Clusters are geographical concentration of interconnected firms that produce a similar range of goods or services and face similar threats and opportunities. It allows firms within a cluster to connect to global value chains by creating strong backward and forward linkages.
Cluster development helps SMEs overcome constraints associated with their small size by promoting their technological development and enhancing their ability to compete in the local and global markets. Examples of internationally renowned clusters, such as that of the Silicon Valley cluster in California or the information technology cluster of Bangalore in India demonstrate that clusters are environments where enterprises can develop a competitive and global edge, while at the same time generating employment, wealth and local economic development in the process.
The recent performance of the manufacturing sectors of Punjab has relatively been stagnant, despite having export potential. Thus, cluster development can tackle underlying causes of cluster stagnation and overcome obstacles to development. SMEs in Punjab have a weak support system. Therefore, cluster development will strengthen the support systems by upgrading management and skills through provision of technical assistance to the SMEs.