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Emergence and development of
low-tech clusters: an empirical
study of five Palestinian clusters
Suhail Sultan
Faculty of Business and Economics, Birzeit University,
Birzeit, Palestinian Authority
Meine Pieter van Dijk
Maastricht School of Management, Maastricht, The Netherlands, and
Omar Omran
Faculty of Business and Economics, Birzeit University,
Birzeit, Palestinian Authority
Abstract
Purpose –This study aims to analyze the nature of challenges facing five low-tech Palestinian small and
medium-sized enterprise (SME) clusters and to understand their dynamics. The study proposes a number of
key policies necessary to foster start-ups and the growth of the current clusters.
Design/methodology/approach –Five low-tech Palestinian clusters were selected for investigation. Using
multiple sources of evidence, the research questions are answered using a case study approach. Twelve semi-
structured in-depth interviews were conducted with representatives from the government, private sector and
universities. Content analysis was used to analyze the data obtained from the interviews.
Findings –These five low-tech clusters in Palestine are located in a complex environment that imposes a mix
of challenges which adversely affect their performance. The challenges facing Palestinian clusters are different
in terms of their degree of complexity. The common challenges facing the Palestinian low-tech SME clusters are
the fundamental lack of innovative stimulation policies or of incentives in the Palestinian ecosystem, lack of
trust, unfair competition, limited access to finance, lack of access to promising markets and the limited
collaboration between different parties. More focused policies are suggested to the Palestinian authorities.
Practical implications –Clusters represent a new and complementary way of understanding an economy,
organizing economic development, enhancing competitiveness and innovation through sectoral specialization
and cooperation and implementing public policies. In the overwhelming majority of Palestinian entities
categorized as SMEs, clustering adds value to the firms from the point of view of productivity and by battling
unemployment, which is rampant among Palestinian youth.
Originality/value –Even though the issue of clusters in SMEs has been well researched in developed
countries, empirical studies are still lacking in this developing region. The attention given to policies in this
article allows using the insights gained for cluster development in Palestine.
Keywords Clusters, SMEs, Challenges, Policies, Palestine
Paper type Research paper
Introduction
The increasing globalization and the resulting mass of competition associated with greater
technological complexity make innovation a key aspect for enterprises, revealing
increasingly the importance of establishing cooperation networks and clusters (Garcia-
Villaverde et al., 2017;Hamidi and Zandiatashbar, 2019;Khan et al., 2019;Kuksa et al., 2019). A
cluster is not only geographic band of enterprises, but also a localized network of specialized
organizations including firms, knowledge-producing agents, bridging organizations and
government agencies (Van den Berg et al., 2001;Van Dijk, 2003).
Emergence and
development of
low-tech
cluster
The authors would like to thank Zamaleh Fellowship Program for their support.
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1450-2194.htm
Received 16 July 2019
Revised 29 November 2019
14 January 2020
20 February 2020
16 March 2020
Accepted 20 April 2020
EuroMed Journal of Business
© Emerald Publishing Limited
1450-2194
DOI 10.1108/EMJB-07-2019-0100
The review of the cluster literature reflects, although a host of studies have examined
clusters in developed countries (Kamran et al., 2017;Vanzettine et al., 2017), that a lack of
research that systematically addresses the dynamics and nature of cluster development in
developing economies is still problematic, especially small and medium-sized enterprises
(SMEs) (Van Dijk and Rabellotti, 1997;Schmitz and Nadvi, 1999;Park and Luo, 2001;Lin et al.,
2009;Pyke and Lund-Thomsen, 2016;Vanzettine et al., 2017). Researchers have identified this
research gap, subsequently calling for more research to investigate the transferability of
current theories of clusters to developing countries (Ghauri and Santangelo, 2012;Vanzettine
et al., 2017). This further stresses the role of localization and contextualization in pushing
forth cluster development. As such, contextual focus can help to establish a region’s social,
political and economic conditions (Sultan, 2014) that can either reduce or increase the level of
complexity of cluster development progress in developing countries.
Cluster development in Palestine, which is divided into two geographically detached areas
(West Bank and Gaza Strip), is a relatively new concept. The concept was introduced by none
other than Micheal Porter himself during visit to Palestine and the region in 1998. The
Palestinian private sector is dominated by SMEs, and most of them are working in traditional
and low-tech sectors (Sultan, 2014). Thusly, the question to be posed is as follows: Does the
concept of cluster development successfully work in the Palestinian context? This paper aims
to study the emergence and development of five Palestinian low-tech clusters that are
working in an unusual and harsh operating, oftentimes dysfunctional, environment. In
addition, it also studies the mechanism for specific insights on how to analyze the regional
clusters dynamics. Also to be studied are the challenges with respect to the importance of
localization and the consideration of contextual factors facing these clusters, including the
government policies needed to foster them, implications for scholars and practitioners, as well
as future research streams.
Theoretical background
This section discusses the cluster definitions, challenges and policy needed to foster clusters
(see Appendix).
Cluster definition and value creation approach
The literature has recognized the importance of clustering for economic development (Van
Dijk and Rabellotti, 1997;Schmitz and Nadvi, 1999). Several contributions in this field showed
how clustering in the developing world is often related to (technological or sectoral)
upgrading through insertion into broader production structures, also theorized as global
commodity or value chains (Bair and Gereffi, 2001;Humphrey and Schmitz, 2002;Sturgeon
et al., 2008;Pyke and Lund-Thomsen, 2016).
