Business cluster refers to the geographical concentration of closely related businesses, suppliers, and firms belonging in a given field. The primary objective of forming these clusters is to boost the productivity with which firms compete at both national and international levels. Clusters are also crucial in the strategic management processes. This article discusses the benefits of such clusters, the management at domestic and international scales, and the negative aspects of clustering (DeWitt, Giunipero & Melton, 2006).

Concentrated clusters promote the management of supply chains by between the customer and supplier. Employing the concept of concentrated clusters enhances the benefits a company derives from its interaction by linking various companies and other business entities within the same industry. Operating in concentrated cluster enables firms to understand the precise needs of customers and vice versa. With this situation in place, businesses are able to establish permanent clientele who in turn add a personal touch in the manner transactions is conducted. In addition, concentrated clusters enable firms to standardize their products thus ensuring customers are able to get consistent product (Porter, 2000).

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After cluster analysis in a given region’s economic drivers, the results obtained can be applied in determining existing gaps in the value-adding chain. These gaps can be in the form of imbalance between the suppliers of definite components and the general demand of those components in the cluster. The policy makers can then move into action of mitigating the gap having established the missing links in the supply chain. This can be done by focusing investment programs, attractions efforts, and infrastructural development towards aspects that demand most attention. Consequently, the driving industries would benefit from the values added to the supply chain (DeWitt, Giunipero & Melton, 2006).

In addition, industry cluster is beneficial to the management of the companies involved as it offers an opportunity for enhanced productivity. This may exist in the form of collective knowledge, technology, or technical expertise. In addition, many businesses seize the opportunity to access local capital resources that might have been allocated to the cluster by the government (Coia, 2002). Shared knowledge emanates from the willingness of the firms in the cluster to network with each other while at the same time. The management complexity in accessing employees, training programs and other prestigious institutions is minimized. Furthermore, the performance and service delivery of a firm in a cluster is enhanced by the fact that it can use the products of its competitors as a benchmark to improve its productivity (Porter, 2000).

The management concepts in clusters for firms operating at the international and domestic levels exhibit significant variations. For firms operating in a local market, the management complication tends to be minimal as such firms are enjoying similar benefits to other firms dealing with similar products. This implies that it is now the sole duty of such a firm to boost the quality of its service or product to compete favorably. On the other hand, firms operating at international levels have many issues to address. First, the support an international firm gets might differ significantly to other similar companies in other clusters receives. Consequently, such a firm might fail to compete favorably if the conditions in its cluster are not as favorable because those received by the rest of international companies (Fischer, 2007).

Firms operating at domestic levels have less complicated structures and bureaucracy in their clusters. Since such firms are in the same geographical location, decision making on matters of policy formulation and decision-making are simplified. As such, individual firms can carry out a given activity or influence a certain action by relying on single decision. On the other hand, firms operating at international level face slow and . Such firms have to wait for the harmonization of the decisions from across the by the policy makers before engaging in a given activity (DeWitt, Giunipero & Melton, 2006).

In spite of the advantages of the cluster theory, some other effects to the economy of a nation are undesirable. For instance, by establishing cluster in an industry, other sectors of the economy that cannot operate in clusters are left neglected. This is because the policy makers may feel that they are not as critical to the economic empowerment of a nation, and thus require less attention. This trend spells doom for infant industries because they do not enjoy the benefits that the concentrated cluster industries enjoy (Fischer, 2007).

Secondly, identifying industrial clusters poses a lot of questions and uncertainties on the mode of its operation. Porter (2000) states that when a cluster shares a common approach to competition, there is a high chance of , which in turn consolidates old behaviors, suppresses fresh business ideas, and creates rigidities that hinder the adoption of improvements. Furthermore, cluster might not efficiently enhance radical innovation, which tends to render the existing pools of information, talent, suppliers, and infrastructure useless (Coia, 2002).

In conclusion, cluster theory is an idea that if appropriately applied can fuel rapid economic growth and development. However, the policy makers need to be aware of their role in ensuring that this activity succeeds. Elements of corruption or bias in clustering should be avoided at all costs, because this makes some players in industries feel unimportant ( (n.d)).


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Coia, A. (2002). A new flow: Look outside your own four walls if you want supply chain efficiency. ModernMedicine. Retrieved on 24 September 2012 (n.d). Transportation and Distribution Systems. Retrieved on 24 September 2012