Analyzing the Dynamics of Successful Clusters: Key Influencing Factors

This essay examines the factors influencing the formation of successful business clusters, emphasizing the roles of social capital, industrial structure, government policies, and culture. It defines social capital as the vital link between people, shared values, and understanding, crucial for cluster development. The essay discusses how institutions, economic prospects, and government support, such as FDI attraction and strategic alliances, significantly impact cluster success. It also explores the advantages and disadvantages of social capital, highlighting increased transactional costs and the potential for entrepreneurs to prioritize personal interests. The essay uses examples like Silicon Valley and Hollywood to illustrate the importance of geographical locations where resources and knowledge converge, leading to innovation and competition within clusters. The essay concludes by underscoring the complex interplay of these factors in fostering successful business clusters, emphasizing the importance of shared values, broad understanding, and cooperation among firms.

ARE SUCCESSFUL CLUSTERS THE RESULT OF
SOCIAL CAPITAL, INDUSTRIAL STRUCTURE,
GOVERNMENT POLICY, CULTURE

According to Møller, (2016) social capital is the one of the most important concept on
which business firms are paying due attention to maintain their commanding position in the
industry. Social capital is the one of the important concept that heavily lead to origination of
successful clusters. Social capital basically refers to the link that is between people, values that
they shared and understanding that is developed in past years between the entities in respect to
business. All these things lead to generation of successful clusters in the specific geographic
area. Clusters refers to the successful firms that are innovative in nature or group of the firms in
the specific geographic area and are interconnected to each other in specific area. In many
nations successful clusters emerge because in the geographic area all firms are operating similar
or interrelated business. Such kind of firm’s business interests are interlinked to each other and
due to this reason firms share their values with each other in terms of supporting each other
whenever required. Apart from this, because business interests are common and due to this
reason entrepreneurs understand each other business conditions. Thus, such kind of social capital
lead to growth of the business firms that are operating in specific geographic area. This happened
because entrepreneurs share intellectual property and technology with each other which lead to
consistent growth of business. It can be said that social capital play an important role in
development of successful clusters in the nation.
As per views of Nieminen and et.al., (2015) there are number of factors on which social
capital depends and some of them are institutions, economic prospects, educational attainment
and culture. It is the institutions value system which promote them to cooperate with other firm
and entities that are linked to them like suppliers. Firms cooperate with each other and due to this
reason close relationship build among them which lead to sharing of information and intellectual
capital with other. All these things lead to elevation in growth of the business firms.
Social capital heavily dependent on the institutions. This is because every firm have its
own strength, value system and intellectual property. It must be noted that no company top
managers have entire knowledge about the all aspects of the basis. Knowledge level of
entrepreneurs increased with enhancement in experience. While taking experience entrepreneur
interact a lot with the people that are operating specific institutions. Thus, sharing of values and
knowledge level among the intuitions help entrepreneurs in operating their business in proper

manner and elevating its growth rate at rapid rate. All these things lead to development of
successful clusters in the nation or any state. It can be said that institutions play a vital role in the
formation of the social capital in the nation. Economic prospects are another factor that lead to
development of the social capital. In many nations of the world economic growth takes place at
rapid pace. In such kind of nations large size firms work in close cooperation with the middle
and small size firms. Large size firms and middle size firms work in close cooperation with each
other. Due to this reason in many situations firm takes each other help and also enter in to
strategic alliance. When firms form a strategic alliance then in that case lots of things are shared
by the firms with each other like infrastructure and services etc. All these things help firms in
growing their business at rapid pace. Ultimately, this results in formation of successful clusters in
the nation. Clustering have impact on the competition in three ways which are productivity,
innovation and efficiency. When in any specific geographic area competition increased in terms
of productivity. This is because every firm target is to increase its business at rapid pace. In this
regard business firms focused on productivity and consistently make an attempt to increase
productivity at the workplace. It can be said that social capital have positive impact on the
business firms.
As per views of Jenson and Fraser, (2015) there are number of advantages and
disadvantages of the social capital for the business firms. One of the main advantage of the social
capital is that it increase the cost of defection. Along with this, transactional cost also reduced in
the business due to sharing of information with each other. All the groups that operating in the
specific industry at different levels become interconnected with other. Thus, integration takes
place in the industry. However, there are some disadvantages of the social capital for the firms. It
is very difficult task to access the impact of social clusters on the firms. With increase in
business growth rate influence of entrepreneurs also increased. By using same sometimes
entrepreneurs attempt to fulfill their own interest. Hence, it can be said that there are some
limitations of social capital for the firms. Thus, on this basis it can be said that successful clusters
depends on the human being. It does not mean that there is social capital then in that case
everything will gone fine and successful clusters will be developed. Thus, it is very important
that people or firms shared values in systematic way and develop broad understanding as well as
cooperate with each other.

According to Lu, Q. and et.al., (2015) geographical locations where resources and
knowledge arte bring together by the business firms lead to generation of successful clusters in
the area. Silicon Valley and Hollywood are the one of the best examples where people and
organizations bring their resources and share intellect with each other. This lead to development
of all firms that are operating in the specific industry. This lead to generation of successful
clusters in the specific geographic area. It can be said that industry structure have direct
relationship with formation of successful clusters among the business firms. In such kind of
industry structure there are specific development strategy that are followed by the business firms
which lead to elevation in the economic activity of the cluster. Flow of new innovative ideas
takes place among the business firms and this lead to formation of successful clusters in the
geographic area.
As per views of Dodgson and et.al., (2011) it can be observed that industry structure have
impact on formation of cluster and sometimes nation have to pay cost for it. In many areas
manufacturing related firm consistently open their business. It is the sharing of common values
and understanding due to which firms grow at rapid pace in the specific domain. Gradually
number of manufacturing firms increase in specific geographic area and this lead to increase in
pollution in same. Due to this reason many new disease comes in existence and pollution
increase. Moreover, congestion increase which lead to destruction of aesthetic beauty. Hence,
there are also negative impact of industry structure and clusters on the firms.
Government is the one of the important entity that plays a significant role in growth of
any business firm. Government support clusters in number of ways like it take many steps to
attract FDI in the specific cluster. It take varied steps to attract foreign talent towards the
domestic business firms. In this regard relaxations are given in the Visa and other documents.
This promote foreign people to enter in the nation and work for the domestic business firms.
Government also enter in to contract with other nations of the world in order to promote business
in the nation. Under this steps are taken to promote firms to enter in to strategic alliance with
each other. In this regard complicated rules and regulations are removed by the nations. Thus, it
can be said that formation of successful clusters also depend on the government policy.

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