Action happens at cross-roads. This is true for trade routes, military checkpoints and national borders. It is also true in the business world, especially where business enterprises intersect with other economic ‘actors’ and the wider community.

Capitalising on the opportunities at these cross-roads can make the difference between success and failure for firms. The important art of bridge-building at these intersections is a modern day competitive survival skill.

Making connections and collaborating is essential for acquiring, absorbing and applying the knowledge firms need to create and sustain their competitive edge against ever-increasing and stronger global competitors.

The eminent Swedish economist and clustering expert, Professor Orjan Sölvell, shared the evidence for this with a gathering of Australian cluster practitioners, researchers and policy makers at the UTS Business School recently. He worked with Professor Michael Porter at Harvard University when Porter was researching and writing his well-known work on strategy and competitiveness. Professor Sölvell was in Australia to address the Adelaide Festival of Ideas.

At the UTS Business School event, Orjan Sölvell positioned the concepts of collaboration and clustering in terms of the evolving understanding of competitiveness, especially how the competitiveness of firms is connected to the competitiveness of nations. He argued that the pivotal issue was the change from a view of the firm as static and isolated, to the firm seen as part of a dynamic cluster environment.

 Professor Sölvell illustrated this by drawing attention to the shift in Porter’s work from an enterprise-based focus on firm strategy in the 1980s designed to maximise the firm’s immediate profit, to maximising competitiveness for the future in his 1990s work where firms, related and supporting industries and demand and factor conditions combine together to define the enduring competitive advantage of both firms and nations.

According to Professor Sölvell, in the 1980s US firms are making money, but the USA as a nation is losing out to Japan on competitiveness and productivity. To understand why, the focus must shift from an inward-looking analysis of firm performance and therefore just action on the macro-economic conditions of free and mobile capital and labour markets. Instead, we must examine how firms operate in their wider environment, their resources and capabilities, product quality, organisation and management models. Importantly, this means understanding the firm and the interactions it has with others outside the firm.

Professor Sölvell concluded that competitiveness is not a solitary pursuit, and that proximity matters more, paradoxically, even though increasing globalisation and technological transformations seem to make geography less important. This is because firms are competing on creating value for customers, not just on price. Value is created and captured by the capacity of firms to access, assimilate, transform and exploit knowledge to produce distinctive and dynamic capabilities that give them a competitive advantage that others find hard to imitate. This requires capable and agile individuals working inside the firm, who are also embedded and engaged with a wide spectrum of quality relationships and networks.

Creating this dynamic cluster environment for firms does not just happen. It requires the important art of bridge-building and the skill and powers of persuasion to encourage others to dare to walk across those bridges.

Orjan Sölvell is Professor of International Business at the Stockholm School of Economics and Director of its Center for Strategy and Competitiveness. Professor Sölvell has been a teacher and researcher in business and economics at the Stockholm School of Economics for over three decades and is an author and contributor to data on European industry clusters published in the European Cluster Observatory.