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What Are the Advantages of Business Clustering?

by Rose Johnson

A business cluster represents a group of interconnected businesses, vendors and suppliers in a single geographical location. Companies taking part in a business cluster may compete with one another, but they also cooperate with each other to increase their competitive advantage. Business clusters benefit the companies involved and local economies. Business owners should understand the importance of business clusters to take advantage of a clustering opportunity that may present itself in the future. Failing to understand the advantages of a business cluster may result in a missed opportunity for a company to increase productivity and net income.



Increased Productivity
A business cluster benefits the companies involved by presenting an opportunity to increase productivity. Companies in clusters benefit from the use of shared technology and knowledge. Many business take advantage of access to local capital resources. Shared knowledge results from companies within a cluster networking with each other and developing joint ventures. Easy access to employees, training programs, institutions and services is another reason for increased productivity. A business within a cluster can use the processes and innovation of its competitors as a benchmark to improve productivity.
Competitive Advantage
A business cluster allows local companies to gain a competitive advantage over international companies. Businesses within the cluster can deliver products and services to customers quickly because of the close proximity. Local companies also save the consumer money in shipping and other fees. The reputation of a local company spreads quickly, and a positive reputation draws customers. A local business may gain a competitive advantage if it maximizes knowledge specific to its local customers, and develop relationships with suppliers and consumers.
Competitive advantage depends greatly on a company’s ability to produce innovative ideas, technologies and processes. A primary advantage of business clustering is an increase in innovation. In a cluster, local businesses deal directly with customers, allowing the businesses to recognize new innovation opportunities and develop innovative products and services to meet customer demands. Industries that depend greatly on innovation create clusters of innovation, which spur the innovation process. An environment with resources such as money, intellectual property, and information allows innovation to thrive.
Regional Development
As businesses in a cluster begin to increase productivity and growth, they tend to hire more people to keep up with demand. According to an article in “Bloomberg Businessweek” by Professor Richard Mammone of Rutgers University, companies within clusters typically survive longer than outside companies. Growing businesses within a cluster benefits the geographical region of the cluster because of an increase in jobs and tax revenue. A region with a strong economy will continue to attract businesses and citizens. Many local and federal government agencies offer incentives to businesses that join clusters.
Source: eHow
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