This study is concerned with the growth of small local industry in developing countries and explores one particular route for understanding and fostering such growth. It focuses on the clustering of firms and the competitive advantage which they derive from local external economies and joint action, captured in the concept of collective efficiency. Following a conceptual discussion, the article explores the economic and institutional conditions which enhance or hinder collective efficiency. This includes a case study which suggests that responding to opportunity and crisis requires shifting from mere reliance on external economies to joint action and from ascribed to earned trust.