Clustering...

Why do you think that all the investment banks are concentrated on the Wall Street? Why are all the revolutionary Technology Companies bunched together in the Silicon Valley? Why are all the Film Production Studios heaped up in Hollywood?

Why are the competing peers are clustered into a close proximity? It is pretty natural to think that the convergence of competitors into a the proximity of each other could lead to the loss of competitive advantage for all. However, This is NOT the case, Counter-intuitive but true!




What do companies gain by congesting into one location? See below:
1. The pool of expertise is easily available for all companies, and the mass availability of skill leads to the reduction of cost per unit of skill.
2. The cost of goods or services sold is reduced as the concentration of all players leads to the suppliers setting up their units near the clusters to gain a source of competitive advantage.
3. Clustering presents a huge opportunity for thriving of a vibrant Ancillary industry.

This means that the clustering of industries leads to better achievement of economies of scale for the competing players.

This is the reason that regions like New York City, London Metro pole, Bombay and many more, have thrived and grown into huge economic powerhouses over time.