Upgrading Clusters and Small Enterprises in Developing Countries

In the last two decades, the concept of cluster has become popular both in academia and in practice. As small and medium sized firms (SMEs) were acknowledged as effective sources of jobs and income, they gained an important position in the development agenda, and 'cluster' policies were conceived as a framework to augment the effects of SMEs and to optimize resources used to support them. Creating and supporting clusters would help SMEs to overcome production and marketing obstacles and allow them to compete with large firms and in sophisticated distant markets. Thus, clusters of small firms were seen as an important mechanism for spurring innovation and dynamic economic development and the general assumption is that they are entirely a positive system.While this volume agrees that these policies can lead to economic and social development, generating jobs and bringing people out of poverty, it also questions the long-terms sustainability of these clusters, and examines the type of job and working conditions they offer. In doing so, it finds that such policies may generate low-skill, low-paid informal jobs, often in poor working conditions, in firms that produce poor quality products, do not pay taxes and do not respect environmental regulations. Benefits of cluster initiatives can be wiped out suddenly by political turmoil, macro-economic changes or international crises. Moreover, with globalization, competition from elsewhere ora weak position in the value chain can squeeze out the already poor firm conditions making them lose the little profits that have or reducing the already low salaries.Based on case studies from Brazil, Vietnam, Indonesia and India, this volume examines SME clusters and how they might counteract these potential problems by 'socially upgrading' in order to improve their innovation capacity, as well as social, environmental and labour standards. It analyses a range of clusters in less developed countries which are attempting sustainability through social upgrading and then puts forward conceptual frameworks which explain the way firms can upgrade: through markets, interaction among cluster members, through Corporate Social Responsibility and other such public policy, and, through the better enforcement of regulation.