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GROWING BUT NOT DEVELOPING: LONG-TERM

EFFECTS OF CLUSTERING IN THE PERUVIAN


CLOTHING INDUSTRY
EVERT-JAN VISSER*1, JOS I. TVARA** & FERNANDO VILLARAN***
*Ministry of Economic Affairs, Bezuidenhoutseweg 73, The Hague, the Netherlands. E-mail:
e.j.visser@minez.nl
**Pontificia Universidad Catolica del Per, Departamento de Economia, Av. Universitaria 1801, San
Miguel, Lima-32, Peru. E-mail: jose.tavara@pucp.pe
***Dean Antonio Ruiz de Montoya University-UARM, Engineering and Management Faculty, Av. Paso
de los Andes 970, Pueblo Libre, Lima 21, Peru. E-mail: fvillaran@uarm.edu.pe
Received April 2013; accepted November 2013
ABSTRACT
This paper analyses how a cluster of clothing firms in Peru fared over a 15 year period. The
question is how and why this cluster has changed. We collected data for 1993 and 2007, comparing
clustered and dispersed firms. The cluster grew significantly in terms of the number of firms and
employment, due to the attraction of trade activities towards the cluster. The productivity of
clustered producers fell somewhat, although they maintain an advantage over dispersed firms.
This is due to static advantages falling into a producers lap once located in the area and
developing at the level of transacting inputs and output. Clustered producers do not use profits to
upgrade businesses but rather invest in real estate. On the whole, they are struggling. Enhancing
the quality of cluster governance is critical to prevent a further decline of the production part of
the cluster.
Key words: Clusters, cluster dynamics, SMEs, emerging economies, Peru

INTRODUCTION
Cluster theory aims to understand the underlying factors as well as the necessary and sufficient
conditions for a sustained positive impact of
clustering on firm-level performance (Porter
1998; Brenner 2004; Visser 2009). A number of
studies revealed a positive influence of clustering on firm-level performance (Saxenian 1994;
Visser 1999; Baptista & Swann 1998). However,
these are not ever-lasting effects; clusters grow
but may also decline faster than firms operating
outside clusters (Menzel & Fornahl 2009). In
this paper, we follow propositions to analyse
clusters over longer time periods (Lorenzen
2005; Menzel & Fornahl 2009). The need for
longitudinal cluster analyses is evident. Clusters

are based on spatial concentration processes


occurring through time, and may involve
changing interactions between actors and/or
factors, with cluster advantages (knowledge
heterogeneity, local competition and localised
learning) turning into disadvantages (myopic
behaviour and several forms of lock-in) that
produce stagnation and decline in stead of continued and relatively fast growth of clusters.
In this paper, we observe and analyse how
a cluster in the Peruvian clothing industry,
located in the capital city of Lima, fared over a
15 year period. The question is whether, how
and why this cluster changed in terms of size,
activities, strength and nature of clustering
advantages, and development stage of the
cluster (growth, stagnation or decline). To

Tijdschrift voor Economische en Sociale Geografie 2015, DOI:10.1111/tesg.12083, Vol. 106, No. 1, pp. 7893.
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CLUSTERING IN THE PERUVIAN CLOTHING INDUSTRY


answer this question, we collected data for 1993
and 2007, comparing clustered firms with producers elsewhere in Lima.
The paper is organised as follows. The following section examines critical propositions in
the literature on the evolution of clusters. The
third section describes key features and trends
in the spatial and functional boundaries of the
cluster under review. The fourth section presents the results of a cross-section analysis of
clustered and dispersed producers based on
survey data for 1993 and 2007. The final section
draws conclusions and derives policy implications, while keeping in mind that the worldwide
clothing industry is constantly changing.
THEORETICAL FRAMEWORK
Over the past decades, researchers have been
paying attention to the concept of clusters of
firms specialised in a set of related economic
activities and to the effects of clustering on
productivity and innovation (Becattini 1990;
Porter 1990, 1998, 2000; Asheim 1996, Baptista
& Swann 1998, Cooke 2001, Asheim et al.
2006). In addition, a network approach to productivity enhancement, learning and innovation emerged, which focuses on strategic,
preferential and repetitive knowledge interactions between firms and other organisations
(DeBresson & Amesse 1991; Uzzi 1996;
Hotz-Hart 2000; Rutten 2002; Nooteboom
2004; Powell and Grodall 2005; Porter et al.
2007). This gave rise to the analysis of the structure of networks within clusters to explain why
some clusters perform better than others
(Giuliani 2007) and to highlight the importance of non-local ties for cluster development
(Bathelt et al. 2004).
It is important to distinguish between the concepts of clusters and networks, because of their
different effects for learning and for the ability
to co-ordinate joint actions and collective investments (Visser 2009). Brenners (2004) work on
the interactions and (necessary and sufficient)
conditions that make clusters tick has also
been useful to identify the various local selfaugmenting processes that induce the spatial
concentration of industrial development.
Other authors focused on classifying clusters,
aiming at identifying different types of processes leading to spatial concentration and dif-

