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Industry Clusters Evolving Role in Location Decisions

As physical location becomes less important in a technologically-advanced, globalized work place, how will industry clusters adapt?

Christopher Steele, President, CWS Consulting Group (Winter 2011)

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Still, inherent competitive and economic drawbacks exist in clusters and in locating near similar companies. This can include overheating local labor markets or relying excessively on a particular industry (along with a corresponding exposure to economic downturn). Additionally, clusters can sometimes succumb to groupthink, which stifles innovation or lends it false direction. Such was the case with the Detroit car companies of the 1970s and 1980s.

Nevertheless, the economic and industrial cluster template is well established and has functioned as a model for economic development and business attraction for some time. States and regions have tailored training, education, and incentive programs that build on existing clusters or foster the development of new clusters.

Leveling the Playing Field
What if physical location no longer mattered, or mattered much less, to idea exchange or interaction in the value chain? Would a location near one's peers still be valuable? Would the concept of an industry cluster retain meaning in a world of virtual, global interaction? Clearly, technology has changed how we work, collaborate, and innovate. Location matters less than it has in the past, and technology ranging from email and the telephone to cloud computing and shared e-workspaces may overcome the need for physical proximity.

Today, the very nature of work is changing. Workers under the age of 30 will measure their careers by the dozens or hundreds of projects on which they have worked rather than jobs held. Each of these projects will have occurred in an environment of shifting partnerships and teams. The Internet's integrating nature and its various professional networks will enable these shifting alliances, and may remove the need for some formal corporate structures.

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This change is already affecting how site selection consultants work. Smaller location consulting teams can now customize solutions for clients that rival or exceed anything that larger, traditional firms can offer.

These cases have no physical proximity need. Still, this specialized form of service- and knowledge-oriented work will not cover all future economic activity. Face-to-face communications, physical interaction, and the transfer of goods and materials will still play critical roles in some industries. However, the need for and value of this interaction will vary depending on the value-adding networks that are involved. Just because e-links are sufficient for one industry does not guarantee that they will satisfy all.

To Cluster - or Not
Technology, virtual networks, and cloud thinking will reduce the need for physical proximity for many industries. Traditional clusters - such as banking, research, software engineering, and information technology - will no longer be so tied to physical interaction and the need for face-to-face meetings.

Other industries will see innovation and the entire value chain dictated by physical proximity to key inputs including raw materials, cheap energy, skilled talent, vendors, and suppliers. These industries will have the greatest need for the support infrastructure of clusters and will continue to seek them out.

Most businesses will probably fall into a growing third category, which will have reduced business needs to be located in a cluster, but which will continue to choose to do so. While significant changes are inevitable, clusters will still provide strong advantages for many industries.

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About the Author

Christopher Steele, President, CWS Consulting Group
Chris Steele has more than 18 years of business and urban planning experience in real estate, economic development, and location strategy. He has served major clients in national and international demographics, labor, and real estate trends review and analysis. Most notably, he worked with Boeing in selecting its Chicago headquarters. He holds master’s degrees from the University of North Carolina at Chapel Hill.

More articles by Christopher Steele

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How important of a site selection factor are industry clusters to relocating companies?

Companies look for combinations of key factors rather than have any one take precedence. More
- Chris Steele, President, Real Estate, TranSystems

Do clusters offer any special incentives to relocating businesses?

Most industry-targeted incentive programs act implicitly to encourage cluster formation. More
- Chris Steele, President, Real Estate, TranSystems

Although companies that operate predominantly across broadband or virtual networks have no physical need for a cluster, how can you explain the existence of high-tech clusters such as the Silicon Valley?

However, even in such broadband-enabled industries as software development, there exists a combination of dispersion and clustering occurring. More
- Christopher Steele, President, CWS Consulting Group

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