Carrie (2000) notes the emergence of a new form of competition, namely, competition between regional clusters, which could contribute to multinationals' global activities. In a global market, industries can spread operations through the world. Moreover, the technology's complexity and R&D scale of investment were increasing, thus promote firms' business risks. Firms relied primarily on time-to-market advantages to maintain competitive advantage new application trends shortened product life cycles. Multiple sources of innovation thus were beneficial (Grindley and Teece, 1997). Semiconductor technology was new and developing rapidly, and was too complex and too important to be developed and commercialized adequately within a single organization. Prior the late 1970s, semiconductor and electronics firms used technology to open up new markets. The competitive environments in industry have recently begun to change, with the changes being especially dramatic in the manufacturing industry. The SD approach is more effective than other methodologies. The SD approach is adopted to analyze the complicated relationship of factors affecting industrial cluster effect. All factors in the cause-and-effect chains influence positively the industrial cluster effect. This study also constructs a comprehensive causal loop diagram of the industrial cluster effect. This study considers four important interactive dimensions of industrial competitiveness: manpower, technology, money, and market flows. This study establishes a dynamic model of various factors of industrial cluster effect through the causal loop diagram also known as the cause-and-effect chain. Forrester et al, helps mankind realize the variation of a complicated system, and perceive how an internal feedback loop within a system impacts whole system's behavior. In a global business environment, competition is not just between individual companies and supply chains, but also among companies in regional clusters. A literature review finds few studies that utilize SD to investigate factors affecting the industrial cluster effect. This study applies the system dynamics (SD) methodology to explore factors affecting the industrial cluster effect, which is crucial in determining national and industrial competitive advantage.
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