79

ferent effects for the firms involved (Newlands


2003; Visser & Atzema 2008). This work does not
fully explain, however, why clusters grow faster
than competitors elsewhere, why they may also
fail and enter a period of decline, and what
should and can be done to avoid such an experience. Hence, recent work focuses on the analysis of the long-term evolution of clusters.
Gilsing and Hospers (2000) distinguish five
stages of cluster development: formation,
expansion, saturation, decline and revival.
During the expansion phase, the number of
firms increases due to the attraction of outside
firms towards the cluster, a relatively high rate
of start-ups and spin-offs, and the growth of
incumbent firms. During the saturation stage, a
dominant design emerges, firm strategies shift
from innovation to cost efficiency, competition
intensifies, and agglomeration diseconomies
(congestion, pollution, and price increases for
land, real estate and specialist labour) stimulate
exit while enhancing the average size of firms in
the cluster. Institutional rigidities may accelerate this process and even push the cluster into a
stage of decline, during which cut-throat cost
competition, protectionist practices and rent
seeking behaviour lead to a reduction in the
number of firms. Sometimes, however, depending on the quality of cluster governance, firms
in a cluster are capable of seeking a way-out of
the crisis through joint actions and collective
investments. If effective their number may stabilise, albeit at a lower level than during the
clusters hay-days.
Menzel and Fornahl (2009) argue that clustering matters during two stages of development: the growth and decline of clusters. Put
simply, clusters grow but may also decline faster
than industries elsewhere. Faster growth is a
result of superior knowledge and technology
being developed in the cluster, which in turn is
due to initially high levels of cluster-internal
knowledge heterogeneity on the one hand, and
effective localised learning and local spillovers
producing technological convergence within
the cluster on the other hand. Such sustains a
clusters dominance, albeit temporarily, in the
global market space. However, technological
convergence decreases the level of knowledge
heterogeneity within the cluster once a source
of spillovers and cluster growth. Technological
convergence and local path dependence may
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80
lead to a situation of sustaining clusters that are
in equilibrium, and where the number of firms
and employment do not change much, apart
from smaller cyclical fluctuations. But it may
also produce technological and other forms of
lock-in, thus initiating the decline of clusters,
with the number of firms and employment
diminishing faster than elsewhere due to
reduced firm entry, increasing firm exits,
mergers and rationalisations (Menzel &
Fornahl 2009). This process may go on until the
cluster is entirely gone, or it may evoke clustered firms to respond to the crisis, through
timely adaptation to changes in the business
environment, more radical technological and
product renewal or even a complete transformation of the cluster by moving towards
entirely new economic activities (Menzel &
Fornahl 2009). So, clusters may stop decline, as
they may have a governance advantage while
seeking a way-out of the crisis through joint
actions and collective investments (Visser
2009). Such also depends, however, on the
wider socio-institutional context of a cluster.
Based on previous studies of the cluster
under review that point at problems of decreasing knowledge heterogeneity, lock-in, lack of
non-local ties and wider socio-institutional constraints (Visser 1996, 2000; Cornejo Manrique
1999; Tello & Tvara 2010) and considering the
mounting international pressure on the Peruvian clothing industry, we expect the cluster
under review below to have entered the stage of
decline and to struggle to adapt and renew
itself, let alone induce a transformation towards
new activities.
CASE DESCRIPTION
The cluster under review is locally known as the
Gamarra cluster. It is located in La Victoria, one
of the 43 municipal districts of Lima, the capital
city of Peru (Figure 1) and located close to the
city centre (Figure 2). The La Victoria district is
known as an industrious, dynamic and economically dense part of Lima.
The Gamarra cluster took various decades to
develop (for an overview and analysis of driving
factors , see Ponce 1994; Tvara &Visser 1995,
Visser 1996). The first real-estate investments
were made in the early 1970s. In August 1993,
the cluster consisted of about 35 housing blocks
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EVERT-JAN VISSER ET AL.


(Ponce 1994). At that time, it comprised more
than 150 so-called galerias: buildings constructed by private investors using profits they
made with garment-making. These buildings
comprise a few tens up to several hundreds of
small workshops and stores. In August 1993,
6,800 firms were active in the cluster: 2,000
clothing firms; 4,100 traders of cloth fabrics
and accessories, 150 sellers of equipment and
components and about 300 small restaurants
(Ponce 1994). These figures excluded street
sellers and other informal businesses operating
somewhere in the area, but without a formal
address. The Superintendence of Tax Administration (SUNAT) estimated that in 1993, the
total number of firms in the cluster was 8,000
a number that was likely to come closer to
reality, as the tax office was at that time active in
raising taxes and shutting down businesses not
complying with tax obligations. For the sake of
comparison, we assume that the total number
of firms in 1993 did not exceed 10,000.
In 2007, the Gamarra cluster comprised
20,393 firms involved in clothing-related activities (Municipality of La Victoria census data for
2007). This boils down to an increase in the
number of firms of about 100 per cent over 15
years, implying an annual growth rate of 5 per
cent of the cluster. The number of clothing
producers more than doubled (4,336 in 2007),
but the bulk of the clusters growth took place
in trade activities. In 2007, 14,630 traders of
cloth fabric, accessories, machinery and components were active in the cluster, with another
1,120 warehouses and 307 restaurants operating in the area. In 2007, the share of producers
in the total number of clustered firms was about
21 per cent, while traders had a share of 72 per
cent. As these figures for 1993 were 29 and 60
per cent respectively, it seems that the cluster is
moving towards trade activities. Skyrocketing
real estate prices and rents appear to have
driven this process, inducing less profitable
activities to relocate towards cheaper sites in
the city of Lima (Chion 2001). So, the share of
the production part of the cluster is in decline,
with trade activities flourishing in both absolute
and relative terms.
The clusters recent expansion and shift
towards trade took place in a context of fast
macroeconomic growth in Peru, with annual
growth rates of GDP in constant prices

CLUSTERING IN THE PERUVIAN CLOTHING INDUSTRY

81

Figure 1. Map of Peru.

amounting to 5 per cent between 1993 and


2007. Higher incomes enhance demand for
clothing, thus fuelling trade activities, also in
the cluster. Peruvian exports of textile and

clothing products increased 160 per cent


during 20012007 (Gonzales de Olarte 2008),
but clustered producers hardly participated in
this boom (Tello & Tvara 2010). This suggests
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82

EVERT-JAN VISSER ET AL.

