OVER the past 30 years, most economists have come to believe that advanced economies are less likely to be driven by strong, lone companies than by complex ecosystems, or clusters, centered in a particular industrial sector.

The evidence shows that outsized economic growth often requires an outsized pool of talent and specialized capital in a single geographical region.

Intuitively, this makes sense - the public might like the idea of the heroic entrepreneur, but from Wall Street to Madison Avenue to Silicon Valley, the biggest success stories in American business are often less about an individual's or company's triumphs than the strength of interdependent, regional communities within an industry.

Teaching each other, helping each other, pushing each other - the evidence all suggests that companies tend to profit from proximity, though what is good for business in general may not always maximize the fortunes of a particular company.

In China, a recent study by the National Science Foundation, titled, "Analyses of Dynamic Factors of Cluster Innovation - A Case Study of Chengdu Furniture Industrial Cluster," found that the presence of many firms in a single area helped encourage innovation, diffusion of new ideas, flexibility and specialization.

The value of clusters is a fairly new idea to Western economists. Although some of the thinking behind them dates back to 1890, the term itself was popularized only in 1990 by Michael Porter in his book "The Competitive Advantage of Nations."

Tales of Cixi tailors

It's an idea that Chinese businesses and policy makers have embraced and capitalized on. One reason for the enthusiasm, perhaps, is that winning through cooperation is a core concept of Chinese culture, which has a tradition of highly valuing mutual social obligations.

In fact, the original concept can be traced to the early days of Chinese history: more than 3,000 years ago Confucius advised, "Wishing to be established oneself, he assists others to be established."

Regional specializations have always existed in China as they have everywhere. Tailors from the city of Cixi in Zhejiang Province have been renowned for their skills for hundreds of years and controlled clothing manufacturing in Beijing from the 1680s to the 1930s.

Advanced industrial clusters are a fairly recent phenomenon, however. One factor that held back their development was the late Chairman Mao Zedong's idea of encouraging local self-sufficiency - an idea that brought industrial production almost down to the village level.

One result: many Chinese industries, such as cement making, are fragmented, and operate with sub-scale and out-of-date methods - a good counter-example to why Chinese authorities in many regions now see clusters as the new way to make an economic leap.

Mushrooming clusters

"These guys are pretty savvy, and they've made some guesses about where they might have some advantage," says Benjamin Pinney, a principal in BCG's Shanghai office.

In some areas, such as the Zhejiang city of Ningbo, where the old tailoring center of Cixi is located, policy makers looked to their roots to find that special advantage.

Ningbo decided, literally, to stick to its knitting. It began by converting factories that had made military uniforms into factories for more fashionable garments, at the same time allowing smaller entrepreneurs to form more specialized companies.

Today, Ningbo has more than 2,000 apparel companies, which together produce about 5 percent of the nation's textile output.

Other examples, unconnected to some past industrial glory, include the many factories in the city of Dongguan, Guangdong Province, in the Pearl River delta, which manufacture nearly a third of the world's magnetic recording heads so integral to computer hard drives, and some 16 percent of all computer keyboards. All told, more than 1,000 clusters are devoted to exports.

The Zhuhai Yacht Industrial Zone on the south coast, meanwhile, hosts some 20 boat makers and rose up in part with the help of government incentives available to many manufacturing clusters.

Such incentives have often proved especially important for the development of new high-tech industries like biotechnology, where the government has played a more direct role in providing advantages to business.

"China is very good at developing the infrastructure that really enables a city to attract a cluster," says David Lee, a partner and managing director of BCG's Beijing office. "Clearly, they're good at building roads, ports and bridges, but they're also good at building institutes and training facilities."

The growth of biotechnology clusters in Beijing, Shanghai and Shenzhen, for example, results from several government policies going back to the 1970s.

The first major policy change allowed more than 200,000 students to earn post-graduate science degrees abroad. Then in 1986, the government made plans to train hundreds of thousands of postgraduates in biotechnology.

Next, they encouraged biotechnology professionals who had been working abroad to return home. Many did, and founded companies, drawing on the managerial and scientific expertise gained in the US and elsewhere.

In biotechnology and in other clusters, company formation tends to proceed a little differently than in most Western market economies.

Essentially, the Chinese authorities argue that entrepreneurship is less a function of spotting a profitable opportunity than it is an ability to form alliances with those who hold key assets.

The entrepreneur's social connections with government officials, for example, are often far more important than in the West. At the same time, working these connections is not simply a matter of gaining approvals by passing some envelopes under the table.

Unlike arrangements in other emerging markets, analysts say that local governments in China today often add real value to local clusters by championing industry more generally rather than picking winners and losers among individual companies.

(Reproduced with permission from Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Shanghai Daily condensed the article.)