Recent research on industrial clusters in developing countries has unearthed some notable success stories of small local enterprises growing fast and competing in export markets. Research by the Industry Group at the Institute of Development Studies shows that clusters of small firms can overcome well-known growth constraints and sell to distant markets, nationally and abroad.

After undertaking a comprehensive review of small firm clusters in the developing world the researchers studied in depth and over time, the growth of shoe exporters in Brazil's Sinos Valley and surgical instrument manufacturers in Sialkot, Pakistan. They conclude that growth and competitiveness hinge on collective efficiency, that is advantages derived from local external economies and collective joint action. It is also shown that such gains are highly differentiated, while some segments of the clusters have grown others have not. Current research is probing how such clusters respond to the rigours of liberalisation and globalisation? Results to date challenge both orthodox theories of flexible specialisation and conventional models of industrial districts. The findings of research in the Sinos Valley and Sialkot indicate that:

• The size structure of the two clusters includes some very large firms but is dominated by SMEs. In Sinos Valley expansion of mass-production (Fordism) was an important and necessary component of growth in the 1970s and 1980s
• The scope for small-firm production is increasing in the 1990s, due to smaller order sizes and shorter delivery schedules. However, the adoption of new flexible production methods is occurring selectively
• While some large firms have vertically integrated their production, the rest rely on complementary inter-firm division of labour, services and supplies
• The industrial organisation of the clusters have been shaped above all by markets and the way traders operate
• Competition and local rivalry within the clusters are intense
• Self-help organisations play an important role in trade, training and technical services, but are least used by small firms
• Social and cultural ties initially played a big role in cultivating co-operation, reciprocity and trust between players, but their importance has diminished over time
• Recently the need to meet higher quality and delivery standards seems to have prompted new investment in relationships with suppliers and workers
• Despite rapid economic growth, evidence of improvements in real wages is less clear
• External buyers are increasingly playing a more critical role

Implications for further research include:

• The need for a dynamic understanding of cluster development, tracing changes over time, and in particular focusing on how, and under what conditions, joint action takes shape
• The need for examining the impact of market changes on firms of different size, here it is useful to distinguish between the ability to react and the ability to be proactive
• Recognising that internal organisation of an industrial cluster is not sufficient to predict its trajectory: analysis must shift to include external linkages. The role of traders needs to be included in research on how industrial clusters develop
• Better understanding of how clustering helps local firms cope with uncertainty and risk would be an important advance.

Source(s):
1. Small Shoemakers and Fordist Giants: Tale of a Supercluster, World Development 23(1), Schmitz, H. (1995) >
2. Collective Efficiency and Increasing Returns, IDS Working Paper 50, Schmitz, H. (1997) >
3. The cutting edge: Collective Efficiency and International Competitiveness in Pakistan, IDS Discussion Paper 360, Nadvi, K. (1997) >

Funded by: ESCOR (ODA/DFID); Leverhulme Trust, UK

id21 Research Highlight: 1998-Feb-13

Further Information:
H.Schmitz and K.M.Nadvi
Institute of Development Studies
University of Sussex
Brighton BN1 9RE
UK

Tel: +44 (0)1273 606261
Fax: +44 (0)1273 621202
Contact the contributor: ids@sussex.ac.uk

Institute of Development Studies (IDS), UK

Other related links:
Collective efficiency and the growth of small firms (IDS Industry Group Report 1997)

The advantages of clustering: the case of Sialkot (IDS Industry Group Report 1997)