Figure 2. Map of Lima with the Gamarra cluster shown.

that clustered producers are not prepared well


enough to export. They enjoy advantages that
help them to withstand (foreign) competition
in good times, but these are insufficient to participate in export markets and maintain sales, at
the cost of competitors, in bad times.
A final comment is that the cluster under
review is a good case of a significant process of
spatial concentration of firms specialised in
a certain core activity (garment-making) that
attracts related trade and service activities
towards the cluster. Next, this process takes
place in a developing country context, with
limited institutional strength and very scarce if
not absent services from public and semi-public
institutes.
TRACING CLUSTERING EFFECTS
THROUGH TIME
This section describes the results of a crosssection survey of small and medium enterprises
(SMEs) in the Peruvian apparel industry, comparing clustered producers with dispersed
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firms operating elsewhere in the city of Lima,


and contrasting the data gathered for the year
2007 with the results of identical surveys for two
previous years: 1993 and 1994 (see Appendix
for information on sampling methods). Survey
questions focus on the performance of firms
during the previous year, the importance of
several location factors, the perceived advantages of clustering, the external organisation of
business processes, and the geography of different linkages with other firms and markets. By
asking identical questions after a period of 15
years, it is possible to trace trends in the performance and behaviour of firms, the type of clustering process underway in Gamarra, and the
advantages and disadvantages of this process
for the firms involved.
Tracing the performance gap between clustered and dispersed firms2 Regarding employment size, the sample average for 2007 is about
six workers, among other factors due to the
limited importance of scale economies in
garment making (Visser 1996). There is no

83

CLUSTERING IN THE PERUVIAN CLOTHING INDUSTRY


Table 1. Employment size of firms by location (in per cent of row totals).
Year/location
2007a
Clustered
Dispersed
Sample
1993
Clustered
Dispersed
Sample
Notes :

a
b

14 workers

59 workers

1019 workers

2099 workers

50b
71
60

31
13
23

14
6
10

5
10
7

25
33
38

54
23
37

13
27
16

8
17
9

Figures printed in bold indicate the modal firmsize category in each group.
Pearsons 2 is significant (2sided), with P = 0,007.

Source : Survey: July/August 2008 (2007 data), Visser (1999, 1996 (1993 data).

difference across the two sub-samples regarding the average employment size of firms in
2007. However, as the distributions of the two
sub-samples differ, it makes sense to analyse the
data for different size classes:3 micro enterprises (14 workers), small enterprises (two
subcategories: 59 and 1019 workers; see
Visser 1999 for an explanation) and mediumsized enterprises (2099 workers). Table 1
summarises the outcomes.
In 1993, clustered firms most often pertained
to the small-scale subcategory of 59 firms,
whereas dispersed firms most often belonged
to the micro-enterprise class. In 2007, this
difference has gone. This is partly due to an
overall trend of micro enterprises increasing in
importance in the sample as a whole, from 38 to
60 per cent. This is most pronounced among
dispersed producers, however, where 71 per
cent of firms are micro-sized in 2007, against 33
per cent in 1993. In the cluster, 50 per cent of
the subsample falls into the micro category in
2007, against 25 per cent in 1993.
So, are clustered producers cutting employment? The answer is not necessarily affirmative.
An alternative explanation is that the universe
from which the sub-samples were taken in 1993
was biased toward small enterprises, since tax
reform was just underway and the informal
sector was larger then. The 2007 register is
more comprehensive and includes a (much)
larger fraction of micro firms that entered the
market in a context of enhanced demand for
clothing products. Next, clusters grow and
decline due to firm entry, exit and relocation of
firms. High start-up rates may decrease the

average size of firms. In Gamarra, relocation of


fast-growing firms is moreover fuelled by the
limited size of workspace available in the cluster
(Tvara & Visser 1995). This also constrains the
relocation of firms towards the cluster. So, startups and relocation may also be responsible for
the finding that micro enterprises have become
more important. Among dispersed producers,
however, employment growth has been lagging
and in some cases even turned negative, suggesting that downsizing indeed contributed to
decreasing employment in this group.
The second performance indicator is annual
employment growth. Most firms expand employment, adding on average 0.64 workplaces
per year. There are marked differences across
clustered and dispersed producers, however.
Only some clustered firms fail to grow, whereas
a relatively high number of dispersed producers have been cutting employment. As a result,
the mean for the clustered group is 0.88 workplaces a year over the average lifetime of firms,
against 0.4 workplaces in the group of dispersed producers (t-test 2.57, two-tailed significance at 0.01).
Considering the monthly average of gross
sales per worker, an important finding for
1993 was that clustered firms sold significantly
more than firms elsewhere in Lima: lowincome areas, high-income areas and firms
in the immediate surroundings of the cluster
(see Appendix). Subsequent data collection
focused on the comparison between clustered
firms with producers in high-income areas, for
two reasons: the good and seemingly improving
sales performance in this control group, and
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EVERT-JAN VISSER ET AL.

