LocationsAll economic roads lead to clusters
October 10, 2024
The process of collecting roses, Herbafruct cluster
How can we ensure that economic development and its benefits are felt by everyone, not just in large cities? How do we get the economy of a village, commune, or district up and running? We find the niche and identify the competitive advantage of each region. If for some micro-regions situated along the Nistru or Prut rivers rural tourism is the answer, for others, livestock breeding or aromatic plant cultivation may be the specializations that fit best.
However, how can we turn this specialization into a driver of economic development and create a functional ecosystem at the local level? Can a small entrepreneur be responsible for the entire production chain, or is there a need to cooperate with others? Can everyone have their own high-performance equipment? Clearly, the solution lies in cooperation. This not only boosts competitiveness but also significantly contributes to the creation and maintenance of decent jobs, which means more contributions to the budget and, consequently, quality basic services for people.
This is why UNDP Moldova is committed to supporting the creation and growth of economic clusters.
From guilds to modern clusters
Even back in the 18th and 19th centuries, Moldova experienced various forms of economic cooperation that resemble the modern concept of clusters. One such form was the guilds—groups of craftspeople practicing the same trade, such as blacksmiths, carpenters, tailors, or shoemakers. The guilds provided training, economic stability, and protection for their members, allowing them to collaborate and support each other. Another example includes regional markets and fairs, which served as meeting places for traders, farmers, and craftspeople. These events not only facilitated trade exchanges but also promoted collaboration among participants.
These historical forms of economic cooperation demonstrate that the approach to clustering is not new to Moldova. The modern concept of clustering refines these traditional practices, adapting them to the realities of the contemporary economy, where success is a result of efficient collaboration and specialization.
Today, clusters refer to a group of companies, institutions, and organizations that are interconnected and geographically close, operating in the same sector or in related sectors. Imagine a place where multiple similar and complementary businesses are located near each other. They collaborate and compete simultaneously, creating a dynamic and innovative environment—a Silicon Valley of livestock management.
How do clusters function?
Although each cluster may have a unique structure and mode of operation depending on the industry and region, the basic principles are similar.
Geographic concentration: Companies can easily access common resources, interact frequently, and collaborate on research or development projects.
Collaboration and competition: While firms within a cluster may compete in the same market, they cooperate to achieve common goals. Collaboration can include sharing information and knowledge, working together on joint research and development projects, sharing resources (infrastructure, logistics, suppliers), or even forming strategic alliances to access new markets.
Access to common resources: These resources can include production infrastructure, logistics, and distribution, as well as suppliers of raw materials or specialized components. Within a cluster, firms can collaborate to access these resources at a lower cost, allowing them to become more efficient and competitive. Additionally, sharing human resources is an important benefit, as a cluster attracts and retains specialized talent in the respective field.
Support from authorities: Clusters are often supported by public policies and government initiatives. Local or national authorities provide support through investments in infrastructure, favorable regulations, or tax incentives. In some cases, governments fund research and development projects or educational initiatives designed to support clusters. This collaboration between the public and private sectors is essential for the success and long-term sustainability of a cluster.
Development of new markets: Firms within a cluster can collaborate to expand their access to new markets. For example, they may form strategic alliances to participate together in international fairs or to access foreign financing and investments. Additionally, clusters are often visited by international investors and clients attracted by the concentration of expertise and innovation in a particular region.
Attraction effect: Clusters attract other firms, investors, and specialized talent to the region. As the cluster grows, it becomes more appealing to other companies in the same sector or related fields. This phenomenon leads to a "virtuous cycle" in which the cluster expands and strengthens its position in the global market.
Support for startups: Another important aspect is that clusters provide a favorable environment for startups and entrepreneurship. These new companies benefit from support from larger firms, access to mentoring networks, financing, and expertise.
Innovation, economies of scale, and resilience
Clusters enable companies to leverage local advantages and access shared resources, such as skilled labor, infrastructure, and technological knowledge.
Another driving factor is the constant need for innovation. In an increasingly complex global economic environment, companies can no longer rely solely on internal resources for innovation. Collaboration between the private sector, universities, research centers, and local authorities fosters innovation. Thus, companies within a cluster share knowledge and resources, contributing to the development of new products, services, and technologies that give them a competitive advantage.
Clusters offer significant benefits through economies of scale. When multiple companies in the same sector are located near each other, they can collaborate to reduce costs and improve operational efficiency. Governments and local authorities have rediscovered the idea of clusters as a powerful tool for regional development. Clusters help strengthen local economies by attracting investments and promoting the creation of well-paid jobs. Instead of relying on isolated companies, which may leave in search of better conditions in other countries, local communities can depend on clusters to stimulate sustainable economic growth.
