姝 Academy of Management Review

2004, Vol. 29, No. 2, 258–271.

KNOWLEDGE, CLUSTERS, AND COMPETITIVE

ADVANTAGE
STEPHEN TALLMAN
University of Utah

MARK JENKINS
Nottingham University

NICK HENRY
University of Newcastle-upon-Tyne

STEVEN PINCH
University of Southampton

Researchers in international strategy are increasingly investigating the role of re-

gional clusters as features of international industry, most concerned with the com-
petitive role of clusters and the competitive interactions among cluster firms. We look
instead at knowledge sharing between firms through the medium of untraded inter-
dependencies—knowledge exchanged informally and without explicit compensation.
We specifically address knowledge development at the firm and the cluster level and
examine the role of knowledge stocks and flows in establishing competitive advan-
tage for clusters and firms.

Geographically defined regional clusters of
firms that function as strategic entities in global
industries are a matter of considerable interest
to regional economic development agencies,
corporate managers, and international strategy
scholars. Cities, states, regions, and countries
seek the formula to become world powers in
high-technology industries. Multinational cor-
porations look for the right clusters to locate
plants, labs, and headquarters. Scholars ques-
tion whether competitive advantage is sustain-
able for a group of firms and wonder what mech-
anisms might drive the phenomenon of cluster
success.
Porter defines what he terms a regional clus-
ter as “a geographically proximate group of
interconnected companies and associated in-
stitutions in a particular field, linked by com-
monalities and complementarities” (2000: 16).
Economic geographers provide convincing evi-
dence for the existence of clusters (which they
more often term industrial districts) in a wide
variety of industries and for the proposition that
We thank former associate editor Bert Cannella and our
anonymous reviewers for their thoughtful and constructive
suggestions on earlier versions of this article.
258
firms within industrial districts are often inordi-
nately successful as a group (Amin, 2000;
Maskell, 2001; Porter, 1998; Scott, 1988; Storper,
1993). In studies of strategic management,
whether of sources of international competitive
advantage (Porter, 1990) or of the structures of
various industries, including information tech-
nology (Bresnahan, Gambardella, & Saxenian,
2001; Saxenian, 1994), biotechnology (Zucker,
Darby, & Armstrong, 1998), motion pictures
(Miller & Shamsie, 1996), high-fidelity equip-
ment (May, Mason, & Pinch, 2001), racing car
production (Pinch & Henry, 1999), wine making,
leather fashions, and many others (Porter, 1998),
researchers have likewise found successful re-
gional groupings of firms to be important for
understanding patterns of competitive success
in many industries.
However, serious consideration of the forma-
tion and role of regional clusters raises interest-
ing concerns about unquestioning acceptance of
these studies. On the one hand, from a geo-
graphical perspective, clusters may just be
about location and associated exogenous
forces—resource endowments, demand, compe-
tition, and infrastructure—that might be put in
place by government. On the other hand, the
2004 Tallman, Jenkins, Henry, and Pinch
success of some clusters seems to be tied to
endogenous factors that evolve through the in-
teraction of the member firms in some loosely
defined manner, but without prior planning. A
core implication in most such studies is that all
firms in a cluster perform similarly, but even
casual observation must raise questions about
this idea. In the new age of global electronic
connectedness, many are beginning to wonder if
geography even matters any more; it may be
that alternative groupings built around similar
strategies (Peteraf & Shanley, 1997) or alliance
relationships (Gomes-Casseres, 1994) might
show the same collective performance for firms
without geographical ties. We address such is-
sues with concepts drawn from studies of firm-
level organizational strategy.
Economic geographers have come to see
knowledge exchange (through technology spill-
overs, informal exchange, movement of people,
and so forth) as critical to defining performance
in regional clusters. At the same time, strategy
scholars have widely accepted the importance
of knowledge in generating competitive advan-
tage for individual firms (Grant, 1996). Recogni-
tion of the importance of complex, embedded,
tacit, firm-specific knowledge resources (Grant,
1996), capabilities (Amit & Schoemaker, 1993;
Teece, Pisano, & Shuen, 1997), or competencies
(Prahalad & Hamel, 1990; Sanchez, Heene, &
Thomas, 1996) as distinguishing features of
firms and as determinants of firm-level perfor-
mance is the key to resource-based views of
competitive advantage.
We apply a knowledge-based perspective
from organization and strategic studies (Grant,
1996) to examine regional clusters or industrial
districts as examples of advantage-generating
“superfirm” groups inside industries, within
which member firms simultaneously share and
differentiate sources of competitive advantage.
We categorize knowledge types in geographi-
cally defined clusters and develop a set of
mechanisms for knowledge exchange and
knowledge-based competitive advantage in
such regional clusters.
Our concept suggests that long-term compet-
itive advantage for such regional clusters and
their constituent firms must be based on stocks
of closely held knowledge and mechanisms that
limit the dissemination of such knowledge. We
outline a theory-based model of the stocks and
flows of different types of knowledge at different
259
organizational levels and of the mechanisms by
which such knowledge can generate competi-
tive advantage within a group of firms (Dierickx
& Cool, 1989). We propose a hierarchy of special-
ized knowledge stocks at both firm and cluster
levels, and further propose that the specificity of
knowledge resources at each level is protected,
in part, by asymmetries in knowledge flows
from level to level. These asymmetries result
from organization-specific architectural under-
standings of the industry embedded in the so-
cial milieu of the cluster. They act as isolating
mechanisms (Reed & DeFillippi, 1990), permit-
ting the firms of the cluster as a group to outper-
form firms based in other locations, but also
permitting individual firms within the cluster to
demonstrate different levels of sustained perfor-
mance.
As we develop our framework, we explain
the character of an observed macrolevel
phenomenon— cluster-based competitive ad-
vantage— by disaggregating it and shifting fo-
cus from the cluster and its constituent firms to
the character of the organizational knowledge
that resides within the cluster. Our focus in this
article is to examine how stocks and flows of
knowledge drive differences in performance be-
tween regional clusters as groups of firms while
supporting differences in firm-level performance
within any single cluster.
In the next section we discuss the economic
geography of industrial districts and the strate-
gic concept of the regional cluster. We then use
constructs from the theory of organizational
knowledge to develop a framework of how
