Clusters and Industrial Development

For over a decade, IDS has been a leader in research on clusters in developing countries. Initially, during the 1990s, this research was driven by the hypothesis that competitiveness depends on the quality of relationships in the clusters. The results of this work can be found on this page. More recent research has concentrated on the interaction of local and global relationships. This work is driven by the following question: what is the scope for local upgrading strategies where clusters are inserted in global value chains. For the results of this work see The Interaction of Global and Local Governance: Implications for Industrial Upgrading project.

In the course of the 1990s, a major shift occurred in the debate on small scale manufacturers in developing countries: a shift from pessimism to optimism concerning their growth and export prospects.

Research at IDS on industrial clusters made a major contribution to this shift in the debate. There already was agreement that clustering helped small enterprises to overcome growth constraints and compete in distant markets but there was also recognition that this was not an automatic outcome. IDS researchers and their international collaborators then sought to specify the circumstances in which clustering boosts industrial growth and competitiveness.

Their work stresses the need to distinguish between incipient and more advanced stages of industrialisation. They argue that clustering is particularly relevant for the early stage of industrialisation by helping small enterprises to grow in riskable steps. Case material from Asia and Africa show both the importance and limitations of this argument. Other case studies (from Mexico, Brazil, Pakistan and India) focus more on mature clusters that include medium and large enterprises. They examine the ability of such clusters to cope with global competitive pressures and they specify the circumstances that make the difference between success and failure.

Main Research Findings:

  • Industrial clusters are common in a wide range of developing countries and sectors.
  • Clustering has helped small enterprises to overcome well-known growth constraints and compete in distant markets, nationally and abroad.
  • The collective efficiency approach, developed at IDS, helps to explain this ability to grow.
  • However, collective efficiency only emerges where trust sustains inter-firm relations and where traders connect clusters to sizeable markets.
  • Joint action of local firms enhances their ability to cope with the new quality and speed requirements imposed by global competition.
  • Within clusters, greater co-operation is positively correlated with improved performance.
  • Increases in vertical co-operation have been more substantial than increases in horizontal co-operation.
  • Global competitive pressures have led to increasing differentiation within clusters.Future research needs a shift in emphasis from internal to external
  • linkages and from production systems to knowledge systems.

Policy System:

  • Successful clusters cannot be created from scratch; there needs to be a critical mass of enterprises and skills (however rudimentary) that outside assistance can “hook into”.
  • External support for clusters works best where industrial policy is decentralised and builds on public-private partnership.
  • The lessons from fostering clusters and networks are summed up in ‘The Triple C Approach to Local Industrial Policy’. To be effective, interventions need to be customer-oriented, collective, and cumulative.
  • Strategic responses to global competitive pressures cannot just rely on private joint action but require public agencies as catalysts or mediators.
  • To find out more about the research results, visit: Industrial Clusters in the Global Economy

Project details

start date
2 February 1994
end date
31 March 1999

Recent work

Journal Article

Clustering and Industrialization: Introduction


The aim of this introductory article is fourfold. First, it traces briefly the trajectory of the debate on industrial clusters in developing countries. Second, it identifies what we - as editors - consider the key issues in this debate. Third, it highlights how the contributors to this Special...

Khalid Nadvi

1 January 1999

Journal Article

Collective Efficiency and Increasing Returns


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. This paper focuses on some conceptual and theoretical points which help to explain them. The discussion is conducted...

1 January 1999