Agglomeration

This post on Finshots explaining what agglomeration is.

When companies cluster together geographically, they tend to become more productive — not just individually, but collectively. Suppliers specialise. Workers circulate. Knowledge spreads informally over coffee breaks and factory floors. The location itself becomes more efficient than the sum of its firms.

In the 1990s, Nobel laureate Paul Krugman formalised this idea, calling it agglomeration or the tendency of industries to cluster and generate increasing returns.

And nowhere in the modern world is agglomeration more visible than in one city ― Shenzhen.

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At the heart of Shenzhen is Huaqiangbei, often described as the world’s largest electronics market. This isn’t a mall or shopping complex. It’s a vertical system.

One building may house hundreds of component traders. One specialises in microcontrollers. Another in lithium batteries. Another in display drivers. Need a niche chip discontinued five years ago? Someone likely has old inventory. Need 5,000 units by Friday? A call is made.

In most countries, supply chains stretch across continents.

But in Shenzhen, they stretch across blocks.

This density compresses time.

A design flaw discovered in the morning can be corrected by night. A supplier underperforming can be replaced within hours. Engineers move between firms, carrying tacit know-how that never appears in formal manuals. This is what agglomeration looks like in practice.

As of 2025, the Shenzhen-Hong Kong-Guangzhou cluster is ranked first among the most innovative regions in the world by the World Intellectual Property Organization (WIPO). In simple terms, it had the most number of patents filed in 2025 than any other region in the world.