GEOG 597i
Critical Geospatial Thinking and Applications

External Economies

Firms tend to locate near like firms because they gain efficiencies by doing so. By agglomerating in close proximity to one another, they are able to share suppliers and customers. In general, steel manufacturing plants locate in places where iron-ore is abundantly available and transportation networks are easily accessible. Once the steel mills have situated in a given location, businesses that supply them or that purchase their finished product, tend to locate nearby. The agglomeration of automobile manufacturing in and around Detroit, Michigan was not an accident. Companies such as Ford, General Motors, Packard, and Hudson located there because the materials needed to produce automobiles were readily available in the region. Moreover, Detroit’s location on the Detroit River gives the city access to the Saint Lawrence Sea Way, and the Great Lakes. 

As a result, manufacturers in the vicinity of Detroit have easy access to the steel production plants of Minnesota, the farm produce of the surrounding hinterland, wood from extensive forests, and labor. During the early years of the 20th century, Detroit was the nation’s primary production center for automobiles and almost everything that was associated with automobiles. 

The Old Packard Plant in Detroit
Figure 7.18: The Old Packard Plant in Detroit.
Credit: as found @ Photographer Ray Dumas


Check Your Understanding

Short Answer

When firms locate near other firms (agglomeration) in the same line of work in order to take advantage of easy access to resources and services that are needed for operational purposes, they are said to be attempting to gain a positive level of ____________________.

Click for answer.

External economies