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This paper is based on an ongoing research on the importance of clusters in development of small and medium enterprises, as well as networking issues. The purpose of this study is to review the effect of clustering and networking on SMEs' competitiveness, especially in developing countries. As it emerges from the literature reviewed, cluster policy brings many positive effects in industrialized countries, especially with contribution of ICT through online networking and knowledge sharing, but such effects have not been researched in transition countries, yet. It could be suggested that a comprehensive benchmarking model focusing on the critical success factors (CSF) of an industrial cluster can help to increase improvement, so as to strengthen the competitive position of a cluster as a whole. The paper finalizes with a discussion on the benefits and advantages of applying cluster policy, as well as some recommendations for further researches.