stocks and flows of knowledge within a regional
cluster function to create competitive advantage
at different levels. We use this framework to
develop propositions about the specific relation-
ships among knowledge types, organizational
levels, and competitive advantage.
THE ECONOMIC HISTORY OF CLUSTERS AND
COMPETITIVE ADVANTAGE
The Economic Geography of Industrial
Districts
The concept of geographical clusters or indus-
trial districts is tied primarily to their general
characteristic of tight geographical bounded-
ness. In the literature on international econom-
ics and international business, such a condition
260 Academy of Management Review
is related to location-based comparative advan-
tage (Dunning, 1988). Porter (1990, 1998, 2000) de-
velops the concept of the regional cluster of
firms, from a business strategy perspective, as a
generator of unique competitive skills that can
be maintained by these firms for an extended
period of time across global markets. In his
model, Porter specifically ties locational advan-
tage to organization-level know-how or capabil-
ities developed in the local competitive context.
He suggests, in common with creators of subse-
quent business management models (Almeida
& Kogut, 1999; Kogut, 1993; Zucker et al., 1998),
that firms with a common geographical back-
ground share certain knowledge resources that
provide competitive advantage to them as a
group.
Porter’s concept of the regional cluster and
other scholars’ efforts in the business strategy
literature trace much of their intellectual heri-
tage back to economic geography, through the
concept of the industrial district. Becattini
defines the industrial district as “a socio-
geographical entity which is characterized by
the active presence of both a community of peo-
ple and a population of firms in one naturally
and historically bounded area” (1990: 39). Com-
petitive interaction explains certain common
characteristics among the firms in a district, but
this definition and extensive studies in eco-
nomic geography also show that geographically
isolated groups of firms exchange knowledge in
a cooperative, if sometimes unknowing, fashion
(Piore & Sabel, 1984; Storper, 1993).
The initial expression of the idea that firms
operating in one industry sector tend to form
relatively small, tight-knit, vertically integrated,
and largely closed “export economies” in clearly
definable and relatively small geographic lo-
cales is generally attributed to Alfred Marshall
(1920). Cooke (1999) summarizes Marshall’s con-
struct as being based on three key elements of
geographical closeness: clusters of subcontrac-
tors; readily available skilled labor; and rapid
formal and informal communication due to a
common base of knowledge across firms, em-
ployees, and the community. Marshall de-
scribed the concept of shared knowledge within
the district as an “industrial atmosphere” char-
acterized by the phrase “knowledge [of the in-
dustry] in the air.”
More recent work on new industrial districts
(NID)—with porous boundaries, as opposed to
April
Marshall’s self-contained clusters in traditional
industries— has focused on the agglomerative
economic efficiencies of clusters in supply
chains, labor markets, and subcontracts (Law-
son, 1997). Piore and Sabel (1984) describe a sys-
tem of “flexible specialization,” based on dein-
tegration of value-added chains combined with
close vertical contact among geographically co-
located firms, each providing specialized activ-
ities for a single stage of production. Rapid ac-
commodation to changing circumstances is
enhanced by these “regional conglomerations,”
such as the NIDs of northeast Italy and southern
Germany, which consist of closely integrated
small- and medium-size firms. Piore and Sabel
propose that combinations of relationship-
based contracting, institutional support, and so-
cial factors within a close community provide
the context for extraordinary economic success
in these districts.
Social Embeddedness and Industrial Districts
Storper (1997) has outlined the development of
a “California School” of regional economic anal-
ysis that originally focused on the transactional
economics of agglomeration, whereby deinte-
gration of production into efficient networks of
market transactions benefited greatly from min-
imizing physical separation of subcontracting
firms. In this approach, the efficiencies of flexi-
ble production are aided by agglomeration, and
these advantages attract yet more firms to the
district. Scott (1988) has argued that production
linkages among clustered firms lead to the cre-
ation of regional agglomerative economies.
As the theory developed, however, economic
geographers also recognized the need for wider
institutional inputs—a community or “atmo-
sphere” in the NID. The potential for social em-
beddedness (Granovetter, 1985) to lower trans-
action costs through developing trust among
colocalized firms was applied to industrial dis-
tricts (Maskell, 2001). Various ethnographic stud-
ies of innovative, technology-focused clusters,
such as Saxenian’s (1994) comparisons of Silicon
Valley and Route 128 in Boston, suggest that
political, social, institutional, and other noneco-
nomic factors are as important to sustaining
these NIDs as are spillovers of technology.
Storper (1993, 1995, 1997) addresses this idea of
socially driven exchanges with his construct of
untraded interdependencies. These interdepen-
2004 Tallman, Jenkins, Henry, and Pinch
dencies are based on shared knowledge for
which no market mechanism exists; there is no
formal exchange of value for value, as opposed
to licensing, alliances, or acquisitions in which
formal exchanges take place. Interdependen-
cies comprise conventions, rules, practices, and
institutions that combine to produce “worlds of
production,” which present action trajectories
for firms within an uncertain world (Storper &
Salais, 1997). They function in parallel with
traded interdependencies— exchange transac-
tions in the economic sphere—to moderate the
transaction costs of exchanges. They are more
likely to be tied to a location, owing to the need
for interpersonal interaction, than are price-
based pure economic transactions, which can
spread more widely as an industry matures
(Storper, 1997).
Henry, Pinch, and Russell (1996) have found
that Storper’s “local worlds of (knowledge) pro-
duction” are a crucial formulation for under-
standing geographically localized growth in
such systems as high-technology industrial dis-
tricts. Barnes suggests that, with this type of
idea, economic geographers have tied social
embeddedness and network theory to location,
and that “[social] embeddedness when joined
with a geographical sensibility [spatial proxim-
ity] becomes a potent conceptual combination
for understanding . . . sectors relying on special-
ized information or skill or rapidly changing in-
novations” (1999: 15).
Knowledge and the Industrial District
In the literature on economic geography, re-
searchers have developed a model of the indus-
trial district or regional cluster as a group of
firms tied together by geographical colocation
and complex social interaction, in which infor-
mal understandings contribute to sharing tech-
nical knowledge. Scholars are moving away
