Understanding the Concentration of Related Industries in Your Region

In this unit, Mark White, Associate Extension Professor at University of Missouri, introduces the important concept of industry “clusters”–geographically concentrated, interrelated groups of firms and institutions. The concept underlying clusters has informed economic development thought and strategy for decades–even before Michael Porter of Harvard Business School popularized the term in the early 1990s,  Well-developed clusters in a regional economy make the area uniquely competitive, exemplifying the principle of a whole that is greater than the sum of its parts. The diagram below  illustrates the concept, showing the mutually supportive network of interconnected firms and institutions in  Boston’s famous biopharmaceuticals cluster.

Source: Clustermapping.us

The lectures and activities that follow will introduce the concept more fully–while helping you apply your understanding to sharpening your region’s competitive advantage. Some introductory context is helpful, though.

First, what exactly is an industry cluster?

According to Porter (1990), a cluster is a regional concentration of related industries, connected through various types of linkages, spillovers, and supporting institutions.

Referring to the biopharmaceuticals example above may help flesh out the concept:

• Linked industries and other entities, such as the suppliers of special instruments and substances, services, education/training, and a specialized infrastructure
• Distribution channels and customers, manufacturers of complementary products (e.g., medical and dental instruments), and companies related by skills, technologies, or common inputs
• Related institutions such as research organizations, universities, standard-setting organizations, training entities, and others.

The map below shows major U.S. industry clusters:

Second, why study industry clusters?

The concept of regional concentrations of economic activities in related industries–connected through local linkages and spillovers–is an important one for economic development. Thinking in terms of clusters can help you, as an analyst, to see your regional economy as a whole, interrelated ecosystem–rather than as a collection of firms and industries with varying characteristics. Finally, clusters provide a way to understand the interplay between location, regional specialization patterns, and value chains (which will be explored in detail in the next unit).

Learning objectives – After completing this unit, you’ll be able to:

1. Define an industry cluster.
2. Recognize the opportunities cluster analysis offers for regional economic development and policymaking.
3. Research regional cluster data using the Clustermapping.us tool.

Porter, M. E. 1990. The Competitive Advantage of Nations. Free Press.