Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • November – December 1998
  • Article
  • Harvard Business Review

Clusters and the New Economics of Competition

By: Michael E. Porter
  • Format:Print
ShareBar

Abstract

This article explains how clusters foster high levels of productivity and innovation and lays out the implications for competitive strategy and economic policy. Economic geography in an era of global competition poses a paradox. In theory, location should no longer be a source of competitive advantage. Open global markets, rapid transportation, and high-speed communications should allow any company to source any thing from any place at any time. But in practice, location remains central to competition. Today's economic map of the world is characterized by what Porter calls clusters: critical masses in one place of linked industries and institutions—from suppliers to universities to government agencies—that enjoy unusual competitive success in a particular field. The most famous examples are found in Silicon Valley and Hollywood, but clusters dot the world's landscape. Porter explains how clusters affect competition in three broad ways: first, by increasing the productivity of companies based in the area; second, by driving the direction and pace of innovation; and third, by stimulating the formation of new businesses within the cluster. Geographic, cultural, and institutional proximity provides companies with special access, closer relationships, better information, powerful incentives, and other advantages that are difficult to tap from a distance. The more complex, knowledge-based, and dynamic the world economy becomes, the more this is true. Competitive advantage lies increasingly in local things—knowledge, relationships, and motivation—that distant rivals cannot replicate.

Keywords

Economics; United States

Citation

Porter, Michael E. "Clusters and the New Economics of Competition." Harvard Business Review 76, no. 6 (November–December 1998): 77–90.
  • Find it at Harvard
  • Purchase

About The Author

Michael E. Porter

Strategy
→More Publications

More from the Author

    • 13 Jan 2023 - 14 Jan 2023
    • Faculty Research

    India’s Quest for Sustainable Growth in a New Global Reality:: The Need for a Region- and Sector-Driven Approach

    By: Christian H.M. Ketels and Michael E. Porter
    • 2022
    • Faculty Research

    Competitiveness Roadmap for India@100

    By: Michael E. Porter and Christian H.M. Ketels
    • October 26, 2021
    • NEJM Catalyst

    Value Chain Management to Implement Post-COVID-19 Health Care Strategy: The COVID-19 Crisis Has Created Areas of Innovation That Should Be Embraced by Health Care Leaders

    By: Michael E. Porter, Junaid Nabi and Thomas H. Lee
More from the Author
  • India’s Quest for Sustainable Growth in a New Global Reality:: The Need for a Region- and Sector-Driven Approach By: Christian H.M. Ketels and Michael E. Porter
  • Competitiveness Roadmap for India@100 By: Michael E. Porter and Christian H.M. Ketels
  • Value Chain Management to Implement Post-COVID-19 Health Care Strategy: The COVID-19 Crisis Has Created Areas of Innovation That Should Be Embraced by Health Care Leaders By: Michael E. Porter, Junaid Nabi and Thomas H. Lee
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College