from their original focus on competition, as
highlighted by Piore and Sabel (1984) and Porter
(1990), and toward the idea of communities of
knowledge derived from dynamic interdepen-
dencies among firms that also are tied closely to
location (Henry & Pinch, 2002). The importance of
knowledge exchanges among firms within re-
gions has become a critical concern, leading to
new efforts to create a knowledge-based theory
for the existence of regional geographic clusters
(Maskell, 2001; Morgan, 1997).
261
As Kogut, Walker, Shan, and Kim (1994) sug-
gest, firms and their suppliers within a region
share tradable resources, but they also share
knowledge that is part and parcel of the social
community—a public good for all members and,
thus, untradable. Maskell (2001) offers an initial
vision of a knowledge-based theory of the clus-
ter. He ties the existence of clusters to the ad-
vantages to knowledge generation (and eco-
nomic efficiency) of multiple, horizontally
competing firms operating within efficient ver-
tical networks in a closed geographical region.
Once established, clusters at the forefront of
knowledge generation attract new entrants, fur-
ther enhancing the cluster and expanding its
knowledge base.
The literature on communities of practice
(Brown & Duguid, 2001) demonstrates that inter-
dependent individuals working in a single con-
text develop a social milieu and shared identity.
Knowledge moves more freely within the com-
munity as ongoing practice creates both shared
knowledge about how the system works and
understanding of the meaning and context of
such knowledge. Of considerable importance is
the condition that such know-how develops from
practice and, thus, has both tacit and explicit
dimensions (Brown & Duguid, 2001).
Competitive Advantage and the Industrial
District
Regionally focused communal competitive
advantage traditionally has been tied to the
economics of geographical proximity (Porter,
1998). Agglomeration economies have been said
to derive from related economic activities in a
given region. Lower input costs, development of
common suppliers, specialist labor pools, spill-
overs of technical know-how, and the develop-
ment of a greater comprehension of the work-
ings of the particular industry by individuals
and firms are all gained through presence in a
cluster. Social embeddedness models suggest
that the transactional costs of exchanges are
reduced when social relationships are strong
among geographically close economic actors
(Barnes, 1999).
Lawson (1997) proposes that the collective
knowledge and decision processes that com-
pose untraded interdependencies within an in-
dustrial district produce advantage-generating,
regional-level competencies that supersede
262 Academy of Management Review
firm-level competencies in both scope and per-
sistence. Galaskiewicz and Zaheer (1999) also
suggest that social networks “enhance compet-
itive advantage,” much as economic geogra-
phers assign competitive advantage to regional
clusters. These and similar studies from both
modern economic geography and management
theory place the general ideas from economic
geography about the movement of knowledge
into a knowledge-driven framework of competi-
tive advantage. If regional clusters provide on-
going competitive advantage, they are clearly
positioned within the realm of strategic man-
agement.
In the following sections we use theories of
knowledge in organizations and strategy to pro-
pose a framework of how knowledge is ex-
changed through social and economic relation-
ships to establish conditions for competitive
advantage in geographically defined networks
or clusters of firms.
KNOWLEDGE AND COMPETITIVE
ADVANTAGE IN REGIONAL CLUSTERS
As we have shown above, economic geogra-
phers have come to recognize the importance of
knowledge spillovers and public knowledge to
industrial districts, but they do not address in
detail the structure and mechanics of knowl-
edge stocks and flows and their impact on com-
petitive advantage at the firm level; nor do ge-
ographers have the vocabulary to do so.
Organizational theorists have a large vocabu-
lary relating to organizational knowledge, but
they do not focus specifically on geography as a
condition of competition. As we bring ideas from
organizational studies to bear on regional is-
sues, we intentionally shift our level of analysis
here, believing that more is to be gained by
focusing on the character of knowledge and its
exchange than on the particular characteristics
of regions or of groups of firms. As we move from
the geographers’ interest in place toward stra-
tegic management theorists’ interest in the
sources of competitive advantage, we also move
our terminology away from the economists’ in-
dustrial districts (Marshall, 1920) to the more
common usage in management studies of re-
gional clusters or simply clusters (Porter, 1998).
April
Knowledge Characteristics and Mobility in
Regional Clusters
Before discussing knowledge stocks and flows
in and among firms in a regional cluster and
their impact on competitive advantage, we must
first discuss types and characteristics of knowl-
edge (summarized in Table 1). In a framework of
particular relevance to this study, Matusik and
Hill (1998) make use of concepts developed by,
among others, Cohen and Levinthal (1990), Hen-
derson and Clark (1990), and Henderson and
Cockburn (1994) to develop a typology of organ-
izational knowledge. Matusik and Hill (1998)
generalize from Henderson and Clark (1990) the
idea of component versus architectural knowl-
edge. While the terms originally referred to nar-
row technical understanding in product devel-
opment, Matusik and Hill (1998) apply the terms
more generally to firm-level knowledge. We
take the further step of applying these terms at
an interfirm level within regional clusters.
A critical consideration in this framework is
the transferability of knowledge: the flow of
knowledge among firms in a cluster. Transfer-
ability results from both the character of the
knowledge itself and from the characteristics of
the firms involved. We provide detailed discus-
sions of the character of component and archi-
tectural knowledge in the rest of this section,
but, in general, knowledge that is simpler, cod-
ified, less tacit, and less path dependent is more
likely to be mobile. Hamel (1991) summarizes
this as knowledge transparency and relates the
ease of transfer directly to this transparency.
Differential capabilities, on the part of firms,
for absorbing new component knowledge are
also key to our framework of knowledge stocks
and flows. Absorptive capacity is the ability of
any firm to acquire, assimilate, adapt, and ap-
ply new knowledge—that is, to learn (Zahra &
George, 2002). Cohen and Levinthal (1990) sug-
gest that absorptive capacity depends on a
firm’s prior stock of related knowledge. For in-
stance, investment in R&D activities not only
provides new knowledge directly but also
makes the firm more able to acquire and assim-
ilate related R&D output of other similar firms.
We contend that similar activities result in sim-
ilar (never identical) stocks of architectural
knowledge and, therefore, similar understand-
ings of the meaning and relationship of new
component knowledge, which improves ab-