Table 2. Average monthly gross sales per worker in 2007, 1994 and 1993 by location.
Location

Observations
(number)

2007c
Clustered
Dispersed (high-income)
1994d
Clustered
Dispersed (high-income)
1993
Clustered
Dispersed (high-income)
Idem (low-income)
Idem (elsewhere La Victoria)
Notes :

Mean
(US dollars)b

SD
(US dollars)

Sign.a

85
63

983
557

747
368

0.000

19
17

837
529

428
406

0.03

23
28
31
17

1,148
510
660
380

852
354
777
346

0.001

KruskalWallis 2 for the 1993 and 1994 data; ttest for equality of means for the 2007 data.
As the purpose is to compare clustered and dispersed producers, the figures are in current dollars.
c
The analysis for 2007 excludes one extreme value from the cluster subsample and seven extreme
values from the control group.
d
In 1994, there was also no significant (P = 0.63) difference between clustered and dispersed firms
when taking into account all firms in the two subsamples. The above result refers to firms employing
less than 20 workers in both sub-samples, and excludes the effect of one outlier in the control group,
which was left outside the comparison.
a

Source : Survey July/August 2008 (2007 data), Visser (1996 (1993 and 1994 data)).

the relatively dynamic production and marketing behaviour of some firms in this group
(Visser 1996). So, the 2007 survey also compares clustered producers with the most challenging group outside the cluster.
Against this background, it may not be surprising that the sales difference between the
two groups in 2007 is not significant. This only
holds, however, comparing all the firms in the
two sub-samples. Outlier analysis reveals a very
skewed distribution of the sales performance of
firms, especially in the control group, suggesting that some firms in high-income areas do
very well. Their performance obscures the sight
of what is happening to most firms in this
group. Excluding outliers (one in the cluster
and seven in the control group), the sales difference between clustered and dispersed producers is large and significant (Table 2).
Visser (1996) argued that clustered firms
have a better sales record due to relatively high
labour productivity in volume terms and thus
lower unit production costs, longer working
days, and a relatively good market-fit of garments made in Gamarra and sold to wholesalers in Lima, other Peruvian regions and
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neighbouring countries. Relatively high labour


productivity is a well-known Marshallian effect
of clustering. Other relevant advantages are
the relatively good trade connections between
the cluster and various Peruvian and Andean
consumer markets and the favourable reputation of the cluster in consumer markets. This
enhances firm entry and relocation towards the
cluster, which in turn intensifies competition,
stimulates the use and circulation of locally
available product and market information
and also fosters specialisation of producers
in certain product lines or producer services.
Internal economies do not appear to be catalysts in all this, whereas external factors do
appear to play a decisive role (Visser 1996). In
2007, all of the above factors were still at work
and effective, yielding clustering advantages
that are persistent through time. At the same
time, one should consider the fact that the
monthly average of gross sales per worker in the
cluster was US$1,148 in 1993, and US$983 in
2007. So, the sales performance of clustered
firms actually deteriorated over time, while the
fall is steeper when correcting for inflation and
exchange rate fluctuations.

CLUSTERING IN THE PERUVIAN CLOTHING INDUSTRY


A next performance indicator relates to
(producer estimates of the) the monthly
average of pay per worker. In 1993, the score
for clustered firms was 30 per cent higher than
elsewhere in the city of Lima. High standard
deviations, the influence of firm-size on workers pay, and the possibility of longer working
days required caution in interpreting the 1993
finding, however (Visser 1999). In 2007, we
find again that workers in the cluster earn more
than their homologues elsewhere in Lima,
the difference being US$70 per month. This
time, the difference is statistically significant
(t-test 3.02, sign. level of 0.,003). So, clustering
matters for workers pay, although the relation
may run through the positive impact of clustering on sales per worker, and thus may incorporate longer working days.
A final indicator is the use of family labour.
In 1993, family labour was least important in
the cluster and high-income areas, compared
with low-income areas and firms operating elsewhere in the La Victoria district. In highincome areas, family labour was relatively often
unpaid, however, whereas unpaid family labour
was a rare phenomenon in the cluster.4 So,
clustered producers depended least on relatives, and if they did, these were paid for their
services. For 2007, we do not find a significant
difference between clustered and dispersed
producers any more. In both sub-samples, firms
make use of family labour. Once relatives work
in the firm, they get paid, in both sub-samples.
It may be interesting to see whether the positive impact of clustering on performance holds
for all size categories, just one, or but a few.
Considering the monthly average of gross sales
per worker in 1993, clustered firms obtained
the highest scores in each size category,
although high standard deviations then hindered the observance of statistically significant
differences (Visser 1999). For 2007, the picture
is clearer. This is not the case considering the
data for all firms, including a few relatively successful firms in the cluster and the group of
dispersed producers, as the corresponding
analysis yields insignificant differences between
the size classes across locations. After deleting
the extreme values from the two sub-samples
however (see footnote c in Table 2 and footnote b in Table 3), it appears that micro firms
perform better in the cluster than elsewhere

85

(t-value 3.46; significance 0.001). This size category contains the bulk of firms in both groups,
so one may safely say that clustering especially
yields positive effects for micro-sized firms.
Comparison of the means of the other size
classes does not yield significant results, due to
lower numbers of observations (Table 3). Yet,
the sales figures of clustered producers in the
small and medium-sized categories also tend to
be higher than in the control group.
One may also interpret Table 3 in another
manner, considering the importance of firm
size for sales in the two sub-samples. In 1993, we
found that in a setting of clustering, firm size
does not (positively) influence sales performance and that clustering enabled some micro
and small firms to considerably enhance sales
(Visser 1996). On the other hand, we found
that big is better in control groups, particularly in low-income areas and the La Victoria
district. The high-income control group was
a special case, as the correlation coefficient
between sales and size was as low and insignificant as in the cluster, due to the poor performance of medium-sized enterprises in highincome areas that were restructuring at the
time (Visser 1999). In 2007, size still does not
matter for clustered producers, and also not in
the control group, where the insignificant
sales/size correlation coefficient is even slightly
negative. So, it seems that size is even less
important in 2007 than it was in 1993. In a
setting of clustering, location effects continue
to overrule the importance of size-related variables (Visser 1996). In the 2007 control group,
size matters less than entrepreneurship and
creativity.
To sum up, the performance gap between
clustered and dispersed firms has remained
intact over time. Clustering advantages that are
external to individual firms appear to drive the
difference. Especially the bulk of producers in
the micro enterprise size category appears
to profit from the advantages of clustering.
The persistence of these advantages sheds a
light on previous concerns (Visser 1996) about
the static (cost-related) and passive (windfall)
advantages of clustering for transformation,
transacting and strategic decision-making processes. Moreover, local spillovers often refer to
outdated information, which is insufficiently
diverse and publicly available, and thus hardly
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EVERT-JAN VISSER ET AL.

