Something special happens when competitors cluster

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Lancaster – where digital and creative businesses are beginning to cluster

Visit many historic towns and you will find street names that reveal the trades that once took place there.

In Liverpool there is Carpenters Row. In Nottingham, Bridlesmith Gate. And – in London – Pudding Lane, Threadneedle Street, Ironmonger Lane and many others.

Businesses that do similar things have always tended to cluster together. During the industrial revolution Staffordshire became synonymous with the potteries. Sheffield built a reputation for steel. Weavers in Spitalfields spun the finest silk. Luton was famous for its hats.

More recently Hollywood, Wall Street and Silicon Valley have become shorthand for moviemaking, finance and technology.

At first clustering seems counterintuitive. If companies are based close together it makes it easier for customers to shop around. But it turns out that the positives outweigh the downsides.

A recent article in the New Yorker looked at the stretch of Interstate 95 between Philadelphia and Newark, where many of the leading companies in the business of fragrance and flavour are based. These are the companies that give deodorants their scent and fast food its taste.

Fred Horowitz, CEO of one such company, was asked, would it not make sense to move production to somewhere with lower costs, like China or Mexico? “No,” Horowitz answered emphatically. “I’m in the centre of all the innovation. It’s all happening here in New Jersey.”

When similar businesses are huddled together something special happens. Some companies grow bigger and smaller companies arrive to supply them. Trade organisations form and the cafes and bars are filled with insider gossip.

Employees move back and forth between companies and transfer knowledge in the process. Talented newcomers arrive from far and wide, keen to participate. It becomes easier to gain investment and people leave established companies to create their own startups.

Being there becomes a badge of honour, it implies quality and innovation. A culture is formed, unique to that time and place.

The towns and cities where modern clusters form can seem quite random at first, but they tend to share things in common. They are usually attractive and interesting places, with good transport links, fast communications, and great universities.

I am looking at you, Lancaster.

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