Type of Knowledge
Component: Stocks and flows of knowledge
Describes an identifiable element of a body
of knowledge
Relates to exogenous conditions or laws
Relatively transparent
Runs from highly technical to highly systemic
Relatively mobile among organizations with
similar stocks of knowledge
Architectural: Primarily stocks of knowledge
Relates to an understanding of a system of
knowledge or organization
Path dependent and endogenous to the
system in which it is embedded
Nontransparent and causally ambiguous
Tacit, systemic, and embedded in the
organization
Relatively immobile between organizations
at the level of knowledge
TABLE 1
Knowledge Characteristics and Effects
Firm Specific
Subject to discovery, runs from simple
engineering knowledge to the application of
scientific principles
May be imported from another organization or
discipline
Subject to regulatory protection
Relatively mobile among firms or units with
similar architectural knowledge
Provides short-term competitive advantage to the
firm while private within the innovating firm
Private knowledge of the firm’s structure, systems,
cultures, etc., arising from unique experience
Includes routines for the absorption, organization,
and exploitation of component knowledge into
complex capabilities
Organizationally embedded and dispersed
Limits the ability of the firm to absorb knowledge
from other firms
Provides sustained firm-level competitive
advantage
2004
Cluster Specific
Becomes available to all members of the cluster
through spillovers
The more tacit and systemic, the more slowly it
spreads through the cluster
Tallman, Jenkins, Henry, and Pinch
Subject to interpretation by individual firms as
it is combined with their firm-specific
knowledge
Primary component of traded and untraded
flows of knowledge among firms within the
cluster
Provides short-term competitive advantage to
the cluster while public within the cluster
Quasi-private to cluster members
Establishes the relationships among the
members of the cluster, the “rules of the
game”
Develops at the cluster level through
evolutionary processes as the cluster
members interact over time
Increases absorptive capacity of members for
component knowledge from the cluster
Limits knowledge flows across cluster
boundaries
263
264 Academy of Management Review
sorptive capacity for flows of that component
knowledge.
Component knowledge. Component knowl-
edge consists of those specific knowledge re-
sources, skills, and technologies that relate to
identifiable parts of an organizational system
rather than to the whole. For instance, scientific,
technical, engineering, and design skills are
very much component knowledge in technology-
oriented industries. Component knowledge in
consumer industries includes knowledge of con-
sumer behavior, marketing, sales, promotion,
and so forth, whereas the motion picture indus-
try requires knowledge of production, direction,
cinematography, acting, and many other techni-
cal aspects of film making.
Component knowledge is normally tied to the
technology of the industry, is relatively coherent
and definable, and is usually acontextual, re-
flecting underlying exogenous natural or soci-
etal phenomena and laws rather than personal
or organizational history; therefore, it is subject
to discovery rather than creation by organiza-
tions. Component knowledge is potentially
transferable to informed individuals and organ-
izations, which is to say that they are likely to be
aware of the knowledge and that they will find it
understandable once presented to them (Mc-
Gaughey, 2002). This is not to say, however, that
all component knowledge is equally easy to ab-
sorb, even for firms in similar situations.
While firms hold large amounts of component
knowledge, some developed internally and
some imported from other organizations, such
knowledge will tend to leak out of the originat-
ing firm. This happens despite legal protections,
including patents, copyrights, trade secrets,
noncompete clauses in employment contracts,
and the like, although a strong regulatory re-
gime can slow losses to innovation (Teece, 1987).
The more firms share conditions and experi-
ences, the greater their mutual absorptive ca-
pacities will be and the more easily they will be
able to participate in mutual transfers of com-
ponent knowledge. Matusik and Hill (1998) pro-
pose that component knowledge can only re-
main private and profitable for a limited period
of time before becoming public, and is therefore
incapable of generating sustained competitive
advantage. Firms in a regional cluster, all in-
tensely engaged in similar or related activities,
closely grouped in space and trading with each
other, with frequent interaction of individuals on
April
informal or social levels, constant movement be-
tween organizations, common suppliers, and so
forth, will be particularly subject to spillovers or
leakage of component knowledge to other firms
in the regional cluster.
Proposition 1: Knowledge flows be-
tween firms in a regional cluster are
composed primarily of component
knowledge.
Although component knowledge in general is
potentially transparent and mobile, not all com-
ponent knowledge moves among firms within
(or beyond) a regional cluster at the same rate.
Organizational knowledge theory emphasizes
characteristics of knowledge that influence its
ease of movement within and between firms.
Knowledge has been characterized as simple
versus complex, tangible versus intangible, in-
dependent versus systemic, or explicit versus
tacit (Garud & Nayyar, 1994; Matusik & Hill,
1998). Component knowledge varies on all of
these dimensions, including degree of tacitness
or the extent to which a piece of knowledge can
be codified completely without demonstration or
experience (Brown & Duguid, 2001).
We summarize these dimensions by suggest-
