1 Do Clusters Really Matter for Companies ’ Competitive Strategies? Evidence at the Country Level

Building on a rich descriptive literature emphasizing the role of regional clusters in global competitiveness, this paper investigates whether cluster strength in a country induce companies in that country to prioritize quality-oriented rather than low-cost strategies. The empirical analysis takes into account both supply- and demand-side factors of the cluster environment, exploiting a detailed country-level panel dataset based on the 2000-2004 Executive Opinion Surveys of the World Economic Forum. The analysis addresses two econometric challenges. First, quality-oriented companies may be more likely to select into innovative clusters. A second problem arises if country-specific unobserved market shocks simultaneously change the cluster environment and induce companies to alter their strategies. These endogeneity problems are addressed by implementing a semiparametric, country-fixed effect model, building on the technique pioneered by Olley and Pakes (1996). The results suggest a positive and robust relationship between the strength of clusters in a country and national companies ’ adoption of quality-oriented strategies in global markets. Moreover, this relationship holds for groups of countries with different levels of economic development. Interestingly, the availability of local suppliers seems a more relevant cluster attribute in developing countries than in advanced countries. Key words: industrial clusters; company strategy; country heterogeneity; semiparametric analysis