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In both developed and developing countries there is mounting evidence that clustering and networking help small- and medium-sized manufacturers to raise their competitiveness. The role of public policy in this process is less clear. The European experience suggests that local and regional government can play an important role. Equally, if not more, interesting experiences can be found in developing countries. Their analysis constitutes the core of this paper. The lessons can be summarized as the 'Triple C' which stands for customer-oriented, collective and cumulative.

The success of Japanese industry and of some industries in the Emilia-Romagna region of Italy in the 1970s and 1980s has stimulated interest in new models of industrial organization. Interest in applying such models in developing countries is increasing rapidly. Evidence from developing countries shows that models are a useful starting point, but that it is essential to consider the diversity of developing country experiences and to understand the processes by which firms and sectors are transformed. This paper focuses on the trajectories of change taken by firms which reorganize their production and by clusters of firms.