ing that component knowledge ranges in nature
from straightforward technical (simple, tangi-
ble, explicit) know-how through highly systemic
(complex, intangible, tacit) scientific knowledge.
Highly technical knowledge includes blue-
prints, product patents, step-by-step instructions
for an operation, and so forth, whereas systemic
component knowledge includes scientific the-
ory, complex process patents, activities that re-
quire “learning by doing,” organizational rou-
tines, and so forth. Brush, Greene, and Hart
(2001) provide a similar typology of knowledge
but treat simple and complex knowledge as sep-
arate categories, while we see this as a multi-
dimensional but continuous measure. Technical
component knowledge is more transparent than
systemic component knowledge (McGaughey,
2002).
Proposition 2: The more technical, as
opposed to systemic, a piece of com-
ponent knowledge is, the faster and
more coherently it will be dissemi-
nated within a regional cluster.
Architectural knowledge. The second type of
knowledge important to our framework, archi-
2004 Tallman, Jenkins, Henry, and Pinch
tectural knowledge, relates to an organization
as an entire system and the structures and rou-
tines for coordinating and integrating its com-
ponent knowledge into patterns for productive
use and for developing new architectural and
component knowledge (Henderson & Cockburn,
1994; Matusik & Hill, 1998; McGaughey, 2002). Not
only is architectural knowledge typically com-
plex, intangible, and tacit, but it is also highly
organization specific, causally ambiguous, and
private because of its path dependency (histor-
ical basis), organizational embeddedness (dis-
persed and communal within the organization),
and holistic and evolutionary nature (Matusik &
Hill, 1998; Nelson & Winter, 1982; Reed & DeFil-
lippi, 1990). Architectural knowledge involves
the structures and systems of organizations and
evolves endogenously as an inseparable part of
an organization, rather than existing indepen-
dent of the organization (Dierickx & Cool, 1989).
Since no two organizations have identical histo-
ries, no two organizations can have identical
architectural knowledge.
The organizational and managerial pro-
cesses, often characterized as capabilities or
competencies (Teece et al., 1997) in the manage-
ment literature, that separate one firm in an
industry from another are very much of the ar-
chitectural type. Leaks of firm-specific architec-
tural knowledge are not readily accessible by
other firms, since the entire body of such knowl-
edge is not coherently assembled, the causal
path of its benefits is ambiguous, and the incom-
patible architectures of other firms are held
equally closely by them. Architectural knowl-
edge tends to remain private (Matusik & Hill,
1998).
Architectural knowledge may not be readily
transferable, but this does not mean that it has
no effect on the flow of knowledge. Similar ar-
chitectural knowledge derived from similar con-
ditions and activities improves absorptive ca-
pacity of a firm for component knowledge
developed in a similar firm, as we saw above.
Firm-specific architectural knowledge provides
routines for the adaptation and application of
component knowledge. However, Henderson
and Clark (1990) also show that firms may be
unable to grasp the competitive essence of new
technical advances because of their own pre-
conceptions about the architecture of the sys-
tem. Stocks of embedded knowledge based on
unique experience both enhance and limit the
265
absorption of other complex, tacit knowledge;
one system of architectural knowledge makes
full absorption, including application (Zahra &
George, 2002), of complex, tacit new knowledge
unlikely. Thus, existing architectural knowledge
reduces the absorptive capacity for alternative
architectures (even as it enhances the absorp-
tive capacity for related component knowledge).
Proposition 3: Firm-specific architec-
tural knowledge will persist even
within regional clusters and will re-
sult in observable differences in the
stocks and applications of component
knowledge across firms in a cluster.
In their knowledge-based perspectives on
business strategy, scholars rely on stocks of
firm-specific architectural knowledge to explain
differences between firms in an industry. We
propose that, through constant interaction, the
firms in a regional cluster also will develop an
interfirm or cluster-specific stock of architec-
tural knowledge that will distinguish the cluster
from the rest of its industry. This construct sum-
marizes the multiple approaches to cluster- or
district-level communal understanding or in-
dustrial atmosphere found in the economic ge-
ography (Marshall, 1920; Maskell, 2001; Storper,
1997) and strategic management (Kogut, 1993;
Porter, 1998) literature.
This type of knowledge is not firm-level archi-
tectural knowledge that has diffused out of any
one firm but represents, rather, understandings
developed at the regional cluster level through
the routinization of the network of interactions,
interdependencies, and common interests
among the members. It is a sense of the “rules of
the game,” available as a tacit understanding to
members of the cluster. This knowledge is not
formally exchanged for compensation; indeed, it
probably cannot be, but instead has become
part of the body of common knowledge of those
inside the regional cluster; it is “in the air” (Mar-
shall, 1920)—a public good within the limits of
the cluster.
This knowledge includes understandings of
reciprocity, reputation, interdependencies, and
the other relational aspects of the social system
of the knowledge cluster— how the members re-
late to each other as they exchange component
knowledge, cooperate, compete, and build the
cluster into a viable unit for analysis (Saxenian,
1994). It is critical to the idea of cluster-level
266 Academy of Management Review
