Clusters, Value Chains & Supply Chains

Value Chain and Cluster approaches have the potential to enhance the competiveness of individual businesses.

Most commonly employed by industrial enterprises(but capable of being adapted and transferred to other sectors), firms can engage in one or both of approaches to address challenges or opportunities that they would be hard pressed to tackle as individual entities. Both of these approaches have common intellectual roots in Harvard University’s Michael Porter, who played a key role in developing both theories.

Video: “Value Chains versus Supply Chains”

Differences between the two approaches can be subtle. This chart highlights key characteristics of both models. 

  Value Chains Clusters
Definition The value-creating flow of a good from raw materials, production, commercialization, and ultimately delivery to end-users or consumers A geographic concentration of interconnected businesses, suppliers, and associated institutions creating direct and indirect synergies among them
Membership Closed None Required
Geographic Focus Entire value chain, regardless of location Typically, industry firms are in a concentrated geographic area, which may or may not include entire value chain
Composition All companies in product flow; usually defines “stakeholders” more narrowly to include enterprises primarily, but also some public sector entities Stakeholders who (directly or indirectly) create synergies ; usually defines “stakeholders” more broadly and more formally
Relationships Sequential Cooperative & Competitive 
Basis for agreements Mutual arrangements, contract based or not Social norms & reciprocity
Value Added  Allows firms to focus on core competencies External economies
Major Outcomes Increase profits & sales and cost reductions Information and knowledge sharing
Basis of external economies Coordinated functions & resources Location/proximity
Shared goals Business outcomes  none

Matrix adapted from Stuart Rosenfield “The Origin of Networks and Public Policy


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