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This article reviews the currently available literature to examine how clusters provided competitive advantage for small and medium businesses, in what ways it led to economic growth and directs the policy interventions of the Indian government. The evolution of clusters and the contribution of researchable issues in evolution are examined. The role of clusters in creating competitive advantage and the research related to redefining the evolution is presented. External economies are the benefits that occur to a business from the external environment of the business, which are beyond its control and results in cost benefits. The firms in cluster promoted the establishment of suppliers around their customers. This in turn benefitted both the supplier and the firm by reduced transportation cost and increased physical accessibility. The firms are also able to avail customized and specialized inputs from the supplier. Cost economies benefitted the firms and led to improved economic growth. Cluster approach has positive implication and important place in economic development of the country. The review of literature clearly brings up the developments in the concept of clustering as experienced across the world and the initiatives of the Government of India matching the developmental needs in this area of entrepreneurship development. The clusters have made better availability of information, in acquiring specialized resources, creation of innovation and competitiveness in the world markets.
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