Table 3. Average monthly gross sales per worker in 1993, by size and location
Location

2007a
Clustered

Dispersed

1993
Clustered

Dispersed

Size (no. of workers)


14

59

1019

2099

t/2

Sign.

sales/size
correlation

Sign.
P value

983
(817)b
43 obs
520
(394)
47 obs

897
(509)
26 obs
685
(260)
7 obs

1,107
(969)
12 obs
661
(314)
4 obs

1,168
(694)
4 obs
640
(271)
5 obs

0.30

0.82

0.05

0.63

0.62

0.60

0.02

0.86

949
(930)
6 obs
414
(243)
9 obs

1286
(961)
12 obs
301
(171)
7 obs

935
(473)
3 obs
781
(495)
7 obs

1,229
(641)
2 obs
596
(322)
7 obs

0.98

0.8

0.12

0.30

8.91

0.07

0.18

0.19

Notes : a The analysis for 2007 excludes one extreme value from the cluster subsample and seven extreme
values from the control group. b Standard deviations are given between the brackets. Numbers of observations
(obs) are below the standard deviations.
Source : Survey July/August 2008 (2007 data) and Visser (1996 (1993 data)).

differentiating one producer from another. So,


the task ahead is to determine whether new
types of clustering advantages have cropped up,
for example, regarding the production (transformation) behaviour of firms or other business processes.
Tracing transformation behaviour of clustered
and dispersed firms Vertical specialisation,
inter-firm division of labour and enhanced subcontracting may yield efficiency and innovation
gains (Scott 1988, Maskell 2001). In 1993 and
1994, inter-firm division of labour in Gamarra
was limited, compared with dispersed producers but also in the light of the neo-Marshallian
cluster literature (Newlands 2003). The modal
number of activities that clustered producers
subcontract in 1993 was one, usually a finishing operation. Subcontracting of pre-assembly
activities was absent, due to risks of counterfeiting, robbery and poor quality. Outside the
cluster, some firms were very active in outsourcing work to other firms (Visser 1996). In 2007,
the situation had changed somewhat. Clustered
producers subcontract on average three activi 2014 Royal Dutch Geographical Society KNAG

ties. However, this largely refers to outsourcing


a higher number of finishing activities. Yet, in
2007 nearly all firms in the Gamarra cluster
subcontracted such activities to other firms,
whereas one third of dispersed firms completely abstains from outsourcing. In the
cluster, the modal number of outsourced activities is two, against zero in the control group.
This evidence on subcontracting mirrors
the data concerning the number of operations
a firm is unable to realise. In 1993, most producers in the cluster mentioned one operation, usually a finishing operation, which they
thus outsourced. In 2007, clustered producers
mention two operations on average that they
are unable to perform themselves. Overall, it
seems that in the cluster, subcontracting has
become a bit more important than fifteen
years before. But again, we emphasise that this
largely refers to finishing activities that they
can not perform in-house (due to space or
technological constraints): printing, computerised embroidery, colouring, buttonholing and
fixing, ironing and packing. This demand for
specialised services within the cluster adds to

CLUSTERING IN THE PERUVIAN CLOTHING INDUSTRY


the demand of producers elsewhere, especially
enabling specialisation of producers in the
cluster, and to a much lesser extent elsewhere.5
In 2007, the group of dispersed producers still
lodges a number of firms that apply outsourcing as an explicit business strategy, aimed at
enjoying advantages of experience and thus
higher labour productivity, costs (lower wages
and capital costs), flexibility (capacity, technology) and perhaps also enhanced quality,
problem-solving and learning. We have not
observed such frontrunners in the cluster.
Another difference is that clustered producers relatively are often involved in so-called
capacity contracting, in which contractors
invest internally in labour and machinery just
below the level of minimum expected demand
and subcontract any demand above this level.
In 1993, this practice was limited in relevance
due to over-investment of producers in internal production capacity and despite thus
ensuing problems of excess capacity. This
was motivated by perceived risks of noncompliance (long lead times, poor quality)
and high tariffs asked at times of peak
demand. In 2007, these risks are still relevant,
considering that two-thirds of clustered firms
never involved in this practice. The other onethird is involved in capacity contracting, albeit
sometimes. This is significantly more than in
the group of dispersed firms (where only 1 in
10 producers are involved in capacity contracting; t-test 3.5, sign. 0.001).
A third aspect is the possibility of inter-firm
co-operation to pursue certain business goals,
for example, related with production, logistics
or innovation. In 1993, co-operation was relatively rare in the cluster, although it later
became clear that clustered producers, once
they perceive the need, more rapidly and effectively form networks,6 while the purpose of
co-operation in the cluster was more sophisticated than in control groups. In 2007, twothirds of respondents in the cluster hold that
inter-firm co-operation has become more
important in Gamarra. Comparing the two
groups, clustered firms more often claim to be
involved in joint actions, collective investments
or knowledge exchange with competitors (13%
in the cluster, 6% of the dispersed producers).
This difference is not significant however
(t-test, sign. 0.14). Only regarding linkages

87

with other sectors (such as logistics, software


development, machinery, R&D institutes), the
difference between clustered and dispersed
producers is significant (t-test, sign. 0.04). Only
a few clustered producers co-operate with firms
in other sectors, however, whereas in the other
group no one does.
On the whole, the conclusion is the same as
before (Visser 1999): specialisation, subcontracting and inter-firm co-operation at the level
of the transformation process is still rather
limited in the cluster. These practices do not
yield enough gains to alter previous explanations of the performance gap between clustered and dispersed firms.

