Academic journal article Academy of Entrepreneurship Journal

The Impact of Industry Clusters on the Economy in the United States

Academic journal article Academy of Entrepreneurship Journal

The Impact of Industry Clusters on the Economy in the United States

Article excerpt

INTRODUCTION

It is important that we first understand what clusters are before attempting to highlight their importance. Harvard business school defines the term 'clusters' as "a geographically proximate group of interconnected companies and associated institutions in a particular field, including product producers, service providers, suppliers, universities, and trade associations".

Michael Porter is responsible for the introduction and popularization of clusters. Porter stated 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. In the modern global economy, comparative advantage, how certain locations have special endowments to overcome heavy input costs, is less relevant. Now, competitive advantage, how companies make productive use of inputs, requiring continual innovation, is more important" (Porter, 1998).

Clusters are groups of inter-related industries that drive wealth creation in a region, primarily through export of goods and services. The use of clusters as a descriptive tool for regional economic relationships provides a richer, more meaningful representation of local industry drivers and regional dynamics than do traditional methods. An industry cluster is different from the classic definition of industry sectors because it represents the entire value chain of a broadly defined industry from suppliers to end products, including supporting services and specialized infrastructure. Cluster industries are geographically concentrated and inter connected by the flow of goods and services, which is stronger than the flow linking them to the rest of the economy. Clusters include both high and low-value added employment.

Industry clusters are not new to the business. They have been in development for years. This research focuses on how American companies clustered together, are beneficial to their businesses. Observing various regions, this study takes a look at the importance of information technology clusters. According to Michael Porter, similar companies are not the only companies that tend to cluster together. It happens in virtually every business and it has to do with natural competitive advantages created by the clustering process (Porter, 1998). It has been proven that when companies cluster together, they tend to have a mutual reinforcement and the flow of information is enhanced when these companies work in the same field. It is much more efficient to do business within a cluster because companies can turn to suppliers or other companies who are near them, rather than creating everything from zero. It is also easy to find people, new business partners and it is a self-reinforcing process that tends to feed on itself. In fact, the government plays a strategic role to improve the performance of each key industry through the development and deployment of such project (Tan, 2009).

Statement of Problem

Many businesses in the United States have trouble competing nationally and globally. This is due to a lack of skilled manpower, government policies, the cost and quality of the labor force, the supplier networks and a lack of economic development incentive programs. Businesses unfortunately cannot maintain steady industry clusters because of these key issues necessary to establish an area for a thriving industry cluster.

Statement of Objective

This research was initiated to show how industry clusters work and how they came into existence. It explains the advantages and disadvantages of industry clustering and how certain geographic areas are essential to the practice. Knowing the key issues is very important in order to establish growth and success within an industry cluster. The data from this research is intended to initiate the best practice to keep the industry cluster moving upward. …

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