Background
The concept of proximity of economic clusters is a cognitively interesting area of study in the management sciences. An economic cluster is a dense network of institutions and firms within a certain geographical space. This cluster is comprised of production companies, suppliers of raw materials, service providers, public institutions and other firms that are in related fields. Proximity of firms can lead to positive externalities that lead to the effectiveness of the firm in production and its operations in general. Due to their proximity to competitors, firms are more likely to be evaluated by customers. The fact that they are so far apart might limit their sales.
Proximity
A bell-shaped relationship exists between the proximity of companies and their performance. This indicates that firms can both benefit and suffer the negative effects of being too close to each other geographically. The closeness of firms increases the ability of the companies to innovate. Their efficiency in business operations and productivity also increases. An optimal level of proximity entails the extent at which an organization can improve its collaborative performance through identifying faults and mishaps in their arrangement. Innovation is improved is decentralized as investors take time to think of the unique products that other firms elsewhere are not producing. In order to better understand the role of proximity in innovation one must consider factors such as innovative milieu, industrial districts, clusters, regional innovative systems as well as the learning region. All these factors constitute the locus of innovation. Agglomeration can also foster the development of knowledge infrastructure.
Spatial Proximity
Spatial proximity in Economics is the concept of firms or people being in the space at the same time. The spatial patterns of economic activities that come with clusters contribute to migration and urbanization. Agglomeration is the phenomena of economic activity clustering as a consequence of enterprises being adjacent to one another. Agglomeration is a method that focuses economic activity in one location in order to increase the productivity of enterprises.
Rethinking Spatial Proximity
An accurate comparison between globalization and the agglomeration of firms in a certain geographic space requires one to understand that the fundamental business operations and financial models are similar although factors such as management may vary for organizations operating on a global scale. Most business are oriented to getting opportunities abroad rather than locally, reducing their local investments and local innovativeness level. The benefits of spatial proximity include sharing ideas, reducing costs on operations such as waste disposal as some wastes products might be raw materials for other companies. Some economists have referred to globalization as “the death of distance” since companies are able to successfully tap into the global market base by adjusting their marketing strategies and production operations. Spatial proximity encourages communication and innovation among companies in the past, however, with the advent of communication and information technologies and the age of the internet, this school of thought has been discredited. Communications media such as electronic mail have gradually been broken down by social media platforms and channels of communications. Companies within the same industry no longer have to be in the same economic cluster geographically in order to benefit from each other’s knowledge base and innovations.
Entrepreneurship
An entrepreneur is tasked with the responsibility of studying a target market audience and coming up with a product that will effectively cater to a certain need and yield a reasonable profit margin to sustain the company in business. Spatial proximity can reduce the invention of new commodities, identifying a unique niche in an existing industry or reaching an entirely different market base. While business entities operating as agglomerate may benefit from each other’s innovations, ideas, sharing information as well as large economies of scale, entrepreneurs face challenges that iron their creativity and help them to know what to do cope with the geographical scenario.
References
Coe, N. M., Kelly, P. F., & Yeung, H. W. C. (2013). Economic geography: A contemporary introduction (2nd ed.). Wiley