stock repurchase announcements: a test of market ... - Asbbs.org

Importance of Geographic Space and Location
players. Porter even attempts to apply his approach to general economic policies. He makes a
strong distinction between the policy based on clusters and the traditional industrial policy and
seems to favor cluster-based development initiatives. However, the above approach may be
questionable, as these two policies should be seen as complimentary rather than mutually
exclusive, and therefore would need to be coordinated to be of greater use to economic
development programs. What is important to remember is that industrial policy is primarily
rooted in economic space, while clusters are based in geographic space, but both are often equally
important.
The additional cluster literature has been instrumental and could be viewed as not only clarifying
some of the key definitions, but also making progress in bridging geographic and economic
spaces. There are numerous empirical studies that look at different aspects of industry clusters
and the relevance of the suggested concepts. Haussler and Zademach have examined
biotechnology firms and conclude that the success of a cluster depends on its ability to evolve by
changing its structure and also by achieving a desired balance between science and capital. They
further conclude that firms which are more open to cooperation with both for profit and nonprofit
economic partners are usually more successful (Haussler and Zademach, 2007). Patti
shows the economic benefits of building local supplier and client relationships, and further
confirms that clusters gain from both cooperation and competition (Patti, 2006). The importance
of geographic space in the cluster literature has also been extended to other areas, such as general
management issues and entrepreneurship. Rosenthal and Strange have found that both
urbanization, such as the density of local employment, and localization expressed as the density
of employment in an individual industry, have positive impact on entrepreneurship (Rosenthal &
Strange, 2005). Gittelman has investigated the role of geographic space for science-based firms
and also shows different spatial patterns in biotechnology (Gittelman, 2007). Minerva expands
his model to include international trade and posits that regional economic integration and free
trade may indeed support spatial concentration of industries (Minerva, 2007).
The cluster theory has its critics as well and not all recommendations are free of controversy, as
noted previously. Ketels warns that: “while cluster-based economic policy has a lot of potential,
it is no panacea. In fact, the largest danger for this approach may be its current use as the
fashionable next ‘new thing’ in economic development” (Ketels, 2003, p. 20). Some other
criticism focuses on a rather vague definition of clusters and therefore its limited use for regional
development policies. Martin and Sunley suggest that the cluster theory should have a ‘public
policy health warning’ (Martin & Sunley, 2003). Lall and Chakravorty add that the ‘Porter style’
competitive analysis and ‘specialized clusters’ may be less successful in peripheral areas, while
government programs targeting mixed industrial clusters or districts could be more appropriate
for those regions (Lall and Chakravorty, 2005). Porter’s assumption that today the nature of
agglomeration economies has moved away from urban and industry focus and more toward the
clusters is also questionable. All three concepts are often interconnected and remain very
important for decision making and should be carefully considered by businesses and governments
alike. For example, it has been well documented that agglomeration economies are crucial for
certain economic activities, but localization or industry specific economies could be far more
significant for others. The general cluster literature may also be subject to criticism for not
addressing properly environmental issues and concerns.
Several studies show that not all existing business cases support the necessity of cluster
development. Goetz and Rupasingha warn that not all industries need to be concentrated in
geographic clusters: “manufacturers of computers and peripheral equipment appear to avoid both
firms from their own industry and overall high-tech industry firms in their location decisions”
(Goetz and Rupasingha, 2002, p.1236). Almazan et al, after investigating the role of skilled labor
ASBBS E-Journal, Volume 4, No.1, 2008 185