Marketing externalities in industrial clusters: A literature review and evidence from the Christchurch, New Zealand electronics cluster

Author： Brown Peter McNaughton Rod Bell Jim

Publisher： Springer Publishing Company

ISSN： 1570-7385

Source： Journal of International Entrepreneurship, Vol.8, Iss.2, 2010-06, pp. : 168-181

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Abstract

Literature on the internationalisation of small- and medium-sized firms identifies location in a geographic cluster of networked firms as a source of competitive advantage. In particular, local networks are cited as a source of market information and referrals that can help firms enter international markets. Co-location and the local interactions that it fosters create externalities that benefit entrepreneurial firms. This paper identifies four types of externalities: supply side, demand side, active, and passive. Supply and demand side refers to inputs to the firm and markets for outputs, respectively. Passive externalities occur simply because firms are co-located, while active externalities only occur because firms are co-located and work together in networks. Representatives of firms in the Christchurch, New Zealand electronics cluster were interviewed about the extent to which they perceive benefits from externalities. A statistical cluster analysis reveals two patterns of responses. Both groups of responses report benefiting from passive externalities. However, about 40% of the firms also benefit from active externalities. These firms are typically smaller and less export intense. The notion of active externalities has implications for the management of firms located in clusters. To benefit from active externalities, managers must develop capabilities that maximise network opportunities. There is also an implication for economic development policy: Resources should be targeted at encouraging active externalities rather than passive, as passive externalities occur without public intervention.