A common definition of clusters is geographic concentrations of industries related by
knowledge, skills, inputs, demand and/or other linkages (Porter, 2011;Pe’er and Keil, 2013).
Clusters could include organizations of different sizes and types (Delgado et al., 2015). Studies
focusing on geographical agglomeration indicate that spatial organizational agglomeration
can be the factor that shapes the evolution of organizations and influences the nature of
competition among them (Porter, 2011;Tsang and Siu, 2016).
The organizational ecology literature supports the notion that geographically clustered
firms may differ from firms outside the cluster regarding cost structures, competitive
behaviour and performance over time (Tan, 2006;Baum and Mezias, 1992;Lomi, 1995).
Clusters reveal a blending of both geographic proximity and industry-level or sectoral-level
specialization (Fujita and Thisse, 1996;Porter, 2011;Delgado et al., 2015). Inter-firm
technological spillover or specialized labour and intermediate inputs are mechanisms to
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explain the dynamics of the cluster. Specialized labour markets, inputs, suppliers and
knowledge spillovers lead to enhanced rates of innovation and productivity, all of which have
been associated with geographical proximity and achieving external economies (Delgado
et al., 2015;Paula and Da Silva, 2019). Building on that explanation, cooperation and its
importance as a means of enhancing competitiveness for clusters through collective
efficiency, entrepreneurial skills and the dissemination of information are emphasized
(Bijaui, 2019).
Another manner by which a cluster is generally understood is to have a group of innovative
actors in a specific industry, massed in key locations (Porter, 1998;Fang, 2015;Hamidi and
Zandiatashbar, 2019). Co-location is associated with better access to specialized, high-
productivity employees with lower search and training costs. At the supply input level,
intermediate industries provide downstream firms with local access to specialized materials,
finance, marketing and business services, as they themselves exploit greater internal economies
of scale and benefit from reduced transport costs (Cooke and Morgan, 1994;Porter, 1998).
A common cultural background is important for clusters to develop (Knorringa and
Nadvi, 2016). Ideally, clusters achieve economies of scale and scope similar to larger corporate
entities. However, more than just access to resources, relying on institutions is a means for
organizations to reduce uncertainty and increase the predictability and intelligibility of their
actors to the audience. Other advantages associated with clusters are more favourable market
conditions, such as the presence of customers requiring more attention and time based on
their unique needs, greater rivalry and complementarities in products and technologies.
Governance structures could develop at different geographical levels (Krugman, 1998),
ranging from local to national, initiated by either the public or private sector. For developing
economies without the benefit of large corporations, enterprises reap the advantages of
clustering (Pyke and Sengenberger, 1992), as clusters, in this context, are similar to economies
of scale which are prevalent in large companies (Martin and Sunley, 2003).
Cluster challenges
Geography, particularly location, can be linked to success in industries such as real estate.
For clusters, however, geography alone does not guarantee a firm’s success (Porter, 2000;
Tallman and Phene, 2007). Rather, the fundamental role of regional clusters is to facilitate the
formation of local inter-organizational networks, which act as channels of knowledge and
innovation diffusion (Balland et al., 2012;Garcia-Villaverde et al., 2017). Studies suggest that
firms belonging to regional clusters are more likely to achieve superior innovation and
economic performance (Capello and Faggian, 2005;Garcia-Villaverde et al., 2017).
Quality locations and/or a legal framework also play a role (Tracey et al., 2014;Turkina
et al., 2019). Paramount amongst the advantages is the sharing of information. This may stem
from the homogeneous nature or nearness of firms, as this familiarity amongst the
enterprises and entrepreneurs may be the initial step to establishing trade organizations.
Local traders’interest in this type of cluster is directly attributable to the ability to buy
cheaply and sell outside the cluster (Van Dijk and Sverrisson, 2003).
Clusters face various challenges that are critical to their competitiveness (Gereffi and Lee,
2016), such as lack of trust (Chen et al., 2017;Vanzettine et al., 2017), lack of specialized human
resources (Pyke and Lund-Thomsen, 2016), lack of information that is critical to business,
restrictive government rules and regulations, market access constraints, limited logistical
facilities, poor R&D infrastructures (Richardson, 2013), inability to conform with new global
standards (Lei and Huang, 2014) and weak links with supporting/related industries
(Knorringa and Nadvi, 2016). Challenges that are considered to be at the cluster-level tend to
require long-term solutions and concerted efforts to overcome them (Ponte and Sturgeon,
2014;Abdin and Rahman, 2015).
Emergence and
development of
low-tech
cluster
Hospers and Beugelsdijk (2002) criticized the fact that results of cluster studies are hardly
transferable from one place to another, given different resources availability, economic
structures, cultures and so forth. Burfitt and Macneill (2008) doubt the transferability of
cluster initiatives from the implementation perspective, identifying managerial and political
challenges in a multilevel and multi-organizational setting. Rather than reviewing cluster
culture and initiatives, the primary focus should be allocated as to why certain cluster entities
exist and how they function within that specific context.
Cluster promotion policies
Many studies of clusters in developing countries have focused on the supportive role of
government and public agencies on clusters’performance (Richardson, 2013;Kamran et al.,
2017), indicating for example that when the social bonding in a given cluster is weak,
government interventions are of greater significance. The role of classical factors of
production (including land, labour and capital) is analysed by Kamran et al. (2017) and
subsequently found that better infrastructure, availability of utility services and the
accessibility to inexpensive bank loans and commercial finance helped businesses in
developing countries flourish in geographic proximities. Richardson (2013) mentions that it
would be great if the policymakers foresee the problems prior to developing the cluster and
can take the necessary steps to address them.
