Clustering and Cluster Development in Knowledge-intensive Industries: A ‘Knowledge and Learning’ Perspective on New Firm Formation and Firm-building/Firm Growth in Ireland’s Indigenous Software Industry

A growing number of empirical studies on the geography of the ‘knowledge economy’ or ‘new economy’ have shown a strong tendency for spatial clustering and highly spatially uneven development in these industries. At the same time, other authors have highlighted the shortcomings of traditional theoretical explanations for clustering (such as pure cost-based agglomeration economies) when it comes to accounting for clustering in knowledge-intensive industries (KIIs). Recent debates within economic geography have proposed that a focus on knowledge and learning may provide a more fruitful avenue for understanding clustering in KIIs. In this context the main aim of the paper is to explore whether and how a ‘knowledge and learning’ (K&L) perspective can illuminate the question of clustering and cluster development in KIIs. This is done through a structured discussion of empirical evidence from a case study of Ireland’s indigenous software industry, which can be characterised as a cluster of knowledge-intensive businesses. The paper begins by reviewing relevant literature on clustering. Traditional explanations of clustering are discussed and their alleged shortcomings are highlighted. The essence of various K&L perspectives is outlined. The problem of how such approaches should or can be operationalised and applied to the empirical study of ‘real world’ clusters is then discussed. The second section of the paper introduces the case of the Irish indigenous software industry, which presents an excellent opportunity for exploring the utility of a K&L approach to clustering and cluster development in KIIs. The third, and main, section of the paper addresses the question of clustering and cluster development by examining two of the key processes in cluster development (new firm formation and firm-building/firm growth) at two different stages in the development of a cluster (the proto-cluster and established cluster). Arguments about (1) how clusters start and develop and (2) what advantages cluster membership confers on cluster members and through what mechanisms this happens (two fundamental questions in clustering research) are explored using empirical evidence from the Irish indigenous software industry. The concluding section, weighs the relative merits of a K&L approach to understanding clustering and cluster development in KIIs against more traditional explanations of clustering. Finally some avenues for future research on clustering in knowledge-intensive industries are suggested.