Agglomeration – specialists close to each other
Agglomeration – Why Cities Work
Agglomeration – why cities work, when one could argue, working from home saves a lot of wasted time spent travelling. Turns out when people come together they can generate more than the sum of their parts. People working in teams bring ideas which together which they share, work on and come up with better solutions as a result.
London is the best example in the UK. Indeed, London stands comparison to anywhere in Europe. A lot of people commuting in to a central point. This helps solve problems and expand solutions. It enables a centre of world excellence to function. People can become very specialised, experts in obscure fields – rather than generalists.
If agglomeration is to work a city needs good transport links. Hence, the talk of trying to create a “Northern Powerhouse” where lots of experts are able to easily meet and share ideas and work. What is holding back the Northern Powerhouse, is the roads and trains are clogged. There is more demand than capacity.
It will be interesting to see if the Government manage to improve transport links between the major cities.
Covid-19
When Covid-19 has gone and the world returns to “normal” firms will want their staff to come back to the office for the majority of the week, because it tends to boost group creativity. 2026 staff do not want to go to the office and bosses want them in 5-days per week.
Agglomeration – Why Some Industries Prosper In Some Towns…
Agglomeration – The City of London as a financial centre, is an example of agglomeration. The brewing industry in Burton-on-Trent is another.
Why this post? – This is one of the core pillars of a successful society and no-one talks about it.
In this video on the Everything Electric TECH they talk about the rise of electric cars in China and the decline of the ICE cars made by the West.
This is a perfect example of conquering your enemies without fighting.
The phrase you almost never hear in Western political debate is “the learning curve” or “cost curve”—the fundamental industrial rule that manufacturing costs drop by around 20% every time production volume doubles.
China’s strategy with electric vehicles is textbook strategic play:
Identify the Reset: They knew they couldn’t compete with legacy Western automakers on internal combustion engines. But a shift to electric power acts as a reset button—all that historical expertise in gearboxes and engines becomes irrelevant overnight.
Master the Scale: By aggressively backing EVs early, China accelerated down the cost curve faster than anyone else, driving unit costs down to levels Western plants cannot touch.
Strategic Vacuum in the West: While China planned decades ahead, political leadership in Britain and Western Europe demonstrated zero understanding of manufacturing economics.
By failing to scale domestic EV production early, the West handed China total control of the future auto industry on a silver platter.
Are Cost Curves New? No – They Have Been Known About For Many Years!
Wright’s Law first formally described this effect in 1936. Later expanded in 1966 By the Boston Consulting Group to Experience Curves. Henry Ford noticed as he increased production, so he could afford to sell his cars for less, and still make a profit in 1913.
Cost Curves Were Being Taught In British Universities Like Bradford Management Centre in the late 1970s
Developed by Jean-Claude Larréché and Hubert Gatignon in 1977, the Markstrat game was one of the earliest and most famous computer simulation business programs used in universities.
Your memory of the game mechanics is spot on: I remember taking part in the Markstrat game at University.
The Snowball Effect: Markstrat directly programmed unit production costs to decrease as your cumulative production volume increased (reflecting the experience curve / cost curve model).
Market Leader Advantage: If a team took an early lead, scaled up production, and dropped their unit costs, they could lower their prices while maintaining healthy margins. Competitors with lower production volumes couldn’t match those prices without taking a loss.
The “Unbeatable” Flywheel: Once you achieved that scale advantage, it became virtually impossible for rival teams to catch up unless you made a massive strategic mistake or missed a major product segment shift.
It is a striking real-world parallel. What China did with EV manufacturing and supply chains is essentially the exact strategy to win a high-volume round of Markstrat—scale early, drive unit costs down the experience curve, and build a price wall that competitors can’t jump over.
A bridge over the Birmingham Worcester canal finished in 1815 – today over 200-years old. In its day it allowed manufactured good from Birmingham to get to Worcester and the River Severn and then onward to the docks lower down the river. Raw materials could come the other way. Canals massively improved transport between cities in their day.
Before the canals a horse might be able to pull up to a 2 ton cart, on a canal up to 50 tons, and for goods like pottery, no breakages.
Agglomeration and Cost Curves Why They Matter
When you combine the cost curve (firm-level learning and scale) with agglomeration economies (spatial density of a supply chain), you create a compounding feedback loop:
- The Cost Curve (Internal Scale): A single factory doubles its output, and its internal unit production costs drop by ~20%.
