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Thanks to the emergence of linkages and cooperation between SMEs which provides economies of scale and scope, far from being handicapped by size, clusters of SMEs have the advantages of flexibility and responsiveness. They can be more competitive than large firms. The lessons have been summarised as the" Triple C" where the three C's stand for customer-oriented, collective and cumulative. The paper also discusses the difficulties and pitfalls involved in trying to draw lessons from the experience of European industrial districts and networks. It also provides a theoretical underpinning for policy, using the notion of collective efficiency and seeks to specify the sources of competitiveness which clustering or networking enterprises can draw on but individual enterprises forego. It concentrates on examples of new policy approaches being used in developing countries which is the core section of the paper. The …