According to Porter, in the modern global economy, comparative advantage, whereby certain locations have special endowments (i.e., harbor, cheap labor) helping them overcome heavy input costs, has become less relevant.
[7] This is supported by recent research showing that particularly in regional and rural areas, significantly more innovation takes place in communities which have stronger inter-personal networks.
[8] Put in another way, a business cluster is a geographical location where enough resources and competences amass reach a critical threshold, giving it a key position in a given economic branch of activity, and with a decisive sustainable competitive advantage over other places, or even a world supremacy in that field (e.g. Silicon Valley and Hollywood).
)[11] Following development of the concept of inter organizational networks in Germany and practical development of clusters in the United Kingdom; many perceive there to be four methods by which a cluster can be identified: It is also expected – particularly in the German model of organizational networks – that interconnected businesses must interact and have firm actions within at least two separate levels of the organizations concerned.
All cluster analysis relies on evaluation of local and regional employment patterns, based on industrial categorizations such as NAICS or the increasingly obsolete SIC codes.
In the mid- to late 1990s several successful computer technology related companies emerged in Silicon Valley in California.
DMC grew and prospered as a global business environment, raising Seoul as an east-Asian hub of commerce.
The cluster of its digital media-related, high-tech firms spawned partnerships which in turn leveraged both human and social capital in the area.
The Seoul government even provided tax incentives and favorable land prices for magnet tenants who would attract other firms to the area due to established business relationships and through their presence which would in turn promote DMC as a prime location.
Just outside the DMC complex include international firm affiliates, schools, moderate to low income housing, commercial and convention facilities, entertainment zones, and the city's central rail station.
The cluster effect can be more easily perceived in any urban agglomeration, as most kinds of commercial establishments will tend to spontaneously group themselves by category.
For example, the city of Bangalore, India has utilized the cluster effect in order to convince a number of high-tech companies to set up shop there.
In France, the national industrial policy includes support for a specific form of business clusters, called "Pôles de Compétitivité", such as Cap Digital.
Moreover, except of stimulating a favorable conditions for the exchange of ideas, industry-specific regional concentrations, also create a thick labor market input.
[24] Its relative influence is also dictated by other market factors such as expected revenue, strength of demand, taxes, competition and politics.