Industrial Districts

Industrial districts refer essentially to spatial agglomerations of a specific industry and/or related industries. There is no commonly shared definition of an industrial district and, at times, it has been a source of debate among geographers and economists, but the concept entails concentrations of related firms, suppliers, other support industries, customers, and, of increasingly paramount importance, a high level of human capital.

These industrial regions are generally characterized by numerous small- to medium-sized enterprises (SMEs) rather than one or two large, vertically integrated companies. Within the industrial district, firms specialize in a wide range of functions encompassed by that particular industry. The atmosphere in such areas is notable for an environment that entails both cooperation and competition between companies. Cooperation includes the relationships between firms and suppliers, between suppliers at different levels, and between firms and customers, and even linkages between competing firms. Competition itself is supposed to be an advantage for an industrial district, as innovation is spurred through interfirm rivalries. Nowadays, many industrial districts are also marked by flexible production systems. Instead of the long production runs that were common to larger (and often Fordist) enterprises, the SMEs within an industrial district are typified by relatively smaller production batches and, most important, the ability to change production runs (by quality and type) quickly. This flexible production environment allows companies to respond swiftly to changing regional and global markets. Most often, lead times are minimized, stemming from reduced times across the research, design, production, and delivery stages. This dynamism is helped by myriad close relationships among different parties, both economic and social, fostered by spatial proximity. Much of the resulting knowledge in such regions is largely tacit—place or industry specific. This network of relationships and knowledge sharing enables the various actors in the industrial districts to react quickly to changing market demands and perhaps, more important, to innovate with regard to both products and processes.

At one time, and following the development of most advanced market economies, industrial districts were seen largely as concentrations of manufacturers and their related suppliers. Much has changed given the large movement of manufacturing activities to locations in emerging economies. The industrial districts of many advanced market economies, instead of production activities, now entail functions including research, development, design, marketing, and management. Given the structural changes in the global economy, moreover, an industrial district can also encompass agglomerations of service industries. Industrial districts can be found within cities or spanning entire regions of a country. By most accounts, the original idea of industrial districts stemmed from the concentrations of small firms in the textile, apparel, and shoe industries located in north-central Italy. Today, however, the term can be applied to locations as varied as Southern California's entertainment industry, the city of London's financial district, and, one of the most commonly referred-to examples, Silicon Valley.