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Enterprise software is a predominant sector in the European software industry. Four of the five largest European software companies are found in this sector. Interestingly, two of these — among them SAP as one of the two global market leaders — are located within the same industrial agglomeration in South-Western Germany. This agglomeration, the SAP cluster, further consists of enterprise software SMEs forming a ‘satellite system’ centred around the large players, which fosters the formation of ‘mutualistic symbiotic’ relationships between large and small firms. At first sight, cluster formation in the context of the enterprise software industry might seem perplexing considering that traditional rationales of agglomeration economies seem obsolete in an environment where advances in communications technology would permit companies to locate in any location within a modern developed economy instead of concentrating in proximity to each other or to major players in the industry. This chapter explores possible explanations of this agglomeration phenomenon based on patterns of competition, collaboration and the formation of social capital between smaller firms and large anchor firms.

The findings of a comparative analysis between the SAP cluster environment and two categories of controls (firms in other agglomerated environments and those unaffected by agglomeration effects within Germany) show that SAP cluster SMEs might simultaneously benefit from heightened intensity of competition and a more pronounced inclination towards collaboration. Moreover, the role of social capital derived from SAP as anchor firm clearly differentiates SAP cluster participants from firms located within other environments.

Recent developments in the competitive landscape of the management support software industry sub-sector — characterised by saturation, consolidation and defragmentation — have also attracted attention to the phenomenon of cluster formation. Layers of SMEs forming satellite systems centred on large players in this industry fill in structural holes in the competitive fabric of the market which are left open — at least temporarily — by the large ‘incubator’ company, while at the same time also acting as a type of capacity buffer or technology spearhead for the larger player which does not need to invest its own capacities into certain niches. This paper discusses the significance of clustering in the management support software sector and aims to offer explanations predicated on intangible constructs which may retrofit traditional agglomeration economies approaches. The findings of a pilot study corroborate the implications of clustering in relation to knowledge spillover effects, labour mobility, network formation, the generation of social capital, reputation building and effects of the urban ambience as factors potentially moderating the competitive environment within clusters vis-à-vis outside. Moreover, effects of the density of cluster labour pools and spin-off are considered. Simultaneously, the unique efficacy of these effects by means of mitigation of the idiosyncratic growth constraints affecting SMEs in this industry context — such as high levels of customer dependence, lack of legitimacy and the importance of reputation as well as customer references — is proposed.