The poor performance of the rural economy in Indonesia led economic development planners to stimulate local growth, to encourage diversification of the industry base and to provide more appropriate assistance to the regions. This book is an attempt to investigate how cluster firms can be an effective organizing principle in economic development. What are the key characteristics of the cluster firms that form the cluster to manage the resources collectively. The analytical results shows that being part of a cluster allows firms to operate higher productively in sourcing inputs; access to or preference in the region; and coordinating with related companies. Cluster firms need lower investment and labour in operational but more productive in term of sales volume compare to firms in control cluster. Knowledge spillovers are a very important factor in the cluster of leather industry in the study area. It mainly depends on upon Labour, Demanding buyer, and Supplier specialization. This cluster allows workers to learn job-specific tasks and stay with current new developments. The results also report that supplier specialization has the greatest effect and the most important factor in the prediction of firms innovativeness in this cluster, because they produce inputs that are widely used and important to innovation. Besides positive effects, there may also negative externalities due to congestion and competition. In absolute terms the danger of move of risk-pooling is regarded as important on average in cluster compare to distance area. Business linkages are weak, market distortions, and the lack of skills and low technological capabilities of local firms. It is recommended that R&D firms are attracted to regions with university R&D, increasing infrastructure investments in the cluster periphery to create new market demands and linkages, the supply of knowledge-intensive labour, stimulate and push collaborative clusters pilot projects, and established regional marketing programmes.