Clustering as a Growth and Cost-cutting Strategy

Came across this and thought it was interesting - seems to help SMEs cut costs, build strength and grow, as well as increase chances of obtaining financing. Not sure if we already have something similar in place, if not, it could be something worth considering (:

Strength in Numbers

But beyond the principles of cash management, other bright ideas are also coming to light. Khuned Sachdev, who runs a small paper manufacturing joint venture in Indonesia, also heads iLaboratory, an incubator of Thai e-businesses. Undeterred by the collapse of the dot.com frenzy, he wants to bring the Silicon Valley concept of clusters to the island resort of Phuket. "You hear Phuket and you think tourists. But [some of] these tourists are staying there, and some of them are experts in Java and other programming languages," he says.

Under the clustering concept, a group of SMEs in similar ventures work together to combine their expertise and their bargaining power. A venture that designs golf clubs, for example, can work with one that makes them, and another that distributes them. The result is a more defined business prospect and strategy - an important confidence-building factor as far as banks are concerned. So far, Sachdev has gotten the support of entrepreneurs, and the curiosity of banks and investors, with his idea.

Clustering is not just for technology. Palanca, who heads various trade groups in the Philippines, says entrepreneurs in Negros, a flower growing region in the Philippines, is building a cluster along the lines of the Netherlands' tulip industry. "The idea is, we're not competing with each other even if we're into the same product; we're competing with somebody overseas," she says. "LetÕs group ourselves together, so instead of my buying, say, one yard of ribbon, we will buy five yards," adds Palanca. With the economies of scale, clusters should be able to get materials cheaper and borrow funds at lower cost. The idea is gaining support. The Philippine Chamber of Commerce and Industry, the largest trade group, has agreed to shortlist clusters and endorse them with banks - not a financial guarantee, but an assurance of quality.