Cluster-Driven Entrepreneurial Ecosystems and their Influence on MSME Performance: Insights from Karnataka

Purpose / Motivation
Existing scholarship strongly supports the positive relationship between entrepreneurial ecosystems (EE) and the performance of Micro, Small, and Medium Enterprises (MSMEs) in developed economies. However, this association has received limited empirical attention in emerging markets. Prior research largely investigates the EE–MSME performance linkage under relatively stable economic conditions, often neglecting the influence of environmental uncertainties and contextual dynamics. This study examines the impact of EE on MSME performance within an emerging economy context by focusing on the auto-component cluster in Hubballi-Dharwad and the foundry cluster in Belgaum. These clusters were chosen due to their prominence, maturity, and strategic importance within Karnataka’s industrial landscape. They represent dense concentrations of MSMEs and significantly contribute to regional manufacturing output, employment generation, and supply chain integration. To deepen the understanding of the EE–MSME performance relationship, this study introduces cluster dynamics (CD) as a mediating construct, offering a more nuanced explanation of how ecosystem factors translate into firm-level performance outcomes within industrial clusters.
Literature Review & Research Gaps:
The entrepreneurial ecosystem plays a pivotal role in shaping SME performance by promoting innovation, facilitating access to financial and human resources, and strengthening competitive capabilities. Existing research also emphasizes that industrial clusters amplify these advantages through mechanisms such as shared infrastructure, knowledge spillovers, inter-firm collaboration, and network synergies. Despite these insights, the literature offers limited exploration of the mediating function of industrial clusters in emerging economies, where institutional deficiencies and resource limitations pose distinctive challenges. Moreover, there is a scarcity of studies examining how specific elements of cluster dynamics—such as geographic proximity, presence of supporting industries, and collaborative networks—mediate the relationship between EE and MSME performance. This study addresses these gaps by empirically investigating the interaction between entrepreneurial ecosystems, cluster dynamics, and MSME performance within the context of an emerging economy.
Design / Methodology
The research is based on primary data collected from 64 SMEs operating in the Hubballi-Dharwad Auto Component Cluster and the Belgaum Foundry Cluster. Data were gathered directly from SME owners and managers to ensure accuracy and contextual relevance. The study employs Partial Least Squares–Structural Equation Modelling (PLS-SEM) to analyze the data, allowing for the simultaneous assessment of complex relationships among entrepreneurial ecosystems, cluster dynamics, and MSME performance.
Analysis & Findings:
The findings reveal that the entrepreneurial ecosystem exerts a significant positive influence on both cluster dynamics and MSME performance. Additionally, cluster dynamics partially mediate the relationship between EE and MSME performance. These results indicate that the entrepreneurial ecosystem within the Hubballi-Dharwad and Belgaum clusters enhances MSME performance not only directly but also indirectly by strengthening cluster-level interactions, resource sharing, and collaborative mechanisms.
Conclusions Including Managerial / Policy Implications:
This study offers a distinctive contribution by highlighting the strategic role of industrial clusters in enhancing MSME performance in emerging markets. By concentrating on specific clusters in Karnataka, the research extends existing entrepreneurial ecosystem literature within a developing economy context.
The findings provide actionable implications for policymakers and cluster development agencies in emerging economies. Strengthening institutional frameworks, fostering collaborative cultures, enhancing supporting industries, and building adaptive cluster mechanisms can significantly improve MSME performance—particularly in uncertain and dynamic environments.
Overall, the study underscores the importance of resilient, well-supported clusters as a catalyst for sustainable MSME growth in emerging economies.