Enhancing competitiveness of small and medium scale enterprises through clusters

The concepts of cluster emerged in 1960s in small- and medium-scale enterprises (SMEs) literature, but the formation of SME clusters isa very new strategy for Sri Lanka started in 2001. But it shows some positive sign of growth and increasingcompetitiveness of SMEs by opening-up new opportunities due to good innovative networking, common facility usage and collective efficiency of economies of scales, scopes and synergies, and so on. The problem of many SMEs in Sri Lanka is not of their size, but being isolated and working in enclave nature; therefore, SMEs individually have little capacity to respond to competitive pressure and to generate factors for expansion and innovation. Therefore, this paper ascertains the implications of cluster formation on growth and competitiveness of Sri Lankan SMEs. This paper concludes by emphasising that formation of clusters and promotion of networking is a very good start to develop and increase competitiveness of SMEs, but at the same time, many other right policy initiatives, incentives, business development services, common facilities and infrastructure must be in place to better perform these clusters to address SMEs complex and diverse problems. E specially, clusters alone cannot solve the complex problems and constraints encountered by SMEs in Sri Lanka to break the vicious cycle of SMEs to reach next level of growth