A. What is a Cluster and what are the results of Cluster development?

A cluster can be defined as a sectoral and geographical concentration of enterprises, especially Small & Medium enterprises (SMEs), which have common opportunities and face similar threats. The key problems faced by the SMEs is more of isolation than of size, and they are unable to achieve economies of scale, lack negotiating power, find it difficult to specialise and have limited access to credit, strategic information, technology and markets.

Formation of clusters would result in :-

Ø Emergence and growth of specialised suppliers of raw materials, components, machinery, sector specific skills

Ø Emergence of specialised technical, administrative and financial services

Ø Creation of a conducive ground for development of inter firm cooperation and specialization as well as cooperation among public and private institutions to promote local production, innovation and collective learning. 

B. What are the dimensions of a Cluster? 

The basic parameters required for the establishment of dynamic clusters include optimisation of scale of business operation, Information and knowledge networks and presence of specialised providers of support services.

C. Who are the players involved in cluster development?

Besides the firms that make up the cluster, related enterprises, private and public service providers, Research establishments/ Universities, Entrepreneur groups, large enterprises, financial institutions & banks, NGOs, Central / State / Local government and related bodies make up the composition of typical players in a cluster..

D. Who is a Cluster Development Agent (CDA)

A CDA is a person who conceptualizes the overall developmental strategy for a cluster and initiates implementation. He is also the liaison between the various cluster players and the target cluster. 

E. What are the Development Objectives of a cluster?

Development of a entity having sustainable competitive advantages, specialised sub-contracting skills, intensive networking capabilities and better image leading to increased employment opportunities.

F. Some facts on the UNIDO Cluster Development Programme.

The problem : Isolated SMEs are unable to achieve economies of scale, lack negotiating power, find it difficult to specialise and have limited access to credit, technology and markets.

The potential: SMEs can increase their comparative advantages by cooperating with one another and building linkages with private and public service providers. SMEs can build competitive strength through cost reduction, value chain upgradation and collective economies of scale.

The strategy: Reduction of SME isolation by strengthening linkages in order to coordinate their actions and pooling of resources for a common development goal. A cluster is not merely a concentration of small firms, but an interdependent network among local firms as well as between firms and other cluster players like raw material and equipment suppliers, subcontractors, support institutions, customers and service providers. 

UNIDO's cluster development approach is based on three principles, vis-à-vis:

Ø It is need based (beneficiary led and managed)

Ø It is flexible (matches local requirements and dynamics

Ø It is focused on intermediary groups and not on individual firms.

G. What are the advantages of adopting a cluster based approach?

At the individual firm's level a cluster :-

Ø Helps overcome disadvantages of economies of scale and weak capital base

Ø Increased competitiveness by leveraging the advantages of flexible structure and faster decision making process.

At the Cluster level, it facilitates:-

Ø Better responsiveness to market challenges

Ø Quicker dissemination of information

Ø Sharing of best practices (organisational capabilities, skills, technological innovations)

Ø Better cost effectiveness due to distribution of many common costs.

Ø Wider public appropriation of benefits.

H. What are the key steps in Cluster development ?

Selection : of a sector and place based on the cluster's importance, promotability, viability and sustainability.

Diagnostic Study: gathering of dispersed knowledge through a participatory study of constraints, potential , local linkages and support mechanisms.

Trust building: Establishing an atmosphere of trust within a cluster for building a realistic action plan that will have support from clients, service providers and support agencies.

Action Plan: This is the roadmap that will help develop and foster relationships among the cluster players while delivering tangible results.

Implementation: Includes cultivating a radical change in the way cluster players interact with one another and conduct their business. Responsibility for implementation is progressively shifted to the private sector with support from local institutions.

Monitoring & evaluation: Quantifiable outputs are monitored and disseminated for strengthening trust and best practices.

