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lldeveloped cluster also provides an efficient means of obtaining other important inputs. Such a cluster offers a deep and specialized supplier base. Sourcing locally instead of from distant suppliers lowers transaction costs. It minimizes the need for inventory, eliminates importing costs and delays, and – because local reputation is important – lowers the risk that suppliers will overprice or renege on mitments. Proximity improves munications and makes it easier for suppliers to provide ancillary or support services such as installation and debugging. Other things being equal, then, local outsourcing is a better solution than distant outsourcing, especially for advanced and specialized inputs involving embedded technology, information, and service content. Formal alliances with distant suppliers can mitigate some of the disadvantages of distant outsourcing. But all formal alliances involve their own plex bargaining and governance problems and can inhibit a pany’s flexibility. The close, informal relationships possible among panies in a cluster are often a superior arrangement. In many cases, clusters are also a better alternative to vertical integration. Compared with inhouse units, outside specialists are often more cost effective and responsive, not only in ponent production but also in services such as training. Although extensive vertical integration may have once been the norm, a fastchanging environment can render vertical integration inefficient, ineffective, and inflexible. Even when some inputs are best sourced from a distance, clusters offer advantages. Suppliers trying to perate a large, concentrated market will price more aggressively, knowing that as they do so they can realize efficiencies in marketing and in service. Working against a cluster’s advantages in assembling resources is the possibility that petition will render them more expensive and scarce. But panies do have the alternative of outsourcing many inputs from other locations, which tends to limit potential cost penalties. More important, clusters increase not only the demand for specialized inputs but also their supply. Access to Specialized Information. Extensive market, technical, and petitive information accumulates within a cluster, and members have preferred access to it. In addition, personal relationships and munity ties foster trust and facilitate the flow of information. These conditions make information more transferable. Complementarities. A host of linkages among cluster members results in a whole greater than the sum of its parts. In a typical tourism cluster, for example, the quality of a visitor’s experience depends not only on the appeal of the primary attraction but also on the quality and efficiency of plementary businesses such as hotels, restaurants, shopping outlets, and transportation facilities. Because members of the cluster are mutually dependent, good performance by one can boost the success of the others. Complementarities e in many forms. The most obvious is when products plement one another in meeting customers’ needs, as the tourism example illustrates. Another form is the coordination of activities across panies to optimize their collective productivity. In wood products, for instance, the efficiency of sawmills depends on a reliable supply of highquality timber and the ability to put all the timber to use – in furniture (highest quality), pallets and boxes (lower quality), or wood chips (lowest quality). In the early 1990s, Portuguese sawmills suffered from poor timber quality because local landowners did not invest in timber management. Hence most timber was processed for use in pallets and boxes, a lowervalue use that limited the price paid to landowners. Substantial improvement in productivity was possible, but only if several pa