Logistics Clusters: The Feedback Loop Leading to Economic Growth and Jobs

By Yossi Sheffi

Governments around the world are investing in logistics clusters to encourage economic growth and create jobs. While the advantages of high-technology, knowledge-based clusters have been analyzed extensively, logistics cluster have not. A new book: Logistics Clusters: Delivering Value and Driving Growth (MIT Press, Cambridge MA, September 2012) fills the gap. This article looks at some of the factors motivating public sector investments in logistics clusters. It explains the mechanisms leading to their growth and some of the types of jobs created around such clusters.

Consider Silicon Valley technology, Florentine Renaissance art, Hollywood movies, Burgundy wine, Detroit automobiles, Paris fashion, Swiss watches, Taiwan semiconductors, or Madison Avenue advertising. Throughout history and into the modern era, certain regions rise to become world-renowned centers for a particular industry or skill. These regional economic booms attract workers, entrepreneurs, investment, companies, political interest, and intellectual capital. These regional economic booms also occur in logistics. Recently, governments around the world have been investing in the creation and development of clusters dedicated to logistics activities.

The fact that agglomerations of firms can draw economic advantages from their geographic proximity to others in the same industry or stage of value addition was originally observed and advanced by the British economist Alfred Marshall in his classic work, Principles of Economics (1920). Marshall hypothesized that the development of industrial complexes implies the existence of positive externalities of co-location. He attributed such externalities to three main forces: (i) knowledge sharing and spillover among the co-located firms; (ii) development of a specialized and efficient supplier base, and (iii) development of local labor pools with specialized skills.

In the 1990s, Michael Porter of Harvard Business School expanded on this hypothesis, suggesting that clusters affect competition by (i) increasing the productivity of the co-located companies, (ii) increasing the pace of innovation, and (iii) stimulating the formation of new businesses. In his words, “a cluster allows each member to benefit as if it had greater scale or as if it had joined with others formally – without requiring it to sacrifice its flexibility.”

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