Industrial Districts

Broadly defined as geographic concentrations of industry, the concept of the industrial district extends to a series of relations among firms, customers, suppliers, and local governance institutions. The concept was once limited to concentrations of manufacturing firms and related activities; however, the scope can be extended to companies in the service sector (e.g., finance, entertainment) and in research-related activities such as information technologies. Although this term has been applied to various industry-specific regions worldwide, it is rooted in descriptions by Marshall of the concentrations of small firms in Britain. Recently, the concept of the industrial district has been applied to other industry-specific regions such as Hollywood and Silicon Valley. The general idea is that the conditions and relationships within industrial districts foster competition, innovation, and subsequent economic growth.

There is no universal definition of what constitutes an industrial district, and this is a source of debate regarding the application of the concept to economic regions. However, there are a number of generally accepted characteristics that define such an economic and social entity. The industrial district consists of a spatially proximate group of firms in a particular industry or in a tightly related group of industries. In most cases, such a region is noted for a lack of vertically integrated large firms. Instead, an industrial district contains a large number of small and medium-sized enterprises involved in flexible specialization. Individual firms perform different functions within the supply, production, and distribution chains of an industry. Most industrial districts are marked by an atmosphere that is conducive to production, with a set of complex relationships among different actors within these regions. There are embedded relationships among firms in these regions, with varying degrees of social and professional networks among firms, in particular among the smaller companies. The benefits that can derive from locating in such a region include proximity to customers, access to skilled workers, nearby supporting industries, and (in most cases) proximity to competitors. Within the district, workers often move from firm to firm because their skills are interchangeable in this industry-focused region. There is marked competition among companies filling similar functions, yet there is a large degree of cooperation among companies. This arrangement in turn spurs innovation and competition among firms within this region. Firms can benefit from the agglomeration of industry, benefiting from external economies. In turn, this production drives economic development across the region.

Geographic research addresses the characteristics of industrial districts such as the local conditions that enable the growth and maintenance, and perhaps cause the potential decline, of these areas. Moreover, it examines spatial relationships among the actors (e.g., labor, firms, government) within the region and with entities outside of the industrial district.