Costed Action Plan for SADC Industrialization Strategy and Roadmap IV. INDUSTRIAL CLUSTERS AND SMEs DEVELOPMENT 4.1 Clusters and SMEs Clusters - geographically proximate companies, suppliers, service providers and associated institutions in a particular field - boost competitiveness because of their positive impact on productivity, innovation and new business formation. They are key drivers of regional growth, productivity and competitiveness. Closely related to cluster development is nurturing and enhancing the competitiveness of the SMEs in terms of productive capacity and ability to interlink within a cluster, regionally, and even globally, through the producer-supplier-value chain process. Dynamic and innovative clusters strengthen SMEs and enable them to compete regionally and globally. Cluster development should be a deliberate effort in the early stages of transformation. As the industrial setting is improved, self-discovery of enterprises and clusters will establish the firmer foundations for cluster-led or facilitated industrialization. Given the initial development conditions of the SADC region, governments should provide guidance, planning and mapping of actual and desirable agglomeration paths. 4.2 Interfacing SMEs, Clusters and Regional and Global Value Chains The successful development of clusters, embodying SMEs, and their integration into RVCs and GVCs is dependent on the interface between the different actors. Firm level: Firms must satisfy the competitiveness requirements in terms of skills, efficiency, innovation and managerial disposition that merits excellence as well as interfirm cooperation. Cluster level: clusters should satisfy the criteria of: collective efficiency; industrial complementarity; existence of a critical mass of competitive enterprises; the existence of support services; presence of collaborative arrangements with knowledge-creationand internalization institutions; a cluster policy that encourages agglomeration’ and existence of clear and conducive regulatory frameworks. Regional level: a regional investment and incentives policy that encourages, and rewards, regional industrialization programmes and projects that are geared towards establishing strategic RVCs and creating production or market niches for the region, as well as those that promote structural transformation and deepen regional interdependence. 39