Tracing transacting behaviour of clustered and


dispersed producers Producers may also
obtain information and even learn by interacting with traders: suppliers of inputs or buyers
of output. Hence, this section focuses on
upstream and downstream linkages. In 1993
and 1994, we observed that clustered producers
mainly obtained market and product information from two sources: the products of competitors (with producers walking around the
neighbourhood, scanning fashion trends and
the success of new products, which they then
purchase, disassemble, analyse and copy) and
the behaviour of competitors (direct observation enables the diffusion of tacit knowledge
and work-in-progress). New ideas thus quickly
become public locally and can be obtained at
low costs. So, clustered producers are not only
able to come up with a new product at relatively
high speed but also at low costs (Visser
1996,1999).
In 2007, clustered producers still rely to a
large extent on local public information to
decide what to produce and how much. Asked
about their main source of market information,
55 per cent of clustered producers mention
their own environment, against 1 per cent in
the control group (t-test, sign. 0.00). Next, clustered producers more easily obtain market
information about rural and regional markets
(sign. 0.003). A few dispersed producers on the
other hand have access to and make use of
information sources from other parts of the
world (North America, Europe and Asia; t-test,
sign. <0.03).
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88
Another aspect is the type of information.
Textile suppliers, suppliers of other inputs,
competitors (direct observation), subcontractors, and trade fairs are all relatively important
sources for clustered producers, but not so
much for dispersed producers (sign. <0.05).
The latter group relatively more often reads
fashion magazines (sign. 0.00). Both groups
recur to clients (buyers), informal sources
(including friends and relatives), and the Internet to obtain information. Next, market contacts are more important for both clustered and
dispersed producers than diagonal linkages
with consultancy firms, NGOs, semi-public
and/or public institutes. Most interviewees in
the two sub-samples say that these sources are of
limited importance or no importance at all.
A final issue regarding access to markets and
market information is that a typical firm in the
cluster has two establishments (against 1.5 in
the group of dispersed producers, sign. 0.03):
one workplace and one sales outlet, both
located in the cluster. Among dispersed firms it
is not common for producers to have an own
sales point, let alone in the cluster. For clustered producers, a sales outlet in Gamarra is
where they meet and talk with numerous clients
(wholesalers, retailers and individuals) visiting
the cluster each day. So, while both clustered
and dispersed producers state that clients are
important sources of market information, clustered producers have an advantage over dispersed ones, in terms of the number and variety
of clients. Indeed, dispersed producers sell
about 80 per cent of their produce to individual
customers, 10 per cent to retailers, 2 per cent to
wholesalers and 8 per cent to other clients (e.g.
schools, companies, sport clubs or public institutes). In the cluster, these figures are 19, 25, 38
and 13 per cent respectively (the differences
are significant, sign. <0.05). More importantly,
clustered producers sell a significantly higher
portion of their produce to export agents.
In terms of the share of sales to different
geographical markets, dispersed producers
more heavily rely on the capital city of Lima,
where they sell 91 per cent of their produce,
against 66 per cent in the cluster (sign. 0.00).
Clustered producers sell more to the Peruvian
countryside (24 against 3%, sign. 0.00), and
also to neighbouring countries (but these differences are not significant). Interestingly, a
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EVERT-JAN VISSER ET AL.


few dispersed producers reach distant markets
in North America, Europe and Asia, while none
of the clustered producers goes there (the difference being significant for North America
only, sign. 0.09). A similar pattern crops up
when analysing production-on-orders of specific clients. Again, dispersed producers generally rely on individual customers in Lima,
whereas clustered producers work far more
often for retailers and wholesalers (including,
albeit to a lesser extent, export agents) in Lima,
the Peruvian countryside, neighbouring and
other Latin-American countries. Yet, some dispersed producers managed to link up with and
integrate themselves in the global value chains
of sophisticated buyers in distant markets elsewhere in the world. As far as clustered producers are concerned, these are not integrated in
such chains.
With regard to the execution of upstream
transactions with suppliers of inputs, in 1993
clustered producers generally relied upon
market linkages with suppliers of cloth fabric
a key input that largely determines the competitiveness of garment makers. These suppliers
were usually wholesalers and retailers, and in a
few cases manufacturers of cloth fabric. In
2007, the situation changed somewhat. Wholesalers are still the most important source of
cloth inputs in the cluster, while retailers are
more important in the group of dispersed producers (both differences are significant at the
5% level). What differs is that more than 25
per cent of the clustered producers maintain
a direct relation with textile manufacturers,
some of whom (50%) even obtain all textile
inputs by directly placing orders with a cloth
manufacturer. This is more than in 1993 and
1994, although there is no significant difference with the control group, where 15 per cent
of the sub-sample (usually larger firms) directly
deals with cloth manufacturers. Yet, direct
contacts with cloth manufacturers provide a
platform for co-operation regarding the design
and quality of cloth input. In the cluster,
the number of producers saying that they
co-operate with suppliers of cloth fabric is a
bit higher than in the control group (0.12
against 0.04, sign. 0.10). So, enhanced vertical
co-operation between clustered producers and
cloth manufacturers may contribute to their
competitive advantage over dispersed firms.

