Why do firms tend to cluster into strategic groups Would it

Why do firms tend to cluster into strategic groups?

Would it not make sense for firms to spread out across strategic spaces? Why or why not? Explain your rationale.

Solution

Answer:-

Firms cluster into strategic groups so as to obtain appropriate geographic location that can assist them gain advantage for example for example when common raw materials are situated in that particular geographic location.The forms will be able to obtain low materials easily and transport costs will be reduced as the firms will be near the source.

It will not make sense because firms will lose the localized factors if they spread out. Transportation of production materials will increase the cost of production leading to increased pricing. High prices will reduce demand as the purchasing capability of consumers will be low with high prices. Firms will end up making less profits.