ABSTRACT
The rise of the small in the industrial organization literature, as discussed, has not been driven by concerns on efficiencies related to smaller scales, rather it is accompanied by an acknowledgement of the demise of the vertical authoritarian structures and emergence of horizontal networks with greater flexibility of operation. The other important fact that the related discourse has tried to underline is the significance of the social embeddedness of industrial clusters and the relatively reduced role of price driven mechanisms in transacting and distributing resources. Trust and mutual interdependence between economic agents either grounded on common sociological identity or because of repeated transactions has been emphasized in the literature as the real ‘social capital’ that perpetuates collective efficiency. On the other hand, discussing the ‘low road’ 1 characterized by a competition driven largely on the basis of reducing costs studies has so far pointed to the fact of labor surplus in developing countries that creates the option of reducing wages. This chapter intends to question these largely accepted viewpoints on industrial clusters. Furthermore, while analyzing clusters we are able to gain an understanding of the individual performances of firms. And the question remains: does increased competition as a consequence of liberalization necessarily lead to vertical integration of firms? In other words does increased competition prompt a strategy of growing large in size in order to reap the benefits of scale economies?
