In recent years, clusters have increased in popularity, seen as a panacea to a variety of macro economic sector. This perception is based on the assumption that regional specialization of interdependent firms and their cooperation with other public and private institutions will create synergies, increase productivity, and lead to economic advantages for the region.
Small Enterprises may take advantage of external economies: presence of suppliers; workers with sector specific skills, etc. The list of key factors that explains the emergence of clusters is rather long: economies of scale and of scope, transport costs (inputs and outputs), transaction and sourcing costs, availability of production factors and/ or components in a specific location, knowledge, information and technological spillovers, innovation development, cooperation between companies or between suppliers and buyers and uncertainty reduction.
The concept of value chain is also widely used as a facilitation tool for integrating small and medium enterprises into high value market. The value chain development programs focus on improving the competitiveness of the small and medium enterprises sector in which the firm operates.
The core of the value chain approach is the recognition that, the strategies for enterprise development needs to focus on the entire value chain rather than focusing on a particular aspect of provision of credit or input supply. The value chain approach emphasizes on identifying the opportunities for and constraints to industrial growth by considering the value chain actors (firms), linkages among firms, supporting markets, end markets, and the business enabling environment at all levels.
Value chain development is fundamentally about strengthening market relationships so that businesses work better together to compete more effectively. It is argued that integration into value chains helps the small and medium scale firms to: 1) increase the efficiency of its internal operation; 2) develop inter firm linkages that reduce transaction costs; and 3) upgrade along the value chain (introduce product branding, new products, and improved version of existing products in the market faster than the competitors).
Studies also reveal that, by forging extensive collaborative ties between the firms facilitate: sharing of knowledge, technologies and inputs; develop greater responsiveness to national demands; and attain greater export levels as a result of collective efficiency and improving competitiveness.