Managing Clusters in SMEs: The Role of Dynamic Capabilities

The aim of this research is to examine clusters as a major source of external knowledge and competitiveness for Small and Medium sized Enterprises (SMEs). In contrast to global network firms which have relatively high ability to build joint knowledge stocks and alliance capabilities by relying on partners based in dense clusters across the globe, located SMEs face the challenge of how they can utilize existing tools and practices to sustain and enhance their competitive positioning in the marketplace. While reliance on accumulated alliance experience and alliance portfolio management have often been cited as mechanisms for large firms to build an alliance capability, a systematic analysis of how clustering assists SMEs to build capabilities is yet to be examined. At the very least, the existing research highlights need for sustained investment in developing dynamic capabilities as a primary force behind a firm's competitiveness. As clusters may not consistent of homogeneous collection of SMEs and that each SME is fully embedded in a different social and economic network, there is a need to understand the manner in which SMEs build dynamic capabilities to address rapidly changing business environments. In this research, dynamic capability connotes a strategic competency which enables clusters on two fronts: (i) to identify and effectively handle major issues arising from internal and external business environments and (ii) to seize the opportunity to innovate, to be cost effective, to be flexible and finally to provide a more profitable and agile response on an on-demand basis to the marketplace.