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SME clusters
There is ample evidence that small- and medium scale enterprises (SMEs)
operating in the same or in related industrial sectors tend to cluster close to
one another. This tendency to bunch in well defined areas has been observed in
different environments in both developed and developing countries, and in
different historical periods. There are sound economic reasons for this
phenomenon. SMEs operating in such clusters derive a clear competitive advantage from:
- the proximity to sources of raw inputs,
- the availability of suitably customised business development services,
- the abundance of clients attracted by the cluster tradition in that
industry, and
- the presence of a skilled labour force.
SME clustering is common in a wide range of countries and sectors. The
literature on the so-called Italian industrial districts describes SME clusters
that have reached high levels of growth and leadership in profitable niches of
world markets (e.g. leather goods, textile, jewelry, ceramic tiles, and
spectacle frames). Similar accounts exist from other developed countries such as Germany, the USA, and Japan.
Rationale of the UNIDO Programme
The guiding principle of UNIDO’s approach towards SMEs is that these
enterprises can play a key role in triggering economic growth and equitable
development in developing countries. However, this potential role is often not
fulfilled because of a particular set of problems characterising SMEs that are
related to size:
- Individually, SMEs are often unable to capture market opportunities which
require large production quantities, homogenous standards, and regular
supply.
- They experience difficulties in achieving economies of scale in the
purchase of inputs (such as equipment, raw materials, finance, consulting
services, etc.)
- Small size constitutes a significant hindrance to the internalisation of
functions such as training, market intelligence, logistics and technology
innovation - all of which are at the very core of firm dynamism.
- Small scale can prevent the achievement of specialised and effective
internal division of labour that fosters cumulative improvements in
productive capabilities and innovation.
- Because of the continuous and fierce struggle to preserve their narrow
profit margins, small-scale entrepreneurs in developing countries are often
locked in their routines and unable to introduce innovative improvements to
their products and processes and look beyond the boundaries of their firms
to capture new market opportunities.
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