However, it is well known that the institutional environments and business situations of
developing countries are fundamentally different from those of the developed countries (Park
and Luo, 2001;Lin et al., 2009). Chen et al. (2016) explain that, in emerging economies, rules are
often unclear and uncertain, because the formal institutions are still evolving.
The framework with respect to the promotion policies of clusters is evident from Table 1
(Van Dijk, 2003) and consists of five distinct categories: (1) policy-related incentives, (2)
controlling prices and providing subsidies, (3) innovation promotion, (4) physical support and
(5) stimulating cooperation amongst enterprises within the cluster itself. These polices have
been recommended by Van Dijk for China and India (Van Dijk, 2003).
Research setting, problem and questions
Almost 99% of the industrial firms in Palestine are categorized as SMEs that solely compete
on price, with very few of these enterprises have direct access to foreign markets (Sultan,
2014). A project of five low-tech clusters was launched in 2012 to enhance the competitiveness
of SMEs working in five different regions. These clusters are presented in Table 2.
The five clusters consist of a small yet growing number of SMEs, mainly family-owned
and family-operated. For the purpose of enhancing the competitiveness of these SMEs, the
impetus is to form dynamic clusters which promote productivity, innovation and
Category Example
Policy-related
incentives
Fiscal policies, targeted education and training, marketing support, linking with
private or public capital or suppliers and cluster marketing through advertising
Prices and subsidies Influencing land prices, the price of electricity and water or other services
Innovation
promotion
Involving research centres, stimulating incubator centres and promoting linkages
with training and R&D institutions
Physical support Providing space and infrastructure
Stimulating
cooperation
Forming groups or associations, consulting these groups and promoting inter-firm
relations
Source(s):Van Dijk (2003)
Table 1.
Cluster promotion
policies, different
categories of
instruments
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competition in a number of ways, such as cost reduction due to sharing of resources, and
creating critical mass by having a pool of specialized skills, expertise and value-added
products (Sultan, 2014;Kuksa et al.,2019). Sultan and Van Dijk (2017) sought answers as to
which level of development the Palestinian clusters have attained. This resulted in the
identification of five stages whereby clusters are distinguished, ranging from location
clusters to fully fledged industrial districts. Table 3 applies this to five such Palestinian
clusters.
The need and opportunity to create more dynamic clusters in Palestine has led to the
following research questions being proposed:
RQ1. What are the main challenges facing Palestinian low-tech clusters?
RQ2. How can the dynamics of Palestinian low-tech clusters be promoted?
According to Porter, “poor countries lack well-developed clusters”(Porter, 1998), primarily
attributed to structural deficiencies in their business environment. On the one hand, this can
be phrased as “institutional voids”, or missing intermediaries and poor institutional
infrastructure. On the other hand, in developing economies, industrial activity tends to
concentrate in selected locations, especially select metropolitan cities and capitals, as a result
of the lack of widespread infrastructure in peripheral areas (Giacomin, 2017;Prtelski et al.,
2020). Also contributing to this are significant differences in the dynamics according to the
level of development within the cluster, the organizational setup, geographical distribution
and their role within the global value chain. The scale at which cluster policies are designed
also varies from country to country, depending on its political structure, size and available
resources.
Cluster Type
Investment
(USD million)
Number of
firms
Number of
employees
Contribution to
GDP (%) Location
Leather and
shoe
Industry 180 85 1,275 0.5 Hebron
Stone and
marble
Industry 400 50 1,000 2 Bethlehem
Furniture Industry 100 55 1,650 1 Salfit
Tourism Service 380 80 1,200 2 East
Jerusalem
Palm and date Agriculture 50 12 400 0.1 Gaza
Stage Main characteristic In Palestine
Locational cluster Nearness, leading to sharing
information, etc.
The majority of the firms in the date and
palm cluster
Market cluster More market outlets, benefitting from
traders “exporting”the product
The majority of the furniture and the
leather and shoe cluster
Labour division
cluster
Development of inter-firm relations leading
to specialization
Minority of the five clusters
Innovative cluster Innovation starts playing a role resulting in
a dynamic development
Majority of the stone and marble and the
tourism and creative arts cluster
Full-fledged
industrial district
Supportive local governments supporting
the own dynamics of the cluster
No examples yet in Palestine
Source(s):Van Dijk and Sverrisson (2003) and Column 3 from Sultan and Van Dijk (2017)
Table 2.
Five Palestinian low-
tech clusters
Table 3.
From clusters to
industrial districts, an
evolutionary
perspective
Emergence and
development of
low-tech
cluster
Research methodology
With respect to a situation, if not much is known or when more information is needed for
developing a viable theoretical framework, the research will fall under the exploratory
research umbrella (Sekaran and Bougie, 2016). In Palestine, the number of studies that
examined clustering start-ups and growth are quite few and not comprehensive. Testing the
proposition of a theory can be done in one of two ways: inductively or deductively. By
choosing the relevant theory at the beginning of the research study, deduction was chosen as
the research approach (Saunders et al., 2017).
In order to answer the two research questions regarding why and how the low-tech
Palestinian clusters emerge and develop, and how certain policies might foster these clusters,
a case study method was applied. Yin (2017) stated that case study suits the types of “how”
and “why”research questions. Yin further stated that case study is used to investigate a
contemporary phenomenon within a real-life context, especially when the boundaries
between phenomenon and context are not clearly defined.
