Cluster Development Strategy

MSMEs to become Globally Competitive it requires a strategy over and above the normal production function. Michael E. Porter is arguably the best known name in the world for competitive strategy. Is it possible to use his strategy for the competitiveness of MSMEs? Porter in his work on Competitive advantage of Nations in 1998 observed that the 18th century work of Adam Smith and David Ricardo on factor comparative advantage cannot provide explanations for most of the trade that takes place today. The diamond model proposes four interrelated facets, each of which representing a determinant of regional advantage: (1) firm strategy, structure and rivalry; (2) demand conditions; (3) factor conditions; and (4) related and supporting industries. “Chance” and the “government” are two factors that influence these four determinants, but are not determinants themselves. Together these six factors form a system that differs from location to location, thus explaining why some firms (or industries) succeed in a particular location. Not all six factors need to be optimal for firms or industries to be successful.

However it is argued that Porter’s model is more effective in developed countries rather than in developing countries. There are some alternative strategies explaining the competitiveness of MSMEs in current global scenario. These are Collective efficiency by Schmitz (1995) and flexible specialization by Piore and Sabel (1984)

This week The Times of India covered a very interesting interview on M porter’s views on Strategy http://timesofindia.indiatimes.com/Business/Strategy_is_about_competitive_advantage/articleshow/3054691.cms
Also very interesting read for two alternate theories at http://www.ifama.org/tamu/iama/conferences/2001Conference/Papers/Area%20VI/Neven_David.PDF