Globalization of trade is increasing the world competition and this has resulted in a growing number of countries and individual businesses seeking survival beyond their internal resources. Thus, the role of business clusters has become increasingly important and has gained more attention from both policy makers and academia, particularly in developed countries. This paper reviews the literature on clusters and their contribution to building competitive advantage for businesses. The review relies mostly on research that was conducted in developed countries, with only little evidence found in developing ones. The research reveals benefits that businesses can enjoy by clustering, among which are the sharing of strategic business information, innovation, market access, labour pooling and proximity to suppliers and customers. Associated challenges of clustering are also explored. The paper also points out some practical insights for policy makers and research implications for researchers in developing countries.
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