A research strategy of in-depth interviewing was selected to gather data (Saunders et al.,
2017). The population and unit of study consist of establishments with experience gained
from operating within at least one of the Palestinian low-tech clusters. Public sector officials
with authority to develop the clusters were interviewed in accordance with the selected
research strategy, as well as managers within the five clusters and managers of supporting
establishments within the said clusters. Criteria for participant selection for the study were
based on their knowledge and experience in managing firms within the cluster, their
information on services available within the cluster and their experience with cluster
inducement policiy (Porter, 1998).
Table 4 presents the l ist of workplaces of the interviewees during the period from January
to October 2019. Twelve semi-structured interviews were conducted with participants from
universities and from the government and the private sectors. Each interview was reviewed
in detail and linked to specific coding. Codes were then grouped according to two themes:
challenges and policies. A process of mapping and linking codes was undertaken to
ascertain how each related to the other. Results are presented and discussed in the next
section.
To support the data collection, this study used sources of evidence related to
documentation, interviews and direct observation (Creswell and Poth, 2017). Secondary
sources of evidence are literature on the existence of clusters, project reports investigating the
implementation of cluster policy and local news providing information on clusters. Data from
each of the aforementioned sources were subsequently analysed in this study. The following
section addresses the challenges facing the five Palestinian low-tech clusters and the needed
policies to promote these clusters.
Government Private sector Universities/Research
Ministry of National
Economy
Palestinian Federation of Industries Palestine Polytechnic University
Ministry of Agriculture Cluster managers An-Najah University
Ministry of Tourism and
Antique
Federation of Chambers of Commerce,
Industry and Agriculture
Al Quds University
Al Azhar University
PALTRADE Palestine Economic Policy
Research Institute (MAS)
Number: 3 Number: 4 Number: 5
Table 4.
Population overview
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Findings
Main challenges facing the five Palestinian low-tech clusters
The establishment of any cluster is based on the so-called hard factors like the location of
natural resources, as well as human factors such as the interaction between the actors and the
institutions. In our case, the hard factors are naturally available, while the soft factors such as
trust and structural linkages are significantly more difficult to develop.
Even though the talk is about the same source of funds, the same clusters’management and the small
area of land, there are significant differences in the development of the five clusters.
Principally speaking, the five clusters studied are facing a complex set of challenges and
hurdles. Ultimately, the main challenges facing the five low-tech clusters could be categorized
as market failure, government policy failure and system failure.
Market failure. Essentially, this stems from a lack of knowledge creation, lack of
information, unfair competitive practices, imbalances between demand and supply factors,
among other external obstacles. The five clusters are suffering from the high levels of
competition from local products from large companies or imports.
‘Cluster’members are suffering from the unfair competition, limited access to finance, limited access
to information and limited access to markets.
The traditional production that is not in accordance with the demands of existing markets has made
an inappropriate quality which is not compatible with market
Standards have become important.
Government policy failure. This is due to the dysfunctional nature of public policies and
government services such as providing quality education, consumer protection and clearly
defined technical standards. Although the Palestinian government has set up associations
and unions, the role of national and local governments in supporting the clusters is quite
limited.
There is a lack of incentive policies and incentive packages to clusters.
The Government is talking about the support of many clusters without providing the needed
resources.
System failure. This results from a lack of coordinated efforts amongst entities spanning
government, education and the private sector. Regrettably, civil society organizations,
political parties, labour unions and trade associations are considered to be factors of
imbalance for the government’s hegemony. Lack of trust has therefore become the norm and
presents a grave dilemma, often hindering the establishment of larger companies. The
consequences in terms of social capital and generated business are failed cooperation,
mistrust and disintegration. Hence, as a key measure to potentially reduce transaction costs
and business risks, building social capital becomes vital.
Attitudes, personal values, assumptions and beliefs of all key people who are involved in these
clusters lead to the feeling of distrust between entities and cluster authorities, along with poor
communication and common understanding before the cluster actors.
Collaboration between research centres, universities, private sector entities and public institutions is
also prevalent in Palestine.
Most notable is the lack of assets needed for cluster emergence and development, most
notably modern technology and research-based industries. On the one hand, managers of
companies attributed the lack of research and development units to the high costs and the
effect of franchise businesses prevailing in some engineering enterprises. On the other hand,
Emergence and
development of
low-tech
cluster
technological knowledge, for instance, is transferred easily from the parent firms in South
Korea or Germany to Palestine. In this regard, dependency on imported technology is
criticized due to the fact that it will continue to hinder the building of local capacities and the
constructive use of national resources.
Palestinian SMEs lack the logistical capacities and capabilities.
We lack the creative design, research and development and innovation.
Considering these complex challenges, it seems that, in spite of excessive interest by
developing countries to develop clusters, the effectiveness of clustering policies remains
questionable (Tan, 2006). The findings confirmed that clusters do not exist in isolation but are
rooted in communities (Sultan, 2014). As such, the analysis exposed three categories of
challenges, which are imposed by the context and have adversely affected the development of
the five clusters: market failure, government policy failure and system failure. It is therefore
implied that careful consideration of these specific challenges can help businesses affiliated
with a cluster to leverage the potential advantages of their geographic proximity.
Current policies to promote the five Palestinian low-tech clusters
Although, the support for the clustering process was evident in the National Development
Plan (2017–2022), regrettably these plans lack the implementation of policies needed to
promote clusters. The Palestinian prime minister stated that:
The government will support particular areas of specialization in each of the regions in Palestine so
that they can grow strategically into development clusters. In this way, we support economic
development, preserve and protect the land for the people, and show our resilience and steadfastness.
