Logistics-Intensive Clusters: Global Competitiveness and Regional Growth

Logistics intensive clusters are agglomerations of several types of firms and operations: (1) firms providing logistics services, such as 3PLs, transportation, warehousing and forwarders, (2) the logistics operations of industrial firms, such as the distribution operations of retailers, manufacturers (in many cases after-market parts) and distributors and (3) the operations of companies for whom logistics is a large part of their business. Such logistics clusters also include firms that service logistics companies, such as truck maintenance operations, software providers, specialized law firms, international financial services providers, etc. Logistics clusters exhibit many of the same advantages that general industrial clusters (such as Silicon Valley, Hollywood, or Wall Street) do: increase in productivity due to shared resources and availability of suppliers; improved human networks, including knowledge sharing; tacit communications and understanding; high trust level among companies in the cluster; availability of specialized labor pool as well as educational and training facilities; and knowledge creation centers, such as universities, consulting firms, and think tanks. Logistics clusters, however, exhibit other characteristics which make them unique in terms of cluster formation and their contribution to economic growth. Logistics operations may locate in a logistics cluster due to the cluster’s role in supporting economies of scope (mainly for direct operations transport modes) and economies of density (mainly for consolidated transportation modes); their provision of spill-over capacity for warehousing and transportation; and the ability to cooperate between providers when dealing with demand fluctuations. Such clusters provide a range of employment opportunities—from moving boxes to executive, IT and other professional jobs, and they diversify the economic base since they support many Y. Sheffi (&) Elisha Gray II Professor of Engineering Systems, Professor, Civil and Environmental Engineering, MIT, Director, MIT Engineering Systems Division, Director, Center for Transportation and Logistics, MIT, 77 Massachusetts Avenue, Cambridge, MA 02139, USA e-mail: [email protected] J. H. Bookbinder (ed.), Handbook of Global Logistics, International Series in Operations Research & Management Science 181, DOI: 10.1007/978-1-4419-6132-7_19, Springer Science+Business Media New York 2013 463 other industries, such as manufacturing as well as a range of ‘‘mini-clusters.’’ This chapter describes such clusters, based on primary research in several large logistics clusters around the world, interviews with dozens of executives in retail, manufacturing and distribution organizations; with transportation and logistics service providers; with infrastructure operators; with public and private development agencies; and with real estate developers. 19.1 Industrial Clusters It has long been observed that industries tend to be geographically ‘‘clustered.’’ Well known examples of clusters include the concentration of information technology firms in Silicon Valley, California and their counterparts along Route 128 outside Boston, Massachusetts; film studios in Hollywood; wineries in Napa and Sonoma valleys in California; finance and investment banking in Wall Street and around Manhattan, New York City; fashion products in Northern Italy; computer products in Taipei, etc. In addition, certain corporate functions tend to be clustered. Examples include biotechnology research and development centers in Cambridge, Massachusetts; garments and shoes design in Milan; corporate innovation centers in Silicon Valley; corporate planning and marketing in Zurich and Geneva, etc. This agglomeration of firms, or corporate functions, that draw economic advantages from their geographic proximity to others in the same industry or stage of value addition is a phenomenon that was originally observed and explained by the British economist Alfred Marshall (1920) in his classic work ‘‘Principles of Economics’’. 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: (1) knowledge sharing and spillover among the co-located firms; (2) development of specialized and efficient supplier base, and (3) development of local labor pools with specialized skills (see also Peneder 1997). Michael Porter (1998) expanded on this hypothesis in a landmark paper, providing a detailed framework for cluster analysis, as well as many more examples of clusters in various industries. His paper focuses on the competitive advantages and the increased innovation offered by clusters. He suggests that clusters affect competition by (1) increasing the productivity of the co-located companies, (2) increasing the pace of innovation, and (3) stimulating the formation of new businesses. Most of the economic literature deals with regional and supra-regional industrial clusters, some of which even span several countries, such as the life science companies in Medicon Valley (extending from Eastern Denmark to Western 464 Y. Sheffi