Concept of Cluster and Its Characteristics

No universal definition of SME cluster has so far emerged. Definition of SME clusters differs from country to country due to their unique economic and social context. Therefore, countries use different definitions to suit their purpose and context. However, different ‘Schools of Thoughts’ provided different examples; some of them are given below for a better understanding:
• Michael Porter, who is recognized as the founder of industrial cluster concept, defined the cluster as “geographic concentration of interconnected businesses and associated institutions in a particular field".

• United Nations Industrial Development Organization (UNIDO) defines industrial cluster as: "Geographic and economic concentration of manufacturing activities which produce and sell a domain of interrelated and complementary products and having common problems and opportunities”.

Above definitions quoted by experts and institutions are similar to a great extent. However, there are misinterpretations or ambiguities in defining a cluster. For example, an industrial estate or an industrial park having multiple products is not a cluster, as too wide a product range means no common opportunities and threats; hence, little scope of joint action among the enterprises since there would be more individual concerns than collective ones. Again, a sector of enterprises that is present in various places all over a state or a country, it will not be cluster because too large a geographical area deprives the unit across the area to exploit advantages of proactive joint action. Likewise, a network or small group of enterprises producing similar products cannot be treated as clusters due to their insignificance and variety of joint actions. During the field survey, we came across some promising clusters, the products of which show good market prospects, but they failed to fulfill the criteria of having at least 50 enterprises; and therefore, they were excluded from the list of SME clusters. Likewise, a cooperative, which promotes cooperation among a number of enterprises under some norm, rule or a public scheme of assistance, is not a cluster because there is absence of central feature of competitiveness among the entities. Finally, a group of villages, towns or city consisting of enterprises producing a diverse range of products and services is also not a cluster since these are not enterprises producing homogenous products or services.