Clusters & Value Chains
Value Chain and Cluster approaches have the potential to enhance the competiveness of individual businesses. Most commonly employed by industrial enterprises(but capable of being adapted and transferred to other sectors), firms can engage in one or both of approaches to address challenges or opportunities that they would be hard pressed to tackle as individual entities. Both of these approaches have common intellectual roots in Harvard University’s Michael Porter, who played a key role in developing both theories.
Video: “Value Chains versus supply Chains”
Differences between the two approaches can be subtle. This chart highlights key characteristics of both models.
| Value Chains | Clusters | |
| Definition | The value-creating flow of a good from raw materials, production, commercialization, and ultimately delivery to end-users or consumers | A geographic concentration of interconnected businesses, suppliers, and associated institutions creating direct and indirect synergies among them |
| Membership | Closed | None Required |
| Geographic Focus | Entire value chain, regardless of location | Typically, industry firms are in a concentrated geographic area, which may or may not include entire value chain |
| Composition | All companies in product flow; usually defines “stakeholders” more narrowly to include enterprises primarily, but also some public sector entities | Stakeholders who (directly or indirectly) create synergies ; usually defines “stakeholders” more broadly and more formally |
| Relationships | Sequential | Cooperative & Competitive |
| Basis for agreements | Mutual arrangements, contract based or not | Social norms & reciprocity |
| Value Added | Allows firms to focus on core competencies | External economies |
| Major Outcomes | Increase profits & sales and cost reductions | Information and knowledge sharing |
| Basis of external economies | Coordinated functions & resources | Location/proximity |
| Shared goals | Business outcomes | none |
Matrix adapted from Stuart Rosenfield “The Origin of Networks and Public Policy”
Value Chains 101: Professor Andy Fearne from the University of Kent provides a 3 minute introduction to the concept of Value Chains
IN THE MEMBERS ONLY SECTION YOU WILL FIND:
A guide to understanding the value chain and determinants of successful value chains
An extensive array of case studies on value chains and clusters
Developing cluster focussed strategies
Creative industries clusters
Tourism clusters
Clusters in rural regions
Links to cluster and value chain websites
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