For the eighth consecutive year, Tata Consultancy Services (TCS), India’s largest IT organization, has made its mark in the industry with a 14% increase in revenue. Recently, TCS announced a training program focused on digital technologies for one-third of its workforce, highlighting its commitment to enhancing its digital services. Notably, TCS surpassed the milestone of having over 100,000 women employees, which means that women now constitute one in three of its workforce (Forbes, 2015).
This study contends that, contrary to the belief that technological advances and competition have undermined traditional sectors, many geographic clusters of interconnected organizations, specialized suppliers, and related institutions continue to thrive. These clusters, defined by competition and collaboration, play a vital role in national, regional, and local economies, offering insights into microeconomic competition and local advantages. They are prevalent across various industries and serve as more relevant analytical units than traditional categorizations, reflecting the dynamics of competition and aligning with governmental roles by capturing essential interconnections and synergies in technology, skills, information, marketing, and customer needs (Dunning, 2000).
As defined by Porter, industrial clusters are geographic concentrations of interconnected firms, specialized suppliers, service providers, and related institutions (e.g., universities, research centers, trade associations) within a particular field that both compete and collaborate (Baldwin, 1979). Porter argues that the initial response to globalization has often been to relocate labor-intensive activities to low-cost regions. However, anything that can be efficiently sourced remotely becomes less relevant as a competitive advantage in advanced economies (Baldwin, 1971).
Furthermore, outsourcing is typically a second-best strategy compared to engaging with a competitive local cluster regarding overall productivity and growth. Continuing competitive advantages in a global economy are deeply rooted in local contexts, emerging from clusters of specialized skills, knowledge, institutions, competitors, related businesses, and advanced customers in specific countries or regions. Geographic, social, and institutional proximity allows for unique access, stronger relationships, improved information flow, effective incentives, and other advantages in productivity and growth that cannot be easily replicated from a distance. While basic inputs, information, and technologies are increasingly accessible due to globalization, more sophisticated forms of competition remain geographically confined (Wignaraja, 2003).
Recognizing the value of industrial clusters, the Indian Ministry of Economics introduced the clustering concept in 2001, aiming to foster greater innovation and networking among Indian manufacturers. This initiative quickly became part of the government’s industrial policy, with three pilot projects initiated in 1999: Tata Consultancy Services, Tata Tele Sky, and Tata Docomo. Since then, the number of active clusters has steadily increased, encompassing around thirty companies across various sectors, including automobiles, manufacturing, logistics, construction, and tourism. During the analysis period (2001–2005), cluster development emerged as a cornerstone of the Indian government’s industrial strategy (Whitley, 1992).
TCS Cluster Model
The competitive advantage of TCS is bolstered by the significance of local related or supporting industries and regional competition. As Porter defines, this advantage stems from the creation of networks among firms—suppliers, customers, competitors, and collaborators—that stimulate each other through competition while also sharing information and labor. This dynamic fosters a robust reputation among investors, governments, and clients and acts as a catalyst for new entrants. Moreover, geographic proximity enhances collaboration and competition among firms, as Porter emphasizes that local factors become more vital, not less, amid globalization (Tessler et al., 2003).
Porter suggests a longitudinal perspective to understand competitive advantage, noting that the national business landscape is continuously evolving. He categorizes stages of competitive development, applicable not only to nations but also to industries. These stages include:
- Factor-driven: Industries derive advantages solely from basic production factors (e.g., natural resources, unskilled labor). In this stage, elemental conditions are the primary determinants, and domestic demand is limited. Many developing countries remain trapped in this phase (Porter, 1990).
- Investment-driven: At this stage, a nation’s competitive advantage hinges on its capacity to invest in new technologies and develop a skilled workforce. While local competition plays a role, investment remains critical for fostering innovation. Home demand is still relatively insignificant, and industries often rely on foreign technology and support (Porter, 1990).
- Innovation-driven: In this advanced stage, firms possess strong local capabilities, supportive industries, and an international outlook. They innovate new products and processes, attracting foreign investment. The role of government shifts to facilitating local demand and supporting innovation (Porter, 1990).
In TCS’s context, the cluster development and association process consists of four key stages:
- Government Approach to Cluster Management: This involves promoting the cluster concept through public initiatives and partnerships.
- Cluster Definition: This includes mapping clusters, establishing a vision, identifying partners, and developing strategic plans for cluster growth and organization.
- Cluster Growth: This phase focuses on short-term strategies, building trust, networking, education, technological advancements, and fostering industrial development.
- Cluster Growth and Technological Development: This involves internationalization, restructuring, and monitoring cluster activities to enhance competitiveness.
The effectiveness of cluster development is influenced by several factors:
- National History and Culture: The level of market economy development, experience in competition and collaboration, and social capital all contribute to cluster dynamics.
- Geographical Position: The physical location, infrastructure, and proximity to established clusters can enhance competitiveness.
- Legal Framework and Institutions: The role of government, educational systems, and intellectual property rights shapes the business environment.
- Macroeconomic Goals: A stable economy with favorable policies supports cluster development.
- Infrastructure: Local educational institutions, economic development organizations, and technological parks facilitate cluster growth (Schware, 1992).
The government’s role in cluster management includes functions such as initiating cluster policies, promoting innovation, supporting R&D investments, enhancing local business environments, and facilitating cooperation between private and public sectors (Das, 2006).
Clusters represent concentrations of specialized skills, knowledge, and institutions that drive competitive advantage. Proximity in geographic, social, and institutional terms allows for unique access and collaboration, creating an environment where the whole is greater than the sum of its parts. Adopting a cluster approach to economic development fosters pro-competitive behavior and encourages sustainable growth.
Bibliography
Baldwin, R. E., 1971. Determinants of commodity structure of US trade’,. American Review,, 61(1), pp. 126-146.
Baldwin, R. E., 1979. Determinants of trade and foreign direct investment: further evidence’. Review of Economics and Statistics, 61(1), pp. 40-80.
Das, G., 2006. W + Services Export: Dataquest (India). [Online]
Available at: www.dqindia.com
[Accessed 2 January 2007].
Dunning, J. H., 2000. Regions, globalization, and the knowledge economy: the issues stated’,. In: J. H. Dunning, , ed. Regions, Globalization, and the Knowledge-Based Economy. Oxford: Oxford University Press.
Forbes, 2015. Forbes. [Online]
Available at: www.forbes.com
Porter, M. E., 1990. The Competitive Advantage of Nations. London: Macmillan.
Porter, M. E., 2004. Indian Competitiveness: Where Does the Nation Stand?. [Online]
Available at: www.isc.hbs.edu/
[Accessed 5 May 2006].
Schware, R., 1992. Software Industry Entry Strategies for Developing Countries. World Development, 20(2), pp. 143-64.
Tessler, S., Barr, A. & Hanna, N., 2003. National Software Industry Development: Considerations for Government Planners. Electronic Journal of Information Systems in Developing Countries, 13(10), pp. 1-17.
Whitley, R., 1992. Business Systems in East Asia. London: Sage.
Wignaraja, G., 2003. Competitiveness Analysis and Strategy. In: G. Wignaraja, ed. Competitiveness Strategy in Developing Countries. London: Routledge, pp. 15-60.
http://www.valuebasedmanagement.net/methods_porter_diamond_model.html
Source: http://www.valuebasedmanagement.net/methods_porter_diamond_model.html