untraded interdependencies, both as shared but
untraded knowledge in itself and for its role in
easing the exchange of component knowledge.
Cluster-specific architectural knowledge has
much of the character of “knowing,” as opposed
to “knowledge,” as delineated by Cook and
Brown (1999). That is, without being involved in
the activity and without developing understand-
ings even while applying them, firms cannot
become part of the larger cluster architecture.
This is similar in concept to Spender’s (1989)
idea of industry recipes, representing collective
understandings of how complex tasks are best
accomplished, and is tied to the development of
communities of practice (Brown & Duguid, 2001).
The intensive interaction of nearby firms with
mobile personnel, informal contacts, and the
like is the source of such emergent understand-
ings, so geography is important to developing a
system of understandings about the dissemina-
tion of knowledge (Almeida & Kogut, 1999; Amin
& Thrift, 1992). Constant nonmarket transactions
and interactions also seem to develop a sense of
identity for the cluster and its members (Sax-
enian, 1994). This type of tacit, cluster-level un-
derstanding has been described, if not specifi-
cally identified, in biotechnology (Arora &
Gambardella, 1990), information technology
(Kogut, Shan, & Walker, 1992), and motor racing
(Henry & Pinch, 2002), among many other indus-
tries, and in clusters in many countries (Piore &
Sabel, 1984).
Proposition 4: Cluster-level architec-
tural knowledge that is tied to geo-
graphical colocation is common to
members of the cluster and unavail-
able to nonmembers.
We established above that differences in firm-
specific architectural knowledge tend to slow
the absorption and assimilation of new compo-
nent knowledge. However, commonalities in ar-
chitectural understandings about any system
will ease the absorption of component knowl-
edge within that system, and we expect that
cluster-specific architectural knowledge will do
just that. Indeed, we expect that a primary as-
pect of cluster-specific architectural knowledge
will be the ways and means of component
knowledge exchange. Common cluster-level ar-
chitectural knowledge acts to increase the ab-
sorptive capacity of member firms for compo-
nent knowledge developed in other firms of the
April
cluster by providing a common set of organizing
principles. It leads firms to seek similar compo-
nent knowledge, incorporate it in similar ways,
adapt it in ways that reflect common under-
standings, and apply it in similar fashion in the
marketplace. This advantage in absorptive ca-
pacity as compared to other firms in the same
industry sector, but outside the regional cluster,
will be most apparent for more systemic or tacit
component knowledge, which requires a deeper
understanding of its meaning than does simple
technical know-how.
Cluster-level component knowledge moves
among the firms because their multiple interde-
pendencies and the architectural knowledge of
cluster relationships make control of informa-
tion flows virtually impossible. To paraphrase
Brown and Duguid (2001), component knowledge
moves around the cluster on “rails” laid by com-
munal, cluster-level architectural knowledge.
Constructs such as “knowledge in the air” (Mar-
shall, 1920), untraded interdependencies (Stor-
per, 1997), networks of learning (Powell, Koput, &
Smith-Doerr, 1996), and so forth include both
cluster-specific architectural knowledge and
cluster-level, or shared, component knowledge.
We propose that the “rail system” for knowledge
and the “cargo” of knowledge carried on the
system are distinct but closely related aspects of
the untraded interdependencies of knowledge
that make the regional cluster unique.
Proposition 5: Stocks of cluster-level
architectural knowledge will enhance
the transfer, absorption, and applica-
tion of component knowledge across
firm boundaries within the regional
cluster and retard flows of component
knowledge across cluster boundaries.
Asymmetric Knowledge Flows and
Competitive Advantage in Regional Clusters
In this section we address mechanisms by
which stocks and flows of knowledge permit
firms and clusters to develop knowledge-based
competitive advantage. We have described two
essential types of knowledge— component and
architectural—that form the stocks of knowl-
edge relevant to competitive advantage in re-
gional clusters, and we have discussed the po-
tential for different types of knowledge to move
among firms. In resource-based and specifically
2004 Tallman, Jenkins, Henry, and Pinch
knowledge-based models of strategy, scholars
agree that sustained competitive advantage is
tied in some way to the possession of valuable,
unique, nontransferable knowledge (Barney,
1991; Grant, 1996; Teece et al., 1997). Sustained
competitive advantage is possible for both firms
(Barney, 1991) and regional clusters (Porter,
1998). For competitive advantage to function at a
cluster level, knowledge must be shared among
the firms in the regional cluster, yet for compet-
itive advantage to exist at the firm level, at least
some knowledge must remain private. Compo-
nent knowledge provides competitive advan-
tage to the originating firm so long as it remains
in private hands (Matusik & Hill, 1998), retaining
its unique, valuable, rent-earning capacity
within the firm (Barney, 1991).
As we have seen, though, component knowl-
edge moves out of any particular firm at a rate
that is dependent on the technical versus sys-
temic character of that knowledge. Once it es-
capes the firm, such knowledge spreads rapidly
among prepared firms—preparation that is
typical of firms in a regional cluster sharing
cluster-level architectural knowledge. At this
point, such cluster-level component knowledge
is still only quasi-public and becomes a source