So, what are the policies needed to foster the Palestinian clusters? This section discusses the
policies as stated in table (1) by Van Dijk (2003), while considering the life cycles of clusters
(Pronest
ı, 2019). According to Altenburg and Meyer-Stamer (1999) and Polozhentseva and
Klevtsova (2015), policies related to cluster development must address inefficiency that poses
obstacles to clusters and their eventual growth. At both firm and cluster levels, one key
measure of success is enhanced performance, which yields higher and more pronounced
levels of turnover and subsequent profits by accessing new markets through more
sophisticated levels of business development services and coordination systems, allowing
governmental interventions to be more effective.
Policy-related incentives. In order to provide an enabling business environment for clusters,
changes are required for certain laws and regulations. This can be achieved by including a
well-defined cluster policy under the auspices of existing national policies and strategies as
well as incentives schemes for cluster members. Despitethe presence of incentives laws such
as the Intellectual Property Law, the Investment Promotion Law and the Public Procurement
Law exist, they still require further modification, amendments and specific clauses to
encourage businesses, especially SMEs, to work together in clusters.
The laws that applied come from many jurisdictions through history: “Customary Law ...Ottoman
Law ...British Law ... Jordanian Law ...Egyptian Law ... Israeli law and finally, the Palestinian
National Authority’s law”.
Prices and subsides. Marketing clusters receive no tangible support. Although the Palestine
Trade Center (PALTRADE) encourages companies to export goods and services, it primarily
targets large businesses rather than SMEs or cluster initiatives. This challenge exists also in
the pursuit of access to finance, as banks are far more comfortable lending to larger
enterprises as opposed to SMEs, due to a lack of loan guarantees and a stated higher risk to
the banks. Collateralization is often the primary obstacle for Palestinian entities accessing
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banks and related financial services, as the members are typically SMEs (Foghani et al., 2017).
Thus, a more effective financial system is needed, such as changing collateral laws, investing
in financial literacy and financial inclusion and increasing the number of suppliers of finance
and improving the credit assessment systems used for SMEs.
Innovation promotion. The results of interviews show that all SMEs are producing almost
the same products, using the same production lines, and the same designs.
The national innovation system is relatively weak in Palestine.
Ideally, innovation and clustering should be natural partners, as mutual needs for research
and enhancement of product offerings are present. Clusters allow SMEs to achieve critical
mass through innovation and research, which result in better and more pronounced
communication amongst cluster members, enabling them to support the said cluster and
ultimately each other (Muhammad Auwal et al., 2018;Khan et al., 2019). Through these
efforts, product and service innovation reach the market, thus allowing clusters to create
enhanced competitiveness in marketplaces.
Physical support. There is currently no large-scale influence from the Palestinian public
sector in terms of land prices, industrial zones, utilities such as electricity or water, or tax
exemption, among others. The Palestinian government does not provide any preferential
treatment in a direct manner to any cluster. Thus, as clusters are part of the national
discussion, as evidenced by their presence on national agendas and development plans, this is
believed to encourage donor and funding agencies to provide assistance and support for
existing and new clusters.
Stimulating cooperation. There currently exists an environment where research
institutions, incubators or accelerators and training centres are not collaborating
effectively, resulting in clear deficiencies as well as redundancies amongst them. Research
activity and cluster activities are limited, which is quite telling. Field research showed that
firms in clusters recognize a lack of a functioning knowledge infrastructure which is
counterproductive to cluster development. Therefore, interviews stated a need for better and
more effective communication between education and private sector entities.
Sharing information, ideas and collaboration requires trust and without this element, the cluster
becomes dysfunctional.
Higher education institutions have the capacity to provide knowledge in fields of interest that
can be disseminated and integrated into the clusters and their firms. This leads to the
experience of joint efforts towards educational courses from higher education institutions
that offer degrees or certification in fields relevant to the clusters themselves, such as at
Palestine Polytechnic University and An-Najah National University.
Discussion
In terms of challenges and policies, we find that some of the challenges are very specific to
Palestine, while most cluster development policies are either non-existent or not properly
implemented. This research paper confirms what was stated in the theoretical section about
the importance of clusters for economic development (Pe’er and Keil, 2013;Njos and Jakobsen,
2016). However, in the Palestinian context, there are a number of specific constraints making
cluster development more complicated (Sultan, 2014). Specifically, within Palestine, the West
Bank is landlocked and is dependent on Israel for access to the Mediterranean Sea. The
current political environment and low level of development of the studied clusters make
reliance of the clusters on export markets more difficult. Also technology diffusion is slow,
and the local innovation capacity is limited due to the weak innovation ecosystem and the
mistrust between all stakeholders.
Emergence and
development of
low-tech
cluster
In this specific situation, few of the expected dynamic effects of clustering can be
found. As such, what proposals should a given cluster initiative focus on is a question
that should evolve from the cluster dialogues and analyses, thereby forcing cluster
members to assume ownership of such of those initiatives. To improve the development
of the five clusters, there is a need for improving the upstream and downstream value
chain of each cluster by SMEs, building trust and reinforcing social capital among the
cluster stakeholder groups and coordinationamongactors.Aswell,thereisneedfor
promoting joint activities in the field of training, marketing and production and in
establishing relations between Palestinian universities and research centres and these
clusters.
