Clusters of Small and Medium-Scale Enterprises – Resources and Economic Performance

PURPOSE: This study investigates the interaction among small and medium enterprise (SME) clusters, resources and sustainable economic performance in the Electronics Industry of India. Specifically, this study seeks to: investigate existing cluster drivers for and against business growth, examine the interactions among SMEs within the cluster, and quantify the multidimensional effects of resource changes on SME clusters. METHODOLOGY/APPROACH: We have developed a calibrated and validated System Dynamics (SD) model of an SME cluster to understand the forces at play, test various scenarios and introduce system-wide shocks. Time-series data were obtained from the Government of India websites to inform the SD model and ensure accurate parameter estimates and predictions. RESULTS: The empirical findings reveal the drivers of business clusters and quantify the multidimensional effects of changes in resources on SME clusters. Growth was observed, but it was not sustainable despite implementing the new policy. The optimal resource additions necessary for stimulating the growth of SMEs and reversing the decline were revealed. Additional infrastructure and financial resources investments are projected to reach a point of diminishing returns by 2030. LIMITATIONS: The current model excludes the lifecycle of SMEs and the impact of the growth in "additions to resources per year". Determining other controllable influencers of location-based SMEs needs to be considered. PRACTICAL AND SOCIETAL IMPLICATIONS: To the best of our knowledge, this model is the first validated SD model of the location-based SME cluster. The SD model could inform us of practical policy approaches for the success of the SME clusters in India and the developing world. The study recommends optimal resource additions for reversing the declining SME in the cluster. Thus, this work fills a crucial methodological gap in the study of SMEs.