News archive - Potential Benefits of Clusters in Southeast Europe
The transition process in the Southeast European countries brings extraordinary potentials for business clusters to strengthen the competiveness of the local economy.
In the frame of economic integration, the Southeast European economies are potential new markets for EU companies and vice versa, but trade between these two institutional setups seems costly. In Southeast Europe, small and medium sized enterprises (SMEs) are the cornerstones of economies that are − in the shadow of the economic crises − under pressure to improve their trade balances.
However, the Southeast European economies face rapid institutional change from a centrally planned to a market economy. As the change of the institutional setup is in progress, it is unstable per se. While privatising state owned companies and removing market entry barriers, the state withdraws from its monitoring function. However, the economy does not have sufficient resources to fill in these gaps immediately. Even if new and adequate institutions evolve, it needs time to build them up, and might it ‘only’ be because they are interlinked with other or former institutions. These voids in the institutional environment lead to high transaction costs of trade.
The resources to bridge these voids are generally available either to multinationals or combined by business groups, however, not to single SMEs. As a business group is rather an informal, closed network to which it is difficult to obtain contacts, it is not likely to increase international trade. However, a more formal network, performing similar surrogate mechanisms as the business group, more accessible to foreign SMEs, would be a possibility to reduce transaction costs of trade between Southeast European SMEs and West European SMEs.
In essence, clusters fulfill these requirements. They are geographic concentrations of companies from one and related industries and other organisations such as research institutes and support agencies. Michel Porter once declared that clusters are beneficial for the competitiveness of single firms, since they increase productivity, enhance innovation and stimulate new businesses. This led to an enormous increase of cluster initiatives and cluster strategies developed by governments, copy-pasting Porter’s research.
However, clusters could be − especially in transition economies − a chance to bridge lacks in the institutional environment. Thus, copy-pasting Porter’s approach is not reasonable, but if the services the cluster provides are directed at specific voids encountered by the companies wishing to trade in the environment, it will reduce search and initiation costs for both trading partners and thus automatically generate incentives to participate in the cluster.
Author: Ms. Tine Schrammel
Geographical focus
- European Union (EU 27)
- SEE
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Entry created by Tine Schrammel on May 30, 2011
Modified on June 3, 2011
