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Title: Strengthening Indian SME clusters: UNIDO`s experience- [World Wide Web]

Notes: Evidence suggests that in an increasing globalized economy, efficient local business systems (clusters or industrial districts) tend to play a major role. The SME within efficiently organized clusters have demonstrated to be particularly innovative and able to compete successfully in the global economy. In India, it is estimated that there are approximately 350 Small Scale Industries SSI) clusters and around 2000 rural and artisan based clusters contributing to almost 60% of the manufactured exports and 40% of the employment in the manufacturing industry. These clusters have been in existence in India for several decades and sometimes even for centuries. Some of these clusters are very performing like the one of Tirupur (Tamil Nadu) which contributes to 80% of the country`s cotton hosiery exports or Ludhiana (Punjab), a city that is also known as the Manchester of India, contributing to the production of 95% of the country`s woollen knitwear, 85% of the country`s sewing machines and 60% of the nation`s bicycle and bicycle parts. Nevertheless, despite these striking figures, the majority of Indian clusters are not fulfilling their potential. In many cases the firms in these numerous ""lagging"" clusters are merely surviving on the basis of low costs of labour. They do not participate in supportive production networks involving effective collaboration between firms and service institutions neither they compete on the basis of improvements in their market connections, products, technologies, and skills. Some of the main obstacles hampering cluster development are the following: the lack of a cultural attitude towards cooperation both at the firm and at the institutional level; the significance of the transaction costs that need to be borne to identify suitable network partners and to forge relationships; the absence of incentives (i.e. financial, fiscal, etc.) to the implementation of common projects; the imperfect market functioning for the provision of crucial inputs for networking development such as information and innovation; and the high risk of ""free riding"" that is especially faced in contexts where the legal framework to back up joint endeavours is relatively underdeveloped. This document the main features of the UNIDO cluster programme in India and aims to demonstrate that an external agent like UNIDO can effectively promote cluster development. It highlights the main features of the UNIDO cluster programme in India, then the intervention in a specific cluster, namely Jaipur is discussed, methodological principles are presented and finally some lessons learned are drawn in the last section.

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