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A business cluster is a geographic concentration of interconnected , suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can competitivity, nationally and globally. Accounting is a part of the business cluster.JANUŠKA, M. Communication as a key factor in Virtual Enterprise paradigm support. In Innovation and Knowledge Management: A Global Competitive Advantage. Kuala Lumpur: International Business Information Management Association (IBIMA), 2011. s. 1-9.
In urban studies, the term agglomeration is used.Porter, M. E. 1998, Clusters and the New Economics of Competition, Harvard Business Review, Nov/Dec98, Vol. 76 Issue 6, p77, Clusters are also important aspects of strategic management.
Michael Porter claims that clusters have the potential to affect competition in three ways: by increasing the productivity of the companies in the cluster, by driving innovation in the field, and by stimulating new businesses in the field. According to Porter, in the modern global economy, comparative advantage, whereby certain locations have special endowments (i.e., harbor, cheap labor) helping them overcome heavy input costs, has become less relevant. Now, competitive advantage, in which companies make productive use of inputs, requiring continual innovation, is more important. Porter argues that economic activities are embedded in social activities; that 'social glue binds clusters together'. (1998). 9780875847955, Harvard Business School Press. ISBN 9780875847955 This is supported by recent research showing that particularly in regional and rural areas, significantly more innovation takes place in communities which have stronger inter-personal networks.
The Hollywood film industry has been studied in literature since the mid-1980s as example of cluster with post-Fordist flexible specialization. However, Silicon Valley has been most influential in cluster theory as well as cluster policies and programs. An industry cluster is a production system limited to a geographic region were related industries and colocations interlink customers and suppliers. (2025). 9780857932693, Edward Elgar. ISBN 9780857932693 The cluster region needs to retain a decisive sustainable competitive advantage over other places, or even a world supremacy in that field.
A cluster is most of the time the result of initiatives, since it implies to convince current competitors to work jointly. The initiative usually comes from the political sphere e.g. the different Singaporian clusters,Porter, M. E., Neo, B. S., & Ketels, C. H. (2010). Remaking Singapore but it can also come from the industry itself.Ziafati Bafarasat, A. (2018) "Theorizing" regime theory: A city-regional perspective, Journal of Urban Affairs, 40(3), pp.412-425 The initiative of Bart J. Groot, the director of Dow Olefinverbund GmbH, a major chemicals complex at the intersection of three Eastern German states Saxony, Saxony-Anhalt, and Thuringia after the German reunification conts as one example. The goal was to "encourage coordination among political and administrative officials" of Mitteldeutschland.
It is also expected – particularly in the German model of organizational networks – that interconnected businesses must interact and have firm actions within at least two separate levels of the organizations concerned.
An alternative to clusters, reflecting the distributed nature of business operations in the wake of globalization, is hubs and nodes.
In other words, (sellers of finance) and (buyers of finance) "clustered" in and around a geographical area.
The cluster effect in the capital market also led to a cluster effect in the labor market. As an increasing number of companies started up in Silicon Valley, programmers, engineers etc. realized that they would find greater job opportunities by moving to Silicon Valley. This concentration of technically skilled people in the valley meant that startups around the country knew that their chances of finding job candidates with the proper skill-sets were higher in the valley, hence giving them added incentive to move there. This in turn led to more high-tech workers moving there. Similar effects have also been found in the Cambridge IT Cluster (UK).
In development of DMC, the Seoul government leveraged initial funding by private technology partners and developers. It is also provided IT broadband and wireless networks to the area as well as needed infrastructure. The Seoul government even provided and favorable land prices for magnet tenants who would attract other firms to the area due to established business relationships and through their presence which would in turn promote DMC as a prime location.
With such a concentration of these entities, Seoul has become a major nexus of high-technology and digital media. It is home to digital media R&D firms across a range of types including cultural media creation, digital media technologies, digital broadcasting centers, technology offices, and entertainment firms. Just outside the DMC complex include international firm affiliates, schools, moderate to low income housing, commercial and convention facilities, entertainment zones, and the city's central rail station. The cohesive connection of industry, cultural centers, infrastructure, and human capital has fostered Seoul as a strong metropolitan economy and South Korea, the Miracle on the Han River, as a storied nation transitioning from a manufacturing to an innovation economy.
Governments and companies often try to use the cluster effect to promote a particular place as good for a certain type of business. For example, the city of Bangalore, India has utilized the cluster effect in order to convince a number of high-tech companies to set up shop there. Similarly, Las Vegas has benefited through the cluster effect of the gambling industry. In France, the national industrial policy includes support for a specific form of business clusters, called " Pôles de Compétitivité", such as Cap Digital. Another good example is the Nano/Microelectronics and Embedded Systems" or in short "mi-Cluster" that was facilitated by " Corallia Cluster Initiative" in Greece. Corallia introduced a bottom-up, 3-phase programme framework for facilitating cluster development, and was short-listed among the final classification (finalists) for the DG REGIO's RegioStars 2009 Awards in the category "Research, Technological Development and Innovation".
Clusters, were proved to boost the innovative activity among firms of the same industry. One of the main causes that might be highlighted is the competition between the companies. Moreover, except of stimulating a favorable conditions for the exchange of ideas, industry-specific regional concentrations, also create a thick labor market input. Hence innovations increase the accumulation of the knowledge in the region which influences on the local internal economies.
The cluster effect does not continue forever though. To sustain cluster performance in the long term, clusters need to manage network openness to business outside the cluster while facilitating strong inter-organisational relationships within the cluster.
Sometimes cluster strategies still do not produce enough of a positive impact to be justified in certain industries. For instance, in the case of Builders Square, the home improvement retailer could not compete with industry leaders such as Home Depot when it could not realize the same low costs and contracts. As a result, it was presented with an option to form a merger with another home improvement retailer, Hechinger to better improve their business clusters and compete with Home Depot and other industry leaders. However, when it failed to do so, it slowly began to fail and eventually fell into bankruptcy. Although the merger attempted to create geographic clusters to compete with the low costs of other firms, costs were not lowered enough and eventually the plan failed, forcing Hechinger into Chapter 7 liquidation and Builders Square out of the industry.
Clusters can also fail if the regional economy does not adapt with the times. In Detroit, when the automotive industry declined, the cluster and the city declined with it. Clusters can fail if they do not use their position to reinvent themselves and move into other industries before the tipping point is reached. In terms of the level of cluster members' innovation performance this type of a system can be usually characterized by a low level of uptake of different technologies due to the limited contacts that actors have with industrial companies focusing mainly on the same areas of interests.
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