5.

5 Cluster Development Schemes

Small and medium enterprises operating in the same or inter- related industrial sectors tend to
concentrate in specific geographic locations. This phenomenon has been observed in all parts of
the world. There are sound economic reasons for this phenomenon. Micro and small units
operating in such clusters derive a clear competitive advantage from –

(a) The proximity to sources of raw materials and other inputs,

(b) The availability of suitably customised business development services (BDS),
(c) The abundance of clients attracted by the cluster tradition in that industry, and
(d) The presence of a skilled labour force.

A ‘cluster’ may, therefore, be defined as the agglomeration of SMEs producing same/similar

products/services or engaged in the same line of manufacturing activities or services, located
within an identifiable and, as far as practicable, contiguous area.

Cluster approach is different from the concept of development of Industrial Estates. The latter
is largely based on infrastructure development and creation of new assets, whereas, cluster
development aims at holistic development (covering diverse areas like marketing, export
promotion, skill up-gradation, infrastructure etc.) and may be designed to cover industrial estates
as well as natural clusters, which may have evolved on their own historically at any place.

The Ministry of Micro, Small and Medium Enterprises (MSME), has adopted the Cluster
Development approach as a key strategy for enhancing the productivity and competitiveness as
well as capacity building of MSMEs. The essential characteristics of enterprises in a cluster are

(a) Similarity or complementarity in the methods of production, quality control and testing,
energy consumption, pollution control, etc
(b) Similar level of technology and marketing strategies / practices
(c) Similar channels for communication among the members of the cluster
(d) Common challenges and opportunities.

Industrial clusters are recognised as an important instrument for promoting rapid industrial
development, innovation, competitiveness and economic growth. Industrial clusters play a
pivotal role in the overall industrial development of Kerala and the Government bestows highest
priority to attract investments from both domestic as well as foreign sources in its crucial
industrial sectors to accelerate inclusive economic growth and development in a sustainable
manner. The companies located in industrial clusters can operate with higher efficiency,
drawing on more specialised assets and suppliers with shorter reaction times than when
working alone. They can collaborate with research institutes, technology labs, productivity
centres, venture capitalists, and other providers of business development services. Most clusters
are developed as ‘production hubs’ that they have the entire value chains augmented within the
cluster. Each firm is specialised and is connected with other firms through production
networks. This increased efficiency and survival rate is through strong forward and backward
linkages in the value chains. The combination of these potential benefits enables them to acquire
new competences and access to international markets.

Thus, business formation tends to be much higher in industrial clusters as they enable small
entrepreneurs to reduce cost of inputs and marketing. Government has adopted CDS to reap the
benefits of agglomerations through transformation of the traditional systems of activities to new
networks ready for competition and innovation. It enables the enterprises to enjoy the benefits of
economies of scale in production and distribution.

5.5.1 Objectives of Micro & Small Enterprises - Cluster Development Programme (MSE-
CDP)

(i) To support the sustainability and growth of MSEs by addressing common issues such
as improvement of technology, skills and quality, market access, access to capital,
etc.
(ii) To build capacity of MSEs for common supportive action through formation of self
help groups, consortia, up gradation of associations, etc.
(iii) To create/upgrade infrastructural facilities in the existing industrial areas/ clusters of
MSEs, including setting up of Flatted Factory Complexes.
(iv) To set up common facility centres (for testing, training centre, raw material depot,
effluent treatment, complementing production processes, etc.)
(v) Promotion of green & sustainable manufacturing technology for the clusters.
5.5.2 Components of MSE-CDP

(i) Common Facility Centers (CFCs): like Land, building, machinery & equipment,
support infrastructure such as water supply, electricity etc will be supported by
Government.
(ii) Infrastructure Development: The Government grant to establish new clusters and
for existing clusters, upgradation will be based on actual requirements.
(iii) Marketing Hubs / Exhibition Centres by Associations: like building, furnishings,
fittings, items of permanent display, generators, etc.
(iv) Thematic Interventions: like Training Programmes, Exposure Visits, Business
Development Service (BDS) through a panel of service providers and other activities
in creating business eco-system.

5.5.3 The main steps in cluster development are

1. Selection of Cluster – who should join as a member unit?

2. Selection of Cluster Development Executive (CDE) – an officer to conceptualise the
strategy and to coordinate implementation initiatives.
3. Trust Building
4. Diagnostic study – on the chance of success of units by operating as a cluster
5. Preparation of action plan – on various common facilities and its operations
6. Approval of budget and leveraging of funds from various institutions apart form own
fund
7. Implementation of action plan
8. Monitoring and evaluation – on a continuous basis
9. Handing over and exit – after it is run by the team of CDE in the initial period
10. Self-Management phase – and ensuring smooth flow of activities

An industrial and commercial policy of a State shall try to create an entrepreneurial society for
rapid industrialisation to achieve high and sustainable economic growth without affecting its
ecology and environment.