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Cluster Theory & Competition

In this thinking, competition is driven by cost, and cost depends on the cost of inputs. The prescriptions are to accumulate factors and compete where the nation had a comparative advantage (Porter 1998b, p.8).
             Though Porter (1990; 1998a; 1998b; 1998c; 2000; 2001) has been the first champion of cluster theory as an underlying factor in a nation's competitive position, he was not the first to discuss localisation economics. There is a history of research in spatial economics (in which Adam Smith himself participated), but it is Alfred Marshall (1842-1924) with his study of the agglomeration of cotton mills in Northern England who is the first leader in the field . In his book Principles of Economics (1890) he describes that agglomeration and industrial districts contain the following key ingredients:.
             1. Knowledge spillovers. The something "in the air- that makes "the mysteries of the trade become no mysteries- and promotes "unconscious-, tacit learning.
             2. Increased supply. The common pool of factors of production (particularly labour) reduce the cost of production.
             3. Specialisation. Specialised inputs lead onto higher productivity (Smithian approach).
             4. Comparison shopping. On this subject, Marshall (p. 273) states the following:.
             The convenience of the customer [ought] to be considered. He will go to the nearest shop for a trifling purchase; but for an important purchase he will take the trouble of visiting any part of the town where he knows that there are specially good shops for his purpose. Consequently shops which deal in expensive and choice objects tend to congregate together; and those which supply ordinary domestic needs do not.
             Porter's primary point of conflict with Marshall is Marshall's belief that "The causes which determine the economic progress of nations belong to the study of international trade and therefore lie outside of our present view-. The belief that economics is somehow not dependant on business is heavily criticised by Porter (1998b) and classified as a "disconnect-.


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