The AMI-Partners Blog

A cluster is “a group of similar elements gathered or occurring closely together.” But when it comes to SMBs, a cluster may also be an engine. India’s Ministry of Small & Medium Enterprises (MSME) defines an SMB Cluster as “a sector-targeted geographical concentration of micro and/ or SMEs, service providers and institutions faced with common opportunities and threats.” Their primary focus is on manufacturing clusters.

Simplifying further – SMBs operating in similar or related industries generally tend to operate close to one another, thus forming an SMB Cluster. Why clusters at all? An SMB enjoys multiple competitive advantages within a cluster: proximity of raw material sources, customers, skilled labor force, etc. In fact, the key characteristic of an SMB cluster is the presence of major ecosystem players within a certain area, spanning a few villages, a small city or town or its surrounding areas. Since each cluster is quite unique in terms of both geographic location and industry, we can also term them as “Geo-Vertical Clusters.”

In terms of sheer numbers, there are as many as 600+ SME (industrial) and 6,000+ artisan/micro enterprise clusters in India. Their importance can hardly be overstated since they comprise a considerable proportion of the nation’s manufacturing output and also contribute hugely to employment generation. The government also provides significant support to these clusters for improving their overall prosperity.

An interesting segmentation, within the clusters, reveals the presence of both export-oriented clusters (e.g. Tirupur-Textiles, Vizag–Marine Processing) as well as domestic clusters like Jamshedpur-Engineering and Pune-Auto Components. The former caters to mainly international buyers whereas the latter are key ancillary suppliers to large domestic manufacturers: e.g., in the auto sector. AMI research finds that technology adoption within both these segments is clearly influenced by the ‘push’ from their larger customers or supply-chain partners, domestic or international. Some other key technology adoption drivers for clusters are an urge to move up the ladder, improve efficiency and productivity, etc.

SMB clusters are no doubt ‘low-hanging fruits’ for ICT vendors wishing to penetrate them and get a first-mover advantage. However, in order to be successful in penetrating this market, a vendor needs to develop an in-depth understanding of the clusters’ genuine business needs & pain points and design a matching bouquet of innovative ICT offerings that can solve their problems.

Indeed, it may not be an exaggeration if we term industrial clusters as the future ‘Growth-Engines’ of India.

–Devapriyo Chakravarty