89

CLUSTERING IN THE PERUVIAN CLOTHING INDUSTRY


Clustering advantages through time In 1993
and 1994, much of the clusters competitiveness stemmed from a series of cost advantages
along the supply chain: low costs of search and
matching of inputs and final products for
garment producers and buyers respectively,
and economies of scale and scope in the distribution of both types of products for wholesalers
and garment producers respectively (Visser
1996, 1999). Clustering induces fierce competition along the chain, so that these cost
savings are passed on downstream to subsequent clients. The cumulative cost savings
translate into lower prices of final products,
which is exactly what impoverished consumers
in Peru and elsewhere in the Andes required in
the 1980s and 1990s. Yet, cost-related clustering
advantages at the level of transacting activities,
and not so much in transformation and/or
innovation activities, were responsible for the
then observed performance gap between clustered and dispersed producers.
In 2007, the market and competition context
has changed but the same type of clustering
advantages appear to sustain the gap in performance between clustered and dispersed
producers. When asked about the principal
advantage that they derive from operating a
firm in Gamarra, no producer mentions no
advantage at all. Clustering still yields advantages, in the following order of importance:
reduced costs of inputs (46 of 86 firms), attraction of customers (20 firms), better product/
market combinations (15 firms), higher labour
productivity (14 firms), reduced transport costs
(14 firms), lower search costs (10 firms), higher
quality of goods and services (8 firms), and
lower transaction costs of subcontracting (4
firms). These answers support the conclusion
that the clustering process at hand still mainly
yields static (cost-related) advantages that
are due to the co-location of firms, not cooperation among them. The gains are passive
in nature (falling into a producers lap once
operating in the cluster area), not active
(created through strategic action). Finally,
advantages at the level of transformation and
innovation processes are limited, while those at
the level of transacting inputs, services and
output are still significant. So, not much has
changed in the cluster over the past 15 years.
It remains vulnerable to competitive threats,

such as enhanced imports from China and/or


lower macroeconomic growth, which puts at
risk both the incomes of clothing entrepreneurs and their workers and the prospects of
local economic development. We talked to the
interviewees about their continued reliance on
static and passive advantages of clustering and
the associated risks. Their answers yield two
positives: one is that entrepreneurs appear to
be more aware than before of the shortcomings
of current clustering advantages for the competitiveness of garment-making operations,
and that they should do something about it;
two, there seems to have been some institutional responses to mitigate the shortcomings,
with services provided from outside (government institutes, universities, NGOs) to the
cluster. So, nowadays there may be more
demand for private-public interaction to stimulate cluster development than before (see
Visser 2000). It is also clear, however, that some
past experiences ended up in disappointment;
private-public co-operation is unlikely to have
played a positive role in the clusters development so far.
CONCLUDING REMARKS AND
POLICY IMPLICATIONS
This paper set out to analyse how the Gamarra
cluster fared over a 15 year period, under
conditions of macroeconomic growth, trade
liberalisation and economic globalisation. The
main question is whether, how and why this
cluster changed in terms of size, composition,
magnitude and type of clustering advantages,
and the development stage of the cluster
(growth, stagnation or decline). To answer this
question, we collected data for 2007 and contrasted the results with previous data for 1993
and 1994, comparing clustered firms with dispersed producers in these years. The hypothesis is that the cluster under review has entered
a stage of decline and is struggling to adapt to
the mounting international pressures, to renew
processes and products, let alone that it moves
into completely new directions. The empirical
evidence presented in this paper supports
this hypothesis, notwithstanding the growth of
the cluster in terms of the total number of
firms and employment, which mainly reflects
the growth of trade activities in the cluster,
2014 Royal Dutch Geographical Society KNAG

90
including imported products. The productivity
of clustered firms has fallen somewhat over 15
years time, although they still maintain a competitive advantage over dispersed producers,
especially in the smallest firm-size categories.
We observe that the clustering process at hand
still mainly yields static (cost-related) advantages that are due to the co-location of firms,
which are passive in nature (falling into a producers lap once) and not so much active
(created through strategic action), and which
mostly develop at the level of transacting inputs
and output, not so much at the level of transformation and innovation processes. Next, clustered producers do not use profits to upgrade
their clothing business but to construct new
buildings and work places for other firms in the
cluster, as rents have gone up due to surging
trade activities in a context of increasing
demand for garments at times of fast macroeconomic growth in Peru over the past decades.
Increasing rents and real estate prices decrease
firm entry and relocation of existing firms
towards the cluster, and may also stimulate firm
exit. So, producers in the cluster are struggling,
but this is obscured by a surge in trade activities.
As the latter is deeply rooted in the mental
model of successful entrepreneurship in the
cluster (Visser 2000), this shift towards trade
activities should be regarded as a continued
and deepening exploitation of the existing
model, not as change or development of the
cluster.
Yet, the observed static, passive and transactions-related advantages of clustering have
been important for clustered producers.
Tvara and Visser (1995) already stressed the
incubator function of the Gamarra cluster: as a
result of the observed cluster advantages, new
firms have a higher chance to survive and
develop into larger firms. These advantages
also helped small firms in the cluster to survive
two decades of international competition, from
China and other (Asian) countries. While this
competition had very negative effects for the
Argentinean and Chilean apparel industries,
the impact has been smaller in the case of clustered producers in Lima, Peru. Favourable
macroeconomic conditions in Peru in the
period from 1993 until 2007 have helped
(clustered) producers to stay on their feet,
however. Recent conditions have changed,
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EVERT-JAN VISSER ET AL.


