A Study On The Relationship Between Firm Growth And Industrial Clusters In Tanzania

In recent years,the significance of industrial clusters and discussions about the impact and implication of industrial clusters have become major economic topics.Industries impact the welfare of regional and national economies daily.Policies on industrial clustering have had a significant impact on innovation and employment levels and the growth of economies.However,this has come with significant challenges that will demand sound strategies in formulating development plans of different regions.This study was conducted to examine the impact of clustering on the growth of individual firms in an economy with the case of Tanzania under study.Specifically,it focuses on four key concerns.The first concern is how the employment levels differ across individual firms that are located inside the industrial clusters and across those located outside existing industrial clusters in terms of the level of growth and the pace of growth.Employment levels have been used as the most realistic indicator of the growth of firms as it ranks as the most effective for new and existing firms alongside amongst other indicators such as the growth of revenue,value of assets,and the market share.Moreover,when measuring the size of a firm,the number of people engaged as employees is the most extensively used measure because the number of workers reveals how the internal processes of a firm are organized and how they adapt to any changes in activities.Moreover,the fact that employment is not sensitive to either the rates of currency exchange or inflation and therefore presents the most direct indicator of firm growth.The second key concern is to examine the age of a firm and how it influences the growth of firms in a cluster and those operating in isolation.Thirdly,the researcher is concerned by the sector in which a firm belongs,and this influences firm growth in different circumstances.The researcher is also concerned about the significance of an individual firm in a cluster belonging to a different sector from other firms in the same cluster and its implication.The final key concern revolves around innovation.The researcher is interested in how innovation levels differ across individual firms operating in a cluster to those operating in isolation.It is a critical study in that it will bring answers to various questions that relate to the current state of Tanzania's industries in terms of growth and the challenges they face;the ways through which clustering enhances the growth of individual firms in an agrarian economy;the gaps existing most notably in terms of policy and also in terms of collaborations of firms with other actors such as other firms,other clusters,research and development institutions,and the government to grow the industrial economy;and the key recommendations for the promotion of industrial growth and competitiveness.The study contributes to policy development,most notably to governments and industrial development stakeholders,as it suggests ways of enacting and implementing favorable policies aimed at improving the growth and development of clusters.The researcher utilized documented secondary data from the National Bureau of Statistics of Tanzania for the year 2018 and other credible sources from desk research.The econometric model used to analyze the growth of firms in clusters is the lifetime growth model of entry into clusters used by Rosenthal and Strange in 2003 and the analysis of innovation in clusters by Baptista and Swann in 1998.The output was presented in narrative form as a discussion.Significant findings confirm that the employment level is high in firms operating in clusters than in the firms operating in isolation and also that a manufacturing firm that exists alone in an agrarian economy grows at a slower rate compared to a manufacturing firm that operates in a cluster,which highlights the importance of locating a firm in an industrial cluster.Secondly,the study revealed that the innovation level is higher across firms operating in industrial clusters than across the firms operating in isolation.The study has revealed that in the economy of today,knowledge and technology are acting as the primary driver of competitiveness and growth of industrial clusters.The level of innovation is also higher in individual firms inside clusters that have not as much of technology-intensive sectors as compared to the same type of individual firms outside clusters.Firms inside clusters have been found to have the more effective acquisition of knowledge and technology,adaptation,and value addition,as well as dissemination than the firms away from clusters.Not only did the firms in clusters acquire technology locally more than the firms outside clusters,but they also acquired know-how from overseas more than the firms in isolation.Individual firms in clusters have also revealed more partnerships with research and development institutions and universities than the firms that operate outside clusters in terms of conception,diffusion,and practice of knowledge and technology.Thirdly,the study found that a firm that belongs to a different sector from the firms in a cluster grows at a slower rate than the firms of the same sector in a cluster hence the need to diversify the industrial activities through an extensive movement of the resources between and within clusters,stimulation of growth of different sectors within and outside industrial clusters with a view of encouraging multiple sources of income for the nation hence facilitating a shift to a mixed economy.Finally,the study revealed that a firm's age has a positive influence on its growth regardless of whether in a cluster or not in the short-run,but the long run,the old firm outside a cluster or in isolation can perform well or grow more than the old firm in a cluster.This research revealed that the new and younger firms grow faster than the older firms due to various factors such as the pressure created by the need to scale up in terms of employment,production,revenue,and size;and the ability to rapidly adapt their strategies to the dynamic conditions of the market as opposed to the old firms.Older firms tend to be very bureaucratic,and the majority have their decision-making processes codified,which lowers their flexibility,meaning that they cannot be able to respond to market changes promptly.The majority of old firms have been noted to adopt the strategy of operating ‘quietly' whereby they avoid too many risks associated with restructuring,conflicts with their workers,research,and development,that has resulted in the majority lowering their level of performance and losing their competitive advantage,which negatively impacts growth.Key recommendations reveal the immeasurable need to: raise the awareness of policymakers on the benefits of developing clusters;exchange knowledge in and out of the clusters;develop Tanzania's cluster policy and pertinent cluster programs;develop a unique and robust infrastructure;create an enabling environment for local and foreign investors;strengthen research capacity through initiation of research departments in all industries and capacity building of researchers and cluster management workforce;establishment of a cluster league;improved quality labeling;and launching of pilot cluster programs in different regions to revolutionize the clustering of industries and contribute to regional and national economic growth.