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In his pathbreaking 1990 book The Competitive Advantage of Nations, HBS professor Michael E. Porter emphasized the strategic importance of clusters, which he defined as "geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions in particular fields that compete but also cooperate." In a recent interview in Working Knowledge, a quarterly report on research at HBS, Porter was asked whether clusters and other local economic circumstances still matter, given the rapid pace of globalization in business during the past decade.
"Absolutely," Porter replied. "It's a very interesting paradox. In a global economy where it's easy to move goods and information around the world, these things become givens available to any enterprise. As a result, they are no longer a source of competitive advantage. The decisive, enduring advantages, therefore, become unique local centers of innovation for the likes of mutual funds, venture capital, and biotechnology in Greater Boston or aircraft equipment and design, boat- and shipbuilding, and metal fabrication in Seattle. The list of clusters goes on and on, both in this country and abroad. With the proximity that clusters provide, companies can do things together without formal ownership or legal relationships. And this kind of flexibility opens up more possibilities for change and dynamism, which are crucial ingredients in a modern economy, where prosperity depends on innovation."
On Competition, a collection of Porter's seminal Harvard Business Review articles about competitive advantage -- which also includes two new articles on clusters and competition and global competitive strategy -- is available from HBS Press.
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