Industrial clusters derive their vitality from four aspects:
■ First, market linkages. Clusters usually come with their own markets. Buyers come seeking out the cluster, and suppliers set up sales outlets within it. This allows manufacturers in the cluster to save on sales and purchasing costs.
■ Second, they attract workers. Workers in a cluster are keen to learn new skills. Once they’ve acquired a craft, even if one employer folds, they can easily find work elsewhere.
■ Third, imitation and learning are effortless. Within a cluster, observing peers day to day makes it far easier to replicate the proven techniques and business practices of other entrepreneurs, lowering the learning barrier to starting a venture. The renowned economist Alfred Marshall singled out these three factors for special emphasis in his classic Principles of Economics.
■ Fourth, they lower the capital barrier to entry. Division of labor inside clusters is extremely fine-grained, with different production steps scattered across households and small firms. This dramatically reduces the investment needed to start a business, making entrepreneurship viable for people who have the talent but not much capital.
Hometown of wigs, hometown of violins… Where does the vitality of China's industrial clusters come from?
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