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Evan Davis on... clustering

Updated Friday, 13th November 2009

Evan Davis from The Bottom Line guides us through the business phenomenon of clustering and why it occurs.

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One of the most established and interesting and discussed patterns that you observe in business is clustering of firms. You find that an industry will be located in a particular area. You had linoleum firms in Kirkcaldy in Scotland in the past, there were six of them in that one town. You’ve got Hollywood where the film industry is. Silicon Valley is most obviously example isn’t it.

So why does this occur? Well when you look at the pattern of these things you tend to find it’s fairly regular. There’s some natural advantage to an area that starts the whole process off. It was the light in Hollywood that brought filmmakers there, the universities in Silicon Valley that brought the high tech start-ups there.

You start that off with that natural advantage but once the process gets going that natural advantage or that original seed becomes completely unimportant. You find that new support industries come in, the venture capitalists move into Silicon Valley, and that then brings other people and other resources in there. You find that immigrants who want a job in high tech industries move to Silicon Valley because that’s where you get a job in those industries. And then everybody coming to a particular location attracts other people there as well, hence the agglomeration occurs.

And of course, at the end of it all you observe that the original motive for people being there is completely irrelevant to why the new people are arriving. It’s just the existence of the place as that centre which then generates its own momentum. So you start with a little seed but when it flowers it seeds itself and the original can be taken away, you’ll still have the plant.

Now that does make it extremely difficult, doesn’t it, to set up a cluster. A lot of people would love to build a Silicon Valley but it’s very difficult to produce one, to create one from scratch, there’s always some innate advantage or some innate seed that kicks the process going and once it’s going, with a bit of luck, it gets it own momentum. But it’s very difficult to say we’re going to plant a seed and hope that it’s all going to take off, and that’s why clusters have to focus, the cluster creators have to focus on looking at an area’s natural advantage and say what has this area got that we can build on rather than saying what can we put into this area that will lead a cluster to grow. It’s a very fine distinction but it’s about taking an area and identifying what seeds are there that can then develop a momentum rather than trying to plant them.

That’s my view, but you can join the debate with the Open University.






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