of competitive advantage for the cluster as a
whole—not just the firm— until it eventually dis-
perses throughout the industry, becomes fully
public, and loses its ability to confer advantage
at any level.
Baum and others (Baum & Haveman, 1997;
Baum & Mezias, 1992) have observed that phys-
ical proximity enhances knowledge spillovers
greatly, suggesting that knowledge available to
the cluster members may yet move slowly be-
yond the regional boundaries. Barney and Hos-
kisson (1990) have shown that resources may be
shared among a limited set of firms and still
generate advantage so that such locally shared
knowledge can still generate competitive ad-
vantage.
Proposition 6: Component knowledge
provides short-term competitive ad-
vantage to firms within a cluster while
it remains private, and component
knowledge that is public only within
the cluster provides short-term com-
petitive advantage to the cluster as a
whole.
267
If component knowledge can remain private
to the individual firm and confer competitive
advantage to it only in the short run, then firm-
specific architectural knowledge is the key to
sustained competitive advantage for individual
firms (Sanchez et al., 1996). The organizationally
embedded, diffuse, causally ambiguous nature
of architectural knowledge keeps it private to
the firm for an extended period of time, as dis-
cussed above. This architectural knowledge,
characterized as routines (Nelson & Winter,
1982), organizational resources (Barney, 1991),
core competencies (Prahalad & Hamel, 1990), or
dynamic capabilities (Teece et al., 1997), pro-
vides competitive advantage by offering unique,
firm-specific ways to organize component
knowledge and other assets so as to deliver
unique value to customers (Henderson & Clark,
1990). A critical aspect of the value of such
knowledge is an understanding of the relation-
ship of any one piece of component knowledge
to the firm’s overall body of knowledge. Hender-
son and Clark (1990), for instance, demonstrate
that, in the semiconductor photolithographic
alignment machinery industry, firm-level under-
standing of the entire system of component
knowledge (i.e., architectural knowledge of
the system) was necessary for competitive ad-
vantage.
Firm-specific architectural knowledge pro-
vides firm-specific competitive advantage
through three characteristics that differentiate
the firm. First, firm-specific architectural knowl-
edge is tied closely to the identity of the firm and
is not mobile. Second, it provides a persistently
unique perspective on the relationships of parts
of component knowledge, particularly of sys-
temic component knowledge, that can provide
sustained value in the marketplace. Third, it
drives sustained advantage for the firm since
the capabilities for learning that are a part of it
largely determine absorptive capacity for new
component knowledge, and organizational
learning is critical to sustained advantage
(Teece et al., 1997). Zahra and George’s (2002)
model of organizational learning suggests that
firms with the capacity to absorb, assimilate,
adapt, and apply more component knowledge
will have an advantage over those that are more
resistant to learning. The former are more likely
to create and maintain resource combinations
that generate sustained competitive advantage
in a changing and evolving marketplace.
268 Academy of Management Review
Proposition 7: Differing stocks of firm-
specific architectural knowledge
provide differential competitive ad-
vantage to firms within a regional
cluster, despite shared component
knowledge.
In considering the firms in a regional cluster
as isolated entities, we see that their individual
firm-specific architectural knowledge, being es-
sentially immobile, will protect their differences
in performance, even as component knowledge
diffuses to all members of the cluster. In a sym-
metrical argument, the unique architectural un-
derstandings at the level of the cluster should
protect differences in performance across clus-
ters, since interpretations and applications of
cluster-level component knowledge remain
unique for extended periods of time. Lawson
(1997) suggests that such know-how represents
cluster-level competencies that may even super-
sede firm-specific skills.
The literature on industrial districts and re-
gional clusters suggests that regional clusters
indeed do possess certain competencies that
provide competitive advantage to their constit-
uent firms as a group (Galaskiewicz & Zaheer,
1999; Lawson, 1997). Part of a regional cluster’s
advantage in its industry is tied to component
knowledge that has originated within the clus-
ter and remains there, moving among member
firms, but that is greatly restricted in moving to
nonmember firms that do not share the cluster’s
architectural knowledge. The other aspect of
cluster-level advantage is the common routines
and procedures, for adapting and exploiting as
well as seeking and incorporating shared com-
ponent knowledge, that are part of the cluster’s
architectural knowledge. Therefore, we expect
that firms in a cluster will tend to have similar
strategies and structures (while still being dif-
ferentiated by their firm-specific architectures)
in the search for competitive advantage.
The regional cluster’s ability to generate
knowledge through untraded interdependencies
is crucial to understanding industry organiza-
tion and competitive advantage in many global
industries. Cluster-specific advantage, as de-
scribed for the motor racing industry (Jenkins &
Floyd, 2002; Pinch & Henry, 1999), for biotechnol-
ogy (Zucker, Darby, & Armstrong, 1998), for semi-
conductors (Saxenian, 1994), for the Cambridge
high-technology cluster (Lawson, 1997), and for
April
various other industries (Porter, 1990), appears to
be the genesis of superior performance on the
part of firms from one cluster over the rest of the
