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Clusters is a term given to geographical areas in which a large number of companies working in the same industry or sector have concentrated. They are a common feature of active and healthy economies.

Examples include Silicon Valley in California, the high-technology and biotechnology concerns around Cambridge in the UK, and the aerospace and engineering companies around Toulouse in France.

Companies in a cluster are locked together in a kind of interdependence, like organisms in a biosphere. They compete for market share, employees and resources. They also rely on each other. Acting together, they generate skills and knowledge of their particular sector that form a kind of critical mass on which all the members can draw.

Clusters often begin with a single company: Silicon Valley's technology cluster famously began with Hewlett-Packard. These successful companies generate talented managers and entrepreneurs, who in time leave to set up new concerns. As these grow, skilled employees begin to migrate between businesses, seeking the best opportunities.

There are really only two ways to survive in a cluster environment long-term: to grow continuously into the biggest fish in the pond, or to develop self-dependent systems and move out, relocating to a region where competition will be less vigorous. The former strategy was adopted by Larry Ellison at Oracle, who saw early that the only way to win in Silicon Valley was to become big. The latter path was pursued by Bill Gates and Paul Allen at Microsoft; they preferred independence and moved to the Pacific north-west.

Clusters are often favoured by politicians and economic planners, who see opportunities for overall prosperity. But working in a cluster is not for the faint-hearted. They offer little security and few safety nets. As in a biosphere, only the strong survive.