Does location matter? A study of automotive clusters in India

Purpose Researchers have become increasingly interested in the agglomeration of firms into industry clusters and the effects of such clusters on firms. We analyze the effects of exposure to original equipment manufacturers (OEMs) and industry clusters on supplier performance, focusing on the avoidance of operations disruptions and the support of a smooth production ramp-up at the OEM, by assessing the suppliers of a multinational automotive OEM in India. We study how the exposure of suppliers to the focal OEM and to clusters affects the ability of suppliers to continuously provide their parts to the OEM within pre-agreed schedules and specifications. Design/methodology/approach We use regression based on performance data of 162 domestic suppliers of a multinational OEM. Findings Our findings suggest that clustered firms demonstrate superior performance by leveraging increased exposure to other firms within the cluster. Also, through increased exposure to the OEM, both clustered and non-clustered suppliers improve their performance, but at different rates depending on their prior cluster exposure. Our results provide evidence that OEM exposure and prior cluster exposure act as substitutes for suppliers located in clusters, enabling these suppliers to perform better, especially in the initial phases of a supply relationship. Originality/value This article fills a gap in the research on cluster implementation in developing economies by studying the impact of location in industry clusters on supplier performance and supplier development.