The idea of fostering local industrial clusters as a driver for economic development is appealing, but the reality on the ground presents some significant hurdles. In today’s interconnected world, truly self-contained local or regional clusters are increasingly rare. Instead, our economies tend to specialise in specific links within broader value chains or particular activities within a larger cluster landscape. Perhaps “local industrial clusters” is a bit of a misnomer – “regional specialisations within global value chains” might be more accurate, though admittedly less catchy!

While manufacturing industries often exhibit more geographical concentration due to the need for proximity to physical inputs, service-based clusters certainly exist too, think of the concentration of TV and film production around major studio facilities.

Implementing or enabling cluster development has proved challenging

However, a key challenge lies in the practical implementation of cluster initiatives. Too often, the focus remains on mapping exercises and networking events, without translating into tangible improvements in skills provision or physical infrastructure – the very foundations needed for real growth.

My own experience developing cluster policies in Scotland during the 1990s illustrates this. We identified four key areas: Oil & Gas, Food & Drink, Creative Industries, and Electronics, Software & Computing. What followed were several years of mapping, studies, and network creation. The outcomes, however, were varied:

• Oil & Gas (Aberdeen): A genuine global specialism in offshore exploration, engineering, and structural monitoring existed. This was the strongest of the identified clusters. Yet, fast forward to the 2020s, and the shift towards climate change policies and volatile energy markets casts a long shadow over North Sea oil, potentially diminishing the reasons for these specialist firms to remain.
• Creative Industries (Glasgow/Dundee): While a strong regional programming presence and the arrival of Channel 4 in Glasgow were significant, alongside a burgeoning computer gaming sector in Dundee, this felt more like pockets of a wider UK creative cluster rather than a cohesive regional entity.
• Food & Drink: Despite extensive research and networking, the sheer diversity of sub-sectors, dominated by smaller firms and primary processors, made identifying a central “cluster” difficult. The industry appeared fragmented.
• Electronics, Software & Computing: Some assembly specialisms and public funding for optoelectronics R&D existed, but a lack of design leadership was evident. Much activity revolved around branch plant manufacturing (which subsequently closed) and back-office IT services.

Despite these mixed results, the experience wasn’t without its merits. We gained a much deeper understanding of value chains and sector-specific challenges, enabling development organisations to better pinpoint bottlenecks hindering industrial progress. The mapping exercises and studies themselves proved valuable. We also recognised the inherent worth of certain sectors and foundational elements such as software engineering and STEM skills.

Interestingly, despite these insights, “clusters” as an active local and regional development mechanism in the UK largely fell out of favour from the late 1990s. They were perceived as difficult to move beyond the initial analytical and networking stages.

However, clusters remain a useful lens for understanding local and regional economies and identifying potential opportunities. To some extent, the limitations of the cluster approach led the economic development sector to explore alternative frameworks, focusing more on ‘enabling’ factors – particularly for high-technology industries – and the emergence of new “general-purpose technologies” that could benefit a wide range of sectors.

Cluster analysis is useful, but its more about identifying gaps or opportunities in value chains or innovation ecosystems

The key takeaway? There aren’t many true, self-contained local industrial clusters in today’s economy. A more pertinent question is: what part of a given industrial cluster’s value chain is present in your locality, and does it represent a significant concentration of activity or specialisation? You could also look at the innovation ecosystem, skills ecosystem or other aspects and where they may be gaps, weaknesses or potential opportunities.

Economic globalisation has expanded the scope of industrial value chains, creating more intricate and far-reaching links. The Sheffield steel industry, once a prime example of a local cluster, no longer operates as a self-contained cluster – instead, the very specialised high value added manufacturing and R&D remains. The City of London’s financial sector now operates across the UK and internationally.

Therefore, rather than chasing the elusive “local cluster,” a more strategic approach is to map the value chain and ecosystem of an industry you’re interested in. What activities happen locally? What occurs elsewhere nationally or internationally? Are there specific parts of that value chain where your locality possesses a genuine capability, capacity, or comparative advantage that could be nurtured or expanded? These are the questions that will yield more meaningful insights and guide more effective local economic development strategies.