- Agglomeration (External Scale): When hundreds of specialised suppliers, battery chemistry labs, component makers, and assembly plants all locate in the same geographic region (like Shenzhen or the Yangtze River Delta in China), three massive advantages emerge:
- Supply Chain Velocity: Parts don’t travel on container ships across oceans; they travel 20 minutes down the road. Transport costs collapse, inventory overhead vanishes, and iteration happens in days rather than months.
- Labour & Knowledge Pooling: A deep, hyper-specialised talent pool develops locally. Workers and engineers move between firms, spreading process innovations naturally.
- Shared Infrastructure: Power grids, specialised freight ports, and testing facilities are built to serve the entire cluster, driving down baseline overhead for every firm in it.
The UK’s Inverse Loop
What has happened in the UK—and parts of the wider West—is the exact reverse of this dynamic, leading to deagglomeration:
Loss of Critical Mass: When key anchor plants or tier-1 suppliers close or reduce capacity, the local density breaks down.
The Death Spiral: As suppliers lose local volume, their unit costs rise (climbing up the cost curve). To survive, they either raise prices or go bust.
Fragmentation: Remaining vehicle assembly plants are forced to source components from abroad, adding shipping costs, tariffs, lead times, and logistical fragility.
Once an industrial cluster dissolves, you cannot simply reboot it by throwing money at a single new factory. Without the surrounding ecosystem of suppliers, specialised labour, and cheap sub-assemblies, that lone factory sits at the top of the cost curve with no way down.
This is precisely why policy framed around “picking winning products” fails if it ignores spatial economics. China didn’t just build EV factories—they deliberately engineered mega-clusters designed to compress both time and cost simultaneously.
Built around 1848 this viaduct spans the River Wharfe at Arthington. Between here and Leeds there was the longest railway tunnel in the world for a number of years due to a map without contour lines on it being used to plan the route in London.
Key Concepts
1. The Dynamic Synergy: Internal Scale + External Density
- The Cost Curve (Firm Scale): As an individual business doubles its output, firm-level unit costs fall (~20%).
- Agglomeration (Ecosystem Density): When many competing and complementary firms locate in the same geographic hub (like Birmingham’s historic Jewellery Quarter or Shenzhen’s electronics mega-region), external unit costs drop for everyone.
- The Result: The cost curve pushes individual operational costs down, while agglomeration compresses supplier transit times, lowers local infrastructure costs, and deepens the skilled talent pool.
2. Why Technological Shifts Demand Agglomeration
When an industry experiences a technological step-change (like moving from petrol engines to electric vehicles, or traditional offices to AI-driven workflows), legacy expertise loses its edge.
Industrial clusters that possess both scale and proximity adapt to step-changes immediately because knowledge spills over across street corners and local supply chains in real time, rather than taking months through formal international channels.
3. “Deagglomeration” & Industrial Decline
The dark side of agglomeration occurs when an ecosystem loses critical mass.
If key anchor players close down, local supplier density breaks down. Remaining firms are forced to source components or talent from farther away.
Transport costs rise, cycle times lengthen, and the region moves up the cost curve. Once deagglomeration sets in, throwing money at an isolated new building or plant rarely fixes the problem because the surrounding ecosystem is gone.
While agglomeration explains where efficiency happens (geographic density), the cost curve (or experience curve) explains how that efficiency compounds over time.
In industrial manufacturing and professional services alike, doubling cumulative volume drops unit costs by roughly 20%. When you combine firm-level scale with local spatial density, you create an unbeatable flywheel:
Supply Chain Velocity: Parts, materials, and services don’t travel across oceans; they travel 15 minutes down the road. Inventory overhead collapses.
Knowledge & Talent Pooling: Specialised skills diffuse naturally throughout the local area, spurring rapid problem-solving during major market shifts.
Shared Overhead: High-capacity power, transport hubs, and localized infrastructure lower baseline operating costs for every business in the cluster.
Conversely, when policy ignores spatial density, regions suffer deagglomeration. As anchor hubs fragment, local suppliers lose volume and climb right back up the cost curve. Understanding how proximity accelerates the cost curve is essential—not just for office design and urban planning, but for long-term national economic strategy.
Historical Heavy Industry Clusters
The Jewellery Quarter & Metal Trades (Birmingham): Right on your doorstep. At its peak in the 19th and early 20th centuries, Birmingham produced over 80% of British jewellery and was the pen-nib manufacturing capital of the world. Thousands of tiny, highly specialised workshops shared die-sinkers, polishers, precious metal refiners, and drop-forgers within a few walkable streets.
