Question

Select 1 of the economic concentrations (clusters) below:

Hollywood movie industry

or

Silicon Valley Technology

Write a response evaluating economists’ assessments of the role the 4 factors of production played in determining how the economic concentration you selected has evolved. Complete the following in your paper:

Analyze how the economic concentration in the area you chose was influenced by competition and pricing.

Analyze how the economic concentration in the area you chose influenced the supply chain.

Analyze which of the 4 factors of production were the most and least important in determining the economic concentration of the area you chose.

Predict changes you anticipate for the area of economic concentration you chose. Support your predictions.

Answer 1

Silicon Valley is a specific designated industrial area or cluster located in the southern part of San Fransisco in the United States, which is mainly specialized for Information Technology(IT) operations and business and technical innovation or expertise. The entire area basically comprises of nearly 2000 IT and technical companies of different sizes and capacities, which the largest and densest IT industrial hub in the world. Now, one the major and fundamental attributes of the development and commercial rise of the Silicon Valley area evidently include the competitive forces in the IT market which essentially led to the creation of an economic hub based on the conglomeration of the IT and technical firms or companies which subsequently facilitates the advancement of technical knowledge and innovation. In this context, the companies or firms in the Silicon Valley area can compete freely and autonomously without any additional external economic benefits or advantages such as government subsidies, tax-cuts or benefits, import tax credits, access rights to inputs or factors of production, and so on. Therefore, the prevailing economic conditions or factors in the IT market are faced and exploited equitably by all the competing firms or companies within the industrial cluster. As opposed to the external economic facilities or advantages such as government subsidies, tax benefits, or administrative protection which generates unequal market concentration, the competitive market factors in the Silicon Valley industrial hub essentially allow the existing IT companies to equally utilize the economic advantages in the cluster region such as convenient access to the input suppliers, proximity to a sustainable and substantial customer base, state of the art technical innovation, and higher output productivity. Hence, the competitive characteristics of the Silicon Valley industrial cluster consequently lead to competitive pricing of various IT based products and services produced by the respective firms or companies thereby economically benefitting the customers in the market as well thereby raising the economic welfare of the consumers or buyers.

Another major economic benefit or advantage utilized or favorably exploited by the IT firms or companies within the Silicon Valley area constitutes a stable and well-coordinated supply and logistics system which essentially creates a competitive advantage for all the respective firms or companies located within the region. In this regard, convenient and sustainable warehousing system of all the various technical commodities, final equipment, raw materials, etc. for almost all the companies or firms acts a major storage facility of final goods and concerned equipment/machinery. Furthermore, regular and convenient access to IT suppliers, distributors, and retailers within or very close to the clsuter region also provide a major benefit to the concerned firms or companies which greatly facilitate the dispatching, distribution, and delivery of the concerned commodities and equipment and additionally, convenient proximity to a considerably large customer base within the geographical vicinity essentially implies a major cost-advantage for the operating firms or companies as well which can potentially contribute to the higher profitability of the companies or firms.

The creation and development of the Silicon Valley area as one of the most prominent economic clusters and industrial conglomerates arguably in the entire world can be evidently and practically ascribed to various economic factors and components which have directly or somewhat indirectly or implicitly contributed in the same process. First, the establishment and commercial development of the region is fundamentally driven by the identification of a common field of expertise or market specialization which has led to the selection of a particular geographical or physical location for a comprehensive business operation. In this respect, the technical expertise and innovation, the product and/or service knowledge specialization, the substantially large human capital, etc. are some of the major factors which constitute the common or specialized field of expertise bringing the concerned firms or companies together for operational and commercial convenience and advantages. Secondly, the need or requirement for knowledge sharing and idea communication is a major key to the operational efficiency and success of the IT and technical companies or firms and locating close to each other within a specified goegraphical boundary would immensely contribute to this endeavor. Therefore, it can be considered as an essential operational requirement of most of the IT companies or firms which played an influential role in the formation of the IT-based industrial hub in the concerned region and the product/service knoweldge specialization also acted as impetus in this regard. Thirdly, another major factor contributing to the development and commercial advancement of the Silicon Valley industrial hub essential construe cost-reductionist strategy and competitive advantage of the individual firms or companies. Any industrial hub or cluster can practically enable the individual firms or companies to significantly reduce their overall production and operational costs and expenses considering convenient and regular accessibility to the input/factor suppliers, customers, supply chain and logistical agents or entities, state of the art innovations and R & D facilities, and so forth. Hence, in the case of the Silicon Valley region, all of these factors and components played an actively major role in controlling and decreasing the operational costs of the IT firms or companies within the cluster pertaining to various relevant aspects and functions as opposed to other firms or companies operating independently and geographically distant. Foruthly, another factor that indirectly or implicitly player a role in the formation of the IT hub in the Silicon Vallye region practically includes customer convenience and value. Considering that the industrial hub is geographically close to a substantial customer or consumer base, it would primarily benefit the firms or companies to easily and regularly access the customers and also the customers as well as they would have a convenient and consistent access to various IT based products and services thereby enhancing customer value and improving customer experience. Therefore, even though one of the direct intents of the creation of the Silicon Valley IT hub is to economically benefit the individual firms or companies by providing a close and sustainable access to a considerably large customer base, it would also indirectly benefit the customers by raising customer value and experience which is extremely crucial for long-term and sustainable economic or commercial success of the firms or companies.

Based on certain current operational trends among the individual firms or companies within the Silicon Valley area, it can be reasonably assume that the economic features and characteristics of the IT hub in the region can potentially experience certain major changes or adjustments. In this context, it is evident that many of the IT firms and companies prominently rely on international outsourcing of many of their operational functions and activities to their subsidiary entities or agencies in other countries such as India, China, Singapore, Hong Kong, Malaysia, and so forth. This could essentially lead to a wider diversification of the knowledge or ideal spillover transcending the geographical or physical boundaries of the Silicon Valley, which was one of the direct attributes of its emergence. It could potentially lead to the commercial and operational expansion or involvement of even many of the medium and small-scale IT firms or companies to the international market as they increasingly engage in international outsourcing following the trend and the continuity of such trend can expand or augment the commercial or economic scope and prominence of Silicon Valley industrial IT hub in the international IT market as well. In fact, this is a trend that has already gradually commenced and is expected to accelerate as the international outsourcing practices increase. The digital communication among the related firms or companies all over the world can further reduce the transaction and operational costs or expenses of the individual firms or companies contributing to this ongoing process. Therefore, what began as a specizlied and geographically confined industrial conglomerate can potentially emerge into a mammoth international business or commercial network in the long-run based on the present operational and market trends.

  References

https://www.thebalance.com/what-is-silicon-valley-3305808#:~:text=Silicon%20Valley%20was%20named%20for,comparative%20advantage%20over%20other%20countries.

https://www.cbinsights.com/research/silicon-valleys-competition/

http://reut-institute.org/en/Publication.aspx?PublicationId=3753#:~:text=Identification%20of%20regional%20assets%20%2D%20Economic,%2C%20values%2C7%20and%20location.