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The process of clustering offers economies of agglomeration, which are
linked to external economies of scale. The production unit derives its external
economies from its locational association with a larger spatial cluster of eco-
nomic activities (Lloyd & Dicken, 1977). Agglomeration economies focus on
the connections or links between economic activities in a restrictive geo-
graphic space. Lloyd and Dicken (1977) outline three main types of links of
manufacturing firms, including production linkages, service linkages and
marketing linkages. Other economies may be derived as associations link
firms. 'Interindustry agglomeration occurs through both forward and
backward linkages. A forward linkage involves suppliers attracting buyers; a
backward linkage involves buyers attracting suppliers' (Blair, 1995: 97).
Hirschman (1972, cited in Blair, 1995) argued that, underdeveloped countries,
and hence underdeveloped regions have weak interdependencies and weak
backward and forward linkages. If tourism is to be a successful development
tool, it will be essential to strengthen linkages within the local economy. It is
important for economic development officers to understand the existing link-
ages between firms, how to strengthen these linkages and how to build new
linkages between firms (Blair, 1995). With many of the more conventional
theories and polices of regional development focusing on the capital-labour
production function and responses of the state through various policies, these
have now been combined with a new emphasis based on economic competi-
tiveness as a priority to firms, regions and nations (Malecki, 1997).
Porter's work on clusters (1998) also suggests a new focus tied to com-
petitive advantage. Porter (1998) states that traditional arguments for
agglomeration and the existence of clusters have been undercut by globalisa-
tion of supply sources and markets. Traditional concepts of backward and
forward linkages emphasise the need to build industries with linkages to
many other industries while cluster theory advocates building on 'emerging
concentrations of companies and encouraging the development of fields with
the strongest linkages to or spillovers within each cluster' (Porter, 1998: 207).
There is a greater role for clusters in competition in the current knowledge-
based economy. Porter defines clusters as 'geographic concentrations of inter-
connected companies, specialized suppliers, service providers, firms in
related industries, and associated institutions (for example, universities, stan-
dards agencies and trade associations) in particular fields that compete but
also cooperate' (Porter, 1998: 197).
Effective clusters move beyond hierarchical networks to become 'lattices
of numerous overlapping and fluid connections among individual firms and
institutions' (Porter, 1998: 226). Clusters highlight the externalities, link-
ages, spillovers and supporting institutions key to competition. Competition
is affected by increasing productivity levels, increasing capacity for innova-
tion and stimulating new business formation, promoting innovation and
expansion of the cluster (Porter, 1998). The influence of clusters on competi-
tion depends on the extent of personal relationships, and the interaction
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