industry.
Proposition 8: Cluster-level architec-
tural knowledge provides sustained
competitive advantage to firms in the
cluster by restricting the movement of
component knowledge out of the clus-
ter and by providing a unique com-
mon base of know-how for applying
such technology.
CONCLUSION
In this article we have integrated concepts
from economic geography with those of strate-
gic management to develop a model of the
stocks and flows of knowledge as critical
sources of competitive advantage for clusters
and the firms within them. We believe that this
model provides concepts useful in understand-
ing the mechanisms behind the sustained com-
petitive advantage of clusters described by Por-
ter (1990) and in understanding the interaction of
the cluster and firm as significant components
of sustained advantage of organizations. It also
provides an explanation for differences in firm-
level performance within a generally successful
regional cluster. Our model of component
knowledge implies that flows of this form of
knowledge are measurable through such means
as patent citation data, that differences in com-
ponent knowledge can be measured and will
affect such flows, and, finally, that the presence
of similar or shared architectural knowledge
can be inferred from characteristics of compo-
nent knowledge flows. While not addressed
here, our conclusions about knowledge in geo-
graphical groupings of firms may be applicable
to groupings defined by other parameters, but
this must be the subject of further study.
For managers, our model suggests that, in in-
dustries characterized by dominant regional
clusters, membership in a cluster is essential for
sustained strategic equality. Nonmembers will
find competing for advantage on the basis of
component knowledge to be difficult in the face
of the multiple avenues for creativity and inte-
gration that are open within the cluster. The
possibility of accessing the cluster through di-
rect investment, acquisition, or alliance, while
2004 Tallman, Jenkins, Henry, and Pinch
keeping other activities outside the cluster,
raises intriguing possibilities for competitive
advantage.
For managers within the dominant cluster, we
highlight the importance of firm-specific archi-
tectural knowledge in the assembly of quasi-
public (cluster-specific) and temporarily private
(firm-specific) component knowledge to compet-
itive advantage. Cluster members cannot count
on private component knowledge for sustained
advantage; such knowledge is highly likely to
move into the cluster domain over time. They
must have a unique, firm-level, architectural un-
derstanding of how to assemble components for
extended competitive advantage to generate
above-average performance. Finally, we pro-
pose that the cluster will devise its own archi-
tectural knowledge, not derived from firm-
specific knowledge but created out of the fabric
of untraded interdependencies, sense of com-
mon interest, and geographical identity of the
component firms. This suggests that member-
ship is not the same as colocation but also re-
quires absorption of the architectural knowl-
edge of the regional cluster.
We believe that regional clusters described in
the literature appear to offer similar character-
istics; the steady flow of foreign investment into
Hollywood, Silicon Valley, Motorsport Valley, or
the City of London would seem to reflect a need
to understand the local architectural principles
more than to access easily transmitted technical
knowledge, for instance. Cluster-specific archi-
tectural knowledge and its effect of increasing
the transparency of and absorptive capacity for
mobile component knowledge is not an industry-
specific concept. We believe that this model of
knowledge types and flows is an additional ex-
planation for regional clusters as competitive en-
tities and has considerable power as a set of
mechanisms explaining the rise and persistence
of regional clusters in many settings.
As the construct of closeness changes in the
postindustrial economy, and as firms begin to
relate to other firms that are close relationally—
through networks of alliances— or virtually—
through intensive information exchange—the
relevant concept of space may move away from
physical geography. However, the importance of
common architectural understandings to learn-
ing and to similar applications of component
knowledge and the importance of unique archi-
tectural knowledge to different applications of
269
component knowledge and differential compet-
itive advantage will persist.
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Stephen Tallman is currently the David Eccles Professor of Management at the

University of Utah. He earned his Ph.D. in management from UCLA. His research
interests are in international strategy, alliances and joint ventures, and knowledge
strategies.

Mark Jenkins is professor of competitive strategy at Nottingham University Business

School. He received his Ph.D. from the Cranfield School of Management. His research
interests focus on the areas of competitive strategy, knowledge management, and
innovation. He is currently researching knowledge and innovation in the development
of Formula One motorsport.

Nick Henry is reader in urban and regional studies in the Centre for Urban and
Regional Development Studies, University of Newcastle-upon-Tyne, and a senior
consultant with GHK Consulting Ltd. His doctorate is from the Open University. His
research focuses on regional development and multicultural economic development
in advanced economies.

Steven Pinch is a professor in the School of Geography at the University of Southamp-

ton, UK. He was awarded a Ph.D. by the London School of Economics, and his main
research interests lie in urban and economic geography. He is currently investigating
the role of knowledge in industrial clusters.