CLUSTERING

CLUSTERING 

 By setting up in “industry centers” where similar businesses are clustered together, firms gain instant access to a large and varied range of benefits.

The idea 

The idea of clustering seems counter-intuitive. It suggests that firms should pay high real estate prices to be positioned close to their competitors. Although there are many businesses that prefer cheaper real estate further from the threat of competitors, clustering is surprisingly common in many industries. From the shops of Oxford Street in London to the technology companies of SiliconValley, clustering has a far-reaching appeal.

The benefits of clustering are particularly relevant to new businesses. It affords easy access to an already established network of customers, suppliers, and information. It can also help build reputation—it encourages customers to associate your organization with the other respected and long-established businesses in the area.

Clustering is also a blessing for the firm in a highly competitive industry, like selling cars. While it remains easier for customers to choose your rival over you when it is positioned next-door, a company with a truly superior, competitive offering has little to fear from this.

One of the most famous examples of clustering is the entertainment industry of Hollywood, where freelancers and small firms prospered by locating near the studios. Further north there is the example of Silicon Valley—a cluster of technology companies benefiting from the pool of talent in nearby universities.

Although clustering raises a number of challenges for any business to overcome, an innovative, efficient, and dynamic company will be able to turn these challenges into unrivaled advantages.

In practice 

• There are often a number of industry centers for a particular product; use careful research to decide which one best suits your business. 

• Ensure your customer offering is truly competitive—the direct contrast with rival companies provided by clustering will only benefit companies with genuinely superior products. 

• Highlight where you are and emphasize how your products are superior. 

• Take advantage of the increased access to cutting-edge industry information—this can range from regional publications to “neighborhood gossip.” 

• Remember that clustering is not suitable for all companies— consider your overall business plan and the nature of your business before deciding where to locate.