Cluster and How the Cluster Approach Helps Economy or Regions to Develop?

Innovation Management

Home Work #1

Questions:

1) What is cluster?

2) How the cluster approach helps economy or regions to develop?

1. Cluster is a concentration of groups of related companies in geographically closed proximity: suppliers of equipment, accessories and specialized services, infrastructure, research institutes, Universities and other organizations, that tries to complement each other and reinforce the competitive advantages not only for individual companies, but for the whole cluster. Сluster promotes business competitiveness through the implementation of effective interaction of cluster members due to geographically closed positions. The term "cluster" refers to the sectoral and geographical concentration of enterprises that produce and sell a series of related or complementary products. According to Michael Porter, the major reason to have cluster is a competition. Only the strong companies will survive in the market, other will disappear. As a result, the industry's market is dominated by a cluster of firms concentrated in one area that can reach success not only in one country, but also continue to develop their business globally. Unfortunately, in Kazakhstan we do not have many good examples of cluster due to weak industrial policy, however we have “Sultan” and “Cesna” companies providing diversity of products for whole nation and also “Kazakhmys” copper producer, that means that in Kazakhstan agricultural and metallurgy cluster is well developing nowadays and government tries to expand internal trade among cities to be prepared for global sales gaining special knowledge and experience.

2. Cluster is an effective way to improve the competitiveness and modernization of the national economy. The cooperation of different corporations, support the exchange of innovative technologies and an increase of vacant places for people in the country. In terms of market entity, the impact of the functioning of small businesses in the cluster can be estimated in a performance of the cluster: profitability, attitude to innovations, financial flows, etc. Cluster approach helps the economy due to tree major reasons:

1) Ability to receive benefit from the distribution of costs for maintenance and development of common resources for multiple companies.

2) Due to geographical proximity, providing low cost and quick delivery for the goods or services of the business.

3) The concentration of companies within the same area contributes to non-formal communication, exchange of knowledge, information and experience.