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Cluster Pulse Cluster Notes

SME's form the bedrock of India's economy. As the economy moves from low- to mid-income status, the economic relevance of SME's will also grow further, with SME's accounting for an increasing share of both gross national income and employment. Ensuring that SME's have access to high quality business development services (BDS) is central to supporting their growth, and by extension, the growth of the whole economy.

Around Mid 1990's, 353 clusters in India were listed in India.Experimental work started in certain clusters like Tirupur ( Cotton Knitwear).The concept was on one hand to reduce cost of production of SME's through backward linkage , through the vehicle of “Consortium “ for example : technology up gradation, joint raw material purchase, cost sharing etc…

On the other hand through forward linkage, again with the vehicle of “Consortium“, to sell jointly in India & to export, thereby avoiding competition & working in co operation thereby getting better price realization. The result : Turnover of Tirupur city , which was about Rs. 400 Crores in 1994 , went up to Rs. 11800 Crores in 2006 & exports from Rs.160 Crores went up to Rs. 9000 crores in the same period. Similar work was done in clusters like Bangalore ( Machine Tools ) & Ahmedabad ( Pharmaceuticals ) & in many more clusters.

Over a period of few years, Government Of India at central as well as state level  realized the importance of CDP & made it an integral part of its industrial policy.Central Government adopted a few clusters .Taking lead from this , many State Governments adopted clusters.Then organizations like SIDBI , Textile Committee – Ministry Of Textiles & many more Central & state agencies started adopting clusters & running programs. As of today, CDP can be said to be a grassroots movement for a resurgent SME sector in India !

However , there is a long way to go still. It is just the beginning of a journey !!! There is empirical proof that small- and medium scale enterprises (SME's) operating in the same industrial sectors tend to cluster close to one another. This tendency has been observed in different environments in both developed as well as developing countries. There are sound economic reasons for this phenomenon. SME's operating in such clusters derive a clear competitive advantage from

  • The proximity to sources of raw materials.
  • The availability of suitable business development services.
  • The abundance of customers / buyers attracted by the cluster tradition in that industry.
  • The presence of a skilled labor force.

SME clustering is common in a wide range of countries and sectors. Some industrial districts in developed countries describes SME clusters that have reached high levels of growth and leadership in profitable niches of world markets . Similar examples exist from developed countries such as Germany, the USA, and Japan. This model can be replicated in developing & underdeveloped economies too. The principle of CDP's approach towards SME's is that these companies can play a key role in economic growth as well as equitable development in developing countries.

However, this potential role is often not fulfilled because of a particular set of problems characterizing SME's that are related to its size :

  1. Individually, SME's are often unable to capture market opportunities which require large production quantities, homogenous standards, and regular
  2. They experience difficulties in achieving economies of scale in the purchase of inputs(such as equipment, raw materials, finance, consulting services, etc.)
  3. Small size constitutes a significant hindrance to the internalization of functions such as training, market intelligence, logistics and technology innovation
    all of which are at the very core of firm dynamism.
  4. Small & Medium scale prevents the achievement of specialized and effective internal division of labor that fosters cumulative improvements in productive capabilities and innovation.

Due to the continuous and fierce struggle to preserve their narrow profit margins, small-scale entrepreneurs are often locked in their routine work and unable to introduce innovative improvements to their products and processes and cannot look beyond the boundaries of their firms to capture new market opportunities.

The emphasis of Cluster Pulse is to provide networking assistance to SMEs so that they can escape these limitations through co-operative efforts.For this purpose, Cluster Pulse supports the creation of SME consortiums & networks.

  1. The term ‘consortium' refers to a group of firms that cooperate on a joint  project – like joint raw material purchase , joint marketing through common brand , cost sharing , capacity utilization , joint participations in exhibitions & marketing tours etc. thereby complementing each other in order to overcome common problems, achieve collective efficiency and conquer markets beyond their individual reach. Market access success is key to technological up gradation. Once they know the market , they will themselves invest in upgrading their technology in order to tap the markets.
  2. The term ‘cluster' indicates a sectoral and geographical concentration of enterprises which produce and sell a range of related products and are, thus, faced with common challenges and opportunities.

When economic reforms started in India 1991 , there was a serious concern about what will happen to Small & Medium Enterprises ( SME's ) in case big companies & import products enter India in a big way . Will the SME's , which generates large employment, collapse ? Will the crime rate go up due to unemployment ? Will the social fabric of India get disturbed ?

One of the probable solutions was that SME's need infrastructural, technological & marketing support. This led to the beginning of Cluster Development Program ( CDP ), as a science.Earlier too, in some form, the program was being run in isolated places , but not as a science.

The CDP approach envisages consortium initiatives as components of a broader spectrum of support measures to SMEs. This is because such initiatives are frequently much more effective and sustainable if they involve the entire range of actors with whom the SMEs commonly interact.Among such actors are :

  • Suppliers of raw materials , plant & machinery
  • Consumers of goods and services from the SMEs Testing laboratories
    (both private and public)
  • Research and development institutions
  • Industrial Associations
  • Technical , Marketing and management consultancy organizations
  • Training Institutions
  • Regulatory bodies enforcing/monitoring rules and regulations
  • Local Government
  • Financial Institution


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