Academic journal article Journal of Financial Management & Analysis

Impact of Financial Engineering on Cluster Development : Based on Case Study of Belgaum Foundry Cluster, Karnataka State of India Empirical Research Findings

Academic journal article Journal of Financial Management & Analysis

Impact of Financial Engineering on Cluster Development : Based on Case Study of Belgaum Foundry Cluster, Karnataka State of India Empirical Research Findings

Article excerpt

Introduction

India's industrialization, dramatic shift in development processes and policies have opened up avenues to usher in radical changes on the industrial scenario, leading to global entry and acceptance of Indian products and services. However, inadequate efforts/ responses, reliance on traditional practices and age-old methods, particularly in small, medium, and tiny sector have become the major hurdle for development. In fact, India has a rich, and centuries old foundation of the cluster. Initiatives to boost the various functional areas of a cluster by pinpointing me anomalies that cloud then can lead to dynamism. The guiding principle of UNIDO's approach towards small and medium enterprises (SMEs) is that these enterprises can play a key role in triggering and sustaining economic growth and equitable development in developing countries.

Individual SMEs can network and address the problems related to their size and improve their competitiveness. But it is not only the size that matters today, each industry needs to focus on quality, cost, technology, marketing, training and development etc., because these are the reasons why SMEs are not able to prosper. Small enterprises are in the best position to help each omer with the common problems they all share. Pyke, on the basis of his empirical work, suggests that through horizontal cooperation, enterprises can collectively achieve scale economies beyond the reach of individual small firms and can obtain bulk-purchase inputs, achieve optimal scale in the use of machinery, and pool together their production capacities to satisfy large-scale orders (Pyke)1 . Marshall, in his work on growth and prosperity of economy, advises units in the cluster to focus on vertical cooperation. According to him, through vertical cooperation (witìi other SMEs, as well as with large-scale enterprises along the value chain) enterprises can specialize on their core business and give way to an external division of labour (Marshall2). Best, emphasizing the benefits of cooperation, opines that such kind of upward, downward and parallel relationship enhances sectoral and cross-sectoral collaboration and becomes a learning ground. Inter-firm cooperation also gives rise to a collective learning space, an invisible college3, where ideas are exchanged and developed, and knowledge shared in a collective attempt to improve product quality and occupy more profitable market segments.

Prelude

Michael Porter, during his elaboration on cluster formation and development, said, a cluster is

geographically proximate group of companies and associated institutions in a particular field, linked by commonalities and complementarities (Porter : 1998)4.

In an era of global competition industries tend to cluster. It may seem a paradox but global competition can be fostered with local elements of competitive advantage. Porter further submits,

In theory, location should no longer be a source of competitive advantage. Open global markets, rapid transportation, and high-speed communications should allow any company to source-anything from any place at any time. But in practice, location remains central to competition4.

Porter in his remarks on how to face competition, attributes cluster development and growth to 'competition', and focuses on how these key factors drive competition (Porter : 1990)5. The industrial clusters are determined by the trade dependency and concentration of small enterprises at the city and township level. Outside the boundaries of the city, the effect of clustering gradually diffuses into the larger economy, a phenomena that is called "ripple effect".

When a region becomes too saturated with clusters, it experiences a diminishing return with the establishment of new clusters thereafter (Rosenfeld : 1997)6.

Krugman attributes in his argument that the origins of industry clusters are due to economies of scale rather than comparative advantage, and clusters are a result of accidental reasons and sustained external scale economies7. …

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