This document discusses different forms of industrial agglomeration and clustering. It describes how industries can cluster in three main ways - through the enlargement of an individual industrial plant, clustering of related industries, or clustering of unrelated industries. It provides examples of each type of clustering. The document also discusses the internal and external economies of scale that industries gain from clustering in a particular area, such as access to shared infrastructure, labor pools, and ancillary services. Finally, it notes that once industries are established in a certain location, there is inertia to remaining there even if the original benefits disappear, due to costs of relocating.

1. C L U S T E R I N G O F I N D U S T R I A L A C T I V I T I E S I N A P A R T I C U L A R A R E A
INDUSTRIAL
AGGLOMERATION
www.StudsPlanet.com

2. FORMS OF INDUSTRIAL
AGGLOMERATION
•Enlargement of an industrial plant
•clustering of same/related
industries
•clustering of unrelated industries
www.StudsPlanet.com

3. ENLARGEMENT OF INDUSTRIAL
PLANT
ironsmelting steel making steel rolling
ironansteel plant
www.StudsPlanet.com

4. INTERNAL ECONOMIES OF SCALE
• Greater possibility of specialization
• mass production
• bulk purchasing
• special transport rates
• more efficient use of machines and labour
• lower production cost
www.StudsPlanet.com

5. CLUSTERING OF RELATED
INDUSTRIES
engineering ship-building car making
ironandsteel plant
www.StudsPlanet.com

6. EXTERNAL ECONOMIES OF SCALE
• Inter-plant transport saving
• access to common pool of skilled labour
• presence of special training institutions
• presence of ancillary services
• research and development of collective facilities
• sharing cost of certain operation
www.StudsPlanet.com

7. CLUSTERING OF UNRELATED
INDUSTRIES
engineering ship-building metal fabricating car making
ironandsteel plant
Chemical plant Textile industry Electronics
www.StudsPlanet.com

8. ADVANTAGES OF CLUSTERING
• Enjoy an already well-developed infra-structure
• enjoy a common pool of skilled labour and
expertise
• enjoy cheaper supplies of material inputs and
ancillary services
www.StudsPlanet.com

9. An industry set up in an area
Same industries move in Related industries move in
A number of unrelated industries move in
An industrial district consisting different types of factories forms
www.StudsPlanet.com

10. AGGLOMERATION
Types of Linkage
Material Linkages (Tangible)
• Process Links
• Sub-contract Links
• Service Links
• Marketing Links
Information Linkages (Non-tangible)
• Banks, stock-brokers, telephone and face to face contact
between firms
www.StudsPlanet.com

11. AGGLOMERATION
Forms of Linkages I
www.StudsPlanet.com

12. AGGLOMERATION
Forms of Linkages II
www.StudsPlanet.com

13. AGGLOMERATION
Reasons for agglomeration
(External Economies of Scale)
• Transport savings
• Access to skilled labour
• Presence of ancillary services.
• Possibility of internal economies
• Infrastructure savings
• Attract investment
• Research and development
www.StudsPlanet.com

14. AGGLOMERATION
Industrial Inertia / Geographical Inertia
Once a factory has been built on a
particular site, it will tend to remain there
even though the original factors no
longer exist.
It is a very important factor for
hindering the movement of
industries.
www.StudsPlanet.com

15. AGGLOMERATION
• Reasons for industrial inertia
• Costs of moving
• Presence of a pool of labour
• Costly to move a skilled labour
• Costly to train unskilled labour
• Presence of associated industries
• Infrastructure might not be a available in the new area
• Reputation
www.StudsPlanet.com

16. AGGLOMERATION
Decentralization (Suburbanization of
industries)
www.StudsPlanet.com

17. AGGLOMERATION
Factors affecting decentralization
• Expansion of firm
• Redevelopment of inner cities
• Inner city problems which hinder firms
development
• Demand for office space in the central
city
• Suburbanization (population & market)
• Nature of industry
• Government Encouragement
www.StudsPlanet.com

18. AGGLOMERATION ECONOMIES
• Savings an individual enterprise derived from
locational association with a cluster of other similar
economic activities…
• Multiplier Effect: The cumulative processes by
which a given change sets in motion a sequence of
further industrial employment and infrastructure
growth.
www.StudsPlanet.com

19. AGGLOMERATION ECONOMIES
• Work to minimize transaction costs (“Hidden costs”)
• Agglomerations caused by:
Localization Economies
• Needs sufficient demand to justify or allow support
networks to emerge.
• Presence of skilled labor - attracts skilled labor to migrate
• Technological spillovers - “being in the loop.” Ex. Silicon V.
Urbanization Economies - Larger cities offer larger markets
and offer business services
• Others - Just-in-Time Manufacturing/Delivery
• Allows producers to shift quickly and easily to differing levels
of output (due to demand).
• Eliminates need for large warehouses to store parts
• Causes clustering of related industries
www.StudsPlanet.com

20. LEAN PRODUCTION / JUST IN TIME
www.StudsPlanet.com