ABSTRACT
The significance of spatial clustering for the performance of small industrial firms is subject to wide debate. A major theoretical argument relates to one feature of so-called industrial districts in industrialised countries. It stresses the potential for inter-firm division of labour and vertical specialisation of individual firms [Sengenberger, et al., 1990; Nadvi and Schmitz, 1994]. This enables firms to subcontract each others’ services in order to lower costs, improve the quality of their products, and enhance their flexibility and innovativeness vis-à-vis volatile consumer markets. This argument will be reviewed and empirically tested in a case study of a spatial cluster of small clothing firms in Lima, Peru.