I. What is the role of DICs in the cluster development process?

The role of DICs would be to act as the Key Resource Group for the initiative. DICs shall:

Ø offer critical intervention services at all stages of the programme,

Ø act as a mentor to the CDAs,

Ø coordinate the cluster development efforts,

Ø suggest mid-course corrections,

Ø organise refresher and interaction programmes for the CDAs, 

Ø liaison with the major players in the programme, including national and international level agencies

J. What is the role of Government in Cluster Development. 

Government of Kerala, Department of Industries proposes to set up Clusters in different sectors to bring entrepreneurs who are engaged in manufacturing similar products and belonging to the same locality together and to provide them common facilities. This would reduce the relative isolation of the SMEs and strengthen the linkages among all the actors of the assisted Cluster thereby co-ordinating their actions and pooling their resources for a common development goal.

Some of the activities planned include setting up of Common Facility Service Centers (CFSCs), common brand building for export markets, common purchasing practices, mutual guarantee for each others' financial obligations etc.

In order to establish the areas where Government interventions are required, Diagnostic studies for each Cluster has to be conducted with special emphasis on assessing limitations in terms of Quality, facilities for testing & research, technical knowledge, information channels, organisation skills, market linkages and export potential. Based on the results of the Diagnostic study, a detailed action plan for Cluster development is to be charted out and implemented.

K. What are the specific activities to be performed by a Cluster Development Agent?

1. Diagnostic Study 

The trained Cluster Development Agent (CDA) will undertake a comprehensive diagnostic study of the proposed cluster and prepare an exhaustive report detailing the following areas extensively: - 

a. National scenario of the identified sector

b. History of the sector in the State and the significance as a geographical concentration for the industry.

c. Analysis of the current business operations in the locality.

d. Assessment of the cluster potential.

e. Organisational requirements

f. Recommendations and strategy for the future.

g. Organisation/ structures required for carrying out the implementation programme.

h. Requirements in terms of interventions in technology, finance, training, marketing etc. 

The diagnost0ic study will, thus, outline the interventions required by Industries Department for the Cluster Development programme. 

2. Identifying cluster players. 

These may include units/enterprises providing the backward & forward linkages, dealers and exporters etc. besides technical and financial institutions, associations, welfare bodies, governmental organisations, statutory agencies etc. The trained Cluster Development Agent(CDA) will be responsible for identifying all the cluster players and graphing their linkages. The dynamics among the cluster players shall also be comprehensively mapped. 

3. Trust Building & awareness programmes 

The trained Cluster Development Agent(CDA) will be the prime mover in the trust building process. The process of trust building starts with the diagnostic study and the Cluster Development Agent(CDA) will arrange sufficient number of interactions within the cluster members and with other cluster players. Awareness programmes, training sessions and visits to existing clusters within the State will also be arranged by the Cluster Development Agent(CDA) to aid the process of trust building. 

5. Identification of the major problems 

The Cluster Development Agent(CDA) will list all the problems faced by the cluster as part of the diagnostic study and identify the major ones that are an impediment to the successful development of the cluster. These may be in the form of inadequate infrastructure, poor market linkages, lack of working capital, technology etc. Another part of this exercise would be a detailed market analysis of the proposed cluster aimed at estimating the market potential and viability of the cluster initiative. The impact of each of these major problems on the functioning of the cluster, along with recommendations for remedying the situation and the interventions required shall be analysed in detail and reported.

6. Formulating a ‘Vision' 

The Cluster Development Agent(CDA) will formulate a “Vision” for the cluster, in association with the Cluster members, that articulates the long-term objectives of the cluster.

7. Preparing an implementation strategy 

0The Cluster Development Agent(CDA) will detail an implementation strategy aimed at creating and guiding the various enterprise networks and service providers of the cluster towards a growth path with the involvement of relevant support institutions. The Major Activities that are required during the period of intervention shall be identified and elaborated.

8. Establishment of the cluster 

This will mark the culmination of the Study phase and will be characterized by increased levels of interventions by the cluster players themselves. Setting up of common sourcing of raw material supplies, common facilities service centres, mutual credit guarantee, common brand creation, common testing facilities, increased interaction among the cluster players and utilization of better technologies are some of the components envisaged under this phase.

The Cluster Development Agent(CDA) will be responsible for creation of a Common Corporate Entity leading to the formation of a Consortium to undertake the above-mentioned activities. The Cluster Development Agent(CDA) will also identify the crucial interventions needed in these areas and prepare a comprehensive project report for approaching funding agencies, both national and international, in this regard.