Industry Clusters

August 9, 2012

Did you ever notice that industries & similar jobs tend to cluster in particular areas?  Tech in Silicon Valley, Film in Hollywood, Finance in New York, Oil and Gas in Saudi Arabia, Construction in Dubai, and so on.

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Similarly, culturally uniform groups tend to pursue similar jobs or industries, particularly among immigrants.  These acts of clustering can be explained in part through the concepts of influence spreading through social networks, as described by Fowler and Christakis in the book Connected.

For instance, the Economist just ran an article on Thai’s travelling to Sweden for the annual berry-picking seasonal jobs.  If that isn’t a microcosm example of policy influence/clustering, etc. I’m not sure what is.

Clusters of industry make collaboration easier, and have the advantages of economies of scale.   Additionally there is the advantage of  being in a centralized place for customers.  Generally, clustering creates advantages for those involved–which is exactly what the developing world needs.

It can generally be agreed that new industry clusters in the developing world would not only provide opportunity to budding entrepreneurs but also jobs and secondary industries would help build thriving economies, which in theory might support improved long-term government investment.

The real question remains; how is it that these clusters emerge? Policy can influence opportunity the most quickly, but the inherent demand must be there.  There are a few ways that clusters can arise:

In some cases, competitors cluster around existing market leaders, but this sort of ‘latch-on’ effect is generally not an option in the developing world because the prerequisite ‘big-market leader’ does not exist.

Alternatively, policies can create opportunities that gain momentum.  For instance, a targeted tax shelter can give rise to new industry and even when the shelter expires, the industry may grow on.

Finally, external investment–even on a small scale–can be enough to get the ball rolling.  That’s where you come in.  We need entrepreneurs who are willing to go into developing countries and build job-creating industry clusters in impoverished areas.

The most important part is the job creation aspect; whether you are counselling local entrepreneurs, funding them directly or starting your own business and bringing foreign capital with you, you can be part of the clustering movement.

In the long run, poverty alleviation depends entirely on the right mix between job availability, economic growth and limited social inequalities.

~ Bryan

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