Conclusion
Data collection comprised in-depth semi-structured interviews, and hence, the current
research provides an overall picture and understanding of the cluster phenomenon in the
Palestinian context as cases of analysis. This paper aims to assess the challenges facing five
Palestinian clusters and identify potential policies to promote these clusters. After
approximately 8–10 years of their emergence, parts of these clusters remain immature and
encounter many difficulties. The main challenges facing the five low-tech clusters are
categorized as market failure, government policy failure and system failure. Hard factors
such as location and natural resources are there, while soft factors such as trust and
structural linkages are significantly more difficult to develop.
Policies related to cluster development were proposed to tackle inefficiency that poses
obstacles to clusters and their eventual growth. The paper recommends the following
policies: incentives, prices and subsides, innovation promotion, physical support and
stimulating cooperation. Strategic alliances, competition and collaboration must be based on
resource sharing and integration. The cluster members should establish collaborative
principles, which facilitate mutual efforts in innovation and R&D and, in turn, enhance their
competitiveness.
Theoretical and managerial implications
Theoretical implications
From a theoretical point of view, the importance of cultural factors of more favourable market
conditions in the current cluster and the cluster as an opportunity to promote the shared
interests is confirmed (Hospers and Beugelsdijk, 2002;Burfitt and Macneill, 2008). However,
the lack of competitiveness given the bigger neighbours and the availability of cheap Chinese
products makes it difficult for Palestine to fully benefit from the existing clusters for its
economic development and for employment creation.
Managerial implications
This study has the following key managerial implications.
Firms’managers.
(1) Clustering can positively enhance corporate innovation performance. This finding
suggests that the enhancement of corporate sustainable development and
competitiveness should rely on clustering resources and relationships to increase
competitive advantage.
(2) Firms should cooperate with supply chain agents and foster industry–academia
cooperation, in an attempt to upgrade knowledge and technical management
capabilities.
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Policymakers.
(1) The one-size-fits-all strategy is not fit-for-purpose to drive sustainable cluster
development. More focus should be placed on eliminating hindering and other
constraints.
(2) The government and private companies should establish strategic cooperation
platforms. Strategic alliances, competition and cooperation should work on the basis
of the sharing and integration of resources. This facilitates joint efforts in innovation
and R&D and improves competitiveness of companies.
Limitations and next steps
Research limitations
The limitations of the research are the following.
(1) Research methodology: As with any qualitative study, there are limitations due to the
small number of interviews (Saunders et al., 2017).
(2) Research scope: This research study was applied to specific sectors in a specific
country, which limits the generalizability of the study in other contexts (Saunders
et al., 2017).
(3) Context: Palestine, as a developing country, experiences a fragile and conflict
environment. Therefore, there are limitations due to the bureaucracy, culture and
unavailability of resources for and statistics on cluster development (Sultan, 2014).
(4) Research topic: There are limitations referring to the topic of cluster itself such as the
lack of empirical data on the role of trust and collaboration between key players, and
there are difficulties in identifying the clusters’boundaries.
Next steps
All of the clusters mentioned in this research paper initially developed with the support of the
Palestinian government and donor’s money. Thus, the support from the government and
donors has been an important factor in their emergence. This raises questions about the role
of government and donors in promoting clusters in developing countries and at what stage
they should act. This research paper has highlighted some examples of external inducement
of clusters, but more research is needed.
There is a particular shortage of research looking at the impacts of cluster policies over the
longer term. Further research might therefore turn its attention to assess the impact of the
abovementioned policies on the development and success of the five clusters as well as the
start-up of new ones.
It was noted that cluster members inter-connect and build value networks, either formally
or informally. In this research paper, there has been a concentration on the formal links
between cluster members. However, further research may want to investigate the role of
informal links and whether such links, if important, can be promoted through public policies.
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EMJB
Appendix
Cluster definition and value creation approach
Year Author(s) Questions Methods Key results
1992 Baum and
Mezias
Examine the impact of
localized competition in
rates of failure
Case study Ecological approach can
provide a more detailed
understanding of the
competitive dynamics
1994 Cooke and
Morgan
Analyse three elements of
Germany’s strongest
regional economies
Case study Network of innovative
economic activity between
business and government is
of key importance to the
development process
1995 Lomi Investigate the effects of
location dependence on
founding rates of rural
cooperative banks in Italy
Pooled cross-
sectional time
series data
Ecological approach can
provide a detailed
understanding of the
evolutionary dynamics of
organizations
1996 Fujita and
Thisse
Why do economic activities
agglomerate in a small
number of places?
Desk research Identify a few general
principles governing the
organization of economic
space
1997 Dijk and
Rabellotti
How to increase economic
growth through small
enterprise development?
Qualitative Identifying factors leads to
the success of small
enterprise clusters and
networks and discussing
industrialization strategies
and flexible specialization
1998 Porter What is cluster and why it
is important for
competition?
Case study Clusters offer a constructive
way to change the nature of
the dialogue between the
public and private sectors. A
cluster allows each member
to benefit as if it had greater
scale or as if it had joined
with others without
sacrificing its flexibility
1999 Schmitz and
Nadvi
Growth and export
prospects of small
manufacturers in
developing countries
Desk research Clustering helps small
enterprises to overcome
growth constraints and
compete in distant markets,
but there is also recognition
that this is not an automatic
outcome
2001 Bair and Gereffi Discuss the role of US
buyers in promoting full-
package apparel
production
Case study Emphasizing the
relationship between
producers and foreign
buyers, this approach
provides a useful way to
bridge the global–local
divide in the literature on
industrial clusters in
developing countries
(continued )
Table A1.
