A note on value creation in consumption‐oriented regional service clusters

Purpose – The purpose of this paper is to differentiate traditional industrial clusters from emerging consumption‐oriented and destination‐based regional service clusters (e.g. entertainment, service‐based tourism, and convention destination); to develop an analytical framework to examine the impacts of both cluster and network effects in service clusters; and to offer implications for managing service innovation to enhance regional development and global competitiveness. Design/methodology/approach – By applying industrial cluster, strategic network, and value creation theories, this research develops a framework to study value creation in service clusters. Findings – The research concludes that firms' decisions to enter or exit a service cluster depends on the net strategic effects, which is the sum of agglomeration economies (i.e. cluster effects) and the economies of network (i.e. network effects). Research limitations/implications – Further empirical research is needed to determine the significance of both cluster and network effects that determine firms' decisions to enter the service clusters. Practical implications – First, firms need to incorporate cluster‐specific elements, such as experience economy, value networking, and service innovation to maximize the consumer's use value or perceived customer benefits. Second, in order to increase consumers' willingness to pay a higher price, firms located inside the service clusters need to adopt strategies, such as product or service differentiation, that increase the perceived benefits or use value of customers. Third, service cluster firms' other objectives should be to minimize location‐specific cost differentials by capitalizing on the positive effects of both agglomeration economies and economies of network. Fourth, public policy implications need to include laws and regulations that encourage and promote innovation and new ventures creation, competition in the marketplace, and capital investment to maximize value creation. Finally, policy makers need to promote high value‐added economic activities in the service clusters in order to maximize consumer welfare. Originality/value – A growing number of policymakers and scholars have recognized the significant economic contributions from the consumption‐oriented regional clusters. This paper is the first effort to develop an analytical framework to study value creation in service clusters for effective managerial and policy decisions.