Regional clustering is the theory of aggregating firms from similar industries, or with complementary skills within close geographic proximity. There many examples of clustering that have existed for centuries (like the multiple wine regions in France), to relatively modern clusters (like silicon valley). These clusters can arise via structural initiatives i.e. industry led, or government mandated, like toilet city in China (city dedicated to the manufacture of toilets), or zipper city, also in China. They can also occur through projects to create a cluster (like Dubai's Media City), or resource based clustering (like the mining towns found in Western Australia or Alberta Canada).
The benefits of geographic clustering include:
- Improved competitiveness: Governments will often encourage clustering a tool for driving increased competition in the sector
- Improved innovation: There is historic evidence of conversations by the water-tank / in company hallways, extending to pubs and social gatherings within geographic clusters. These discussions are often effective ways to foster and encourage innovation across a sector
- Scale efficiency: Improved buying and selling power for firms located close to each other
- Improved infrastructure utilisation: Similar firms have similar infrastructure needs - clustering will spread the cost of the infrastructure across the firms