What Factors Drive Industrial Clusters to be nationally

Kao, Wu, Hsieh, Wang, Lin and Chen (2008) applied four dimensions to measure the national competitiveness, such as economy, technology, human resource, and management. Önse, Ülengin, Ulusoy, Aktaş, Kabak and Topcu (2008) adopted basic requirements factor, efficiency enhancers factor and innovation and sophistication factor to estimate the national competitiveness. Wang, Chien and Kao (2007) examined the influence of technology development on national competitiveness. They thought that technology development plays a key role in national competitiveness.

Cho, Moon and Kim (2008) used eight variables to evaluate the national competitiveness that include factor conditions, business context, related and supporting industries, demand conditions, human factors, politicians and bureaucrats, entrepreneurs, professionals.

We believe that most of the above chiefly issue from a major breakthrough for the cluster concept derived from Porter’s Competitive Advantage of Nations (1998), which advocated specialization according to historical strength by emphasizing the power of industrial clusters. Porter highlighted that multiple factors beyond those internal to the firm may improve its performance. In his “diamond model,” four sets of interrelated forces are brought forward to explain industrial clusters: factor input conditions; local demand conditions; related and supported industries; and firm structure, strategy, and rivalry.

The industrial clusters stimulate innovation and improve productivity; they are a critical element of national competitiveness (Cortright, 2002; Cooke, 2001; Porter, 1998). The core viewpoint anchored in this research is that national competitive advantages can be achieved by industrial clusters (Cooke, 2001; Porter, 1998; Enright,

other approaches, the diamond model is therefore deemed our most fitting analytic framework while we are pursuing effective measurement of industrial cluster drivers from the viewpoint of national competitive advantages. Our research also attempts to provoke discussion on the value of looking at the cultural influences on the growth of clusters. This approach could be used to help determine the catalytic role that such development organizations should be playing by emphasizing the need to base decision-making on cultural as well as on economic factors in order to stimulate cluster formation and enable innovation by optimizing cultural interchange.

The below describes key dimensions of national competitiveness, mainly derived from the Porter’s Diamond Model. And following the above arguments, these dimensions can be also regarded as drivers of industrial clustering.

3.2.1 Factor Conditions

Porter agreed that a state’s or nation’s endowment of factors for encouraging production has a role in determining competitive advantage. However, Porter broadened the definition of factors for production into five major categories: human resources, physical resources, knowledge resources, capital resources, and infrastructure (Rojas, 2007).

Abundant natural resources, which are factors of production, could provide the original momentum for establishing an industry (Castells and Hall, 1994). Their presence might also have enticed a predecessor industry to the location, thereby creating the initial framework for a subsequent industry (Porter, 1998).

The fact that competitive pressure compels firms to innovate in order to overcome their microeconomic environment’s disadvantages represents a major theme in Porter’s work. The remaining fundamental determinants in the model play an important and powerful role in inciting firms to innovate so as to remain competitive

players in their industries. Specialized factors of production are skilled labor, capital, and information infrastructure. Specialized factors involve heavy, sustained investment, and they are more difficult to duplicate. These factors include entrepreneurship and venture capital.

3.2.2 Local Demand Conditions

Consumer demand plays possibly the most important role in forming and building up an industrial cluster. A large number of industrial customers in the nearby area create sufficient demand to enable suppliers to acquire and operate expensive specialized machinery.

Porter (1998) has argued that a sophisticated domestic market is an important element for producing competitiveness. Firms that face a sophisticated domestic market are likely to sell superior products because the market demands high quality, and a close proximity to such consumers enables the firm to better understand the needs and desires of the customers (Lai and Shyu, 2005). As a result, demand conditions can stimulate an industry through local demand for a product that also proves viable in regional, national, and international markets (Woodward, 2004).

3.2.3 Related and Supporting Industries

Spatial proximity of upstream or downstream industries facilitates the exchange of information and promotes a continuous exchange of ideas and innovations. The availability, density, and interconnectedness of vertically and horizontally related industries are important drivers for industrial clusters (Lai and Shyu, 2005). This includes suppliers and related industries.

Related industries refer to firms that provide complementary products or services

their product- or service-specific industry, they might share or coordinate certain activities, such as distribution, technology development, manufacturing, or marketing (Porter, 1998). Competitive related industries can provide opportunities for technological exchanges and, possibly, can accelerate the development of competitive local supplier industries serving both. However, close working relationships among related industries do not happen automatically. Related industries must explicitly seek to forge alliances that will add to their competitive advantage (Rojas, 2007).

3.2.4 Firm Structure, Strategy, and Rivalry

Porter (1998) argues that intense competition spurs innovation. The world is dominated by dynamic conditions. Direct competition impels firms to work for increases in productivity and innovation. Firm strategy, structure, and rivalry refer to the various approaches to a firm’s inception, organization, and management that establish the context for local rivalry and competitive advantage.

Differences in management systems and organizational structure offer opportunities for establishing competitive advantage. Relationships between labor and management represent a particularly important element for the firm, given their powerful impact on the process of innovation and improvements (Porter, 1998). Porter established that rivalry with domestic firms proves to be more beneficial than other factors in terms of innovation and improvements. Local rivals compel one another to seek effective cost-cutting measures, product/service innovations, and organizational improvements. Local competitive pressure also leads to commercially successful firms, which in turn, lures new firms to the industry.

3.2.5 Government Support

The role of government in Porter’s Diamond Model is to act as a catalyst and

challenger; it is to encourage—or even push—companies to raise their aspirations and move to higher levels of competitive performance. Government must encourage companies to raise their performance, to stimulate early demand for advanced products, to focus on specialized factor creation, and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.

Besides, government must provide the required infrastructural needs of the developing industrial cluster. The role of the government in a regional economy is necessarily a variable over the life cycle of the industry cluster, and as a result it needs to have the capability to identify and monitor the set of natural industries that exist within the region and their stages of development (Porter, 1998).

3.2.6 Culture

Innovation is an outcome of an innovative culture. Clusters with an innovative culture will increase the life-expectancy and productivity of the infrastructure and business capital that they host, and the productivity and prosperity of their community (Porter, 1998). Hall (1976) argued that cultures vary greatly in the processing of information and patterns of communication. Cultural differences were found to predict stress, negative attitudes toward mergers, and the lack of cooperation between firms subsequent to a merger (Weber, Shenkar, and Raveh, 1996). More relevant to our study, Olie (1994) has argued that the blending of diverse cultures tends to be a challenging obstacle to successful collaboration.

3.2.7 Cluster Drivers and System-effects

In this model, each industrial cluster driver not only interacts with the others but also affects the industrial cluster. The industrial clusters affect each driver

In fact, these elements exhibit system-effects where the weakest element sometimes has the strongest impact on the overall quality (Ketels, 2003). Porter (2000) concludes that “the cluster is the manifestation of the diamond at work. Proximity, arising from the co-location of companies, customers, suppliers, and other institutions, amplifies all of the pressures to innovate and upgrade.”

Regions need to activate their clusters, address crosscutting weaknesses in their general business environments, create an institutional structure to focus on competitiveness beyond the life cycle of specific administrations, and define an overall understanding of the unique value they intend to provide relative to other locations (Ketels, 2003).

3.3 The Decision Making Trial and Evaluation Laboratory (DEMATEL) Method