Another important motivation for the return to the cluster concept is economic resilience. Clusters enable companies to be more resilient to global economic shocks. Companies within a cluster are more likely to withstand economic crises because they can collaborate to quickly and efficiently find solutions to emerging problems. For example, during the COVID-19 pandemic, many clusters managed to stay competitive by sharing resources and fostering joint innovation.
How do UNDP and its partners support clusters?
Considering all the advantages that clusters offer, since 2019, UNDP Moldova and its partners – the European Union, Sweden, Switzerland, and the United Kingdom – have supported the creation of clusters. Currently, UNDP is supporting the development of 17 clusters, contributing to local economic development as well as Moldova's integration into international business networks.
The areas supported by UNDP include livestock farming, horticulture, tourism, and industry. In total, UNDP and its partners are investing US$4.8 million in the development of clusters across the entire country (including the left bank of the Nistru river).
The multiplier effect of clusters
And the results were quick to follow. In the case of the livestock and dairy production cluster in Cimișlia-Basarabeasca, in a very short time, thanks to the support provided by Switzerland and UNDP, more than half of the farms in the micro-region were modernized, with complete reconstruction of barns, the introduction of automated milking systems, and the improvement of livestock with more productive breeds. At the same time, the activities of cheese producers, such as the Cimișlia Cheese Factory and the Cheese mini-factory in Sadaclia, have expanded considerably. All these efforts led to the doubling of both the turnover and the number of jobs in the cluster, with forecasts predicting a tripling of production volume over the next three years.
In the case of the tourism cluster covering the Coșnița plateau area (the "Heart of the Nistru" microregion), after just a few years of efforts supported by Switzerland and UNDP, over 50 tourism businesses were created, more than 15 of which are rural houses and agritourism guesthouses. Two large investors from Ukraine were attracted, contributing significantly to the area by developing a restaurant and a children's entertainment facility. The annual number of visitors surpassed 100,000, turning the microregion into the most dynamic rural tourism destination in Moldova. Recently, the Government of the Republic of Moldova recognized this success by awarding the distinction of "Tourist Destination of the Year." The cumulative turnover of businesses within the cluster grew six times, from 5 million lei in 2021 to 30 million in 2024, with optimistic estimates to exceed 40 million lei in the 2025 season. This represents the fastest growth ever recorded in the field of rural tourism in Moldova.
In Ungheni, the furniture cluster, which brings together 18 entrepreneurs, has diversified its product range and strengthened its market position thanks to investments from the European Union and UNDP—specifically through modern equipment, specialized training, and the digitization of certain processes. Ten new products were created, and the cluster members' sales revenue increased by 14%. Thus, for every leu spent on equipment purchases, nine lei in revenue were generated. Additionally, 17 new jobs were created.
An important aspect of cluster development in the Republic of Moldova is the ESCA certification (European Secretariat for Cluster Analysis), which evaluates cluster performance. This certification aims to recognize clusters' operational performance and ensure compliance with the standards set by the European Union. To date, with the support of UNDP Moldova, 9 clusters in the Republic of Moldova have successfully completed the ECEI Bronze Label "Striving for Cluster Excellence" certification process, reflecting their commitment to performance and excellence. The certificates were recently presented to cluster managers during the "Clusters Meet Regions" Conference, an event organized by the European Cluster Collaboration Platform in partnership with the United Nations Development Programme Moldova, held from 10-11 October 2024.
The local economic pulse: An indicator for the entire national economy
Looking ahead, it is essential for the Republic of Moldova to continue supporting the development of economic clusters, which are important drivers of economic growth and innovation. In addition to financial support, it is necessary to create a legislative and institutional framework that facilitates collaboration between the public and private sectors.
Although the country does not yet have a clear policy for cluster development, their importance is recognized in national strategic documents. One of these is the National Industrial Development Programme 2024-2028, which supports clusters through regulatory measures, economic sectors, and companies.
It is certain that the economy of the Republic of Moldova can generate significantly greater benefits if the competitiveness of local companies increases, particularly through enhanced productivity, improved quality, and the addition of higher value to products.
It is essential to leverage the economic potential of Moldova’s regions by identifying unique competitive advantages. Depending on these advantages, regions can either connect to larger value chains or create their own value chains tailored to local needs and resources. This will contribute to the prosperity of the entire national economy.
The development of economic clusters is not only an effective approach to stimulate economic growth but also a way to build stronger and more resilient communities. Through collaboration, innovation, and the utilization of local resources, the Republic of Moldova can turn challenges into opportunities, actively contributing to the prosperity of local communities and the well-being of each region.
