The cutting edge: Collective efficiency and international competitiveness in Pakistan

Clustering can provide important benefits for small- and medium-sized enterprises in the developing world. Yet gaps remain in our understanding of how such clusters organize, function and compete. This paper draws on case material from a Pakistan cluster, a global player in the world market for surgical instruments, to argue that cheap labour is an insufficient explanation for international success. Instead, it argues that collective efficiency gains of clustering namely passively acquired external economies and actively generated joint action benefits, are central to competitiveness. The paper shows that while all firms in the cluster gain from agglomeration economies, the extent of inter-firm co-operation, and the benefits arising from it, are highly differentiated. It concludes that external economies, while necessary, are not sufficient to bring about growth. For growth, joint action, particularly in strategic vertical ties with local subcontractors and external buyers, is critical.