Game Theory and Clustering: Grow Somewhere Else

Posted by: Jacob Decker on Saturday, June 25, 2016

Ever wonder why gas stations, auto dealerships, and grocery stores are on opposite street corners?

The answer is clustering. Businesses will tend to naturally end up together to take the most customer base they can, share a pool of skilled labor, and supply chain synergies.

The first part of this, capturing customer base, can be explained with a diagram. Imagine that there are two businesses sharing one city and one if everything else is relatively equal, customers are naturally going to go to the closest business. I will use business red and blue for this example.

If the businesses don’t strategically plan the clustering effect, it will tend to happen naturally. Planning a business expansion to take advantage of this from the start is cheaper and faster.

The effect of customer base competition is enough to drive businesses to cluster if they are primarily involved in retail. For manufacturing businesses clustering can take place if the businesses are competing for labor or supply chain efficiencies.

A good example of this is camera manufacturers in Thailand and Laos. When Sony built its new camera and lens factory it made sure to do it where there were already Canon and Nikon factories (1). The area already had a population of workers with the skills to create advanced technology products. By moving close to the competition Sony is able to entice already trained employees to their operation and cut down on training costs.

The lessons?

Consider your industry and the power of clustering.

And grow somewhere else. Be global and UNSTOPPABLE.

 

 

1. http://asia.nikkei.com/Business/Companies/Sony-pins-

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