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Industry clusters build competitive advantage

In economics and management literature the business or industry cluster theory gained prominence over recent decades. It was expounded most famously in 1990 in The Competitive Advantage of Nations, an 896 page book by Michael Porter, the American economics and management academic.

Porter and his  research team applied the cluster theory to manufacturing industries, eg for Italian shoes and Japanese cars. The theory has remained in vogue including with governments in Australia.

The cluster theory seems to be displaced in academic literature more and more by discussions on network economics. A common feature of both is their recognition of the rising importance of collaboration in contemporary economics.

The graphic accompanying this article applies the cluster theory to "The California Wine Cluster". It illustrates that competitive advantage is gained when a cluster of industry participants work together to achieve vastly more together than they could working in competition individually.

The relevance for us as intellectual property lawyers in all this is triggered by the inclusion in the graphic of "labels" and "public relations and advertising" as stakeholders in that wine cluster. These terms appear in the boxes on the right side of the graphic.


Proper integration and alignment of work in label idea generation, bottle and packaging design, marketing, branding, domestic and international trade mark registration, and intellectual property portfolio management are collectively core requirements for operating both economically healthy wine industry clusters and individual Australian wine companies.

As Marsh and Shaw argue (see references), this has been backed by developing a "brand Australia" approach in supportive and collaborative work by industry, regional and government bodies. They note this helped provide part of the answer to a key question they asked in their report: "How did the industry in an apparently short period establish reputation and brands in remote markets?"

A wealth of economics case studies evidence the fact that clusters build "competitive advantage", another concept popularised by Michael Porter.

References and graphic credit (item 4):

  1. wine_barrelFor a paper applying the cluster theory to wine sectors in Australia, see the 22 May 2006 academic conference paper titled Clusters of Grapes and Wine [PDF] by Rolf A. E. Muller and David A. Sumner. It cites two earlier references from 2000 and 2004 applying the cluster theory to the Australian wine sector.
  2. Marsh, Ian and Shaw, Brendan. Australia's wine industry: Collaboration and learning as causes of competitive success. Australian Business Foundation, Sydney, 2000.
  3. Aylward, David. Working together: innovation and export links within highly developed and embryonic wine clusters. Strategic Change, 2004, 13, pp.429-439.
  4. Marsh and Shaw cite the original source for The California Wine Cluster graphic: "Based on research by Harvard MBA students R. Alexander, R. Arney, N. Black, E. Frost, and A. Shivananda. Illustration from M. Porter, On Competition, p.201."

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