Proceedings of the International Association for Business and Society

Volume 19, 2008

Proceedings of the Nineteenth Annual Meeting

Social Upgrading Among Small Enterprises and Clusters in Developing Countries
New Challenges for Governance

Many clusters of small and medium enterprises (SMEs) in Less Developed Countries (LDC) are counteracting the “race to the bottom” by becoming competitive while at the same time “socially upgrading” in order to successfully improve their innovation capacity, social, environmental and labor standards, and health-and-safety issues. There is significant literature on the competitiveness of clusters and SMEs, but little research about how and why competitive small firms in LDCs are socially upgrading. Issues such as Corporate Social Responsibility (CSR) and public policies have influenced the initiatives for cluster social upgrading. The objective of this article is to discuss a conceptual framework to understand what factors may lead SMEs to organize themselves to overcome obstacles to collective action for social upgrading. The traditional cluster literature relies on the internal dynamics of the clusters for upgrading. Through interaction among cluster members (firms, supporting organizations, etc.), firms would learn from each other. This would help firms to innovate and develop new products, processes, functions and markets. Besides this literature, three other basic frameworks that explain the way firms can upgrade have been developed recently in the literature: upgrading through markets, through CSR and through better enforcement of regulation. Those frameworks can bring certain insights to a better understanding of social upgrading.