Potteries (Stoke-on-Trent): Six towns (Hanley, Burslem, Stoke, Fenton, Longton, Tunstall) clustered around local clay, coal deposits, and canal networks. Famous names like Wedgwood, Spode, and Doulton shared specialised kiln builders, glaze chemists, and ceramic artists.
Cutlery and Steel (Sheffield): Water power from the local rivers combined with iron ore created an unbeatable concentration of cutlers, toolmakers, and metallurgists. It was where crucible steel and stainless steel were invented, driving down global toolmaking cost curves.
Hosiery and Lace (Nottingham & Leicester): While shoes belonged to Northampton, Nottingham became the global hub for machine-made lace (Nottingham Lace Market), while Leicester dominated knitted hosiery. Both shared frame-builders, yarn dyers, and textile machine engineers.
Locomotive & Railway Engineering (Crewe, Swindon, and Derby): Entire “railway towns” created by railway companies, bringing steel foundries, carriage works, and locomotive assembly into massive, self-contained regional hubs.
Modern UK Agglomerations (Service & High-Tech)
Agglomeration has not disappeared in the UK—it has simply migrated into high-value service, tech, and creative sectors:
Financial & Professional Services (The City of London & Canary Wharf): The world’s densest concentration of international banking, insurance (Lloyd’s), maritime law, and financial tech. Proximity allows deals, legal disputes, and capital raising to settle in face-to-face meetings within hours.
Formula 1 “Motorsport Valley” (Oxfordshire / Northamptonshire): 7 out of the 10 global F1 teams (including Mercedes, Red Bull, McLaren, and Aston Martin) are based within a 50-mile radius in the English Midlands. They share a dense web of hyper-specialised precision engineering firms, carbon-fiber suppliers, wind tunnels, and aerodynamicists.
The “Golden Triangle” Life Sciences Cluster (London – Cambridge – Oxford): A world-class biotech and pharmaceutical hub where top universities, research hospitals, venture capital, and lab facilities sit side-by-side, driving rapid innovation in drug discovery.
Silicon Fen (Cambridge Tech Cluster): Europe’s largest technology cluster, birthed out of Cambridge University. Companies specializing in AI, ARM chip design, and advanced software cluster together to draw from a shared pool of elite software engineering talent.
Spring Manufacturing is a huge industry in Redditch, because there was a good supplier of wire which is the foundation for manufacturing a spring. I am proud to work with Davies Springs and also Vernier Springs.
Springmakers [Redditch] – used to be in Redditch before moving to the Forest of Dean.
Some water from the River Rea is diverted along a channel about a mile long to feed the Birmingham Worcester canal to keep the locks working.
Transport Links
Better transport helps create agglomeration.
If a very large number of people can reach a city centre in less than an hour it is possible to create a large pool of specialist.
Agglomeration is very unlikely to occur in a remote country village.
Does the internet replace the need for people to meet in person? No.
Sometimes the best results come from by chance conversations. I heard a great story about Google’s Head Office in London. The food was served deliberately slowly so those in the queue would talk to each other whilst they waited inline. This was a management policy to get strangers talking to each other. When strangers talk to each other they can end up solving each other’s problems. My son was in the canteen at his office and two staff members were talking about a system. He listened and then said, I designed that. They had worked out how to game the system. It turns out the best solution for rewarding staff with bonuses is to reward the whole department for achievement, not one or two individuals. If the rewards for high performance only go to one or two people naturally people will not share the secret with their colleagues.
This is one of the core pillars of Western society, it is surprising it is not talked about constantly.
It really is extraordinary how a principle that dictates the rise and fall of whole nations, industries, and cities is almost entirely absent from public debate.
If you ask the average politician, political commentator, or civil servant in the UK why a sector is failing, you will usually hear vague slogans: “we need to innovate more,” “we need to lower tax,” or “we need to cut red tape.” The fundamental, mathematical realities of cumulative unit volume, spatial supplier density, and unit cost reduction are almost never mentioned.
There are three main reasons why something so core to Western economic history has been so thoroughly forgotten by Western leadership:
1. The Post-Industrial Blind Spot
For the last 40 years, Western political and economic doctrine shifted heavily toward financialization, service economies, and software. The prevailing logic was that manufacturing was a low-margin, “dirty” activity best outsourced to developing nations, while the West retained high-value IP, design, and finance.
