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