Agglomeration Aspect of Location Based Approach to Local Economic Development
There are very significant savings to companies when they cluster together or "agglomerate", which are absent when they locate off by themselves alone. For example, transportation costs are reduced when a company's supplier is in the same neighborhood as their manufacturing plant, and the bulk of their retail outlets are also in the same vicinity.Similar savings are made for companies in a cluster if they are able to travel short distances (rather than long)to negotiate prices, sales, and quality requirements, with their suppliers, retail outlets, and financiers and labor pool.
Steinbach Manitoba with its agglomeration of car dealerships has capitalized on yet another aspect of the agglomeration effect. The large number of dealerships just outside of the Capital City of Winnipeg, has enabled joint advertising champagnes, and enabled the town draw comparison shoppers from the larger center, making their trips worthwhile. Lower overhead cost of the country setting supposedly enables the companies to benefit from this practice. Not all product lines can use this approach, but "shopper" items (big-ticket items, which people tend to go to great lengths to get the best deal for) are excellent candidates for this sort of co-operative approach to boosting a local economy. In the Westman region, Souris does this in a small way with their one-day co-operative town-wide event, which attempts to draw shoppers for the larger center of Brandon.
Another example of this sort of approach is the Provincial government's support of joint Tourism advertising to attract people to Manitoba as a Destination and its encouragement of tourist operators to jointly attend the "Fishermen's Sports shows in the United States and Europe. A rising tide raises all boats.
The agglomeration effect is seen in the existence of cities in general, though this is more a generalized or "diffuse" example of the agglomeration effect. As a City attracts more and more businesses, it becomes an even larger magnet for others. Leaving such a large center, once it is underway becomes more and more difficult owing to the inertia effect and co-evolutionary development dealt with elsewhere.
In terms of the effects of agglomeration on the city or region as an economic center itself, there is potentially a leveling out of the larger economic swings characteristic of single industry towns. The random, seasonal, cyclical and secular cycles of each business are played off against each other and the overall economy is much more stable. Employees who are laid off in one plant have a much greater chance of getting on at another if there is an agglomeration of businesses, making for a far less disruptive work environment for everyone.
Anything that can be done to assist in the overall service support and business climate improvement in a city or area, and an ongoing alertness to ways of fostering an agglomeration effect, or enhancing its utility would be useful ways of using the agglomeration effect in developing a local or regional economy.
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