The effect of clustering on product innovativeness in manufacturing SME sector has been analyzed in this study. The cooperation of firms at national level and on a global scale is becoming more and more important as a tool of economic development. SMEs tend to work together in order to share their competencies, reduce various costs, consolidate limited resources,
and hereby increase their productivity, product innovativeness, and profitability. Clusters create the environment for innovation and technological advancement. Therefore, SMEs may gain additional benefits that include know-how, cost-saving options, and innovative products to fulfill unmet customer needs. The study has concluded that the clustering of manufacturing SMEs is closely related to product innovativeness and hence their competitiveness at the local and regional level.
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