Summary of previous
studies
Emergence and
development of
low-tech
cluster
Cluster definition and value creation approach
Year Author(s) Questions Methods Key results
2002 Humphrey and
Schmitz
How does insertion in
global value chains affect
upgrading in industrial
clusters?
Desk research This paper argues that
clusters are inserted into
global value chains in
different ways, and that this
has consequences for
enabling or disabling local-
level upgrading efforts. It
pays particular attention to
the position of developing
country firms selling to large,
global buyers
2003 Martin and
Sunley
Deconstruct the cluster
concept in order to reveal
and highlight these issues
Desk research The cluster concept should
carry a public policy health
warning
2006 Tan Examine the origin and
growth of industry cluster
in a traditionally heavily
regulated economy and
region
Case study The success of technology
parks in promoting
technology transfer and
attracting clusters of highly
innovative firms has
motivated countries from
around the world in an
attempt to promote regional
development
2008 Sturgeon et al. How does the global value
chain (GVC) trend?
Case study Underlines the need for an
open, scalable approach to
the study of global industries
2011 Porter Explain the sources of
sustained prosperity in the
modern economy
Qualitative The roots of productivity lie
in the national and regional
environment for competition
2012 Ghauri and
Santangelo
Look at the changing
environments of
international business and
the new challenges faced by
multinational enterprises
from developed markets
Desk research Addresses some of these
challenges faced by
international business
research and analyses how
firms both from developed
and emerging markets are
dealing with these new
phenomena and challenges
2013 Pe’er and Keil Are all start-ups similarly
affected by the survival
benefits and drawbacks of
locating in geographic
clusters?
Desk research The local levels of skilled
labour, suppliers and
purchasers have a beneficial
influence, and local
competition has a
detrimental influence on
start-up survival; these
relationships are moderated
by heterogeneity in firms’
resources and capabilities
Table A1. (continued )
EMJB
Cluster definition and value creation approach
Year Author(s) Questions Methods Key results
2014 Sultan How clusters can enhance
the competitiveness of
SMEs?
Quantitative and
qualitative
methods
Positive relationship
between cluster and SMEs’
performance in the
Palestinian food-processing
sector
2015 Delgado et al. Comparisons of clusters
across regions and support
of policymakers in defining
regional strategies
2009 data for US
industries
Proposed set outperforms
other methods in capturing a
wide range of inter-industry
linkages, including the
grouping of industries within
the same three-digit NAICS.
2015 Fang Address cluster–
innovation relationship
Meta-analysis The cluster–innovation
relationships are state-
contingent and provide
guidance on evaluating
whether a cluster strategy
can encourage innovation in
a specific region
2016 Pyke and Lund-
Thomsen
What is the role of social
upgrading in developing
country industrial clusters?
Desk research The state’s policies and
regulations might enable or
constrain cluster actors to
behave in ways that affect
social upgrading or
downgrading
2016 Tsang and Siu Identify the factors in
developing a sustainable
cluster in a densely
populated city
Case study The one-size-fit-all strategy
could not guarantee the
sustainable development of
the cluster
2016 Njos and
Jakobsen
Constellations of
specialized clusters may
hamper the long-term
innovation ability of
regions
Desk research Present three theory-based
strategies for cluster
evolution and link these to
regional development and
innovation by assessing their
impact on regional path
renewal
2016 Knorringa and
Nadvi
Explore the intersection
between three processes
associated with
globalization
Case study A greater focus on the formal
and informal institutional
contexts, termed the “social
contract”, in explaining
divergent experiences and
practices observed across
these countries
(continued )Table A1.
Emergence and
development of
low-tech
cluster
Cluster definition and value creation approach
Year Author(s) Questions Methods Key results
2017 Kamran et al. Factors behind the
clustering of the motorcycle
industry, a low-tech and
low-investment industry
Survey for 250
firms and
interviews of
experts
Conjectured a new viable
factor for industrial
clustering, “ethnic
community,”as it acts as a
catalyst to diffuse
knowledge, experience and
skills within the industrial
cluster
2017 Vanzettine et al. Analyse facilities
integration, discounts on
investment and production
costs
Mathematical
model
Costs reduction when
resources and services are
shared by plants within a
cluster
2019 Hamidi and
Zandiatashbar
How urban sprawl affects
innovation productivity?
Multilevel
modelling
Innovative firms tend to
locate more in census tracts
that are less compact but
offer spatial proximity to
firms in related business
sectors. The regional
compactness positively and
significantly affects the
number of innovative firms
2019 Khan et al., Are there significant
relationships between the
competitive environment
and dynamic capabilities
and firm performance?
Econometric
model
There are significant
relationship between
competitive environment and
dynamic capabilities on
firm’s performance
2019 Paula and Da
Silva
To what extent does
product innovation concert
into financial performance
Empirical method For extractive sectors
(mining and quarrying),
formal mechanisms (e.g.
patents) are better to protect
product innovation and
informal mechanisms are
more effective to protect
process innovation
Cluster Challenges
2000 Porter Economic geography
during an era of global
competition involves a
paradox
Qualitative Clusters represent a new way
of thinking about national,
state and local economies,
and they necessitate new
roles for companies,
government and other
institutions in enhancing
competitiveness
2002 Hospers and
Beugelsdijk
What lessons can be drawn
from comparing success
stories of regional
clustering?
