Clusters and the New Economics of Competition by Michael E. Porter
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Book Reviews of Clusters and the New Economics of Competition
Book Review: Clusters: The latest paradox in global competition
Summary: 5 Stars
Michael E. Porter is Professor of Business Administration at Harvard Business School and a leading authority on competition and strategic management. This article was published in the November-December 1998 issue of the Harvard Business Review."Today's economic map of the world is dominated by what I call clusters: critical masses - in one place - of unusual competitive success in particular fields." Clusters are geographic concentrations of interconnected companies and institutions in a particular field. They encompass an array of linked industries and other entities important to competition. Clusters therefore represent a new way of thinking about location. They reveal that the immediate business environment outside companies also plays a vital role. The author introduces the California wine cluster as an example to explain the anatomy of clusters. So why are clusters so important? Porter claims that modern competition depends on productivity. Porter also claims that productivity rests on how companies compete, not on the particular fields they compete in. He explains the positive impacts of clusters on productivity, innovation, and new business formation. So how are clusters formed? The cluster's roots can often be traced back to historical circumstances. He uses my mother country's (The Netherlands, Holland) transportation cluster as an example. The author discusses the birth, evolution, and decline of clusters. So what are the implications? According to Porter, understanding clusters adds four isses to the company's strategic agenda: (1) Choosing location; (2) Engaging locally; (3) Upgrading the cluster; and (4) Working collectively. He then turns towards governments. He claims that governments, both national and local, have new roles to play, they should strive to create an environment that supports rising productivity. Finally, Porter concludes that "leaders of businesses, government, and institutions all have a stake - and a role to play - in the new economics of competition." Each party are dependent on and responsible for creating the conditions for productive competition.
This excellent article builds on Michael Porter's 1990-book 'The Competitive Advantage of Nations'. In this article he discusses the paradox in global competition, whereby enduring competitive advantages in a global economy are often heavily local. By using his traditional thorough academical research methods and clear examples, Porter again proves his points. In this case, the article is pointed at not just businesses, but also governments and institutions. The article is written in simple business US-English.