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Focus-The Key and The Way

By Professor Gnanaharan

May 2006

Michael E.Porter, the strategy guru in his magnus opus, "Competitive Strategy" popularised three generic strategic approaches that can be adopted by any firm wanting to outperform the competition.They are:

1)Overall Cost Leadership

2)Differentiation
3)Focus

Most firms, according to Porter pursue any one of the above stratgic approaches as the primary target.But one could see a happy confluence of all the three in the case of geographical clusters.Clusters are present across the geographies, industry categories and sizes. Few are performing to the potential but most are under performers. But all vibrant clusters by focussing on one particular type of product, enjoy overall cost leadership and achieve differentiation as well.

Yet, there is a vital difference between a firm adopting any of the three generic strategies to gain competitive advantage and clusters being bestowed with the benefits of all the three sources of competitive advantage. In the case of clusters, economies of scale and experience curve effect relates to the geography as a whole- not just to a unit.Transaction cost comes down because the cluster as a whole enjoys economies of scope as most of the players in the cluster's value chain are located at arm's length. Global buyers also benefit from lower transaction cost as they have a wider choice of suppliers both to select and switch, if necessary.

Differentiation again is a collective function in the case of indutrial clusters. The geographical regions housing the industrial clusters are invariably associated with the insustrial activity of the cluster.So much so,Tiruppur today is inseparable from the Hosiery Cluster and known only as a Banian City.In the same way, Sivakasi always goes with its cluster activity, viz. Crackers or Fireworks.The list goes on and on. Surat, Nagpur, Patiala, Panipat and Banares are few more examples. They are referred to as Cluster Brands. Today they can be registered as Geographical Indicators (GI) under the Intellectual Property Rights (IPR).Pochampalli in Andhra Pradesh has already been registered as GI for the sarees it makes.

The Finance Minister Mr.P.Chidambaram in his Budget Speech this year called for a "theme based" approach to urban development.One good thing about our country is that already hundreds of urban centres are blessed with a marketable theme either in the form of a cluster activity or tourist attractions. All it requires is to breathe life into these places through appropriate interventions from outside.

This year's Supplement to Foreign Trade Policy (FTP) released recently by the Commerce Minister Mr.Kamal Nath has an innovative scheme that can be leveraged to promote the products manufactured b the clusters. The scheme refers to Focus Product Focus Market replacing the earlier Target Plus Scheme.What is needed to be done is to take an inventory of both SME and Micro or Craft Clusters functioning in the country,undertake a diagnosis of each and every one of them,design an appropriate cluster intervention stratgey, and execute the same in a professional manner.

Clusters coming undr craft category assumes particular importance in view of their capacity to promote employment oriented exports.More importantly they create jobs for the poor people. Therefore building capacity at that level will help the poor segments of the society to participate in the global trade and benefit out of that.