Desk research Best practices should be seen
as inspiration sources rather
than as recipes for successful
regional economic
development
Table A1. (continued )
EMJB
Cluster definition and value creation approach
Year Author(s) Questions Methods Key results
2003 Van Dijk and
Sverrisson
The dynamics of clustered
enterprise development in
developing countries
Desk research The implications for
development policy are
outlined, and it is emphasized
that support must be tailored
to the actual state of existing
clusters
2005 Capello and
Faggian
Verify the existence and
importance of relational
capital on the innovation
activity of firms
Quantitative
approach, using
econometric
techniques
Relational capital will play a
different role in different
regional, sectoral and firm’s
contexts
2007 Tallman and
Phene
Examine knowledge flows
within and across
geographic boundaries of
clusters and nations in the
biotechnology industry
Mathematical
model
Geographic proximity does
not matter in some instances,
while in others it has a
decidedly nonlinear effect
2008 Burfitt and
Macneill
Examine the extent of
weaknesses in the
theoretical and
methodological
underpinnings of the
cluster
Qualitative Irrespective of whether
cluster policy is the
appropriate choice as an
economic development tool
in any particular regional or
economic circumstance, its
selection always necessitates
prior consideration of the
institutional capacity needed
to meet the governance
challenges that it creates
2012 Balland et al. The formation of network
ties between firms along the
life cycle of a creative
industry
Case study Video game firms tend to
prefer to partner over short
distances and with more
cognitively similar firms as
the industry evolves
2014 Tracey et al. Examine new product
outcomes in the context of
regional clusters
Desk research New product outcomes result
from complex interactions
between a cluster’s macro-
level configuration and its
micro-level governance
processes
2014 Ponte and
Sturgeon
The evolution and current
status of global value chain
(GVC) governance theory
Desk research The proposed modular
framework is built on three
scalar dimensions: micro
level, a meso level and a
macro level
2014 Lei and Huang Contradicted perspectives
on relationship between
geographic cluster and
competitive advantage
Case study Firms within the same
cluster that have established
idiosyncratic network
resources have stronger
competitive advantages than
firms that have not
(continued )Table A1.
Emergence and
development of
low-tech
cluster
Cluster definition and value creation approach
Year Author(s) Questions Methods Key results
2015 Abdin and
Rahman
Analyse most of the
available cluster
development models and
offer
Desk research Proposed a new model titled
J. M Model for Cluster
Development. This model
would be pro-poor, flexible
and equally effective in any
least developed country and
developed economies as well
2016 Gereffi and Lee How industrial clusters are
shaped by their ties to the
international economy?
Desk research The new form of “synergistic
governance”is illustrated
with evidence from recent
studies of GVCs and
industrial clusters
2016 Pyke and Lund-
Thomsen
Examine the role of social
upgrading in developing
country industrial clusters
Desk research State’s policies and
regulations might enable or
constrain cluster actors to
behave in ways that affect
social upgrading or
downgrading
2017 Garcia-
Villaverde et al.
Examine if social capital
may be influenced by
managers’perception of
market dynamism
A survey of 215
firms
The negative effect of
structural social capital on
radical innovation worsens
when market dynamism
perception is higher
2017 Chen et al. The challenge to relocate
SMEs into industrial parks
Case study Inter-firm alliances are an
essential policy
implementation tool that has
the potential to help local
government in promoting the
relocation of enterprises into
eco-industrial parks and to
improve industrial
environmental performance
2018 Muhammad
Auwal et al.
To what extent does the
external pressure influence
the entrepreneurial
activities within business
dynamics?
Survey SMEs that seek competitive
advantage should resolve
their challenges by
responding positively to
environmental pressure
through sustainability
2019 Turkina et al. How is firm innovation
affected by location in an
innovation cluster?
Empirical analysis Location of clusters offers
benefits and at the same time
poses certain constraints
Cluster Promotion Policies
1998 Krugman Debate on industrial
clusters in developing
countries
Desk research Clusters lead to growth and
competitiveness of small
manufacturers in developing
countries
Table A1. (continued )
EMJB
Corresponding author
Suhail Sultan can be contacted at: ssultan@birzeit.edu
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Cluster definition and value creation approach
Year Author(s) Questions Methods Key results
2001 Park and Luo The utilization of guanxi,
which is an important
cultural and social element
in China, and the impact of
guanxi on firm
performance
A Survey of 128
firms
Guanxi leads to higher firm
performance, but is limited to
increased sales growth, and
has little impact on profit
growth. Guanxi benefits
market expansion and
competitive positioning of
firms, but does not enhance
internal operations
2003 Van Dijk Whether the IT companies
in Nanjing (China) can be
considered an “innovative
cluster”
Case study Offers recommendations for
stimulating development of
clusters; more efforts by local
government will be needed to
develop an innovative milieu
in Nanjing
2009 Lin et al. What drives mergers and
acquisitions in different
institutional environments?
Case study Learning and network
factors vary sharply across
countries with different
market-based institutions
2013 Richardson Whether knowledge-flows
through social interaction
occur within the context of
a policy-driven cluster?
Case study Social interaction leading to
knowledge diffusion within
the cluster may be lacking
2019 Kuksa et al. How to assess the
effectiveness of the
enterprises interaction in
the innovation cluster?
Econometric
method
In adjusting the existing
strategy to the acting
clusters of enterprises and in
developing measures aimed
at increasing the
effectiveness of their
interaction
2020 Prtelski et al. How is the appropriation
strategy of firms formed,
and what factors explain
the use of the mechanisms
that firms use to protect
their innovations?
Econometric
method
The cluster of high
innovative activity shows a
greater incidence of the use of
secrecy and patents, while
the cluster of low innovative
activity presents a greater
use of complementary assets
and first mover Table A1.
Emergence and
development of
low-tech
cluster