10. Networks and clusters of economic activity Sjoerd Beugelsdijk

Learning objectives understand why networks and clusters are important for business life analyse the positive and negative aspects of the network relationships of firms explore how geographical clustering can enhance a firm’s competitive position critically assess the insights of several theoretical frameworks for understanding the concepts of networks and clusters explain why the nature of networks and clusters is context specific, taking a universal approach towards understanding the success of clusters assess the argument that institutions are important in industrial districts appreciate the difference between the sectoral approach and the cluster approach.

Chapter Outline 10.1 Introduction 10.2 Balancing competition and cooperation 10.3 Networks from a theoretical perspective Transaction cost theory Network embeddedness Trust 10.4 From networks to clusters Industrial districts Porter’s concept of clusters 10.5 Comparing regional clusters 10.6 Conclusions Case: Innovation in the Swiss watch industry Study questions Further reading References

Table 10.1 Sources of cooperation

Figure 10.1 Economic success and degree of network closure

Table 10.2 The sectoral approach versus the cluster approach

Study questions Explain why networks and clusters are important for business life. Discuss how geographical clustering can enhance a firm’s competitive position. Assess the explanatory power of the concept of ‘cultural embeddedness’. Discuss how industrial districts exhibit a mix of cooperation and competition. In recent years, firms that are part of the Japanese keiretsu and the Korean Chaebol have been argued to experience deteriorating performance precisely because they are part of a network. Use network theory to explain these negative side-effects. Silicon Valley is a successful example of an innovative cluster of firms. Use the knowledge introduced in this chapter to explain why and under what conditions, or why not, governments should try to emulate the Silicon Valley story.