Location, location: the geography of industry clusters

The purpose of this paper is to explore the implications of regional‐sectoral agglomerations – clusters – for the strategic management of firms. Concentration of firms along a single value chain is a common phenomenon in modern economies, but has seldom been reflected in the realm of strategic management.

The paper draws back on Porter's cluster model and the innovative milieu approach. A case‐study methodology consisting of a combination of action research and semi‐structured interviews is applied to four cases, illustrating the managerial implications of firm membership in industry clusters.

The existence of regional‐sectoral clusters has a substantial impact on the strategic position of firms. An assumption underlying most current strategic management thinking, namely that spatial factors are not relevant, must be challenged. The paper illustrates options for firms located within as well as outside clusters.

This research does not prove the cluster theory, but rather illustrates a part of it requiring further clarification: its application to management issues. Future research should substantiate the findings on a broad empirical scale.

The paper alerts managers to the necessity of considering their company's entire value‐creating system from a geographical perspective. Several common strategic decisions may be viewed differently if a cluster perspective is taken: decisions regarding location, such as locating in a cluster in new countries; sourcing decisions, such as re‐evaluating global sourcing; marketing and innovation issues, such as linking up with the most competitive market globally rather than avoiding it; or portfolio decisions, such as divesting of firms not located in clusters.

The paper is highly thought‐provoking as it challenges a common assumption, namely the “death of distance” argument. The cluster approach demonstrates that proximity matters fundamentally affects a firm's profitability and ultimately its chances of survival. Applying the cluster approach to corporate management provides a new set of explanations, for example for firms that continue to underperform, even after successive management changes. On the other hand, taking advantage of clusters could be a source of strength for firms which have largely remained untapped up to now. In particular, this paper provides a real‐life case account, illustrating the relevance of clusters, as well as options for managers.