Introduction

One of the bright-dark characteristics of the Indian economy has been the remarkable growth rates of output with a low level of employment elasticity; as a result, the Indian economy slipped into the course of jobless growth. For researchers and policymakers, this jobless growth has been the main motivation behind shifting the attention from large to small enterprises. The importance of small and medium enterprises (SMEs) is quite discernible in the policy documents because of their significant employment-generating potential (Das 2008). Not merely the employment-generating capacity but also the ability to produce custom-made goods to satisfy the ever-changing demands of the consumer makes this sector even more significant from the industrialisation perspective. Hence, SMEs are supposed to have the dual potential of absorbing significant workforce by using labour-intensive technologies and handling the ever-rising international competition through adaptive skills.

Along with adaptability and flexibilities, SMEs mainly draw benefits from the concentration of horizontally and vertically related firms at a particular location. This characteristic of SMEs was first explained by Marshall (1920) who denoted this as an industrial district. Later, various new terms were coined, such as innovative milieu, learning region and cluster, where significant literature focuses on the idea of the cluster. The existing literature on cluster emphasises that the growth and competitiveness of small firms in developed as well as developing countries have been sourced from cooperative learning and innovation. Porter (1990) analyses that the competitive advantage of a nation is derived from the local characteristics of its industrial cluster. Similarly, Schmitz and Nadvi (1999) study the industrial clusters located in developing countries and explain that firms draw their competitive capabilities mainly from the externalities arising out of the proximity of firms in a certain geography.

The success stories of clusters in European countries, particularly of Italy, and of developing countries such as India set up the examples that SMEs cater to the needs of not only the local market but also the international market. Many Indian clusters, such as the knitwear cluster of Tirupur, the ceramic cluster of Morbi, the leather cluster of Kanpur, the brass cluster of Moradabad and the garment cluster of the National Capital Region (NCR), and others, have emerged to be successful exporters in the international market over a period of time.