5.3   Industrial Clusters

. Industrial Clusters Industrial clusters are groups of firms in a defined geographic area that share common markets, technologies and skill requirements. The advantages of industrial clusters or districts were first observed by the famous economist Alfred Marshall in the 1920s when he tried to understand the working of clusters of small firms in the metal-working and textile regions in England. While the notion of an ‘industrial district’ was developed by Marshall, it was only after the success of small firms in Italy in the 1980s that it became popular. Policy-makers in developing countries like India began to promote them actively, as they realized that there several such small firm clusters in the country. The following are the chief characteristics of a successful cluster. Geographical proximity of small and medium enterprises (SMEs) Second, a market exists for both producers and consumer goods. Even services like banking, transport and trade are dependent on production of industrial goods. Third, by using modern methods of production, industries contribute to better productivity and hence lower the cost of production of all goods produced. It therefore, helps people to buy goods at a cheaper rate and helps create demand for more products. Fourth, through such expansion of production, industrialisation helps to absorb the labour force coming out of agriculture. Employment generation is therefore an important objective of industrialisation. Fifth, a related advantage of industrialisation is therefore technological change. Through use of modern techniques, industrialisation contributes to learning of such methods and their improvement. As a result labour productivity, i.e., output per unit of labour input increases, which can help workers earn higher wages. Sixth, expanding incomes lead to more demand for goods and services.