In doing so, policymakers forgot that you cannot separate innovation from production. When you outsource the physical assembly, you eventually outsource the engineering expertise, the tier-1 supply chain, and the learning curve itself. China didn’t just inherit factory jobs—they inherited the entire experience curve.
2. A Disconnect in Backgrounds
If you look at the background of the people making decisions in Whitehall or Parliament:
Very few have ever run a factory, managed a complex supply chain, or built a physical product.
Most come from law, politics, public relations, finance, or policy think-tanks.
They tend to view economics through a financial lens (tax rates, interest rates, government spending) rather than an industrial/operational lens (throughput, yield rates, agglomeration, scale efficiency).
To someone trained strictly in high finance, capital is fluid and can be moved anywhere at the press of a button. To someone trained in industrial strategy, capital is meaningless without the local cluster of skilled labour, specialised machine shops, and supply chain density required to turn it into something useful.
3. The Short-Term Political Horizon
Riding down a cost curve and building an agglomerated industrial cluster takes 10 to 20 years of continuous, unwavering policy. It requires building energy grid capacity, training apprentices, subsidizing early production scale, and guaranteeing long-term domestic demand.
Western political cycles operate on 4-to-5-year horizons. Long-term industrial strategy requires spending political and financial capital today for a payoff that a rival party might take credit for a decade later. China’s long-range state-capitalist planning, whatever its other flaws, was tailor-made to exploit this specific vulnerability.
The Cost of Economic Illiteracy
The tragedy is that the West actually observed these principles. From T.P. Wright’s aircraft studies to Henry Ford’s assembly lines, to the industrial clusters of Birmingham, Sheffield, and Yorkshire —the West built its dominant middle class on the back of the learning curve and agglomeration.
Forgetting how those engines work hasn’t stopped the laws of economics from applying; it has simply allowed other nations, who did read the history books, to use those exact same engines against us.
What Has This To Do With Websites?
Visibility, in one word.
Vernier Springs are a large very successful spring manufacturer in Redditch. They bought a company and when looking through the order book and client list were astonished to see the breadth and depth of the work. How did a three-man company manage to obtain all this work?
The answer was the website I had built them. Needless to say the Vernier website was not optimised to do well in Google. It existed, but it did not follow best practice. Since I rebuilt the website it does follow much better practice and is now generating much more visibility for the company. I am sure it was much more than their new website, but they were voted “Manufacturing Company of the Year 2025 – Redditch.”
If you are looking to increase your visibility on the internet, social media and such like and require some help please call 0121 458 2665 or 07980 656 787 or if it is late / weekend please use our contact form, and we will call you back.
Success in the world of the internet is a moving target, and despite the deluge of information we all receive every day, most websites could work harder. I used Google Gemini to write some of this content, but to make sense of ideas you need to be aware of them in the first place and what they mean. You need the big idea in the first place.
All the photos are mine taken landscape – that enables them to fill the screen, which for me looks far more impressive.
Changes In The City Of Birmingham
In the 1980s just yards from the city centre the streets were all populated by small businesses making things. Mainly to do with metal but not exclusively. Today the demise of the motorbike and then car industry followed by ULEZ has forced most of those businesses out of the city centre, leaving very few left. The sad part is they have been replaced by businesses importing goods. I had just visited a client Kiley Clinton who remanufacture steering racks and I thought that is odd Jaguar is misspelt. Turns out Jaquar sell bathrooms and taps. I was looking in the window and the manager ran out and asked if I would like to have a look around. They had taps I never knew existed, very sophisticated.
My mother used to talk about having a jug of water and a bowl to wash in, and she was not poor. What a contrast. The sad part for me is the BCC have pursued policies to remove manufacturing (the agglomeration) from the centre of Birmingham and replace it with high rise blocks of flats. The air might be cleaner, but all that manufacturing expertise is disappearing, which for me is a big concern. The fruit and veg. wholesale market is gone from the city centre. When a city follows policies which force out small manufacturing businesses, you are destroying a supply chain which then helps frustrate other businesses in the area.
This video “Bye Bye GM” very neatly encapsulates what has happened to a company once regarded as the most powerful in the world. It charts the decline in America, and the rise of the Chinese car industry. It does not take much imagination to see how you can swap out GM and insert other manufacturers name in to the same story.
The goal of clean air, and not burning oil to power our vehicles is a worthy objective, how we get there in the UK will have a profound effect on our ability as a country to compete in any industrial sector in the future.
