  8. Shared vision
  9. Competitive tendency
  10. Innovation
  11. Replication
  12. New product development
  13. New features in existing product line
  14. Collective negotiation (with government and policy makers) power
  15. Collective action / joint effort etc.

Finally, we can state that, cluster-based entrepreneurship development could ensure optimum use of lands, industrial logistics, and other factors of production. Ensuring compliance and environmental safety in a cluster is much easier for the state / entrepreneurs. Revenue collection and providing incentives in a cluster is much easy than that of the scattered enterprises of a country.


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