Financial literacy

Clusters - A Path to Prosperity for Small Business in the US I'd like to touch on the topic of economic clustering.

Why clusters are the most promising and stable path for small companies in the future. That this is the only way to survive in the midst of pervasive digitization and accelerating technology.

So, let's dive into what clusters are and the benefits they bring?

What is a cluster?

 In simple terms, a cluster is a group of companies located in the same area, collaborating with each other, and benefiting from this association. Various entities can form clusters: corporations, small businesses, startups, universities, research centers - practically anything. Unlike a holding company, all businesses within a cluster remain legally independent: each with its own management, finances, and so on.

For instance, Silicon Valley in California is a large cluster that brings together high-tech companies and universities. The valley is home to the headquarters of companies like Apple, eBay, Facebook, Google, and Intel. The main advantage of this cluster is that university graduates can secure prestigious jobs, and companies can access the latest scientific developments.

Why do companies form clusters and what are the benefits? Paradoxically, competitors often come together to form clusters. It might seem unprofitable to cooperate with a company that occupies the same niche, but this is not entirely true. Let's consider an example from the tourism sector.

Suppose entrepreneurs have opened tourist bases around a beautiful lake. Initially, there are many people wanting to relax in this new place, but over time the flow decreases, and hotels increasingly compete for clients. Competition becomes fierce, and some can't keep up and close their business.

Fierce rivalry can be avoided through specialization — each entrepreneur occupies a more narrow niche, such as focusing on fishing, hunting, gastronomic tourism, or active holidays. Then, businesses complement each other, and the lake attracts more tourists since it offers developed infrastructure and numerous entertainments.

Here are a few more reasons why businesses form clusters:

More productive interaction with universities:
Companies may need specific research, and a request from several cluster participants is more prioritized for the university than a request from one company. The same applies to training staff — based on the cluster participants' request, educational institutions can introduce new programs and train specialists needed by the businesses.

Opportunity to share expenses: Companies from one cluster might use similar resources. For example, purchasing the same laboratory equipment. If several small businesses come together, they can place a bulk order and save money.

Knowledge exchange: Geographical proximity facilitates the exchange of knowledge, ideas, and information between different companies, thereby enhancing the overall innovation of the industry. Within a cluster, there's an accumulation of extensive market, technical, and competitive information, and its members have access to it. For this reason, cluster employees tend to be more skilled specialists than those from isolated companies.

Access to the best employees and suppliers: Companies in dynamically developing clusters can tap into an existing pool of experienced workers. This reduces hiring costs and ensures they get skilled workers. A good cluster also offers a specialized supplier base. Using local manufacturers means transaction costs are lower and there's no need for warehouse stock.

Support from regional authorities and the state: When companies unite, their "voice" becomes louder. When multiple cluster participants raise an issue, authorities are more likely to assist the business. For instance, they might offer favorable loan conditions, temporarily exempt them from taxes, or expand grant support.

Clusters are also beneficial for the state: they create additional jobs, improve workforce qualifications, stimulate competition, and foster innovation in regions.

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