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A Process Model of Government Intervention and Capability Development: Lessons from the Technology Cluster Formation in Hyderabad, India

Abstract This study examines the path taken by the government of the Indian state of Andhra Pradesh that recently established an information technology (IT) cluster in Hyderabad, the capital city. The city went from virtually no presence in IT to developing one of the world's most vibrant IT clusters in the world. A retrospective case study research was conducted guided by two research questions: (1) how institutional actions influenced the capability development that shaped the IT cluster formation in Hyderabad and (2) why did it succeed despite the poor fit with its initial context? The findings allow proposing a process model of institutional interventions (including mobilization, subsidies, knowledge building, guideline setting, knowledge deployment, and innovation directives) and capability development (comprising capabilities to identify industry attractiveness, to create conditions and flexibility, and to encourage entrepreneurial activity). This model serves as the central contribution of this research, and its implications for both research and practice are discussed.