Clusters, Value Chains & Supply 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

Defination

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

Typically, industry firms are in a concentrated geographic area, which may or may not include entire value chain

Typically, industry firms are in a concentrated geographic area, which may or may not include entire value chain

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”

In the Subscribers 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