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What Is a Business Cluster?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 19 September 2016
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Also known as an industry cluster or competitive cluster, a business cluster is a term used to describe a geographical location that is home to a significant number of business enterprises that are all interconnected in some manner. A cluster of this type will often include several companies that offer similar goods and services, suppliers that provide raw materials and other essentials to those companies, and possibly even related institutions such as colleges or universities offering courses of study related to the industry associated with those companies. Cluster development can take place for a number of reasons, with factors such as tax breaks, access to resources or transportation hubs, or a plentiful supply of labor being some examples.

While the actual reference to a business cluster began to emerge in the latter part of the 20th century, the concept was already well established in a number of locations and involved a variety of industries. Towns that were home to large textile plants were also often the location of choice for companies that supplied machine parts and raw materials to those plants. In the automotive industry, the automotive plants were and continue to be joined by the establishment of vendors who supply various components in relatively close proximity to those plants. In both cases, colleges and universities near these industry hubs would offer courses and in some cases degrees that had to do with some aspect of the industry’s operation.

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The advent of computer technology led to the development of additional business cluster communities at strategic points around the globe. As with the older models, a cluster that has to do with computer technology may include companies who use hardware to build systems, those that manufacture that hardware, and even companies that develop software to run on those systems. Related industries such as web browsing companies may also locate in those areas. Local institutions of higher learning may also offer courses having to do with the industry, a strategy that helps to renew the supply of new labor to keep those operations going.

Several benefits arise from the creation of a business cluster. By having key resources in relatively close proximity, delays in production are kept to a minimum. Jobs tend to remain plentiful, which in turn encourages young people to remain in the area rather than seek opportunities elsewhere. As long as the demand for the goods and services produced by the members of the business cluster remains high, the community benefits from an ongoing flow of cash through the local economy, which in turn helps to keep the standard of living at an equitable level.

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