including worldwide economic stagnation,
ongoing fierce competition from China and
lower economic growth in Peru.
In 2007, awareness was emerging among
clustered firms that they should address shortcomings in production, logistics and innovation processes by specializing and co-operating
with other firms and institutes, including
public and semi-public organisations. Until
then, experiences of private-public dialogue
and co-operation have been exceptional, not
only in the cluster (Visser 1996, 2000) but in
designing and implementing productive development policies in Peru at large (Tello &
Tvara 2010). Programmes to support small
and micro enterprises have been dispersed
among state agencies, each with its own policies
and guidelines, most of them funded and
driven by external assistance from multilateral
and bilateral donors. Results have not been
significant, also due to the institutional fragmentation and often conflicting relationships
between different levels of government. Next, a
change in the national government is followed
by changes in the staff of supporting agencies,
undermining the development of capabilities
to solve collective action problems. Furthermore, local authorities are mostly concerned
with urgent issues such as waste disposal and
security, and are unable to bring about the
institutional reforms which are required to
build an effective governance structure and
foster the development of the cluster (Tello &
Tvara 2010)
In the case of the Gamarra cluster, the quality
of cluster governance thus seems to be a critical
issue to prevent a further decline of the production part of the cluster and to reap the full
potential of clustering advantages for producers. Key challenges to increase value added are
the development of design capabilities, timely
access to information on fashion trends,
market prices and technology, and improving
strategic planning in a context of intensifying
competition. Individual firms are too small to
address these challenges on their own, and
market incentives do not secure the effective
provision of required services, as these generate
positive externalities and have the attributes of
public goods. There are signs that firms in the
cluster are willing to pay for these services,
which might take the form of membership fees,

91

CLUSTERING IN THE PERUVIAN CLOTHING INDUSTRY


local taxes and other contributions. Unfortunately, however, free-riding undermined internal solutions to collective action problems. A
workable solution might involve an external
intervention along the lines of the Technological Innovation Centres (CITE) that have been
implemented in Peru. The CITE programme
has been relatively successful in other clusters
(Tello & Tvara 2010) and may be replicated
in Gamarra. A critical condition is the political
will and commitment of local authorities and
the leaders of business associations.
Such would mean a break-away from a weak
government involvement in the development
of the Gamarra cluster, at the local and national
level. Gamarra has been a spontaneous experience: an endogenous growth and spatial concentration process. This feature of government
and wider institutional absence cannot continue however, as, the weak organisational
structure of the cluster has to strengthen as
well. Entrepreneurs need to organise and build
solid and broad-based associations that can act
as counterparts for government agencies (for a
range of purposes and services), universities
(for training purposes) and research centres
(for technological change). The thus ensuing
private-public co-operation should subsequently aim at (i) fostering trust and cooperation between firms, mainly vertically but
also horizontally, (ii) changing the internal
market orientation of clustered firms to exports
and international markets (taking advantage of
the recent Free Trade Agreements with the
USA, Europe and China), and therewith (iii)
reinforcing the core function of the cluster:
production, without which related activities,
including trade and real state, will not prosper.
This agenda is relevant in good times (the
period of worldwide economic growth that
lasted until 2007/09), but all the more so in bad
times (crisis, enhanced competition and sluggish growth).
Notes
1. Any views and opinions presented in this article
are solely those of the author and do not represent those of the Ministry of Economic Affairs.
2. To measure performance differences between
clustered and dispersed producers, the following
indicators were used in 1993 and 1994: employment size, employment growth, the monthly

3.

4.

5.

6.

average of gross sales per worker, the average


monthly pay per worker, and the use of (unpaid)
family labour. The gross-sales-per-worker indicator is especially important because it is a relative
measure of business performance. Price effects
make it a second-best indicator of productivity,
but it is the best one can get under the circumstances. Some underestimation of sales values may
have occurred, but we assume this problem to be
equally relevant in both sub-samples. The opposite may have happened with the average-monthlywage-per-worker indicator (overestimation), as
producers do not want to look too bad, but again
this problem is expected to be equally relevant in
both groups. Moreover, the interviewers were
trained to compare gross-sales and wage data
after asking the respective questions and to reconsider the answers in case of anomalies or other
problems.
For reasons of comparison with the 1993 and 1994
data, a Peruvian size classification scheme is used
that was prevalent in the 1990s, instead of the
current and common definitions of micro enterprises (1 to 10 workers) and small firms (11 to 50
workers).
This difference between the cluster and the
control groups was significant (Mann-Whitney,
P = 0.05).
This is due to scale and scope economies reducing
prices and enhancing variety of services (Visser
1996).
Screening, selection and monitoring is facilitated
through family and ethnic ties, proximity and
local reputations.

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APPENDIX: SAMPLING METHODS

For a description of the survey methodology


and the questionnaire used in 1993, we refer to
Visser (1996). For a summary of this information, see Visser (1999). The 2007 questionnaire
is available upon request.
In 2007, a two-stage sampling method was
used, to serve the purpose of comparing clustered producers with dispersed firms operating
elsewhere in Lima. For the cluster sub-sample,

93

we used a register of the municipal district of


La Victoria, which contains data on all firms
located in the Gamarra cluster, whether these
comply with (tax and other legal) regulations,
or not. This register was compiled in 2007,
based on comprehensive census data covering
two areas in the cluster, labelled Gamarra A and
B. Gamarra A refers to the original area where
the clustering process took place, whereas
Gamarra B refers to a neighbouring area that is
increasingly part of the clustering process.
Excluding firms that were closed at the time of
the census, Gamarra A comprises 17,918 firms,
of which 3,621 firms are garment producers.
From this last sub-group, a random sample of
125 firms was drawn, of which 86 firms
answered the questions in our questionnaire
(response rate 69%). For the control group, a
register of the Peruvian Ministry of Production
(PRODUCE) was used. This register comprises
all registered firms operating in different
industries within the province of Lima. After
separating garment firms operating in the
municipal districts of Magdalena, San Isidro
and Miraflores, a random sample of 100 firms
was drawn taking into account the size of each
of these three districts. The number of respondents was 70 (response rate 70%).

2014 Royal Dutch Geographical Society KNAG